GT Bicycles Inc – ‘PREM14A’ on 7/2/98

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Preliminary Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Preliminary Proxy Statement                          128    775K 

Document Table of Contents

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES 
EXCHANGE ACT OF 1934 (AMENDMENT NO.   ) 

Filed by the Registrant [X]                                                     

Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

                                                        [Enlarge/Download Table]
                                                                                                     
[X]  Preliminary Proxy Statement                         [ ]  Confidential, for Use of the Commission
[ ]  Definitive Proxy Statement                               Only (as permitted by Rule 14a-6(e)(2))
[ ]  Definitive Additional Materials                                                                 
[ ]  Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12                           

GT BICYCLES, INC. 
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

[ ]  Fee not required.                                                          

[X]  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.   

(1)  Title of each class of securities to which transaction applies:  

Common Stock                                                
        ------------------------------------------------------------------------

(2)  Aggregate number of securities to which transaction applies:     

9,847,221                                                   
        ------------------------------------------------------------------------

(3)  Per unit price or other underlying value of transaction computed 
         pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):  

$8.00 per share                                             
        ------------------------------------------------------------------------

(4)  Proposed maximum aggregate value of transaction:                 

  79,754,282 (includes $976,514 payable to holders of options to
purchase common stock)                                      
        ------------------------------------------------------------------------

(5)  Total fee paid:                                                  

$15,951                                                     
        ------------------------------------------------------------------------

[ ]  Fee paid previously with preliminary materials.                            

[ ]  Check box if any part of the fee is offset as provided by Exchange Act Rule
  0-11(a)(2) and identify the filing for which the offsetting fee was paid
    previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                   

(1)  Amount Previously Paid:                                          

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

(2)  Form, Schedule or Registration Statement No.:                    

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

(3)  Filing Party:                                                    

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

(4)  Date Filed:                                                      

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

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GT BICYCLES, INC. 
2001 EAST DYER ROAD 
SANTA ANA, CALIFORNIA 92705 

JULY   , 1998 

Dear Stockholder:                                                               

   I am pleased to invite you to attend a special meeting of stockholders of
GT Bicycles, Inc. on:                                                           

[Day of Week], August   , 1998
10:00 a.m.
The Sutton Place Hotel
4500 MacArthur Boulevard
Newport Beach, California 

THIS IS A VERY IMPORTANT MEETING THAT AFFECTS YOUR INVESTMENT IN GT.  

     At this meeting you will be asked to vote on a proposal to approve a merger
between GT and a wholly-owned subsidiary of Schwinn Holdings Corporation. In the
merger, Schwinn will pay GT stockholders $8.00 in cash for each share of GT     
common stock that they own and, as a result of the merger, GT will become a     
subsidiary of Schwinn.                                                          

   GT's Board of Directors has determined that the merger is fair to you and
in your best interests. In addition, the Board of Directors of GT has received a
written opinion from Morgan Stanley to the effect that the merger consideration 
of $8.00 per share to be paid to GT stockholders is fair from a financial point 
of view. The Board has unanimously approved the merger agreement and the merger 
and recommends that you vote to approve the merger. Certain investment funds    
affiliated with Bain Capital, Inc., which collectively own approximately 23% of 
the outstanding shares of GT common stock, have agreed to vote to approve the   
merger.                                                                         

Because of the significance of the merger, your participation in the  
special meeting, in person or by proxy, is especially important. The merger     
cannot be completed unless the stockholders of GT approve it. Whether or not you
plan to attend the meeting in person, we urge you to mark, sign and return the  
enclosed proxy card promptly in the enclosed postage-paid envelope to ensure    
that your shares of GT stock will be represented at the special meeting. If you 
do attend, you will, of course, be able to vote your shares in person.          

     If the merger is completed, we will notify you as to how you should proceed
to exchange your GT stock certificates for cash. DO NOT SEND IN YOUR            
CERTIFICATES UNTIL YOU RECEIVE THIS NOTIFICATION.                               

Thank you, and we look forward to seeing you at the special meeting.  

                     Very truly yours,

                     Michael C. Haynes
                                         Chief Executive Officer and President

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TO THE STOCKHOLDERS OF GT BICYCLES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD

[INSERT DAY], AUGUST   , 1998 
10:00 A.M.
THE SUTTON PLACE HOTEL
4500 MACARTHUR BOULEVARD
NEWPORT BEACH, CALIFORNIA 

     The Board of Directors of GT Bicycles, Inc. asks you to attend this meeting
to vote on the following:                                                       

1.  Proposed Merger.  Your vote on the proposed merger between GT and 
Schwinn Holdings Corporation is important. In the merger, Schwinn will pay you  
$8.00 in cash for each share of GT common stock that you own and, as a result of
the merger, GT will become a subsidiary of Schwinn. The Agreement and Plan of   
Merger, which sets forth the terms of the merger, is attached to the            
accompanying Proxy Statement as Annex I; and                                    

 2.  Other Business.  You may be asked to consider and vote on any other
matters that properly come before the meeting or any adjournments or            
postponements of the meeting.                                                   

     Only stockholders who hold their stock at the close of business on July   ,
1998 are entitled to notice of and to vote at the special meeting or any        
adjournments or postponements of the meeting.                                   

     Under Delaware law, appraisal rights will be available to holders of common
stock of GT. In order for stockholders to exercise such appraisal rights, they  
must follow the procedures prescribed by Delaware law, which are summarized     
under "Appraisal Rights" in the accompanying Proxy Statement.                   

                                       By Order of the Board of Directors,

                     Michael C. Haynes
                                         Chief Executive Officer and President

July   , 1998                                                                   
Santa Ana, California                                                           

  WE INVITE YOU TO ATTEND THE SPECIAL MEETING BECAUSE IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE MARK, SIGN, DATE AND RETURN   
THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY PERSONALLY VOTE, WHICH WILL REVOKE YOUR SIGNED PROXY. YOU  
MAY ALSO REVOKE YOUR PROXY AT ANY TIME BEFORE THE MEETING EITHER IN WRITING OR  
BY PERSONAL NOTIFICATION.                                                       

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GT BICYCLES, INC. 
2001 EAST DYER ROAD 
SANTA ANA, CALIFORNIA 92705 
(714) 481-7100

PROXY STATEMENT 

SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD ON AUGUST   , 1998 

The Boards of Directors of GT Bicycles, Inc. and Schwinn Holding      
Corporation have agreed to merge GT with a subsidiary of Schwinn. GT would      
become a wholly-owned subsidiary of Schwinn and Schwinn would pay you $8.00 in  
cash for each share of GT common stock that you own.                            

   The merger cannot be completed unless GT stockholders approve the merger.
The Board of Directors of GT has scheduled a special meeting for GT stockholders
to vote on the merger as follows:                                               

[Insert Day], August   , 1998 
10:00 a.m.
The Sutton Place Hotel
4500 MacArthur Boulevard
Newport Beach, California 

    This Proxy Statement and proxy card are being mailed to stockholders of GT
beginning about July   , 1998.                                                  

THE DATE OF THIS PROXY STATEMENT IS JULY   , 1998.

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                                                                [Download Table]
                                                                     
QUESTIONS AND ANSWERS ABOUT THE MERGER......................        1
SUMMARY.....................................................        3
  The Companies.............................................        3
  Our Reasons for the Merger................................        3
  Factors Considered by GT's Board of Directors.............        3
  Our Recommendations to Stockholders.......................        4
  The Merger................................................        5
GENERAL.....................................................        8
  Date, Time and Place of Special Meeting...................        8
  Purpose of the Special Meeting............................        8
  Record Date; Shares Outstanding and Entitled to Vote;              
     Quorum.................................................        8
  Vote Required.............................................        8
  Voting of Proxies; Revocability of Proxies................        8
  Solicitation of Proxies and Expenses......................        9
  Appraisal Rights..........................................        9
  Forward-Looking Statements................................        9
ADDITIONAL INFORMATION......................................       10
THE MERGER -- FACTORS TO BE CONSIDERED......................       11
  General...................................................       11
  Background of the Merger..................................       11
  Reasons for the Merger....................................       13
  Board Recommendation......................................       14
  Interests of Certain Persons..............................       15
OPINION OF FINANCIAL ADVISOR................................       15
  Stock Trading History.....................................       16
  Discounted Cash Flow......................................       16
  Analyses of Selected Comparable Publicly Traded                    
     Companies..............................................       16
  Analyses of Selected Precedent Transactions...............       17
THE MERGER AGREEMENT........................................       18
  Structure; Effective Time.................................       18
  Merger Consideration......................................       18
  Options and Warrants......................................       19
  Conversion of Shares......................................       19
  No Solicitation by the Company............................       19
  Covenants.................................................       21
  Representations and Warranties............................       22
  Conditions to the Merger..................................       22
  Termination of the Merger Agreement and Payment of Fees            
     and Expenses...........................................       23
  Amendments; Waivers.......................................       25
  Consequences of the Merger................................       25
FINANCING...................................................       25
THE STOCKHOLDERS AGREEMENT..................................       25
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY............       26
BUSINESS OF SCHWINN.........................................       27
BUSINESS OF THE COMPANY.....................................       28
  General...................................................       28
  Background................................................       28
  Products..................................................       28
  Research and Product Development..........................       29

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                                                        [Enlarge/Download Table]
                                                                                                              
  Sales and Distribution................................................................................    30
  Marketing.............................................................................................    31
  Manufacturing, Assembly and Sourcing..................................................................    31
  Product Recalls.......................................................................................    32
  Intellectual Property.................................................................................    33
  Employees.............................................................................................    33
  Regulation............................................................................................    33
  Properties............................................................................................    34
  Legal Proceedings.....................................................................................    34
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................    35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................    37
  Overview..............................................................................................    37
  Results of Operations.................................................................................    38
  Comparison of 1997 to 1996............................................................................    38
  Comparison of 1996 to 1995............................................................................    39
  Quarterly Comparisons.................................................................................    40
  Comparison of Quarter Ended March 31, 1998 to Quarter Ended March 31, 1997............................    41
  Liquidity and Capital Resources.......................................................................    41
  New Accounting Pronouncements.........................................................................    43
  Year 2000 Compliance..................................................................................    43
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS..........................................    44
SUBMISSION OF STOCKHOLDER PROPOSALS.....................................................................    45
EXPERTS.................................................................................................    45
OTHER BUSINESS..........................................................................................    45
FINANCIAL STATEMENTS....................................................................................   F-1
ANNEX I.................................................................................................   I-1
ANNEX II................................................................................................  II-1
ANNEX III............................................................................................... III-1

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Q:  WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?                               

A:  Both GT and Schwinn manufacture and distribute bicycles, bicycle parts and  
    accessories. While GT's products are complementary with Schwinn's, GT's core
strengths are juvenile BMX bicycles and premium adult bicycles, while   
  Schwinn's focus is on juvenile and medium price-point bicycles. The merger
   will enable the combined enterprise to have a broader product line and will
    provide Schwinn access to GT's technology and manufacturing capabilities. In
 addition, GT's distribution system will benefit the combined companies by
    providing Schwinn with broader access to distribution channels. The combined
   enterprise will be better able to capitalize on growth opportunities in the
increasingly competitive bicycle industry, both domestically and        
    internationally. To review the reasons for the merger in greater detail, and
related uncertainties, see pages 13 and 14.                             

Q:  HOW WILL I BENEFIT?                                                         

A:  Compared to historical levels, GT has experienced decreased earnings in     
recent periods. During this time, GT has also incurred substantial      
  indebtedness. In addition, GT has been faced with increased competition in
    the bicycle industry. As a consequence of these conditions and the resulting
decline in the public market price for GT's common stock, the Board of  
   Directors determined that, in an attempt to maximize stockholder value, the
Company should explore certain strategic alternatives. Based on its     
  assessment, the Board of Directors concluded that a sale of the Company at
    the present time is in the best interests of GT's stockholders. In addition,
    the Board of Directors received the opinion of Morgan Stanley, its financial
advisor, to the effect that the merger consideration is fair to GT      
stockholders from a financial point of view. The text of the opinion of 
    Morgan Stanley is included in this Proxy Statement as Annex II. The price of
$8.00 per share represents approximately a 73% premium over the closing 
 market price of GT's common stock on the day prior to the date the merger
was announced.                                                          

Q:  WHAT DO I NEED TO DO NOW?                                                   

A:  Just mail your signed proxy card in the enclosed return envelope as soon as 
    possible, so that your shares may be represented at the special meeting. The
  special meeting will take place on August   , 1998. The Board of Directors
of GT unanimously approved the merger and recommends that you vote your 
shares in favor of the merger.                                          

Q:  SHOULD I SEND IN MY STOCK CERTIFICATES NOW?                                 

A:  No. If the merger is completed, we will send you written instructions for   
exchanging your stock certificates.                                     

Q:  PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.                           

A:  In the merger, you will receive $8.00 in cash in exchange for each share of 
 GT common stock that you own. As a result of the merger, GT will become a
wholly-owned subsidiary of Schwinn.                                     

Q:  WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?                              

A:  We are working towards completing the merger as quickly as possible. In     
    addition to stockholder approvals, we must also obtain regulatory approvals.
We hope to complete the merger as soon after the special meeting date as
possible.                                                               

Q:  WHAT ARE THE TAX CONSEQUENCES TO STOCKHOLDERS OF THE MERGER?                

A:  The merger may result in federal income tax consequences for you if you have
  a gain on the exchange of your GT stock for cash. Factors such as how long
 you have owned your stock and the price at which you purchased your stock
 will determine the amount of federal income tax, if any, that you will be
  required to pay as a result of the merger. We urge you to contact your own
tax advisor to fully understand how the merger will affect you.         

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Q:  AM I ENTITLED TO APPRAISAL RIGHTS?                                          

A:  Yes. If you file a written objection to the merger prior to the special     
 meeting, you do not vote in favor of the merger, and you meet other legal
 requirements, you will have the right to seek an appraisal and payment of
    the fair value of your GT shares. The requirements for seeking appraisal are
  summarized in the Proxy Statement, and the provisions of Delaware law that
    govern appraisal rights in the merger are attached as Annex III. If you wish
to seek appraisal of your shares, you should read and follow those      
   provisions carefully. You should be aware that an appraisal may result in a
  price for your shares that has more value or less value than the $8.00 per
share being offered in the merger.                                      

Q:  WHAT IF I WANT TO CHANGE MY VOTE?                                           

A:  Just send in a later-dated, signed proxy card before the special meeting or 
attend the special meeting in person and vote. See page 8 for further   
information.                                                            

Q:  IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY 
SHARES FOR ME?                                                          

A:  Your broker will vote your shares ONLY if you instruct your broker how to   
 vote. Your broker should mail information to you that will explain how to
   give instructions to your broker. If you do not instruct your broker how to
 vote, your shares will not be voted, which will have the effect of a vote
against the merger.                                                     

WHO CAN HELP ANSWER YOUR QUESTIONS

If you have more questions about the merger you should contact: 

GT Bicycles Investor Relations
Attn: Charles Cimitile
2001 East Dyer Road 
Santa Ana, California 92705 
Telephone: (714) 481-7100 

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SUMMARY 

     This summary highlights selected information from this document and may not
contain all of the information that is important to you. To fully understand the
merger and for a more complete description of the legal terms of the merger, you
should read carefully this entire document and the documents we have referred   
you to.                                                                         

THE COMPANIES 

GT is a leading designer, manufacturer and marketer of juvenile BMX   
bicycles, high-end adult mountain and road bicycles and other specialty         
bicycles, such as the Charger Electric Bicycle and the Harley-Davidson cruising 
bicycle, as well as bicycle parts and accessories. GT also owns and operates a  
distribution network. Through this network, GT is able to distribute its        
bicycles, bicycle parts and accessories, as well as parts and accessories of    
other manufacturers, to independent bicycle dealers throughout the world.       

    Schwinn is a holding company, substantially all of the outstanding capital
stock of which is owned by Questor Partners Fund, L.P., an investment limited   
partnership, and by an affiliated fund. Schwinn acquired Schwinn Cycling &      
Fitness, Inc. in September 1997. Schwinn Cycling & Fitness, headquartered in    
Boulder, Colorado, designs, produces and markets a comprehensive range of       
bicycles under the Schwinn and Yeti brands, including juvenile, road, mountain, 
BMX, comfort and cruiser bicycles. These bicycles, which are in the mid-price   
range, are sold through independent bicycle dealers both in the United States   
and in various foreign countries. Schwinn Cycling & Fitness also designs and    
markets a wide range of fitness equipment under the Schwinn brand, including    
stationary bicycles, steppers, rowers and weight equipment, which are sold      
through independent bicycle dealers and specialty fitness dealers, as well as   
directly to health clubs, hotels, universities and hospitals.                   

OUR REASONS FOR THE MERGER

    Both GT and Schwinn manufacture and distribute bicycles, bicycle parts and
accessories. While GT's products are complementary with Schwinn's, GT's core    
strengths are juvenile BMX bicycles and premium adult bicycles, while Schwinn's 
focus is on juvenile and medium price-point bicycles. The merger will enable the
combined enterprise to have a broader product line and will provide Schwinn     
access to GT's technology and manufacturing capabilities. In addition, GT's     
distribution system will benefit the combined companies by providing Schwinn    
with broader access to distribution channels. The combined enterprise will be   
better able to capitalize on growth opportunities in the increasingly           
competitive bicycle industry, both domestically and internationally.            

FACTORS CONSIDERED BY GT'S BOARD OF DIRECTORS 

  In reaching its decision to recommend the merger, the Board of Directors
considered a number of factors. These included the following:                   

   1.  Compared to historical levels, GT has experienced decreased
  earnings in recent financial periods. During this time, GT also incurred
 substantial indebtedness. In addition, GT has been faced with increased
 competition in the bicycle industry. These conditions and the resulting
    decline in the public market price for GT's common stock led GT's Board of
  Directors to determine that, in order to maximize stockholder value, the
Company should explore certain strategic alternatives. Based on its   
    assessment, the Board of Directors concluded that a sale of the Company at
the present time is in the best interests of GT's stockholders.       

     2.  GT's Board of Directors believed that $8.00 per share was the
   highest price that Schwinn or any other party would be willing to pay for
GT at this time. The Board of Directors formed this belief after      
 substantial efforts, assisted by Morgan Stanley, to identify interested
    parties, and substantial negotiations with Schwinn and other third parties
to obtain the highest possible price.                                 

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        3.  GT's Board of Directors compared the historical market prices of
   GT's common stock with the $8.00 per share proposed merger consideration.
  The merger consideration represents approximately a 73% premium over the
  closing market price of the shares prior to the announcement that GT had
signed a merger agreement with Schwinn.                               

   4.  On June 22, 1998, Morgan Stanley delivered to GT's Board of
  Directors its opinion to the effect that the merger consideration, as of
 that date, was fair to the stockholders of GT from a financial point of
    view. The opinion of Morgan Stanley is included in this Proxy Statement as
Annex II, and you are urged to read it in its entirety.               

INTERESTS OF GT'S OFFICERS AND DIRECTORS IN THE MERGER

 All members of GT's Board of Directors and officers of GT own GT common
stock, are affiliated with owners of GT common stock and/or hold stock options  
and, to that extent, their interest in the merger is the same as yours. However,
some of the officers and directors of GT have interests in the merger that are  
different from your interests as a stockholder. Some of these interests are set 
forth below. GT's Board of Directors was aware of these interests and considered
them in recommending and approving the merger. See "The Merger -- Factors to be 
Considered -- Interests of Certain Persons" for more information on the         
interests of the officers and directors of GT in the merger.                    

          1.  Certain GT officers may be entitled to compensation in the form of
     severance payments, retention incentives or other consideration as a result
   of the merger or as a result of the termination of their employment after
the merger.                                                           

        2.  The merger agreement provides that all rights to indemnification
    in favor of any present or former director or officer of GT as provided in
     the Company's Bylaws and Certificate of Incorporation or certain applicable
  indemnification agreements shall continue in full force and effect after
   the merger with respect to matters occurring at or prior to the effective
time of the merger.                                                   

    3.  Certain of GT's executive officers may enter into employment
     agreements or otherwise will continue to be employed by GT or Schwinn after
the merger.                                                           

OUR RECOMMENDATIONS TO STOCKHOLDERS 

The Board of Directors of GT has unanimously approved the merger and  
recommends that you vote in favor of the merger. The Board of Directors believes
that the merger is fair to, and in the best interests of, GT's stockholders.    

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THE MERGER

 The merger agreement is attached as Annex I to this Proxy Statement. We
encourage you to read the merger agreement as it is the legal document that     
governs the merger.                                                             

The Merger Consideration (see page 18)                                      

     If the merger is completed and you do not exercise your statutory appraisal
rights, you will receive $8.00 per share in cash for each share of GT common    
stock that you own. The total amount to be paid to all holders of GT common     
stock (assuming no stockholders exercise their statutory appraisal rights) will 
be approximately $80 million. In addition, holders of options with exercise     
prices below $8.00 per share will receive an amount in cash equal to the        
difference between the exercise price of the option and $8.00 for each share of 
common stock such holder is entitled to purchase under their option.            

  You should not send in your stock certificates until instructed to do so
after the merger is completed.                                                  

Conditions to the Merger (see page 22)                                      

   The obligations of GT and Schwinn to complete the merger are subject to a
number of conditions. If these conditions are not satisfied or waived, the      
merger will not be completed. Some of the conditions are as follows:            

         (a) the approval of the merger agreement by the holders of a majority
of the outstanding shares of common stock of GT;                      

      (b) the approval of the merger by governmental authorities without
burdensome conditions;                                                

      (c) the absence of any temporary restraining order, preliminary or
    permanent injunction or other legal restraint or prohibition that prevents
completion of the merger;                                             

         (d) the accuracy of the representations and warranties made by GT and
 by Schwinn as of the date the merger agreement was signed and as of the
     closing of the merger, including the representation and warranty that there
has been no material adverse change in the business of GT;            

(e) all material covenants are complied with;               

(f) all material consents are received by GT;               

     (g) the absence of any claim or lawsuit challenging or seeking to
    restrain the merger or seeking material damages as a result of the merger;

 (h) the receipt of funds by Schwinn pursuant to its committed
  financing sufficient to purchase all of the outstanding GT common stock;
and                                                                   

   (i) less than 10% of GT's stockholders exercise their appraisal
rights.                                                               

Termination of the Merger Agreement (see page 23)                           

     GT and Schwinn can mutually agree to terminate the merger agreement without
completing the merger, and either company can terminate the merger agreement if 
any of the following occurs:                                                    

(a) the merger is not completed by October 30, 1998;        

  (b) the conditions to the merger become impossible to satisfy;

(c) the Board of Directors of the Company, under certain    
    circumstances, withdraws or modifies its approval or recommendation of the
     merger or approves or recommends an offer from a third party to acquire GT;

     (d) the holders of a majority of the outstanding shares of common
stock of GT do not approve the merger;                                

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        (e) a court issues a final order permanently prohibiting the merger;

       (f) the other party materially breaches any of its covenants in the
merger agreement; or                                                  

      (g) the other party's representations and warranties in the merger
     agreement are materially inaccurate as of the date the merger agreement was
signed or as of the proposed closing of the merger.                   

Termination Fees (see page 23)                                              

  GT will be required to pay Schwinn a termination fee of up to $4 million
plus expenses incurred if the merger agreement is terminated under certain      
circumstances.                                                                  

Vote Required                                                               

    At the special meeting, you will vote on a proposal to approve the merger.
Each share of GT common stock is entitled to one vote. In order to be approved, 
a majority of the outstanding shares of GT common stock must be voted in favor  
of the merger. On the record date, there were           shares of GT common     
stock outstanding and entitled to vote which were held by approximately         
          stockholders of record. The close of business on July   , 1998, is the
record date for determining who is entitled to vote at the special meeting.     

Regulatory Approvals                                                        

The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 
prohibits GT and Schwinn from completing the merger until after the companies   
have furnished certain information and materials to the Antitrust Division of   
the Department of Justice and the Federal Trade Commission and a required       
waiting period has ended. It is possible that these or other governmental       
authorities may prevent the merger or impose conditions for completing the      
merger. We cannot predict whether these governmental authorities will prevent   
the merger or impose conditions that would not be detrimental to either company 
or the combined company.                                                        

Stockholders Agreement (see page 25)                                        

 GT's largest stockholder, Bain Capital, Inc. and some of its affiliates
("Bain"), has executed a Stockholders Agreement with respect to all of the GT   
common stock owned by it, which constitutes approximately 23% of the outstanding
GT common stock. Under this Agreement, Bain has agreed to vote all of its shares
in favor of the merger and against any acquisition proposal from a third party. 
In addition, Bain has granted an option to Schwinn to purchase all of the GT    
common stock owned by Bain under certain circumstances.                         

Appraisal Rights                                                            

   If you do not wish to accept the merger consideration, you have the right
under Delaware law to receive the "fair value" of your shares as determined by a
Delaware court. This "right of appraisal" is subject to a number of restrictions
and technical requirements. Generally, in order to exercise appraisal rights you
must not vote in favor of the merger agreement and you must make a written      
demand for appraisal before the vote on the merger. Merely voting against the   
merger agreement will not protect your right of appraisal. Annex III to this    
Proxy Statement contains the applicable provisions of the Delaware General      
Corporation Law relating to appraisal rights.                                   

Federal Income Tax Consequences                                             

  You will be taxed for federal income tax purposes on your receipt of the
merger consideration to the extent that the amount you receive exceeds your tax 
basis in your GT common stock. Because determining the tax consequences of the  
merger can be complicated, especially in light of recent changes to the federal 
tax laws governing capital gains, and because state and local tax laws may apply
as well, you should consult your tax advisor in order to understand fully how   
the merger will affect you.                                                     

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Accounting Treatment                                                        

 Schwinn has informed GT that it will treat the merger as a purchase for
accounting purposes.                                                            

Recent Market Prices                                                        

    The following table sets forth the last reported sales prices per share of
GT common stock on The Nasdaq National Market on June 19, 1998, the last trading
day before announcement of the merger, and on July   , 1998, the latest         
practicable day before the printing of this Proxy Statement.                    

                                                                [Download Table]
                                                            
June 19, 1998                                          $4.75
July   , 1998                                          $    

   Stockholders are advised to obtain current market quotations of GT common
stock. No assurance can be given as to the market price of GT common stock at   
the effective time of the merger.                                               

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GENERAL 

DATE, TIME AND PLACE OF SPECIAL MEETING                                         

The special meeting of the stockholders of GT Bicycles, Inc. (the     
"Company") will be held on August   , 1998 at 10:00 a.m., local time, at The    
Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California (the    
"Special Meeting").                                                             

PURPOSE OF THE SPECIAL MEETING                                                  

 At the Special Meeting, stockholders of record of the Company as of the
close of business on July   , 1998 (the "Record Date") will be asked to consider
and vote upon a proposal to approve and adopt that certain Agreement and Plan of
Merger by and among Schwinn Holdings Corporation ("Schwinn"), SPK Acquisition   
Corporation, a wholly-owned subsidiary of Schwinn ("Acquisition Subsidiary"),   
and the Company, dated as of June 22, 1998 (the "Merger Agreement"), and the    
merger of the Company with and into Acquisition Subsidiary (the "Merger"), and  
such other matters as may properly be brought before the Special Meeting.       

RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE; QUORUM                    

   Only holders of record of the Company's common stock (the "Common Stock")
at the close of business on the Record Date are entitled to notice of and to    
vote at the Special Meeting. As of the close of business on the Record Date,    
there were                shares of Common Stock outstanding and entitled to    
vote, held of record by approximately                stockholders. A majority,  
or                of these shares, present in person or represented by proxy,   
will constitute a quorum for the transaction of business. Each stockholder is   
entitled to one vote for each share of Common Stock held as of the Record Date. 
Abstentions and broker non-votes will be counted for the purposes of            
establishing a quorum at the Special Meeting.                                   

VOTE REQUIRED                                                                   

     Pursuant to the Delaware General Corporation Law ("DGCL") and the Company's
Certificate of Incorporation, approval and adoption of the Merger Agreement and 
the Merger requires the affirmative vote of the holders of a majority of the    
outstanding shares of the Company's Common Stock entitled to vote. On the Record
Date,                shares of Common Stock were outstanding, all of which are  
entitled to vote on the Merger Agreement and the Merger. As of             ,    
1998, stockholders who are not affiliates of the Company owned approximately    
            , or      %, of the outstanding shares of the Company's Common
Stock. Schwinn owns no shares of the Company's Common Stock. The directors and  
officers of the Company and their affiliates together own approximately 29.3% of
the Common Stock. The Company's largest stockholder, Bain Capital, Inc., and    
certain of its affiliates ("Bain"), has entered into a Stockholders Agreement   
with Schwinn and the Company (the "Stockholders Agreement"), pursuant to which  
Bain has agreed to vote all of its shares in favor of the Merger Agreement and  
the Merger. Abstentions and non-votes will have the same effect as votes against
the Merger Agreement and the Merger.                                            

VOTING OF PROXIES; REVOCABILITY OF PROXIES                                      

   The proxy accompanying this Proxy Statement is solicited on behalf of the
Board of Directors of the Company for use at the Special Meeting. Stockholders  
are requested to complete, date and sign the accompanying proxy and promptly    
return it in the accompanying envelope or otherwise mail it to the Company. All 
proxies that are properly executed and received by the Company in time to be    
voted at the Special Meeting, and that are not revoked, will cause the shares of
Common Stock represented thereby to be voted at the Special Meeting in          
accordance with the instructions indicated on the proxies or, if no direction is
indicated, for approval of the Merger Agreement and the Merger. Any stockholder 
who has given a proxy may revoke it at any time before it is exercised at the   
Special Meeting, by (i) delivering (by any means, including facsimile) a written
notice, bearing a date later than the earlier proxy, stating that the proxy is  
revoked, addressed to the Company, attention: Corporate Secretary, at 2001 East 
Dyer Road, Santa Ana, California                                                

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92705, facsimile number (714) 481-7115, (ii) signing and so delivering a proxy  
relating to the same shares and bearing a later date than the earlier proxy     
prior to the vote at the Special Meeting or (iii) attending the Special Meeting 
and voting in person (although attendance at the Special Meeting will not, by   
itself, revoke a proxy). If a quorum is not obtained or if fewer shares of      
Common Stock than the number required therefor are voted in favor of approval of
the Merger Agreement and the Merger, it is expected that the Special Meeting    
will be postponed or adjourned in order to permit additional time for soliciting
and obtaining additional proxies or votes, and at any subsequent reconvening of 
the Special Meeting, all proxies will be voted in the same manner as such       
proxies would have been voted at the original Special Meeting, except for any   
proxies which have theretofore effectively been revoked or withdrawn.           

SOLICITATION OF PROXIES AND EXPENSES                                            

The Company will bear the cost of the solicitation of proxies in the  
enclosed form from its stockholders. In addition to solicitation by mail, the   
directors, officers and employees of the Company may solicit proxies from       
stockholders by telephone, telegram, letter, facsimile or in person. Following  
the original mailing of the proxies and other soliciting materials, the Company 
will request brokers, custodians, nominees and other record holders to forward  
copies of the proxy and other soliciting materials to persons for whom they hold
shares of Common Stock and to request authority for the exercise of proxies. In 
such cases, the Company, upon the request of the record holders, will reimburse 
such holders for their reasonable expenses.                                     

APPRAISAL RIGHTS                                                                

 If the Merger is approved and consummated, holders of Common Stock will
have the right under Delaware law to demand an appraisal of their shares of     
Common Stock (shares held by stockholders who perfect such rights are referred  
to herein as "Dissenting Shares"). The required procedure set forth in Section  
262 of the DGCL must be followed exactly or any appraisal rights may be lost. In
order to be entitled to exercise appraisal rights, a stockholder of the Company 
must not vote in favor of the Merger Agreement. A stockholder of the Company    
electing to exercise appraisal rights must also make written demand upon the    
Company for the purchase of Dissenting Shares and payment to such stockholder in
cash of their appraised value. Such demand must be received by the Company or   
the Company's transfer agent prior to the vote on the Merger at the Special     
Meeting. The demand should specify the number of shares held of record by such  
stockholder and that the stockholder intends to demand the appraisal of such    
stockholders' shares. A stockholder who returns a proxy or who votes against the
Merger without a written demand for appraisal rights will not be entitled to    
appraisal rights. A copy of Section 262 of the DGCL is attached hereto as Annex 
III.                                                                            

FORWARD-LOOKING STATEMENTS                                                      

     This Proxy Statement contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section   
21E of the Securities Exchange Act of 1934, as amended, that involve risks and  
uncertainties. Actual results are uncertain and may be impacted by certain risks
and uncertainties that may affect the accuracy of the forward-looking statements
with respect to revenues, expenses and operating results, including, without    
limitation, cycles of dealer orders, general economic and competitive conditions
and changing consumer trends, technological advances and the number and timing  
of new product introductions, shipments of products and components from foreign 
suppliers, the timing of operating and advertising expenditures and changes in  
the mix of products ordered by independent bicycle dealers. As a result, the    
actual results may differ materially from those projected in the forward-looking
statements.                                                                     

    Because of these and other factors that may affect the Company's operating
results, past financial performance should not be considered an indicator of    
future performance, and stockholders should not use historical trends to        
anticipate results or trends in future periods.                                 

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ADDITIONAL INFORMATION

    The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance       
therewith, files reports, proxy statements and other information with the       
Securities and Exchange Commission (the "Commission"). Such reports, proxy      
statements and other information can be inspected and copied at the public      
reference facilities maintained by the Commission at Room 1024, 450 Fifth       
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
7 World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these   
materials can also be obtained from the Commission at prescribed rates by       
writing to the Public Reference Section of the Commission, 450 Fifth Street,    
N.W., Washington, D.C. 20549. The Commission maintains an Internet web site that
contains certain reports, proxy statements and other information regarding      
issuers like the Company who file electronically with the Commission. The       
address of that site is http://www.sec.gov. The reports, proxy statements and   
other information filed by the Company with the Commission may also be inspected
at the offices of the National Association of Securities Dealers, Inc., NASDAQ  
Reports Section, 1735 K Street, Washington, D.C. 20006.                         

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THE MERGER -- FACTORS TO BE CONSIDERED

GENERAL                                                                         

     The Merger Agreement provides for the Merger of Acquisition Subsidiary with
and into the Company, with the Company to be the surviving corporation          
("Surviving Corporation") of the Merger, becoming a wholly-owned subsidiary of  
Schwinn. If the requisite approval of the stockholders of the Company is        
received at the Special Meeting, the Merger is expected to be consummated as    
soon as practicable after the satisfaction or waiver of each of the conditions  
to consummation of the Merger. Upon the consummation of the Merger, each        
outstanding share of Common Stock (other than shares owned by the Company or    
owned by Schwinn, Acquisition Subsidiary or any subsidiary of the Company,      
Schwinn or Acquisition Subsidiary, and other than Dissenting Shares) will       
automatically be converted into the right to receive $8.00 in cash, without     
interest.                                                                       

BACKGROUND OF THE MERGER                                                        

 From time to time, the Board of Directors of the Company has informally
evaluated strategic alternatives for the Company, including the sale of the     
Company and other possible transactions that could strengthen the Company's     
competitive position with respect to other bicycle manufacturers. As part of its
exploration of strategic alternatives, the Company acquired Riteway             
Distributors, Inc. in 1987, a California distributor of bicycles, parts and     
accessories, purchased three additional domestic distributors between 1989 and  
1995, purchased distributors in France and the United Kingdom in 1996, and      
formed distributors in Japan and Canada. Notwithstanding the Company's efforts  
to strengthen its competitive position, the bicycle industry remains subject to 
economic cycles and changing consumer trends. In recent years, consistent with  
trends in the bicycle industry, the Company has experienced declining profits   
from bicycle sales and sales of parts and accessories. As a result, the Company 
has realized lower than expected revenues and net profits.                      

   On August 7, 1997, the Board of Directors of the Company held a regularly
scheduled meeting. At this meeting the Board heard a presentation from          
representatives of Montgomery Securities who presented strategic alternatives   
for the Company concerning financial planning and maximization of long-term     
stockholder value, including equity and debt financing alternatives, strategic  
partnership alternatives, and sale of control alternatives. Also at this August 
7, 1997 meeting, but outside of the presence of the representatives from        
Montgomery Securities, the Board heard a presentation from representatives of   
Morgan Stanley & Co., Incorporated ("Morgan Stanley") who gave a similar        
presentation on strategic alternatives for the Company, including financing     
alternatives, strategic partnership alternatives and sale of control            
alternatives. Morgan Stanley included with its presentation a preliminary list  
of potential purchasers of the Company.                                         

In October 1997, the Company formally retained Morgan Stanley as its  
financial advisor to assist the Company in pursuing strategic alternatives, and 
specifically, to pursue the possibility of selling the Company in order to      
maximize stockholder value. On October 2, 1997, a representative of Morgan      
Stanley met with representatives of a large bicycle manufacturing company (the  
"Alternative Buyer") who had contacted the Company regarding a potential merger.
On October 27, 1997, Morgan Stanley received a letter from this party expressing
possible interest in entering into a merger transaction with the Company.       

     During the months of December 1997 and January 1998, Morgan Stanley, at the
request of the Company, contacted approximately 16 potential acquiring entities,
which included both financial buyers and industry related entities, to discuss  
the possibility of entering into a transaction with the Company. On December 9, 
1997, Morgan Stanley contacted representatives of Questor Management Company    
("Questor"), which manages Questor Partners Fund, L.P., the controlling         
shareholder of Schwinn, to discuss Questor's potential interest in acquiring the
Company, and on January 26, 1998, Questor delivered a memorandum to Morgan      
Stanley requesting further information and certain due diligence items.         

On February 10, 1998, the Board of Directors of the Company held a    
regularly scheduled meeting. Morgan Stanley met with the Board of Directors to  
review the status of certain strategic alternatives, including the status of    
discussions with each of the entities which had been contacted, and to summarize
a preliminary transaction proposal that was being discussed with the Alternative
Buyer. Morgan Stanley indicated that although the discussions were preliminary  
in nature, any deal with the Alternative Buyer would likely require             

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certain stockholders of the Company to retain a substantial equity interest in  
the resulting entity. The Board of Directors indicated to Morgan Stanley that it
was the desire of the Board to treat all stockholders equally and that          
subsequent discussions should continue in that light. The Board also requested  
that Morgan Stanley continue to pursue discussions with the Alternative Buyer   
concerning an increased valuation of the Company and improved transaction       
structure, and to continue discussions with other potential buyers.             

  On February 10, 1998, subsequent to the conclusion of the Board meeting,
Morgan Stanley received a telephone call from Questor in which Questor indicated
that it was interested in pursuing negotiations to acquire the Company for      
approximately $8.00 to $8.50 per share in cash. Thereafter, the Company and the 
Company's legal counsel began coordinating a due diligence production to be used
in connection with the anticipated due diligence review by Questor and the      
Alternative Buyer.                                                              

     On April 13, 1998, the Company's legal counsel sent a draft of an Agreement
and Plan of Merger to both Questor and the Alternative Buyer. Shortly           
thereafter, the Alternative Buyer requested access to due diligence materials   
and requested a meeting with management and with the Company's accountants. In  
the ensuing weeks, the Company and its financial and legal advisors engaged in  
meetings and negotiations with such party and continued to respond to due       
diligence requests from such party.                                             

During the week of May 4, 1998, the Company and its legal advisors    
coordinated a business and legal due diligence review with representatives from 
Questor. In the ensuing weeks, the Company and the Company's legal counsel      
continued to assist in Questor's due diligence review.                          

 Continued discussions between Morgan Stanley and Questor led to Questor
sending a letter to Morgan Stanley on April 23, 1998 expressing proposed terms  
for an acquisition of the Company for cash. The proposed purchase price in this 
letter was $8.50 per share of outstanding Common Stock, conditioned on certain  
other factors, including satisfactorily completing further due diligence. During
the next few weeks, the Company and its legal counsel provided Questor with     
requested due diligence materials.                                              

On May 28, 1998, Questor sent a letter to the Company with a revised  
proposal to acquire the Company for $8.00 per share in cash for each outstanding
share of Common Stock, which on that date represented an approximate 39% premium
to the share price at that time, a price to earnings multiple of 25.0 based on  
1997 earnings, and an enterprise value equivalent to 12.4 times 1997 earnings   
before interest, taxes, depreciation and amortization ("EBITDA"). Questor       
indicated that the previously proposed purchase price of $8.50 per share in     
Questor's April 23, 1998 letter was based upon the assumption that the Company  
could achieve its 1998 plan to generate $25 million of EBITDA, and that         
Questor's due diligence review would not reveal any significant issues which    
would suggest a further decline in trailing financial performance. The Company's
1998 first quarter EBITDA was $2.9 million, a 19% shortfall to management's     
projections and a 12% decline versus the first quarter of the prior year.       

Also on May 28, 1998, Morgan Stanley received a proposal from the     
Alternative Buyer with whom it had been negotiating. Morgan Stanley advised that
this proposal could potentially equate to a price of less than the $8.00 per    
share offered by Questor. The offer required that a substantial portion of the  
shares owned by management and Bain, be exchanged for equity of the Alternative 
Buyer. In addition, the offer was submitted with a financing commitment that was
subject to material qualifications, including satisfactorily completing business
due diligence by the Alternative Buyer's lender.                                

 On May 29, 1998, the Board of Directors of the Company held a regularly
scheduled meeting. Morgan Stanley noted that as a result of the extensive       
solicitations that had occurred over a period of several months, only two       
parties expressing interest in the Company appeared to have any reasonable      
likelihood of consummating a transaction. Morgan Stanley described in detail the
status of both proposals to the Board, noting that the price per share of       
outstanding Common Stock was approximately $8.00 in each case. Morgan Stanley   
noted that the financing commitment for Questor was substantially firmer than   
that proposed by the Alternative Buyer, which was conditioned on satisfactory   
completion of significant due diligence, confirmation of financial data and     
other conditions. The Board held extensive discussion concerning each of the    
proposals, including the nature of the respective businesses, expected synergies
between the Company and each party, the financing and financial condition of    
each party and other factors. Morgan Stanley proceeded to further               

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review the status of negotiations with Questor, including the status of due     
diligence proceedings and additional due diligence to be completed. Morgan      
Stanley noted that Questor could be in a position to have definitive            
documentation executed in a relatively short time.                              

The Board discussed the strengths and weaknesses of both proposals and
further reviewed the status and outlook for the Company's business prospects.   
Taking into account the continued softness of the domestic market for adult     
bicycles, increased competition in juvenile and other bicycle lines, the        
substantial financing requirements of the Company and the other factors         
discussed at the meeting, the Board decided it would be in the best interests of
the Company and its stockholders to pursue a sale of the Company. Following such
discussion, management was directed to continue providing due diligence         
materials to and maintain discussions with both parties.                        

     From May 28, 1998 to June 21, 1998, the Company and its legal and financial
advisors continued to negotiate a definitive acquisition agreement with Questor 
and the Alternative Buyer. On June 20, 1998, Morgan Stanley was verbally        
informed by the Alternative Buyer that it was not in a position to submit an    
offer at $8.00 per share.                                                       

   On June 21, 1998, the Board of Directors of the Company met to consider a
proposed Agreement and Plan of Merger, and the transactions contemplated        
thereby, presented to the Company by Questor. At such meeting, the Company's    
legal and financial advisors reviewed with the Board, among other things, the   
background of the proposed transaction, the value presented by the transaction  
and the Company's long-term outlook and the terms of the Merger Agreement. The  
Company's legal counsel advised the members of the Board of Directors with      
respect to their fiduciary duties in connection with voting on the proposed     
transaction. Morgan Stanley gave a presentation to the Board of Directors       
regarding the fairness of the proposed transaction. Morgan Stanley reviewed with
the Board of Directors the existing and projected financial condition of the    
Company and the resulting expected public market price for the Company's shares 
in light of the historical price performance for such shares. Morgan Stanley    
reviewed trading statistics of selected comparable companies in comparison with 
those of the Company, both historically and projected, reviewed precedent       
transactions and noted that the price to be paid to the Company's stockholders  
compared favorably. Morgan Stanley also reviewed a discounted cash flow         
valuation analysis based upon the Company's expected EBITDA and the resulting   
expected equity value for the Company. Based on the foregoing, Morgan Stanley   
advised that it expected to be in a position to issue a fairness opinion        
regarding the fairness from a financial point of view of the merger             
consideration.                                                                  

  At the conclusion of the presentation, Morgan Stanley delivered its oral
opinion (subsequently confirmed in writing) that the consideration to be        
received by the Company's stockholders in the Merger was fair to the Company's  
stockholders from a financial point of view. After a twenty-four hour recess to 
thoroughly review and consider the proposal, the Board of Directors re-convened 
on June 22, 1998 and unanimously approved the Merger Agreement and the          
transactions contemplated thereby. The parties executed the Merger Agreement    
later that day.                                                                 

REASONS FOR THE MERGER                                                          

  The Board of Directors of the Company has carefully considered the terms
and conditions of the proposed Merger and has determined that the Merger is in  
the best interests of, and is on terms fair to, the Company's stockholders and  
has unanimously approved the Merger Agreement and the transactions contemplated 
thereby, including the Merger.                                                  

   In reaching its unanimous determination that the Merger Agreement and the
transactions contemplated thereby, including the Merger, are in the best        
interests of, and on terms fair to, the Company's stockholders,                 

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the Board of Directors considered a number of factors, which taken together     
supported such determination, including without limitation the following:       

      (i) the Board's knowledge of the business, operations, properties,
 assets, financial condition and operating results of the Company, which
provided the background and context for its deliberations and         
determinations;                                                       

    (ii) information relating to the financial condition, results of
    operations, capital resources and management's assessment of the prospects
   of the Company, which led the Board to determine that there is reasonable
uncertainty and a substantial business risk that in the long-term the 
Company will not produce stockholder value in excess of the Merger    
Consideration;                                                        

      (iii) the current and prospective environment in which the Company
    operates which has witnessed continued softness in the domestic market for
   adult bicycles, increased competition in juvenile and other bicycle lines
and other factors which taken together are adversely affecting the    
    Company's results of operations and financial condition (see "Management's
     Discussion and Analysis of Financial Condition and Results of Operations");

       (iv) the presentation by Morgan Stanley and its opinion on June 22,
   1998 that, based upon the assumptions and limitations stated therein, the
  cash consideration of $8.00 per share to be received by the stockholders
    pursuant to the Merger Agreement is fair from a financial point of view to
such stockholders (see "Opinion of the Financial Advisor");           

          (v) the relationship of the Merger Consideration to the historical and
  current market prices for the Common Stock preceding the announcement of
     the Merger and the Board's belief that the public market's valuation of the
     Company and the bicycle industry in general may limit the value realized by
the Company's stockholders in the public market; and                  

        (vi) the terms of the Merger Agreement as reviewed by the Board with
its legal and financial advisors.                                     

Prior to execution of the Merger Agreement, the Company pursued its   
business strategy, which principally consisted of designing, manufacturing and  
distributing juvenile BMX and premium priced mountain bicycles, and acquiring   
additional distributors in situations where the Company believed such           
acquisitions could be achieved at a price that such additional distributors     
would add to profitability and stockholder value. The Company continued to      
pursue its established business strategies discussed above until Questor made an
offer to acquire the Company at a price and on terms which the Board did not    
believe would be offered by any other party. After detailed consideration, the  
Board determined that the price was substantially higher than the Company's     
stock price had been in recent months and that it would be advantageous to enter
into the Merger Agreement.                                                      

   The foregoing discussion of the information and factors considered by the
Board of Directors addresses the material factors considered by the Board in its
consideration of the Merger. The Board did not quantify or attach any particular
weight to the various factors that it considered in reaching its determination  
that the Merger Agreement and the transactions contemplated thereby, including  
the Merger, are advisable and in the best interests of the Company's            
stockholders. In reaching its determination, the Board of Directors took the    
various factors into account collectively. The Board did not perform            
factor-by-factor analysis, but rather its determination was made in             
consideration of all of the factors as a whole.                                 

BOARD RECOMMENDATION                                                            

     THE BOARD HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF THE PROPOSED
MERGER AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF, AND IS ON
TERMS THAT ARE FAIR TO, THE COMPANY'S STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY   
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,        
INCLUDING THE MERGER AND RECOM-                                                 

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MENDS THAT THE STOCKHOLDERS OF THE COMPANY APPROVE THE MERGER                   
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.      

INTERESTS OF CERTAIN PERSONS                                                    

    In considering the recommendation of the Company's Board of Directors with
respect to the Merger, stockholders of the Company should be aware that the     
Board of Directors and certain officers of the Company have interests that may  
present them with potential conflicts of interest. Messrs. Gay and Rehnert are  
managing directors, and Mr. Pretlow is a principal of, Bain Capital Investors,  
Inc., an affiliate of Bain. Messrs. Gay, Rehnert and Pretlow are directors of   
the Company. Certain of the Company's officers may be entitled to severance     
payments, retention incentives or other consideration as a result of the Merger 
or as a result of their termination after the Merger. Such amounts, however, if 
any, have not yet been determined by the Company. The Merger Agreement provides 
that all rights to indemnification in favor of any present or former director or
officer of the Company as provided in the Company's Certificate of              
Incorporation, Bylaws and/or certain applicable indemnification agreements shall
continue in full force and effect after the Merger with respect to matters      
occurring at or prior to the effective time of the Merger. In addition, certain 
of the Company's executive officers may enter into employment agreements or     
otherwise will continue to be employed by the resulting entity after the Merger.
Other than Mr. William Galloway, the Company's Secretary and Vice President,    
Marketing who holds an option to purchase 10,000 shares of Common Stock at an   
exercise price of $6.50 per share, which option will be accelerated prior to the
consummation of the merger and cashed out for an aggregate consideration of     
$15,000, no director or executive officer of the Company holds any options to   
purchase Common Stock of the Company with an exercise price less than $8.00 per 
share.                                                                          

Pursuant to the Merger Agreement and the Stockholders Agreement, the  
Company has agreed to reimburse Bain for its legal expenses incurred in         
connection with such agreements.                                                

OPINION OF FINANCIAL ADVISOR

The Company retained Morgan Stanley to act as its financial advisor in
connection with the exploration of a variety of financial alternatives to the   
Company based upon Morgan Stanley's qualifications, experience and expertise. At
the June 21, 1998 meeting of the Board of Directors, Morgan Stanley rendered to 
the Company's Board of Directors an oral opinion which was formalized in writing
as of June 22, 1998, to the effect that, as of such date and based on and       
subject to certain matters stated therein, the consideration to be received by  
the holders of Common Stock pursuant to the Merger Agreement was fair to such   
stockholders from a financial point of view.                                    

     The full text of the Morgan Stanley opinion dated June 22, 1998, which sets
forth the assumptions made, matters considered and limitations on the review    
undertaken, is attached as Annex II to this Proxy Statement and is incorporated 
herein by reference. All holders of Common Stock are urged to, and should, read 
the Morgan Stanley opinion carefully and in its entirety. The Morgan Stanley    
opinion is directed to the Company's Board of Directors and addresses the       
fairness of the consideration to the holders of shares of Common Stock pursuant 
to the Merger Agreement from a financial point of view and it does not address  
any other aspect of the Merger nor does it constitute a recommendation to any   
holder of Common Stock as to how to vote at the Special Meeting. This summary of
the Morgan Stanley opinion is qualified in its entirety by reference to the full
text of such opinion.                                                           

For purposes of its opinion, Morgan Stanley, among other things: (i)  
reviewed certain publicly available financial statements and other information  
of the Company; (ii) reviewed certain internal financial statements and other   
financial and operating data concerning the Company prepared by the management  
of the Company; (iii) analyzed certain financial projections prepared by the    
management of the Company; (iv) discussed the past and current operations, the  
financial condition and the prospects of the Company with senior executives of  
the Company; (v) reviewed the reported prices and trading activity for the      
Common Stock of the Company; (vi) compared the financial performance of the     
Company and the prices and trading activity of the Common Stock with that of    
certain other comparable publicly-traded companies and their                    

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securities; (vii) reviewed the financial terms, to the extent publicly          
available, of certain comparable acquisition transactions; (viii) participated  
in discussions and negotiations among representatives of the Company, Schwinn   
and certain other parties and their financial and legal advisors; (ix) reviewed 
the Merger Agreement and certain related documents; and (x) performed such other
analyses and considered such other factors as Morgan Stanley deemed appropriate.

   In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information      
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the 
Company's financial projections, Morgan Stanley assumed that such projections   
have been reasonably prepared on bases reflecting the best currently available  
estimates and judgments of the future financial performance of the Company.     
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities of the Company, nor was Morgan Stanley provided with such        
appraisals. Morgan Stanley assumed that the Merger will be consummated on the   
terms set forth in the Merger Agreement. Morgan Stanley's opinion is necessarily
based on economic, market and other conditions as in effect on, and the         
information made available to Morgan Stanley as of the date thereof.            

The following is a brief summary of the analyses performed by Morgan  
Stanley in connection with the preparation of its opinion dated June 22, 1998   
and with its oral presentation to the Company's Board of Directors on June 21,  
1998.                                                                           

STOCK TRADING HISTORY                                                           

    Morgan Stanley reviewed the historical trading prices for the Common Stock
since its initial public offering on October 13, 1995 and over the year leading 
up to the last trading day prior to the date of the oral opinion and noted that 
the price of the Common Stock was down 44.9% from its 12-month high for the year
from June 19, 1997 to June 19, 1998 with a high of $8.63 and a low of $4.50.    

  Morgan Stanley reviewed the premium obtained by computing the percentage
excess of the sale price of $8.00 over the 5-day and 90-day average closing     
prices ending on June 19, 1998. These premiums were 73.5% and 34.5%             
respectively.                                                                   

DISCOUNTED CASH FLOW                                                            

     Morgan Stanley performed discounted cash flow analyses of the Company based
upon projections and assumptions provided by the Company's management, using    
discount rates reflecting an expected equity total return of 11.0% to 13.0% and 
terminal multiples as of 2007 as well as a sensitivity case on such projections.

     Applying a 5.0x to 7.0x multiple to the estimated earnings before interest,
taxes, depreciation and amortization (EBITDA), the range of present values per  
share of Common Stock was $5.27 to $11.41, with a present value at the midpoint 
of the discount rate and multiple ranges of $8.12. Such projections incorporated
several assumptions, including a significant increase in international revenues 
during the first two years resulting from both penetration of new markets and   
increased penetration of existing markets, and EBITDA margins which grow to 9.9%
by 2001 and remain flat thereafter, reflecting both improving market conditions 
and greater operational efficiency going forward.                               

ANALYSES OF SELECTED COMPARABLE PUBLICLY TRADED COMPANIES                       

Morgan Stanley reviewed the trading statistics of selected comparable 
publicly traded bicycle and sporting goods companies. Comparable companies      
selected consisted of Bell Sports, Cannondale, Huffy, PTI, Rockshox, Brunswick  
and K2. Based on June 17, 1998 closing share prices, the trading multiples of   
the comparable group of companies were in the following ranges: aggregate value 
to last twelve months sales was 0.35x to 0.92x, aggregate value to estimated    
1998 EBITDA was 5.8x to 6.7x, aggregate value to estimated 1998 EBIT was 3.6x to
10.8x, equity value to estimated 1998 earnings was 7.6x to 16.9x and equity     
value to estimated 1999 earnings was 6.4x to 16.8x. Morgan Stanley selected the 
following multiple ranges for its comparable company valuation analysis: sales  
multiple of 0.6x to 0.8x, estimated 1998 EBITDA multiple of 5.5x to 6.5x,       
estimated 1998 EBIT multiple of 8.0x to 9.5x, estimated 1998 earnings multiple  
of 10.0x to 16.0x                                                               

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and a estimated 1999 earnings multiple of 8.0x to 13.0x. Applying a range of    
multiples to the Company's sales, EBITDA, EBIT and earnings forecasts for the   
relevant periods, assuming a 35% control premium, and considering average net   
debt balances of approximately $96.0 million projected for fiscal year 1998     
resulted in a range of values per share of $6.31 to $10.86.                     

     No company utilized as a comparison in the comparable companies analysis is
identical to the Company. In evaluating the comparable companies, Morgan Stanley
made judgments and assumptions with regard to industry performance, general     
business, economic, market and financial conditions and other matters, many of  
which are beyond the control of the Company, such as the impact of competition  
on the Company and the industry generally, industry growth and the absence of   
any adverse material change in the financial condition and prospects of the     
Company or the industry or in the financial markets in general.                 

ANALYSES OF SELECTED PRECEDENT TRANSACTIONS                                     

  Morgan Stanley reviewed certain publicly available information regarding
the following precedent transactions in the bicycle and sporting goods          
industries: leveraged recapitalization of Derby International, the merger of    
Mongoose and Brunswick and the merger of Roadmaster and Brunswick. The multiples
of aggregate value to last twelve months' sales in these transactions were 0.9x,
2.7x and 0.9x, respectively. Morgan Stanley selected a sales multiple range of  
0.8x to 1.0x. Applying this multiple range to the Company's sales, and          
considering average net debt balances of approximately $96.0 million projected  
for fiscal year 1998 resulted in a range of values per share of $7.70 to $12.10.
Only one of these transactions, the Derby recapitalization, disclosed EBITDA    
information. The multiple of aggregate value to last twelve months' EBITDA in   
this transaction was 8.1x. Morgan Stanley selected an EBITDA multiple range of  
8.0x to 12.0x, yielding a per-share value range of $4.10 to $10.00. Though no   
precedent transaction multiples of aggregate value of last twelve months' EBIT  
were available, Morgan Stanley selected an EBIT multiple range of 10.0x to      
15.0x, yielding a per-share value of $4.30 to $11.30.                           

No transaction utilized as a comparison in the comparable transaction 
analysis is identical to the Merger. In evaluating the precedent transactions,  
Morgan Stanley made judgments and assumptions with regard to industry           
performance, general business, economic, market and financial conditions and    
other matters, many of which are beyond the Company's control, such as the      
impact of competition on the Company and the industry generally, industry growth
and the absence of any adverse material change in the financial condition and   
prospects of the Company or the industry or in the financial markets in general.
Mathematical analysis (such as determining the average or median) is not in     
itself a meaningful method of using comparable transaction data.                

The preparation of a fairness opinion is a complex process and is not 
necessarily susceptible to a partial analysis or summary description. In        
arriving at its opinion, Morgan Stanley considered the results of all of its    
analyses as a whole and did not attribute any particular weight to any          
particular analysis or factor considered by it. Furthermore, Morgan Stanley     
believes that selecting any portion of Morgan Stanley's analyses, without       
considering all analyses, would create an incomplete view of the process        
underlying the Morgan Stanley opinion. In addition, Morgan Stanley may have     
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above 
should not be taken to be Morgan Stanley's view of the actual value of the      
Company.                                                                        

   In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and   
other matters, many of which are beyond the control of the Company. The analyses
performed by Morgan Stanley are not necessarily indicative of actual value,     
which may be significantly more or less favorable than suggested by such        
analyses. Such analyses were prepared solely as a part of Morgan Stanley's      
analysis of whether the consideration to be received by the holders of Common   
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders, and were conducted in connection with the delivery of the Morgan  
Stanley opinion. The analyses do not purport to be appraisals of, or to reflect 
the price at which the Company might actually be sold.                          

In addition, as described earlier, Morgan Stanley's opinion and       
presentation to the Company's Board of Directors was one of many factors taken  
into its consideration by the Board of Directors in making its                  
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determination to recommend the approval of the Merger by the Company's          
stockholders. The Morgan Stanley analyses described above should not be viewed  
as determinative of the opinion of the Company's Board of Directors or          
management with respect to the value of the Company or of whether Morgan Stanley
would have rendered an opinion of fairness with respect to, or the Board of     
Directors or management of the Company would have been willing to agree to, any 
consideration other than the consideration to be received by the Company's      
stockholders pursuant to the Merger Agreement.                                  

  The Board of Directors of the Company retained Morgan Stanley based upon
its qualifications, experiences and expertise. Morgan Stanley is an             
internationally recognized investment banking and advisory firm. As part of its 
investment banking and financial advisory business, Morgan Stanley is regularly 
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary     
distributions of listed and unlisted securities, private placements and         
valuations for estate, corporate and other purposes. In the ordinary course of  
its trading and brokerage business, Morgan Stanley and its affiliates may       
actively trade the equity securities of the Company for their own account and   
for the accounts of customers and, accordingly, may at any time hold long or    
short positions in such securities.                                             

Pursuant to a letter agreement dated August 14, 1997, the Company has 
agreed to pay Morgan Stanley (i) an advisory fee not to exceed $200,000 which is
payable if the Merger is not consummated and (ii) a transaction fee to be the   
greater of (iii) $1,500,000 and (iv) one percent (1.0%) of the aggregate value  
of the transaction. In addition, the Company has agreed to indemnify Morgan     
Stanley, its affiliates and certain related persons against certain liabilities 
and expenses arising out of or in conjunction with its rendering of services    
under its engagement and any related transactions, including liabilities under  
federal securities laws.                                                        

THE MERGER AGREEMENT

    This section of the Proxy Statement describes some aspects of the proposed
Merger, including some of the provisions of the Merger Agreement. The           
description of the Merger Agreement contained in this Proxy Statement is not    
complete and is qualified in its entirety by reference to the Merger Agreement, 
a copy of which is attached to this Proxy Statement as Annex I and which is     
incorporated by reference. You are urged to read the entire Merger Agreement    
carefully.                                                                      

STRUCTURE; EFFECTIVE TIME                                                       

     The Merger Agreement provides for the merger of Acquisition Subsidiary into
the Company. The Company will survive the Merger and continue to exist after the
Merger as a wholly-owned subsidiary of Schwinn. The Merger will become effective
at the time a certificate of merger is filed with the Secretary of State of the 
State of Delaware (or a later time if specified in the certificate of merger).  
The time that the Merger becomes effective is referred to in this Proxy         
Statement as the "Effective Time." If the Merger is approved by the requisite   
vote of the Company's stockholders, the Effective Time is expected to occur on  
August   , 1998, or as promptly as practicable following the satisfaction or    
waiver of all the conditions to the Merger.                                     

MERGER CONSIDERATION                                                            

   The Merger Agreement provides that each share of Common Stock outstanding
immediately prior to the Effective Time (other than shares owned by either      
Schwinn, Acquisition Subsidiary, the Company or their respective subsidiaries)  
will, at the Effective Time, be converted into the right to receive $8.00 in    
cash from Acquisition Subsidiary, without interest (the "Merger Consideration").
All shares of Common Stock that are owned by Schwinn, Acquisition Subsidiary,   
the Company or their respective subsidiaries will, at the Effective Time, be    
cancelled and no payment will be made for such shares. If the appraisal rights  
of any shares of Common Stock are perfected, then those shares will be treated  
as provided in Section 2.3 of the Merger Agreement. Section 2.5 of the Merger   
Agreement provides that the Merger Consideration may be adjusted downward if the
Company's representations and warranties concerning its capitalization are      
inaccurate. The Merger Consideration will be paid as promptly as practicable    
after the Effective Time and after the exchange                                 
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agent appointed by Schwinn receives stock certificates and appropriate          
documentation. You will be given instructions after the Effective Time          
explaining how to send your stock certificates and other required documents to  
the exchange agent.                                                             

     The aggregate Merger Consideration, including amounts necessary to cash out
outstanding options and warrants issued by the Company, is estimated to be      
approximately $80 million.                                                      

OPTIONS AND WARRANTS                                                            

Under the Merger Agreement, each option to purchase Common Stock      
outstanding immediately prior to Effective Time will automatically become       
immediately exercisable. Holders of each of those options with an exercise price
below $8.00 will receive a cash payment in an amount equal to $8.00 less the    
exercise price of the option multiplied by the number of shares of Common Stock 
purchasable thereunder. All options to purchase Common Stock will then be       
cancelled.                                                                      

The warrant to purchase Common Stock issued by the Company to Bank of 
America, if outstanding and exercisable at the Effective Time, will be converted
into the right to receive a cash payment equal to $8.00 less the exercise price 
of the warrant multiplied by the number of shares of Common Stock purchasable   
thereunder. Such warrant will then be cancelled.                                

CONVERSION OF SHARES                                                            

    Schwinn will appoint an exchange agent who will make payment of the Merger
Consideration in exchange for certificates representing shares of Common Stock  
and who will distribute the consideration owed with respect to options and      
warrants to purchase Common Stock outstanding at the Effective Time. Acquisition
Subsidiary will deposit cash with the exchange agent in order to permit the     
exchange agent to pay such amounts. Promptly after the Effective Time, the      
exchange agent will send you a letter of transmittal and instructions explaining
how to send your certificates to the exchange agent. If you send your stock     
certificates to the exchange agent, together with a properly completed letter of
transmittal, then as promptly as practicable after the exchange agent receives  
and processes your documents, a check for the Merger Consideration will be      
mailed to you (subject to any withholding required by law).                     

Until surrendered, each certificate representing Common Stock will be 
deemed at any time after the Effective Time to represent only the right to      
receive upon surrender of such certificate the Merger Consideration (or, if     
appraisal rights have been perfected, the consideration specified in Section 2.3
of the Merger Agreement). No interest will be paid or will accrue on any cash   
payable to holders of Common Stock.                                             

 Any portion of the cash deposited with the exchange agent which remains
undistributed six months after the Effective Time will be delivered to the      
Surviving Corporation, upon demand, and any holders of the Common Stock who have
not theretofore complied with the exchange provisions of the Merger Agreement   
may thereafter look only to the Surviving Corporation for payment of their claim
for Merger Consideration.                                                       

NO SOLICITATION BY THE COMPANY                                                  

 Pursuant to Section 6.3 of the Merger Agreement, the Company has agreed
that it will not, and will not authorize or permit any of its subsidiaries, or  
any of its or their officers, directors, employees, representatives, agents or  
affiliates (including, without limitation, any investment banker, financial     
advisor, attorney, accountant or other representative retained by the Company or
any of its subsidiaries), to directly or indirectly initiate, solicit or        
encourage (including by way of furnishing information or assistance), or take   
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal 
(as defined below), or enter into or maintain or continue discussions or        
negotiate with any person in furtherance of such inquiries with respect to an   
Acquisition Proposal or agree to or endorse any Acquisition Proposal. However,  
if the Board of Directors of the Company, based on the advice of outside legal  
counsel, reasonably believes that the failure to do so would violate the        
directors' fiduciary duties to the                                              

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Company's stockholders under applicable law, the Company may, subject to certain
conditions, in response to an unsolicited written bona fide Acquisition Proposal
from any person that the Company's Board of Directors, based on the written     
advice of an independent nationally recognized financial advisor and outside    
legal counsel, reasonably believes would reasonably be expected to result in a  
Superior Proposal (as defined below), (i) furnish information with respect to   
the Company to the person making such proposal after entering into a            
confidentiality agreement with such person on terms and conditions no less      
favorable in any material respect to the Company than the terms and conditions  
of the confidentiality agreement dated as of May 27, 1998 executed by Schwinn   
and (ii) participate in negotiations regarding such Acquisition Proposal. The   
Company has agreed to provide written notice to Schwinn of its intention to take
such actions not less than four business days prior to doing so.                

For purposes of such restrictions, an "Acquisition Proposal" means an 
inquiry, offer or proposal regarding any of the following (other than the       
transactions among the Company, Schwinn and Acquisition Subsidiary) involving   
the Company or any of its significant subsidiaries: (i) any merger,             
consolidation, share exchange, recapitalization, business combination or other  
similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer 
or other disposition of 20% or more of the assets of the Company and its        
subsidiaries, taken as a whole, in a single transaction or series of            
transactions; (iii) any tender offer or exchange offer for outstanding shares of
capital stock of the Company or purchase from the Company of any shares of      
capital stock of the Company or the filing of a registration statement under the
Securities Act in connection with any of the foregoing; or (iv) any public      
announcement by the Company of a proposal, plan or intention to do any of the   
foregoing or any agreement to engage in any of the foregoing. A "Superior       
Proposal" means any bona fide Acquisition Proposal that has the following       
characteristics: (i) it is a proposal to acquire, directly or indirectly, for   
consideration consisting of cash and/or readily marketable securities, (A)      
shares of Common Stock representing at least 80% of the voting power of the     
outstanding shares of Common Stock, and the shares of Common Stock issuable upon
the exercise of outstanding options, warrants and rights to purchase Common     
Stock, or (B) substantially all the assets of the Company, (ii) the terms of    
such proposal in the good faith judgment of the Board of Directors of the       
Company (based on the written opinion of an independent nationally recognized   
financial advisor) provide a per share value to the Company's stockholders which
is higher than the per share value provided by the Merger (after talking into   
account, if applicable, the termination fee and other expenses that would be    
owed to Schwinn and any modifications to the Merger Agreement proposed by       
Schwinn), (iii) the transactions envisioned by such proposal, in the good faith 
judgment of the Board of Directors of the Company, based on the opinion of an   
independent nationally recognized financial advisor and the advice of outside   
legal counsel, are reasonably likely to be consummated without unreasonable     
delay or unusual conditions compared to the transactions contemplated by the    
Merger Agreement, and (iv) financing for the proposed transaction, to the extent
required, has been committed in all material respects to the same extent that   
Schwinn's financing has been committed.                                         

The Company has agreed that neither its Board of Directors nor any    
committee thereof is permitted to (i) withdraw or modify, or propose to withdraw
or modify, in a manner materially adverse to Schwinn and Acquisition Subsidiary,
the approval or recommendation by the Company's Board of Directors or any such  
committee of the Merger or the Merger Agreement, (ii) approve or recommend, or  
propose to approve or recommend, any Acquisition Proposal or (iii) enter into   
any agreement with respect to any Acquisition Proposal. The Board of Directors  
may, however, (i) withdraw or modify its recommendation of the Merger or the    
Merger Agreement, (ii) approve or recommend a Superior Proposal, or (iii) cause 
the Company to enter into an agreement with respect to a Superior Proposal, if  
the Board of Directors, based on the advice of outside counsel, reasonably      
believes that the failure to do so would violate its fiduciary duties to the    
Company's stockholders under applicable law. The Company has agreed not take any
of the actions specified in the preceding sentence unless Schwinn shall have    
received from the Company written notice specifying such actions to be taken no 
later than 12:00 noon New York City time four business days prior to the date   
such actions are proposed to be taken.                                          

   In addition to the obligations described above, the Company has agreed to
promptly advise Schwinn orally and in writing of any Acquisition Proposal and of
any request for information which may relate to an Acquisition Proposal, or any 
inquiry with respect to or which could lead to any Acquisition Proposal, and the

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material terms and conditions of such request, Acquisition Proposal or inquiry. 
The Company has agreed to keep Schwinn fully and timely informed of the status  
and details (including amendments or proposed amendments) of any such request,  
Acquisition Proposal or inquiry.                                                

COVENANTS                                                                       

   Interim Operations of the Company.  Until the Effective Time, the Company
and its subsidiaries are required to comply with a number of covenants          
concerning the operation of their businesses. In general, the Company has agreed
to carry on its business in the ordinary course of business in substantially the
same manner as previously conducted and, to the extent consistent therewith, use
all reasonable efforts to preserve intact its current business organizations,   
keep available the services of its current officers and employees and preserve  
its relationships with customers, suppliers, licensors, licensees, distributors 
and others having business dealings with it. The Company also agreed to obtain  
Schwinn's consent prior to taking a number of actions such as declaring         
dividends, granting options, warrants or rights to purchase Common Stock,       
amending its Certificate of Incorporation or Bylaws, incurring any indebtedness 
(other than under the Company's existing credit facilities), making any capital 
expenditures in excess of $5 million, granting any increases in compensation or 
benefits, acquiring any business or material assets, disposing of any material  
assets, or taking any action that is reasonably likely to result in any of the  
Company's representations and warranties contained in the Merger Agreement to be
untrue in any material respect or in any of the Company's covenants contained   
therein or the conditions to the Merger not being satisfied.                    

     Special Meeting; Proxy Material.  The Company and Schwinn agreed to prepare
this Proxy Statement, and the Company agreed to mail this Proxy Statement to    
each holder of Common Stock and call and hold the Special Meeting. Subject to   
the rights of the Company described under "No Solicitation by the Company"      
above, the Company also agreed to use all reasonable efforts to obtain          
stockholder approval of the Merger Agreement.                                   

     Employee Benefits.  Section 7.7 of the Merger Agreement provides that for a
period of at least one year after the Effective Time, Schwinn will maintain     
employee benefits and programs, including a 401(k) plan, for employees of the   
Company and its subsidiaries that are in the aggregate not materially less      
favorable than those being provided to such employees on the date of the Merger 
Agreement. To the extent any employee benefit plan, program or policy of Schwinn
is made available to the employees of the Surviving Corporation or its          
subsidiaries, service with the Company and its subsidiaries by any employee     
prior to the Effective Time will be credited in determining such employee's     
eligibility and vesting levels (but not for accrual of benefits) under such     
plans, programs and policies of Schwinn.                                        

Indemnification and Insurance of the Company Directors and            
Officers.  Section 7.6 of the Merger Agreement provides that the Certificate of 
Incorporation and Bylaws of the Surviving Corporation will contain provisions   
with respect to indemnification similar in all material respects to those set   
forth in the Certificate of Incorporation and Bylaws of the Company on the date 
of the Merger Agreement, which provisions will not be amended, repealed or      
otherwise modified for a period of six years after the Effective Time in any    
manner that would adversely affect in any material respect the rights thereunder
of individuals who at any time prior to the Effective Time were directors or    
officers of the Company in respect of actions or omissions occurring at or prior
to the Effective Time. This indemnification obligation is subject to any        
limitation imposed under applicable law. Each of Schwinn and the Surviving      
Corporation have also agreed to assume all the obligations under certain        
director and officer indemnification agreements entered into by the Company. The
Merger Agreement also provides that for a period of six years from and after the
Effective Time, the Surviving Corporation will use commercially reasonable      
efforts to cause to be maintained in effect the liability insurance policies for
directors and officers most recently maintained by the Company. The Surviving   
Corporation may substitute therefor policies, including policies maintained by  
an affiliate of the Surviving Corporation, providing substantially the same     
coverage and containing terms and conditions substantially the same as the      
coverage most recently maintained by the Company.                               

    Other Covenants.  The Merger Agreement contains other covenants of Schwinn
and the Company. These include covenants relating to public announcements,      
notification of some matters, access to informa-                                

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tion, cooperation in connection with governmental filings and in obtaining      
consents and approvals, and confidential treatment of non-public information.   

REPRESENTATIONS AND WARRANTIES                                                  

     The Merger Agreement contains a number of representations and warranties by
both parties. The representations and warranties terminate at the Effective     
Time. The Company and Schwinn have each made reciprocal representations and     
warranties which include matters such as corporate organization, authorization, 
authorization of the Merger transactions and governmental approvals. The Company
has also made representations and warranties to Schwinn regarding a number of   
other matters relating to the Company's corporate structure, SEC filings,       
business operations, financial statements, assets and liabilities, environmental
matters and litigation. Schwinn also made representations and warranties to the 
Company that it had sufficient financing for the Merger transactions. See       
"Financing."                                                                    

CONDITIONS TO THE MERGER                                                        

Conditions to Each Party's Obligations.  The obligations of Schwinn,  
Acquisition Subsidiary and the Company to consummate the Merger are subject to  
the satisfaction or waiver (to the extent permitted) of the following           
conditions:                                                                     

   - The Merger Agreement and the Merger must be approved and adopted by the
requisite vote of the stockholders of the Company.                

     - The waiting period applicable to the consummation of the Merger under the
       Hart-Scott-Rodino Antitrust Improvements Act of 1976 must have expired or
       been terminated and any formal investigations relating to the Merger that
   may have been opened by the Federal Trade Commission or the Antitrust
      Division of the Department of Justice or any foreign antitrust authority
     (by means of a written request for additional information or otherwise)
must have been terminated.                                        

- There must not be any temporary restraining order, preliminary or   
  permanent injunction or other order issued by any court of competent
 jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger.                                       

  - The representations and warranties of the other party contained in the
    Merger Agreement that are qualified by materiality or Material Adverse
 Effect must have been true and correct, and the representations and
      warranties of the other party contained in the Merger Agreement that are
       not so qualified must have been true and correct in all material respects
as of the date of the Merger Agreement.                           

  - The representations and warranties of the other party contained in the
    Merger Agreement that are qualified by materiality or Material Adverse
     Effect must be true and correct, and the representations and warranties
  of the other party contained in the Merger Agreement that are not so
     qualified must be true and correct, except where the failure to be true
   and correct has not had and would not reasonably be expected to have,
       individually or in the aggregate, a Material Adverse Effect on such other
party, as of the Effective Time, as though made on and as of the  
  Effective Time, except (i) for changes expressly contemplated by the
       Merger Agreement or, in the case of the Company by the Company Disclosure
    Schedule, (ii) where the failure to be true and correct arises from or
relates to conditions applicable generally to such other party's  
industry, including, without limitation, economic and political   
developments, and (iii) those representations and warranties which
address matters only as of a particular date.                     

     - The other party must have performed and complied in all material respects
with all material agreements and covenants required by the Merger 
 Agreement to be performed or complied with by it on or prior to the
Effective Time.                                                   

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   Conditions to the Obligations of Schwinn and Acquisition Subsidiary.  The
obligations of Schwinn and Acquisition Subsidiary to consummate the Merger are  
further subject to the satisfaction or waiver (to the extent permitted) of the  
following additional conditions:                                                

- All material consents, waivers, approvals, authorizations or orders 
  required to be obtained, and all filings required to be made, by the
 Company for the authorization, execution and delivery of the Merger
   Agreement and the consummation by it of the transactions contemplated
     thereby, including, without limitation, all consents required under any
       contract to which the Company or any of its subsidiaries is a party or by
       which any of them or their properties or assets are bound, must have been
   obtained and made by the Company, except where the failure to receive
   such consents, waivers, approvals, authorizations or orders would not
 reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.                           

    - There must not be pending by any governmental authority any claim, suit,
      action or proceeding (or by any other person, any claim, suit, action or
   proceeding which the Board of Directors of Schwinn, based upon advice
from counsel, believes has a reasonable likelihood of success) (i)
    challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by the Merger
    Agreement or seeking material damages in connection therewith, or (ii)
     seeking to prohibit or limit the ownership or operation by Schwinn, the
     Company or any of their respective subsidiaries of any material portion
of the business or assets of the Company, Schwinn or any of their 
    respective subsidiaries, as a result of the Merger or any of the other
transactions contemplated by the Merger Agreement.                

   - Schwinn must have received the proceeds of its committed financing. See
"Financing."                                                      

   - Schwinn must have received a legal opinion of Stradling Yocca Carlson &
      Rauth, counsel to the Company, in substantially the form required by the
Merger Agreement.                                                 

   - The number of shares of Common Stock held by holders that have demanded
      and perfected their right of appraisal in accordance with Section 262 of
       the Delaware General Corporate Law must not exceed 10% of the outstanding
shares.                                                           

    The Merger Agreement defines "Material Adverse Effect" as, with respect to
any person, any change, effect or event that is or is reasonably likely to be   
(i) material and adverse to the condition (financial or otherwise), business,   
properties, assets, liabilities, results of operations, cash flows or prospects 
of such person and its subsidiaries taken as a whole, and (ii) does or is       
reasonably likely to materially impair the ability of such person to perform its
obligations under the Merger Agreement or otherwise materially threatens or     
impedes the consummation of the Merger and the other transactions contemplated  
by the Merger Agreement or the conduct of the business of the Surviving         
Corporation.                                                                    

TERMINATION OF THE MERGER AGREEMENT AND PAYMENT OF FEES AND EXPENSES            

   The Merger Agreement may be terminated at any time prior to the Effective
Time as follows:                                                                

- by mutual written consent of Schwinn and the Company;               

- by either Schwinn or the Company if the Merger is not consummated by
     October 30, 1998 (unless such date is extended by the mutual consent of
       Schwinn and the Company); provided, however, that this right to terminate
    the Merger Agreement is not be available to any party whose failure to
     fulfill any obligation under the Merger Agreement has been the cause of
       or resulted in the failure of the Merger to occur on or before such date;

- by either Schwinn or the Company, if any of the conditions to such  
   party's obligation to consummate the transactions contemplated by the
   Merger Agreement become impossible to satisfy; See "Conditions to the
Merger."                                                          

 - by either Schwinn or the Company if a court of competent jurisdiction
       issues a nonappealable final order, decree or ruling having the effect of
permanently restraining, enjoining or otherwise prohibiting       

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       the Merger (provided that this right to terminate the Merger Agreement is
      not to be available to any party who has not used its reasonable efforts
       to take such actions that are necessary to consummate the Merger and such
     noncompliance materially contributed to the issuance of any such order,
decree or ruling or the taking of such action);                   

- by either Schwinn or the Company if the requisite vote of the       
 stockholders of the Company is not obtained at the Special Meeting;

    - by Schwinn, if the Board of Directors of the Company withdraws, modifies
      or changes its approval or recommendation of the Merger Agreement or the
Merger in a manner adverse to Schwinn or approves or recommends an
       Acquisition Proposal or the Company enters into an agreement with respect
to an Acquisition Proposal;                                       

- by the Company if its Board of Directors withdraws or modifies its  
      approval or recommendation of the Merger Agreement or the Merger and the
 Company, simultaneously with terminating the Merger Agreement, pays
    Schwinn $2 million plus its reasonable expenses in accordance with the
terms of the Merger Agreement;                                    

 - by the Company if the Company enters into a definitive agreement with
 respect to a Superior Proposal and the Company, simultaneously with
terminating the Merger Agreement, pays Schwinn $2 million plus its
       reasonable expenses in accordance with the terms of the Merger Agreement;

- by Schwinn or the Company, upon a material breach of any covenant or
      agreement on the part of the Company or Schwinn, respectively, set forth
 in the Merger Agreement, which breach has not been cured within ten
      business days following receipt by the breaching party of notice of such
breach from the other party; and                                  

 - by Schwinn, if any representation or warranty of the Company shall be
      untrue such that the conditions described above under "Conditions to the
  Merger" with respect to the Company's representations and warranties
 would not be satisfied, or by the Company, if any representation or
    warranty of Schwinn shall be untrue such that the conditions described
above under "Conditions to the Merger" with respect to Schwinn's  
representations and warranties would not be satisfied.            

   If (i) the Company or Schwinn terminates the Merger Agreement because the
requisite vote of stockholders of the Company is not obtained at the Meeting    
(and prior to such termination, the Company shall have failed to reaffirm       
publicly its recommendation regarding the approval of the Merger of the Merger  
Agreement within three business days after receipt of Schwinn's request to do   
so), (ii) Schwinn terminates the Merger Agreement because the Company (A)       
withdrew, modified or changed its approval or recommendation of the Merger      
Agreement in a manner adverse to Schwinn, (B) approved or recommended an        
Acquisition Proposal or (C) entered into an agreement with respect to an        
Acquisition Proposal, or (iii) the Company terminates the Merger Agreement      
because (A) its Board of Directors withdrew or modified its approval and        
recommendation of the Merger Agreement or the Merger, (B) the Company entered   
into an agreement with respect to an Acquisition Proposal, or (C) Morgan Stanley
shall not have delivered an opinion to the effect that the Merger Consideration 
is fair from a financial point of view, Schwinn will be entitled to a payment of
$2,000,000 plus its out-of-pocket expenses reasonably incurred in connection    
with the Merger. Schwinn's expenses are limited to $500,000 if the Merger       
Agreement is so terminated prior to July 22, 1998, $650,000 if the Merger       
Agreement is so terminated prior to August 21, 1998, and $750,000 if the Merger 
Agreement is so terminated on or after August 21, 1998. Furthermore, if the     
Merger Agreement is terminated for the reasons described above, Schwinn is      
entitled to be paid an additional $1,000,000 by the Company on the earlier to   
occur of (i) the date which is 90 days from the date the Merger Agreement is    
terminated or (ii) the date on which the Company consummates an Acquisition     
Proposal. Schwinn is also entitled to be paid an additional $1,000,000 if the   
Company consummates and Acquisition Proposal at any time prior to the second    
anniversary of the termination of the Merger Agreement. Thus, Schwinn would be  
entitled to a total termination fee of a minimum of $3,000,000 if the Merger    
Agreement is terminated for the reasons described above and a maximum of        
$4,000,000 if the Company consummates an Acquisition Proposal within two years  
following termination. In the event the Merger Agreement is terminated for a    
reason that does not result in                                                  

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Schwinn being entitled to be reimbursed for its expenses (other than a          
termination caused by Schwinn's breach of the Merger Agreement), and within 18  
months of such termination the Company enters into a definitive agreement       
concerning an Acquisition Proposal, the Company is obligated to reimburse       
Schwinn for its expenses subject to the limitations described above.            

AMENDMENTS; WAIVERS                                                             

The provisions of the Merger Agreement (including the conditions to   
closing) may be amended or waived if, and only if, such amendment or waiver is  
in writing and signed. However, after the adoption of the Merger Agreement by   
the Company's stockholders, no amendment or waiver may, without the further     
approval of the Company's stockholders, alter or change the Merger              
Consideration, any term of the Certificate of Incorporation of the Company or   
any of the terms or conditions of the Merger Agreement if such alteration or    
change would adversely affect the Company's stockholders.                       

CONSEQUENCES OF THE MERGER                                                      

Upon consummation of the Merger, all shares of Common Stock issued and
outstanding immediately prior to the Effective Time will cease to be outstanding
and will automatically be cancelled and retired. Each certificate previously    
evidencing such shares, excluding Dissenting Shares, will thereafter represent  
only the right to receive the Merger Consideration. From and after the Effective
Time the holders of certificates evidencing shares of Common Stock outstanding  
immediately prior to the Effective Time will cease to have any rights with      
respect to the Common Stock except as otherwise provided by the Merger Agreement
or as required by law. Shares of the Common Stock will be deregistered under the
federal securities laws and will no longer be listed for trading on the Nasdaq  
National Market or any other exchange.                                          

FINANCING 

   If the Merger is consummated, the total amount required to pay the Merger
Consideration to the Company's stockholders, refinance indebtedness of the      
Company and pay the estimated fees and expenses of Schwinn and Acquisition      
Subsidiary are expected to be approximately $183 million. Acquisition Subsidiary
expects to obtain the necessary funds to consummate the Merger and pay all      
related fees and expenses from approximately $153 million of debt financing     
provided by Comerica Bank ("Comerica") and approximately $30 million of equity  
financing provided by Questor Partners Fund, L.P. ("Questor"). Schwinn has      
received commitments from Comerica and Questor to provide such financing.       
However, the commitment for the debt financing from Comerica is subject to      
certain conditions, including: (i) the consummation of the Merger, (ii) receipt 
of all necessary governmental, third-party and/or other approvals, and (iii)    
that there has been no material adverse change in the Company, the market for   
syndicated bank credit facilities or the financial, banking or capital markets. 
Each loan is to be secured by a pledge of the shares of Common Stock of Schwinn 
Cycling & Fitness, Inc. owned by Schwinn and, upon consummation of the Merger, a
perfected security interest in all the assets of the Company. The availability  
of the equity financing from Questor is subject to the closing of the debt      
financing from Comerica. While it is anticipated that the Comerica and Questor  
financing will be consummated, there can be no assurance that such will be the  
case.                                                                           

THE STOCKHOLDERS AGREEMENT

Pursuant to the provisions of the Merger Agreement, certain Bain      
affiliates, including Bain Capital Fund IV, L.P., Bain Capital Fund IV-B, L.P., 
BCIP Associates and BCIP Trust Associates, L.P. (the "Stockholders") entered    
into the Stockholders Agreement with Schwinn. In accordance with Section 1 of   
the Stockholders Agreement, each Stockholder has agreed to vote all shares of   
Common Stock owned by such Stockholder for adoption and approval of the Merger  
Agreement and the transactions contemplated therein and to vote against         
acquisition proposals of third parties. The voting provisions of the            
Stockholders Agreement are to terminate upon the earlier of the effectiveness of
the Merger and the termination of the Merger Agreement.                         

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    Pursuant to Section 2 of the Stockholders Agreement, the Stockholders also
have granted to Schwinn the option to purchase all of the Stockholders' shares  
of Common Stock at a price of $8.00 per share (the "Option"). The Option will   
not become exercisable unless and until certain specified events occur,         
including: (i) commencement of a third party tender offer, or the filing of a   
registration statement for an exchange offer, the consummation of which would   
result in a third party having beneficial ownership of 50% or more of the       
outstanding Common Stock, (ii) the Company or its Board of Directors (including 
any committee of the Board) shall have taken, or evidenced the intention of     
taking, certain specified actions to recommend or approve an acquisition        
proposal from a person other than Schwinn, or the Company's Board shall have    
withdrawn its recommendation of the Merger, (iii) any person (other than Schwinn
and the Stockholders) shall have acquired, or shall have acquired the right to  
acquire, beneficial ownership of 50% or more of the outstanding Common Stock or 
(iv) with respect to a particular Stockholder, such Stockholder shall have      
materially breached its obligations under the Stockholders Agreement.           

   The Option terminates on the earliest to occur of: (i) the effective time
of the Merger, (ii) the termination of the Merger Agreement by mutual consent,  
(iii) the entry of a nonappealable court order restraining, enjoining or        
prohibiting the Merger, and (iv) six months following termination of the Merger 
Agreement for any other reason. If Schwinn exercises the Option, and within 180 
days thereafter sells or otherwise disposes of such shares at a net profit,     
Section 2(h) of the Stockholders Agreement requires Schwinn to pay the          
Stockholders 50% of such net profit; provided, however, that such obligation to 
split the net profits with the Stockholders will not apply to a transaction with
an affiliate of Schwinn or to a sale or other disposition by Schwinn in         
connection with the consummation of an "Acquisition Proposal" (as defined in    
Section 6.3 of the Merger Agreement) which would include, without limitation,   
the acquisition of the Company by a third party and any tender offer or exchange
offer for capital stock of the Company.                                         

   The Stockholders Agreement further provides, among other things, that the
Stockholders will not sell or otherwise dispose of the Common Stock owned by    
them other than pursuant to the terms of the Merger, or enter into any voting   
arrangement (whether by proxy, voting trust or otherwise) in connection with any
other Acquisition Proposal.                                                     

PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY

  The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "GTBX". The following table sets forth, for the periods indicated,   
the range of high and low closing sales prices for the Company's Common Stock.  
The Company's Common Stock first began trading on the Nasdaq National Market    
System on October 18, 1995.                                                     

                                                                [Download Table]

                                                               HIGH        LOW  
                                                              -------    -------
                                                                                
FISCAL 1996:                                                                    
  1st Quarter...............................................  $10.875    $ 7.750
  2nd Quarter...............................................   16.375      9.375
  3rd Quarter...............................................   15.750     10.125
  4th Quarter...............................................   14.375     11.500
FISCAL 1997:                                                                    
  1st Quarter...............................................  $14.500    $ 8.000
  2nd Quarter...............................................   10.250      7.750
  3rd Quarter...............................................    8.625      7.375
  4th Quarter...............................................    8.000      5.656
FISCAL 1998:                                                                    
  1st Quarter...............................................  $ 6.750    $ 5.563
  2nd Quarter...............................................    7.313      4.500

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There were approximately 315 security holders of record as of June 30,
1998. On June 19, 1998, the last trading day prior to the public announcement   
that the Company signed the Merger Agreement with Schwinn for the acquisition of
the Company at a price of $8.00 per share in cash, the closing sale price of the
shares (as reported on the Nasdaq National Market System) was $4.75 per share.  
On June 30, 1998, the latest practicable trading day prior to the mailing of    
this Proxy Statement, the closing sale price for the shares of the Company's    
Common Stock was $7.31 per share. Stockholders are advised to obtain current    
market quotations for their shares. The Company has not paid dividends and      
intends to retain earnings for use in the business for the foreseeable future.  

BUSINESS OF SCHWINN 

    Schwinn is a holding company, substantially all of the outstanding capital
stock of which is owned by Questor Partners Fund, L.P., an investment limited   
partnership, and by an affiliated fund. Schwinn acquired Schwinn Cycling &      
Fitness, Inc. in September 1997, and more recently acquired Hebb Industries,    
Inc., on July 1, 1998.                                                          

 Schwinn Cycling & Fitness, headquartered in Boulder, Colorado, designs,
produces and markets a comprehensive range of bicycles under the Schwinn and    
Yeti brands, including juvenile, road, mountain, BMX, comfort and cruiser       
bicycles. These bicycles, which are in the mid-price range, are sold through    
independent bicycle dealers both in the United States and in various foreign    
countries. Schwinn Cycling & Fitness also designs and markets a wide range of   
fitness equipment under the Schwinn brand, including stationary bicycles,       
steppers, rowers and weight equipment, which are sold through independent       
bicycle dealers and specialty fitness dealers, as well as directly to health    
clubs, hotels, universities and hospitals. The recently acquired Hebb           
Industries, based in Tyler, Texas, manufactures and markets treadmills in the   
mid-price range which are sold through independent specialty fitness dealers and
which complement Schwinn's line of fitness equipment.                           

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BUSINESS OF THE COMPANY 

GENERAL                                                                         

   GT Bicycles, Inc. (the "Company" or "GT Bicycles") is a leading designer,
manufacturer and marketer of juvenile BMX and premium-priced mountain bicycles  
sold under the Company's brand names. The Company's wholly-owned Riteway        
Products and Caratti distribution network ("distribution network") is a leading 
distributor of the Company's bicycles, parts and accessories, as well as parts  
and accessories of other manufacturers, to independent bicycle dealers. The     
Company currently offers 127 bicycle models, including 30 mountain bicycle      
models, 65 juvenile BMX bicycle models, and 32 road and specialty bicycle       
models. In addition to the Company's broad line of bicycle models, the          
distribution network offers over 5,500 different parts and accessories, ranging 
from bicycle frames and componentry to helmets, locks and apparel. The Company's
distribution network also provides responsive customer service and dealer       
support, prompt delivery, high order fill-rates, timely warranty service, dealer
training, a comprehensive parts and accessory catalog and thorough product and  
market knowledge. Accordingly, the Company believes that its distribution       
network provides national purchasing power, financial stability and integrated  
inventory management, together with the service of a regional distributor.      

  The Company was incorporated on August 6, 1993 and had no operations for
the period August 6, 1993 to November 12, 1993. On November 12, 1993, the       
Company acquired all of the outstanding common stock of GT Bicycles California, 
Inc. and subsidiaries (collectively, the "Predecessor") in a purchase of common 
stock. The Company's name was changed from GT Holdings, Inc. to GT Bicycles,    
Inc. and the Predecessor's name was changed from GT Bicycles, Inc. to GT        
Bicycles California, Inc. on August 11, 1995. The Company has eleven operating  
subsidiaries: GT Bicycles California, Inc., GT BMX Products, Inc., Riteway      
Distributors, Inc., Riteway Distributors Central, Inc., Riteway Products East,  
Inc., Riteway Products North Central, Inc., Riteway Products Japan K.K.         
("Riteway Japan"), Riteway Products France S.A.R.L. ("Riteway France"), Caratti 
Sport Limited ("Caratti") in the United Kingdom, Riteway Products Canada, Ltd.  
("Riteway Canada") and Innovations in Composites, Inc. ("Innovations in         
Composites").                                                                   

The Company's current headquarters and principal place of business are
located at 2001 East Dyer Road, Santa Ana, California 92705, and its telephone  
number is (714) 481-7100.                                                       

BACKGROUND                                                                      

   The Company was founded in 1979 by Gary Turner and Richard Long, who were
early innovators in the design, manufacture and sale of juvenile BMX bicycle    
frames and forks using advanced designs and materials, including lightweight    
chromoly. In 1981 the Company began assembling and selling complete juvenile BMX
bicycles to independent bicycle dealers, and in 1984 the Company responded to an
emerging industry trend by introducing its first adult mountain bicycle. In     
1987, in order to provide vertically integrated distribution of its products to 
independent bicycle dealers, the Company acquired Riteway Distributors, Inc., a 
California distributor of bicycles, parts and accessories. During the years from
1989 through 1995, the Company purchased three additional domestic distributors,
resulting in full vertical distribution coverage of the continental United      
States. In 1996, the Company formed a distributor in Japan and purchased        
distributors in France and the United Kingdom (Caratti), and in 1997, the       
Company formed a distributor in Canada. The Company's distribution companies    
provide a regional focus to the independent bicycle dealers they serve.         

PRODUCTS                                                                        

   The Company currently offers a broad line of adult and juvenile bicycling
products in several categories, including: mountain bicycles, juvenile BMX      
bicycles, road and specialty bicycles, and parts and accessories. Within each   
category the Company strives to continually improve its existing products and   
introduce new products that feature some of the most technically sophisticated  
materials and componentry in the industry. Bicycles offered by the Company are  
sold exclusively under the Company's various brand names, and parts and         
accessories are sold under the brand names of the Company and third parties. In 
1997, sales of bicycles                                                         

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represented approximately 71% of the Company's net sales, and sales of parts and
accessories represented approximately 29%.                                      

     The Company's bicycles for the 1998 model year are distributed in the three
major bicycle categories as follows:                                            

                                                                [Download Table]

                                                            NUMBER OF  
                                                           1998 BICYCLE
                        CATEGORY                              MODELS   
                        --------                           ------------
                                                                       
MOUNTAIN BICYCLE MODELS:                                               
  GT Full Suspension.....................................       11     
  GT Aluminum............................................        8     
  GT Chromoly Steel......................................       10     
  GT Titanium............................................        1     
     Total...............................................       30     
JUVENILE BMX BICYCLE MODELS:                                           
  GT.....................................................       25     
  Dyno...................................................       18     
  Powerlite..............................................       14     
  Robinson...............................................        8     
     Total...............................................       65     
ROAD AND SPECIALTY BICYCLE MODELS:                                     
  Road...................................................       11     
  Streamline.............................................        6     
  Cruisers...............................................        8     
  Cross/hybrid...........................................        2     
  Tandem.................................................        2     
  Harley-Davidson........................................        1     
  Charger Electric-Assist................................        2     
     Total...............................................       32     
  Total Bicycle Models...................................      127     

  The Company also markets a full line of bicycle parts, including frames,
forks, handlebars, pedals, seats, cranks, derailleurs and freewheels, as well as
bicycle accessories such as pumps, lights, helmets, locks, cyclometers, racks   
and bicycle apparel. Some of the parts and accessories are designed and         
manufactured by the Company, and the others are manufactured and supplied by    
third parties. Parts and accessories designed and manufactured by the Company   
are offered and sold under the Company's GT, Dyno, Robinson, Powerlite and Cycle
Design brand names. All parts and accessories are offered to independent bicycle
dealers through the Company's distribution network. In addition, the Company has
an exclusive marketing relationship with Innovations in Composites, a           
majority-owned subsidiary, to sell and distribute three-spoke, hollow-composite 
wheels which use an innovative patented long-carbon composite technology under  
the Company's Spin brand name, together with other bicycle products that may be 
developed by the Company utilizing this technology. This technology enables     
products manufactured with composite materials to be aerodynamically shaped and 
manufactured in volume, while providing superior strength-to-weight ratios and  
product rigidity.                                                               

     The Company has an exclusive licensing agreement with Harley-Davidson Motor
Company to manufacture and market a Harley-Davidson bicycle and certain         
Harley-Davidson parts and accessories. The Company has also entered into a      
partnership with a third party to manufacture and market electric-assist        
bicycles under the Charger brand name. Distribution of the Harley-Davidson and  
Charger products began during 1997.                                             

RESEARCH AND PRODUCT DEVELOPMENT                                                

   GT Bicycles seeks to differentiate its products by offering bicycles with
the latest technology, innovative designs and advanced components and           
accessories. The Company's experienced product development team                 

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works with the Company's sales and manufacturing departments, distribution      
network and Team GT racing teams to improve existing products and to develop new
product ideas. The Company's product development activities are performed at the
Company's Santa Ana, California facilities and at its research and development  
facility located in Longmont, Colorado. The Company utilizes computer-aided     
design tools and structural analysis programs to enhance its product development
efforts. In addition, the Company maintains a stress and destructive testing    
laboratory at its Colorado facility to collect data and test designs prior to   
commercial introduction.                                                        

The Company manufactures bicycles using many materials, including     
chromoly-steel, aluminum, titanium and, most recently, thermoplastics and       
composites. In comparison with other materials, the Company believes that       
thermoplastic and composite materials offer superior strength-to-weight ratios  
while retaining rigidity and can be aerodynamically shaped in volume            
manufacturing.                                                                  

Under an agreement with USA Cycling, the Company was selected as the  
exclusive "Official Bicycle Manufacturer" of road and track bicycles for members
of the United States Cycling Team for a period of four years which was extended 
for another four years through the year 2000. In connection with this agreement,
the Company cooperated in the development and production of bicycles used by    
members of the United States Cycling Team at the 1996 Olympic Games in Atlanta, 
Georgia. This development effort, known as Project "96, focused on, among other 
things, the development of superior lightweight, responsive and aerodynamic     
equipment. The Company believes that its participation in Project "96 has       
enhanced its internal research and product development efforts and brand name   
recognition.                                                                    

SALES AND DISTRIBUTION                                                          

    The Company's products are primarily sold through its distribution network
to independent bicycle dealers throughout the world. In 1987, the Company began 
acquiring distribution companies to provide a vertically integrated national    
distribution network. This network, doing business as Riteway Products and      
Caratti, distributes the Company's brand name bicycles and a broad range of     
parts and accessories. The Company's distribution network consists of eight     
subsidiaries -- located in New York, Wisconsin, Missouri, California, Canada,   
Japan, France and the United Kingdom (Caratti) -- which employ commissioned     
field sales representatives, telemarketers and customer service representatives.
Each wholly-owned distributor operates on an independent basis with respect to  
inventory maintenance, sales order and invoice processing, credit management,   
customer service and local cooperative advertising. Historically, the           
distribution network has focused its efforts on the sale and distribution of    
bicycles, parts and accessories, while GT Bicycles has focused on the design,   
engineering, manufacture and marketing of selected categories of bicycles and   
components.                                                                     

In the United States, the Company sells products to over 4,000 of an  
estimated 6,800 independent bicycle dealers, using a sales force of             
approximately 64 field representatives and telemarketers. The Company sells     
parts and accessories and its juvenile BMX bicycles on a non-exclusive basis to 
independent bicycle dealers meeting its financial and other criteria. The       
Company believes that selling these products on a non-exclusive basis           
differentiates the Company from many of its competitors and provides greater    
market access for the Company's products. The Company grants exclusive marketing
areas for its GT all terra mountain bicycles to independent bicycle dealers in  
exchange for their agreement to minimum unit purchase commitments. The Company  
performs demographic, geographic and financial analyses when selecting its      
authorized independent bicycle dealers and provides initial training and ongoing
promotional assistance. The Company intends to selectively expand the number of 
authorized mountain bicycle dealers to include additional dealers which meet the
Company's standards of high quality service and customer support and agree to   
certain product commitments.                                                    

    GT Bicycles currently distributes bicycle products internationally through
52 independent distributors who supply 69 countries and through its four        
subsidiaries: Riteway Canada, Riteway Japan, Riteway France and Caratti (in the 
United Kingdom). The Company sells to its independent international distributors
directly from its Santa Ana, California facility. In addition, large orders are 
shipped in containers directly to these distributors from the Company's Taiwan  
and People's Republic of China suppliers. The Company believes                  

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that there are opportunities for expanded sales in foreign markets and intends  
to increase its sales and marketing efforts in these markets.                   

MARKETING                                                                       

    The Company promotes and maintains its leading brand names through focused
promotional efforts such as sponsorship of professional juvenile BMX and        
mountain bicycle racing teams; national, regional and local bicycle races;      
cooperative advertising programs with independent bicycle dealers; and          
participation in most major trade shows. The Company's marketing department     
oversees the conception, development and implementation of all aspects of the   
advertising, marketing and sales promotion of the Company's products.           

   GT Bicycles conducts national and international marketing and advertising
programs through a variety of media, including industry periodicals, newspaper  
and other print advertisements, television and radio. The Company focuses on    
high-profile advertising opportunities that feature its products and Team GT    
racing team riders in national cycling magazines and national bicycle television
programs. In early 1998, the Company began producing a syndicated juvenile BMX  
bicycle program, entitled "Crank", for the Fox Sports Network. Each of the      
Company's independent international distributors is required to conduct and     
coordinate marketing and advertising efforts with the Company in its respective 
territory. The Company maintains a marketing office in Belgium to coordinate the
marketing efforts of its various independent European distributors. In addition,
the Company and its independent international distributors participate in the   
major international industry trade shows.                                       

The Company also focuses advertising and marketing efforts on a       
"grass-roots" sponsorship campaign for various national, regional and local     
races and organizations. The Company believes that providing financial and      
technical support for local and regional organizations and events is a key      
factor in maintaining brand name recognition and customer loyalty.              

The Company believes that dealer support programs are key factors for 
marketing success. The Company provides its independent bicycle dealers with    
on-site product presentations and monthly dealer mailings that feature the      
Company's latest products and team riders. The Company also maintains a         
cooperative advertising program for its authorized independent bicycle dealers  
and provides assistance with local advertising and promotional programs.        

In addition to its sponsorship of independent teams such as the United
States Cycling Team, United States Triathlon Team, Team Saturn and Team Shaklee,
the Company also supports and promotes its own Team GT racing and demonstration 
teams which have been very successful in their respective cycling categories.   
The Company currently supports a GT mountain bicycle racing team, three BMX     
racing teams and a number of Freestyle demonstration riders. The Company's      
freestyle demonstration riders perform at varying venues such as NBA Basketball 
half-time shows, state fairs, school assemblies, trade shows and corporate      
events.                                                                         

MANUFACTURING, ASSEMBLY AND SOURCING                                            

  The Company's manufacturing strategy is to use a combination of internal
manufacturing for its higher-end products and outsourcing for its higher-volume,
lower-cost products in order to maximize flexibility and engineering expertise  
while minimizing capital commitments. The Company manufacturers many of its     
premium-priced mountain, juvenile BMX and road bicycles, as well as some of its 
mid-priced juvenile BMX bicycles, at the Company's Santa Ana, California        
facility. The Company believes that its internal manufacturing capabilities have
allowed it to increase its production flexibility, improve its product          
development and engineering processes, enhance its reputation for product       
quality and innovation and increase profit margins. The Company outsources the  
remaining majority of its production requirements according to its              
specifications and manufacturing standards which allows the Company to avoid the
costs and capital requirements attendant to full-scale manufacturing. The       
Company currently purchases bicycles from six foreign manufacturers. Although   
the Company has established relationships with its principal suppliers and      
manufacturing sources, it has no long-term contracts with these suppliers and   
competes with other companies for their production capacities. The Company's    
relationships with its suppliers are primarily based on the length of time such 
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companies have supplied the Company. In the event of a delay or disruption in   
the supply of bicycles, parts and accessories, the Company believes that it     
could arrange for alternative bicycle manufacturing sources within a reasonable 
time period on terms that would not be materially different from those currently
available to the Company. Accordingly, the Company does not believe that the    
loss of any single source supplier would have material adverse effect on the    
Company's business. However, the future success of the Company will depend on   
its ability to maintain close relationships with its current suppliers and to   
develop long-term relationships with other suppliers that satisfy the Company's 
requirements for price, quality and flexibility in scheduling production.       

   The Company's manufacturing operations consist of the forming and welding
of the bicycle frame and fork components for its premium-priced mountain,       
juvenile BMX and road bicycles and the assembly of the bicycle frame, fork,     
components and accessories. The Company also assembles bicycles from frames     
supplied by independent suppliers. The Company's remaining bicycles are         
manufactured to the Company's specifications by independent factories, most of  
which are located in Taiwan. The Company monitors its manufacturing process and 
tests its manufactured products to assure quality and reliability. The Company  
also tests externally sourced components and employs field engineers and        
independent representatives to oversee the manufacturing operations of the      
Company's foreign suppliers to assure compliance with the Company's quality     
control standards. The Company's sourcing strategy is to independently develop  
innovative product designs and specifications and to require adherence to strict
quality standards by its suppliers. In addition, the Company maintains a stress 
and destructive testing laboratory in its Longmont, Colorado facility to aid it 
in the design of reliable, high quality products. The Company's parts and       
accessories are currently manufactured by various third parties, most of whom   
are located in Taiwan and Japan. A substantial majority of the Company's        
multi-speed bicycles contain componentry (e.g., derailleurs, brakes and cranks) 
that is supplied on a purchase order basis by a Japanese manufacturer which has 
a leading position worldwide for the supply of such parts.                      

 The Company's products are manufactured according to plans that reflect
management's estimates of product sales based on recent sales results, current  
economic conditions, customer orders and prior experience with manufacturing    
sources. In order to be able to quickly fill orders from bicycle dealers, the   
Company's wholly-owned distributors maintain significant inventories. The       
average lead-time from the commitment to purchase products through production   
and shipment ranges from approximately 90 to 120 days in the case of bicycles,  
parts and accessories. The Company believes that the close relationships with   
its principal manufacturing sources allow it to introduce innovative product    
designs and alter production in response to the market demand for its products. 

PRODUCT RECALLS                                                                 

According to regulations promulgated by the Consumer Product Safety   
Commission ("CPSC"), the Company, as a manufacturer of consumer goods, is       
required to advise the CPSC of defects in its products that could create a      
substantial risk of injury to consumers. The CPSC also has the authority to     
require a manufacturer or supplier to recall a product, which may involve       
product repair, replacement or refunds. Alternatively, the Company can elect to 
do a voluntary recall in cooperation with the CPSC. The recalls identified below
are voluntary.                                                                  

    In December 1997, the Company's Riteway subsidiaries voluntarily initiated
a product recall in cooperation with the CPSC involving approximately 4,500     
Cycle Design Tag-A-Long bicycle tandem trailers manufactured by another entity  
and distributed by Riteway. In late 1997, the Company became aware that a bolt  
on the U-joint on two trailers had failed, resulting in the separation of the   
trailer from the mother bicycle. The Company worked with the manufacturer and   
redesigned the hardware utilizing significantly stronger bolts. The Company has 
made public press announcements to make consumers aware of the recall, and has  
instituted a program whereby independent bicycle dealers are instructed to      
contact affected consumers and retrofit the trailers with replacement bolts. To 
date, approximately 1,200 trailers have been retrofitted at an immaterial cost. 
The Company has not received claims for any significant injuries related to the 
Tag-a-Long, but there can be no assurance that such claims will not be received 
in the future.                                                                  

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 In March 1998, the Company voluntarily initiated a product recall which
involves approximately 10,000 aluminum juvenile BMX bicycles and frames         
manufactured and sold during the years 1995 to 1998. The recall, which is being 
conducted in cooperation with the CPSC, includes certain GT Speed Series and    
Robinson bicycles and frames. The problem involves cracking in the frames when  
the bicycles are subjected to the jumps and other stresses of today's more      
aggressive BMX riding. The Company has discontinued the use of these frames and 
has designed a significantly stronger frame for use on these BMX bicycles. The  
Company has made public press announcements in order to make consumers aware of 
the recall, and has also instituted a program whereby independent bicycle       
dealers are instructed to contact affected consumers (as required by their      
dealer agreements) and install upgraded replacement frames provided by the      
Company. It is not possible to predict the actual number of frames which will be
returned, but of those returns which are to be received, it is expected that    
over 80% will occur within the next six months and any remaining returns will   
occur within two years. The Company has not received any significant claims for 
injuries or other damages related to the affected frames, but there can be no   
assurance that such claims will not be received in the future.                  

    The Company does not believe that the aggregate cost of the aforementioned
recalls will have a material adverse effect on its results of operation,        
financial condition or liquidity. Although the Company has a limited history of 
involvement in product recalls, the Company may be involved in additional       
product recalls in the future which could have a material adverse effect on the 
Company's business, results of operations, financial condition and liquidity.   

INTELLECTUAL PROPERTY                                                           

In the course of its business, the Company employs various trademarks,
trade names and service marks, including its logos, in the packaging and        
advertising of its products. The Company believes the strength of its service   
marks, trademarks and trade names are of considerable value and importance to   
its business and intends to continue to protect and promote its marks as        
appropriate. The loss of any significant mark could have a material adverse     
effect on the Company. The Company is the owner of numerous domestic and        
international registrations and applications.                                   

     The Company currently holds a number of United States patents. Although the
Company believes that such patents are useful in maintaining the Company's      
competitive position, it considers other factors such as the Company's          
reputation for technology, innovation, quality products, customer service,      
dealer support, brand name recognition and distribution network to be its       
primary competitive advantages. It is the practice of the Company to require its
employees involved in research and product development activities to execute    
confidentiality and invention assignment agreements.                            

EMPLOYEES                                                                       

  At June 30, 1998, the Company had 850 full-time and part-time employees.
The Company believes that its relations with its employees are good, and has    
never suffered a material work stoppage or slowdown.                            

 In March 1996, the warehouse employees at the Company's facility in St.
Louis, Missouri voted for representation by the Teamster's union. During        
negotiations with the Company in September 1997, the Teamsters called a strike, 
and five of the Company's employees participated in that strike. In February    
1998, another vote by the warehouse employees resulted in the decertification of
the Teamsters union at the St. Louis location. All of the Company's employees   
are now non-union.                                                              

REGULATION                                                                      

   The Company is subject to Federal, state and local regulations concerning
consumer products, bicycles, the environment and occupational safety and health.
In general, the Company has not experienced difficulty complying with such      
regulations. The Company believes that its facilities are in material compliance
with applicable environmental laws, and since inception, the Company has had no 
material claims involving environmental matters.                                

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PROPERTIES                                                                      

     The following chart sets forth all of the leased facilities occupied by the
Company and each distribution subsidiary:                                       

                                                        [Enlarge/Download Table]

                                                                                     DATE OF     
                                                                  APPROXIMATE      TERMINATION   
              PURPOSE                         LOCATION           SQUARE FOOTAGE      OF LEASE    
              -------                --------------------------  --------------  ----------------
                                                                                                 
GT Corporate Headquarters,           Santa Ana, California          355,000      January 31, 2007
  Assembly, Manufacturing, Research                                                              
  and Product Development, and                                                                   
  Riteway West Distribution                                                                      
GT Bicycles Administrative Office    Hasselt, Belgium                   250      Monthly         
Riteway Central Distribution         St. Louis, Missouri             86,500      April 30, 2001  
Riteway Central Distribution         Jacksonville, Florida           40,000      July 31, 1999   
Riteway East Distribution            Cheektowaga, New York           84,000      January 15, 2011
Riteway North Central Distribution   Sheboygan, Wisconsin            50,000      July 9, 2000    
Riteway Japan Distribution           Tokyo, Japan                     1,400      January 28, 1999
Riteway Japan Distribution           Saitama, Japan                  10,800      June 30, 1999   
Riteway France Distribution          Nancy, France                   23,000      March 31, 2005  
Caratti Distribution                 Bristol, United Kingdom         40,000      April 30, 2013  
Caratti Distribution                 Bristol, United Kingdom          1,200      May 20, 2001    
Caratti Distribution                 Cheltenham, United Kingdom       2,000      June 21, 1999   
Caratti Distribution                 Gloucester, United Kingdom      30,000      June 15, 1999   

The Company consolidated its Colorado operations into a               
recently-constructed, Company-owned facility in June 1998. The facility consists
of a 30,000 square-foot building on three acres of land in Longmont, Colorado.  
Because the facility is larger than needed for the current level of operations, 
the Company plans to sublease 15,000 square feet to an independent entity on a  
short-term basis.                                                               

   The Company believes that its present facilities are adequate to meet its
anticipated needs for the next 12 months and suitable space will be available on
reasonable terms, if needed, to accommodate expansion.                          

LEGAL PROCEEDINGS                                                               

Because of the nature of the Company's business, the Company at any   
particular time is a defendant in a number of product liability lawsuits and    
expects that this will continue to be the case in the future. These lawsuits    
generally seek damages, sometimes in substantial amounts, for personal injuries 
allegedly sustained as a result of defects in the Company's products. Although  
the Company maintains product liability insurance, due to the uncertainty as to 
the nature and extent of manufacturers' and distributors' liability for personal
injuries, there is no assurance that the product liability insurance maintained 
by the Company is or will be adequate to cover product liability claims or that 
the applicable insurer will be solvent at the time of any covered loss. In      
addition, due to deductibles, self-retention levels and aggregate coverage      
amounts applicable under the Company's insurance policies, the Company will bear
responsibility for a significant portion, if not all, of the defense costs      
(which include attorney fees and expenses incurred in the defense of any claims)
and the related payments to satisfy any judgments associated with any claim     
asserted against the Company in excess of any applicable coverage. The          
successful assertion or settlement of an uninsured claim, the settlement of a   
significant number of insured claims or a claim exceeding the Company's         
insurance coverage could have a material adverse effect on the Company's        
business, results of operations, financial condition and liquidity. In addition,
there can be no assurance that insurance will remain available, or if available,
will not be prohibitively expensive.                                            

   The Company has no material pending legal proceedings, other than routine
litigation incidental to its business including the aforementioned product      
liability lawsuits.                                                             

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SELECTED CONSOLIDATED FINANCIAL DATA

    The selected consolidated financial data set forth below as of and for the
fiscal years ended December 31, 1995, 1996 and 1997 have been derived from the  
consolidated financial statements of the Company which have been audited by KPMG
Peat Marwick LLP, independent accountants, and these consolidated financial     
statements and report thereon are included elsewhere in this Proxy Statement.   
The following selected financial data as of and for the periods ended December  
31, 1993 and 1994 have been derived from the consolidated financial statements  
of the Company which have been audited but are not contained herein. The        
selected consolidated financial data as of and for the three months ended March 
31, 1997 and March 31, 1998 are derived from unaudited financial statements     
included elsewhere in this Proxy Statement which, in the opinion of management  
of the Company, reflect all adjustments, consisting only of normal recurring    
adjustments, that the Company considers necessary for a fair presentation of the
financial position and results of operations for these periods. Interim         
operating results for the three months ended March 31, 1998 are not necessarily 
indicative of the results that may be expected for the entire year ending       
December 31, 1998.                                                              

                                                        [Enlarge/Download Table]

                                                            THE COMPANY                                                 
                         ---------------------------------------------------------------------------------              
                          FIRST QUARTER ENDED                        FISCAL YEAR ENDED                      NOVEMBER 12,
                         ---------------------   ---------------------------------------------------------    THROUGH   
                         MARCH 31,   MARCH 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,  DECEMBER 31,
                           1998        1997          1997           1996           1995           1994          1993    
                         ---------   ---------   ------------   ------------   ------------   ------------  ------------
                                                                                                                        
RESULTS OF OPERATIONS:                                                                                                  
Net sales..............   $51,165     $51,170      $216,214       $208,351       $168,933       $145,749      $20,498   
Cost of sales..........    36,754      37,395       156,349        149,147        124,524        107,690       17,061   
                          -------     -------      --------       --------       --------       --------      -------   
Gross profit...........    14,411      13,775        59,865         59,204         44,409         38,059        3,437   
Selling, general                                                                                                        
  and administrative                                                                                                    
  expenses.............    12,098      10,762        48,083         38,450         28,429         25,962        3,491   
Amortization of                                                                                                         
  intangibles and                                                                                                       
  deferred financing                                                                                                    
  costs................       257         233         1,002            739          3,313          5,107          419   
Nonrecurring charge....        --          --            --             --          4,708             --           --   
                          -------     -------      --------       --------       --------       --------      -------   
Operating income                                                                                                        
  (loss)...............     2,056       2,780        10,780         20,015          7,959          6,990         (473)  
Life insurance                                                                                                          
  proceeds, net........        --          --            --         (1,276)            --             --           --   
Interest expense.......     1,956       1,386         5,586          3,828          6,070          5,233          673   
                          -------     -------      --------       --------       --------       --------      -------   
Income (loss) before                                                                                                    
  taxes and                                                                                                             
  extraordinary item...       100       1,394         5,194         17,463          1,889          1,757       (1,146)  
Provision for income                                                                                                    
  taxes................        17         578         2,044          5,887          1,027            875         (430)  
                          -------     -------      --------       --------       --------       --------      -------   
Income (loss) before                                                                                                    
  extraordinary item...        83         816         3,150         11,576            862            882         (716)  
Extraordinary loss from                                                                                                 
  early extinguishment                                                                                                  
  of debt..............        --          --            --             --         (1,146)            --           --   
                          -------     -------      --------       --------       --------       --------      -------   
Net income (loss)......   $    83     $   816      $  3,150       $ 11,576       $   (284)      $    882      $  (716)  
                          =======     =======      ========       ========       ========       ========      =======   
EARNINGS (LOSS) PER                                                                                                     
  SHARE(2)(3):                                                                                                          
Basic:                                                                                                                  
  Income before                                                                                                         
    extraordinary                                                                                                       
    item...............   $   .01     $   .08      $    .32       $   1.18       $   0.12       $   0.13                
  Extraordinary item...        --          --            --             --          (0.16)            --                
                          -------     -------      --------       --------       --------       --------                
  Net income (loss)....   $   .01     $   .08      $    .32       $   1.18       $  (0.04)      $   0.13                
                          =======     =======      ========       ========       ========       ========                
Diluted:                                                                                                                
  Income before                                                                                                         
    extraordinary                                                                                                       
    item...............   $   .01     $   .08      $    .32       $   1.17       $   0.12       $   0.12                
  Extraordinary item...        --          --            --             --          (0.16)            --                
                          -------     -------      --------       --------       --------       --------                
  Net income (loss)....   $   .01     $   .08      $   0.32       $   1.17       $  (0.04)      $   0.12                
                          =======     =======      ========       ========       ========       ========                


                              THE                                                                                       
                         PREDECESSOR(1)                                                                                 
                           JANUARY 1,                                                                                   
                            THROUGH                                                                                     
                          NOVEMBER 11,                                                                                  
                              1993                                                                                      
                         --------------                                                                                 
                                                                                                                        
RESULTS OF OPERATIONS:                                                                                                  
Net sales..............     $103,250                                                                                    
Cost of sales..........       78,165                                                                                    
                            --------                                                                                    
Gross profit...........       25,085                                                                                    
Selling, general                                                                                                        
  and administrative                                                                                                    
  expenses.............       17,427                                                                                    
Amortization of                                                                                                         
  intangibles and                                                                                                       
  deferred financing                                                                                                    
  costs................           67                                                                                    
Nonrecurring charge....           --                                                                                    
                            --------                                                                                    
Operating income                                                                                                        
  (loss)...............        7,591                                                                                    
Life insurance                                                                                                          
  proceeds, net........           --                                                                                    
Interest expense.......        1,374                                                                                    
                            --------                                                                                    
Income (loss) before                                                                                                    
  taxes and                                                                                                             
  extraordinary item...        6,217                                                                                    
Provision for income                                                                                                    
  taxes................        2,532                                                                                    
                            --------                                                                                    
Income (loss) before                                                                                                    
  extraordinary item...        3,685                                                                                    
Extraordinary loss from                                                                                                 
  early extinguishment                                                                                                  
  of debt..............           --                                                                                    
                            --------                                                                                    
Net income (loss)......     $  3,685                                                                                    
                            ========                                                                                    
EARNINGS (LOSS) PER                                                                                                     
  SHARE(2)(3):                                                                                                          
Basic:                                                                                                                  
  Income before                                                                                                         
    extraordinary                                                                                                       
    item...............                                                                                                 
  Extraordinary item...                                                                                                 
  Net income (loss)....                                                                                                 
Diluted:                                                                                                                
  Income before                                                                                                         
    extraordinary                                                                                                       
    item...............                                                                                                 
  Extraordinary item...                                                                                                 
  Net income (loss)....                                                                                                 

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                                                        [Enlarge/Download Table]

                                            MARCH 31,                         DECEMBER 31,                   
                                       -------------------  -------------------------------------------------
                                         1998       1997      1997       1996      1995      1994      1993  
                                       --------   --------  --------   --------   -------   -------   -------
                                                                                                             
FINANCIAL POSITION:                                                                                          
Working capital....................... $126,363   $116,886  $ 28,702   $107,392   $72,789   $50,526   $40,694
Total assets..........................  184,514    165,064   176,281    156,181    96,693    86,252    77,689
Total debt and capital lease                                                                                 
  obligations.........................  107,403     89,027    98,190     78,676    40,429    67,368    60,543
Total stockholders' equity............   61,676     59,945    61,403     59,153    46,712     6,780     5,898

---------------                                                                 
(1) Effective November 12, 1993, the Company acquired the Predecessor in a      
leveraged acquisition. The acquisition was accounted for as a purchase  
resulting in a new basis for the assets acquired.                       

(2) Earnings per share for the Company for the period November 12, 1993 through 
December 31, 1993 is not presented due to the non-comparable period     
   presented. Earnings per share for the Predecessor for the period January 1,
 1993 through November 11, 1993 is not presented due to the non-comparable
capital structure.                                                      

(3) In 1997, the Company adopted Statement of Financial Accounting Standards No.
 128, "Earnings per Share", which changes the presentation of earnings per
share data. Prior year data has been restated to conform with the new   
standard. See Note 2 to Consolidated Financial Statements.              

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 The discussion and analysis set forth below contains trend analysis and
other forward-looking statements. Actual results could differ materially from   
those projected in the forward-looking statements as a result of many factors,  
including but not limited to the following: cycles of dealer orders, general    
economic conditions and changing consumer trends, technological advances and the
number and timing of new product introductions, shipments of products and       
componentry from foreign suppliers, the timing of operating and advertising     
expenditures and changes in the mix of products ordered by independent bicycle  
dealers.                                                                        

OVERVIEW                                                                        

The Company's gross margins in any period are affected by factors,    
including but not limited to the type and mix of products sold and by the       
breakdown between domestic and international sales. Mountain bicycles, which    
represent the largest portion of the Company's net sales, are characterized     
generally by relatively lower gross margins than juvenile BMX bicycles and parts
and accessories sold by the Company. Gross margins on sales to independent      
international distributors are generally lower than gross margins on sales      
through the Company's distribution network. However, the majority of independent
international sales are shipped directly to distributors in containers from the 
Company's suppliers in Taiwan and the People's Republic of China and, therefore,
the Company incurs significantly less distribution and other expenses with      
regard to such sales.                                                           

  1997 Relocation of the Company's Southern California Facilities.  In May
1997, the Company consolidated its southern California manufacturing,           
distribution, administrative, and research and development facilities, which had
previously been located in several buildings, to the present facility located on
Dyer Road in Santa Ana, California. In connection with the relocation, the      
Company incurred aggregate expenses of approximately $1.0 million, including    
moving costs and the write-off of abandoned leasehold improvements at the former
locations. This amount was charged to selling, general and administrative       
expenses during the first half of 1997.                                         

1996 Life Insurance Proceeds, net of Guaranteed Severance             
Payments.  Included in net income for the year ended December 31, 1996, were net
life insurance proceeds of approximately $1.3 million received by the Company   
following the death of its former President and Chief Executive Officer, Richard
Long, in July 1996. The net proceeds consisted of a $2.0 million insurance      
settlement less guaranteed payments owed to Richard Long's family of            
approximately $0.7 million. See Note 14 of Notes to Consolidated Financial      
Statements.                                                                     

   1995 Nonrecurring Charge and Extraordinary Loss From Early Extinguishment
of Debt.  Concurrent with closing of the Company's initial public offering      
("IPO") on October 18, 1995, certain covenants not to compete from the 1993     
reorganization were terminated resulting in a nonrecurring charge of            
approximately $4.7 million. The Company also used approximately $37.0 million of
the proceeds from the IPO to retire debt which resulted in the accelerated      
amortization of related deferred financing costs and a debenture discount       
totaling approximately $1.1 million, net of taxes. This item has been accounted 
for as an extraordinary loss from early extinguishment of debt in the 1995      
Consolidated Financial Statements. See Notes 6 and 13 of Notes to Consolidated  
Financial Statements.                                                           

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RESULTS OF OPERATIONS                                                           

     The following table sets forth certain consolidated statement of operations
data as a percentage of net sales, for the periods indicated:                   

                                                        [Enlarge/Download Table]

                                                             YEAR ENDED DECEMBER 31,  
                                                             -----------------------  
                                                             1997     1996     1995   
                                                             -----    -----    -----  
                                                                                      
Net sales................................................... 100.0%   100.0%   100.0% 
Cost of sales...............................................  72.3     71.6     73.7  
                                                             -----    -----    -----  
Gross profit................................................  27.7     28.4     26.3  
Selling, general and administrative expenses................  22.2     18.4     16.8  
Amortization of intangibles and deferred financing costs....   0.5      0.4      2.0  
Nonrecurring charge.........................................    --       --      2.8  
                                                             -----    -----    -----  
Operating income............................................   5.0      9.6      4.7  
Life insurance proceeds, net................................    --     (0.6)      --  
Interest expense............................................   2.6      1.8      3.6  
                                                             -----    -----    -----  
Income before taxes and extraordinary item..................   2.4      8.4      1.1  
Provision for income taxes..................................   0.9      2.8      0.6  
                                                             -----    -----    -----  
Income before extraordinary item............................   1.5      5.6      0.5  
Extraordinary loss from early extinguishment of debt........    --       --      0.7  
                                                             -----    -----    -----  
Net income (loss)...........................................   1.5%     5.6%    (0.2)%
                                                             =====    =====    =====  

COMPARISON OF 1997 TO 1996                                                      

Net Sales.  Net sales for 1997 increased by $7.9 million, or 3.8%, to 
$216.2 million. The increase was attributable to a $10.3 million increase in    
foreign sales, offset by a $2.4 million decrease in domestic sales. The increase
in foreign sales was comprised of a $6.2 million increase in sales of bicycles  
and a $4.1 million increase in sales of parts and accessories, and primarily    
resulted from the addition and growth of the Company's subsidiaries in the      
United Kingdom, France, Japan and Canada, which were purchased or formed during 
1996 and 1997. The decrease in domestic sales was comprised of a $1.8 million   
decrease in sales of bicycles and a $0.6 million decrease in sales of parts and 
accessories. The decrease in bicycle sales was due to lower sales of adult      
mountain bicycles, partially offset by higher sales of juvenile bicycles and    
specialty bicycles (including the Company's new lines of cruiser,               
Harley-Davidson and Charger electric-assist bicycles).                          

 Gross Profit.  Gross profit, as a percentage of net sales, was 27.7% in
1997 and 28.4% in 1996. This decrease was primarily attributable to             
manufacturing inefficiencies incurred during and following the relocation of the
Company's Santa Ana facility.                                                   

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses increased by $9.6 million, or 25.1%, and represented    
22.2% of sales in 1997 versus 18.4% of sales in 1996. This increase was         
primarily due to the increased selling, marketing and administrative expenses   
associated with the new Company-owned distributors in the United Kingdom,       
France, Japan and Canada. The remainder of the increase was principally related 
to higher selling and marketing expenses to promote brand equity, higher product
development expenses, and the cost of relocating the Company's southern         
California facilities, as discussed above.                                      

    Amortization of Intangibles and Deferred Financing Costs.  Amortization of
intangibles increased by $0.3 million in 1997, principally due to the inclusion 
of a full year's amortization of the goodwill resulting from the 1996           
acquisition of Caratti and Riteway France.                                      

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  Life Insurance Proceeds, net.  Included in 1996 net income were net life
insurance proceeds of $1.3 million that the Company received following the death
of its former President and Chief Executive Officer, as discussed above. There  
was no such item in 1997.                                                       

   Interest Expense.  Interest expense in 1997 increased by $1.8 million, or
45.9%. The increase was principally related to the higher level of average      
borrowings needed to fund the Company's 1996 acquisition of Caratti and Riteway 
France, support the growth of the Company's foreign operations, and fund capital
expenditures. In addition, the Company incurred a higher average interest rate  
on its bank credit facility during 1997.                                        

    Provision for Income Taxes.  The Company's effective tax rate was 39.4% in
1997 as compared to 33.7% in 1996. The 5.7% increase principally relates to a   
3.9% benefit received during 1996 in connection with the non-taxable life       
insurance proceeds discussed above. The remaining 1.8% increase arose primarily 
due to the effect of non-deductible goodwill amortization being absorbed over   
lower pretax income in 1997.                                                    

COMPARISON OF 1996 TO 1995                                                      

 Net Sales.  Net sales for 1996 increased by $39.4 million, or 23.3%, to
$208.4 million. The increase in net sales was attributable to a $5.8 million and
$17.9 million increase in domestic and foreign sales of bicycles, respectively, 
and a $8.6 million and $7.1 million increase in domestic and foreign sales of   
parts and accessories, respectively. The increase in domestic net sales was     
primarily attributable to a general increase in the demand for the Company's    
juvenile bicycles, parts and accessories. The increase in foreign net sales was 
primarily attributable to the inclusion of the Company's new distributors in    
Japan, France and the United Kingdom in its results of operations as well as a  
general increase in sales to independent international distributors.            

 Gross Profit.  Gross profit, as a percentage of net sales, was 28.4% in
1996 and 26.3% in 1995. This increase was attributable to a change in product   
mix, which included an increase in sales of higher margin juvenile bicycles and 
parts and accessories, coupled with higher gross profit margins in all bicycle  
product categories which were the result of improved manufacturing efficiencies 
and sourcing.                                                                   

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses for 1996 increased by $10.0 million, or 35.2%, and      
increased as a percentage of net sales from 16.8% to 18.4%. This increase was   
primarily due to increased administrative costs as a result of the addition of  
the new foreign distributors in Japan, France and the United Kingdom, the       
inclusion of a full year of administrative costs for Riteway North Central,     
Inc., which was purchased in July 1995, and additional personnel costs and      
associated overhead required to support the increased revenues of the Company.  

    Amortization of Intangibles and Deferred Financing Costs.  Amortization of
intangibles and deferred financing costs decreased by $2.6 million in 1996 and  
decreased as a percentage of net sales from 2.0% to 0.4%. The decrease was      
primarily attributable to the termination of certain covenants not to compete   
and the accelerated amortization of related deferred financing costs in         
connection with the Company's IPO in October 1995, as discussed above. This     
decrease was partially offset by the increased amortization of goodwill from the
acquisition of Caratti in July 1996.                                            

   Nonrecurring Charge.  The nonrecurring charge in 1995 represents a charge
taken by the Company in October 1995 for the termination of certain covenants   
not to compete, as discussed above. There was no such charge in 1996.           

     Life Insurance Proceeds, net.  Included in the net income for 1996 were net
life insurance proceeds of $1.3 million that the Company received following the 
death of its former President and Chief Executive Officer, as discussed above.  
There was no such item in 1995.                                                 

   Interest Expense.  Interest expense decreased by $2.2 million in 1996 and
decreased as a percentage of sales from 3.6% to 1.8%. The decrease was          
attributable to a reduction in debt as proceeds from the IPO were used to retire
a portion of the Company's debt as well as decreased short-term interest rates  
under the Company's new revolving credit facility which was obtained in November
1995. This decrease was partially                                               

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offset by increased interest expense on additional borrowings in 1996 which were
incurred to fund acquisitions and the expansion of the Company's domestic and   
foreign operations.                                                             

    Provision for Income Taxes.  The Company's effective tax rate was 33.7% in
1996 as compared to 54.4% in 1995. The Company's effective tax rate in 1996 has 
been affected by the non-deductibility of the amortization of goodwill and the  
non-taxable life insurance proceeds received. The Company's effective tax rate  
in 1995 has been affected by the non-deductibility of the amortization of       
goodwill and the tax effect of the extraordinary loss from early extinguishment 
of debt.                                                                        

QUARTERLY COMPARISONS                                                           

     The following table sets forth certain quarterly consolidated statements of
operations data for the periods presented and such data as a percentage of net  
sales. This quarterly information is unaudited and has been prepared on the same
basis as the annual consolidated financial statements and, in management's      
opinion, reflects all adjustments consisting only of normal recurring           
adjustments necessary to present fairly the information set forth therein. The  
operating results for any quarter are not necessarily indicative of results for 
any future period.                                                              

                                                        [Enlarge/Download Table]

                                   JUNE 30,  SEPT. 30,  DEC. 31,  MARCH 31,  JUNE 30,  SEPT. 30,  DEC. 31,  MARCH 31,
                                     1996      1996       1996      1997       1997      1997       1997      1998   
                                   --------  ---------  --------  ---------  --------  ---------  --------  ---------
                                                                                                                     
CONSOLIDATED STATEMENTS OF                                                                                           
  OPERATIONS DATA:                                                                                                   
Net sales........................  $44,114    $52,435   $62,952    $51,170   $50,769    $56,444   $57,831    $51,165 
Cost of sales....................   30,921     37,041    44,875     37,395    36,972     40,525    41,457     36,754 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
Gross profit.....................   13,193     15,394    18,077     13,775    13,797     15,919    16,374     14,411 
Selling, general and                                                                                                 
  administrative expenses........    8,644     10,645    11,169     10,762    11,684     13,168    12,469     12,098 
Amortization of intangibles and                                                                                      
  deferred financing costs.......      136        243       225        233       264        260       245        257 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
Operating income.................    4,413      4,506     6,683      2,780     1,849      2,491     3,660      2,056 
Life insurance proceeds, net.....       --     (1,276)       --         --        --         --        --         -- 
Interest expense.................      737      1,047     1,314      1,386     1,405      1,352     1,443      1,956 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
Income before taxes..............    3,676      4,735     5,369      1,394       444      1,139     2,217        100 
Provision for income taxes.......    1,471      1,095     1,848        578       160        461       845         17 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
Net income.......................  $ 2,205    $ 3,640   $ 3,521    $   816   $   284    $   678   $ 1,372    $    83 
                                   =======    =======   =======    =======   =======    =======   =======    ======= 
Earnings per share:                                                                                                  
  Basic..........................  $   .23    $   .37   $   .36    $   .08   $   .03    $   .07   $   .14    $   .01 
  Diluted........................  $   .22    $   .37   $   .35    $   .08   $   .03    $   .07   $   .14    $   .01 
PERCENTAGE OF NET SALES:                                                                                             
  Net sales......................    100.0%     100.0%    100.0%     100.0%    100.0%     100.0%    100.0%     100.0%
  Cost of sales..................     70.1       70.6      71.3       73.1      72.8       71.8      71.7       71.8 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
  Gross profit...................     29.9       29.4      28.7       26.9      27.2       28.2      28.3       28.2 
  Selling, general and                                                                                               
    administrative expenses......     19.6       20.3      17.7       21.0      23.0       23.3      21.6       23.7 
  Amortization of intangibles and                                                                                    
    deferred financing costs.....      0.3        0.5       0.4        0.5       0.5        0.5       0.4        0.5 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
  Operating income...............     10.0        8.6      10.6        5.4       3.7        4.4       6.3        4.0 
  Life insurance proceeds, net...       --       (2.4)       --         --        --         --        --         -- 
  Interest expense...............      1.7        2.0       2.1        2.7       2.8        2.4       2.5        3.8 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
  Income before taxes............      8.3        9.0       8.5        2.7       0.9        2.0       3.8        0.2 
  Provision for income taxes.....      3.3        2.1       2.9        1.1       0.3        0.8       1.4         -- 
                                   -------    -------   -------    -------   -------    -------   -------    ------- 
  Net income.....................      5.0%       6.9%      5.6%       1.6%      0.6%       1.2%      2.4%       0.2%
                                   =======    =======   =======    =======   =======    =======   =======    ======= 

Operating results fluctuate on a quarterly basis due to a variety of  
factors, including the cycles of dealer orders, shipment of products from       
foreign suppliers, the number and timing of new product introductions, the      

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timing of operating and advertising expenditures and changes in the mix of      
products ordered by dealers. Typically, the Company's operating expenses are    
higher in the third quarter primarily due to annual introductions of new bicycle
models and participation in annual industry trade shows. In addition, the       
Company's business has seasonal elements based upon bicycle model years,        
weather, the year-end shopping season and other factors. The Company believes   
that factors such as fluctuations in the quarterly operating results could cause
the price of the common stock to fluctuate substantially.                       

COMPARISON OF QUARTER ENDED MARCH 31, 1998 TO QUARTER ENDED MARCH 31, 1997      

    Net Sales.  Net sales of $51.2 million in the quarter ended March 31, 1998
were unchanged from the corresponding prior-year quarter. Domestic sales        
increased $0.7 million due to higher sales of parts and accessories; domestic   
sales of bicycles were at approximately the same level as in the prior-year     
quarter. International sales decreased $0.7 million, as lower export shipments  
to independent distributors more than offset higher sales by the Company's      
subsidiaries in Canada, France, Japan and the United Kingdom. In particular, the
stronger U.S. dollar adversely affected orders from independent European        
distributors, who could not pass on currency-related higher prices to their     
customers.                                                                      

  Gross Profit.  Gross profit, as a percentage of net sales, was 28.2% and
26.9% in the quarters ended March 31, 1998 and 1997, respectively. The increase 
primarily reflected a change in the mix of products sold, with a greater        
proportion of sales coming from higher-margin parts and accessories and juvenile
bicycles.                                                                       

Selling, General and Administrative Expenses.  Selling, general and   
administrative expenses ("SG&A") for the quarter ended March 31, 1998 increased 
by $1.4 million, or 12.3%, over the corresponding prior-year quarter and        
increased as a percentage of net sales to 24.1% from 21.5%. Approximately half  
of the dollar increase was attributable to expenses incurred at Riteway Canada  
and Innovations, which were not consolidated during the first quarter last year,
and higher expenses at the Company's subsidiaries in France, Japan and the      
United Kingdom. The remaining increase primarily reflected higher U.S. marketing
and advertising expenses to promote brand equity and higher operating costs     
associated with the new Santa Ana facility. Partially offsetting these increases
were approximately $0.3 million of nonrecurring relocation costs incurred during
the first quarter of 1997 in connection with the Company's move to the new Santa
Ana facility.                                                                   

  Interest Expense.  Interest expense for the quarter ended March 31, 1998
increased $0.6 million, or 41.1%, from the corresponding prior-year quarter. The
increase was principally due to a combination of higher borrowings under the    
Company's revolving bank credit agreements and a higher effective interest rate 
on such borrowings. Based on expected borrowing levels and interest rates under 
the Company's new bank facilities, the Company anticipates that interest expense
for the remainder of 1998 will exceed 1997 interest expense.                    

    Income Taxes.  The Company's effective tax rate was 17.0% and 41.5% in the
quarters ended March 31, 1998 and 1997, respectively. The relatively low 1998   
first quarter tax rate primarily reflected tax benefits at one of the Company's 
foreign subsidiaries and the mix of domestic and foreign earnings in the        
quarter. The Company expects that the annual 1998 consolidated tax provision    
will be comparable to the 39.4% annual rate incurred in 1997.                   

LIQUIDITY AND CAPITAL RESOURCES                                                 

At March 31, 1998, the Company had a credit agreement with a bank that
provided for a domestic revolving credit facility, a domestic term loan, and    
separate revolving credit facilities for the Riteway Japan, Riteway France and  
Caratti subsidiaries. Such credit agreement was scheduled to expire on June 30, 
1998. In April 1998, the Company restructured its banking arrangements to       
provide longer-term financing, as summarized below.                             

   The Company entered into a new domestic revolving credit facility with an
affiliate of its existing bank. The facility expires in April 2001 and is       
secured by substantially all of the Company's assets. The facility provides for 
maximum borrowings and letters of credit equal to the lesser of $75.0 million or
the Company's borrowing base associated with accounts receivable and            
inventories, as defined by the agreement. The amount                            

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individually available under commercial and standby letters of credit is $15.0  
million. The Company has the option to pay interest on borrowings at the bank's 
reference rate plus the applicable margin (as defined in the agreement) or LIBOR
plus the applicable margin (as defined in the agreement); such interest rates   
may decrease in the future if the Company meets certain financial ratio         
criteria. The weighted average interest rate on the facility was 8.16% at April 
30, 1998. The Company must pay a monthly commitment fee equal to .25% per annum 
on the unused amount of the $75.0 maximum available credit. The agreement       
requires that the Company maintain certain financial ratios and other covenants,
which, among other things, restrict other indebtedness, capital expenditures and
certain investments.                                                            

   The Company's separate revolving credit facilities for Riteway France and
Riteway Japan, which provide for maximum borrowings of $3.5 million and $3.0    
million, respectively, were also extended in connection with the aforementioned 
new domestic facility. In addition, the Company received a commitment from its  
bank to extend the Caratti facility to April 2001 and to increase the maximum   
borrowings thereunder from $10.0 million to $15.0 million.                      

The domestic term loan outstanding at March 31, 1998 was replaced by a
$20.0 million term loan with the Company's existing bank. The new loan requires 
quarterly principal payments of $1.3 million through June 1999 with a final     
balloon payment of the remaining principal in July 1999. The Company has the    
option to pay interest on borrowings at the bank's reference rate plus the      
applicable margin (as defined in the agreement) or LIBOR plus the applicable    
margin (as defined in the agreement). The interest rate on the term loan was    
9.63% at April 30, 1998. In addition, in connection with the term loan, the     
Company issued a warrant which gives the bank the right to purchase 525,765     
shares of the Company's common stock at $6.58 per share, which represented the  
average of the closing prices of the Company's common stock on the Nasdaq market
during a specified period in January 1998. The warrant becomes exercisable based
on the following schedule: one-third in September 1998, one-third in December   
1998 and one-third in March 1999, provided that the Company has not yet repaid  
the term loan in full as of such dates.                                         

    Also in April 1998, the Company entered into an unsecured revolving credit
facility with another financial institution. This facility, which expires in    
October 1999, provides for maximum borrowings of $3.0 million. Interest is based
on specified commercial paper rates plus the applicable margin (as defined in   
the agreement). The interest rate on the facility was 8.02% at April 30, 1998.  

   In February 1998, Riteway Canada entered into a revolving credit facility
with a Canadian bank. This facility, which expires in February 2000, provides   
for maximum borrowings equal to the lesser of C$9.0 million (approximately      
US$6.3 million) or Riteway Canada's borrowing base associated with accounts     
receivable and inventories, as defined in the agreement. Interest is payable    
monthly at the bank's prime rate plus the applicable margin (as defined in the  
agreement). The interest rate on the facility was 7.75% at April 30, 1998.      

The Company's operating activities used cash of $9.0 million and $8.6 
million in the quarters ended March 31, 1998 and 1997, respectively. The higher 
cash usage in 1998 primarily reflected a larger increase in accounts receivable,
partially offset by a larger inventory reduction and a smaller accounts payable 
decrease. As is normal industry practice, the Company maintains relatively high 
levels of receivables during the winter months in connection with its credit    
policies. The Company's capital expenditures of $0.8 million in the quarter     
ended March 31, 1998 were less than the $1.9 million of capital expenditures in 
the corresponding 1997 quarter, which included leasehold improvements and       
equipment purchased for the Company's new Santa Ana facility. The aforementioned
1998 and 1997 operating and investing cash outlays were financed primarily with 
additional borrowings under the Company's revolving lines of credit.            

     The Company's operating activities used cash of $5.3 million in 1997, $14.5
million in 1996 and $8.8 million in 1995. The lower cash outflow in 1997        
resulted principally from a smaller increase in trade receivables and inventory 
than had occurred in the prior two years, when the Company was experiencing a   
more rapid expansion of its business. In addition, the Company's inventory      
levels have increased over the past several years as the international          
subsidiaries have expanded and the domestic product line has broadened. The     
Company's investing activities used cash of $13.6 million in 1997, $17.7 million
in 1996 and $4.0 million in 1995. Investing activities were primarily comprised 
of capital expenditures at the Company's new Santa Ana facility and a new       
research and manufacturing facility in Colorado, along with $3.6 million of cash
held in                                                                         

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trust for future capital expenditures at the Santa Ana facility. In 1996,       
investment activities were primarily comprised of the acquisition of Caratti and
Riteway France. The Company's financing activities resulted in net cash inflows 
of $19.5 million in 1997, $32.1 million in 1996 and $12.7 million in 1995.      
Additional bank borrowings provided the majority of the financing in 1997 and   
1996, while the Company's IPO provided the principal financing in 1995.         

The Company anticipates that it will continue to rely on bank credit, 
vendor credit and cash generated from operations in order to finance anticipated
higher inventory and accounts receivable levels. The Company believes that the  
restructured financing described above will be sufficient to satisfy the        
Company's working capital and capital expenditure requirements through at least 
the next 12 months.                                                             

NEW ACCOUNTING PRONOUNCEMENTS                                                   

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an       
Enterprise and Related Information" ("SFAS No. 131"), which establishes         
standards for reporting financial and descriptive information about an          
enterprise's operating segments in its annual financial statements and selected 
segment information in interim financial reports. SFAS No. 131 becomes effective
for the Company's 1998 annual financial statements and for its 1999 interim     
financial statements. Restatements of comparative prior-year financial          
statements will be required in the periods in which the Company first applies   
SFAS No. 131.                                                                   

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.  
133"). The Statement established accounting and reporting standards for         
derivative instruments, including certain derivative instruments embedded in    
other contracts, and hedging activities. The Statement is effective for all     
fiscal quarters of fiscal years beginning after June 15, 1999. Application of   
the Statement is not expected to have a material impact on the Company's        
consolidated financial position, results of operations or liquidity.            

YEAR 2000 COMPLIANCE                                                            

   The Company has performed a preliminary examination of its major software
applications to determine whether each system is prepared to accommodate the    
year 2000. This examination included a review of program code which is          
maintained by the Company as well as obtaining confirmation from outside        
software vendors that their products are year 2000 compliant. The Company       
believes that, based on its current examination, the year 2000 will not have a  
material adverse impact on the Company's operations and that the costs to       
accommodate the year 2000 will not be material. However, there can be no        
assurance that software incompatibility with the year 2000 on the part of the   
Company or any of its significant suppliers will not cause an interruption of   
operations or other limitations of system functionality, or that the Company    
will not incur substantial costs to avoid such occurrences. By the end of 1998, 
the Company plans to complete an extensive assessment of the readiness of its   
software applications with respect to year 2000 issues and any related          
accommodation costs.                                                            

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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

  Set forth below is certain information as of June 30, 1998 regarding the
beneficial ownership of the Company's Common Stock by (i) any person who was    
known by the Company to own more than five percent (5%) of the voting securities
of the Company, (ii) all directors of the Company, (iii) the Chief Executive    
Officer and each of the four most highly compensated executive officers of the  
Company other than its Chief Executive Officer, and (iv) all current directors  
and executive officers of the Company as a group.                               

                                                        [Enlarge/Download Table]

                                                             AMOUNT AND NATURE OF                     
          NAME AND ADDRESS OF BENEFICIAL OWNERS             BENEFICIAL OWNERSHIP(1)  PERCENT OF CLASS 
          -------------------------------------             -----------------------  ---------------- 
                                                                                                      
Bain Funds(2).............................................         2,230,081                     22.6%
  c/o Bain Capital                                                                                    
  Two Copley Place, 7th Floor                                                                         
  Boston, Massachusetts 02116                                                                         
Jackson National Life Insurance Company...................           524,505                      5.3%
  5901 Executive Drive                                                                                
  Lansing, Michigan 48909                                                                             
Robert C. Gay.............................................         2,230,081                     22.6%
  Director(3)                                                                                         
  c/o Bain Capital                                                                                    
  Two Copley Place, 7th Floor                                                                         
  Boston, Massachusetts 02116                                                                         
Geoffrey S. Rehnert.......................................         2,230,081                     22.6%
  Chairman of the Board of Directors(3)                                                               
  c/o Bain Capital                                                                                    
  Two Copley Place, 7th Floor                                                                         
  Boston, Massachusetts 02116                                                                         
Joseph J. Pretlow.........................................         2,230,081                     22.6%
  Director(3)                                                                                         
  c/o Bain Capital                                                                                    
  Two Copley Place, 7th Floor                                                                         
  Boston, Massachusetts 02116                                                                         
Schwinn Holdings Corporation(4)...........................         2,230,081                     22.6%
  c/o Questor Management Company                                                                      
  4000 Town Center, Suite 530                                                                         
  Southfield, Michigan 48075                                                                          
Michael C. Haynes.........................................           355,986                      3.6%
  President, Chief Executive Officer and Director                                                     
William K. Duehring.......................................           278,538                      2.8%
  Chief Operating Officer and Director(5)                                                             
Charles Cimitile..........................................            15,800                      0.2%
  Vice President, Finance                                                                             
All current executive officers and directors as a group (6                                            
  persons)(3)(5)..........................................         2,880,405                     29.3%

---------------                                                                 
(1) Beneficial ownership is determined in accordance with the rules of the      
Securities and Exchange Commission and generally includes voting or     
   investment power with respect to securities. Shares of Common Stock subject
to options, warrants and convertible notes currently exercisable or     
convertible, or exercisable or convertible within 60 days of the Record 
Date, are deemed outstanding for computing the percentage of the person 
holding such options but are not deemed outstanding for computing the   
    percentage of any other person. Except as indicated by footnote, and subject
   to community property laws where applicable, the persons named in the table
  have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.                              

(2) Includes (i) 102,388 shares owned by BCIP Associates, (ii) 49,023 shares    
  owned by BCIP Trust Associates, L.P., (iii) 1,109,328 shares owned by Bain
   Capital Fund IV-B, L.P., and (iv) 969,342 shares owned by Bain Capital Fund
IV, L.P.                                                                

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(3) Includes shares described in Note (2) above. Messrs. Gay, Rehnert and       
  Pretlow are Directors of the Company. Messrs. Gay and Rehnert are managing
directors of Bain Capital Investors, Inc., the general partner of Bain  
    Capital Partners IV, L.P., which is the general partner of Bain Capital Fund
  IV-B, L.P. and Bain Capital Fund IV, L.P. and are general partners of BCIP
  Associates and BCIP Trust Associates, L.P., and accordingly, may be deemed
   to beneficially own such shares. Mr. Pretlow is a principal of Bain Capital
    Investors, Inc., the management company for Bain Capital Fund IV-B, L.P. and
  Bain Capital Fund IV, L.P., and accordingly, may be deemed to beneficially
own such shares. Each of Mr. Gay, Mr. Rehnert and Mr. Pretlow disclaims 
beneficial ownership of the shares held by BCIP Associates, BCIP Trust  
Associates, L.P., Bain Capital Fund IV-B, L.P. and Bain Capital Fund IV,
L.P., except to the extent of each of their pecuniary interests therein.

(4) Includes shares described in Note (2) above. Schwinn has been granted an    
   option to purchase such shares from the funds holders described in Note (2)
upon certain events pursuant to the Stockholders Agreement. See "the    
Stockholders Agreement."                                                

(5) Includes 264,000 shares held in the William K. Duehring Trust, dated        
December 6, 1994.                                                       

SUBMISSION OF STOCKHOLDER PROPOSALS 

Assuming that the Merger is approved and completed, no proxies will be
solicited for the Company's 1998 Annual Meeting. If the Merger is not approved  
and completed, a proposal by a stockholder intended to be presented at the 1998 
Annual Meeting must be received by the Company at its principal executive       
offices by October   , 1998, to be included in the Proxy Statement for that     
Meeting, and all other conditions for such inclusion must be satisfied.         

EXPERTS 

    The consolidated balance sheets of the Company as of December 31, 1997 and
December 31, 1996, and the consolidated statements of operations, stockholders  
equity, and cash flows of the Company for each of the three years in the period 
ended December 31, 1997, included in this Proxy Statement, have been so included
in reliance on the report of KPMG Peat Marwick LLP, independent accountants,    
given on the authority of said firm as experts in accounting and auditing. No   
representative of KPMG Peat Marwick LLP is expected to be present at the Special
Meeting.                                                                        

OTHER BUSINESS

  The Board of Directors does not intend to bring any other matters before
the Special Meeting and does not know of any matters to be brought before the   
Special Meeting by others. No other matters may be brought before the Special   
Meeting in accordance with Delaware law.                                        

                                      By Order of the Board of Directors
                     GT BICYCLES, INC.

                         /s/ MICHAEL C. HAYNES
                                          --------------------------------------
                                         Chief Executive Officer and President

Santa Ana, California                                                           
July   , 1998                                                                   

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INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]

                                                              PAGE
                                                              ----
                                                                  
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER         
  31, 1997, 1996 AND 1995:                                        
Independent Auditors' Report................................   F-1
Consolidated Balance Sheets.................................   F-2
Consolidated Statements of Operations.......................   F-3
Consolidated Statements of Stockholders' Equity.............   F-4
Consolidated Statements of Cash Flows.......................   F-5
Notes to Consolidated Financial Statements..................   F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR         
  THE QUARTERS ENDED MARCH 31, 1998 AND 1997:                     
Unaudited Condensed Consolidated Balance Sheet..............  F-23
Unaudited Condensed Consolidated Statements of Operations...  F-24
Unaudited Condensed Consolidated Statements of Cash Flows...  F-25
Notes to Unaudited Condensed Consolidated Financial               
  Statements................................................  F-26

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INDEPENDENT AUDITORS' REPORT

The Board of Directors                                                          
GT Bicycles, Inc.:                                                              

  We have audited the consolidated balance sheets of GT Bicycles, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated      
statements of operations, stockholders' equity and cash flows for each of the   
years in the three-year period ended December 31, 1997. These consolidated      
financial statements are the responsibility of the Company's management. Our    
responsibility is to express an opinion on these consolidated financial         
statements based on our audits.                                                 

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GT Bicycles,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period  
ended December 31, 1997, in conformity with generally accepted accounting       
principles.                                                                     

                         KPMG PEAT MARWICK LLP

Orange County, California                                                       
February 25, 1998                                                               

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GT BICYCLES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                      DECEMBER 31,        
                                                              ----------------------------
                                                                  1997            1996    
                                                              ------------    ------------
                                                                                          
                                     ASSETS (NOTE 6)                                      
Current assets:                                                                           
  Cash and cash equivalents.................................  $    588,000    $         --
  Trade accounts receivable, net of allowances of $2,334,000                              
     and $1,634,000 at December 31, 1997 and 1996,                                        
     respectively...........................................    52,418,000      51,843,000
  Inventories (note 3)......................................    80,985,000      74,328,000
  Prepaid expenses and other current assets.................     3,098,000       1,980,000
  Deferred income taxes (note 8)............................     1,646,000       1,915,000
                                                              ------------    ------------
     Total current assets...................................   138,735,000     130,066,000
Property, plant and equipment, net (notes 4 and 9)..........    12,833,000       5,023,000
Goodwill and other intangibles, net (notes 2, 5 and 11).....    19,920,000      19,388,000
Other assets (note 11)......................................     1,161,000       1,704,000
Restricted cash (note 6)....................................     3,607,000              --
Deferred income taxes (note 8)..............................        25,000              --
                                                              ------------    ------------
                                                              $176,281,000    $156,181,000
                                                              ============    ============
                           LIABILITIES AND STOCKHOLDERS' EQUITY                           
Current liabilities:                                                                      
  Current portion of long-term debt (note 6)................  $ 92,883,000    $  4,250,000
  Current portion of capital lease obligations (note 9).....       462,000         376,000
  Accounts payable..........................................    11,915,000      12,468,000
  Accrued liabilities.......................................     4,310,000       4,519,000
  Income taxes payable......................................       463,000       1,061,000
                                                              ------------    ------------
     Total current liabilities..............................   110,033,000      22,674,000
  Long-term debt, net of current portion (note 6)...........     4,438,000      73,421,000
  Capital lease obligations, net of current portion (note                                 
     9).....................................................       407,000         629,000
  Deferred income taxes (note 8)............................            --          92,000
  Other liabilities.........................................            --         212,000
                                                              ------------    ------------
     Total liabilities......................................   114,878,000      97,028,000
                                                              ------------    ------------
Stockholders' equity (notes 6 and 7):                                                     
  Preferred stock, $0.001 par value, 5,000,000 shares                                     
     authorized, none issued................................            --              --
  Common stock, $0.001 par value, 20,000,000 shares                                       
     authorized, 9,821,000 and 9,781,000 shares issued and                                
     outstanding at December 31, 1997 and 1996,                                           
     respectively...........................................        10,000          10,000
  Additional paid-in-capital................................    47,182,000      46,916,000
  Retained earnings.........................................    14,608,000      11,458,000
  Foreign currency translation adjustment...................      (397,000)        769,000
                                                              ------------    ------------
     Total stockholders' equity.............................    61,403,000      59,153,000
Commitments and contingencies (note 9)......................                              
                                                              ------------    ------------
                                                              $176,281,000    $156,181,000
                                                              ============    ============

See accompanying notes to consolidated financial statements.
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GT BICYCLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                            YEAR ENDED DECEMBER 31,            
                                                  -------------------------------------------- 
                                                      1997            1996            1995     
                                                  ------------    ------------    ------------ 
                                                                                               
Net sales........................................ $216,214,000    $208,351,000    $168,933,000 
Cost of sales....................................  156,349,000     149,147,000     124,524,000 
                                                  ------------    ------------    ------------ 
  Gross profit...................................   59,865,000      59,204,000      44,409,000 
Selling, general and administrative expenses.....   48,083,000      38,450,000      28,429,000 
Amortization of intangibles and deferred                                                       
  financing costs................................    1,002,000         739,000       3,313,000 
Nonrecurring charge (note 13)....................           --              --       4,708,000 
                                                  ------------    ------------    ------------ 
Operating income.................................   10,780,000      20,015,000       7,959,000 
Life insurance proceeds, net of guaranteed                                                     
  severance payments of $724,000 (note 14).......           --      (1,276,000)             -- 
Interest expense (note 6)........................    5,586,000       3,828,000       6,070,000 
                                                  ------------    ------------    ------------ 
Income before taxes and extraordinary item.......    5,194,000      17,463,000       1,889,000 
Provision for income taxes (note 8)..............    2,044,000       5,887,000       1,027,000 
                                                  ------------    ------------    ------------ 
Income before extraordinary item.................    3,150,000      11,576,000         862,000 
Extraordinary loss from early extinguishment of                                                
  debt, net of income tax benefit of $978,000                                                  
  (note 6).......................................           --              --      (1,146,000)
                                                  ------------    ------------    ------------ 
Net income (loss)................................ $  3,150,000    $ 11,576,000    $   (284,000)
                                                  ============    ============    ============ 
Earnings (loss) per share:                                                                     
  Basic:                                                                                       
     Income before extraordinary item............ $       0.32    $       1.18    $       0.12 
     Extraordinary item..........................           --              --           (0.16)
                                                  ------------    ------------    ------------ 
     Net income (loss)........................... $       0.32    $       1.18    $      (0.04)
                                                  ============    ============    ============ 
  Diluted:                                                                                     
     Income before extraordinary item............ $       0.32    $       1.17    $       0.12 
     Extraordinary item..........................           --              --           (0.16)
                                                  ------------    ------------    ------------ 
     Net income (loss)........................... $       0.32    $       1.17    $      (0.04)
                                                  ============    ============    ============ 
Weighted average common and common equivalent                                                  
  shares:                                                                                      
  Basic..........................................    9,804,000       9,772,000       7,256,000 
                                                  ============    ============    ============ 
  Diluted........................................    9,918,000       9,932,000       7,403,000 
                                                  ============    ============    ============ 

See accompanying notes to consolidated financial statements.
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GT BICYCLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                                                       RETAINED      FOREIGN                  
                                      COMMON STOCK      ADDITIONAL     EARNINGS     CURRENCY         TOTAL    
                                   -------------------    PAID-IN    (ACCUMULATED  TRANSLATION   STOCKHOLDERS'
                                    SHARES     AMOUNT     CAPITAL      DEFICIT)    ADJUSTMENT       EQUITY    
                                   ---------   -------  -----------  ------------  -----------   -------------
                                                                                                              
BALANCE, DECEMBER 31, 1994........ 6,600,000   $ 7,000  $ 6,607,000  $   166,000   $        --    $ 6,780,000 
Cancellation of shares (note 7)...  (277,000)       --           --           --            --             -- 
Exercise of warrants (note 7).....   292,000        --           --           --            --             -- 
Issuance of common stock, net of                                                                              
  offering costs (note 7)......... 3,150,000     3,000   40,213,000           --            --     40,216,000 
Net loss..........................        --        --           --     (284,000)           --       (284,000)
                                   ---------   -------  -----------  -----------   -----------    ----------- 
BALANCE, DECEMBER 31, 1995........ 9,765,000    10,000   46,820,000     (118,000)           --     46,712,000 
Exercise of options (note 7)......    11,000        --       34,000           --            --         34,000 
Issuance of common stock for                                                                                  
  employee stock purchase plan                                                                                
  (note 7)........................     5,000        --       62,000           --            --         62,000 
Net income........................        --        --           --   11,576,000            --     11,576,000 
Foreign currency translation                                                                                  
  adjustment......................        --        --           --           --       769,000        769,000 
                                   ---------   -------  -----------  -----------   -----------    ----------- 
BALANCE, DECEMBER 31, 1996........ 9,781,000    10,000   46,916,000   11,458,000       769,000     59,153,000 
Exercise of options (note 7)......    16,000        --       58,000           --            --         58,000 
Issuance of common stock for                                                                                  
  employee stock purchase plan                                                                                
  (note 7)........................    24,000        --      208,000           --            --        208,000 
Net income........................        --        --           --    3,150,000            --      3,150,000 
Foreign currency translation                                                                                  
  adjustment......................        --        --           --           --    (1,166,000)    (1,166,000)
                                   ---------   -------  -----------  -----------   -----------    ----------- 
BALANCE, DECEMBER 31, 1997........ 9,821,000   $10,000  $47,182,000  $14,608,000   $  (397,000)   $61,403,000 
                                   =========   =======  ===========  ===========   ===========    =========== 

See accompanying notes to consolidated financial statements.
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GT BICYCLES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                             YEAR ENDED DECEMBER 31,            
                                                   -------------------------------------------- 
                                                       1997            1996            1995     
                                                   ------------    ------------    ------------ 
                                                                                                
Cash flows from operating activities:                                                           
  Net income (loss)..............................  $  3,150,000    $ 11,576,000    $   (284,000)
  Adjustments to reconcile net income (loss) to                                                 
     net cash used in operating activities:                                                     
     Depreciation and amortization...............     2,772,000       1,595,000       4,084,000 
     Write-off of covenant not to compete........            --              --       4,708,000 
     Extraordinary loss from early extinguishment                                               
       of debt...................................            --              --       2,124,000 
     Provisions for discounts and losses on                                                     
       accounts receivable.......................     1,334,000         589,000         343,000 
     Deferred income taxes, net..................       152,000        (265,000)        526,000 
     Foreign currency translation gain (loss)....    (1,166,000)        769,000              -- 
  Changes in assets and liabilities:                                                            
     Trade accounts receivable...................    (1,909,000)    (11,406,000)     (9,974,000)
     Inventories.................................    (6,657,000)    (18,996,000)     (6,002,000)
     Income taxes payable........................      (598,000)      1,776,000      (1,309,000)
     Prepaid expenses and other assets...........    (1,404,000)       (966,000)       (726,000)
     Accounts payable............................      (553,000)        434,000      (2,403,000)
     Accrued liabilities.........................      (209,000)        211,000          92,000 
     Other liabilities...........................      (212,000)        212,000              -- 
                                                   ------------    ------------    ------------ 
       Net cash used in operating activities.....    (5,300,000)    (14,471,000)     (8,821,000)
                                                   ------------    ------------    ------------ 
Cash flows from investing activities:                                                           
  Purchases of property, plant and equipment.....    (9,606,000)     (2,408,000)       (694,000)
  Write-off of leasehold improvements............       279,000              --              -- 
  Restricted cash from industrial development                                                   
     bonds.......................................    (3,607,000)             --              -- 
  Investments in unconsolidated affiliates.......      (110,000)       (500,000)             -- 
  Purchase of Riteway Products North Central,                                                   
     Inc.........................................            --              --      (3,267,000)
  Purchase of Caratti Sport Limited..............            --     (13,428,000)             -- 
  Purchase of Riteway Products France S.A.R.L....      (587,000)     (1,323,000)             -- 
                                                   ------------    ------------    ------------ 
       Net cash used in investing activities.....   (13,631,000)    (17,659,000)     (3,961,000)
                                                   ------------    ------------    ------------ 
Cash flows from financing activities:                                                           
  Net borrowings under lines of credit...........    18,947,000      16,236,000       9,660,000 
  Borrowings from term loan......................            --      17,000,000     (37,000,000)
  Repayments of term loan........................    (4,250,000)     (1,063,000)             -- 
  Borrowings from industrial development bonds...     5,000,000              --              -- 
  Repayments of industrial development bonds.....      (112,000)             --              -- 
  Proceeds from issuance of common stock and                                                    
     warrants....................................       266,000          96,000      40,216,000 
  Principal payments on capital lease                                                           
     obligations.................................      (332,000)       (139,000)       (167,000)
                                                   ------------    ------------    ------------ 
       Net cash provided by financing                                                           
          activities.............................    19,519,000      32,130,000      12,709,000 
                                                   ------------    ------------    ------------ 
Net increase (decrease) in cash and cash                                                        
  equivalents....................................       588,000              --         (73,000)
Cash and cash equivalents at beginning of year...            --              --          73,000 
                                                   ------------    ------------    ------------ 
Cash and cash equivalents at end of year.........  $    588,000    $         --    $         -- 
                                                   ============    ============    ============ 

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                                                        [Enlarge/Download Table]

                                                             YEAR ENDED DECEMBER 31,           
                                                   --------------------------------------------
                                                       1997            1996            1995    
                                                   ------------    ------------    ------------
                                                                                               
Supplemental disclosure of cash flow information:                                              
  Cash paid during the year for:                                                               
     Interest....................................  $  5,599,000    $  3,692,000    $  6,248,000
                                                   ============    ============    ============
     Income taxes................................  $  2,490,000    $  4,447,000    $    969,000
                                                   ============    ============    ============
Supplemental disclosures:                                                                      
  Purchase of Riteway Products North Central,                                                  
     Inc.                                                                                      
     Inventories.................................  $         --    $         --    $  2,217,000
     Property, plant and equipment...............            --              --          77,000
     Goodwill....................................            --              --         323,000
     Covenant not to compete.....................            --              --         650,000
                                                   ------------    ------------    ------------
       Net cash used to acquire business.........  $         --    $         --    $  3,267,000
                                                   ============    ============    ============
  Purchase of Caratti Sport Limited                                                            
     Working capital, other than cash............  $         --    $  9,194,000    $         --
     Property, plant and equipment...............            --         433,000              --
     Goodwill....................................            --       9,871,000              --
     Long-term debt..............................            --      (5,888,000)             --
     Noncurrent liabilities......................            --        (182,000)             --
                                                   ------------    ------------    ------------
       Net cash used to acquire business.........  $         --    $ 13,428,000    $         --
                                                   ============    ============    ============
  Purchase of Riteway Products France S.A.R.L                                                  
     Inventories.................................  $         --    $  1,201,000    $         --
     Property, plant and equipment...............            --          54,000              --
     Goodwill and other assets...................       587,000          68,000              --
                                                   ------------    ------------    ------------
       Net cash used to acquire business.........  $    587,000    $  1,323,000    $         --
                                                   ============    ============    ============
  Purchase of equipment under capital lease                                                    
     obligations.................................  $    196,000    $    143,000    $         --
                                                   ============    ============    ============

See accompanying notes to consolidated financial statements.
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GT BICYCLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BUSINESS                                                                    

Description of the Company                                                  

   GT Bicycles, Inc. (the "Company") is a leading designer, manufacturer and
marketer of mid- to premium-priced mountain and juvenile BMX bicycles sold under
the Company's brand names. The Company's Riteway Products and Caratti           
distribution network is a leading distributor of the Company's bicycles, parts  
and accessories, as well as parts and accessories of other manufacturers to     
independent bicycle dealers.                                                    

    The name of the Company was changed from GT Holdings, Inc. to GT Bicycles,
Inc. on August 11, 1995. The Company consummated an initial public offering     
("IPO") of its common stock in October 1995.                                    

Substantial Leverage and Liquidity                                          

     As of December 31, 1997, the Company's total indebtedness was approximately
$97.3 million, and there was approximately $3.6 million available under its     
revolving credit facilities for future borrowings. The revolving credit         
facilities in the current amount of $80.7 million and a term loan of $11.7      
million become due and payable on June 30, 1998. As of December 31, 1997, the   
Company had stockholders' equity of approximately $61.4 million. The Company's  
high degree of leverage could have important consequences, including (i) a      
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional debt financing in the future for working capital   
may be limited; (iii) the Company may be more leveraged than certain of its     
competitors, which may place the Company at a competitive disadvantage; and (iv)
the Company's ability to refinance its revolving credit facility and its term   
loan due and payable on June 30, 1998 may be adversely affected. The Company is 
negotiating with its existing senior secured lender and other lenders regarding 
longer-term financing or the refinancing of its revolving credit and term loan  
facilities. However, there can be no assurance that the Company will be able to 
obtain any such facilities on acceptable terms, or at all. The failure to obtain
acceptable financing would have a material adverse affect on the Company's      
business, results of operations, financial condition and liquidity.             

Dependence of Foreign Suppliers                                             

The Company's business is highly dependent on products manufactured by
foreign suppliers located primarily in Taiwan and Japan and to a lesser extent  
the People's Republic of China. The Company's business is subject to the risks  
generally associated with doing business abroad, including, but not limited to, 
delays in shipment, foreign governmental regulation, adverse fluctuations in    
foreign exchange rates, difficulties in collecting receivables, embargoes,      
tariffs, exchange controls, trade disputes, changes in economic conditions and  
political turmoil in the countries in which the Company's manufacturing sources 
are located. The Company cannot predict the effect that such factors will have  
on its business arrangements with foreign suppliers or manufacturing sources.   
Any significant delay or disruption in supply of bicycles or bicycle parts and  
accessories could have a material adverse effect on the Company's financial     
condition, results of operations and liquidity.                                 

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Principles of Consolidation                                                 

The consolidated financial statements of the Company include the      
wholly-owned subsidiaries, GT Bicycles California, Inc., GT BMX Products, Inc., 
Riteway Distributors, Inc., Riteway Distributors Central, Inc., Riteway Products
East, Inc., Riteway Products North Central, Inc., Riteway Products Japan K.K.   
("Riteway Japan"), Riteway Products France S.A.R.L. ("Riteway France") and      
Caratti Sport Limited ("Caratti") in the United Kingdom, as well as the         
majority-owned subsidiaries, Innovations in Composites,                         

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GT BICYCLES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Inc. ("Innovations") and Riteway Products Canada Limited ("Riteway Canada").    
Investments in affiliates, for which the Company has an ownership interest of at
least 20% but not exceeding 50%, are recorded under the equity method of        
accounting.                                                                     

Riteway Products North Central, Inc., Riteway France, and Caratti were
acquired in July 1995, April 1996, and July 1996, respectively, and have been   
accounted for under the purchase method of accounting. Accordingly, the purchase
price of each entity was allocated to the assets acquired based on their        
estimated fair values. The excess of the purchase price over the fair market    
values of the net assets acquired has been recorded as goodwill. Riteway Japan  
was formed in March 1996 as a wholly-owned subsidiary of the Company. Riteway   
Canada was formed in September 1997 as an 85%-owned subsidiary of the Company.  

    The Company held a 45% ownership interest in Innovations from 1993 through
June 1997. In July 1997, the Company increased its ownership level in           
Innovations to 57% through the purchase of additional common shares. At that    
date, the Company changed its method of accounting for Innovations from the     
equity method to consolidation (see note 11).                                   

The interest of minority shareholders in the equity of Innovations and
Riteway Canada is included in accrued liabilities on the accompanying balance   
sheet and their interest in the earnings of these entities is included in       
selling, general and administrative expenses on the accompanying statement of   
operations. Such amounts were not material in fiscal 1997.                      

     All significant intercompany balances and transactions have been eliminated
in consolidation.                                                               

Foreign Currency Translation                                                

The Company uses the local currency of the respective country as the  
functional currency for its overseas operations. Accordingly, assets and        
liabilities outside the United States are translated into dollars at the rate of
exchange in effect at the balance sheet date. Income and expense items are      
translated at the weighted average exchange rates prevailing during the period. 
The cumulative translation gain or loss is included as an adjustment to         
stockholders' equity. There were no significant foreign currency transaction    
gains or losses in the periods presented.                                       

Cash and Cash Equivalents                                                   

For purposes of the consolidated statements of cash flows, the Company
considers all highly-liquid investments with original maturities of three months
or less to be cash equivalents.                                                 

Inventories                                                                 

Inventories are stated at the lower of cost or market ("net realizable
value"). Cost is determined using the average cost method, which approximates   
the first-in, first-out (FIFO) method.                                          

Revenue Recognition                                                         

Revenue is recognized and estimated warranty expenses are accrued upon
product shipment.                                                               

The Company contracts with independent overseas manufacturers for the 
production of certain goods ordered by its international distributors and, in   
most cases, arranges for the shipment of the goods directly to these            
international distributors. All sales orders by international distributors are  
placed directly with the Company. The Company recognizes revenue for these      
transactions at the time of shipment of goods from the contract manufacturer.   
For sales transactions with certain international distributors, the Company     
arranges for a portion of the total sales price to be billed directly by the    
contract manufacturer. The Company includes in net sales and cost of sales the  
amount billed by the contract manufacturer and the amount paid by the Company   
for the goods, respectively. The portion billed by the contract manufacturer for
these transactions is                                                           
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

generally secured by an irrevocable letter of credit opened by the international
distributor. In other cases, the contract manufacturer may grant credit to the  
international distributor and the Company guarantees payments for the goods.    

Research and Product Development Costs                                      

   Research and product development costs are expensed as incurred. Selling,
general and administrative expenses of the Company include research and product 
development expenses of approximately $2,574,000, $1,844,000 and $1,596,000 for 
the years ended December 31, 1997, 1996 and 1995, respectively.                 

Advertising and Promotion Costs                                             

     Advertising costs and promotion costs are expensed as incurred or the first
time the promotional event/ advertising takes place. Selling, general and       
administrative expenses of the Company include advertising and promotion costs  
of approximately $4,879,000, $3,914,000 and $2,685,000 for the years ended      
December 31, 1997, 1996 and 1995, respectively.                                 

Property, Plant and Equipment                                               

     Property, plant and equipment are stated at cost. The cost of additions and
improvements are capitalized, while maintenance and repairs are expensed as     
incurred. Depreciation is computed on the straight-line method over the         
estimated useful lives of the related assets (ranging from 5 to 7 years). Assets
held under capital leases and leasehold improvements are amortized over the     
lesser of the estimated useful lives of the assets or the related lease terms.  

Intangible Assets                                                           

Intangible assets at December 31, 1997 and 1996 consist of goodwill   
relating to various acquisitions, covenants not to compete from the acquisition 
of Riteway Products North Central, Inc., and trademarks, patents and other items
(see note 5). Amortization of intangibles is recorded on a straight-line basis  
over the following periods: 25 years for goodwill, the contractual term of five 
years for covenants not to compete, and the respective lives ranging from 5 to  
25 years for other intangibles.                                                 

 In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the Company reviews identifiable intangibles and goodwill for  
impairment whenever events or circumstances indicate the carrying amount may not
be recoverable based upon a comparison of the asset carrying value to the       
expected future cash flows (undiscounted and without interest charges).         

Income Taxes                                                                

 The Company accounts for income taxes under the provisions of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."   
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the       
financial statements or tax returns. Under this method, deferred tax assets and 
liabilities are determined based on the difference between the financial        
statement and tax bases of assets and liabilities using enacted tax rates in    
effect for the year in which the differences are expected to reverse.           

Forward Exchange Contracts                                                  

The Company from time to time enters into short-term, forward exchange
contracts to hedge the impact of foreign currency fluctuations on specific      
purchase commitments denominated in foreign currencies. The gains and losses on 
these contracts are included in the value of the assets which they were intended
to hedge.                                                                       
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

At December 31, 1997 and 1996, the Company had forward exchange contracts       
outstanding, with maturities of five months or less, to exchange foreign        
currencies for approximately $2,200,000 and $3,300,000, respectively.           

Use of Estimates                                                            

    Company management has made a number of estimates and assumptions relating
to the reporting of assets and liabilities in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.        

Earnings (Loss) per Share                                                   

 Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). This       
statement replaces the previously-reported primary and fully diluted earnings   
per share with basic and diluted earnings per share. Basic earnings per share is
computed by dividing net income (loss) available to common stockholders by the  
weighted average number of common shares outstanding during the period. Diluted 
earnings per share is very similar to the previously-reported primary earnings  
per share in that it includes the effect of the additional common shares which  
would have been outstanding if dilutive stock options had been exercised. All   
earnings per share amounts have been restated to conform to the SFAS No. 128    
requirements.                                                                   

The following table summarizes the calculation of basic and diluted   
earnings per share before extraordinary item:                                   

                                                        [Enlarge/Download Table]

                                                        YEAR ENDED DECEMBER 31,        
                                                ---------------------------------------
                                                   1997          1996           1995   
                                                ----------    -----------    ----------
                                                                                       
Numerator:                                                                             
  Basic and diluted earnings per                                                       
     share -- income before extraordinary                                              
     item.....................................  $3,150,000    $11,576,000    $  862,000
                                                ==========    ===========    ==========
Denominator:                                                                           
  Basic earnings per share -- weighted average                                         
     number of common shares outstanding                                               
     during the year..........................   9,804,000      9,772,000     7,256,000
  Incremental common shares attributable to                                            
     assumed exercise of outstanding stock                                             
     options..................................     114,000        160,000       147,000
                                                ----------    -----------    ----------
  Denominator for diluted earnings per                                                 
     share....................................   9,918,000      9,932,000     7,403,000
                                                ==========    ===========    ==========
Basic earnings (loss) per share...............  $      .32    $      1.18    $      .12
                                                ==========    ===========    ==========
Diluted earnings (loss) per share.............  $      .32    $      1.17    $      .12
                                                ==========    ===========    ==========

   The calculations of earnings per share before extraordinary item excluded
the effect of the assumed exercise of the following numbers of outstanding      
common stock options because their effect was antidilutive:  106,000 in 1997,   
2,000 in 1996 and 6,000 in 1995.                                                

Fair Value of Financial Instruments                                         

The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the 
short-term maturity of these financial instruments. The carrying amount reported
for debt approximates fair value because for each borrowing either (i) the      
underlying instrument is a variable note that reprices frequently or (ii)       
interest rates have not changed                                                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

significantly since the inception of the borrowing. The carrying value of the   
Company's forward exchange contracts approximates fair value because of the     
short-term maturities of these financial instruments.                           

Accounting for Stock-Based Compensation                                     

As permitted by Statement of Financial Accounting Standards No. 123,  
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company accounts
for stock-based employee compensation plans in accordance with Accounting       
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and 
related interpretations. The Company provides the pro forma net income, pro     
forma earnings per share, and stock based compensation plan disclosure          
requirements set forth in SFAS No. 123 (see note 7).                            

New Accounting Pronouncements                                               

    In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 130 and 131, "Reporting Comprehensive       
Income" ("SFAS No. 130") and "Disclosures about Segments of an Enterprise and   
Related Information" ("SFAS No. 131"), respectively (collectively, the          
"Statements"). The Statements are effective for fiscal years beginning after    
December 15, 1997. SFAS No. 130 established standards for reporting of          
comprehensive income and its components in annual financial statements. SFAS No.
131 establishes standards for reporting financial and descriptive information   
about an enterprise's operating segments in its annual financial statements and 
selected segment information in interim financial reports. Reclassification or  
restatement of comparative financial statements or financial information for    
earlier periods is required upon adoption of SFAS No. 130 and SFAS No. 131,     
respectively. Application of the Statements' requirements is not expected to    
have a material impact on the Company's consolidated financial position, results
of operations or liquidity.                                                     

Reclassifications                                                           

Certain prior year amounts have been reclassified to conform with the 
fiscal 1997 presentation.                                                       

(3) INVENTORIES                                                                 

A summary of the components of inventories follows:                   

                                                        [Enlarge/Download Table]

                                                           DECEMBER 31,  DECEMBER 31,
                                                               1997          1996    
                                                           ------------  ------------
                                                                                     
Raw materials............................................. $   678,000   $    95,000 
Work in process...........................................   3,124,000     3,659,000 
Finished goods and component parts........................  77,183,000    70,574,000 
                                                           -----------   ----------- 
                                                           $80,985,000   $74,328,000 
                                                           ===========   =========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

(4) PROPERTY, PLANT AND EQUIPMENT                                               

Property, plant and equipment, at cost, consist of the following:     

                                                                [Download Table]

                                                    DECEMBER 31,    DECEMBER 31,
                                                        1997            1996    
                                                    ------------    ------------
                                                                                
Land..............................................  $   208,000     $        -- 
Leasehold improvements............................    3,421,000         538,000 
Machinery and equipment...........................    5,130,000       2,321,000 
Computer equipment................................    3,727,000       2,441,000 
Vehicles..........................................    1,665,000       1,208,000 
Office furniture and equipment....................    1,836,000       1,201,000 
Construction in progress -- Colorado facility.....    1,024,000              -- 
                                                    -----------     ----------- 
                                                     17,011,000       7,709,000 
Less accumulated depreciation and amortization....   (4,178,000)     (2,686,000)
                                                    -----------     ----------- 
                                                    $12,833,000     $ 5,023,000 
                                                    ===========     =========== 

(5) INTANGIBLE ASSETS                                                           

Intangible assets consist of the following:                           

                                                                [Download Table]

                                                    DECEMBER 31,    DECEMBER 31,
                                                        1997            1996    
                                                    ------------    ------------
                                                                                
Goodwill..........................................  $21,794,000     $20,315,000 
Covenants not to compete..........................      650,000         650,000 
Trademarks, patents and other.....................      244,000         189,000 
                                                    -----------     ----------- 
                                                     22,688,000      21,154,000 
Less accumulated amortization.....................   (2,768,000)     (1,766,000)
                                                    -----------     ----------- 
                                                    $19,920,000     $19,388,000 
                                                    ===========     =========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

(6) LONG-TERM DEBT                                                              

Long-term debt is comprised of the following:                         

                                                        [Enlarge/Download Table]

                                                           DECEMBER 31,   DECEMBER 31,
                                                               1997           1996    
                                                           ------------   ------------
                                                                                      
Domestic revolving credit facility, secured by the assets                             
  of the Company, due June 30, 1998. Interest is payable                              
  monthly at various interest rates described below                                   
  (weighted average rate of 8.17% and 6.84% at December                               
  31, 1997 and 1996, respectively).                        $ 65,490,000   $51,617,000 
Domestic term loan, secured by the assets of the Company,                             
  due quarterly through June 30, 1998. Interest is                                    
  payable monthly at various interest rates described                                 
  below (weighted average rate of 8.09% and 7.55% at                                  
  December 31, 1997 and 1996, respectively).                 11,688,000    15,938,000 
Riteway Japan revolving credit facility, secured by the                               
  assets of the Company, due June 30, 1998. Interest is                               
  payable monthly at rate described below (weighted                                   
  average rate of 1.97% and 1.92% at December 31, 1997                                
  and 1996, respectively).                                    1,761,000     2,236,000 
Riteway France revolving credit facility, secured by the                              
  assets of the Company, due June 30, 1998. Interest is                               
  payable monthly at rate described below (weighted                                   
  average rate of 4.38% and 4.31% at December 31, 1997                                
  and 1996, respectively).                                    3,280,000     3,431,000 
Caratti revolving credit facility, secured by the assets                              
  of Caratti, due June 30, 1998. Interest is payable                                  
  monthly at rate described below (weighted average rate                              
  of 8.25% and 7.35% at December 31, 1997 and 1996,                                   
  respectively).                                             10,149,000     4,449,000 
Industrial Development Bonds payable, secured by certain                              
  property and equipment, due monthly through October 31,                             
  2005. Interest is payable monthly at a rate of 5.87%                                
  per annum.                                                  4,888,000            -- 
Promissory note, secured by common shares of Innovations,                             
  due June 30, 2000. Interest is payable quarterly at a                               
  rate of 10.00% per annum.                                      65,000            -- 
                                                           ------------   ----------- 
                                                             97,321,000    77,671,000 
Less current portion of debt                                (92,883,000)   (4,250,000)
                                                           ------------   ----------- 
                                                           $  4,438,000   $73,421,000 
                                                           ============   =========== 

   At December 31, 1997, future minimum principal payments on long-term debt
were as follows:                                                                

                                                                [Download Table]
                                                             
Year ending December 31:                                     
1998............................................  $92,883,000
1999............................................      541,000
2000............................................      639,000
2001............................................      609,000
2002............................................      645,000
Thereafter......................................    2,004,000
                                                  -----------
                                                  $97,321,000
                                                  ===========

    In November 1995, the Company entered into a domestic credit agreement, as
most recently-amended in March 1998, with a bank that provides for a domestic   
revolving credit facility and a domestic term loan. The                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Company also entered into separate credit agreements with the same bank to      
provide separate credit facilities to Riteway Japan, Riteway France and Caratti.
These credit agreements expire on June 30, 1998. Although the Company is        
negotiating with the bank to obtain a longer-term financing structure, there can
be no assurance that the Company will be able to obtain such financing.         
Accordingly, the outstanding balances of the revolving credit facilities and the
term loan have been classified in current liabilities at December 31, 1997 (see 
note 1).                                                                        

 The credit agreements require the Company to maintain certain financial
ratios and other covenants, which, among other things, restrict other           
indebtedness, capital expenditures and certain investments. At December 31,     
1997, the Company was in default of certain financial covenants, for which the  
bank has issued a waiver. In addition, the credit agreement was amended in      
October 1997 to require the Company to obtain $30,000,000 of unsecured financing
by February 28, 1998; however, such requirement was waived by the bank in       
January 1998.                                                                   

Domestic Revolving Credit Facility                                          

  The total amount of credit available under the domestic revolving credit
facility for advances and letters of credit is limited to the lesser of (a)     
$80,000,000 through April 30, 1998 and $60,000,000 thereafter, or (b) the       
Company's borrowing base associated with accounts receivable and inventories, as
defined by the agreement, plus an additional $15,000,000 available through April
30, 1998. The borrowing base is reduced each month by $3,000,000 and $3,500,000 
for Riteway Japan and Riteway France, respectively, which represents the credit 
facilities extended by the bank to these locations. The amount individually     
available under commercial and standby letters of credit is $15,000,000. The    
Company has the option to pay interest on borrowings under the domestic         
revolving credit facility at the bank's Reference Rate plus the applicable      
margin (as defined by the agreement), the LIBOR Rate plus the applicable margin 
(as defined by the agreement), the Offshore Rate plus the applicable margin (as 
defined by the agreement) or a combination thereof. The Company must pay a      
commitment fee on a quarterly basis equal to .25% (per annum) of the unused     
amount of the credit up to the revolving credit limit. At December 31, 1997, the
Company had approximately $249,000 of commercial or standby letters of credit   
outstanding.                                                                    

Domestic Term Loan                                                          

     The domestic term loan with an original amount of $17,000,000 is payable in
equal quarterly installments of $1,250,000 and matures on the earlier of        
September 30, 2000 or the expiration of the domestic revolving credit facility. 
The domestic term loan is made up of two disbursements: 1) $14,000,000 for the  
purchase of Caratti, and 2) $3,000,000 for the repayment of Caratti's prior bank
debt. The Company has the option to pay interest on borrowings under the        
domestic term loan at the bank's Reference Rate (as defined by the agreement),  
the LIBOR Rate plus the applicable margin (as defined by the agreement), the    
Offshore Rate plus the applicable margin (as defined by the agreement), or a    
combination thereof.                                                            

Riteway Japan Credit Facility                                               

     The Riteway Japan credit facility consists of a $3,000,000 revolving credit
facility. Interest on borrowings under the revolving credit facility is payable 
monthly at the bank's base rate plus the applicable margin.                     

Riteway France Credit Facility                                              

The Riteway France credit facility consists of a $3,500,000 revolving 
credit facility. Interest on borrowings under the revolving credit facility is  
payable monthly at the bank's base rate plus the applicable margin.             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Caratti Credit Facility                                                     

  The Caratti credit facility consists of a multicurrency revolving credit
facility, a multicurrency overdraft facility and a multicurrency facility for   
the issuance of irrevocable commercial letters of credit in an aggregate amount 
equal to the lesser of $10,000,000 (or its equivalent from time to time in      
optional currencies, as defined by the agreement) or Caratti's borrowing base   
associated with accounts receivable and inventories, as defined by the          
agreement. The amount individually available under the irrevocable commercial   
letters of credit is $1,500,000 (or its equivalent from time to time in optional
currencies, as defined by the agreement). The overdraft facility is repayable on
demand by the bank. Interest on borrowings under the multicurrency revolving    
credit facility is payable monthly at the sum of the MLA Cost (as defined by the
agreement), the applicable margin, and LIBOR (as defined by the agreement).     
Interest on the multicurrency overdraft facility is payable monthly at the      
bank's prevailing base rate plus the applicable margin. Caratti must pay a      
commitment fee on a quarterly basis equal to .25% (per annum) of the unused     
amount of the credit up to $10,000,000. At December 31, 1997, the Company had no
commercial letters of credit outstanding.                                       

Industrial Development Bonds                                                

   In September 1997, the Company consummated a $5,000,000 borrowing under a
California Economic Development Financing Authority program. Principal and      
interest at a 5.87% per annum rate are payable in aggregate monthly installments
of $65,000 through October 2005. Use of the borrowed funds is restricted to the 
purchase of qualifying leasehold improvements and production equipment at the   
Company's Santa Ana facility. Pending disbursement for such capital             
expenditures, the funds have been placed in an interest-bearing bank trust      
account and are classified as restricted cash on the balance sheet. Through     
December 31, 1997, approximately $1,455,000 had been drawn from the trust fund  
to finance capital expenditures. The restricted cash balance at December 31,    
1997 consists of the remaining $3,545,000 of borrowings plus $62,000 of interest
earned.                                                                         

Extraordinary Loss from Early Extinguishment of Debt                        

  In October 1995, the Company repaid all outstanding indebtedness under a
senior term loan and senior subordinated debenture with the proceeds from the   
IPO (see note 7). In connection with the repayment of the senior term loan and  
senior subordinated debenture, the Company incurred substantial charges relating
to the acceleration of the amortization of related deferred financing costs     
associated with the senior term loan and the acceleration of the unamortized    
debenture discount associated with the senior subordinated debenture. The costs 
related to this transaction of approximately $1,146,000, net of tax benefits of 
approximately $978,000, are reflected in the consolidated statement of          
operations as an extraordinary loss from early extinguishment of debt for the   
year ended December 31, 1995.                                                   

     Under the terms of the senior subordinated debenture agreement, the Company
issued shares of its Class B common stock and warrants to purchase approximately
347,000 shares of its Class B common stock to the holders of the debenture. In  
connection with the Company's IPO, some of these warrants were exercised and the
remaining warrants were canceled (see note 7).                                  

(7) STOCKHOLDERS' EQUITY                                                        

     In October 1995, the Company completed its IPO, selling 3,150,000 shares of
common stock. The offering provided the Company with approximately $40,200,000  
in proceeds, net of offering costs of approximately $800,000. The Company       
utilized approximately $37,000,000 of the net proceeds to retire long-term debt.

In connection with the Company's IPO, the Company effected a          
recapitalization whereby each share of Class A common stock and Class B common  
stock was exchanged for one share of common stock. This                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

recapitalization also reflects a contribution to capital for the cancellation of
approximately 277,000 shares of Class A common stock by certain stockholders of 
the Company, the exercise of a warrant to purchase approximately 292,000 shares 
of Class B common stock and the cancellation of the remainder of the warrant to 
purchase approximately 56,000 shares of Class B common stock by a certain       
stockholder of the Company and an 11-for-1 stock split (see note 6).            

   In addition to the common stock, the Company is authorized to issue up to
5,000,000 shares of $.001 par value preferred stock, in one or more series and  
to fix the rights, preferences and privileges thereof, including voting rights, 
term of redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote 
or action by the stockholders. As of December 31, 1997 and 1996, there were no  
shares of preferred stock outstanding.                                          

   At December 31, 1997, the Company has two stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 in accounting 
for its stock-based compensation plans; accordingly, no compensation cost has   
been recognized for its stock option plan in the financial statements.          
Compensation cost that has been charged against income for the employee stock   
purchase plan was approximately $31,000 and $9,000 for the years ended December 
31, 1997 and 1996, respectively. Had compensation cost for these plans been     
determined based on the fair value at the grant dates consistent with the method
of SFAS No. 123, the Company's net income and earnings (loss) per share would   
have been reduced to the pro forma amounts indicated as follows:                

                                                                [Download Table]

                                                  1997        1996        1995    
                                               ----------  -----------  --------- 
                                                                                  
Net income (loss)                                                                 
  As reported................................. $3,150,000  $11,576,000  $(284,000)
  Pro forma...................................  2,646,000   11,386,000   (306,000)
Diluted earnings (loss) per share                                                 
  As reported................................. $     0.32  $      1.17  $   (0.04)
  Pro forma...................................       0.27         1.15      (0.04)

The pro forma net income (loss) and earnings (loss) per share amounts 
reflect only options granted in 1997, 1996 and 1995. Therefore, the full impact 
of calculating compensation cost for stock options under SFAS No. 123 is not    
reflected in the pro forma amounts presented above because compensation cost is 
reflected over the option's vesting period of four years and compensation cost  
for options granted prior to January 1, 1995 is not considered.                 

Stock Option Plan                                                           

   During November 1993, the Company adopted the GT Bicycles, Inc. Incentive
Stock Option, Nonqualified Stock Option and Restricted Stock Purchase           
Plan -- 1993 (the "Plan"). The Plan contains two components: a stock option     
component and a restricted share purchase component. The purpose of the Plan is 
to provide incentives to selected employees, officers and non-employee directors
of the Company for increased efforts and successful achievements on behalf of   
the Company.                                                                    

   The Plan, as amended, provides for the granting of up to 1,000,000 shares
of the Company's common stock in the form of stock options or rights to purchase
restricted shares. Awards or offers under the Plan, vesting periods and the     
exercise price of the options or the purchase price for restricted shares are   
determined by the Board of Directors of the Company. However, the exercise price
of the shares of common stock covered by the incentive stock options shall not  
be less than the fair market value of such shares on the date the incentive     
stock option was granted. Options granted under the Plan expire ten years after 
the date of the grant. Offers to purchase restricted shares terminate           
automatically if not accepted within ninety days. As of December 31, 1997, there
were 286,989 shares available for grant.                                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

Activity in the Plan is summarized as follows:                        

                                                        [Enlarge/Download Table]

                                                                       EXERCISE PRICE 
                                                            SHARES    WEIGHTED-AVERAGE
                                                            -------   ----------------
                                                                                      
OPTIONS OUTSTANDING AT DECEMBER 31, 1994................... 148,500        $ 1.82     
Granted....................................................  84,511         10.83     
Exercised..................................................      --           N/A     
Canceled...................................................      --           N/A     
                                                            -------        ------     
OPTIONS OUTSTANDING AT DECEMBER 31, 1995................... 233,011          5.09     
Granted.................................................... 382,597         10.91     
Exercised.................................................. (10,750)         3.20     
Canceled................................................... (49,597)        11.13     
                                                            -------        ------     
OPTIONS OUTSTANDING AT DECEMBER 31, 1996................... 555,261          8.60     
Granted.................................................... 171,000          6.88     
Exercised.................................................. (15,750)         3.70     
Canceled................................................... (24,000)        10.36     
                                                            -------        ------     
OPTIONS OUTSTANDING AT DECEMBER 31, 1997................... 686,511        $ 8.22     
                                                            =======        ======     

  The following table summarizes information about the options outstanding
under the Plan at December 31, 1997:                                            

                                                        [Enlarge/Download Table]

                                                 WEIGHTED-                                 
                   OPTIONS                        AVERAGE       OPTIONS                    
                OUTSTANDING AT    WEIGHTED-      REMAINING   EXERCISABLE AT    WEIGHTED-   
   RANGE OF      DECEMBER 31,      AVERAGE      CONTRACTUAL   DECEMBER 31,      AVERAGE    
   EXERCISE          1997       EXERCISE PRICE     LIFE           1997       EXERCISE PRICE
--------------  --------------  --------------  -----------  --------------  --------------
                                                                                           
$1.82              129,500          $ 1.82      6.88 years      129,500          $ 1.82    
$6.50 - $ 8.38     201,597            6.95      9.41 years       17,423            7.69    
$9.12 - $14.00     355,414           11.27      8.66 years       95,332           11.24    
                   -------          ------                      -------          ------    
$1.82 - $14.00     686,511          $ 8.22      8.54 years      242,255          $ 5.95    
                   =======          ======                      =======          ======    

   The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $4.13, $7.58 and $6.17, respectively, on the date of    
grant using the Black Scholes option-pricing model with the following           
weighted-average assumptions:                                                   

                                                                [Download Table]

                                                             1997  1996  1995
                                                             ----  ----  ----
                                                                             
Expected life (years).......................................   6     6     6 
Risk-free interest rate.....................................   7%    7%    7%
Volatility..................................................  55%   50%   50%
Expected dividend yield.....................................  --    --    -- 

Employee Stock Purchase Plan                                                

In September 1995, the Company's Employee Stock Purchase Plan (the    
"Purchase Plan") was adopted by the Board of Directors, covering an aggregate of
300,000 shares of common stock. The Purchase Plan was implemented by three-month
offerings with purchases occurring at three-month intervals commencing on April 
1, 1996. The Purchase Plan is administered by the Stock Option Committee of the 
Board of Directors of the Company. Employees are eligible to participate if they
have been employed by the Company for at least one year. The Purchase Plan      
permits eligible employees to purchase common stock through payroll deductions, 
which may not exceed 15% of an employee's compensation. The price of the stock  
purchased                                                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

under the Purchase Plan is 85% of the lower of the fair market value of common  
stock at the beginning of the three-month offering period or on the applicable  
purchase date. No employee may purchase more than 1,000 shares in any plan year.
Employees may end their participation in the offering at any time during the    
offering period, and participation ends automatically on termination of         
employment. The Board may at any time amend or terminate the Purchase Plan,     
except that no such amendment or termination may adversely affect shares        
previously granted under the Purchase Plan. The Purchase Plan terminates in     
September 2005. As of December 31, 1997, an aggregate 29,066 shares had been    
issued and 270,934 shares remain available for future issuance under the        
Purchase Plan.                                                                  

    The per share weighted-average fair value of shares issued during 1997 and
1996 was $1.54 and $2.18, respectively, on the date of issuance using the Black 
Scholes option-pricing model with the following weighted-average assumptions:   

                                                                [Download Table]

                                                              1997    1996 
                                                              ----    ---- 
                                                                           
Expected life (years).......................................  0.25    0.25 
Risk-free interest rate.....................................     7%      7%
Volatility..................................................    55%     50%
Expected dividend yield.....................................    --      -- 

(8) INCOME TAXES                                                                

The provisions for income taxes consist of the following:             

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED DECEMBER 31,        
                                                --------------------------------------
                                                   1997          1996          1995   
                                                ----------    ----------    ----------
                                                                                      
Current:                                                                              
  Federal...................................... $1,132,000    $5,005,000    $  403,000
  State........................................    191,000       989,000        98,000
  Foreign......................................    569,000       158,000            --
                                                ----------    ----------    ----------
                                                 1,892,000     6,152,000       501,000
                                                ----------    ----------    ----------
Deferred:                                                                             
  Federal......................................    270,000      (198,000)      386,000
  State........................................   (118,000)      (67,000)      140,000
  Foreign......................................         --            --            --
                                                ----------    ----------    ----------
                                                   152,000      (265,000)      526,000
                                                ----------    ----------    ----------
                                                $2,044,000    $5,887,000    $1,027,000
                                                ==========    ==========    ==========

The provisions for income taxes differ from the amounts computed by   
applying the Federal statutory income tax rate to income before income taxes as 
follows:                                                                        

                                                        [Enlarge/Download Table]

                                                       YEAR ENDED DECEMBER 31,         
                                                -------------------------------------- 
                                                   1997          1996          1995    
                                                ----------    ----------    ---------- 
                                                                                       
Computed "expected" income tax provision.......       34.0%         34.0%         34.0%
State franchise taxes, net of Federal                                                  
  benefit......................................        0.9           3.4           8.3 
Goodwill amortization..........................        5.4           1.2           7.1 
Life insurance proceeds........................         --          (3.9)           -- 
Other..........................................       (0.9)         (1.0)          5.0 
                                                ----------    ----------    ---------- 
                                                      39.4%         33.7%         54.4%
                                                ==========    ==========    ========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

The tax-effected temporary differences that give rise to significant  
portions of the deferred tax assets and liabilities at December 31, 1997 and    
1996 are as follows:                                                            

                                                        [Enlarge/Download Table]

                                                                1997         1996    
                                                             ----------   ---------- 
                                                                                     
Deferred tax assets:                                                                 
  Accounts receivable....................................... $  103,000   $  614,000 
  Inventories...............................................  1,123,000      970,000 
  Covenants not to compete..................................     94,000       56,000 
  Accrued expenses..........................................    580,000      533,000 
  Tax credit carryforwards, investments and other...........    271,000           -- 
                                                             ----------   ---------- 
     Total deferred tax assets..............................  2,171,000    2,173,000 
                                                             ----------   ---------- 
Deferred tax liabilities:                                                            
  State taxes...............................................   (210,000)    (202,000)
  Goodwill..................................................     (9,000)      (6,000)
  Investments in affiliates.................................   (281,000)    (142,000)
                                                             ----------   ---------- 
     Total deferred tax liabilities.........................   (500,000)    (350,000)
                                                             ----------   ---------- 
     Net deferred tax asset................................. $1,671,000   $1,823,000 
                                                             ==========   ========== 

   Based upon the Company's historical pre-tax earnings, management believes
it is more likely than not that the Company will realize the benefit of the     
existing deferred tax asset at December 31, 1997. Management believes the       
existing net deductible temporary differences will reverse during periods in    
which the Company generates net taxable income, however, there can be no        
assurance that the Company will generate any earnings or any specific level of  
continuing earnings in future years. Certain tax planning or other strategies   
will be implemented, if necessary, to supplement income from operations to fully
realize recorded tax benefits.                                                  

The Company has not provided for U.S. Federal income and foreign      
withholding taxes on its foreign subsidiaries' undistributed earnings as of     
December 31, 1997 because such earnings are intended to be reinvested           
indefinitely. If these earnings are distributed in the future, foreign tax      
credits would become available under U.S. law to reduce the effect on the       
Company's overall tax liability.                                                

    The Company has received notice from the Internal Revenue Service that the
Company's 1995 and 1996 Federal income tax returns will be audited. In addition,
the Company's 1993 and 1994 California income tax returns are currently being   
audited by the Franchise Tax Board. In the opinion of management, these         
examinations will not have a material adverse effect on the Company's           
consolidated financial position, results of operations or liquidity.            

(9) COMMITMENTS AND CONTINGENCIES                                               

  Included in computer equipment in the accompanying balance sheet are the
following assets held under capital leases at December 31:                      

                                                        [Enlarge/Download Table]

                                                                1997         1996    
                                                             ----------   ---------- 
                                                                                     
Computer equipment.......................................... $1,325,000   $1,129,000 
Less accumulated amortization...............................   (668,000)    (447,000)
                                                             ----------   ---------- 
                                                             $  657,000   $  682,000 
                                                             ==========   ========== 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

    The Company also leases certain office, manufacturing, warehouse and plant
facilities under noncancelable operating leases. Future minimum lease payments  
on capital and operating leases at December 31, 1997 are as follows:            

                                                                [Download Table]

                                                             CAPITAL     OPERATING  
                                                             --------   ----------- 
                                                                                    
1998........................................................ $465,000   $ 2,909,000 
1999........................................................  430,000     2,651,000 
2000........................................................   54,000     2,281,000 
2001........................................................    8,000     2,044,000 
2002........................................................       --     1,941,000 
Thereafter..................................................       --    10,089,000 
                                                             --------   ----------- 
                                                              957,000    21,915,000 
Less sublease income........................................       --      (298,000)
                                                             --------   ----------- 
     Total minimum lease payments...........................  957,000   $21,617,000 
                                                                        =========== 
Less amount representing interest...........................  (88,000)              
                                                             --------               
     Present value of net minimum lease payments............  869,000               
     Less current portion................................... (462,000)              
                                                             --------               
Long-term portion........................................... $407,000               
                                                             ========               

     Three of the operating leases included above are with partnerships in which
certain stockholders and employees of the Company have an ownership interest.   
Management believes that all lease arrangements with related parties are at     
arm's length terms. Related party rental expense included in the accompanying   
consolidated statements of operations for the years ended December 31, 1997,    
1996 and 1995 amounted to $802,000, $547,000 and $159,000, respectively. Total  
rent expense, net of sublease income, for the years ended December 31, 1997,    
1996 and 1995 amounted to $2,990,000, $2,116,000 and $1,207,000, respectively.  

The Company is obligated to pay annual management fees not to exceed  
$100,000 per annum to an affiliate of one the Company's significant             
stockholders.                                                                   

 From time to time, the Company enters into purchase commitments for the
procurement of certain bicycle components, parts and accessories. The Company   
expects to use the items to be procured under purchase commitments outstanding  
at December 31, 1997 in the normal course of business.                          

    The Company is a defendant in various product liability claims. Management
believes that the allegations in most of the claims are substantially without   
merit and that others may be settled or lost, resulting in expenses incurred by 
the Company. Management has accrued an estimate of the Company's eventual       
liability related to these claims. In the opinion of management, any defense,   
judgment or settlement of these claims will not have a material adverse effect  
on the Company's consolidated financial position, results of operations or      
liquidity.                                                                      

   The Company is also involved as plaintiff and defendant in various claims
and legal actions arising in the ordinary course of business. In the opinion of 
management, the ultimate disposition of these matters will not have a material  
adverse effect on the Company's consolidated financial position, results of     
operations or liquidity.                                                        

(10) EMPLOYEE BENEFITS                                                          

    The Company has a profit sharing plan covering substantially all employees
who have worked for the Company at least 12 months. The Company's annual        
contributions to the plan are determined at the discretion                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

of the Board of Directors. Plan contributions expensed by the Company totaled   
$250,000, $500,000 and $500,000 for the years ended December 31, 1997, 1996 and 
1995, respectively.                                                             

(11) INVESTMENTS IN AFFILIATES                                                  

 As discussed in note 2, the Company held a 45% interest in Innovations,
which manufactures certain bicycle parts, from 1993 through June 1997. During   
that period, the Company's investment was included in other assets on the       
balance sheet. The Company increased its ownership level to 57% in July 1997, at
which time Innovations was consolidated into the Company's financial statements.
The Company's investment in Innovations was accounted for under the purchase    
method and allocated to the assets acquired based on their estimated fair       
values. The excess of the Company's investment over its share of the fair value 
of Innovations' net assets was recorded as goodwill. Purchases by the Company   
from Innovations (which represent most of the Innovations' sales in 1997 and all
of its sales in 1996 and 1995) were $460,000, $1,052,000 and $1,050,000 for the 
six months ended June 30, 1997 and the years ended December 31, 1996 and 1995,  
respectively.                                                                   

    Included in other assets in the accompanying balance sheet at December 31,
1997 and 1996 is the Company's 50% investment in a partnership which            
manufactures and markets an electric-assist bicycle and the Company's 45%       
interest in a foreign exporting company.                                        

(12) GEOGRAPHIC DATA                                                            

 A summary of the Company's net sales, operating income and identifiable
assets by geographic area follows:                                              

                                                        [Enlarge/Download Table]

                                                      1997          1996           1995    
                                                  ------------  ------------   ------------
                                                                                           
Net sales:                                                                                 
  United States.................................. $140,517,000  $142,985,000   $128,603,000
  Europe.........................................   53,069,000    47,498,000     24,689,000
  Other foreign..................................   22,628,000    17,868,000     15,641,000
                                                  ------------  ------------   ------------
                                                  $216,214,000  $208,351,000   $168,933,000
                                                  ============  ============   ============
Operating income:                                                                          
  United States.................................. $  8,004,000  $ 19,069,000   $  7,959,000
  Europe.........................................    1,916,000     1,387,000             --
  Other foreign..................................      860,000      (441,000)            --
                                                  ------------  ------------   ------------
                                                  $ 10,780,000  $ 20,015,000   $  7,959,000
                                                  ============  ============   ============
Identifiable assets:                                                                       
  United States.................................. $139,725,000  $138,214,000   $ 96,693,000
  Europe.........................................   29,274,000    15,876,000             --
  Other foreign..................................    7,282,000     2,091,000             --
                                                  ------------  ------------   ------------
                                                  $176,281,000  $156,181,000   $ 96,693,000
                                                  ============  ============   ============

   No single customer accounted for more than 10% of net sales for each year
or 10% of trade accounts receivable at the end of each year. Identifiable assets
by geographic area are those assets used by the Company in each location.       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

(13) NONRECURRING CHARGE                                                        

     In connection with the Company's IPO in October 1995, certain covenants not
to compete were terminated. As a result, a nonrecurring charge of $4,708,000 was
recorded to eliminate the remaining unamortized value of the covenants not to   
compete.                                                                        

(14) LIFE INSURANCE PROCEEDS, NET OF GUARANTEED SEVERANCE PAYMENTS              

    Included in net income for the year ended December 31, 1996, were net life
insurance proceeds of $1,276,000 that the Company received following the death  
of former President and Chief Executive Officer, Richard Long, in July 1996. The
net proceeds consisted of a $2,000,000 insurance settlement less guaranteed     
payments owed to Richard Long's family of $724,000.                             

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GT BICYCLES, INC. 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                              MARCH 31,    DECEMBER 31,
                                                                1998           1997    
                                                              ---------    ------------
                                                                   (IN THOUSANDS)      
                                                                                       
                                    ASSETS (NOTE 3)                                    
Current assets:                                                                        
  Cash......................................................  $     --       $    588  
  Trade accounts receivable, net............................    64,102         52,418  
  Inventories (note 2)......................................    78,475         80,985  
  Prepaid expenses and other current assets.................     3,410          3,098  
  Income taxes receivable...................................       124             --  
  Deferred income taxes.....................................     1,646          1,646  
                                                              --------       --------  
     Total current assets...................................   147,757        138,735  
Property, plant and equipment, net..........................    13,047         12,833  
Goodwill and other intangibles, net.........................    19,662         19,920  
Other assets................................................     1,184          1,161  
Restricted cash from issuance of industrial development                                
  bonds.....................................................     2,839          3,607  
Deferred income taxes.......................................        25             25  
                                                              --------       --------  
          Total Assets......................................  $184,514       $176,281  
                                                              ========       ========  
                         LIABILITIES AND STOCKHOLDERS' EQUITY                          
Current liabilities:                                                                   
  Current portion of long-term debt (note 3)................  $  5,521       $ 92,883  
  Current portion of capital lease obligations..............       438            462  
  Accounts payable..........................................    10,387         11,915  
  Accrued liabilities.......................................     5,048          4,310  
  Income taxes payable......................................        --            463  
                                                              --------       --------  
     Total current liabilities..............................    21,394        110,033  
  Long-term debt, net of current portion (note 3)...........   101,111          4,438  
  Capital lease obligations, net of current portion.........       333            407  
                                                              --------       --------  
     Total liabilities......................................   122,838        114,878  
                                                              --------       --------  
Stockholders' equity:                                                                  
  Preferred stock, $0.001 par value, 5,000,000 shares                                  
     authorized, none issued................................        --             --  
  Common stock, $0.001 par value, 20,000,000 shares                                    
     authorized, 9,828,801 and 9,820,152 shares issued and                             
     outstanding at March 31, 1998 and December 31, 1997,                              
     respectively...........................................        10             10  
  Additional paid-in-capital................................    47,234         47,182  
  Retained earnings.........................................    14,691         14,608  
  Accumulated other comprehensive income....................      (259)          (397) 
                                                              --------       --------  
     Total stockholders' equity.............................    61,676         61,403  
                                                              --------       --------  
          Total Liabilities and Stockholders' Equity........  $184,514       $176,281  
                                                              ========       ========  

See accompanying notes to condensed consolidated financial statements.
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GT BICYCLES, INC. 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                                [Download Table]

                                                               THREE MONTHS ENDED  
                                                                   MARCH 31,       
                                                             ----------------------
                                                               1998         1997   
                                                             ---------    ---------
                                                             (IN THOUSANDS, EXCEPT 
                                                                PER SHARE DATA)    
                                                                                   
Net sales...................................................  $51,165      $51,170 
Cost of sales...............................................   36,754       37,395 
                                                              -------      ------- 
Gross profit................................................   14,411       13,775 
Selling, general and administrative expenses................   12,355       10,995 
                                                              -------      ------- 
Operating income............................................    2,056        2,780 
Interest expense............................................    1,956        1,386 
                                                              -------      ------- 
Income before taxes.........................................      100        1,394 
Provision for income taxes..................................       17          578 
                                                              -------      ------- 
Net income..................................................  $    83      $   816 
                                                              =======      ======= 
Earnings per share:                                                                
  Basic.....................................................  $  0.01      $  0.08 
                                                              =======      ======= 
  Diluted...................................................  $  0.01      $  0.08 
                                                              =======      ======= 
Weighted average common and common equivalent shares:                              
  Basic.....................................................    9,827        9,788 
                                                              =======      ======= 
  Diluted...................................................    9,918        9,954 
                                                              =======      ======= 

See accompanying notes to condensed consolidated financial statements.
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GT BICYCLES, INC. 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                                [Download Table]

                                                              THREE MONTHS ENDED  
                                                                   MARCH 31,      
                                                              ------------------- 
                                                                1998       1997   
                                                              --------    ------- 
                                                                (IN THOUSANDS)    
                                                                                  
Cash flows from operating activities:                                             
  Net income................................................  $     83    $   816 
  Adjustments to reconcile net income to net cash from                            
     operating activities:                                                        
     Depreciation and amortization..........................       882        394 
     Provision for doubtful accounts........................       156         60 
     Foreign currency translation adjustment................       138       (115)
  Changes in assets and liabilities:                                              
     Trade accounts receivable..............................   (11,840)    (8,920)
     Inventories............................................     2,510      1,467 
     Prepaid expenses and other current assets..............      (312)        92 
     Restricted cash and other assets.......................       745       (122)
     Accounts payable.......................................    (1,528)    (2,920)
     Accrued and other liabilities..........................       738        502 
     Income taxes receivable/payable........................      (587)       158 
                                                              --------    ------- 
       Net cash used in operating activities................    (9,015)    (8,588)
                                                              --------    ------- 
Cash flows from investing activities:                                             
  Purchases of property, plant and equipment................      (838)    (1,854)
                                                              --------    ------- 
       Net cash used in investing activities................      (838)    (1,854)
                                                              --------    ------- 
Cash flows from financing activities:                                             
  Net borrowings under lines of credit......................    10,458     11,461 
  Principal payments on term loan and industrial development                      
     bonds..................................................    (1,147)    (1,063)
  Principal payments on capital lease obligations...........       (98)       (47)
  Proceeds from issuance of common stock....................        52         91 
                                                              --------    ------- 
       Net cash provided by financing activities............     9,265     10,442 
                                                              --------    ------- 
Change in cash and cash equivalents.........................      (588)        -- 
Cash and cash equivalents at beginning of period............       588         -- 
                                                              --------    ------- 
Cash and cash equivalents at end of period..................  $     --    $    -- 
                                                              ========    ======= 
Supplemental disclosure of cash flow information:                                 
  Cash paid during the period for:                                                
       Interest.............................................  $  1,981    $ 1,362 
                                                              ========    ======= 
       Income taxes.........................................  $    604    $   427 
                                                              ========    ======= 

See accompanying notes to condensed consolidated financial statements.
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GT BICYCLES, INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

Principles of Consolidation                                                 

   The condensed consolidated financial statements of GT Bicycles, Inc. (the
"Company") include the wholly-owned subsidiaries, GT Bicycles California, Inc., 
GT BMX Products, Inc., Riteway Distributors, Inc., Riteway Distributors Central,
Inc., Riteway Products East, Inc., Riteway Products North Central, Inc., Riteway
Products Japan K.K. ("Riteway Japan"), Riteway Products France S.A.R.L.         
("Riteway France") and Caratti Sport Limited ("Caratti"), as well as the        
majority-owned subsidiaries, Innovations in Composites, Inc. ("Innovations") and
Riteway Products Canada Limited ("Riteway Canada"). Investments in affiliates,  
for which the Company has an ownership interest of at least 20% but not         
exceeding 50%, are recorded under the equity method of accounting.              

    The Company held a 45% ownership interest in Innovations from 1993 through
June 1997. In July 1997, the Company increased its ownership level in           
Innovations to 57% through the purchase of additional common shares. At that    
date, the Company changed its method of accounting for Innovations from the     
equity method to consolidation. Riteway Canada was formed in September 1997 as  
an 85%-owned subsidiary of the Company. The interest of minority shareholders in
the equity of Innovations and Riteway Canada is included in accrued liabilities 
on the accompanying balance sheets and their interest in the earnings of these  
entities is included in selling, general and administrative expenses on the     
accompanying statement of operations; such amounts were not material in the     
periods presented.                                                              

  All significant intercompany balances and transactions are eliminated in
consolidation.                                                                  

Foreign Currency Translation                                                

The Company uses the local currency of the respective country as the  
functional currency for its overseas operations. Accordingly, assets and        
liabilities outside the United States were translated into dollars at the rate  
of exchange in effect at the balance sheet date. Income and expense items were  
translated at the weighted average exchange rates prevailing during the period. 
The cumulative translation gain or loss is included as a component of           
accumulated other comprehensive income. There were no significant foreign       
currency transaction gains or losses in the periods presented.                  

Earnings per Share                                                          

 Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), which      
replaces the former primary and fully-diluted earnings per share with basic and 
diluted earnings per share. All earnings per share amounts have been restated to
conform with the SFAS No. 128 presentation. In each of the quarters ended March 
31, 1998 and 1997, the difference in weighted average shares used in the        
calculation of basic and diluted earnings per share is solely attributable to   
the incremental shares resulting from the assumed exercise of dilutive stock    
options.                                                                        

Reporting Comprehensive Income                                              

Effective January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which establishes new rules for the reporting and display of comprehensive      
income and its components. Annual financial statements will be reclassified as  
required.                                                                       

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GT BICYCLES, INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

A summary of the Company's comprehensive income follows:              

                                                                [Download Table]

                                                               THREE MONTHS ENDED  
                                                             ----------------------
                                                             MARCH 31,    MARCH 31,
                                                               1998         1997   
                                                             ---------    ---------
                                                                 (IN THOUSANDS)    
                                                                                   
Net income..................................................   $ 83         $ 816  
Foreign currency translation adjustment.....................    138          (115) 
                                                               ----         -----  
Comprehensive income........................................   $221         $ 701  
                                                               ====         =====  

Unaudited Condensed Consolidated Financial Statements                       

The unaudited condensed consolidated financial statements have been   
prepared in conformity with generally accepted accounting principles and include
all adjustments which are, in the opinion of management, necessary for a fair   
presentation of the results for the interim periods presented. All such         
adjustments are, in the opinion of management, of a normal recurring nature.    
Results for the three-month period ended March 31, 1998 are not necessarily     
indicative of the operating results to be expected for the full year.           

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles 
have been condensed or omitted. It is suggested that these condensed            
consolidated financial statements be read in conjunction with the consolidated  
financial statements and notes thereto included in the Company's annual report  
on Form 10-K for the year ended December 31, 1997.                              

(2)  INVENTORIES                                                                

A summary of the components of inventories follows:                   

                                                        [Enlarge/Download Table]

                                                             MARCH 31,    DECEMBER 31,
                                                               1998           1997    
                                                             ---------    ------------
                                                                  (IN THOUSANDS)      
                                                                                      
Raw materials...............................................  $   756       $   678   
Work in process.............................................    2,840         3,124   
Finished goods and component parts..........................   74,879        77,183   
                                                              -------       -------   
                                                              $78,475       $80,985   
                                                              =======       =======   

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GT BICYCLES, INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

(3)  LONG-TERM DEBT                                                             

Long-term debt is comprised of the following:                         

                                                        [Enlarge/Download Table]

                                                             MARCH 31,    DECEMBER 31,
                                                               1998           1997    
                                                             ---------    ------------
                                                                  (IN THOUSANDS)      
                                                                                      
Domestic revolving credit facility.......................... $ 70,674       $65,490   
Domestic term loan..........................................   10,625        11,688   
Riteway Japan revolving credit facility.....................    2,728         1,761   
Riteway France revolving credit facility....................    3,486         3,280   
Caratti revolving credit facility...........................   10,415        10,149   
Riteway Canada revolving credit facility....................    3,835            --   
Industrial development bonds payable........................    4,804         4,888   
Promissory note payable.....................................       65            65   
                                                             --------       -------   
                                                              106,632        97,321   
Less current portion........................................   (5,521)      (92,883)  
                                                             --------       -------   
                                                             $101,111       $ 4,438   
                                                             ========       =======   

At March 31, 1998, the Company had credit agreements with a bank that 
provided for a domestic revolving credit facility, a domestic term loan, and    
separate revolving credit facilities for the Riteway Japan, Riteway France and  
Caratti subsidiaries. Such credit agreements were scheduled to expire on June   
30, 1998 and, accordingly, the related borrowings were classified as current    
liabilities at December 31, 1997.                                               

     In April 1998, the Company refinanced such borrowings on a long-term basis,
as described below. Accordingly, the revolving credit facilities and the portion
of the term loan which does not mature within one year have been classified as  
noncurrent liabilities at March 31, 1998.                                       

   The Company entered into a new domestic revolving credit facility with an
affiliate of its existing bank. The facility expires in April 2001 and is       
secured by substantially all of the Company's assets. The facility provides for 
maximum borrowings and letters of credit equal to the lesser of $75.0 million or
the Company's borrowing base associated with accounts receivable and            
inventories, as defined by the agreement. The amount individually available     
under commercial and standby letters of credit is $15.0 million. The Company has
the option to pay interest on borrowings at the bank's reference rate plus the  
applicable margin (as defined in the agreement) or LIBOR plus the applicable    
margin (as defined in the agreement); such interest rates may decrease in the   
future if the Company meets certain financial ratio criteria. The weighted      
average interest rate on the facility was 8.16% at April 30, 1998. The Company  
must pay a monthly commitment fee equal to .25% per annum on the unused amount  
of the $75.0 million maximum available credit. The agreement requires that the  
Company maintain certain financial ratios and other covenants, which, among     
other things, restrict other indebtedness, capital expenditures and certain     
investments.                                                                    

   The Company's separate revolving credit facilities for Riteway France and
Riteway Japan, which provide for maximum borrowings of $3.5 million and $3.0    
million, respectively, were also extended in connection with the aforementioned 
new domestic facility. In addition, the Company received a commitment from its  
bank to extend the Caratti facility to April 2001 and to increase the maximum   
borrowings thereunder from $10.0 million to $15.0 million.                      

The domestic term loan outstanding at March 31, 1998 was replaced by a
$20.0 million term loan with the Company's existing bank. The new loan requires 
quarterly principal payments of $1.3 million through June 1999 with a final     
balloon payment of the remaining principal in July 1999. The Company has the    
option                                                                          

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GT BICYCLES, INC. 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

to pay interest on borrowings at the bank's reference rate plus the applicable  
margin (as defined in the agreement) or LIBOR plus the applicable margin (as    
defined in the agreement). The interest rate on the term loan was 9.63% at April
30, 1998. In addition, in connection with the term loan, the Company issued a   
warrant which gives the bank the right to purchase 525,765 shares of the        
Company's common stock at $6.58 per share, which represented the average of the 
closing prices of the Company's common stock on the Nasdaq market during a      
specified period in January 1998. The warrant becomes exercisable based on the  
following schedule: one-third in September 1998, one-third in December 1998 and 
one-third in March 1999, provided that the Company has not yet repaid the term  
loan in full as of such dates.                                                  

    Also in April 1998, the Company entered into an unsecured revolving credit
facility with another financial institution. This facility, which expires in    
October 1999, provides for maximum borrowings of $3.0 million. Interest is based
on specified commercial paper rates plus the applicable margin (as defined in   
the agreement). The interest rate on the facility was 8.02% at April 30, 1998.  

   In February 1998, Riteway Canada entered into a revolving credit facility
with a Canadian bank. This facility, which expires in February 2000, provides   
for maximum borrowings equal to the lesser of C$9.0 million (approximately      
US$6.3 million) or Riteway Canada's borrowing base associated with accounts     
receivable and inventories, as defined in the agreement. Interest is payable    
monthly at the bank's prime rate plus the applicable margin (as defined in the  
agreement). The interest rate on the facility was 7.75% at April 30, 1998.      

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ANNEX I 

AGREEMENT AND PLAN OF MERGER

DATED AS OF JUNE 22, 1998 
BY AND AMONG
SCHWINN HOLDINGS CORPORATION, 
SPK ACQUISITION CORPORATION 
AND 

GT BICYCLES, INC. 

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TABLE OF CONTENTS 

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                                                                               ----
                                                                                   
ARTICLE I     THE MERGER......................................................   1 
  Section  1.1.   The Merger..................................................   1 
  Section  1.2.   Closing.....................................................   1 
  Section  1.3.   Effective Time of the Merger................................   2 
  Section  1.4.   Effects of the Merger.......................................   2 
  Section  1.5.   Subsequent Actions..........................................   2 

ARTICLE II    EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT       2 
              CORPORATIONS....................................................     
  Section  2.1.   Conversion of Shares........................................   2 
  Section  2.2.   Surrender and Payment.......................................   3 
  Section  2.3.   Dissenting Shares...........................................   4 
  Section  2.4.   Lost Certificates...........................................   5 
  Section  2.5.   Adjustment of Merger Consideration and Option                  5 
                  Consideration...............................................     

ARTICLE III   THE SURVIVING CORPORATION.......................................   5 
  Section  3.1.   Certificate of Incorporation................................   5 
  Section  3.2.   Bylaws......................................................   5 
  Section  3.3.   Directors and Officers......................................   5 

ARTICLE IV    REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................   6 
  Section  4.1.   Corporate Existence and Power...............................   6 
  Section  4.2.   Corporate Authorization.....................................   6 
  Section  4.3.   Authorizations..............................................   6 
  Section  4.4.   Non-Contravention...........................................   6 
  Section  4.5.   Capitalization..............................................   7 
  Section  4.6.   Subsidiaries................................................   8 
  Section  4.7.   SEC and Related Filings.....................................   8 
  Section  4.8.   Company Financial Statements................................   8 
  Section  4.9.   Disclosure Documents; Information Supplied..................   9 
  Section  4.10.  Absence of Certain Changes..................................   9 
  Section  4.11.  Litigation..................................................   9 
  Section  4.12.  Compliance with Laws........................................   9 
  Section  4.13.  Product Design..............................................  10 
  Section  4.14.  Real Property...............................................  10 
  Section  4.15.  Personal Property...........................................  10 
  Section  4.16.  Contracts...................................................  10 
  Section  4.17.  Insurance...................................................  11 
  Section  4.18.  Intellectual Property.......................................  11 
  Section  4.19.  Taxes.......................................................  11 
  Section  4.20.  Employee Benefits...........................................  12 
  Section  4.21.  Labor Matters...............................................  14 
  Section  4.22.  Environmental Matters.......................................  14 
  Section  4.23.  Absence of Undisclosed Liabilities..........................  15 
  Section  4.24.  Opinion of the Company's Financial Advisor..................  15 
  Section  4.25.  Brokers.....................................................  15 
  Section  4.26.  Board Recommendation; Section 203; Required Vote............  15 
  Section  4.27.  Prior Negotiations..........................................  16 

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  Section  4.28.  Certain Business Practices..................................  16 
  Section  4.29.  Affiliate Transactions......................................  16 
  Section  4.30.  Full Disclosure.............................................  16 

ARTICLE V     REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER               17 
              SUBSIDIARY......................................................     
  Section  5.1.   Corporate Existence and Power...............................  17 
  Section  5.2.   Corporate Authorization.....................................  17 
  Section  5.3.   Authorizations..............................................  17 
  Section  5.4.   Non-Contravention...........................................  17 
  Section  5.5.   Information Supplied........................................  17 
  Section  5.6.   Financing...................................................  18 
  Section  5.7.   Brokers.....................................................  18 
  Section  5.8.   Parent Financial Statements.................................  18 
  Section  5.9.   Absence of Certain Changes..................................  18 
  Section  5.10.  Litigation..................................................  18 
  Section  5.11.  Solvency....................................................  18 
  Section  5.12.  Full Disclosure.............................................  18 

ARTICLE VI    CONDUCT OF BUSINESS PENDING THE MERGER..........................  18 
  Section  6.1.   Conduct of Business.........................................  18 
  Section  6.2.   Notice of Certain Events....................................  20 
  Section  6.3.   No Solicitation.............................................  20 

ARTICLE VII   ADDITIONAL AGREEMENTS...........................................  22 
  Section  7.1.   HSR Act.....................................................  22 
  Section  7.2.   Company Proxy Statement.....................................  22 
  Section  7.3.   Stockholders Meeting........................................  22 
  Section  7.4.   Access to Information; Confidentiality......................  23 
  Section  7.5.   Consents; Approvals.........................................  23 
  Section  7.6.   Indemnification and Insurance...............................  23 
  Section  7.7.   Employee Benefits...........................................  24 
  Section  7.8.   Notification of Certain Matters.............................  24 
  Section  7.9.   Further Action..............................................  24 
  Section  7.10.  Public Announcements........................................  24 
  Section  7.11.  Transfer Taxes..............................................  25 
  Section  7.12.  Accountant's Letters........................................  25 
  Section  7.13.  NNM Listing.................................................  25 
  Section  7.14.  Financing...................................................  25 
  Section  7.15.  Retention Policy............................................  25 

ARTICLE VIII  CONDITIONS TO CLOSING...........................................  25 
  Section  8.1.   Conditions to Obligation of Each Party to Effect the          25 
                  Merger......................................................     
  Section  8.2.   Additional Conditions to Obligations of Parent and Merger     26 
                  Subsidiary..................................................     
  Section  8.3.   Additional Conditions to Obligation of the Company..........  27 

ARTICLE IX    TERMINATION.....................................................  27 
  Section  9.1.   Termination.................................................  27 
  Section  9.2.   Effect of Termination.......................................  28 
  Section  9.3.   Fees and Expenses...........................................  29 

ARTICLE X     GENERAL PROVISIONS..............................................  29 

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Section 10.1.  Effectiveness of Representations and Warranties.............  29 
Section 10.2.  Survival....................................................  29 
Section 10.3.  Notices.....................................................  29 
Section 10.4.  Certain Definitions.........................................  30 
Section 10.5.  Amendment...................................................  33 
Section 10.6.  Waiver......................................................  34 
Section 10.7.  Headings....................................................  34 
Section 10.8.  Specific Performance........................................  34 
Section 10.9.  Severability................................................  34 
Section 10.10. Entire Agreement............................................  34 
Section 10.11. Assignment; Guarantee of Merger Subsidiary Obligations......  34 
Section 10.12. Parties In Interest.........................................  34 
Section 10.13. Failure or Indulgence Not Waiver; Remedies Cumulative.......  34 
Section 10.14. Governing Law...............................................  34 
Section 10.15. Counterparts................................................  35 

EXHIBITS                                                                        

Exhibit 3.1 -- Form of Certificate of Incorporation of the Surviving  
Corporation                             

    Exhibit 8.2(f) -- Form of legal opinion of Stradling Yocca Carlson & Rauth

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AGREEMENT AND PLAN OF MERGER

  THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of June 22, 1998, by and among GT Bicycles, Inc., a Delaware corporation
(the "Company"), Schwinn Holdings Corporation, a Delaware corporation           
("Parent"), and SPK Acquisition Corporation, a Delaware corporation and a       
wholly-owned subsidiary of Parent ("Merger Subsidiary").                        

  WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary
and the Company have approved the merger of Merger Subsidiary into the Company  
(the "Merger"), upon the terms and subject to the conditions set forth in this  
Agreement and in accordance with the General Corporation Law of the State of    
Delaware (the "DGCL"), whereby each issued and outstanding share of common      
stock, $.001 par value per share, of the Company (the "Company Common Stock" or 
the "Shares"), excluding Shares owned, directly or indirectly, by the Company or
any Subsidiary (as defined herein) of the Company or by Parent, Merger          
Subsidiary or any other Subsidiary of Parent and Dissenting Shares (as defined  
herein), shall be converted into the right to receive the Merger Consideration  
(as defined herein); and                                                        

   WHEREAS, the Board of Directors of the Company has unanimously determined
that this Agreement and the transactions contemplated hereby, including the     
Merger, are fair and in the best interests of the stockholders of the Company,  
and has resolved to recommend approval and adoption of this Agreement, the      
Merger and the other transactions contemplated hereby by such stockholders; and 

WHEREAS, Parent and Merger Subsidiary are unwilling to enter into this
Agreement unless, contemporaneously with the execution and delivery of this     
Agreement, certain beneficial and record holders of the Company Common Stock    
enter into agreements (collectively, the "Stockholders Agreement") providing for
such holders to support the transactions contemplated by this Agreement and     
providing Parent with the option, under certain circumstances, to acquire the   
Shares owned by such persons, and each such stockholder has executed and        
delivered the Stockholders Agreement; and                                       

   WHEREAS, each of Parent, Merger Subsidiary and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the consummation thereof.

    NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the     
parties hereto, intending to be legally bound, hereby agree as follows (certain 
capitalized terms used herein are defined in Section 10.4):                     

ARTICLE I 

THE MERGER

   SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL, Merger Subsidiary     
shall be merged with and into the Company at the Effective Time (as defined     
herein). At the Effective Time, the separate corporate existence of Merger      
Subsidiary shall cease, and the Company shall continue its corporate existence  
under the laws of the State of Delaware as the surviving corporation. (Merger   
Subsidiary and the Company are sometimes hereinafter referred to as "Constituent
Corporations" and the Company, after giving effect to the Merger, is sometimes  
hereinafter referred to as the "Surviving Corporation.")                        

    SECTION 1.2. Closing. Unless this Agreement shall have been terminated and
the transactions contemplated hereby shall have been abandoned pursuant to      
Section 9.1, the closing of the Merger (the "Closing") shall take place at 10:00
a.m. (local time) on the third business day following satisfaction or, if       
permissible, waiver of all of the conditions set forth in Article VIII hereof at
the offices of Stradling Yocca Carlson & Rauth at 660 Newport Center Drive,     
Suite 1600, Newport Beach, California 92660, unless another date, time or place 
is agreed to in writing by the parties hereto. At the time of the Closing, the  
Company and Merger Subsidiary will file a certificate of merger in such form as 
may be required by, and executed and acknowledged in accordance with, the DGCL  
with the Secretary of State of the State of Delaware and make all other filings 
or recordings required by the DGCL in connection with the Merger.               

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     SECTION 1.3. Effective Time of the Merger. The Merger shall, subject to the
DGCL, become effective as of such time as the certificate of merger is duly     
filed with the Secretary of State of the State of Delaware or at such time      
thereafter as is provided in the certificate of merger (the "Effective Time").  

    SECTION 1.4. Effects of the Merger. From and after the Effective Time, the
Merger shall have the effects set forth in the applicable sections of the DGCL. 

    SECTION 1.5. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of 
sale, assignments, assurances or any other actions or things are necessary or   
desirable to vest, perfect or confirm of record or otherwise in the Surviving   
Corporation its right, title or interest in, to or under any of the rights,     
properties or assets of either of the Company or Merger Subsidiary acquired or  
to be acquired by the Surviving Corporation as a result of, or in connection    
with, the Merger or otherwise to carry out the purposes and intents of this     
Agreement, the officers and directors of the Surviving Corporation are hereby   
authorized to execute and deliver, in the name and on behalf the Company and the
Merger Subsidiary, all such deeds, bills of sale, assignments and assurances and
to take, in the name and on behalf of each of such corporations or otherwise,   
all such other actions and things as may be necessary or desirable to vest,     
perfect or confirm any and all right, title and interest in, to or under such   
rights, properties or assets in the Surviving Corporation and otherwise to carry
out the transactions contemplated by this Agreement.                            

ARTICLE II

EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS 

SECTION 2.1. Conversion of Shares. Upon the terms and subject to the  
conditions set forth in this Agreement, at the Effective Time, automatically by 
virtue of the Merger and without any further action on the part of any party    
hereto or the holder of any shares of capital stock of the Company or Merger    
Subsidiary:                                                                     

         (a) Each Share owned by the Company, Parent, Merger Subsidiary or any
    Subsidiary of any of the Company, Parent or Merger Subsidiary (which shall
 not include Shares owned by the Company's Employee Stock Purchase Plan)
   immediately prior to the Effective Time shall be canceled and retired and
     shall cease to exist and no consideration shall be delivered or deliverable
in exchange therefor.                                                 

  (b) Each share of common stock of Merger Subsidiary issued and
     outstanding immediately prior to the Effective Time shall be converted into
  and become one fully paid and nonassessable share of common stock of the
   Surviving Corporation and shall constitute the only outstanding shares of
capital stock of the Surviving Corporation.                           

  (c) Each Share issued and outstanding immediately prior to the
    Effective Time shall, except as otherwise provided in Section 2.1(a) or as
 provided in Section 2.3 with respect to Dissenting Shares, be converted
into the right to receive $8.00 in cash without interest (the "Merger 
 Consideration") payable to the holder thereof upon the surrender of the
     certificate formerly representing such Share, less any required withholding
of Taxes.                                                             

  (d) All Shares issued and outstanding immediately prior to the
     Effective Time, when converted as provided in this Section 2.1, shall cease
     to be outstanding and shall automatically be canceled and retired and shall
 cease to exist, and each certificate previously evidencing such Shares,
   excluding Shares described in Section 2.1(a) and Dissenting Shares, shall
  thereafter represent only the right to receive the Merger Consideration.
  From and after the Effective Time the holders of certificates evidencing
   Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to the Company Common Stock except as    
otherwise provided herein or as required by Law.                      

          (e) Upon the consummation of the Merger, each option to acquire Shares
 outstanding immediately prior to the Effective Time under the Company's
     stock option plans or similar arrangements (as listed in Section 4.5 of the
Company's Disclosure Schedule), whether vested or unvested (each, an  
"Option," and collectively, the "Options"), shall automatically become
   immediately exercisable and each holder of an Option shall have the right
to receive from the Surviving Corporation in respect of each Share    
underlying                                                            
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   such Option, less any required withholding of Taxes, a cash payment in an
amount equal to the positive difference (if any) between the Merger   
     Consideration and the exercise price per Share applicable to such Option as
stated in the applicable stock option agreement or other document (the
"Option Consideration"). The Company shall take such other actions    
(including, without limitation, giving requisite notices to holders of
Options advising them of such accelerated exercisability and right to 
obtain payment for their respective Options) as are necessary to fully
  advise holders of Options of their rights and to facilitate their timely
   exercise of such rights. From and after the Effective Time, other than as
  expressly set forth in this Section 2.1(e), the holders of Options shall
   cease to have any rights in respect to such Options other than to receive
payment for his or her Options as set forth herein.                   

     (f) If the Merger is not consummated by September 1, 1998 and the
   warrant to purchase Company Common Stock issued by the Company to Bank of
     America (the "Bank of America Warrant") becomes partially exercisable, upon
    consummation of the Merger the holder of the Bank of America Warrant shall
     have the right to receive from the Surviving Corporation in respect of each
     Share then purchasable under the Bank of America Warrant, less any required
 withholding of Taxes, a cash payment in an amount equal to the positive
     difference (if any) between the Merger Consideration and the exercise price
per Share provided for in such warrant.                               

SECTION 2.2. Surrender and Payment.                                   

(a) Prior to the Effective Time, Parent shall appoint a bank or trust 
company (the "Exchange Agent") to act as agent for the holders of Shares and    
Options for the purpose of exchanging certificates representing such Shares for 
the Merger Consideration and distributing the Option Consideration. The fees and
expenses of the Exchange Agent shall be paid by the Parent. Parent shall        
contribute to Merger Subsidiary, which in turn shall pay to the Exchange Agent  
for the benefit of the holders of Shares and Options, at or prior to the        
Effective Time, an amount equal to the aggregate Merger Consideration and Option
Consideration necessary to pay amounts due to the holders of the Shares and     
Options pursuant to Section 2.1 (the "Exchange Fund"). For purposes of          
determining the Merger Consideration to be paid to the Exchange Agent, Parent   
shall assume that no holder of Shares will perfect his right to demand cash     
payment of the fair market value of his Shares pursuant to Section 262 of the   
DGCL. As promptly as practicable after the Effective Time, the Surviving        
Corporation shall send, or shall cause the Exchange Agent to send, to each      
record holder of Shares and/or Options, as appropriate, immediately prior to the
Effective Time, (i) notice of the effectiveness of the Merger, (ii) a letter of 
transmittal, which shall be a form reasonably acceptable to the Company, for use
in effecting the surrender of certificates representing Shares in exchange for  
payment of the Merger Consideration therefor and in effecting the cancellation  
of Options in exchange for payment of the Option Consideration therefor (which, 
with respect to certificates representing Shares, shall specify that the        
delivery shall be effected, and risk of loss and title shall pass, only upon    
proper delivery of such certificates to the Exchange Agent), and (iii)          
instructions for use in effecting surrender of certificates representing Shares 
and cancellation of Options. Upon surrender of a certificate representing Shares
for cancellation to the Exchange Agent, together with such letter of            
transmittal, duly executed, and such other customary documents as may reasonably
be required pursuant to the Exchange Agent's instructions, the holder of such   
certificate shall be entitled to receive in respect thereof cash in an amount   
equal to the product of (x) the number of Shares represented by such certificate
and (y) the Merger Consideration, less any required withholding of Taxes, and   
the certificate so surrendered shall forthwith be canceled. Upon receipt from   
the holder of an Option by the Exchange Agent of a duly executed letter         
acknowledging termination and cancellation of such holder's Option, in a form   
reasonably acceptable to Parent, the holder of such Option shall be entitled to 
receive in respect thereof cash in an amount equal to the product of (x) the    
number of Shares underlying such Option and (y) the Option Consideration, less  
any required withholding of Taxes, and such Options so surrendered shall        
forthwith be canceled. No interest shall be paid or accrued on the Merger       
Consideration or Option Consideration. The Exchange Fund shall not be used for  
any other purpose, except as provided in this Agreement.                        

  (b) If any portion of the Merger Consideration is to be paid to a person
other than the registered holder of the Shares represented by the certificates  
surrendered in exchange therefor, it shall be a condition to such payment that  
the certificates so surrendered shall be properly endorsed or otherwise be in   
proper form for                                                                 
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transfer and that the person requesting such payment shall pay any transfer or  
other Taxes required as a result of such payment to a person other than the     
registered holder of such Shares or establish to the satisfaction of the        
Exchange Agent that such Taxes have been paid or are not payable.               

 (c) After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of Shares. If, after the Effective 
Time, certificates representing Shares are presented to the Surviving           
Corporation for transfer, they shall be canceled and exchanged for the Merger   
Consideration provided for, and in accordance with the procedures set forth in, 
this Article II.                                                                

    (d) Any portion of the Exchange Fund that remains unclaimed by the holders
of Shares or Options six months after the Effective Time shall be delivered to  
the Surviving Corporation, upon the Surviving Corporation's demand, and any such
holder who has not exchanged his Shares or Options for the Merger Consideration 
or Option Consideration in accordance with this Section 2.2 prior to that time  
shall thereafter look only to the Surviving Corporation for payment of the      
Merger Consideration or Option Consideration in respect of his Shares or        
Options. Notwithstanding the foregoing, neither Parent nor the Surviving        
Corporation shall be liable to any holder of Shares or Options for any amount   
paid to a Governmental Authority pursuant to and in accordance with the         
requirements of applicable abandoned property, escheat or similar Laws.         

    (e) Parent shall be entitled to deduct and withhold, or cause the Exchange
Agent to deduct and withhold, from the consideration otherwise payable pursuant 
to this Agreement to any holder of Shares or Options such amounts as are        
required to be deducted and withheld with respect to the making of such payment 
under the Code, or any provision of state, local or foreign Tax Law. To the     
extent that amounts are so withheld, such withheld amounts shall be treated for 
all purposes of this Agreement as having been paid to the holder of the Shares  
or Options in respect of which such deduction and withholding was made.         

(f) From time to time at or after the Effective Time, the Surviving   
Corporation shall take all lawful action necessary to make or cause to be made  
the cash payments, if any, required to be made to holders of Dissenting Shares. 

  (g) The Exchange Agent shall invest portions of the Exchange Fund as the
Surviving Corporation directs in obligations of or guaranteed by the United     
States of America, in commercial paper obligations receiving the highest        
investment grade rating from both Moody's Investors Services, Inc. and Standard 
& Poor's Ratings Service, or in certificates of deposit, bank repurchase        
agreements or banker's acceptances of commercial banks with capital exceeding   
$1,000,000,000 (collectively, "Permitted Investments"); provided, however, that 
the maturities of the Permitted Investments shall be such as to permit the      
Exchange Agent to make prompt payment to former holders of Shares and Options   
entitled thereto as contemplated by this Article II. All earnings on the        
Permitted Investments shall be paid to the Surviving Corporation. If for any    
reason (including losses) the Exchange Fund is inadequate to pay the amounts to 
which holders of Shares and Options shall be entitled under this Article II, the
Surviving Corporation shall in any event be liable for payment thereof.         

    SECTION 2.3. Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and 
held by a holder who is entitled to and has demanded and perfected his right of 
appraisal for such Shares in accordance with Section 262 of the DGCL (the       
"Dissenting Shares") shall not be converted into the right to receive the Merger
Consideration as provided in Section 2.1(c), unless and until such holder       
withdraws or otherwise loses his right to an appraisal of the Shares and payment
under the DGCL. Such Shares instead shall, from and after the Effective Time,   
represent only the right to receive payment of the appraised value of such      
Shares in accordance with the provisions of such Section 262 of the DGCL, except
that if, after the Effective Time, any such holder withdraws or loses his right 
to an appraisal of the Shares under the DGCL, such Shares shall thereupon be    
treated as if they had been converted as of the Effective Time into the right to
receive the Merger Consideration, without interest thereon, upon surrender of   
the certificate or certificates formerly representing such Shares, less any     
required withholding of Taxes. The Company shall give all notices required under
Section 262 of the DGCL and otherwise comply with the requirements of Section   
262 of the DGCL. In addition, the Company shall give Parent (i) prompt notice of
any written demands for appraisal of any Shares, withdrawals of such demands,   
and any other instruments served pursuant to the DGCL and received by the       

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Company, and (ii) the opportunity to direct all negotiations and proceedings    
with respect to demands for appraisal under the DGCL. The Company shall not,    
except with the prior written consent of Parent, voluntarily make any payment   
with respect to any demands for appraisal of the Shares or settle or offer to   
settle any such demands.                                                        

   SECTION 2.4. Lost Certificates. In the event any certificate representing
any Shares shall have been lost, stolen or destroyed, upon the making of an     
affidavit of that fact by the person claiming such certificate to be lost,      
stolen or destroyed and upon satisfaction of the conditions set forth below, the
holder of such lost, stolen or destroyed certificate shall be entitled to       
receive in accordance with the terms of this Agreement the total Merger         
Consideration payable in respect of the Shares evidenced by such certificate.   
When authorizing such payment in exchange for any lost, stolen or destroyed     
certificate, the person to whom the Merger Consideration is to be paid shall, as
a condition precedent to the payment thereof, give the Surviving Corporation a  
bond satisfactory to the Surviving Corporation in such sum as it may direct or  
otherwise indemnify the Surviving Corporation in a manner satisfactory to the   
Surviving Corporation against any claim that may be made against the Company,   
Parent, Merger Subsidiary or the Surviving Corporation with respect to the      
certificate alleged to have been lost, stolen or destroyed.                     

SECTION 2.5. Adjustment of Merger Consideration and Option            
Consideration. The Merger Consideration payable pursuant to Section 2.1(c) and  
the Option Consideration payable pursuant to Section 2.1(e) have been calculated
based upon the representations and warranties made by the Company in Section    
4.5. Without limiting the effect of the failure of the representations and      
warranties made by the Company in Section 4.5 to be true and correct, in the    
event that, at the Effective Time, the actual number of shares of Company Common
Stock and Company Preferred Stock outstanding and/or the actual number of shares
of Company Common Stock and Company Preferred Stock issuable upon the exercise  
of outstanding Options, warrants or similar agreements or upon conversion of    
securities (including without limitation, as a result of any stock split, stock 
dividend, including any dividend or distribution of securities convertible into 
Shares, or a recapitalization) is more than as described in Section 4.5 (except 
as contemplated by Section 2.1(f) or as may result from the exercise or         
conversion of any currently outstanding Options, warrants or similar agreements 
described in Section 4.5), the Merger Consideration and the Option Consideration
shall be appropriately adjusted downward.                                       

ARTICLE III 

THE SURVIVING CORPORATION 

SECTION 3.1. Certificate of Incorporation. At the Effective Time, the 
Certificate of Incorporation of the Company as in effect immediately prior to   
the Effective Time shall be amended in its entirety to read as provided in      
Exhibit 3.1 hereto and shall be the Certificate of Incorporation of the         
Surviving Corporation until amended in accordance with applicable law.          

     SECTION 3.2. Bylaws. At the Effective Time, the Bylaws of Merger Subsidiary
as in effect immediately prior to the Effective Time shall be the Bylaws of the 
Surviving Corporation until amended in accordance with applicable law.          

 SECTION 3.3. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with 
applicable law, the officers and directors of Merger Subsidiary immediately     
prior to the Effective Time shall comprise all of the officers and directors of 
the Surviving Corporation.                                                      

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY 

   The Company represents and warrants to Parent and Merger Subsidiary that:

  SECTION 4.1. Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the  
State of Delaware, and has all requisite corporate power and authority and all  
material licenses, authorizations, certificates, consents and approvals of      
Governmental Authorities (collectively, "Licenses") required to own, lease and  
operate its properties and assets and to carry on its business as now conducted.
The Company is duly qualified to do business as a foreign corporation and is in 
good standing in each jurisdiction where the character of the properties and    
assets owned, leased or operated by it or the nature of its activities makes    
such qualification necessary, except for those jurisdictions where the failure  
to be so qualified and in good standing would not reasonably be expected to     
have, individually or in the aggregate, a Material Adverse Effect on the        
Company. The Company has heretofore delivered to Parent true and complete copies
of the Company's Certificate of Incorporation and Bylaws as currently in effect.

SECTION 4.2. Corporate Authorization. The Company has all requisite   
corporate power and authority to execute, deliver and perform this Agreement and
to carry out the transactions contemplated hereby and the execution, delivery   
and performance by the Company of this Agreement have been duly authorized by   
all necessary corporate action, except for the affirmative vote of the holders  
of a majority of the outstanding Shares entitled to vote on the Merger. This    
Agreement has been duly executed and delivered by the Company and, subject to   
receipt of the approvals specified in Section 4.3 herein and subject to the     
approval of the Merger by a majority of the outstanding Shares entitled to vote 
thereon, constitutes a valid, legal and binding agreement of the Company        
enforceable against the Company in accordance with its terms, except as the     
enforceability of this Agreement may be subject to or limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar Laws relating to or     
affecting the rights of creditors, and (ii) general equitable principles,       
regardless of whether the issue of enforceability is considered in a proceeding 
in equity or at law.                                                            

     SECTION 4.3. Authorizations. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the            
transactions contemplated hereby require no consent, approval, order or         
authorization of, or registration, declaration or filing with or notice to any  
Person by or with respect to the Company or its Subsidiaries, other than (i) the
filing of a certificate of merger in accordance with the DGCL, (ii) compliance  
with any applicable requirements of the HSR Act, (iii) compliance with any      
applicable requirements of the Exchange Act and the Securities Act, (iv) any    
consent, approval, order or authorization of, or registration, declaration or   
filing with or notice to any foreign Governmental Authority relating to the     
Merger, (v) the affirmative vote of holders of a majority of the outstanding    
Shares entitled to vote on the Merger, and (vi) any consent, approval, order or 
authorization of, or registration, declaration or filing with or notice to any  
Person the failure of which to make or obtain would not reasonably be expected  
to have, individually or in the aggregate, a Material Adverse Effect on the     
Company.                                                                        

   SECTION 4.4. Non-Contravention. Except as set forth in Section 4.4 of the
Company Disclosure Schedule, the execution, delivery and performance by the     
Company of this Agreement and the consummation by the Company of the            
transactions contemplated hereby do not and will not contravene or conflict     
with, or result in any violation of or default (with or without notice or lapse 
of time, or both) under, or give rise to a right of termination, cancellation,  
enhancement or acceleration of any obligation or the loss of a benefit under, or
give rise to the creation of any Lien or any right of first refusal with respect
to, any asset or property of the Company or any of its Subsidiaries, pursuant to
(i) any provision of the Certificate of Incorporation, Bylaws or other          
organizational documents of the Company or its Subsidiaries, (ii) assuming      
compliance with the matters referred to in Section 4.3, any provision of any    
material Law binding upon or applicable to the Company or any of its            
Subsidiaries or their respective properties or assets, (iii) any Contract       
binding upon the Company or any of its Subsidiaries, or (iv) any License held by
the Company or any of its Subsidiaries, except in the case of clauses (iii) and 
(iv) above, as would not reasonably be expected to have, individually or in the 
aggregate, a Material Adverse Effect on the Company.                            

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SECTION 4.5. Capitalization.                                          

(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, $.001   
par value per share (the "Company Preferred Stock"). As of the date of this     
Agreement, there were outstanding (i) 9,847,221 shares of Company Common Stock, 
including all shares restricted under any compensation plan or arrangement of   
the Company, (ii) no shares of Company Preferred Stock, (iii) Options to        
purchase an aggregate of 666,011 shares of Company Common Stock, and (iv) the   
Bank of America Warrant to purchase an aggregate of 525,765 shares of Company   
Common Stock, which is not currently exercisable and will not be exercisable at 
any time prior to September 1, 1998, unless on or prior to such date the Company
fails to pay, when due, its outstanding term loan from Bank of America. As of   
the date of this Agreement, 551,354 shares of Company Common Stock were reserved
for issuance pursuant to the Company's Employee Stock Purchase Plan, stock      
option plans and outstanding warrants and no shares of Company Common Stock were
held in treasury by the Company. As of June 30, 1998, the Company expects that  
participants in the Company's Employee Stock Purchase Plan will have accrued    
approximately $50,000 toward the purchase of shares of Company Common Stock     
under such plan.                                                                

    (b) Except as set forth in Section 4.5 of the Company Disclosure Schedule,
all outstanding shares of capital stock of the Subsidiaries of the Company are  
owned by the Company or a direct or indirect Subsidiary of the Company, free and
clear of all Liens. All outstanding shares of capital stock of the Company and  
its Subsidiaries (i) have been duly authorized and validly issued and are fully 
paid and nonassessable, (ii) are not subject to preemptive or other similar     
rights, and (iii) were issued in material compliance with all material          
applicable federal and state securities Laws. Except as set forth in this       
Section 4.5 and except for changes after the date of this Agreement resulting   
solely from the exercise of options or warrants outstanding on such date (and   
identified in Section 4.5 of the Company Disclosure Schedule), there are        
outstanding (i) no shares of capital stock or other voting securities of the    
Company or any of its Subsidiaries, (ii) no securities of the Company or any of 
its Subsidiaries convertible into or exercisable or exchangeable for shares of  
capital stock or voting securities of the Company or any of its Subsidiaries,   
and (iii) no options or other rights to acquire from the Company or any of its  
Subsidiaries, and no obligation of the Company or any of its Subsidiaries to    
issue, any capital stock, voting securities or securities convertible into or   
exercisable or exchangeable for capital stock or voting securities of the       
Company or any of its Subsidiaries (the items in clauses (i), (ii) and (iii)    
being referred to collectively as the "Company Securities").                    

There are no outstanding obligations of the Company or any of its     
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities. 

(c) As of the date hereof, there are no outstanding bonds, debentures,
notes or other indebtedness of the Company or any of its Subsidiaries having the
right to vote (or convertible into or exercisable or exchangeable for Company   
Securities having the right to vote) on any matters.                            

  (d) Section 4.5 of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, a true and correct listing of (i) each option and       
warrant to purchase any Company Securities, the holder thereof, the number and  
type of Company Securities purchasable thereunder, the dates upon which such    
options and warrants expire, and the exercise prices at which such options and  
warrants are exercisable (none of which options has been repriced since January 
1, 1997, except as set forth in Section 4.5(d) of the Company Disclosure        
Schedule), and (ii) a list of each other right to acquire any Company Securities
pursuant to any other agreement or instrument, describing such right and        
indicating the holder thereof. There are no employment, executive termination or
other agreements providing for the issuance of any Company Securities. There are
no outstanding stock appreciation rights or other outstanding contractual rights
the value of which is derived from the financial performance of the Company or  
the value of Shares of Company Common Stock.                                    

   (e) Except as set forth in Section 4.5 of the Company Disclosure Schedule
and except for the Stockholders Agreement, there are not as of the date hereof  
and there will not be at the Effective Time any stockholder agreements, voting  
trusts or other agreements or understandings to which the Company or any of its 
Subsidiaries is a party or by which they are bound relating to the voting or    
disposition of any Company Securities (including any such agreements or         
understandings that may limit in any way the solicitation of                    

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proxies by or on behalf of the Company from, or the casting votes by, the       
stockholders of the Company with respect to the Merger).                        

SECTION 4.6. Subsidiaries.                                            

(a) Each Subsidiary of the Company is identified in Section 4.6 of the
Company Disclosure Schedule. All of the Company's Significant Subsidiaries (as  
defined in Rule 1-02(w) of Regulation S-X of the SEC) are indicated with an     
asterisk on such Schedule. Each Subsidiary of the Company is a corporation duly 
incorporated, validly existing and in good standing under the laws of its       
jurisdiction of incorporation, has all requisite corporate power and authority  
and all material Licenses required to own, lease and operate its properties and 
assets and to carry on its business as now conducted. Each Subsidiary of the    
Company is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the properties and assets  
owned, leased or operated by it or the nature of its activities makes such      
qualification necessary, except for those jurisdictions where failure to be so  
qualified and in good standing would not reasonably be expected to have,        
individually or in the aggregate, a Material Adverse Effect on the Company. The 
Company has heretofore delivered to Parent true and complete copies of the      
Certificate of Incorporation, Bylaws or other organizational documents of each  
of the Subsidiaries of the Company as currently in effect.                      

   (b) Other than the Subsidiaries of the Company or as described in Section
4.6(b) of the Company Disclosure Schedule, the Company and its Subsidiaries (i) 
do not directly or indirectly own, (ii) have not agreed to purchase or otherwise
acquire, and (iii) do not hold any interest convertible into or exercisable or  
exchangeable for, 5% or more of the capital stock or other equity interest of   
any corporation, partnership or other business association or entity.           

SECTION 4.7. SEC and Related Filings.                                 

    (a) The Company has provided to Parent a true and complete copy of (i) the
Company's annual reports on Form 10-K for its fiscal years ended December 31,   
1995, 1996 and 1997 (the 1997 Form 10-K being referred to herein as the "Company
Form 10-K"), (ii) the Company's quarterly report on Form 10-Q for its fiscal    
quarter ended March 31, 1998 (the "Company Form 10-Q"), (iii) the Company's     
proxy or information statements relating to meetings of, or actions taken       
without a meeting by, the stockholders of the Company since January 1, 1996, and
(iv) all of the Company's other forms, reports, exhibits, schedules,            
registration statements, definitive proxy statements and other documents filed  
with the SEC since January 1, 1997 (collectively, the "Company Securities       
Documents"). Each Company Securities Document required to be filed with the SEC 
has been timely filed by the Company.                                           

  (b) As of their respective filing dates (or, in the case of registration
statements, their respective effective dates), the Company Securities Documents 
complied in all material respects with the requirements of the Securities Act,  
the Exchange Act or applicable state securities laws, as the case may be, and   
the rules and regulations thereunder. None of the Company Securities Documents  
at the time filed (or in the case of registration statements, their respective  
effective dates) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the    
statements therein, in light of the circumstances under which they were made,   
not misleading. No Subsidiary of the Company has any obligation to file any     
forms, reports, exhibits, schedules, registration statements, proxy statements  
or other documents with the SEC.                                                

SECTION 4.8. Company Financial Statements. The audited consolidated   
financial statements and unaudited consolidated interim financial statements of 
the Company included in the Company Securities Documents have been prepared from
and are in accordance with the books and records of the Company and were        
prepared in accordance with generally accepted accounting principles applied on 
a consistent basis (except as may be otherwise noted therein) during the periods
involved ("GAAP") and fairly present in accordance with applicable requirements 
of GAAP (subject, in the case of unaudited statements, to normal, recurring     
year-end audit adjustments, none of which will be material) the consolidated    
financial position of the Company and its Subsidiaries as of their respective   
dates and the consolidated results of operations, changes in stockholders'      
equity and cash flows of the Company and its Subsidiaries for the periods       
presented therein.                                                              

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SECTION 4.9. Disclosure Documents; Information Supplied.              

    (a) The proxy or information statement of the Company to be filed with the
SEC in connection with the Merger (the "Company Proxy Statement"), and any      
amendments or supplements thereto will, when filed, comply as to form in all    
material respects with the applicable requirements of the Exchange Act.         

    (b) At the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company and at the time such     
stockholders vote on adoption of this Agreement, the Company Proxy Statement, as
supplemented or amended at such time, will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the 
statements made therein, in the light of the circumstances under which they were
made, not misleading. The representations and warranties contained in this      
Section 4.9(b) will not apply to statements or omissions included in the Company
Proxy Statement to the extent relating to Parent or Merger Subsidiary or based  
upon information furnished to the Company in writing by Parent or Merger        
Subsidiary specifically for use in the Company Proxy Statement.                 

  SECTION 4.10. Absence of Certain Changes. Except as contemplated by this
Agreement, since the date of the Company Balance Sheet, the Company and its     
Subsidiaries have conducted their business in the ordinary course consistent    
with past practice and, except as set forth in Section 4.10 of the Company      
Disclosure Schedule, (i) there has not been any event, occurrence or development
of a state of circumstances or facts which has had or would reasonably be       
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company (other than effects arising from or relating to conditions,         
including, without limitation, economic or political developments, applicable   
generally to the industry), and (ii) the Company has not taken any action which,
if taken after the date hereof, would require Parent's consent under Section    
6.1.                                                                            

     SECTION 4.11. Litigation. Except as set forth in the Company Form 10-K, the
Company Form 10-Q or Section 4.11 of the Company Disclosure Schedule, and except
with respect to any claim, action, suit, investigation or proceeding which      
commences after the date hereof and which is in the ordinary course of business,
there is no claim, action, suit, investigation or proceeding pending against, or
to the knowledge of the Company, threatened against or affecting, the Company or
any of its Subsidiaries, any of their respective properties or assets or any of 
their respective directors and officers in their capacities as such before any  
court or arbitrator or any Governmental Authority, or with respect to which the 
Company or any of its Subsidiaries has retained or assumed responsibility by    
contract or operation of Law. No such claim, action, suit, investigation or     
proceeding if adversely determined, would, individually or in the aggregate,    
have a Material Adverse Effect on the Company. There are no judgments, decrees, 
orders, writs, injunctions, determinations or awards issued by any court or     
arbitrator or any Governmental Authority currently outstanding and unsatisfied  
against the Company or any of its Subsidiaries, or for which the Company or any 
of its Subsidiaries has retained or assumed responsibility by contract or       
operation of Law. Except as set forth in Section 4.11 of the Company Disclosure 
Schedule, there are no indemnification agreements between the Company or any of 
its Subsidiaries on the one hand, and any directors, officers, employees or     
other agents of the Company or any of its current or former Subsidiaries on the 
other hand. There are no indemnification or similar claims by or against the    
Company or any of its Subsidiaries that are pending or, to the knowledge of the 
Company, threatened, or which could reasonably be expected to be asserted in the
future.                                                                         

SECTION 4.12. Compliance with Laws.                                   

   (a) The Company and each of its Subsidiaries are, and at all times during
the last three years (and any former Subsidiary or operations sold by the       
Company or any of its Subsidiaries within the last three years, during such     
period while owned by the Company or any of its Subsidiaries) have been, in     
compliance in all material respects with all applicable material Laws. Neither  
the Company nor any of its Subsidiaries has any basis to expect, and has not    
received during the last three years, any notice, order or other communication  
from any Governmental Authority of any alleged, actual or potential violation of
or failure to comply in any material respect with any material Law.             

    (b) All Licenses required for the operation of the business of the Company
and each of its Subsidiaries as currently conducted are in full force and effect
without any default or violation thereunder by the Company                      

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or any of its Subsidiaries or, to the knowledge of the Company, by any other    
party thereto, except where the failure of any such License to be in full force 
and effect has not and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. Since January 1,    
1996, neither the Company nor any of its Subsidiaries has received any notice,  
order or other communication from any Governmental Authority of any alleged,    
actual or potential violation of or default under any such License in any       
material respect.                                                               

  SECTION 4.13. Product Design. Except as set forth in Section 4.13 of the
Company Disclosure Schedule, there are no material design, manufacturing or     
other defects, latent or otherwise, with respect to any products created,       
manufactured, sold, distributed or licensed by the Company or any of its        
Subsidiaries (collectively, the "Products"). A copy of the general standard     
warranties of the Company and each of its Subsidiaries has been delivered to    
Parent. The Company has not, and no Subsidiary of the Company has, modified or  
expanded in any material respect its warranty obligation to any customer or     
other Person beyond that set forth in such standard warranties. Since January 1,
1996, neither the Company nor any of its Subsidiaries has received any notice or
other communication from the Consumer Products Safety Commission or other       
similar state or foreign Governmental Authority regarding the safety of any     
Products or mandating or requesting any modification, recall or other action    
regarding any Products.                                                         

SECTION 4.14. Real Property. Section 4.14 of the Company Disclosure   
Schedule describes each interest in real property owned or leased by the Company
or any of its Subsidiaries. The Company and each of its Subsidiaries have good  
and marketable title in fee simple to all of the real property listed or        
required to be listed in Section 4.14 of the Company Disclosure Schedule owned  
by the Company or its Subsidiaries and own all right, title and interest in all 
leasehold estates and other rights purported to be granted to them by the leases
and other agreements listed in Section 4.14 of the Company Disclosure Schedule, 
in each case free and clear of any Liens except for such Liens, if any, as are  
reflected on the Company Balance Sheet or such other Liens as do not detract in 
any material respect from the value or marketability of the property subject    
thereto and do not materially interfere with the use of such property.          

   SECTION 4.15. Personal Property. The Company and each of its Subsidiaries
have good and marketable title to all of their properties and assets (not       
including real property) free and clear of any Liens except for Liens reflected 
on the Company Balance Sheet or such other Liens, if any, as do not detract in  
any material respect from the value or marketability of the property subject    
thereto and do not materially interfere with the use of such property. The      
material properties and assets owned or leased by the Company or any of its     
Subsidiaries are in the possession or under the control of the Company or such  
Subsidiaries and substantially are in good condition and repair, ordinary wear  
and tear excepted, are suitable for the purposes for which they are being used  
and are of a condition, nature and quantity sufficient for the conduct of the   
businesses of the Company and its Subsidiaries as presently conducted.          

SECTION 4.16. Contracts.                                              

    (a) Except as set forth in the Company Form 10-K, the Company Form 10-Q or
in Section 4.16 of the Company Disclosure Schedule, neither the Company nor any 
of its Subsidiaries (i) is a party to or bound by any written agreement for the 
employment of any officer, individual employee or other person on a full-time,  
part-time or consulting basis, or relating to severance pay for any person other
than those terminable at will, (ii) except for Contracts entered into in the    
ordinary course of business which are consistent in nature and amount with past 
practice, is a party to or bound by any Contract for the sale of any material   
capital asset, (iii) is a party to or bound by any Contract which is a material 
contract (as defined in Item 601 of Regulation S-K) to be performed after the   
date of this Agreement, (iv) is a party to or bound by any Contract which       
prohibits the Company, its Subsidiaries or their respective affiliates in any   
material respect from freely engaging in any business anywhere in the world, (v)
is a party to or bound by any Contract relating to the borrowing of money or to 
mortgaging, pledging or otherwise placing a material Lien on any of the assets  
of the Company or its Subsidiaries, (vi) is a party to or bound by any Contract 
which provides for future payments by the Company or any of its Subsidiaries in 
excess of $125,000 and is not terminable by the Company within 60 days without  
the payment of a penalty or premium, or (vii) has guaranteed any obligation for 
borrowed money.                                                                 

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(b) Neither the Company nor any of its Subsidiaries is and, to the    
knowledge of the Company, no other party is, in violation of or in default under
(nor does there exist any condition affecting the Company or any of its         
Subsidiaries, or to the Company's knowledge, other parties to such Contracts    
which upon the passage of time or the giving of notice or both would reasonably 
be expected to cause such a violation of or default under) any Contract to which
the Company or any of its Subsidiaries is a party or by which any of them or any
of their properties or assets are bound except for violations or defaults that  
have not had and would not reasonably be expected to have, individually or in   
the aggregate, a Material Adverse Effect on the Company. Each Contract set forth
in Section 4.16 of the Company Disclosure Schedule or filed as an exhibit to the
Company Form 10-K or the Company Form 10-Q included in the Company Securities   
Documents constitutes a valid and binding obligation of the Company and/or its  
Subsidiaries which is party thereto and, to the knowledge of the Company, each  
other party thereto, is enforceable against such other party in accordance with 
its terms.                                                                      

  (c) Prior to the date of this Agreement, Parent has been provided a true
and correct copy of each written Contract, and a written description of each    
oral Contract, set forth in the Company Form 10-K or the Company Form 10-Q      
included in the Company Securities Documents or required to be identified in    
Section 4.16 of the Company Disclosure Schedule, together with all amendments,  
waivers or other changes thereto.                                               

  SECTION 4.17. Insurance. Section 4.17 of the Company Disclosure Schedule
sets forth a true and correct listing of the policies and binders of insurance  
maintained by the Company or any of its Subsidiaries, together with the         
Company's experience since January 1, 1992 with respect to material product     
liability claims and since January 1, 1996 with respect to material medical     
claims.                                                                         

     SECTION 4.18. Intellectual Property. Except as set forth in Section 4.18 of
the Company Disclosure Schedule, the Company and each of its Subsidiary owns, or
is validly licensed or otherwise has the right to use, without any obligation to
make any fixed or contingent payments, including any royalty or license         
payments, as applicable, all patents, patent rights, trademarks, trademark      
rights, trade names, trade name rights, service marks, service mark rights,     
copyrights, software and other proprietary intellectual property rights that are
used in and are material to the businesses of the Company and its Subsidiaries  
as now operated (collectively, "Intellectual Property Rights"). Section 4.18 of 
the Company Disclosure Schedule sets forth a true and correct listing of all    
registered copyrights, trademarks and patents and any pending applications      
therefor. There is not now, nor has there been since January 1, 1996, any claim,
action, suit or proceeding pending or, to the knowledge of the Company,         
threatened that the Company or any of its Subsidiaries is or was, and to the    
knowledge of the Company, neither the Company nor any of its Subsidiaries is,   
infringing the rights of any person with regard to any Intellectual Property    
Right. To the knowledge of the Company, no person is, or since January 1, 1996  
has been, infringing the rights of the Company or any of its Subsidiaries with  
respect to any Intellectual Property Right. Except as set forth in Section 4.18 
of the Company Disclosure Schedule, neither the Company nor any of its          
Subsidiaries has licensed, or otherwise granted, to any third party, any rights 
in or to any Intellectual Property Rights. The Intellectual Property Rights are 
sufficient for the conduct of the businesses of the Company and its Subsidiaries
as presently conducted and the rights of the Company and its Subsidiaries in the
Intellectual Property Rights will not be limited or otherwise affected by reason
of any of the transactions contemplated hereby.                                 

SECTION 4.19. Taxes.                                                  

 (a) Each of the Company and its Subsidiaries has filed all material Tax
Returns required to be filed by any of them and has paid (or the Company has    
paid on its behalf) or has set up an adequate reserve in its financial          
statements for the payment of, all material Taxes required to be paid in respect
of the periods covered by such returns whether or not shown to be due on such   
returns. The information contained in such Tax Returns is true and correct in   
all material respects. Neither the Company nor any of its Subsidiaries is       
delinquent in the payment of any material Tax, assessment or governmental       
charge. There are no Tax Liens upon the assets of the Company or any of its     
Subsidiaries in any material amount except Liens for Taxes not yet due. No      
material deficiency for any Taxes has been proposed, asserted or assessed       
against the Company or any of its Subsidiaries that has not been resolved or    
paid in full and, except as set forth in Section 4.19 of the                    

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Company Disclosure Schedule, no audits or other administrative proceedings or   
court proceedings are currently pending with regard to any Taxes or Tax Returns 
of the Company or any of its Subsidiaries.                                      

   (b) Copies of all federal and state income Tax Returns of the Company and
its Subsidiaries for the taxable periods ended December 31, 1994 through        
December 31, 1997 have been delivered to Parent and such returns are true and   
correct in all material respects. No claim has been made during the last three  
years by a taxing authority in a jurisdiction where the Company or one of its   
Subsidiaries does not file income or franchise Tax Returns that such entity is  
or may be subject to income or franchise Tax in that jurisdiction. Neither the  
Company nor any of its Subsidiaries (i) has ever filed an election under Section
341(f) of the Code; (ii) has executed a waiver or consent, which remains        
outstanding, extending any statute of limitations for any Tax liability; (iii)  
has been the subject of a closing agreement with any taxing authority or the    
subject of a ruling from any taxing authority with respect to Tax matters that  
will have a continuing effect on the taxable income of the Company or one of its
Subsidiaries following the Closing; (iv) is required to make any adjustment     
under Section 481 of the Code; (v) is a party to any Tax sharing, Tax allocation
or Tax indemnification agreement with any person other than the Company and/or  
its Subsidiaries; (vi) has been a United States real property holding           
corporation within the meaning of Section 897(c)(2) of the Code during the      
applicable period specified in Section 897(c)(1)(A)(ii) of the Code; and (vii)  
has granted a power of attorney that is currently in effect with respect to any 
material Tax matter. All material Taxes required to be withheld, collected and  
deposited with any taxing authority have been so withheld, collected and        
deposited. No amount that would be received by any person (whether in cash or   
property or the vesting of property) as a result of any of the transactions     
contemplated by this Agreement under any employment, severance, or other        
compensation arrangement or benefit plan in effect with the Company or any of   
its Subsidiaries would be a "parachute payment" within the meaning of Section   
280G(b)(2) of the Code.                                                         

SECTION 4.20. Employee Benefits.                                      

 (a) Section 4.20 of the Company Disclosure Schedule contains a true and
correct listing of all benefit plans, arrangements and commitments (whether or  
not employee benefit plans ("Employee Benefit Plans") as defined in Section 3(2)
of ERISA), including, without limitation, sick leave, vacation pay, severance   
pay, salary continuation for disability, consulting or other compensation       
arrangements, retirement, deferred compensation, bonus, incentive compensation, 
stock purchase, stock option, health including hospitalization, medical and     
dental, life insurance and scholarship programs maintained for the benefit of   
any present or former employees of the Company, any of its Subsidiaries or any  
ERISA Affiliate (as defined below) or to which the Company, any of its          
Subsidiaries or any ERISA Affiliate has contributed or is or was within the last
three years obligated to make payments. The Company has made available to       
Parent, with respect to all such plans, arrangements, commitments and practices,
true, complete and correct copies of the following: all plan documents,         
handbooks, manuals, collective bargaining agreements and similar documents      
governing employment policies, practices and procedures; the most recent summary
plan descriptions and any subsequent summaries of material modifications and all
other material employee communications discussing any employee benefit; Forms   
series 5500 as filed with the IRS for the three most recent plan years; the most
recent report of the enrolled actuary for all defined benefit plans, funded     
welfare plans or other plans requiring actuarial valuation; all trust agreements
with respect to employee benefit plans; plan contracts with service providers or
with insurers providing benefits for participants or liability insurance for    
fiduciaries and other parties in interest or bonding; most recent annual audit  
and accounting of plan assets for all funded plans; and most recent IRS         
determination letter for all plans qualified under Code section 401(a). As used 
herein, "ERISA Affiliate" shall refer to any trade or business, whether or not  
incorporated, under common control with the Company within the meaning of       
Section 414(b), (c), (m) or (o) of the Code.                                    

 (b) With respect to each Employee Benefit Plan required to be listed in
Section 4.20 of the Company Disclosure Schedule: (i) each Employee Benefit Plan 
has been administered in material compliance with its terms, and is in          
compliance in all material respects with the applicable provisions of ERISA, the
Code and all other applicable Laws (including, without limitation, funding,     
filing, termination, reporting and disclosure and continuation coverage         
obligations pursuant to Title V of COBRA), (ii) the Company has made or provided
for all contributions required under the terms of such Plans, (iii) no "Employee
Pension Benefit Plan" (as defined in Section 3(2) of ERISA) has been the subject
of a "reportable event" (as defined in Section 4043                             

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of ERISA) and there have been no "prohibited transactions" (as described in     
Section 4975 of the Code or in Part 4 of Subtitle B of Title I of ERISA) with   
respect to any Employee Benefit Plan, (iv) there are and during the past three  
years there have been no claims, actions, suits, proceedings or investigations  
pending or, to the knowledge of the Company, threatened by any Governmental     
Authority or by any participant or beneficiary against any of the Employee      
Benefit Plans, the assets of any of the trusts under such Plans or the Plan     
sponsor or the Plan administrator, or against any fiduciary of any of such      
Employee Benefit Plans with respect to the design or operation of the Employee  
Benefit Plans, (v) the actuarial present value of accumulated benefits (both    
vested and unvested) of each of the Employee Pension Benefit Plans which are    
defined benefit plans, are fully funded in accordance with the actuarial        
assumptions used by the PBGC to determine the level of funding required in the  
event of the termination of such Plan, (vi) each Employee Pension Benefit Plan  
which is intended to be "qualified" within the meaning of Section 401(a) of the 
Code is and has from its inception been so qualified, and any trust created     
pursuant to any such Employee Pension Benefit Plan is exempt from federal income
tax under Section 501(a) of the Code and the IRS has issued each such Plan a    
favorable determination letter which is currently applicable, and (vii) neither 
the Company, any of its Subsidiaries nor any ERISA Affiliate is aware of any    
circumstance or event which would jeopardize the tax-qualified status of any    
such Employee Pension Benefit Plan or the tax-exempt status of any related      
trust, or which would cause the imposition of any material liability, penalty or
tax under ERISA or the Code with respect to any Employee Benefit Plan.          

  (c) Neither the Company, any of its Subsidiaries nor any ERISA Affiliate
maintains or has ever maintained or been obligated to contribute to a           
"multiemployer plan" (as such term is defined by Section 4001(a)(3) of ERISA).  

   (d) With respect to each Employee Benefit Plan maintained by the Company,
any of its Subsidiaries or any ERISA Affiliate: (i) no material unsatisfied     
liabilities to participants, the IRS, the DOL, the PBGC or to any other person  
or entity have been incurred as a result of the termination of any Employee     
Benefit Plan, (ii) no Employee Pension Benefit Plan, which is subject to the    
minimum funding requirements of Part 3 of subtitle B of Title I of ERISA or     
subject to Section 412 of the Code, has incurred any "accumulated funding       
deficiency" within the meaning of Section 302 of ERISA or Section 412 of the    
Code and there has been no waived funding deficiency within the meaning of      
Section 303 of ERISA or Section 412 of the Code, and (iii) there has been no    
event with respect to an Employee Pension Benefit Plan which would require      
disclosure under Sections 4062(c), 4063(a) or 4041(e) of ERISA.                 

    (e) All reports and information required to be filed with the DOL, IRS and
PBGC or with plan participants and their beneficiaries with respect to each     
Employee Benefit Plan required to be listed in Section 4.20 of the Company      
Disclosure Schedule have been filed except for any failure to file that would   
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company or a material adverse effect on the plan to which 
such filing relates.                                                            

     (f) All employee benefit plans required to be listed in Section 4.20 of the
Company Disclosure Schedule may, without material liability, be prospectively   
amended, terminated or otherwise discontinued except as specifically prohibited 
by federal law.                                                                 

   (g) Any bonding required under ERISA with respect to any Employee Benefit
Plan required to be listed in Section 4.20 of the Company Disclosure Schedule   
has been obtained and is in full force and effect.                              

  (h) Neither the Company, any of its Subsidiaries nor any ERISA Affiliate
maintains any retired life and/or retired health insurance plans which provide  
for continuing benefits or coverage for any employee or any beneficiary of an   
employee after such employee's termination of employment, except where the      
continuation of such coverage is required by Law.                               

 (i) The consummation of the transactions contemplated by this Agreement
will not, alone or together with any other event, (i) entitle any person to     
severance pay, unemployment compensation or any other payment, or (ii) result in
any material liability under Title IV of ERISA or otherwise.                    

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SECTION 4.21. Labor Matters.                                          

     (a) No application or petition for certification of a collective bargaining
agent is pending or, to the knowledge of the Company, contemplated, and none of 
the employees of the Company or any of its Subsidiaries are, or during the last 
three years have been, represented by any union or other bargaining             
representative.                                                                 

(b) No agreement restricts the Company or any of its Subsidiaries from
relocating, closing or terminating any of their operations or facilities or any 
portion thereof.                                                                

SECTION 4.22. Environmental Matters.                                  

(a) The Company and each of its Subsidiaries, including all of their  
businesses and operations, are, and since January 1, 1996 have been, operated in
compliance with all Environmental Laws, except where the failure to so comply   
has not, and would not reasonably be expected to have, individually or in the   
aggregate, a Material Adverse Effect on the Company.                            

 (b) There are no conditions on, about, beneath or arising from any real
property which is now owned, used or leased to or by the Company or any of its  
Subsidiaries ("Current Real Property") which might, under any Environmental Law,
(i) give rise to a material liability or the imposition of a statutory Lien, or 
(ii) which would or may require any Response, Removal or Remedial Action or any 
other action, including without limitation reporting, monitoring, cleanup or    
contribution, which would require a material expenditure or commitment by the   
Company or its Subsidiaries.                                                    

  (c) There were no conditions on, about, beneath or arising from any real
property which was, but is no longer, owned, used or leased to or by the Company
or any of its Subsidiaries ("Former Real Property"), during the period of such  
ownership, use or lease, which might, under any Environmental Law, (i) give rise
to a material liability or the imposition of a statutory Lien, or (ii) which    
would or may require any Response, Removal or Remedial Action or any other      
action, including without limitation reporting, monitoring, cleanup or          
contribution, which would require a material expenditure or commitment by the   
Company or its Subsidiaries.                                                    

(d) Neither the Company nor any of its Subsidiaries has received any  
notification of a release or threat of a release of a Hazardous Substance with  
respect to any Current Real Property or Former Real Property.                   

    (e) No Hazardous Substances have been used, handled, generated, processed,
treated, stored, transported to or from, released, discharged or disposed of by 
the Company, any of its Subsidiaries or, to the best of the Company's knowledge,
any third party on, about or beneath any Current Real Property in a manner which
has had or is reasonably likely to have, individually or in the aggregate, a    
Material Adverse Effect on the Company.                                         

(f) During the Company's or any of its Subsidiaries' ownership, use or
lease of the Former Real Property, no Hazardous Substances were used, handled,  
generated, processed, treated, stored, transported to or from, released,        
discharged or disposed of by the Company, any of its Subsidiaries or, to the    
best of the Company's knowledge, any third party on, about or beneath the Former
Real Property in a manner which has had or is reasonably likely to have,        
individually or in the aggregate, a Material Adverse Effect on the Company.     

  (g) There are no above or underground storage tanks, asbestos containing
materials, or transformers containing or contaminated with PCB's on, about or   
beneath the Current Real Property. During the Company's or any of its           
Subsidiaries' ownership, use or lease of the Former Real Property, there were no
above or underground storage tanks, asbestos containing materials, or           
transformers containing or contaminated with PCB's on, about or beneath the     
Former Real Property.                                                           

    (h) Neither the Company nor any of its Subsidiaries has received notice or
has knowledge of:                                                               

       (i) any claim, demand, investigation, enforcement action, Response,
Removal, Remedial Action, statutory Lien or other governmental or     
  regulatory action instituted or threatened against the Company or any of
 its Subsidiaries or the Current or Former Real Property pursuant to any
Environmental Law;                                                    
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        (ii) any claim, demand notice, suit or action, made or threatened by
   any Person against the Company, any of its Subsidiaries, the Current Real
  Property or the Former Real Property relating to (A) any form of damage,
 loss or injury resulting from, or claimed to result from, any Hazardous
 Substance on, about, beneath or arising from the Current or Former Real
    Property or (B) any alleged material violation of any Environmental Law by
the Company or any of its Subsidiaries; or                            

         (iii) any communication to or from any Governmental Authority arising
out of or in connection with Hazardous Substances on, about, beneath, 
arising from or generated at the Current Real Property or Former Real 
    Property, including without limitation, any notice of violation, citation,
   complaint, order, directive, request for information or response thereto,
notice letter, demand letter or compliance schedule.                  

     (i) No wastes generated by the Company or any of its Subsidiaries have ever
been directly or indirectly sent, transferred, transported to, treated, stored, 
or disposed of at any site listed or formally proposed for listing on the       
National Priority List promulgated pursuant to CERCLA or to any site listed on  
any state list of sites requiring or recommended for investigation or clean-up. 
None of the Current Real Property or Former Real Property is listed on the      
National Priorities List or any state list of sites requiring or recommended for
investigation or clean up.                                                      

SECTION 4.23. Absence of Undisclosed Liabilities. All of the material 
obligations and liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise, whether due or to become due, and regardless of when asserted,    
including Taxes) with respect to or based upon transactions or events           
("Liabilities"), required to be reflected on the Company Balance Sheet in       
accordance with GAAP, have been so reflected. Except as set forth in Section    
4.23 of the Company Disclosure Schedule, the Company and its Subsidiaries have  
no Liabilities which are, in the aggregate, material to the condition (financial
or otherwise), business, properties, assets, results of operations, cash flows  
or prospects of the Company and its Subsidiaries, taken as a whole, except (i)  
as reflected on the Company Balance Sheet, (ii) Liabilities which arose prior to
the date of the Company Balance Sheet and not required under GAAP to be         
reflected on the Company Balance Sheet and which have not had and would not     
reasonably be expected to have, individually or in the aggregate, a Material    
Adverse Effect on the Company, or (iii) Liabilities which have arisen after the 
date of the Company Balance Sheet in the ordinary course of business consistent 
in nature and amount with past practice and which have not had and would not    
reasonably be expected to have, individually or in the aggregate, a Material    
Adverse Effect on the Company.                                                  

SECTION 4.24. Opinion of the Company's Financial Advisor. The Board of
Directors of the Company has received a written opinion of Morgan Stanley,      
financial advisor to the Company, dated the date of this Agreement to the effect
that, as of such date, the Merger Consideration to be received in the Merger by 
the holders of Shares is fair to such holders from a financial point of view. A 
signed copy of such opinion has been delivered to Parent.                       

    SECTION 4.25. Brokers. No person acting on behalf of the Company or any of
its affiliates or under the authority of any of the foregoing is or will be     
entitled to any brokers' or finders' fee or any other commission or similar fee,
directly or indirectly, from any of such parties in connection with any of the  
transactions contemplated by this Agreement, other than Morgan Stanley, whose   
fees and expenses shall be paid by the Company. A true and correct copy of all  
agreements with Morgan Stanley have been delivered to Parent.                   

SECTION 4.26. Board Recommendation; Section 203; Required Vote.       

 (a) The Board of Directors of the Company, at a meeting duly called and
held, have by unanimous vote of those directors present (who constituted all of 
the directors then in office) (i) determined that the Merger, this Agreement,   
the Stockholders Agreement and the transactions contemplated hereby and thereby 
are fair to and in the best interests of the holders of Shares of Company Common
Stock, and (ii) recommended that holders of Shares of Company Common Stock      
approve the Merger, this Agreement and the transactions contemplated hereby.    

   (b) The Board of Directors of the Company has approved this Agreement and
the Stockholders Agreement, prior to execution and delivery of this Agreement   
and the Stockholders Agreement, in accordance with Section 203 of the DGCL, so  
that such Section will not apply to Parent, Merger Subsidiary, the Merger,      

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this Agreement, the Stockholders Agreement or the transactions contemplated     
hereby or thereby. No provision of the Certificate of Incorporation, Bylaws or  
other organizational documents of the Company or any of its Subsidiaries would, 
directly or indirectly, restrict or impair the ability of Parent or its         
affiliates to vote, or otherwise to exercise the rights of a stockholder with   
respect to, securities of the Company or its Subsidiaries that may be acquired  
or controlled by Parent or its affiliates or permit any stockholder to acquire  
securities of the Company on a basis not available to Parent in the event that  
Parent were to acquire securities of the Company, and neither the Company nor   
any of its Subsidiaries has any rights plan, preferred stock or similar         
arrangement which has any of the aforementioned consequences.                   

(c) The execution, delivery and performance of this Agreement and the 
Stockholders Agreement and the consummation of the transactions contemplated    
hereby or thereby will not cause to be applicable to the Company any federal,   
state, local or foreign anti-takeover or similar Law.                           

    SECTION 4.27. Prior Negotiations. The Company and its officers, directors,
employees, representatives and advisors (including the Company's financial      
advisor) have not been involved in substantive discussions with any group or    
person or any of their respective representatives or advisors, or furnished     
material confidential information to any such group or person or any of their   
respective representatives or advisors in connection with a possible Acquisition
Proposal except for such groups or persons which have executed and delivered to 
the Company a customary confidentiality agreement.                              

SECTION 4.28. Certain Business Practices. None of the Company, its    
Subsidiaries or any directors, officers, agents or employees of the Company or  
its Subsidiaries has (i) used any funds for unlawful contributions, gifts,      
entertainment or other unlawful expenses relating to political activity, (ii)   
made any unlawful payment to foreign or domestic governmental officials or      
employees or to foreign or domestic political parties or campaigns or violated  
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)   
consummated any transaction, made any payment, entered into any agreement or    
arrangement or taken any other action in violation of Section 1128B(b) of the   
Social Security Act, as amended, or (iv) made any other unlawful payment, that  
has had or would reasonably be expected to have, individually or in the         
aggregate, a Material Adverse Effect on the Company.                            

  SECTION 4.29. Affiliate Transactions. Except as set forth in the Company
Form 10-K, no director, officer, partner, key employee, "affiliate" or          
"associate" (as such terms are defined in Rule 12b-2 under the Exchange Act) of 
the Company or any of its Subsidiaries (or any immediate family member of any of
the foregoing persons) (i) has borrowed any monies from or has outstanding any  
indebtedness or other similar obligations to the Company or any of its          
Subsidiaries in excess of $60,000, (ii) to the best of the Company's knowledge, 
except for shares of a publicly traded company (in an amount not in excess of 5%
of the outstanding shares of such company) owns any direct or indirect material 
interest of any kind in, or is a director, officer, employee, partner, affiliate
or associate of, or consultant or lender to, or borrower from, or has the right 
to participate in the management, operations or profits of, any person or entity
which since January 1, 1997 has been a material competitor, supplier, customer, 
distributor, lessor, tenant, creditor or debtor of the Company or any of its    
Subsidiaries, or (iii) is otherwise a party to any material Contract with the   
Company or any of its Subsidiaries.                                             

    SECTION 4.30. Full Disclosure. All documents and other papers delivered by
or on behalf of the Company in connection with the transactions contemplated by 
this Agreement are accurate and complete in all material respects and are       
authentic. No representation or warranty of the Company contained in this       
Agreement or the Company Disclosure Schedule, taken as a whole, contains any    
untrue statement of a material fact or omits to state a material fact necessary 
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.                                     

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ARTICLE V 

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY

    Parent and Merger Subsidiary, jointly and severally, represent and warrant
to the Company that:                                                            

  SECTION 5.1. Corporate Existence and Power. Parent and Merger Subsidiary
are each duly incorporated, validly existing and in good standing under the laws
of the State of Delaware and each has all requisite corporate power and         
authority and all material Licenses required to own, lease and operate its      
properties and assets and to carry on its business as now conducted. Parent and 
Merger Subsidiary are each duly qualified to do business as a foreign           
corporation and are in good standing in each jurisdiction where the character of
the properties and assets owned, leased or operated by each or the nature of    
their respective activities makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified and in good standing would   
not, individually or in the aggregate, have a Material Adverse Effect on Parent.
Since its date of incorporation, Merger Subsidiary has not engaged in any       
material activities other than as related or incidental to the transactions     
contemplated by this Agreement. Parent has delivered to the Company true and    
complete copies of the Certificates of Incorporation and Bylaws of Parent and   
Merger Subsidiary as currently in effect.                                       

 SECTION 5.2. Corporate Authorization. Parent and Merger Subsidiary each
have all requisite corporate power and authority to execute, deliver and perform
this Agreement and to carry out the transactions contemplated hereby and the    
execution, delivery and performance by Parent and Merger Subsidiary of this     
Agreement have been duly authorized by all necessary corporate action. This     
Agreement has been duly executed and delivered by Parent and Merger Subsidiary  
and constitutes a valid, legal and binding agreement of Parent and Merger       
Subsidiary enforceable against each of them in accordance with its terms, except
as the enforceability of this Agreement may be subject to or limited by (i)     
bankruptcy, insolvency, reorganization, moratorium or other similar Laws        
relating to or affecting the rights of creditors, and (ii) general equitable    
principles, regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law.                                                 

 SECTION 5.3. Authorizations. The execution, delivery and performance by
Parent and Merger Subsidiary of this Agreement and the consummation by each of  
them of the transactions contemplated hereby require no consent, approval, order
or authorization of, or registration, declaration or filing with or notice to   
any Person by or with respect to Parent or Merger Subsidiary, other than (i) the
filing of a certificate of merger in accordance with DGCL; (ii) compliance with 
any applicable requirements of the HSR Act; (iii) compliance with any applicable
requirements of the Exchange Act and the Securities Act; (iv) any consent,      
approval, order or authorization of, or registration, declaration or filing with
or notice to any foreign Governmental Authority relating to the Merger, and (v) 
any consent, approval, order or authorization of, or registration, declaration  
or filing with or notice to any Person the failure of which to make or obtain   
would not reasonably be expected to have, individually or in the aggregate, a   
Material Adverse Effect on Parent.                                              

    SECTION 5.4. Non-Contravention. The execution, delivery and performance by
Parent and Merger Subsidiary of this Agreement and the consummation by them of  
the transactions contemplated hereby do not and will not contravene or conflict 
with, or result in any violation of or default (with or without notice or lapse 
of time, or both) under, or give rise to a right of termination, cancellation,  
enhancement or acceleration of any obligation or the loss of a benefit under, or
give rise to the creation of any Lien or any right of first refusal with respect
to, any asset or property of Parent or Merger Subsidiary, pursuant to (i) any   
provision of the Certificate of Incorporation or Bylaws of Parent or Merger     
Subsidiary, (ii) assuming compliance with the matters referred to in Section    
5.3, any provision of any material Law binding upon or applicable to Parent or  
Merger Subsidiary or their respective properties or assets, (iii) any Contract  
binding upon Parent or Merger Subsidiary, or (iv) any License held by Parent or 
Merger Subsidiary, except in the case of clauses (iii) and (iv) above, as would 
not, individually or in the aggregate, have a Material Adverse Effect on Parent.

SECTION 5.5. Information Supplied. The information supplied or to be  
supplied by Parent in writing specifically for inclusion or incorporation by    
reference in the Company Proxy Statement or any amendment or supplement thereto 
will not, at the time the Company Proxy Statement is first mailed to            
stockholders of the Company, at the time such stockholders vote on adoption of  
this Agreement or at the Effective Time, contain                                

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any untrue statement of a material fact or omit to state any material fact      
necessary in order to make the statements made therein, in light of the         
circumstances under which they were made, not misleading.                       

   SECTION 5.6. Financing. Parent has obtained and delivered complete copies
of the financing commitments Parent has received from financial institutions and
other entities with respect to the funds necessary to consummate the            
transactions contemplated hereby including, but not limited to, the funds       
necessary to pay the aggregate Merger Consideration and Option Consideration to 
holders of Shares and Options in accordance with this Agreement.                

  SECTION 5.7. Brokers. No person acting on behalf of Parent or any of its
affiliates or under the authority of any of the foregoing is or will be entitled
to any brokers' or finders' fee or any other commission or similar fee, directly
or indirectly, from the Company or any of its Subsidiaries in connection with   
any of the transactions contemplated by this Agreement.                         

SECTION 5.8. Parent Financial Statements. Parent has delivered to the 
Company a true and correct copy of the unaudited interim consolidated balance   
sheet of Parent and its subsidiaries which fairly presents in all material      
respects the financial position of Parent as of April 30, 1998.                 

     SECTION 5.9. Absence of Certain Changes. Since April 30, 1998 there has not
been any event, occurrence or development of a state of circumstances or facts  
which has had or would reasonably be expected to have, individually or in the   
aggregate, a material adverse effect on Parent's ability to perform its         
obligations under this Agreement.                                               

     SECTION 5.10. Litigation. There is no claim, action, suit, investigation or
proceeding pending against, or to the knowledge of Parent, threatened against or
affecting Parent or Merger Subsidiary, any of their respective properties or    
assets or any of their respective directors and officers in their capacities as 
such before any court or arbitrator or any Governmental Authority which has had 
or would reasonably be expected to have, individually or in the aggregate, a    
material adverse effect on Parent's ability to perform its obligations under    
this Agreement.                                                                 

    SECTION 5.11. Solvency. Parent and Merger Subsidiary are each "Solvent" as
of the date of this Agreement. For purposes of this Section, "Solvent" means    
with respect to each of Parent and Merger Subsidiary that as of the date of this
Agreement:                                                                      

          (a) The fair saleable value of its property is greater than the amount
   that will be required to pay its probable liability under its Liabilities
as they become absolute and matured;                                  

      (b) It does not have unreasonably small capital (as provided in 11
U.S.C. sec. 548(a)(2)(B)(II)) to carry on its business as heretofore  
operated and all businesses in which it is about to engage; and       

       (c) It (i) is able to pay its Liabilities in the ordinary course of
business, (ii) will be able to continue to pay its Liabilities as they
 mature in the ordinary course of business, and (iii) does not intend or
     reasonably believe that it will incur Liabilities beyond its ability to pay
as such Liabilities mature.                                           

    SECTION 5.12. Full Disclosure. All documents and other papers delivered by
or on behalf of Parent in connection with the transactions contemplated by this 
Agreement are accurate and complete in all material respects and are authentic. 
No representation or warranty of Parent or Merger Subsidiary contained in this  
Agreement contains any untrue statement of a material fact or omits to state a  
material fact necessary in order to make the statements herein, in light of the 
circumstances under which they were made, not misleading.                       

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE MERGER

   SECTION 6.1. Conduct of Business. During the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause each of its 
Subsidiaries to, carry on its business in the ordinary course of business in    
substantially the same manner as heretofore conducted and, to the extent        
consistent therewith, use all reasonable efforts to preserve intact its current 
business organizations, keep available the                                      

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services of its current officers and employees and preserve its relationships   
with customers, suppliers, licensors, licensees, distributors and others having 
business dealings with it. Without limiting the generality of the foregoing,    
during the period from the date of this Agreement to the Effective Time, except 
as disclosed in Section 6.1 of the Company Disclosure Schedule, the Company     
shall not, and shall not permit any of its Subsidiaries to, without the prior   
written approval of Parent:                                                     

         (a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any 
     Company Securities, other than dividends and distributions by any direct or
     indirect wholly-owned Subsidiary of the Company to its parent, (ii) adjust,
   split, combine or reclassify any Company Securities or issue or authorize
the issuance of any other securities in respect of, in lieu of or in  
 substitution for any Company Securities, except as permitted by Section
 6.1(b)(iii), or (iii) purchase, redeem or otherwise acquire any Company
   Securities or any rights, warrants or options to acquire any such Company
Securities or any other securities;                                   

     (b) (i) grant any options, warrants or rights to purchase Company
    Securities, (ii) amend or reprice any outstanding option, warrant or right
    to purchase Company Securities, or (iii) issue, deliver or sell, or pledge
   or otherwise encumber, or authorize or propose to issue, deliver or sell,
 or pledge or otherwise encumber, any Company Securities, other than the
issuance of Company Common Stock upon (A) the exercise of outstanding 
 Options set forth in the Company Disclosure Schedule in accordance with
    their present terms, (B) the exercise of outstanding warrants set forth in
     the Company Disclosure Schedule in accordance with their present terms, and
(C) the exercise of rights pursuant to the Company's Employee Stock   
Purchase Plan in accordance with its present terms, provided that the 
participants thereunder shall be entitled to purchase shares with     
  accumulated payroll deductions as permitted under Section 7.7(b) hereof;

          (c) amend or propose to amend its Certificate of Incorporation, Bylaws
or other organizational documents;                                    

   (d) amend, modify or waive any material term of any outstanding
Company Security;                                                     

         (e) (i) amend any existing agreement or instrument, or enter into any
 new agreement or instrument, in each case relating to the assumption or
    incurrence of indebtedness for borrowed money (except that the Company may
draw on its existing credit facilities in the ordinary course of its  
 business consistent in nature and amount with past practice), or to the
guarantee of any indebtedness or the issuance or sale of any debt     
securities or warrants or rights to acquire any debt securities of the
    Company or any of its Subsidiaries or the guarantee of any debt securities
   of others or enter into any lease (whether an operating or capital lease)
  or create any Liens on the properties or assets of the Company or any of
its Subsidiaries, or enter into any "keep well" or other agreement or 
    arrangement to maintain the financial condition of another Person, or (ii)
  make any loans, advances or capital contributions to, or investments in,
   any other Person in excess of $50,000 in the aggregate, other than to the
  Company or any direct or indirect wholly-owned Subsidiary of the Company
     and other than loans or advances to customers and employees in the ordinary
course of business consistent in nature and amount with past practice;

      (f) make any capital expenditures or acquisitions of properties or
assets in excess of $5,000,000, individually or in the aggregate;     

          (g) (i) grant any material increase in compensation or benefits to any
  current or former director of the Company or any of its Subsidiaries or,
other than in the ordinary course of business consistent in nature and
     amount with past practice, to any officer or employee of the Company or any
of its Subsidiaries, (ii) pay or agree to pay any pension, retirement 
 allowance or other employee benefit not required or contemplated by any
    existing Employee Benefit Plan as in effect on the date hereof to any such
  director or, other than in the ordinary course of business consistent in
nature and amount with past practice, to any such officer or employee,
(iii) except as may be required to comply with applicable law, become 
     obligated under any new Employee Benefit Plan which was not in existence on
    the date hereof, or amend any such plan or arrangement in existence on the
     date hereof if such amendment would have the effect of materially enhancing
   any benefits thereunder, or (iv) grant to any current or former director,

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     officer or employee any increase in severance or termination pay (including
the acceleration in the exercisability of Options or in the vesting of
    Shares (or other property) except for automatic acceleration in accordance
   with the terms of this Agreement or the Company's Employee Stock Purchase
Plan, or the provision of any tax gross-up);                          

        (h) acquire (i) by merging or consolidating with, or by purchasing a
   substantial equity interest in or a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership, 
 association or other business organization or division thereof, or (ii)
   except in the ordinary course of business consistent in nature and amount
  with past practice, any assets that are material, individually or in the
aggregate, to the Company and its Subsidiaries as a whole;            

  (i) other than dispositions in the ordinary course of business
    consistent in nature and amount with past practice which are not material,
individually or in the aggregate, to the Company and its Subsidiaries,
sell, lease, encumber or otherwise dispose of any of its material     
properties or assets;                                                 

          (j) voluntarily take any action that is reasonably likely to result in
   any of the Company's representations or warranties hereunder being untrue
   in any material respect or in any of the Company's covenants hereunder or
any of the conditions to the Merger not being satisfied; or           

          (k) authorize any of, or commit or agree to take any of, the foregoing
actions.                                                              

Furthermore, during the period from the date of this Agreement to the 
Effective Time, the Company shall promptly advise Parent in writing of any      
change or event that has or could reasonably be expected to have, individually  
or in the aggregate, a Material Adverse Effect on the Company, and promptly     
provide Parent (or its counsel) with copies of all filings made by the Company  
with the SEC or any other Governmental Authority (whether or not in connection  
with this Agreement and the transactions contemplated hereby).                  

SECTION 6.2. Notice of Certain Events. The Company and Parent shall   
promptly notify each other of:                                                  

          (a) any notice or other written communication from any Person alleging
  that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement, which consent, if not
     obtained, could reasonably be expected to have a Material Adverse Effect on
    the Company or which could reasonably be expected to affect materially and
adversely the transactions contemplated hereby;                       

         (b) any notice or other communication from any Governmental Authority
 in connection with the transactions contemplated by this Agreement; and

 (c) any actions, suits, claims, investigations or proceedings
   commenced or, to Parent's or the Company's knowledge, as the case may be,
    threatened against, relating to or involving or otherwise affecting Parent
    or the Company or any of its Subsidiaries which relate to the consummation
   of the transactions contemplated by this Agreement or which, with respect
   to the Company, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.11.             

SECTION 6.3. No Solicitation.                                         

  (a) From and after the date hereof until the Effective Time, the Company
shall not, and shall not authorize or permit any of its Subsidiaries, or any of 
its or their officers, directors, employees, representatives, agents or         
affiliates (including, without limitation, any investment banker, financial     
advisor, attorney, accountant or other representative retained by the Company or
any of its Subsidiaries), to directly or indirectly initiate, solicit or        
encourage (including by way of furnishing information or assistance), or take   
any other action to facilitate, any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal,
or enter into or maintain or continue discussions or negotiate with any Person  
in furtherance of such inquiries with respect to an Acquisition Proposal or     
agree to or endorse any Acquisition Proposal, provided, however, that, if the   
Board of Directors of the Company, based on the advice of outside legal counsel,
reasonably believes that the failure to proceed in accordance with clause (i)   
and/or (ii) below of this Section 6.3(a) would violate the directors' fiduciary 
duties to the Company's stockholders                                            

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under applicable law, the Company may, subject to compliance with Section       
6.3(c), in response to an unsolicited written bona fide Acquisition Proposal    
from any Person that the Company's Board of Directors, based on the written     
advice of an independent nationally recognized financial advisor and outside    
legal counsel, reasonably believes would reasonably be expected to result in a  
Superior Proposal, (i) furnish information with respect to the Company to such  
Person making such proposal after entering into a confidentiality agreement with
such Person on terms and conditions no less favorable in any material respect to
the Company than the terms and conditions of the confidentiality agreement dated
as of May 27, 1998 executed by Parent and (ii) participate in negotiations      
regarding such Acquisition Proposal; provided that, in the case of clauses (i)  
and (ii) above, the Company has provided not less than four business days prior 
written notice to Parent of its intention to proceed under such clause (i) or   
(ii) above. Without limiting the foregoing, it is agreed that any violation of  
the restrictions set forth in the preceding sentence by any director, officer,  
employee, representative, agent or affiliate of the Company or any of its       
Subsidiaries or any investment banker, financial advisor, attorney, accountant  
or other representative of the Company or any of its Subsidiaries shall be      
deemed to be a breach of this Section 6.3(a) by the Company. For purposes of    
this Agreement, "Acquisition Proposal" shall mean an inquiry, offer or proposal 
regarding any of the following (other than the transactions among the Company,  
Parent and Merger Subsidiary contemplated hereunder) involving the Company or   
any of its Significant Subsidiaries: (A) any merger, consolidation, share       
exchange, recapitalization, business combination or other similar transaction;  
(B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition  
of 20% or more of the assets of the Company and its Subsidiaries, taken as a    
whole, in a single transaction or series of transactions; (C) any tender offer  
or exchange offer for outstanding shares of capital stock of the Company or     
purchase from the Company of any shares of capital stock of the Company or the  
filing of a registration statement under the Securities Act in connection with  
any of the foregoing; or (D) any public announcement by the Company of a        
proposal, plan or intention to do any of the foregoing or any agreement to      
engage in any of the foregoing.                                                 

(b) Except as set forth in this Section 6.3(b), neither the Board of  
Directors of the Company nor any committee thereof shall (i) withdraw or modify,
or propose to withdraw or modify, in a manner materially adverse to Parent or   
Merger Subsidiary, the approval or recommendation by such Board of Directors or 
any such committee of the Merger or this Agreement, (ii) approve or recommend,  
or propose to approve or recommend, any Acquisition Proposal or (iii) enter into
any agreement with respect to any Acquisition Proposal. If the Board of         
Directors, based on the advice of outside counsel, reasonably believes that the 
failure to proceed in accordance with clause (A), (B) and/or (C) below of this  
Section 6.3(b) would violate its fiduciary duties to the Company's stockholders 
under applicable law, the Board of Directors may (subject to the terms of this  
sentence) (A) withdraw or modify its recommendation of the Merger or this       
Agreement, (B) approve or recommend a Superior Proposal, or (C) cause the       
Company to enter into an agreement with respect to a Superior Proposal, in each 
case; provided that the Company shall not take any of the actions specified in  
such clauses (A), (B) or (C) unless the Parent shall have received from the     
Company written notice specifying such actions to be taken no later than 12:00  
noon New York City time four business days prior to the date such actions are   
proposed to be taken (a "Superior Proposal Notice").                            

(c) The term "Superior Proposal" shall mean any bona fide Acquisition 
Proposal that has the following characteristics: (i) it is a proposal to        
acquire, directly or indirectly, for consideration consisting of cash and/or    
readily marketable securities, (A) shares of Company Common Stock representing  
80% of the voting power of the outstanding shares of Company Common Stock, and  
the shares of Company Common Stock issuable upon the exercise of outstanding    
Options, warrants and rights to purchase Company Common Stock, or (B)           
substantially all the assets of the Company, (ii) the terms of such proposal in 
the good faith judgment of the Board of Directors of the Company (based on the  
written opinion of an independent nationally recognized financial advisor)      
provide a per share value to the Company's stockholders which is higher than the
per share value provided by the Merger (after talking into account, if          
applicable, the Expenses and Termination Fee and any modifications to this      
Agreement proposed by Parent), (iii) the transactions envisioned by such        
proposal, in the good faith judgment of the Board of Directors of the Company,  
based on the opinion of an independent nationally recognized financial advisor  
and the advice of outside legal counsel, is reasonably likely to be consummated 
without unreasonable delay or unusual conditions compared to the transactions   
contemplated by this Agreement, and (iv) financing for the proposed transaction,
to the extent required, has been                                                
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committed in all material respects to the same extent that Parent's financing   
referred to in Section 5.6 has been committed.                                  

     (d) In addition to the obligations set forth in Section 6.3(b), the Company
shall promptly advise Parent orally and in writing of any Acquisition Proposal  
and of any request for information which may relate to an Acquisition Proposal, 
or any inquiry with respect to or which could lead to any Acquisition Proposal, 
and the material terms and conditions of such request, Acquisition Proposal or  
inquiry. The Company will keep Parent fully and timely informed of the status   
and details (including amendments or proposed amendments) of any such request,  
Acquisition Proposal or inquiry.                                                

ARTICLE VII 

ADDITIONAL AGREEMENTS 

   SECTION 7.1. HSR Act. Within seven days after the date of this Agreement,
the Company and Parent shall each file notifications under the HSR Act in       
connection with the Merger and the transactions contemplated hereby (and make   
any required filings with any applicable foreign antitrust authorities) and     
respond as promptly as practicable to any inquiries received from the FTC and   
the Antitrust Division for additional information or documentation and to       
respond as promptly as practicable to all inquiries and requests received from  
any state Attorney General or other Governmental Authority in connection with   
antitrust matters. The Company shall promptly take or commit to take all actions
reasonably requested by Parent to obtain all consents, waivers, approvals,      
authorizations or orders from the FTC, the Antitrust Division and any state     
Attorney General or other Governmental Authority in connection with the         
consummation of the transactions contemplated by this Agreement, provided,      
however, that the Company shall not be required to dispose of any material      
assets prior to the Effective Time.                                             

    SECTION 7.2. Company Proxy Statement. As promptly as practicable after the
execution of this Agreement, the Company shall prepare and file with the SEC    
proxy materials which shall constitute the preliminary Company Proxy Statement  
relating to the adoption of the Merger Agreement and approval of the            
transactions contemplated hereby by the stockholders of the Company. The Company
shall use its reasonable best efforts to respond promptly to any SEC comments   
with respect to the Company Proxy Statement and to cause the Company Proxy      
Statement and the form of proxy, which shall comply as to form with all         
applicable laws, to be mailed to the Company's stockholders at the earliest     
practicable date. The Company shall notify Parent promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff   
for amendments or supplements to the Company Proxy Statement or for additional  
information and will supply Parent with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its      
staff, on the other hand, with respect to the Company Proxy Statement or the    
Merger. Prior to filing the Company Proxy Statement with the SEC, the Company   
shall provide reasonable opportunity for Parent to review and comment upon the  
contents of the Company Proxy Statement and shall not include therein or omit   
therefrom any information to which Parent shall reasonably object. The Company  
Proxy Statement shall include the recommendation of the Board of Directors of   
the Company in favor of the Merger, subject to Section 6.3. If at any time prior
to the Company Stockholders Meeting any event or circumstances relating to the  
Company, Parent or Merger Subsidiary or any of their respective affiliates, or  
their respective officers or directors, should be discovered by the Company,    
Parent or Merger Subsidiary that should be set forth in an amendment or         
supplement to the Company Proxy Statement, the Company shall promptly inform    
Parent, and Parent shall promptly inform the Company, as the case may be, and   
the Company shall promptly prepare and file with the SEC, and mail such         
amendment or supplement to the stockholders of the Company in accordance with   
the procedures (including the procedures relating to review and comment by      
Parent) set forth above.                                                        

SECTION 7.3. Stockholders Meeting. The Company shall call and hold a  
stockholders meeting for the purpose of voting upon the approval of the Merger  
and this Agreement as soon as practicable after the date on which the Company   
Proxy Statement shall have been cleared by the SEC. Subject to the provisions of
Section 6.3, the Company shall solicit from its stockholders proxies in favor   
of, necessary or advisable to                                                   

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obtain, approval of the Merger and this Agreement, and the Board of Directors   
shall recommend that holders of Shares vote in favor of and approve the Merger  
and this Agreement at the Company Stockholders Meeting.                         

     SECTION 7.4. Access to Information; Confidentiality. The Company shall (and
shall cause each of its Subsidiaries to) afford to the officers, employees,     
accountants, counsel, potential lenders and other representatives of Parent     
reasonable access, during the period prior to the Effective Time, to all        
properties, books, Contracts and records of the Company and its Subsidiaries    
and, during such period, the Company shall (and shall cause each of its         
Subsidiaries to) furnish promptly to Parent all information concerning the      
Company's business, properties and personnel as Parent may reasonably request,  
and the Company shall make available to Parent the appropriate individuals      
(including attorneys, accountants and other professionals) for discussions of   
the Company's business, properties and personnel as Parent may reasonably       
request. Parent acknowledges that certain of the information which may be made  
available to it is proprietary and includes confidential information. Prior to  
the Effective Time and for two years after any termination of this Agreement,   
Parent will hold and will use its best efforts to cause its officers, directors,
employees, accountants, counsel, consultants, advisors and agents (collectively,
"Representatives") to hold, in confidence, unless compelled to disclose by      
judicial or administrative process or by other requirements of Law, all         
confidential documents and information concerning the Company ("Evaluation      
Material") furnished in connection with the transactions contemplated by this   
Agreement. In the event that Parent or any of its Representatives becomes       
legally compelled (by deposition, interrogatory, request for documents,         
subpoena, civil investigative demand or similar process) to disclose any of the 
Evaluation Material, Parent shall provide the Company with prompt prior written 
notice of such requirement so that the Company may seek a protective order or   
other appropriate remedy and/or waive compliance with the terms of this         
Agreement. In the event that such protective order or other remedy is not       
obtained, or that the Company waives compliance with the provisions hereof,     
Parent shall furnish only that portion of the Evaluation Material which Parent  
is advised by written opinion of counsel is legally required and exercise best  
efforts to obtain assurance that confidential treatment will be accorded such   
Evaluation Material. The term "Evaluation Material" does not include any        
information that (i) at the time of disclosure or thereafter is generally       
available to the public (other than as a result of its disclosure directly or   
indirectly by Parent or its Representatives), (ii) was available to Parent on a 
non-confidential basis from a source other than the Company or its advisors,    
provided that such source is not and was not bound by a confidentiality         
agreement regarding the Company, or (iii) has been independently acquired or    
developed by Parent without violating any of its obligations under this Section 
7.4. At any time upon written request by the Company, Parent shall promptly     
return to the Company all copies of the Evaluation Material in its possession or
in the possession of its Representatives, and Parent will promptly destroy all  
copies of any analyses, compilations, studies or other documents prepared by or 
for Parent or its Representatives or for Parent's or their use which reflect or 
contain any Evaluation Material.                                                

     SECTION 7.5. Consents; Approvals. The Company and Parent shall each use all
reasonable efforts to obtain promptly all consents, waivers, approvals,         
authorizations or orders (including, without limitation, from all Governmental  
Authorities), and the Company and Parent shall promptly make all filings        
(including, without limitation, with all Governmental Authorities) required in  
connection with the authorization, execution and delivery of this Agreement by  
the parties hereto and the consummation by them of the transactions contemplated
hereby. The Company and Parent shall furnish each other with all information    
required to be included in the Company Proxy Statement or any application or    
other filing to be made pursuant to the rules and regulations of any            
Governmental Authority in connection with the transactions contemplated by this 
Agreement.                                                                      

SECTION 7.6. Indemnification and Insurance.                           

(a) The Certificate of Incorporation and ByLaws of the Surviving      
Corporation shall contain provisions with respect to indemnification similar in 
all material respects to those set forth in the Certificate of Incorporation and
ByLaws of the Company on the date of this Agreement, which provisions shall not 
be amended, repealed or otherwise modified for a period of six years after the  
Effective Time in any manner that would adversely affect in any material respect
the rights thereunder of individuals who at any time prior to the Effective Time
were directors or officers of the Company in respect of actions or omissions    
occurring at or prior to the Effective Time (including, without limitation, the 
transactions contemplated by this Agreement),                                   

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unless such modification is required by law, and each of Parent and the         
Surviving Corporation shall assume all of the obligations with respect to the   
Company's director and officer indemnification agreements referenced in Section 
4.11 of the Company Disclosure Schedule; provided, however, that nothing in this
Section 7.6 shall prevent the Surviving Corporation from effecting any merger,  
reorganization or consolidation, provided that the surviving corporation in     
respect of any such merger, reorganization or consolidation is obligated to     
comply with this Section 7.6.                                                   

(b) For a period of six years from and after the Effective Time, the  
Surviving Corporation shall use commercially reasonable efforts to cause to be  
maintained in effect the liability insurance policies for directors and officers
most recently maintained by the Company; provided that the Surviving Corporation
may substitute therefor policies, including policies maintained by an affiliate 
of the Surviving Corporation, providing substantially the same combined coverage
and containing terms and conditions substantially the same as the coverage most 
recently maintained by the Company; and provided further that in no event shall 
the Surviving Corporation be required to expend more than an amount per year    
equal to 150% of the current annual premiums paid by the Company to maintain or 
procure insurance coverage required by this Section 7.6.                        

SECTION 7.7. Employee Benefits.                                       

(a) For a period of at least one year after the Effective Time, Parent
shall maintain employee benefits and programs, including a 401(k) plan, for     
employees of the Company and its Subsidiaries that are in the aggregate not     
materially less favorable than those being provided to such employees on the    
date hereof. To the extent any employee benefit plan, program or policy of      
Parent is made available to the employees of the Surviving Corporation or its   
Subsidiaries, service with the Company and its Subsidiaries by any employee     
prior to the Effective Time shall be credited in determining such employee's    
eligibility and vesting levels (but not for accrual of benefits) under such     
plans, programs and policies of Parent. For the remainder of the calendar year  
which includes the Effective Time, Parent shall maintain each cafeteria plan    
within the meaning of Section 125 of the Code so as to prevent the forfeiture of
unused participant account balances under each such plan. This Section 7.7 shall
not apply to salaries and bonuses, the amounts of which Parent shall have the   
right to establish in its sole discretion, subject to any existing employment   
agreements.                                                                     

   (b) The Company shall take such actions as are necessary to terminate the
Company's Employee Stock Purchase Plan ("ESPP") effective June 30, 1998. After  
such termination, employee participants in such ESPP shall not be permitted to  
continue to have the Company withhold any monies for investment in such ESPP and
each such employee shall be permitted to elect to receive invested cash or      
purchase Shares in accordance with the terms of such plan.                      

SECTION 7.8. Notification of Certain Matters. In the event that any   
representations and warranties of the Company shall be or become materially     
untrue such that the condition set forth in Section 8.2(a) would not be         
satisfied, the Company shall promptly provide Parent and Merger Subsidiary with 
a revised Company Disclosure Schedule, if necessary. In the event that the      
representations and warranties of Parent and Merger Subsidiary shall be or      
become materially untrue such that the condition set forth in Section 8.3(a)    
would not be satisfied, Parent and Merger Subsidiary shall promptly notify the  
Company. No such notification shall affect the representations, warranties,     
covenants or agreements of the parties or the conditions to the obligations of  
the parties under this Agreement.                                               

   SECTION 7.9. Further Action. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use all reasonable efforts to take, or 
cause to be taken, all actions, and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as  
practicable the transactions contemplated by this Agreement, to obtain in a     
timely manner all necessary waivers, consents, approvals, orders and            
authorizations and to effect all necessary registrations and filings, and       
otherwise to satisfy or cause to be satisfied all conditions precedent to its   
obligations under this Agreement with the objective of consummating the Merger  
by September 15, 1998.                                                          

   SECTION 7.10. Public Announcements. The initial press release relating to
this Agreement shall be a joint press release and thereafter Parent and the     
Company shall consult with each other before issuing any                        

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press release, making any written public statement or any oral public           
announcement (other than discussions with analysts in the ordinary course of    
business) with respect to the Merger or this Agreement, and shall not issue any 
such press release or make any such public statement without the prior consent  
of the other party, which shall not be unreasonably withheld or delayed;        
provided, however, that any party may, without the prior consent of the other   
party, issue such press release or make such public statement as may upon the   
advice of counsel be required by Law or the rules and regulations of the Nasdaq 
National Market ("NNM"), if it has used all reasonable effort to consult with   
the other party.                                                                

     SECTION 7.11. Transfer Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications  
or other documents regarding all Taxes which become payable by the Company or   
its Subsidiaries in connection with the transactions contemplated hereby that   
are required or permitted to be filed on or before the Effective Time. Parent,  
Merger Subsidiary and the Company agree that the Company (prior to the Merger)  
and the Surviving Corporation (following the Merger) will pay any real property 
transfer or gains tax, stamp tax, stock transfer tax or other similar tax       
imposed on the Merger or the surrender of the Company Common Stock pursuant to  
the Merger (collectively, "Transfer Taxes"), excluding any Transfer Taxes as may
result from the transfer of beneficial interests in the Shares or Options other 
than as a result of the Merger, and any penalties or interest with respect to   
the Transfer Taxes. The Company shall cooperate with Merger Subsidiary and      
Parent in the filing of any returns with respect to the Transfer Taxes.         

     SECTION 7.12. Accountant's Letters. Upon reasonable notice from Parent, the
Company shall use its reasonable efforts to cause KPMG Peat Marwick to deliver  
to Parent, a letter covering such matters as are reasonably requested by Parent 
and as are customarily addressed in accountant's "comfort" letters.             

    SECTION 7.13. NNM Listing. The Company shall use its reasonable efforts to
continue the quotation of the Company Common Stock on the NNM during the term of
this Agreement.                                                                 

SECTION 7.14. Financing. Parent shall use its reasonable efforts to   
consummate the financing contemplated in Section 5.6 hereof.                    

    SECTION 7.15. Retention Policy. The Company shall adopt a retention policy
developed in consultation with, and reasonably acceptable to, Parent providing  
for benefits of up to $1,100,000 to be paid to the Company's employees.         

ARTICLE VIII

CONDITIONS TO CLOSING 

SECTION 8.1. Conditions to Obligation of Each Party to Effect the     
Merger. The respective obligations of each party to effect the Merger shall be  
subject to the satisfaction or, to the extent permitted by applicable Law,      
waiver at or prior to the Effective Time of the following conditions:           

      (a) Stockholder Approval. This Agreement and the Merger shall have
    been approved and adopted by the requisite vote of the stockholders of the
Company;                                                              

         (b) HSR Act. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and any
   formal investigations relating to the Merger that may have been opened by
  the FTC or the Antitrust Division or any foreign antitrust authority (by
   means of a written request for additional information or otherwise) shall
have been terminated; and                                             

      (c) No Injunctions. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent  
jurisdiction or other legal restraint or prohibition preventing the   
consummation of the Merger shall be in effect.                        

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SECTION 8.2. Additional Conditions to Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to effect the Merger
are also subject to the following conditions:                                   

   (a) Representations and Warranties. (i) The representations and
     warranties of the Company contained in this Agreement that are qualified by
  materiality or Material Adverse Effect shall have been true and correct,
 and the representations and warranties of the Company contained in this
     Agreement that are not so qualified shall have been true and correct in all
material respects as of the date of this Agreement, and (ii) the      
   representations and warranties of the Company contained in this Agreement
    that are qualified by materiality or Material Adverse Effect shall be true
and correct, and the representations and warranties of the Company    
 contained in this Agreement that are not so qualified shall be true and
  correct, except where the failure to be true and correct has not had and
     would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company, as of the Effective Time, as
though made on and as of the Effective Time, except (A) for changes   
expressly contemplated by this Agreement or by the Company Disclosure 
Schedule, (B) where the failure to be true and correct arises from or 
relates to conditions applicable generally to the Company's industry, 
     including, without limitation, economic and political developments, and (C)
 those representations and warranties which address matters only as of a
   particular date (which shall have been true and correct as of such date).
Parent and Merger Subsidiary shall have received a certificate to the 
effect that the foregoing condition has been satisfied signed by the  
     President and the Chief Financial Officer of the Company, which certificate
shall specifically indicate the manner in which any representation or 
  warranty of the Company contained in this Agreement, if any, is not true
     and correct in all respects as of the Effective Time, as though made on and
as of the Effective Time.                                             

      (b) Agreements and Covenants. The Company shall have performed and
complied in all material respects with all material agreements and    
     covenants required by this Agreement to be performed or complied with by it
  on or prior to the Effective Time and Parent and Merger Subsidiary shall
have received a certificate to such effect signed by the President and
Chief Financial Officer.                                              

     (c) Consents Obtained. All material consents, waivers, approvals,
    authorizations or orders required to be obtained, and all filings required
     to be made, by the Company for the authorization, execution and delivery of
    this Agreement and the consummation by it of the transactions contemplated
hereby, including, without limitation, all consents required under any
   Contract to which the Company or any of its Subsidiaries is a party or by
    which any of them or their properties or assets are bound, shall have been
    obtained and made by the Company, except where the failure to receive such
     consents, waivers, approvals, authorizations or orders would not reasonably
   be expected to have, individually or in the aggregate, a Material Adverse
 Effect on the Company as certified by the President and Chief Financial
Officer of the Company.                                               

     (d) No Litigation. There shall not be pending by any Governmental
  Authority any claim, suit, action or proceeding (or by any other Person,
any claim, suit, action or proceeding which the Board of Directors of 
Parent, based upon advice from counsel, believes has a reasonable     
   likelihood of success) (i) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions       
  contemplated by this Agreement or seeking material damages in connection
    therewith, or (ii) seeking to prohibit or limit the ownership or operation
by Parent, the Company or any of their respective Subsidiaries of any 
     material portion of the business or assets of the Company, Parent or any of
their respective Subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement.                    

 (e) Financing. Parent shall have received the proceeds of the
 financing pursuant to the commitment letters referred to in Section 5.6
hereof.                                                               

        (f) Legal Opinion. Parent shall have received a legal opinion, dated
   the Closing date, of Stradling Yocca Carlson & Rauth in substantially the
form attached as Exhibit 8.2(f).                                      

    (g) Dissenting Shares. The number of Dissenting Shares shall not
exceed 10% of the outstanding Shares.                                 

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      (h) Company Proxy Statement. The Company shall have filed with and
have cleared by the SEC the Company Proxy Statement.                  

SECTION 8.3. Additional Conditions to Obligation of the Company. The  
obligation of the Company to effect the Merger is also subject to the following 
conditions:                                                                     

   (a) Representations and Warranties. (i) The representations and
     warranties of Parent and Merger Subsidiary contained in this Agreement that
 are qualified by materiality or Material Adverse Effect shall have been
true and correct, and the representations and warranties of Parent and
 Merger Subsidiary contained in this Agreement that are not so qualified
     shall have been true and correct in all material respects as of the date of
   this Agreement, and (ii) the representations and warranties of Parent and
Merger Subsidiary contained in this Agreement that are qualified by   
   materiality or Material Adverse Effect shall be true and correct, and the
     representations and warranties of Parent and Merger Subsidiary contained in
    this Agreement that are not so qualified shall be true and correct, except
where the failure to be true and correct has not had and would not    
reasonably be expected to have, individually or in the aggregate, a   
     Material Adverse Effect on Parent, as of the Effective Time, as though made
on and as of the Effective Time, except (A) for changes expressly     
contemplated by this Agreement, (B) where the failure to be true and  
correct arises from or relates to conditions applicable generally to  
  Parent's industry, including, without limitation, economic and political
  developments, and (C) those representations and warranties which address
matters only as of a particular date (which shall have been true and  
    correct as of such date). The Company shall have received a certificate to
  the effect that the foregoing condition has been satisfied signed by the
President and the Chief Financial Officer of Parent, which certificate
shall specifically indicate the manner in which any representation or 
  warranty of Parent and Merger Subsidiary contained in this Agreement, if
   any, is not true and correct in all respects as of the Effective Time, as
though made on and as of the Effective Time.                          

         (b) Agreements and Covenants. Parent and Merger Subsidiary shall have
     performed or complied in all material respects with all material agreements
   and covenants required by this Agreement to be performed or complied with
by them on or prior to the Effective Time, and the Company shall have 
     received a certificate to such effect signed by the President and the Chief
Financial Officer of Parent.                                          

ARTICLE IX

TERMINATION 

   SECTION 9.1. Termination. This Agreement may be terminated and the Merger
contemplated herein abandoned at any time prior to the Effective Time,          
notwithstanding approval thereof by the stockholders of the Company:            

(a) by mutual written consent of Parent and the Company; or 

         (b) by either Parent or the Company if the Merger shall not have been
consummated by October 30, 1998; provided, however, that the right to 
   terminate this Agreement under this Section 9.1(b) shall not be available
   to any party whose failure to fulfill any obligation under this Agreement
    has been the cause of or resulted in the failure of the Merger to occur on
or before such date; or                                               

         (c) by either Parent or the Company, if any of the conditions to such
party's obligation to consummate the transactions contemplated by this
Agreement shall have become impossible to satisfy; or                 

(d) by either Parent or the Company if a court of competent 
jurisdiction shall have issued a nonappealable final order, decree or 
     ruling having the effect of permanently restraining, enjoining or otherwise
     prohibiting the Merger (provided that the right to terminate this Agreement
   under this Section 9.1(d) shall not be available to any party who has not
    complied with Section 7.9 and such noncompliance materially contributed to
the issuance of any such order, decree or ruling or the taking of such
action); or                                                           

    (e) by either Parent or the Company if the requisite vote of the
 stockholders of the Company shall not have been obtained at the Company
Stockholders Meeting; or                                              

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 (f) by Parent, if the Board of Directors of the Company shall
     withdraw, modify or change its approval or recommendation of this Agreement
  or the Merger in a manner adverse to Parent or approves or recommends an
  Acquisition Proposal or the Company shall have entered into an agreement
with respect to an Acquisition Proposal; or                           

        (g) by the Company if (i) the Board of Directors pursuant to Section
6.3(b) withdraws or modifies its approval or recommendation of this   
Agreement or the Merger, and (ii) the Company simultaneously with     
terminating this Agreement pays Parent all Expenses and the Initial   
Termination Fee in cash and otherwise complies with the provisions of 
Section 6.3(b); or                                                    

  (h) by the Company if (i) the Company enters into a definitive
agreement in accordance with Section 6.3(b), and (ii) the Company     
     simultaneously with terminating this Agreement pays Parent all Expenses and
the Initial Termination Fee in cash and otherwise complies with the   
provisions of Section 6.3(b); or                                      

 (i) by either Parent or the Company if the Company's Board of
     Directors shall have requested but not have received an opinion from Morgan
   Stanley dated as of the date of the Company Proxy Statement to the effect
     that the consideration to be received by the stockholders of the Company is
fair from a financial point of view; or                               

        (j) by Parent or the Company, upon a material breach of any covenant
    or agreement on the part of the Company or Parent, respectively, set forth
     in this Agreement, which breach has not been cured within ten business days
    following receipt by the breaching party of notice of such breach from the
other party, such that the conditions set forth in Section 8.2(b) or  
Section 8.3(b), as the case may be, would not be satisfied; or        

         (k) by Parent, if any representation or warranty of the Company shall
    be untrue such that the condition set forth in Section 8.2(a) would not be
   satisfied, or by the Company, if any representation or warranty of Parent
   shall be untrue such that the condition set forth in Section 8.3(a) would
not be satisfied.                                                     

  Any party desiring to terminate this Agreement shall give written notice
thereof and the reasons therefor to the other parties hereto.                   

SECTION 9.2. Effect of Termination.                                   

  (a) In the event of the termination of this Agreement in accordance with
Section 9.1, this Agreement shall forthwith become void and there shall be no   
liability on the part of any party hereto or any of its directors, officers,    
stockholders or affiliates except as set forth in Sections 6.3, 7.4 or 9.3      
hereof; provided that nothing herein shall relieve any party from liability for 
any material breach of any covenant, agreement, representation or warranty      
contained in this Agreement. The right of any party hereto to terminate this    
Agreement pursuant to Section 9.1 shall remain operative and in full force and  
effect regardless of any investigation made by or on behalf of any party hereto,
any Person controlling any such party or any of their respective officers,      
directors, employees, accountants, consultants, legal counsel, agents or other  
representatives, whether prior to or after the execution of this Agreement.     

(b) The Company shall immediately pay, or cause to be paid, by wire   
transfer to Parent the sum of (i) all of Parent's out-of-pocket expenses        
reasonably incurred in connection with the transactions contemplated by this    
Agreement (the "Expenses"), and (ii) $2,000,000 (the "Initial Termination Fee") 
upon demand if (A) Parent or the Company terminates this Agreement in accordance
with Section 9.1(e) and prior to such termination the Company shall have failed 
to reaffirm publicly its recommendation regarding the approval of the Merger or 
this Agreement within three business days after receipt of Parent's written     
request to do so, (B) Parent terminates this Agreement in accordance with       
Section 9.1(f), or (C) the Company terminates this Agreement in accordance with 
Section 9.1(g), (h) or (i); provided that (x) if this Agreement is so terminated
prior to the date which is 30 days from the date hereof, Parent's Expenses shall
not exceed $500,000, (y) if this Agreement is so terminated on or after the date
which is 30 days from the date hereof but prior to the date which is 60 days    
from the date hereof, Parent's Expenses shall not exceed $650,000, and          

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(z) if this Agreement is so terminated on or after the date which is 60 days    
from the date hereof, Parent's Expenses shall not exceed $750,000. The amount of
Expenses so payable shall be the amount set forth in an estimate delivered by   
Parent upon termination subject to upward or downward adjustment as provided in 
the next sentence. In the event that Parent's actual out-of-pocket expenses, as 
documented in reasonable detail, exceed such estimate, the amount of any such   
excess (subject to the limitations in the preceding sentence) shall be payable  
upon demand, and in the event that Parent's actual expenses are less than the   
amount of such estimate, Parent shall promptly refund such lesser amount. If    
this Agreement is terminated for the reasons set forth in the first sentence of 
this Section 9.2(b), on the earlier to occur of (i) the date which is 90 days   
from the date of such termination or (ii) the consummation by the Company of an 
Acquisition Proposal, the Company shall immediately pay, or cause to be paid, by
wire transfer to Parent $1,000,000. In addition to all other amounts otherwise  
payable under this Section 9.2(b), if the Company consummates an Acquisition    
Proposal at any time prior to the second anniversary of the termination of this 
Agreement for the reasons set forth in the first sentence of this Section       
9.2(b), the Company shall immediately pay, or cause to be paid, by wire transfer
to Parent $1,000,000. The Initial Termination Fee and the payments referred to  
in the preceding two sentences are collectively referred to herein as the       
"Termination Fee."                                                              

 SECTION 9.3. Fees and Expenses. Except as set forth in Section 9.2, all
fees and expenses incurred in connection with this Agreement and the            
transactions contemplated hereby shall be paid by the party incurring such      
expenses, whether or not the Merger is consummated; provided that if this       
Agreement is terminated for any reason other than a breach by Parent and (i)    
Parent has not been paid its Expenses pursuant to Section 9.2(b), and (ii)      
within 18 months of this Agreement being so terminated the Company enters into a
definitive agreement concerning an Acquisition Proposal, the Company shall      
immediately pay or cause to be paid, in same day funds to Parent all of Parent's
Expenses. Without limiting the generality of the foregoing, the Company shall be
responsible for and pay the reasonable fees and expenses for its legal,         
financial and accounting advisors, including, without limitation, Morgan        
Stanley, KPMG Peat Marwick, Stradling Yocca Carlson & Rauth and Ropes & Gray,   
and all filing, printing and other fees and expenses relating to the Company    
Proxy Statement and the Company Stockholders Meeting.                           

ARTICLE X 

GENERAL PROVISIONS

SECTION 10.1. Effectiveness of Representations and Warranties. The    
representations and warranties in this Agreement shall terminate at the         
Effective Time. In the event of any inconsistency between the statements made in
the body of this Agreement and those contained in the Company Disclosure        
Schedule (other than an express exception to a specifically identified          
statement), those in this Agreement shall control.                              

     SECTION 10.2. Survival. The provisions of this Agreement shall terminate at
the Effective Time or upon termination of this Agreement pursuant to Section    
9.1, as the case may be, except that (i) if the Merger is consummated, the      
agreements in Articles I and II and Sections 7.6, 7.7, 7.10 and 7.11 shall      
survive the Effective Time indefinitely unless otherwise limited to specific    
periods in accordance with their respective terms, and (ii) the agreements in   
Sections 9.2 and 9.3 shall survive termination of this Agreement indefinitely.  

   SECTION 10.3. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given 
or made if and when delivered personally or by overnight courier to the parties 
at the following addresses or sent by electronic transmission, with confirmation

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received, to the telecopy numbers specified below (or at such other address or  
telecopy number for a party as shall be specified by like notice):              

(a) If to Parent or Merger Subsidiary:                          

Schwinn Holdings Corporation                              
c/o Questor Management Company                            
4000 Town Center, Suite 530                               
Southfield, MI 48075                                      
(248) 213-2200                                            
(248) 213-2215 (facsimile)                                
Attention: Robert E. Shields, President                   

With a copy to:                                           

Drinker Biddle & Reath LLP                                
1345 Chestnut Street, Suite 1100                          
Philadelphia, Pennsylvania 19107-3496                     
215-988-2700                                              
215-988-2757 (facsimile)                                  
Attention: John C. Bennett, Jr., Esq.                     

(b) If to the Company:                                          

GT Bicycles, Inc.                                         
2001 East Dyer Road                                       
Santa Ana, California 92705                               
(714) 481-7100                                            
(714) 481-7115 (facsimile)                                
         Attention: Michael C. Haynes, President and Chief Executive Officer

With copies to:                                           

                                                                [Download Table]
                                                                         
Stradling Yocca Carlson & Rauth          Ropes & Gray                    
660 Newport Center Drive, Suite 1600     One International Place         
Newport Beach, California 92660-6441     Boston, Massachusetts 02110     
949-725-4000                             (617) 951-7000                  
949-725-4100 (facsimile)                 (617) 951-7050 (facsimile)      
Attention: K.C. Schaaf, Esq              Attention: David C. Chapin, Esq.

 SECTION 10.4. Certain Definitions. The following terms, as used herein,
have the following meanings:                                                    

  "Acquisition Proposal" shall have the meaning as is set forth in Section
6.3(a) of the Agreement.                                                        

"Agreement" shall have the meaning as set forth in the Preamble.      

     "Antitrust Division" shall mean the Antitrust Division of the Department of
Justice.                                                                        

  "Bank of America Warrant" shall have the meaning as set forth in Section
2.1(f)                                                                          

    "CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act, as amended.                                                  

"Closing" shall have the meaning as set forth in Section 1.2 of the   
Agreement.                                                                      

  "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.                                                               

"Code" shall mean the Internal Revenue Code of 1986, as amended.      

"Company" shall have the meaning as set forth in the Preamble.        

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  "Company Balance Sheet" shall mean the consolidated balance sheet of the
Company as of December 31, 1997 set forth in the Company's most recent Form 10-K
included in the Company Securities Documents.                                   

     "Company Common Stock" shall have the meaning as set forth in the Preamble.

  "Company Disclosure Schedule" shall mean the written disclosure schedule
delivered on or prior to the date hereof by the Company to Parent and Merger    
Subsidiary that is arranged in paragraphs corresponding to the numbered and     
lettered paragraphs corresponding to the numbered and lettered paragraphs       
contained in the Agreement.                                                     

   "Company Form 10-K" shall have the meaning as set forth in Section 4.7 of
the Agreement.                                                                  

   "Company Form 10-Q" shall have the meaning as set forth in Section 4.7 of
the Agreement.                                                                  

  "Company Preferred Stock" shall have the meaning as set forth in Section
4.5 of the Agreement.                                                           

  "Company Proxy Statement" shall have the meaning as set forth in Section
4.9 of the Agreement.                                                           

    "Company Securities" shall have the meaning as set forth in Section 4.5(b)
of the Agreement.                                                               

"Company Securities Documents" shall have the meaning as set forth in 
Section 4.7                                                                     

     "Company Stockholders Meeting" shall mean the meeting of the holders of the
Company Common Stock held for the purposes of approving the Agreement and the   
Merger and any adjournment thereof.                                             

   "Constituent Corporations" shall have the meaning as set forth in Section
1.1 of the Agreement.                                                           

   "Contract" shall mean any legally binding contract, agreement, indenture,
arrangement, instrument, commitment or understanding, whether written or oral.  

   "Current Real Property" shall have the meaning as is set forth in Section
4.22(b) of the Agreement.                                                       

"DGCL" shall have the meaning as set forth in the Preamble.           

   "Dissenting Shares" shall have the meaning as set forth in Section 2.3 of
the Agreement.                                                                  

"DOL" shall mean the Department of Labor.                             

    "Effective Time" shall have the meaning as set forth in Section 1.3 of the
Agreement.                                                                      

 "Employee Benefit Plans" shall have the meaning as set forth in Section
4.20(a) of the Agreement.                                                       

"Employee Pension Benefit Plan" shall have the meaning as set forth in
Section 4.20(b) of the Agreement.                                               

  "Environmental Laws" means all Laws concerning or relating to industrial
hygiene or protection of human health or the environment or to emissions,       
discharges or releases of pollutants, contaminants or other Hazardous Substances
or wastes into the environment, including without limitation ambient air,       
surface water, ground water or land, or otherwise relating to the manufacture,  
processing, distribution, use, treatment, storage, disposal, transport or       
handling of pollutants, contaminants or other Hazardous Substances or wastes or 
the clean-up or other remediation thereof.                                      

    "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.                  

     "ERISA Affiliate" shall have the meaning as set forth in Section 4.20(a) of
the Agreement.                                                                  

"ESPP" shall have the meaning as set forth in Section 7.7(b) of the   
Agreement.                                                                      

    "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.                           

    "Exchange Agent" shall have the meaning as set forth in Section 2.2 of the
Agreement.                                                                      

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   "Exchange Fund" shall have the meaning as set forth in Section 2.2 of the
Agreement.                                                                      

 "Expenses" shall have the meaning as set forth in Section 9.2(b) of the
Agreement.                                                                      

     "Evaluation Material" shall have the meaning as set forth in Section 7.4 of
the Agreement.                                                                  

  "Former Real Property" shall have the meaning as is set forth in Section
4.22(c) of the Agreement.                                                       

"FTC" shall mean the Federal Trade Commission                         

     "GAAP" shall have the meaning as set forth in Section 4.8 of the Agreement.

  "Governmental Authority" shall mean any Federal, state, local or foreign
government or any court, tribunal, administrative agency or commission or other 
governmental or regulatory official, authority or agency.                       

"Hazardous Substances" shall mean any substance regulated under any   
Environmental Laws including, without limitation, any substance which is: (A)   
petroleum, asbestos or asbestos-containing material, or polychlorinated         
biphenyls; (B) defined, designated or listed as a "Hazardous Substance" pursuant
to Sections 307 and 311 of the Clean Water Act, 33 U.S.C. sec.sec. 1317, 1321,  
Section 101(14) of CERCLA, 42 U.S.C. sec. 9601; (C) listed in the United States 
Department of Transportation Hazardous Material Tables, 49 C.F.R. sec. 172.101; 
(D) defined, designated or listed as a "Hazardous Waste" under Section 1004(5)  
of the Resource and Conservation and Recovery Act, 42 U.S.C. 6903(5).           

  "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.                                                               

  "Initial Termination Fee" shall have the meaning as set forth in Section
9.2(b) of the Agreement.                                                        

"Intellectual Property Rights" shall have the meaning as set forth in 
Section 4.18 of the Agreement.                                                  

"IRS" shall mean the Internal Revenue Service.                        

"Law" shall mean any law (including, without limitation, principles of
common law), statute, regulation, License, judgment, order, award or other      
decision or requirement of any arbitrator, court or Governmental Authority      
(domestic or foreign).                                                          

  "Liabilities" shall have the meaning as set forth in Section 4.23 of the
Agreement.                                                                      

"Licenses" shall have the meaning as set forth in Section 4.1 of the  
Agreement.                                                                      

"Lien" means, with respect to any asset, any mortgage, lien, pledge,  
charge, security interest or encumbrance of any kind in respect to such asset.  

  "Material Adverse Effect" means, with respect to any Person, any change,
effect or event that is or is reasonably likely to be (i) material and adverse  
to the condition (financial or otherwise), business, properties, assets,        
liabilities, results of operations, cash flows or prospects of such Person and  
its Subsidiaries taken as a whole, or (ii) does or is reasonably likely to      
materially impair the ability of such Person to perform its obligations under   
this Agreement or otherwise materially threatens or impedes the consummation of 
the Merger and the other transactions contemplated by this Agreement or the     
conduct of the business of the Surviving Corporation.                           

"Merger" shall have the meaning as set forth in the Preamble.         

"Merger Consideration" shall have the meaning as set forth in Section 
2.1(c) of the Agreement.                                                        

  "Merger Subsidiary" shall have the meaning as set forth in the Preamble.

"Morgan Stanley" shall mean Morgan Stanley & Co. Incorporated.        

   "NNM" shall mean the Nasdaq National Market as defined in Section 7.13 of
the Agreement.                                                                  

"Option" shall have the meaning as set forth in Section 2.1(e) of the 
Agreement.                                                                      

"Parent" shall have the meaning as set forth in the Preamble.         

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"PBGC" shall mean the Pension Benefit Guaranty Corporation.           

"Permitted Investments" shall have the meaning as set forth in Section
2.2(g) of the Agreement.                                                        

     "Person" means an individual, a corporation, a partnership, an association,
a trust, a limited liability company or any other entity or organization,       
including a Governmental Authority.                                             

"Products" shall have the meaning as set forth in Section 4.13 of the 
Agreement.                                                                      

     "Representatives" shall have the meaning as set forth in Section 7.4 of the
Agreement.                                                                      

"Response," "Removal" and "Remedial Action" shall have the meanings   
ascribed to them in Sections 101(23)-101(25) of CERCLA, as amended by the       
Superfund Amendments and Reauthorization Act, 42 U.S.C.                         
sec.sec. 9601(23)-9601(25).                                                     

"SEC" shall refer to the Securities and Exchange Commission.          

     "Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.                                   

"Shares" shall have the meaning as set forth in the Preamble.         

"Solvent" shall have the meaning as set forth in Section 5.11 of the  
Agreement.                                                                      

"Stockholders Agreement" shall have the meaning as set forth in the   
Preamble.                                                                       

"Subsidiary" means, with respect to any Person, (i) any corporation,  
association or other business entity of which more than 50% of the total voting 
power of shares of capital stock entitled (without regard to the occurrence of  
any contingency) to vote in the election of directors, managers or trustees     
thereof is at the time owned or controlled, directly or indirectly, by such     
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof), (ii) any partnership (a) the sole general partner or managing general 
partner of which is such Person or a Subsidiary of such Person or (b) the only  
general partners of which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof), and (iii) with respect to the Company, any 
corporation, association or other business entity which is included in the      
Company's consolidated financial statements.                                    

"Superior Proposal" shall have the meaning as is set forth in Section 
6.3(b) of the Agreement.                                                        

"Superior Proposal Notice" shall have the meaning as is set forth in  
Section 6.3(b) of the Agreement.                                                

    "Surviving Corporation" shall have the meaning as set forth in Section 1.1
of the Agreement.                                                               

"Tax or Taxes" shall mean any federal, foreign, state, county or local
taxes, charges, fees, levies, duties or other assessments, including, but not   
limited to, all net income, gross income, sales and use, transfer, gains,       
profits, excise, franchise, real and personal property, gross receipts, capital 
stock, production, business and occupation, customs, disability, employment,    
payroll, license, estimated, severance or withholding taxes or charges imposed  
by any Governmental Authority, and includes any interest and penalties (civil or
criminal) on or additions to any such taxes.                                    

  "Tax Return" means a return or report, including accompanying schedules,
required to be supplied to a governmental entity with respect to Taxes          
including, where permitted or required, combined or consolidated returns for a  
group of entities and information returns.                                      

    "Termination Fee" shall have the meaning as set forth in Section 9.2(b) of
the Agreement.                                                                  

     "Transfer Taxes" shall have the meaning as set forth in Section 7.11 of the
Agreement.                                                                      

SECTION 10.5. Amendment. This Agreement may be amended by the parties 
hereto by action taken by or on behalf of their respective Boards of Directors  
at any time prior to the Effective Time; provided, however, that after approval 
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by such stockholders without such further      
approval. This Agreement may not be amended except by an instrument in writing  
signed by the parties hereto.                                                   

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  SECTION 10.6. Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for       
performance of any of the obligations or other acts, (b) waive any inaccuracies 
in the representations and warranties contained herein or in any document       
delivered pursuant hereto, or (c) to the extent permitted by applicable Law,    
waive compliance with any of the agreements or conditions contained herein. Any 
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.                             

  SECTION 10.7. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or          
interpretation of this Agreement.                                               

  SECTION 10.8. Specific Performance. The parties hereto agree that if for
any reason any party hereto shall have failed to perform its obligations under  
this Agreement, then any other party hereto seeking to enforce this Agreement   
against such nonperforming party, in addition to any damages and other remedies 
available to it, shall be entitled to specific performance and injunctive and   
other equitable relief, and the parties hereto further agree to waive any       
requirement for the securing or posting of any bond in connection with the      
obtaining of any such injunctive or other equitable relief.                     

SECTION 10.9. Severability. If any term or other provision of this    
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall   
nevertheless remain in full force and effect so long as the economic or legal   
substance of the transactions contemplated hereby is not affected in any manner 
adverse to any party. Upon such determination that any term or other provision  
is invalid, illegal or incapable of being enforced, the parties hereto shall    
negotiate in good faith to modify this Agreement so as to effect the original   
intent of the parties as closely as possible, in an acceptable manner, to the   
end that transactions contemplated hereby are fulfilled to the extent possible. 

   SECTION 10.10. Entire Agreement. This Agreement (inclusive of the Company
Disclosure Schedule) constitutes the entire agreement and supersedes all prior  
agreements and undertakings (including, without limitation, the letter          
agreements between Parent and the Company dated as of December 10, 1997 and May 
27, 1998) both oral and written, among the parties, or any of them, with respect
to the subject matter hereof.                                                   

SECTION 10.11. Assignment; Guarantee of Merger Subsidiary             
Obligations. Parent and Merger Subsidiary may assign this Agreement in whole or 
in part to any wholly-owned Subsidiary. The Company shall not assign this       
Agreement or any rights hereunder, or delegate any obligations hereunder,       
without prior written consent of Parent. Subject to the foregoing, this         
Agreement and the rights and obligations set forth herein shall inure to the    
benefit of, and be binding upon, the parties hereto, and each of their          
respective successor and assigns. Parent guarantees the full and punctual       
performance by Merger Subsidiary and any assignee of Parent or Merger Subsidiary
of all the obligations hereunder of Merger Subsidiary or such assignee.         

  SECTION 10.12. Parties In Interest. Except as expressly provided herein,
this Agreement shall be binding upon and inure solely to the benefit of each    
party hereto, and nothing in this Agreement, express or implied, is intended to 
or shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, including, without limitation, 
by way of subrogation.                                                          

  SECTION 10.13. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right   
hereunder shall impair such right or be construed to be a waiver of, or         
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or    
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or     
remedies otherwise available.                                                   

SECTION 10.14. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware        
applicable to contracts executed and fully performed within the State of        
Delaware.                                                                       

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    SECTION 10.15. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken 
together shall constitute one and the same agreement.                           

   IN WITNESS WHEREOF, Parent, Merger Subsidiary and the Company have caused
this Agreement to be executed as of the date first written above by their       
respective officers thereunto duly authorized.                                  

                                SCHWINN HOLDINGS CORPORATION

                                By:     /s/ KEVIN G. KEENLEY
                                            ------------------------------------
                              Name: Kevin G. Keenley
                                           Title: Vice President and Treasurer

                               SPK ACQUISITION CORPORATION

                                By:     /s/ KEVIN G. KEENLEY
                                            ------------------------------------
                              Name: Kevin G. Keenley
                                           Title: Vice President and Treasurer

                     GT BICYCLES, INC.

                               By:      /s/ MICHAEL HAYNES
                                            ------------------------------------
                            Name: Michael Haynes
                                      Title: Chief Executive Officer

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                                                                   June 22, 1998

ANNEX II

GT Bicycles, Inc.                                                               
2001 East Dyer                                                                  
Santa Ana, California 92702                                                     

Board of Directors:                                                             

   We understand that GT Bicycles, Inc. ("Target" or the "Company"), Schwinn
Holdings Corporation ("Buyer"), SPK Acquisition Corporation, a wholly owned     
subsidiary of Buyer ("Acquisition Sub") have entered into an Agreement and Plan 
of Merger, dated as of June 22, 1998 (the "Merger Agreement") which provides,   
among other things, for the merger (the "Merger") of Target with and into       
Acquisition Sub. Pursuant to the Merger, Target will become a wholly owned      
subsidiary of Buyer and each outstanding share of common stock, par value $.001 
per share (the "Common Stock") of Target, other than shares held in treasury or 
held by Buyer or any affiliate of Buyer or as to which dissenters' rights have  
been perfected, will be converted into the right to receive $8.00 per share in  
cash. The terms and conditions of the Merger are more fully set forth in the    
Merger Agreement.                                                               

You have asked for our opinion as to whether the consideration to be  
received by the holders of shares of Common Stock pursuant to the Merger        
Agreement is fair from a financial point of view to such holders.               

For purposes of the opinion set forth herein, we have:                

          (i) reviewed certain publicly available financial statements and other
information of the Company;                                           

 (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the   
management of the Company;                                            

(iii) analyzed certain financial projections prepared by the
management of the Company;                                            

          (iv) discussed the past and current operations and financial condition
 and the prospects of the Company with senior executives of the Company;

        (v) reviewed the reported prices and trading activity for the Common
Stock;                                                                

         (vi) compared the financial performance of the Company and the prices
and trading activity of the Common Stock with that of certain other   
comparable publicly-traded companies and their securities;            

         (vii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;                       

(viii) participated in discussions and negotiations among   
 representatives of the Company, the Buyer and certain other parties and
their financial and legal advisors;                                   

         (ix) reviewed the Merger Agreement and certain related documents; and

          (x) performed such other analyses and considered such other factors as
we have deemed appropriate.                                           

We have assumed and relied upon without independent verification the  
accuracy and completeness of the information reviewed by us for the purposes of 
this opinion. With respect to the financial projections, we have assumed that   
they have been reasonably prepared on bases reflecting the best currently       
available estimates and judgments of the future financial performance of the    
Company. We have not made any independent valuation or appraisal of the assets  
or liabilities of the Company, nor have we been furnished with any such         
appraisals. We have assumed that the merger will be consummated on the terms set
forth in the Merger Agreement. Our opinion is necessarily based on economic,    
market and other conditions as in effect on, and the information made available 
to us as of, the date hereof.                                                   

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     We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services.    

  It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its       
entirety in any filing made by the Company in respect of this transaction with  
the Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of the Company should vote 
at the shareholders' meeting in connection with the Merger.                     

   Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the holders of shares of Common Stock pursuant  
to the Merger Agreement is fair from a financial point of view to such holders. 

                     Very truly yours,

                                     MORGAN STANLEY & CO. INCORPORATED

                          By: /s/  ROBERT P. LEE

                                          --------------------------------------
                 Robert P. Lee
                     Managing Director

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ANNEX III 

TITLE 8. CORPORATIONS 
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION

8 Del. C. sec. 262 (1997) 

SEC. 262.  APPRAISAL RIGHTS                                                     

(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this  
section with respect to such shares, who continuously holds such shares through 
the effective date of the merger or consolidation, who has otherwise complied   
with subsection (d) of this section and who has neither voted in favor of the   
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the    
fair value of the stockholder's shares of stock under the circumstances         
described in subsections (b) and (c) of this section. As used in this section,  
the word "stockholder" means a holder of record of stock in a stock corporation 
and also a member of record of a nonstock corporation; the words "stock" and    
"share" mean and include what is ordinarily meant by those words and also       
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a       
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository. 

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be 
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.    
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec. 
264 of this title:                                                              

      (1) Provided, however, that no appraisal rights under this section
  shall be available for the shares of any class or series of stock, which
    stock, or depository receipts in respect thereof, at the record date fixed
    to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or    
    consolidation, were either (i) listed on a national securities exchange or
     designated as a national market system security on an interdealer quotation
     system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no    
appraisal rights shall be available for any shares of stock of the    
  constituent corporation surviving a merger if the merger did not require
    for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.              

          (2) Notwithstanding paragraph (1) of this subsection, appraisal rights
     under this section shall be available for the shares of any class or series
   of stock of a constituent corporation if the holders thereof are required
  by the terms of an agreement of merger or consolidation pursuant to sec.
     251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:                                                      

            a.  Shares of stock of the corporation surviving or resulting from
        such merger or consolidation, or depository receipts in respect thereof;

     b.  Shares of stock of any other corporation, or depository
 receipts in respect thereof, which shares of stock (or depository
    receipts in respect thereof) or depository receipts at the effective
       date of the merger or consolidation will be either listed on a national
      securities exchange or designated as a national market system security
 on an interdealer quotation system by the National Association of
      Securities Dealers, Inc. or held of record by more than 2,000 holders;

        c.  Cash in lieu of fractional shares or fractional depository
   receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or                                                   

             d.  Any combination of the shares of stock, depository receipts and
   cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this  
paragraph.                                                      

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          (3) In the event all of the stock of a subsidiary Delaware corporation
     party to a merger effected under sec. 253 of this title is not owned by the
    parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.   

  (c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any    
class or series of its stock as a result of an amendment to its certificate of  
incorporation, any merger or consolidation in which the corporation is a        
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision, 
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.                   

(d) Appraisal rights shall be perfected as follows:                   

        (1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a  
  meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
 record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that    
appraisal rights are available for any or all of the shares of the    
   constituent corporations, and shall include in such notice a copy of this
  section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
     merger or consolidation, a written demand for appraisal of his shares. Such
   demand will be sufficient if it reasonably informs the corporation of the
 identity of the stockholder and that the stockholder intends thereby to
   demand the appraisal of his shares. A proxy or vote against the merger or
     consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein    
provided. Within 10 days after the effective date of such merger or   
 consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become 
effective; or                                                         

        (2) If the merger or consolidation was approved pursuant to sec. 228
    or sec. 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days      
thereafter, shall notify each of the holders of any class or series of
     stock of such constitutent corporation who are entitled to appraisal rights
  of the approval of the merger or consolidation and that appraisal rights
 are available for any or all shares of such class or series of stock of
  such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the   
   effective date of the merger or consolidation, such notice shall be given
    by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to  
    appraisal rights. Such notice may, and, if given on or after the effective
   date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder 
    entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting     
corporation the appraisal of such holder's shares. Such demand will be
    sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the    
appraisal of such holder's shares. If such notice did not notify      
   stockholders of the effective date of the merger or consolidation, either
  (i) each such constitutent corporation shall send a second notice before
 the effective date of the merger or consolidation notifying each of the
  holders of any class or series of stock of such constitutent corporation
   that are entitled to appraisal rights of the effective date of the merger
    or consolidation or (ii) the surviving or resulting corporation shall send
  such a second notice to all such holders on or within 10 days after such
    effective date; provided, however, that if such second notice is sent more
    than 20 days following the sending of the first notice, such second notice
   need only be sent to each stockholder who is entitled to appraisal rights
   and who has demanded appraisal of such holder's shares in accordance with
     this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either 
   notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of     
determining the stockholders entitled to receive either notice, each  
   constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided,
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     that if the notice is given on or after the effective date of the merger or
   consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
  record date shall be the close of business on the day next preceding the
day on which the notice is given.                                     

(e) Within 120 days after the effective date of the merger or         
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to   
appraisal rights, may file a petition in the Court of Chancery demanding a      
determination of the value of the stock of all such stockholders.               
Notwithstanding the foregoing, at any time within 60 days after the effective   
date of the merger or consolidation, any stockholder shall have the right to    
withdraw his demand for appraisal and to accept the terms offered upon the      
merger or consolidation. Within 120 days after the effective date of the merger 
or consolidation, any stockholder who has complied with the requirements of     
subsections (a) and (d) hereof, upon written request, shall be entitled to      
receive from the corporation surviving the merger or resulting from the         
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for   
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after  
his written request for such a statement is received by the surviving or        
resulting corporation or within 10 days after expiration of the period for      
delivery of demands for appraisal under subsection (d) hereof, whichever is     
later.                                                                          

 (f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which   
shall within 20 days after such service file in the office of the Register in   
Chancery in which the petition was filed a duly verified list containing the    
names and addresses of all stockholders who have demanded payment for their     
shares and with whom agreements as to the value of their shares have not been   
reached by the surviving or resulting corporation. If the petition shall be     
filed by the surviving or resulting corporation, the petition shall be          
accompanied by such a duly verified list. The Register in Chancery, if so       
ordered by the Court, shall give notice of the time and place fixed for the     
hearing of such petition by registered or certified mail to the surviving or    
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at    
least 1 week before the day of the hearing, in a newspaper of general           
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication  
shall be approved by the Court, and the costs thereof shall be borne by the     
surviving or resulting corporation.                                             

(g) At the hearing on such petition, the Court shall determine the    
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an   
appraisal for their shares and who hold stock represented by certificates to    
submit their certificates of stock to the Register in Chancery for notation     
thereon of the pendency of the appraisal proceedings; and if any stockholder    
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.                                                               

    (h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or        
consolidation, together with a fair rate of interest, if any, to be paid upon   
the amount determined to be the fair value. In determining such fair value, the 
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of 
interest which the surviving or resulting corporation would have had to pay to  
borrow money during the pendency of the proceeding. Upon application by the     
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery 
or other pretrial proceedings and may proceed to trial upon the appraisal prior 
to the final determination of the stockholder entitled to an appraisal. Any     
stockholder whose name appears on the list filed by the surviving or resulting  
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may     
participate fully in all proceedings until it is finally determined that he is  
not entitled to appraisal rights under this section.                            

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 (i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court 
may direct. Payment shall be so made to each such stockholder, in the case of   
holders of uncertificated stock forthwith, and the case of holders of shares    
represented by certificates upon the surrender to the corporation of the        
certificates representing such stock. The Court's decree may be enforced as     
other decrees in the Court of Chancery may be enforced, whether such surviving  
or resulting corporation be a corporation of this State or of any state.        

  (j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon        
application of a stockholder, the Court may order all or a portion of the       
expenses incurred by any stockholder in connection with the appraisal           
proceeding, including, without limitation, reasonable attorney's fees and the   
fees and expenses of experts, to be charged pro rata against the value of all   
the shares entitled to an appraisal.                                            

  (k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d) 
of this section shall be entitled to vote such stock for any purpose or to      
receive payment of dividends or other distributions on the stock (except        
dividends or other distributions payable to stockholders of record at a date    
which is prior to the effective date of the merger or consolidation); provided, 
however, that if no petition for an appraisal shall be filed within the time    
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60 
days after the effective date of the merger or consolidation as provided in     
subsection (e) of this section or thereafter with the written approval of the   
corporation, then the right of such stockholder to an appraisal shall cease.    
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery 
shall be dismissed as to any stockholder without the approval of the Court, and 
such approval may be conditioned upon such terms as the Court deems just. (l)   
The shares of the surviving or resulting corporation to which the shares of such
objecting stockholders would have been converted had they assented to the merger
or consolidation shall have the status of authorized and unissued shares of the 
surviving or resulting corporation.                                             

 4

PREM14A
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PROXY                          GT BICYCLES, INC.                                
PROXY SOLICITED BY THE BOARD OF DIRECTORS 
SPECIAL MEETING OF THE STOCKHOLDERS -- AUGUST   , 1998

    The undersigned hereby nominates, constitutes and appoints Michael C. Haynes
and Charles Cimitile, and each of them individually, the attorney, agent and    
proxy of the undersigned, with full power of substitution, to vote all stock of 
GT BICYCLES, INC. (the "Company") which the undersigned is entitled to represent
and vote at the Special Meeting of Stockholders of the Company to be held at The
Sutton Place Hotel, 4500 MacArthur Boulevard, Newport Beach, California, on     
August   , 1998, at 10:00 A.M., and at any and all adjournments or postponements
thereof, as fully as if the undersigned were present and voting at the meeting, 
as follows:                                                                     

1. Approval of the Agreement and Plan of Merger, dated as of June 22, 1998 (the 
"Merger Agreement"), by and among Schwinn Holdings Corporation, a Delaware
  corporation ("Schwinn"), SPK Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Schwinn ("Acquisition Corporation") and the
Company, and the transactions contemplated thereby (including, without    
limitation, the Merger (as defined below)), pursuant to which, among other
  things, (i) Acquisition Corporation will be merged with and into the Company
with the Company being the surviving corporation (the "Merger"), and (ii) 
 each outstanding share of the Company's Common Stock will be converted into
the right to receive $8.00 in cash.                                       
 [ ] FOR      [ ] AGAINST      [ ] ABSTAIN

2. The proxies are authorized to transact and vote such other business as may   
  properly come before the meeting or any adjournment or postponement thereof.

  Important -- please sign and date on other side and return promptly.

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The shares represented by this Proxy will be voted as directed by the   
stockholder on the reverse side. The Board of Directors recommends that the     
Stockholders of the Company vote FOR the approval and adoption of the Merger    
Agreement and the transactions contemplated thereby. In the absence of specific 
instructions, proxies will be voted for approval of the Merger Agreement and the
Merger and in the discretion of the proxy holders as to any other matters.      

                                           Date , 1998

                                                        ------------------------
                                                       (Signature of
                                                        stockholder)

                                                        ------------------------
                                                       (Signature of
                                                        stockholder)

                                                     Please sign your name
                                                     exactly as it appears
                                                  hereon. Executors,
                                               administrators,
                                                      guardians, officers of
                                                       corporations and others
                                                      signing in a fiduciary
                                                     capacity should state
                                                    their full titles as
                                     such.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
RETURN THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE. 

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘PREM14A’ Filing		Date		First		Last			Other Filings
		4/30/13		40
		1/15/11		40
		1/31/07		40
		10/31/05		65
		3/31/05		40
		5/20/01		40
		4/30/01		40
		9/30/00		66
		7/9/00		40
		6/30/00		65
		7/31/99		40
		6/30/99		40
		6/21/99		40
		6/15/99		40		49
		1/28/99		40
		12/31/98		41
		10/30/98		11		112
		9/15/98		109
		9/1/98		88		92
		8/21/98		30					DEFM14A
		7/22/98		30
		7/10/98
Filed on:		7/2/98
		7/1/98		33					3,  8-K,  SC 13D
		6/30/98		33		109			10-Q,  NT 10-Q
		6/22/98		10		127			3,  8-K
		6/21/98		19		22
		6/20/98		19
		6/19/98		13		33
		6/17/98		22
		5/29/98		18
		5/28/98		18		19
		5/27/98		26		119
		5/4/98		18
		4/30/98		48		103			10-K405/A
		4/23/98		18
		4/13/98		18
		3/31/98		41		93			10-Q,  NT 10-K
		2/28/98		66
		2/25/98		53
		2/10/98		17		18
		1/26/98		17
		1/1/98		78
		12/31/97		41		116			10-K405,  10-K405/A,  NT 10-K
		12/15/97		63
		12/10/97		119
		12/9/97		17
		10/27/97		17
		10/2/97		17
		8/14/97		24					NT 10-Q
		8/7/97		17
		6/30/97		73					10-Q,  NT 10-Q
		6/19/97		22
		3/31/97		41		78			10-Q
		1/1/97		92		101
		12/31/96		41		93			10-K,  NTN 10K
		4/1/96		69
		1/1/96		93		99
		12/31/95		41		93
		10/18/95		32		43
		10/13/95		22
		8/11/95		34		59
		1/1/95		68
		12/31/94		41		97
		12/6/94		51
		12/31/93		41		42
		11/12/93		34		42
		11/11/93		41		42
		8/6/93		34
		1/1/93		42
		1/1/92		96
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