EXHIBIT #10.105
 
GUARANTY AND SECURITY AGREEMENT
 
Borrowers:
 
Tarrant Company Limited (“TCL”), Marble Limited (“ML”) and Trade Link Holdings
Limited (“TLHL”), each corporations organized under the laws of Hong Kong (TCL,
ML and TLHL may hereinafter be referred to collectively as “Borrowers” and
individually as “Borrower”)

 
WHEREAS, the undersigned, TARRANT APPAREL GROUP, a California corporation
(“TAG”), FASHION RESOURCE (TCL), INC., a California corporation (“FR” and,
together with TAG, collectively “Parents” and each individually, a “Parent”)
have requested that UPS CAPITAL GLOBAL TRADE FINANCE CORPORATION in its capacity
as agent for itself and a syndicate of lenders (herein called “Lender”) extend
credit or make certain financial accommodations to Borrowers, or renew or
extend, in whole or in part, existing indebtedness or financial accommodations
of Borrowers to Lender, and Lender has extended credit or extended or renewed
existing indebtedness or made financial accommodations and/or may in the future
extend credit or extend or renew existing indebtedness or make certain financial
accommodations by reason of such request and in reliance upon this Guaranty and
Security Agreement;
 
NOW, THEREFORE, in consideration of such credit extended or renewed and/or to be
extended or renewed or such financial accommodations made or to be made in its
discretion by Lender to Borrowers (whether to the same, greater or lesser extent
than any limit, if applicable, of this Guaranty and Security Agreement), and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged the parties hereto agree as follows:
 
1.  Guarantee.    Each Parent hereby unconditionally guarantees to Lender the
punctual payment when due, whether by acceleration or otherwise, and at all
times thereafter, of all obligations of Borrowers, or any of them, to Lender
(herein called the “Guaranteed Obligations”) arising pursuant to that certain
Syndicated Letter of Credit Facility Agreement, dated as of May 31, 2002, among
Borrowers, the financial institutions party thereto as lenders, and Lender as it
may be modified, amended or expanded from time to time (the “Loan Agreement”).
References herein to Borrowers, or any of them, shall be deemed to include,
without limitation, any successor corporations to such Borrower or Borrowers.
Any other capitalized terms used herein, but not expressly defined herein, shall
have the meanings given to such terms in the Loan Agreement; provided that
references therein to “Borrower,” “Borrowers,” “Obligor” or “Obligors” shall be
deemed references to Parent or Parents for purposes hereof.
 
2.  Consent of Parents.    Each of the Parents consents that, at any time, and
from time to time, either with or without consideration, the whole or any part
of any security now or hereafter held for any Guaranteed Obligations may be
substituted, exchanged, compromised, impaired, released, or surrendered with or
without consideration; the time or place of payment of any Guaranteed
Obligations or of any security thereof may be changed or extended, in whole or
in part; Borrowers, or any of them, may be granted indulgences generally; any of
the provisions of any note or other instrument evidencing any Guaranteed
Obligations or any security therefor may be modified or waived; any party liable
for the payment thereof (including but not being limited to any co-guarantor)
may be granted indulgences or released; neither the termination of existence,
bankruptcy nor lack of authority of Borrowers, or any of them, or any one or
more of the guarantors, including any of Parents, shall affect the continuing
obligation of any other guarantor, including any of the Parents, and that no
claim need be asserted against the personal representative, guardian, custodian,
trustee or debtor in bankruptcy or receiver of any deceased, incompetent,
bankrupt or insolvent guarantor; any deposit balance to the credit of Borrowers,
or any of them, or any other party liable for the payment of the Guaranteed
Obligations or liable upon any security therefor may be released, in whole or in
part, at, before and/or after the stated, extended or accelerated maturity of
any Guaranteed Obligations; and Lender may release, discharge, compromise or
enter into any accord and satisfaction with respect to any collateral for the
Guaranteed Obligations, or the liability of Borrowers, or any of them, or any of
the Parents,

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or any liability of any other person primarily or secondarily liable on any of
the Guaranteed Obligations, all without notice to or further assent by the
Parents, who shall remain bound hereon, notwithstanding any such exchange,
compromise, surrender, extension, renewal, acceleration, modification,
indulgence, release, discharge or accord and satisfaction.
 
3.  Payment upon Default; Security for Guaranteed Obligations.    The security
interest and security title granted by each Parent under this Guaranty and
Security Agreement secures the payment of all of the Guaranteed Obligations.
Without limiting any of the foregoing, upon demand by Lender, made at any time
hereafter during which an “Event of Default” (as that term is defined and
described in the Loan Agreement) has occurred and is continuing, each Parent
agrees to pay to Lender upon demand the full amount which would be payable
hereunder by the Parents if all such Guaranteed Obligations were then due and
payable and this Guaranty and Security Agreement secures the payment of all
amounts which constitute part of the Guaranteed Obligations and would be owed by
the Borrowers or the Parents to the Lender Group, or any of them, but for the
fact that they are unenforceable or not allowable due to the existence of an
insolvency proceeding involving the Borrowers or the Parents.
 
4.  Guaranty of Payment.    This is a guaranty of payment and not of collection.
The liability of the Parents on this Guaranty and Security Agreement shall be
continuing, direct and immediate and not conditional or contingent upon either
the pursuit of any remedies against Borrowers, or any of them, or any other
person or foreclosure of any security interests or liens available to Lender,
its successors, endorsees or assigns. Lender may accept any payment(s), plan for
adjustment of debts, plan of reorganization or liquidation, or plan of
composition or extension proposed by, or on behalf of, Borrowers, or any of
them, or any other guarantor without in any way affecting or discharging the
liability of the Parents hereunder. If the Guaranteed Obligations are partially
paid, the Parents shall remain jointly and severally liable for any balance of
such Guaranteed Obligations. This Guaranty and Security Agreement shall be
revived and reinstated in the event any payment received by Lender on any
Obligation is required to be repaid or rescinded under present or future federal
or state law or regulation relating to bankruptcy, insolvency or other relief of
debtors.
 
5.  Grant of Security.    Each Parent hereby grants, assigns and pledges to
Lender, for the benefit of itself and the lenders, a security interest in and
security title to (together with a right of setoff) the following property of
such Parent, including, without limitation, such Parent’s right, title and
interest in and to the following, whether now owned and existing or hereafter
created or acquired and wherever located, and all substitutions therefor,
accessions thereto and improvements thereon (collectively, the “Collateral”), to
secure prompt repayment of any and all of the Guaranteed Obligations and to
secure prompt performance by such Parent of its covenants and duties under the
Guaranty and the other Finance Documents to which it is a party:
 
(a)  any and all Inventory (as defined in the Uniform Commercial Code) financed
pursuant to the UPS Credit Facility, acquired directly or indirectly by such
Parent from one or more Borrowers (the “Inventory”);.
 
(b)  that certain deposit account maintained by TAG at Union Bank of California,
N.A., Account Number 2100716472 and any proceeds thereof, and
 
(c)  proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance covering any or all of the foregoing,
and any and all accounts, books, general intangibles, inventory, investment
property, negotiable collateral, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
 
To the extent not prohibited by law, each of the Parents hereby grants to Lender
a security interest in and security title and hereby assigns, pledges, transfers
and conveys to Lender any balance or deposit accounts of such Parent, whether
such accounts be general or special, or individual or multiple party, and upon
all drafts, notes, or other items deposited for collection or presented for
payment by such Parent with Lender, exclusive of any such property in the
possession or control of Lender as a fiduciary other than as agent, and Lender
may at any time, without demand or notice, appropriate and apply any of such to
the payment of any of the Guaranteed Obligations, as and when due, except for
other indebtedness, obligations and liabilities owing to Lender.

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6.  Each Parent Remains Liable.    Anything herein to the contrary
notwithstanding, (a) each Parent shall remain liable under any contracts and
agreements relating to the Collateral to the extent set forth therein to perform
all of the duties and obligations thereunder to the same extent as if this
Guaranty and Security Agreement had not been executed, (b) the exercise by
Lender of any of the rights hereunder shall not release either Parent from any
of its duties or obligations under any contracts and agreements relating to the
Collateral, and (c) none of the members of the Lender Group shall have any
obligation or liability under any contracts and agreements relating to the
Collateral by reason of this Guaranty and Security Agreement, nor shall any of
the members of the Lender Group be obligated to perform any of the obligations
or duties of either Parent thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
 
7.  Waiver.    Each of the Parents expressly waives: (a) notice of acceptance of
this Guaranty and Security Agreement and of all extensions or renewals of credit
or other financial accommodations to Borrowers, or any of them; (b) presentment
and demand for payment of any of the Guaranteed Obligations; (c) protest and
notice of dishonor or of default to the Parents or to any other party with
respect to any of the Guaranteed Obligations or with respect to any security
therefor; (d) any invalidity or disability in whole or in part at the time of
the acceptance of, or at any time with respect to, any security for the
Guaranteed Obligations or with respect to any party primarily or secondarily
liable for the payment of Guaranteed Obligations to Lender; (e) the fact that
any security for the Guaranteed Obligations may at any time or from time to time
be in default or be inaccurately estimated or may deteriorate in value for any
cause whatsoever; (f) any diligence in the creation or perfection of a security
interest or collection or protection of or realization upon the Guaranteed
Obligations or any security therefor, any liability hereunder, or any party
primarily or secondarily liable for the Guaranteed Obligations or any lack of
commercial reasonableness, except to the extent required by applicable law, in
dealing with any security for the Guaranteed Obligations; (g) any duty or
obligation on the part of Lender to ascertain the extent or nature of any
security for the Guaranteed Obligations, or any insurance or other rights
respecting such security, or the liability of any party primarily or secondarily
liable for the Guaranteed Obligations, or to take any steps or actions to
safeguard, protect, handle, obtain or convey information respecting, or
otherwise follow in any manner, any such security, insurance or other rights;
(h) any duty or obligation of Lender to proceed to collect the Guaranteed
Obligations from, or to commence an action against, Borrowers, or any of them,
any other guarantor, or any other person, or to resort to any security or to any
balance of any deposit account or credit on the books of Lender in favor of
Borrowers, or any of them, or any other person, despite any notice or request of
the Parents to do so; (i) any rights of the Parents pursuant to Official Code of
Georgia Section 10-7-24 or any similar or subsequent law; (j) the right to
assert any of the benefits under any statute providing appraisal or other rights
which may reduce or prohibit any deficiency judgments in any foreclosure or
other action; (k) all other notices to which the Parents might otherwise be
entitled; and (l) demand for payment under this Guaranty and Security Agreement.
Each of the Parents hereby expressly waives, for Lender’s benefit and the
benefit of Borrowers, or any of them, and any other guarantor, maker or endorser
of the Guaranteed Obligations, until the termination of this Guaranty and
Security Agreement and the full payment of the Guaranteed Obligations any and
all claims or actions against Borrowers, or any of them, any other guarantor,
maker or endorser of the Guaranteed Obligations and any and all rights of
recourse against any property or assets of Borrowers, or any of them, any other
guarantor, maker or endorser of the Guaranteed Obligations (including, without
limitation, any security for the Guaranteed Obligations) arising out of or
related to any payment made by the Parents under this Guaranty and Security
Agreement, including, without limitation, any claim of the Parents for
subrogation, reimbursement, exoneration or indemnity that the Parents may have
against Borrowers, or any of them, or any other guarantor, maker or endorser of
the Guaranteed Obligations and any benefit of, and any other right to
participate in, any security for the Guaranteed Obligations or any guaranty of
the Guaranteed Obligations now or hereafter held by Lender.
 
8.  Representations, Warranties and Covenants.    Each Parent hereby represents,
warrants and covenants as follows:
 
(a)  The exact legal name of such Parent is set forth in the introductory
paragraph of this Guaranty and Security Agreement, and such Parent does not
conduct as of the date hereof, and, during the five-year period immediately
preceding the date hereof, has not conducted, business under any trade name or
other fictitious name other than those that may be set forth on Schedule 1
attached hereto. The Internal Revenue Service taxpayer identification number of
each Parent is set forth on Schedule 1.

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(b)  All of the Inventory of each Parent, other than Inventory in transit, is
located in the United States at the places specified in Schedule 2 attached
hereto. The chief place of business and chief executive office of each Parent is
at the address set forth on Schedule 2. The offices where each Parent keeps
records concerning its Collateral are located at the addresses specified in
Schedule 2 attached hereto. None of the Collateral of either Parent is evidenced
by a promissory note or other instrument, other than a note or other instrument
which has been delivered to Lender. Each Parent covenants and agrees that it
will not (i) maintain Collateral at any location other than those listed on
Schedule 2 or in transit between such locations, (ii) otherwise change or add to
any of such locations, or (iii) change the location of its principal place of
business or chief executive office from the locations identified as such on
Schedule 2, unless it gives Lender at least twenty (20) days’ prior written
notice thereof and executes any and all financing statements and other documents
that Lender reasonably requests in connection therewith.
 
(c)  Schedule 3 attached hereto sets forth a true, complete and correct list of
(i) all leases for real property on which Inventory of such Parent is stored
(together with the name and mailing address of each lessor with respect thereto)
and (ii) the name and address of each location at which Inventory of such Parent
is stored with a reprocessor, warehouseman or other bailee (together with the
name and address of each reprocessor, warehouseman or bailee with respect
thereto).
 
(d)  As of the date hereof, no Parent owns any real property.
 
(e)  This Guaranty and Security Agreement creates a valid security interest in
the Collateral of such Parent to the extent a security interest therein can be
created under Article 9 of the Uniform Commercial Code (the “Code”), securing
the payment of the Guaranteed Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest have been
duly taken or will have been taken upon the filing of Uniform Commercial Code
financing statements listing the applicable Parent, as debtor, and Lender, as
secured party, with the Secretary of State of the State of California, except
for any action necessary to perfect Lender’s security interest in any Collateral
to the extent a security interest therein is not perfected by the filing of a
financing statement under the Code. Upon the making of such filings, Lender
shall have a perfected security interest in the Collateral of the applicable
Parent to the extent such security interest can be perfected by the filing of a
financing statement under the Code.
 
(f)  The parties intend that all of the Collateral shall remain personal
property regardless of the manner of its attachment or affixation to real
property.
 
(g)  At any time upon the request of Lender, such Parent shall execute and
deliver to Lender all financing statements, continuation financing statements,
fixture filings, security agreements, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority and all other documents that Lender
reasonably may request, in form satisfactory to Lender, to perfect and continue
perfected the liens of Lender in the Collateral, and in order to fully
consummate all of the transactions contemplated by the Loan Agreement and under
the other Finance Documents.
 
(h)  Each Parent is a corporation duly incorporated or a corporation duly
organized and validly existing and in good standing under the laws of the state
of California having the power and authority to own its assets and to conduct
the business and operations which it conducts or proposes to conduct.
 
(i)  Each Parent has full power and authority to enter into and perform this
Guaranty and Security Agreement and any other document to be entered into by it
pursuant thereto and has taken all necessary corporate or other action to
authorize the execution, delivery and performance of each such document.
 
(j)  All actions, conditions and things required by all applicable laws and
regulations to be taken, fulfilled, obtained or done in order (i) to enable each
Parent lawfully to enter into, exercise its rights under and perform and comply
with its obligations under this Guaranty and Security Agreement and any other
document to be entered into pursuant thereto and (ii) to ensure that those
obligations are valid, legally binding and enforceable in accordance with their
respective terms.

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(k)  The execution by each Parent of, and the exercise by such Parent of its
rights and performance of or compliance with its obligations under this Guaranty
and Security Agreement do not and will not (i) violate (A) any law or regulation
to which it or any of its assets is subject or (B), to an extent or in a manner
which has or could have a material adverse effect on it, any agreement to which
it is a party or which is binding on it or its assets or (ii) conflict with its
organizational documents and in particular will not cause any limit on the
borrowing or other powers of any of the Parents or the exercise of such powers
by its board of directors to be exceeded.
 
(l)  The obligations of each Parent under this Guaranty and Security Agreement
are legal, valid and binding and enforceable in accordance with their respective
terms;
 
(m)  Except as disclosed in writing and attached hereto and agreed by Lender
prior to the date of this Guaranty and Security Agreement, no Parent is involved
or engaged in any litigation, arbitration or administrative proceedings (whether
as plaintiff or defendant) which, if adversely determined, would be reasonably
likely to have a material adverse effect on the Parents taken as a whole nor, to
the best of its knowledge is any such litigation, arbitration or administrative
proceedings threatened, nor are there any circumstances likely to give rise to
any such litigation, arbitration or proceedings.
 
(n)  No Parent is in breach of or default under any agreement or arrangement or
any statutory or legal requirement to an extent or in a manner which has or
could reasonably be expected to have a material adverse effect on the Parents
taken as a whole and no Event of Default has occurred and is continuing.
 
(o)  No encumbrance exists over the present or future assets of any Parent
except for encumbrances permitted herein.
 
(p)  The execution by each Parent of each of this Guaranty and Security
Agreement and the exercise by each such Parent of its rights and performance of
or compliance with its obligations thereunder will not result in the existence
of or oblige any Parent to create any encumbrance over all or any of its present
or future assets except for encumbrances permitted herein.
 
(q)  The financial statements of each Parent were prepared in accordance with
GAAP and give a true and fair view of the financial condition of the Parents at
the date as of which they were prepared and the results of the Parent’s business
and operations during the financial year then ended and disclose or reserve
against all liabilities (contingent or otherwise) of each Parent as at that date
and all unrealized or anticipated losses from any commitment entered into by
each member of the Group and which existed on that date.
 
(r)  No Parent has any indebtedness except for indebtedness permitted herein and
indebtedness as of the date hereof disclosed in such Parent’s most recent 10-K
filed with the Securities and Exchange Commission for the most recent Financial
Year a copy of which has been provided to Lender.
 
(s)  Each Parent is in compliance in all material respects with applicable
Environmental Laws and no condition exists or act or event has occurred which
could give rise to any material breach of, or any material liability of any kind
under, any Environmental Laws.
 
(t)  Each Parent is in possession of all Environmental Authorizations required
for the conduct of its business or operations (or any part thereof) and no
Parent has breached any of the terms or conditions of any such Environmental
Authorization, except where any failure to possess any such Environmental
Authorization or any breach thereof could not reasonably be expected to have a
material adverse effect on the Parents taken as a whole.
 
(u)  No Parent has received any summons, complaint, order or similar written
notice that it is not in compliance with, or any public authority is
investigating its compliance with, any Environmental Laws or that it is or may
be liable to any other person as a result of a potential or actual discharge of
a Hazardous Substance; and

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(v)  No Parent has received notice that its present or past operations is the
subject of any investigation by any public authority evaluating whether any
remedial action is needed to respond to a potential or actual discharge of a
Hazardous Substance.
 
(w)  To the knowledge of the Parents, upon due inquiry, no Hazardous Substance
has at any time been used, disposed of, generated, stored, transported, dumped,
released, deposited, buried, discharged or emitted at, on, from or under any
premises owned, leased, occupied or controlled by any Parent.
 
(x)  No Parent has entered into any negotiations or settlement agreements with
any person (including, without limitation, any prior owner of its property)
imposing material obligations or liabilities on it with respect to any remedial
action in response to the potential or actual discharge of a Hazardous Substance
or environmentally related claim;
 
(y)  Each Parent has filed all tax returns and other reports required to be
filed and has paid all taxes due and payable by it and no material claims are
being asserted with respect to taxes save for normal assessments.
 
(z)  There has been no material adverse change in the financial condition of any
Parent since the date to which the most recent financial statements delivered to
Lender were made up nor in the consolidated financial condition, business,
assets or operations of the Parents since that date.
 
(aa)  All information provided by any Parent to Lender from time to time in
connection herewith was true and correct in all material respects as at its date
or as at the date it was provided and did not at that date omit anything
material and no adverse change has occurred since such date which renders any
such information misleading in a material respect; in addition full disclosure
has been made to Lender prior to the date hereof of all other facts in relation
to the assets of the Parents as are material and ought properly to be made known
to any person proposing to advance moneys or make facilities available to the
Parents and to enable a true and correct view of such assets to be obtained and
all expressions of expectation, intention, belief and opinion contained therein
were correct in all material respects and honestly made on reasonable grounds
after due and careful enquiry.
 
(bb)  No Parent has done or omitted to do or suffered anything to be done or not
to be done which has or might render any policies of insurance taken out by it
void or voidable and, to the best of its knowledge, information and belief,
there are no circumstances which would or might give rise to any material claim
under any such policies of insurance.
 
(cc)  All necessary licenses, consents and authorizations have been obtained by
each Parent for the carrying on of its business and operations as the same are
currently carried on in all material respects and are in full force and effect
and there are no circumstances which indicate that any of such licenses,
consents and authorizations are likely to be revoked in whole or in part in the
ordinary course of events the effect of which revocation would be likely to have
a material adverse effect on any Parent.
 
(dd)  No Parent has taken any corporate action nor have any other steps been
taken or legal proceedings been started or (to the best of such Parent’s
knowledge and belief) threatened against any Parent for its winding-up,
dissolution or re-organization (other than for the purposes of a bona fide
solvent scheme of reconstruction or amalgamation previously approved in writing
by Lender) or for the appointment of a receiver, administrator, administrative
receiver, trustee or similar officer of it or of any or all of its assets.
 
(ee)  The Parents shall maintain, at all times, books, records and accounts
which are complete and correct in all material respects and in relation to which
timely entries are made of their transactions in accordance with GAAP. The
Parents shall, by means of appropriate entries, reflect in such accounts and in
all financial statements proper liabilities and reserves for all taxes and
proper provision for depreciation and amortization of any property or asset and
bad debts, all in accordance with GAAP.

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(ff)  The Parents shall without notice following the occurrence of a Default
which is continuing, or otherwise upon receiving not less than forty-eight (48)
hours’ notice from Lender at any reasonable time and by arrangement with the
relevant Parent, permit and procure that each Parent permits Lender or any
person authorized by Lender to have access to its premises and accounting
records and to make extracts from and take copies of its accounting records and
to discuss any matter with any of its personnel and officers and make such
inquiries as Lender may reasonably require from time to time, the reasonable
costs and expenses properly incurred thereby to be for the account of the
relevant Parent.
 
(gg)  Without limiting the generality of any other clause herein, Lender shall
be entitled to conduct a quarterly field audit of the books and accounting
records of any of the Parents, such field audits to be conducted at any time
within the fourteen (14) day period following the end of each calendar quarter
(namely 31st March, 30th June, 30th September and 31st December). Each of the
Parents shall permit Lender or any person authorized by Lender to have access to
its premises and accounting records and to make extracts from and take copies of
its accounting records and to discuss any matter with any of its personnel and
officers and make such inquiries as Lender may reasonably require from time to
time, the reasonable costs and expenses properly incurred thereby to be for the
account of the relevant Parent, subject to a maximum cap of $750,000 in respect
of each quarterly field audit conducted by Lender.
 
(hh)  Each of the Parents shall deliver to Lender in sufficient copies for the
lenders:
 
(i)  as soon as the same become available, but in any event within 100 days
after the end of each Financial Year, its financial statements for such
Financial Year together with the audited accounts of each Parent for such
Financial Year;
 
(ii)  as soon as the same become available, but in any event within 45 days of
the end of each Management Accounting Period, its Management Accounts as at the
end of and for that Management Accounting Period, and a consolidation of those
Management Accounts showing the financial position for the Financial Year to
date;
 
(iii)  together with the delivery of the Management Accounts, a compliance
certificate duly signed by one of its directors and its chief financial or
accounting officer confirming that, at all times during the relevant Management
Accounting Period, all the financial covenants set out herein have been fully
complied with;
 
(iv)  at the same time as sent to its shareholders or creditors generally, any
circular, document or other written information sent to its shareholders or
creditors as such; and
 
(v)  from time to time on the request of Lender, such information about the
business, operations and financial condition of each Parent as Lender may
reasonably require.
 
(ii)  Each Parent shall ensure that:
 
(i)  each set of financial statements delivered by it is prepared using the same
accounting principles and policies as were used in the preparation of its
original financial statements delivered to Lender and gives a true and fair view
of the financial condition of the relevant Parent and of the result of its
business and operations during such period;
 
(ii)  each set of financial statements delivered by it to Lender pursuant to
(gg)(i) above has been audited by its Auditors and each set of Management
Accounts delivered by it has been certified as being correct by the relevant
Parent, acting through its chief financial or accounting officer, subject to
normal year-end adjustments.
 
(jj)  Each Parent undertakes that:

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(i)  it will obtain, comply with the terms of and do all that is necessary to
maintain in full force and effect all authorizations, approvals, licenses and
consents required by all applicable laws and regulations to enable it lawfully
to enter into, perform and comply with its obligations hereunder or any document
to be entered into pursuant hereto or to ensure the legality, validity,
enforceability or admissibility in evidence of such documents and, if different,
its jurisdiction of incorporation and any jurisdiction in which any of its
assets may be situated;
 
(ii)  it will maintain policies of insurance on and in relation to its business
and assets with financially sound and reputable insurers acceptable to Lender
against such risks and to such extent as is usual for companies carrying on a
business such as that carried on by each Parent whose practice is not to self
insure;
 
(iii)  it will comply in all material respects with all applicable laws and
regulations including, without limitation, any applicable Environmental Laws;
 
(iv)  it has the right to conduct its business and operations as they are
conducted in all applicable jurisdictions and will do all things necessary
(including compliance with all terms and conditions of any licenses and
consents) to obtain, preserve and keep in full force and effect all rights,
licenses and authorizations (including, without limitation, all Environmental
Authorizations) and consents as are necessary for the conduct of such business
and operations;
 
(v)  it will duly and punctually pay and discharge (A) all taxes imposed upon it
or its properties (save where the same are being contested in good faith and by
appropriate proceedings and where adequate reserves are being maintained with
respect thereto) and (B) all lawful claims which, if unpaid, would by law become
encumbrances upon any of the Collateral;
 
(vi)  it will promptly notify Lender in writing (in reasonable detail and
setting out the action that is proposed to be taken in relation to it) of the
occurrence of any Default and, as soon as reasonably practicable following
receipt of a written request to that effect from Lender, confirm to Lender that,
save as previously notified to Lender or as notified in such confirmation, no
Default has occurred.
 
(vii)  it will not, without the prior consent of Lender, create, agree to create
or permit to subsist any encumbrance on or over its respective assets to secure
any indebtedness of any person other than the following:
 
(A)  any encumbrance on or over the assets of any Parent subsisting at the date
of this Guaranty and Security Agreement and agreed to by Lender (including the
security in favor of GMAC as specified or referred to in the Intercreditor
Agreement), provided that, except with the prior consent of Lender, the
principal, capital or nominal amount secured by any such encumbrance may not be
increased beyond the maximum amount which may be secured by the relevant
encumbrance at the date hereof;
 
(B)  liens arising solely by operation of law incurred in the ordinary course of
business and not in connection with the borrowing of money, for sums not yet
overdue;
 
(C)  encumbrances arising out of title retention provisions in a supplier’s
standard conditions of supply (any such standard conditions to have been
approved by Lender) in respect of goods acquired by the relevant person in the
ordinary course of trading; and
 
(D)  any other encumbrance created or outstanding with the prior written consent
of Lender.
 
(viii)  without the prior consent of Lender (which may be subject to, inter
alia, the application of all proceeds of a disposal towards prepayment of the
Obligations in such manner as lenders may reasonably require), it will not
(whether by a single transaction or a number of related or unrelated
transactions and

8

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whether at one time or over a period of time), sell, transfer, assign, lease
out, lend or otherwise dispose of (whether outright, by a sale and repurchase or
sale and leaseback arrangement or otherwise) any part of its assets (other than
any sale of goods or services in the ordinary course of its business) having an
aggregate value in excess of $1,000,000 in any one Financial Year.
 
(ix)  it will not incur or maintain any indebtedness other than:
 
(A)  Indebtedness guaranteed hereunder.
 
(B)  Suppliers’ credit extended in the ordinary course of trading and on arms’
length terms.
 
(C)  Indebtedness between members of the Group as disclosed to and permitted by
Lender.
 
(D)  Loans from its major shareholders (provided that all such loans are
subordinated to the guaranteed indebtedness hereunder.
 
(E)  Indebtedness to GMAC as specified or referred to in the Intercreditor
Agreement.
 
(F)  Loans by the Parents, or either of them, to any other person not in excess
of $1,000,000 in the aggregate at any given time.
 
(x)  it will not make any loans, grant any credit (save in the ordinary course
of trading) or give any guarantee to or for the benefit of any person or
otherwise voluntarily assume any liability, whether actual or contingent, in
respect of any obligation of any other person (save as required hereunder) in
excess of US$1 million in aggregate.
 
(xi)  it will ensure that there is no material change in the nature of its
business or operations or the business or operations of the Group taken as a
whole (whether by a single transaction or a number of related or unrelated
transactions, whether at one time or over a period of time and whether by
disposal, acquisition or otherwise).
 
(xii)  it will not, without the prior approval of Lender, change, and will
procure that no other member of the Group changes, its accounting reference
date.
 
(xiii)  save with Lender’s prior written consent, it will not, directly or
indirectly, organize or acquire any Subsidiary (other than those in existence as
at the date hereof and which have been advised to Lender in writing).
 
(xiv)  save with Lender’s prior written consent, it will not make any
acquisitions of a capital asset, enter into any finance lease or any other
capital asset commitment, or otherwise make any capital expenditure involving
payments in excess of $5,000,000 in the aggregate in any Financial Year, other
than any budgeted capital expenditure which has been approved by Lender.
 
(xv)  Unless Lender shall be satisfied in its reasonable determination of the
compliance and anticipated continued compliance with all financial ratios set
out herein, it will not pay, make or declare any dividend or other distribution
nor repay or permit to be repaid any unsecured loan stock or other subordinated
indebtedness.
 
(xvi)  it will not make any change in its capital structure or its jurisdiction
of formation save where made with the prior consent of Lender, not to be
unreasonably withheld or delayed.

9

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Each of the representations and warranties set forth herein will be correct and
complied with on the date hereof and will also be correct and complied with each
date on which a Letter of Credit is issued or requested to be issued as if
repeated then by reference to the then existing circumstances. The undertakings
herein shall remain in force from the date hereof and so long as any amount is
outstanding hereunder.
 
9.  Further Assurances.
 
(a)  Each Parent agrees that from time to time, at its own expense, such Parent
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that Lender may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable Lender to exercise and enforce its
rights and remedies hereunder with respect to any of the Collateral. Without
limiting the generality of the foregoing, each Parent shall upon Lender’s
request, execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or as Lender may request, in order to perfect and preserve the security interest
granted or purported to be granted hereby.
 
(b)  Each Parent hereby authorizes Lender and appoints Lender its
attorney-in-fact to file one or more financing or continuation statements, and
amendments thereto, relating to all or any part of the Collateral without its
signature where permitted by law. A photocopy or other reproduction of this
Guaranty and Security Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
 
10.  Consideration.    Each of the Parents expressly represents and acknowledges
that any loans or other financial accommodations by Lender to Borrowers, or any
of them, are and will be to the direct interest and advantage of such Parent.
 
11.  Agent Appointed Attorney-in-Fact.    Each Parent hereby irrevocably makes,
constitutes and appoints Lender, and its successors or assigns, as its
attorney-in-fact, with full authority in the place and stead of such Parent and
in the name of such Parent or otherwise, at such time as an Event of Default has
occurred and is continuing under the Loan Agreement, to take any action and to
execute any instrument which Lender may deem necessary or advisable to
accomplish the purposes of this Guaranty and Security Agreement, including,
without limitation:
 
(a)  to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with the Collateral of such Parent;
 
(b)  to receive and open all mail addressed to such Parent and to notify postal
authorities to change the address for the delivery of mail to such Parent to
that of Lender;
 
(c)  to file any claims or take any action or institute any proceedings which
Lender may deem necessary or desirable for the collection of any of the
Collateral of such Parent or otherwise to enforce the rights of Lender with
respect to any of the Collateral of such Parent;
 
(d)  make, settle and adjust all claims under such Parent’s policies of
insurance and make all determinations and decisions with respect to such
policies of insurance; and
 
(e)  to use any labels, patents, trademarks, trade names, URLs, domain names,
industrial designs, copyrights, advertising matter or other industrial or
intellectual property rights, in advertising for sale and selling Inventory and
other Collateral of such Parent.
 
12.  No Waiver by Lender.    No delay or failure on the part of Lender in the
exercise of any right or remedy shall operate as a waiver thereof, and no single
or partial exercise by Lender of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy. For
purposes of this Guaranty and Security Agreement, the term “Guaranteed
Obligations” shall include all obligations arising under the Loan Agreement,
notwithstanding any right or power of Borrowers, or any of them, or anyone else
to assert any

10

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claim or defense as to the invalidity or unenforceability thereof, and no such
claim or defense shall impair or affect the obligations and liabilities of the
Parents hereunder. Without limiting the generality of the foregoing, this
Guaranty and Security Agreement covers all Guaranteed Obligations purporting to
be made on behalf of such Borrowers by any officer or agent of the same, without
regard to the actual authority of such officer or agent.
 
13.  Remedies.    Upon the occurrence and during the continuance of an Event of
Default:
 
(a)  Lender may exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, in the other Loan Documents, or
otherwise available to it, all the rights and remedies of a secured party on
default under the Code in effect in the State of Georgia from time to time or
any other applicable jurisdiction. Without limiting the generality of the
foregoing, each Parent expressly agrees that in any such event Lender without
demand for performance or other demand, advertisement or notice of any kind
(except a notice specified below of time and place of public or private sale or
as expressly required by the Loan Agreement) to or upon such Parent or any other
person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), may take immediate possession of the Collateral and (i) require
such Parent to, and such Parent hereby agrees that it will at its own expense
and upon request of Lender forthwith, assemble all or part of the Collateral as
directed by Lender and make it available to Lender at one or more locations
where such Parent regularly maintains Inventory and (ii) without notice except
as specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of Lender’s offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Lender may
deem commercially reasonable. Each Parent agrees that, to the extent notice of
sale shall be required by law, at least ten (10) calendar days’ notice to such
Parent of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Lender
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. Lender may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. Lender is hereby granted a license or other right to use, without
charge, such Parent’s labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks and advertising matter,
URLs, domain names, industrial designs, other industrial or intellectual
property or any property of a similar nature, whether owned by such Parent or
with respect to which such Parent has rights under license, sublicense or other
agreements, as it pertains to the Collateral, in preparing for sale, advertising
for sale and selling any Collateral, and such Parent’s rights under all licenses
and all franchise agreements shall inure to the benefit of Lender.
 
(b)  Any cash held by Lender as Collateral and all cash proceeds received by
Lender in respect of any sale of, collection from, or other realization upon all
or any part of the Collateral may, in the discretion of Lender, be held by
Lender as Collateral for, and/or then or at any time thereafter be applied in
whole or in part by Lender against, all or any part of the Guaranteed
Obligations in such order as may be set forth in the Loan Agreement. Any surplus
of such cash or cash proceeds held by Lender and remaining after payment in full
of all the Guaranteed Obligations shall be delivered to either Parent.
 
(c)  Each Parent hereby acknowledges that the Guaranteed Obligations arose out
of a commercial transaction, and agrees that if an Event of Default shall occur
and be continuing Lender shall have the right to an immediate writ of possession
without notice of a hearing. Lender shall have the right to the appointment of a
receiver for the properties and assets of such Parent, and such Parent hereby
consents to such rights and such appointment and hereby waives any objection
such Parent may have thereto or the right to have a bond or other security
posted by Lender in connection therewith.
 
14.  Remedies Cumulative.    Each right, power, and remedy of Lender as provided
for in this Guaranty and Security Agreement or in the other Loan Documents or
now or hereafter existing at law or in equity or by statute or otherwise shall
be cumulative and concurrent and shall be in addition to every other right,
power, or remedy provided for in this Guaranty and Security Agreement or in the
other Loan Documents or now or hereafter existing at law or in equity or by
statute or otherwise, and the exercise or beginning of the exercise by Lender of
any one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by Lender of any or all such other rights, powers
or remedies.

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15.  Application of Payments.    Any amount received by Lender from whatever
source and applied by it toward the payment of the Guaranteed Obligations shall
be applied in such order of application as Lender may from time to time elect.
 
16.  Indemnity and Expenses.
 
(a)  Each Parent agrees upon demand to pay to Lender the amount of any and all
reasonable expenses, including, without limitation, the fees and expenses of its
counsel incurred and of any experts and agents, which Lender may incur in
connection with (i) the administration of this Guaranty and Security Agreement,
(ii) the custody, preservation, use or operation of, or, upon an Event of
Default, the sale of, collection from, or other realization upon, any of the
Collateral in accordance with this Guaranty and Security Agreement and the other
Finance Documents, (iii) the exercise or enforcement of any of the rights of
Lender hereunder or (iv) the failure by either Parent to perform or observe any
of the provisions hereof.
 
(b)  Each Parent agrees to indemnify Lender and the other members of the Lender
Group from and against all claims, lawsuits and liabilities (including
reasonable attorneys’ fees) growing out of or resulting from this Guaranty and
Security Agreement (including, without limitation, enforcement of this Guaranty
and Security Agreement) or any other Finance Document to which such Parent is a
party, except claims, losses or liabilities resulting from the gross negligence
or willful misconduct of the party seeking indemnification as determined by a
final non-appealable order of a court of competent jurisdiction.
 
17.  Possession Until Default.    Until an Event of Default shall occur and be
continuing, except as otherwise provided in this Guaranty and Security
Agreement, the Loan Agreement or other Loan Documents, each Parent shall have
the right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of its business, subject to and upon the terms
hereof and of the Loan Agreement and other Finance Documents.
 
18.  Amendments; Etc.    No waiver of any provision of this Guaranty and
Security Agreement, and no consent to any departure by the Parents herefrom,
shall in any event be effective unless the same shall be in writing and signed
by Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. No amendment of
any provision of this Guaranty and Security Agreement shall be effective unless
the same shall be in writing and signed by Lender and the Parents.
 
19.  Addresses for Notices.    All notices and other communications provided for
hereunder shall be given in the form and manner prescribed for notices in the
Loan Agreement at the address for the Parents set forth on Schedule 2 hereto and
at the at Lender’s address specified in the Loan Agreement, or, as to any party,
at such other address as shall be designated by such party in a written notice
to the other party.
 
20.  Continuing Security Interest:  Assignments under Loan Agreement.    This
Guaranty and Security Agreement shall create a continuing security interest in
the Collateral and shall (i) terminate only when the Guaranteed Obligations
(other than those Guaranteed Obligations which may survive termination of the
Loan Agreement as provided for therein) have been paid in full and all
obligations of the Lender Group to extend credit to the Borrowers under the Loan
Agreement have terminated, (ii) be binding upon the Parents, their successors
and assigns and (iii) inure to the benefit of, and be enforceable by, Lender and
the other members of the Lender Group and their successors, transferees and
assigns. Without limiting the generality of the foregoing clause (iii), Lender
or any Lender may assign or otherwise transfer all or any portion of its rights
and obligations under the Loan Agreement (including, without limitation, all, or
any ratable part, of the obligations) its obligation to extend credit under the
Loan Agreement and the other rights and obligations of Lender or such Lender
under the Loan Agreement and the other Finance Documents to any other Person,
and such other Person shall thereupon become vested with all the benefits in
respect thereof granted to Lender or the benefit of the Lender Group, as
applicable, herein or otherwise. Upon the payment in full of the Guaranteed
Obligations and all other amounts payable under this Guaranty and Security
Agreement and the expiration or termination of all obligations of the Lender
Group to extend credit to the Borrowers under the Loan Agreement, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the applicable Parent. No transfer or renewal, extension, assignment
or termination of this Guaranty and Security Agreement or of the Loan Agreement,
any other Finance Document or any other instrument or document executed and
delivered by the Parents to Lender nor any additional extension of credit by

12

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the Lender Group to the Borrowers, nor the taking of further security, nor the
retaking or re-delivery of the Collateral to the Parents by Lender, nor any
other act of Lender or any other member of the Lender Group shall release the
Parents, or either of them, from any obligation, except a release or discharge
executed in writing by Lender with respect to such obligation or payment of such
obligation or upon full satisfaction of all the Guaranteed Obligations. Lender
or any other member of the Lender Group shall not by any act, delay, omission or
otherwise, be deemed to have waived any of their rights or remedies hereunder,
unless such waiver is in writing and signed by Lender and then only to the
extent therein set forth. A waiver by Lender of any right or remedy on any
occasion shall not be construed as a bar to the exercise of any such right or
remedy which Lender would otherwise have had on any other occasion.
 
21.  Successors and Assigns; Joint and Several Undertaking.    This Guaranty and
Security Agreement shall bind and inure to the benefit of Lender, its successors
and assigns, and likewise shall bind and inure to the benefit of the Parents,
their heirs, executors, administrators, successors and assigns. If more than one
person shall execute this Guaranty and Security Agreement or a similar,
contemporaneous guaranty, the term “undersigned” shall mean, as used herein, all
parties executing this Guaranty and Security Agreement and such similar
guaranties and all such parties shall be liable, jointly and severally, one with
the other with Borrowers, or any of them, for each of the undertakings,
agreements, obligations, covenants and liabilities provided for herein with
respect to the Parents. This Guaranty and Security Agreement contains the entire
agreement and there is no understanding that any other person shall execute this
or a similar guaranty. Furthermore, no course of dealing between the parties, no
usage of trade, and no parol or extrinsic evidence shall be used to supplement
or modify any terms of this Guaranty and Security Agreement; nor are there any
conditions to the complete effectiveness of this Guaranty and Security
Agreement.
 
22.  Governing Law; Severability.    This Guaranty and Security Agreement shall
be deemed accepted by Lender in the State of Georgia. The parties agree that
this Guaranty and Security Agreement shall be deemed, made, delivered, performed
and accepted by Lender in the State of Georgia and shall be governed by the laws
of the State of Georgia. Wherever possible each provision of this Guaranty and
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Guaranty and Security
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty and Security Agreement.
 
23.  Jurisdiction.    Each of the Parents (a) submits to personal jurisdiction
in the State of New York, the courts thereof and any United States District
Court sitting therein, for the enforcement of this Guaranty and Security
Agreement, (b) waives any and all personal rights under the law of any
jurisdiction to object on any basis (including, without limitation,
inconvenience of forum) to jurisdiction or venue within the State of New York
for the purpose of litigation to enforce this Guaranty and Security Agreement,
(c) agrees that service of process may be made upon the Parents by first class
mail, postage prepaid, addressed to either Parent at the latest address of
either Parent known to Lender (or at such other address as the Parents may
specify for such purpose by notice to Lender) and (d) to the extent permitted by
law, waives trial by jury in any action or proceeding with respect hereto.
Nothing herein contained, however, shall prevent Lender from bringing any action
or exercising any rights against any security and against Borrowers, or any of
them, and against any assets of Borrower, within any other state or
jurisdiction.
 
24.  Collection Costs.    Each of the Parents agrees, in the event that this
Guaranty and Security Agreement is enforced or collected by law or through an
attorney at law, to pay all costs of collection actually incurred by Lender,
including, without limitation, attorneys’ fees.
 
25.  Voided Payments.    Notwithstanding anything herein to the contrary, to the
extent that any of the Parents makes any payment on the Guaranteed Obligations
which, within twelve (12) months of the date of such payment, is subsequently
invalidated, declared to be fraudulent, avoidable or preferential, set aside or
is required to be repaid to a trustee, receiver, the estate of such undersigned
or any other party under any bankruptcy act, state or Federal law, common law or
equitable cause (such payment being hereinafter referred to as a “Voided
Payment”), then to the extent of such Voided Payment that portion of the
Guaranteed Obligations which had been previously satisfied by such Voided
Payment shall be revived and continue in full force and effect as if such Voided
Payment had never been made. In the event that a Voided Payment is sought to be
recovered from Lender, an

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“Event of Default” under the Loan Agreement shall be deemed to have occurred and
to be continuing from the date of such recovery from Lender of such Voided
Payment until the full amount of such Voided Payment is fully and finally
restored to Lender and until such time the provisions of this Guaranty and
Security Agreement, and the guaranty provided herein, shall be in full force and
effect.
 
26.  Payments.    All payments made by any Parent hereunder will be made without
setoff, counterclaim, or other defense, except as required by applicable law
other than for Taxes (as defined below). All such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments or other charges of whatever nature
now or hereafter imposed by any jurisdiction (other than the United States) or
by any political subdivision or taxing authority thereof or therein (other than
of the United States) with respect to such payments and all interest, penalties
or similar liabilities with respect thereto (all such non-excluded taxes,
levies, imposts, duties, fees, assessments or other charges being referred to
collectively as “Taxes”). If any Taxes are so levied or imposed, each Parent
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any note, including any amount paid pursuant to this Section 265 after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein; provided, however, that Parents shall not be
required to increase any such amounts payable to Lender if the increase in such
amount payable results from Lender’s own willful misconduct or gross negligence.
Parents will furnish to Lender as promptly as possible after the date the
payment of any Taxes is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by Parents.
 
27.  Section 580 Waivers.    Each of the Parents waives all rights and defenses
arising out of an election of remedies by Lender, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed Lender’s rights of subrogation and
reimbursement against Borrowers or the Parents, or any of them, by the operation
of Section 580(d) of the California Code of Civil Procedure or otherwise. Each
of the Parents waives all rights and defenses that the Parents to the extent the
Guaranteed Obligations may be secured by real property. This means, among other
things: (i) Lender may collect from the Parents without first foreclosing on any
real or personal property collateral pledged by any other obligor; (ii) If
Lender forecloses on any real property collateral pledged by any other obligors:
(A) the amount of the Guaranteed Obligations may be reduced only by the price
for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price and (B) Lender may collect from the
Parents even if Lender, by foreclosing on the real property collateral, has
destroyed any right the Parents may have to collect from the other obligors.
This is an unconditional and irrevocable waiver of any rights and defenses the
Parents may have because the Guaranteed Obligations are secured by real
property. These rights and defenses include, but are not limited to, any rights
or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of
Civil Procedure.
 
28.  Lender’s Duties.    Each reference herein to any right granted to, benefit
conferred upon or power exercisable by the “Agent” shall be a reference to
Lender for the benefit of the Lender Group, and each action taken or right
exercised hereunder shall be deemed to have been so taken or exercised by Lender
for the benefit of the members of the Lender Group. The powers conferred on
Lender hereunder are solely to protect its interest in the Collateral and shall
not impose any duty upon Lender to exercise any such powers. Except for the safe
custody of any Collateral in its actual possession and the accounting for moneys
actually received by it hereunder, Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Lender shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its actual possession if such Collateral is accorded treatment
substantially equal to that which Lender accords its own property. If either
Parent fails to perform any agreement contained herein, Lender may itself
perform, or cause performance of, such agreement, and the reasonable expenses of
Lender incurred in connection therewith shall be payable by such Parent and the
Borrowers as part of the Guaranteed Obligations.
 
29.  Blocked Account Agreement.    All amounts which shall be deposited into the
deposit account described in Section 5(b) (the “Blocked Account”) hereof shall
be under the dominion and control of TAG unless and until the occurrence and
continuance of an Event of Default, whereupon amounts deposited in such Blocked
Account shall immediately be under the dominion and exclusive control of Lender,
on behalf of the lenders, pursuant to the terms of the applicable blocked
account agreement, and as provided in the applicable blocked account agreement,
TAG shall have no right to withdraw such amounts thereafter without the consent
of Lender.

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30.  Landlord Agreements.    Each Parent agrees that it shall not renew (nor
permit any automatic renewal of) any existing lease, or enter into any new
lease, for real property unless prior to executing or effecting such renewal or
proposed lease such Parent shall have delivered to Lender evidence that such
lessor shall execute and deliver to Lender a collateral access and landlord
subordination agreement in form and substance reasonably satisfactory to Lender.
Each Parent specifically acknowledges that the collateral access and landlord
subordination agreement delivered by Sante Fe-Firestone, LLC to Lender on or
about the date hereof with respect to the South Gate, California leased location
is not satisfactory to Lender for purposes of complying with this Section.
 
31.  Quarterly Field Audits:    Lender shall be entitled to conduct a quarterly
field audit of the books and accounting records of any of the Parents, such
field audits to be conducted at any time within the fourteen (14) day period
following the end of each calendar quarter (namely 31st March, 30th June, 30th
September and 31st December). Each of the Parents shall permit Lender or any
person authorized by Lender to have access to its premises and accounting
records and to make extracts from and take copies of its accounting records and
to discuss any matter with any of its personnel and officers and make such
inquiries as Lender may reasonably require from time to time, the reasonable
costs and expenses properly incurred thereby to be for the account of the
relevant Parent, provided that such costs and expenses in respect of each
quarterly field audit conducted by Lender shall not exceed $750 per person per
day plus any out-of-pocket costs and expenses.
 
32.  Miscellaneous.
 
(a)  This Guaranty and Security Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Delivery of an executed counterpart of this Guaranty and Security Agreement by
facsimile shall be equally as effective as delivery of an original executed
counterpart of this Guaranty and Security Agreement.
 
(b)  The paragraph titles herein are for convenience of reference only, and
shall not affect in any way the interpretation of any of the provisions hereof.
 
(c)  Time is of the essence of this Guaranty and Security Agreement.
 
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IN WITNESS WHEREOF, each of the Parents has executed this Guaranty and Security
Agreement under seal, as of May 30, 2002.
 

       
“GUARANTORS”
 
Signed and delivered
in the presence of:
     
TARRANT APPAREL GROUP
       
By:
 
/s/    GERARD GUEZ       

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

           
Gerard Guez
Chairman
       
Address:
 
3151 East Washington Blvd.
Los Angles, CA 90023
Notary Public:  Antonio Silva Jr.
           
My Commission Expires:  March 8, 2002
           
[NOTARY SEAL]
           
Signed and delivered
in the presence of:
     
FASHION RESOURCE (TCL), INC.
       
By:
 
/s/    GERARD GUEZ       

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

           
Gerard Guez
Chairman

       
Address:
 
3151 East Washington Blvd.
Los Angles, CA 90023
Notary Public:  Antonio Silva Jr.
           
My Commission Expires:  March 8, 2002
       
[NOTARY SEAL]
           

 
Accepted and agreed:
 
UPS CAPITAL GLOBAL TRADE FINANCE CORPORATION,
as agent
   
By:
 
/s/    SANJEEV CHOPRA       

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Sanjeev Chopra
Business Development
           

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