EXHIBIT 10.66

                 AMENDED AND RESTATED GENERAL SECURITY AGREEMENT
                              [FARAH INCORPORATED]

         AMENDED AND RESTATED  GENERAL  SECURITY  AGREEMENT dated as of this 1st
day of June, 1997, by FARAH INCORPORATED,  a Texas corporation  ("Guarantor") to
and in favor of CONGRESS FINANCIAL CORPORATION (SOUTHWEST),  a Texas corporation
("Lender").

                               W I T N E S S E T H

         WHEREAS,  Lender  has  entered  or is  about to  enter  into  financing
arrangements with Farah U.S.A.,  Inc. ("Farah USA"), a Texas corporation,  Value
Clothing  Company,  Inc.,  a Texas  corporation  ("Value  Clothing")  and  Farah
Manufacturing  (U.K.)  Limited,  a  corporation  incorporated  under  the law of
England   ("Farah  UK"  and  together   with  Farah  USA  and  Value   Clothing,
collectively,  "Borrower"), pursuant to which Lender may make loans and advances
and provide other financial accommodations to Borrower; and

         WHEREAS,   Guarantor   originally   entered  into  a  General  Security
Agreement,  dated as of August 2, 1990, which Lender and Guarantor desire hereby
to amend and restate as of the date hereof pursuant to this Agreement; and

         WHEREAS,  Guarantor has executed and delivered to Lender a guarantee in
favor of Lender, dated as of August 2, 1990, which Guarantor is confirming as of
the  date  hereof   pursuant  to  which   Guarantor   intends,   absolutely  and
unconditionally,  to guarantee to Lender the payment and  performance of all now
existing and hereafter  arising  Obligations,  liabilities  and  indebtedness of
Borrower to Lender; and

         WHEREAS,  in order  to  induce  Lender  to  enter  into  the  Financing
Agreements  and  to  make  loans  and  advances  and  provide  other   financial
accommodations to Borrower  pursuant  thereto,  Guarantor has agreed to grant to
Lender certain collateral security as set forth herein;

         NOW  THEREFORE,  in  consideration  of the  premises and other good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged, Guarantor hereby agrees as follows:

         1.       DEFINITIONS

         As used above and in this  General  Security  Agreement  the  following
terms shall have the respective meanings given to them below:

     (a) All terms used  herein  which are  defined in Article 1 or Article 9 of
the Uniform  Commercial  Code shall have the meanings set forth  therein  unless
otherwise  defined in this  Agreement  and all  references  to the plural herein
shall also mean the singular and all  references to the singular shall also mean
the plural.

     (b) All  references to the term  "Guarantor"  wherever used herein shall be
deemed  to mean  the  signatory  hereto  and its  successors  and  assigns.  All
references  to the term  "Lender" and the term  "Borrower"  wherever used herein
shall be deemed to include their respective successors and assigns.

     (c) "Affiliate" shall mean, with respect to a specified  Person,  any other
Person (i) who,  directly or  indirectly,  through  one or more  intermediaries,
controls or is  controlled  by or is under common  control with such Person,  or
(ii) who is a director, officer, shareholder or employee of such Person.

                  (d)  [INTENTIONALLY DELETED]

                  (e)  [INTENTIONALLY DELETED]

                  (f)  [INTENTIONALLY DELETED]

     (g) "Borrower  Foreign  Subsidiary" shall mean Touche  Industrial,  S.A. de
C.V. and its respective successors and assigns.

     (h)  "Collateral"  shall mean all of the now owned and  hereafter  acquired
property  and  assets  of  Guarantor,   wherever  located,  of  every  kind  and
description, mixed, real or personal, tangible or intangible, including, but not
limited to:

     (i)  all  present  and  future:  (A)  accounts,  contract  rights,  general
intangibles,   chattel   paper,   documents   and   instruments   (collectively,
"Accounts"),  including,  without limitation, all obligations for the payment of
money  arising  out of the sale,  lease or other  disposition  of goods or other
property or rendition of services; (B) all monies, securities and other property
and the proceeds  thereof,  now or hereafter  held or received by, or in transit
to, Lender or any participant  from or for Guarantor,  whether for  safekeeping,
pledge, custody,  transmission,  collection or otherwise, and all of Guarantor's
deposits  (general or  special),  balances,  sums and credits with Lender or any
participant  at any time  existing;  (C) all of  Guarantor's  right,  title  and
interest,  and all of Guarantor's rights,  remedies,  security and liens, in, to
and  in  respect  of the  Accounts  and  other  collateral,  including,  without
limitation,   rights  of  stoppage  in  transit,   replevin,   repossession  and
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, guaranties or other contracts of suretyship with respect to the Accounts,
deposits or other security for the obligation of any account debtor,  credit and
other insurance;  (D) all of Guarantor's right, title and interest in, to and in
respect of all goods  relating  to, or which by sale have  resulted in Accounts,
including,  without  limitation,  all goods  described in  invoices,  documents,
contracts  or  instruments  with  respect  to,  or  otherwise   representing  or
evidencing, any Account or other collateral,  including, without limitation, all
returned,  reclaimed or repossessed goods; (E) all deposit accounts; and (F) all
other general  intangibles  of every kind and  description,  including,  without
limitation,  (1) trade names and  trademarks,  and the  goodwill of the business
symbolized thereby,  (2) patents, (3) copyrights,  (4) licenses,  (5) claims and
other  choses in action,  and (6) Federal,  State,  local and foreign tax refund
claims of all kinds;

     (ii) all raw  materials,  work-in-process,  finished  goods  and all  other
inventory of whatsoever kind or nature,  wherever located,  whether now owned or
hereafter existing or acquired by Guarantor,  including, without limitation, all
wrapping,  packaging,  advertising,  shipping  materials  and  all  other  goods
consumed in Guarantor's business,  all labels and other devices,  names or marks
affixed to or to be affixed  thereto for  purposes of selling or of  identifying
the same or the seller or  manufacturer  thereof and all of  Guarantor's  right,
title and interest therein and thereto;

     (iii) all equipment,  machinery, computers and computer hardware, vehicles,
tool,  dies,  jigs,  furniture,  trade fixtures and fixtures,  all  attachments,
accessions and property now or hereafter  affixed  thereto or used in connection
therewith, substitutions and replacements thereof, wherever located, whether now
owned or hereafter acquired by Guarantor;

     (iv) all right,  title and interest of Guarantor,  in, to and in respect of
any real property,  including leasehold interests,  together with all buildings,
structures,  and other improvements located thereon and all licenses,  easements
and  appurtenances  relating  thereto,  wherever  located,  whether now owned or
hereafter acquired;

     (v) all present and future books, records,  ledger cards, computer programs
and other property and general intangibles  evidencing or relating to any of the
above,  any other  collateral  or any  account  debtor,  together  with the file
cabinets or containers in which the foregoing are stored; and

     (vi) all products and proceeds of the  foregoing,  in any form,  including,
without limitation,  any insurance proceeds and any claims against third persons
for loss or damage to or destruction of any or all of the foregoing.

     (i) "Consolidated  Tangible Net Worth" shall mean, as to any Person, at any
time, in accordance  with GAAP, on a consolidated  basis for such Person and its
Subsidiaries,  the amount equal to the difference between: (i) the aggregate net
book value of all assets of such Person and its subsidiaries (excluding the book
value of patents, trademarks,  licenses, good will and other intangible assets),
calculating the book value of inventory for this purpose on a first-in-first-out
basis, after deducting from such book values all appropriate reserves (including
all  reserves  for  doubtful   receivables,   obsolescence,   depreciation   and
amortization)  and (ii) the total aggregate  Indebtedness of such Person and its
subsidiaries (including tax and other proper accruals).

     (j)  "Consolidated  Working  Capital" shall mean, as to any Person,  at any
time, on a consolidated  basis for such Person and its Subsidiaries,  the amount
equal to the difference between:  (i) the aggregate net book value of all assets
of such Person and its subsidiaries,  on a consolidated  basis,  calculating the
book value of inventory for this purpose on a  first-in-first-out  basis,  which
would,  in accordance  with GAAP,  be classified as current  assets and (ii) all
Indebtedness of such Person and its subsidiaries, on a consolidated basis, which
would in accordance with GAAP, be classified as current liabilities;  and in any
event including  Indebtedness  payable on demand or within one (1) year from the
date of  determination  without  any  option of the  obligor  to extend or renew
beyond such year,  all  accruals for federal or other taxes based on or measured
by income and payable  within such year,  and including  the current  portion of
long term debt required to be paid within one (1) year.

     (k) "Costa Rica Subsidiary" shall mean Corporacion Farah-Costa Rica S.A., a
wholly owned Subsidiary of Farah (Far East) Limited.

     (l) "Event of Default"  shall mean the  occurrence or existence of any act,
event or condition described in Section 4 hereof.

     (m) "Excess  Availability"  shall mean, at any time, an amount equal to the
excess  availability  pursuant to the advance  formulas with respect to eligible
accounts and eligible  inventory of Borrower,  subject to the maximum  credit or
any sublimits,  after deducting the amount of all then  outstanding  Obligations
and  reserves,   less  the  aggregate  amount  of  trade  payables  of  Borrower
outstanding at such time which are more than thirty (30) days past due.

     (n)  "Financing  Agreements"  shall  mean,  collectively,  the  Amended and
Restated Accounts Financing Agreement [Security  Agreement],  dated of even date
herewith,  between  Borrower  and  Lender  and  all  agreements,  documents  and
instruments now or at any time hereafter executed and/or delivered in connection
therewith or related thereto,  including, but not limited to, each Guarantee and
this  Agreement,  as all of the foregoing now exist or may hereafter be amended,
modified,  supplemented,  extended,  renewed,  restated or replaced from time to
time.

     (o)  "Foreign  Subsidiaries"  shall  mean,  collectively,  Farah (Far East)
Limited,  Farah UK, Farah (Australia) Pty.  Limited,  the Costa Rica Subsidiary,
Farah  Limited  (Ireland),  Farah (New  Zealand)  Limited  and their  respective
successors and assigns.

     (p) "GAAP" shall mean generally accepted accounting principles as in effect
on the date hereof consistently applied.

     (q) "Guarantee" shall mean the Guarantee and Waiver,  dated as of August 2,
1990,  as  confirmed  as of the date  hereof,  of  Guarantor  in favor of Lender
absolutely  and  unconditionally  guaranteeing  all  of  the  now  existing  and
hereafter  arising  Obligations,  liabilities  and  indebtedness  of Borrower to
Lender,  including,  without  limitation,  those  arising  under,  related to or
evidenced by the  Financing  Agreements  (as the same may  hereafter be amended,
modified,  supplemented,  extended,  renewed,  restated or replaced from time to
time).

     (r)  "Indebtedness"  shall mean,  as to any  Person,  all items  which,  in
accordance with GAAP, would be included in determining  total  liabilities shown
on the liability side of its balance sheet as at the date such  Indebtedness  is
to be  calculated  (except  any  liability  shown on the  balance  sheet for the
deferred  gain from the sale of  Borrower's  premises at 8889 Gateway  West,  El
Paso,  Texas) and, in any event,  shall include any  liabilities  secured by any
mortgage,  pledge,  lien or security interest existing on such person's owned or
acquired property.

     (s)  "Obligations"  shall  mean  all now  existing  and  hereafter  arising
obligations,  liabilities  and  indebtedness  of Guarantor to Lender  and/or its
affiliates or participants,  of every kind and description,  however  evidenced,
including,  without  limitation,  the  Obligations,  whether direct or indirect,
absolute or contingent,  joint or several, secured or unsecured, due or not due,
primary or secondary, liquidated or unliquidated, whether arising before, during
or after the initial or any renewal term of the Financing  Agreements,  or after
the  commencement  of any case with respect to  Guarantor or Borrower  under the
Bankruptcy Code or any similar statute,  whether arising directly or acquired by
Lender  from any other  person,  conditionally  or as  collateral  security,  by
assignment,  merger with any other person, assumption,  subrogation or otherwise
(including,  without  limitation,  participations  or interests of Lender in the
obligations of Guarantor to others),  whether arising under this Agreement,  the
Guarantee, the other Financing Agreements, by operation of law or otherwise, and
whether  incurred by  Guarantor as  principal,  surety,  endorser,  guarantor or
otherwise and including, without limitation, all principal,  interest, financing
charges,  early  termination and other fees,  commissions,  costs,  expenses and
attorneys' and accountants'  fees and legal expenses incurred in connection with
any of the foregoing.

     (t)  "Person"  or  "person"  shall mean an  individual,  a  partnership,  a
corporation  (including a business  trust),  a joint stock company,  a trust, an
unincorporated  association,  a joint venture or other entity or a government or
any agency, instrumentality or political subdivision thereof.

     (u) "Subordinated  Debentures" shall mean the 8.5% Convertible Subordinated
Debentures due February 1, 2004, issued by Guarantor, pursuant to the Indenture,
dated  February 1, 1994,  between  Texas  Commerce  Bank N.A.,  as trustee,  and
Guarantor.

     (v) "Subsidiary" or "subsidiary",  shall mean any corporation,  association
or organization,  active or inactive,  as to which more than fifty (50%) percent
of the outstanding voting stock or shares or interests shall now or hereafter be
owned or controlled,  directly or indirectly by a person, any Subsidiary of such
person, or any Subsidiary of such Subsidiary.

         2.       GRANT OF SECURITY INTEREST

     (a) As  collateral  security  for the prompt  performance,  observance  and
indefeasible payment in full of all of the Obligations,  Guarantor hereby grants
to Lender a continuing  security interest in and a lien upon and hereby pledges,
assigns and  transfers  to Lender all of the  Collateral  and  Guarantor  hereby
grants to Lender a right of setoff against any  Collateral  consisting of money,
securities and other property of Guarantor now or hereafter in the possession of
or on deposit  with  Lender or any other  person,  whether  held in a general or
special account or deposit or for safekeeping or otherwise. All Collateral shall
be security for the performance,  observance and indefeasible payment in full of
all of the Obligations  notwithstanding  the maintenance of separate accounts by
Lender or the existence of any instruments evidencing any of the Obligations.

     (b) Guarantor hereby  constitutes  Lender and its agent and any designee of
Lender as Guarantor's  attorney-in-fact  and authorizes  Lender or such agent or
designee,  at Guarantor's cost and expense,  to exercise at any time or times in
Lender's discretion all or any of the following powers, which  power-of-attorney
being coupled with an interest shall be irrevocable  until all Obligations  have
been paid in full:  (i) receive,  take,  endorse,  assign,  deliver,  accept and
deposit, in the name of Lender or Guarantor,  any and all cash, checks,  drafts,
remittances and other instruments and documents relating to the Collateral, (ii)
on or after the  occurrence  of an Event of  Default,  receive and open all mail
addressed to Guarantor and notify postal  authorities  to change the address for
delivery  thereof to such  address as Lender may  designate,  (iii)  transmit to
account  debtors  notice of the interest of Lender in the  Collateral or request
from such account  debtors at any time, in the name of Guarantor,  Lender or any
designee of Lender,  information concerning the Collateral and any amounts owing
with respect  thereto,  (iv) on or after the  occurrence of an Event of Default,
notify account debtors to make payment  directly to Lender,  (v) on or after the
occurrence  of an Event of  Default,  take or  bring,  in the name of  Lender or
Guarantor,  all steps, actions,  suits or proceedings deemed by Lender necessary
or desirable to effect  collection  of the  Collateral,  (vi) enter  Guarantor's
premises  for the  purpose  of  inspecting,  verifying,  auditing,  maintaining,
preserving,  protecting and removing the Collateral, and execute in the name and
on behalf of Guarantor one or more Uniform Commercial Code financing  statements
or amendments  with respect to the  Collateral,  naming  Guarantor as debtor and
Lender as secured party and indicating and describing  therein the types and the
items of Collateral.  Guarantor hereby releases Lender, its officers,  employees
and designees,  from any liability arising from any act or acts taken under such
power-of-attorney  under the  Guarantee,  this  Agreement,  the other  Financing
Agreements  or  in  furtherance  hereof  or  thereof,  whether  of  omission  or
commission,  and  whether  based upon any error of judgment or mistake of law or
fact, except for Lender's own gross negligence or willful misconduct.

         3.       REPRESENTATIONS, WARRANTIES AND COVENANTS

         Guarantor  hereby  represents,  warrants  and  covenants  to Lender the
following  (which shall survive the  execution and delivery of this  Agreement),
the  truth and  accuracy  of  which,  or  compliance  with,  being a  continuing
condition  of the  making  of loans by Lender to  Borrower  under the  Financing
Agreements:

     (a)  Guarantor  will not  directly or  indirectly  sell,  lease,  transfer,
abandon or otherwise  dispose of all or any substantial  portion of its property
or assets or  consolidate  or merge with or into any other  entity or permit any
other  entity  to  consolidate  or  merge  with  or  into  it;  provided  that a
wholly-owned  subsidiary of Guarantor (other than Borrower) may, or at least ten
(10) days prior  written  notice to Lender,  merge  with and into  Guarantor  or
another  wholly-owned  Subsidiary  of Guarantor so long as (i)  Guarantor is the
surviving corporation,  (ii) a Borrower is the surviving  corporation,  or (iii)
another  wholly-owned  Subsidiary of Guarantor is the surviving  corporation and
has executed such agreements as reasonably requested by, and in favor of, Lender
and in form and substance  satisfactory  to Lender.  Guarantor will at all times
preserve, renew and keep in full force and effect its existence as a corporation
and the rights and  franchises  with  respect  thereto and continue to engage in
business of the same type as it is engaged as of the date hereof. Guarantor will
give Lender thirty (30) days prior written notice of any proposed  change in its
corporate name which notice shall set forth the new name.

     (b) Guarantor's books and records and chief executive office are maintained
at the address  referred  to below.  Guarantor  shall not change  such  location
without  Lender's  prior  written  consent and prior to making any such  change,
Guarantor  agrees  to  execute  any  additional  financing  statements  or other
documents  or  notices  which  Lender may  require.  The only  locations  of any
Collateral  are  those  addresses  listed on  Exhibit  A hereto  and made a part
hereof.  Exhibit A sets forth the owner and/or  operator of the premises at such
addresses for all  locations  which  Guarantor  does not own and operate and all
mortgages,  if any, with respect to the premises.  Guarantor will not remove any
Collateral from such locations,  without Lender's prior written consent,  except
for sales of Inventory in the ordinary course of Guarantor's business.

     (c) Guarantor  will maintain its books,  records and accounts in accordance
with GAAP.  Guarantor agrees to furnish Lender with interim financial statements
(including  balance sheets,  statements of income and retained earnings and cash
flow  statements),  and to furnish Lender, at any time or from time to time with
such other information regarding its business affairs and financial condition as
Lender may reasonably request,  including,  without limitation,  balance sheets,
statements  of  income,  financial  statements  of cash  flows and  projections,
forecasts,   schedules,   agings  and  reports.   Guarantor  hereby  irrevocably
authorizes  and directs  all  accountants,  auditors  or other third  parties to
deliver to Lender, at Guarantors  expense,  copies of its financial  statements,
papers  related  thereto,  and other  accounting  records of any nature in their
possession and to disclose to Lender any information they may have regarding its
business  affairs and financial  conditions.  Guarantor will furnish Lender with
audited financial  statements on an annual basis certified by independent public
accounts selected by Guarantor and acceptable to Lender. All such statements and
information will fairly present Guarantors  financial  condition as of the dates
and the results of Guarantor's  operations  for the periods,  for which the same
are furnished. Any documents,  schedules or other papers delivered to Lender may
be destroyed or otherwise  disposed of by Lender one (1) year after the same are
delivered to Lender,  unless  Guarantor makes written request  therefor and pays
all expenses  attendant to their return, in which event Lender shall return same
when Lender's actual or anticipated need therefor has ceased.

     (d)  Guarantor  will  duly  pay  and  discharge  all  taxes,   assessments,
contributions  and  governmental  charges  upon  or  against  Guarantor  or  its
properties  or  assets  prior  to the date on which  penalties  attach  thereto.
Guarantor  will be liable for any tax or penalty  imposed  upon any  transaction
under this  Agreement or giving rise to the Accounts or any other  Collateral or
which  Lender may be required  to  withhold or pay for any reason and  Guarantor
agrees to indemnify and hold Lender harmless with respect thereto,  and to repay
to Lender on demand the amount thereof,  and until paid by Guarantor such amount
shall be added to and deemed part of the Obligations.

     (e) Except as otherwise  disclosed to Lender in writing and  investigations
of Guarantor by the Internal Revenue Service or other  governmental  authorities
in  accordance  with their  ordinary  customs and past  practice with respect to
Guarantor,  there is no present investigation by any governmental agency pending
or  threatened  against  Guarantor and there is no action,  suit,  proceeding or
claim  pending or  threatened  against  Guarantor or its assets or goodwill,  or
affecting any transactions contemplated by this Agreement or the other Financing
Agreements,  or any instruments or documents delivered in connection herewith or
therewith before any court,  arbitrator,  or governmental or administrative body
or agency which if adversely  determined  with respect to Guarantor would result
in any material  adverse change in  Guarantor's  business,  properties,  assets,
goodwill, or condition, financial or otherwise.

     (f) The  execution,  delivery and  performance of this Agreement are within
Guarantor's   corporate   powers,   have  been  duly  authorized,   are  not  in
contravention  of law or the  terms of  Guarantor's  Charter,  By-Laws  or other
incorporation papers, or of any material indenture,  agreement or undertaking to
which Guarantor is a party or by which Guarantor is bound.

     (g) Guarantor  will,  at all times,  maintain a  Consolidated  Tangible Net
Worth of not less than $38,800,000.

     (h) Guarantor will, at all times,  maintain a Consolidated  Working Capital
of not less than $22,500,000.

     (i)  Guarantor  will not,  and will not  permit any  Subsidiary  to, in the
aggregate for all of them,  directly or  indirectly,  expend or commit to expend
(through  purchase,  capital leases or otherwise)  fixed or capital  assets,  or
incur  Indebtedness to finance the acquisition of fixed or capital assets,  on a
non-cumulative basis (such that expenditures not made or committed to be made in
any one fiscal  year may not be made or  committed  to be made in any  following
fiscal year) in excess of  $30,000,000 in 1997 and $6,500,000 in any fiscal year
of Guarantor thereafter;  provided, that in the event the $30,000,000 limitation
referenced  above  exceeds the amount of capital  expenditures  actually made in
1997 by all such  Subsidiaries  (including  Farah USA), then, in addition to the
amount of capital  expenditures  which may otherwise be made in 1998,  Guarantor
and its Subsidiaries, may make or commit to make capital expenditures in 1998 to
the extent of such excess (in addition to the aforesaid  amount allowed in 1998)
for all such Subsidiaries and Guarantor.

     (j) Guarantor does not have any  Subsidiaries  as of the date hereof except
as set forth on Exhibit B hereto.  The common  stock of  Guarantor  is  publicly
traded and registered  with the New York Stock  Exchange and is publicly  traded
(but not registered) with the Pacific Stock Exchange. Guarantor will not form or
acquire any  Subsidiaries  without the prior written  consent of Lender.  In the
event Lender so consents, promptly upon such formation or acquisition:

     (i) as to any Subsidiary incorporated or otherwise formed under the laws of
any jurisdiction in the United States of America,  Guarantor will cause any such
Subsidiary to execute and deliver to Lender, in form and substance  satisfactory
to Lender and its  counsel:  (A) an  absolute  and  unconditional  guarantee  of
payment of any and all present and future Obligations of Borrower to Lender, (B)
a general security agreement granting to Lender a first and only lien (except as
otherwise  consented to by Lender)  upon all of such  Subsidiary's  assets,  (C)
related  Uniform  Commercial  Code  Financing  Statements,  and (D)  such  other
agreements,  documents and instruments as Lender may require, including, but not
limited to,  supplements  and  amendments  hereto and other loan  agreements  or
instruments evidencing indebtedness of such new Subsidiary to Lender; and

     (ii) as to any Subsidiary  incorporated or otherwise  formed under the laws
of any jurisdiction outside the United States of America, Guarantor will execute
and  deliver,  or cause to be executed  and  delivered,  to Lender,  in form and
substance  satisfactory  to Lender and its  counsel:  (A) a pledge and  security
agreement  granting  Lender a first and only pledge of and security  interest in
all of the issued and  outstanding  shares of capital stock of such  Subsidiary,
(B) all  original  certificates  and other  evidence  of such  shares of capital
stock,  together with stock powers duly  executed in blank with respect  thereto
and (C) such other agreements,  documents and instruments as Lender may require,
including, but not limited to, supplements and amendments hereto.

     (k)  Guarantor  will not, and will not permit any  Subsidiary  to,  create,
incur, assume or permit to exist,  contingently or otherwise,  any Indebtedness,
except:

     (i) Indebtedness to Lender;

     (ii) Indebtedness  consisting of unsecured current liabilities  incurred in
the ordinary course of its business which are not past due;

     (iii) Indebtedness  incurred in the ordinary course of its business secured
only by liens permitted under Sections 3(l)(ii) and 3(l)(iii) hereof;

     (iv)  Indebtedness  of the  Borrower  Foreign  Subsidiary  permitted  under
Section 3(m)(v) hereof;

     (v)  Indebtedness  other than unsecured  current  liabilities of any of the
Foreign  Subsidiaries  to persons  other than Lender  incurred  in the  ordinary
course of its business and Indebtedness other than unsecured current liabilities
of any indirect Subsidiary of Guarantor  incorporated in a jurisdiction  outside
the United States of America which is otherwise permitted by Lender;

     (vi) unsecured  Indebtedness  owing to a Borrower  evidencing loans made by
such Borrower to another  Borrower,  provided  that such  Borrower  collaterally
assigns to Lender the note and/or other agreements  evidencing such Indebtedness
in form and substance satisfactory to Lender;

     (vii) Indebtedness  evidencing letter of credits issued by third parties on
behalf of Farah UK in an  aggregate  amount  not to exceed  500,000  in  British
Pounds Sterling at any time outstanding;

     (viii)  unsecured  Indebtedness  of  Farah UK under  custom  guarantees  in
respect of the  payment of import  duties in an  aggregate  amount not to exceed
250,000 in British Pounds Sterling;

     (ix)  unsecured or secured  Indebtedness  of Borrower  for  borrowed  money
received by Borrower in the form of cash or other  immediately  available  funds
arising after the date hereof,  which is in all respects subject and subordinate
in right of payment to the  Indebtedness  and other  Obligations  of Borrower to
Lender,  provided  that,  (A) the terms  and  conditions  of such  Indebtedness,
including, without limitation, the terms of the subordination thereof, shall be,
in all respects, in form and substance  satisfactory to Lender, (B) Lender shall
have received  thirty (30) days prior written notice of Borrower's  intention to
incur such Indebtedness and (C) prior to incurring such Indebtedness, the lender
or lenders with respect to such Indebtedness and Borrower shall duly and validly
execute and deliver to Lender a subordination  agreement in favor of Lender with
respect to such Indebtedness, in form and substance satisfactory to Lender;

     (x) Indebtedness  owing to any one person existing on the date hereof in an
amount less than $100,000 and any other Indebtedness existing on the date hereof
equal to or in excess of such  amount  which is  described  on Exhibit C hereto,
provided,  that:  (A) Guarantor  and its  subsidiaries  may only make  regularly
scheduled  payments of principal and interest in respect of such Indebtedness as
set forth on Exhibit C, (B) Guarantor will not, directly or indirectly, (1) make
any  prepayments  or  other  non-mandatory  payments  in  respect  of  any  such
Indebtedness or (2) redeem, retire, defease,  purchase or otherwise acquire such
Indebtedness,  or set aside or  otherwise  deposit  or invest  any sums for such
purpose or (3)  amend,  modify,  alter or change  the terms of the  arrangements
relating  thereto or any agreement or instrument  evidencing such  Indebtedness,
and (C)  Guarantor  and its  subsidiaries  will  furnish to Lender all  notices,
demands or other materials concerning such Indebtedness,  promptly after receipt
thereof or concurrently with the sending thereof, as the case may be;

     (xi) Indebtedness of Guarantor  existing on the date hereof pursuant to the
Subordinated Debentures and which is unsecured,  provided, that: (i) no payments
of such  Indebtedness  will be made, except that unless and until the occurrence
of an Event of  Default  or an act,  event or  condition  which  with  notice or
passage of time or both would constitute an Event of Default, Guarantor may make
regularly  scheduled  payments  of  principal  and  interest  in respect of such
Indebtedness in accordance with the terms of the  Subordinated  Debentures as in
effect on the date hereof; (ii) Guarantor will not, directly or indirectly,  (A)
make  any  prepayments  or  other  non-mandatory  payments  in  respect  of  the
Subordinated  Debentures or any payments pursuant to the purported  acceleration
of the Subordinated  Debentures or (B) amend,  modify, alter or change the terms
of the Subordinated  Debentures or any agreement or instrument  related thereto,
or (C) redeem, retire, defease, purchase or otherwise acquire such Indebtedness,
or act aside or otherwise deposit or invest any sums for such purpose, and (iii)
Guarantor  will  furnish  to Lender  all  notices,  demands  or other  materials
received  concerning  such  Indebtedness,  promptly  after  receipt  thereof  or
concurrently with the sending thereof, as the case may be;

     (xii) unsecured  Indebtedness  of the Costa Rica Subsidiary  owing to Farah
USA in respect of payments by the Costa Rica  Subsidiary  owing to Farah USA for
trade  payables  paid by Farah USA and incurred by the Costa Rica  Subsidiary in
the ordinary course of business;

     (xiii)  unsecured  Indebtedness of Farah USA under importer bond in respect
of payment of import duties in an amount not to exceed $500,000;
 
     (xiv)  unsecured  Indebtedness of Farah USA in the Costa Rica Subsidiary in
respect of payments of trade  payable  incurred by the Costa Rica  Subsidiary in
the ordinary course of business;

     (xv) unsecured  Indebtedness  owing to a Borrower  evidencing loans made by
such Borrower to another  Borrower,  provided  that such  Borrower  collaterally
assigns the notes and/or agreements  evidencing such loans to Lender in form and
substance satisfactory to Lender;

     (xvi) Indebtedness  arising,  directly or indirectly,  from the issuance of
industrial revenue bonds, in form and substance  satisfactory to Lender, for the
sole  purpose of  providing  Farah USA with funds to purchase  the  distribution
center to be  located  in New  Mexico  for Farah  USA and  equipment  to be used
therein;

     (xvii)  Indebtedness  of Farah USA owed to a third party lender  secured by
liens permitted under Sections 3(l)(vii) and 3(l)(xi) hereof;

     (xviii)  Indebtedness  to  third  party  lenders  of  Farah  UK if Farah UK
terminates its  Obligations  under the Amended and Restated  Accounts  Financing
Agreement,  the  Farah UK  Supplement,  the Farah UK  Agreements,  and the other
Financing Agreements in accordance with the terms and conditions of Section 8 of
the Farah UK Supplement;

     (xix) unsecured  Indebtedness  evidencing  loans by Farah  (Australia) Pty.
Limited to Farah  (New  Zealand)  Limited  not to exceed  $1,010,000  (Australia
Dollars);

     (xx) unsecured Indebtedness  evidencing advances made by Farah (Australia )
Pty.  Limited to Farah  (New  Zealand)  Limited  in  respect  of trade  payables
incurred in the ordinary  course of business  not to exceed in the  aggregate at
any one time $500,000 (Australia Dollars); and

     (xxi) Indebtedness to third party lenders of Farah (Australia) Pty. Limited
and/or Farah (New Zealand) Limited incurred after the date hereof.

     (l) Guarantor  will not, and will not permit any  subsidiary  to, create or
suffer to exist any mortgage,  pledge,  security  interest,  lien,  encumbrance,
defect  in  title  or  restriction  upon  the  use of  their  real  or  personal
properties, whether now owned or hereafter acquired, except:

     (i) the liens or security interests in favor of Lender;

     (ii) tax,  mechanics and other like statutory liens arising in the ordinary
course of Guarantor's or its  subsidiary's  respective  businesses to the extent
(A) such liens secure Indebtedness which is not overdue or (B) until foreclosure
or similar proceedings shall have been commenced, such liens secure Indebtedness
relating to claims or  liabilities  which are being  contested  in good faith by
appropriate  proceedings available to Guarantor or its subsidiaries prior to the
commencement  of  foreclosure  or other similar  proceedings  and are adequately
escrowed for or reserved against in Lender's judgment;

     (iii)  purchase  money  mortgages or other purchase money liens or security
interests upon any specific fixed assets now existing or hereafter acquired,  or
mortgages,  liens or security interests existing on any such fixed assets at the
time of  acquisition  thereof  (including,  without  limitation,  capitalized or
finance   leases)  or  in  connection  with  the  refinancing  of  the  existing
capitalized leases with respect to specific assets,  provided, that, (A) no such
purchase money or other mortgage,  lien or security  interest (or capitalized or
finance lease,  as the case may be) with respect to specific future fixed assets
or as  refinanced  shall extend to or cover any other  property,  other than the
specific  fixed assets so acquired,  or acquired or  refinanced  subject to such
mortgage,  lien or security  interest (or lease) and the proceeds  thereof,  (B)
such  mortgage,  lien or security  interest  secures the  obligation  to pay the
purchase price of such specific fixed assets only (or the obligations  under the
capitalized or finance  lease),  and (C) the principal  amount  secured  thereby
shall not exceed one hundred  (100%)  percent of the cost of the fixed assets so
acquired; and

     (iv) the liens and security  interests granted by Borrower and Guarantor to
the Banks to secure the Indebtedness  permitted under Section 3(k)(viii),  which
liens and security  interests are, in all respects,  subordinate  and subject to
the liens and security interests in favor of Congress;

     (v) the existing  liens,  encumbrances or security  interests  described on
Exhibit D hereto or on the title insurance policy issued in favor of Lender with
respect  to  the  real  property  of  Borrower,   provided,  that,  such  liens,
encumbrances or security interests with respect to the real property: (i) do not
interfere with the use of the real property or the ordinary conduct of Borrower,
business as currently conducted,  or proposed to be conducted,  thereon and (ii)
do not impair the value of the affected property;

     (vi)  liens and  security  interests  securing  Indebtedness  described  in
Section  3(k)(ix)  hereof;  provided that such liens and security  interests are
subordinated pursuant to an subordination agreement acceptable to Lender;

     (vii) liens and security interests upon the computer equipment of Farah USA
securing  Indebtedness of Farah USA owed to a third party lender,  provided that
the  principal  balance  advanced  to Farah USA by such  third  party  lender in
respect of such computer equipment shall not exceed $750,000; and in furtherance
of the liens permitted  under this Section  3(l)(vii)  Lender shall,  upon Farah
USA's  request,  execute  and  deliver  to Farah  USA such  documents  and UCC-3
Financing  Statements  evidencing the release of Lender's  security  interest in
such computer equipment as Farah USA may reasonably request;

     (viii) liens, security interests and charges against the assets of Farah UK
securing the Indebtedness described in Section 3(k)(xviii) above;

     (ix) liens,  security  interests  and  charges  against the assets of Farah
(Australia) Pty.  Limited and Farah (New Zealand) Limited securing  Indebtedness
described  in Section  3(k)(xxi)  hereof; 

     (x) liens  against  the  distribution  center,  equipment  therein and real
property thereunder  securing the Indebtedness  referred to in Section 3(k)(xvi)
hereof; and

     (xi) liens and security interests upon manufacturing equipment of Farah USA
to be located in Mexico securing Indebtedness of Farah USA owed to a third party
lender in connection with "Torreon Project," provided that the principal balance
advanced  to Farah USA by such third party  lender in respect of such  equipment
shall not exceed  $1,000,000.  In furtherance of the liens  permitted under this
Section 3(l)(xi) Lender shall, upon Farah USA's request,  execute and deliver to
Farah USA such documents and UCC-3 Financing  Statements  evidencing the release
of Lender's  security  interest in such  equipment  as Farah USA may  reasonably
request; and

     (m) Guarantor will not, and will not permit any Subsidiary to,  directly or
indirectly, make any loans or advance money or property to any Person, or invest
in (by capital  contribution,  dividend or  otherwise) or purchase or repurchase
the stock or Indebtedness or all or a substantial part of the assets or property
of any Person, or guarantee,  assume,  endorse,  or otherwise become responsible
for (directly or  indirectly)  the  Indebtedness,  performance,  obligations  or
dividends of any Person or agree to do any of the foregoing, except:

     (i) guarantees in favor of Lender;

     (ii) the guarantee by [Farah (Far East) Limited in favor of the Bank of New
Zealand of the  obligations  of Farah (Fiji) Limited in an amount up to $950,000
(Fiji Dollars) as in effect on the date hereof;

     (iii) the  endorsement  of  instruments  for  collection  or deposit in the
ordinary course of business;

     (iv)  investments  by Guarantor  and its  subsidiaries  in the stock of any
Subsidiary existing as of the date hereof or hereafter approved by Lender;

     (v) unless and until the  occurrence  of an Event of  Default,  advances by
Borrower in the ordinary course of business from time to time for the account of
the Borrower  Foreign  Subsidiary for their working  capital or otherwise in the
ordinary course of their respective businesses;

     (vi) loans by a Borrower to any other Borrower, provided that such Borrower
collaterally assigns the note and agreements  evidencing such loans to Lender in
form and substance satisfactory to Lender;

     (vii)  guarantee or  assumption by Farah USA of the  obligations  of Global
Sourcing  Services,  L.L.C.  to vendors of new machinery  and  equipment  and/or
investment by Farah U.S.A.  in Global Sourcing  Services,  L.L.C. by transfer of
new machinery and equipment of Farah USA to Global  Sourcing  Services,  L.L.C.,
provided  that  the  aggregate  amount  of such  guaranty  obligations  and such
investments shall not exceed $3,500,000. In furtherance of the foregoing, in the
event Farah USA transfers any equipment described above to the capital of Global
Sourcing Services,  L.L.C., Lender shall, upon Farah USA's request,  execute and
deliver to Farah USA such documents and UCC-3  Financing  Statements  evidencing
the release of Lender's  security  interest in such  equipment  as Farah USA may
reasonably request;  provided,  however,  that, prior to such release, Farah USA
shall have executed and  delivered to Lender a pledge and security  agreement of
Farah  USA's  member  interest  in such  limited  liability  company in form and
substance satisfactory to Lender;

     (viii) after written notice thereof to Lender, investments in the following
instruments,  which  shall be pledged  and  delivered  to Lender  upon  Lender's
request, (A) marketable obligations issued or guaranteed by the United States of
America or an instrumentality or agency thereof,  maturing not more than one (1)
year after the date of acquisition thereof, (B) certificates of deposit or other
obligations  maturing  not more than one (1) year after the date of  acquisition
thereof  issued  by any bank or trust  company  organized  under the laws of and
located in the United States of America or any State thereof and having capital,
surplus  and  undivided  profits of at least  $100,000,000,  and (C) open market
commercial paper with a maturity not in excess of two hundred seventy (270) days
from the date of  acquisition  thereof  which have the highest  credit rating by
either Standard & Poor's Corporation or Moody's Investors Service, Inc.

     (ix)  investment  by Farah USA in 50% of the  capital  of  Global  Sourcing
Services, L.L.C.;

     (x) the guarantees by Guarantor of the  obligations  of Value Slacks,  Inc.
and Value Clothing pursuant to certain real property leases, provided, that, (A)
in no event  shall  the  aggregate  liability  of  Guarantor  thereunder  exceed
$5,000,000;  (B) Guarantor will not, and will not permit Value Slacks,  Inc. and
Value Clothing to, amend,  modify,  alter or change the terms of such guarantees
or leases in any material respect so as to increase the liabilities of Guarantor
or Value Slacks,  Inc. or Value  Clothing  thereunder;  and (C)  Guarantor  will
furnish to Lender all material  notices,  demands or other materials  concerning
such guarantees and leases,  promptly after receipt thereof or concurrently with
the sending thereof, as the case may be;

     (xi) the  guarantees  by Value  Slacks,  Inc. of the  obligations  of Value
Clothing  pursuant to certain real  property  leases,  provided,  that (A) in no
event shall the aggregate  liability of Guarantor  thereunder exceed $4,000,000;
(B) Guarantor will not permit Value Clothing to, amend,  modify, alter or change
the terms of such guarantees or leases in any material respect so as to increase
the  liabilities  of Value Slacks,  Inc. or Value Clothing  thereunder,  and (C)
Guarantor  will cause Value  Slacks and Value  Clothing to furnish to Lender all
material  notices,  demands or other  materials  concerning  such guarantees and
leases, promptly after receipt thereof or concurrently with the sending thereof,
as the case may be;

     (xii)  investment by Farah Offshore  Sourcing Company in 50% of the capital
of Global Sourcing Services, Inc., a Cayman Islands company;

     (xiii)  investment by Farah Offshore Sourcing Company in 50% of the capital
of JBRM Manufacturing Services, Inc., a Cayman Islands company;

     (xiv)  advances  by Farah USA to the Costa  Rica  Subsidiary  in respect of
payments of trade payables incurred by the Costa Rica Subsidiary in the ordinary
course of business;

     (xv) Indebtedness of the Costa Rica Subsidiary owed to Farah USA in respect
of  payments  by the Costa  Rica  Subsidiary  to Farah  USA for  trade  payables
incurred by the Costa Rica Subsidiary in the ordinary course of business;

     (xvi)  guarantee  by Farah  International,  Inc.  and/or  Guarantor  of the
obligations  described  in  Section  3(k)(xxii)  hereof in favor of third  party
lenders of Farah (Australia) Pty. Limited and Farah (New Zealand) Limited;

     (xvii) the guarantee by Guarantor of the  obligations of Farah  (Australia)
Pty. Limited to Australia and New Zealand Banking Group Limited;

     (xviii)   guarantee   by   Guarantor   and  Farah  USA   pursuant   to  the
indemnification obligations under that certain Asset Purchase Agreement dated as
of May 20, 1996,  among Galey & Lord,  Inc.,  Galey and Lord  Industries,  Inc.,
Guarantor, Farah USA and Dimmit Industries, S.A. de C.V.

     (xix)  guarantee by Guarantor of real property  lease  obligations of Farah
USA under the terms of that certain Lease Agreement dated as of October 4, 1996,
between Farah USA and Orso Partners, Ltd., as amended from time to time;

     (xx) guarantee by Guarantor of real property lease obligations of Farah USA
under the terms of that  certain  Standard  Industrial/Commercial  Single-Tenant
Lease-Net  dated  November 30, 1996,  between Farah USA and Santa Teresa Limited
Partnership, as amended from time to time;

     (xxi)  advances  made by Farah  (Australia)  Pty.  Limited  to  Farah  (New
Zealand) Limited in respect of trade payables incurred in the ordinary course of
business  not to exceed in the  aggregate  at any one time  $500,000  (Australia
Dollars);

     (xxii)  loans by Farah  (Australia)  Pty.  Limited to Farah  (New  Zealand)
Limited not to exceed $1,010,000 (Australia Dollars);

     (xxiii) the  guarantees by Guarantor of the purchase  money  obligations of
its Subsidiaries to third party lenders which are permitted pursuant to Sections
3(l)(iii) hereof; and

     (xxiv)  investments of Farah (Far East) Limited in 50% of the capital stock
of each of Farah (Fiji) Limited and South Pacific Investments Limited;

     (n) Guarantor will not, and will not permit any subsidiary to,  directly or
indirectly:

     (i) purchase,  acquire or lease any property or receive any services  from,
or sell,  transfer  or lease any  property  or  services  to, any  Affiliate  of
Guarantor,  except on prices  and terms no less  favorable  than would have been
obtained in an arm's length transaction with a non-affiliated person; or

     (ii)  make any  payment  of  management  fees or other or of the  principal
amount of or interest on any  Indebtedness  owing to any  shareholder,  officer,
director or other  Affiliate  of  Guarantor,  except:  (A) the  Subsidiaries  of
Guarantor  (other than  Borrower) may pay any  management or other fees, and (B)
the  Subsidiaries of Guarantor  (other than Borrower) may repay any Indebtedness
owing to  Guarantor  or any of its other  Subsidiaries  and (C) Borrower may pay
consulting fees,  salaries,  director fees and expenses incurred in the ordinary
course of business to each member of the Board of Directors.

     (o)  Guarantor  will not,  and will not permit  Borrower  to,  directly  or
indirectly,  during any fiscal year,  commencing  with the current  fiscal year,
declare  or pay any  dividends  on account of any shares of any class of capital
stock of Guarantor or Borrower  now or  hereafter  outstanding,  or set aside or
otherwise  deposit  or invest  any sums for such  purpose,  or  redeem,  retire,
defease,  purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise  deposit or invest any sums for such purpose) for any
consideration other than stock or apply or set apart any sums, or make any other
distribution  (by  reduction  of  capital or  otherwise)  in respect of any such
shares or agree to do any of the foregoing.

     (p) All notes  receivable  now or hereafter  executed in favor of Guarantor
evidence a valid and legally  enforceable  indebtedness of the maker thereof and
the face amount of which is unconditionally owing to Guarantor,  without offset,
defense  or  counterclaim  of  any  kind,  nature  or  description   whatsoever.
Guarantor,  as payee with  respect  to any  promissory  note,  now  existing  or
hereafter  arising,  or with respect to which Guarantor is otherwise entitled to
payment,  in either case as to which the  original  principal  amount  equals or
exceeds  $10,000,  will  endorse,  or  cause  to be  endorsed,  all  such  notes
receivable to the order of Lender and shall immediately upon receipt of any such
notes  deliver  the  originals  thereof  so  endorsed  to Lender  as  additional
Collateral.

     (q) Guarantor will permit  representatives of Lender at any time to inspect
its inventory,  equipment and other tangible  Collateral and to have free access
to and right of inspection of any papers,  instruments and records pertaining to
any of the Collateral and make abstracts or photocopies from  Guarantor's  books
and records,  at the expense of Guarantor,  pertaining  to inventory,  accounts,
contract rights, chattel paper, instruments, documents and other Collateral. The
foregoing rights shall be in addition to and shall not limit Lender's rights and
remedies with respect to the Collateral upon or at any time after the occurrence
of an Event of Default (as provided hereunder).

     (r)  Guarantor  will at all  times  maintain,  with  financially  sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed  except  to the  extent  Guarantor  is self  insured  for  losses  up to
$250,000. All such insurance policies shall be in such form, substance,  amounts
and coverage as may be  satisfactory to Lender and shall provide for thirty (30)
days' minimum prior cancellation notice in writing to Lender.  Lender may act as
attorney for Guarantor in obtaining, adjusting, settling, amending and canceling
such insurance.  Guarantor will promptly (i) obtain endorsements to all existing
and future insurance policies with respect to the Collateral specifying that the
proceeds of such  insurance  shall be payable to Lender and  Guarantor  as their
interests may appear and further specifying that Lender shall be paid regardless
of any act, omission or breach of warranty by Guarantor,  (ii) deliver to Lender
an original  executed copy of, or executed  certificate of the insurance carrier
with respect to, such endorsement and, at the Lender's request,  the original or
a certified duplicate copy of the underlying insurance policy, and (iii) deliver
to Lender such other evidence which is satisfactory to Lender of compliance with
the provisions  hereof.  Guarantor will promptly notify Lender in writing of the
details of any material loss, damage, investigation, action, suit, proceeding or
claim relating to the  Collateral or which would result in any material  adverse
change in  Guarantor's  business,  properties,  assets,  goodwill or  condition,
financial  or  otherwise.  At Lender's  option,  Lender may apply any  insurance
monies  received  at any time to the cost of repairs to or  replacement  for the
Collateral  and/or to payment of any of the Obligations,  whether or not due, in
any order and in such manner as Lender, in its discretion, may determine.

     (s) Upon  Lender's  request,  on or  after  the  occurrence  of an Event of
Default  at any  time  and  from  time to  time,  but in no  event  prior to the
occurrence of an Event of Default more than once in any twelve (12)  consecutive
month period,  Guarantor will, at its sole cost and expense, execute and deliver
to Lender  written  reports or  appraisals  as to the  Collateral  consisting of
inventory and equipment listing all items and categories thereof, describing the
condition  of same and  setting  forth the value  thereof  (the lower of cost or
market value of the inventory and the lower of net cost less depreciation,  fair
market  value and/or  liquidation  value of the  equipment),  in such form as is
satisfactory to Lender.

     (t) Guarantor will, at its own expense,  keep the Collateral  consisting of
equipment in good order, repair, running and marketable condition, ordinary wear
and tear excepted and except for Collateral consisting of equipment which is not
used or useful in the conduct of Guarantors business as of the date hereof.

     (u) Guarantor will (i) use, store and maintain the Collateral consisting of
inventory and equipment with all reasonable care and caution,  and (ii) use such
Collateral  for lawful  purposes only and in conformity  with  applicable  laws,
ordinances and regulations.

     (v) At its option,  Lender may discharge taxes, liens or security interests
or other encumbrances at any time levied or placed on the Collateral and may pay
for the maintenance and  preservation of the Collateral and Guarantor  agrees to
reimburse Lender on demand, together with interest therein at the rate specified
in the Financing Agreements,  for any payment made or expense incurred by Lender
in  connection  with  the  foregoing  and any  such  payment  or  expense  shall
constitute a part of the Obligations secured hereby.

     (w) All Collateral  consisting of inventory shall be produced in accordance
with the  requirements  of the  Federal  Fair Labor  Standards  Act of 1938,  as
amended and all rules,  regulations and orders related  thereto.  The Collateral
consisting  of  inventory  and  equipment  is and  will be  used in  Guarantor's
business and not for personal,  family, household or farming use. The Collateral
consisting of equipment is now and will remain  personal  property and Guarantor
will not  permit  any of the  equipment  to be or become a part of or affixed to
real property  without (i) prior written  notice to Lender and Lender's  written
consent and (ii) first making all arrangements,  and delivering or causing to be
delivered to Lender, such agreements and other documentation requested by Lender
for the protection and preservation of Lender's security interests and liens, in
form and  satisfactory to Lender,  including,  without  limitation,  waivers and
subordination  agreements  by any  landlords  or  mortgagees  of  statutory  and
non-statutory   liens  and   rights  of   distraint.   Guarantor   assumes   all
responsibility  and liability arising from or relating to the use, sale or other
disposition of its inventory and equipment as between Guarantor and Lender.

     (x) Guarantor will, at its expense,  duly execute and deliver,  or cause to
be duly  executed  and  delivered,  such  further  agreements,  instruments  and
documents,  including,  without  limitation,   additional  security  agreements,
mortgages, deeds of trust, deeds to secure debt, collateral assignments, Uniform
Commercial  Code financing  statements or amendments or  continuations  thereof,
landlords or mortgagee's waivers of liens and consents to the exercise by Lender
of all Lender's rights and remedies hereunder,  under any of the other Financing
Agreements or applicable law with respect to the Collateral,  and do or cause to
be done such further  acts as may be necessary or proper in Lender's  opinion to
evidence,  perfect,  maintain  and enforce  Lender's  security  interest and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes  of this  Agreement  or any of the other  Financing  Agreements.  Where
permitted by law,  Guarantor hereby authorizes Lender to execute and file one or
more Uniform Commercial Code financing statements signed only by Lender.

     (y) Guarantor will promptly pay Lender any and all sums, costs and expenses
which Lender may pay or incur in connection with the preparation and negotiation
of this Agreement, the Guarantee, any of the other Financing Agreements, and any
related agreements or instruments, or in defending,  protecting or enforcing the
security  interest granted herein or in enforcing  payment of the Obligations or
otherwise  in  connection  with  the  provisions   hereof,   including   without
limitation,  all search,  filing and recording fees,  taxes, and attorneys' fees
and all fees and  expenses  for the  service  and  filing of  papers,  marshals,
sheriffs, custodians, auctioneers and others, and all court costs and collection
charges,  all of which shall be part of the Obligations secured hereby and shall
be payable on demand.

         4.       EVENTS OF DEFAULT

         All  Obligations  shall be, at  Lender's  option,  immediately  due and
payable  without notice or demand  (notwithstanding  any deferred or installment
payments  allowed,  if any,  by any  instrument  evidencing  or  relating to the
Obligations)  and any provision of the  Financing  Agreements as to future loans
and  advances  by  Lender to  Borrower  shall,  at  Lender's  option,  terminate
forthwith,  upon the occurrence of any one or more of the following  ("Events of
Default"):

     (a) Guarantor  shall be in default in the payment of any of the Obligations
when due, which default shall continue for three (3) days; or

     (b)  Guarantor  shall fail to observe or perform any  covenant or agreement
contained  herein  or in any of the other  Financing  Agreements  other  than as
described in subsection  (a) above and such failure shall  continue for five (5)
business days, provided, that, such five (5) business day period shall not apply
in the case of: (i) any failure to observe any such covenant or agreement  which
is not capable of being cured at all or within such five (5) business day period
or which has been the subject of a prior  failure  within a six (6) month period
or (ii) an  intentional  breach  by  Guarantor  or its  management  of any  such
covenant or agreement; or

     (c) any other guarantor, endorser or person liable on the Obligations shall
terminate or breach any of the terms, covenants, conditions or provisions of any
guarantee,  endorsement or other  agreement of such person with, or in favor of,
Lender; or

     (d) any  representation,  warranty or statement of fact when made to Lender
at any time by or on behalf of Guarantor is false or  misleading in any material
respect; or

     (e)  Guarantor  or any other  guarantor,  endorser or person  liable on the
Obligations  shall become  insolvent,  generally unable to pay its debts as they
mature,  call a meeting of creditors or have a creditors'  committee  appointed,
make a general  assignment for the benefit of creditors,  suspend or discontinue
doing business for any reason,  or shall  commence or have commenced  against it
any action or proceeding for the appointment of any trustee, receiver, custodian
or liquidator of it or all or any part of its properties or assets; or

     (f) a  judgment  is  rendered  against  Guarantor  or any other  guarantor,
endorser or person  liable on the  Obligations  in excess of $250,000 in any one
case or in  excess  of  $500,000  in the  aggregate  and the same  shall  remain
undischarged  for a period in excess of thirty (30) days or  execution  shall at
any time not be effectively stayed; or

     (g)  Guarantor  or any other  guarantor,  endorser or person  liable on the
Obligations  shall  commence  any  action or  proceeding  for  relief  under the
Bankruptcy Code or any reorganization,  arrangement, composition,  readjustment,
liquidation,  dissolution  or similar  relief under the  Bankruptcy  Code or any
other present or future  statute,  law or regulation or shall take any corporate
action to authorize any of such actions or proceedings; or

     (h)  Guarantor  or any other  guarantor,  endorser or person  liable on the
Obligations  shall have commenced against it any action or proceeding for relief
under  the  Bankruptcy  Code or any  reorganization,  arrangement,  composition,
readjustment,  liquidation,  dissolution  or similar relief under the Bankruptcy
Code or any other  present or future  statute,  law or  regulation  which is not
dismissed within thirty (30) days of its commencement,  or Guarantor,  any other
guarantor,  endorser or person shall file any answer admitting or not contesting
the  allegations of a petition filed against it in any such proceeding or by any
act or omission  indicates its consent to,  acquiescence  in or approval of, any
such action or proceeding or if the relief requested is granted sooner; or

     (i)  there  shall  be a material  adverse  change in the  business,  assets
or condition (financial or otherwise) of Guarantor from the date hereof; or

     (j) there is any change in the majority  control or ownership of Guarantor;
or

     (k) at any time, Lender shall, in its reasonable  discretion,  consider the
Obligations  insecure or all or any part of the Collateral  unsafe,  insecure or
insufficient and Guarantor shall not on Lender's demand furnish other Collateral
or make payment on account, reasonably satisfactory to Lender; or

     (l)  Guarantor  or any other  guarantor,  endorser or person  liable on the
Obligations  shall  default in the payment of any amounts at any time due on any
indebtedness  owed by it or in the  performance  of any of the  other  terms  or
covenants of any  evidence of such  indebtedness  or of any  material  mortgage,
security  agreement,  indenture,  pledge or other agreement  relating thereto or
securing  such  indebtedness  or with respect to any material  contract,  lease,
license or other  agreement  with any person  other than Lender,  which  default
continues  for more  than the  applicable  cure  period,  if any,  with  respect
thereto; or

     (m) the occurrence of an event of default under any of the other  Financing
Agreements.

         5.       RIGHTS AND REMEDIES

     (a) Upon the occurrence of any Event of Default and at any time thereafter,
in addition to all other rights and remedies of Lender,  whether  provided under
the  Uniform  Commercial  Code or other  applicable  law,  this  Agreement,  the
Guarantee,  the other Financing  Agreements or otherwise,  Lender shall have the
following rights and remedies which may be exercised, in its discretion,  at any
time or times, with or without judicial process,  with or without the assistance
of others and without notice to or consent by Guarantor except as such notice or
consent or judicial  process is expressly  provided for hereunder or required by
law:

     (i) accelerate  payment of all  Obligations  and demand  immediate  payment
thereof to Lender;

     (ii) enter upon any  premises on or in which any of the  Collateral  may be
located and, without resistance or interference by Guarantor, take possession of
the Collateral;

     (iii) complete  processing,  manufacturing and repair of all or any portion
of the Collateral;

     (iv) require Guarantor,  at its expense,  to assemble and make available to
Lender any part or all of the  Collateral  at any place and time  designated  by
Lender; and

     (v) remove any or all of the  Collateral  from any  premises on or in which
the same may be located,  for the purpose of effecting the sale,  foreclosure or
other disposition thereof or for any other lawful purpose;

     (vi)  appropriate,  set off and apply to the  payment  of any or all of the
Obligations,  any or all Collateral,  in such manner as Lender shall in Lender's
sole  discretion  determine,  and  enforce  payment of any  Collateral,  settle,
compromise or release in whole or in part any amounts  owing on the  Collateral,
prosecute any action, suit or proceeding with respect to the Collateral,  extend
the time of payment of any and all  Collateral,  make allowances and adjustments
with respect thereto, and issue credits in Lender's or Guarantor's name; and

     (vii) sell,  assign,  foreclose or otherwise  dispose of and deliver any or
all of the Collateral,  at public or private sale, at broker's board,  for cash,
upon credit or otherwise,  at Lender's sole option and discretion,  on or in any
of Guarantor's  premises or premises of any other person,  and Lender may bid or
become purchaser at any such sale, if public,  free from any right of redemption
which is hereby expressly waived.

     (b) In the event Lender seeks to take  possession  of all or any portion of
the  Collateral  by judicial  process,  Guarantor  irrevocably  waives:  (i) the
posting  of any bond,  surety or  security  with  respect  thereto  which  might
otherwise be required,  (ii) any demand for possession prior to the commencement
of any suit or action to recover the Collateral,  and (iii) any requirement that
Lender retain  possession and not dispose of any Collateral until after trial or
final judgment.

     (c)  Guarantor  agrees that the giving of five (5) days notice by Lender to
Guarantor's  address  set  forth  below,  designating  the place and time of any
public  sale or of the time  after  which  any  private  sale or other  intended
disposition  of the  Collateral is to be made,  shall be deemed to be reasonable
notice thereof and Guarantor waives any other notice with respect thereto.

     (d) The  net  cash  proceeds  resulting  from  the  exercise  of any of the
foregoing  rights or  remedies  shall be applied by Lender to the payment of the
Obligations in such order as Lender may elect, and Guarantor shall remain liable
to Lender for any deficiency.  Without limiting the generality of the foregoing,
if Lender  enters  into any  credit  transaction,  directly  or  indirectly,  in
connection with the disposition of any Collateral, Lender shall have the option,
at any time, in its sole discretion,  to reduce the Obligations by the principal
amount of such credit transaction or to defer the reduction thereof until actual
receipt by Lender of cash or other  immediately  available  funds in  connection
therewith.

     (e) The enumeration of the foregoing rights and remedies is not intended to
be exclusive,  and such rights and remedies are in addition to and not by way of
limitation  of any other  rights or  remedies  Lender may have under the Uniform
Commercial  Code or other  applicable  law.  Lender  shall  have the  right,  in
Lender's sole discretion,  to determine which rights and remedies,  and in which
order any of the same, are to be exercised, and to determine which Collateral is
to be  proceeded  against and in which  order,  and the exercise of any right or
remedy shall not  preclude  the  exercise of any others.  Lender may at any time
pursue,  relinquish,  subordinate,  modify or take any other action with respect
thereto,  without in any way  modifying  or  affecting  any of the  Obligations.
Lender may, at any time or times,  proceed  directly  against  Guarantor  or any
other person liable on the Obligations to enforce payment of the Obligations and
shall not be  required  to take any action of any kind to  preserve,  collect or
protect Lender's or Guarantor's rights in the Collateral.

     (f) No act,  failure or delay by Lender shall constitute a waiver of any of
Lender's  rights  and  remedies.  No single or  partial  waiver by Lender of any
provision  of this  Agreement  or any  supplement  hereto,  or breach or default
thereunder,  or of any right or remedy which Lender may have shall  operate as a
waiver of any other provision,  breach,  default, right or remedy or of the same
provision, breach, default, right or remedy on a future occasion.

     (g) Guarantor waives presentment, notice of dishonor, protest and notice of
protest of all  instruments  included in or evidencing any of the Obligations or
the  Collateral  and  any and all  notices  or  demands  whatsoever  (except  as
expressly provided herein).

     (h) All  rights,  remedies,  powers  and  benefits  granted  to  Lender  by
Guarantor or any other person liable on or in respect of the  Obligations  under
this  Agreement,  the Guarantee,  the other Financing  Agreements,  or any other
agreement, or granted by applicable law, whether expressly granted or implied in
law, are cumulative, not exclusive and enforceable alternatively,  successively,
or  concurrently  on any  one or  more  occasions  and  shall  include,  without
limitation,  the  right  to  apply to a court of  equity  for an  injunction  to
restrain a breach or  threatened  breach by Guarantor or any other person liable
on or in respect of the Obligations of this Agreement,  the Guarantee, the other
Financing Agreements or such other agreements.

         6.       MISCELLANEOUS

     (a) Notwithstanding that Lender, whether on its own behalf and/or on behalf
of others, may continue to hold Collateral, and regardless of the value thereof,
Guarantor and each other person liable on or in respect of the Obligations shall
be and remain  jointly and severally  liable for the payment in full,  including
principal and interest, of any balance of the Obligations and expenses hereunder
at any time unpaid.

     (b) Guarantor and Lender waive all rights to trial by jury in any action or
proceeding  instituted by either of them against the other arising on, out of or
by reason of this Agreement, the Guarantee, the other Financing Agreements,  the
Obligations, the Collateral, any alleged tortious conduct by either party hereto
or in any way arising out of or related to the  relationship  between  Guarantor
and Lender or Borrower  and  Lender.  In no event will Lender be liable for lost
profits or other special or consequential damages.

     (c)  Guarantor waives  all  rights  to  interpose  any  claims,   defenses,
deductions,  setoffs or counterclaims of any kind,  nature or description in any
action or proceeding  instituted by Lender with respect to this  Agreement,  the
Guarantee,  the other Financing Agreements,  the Obligations,  the Collateral or
any matter arising  therefrom or relating hereto or thereto,  except  compulsory
counterclaims.

     (d) Guarantor hereby expressly submits and irrevocably  consents in advance
to the  non-exclusive  jurisdiction of the District Courts of the State of Texas
and the United  States  District  court for the  Northern  District  of Texas in
connection  with any action or  proceeding  arising  out of or  relating to this
Agreement, the Guarantee, the other Financing Agreements,  the Obligations,  the
Collateral or any document or instrument  delivered  pursuant hereto or thereto.
Guarantor  hereby waives personal  service of the summons and complaint or other
process or notice of motion or other  application or papers issued therein,  and
agrees that the service of such summons and complaint or other process or papers
may be  served:  (i)  inside  or  outside  the State of Texas by  registered  or
certified mail,  return receipt  requested,  addressed to Guarantor at its chief
executive office set forth below and service or notice so served shall be deemed
complete five (5) business days after the same shall have been posted or (ii) in
such other manner as may be permissible under the rules of said Courts.

     (e) All notices, requests and demands hereunder shall be in writing and (i)
made to Lender at 1201 Main Street,  Dallas, Texas 75202 and to Guarantor at its
chief  executive  office set forth below, or to such other address as each party
may designate by written notice to the other in accordance  with this provision,
and (ii)  deemed to have been  given or made:  if by hand,  telex,  telecopy  or
telegram, immediately upon sending; if by Federal Express, Express Mail or other
overnight  delivery  service,  one (1) day after  dispatch;  and if by certified
mail, return receipt requested, five (5) days after mailing.

     (f) The provisions of this  Agreement are  severable,  and if any clause or
provision  hereof shall be held invalid or  unenforceable in whole or in part in
any jurisdiction,  then such invalidity or unenforceability shall attach only to
such clause or provision in any such jurisdiction or part thereof, and shall not
in any manner affect such clause or provision in any other  jurisdiction  or any
other clause or provision in this Agreement or the other Financing Agreements in
any jurisdiction.

     (g) Under no  circumstances  shall  Lender be  deemed to have  assumed  any
responsibility  for or  obligation or duty of any nature or kind with respect to
any Collateral, or any matter or proceedings arising out of or relating thereto,
but the same  shall be at the sole risk of  Guarantor  at all  times.  Guarantor
hereby releases Lender from any claims, causes of action and demands at any time
arising out of,  relating to or with respect to this  Agreement,  the Guarantee,
the other  Financing  Agreements,  the  Obligations,  the Collateral  and/or any
actions  taken or  omitted  to be taken by  Lender  with  respect  thereto,  and
Guarantor  hereby  agrees to indemnify  and hold Lender  harmless  from and with
respect  to any and all such  claims,  causes  of  action  and  demands  whether
pursuant to negligence or otherwise by any person,  other than Lender's own acts
of gross negligence or willful misconduct.

     (h) This  Agreement  shall inure to the benefit of Guarantor and Lender and
their respective  successors and assigns and shall be binding upon Guarantor and
its successors and assigns.

     (i)  This  Agreement  and  any  other  agreement,  document  or  instrument
delivered in connection  herewith,  and the obligations of the parties hereunder
or thereunder  shall be governed by, and construed and interpreted in accordance
with the laws of the State of Texas,  except to the  extent  that the law of any
other  jurisdiction is required to be applied with respect to the enforcement of
Lender's rights in Collateral located in such jurisdiction.



<PAGE>



         IN WITNESS  WHEREOF,  Guarantor  has caused  these  presents to be duly
executed and delivered on the day and year first above written.

FARAH INCORPORATED



By:     /s/ Russell G. Gibson
Title:  Chief Financial Officer


Chief Executive Office of Signatory

4171 North Mesa
Building D
Suite 500
El Paso, Texas 79925



<PAGE>