Document:

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                                                                   EXHIBIT 10.82

                                    MTB BANK

                               FACTORING AGREEMENT

      FACTORING AGREEMENT made as of this 24 day of November, 1999 by and
between Rocky Apparel, LLC, a Delaware limited liability company with its
principal address at 1384 Broadway, New York, New York 10018 (fax number (212)
221-7172) (the "Company") and MTB BANK, a commercial bank organized under the
banking laws of the State of New York with its principal office at 90 Broad
Street, New York, New York 10004 (fax number (212) 858-3443) ("MTB").

                                R E C I T A L S
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      The Company has requested that MTB act as the sole factor for it, and MTB
is willing to do so subject to the terms and conditions set forth in this
Agreement.

      Accordingly, in order to induce MTB to act as sole factor for the Company
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:

      1. Definitions
         -----------

         "Collateral" - as defined in Section 5.1 hereof.

         "Company Account" - as defined in Section 3.1 hereof.

         "Credit Risk" - the risk of loss resulting solely and exclusively from
a Customer's failure to pay at maturity because of its financial inability to
pay.

         "Customer Dispute" - any cause for nonpayment of any Receivable, other
than for the financial inability of the Customer to pay, including, without
limitation, any alleged dispute, defense, offset or counterclaim, whether bona
fide or not.

         "Customer(s)" - the account debtor(s) obligated on the Receivables.

         "Default" - the occurrence of any of the following events: (a)
nonpayment by the Company when due of any amount payable on any of the
Obligations, or failure to perform any agreement or meet any obligation of the
Company contained in this Agreement, or in any other agreement with MTB, or in
any agreement out of which any of the Obligations arose after the expiration of
any grace period provided therein; (b) default by the Company in repayment when
due of any indebtedness now or hereafter owed for monies borrowed from or owed
to anyone other than MTB as a result
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of which the obligee has invoked such default and accelerated such indebtedness;
(c) any material statement, representation or warranty of the Company made
orally or in writing herein or in any other writing or statement at any time
furnished or made by the Company to MTB is untrue or inaccurate in any material
respect as of the date furnished or made; (d) suspension of the operation of the
Company's present business; (e) the Company and any other party primarily or
secondarily, directly or indirectly liable on any of the Obligations (each, an
"Obligor") becomes insolvent or unable to pay debts as they mature, or a
petition under any provision of bankruptcy or similar law is brought by any
Obligor, or against Obligor if not dismissed within sixty (60) days thereafter;
(f) death of any Obligor who is a natural person, or death or withdrawal of any
partner of any Obligor which is a partnership, or dissolution, merger, or
consolidation of any Obligor which is a corporation or a limited liability
company, unless the result of same is that the Obligor is the surviving entity;
(g) sale, transfer or exchange, either directly or indirectly, of a controlling
stock, equity or membership interest of any Obligor if as a consequence the
Company's current sole shareholder (or any of its affiliates or subsidiaries)
beneficially own less than 50% of any Obligor; (h) termination or withdrawal of
any guaranty for the Obligations; (i) appointment of a receiver for any
Collateral pledged for the Obligations or for any property in which the Company
has an interest; or (j) the granting by the Company of a security interest in
any of its assets without the prior written consent of MTB, except for a
security interest granted in connection with the purchase or lease of furniture,
fixtures or equipment by the Company in the ordinary course of its business;
PROVIDED, HOWEVER, that the occurrence of an event described in clauses (a) or
(b) above shall not be deemed a Default if cured within five (5) days of the
date of occurrence.

         "General Intangibles" - includes without limitation all trade names,
trademarks, tradestyles, trade secrets, tax refunds, insurance proceeds,
customer lists, and all other licenses, rights, privileges and franchises
relating to or used in connection with the Company's Receivables.

         "Net Amount of Receivables" - the gross amount of Receivables, less
maximum discounts offered (whether taken or not), less returns, less credits or
allowances of any nature at any time issued, granted or outstanding, and less
also MTB's commissions as set forth herein.

         "Notice" - as defined in Section 10.4 hereof.

         "Obligations" - all of the Company's obligations, whether now existing
or hereafter arising, to MTB under this Agreement, including without limitation,
advances of the purchase price of Receivables (although same are not currently
contemplated), commissions, fees and expenses due to MTB hereunder, and all

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obligations of the Company to MTB under any other agreement or under any note,
loan, advance, indebtedness, contract of surety, guaranty or accommodation, or
with respect to letters of credit or acceptances, sums owing to MTB for goods,
and/or services purchased from any other firm factored by MTB, and all other
obligations of the Company to MTB, however and whenever created, arising or
evidenced, whether direct or indirect, absolute, contingent or otherwise, now or
hereafter existing or due or to become due.

         "Payment Date" - (a) for each credit-approved Receivable for which MTB
retains the Credit Risk, the date of deposit of the Customer payment by MTB plus
five (5) business days, or, if such Receivable is not paid solely because of the
Customer's financial inability to pay, one hundred twenty (120) days after the
due date of the Receivable, or if such day is not a banking day, the next
banking day; and (b) for each Receivable for which MTB does not bear the Credit
Risk, the date of deposit of the Customer payment with MTB plus five (5)
business days.

         "Receivables" - all accounts and accounts receivable, and all
instruments, contract rights, chattel paper, documents, and all other
obligations of the Company's Customers to it arising from the Company's Sales,
and the proceeds thereof, and all security and guaranties therefor, whether now
or existing or hereafter created.

         "Sales" - the sale of goods and/or the rendition of services by the
Company in the ordinary course of its business with Customers.

      2.  Sales and Approval; Purchase Price; Commissions; Fees; Reserves;
          Advances; Interest
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      2.1 The Company hereby assigns and sells to MTB, as absolute owner,
without recourse except as hereinafter set forth, its entire interest in certain
of its present and future Receivables, together with all security therefor and
all right, title and interest of the Company in the merchandise represented by
such Receivables, including all of the Company's rights to stoppage in transit,
replevin and reclamation and as an unpaid vendor.

      2.2 All orders for Sales shall be submitted to MTB for credit approval
prior to shipment of the goods or rendition of the services. MTB may, in its
sole discretion, approve in writing all or a portion of the Sales, either by
establishing a credit line limited to a specific amount for a specific Customer
or by approving all or a portion of the Sales submitted. All approvals must be
in writing. All Receivables arising from orders credit-approved by MTB shall be
purchased by MTB without recourse against the Company as to the Credit Risk of
such Receivables. All Receivables arising from orders which are not
credit-approved by MTB shall be purchased by MTB with full recourse against the
Company. On all credit-approved Receivables, MTB assumes the

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Credit Risk up to the amount so approved and will bear the credit loss on the
amount of the uncollected Receivable if a Customer, after delivery/rendition and
acceptance of the goods/services, fails on the due date thereof to pay in full
solely because of its financial inability to pay, but MTB is not responsible in
the event nonpayment results from any Customer Dispute, act of God, war, civil
strife, currency restrictions or foreign political impediments. Credit approvals
(including credit lines and credit approvals of specific Receivables), once
granted, may be withdrawn prior to delivery and receipt of goods or rendition of
services, but any such withdrawal will be communicated promptly by MTB to the
Company in writing. In addition, if in MTB's sole judgment the Credit Risk of
any Customer under any credit-approved Receivable becomes impaired before
delivery of the related merchandise, the Company will, upon request and at its
expense, use its best efforts to stop delivery of the related merchandise.

      2.3 The Company will provide MTB with listings of Receivables in form
satisfactory to MTB, together with Customers' invoices, shipping documents, and
such other documents and proof of delivery/rendition as MTB may at any time
require. Billing on invoices by whomever done shall be conclusive evidence of
assignment and sale hereunder of such Receivables whether or not the Company
executes any other instrument with regard thereto. All invoices to Customers
shall contain a conspicuous legend as follows:

                   This account has been sold and is
                   payable only to:

                   MTB BANK
                   90 Broad Street
                   5th Floor - A/R Funding
                   New York, New York 10004-2290
                   212-858-3470/800-892-2577

                   Please make checks payable as shown and
                   indicate name of seller.

                   Any claim against this invoice must be made promptly in
                   writing to MTB BANK. No refunds or adjustments will be
                   recognized without the prior written consent of MTB BANK.

      All remittances and proceeds of Receivables obtained by the Company will
be received in trust for MTB, and the Company will turn over to MTB the
identical remittances within one business day from the date such remittances are
received; provided, however, nothing herein authorizes the Company to collect
Receivables. In the event any merchandise represented by a Receivable shall be
returned to or repossessed by the Company, the Company shall immediately notify
MTB and such merchandise shall be held by the

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Company in trust for MTB, separate and apart from the Company's own property,
and subject to MTB's direction and control.

      2.4 Except as MTB may otherwise consent in writing, the terms of all
Receivables submitted to MTB for credit approval shall not exceed 60 days. After
a Receivable has been credit-approved by MTB, the Company shall not vary the
terms thereof without MTB's prior written consent. Absent such consent, MTB may
revoke its credit approval at any time in the event the terms of a Receivable
have been varied.

      2.5 The purchase price of each Receivable is to be the Net Amount thereof,
which, less any charges and reserves, will be due and payable on the Payment
Date. The Company shall pay MTB a commission in an amount equal to one percent
(1%) of the gross amount of such Receivable where the terms of sale do not
exceed sixty (60) days, plus an additional commission of one-quarter of one
percent (0.25%) for each additional thirty (30) day term or part thereof of
extended terms or additional dating; provided, however, that the minimum
commission for any Receivable shall be $5.00.

      2.6 Prior to the Payment Date, MTB shall be under no obligation to make
any advances to the Company and no such advances are currently contemplated;
provided, however, that any amounts advanced by MTB to the Company shall also be
subject to this Agreement.

      2.7 MTB may retain from sums otherwise payable to the Company a reasonable
reserve, the amount of which reserve may be revised from time to time in MTB's
sole discretion, in order to provide for (a) Customer Disputes (known or
potential), (b) the Obligations, (c) possible credit losses on unapproved
Receivables, or (d) sums owing to MTB for goods or services purchased by the
Company from any other firm factored or financed by MTB. A discount, credit or
allowance after issuance or granting may not be claimed by the Company, but may
be claimed solely by the Customer; no third party beneficiary rights are created
hereby.

      2.8 The principal amount of any advance (none of which are currently
contemplated) made against the purchase price of a Receivable and the amount of
any other charges to the Company Account that remain outstanding shall bear
interest on the entire balance thereof outstanding from time to time at a
fluctuating annual rate from the date of such advance or charge until maturity
or until paid in full, which annual rate shall be two (2) percentage points
above the prime commercial rate of interest established from day to day by MTB
as its prime rate (the "Contract Rate"), which may not be the lowest rate
charged to its borrowers, but in no event in excess of the maximum interest rate
permitted by law; provided, however, that in the event that the aggregate of all
advances and charges to the Company Account are in excess of the

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percentage formula set forth in Section 2.6 above for five (5) or more calendar
days in any month, then the entire balance outstanding from time to time during
such month shall bear interest at a fluctuating annual rate which is two (2)
percentage points above the Contract Rate, but in no event in excess of the
maximum interest rate permitted by law. Each change in the rate charged to the
Company shall be effective without notice to the Company on the first day of the
calendar month following the calendar month in which a change in the prime rate
shall have been made. Such interest shall be charged to the Company Account as
defined in section 3.1. For all purposes of this Agreement, interest shall be
calculated at a daily rate equal to 1/360 of the applicable annual rate for the
actual number of days elapsed. The Company acknowledges that the actual yield to
MTB under this Agreement may exceed the rate of interest set forth in this
Section 2.8. For purposes of interest calculation, commissions earned during
each month shall be deemed charged to the Company's account on the fifteenth
(15th) day of such month.

      3.  Company Account; Monthly Statements
          -----------------------------------

      3.1 All transactions between MTB and the Company will be recorded in an
account (herein referred to as the "Company Account"). A monthly statement with
respect to the Company Account shall be furnished to the Company after the end
of each month. Each such monthly statement and other accounting which MTB
renders to the Company shall be deemed an account stated and shall be accepted
by and conclusive and binding upon the Company unless MTB receives a Notice from
the Company of any exception thereto within sixty (60) days of the date of said
monthly statement or accounting, which Notice shall set forth with specificity
the nature of such exception. Such monthly statements and accounting records
shall be admissible in evidence in any action or proceeding, and shall be
binding upon the Company in establishing transactions and entries reflected
therein and shall be accepted as prima facia proof thereof. The Company agrees
that it will pay to MTB on demand any advances, charges or Obligations at any
time outstanding in the Company Account, whether or not then due, and that
recourse to security or any Collateral is not required.

      3.2 The Company recognizes that any balance in the Company Account
represents bookkeeping entries and not necessarily cash funds. The total amount
of the Company Account will include, without specifically showing, any amount
held by MTB as a reserve. MTB, however, agrees to advise the Company upon
request of the exact amount of reserves being maintained by MTB as of any
particular date.

      4.  Conditions Precedent
          --------------------

      The Company acknowledges that MTB shall be under no obligation to make any
advances under this Agreement unless and until each of

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the following conditions shall have been satisfied in MTB's sole and absolute
discretion:

          (a) The Company shall have executed and delivered to MTB appropriate
Uniform Commercial Code financing statements in order to enable MTB to perfect
and preserve its security interest in all Collateral, as well as such other
agreements and instruments as MTB may reasonably request.

          (b) [Omitted].

          (c) [Omitted].

          (d) MTB shall have received copies of the following:

              (i)   the Certificate of Formation of the Company and all
amendments thereto, certified by the State of Delaware;

              (ii)  the Operating Agreement of the Company, certified by its
secretary;

              (iii) duly executed resolutions covering all action taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, certified by its secretary;

              (iv)  a good standing certificate for the Company as of a recent
date from the Secretary of State of Delaware and from each state in which it is
qualified to do business; and

              (v)   an incumbency certificate (with specimen signatures) with
respect to the Company.

          (e) [Omitted].

          (f) The Company shall have delivered to MTB such other documentation
as MTB may reasonably request.

      5.  Security Interest; Further Assurances
          -------------------------------------

      5.1 As collateral security for the Obligations, the Company hereby grants
to MTB a continuing general security interest in and to, a lien on, and a right
of setoff on or against, all the Company's present and future accounts, accounts
receivable, contract rights, chattel paper, instruments, notes, bills, claims,
documents, and General Intangibles, all unpaid seller's rights (including
rescission, repossession, replevin, reclamation and stoppage in transit), all
returned or repossessed goods, all guaranties and security agreements, and all
products and proceeds of the foregoing, whether now existing or hereafter
acquired and wherever located, together with the reserve established pursuant to
Section 2.7 hereof and all moneys credited to the Company (whether

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credited to the Company pursuant to this Agreement or in a deposit account
maintained at MTB, or otherwise), any of the Company's property at any time in
MTB's possession, and in all books, records, data and computer software relating
to the foregoing (collectively, the "Collateral"). MTB shall have all of the
rights and remedies provided in this Agreement and in the Uniform Commercial
Code in force at the time of the execution of this Agreement and by any
amendment thereof.

      5.2 Notwithstanding any other provisions of this Agreement, MTB shall be
entitled at all times, both before and after termination of this Agreement, to
hold all sums to the credit of Company (including, without limitation, balances
in the Company Account and reserves) as security for any and all of the
Obligations, and any amount which MTB is authorized hereunder to charge to the
Company or for which the Company is obligated to MTB may be withheld or deducted
by MTB at any time in its sole discretion from any remittances, payments or
credits otherwise to be made by MTB hereunder. In the event of a Default, or if
this Agreement shall have been terminated, the Company Account, reserves any
other monies, balances, or credits otherwise due by MTB to the Company may be
retained and applied by MTB from time to time against any Obligations (direct or
contingent), then or thereafter due from the Company, and the amount of reserve
shall upon such breach or termination be increased to an amount equal to the
then aggregate unpaid gross amount of all credit-approved Receivables.

      5.3 The Company agrees to execute and deliver to MTB such notices of
assignment, instruments, agreements and other documents and to make such entries
and markings upon its books and records, all as MTB may reasonably request to
better protect the sale and assignment of Receivables hereunder and the security
interest granted hereunder; provided however that the failure by the Company to
do so shall not affect MTB's interest in the Receivables.

      6.  Representations and Warranties; Customer Disputes and Chargebacks;
          Covenants
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      6.1 The Company hereby represents and warrants to MTB that assignment to
MTB of each Receivable will vest absolute ownership of such Receivable in MTB,
free and clear of any and all liens, claims or encumbrances whatsoever; that
each Receivable shall on the date of assignment be based upon a bona fide sale
and actual shipment of merchandise, services rendered, or labor performed by the
Company during the term of this Agreement, and shall be a valid and enforceable
obligation of the named Customer; and that such merchandise shall be accepted
and retained by the Customer, subject to no Customer Dispute, and that no
Customer is an affiliate or subsidiary of the Company.

      6.2 The Company shall immediately notify MTB of any Customer Dispute or
the breach of any other representation and warranty

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hereunder. The Company, at its own expense, shall settle all Customer Disputes,
subject to MTB's approval, but MTB shall have the right, in its sole discretion,
to settle any Customer Dispute directly with the Customer involved upon such
terms as MTB may deem advisable and at the Company's expense. If MTB should so
elect to settle a Customer Dispute itself, MTB is specifically vested with an
irrevocable power of attorney, coupled with an interest, to act in the Company's
name, place and stead, and MTB is hereby authorized to execute all release,
settlement or compromise agreements, and to receive and receipt for and in
Company's name, all money or other property that MTB may receive in settlement,
release, and/or compromise of Customer Disputes.

      6.3 In the event (i) of any Customer Dispute with respect to a Receivable,
(ii) of any breach of any other representation or warranty hereunder as to any
Receivable, or (iii) a Receivable remains unpaid sixty (60) days after the
maturity date of such Receivable for any reason other than the financial
inability of the Customer to pay such Receivable, MTB may in its sole
discretion, chargeback to the Company without recourse to MTB, the Net Amount of
such Receivable, as well as all other Receivables owing by the same Customer,
and charge such amount to the Company Account or at MTB's option the Company
agrees to pay such amount to MTB on demand. If the Company has sufficient funds
in reserves maintained by MTB, MTB is authorized to charge such payment directly
to such reserves. A chargeback shall not be deemed a reassignment of the
Receivable, and title thereto and to the goods represented thereby shall remain
in MTB until it executes a reassignment. All returned, replevied and reclaimed
goods coming into the Company's possession shall be held in trust for MTB. The
Company hereby waives any right to payments received by MTB from or on behalf of
a Customer which neither MTB nor the Company can identify to any Receivable.

      6.4 The Company represents and warrants that it has no other place of
business, offices where its books of account and records are kept, or places
where any of its property is used, stored or located, except as set forth on
Schedule 1 annexed hereto, and covenants that Company will promptly notify MTB
of any change in the foregoing representation. Company shall at all times
maintain its records as to the Receivables at its chief executive office at the
address referred to on Schedule 1 and at none other. Company further covenants
that except for property delivered to MTB or an agent for MTB, Company will not
store, use or locate any of its property at any place other than as listed on
Schedule 1 annexed hereto.

      6.5 The Company represents and warrants that it currently uses no business
or trade names, except as set forth on Schedule 1 annexed hereto, and covenants
that Company will promptly notify MTB, in sufficient detail, of any changes in,
additions to, or deletions from the business or trade names used by Company.

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Company covenants that it shall not change its legal name without prior Notice
to MTB.

      6.6 The Company covenants and agrees to deliver to MTB:

          (a) within ninety (90) days after the last day of each fiscal year of
the Company, a balance sheet of the Company (and a consolidated balance sheet of
the Company and its subsidiaries, if Company has subsidiaries at such time) for
the fiscal year then ended and related statements of profit and loss and
retained earnings and a reconciliation of net worth and a statement of cash flow
for the year then ended (and consolidated and consolidating statements of the
Company and its subsidiaries, if the Company has subsidiaries at such time),
each prepared on a review basis in accordance with generally accepted accounting
principles consistently applied in reasonable detail by a certified public
accountant mutually acceptable to MTB and the Company (the "Accountant"); and

          (b) within ninety (90) days after the last day of the second fiscal
quarter of each fiscal year of the Company, the foregoing financial statements
for the six months then ended, prepared on a review basis by the Accountant.

      6.7 The Company agrees to comply and cause its subsidiaries to comply with
all material rules, regulations, law or ordinances of any administrative,
judicial or legislative body or official applicable to its business activities.

      7.  Power of Attorney; Right to Inspect, Endorse Instruments, Notify
          Customers
          ----------------------------------------------------------------

      7.1 The Company authorizes MTB and does hereby make, constitute and
appoint MTB, and each of MTB's officers or agents, with full power of
substitution, the Company's true and lawful attorney-in-fact, with power, in its
own name or in the name of Company; (a) to endorse any notes, checks, drafts,
money orders, or other instruments of payment relating to Receivables that may
come into MTB's possession; (b) to sign and endorse any invoice, freight or
express bill, bill of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications and notices in connection with any
Collateral, and other documents relating to the Collateral; (c) to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Receivables or any other Collateral; and (d) generally, to do, at MTB's
option and at Company's expense, at any time, or from time to time, all acts and
things which MTB deems necessary to protect, preserve and realize upon the
Receivables and the other Collateral in order to effect the intent of this
Agreement all as fully and effectually as Company might or could do; and Company
hereby ratifies all that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is deemed to be coupled with an

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interest and shall be irrevocable for the term of this Agreement and thereafter
as long as any of the Obligations are outstanding. MTB shall not be liable for
any errors of judgment or mistakes of fact.

      7.2 MTB and its accountants and agents shall have the right, at all times
during normal business hours, with reasonable prior written notice to the
Company, to examine and make extracts from all books and records of the Company
and to otherwise conduct field examinations of the Company. After the occurrence
of a Default, the Company authorizes MTB and its agents to receive, open and
dispose of mail addressed to the Company and to endorse the name of the Company
upon checks and other instruments and documents, and in the name of and as agent
for the Company to do all other acts and things necessary to carry out this
Agreement, including, without limitation, (i) to advise Customers of the
assignment and sale of the Receivables, (ii) to contact Customers to obtain
verification of the Receivables; and (iii) to advise Customers to make direct
payment of all checks, drafts, cash or other remittances in payment of the
accounts directly to MTB.

      8.  Term of Agreement; Expenses; Indemnity
          --------------------------------------

      8.1 This Agreement shall become effective upon its execution and delivery
by both parties and upon fulfillment, to the satisfaction of MTB, of the
conditions precedent set forth herein, and shall continue in full force and
effect for one year from the effective date hereof, and shall be deemed renewed
from year to year thereafter unless either party gives to the other party at any
time thirty (30) days prior written notice of termination. Notwithstanding the
foregoing, MTB may terminate this Agreement at any time without Notice should
any Default occur. Termination of this Agreement shall not affect rights and
obligations of the parties accruing prior to termination. Upon termination, the
Company will immediately pay all of its Obligations to MTB.

      8.2 The Company agrees, on demand, to pay all reasonable costs and
expenses incurred or charged by MTB (including without limitation reasonable
attorneys' fees of outside counsel or the allocated cost of in house counsel,
the costs of public record searches and filings, and accounting and periodic
field examination fees and expenses) in connection with this Agreement,
including without limitation, all costs and expenses in connection with
perfecting, protecting, or realizing upon or administering the Receivables and
the other Collateral, with enforcing or preserving any of its rights under this
Agreement, or in connection with preparing, modifying or amending the Agreement.
Such costs and expenses will be charged to the Company Account.

      8.3 All taxes and governmental charges imposed with respect to Sales shall
be charged to and paid by the Company.

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      8.4 The Company shall indemnify, defend and hold MTB harmless from and
against all claims, losses, costs and expenses incurred by MTB in connection
with the Receivables for which credit approval has not been given and in
connection with Receivables which are unpaid at maturity for reasons other than
financial inability. The Company shall also indemnify MTB for any liability for
duties, forwarder's fees, storage, shipping charges, sales or excise taxes or
other expenses in connection with the Receivables and for any losses occasioned
by claims of Customers under Receivables. This indemnity shall survive
termination of this Agreement.

      9.  Remedies
          --------

      Upon the occurrence of a Default, MTB shall have all of the rights and
remedies of a secured party under the Uniform Commercial Code and other
applicable laws with respect to all collateral, such rights and remedies being
in addition to all of its other rights and remedies provided for herein or in
any other agreement between the parties, and further MTB may, at any time or
times after the occurrence of any such Default, sell and deliver any and all
other collateral held by or for it at public or private sale, in one or more
sales or parcels, at such prices and upon such terms as it may deem best, and
for cash or on credit or for future delivery, without assumption of any credit
risk, and at public or private sales, as it may deem appropriate. If reasonable
notice of the time and place of such sale is required under applicable law, such
requirement shall be met if any such notice is mailed, postage prepaid, to the
Company's address shown above or the last shown address in MTB's records, at
least five (5) days before the time of the sale or disposition thereof. MTB may
be the purchaser at any sale, if it is public, free from any right of
redemption, which, to the extent permitted by law, the Company also hereby
expressly waives. The proceeds of sale shall be applied first to all costs and
expenses of sale, including attorneys' fees and disbursements, and then to the
payment (in such order as MTB may elect) of all Obligations. MTB will return any
excess to the Company and the Company shall remain liable to MTB for any
deficiency. MTB's rights and remedies under this Agreement will be cumulative
and not exclusive of any other rights or remedies which it may otherwise have.
The provisions of this Section 9 shall survive any termination of this
Agreement.

      10. Miscellaneous
          -------------

      10.1 This Agreement constitutes a Security Agreement under the provisions
of the Uniform Commercial Code as in effect in New York. This Agreement may only
be changed, modified, supplemented, or amended by a written document signed by
both MTB and the Company. Should any paragraph, section, provision, or clause of
this Agreement be found or held contrary to, or unenforceable at law or in
equity, such finding shall not affect the others, which shall notwithstanding
continue in full force and effect, it being the

                                     - 12 -
<PAGE>

express intention of the parties hereto that the invalidity of any one or more
paragraphs, sections, provisions, or clauses shall not in any way affect the
others.

      10.2 It being the express intention of the parties hereto to conform
strictly with the applicable usury laws, it is agreed that nothing contained
herein shall be so construed as to require the payment of interest at a rate in
excess of the maximum allowable by law, and in no event shall the Company be
obligated to pay interest exceeding such maximum rate of interest permitted by
law, and all such agreements, conditions, or stipulations, if any, which may in
any event or contingency whatsoever operate to bind, obligate, or compel the
Company to pay a rate of interest exceeding the maximum rate of interest
permitted by law shall be without binding force or effect at law or in equity to
the extent only of the excess of interest over such maximum rate of interest
permitted by law. It is the intention of the parties hereto that the
construction and interpretation of this Agreement, the foregoing sentence shall
be given precedence over any other agreement, condition, or stipulation herein
contained which is in conflict with the same.

      10.3 This Agreement represents the full agreement between MTB and the
Company with respect to the subject matter hereof, and supersedes any prior
agreements, whether written or oral. In performing its obligations under this
Agreement MTB shall be liable to the Company only for its gross negligence or
willful misconduct.

      10.4 All notices, requests and other communications (each a "Notice")
pursuant to this Agreement shall be in writing and sent either (a) by hand, (b)
by certified mail, return receipt requested, (c) by recognized overnight courier
service, or (d) by fax, to the other party at the address or fax number set
forth at the beginning of this Agreement, or to such other address or fax number
as a party may from time to time furnish to the other party by Notice. Any
Notice hereunder shall be deemed to have been given on (i) the day of hand
delivery, (ii) the third business day after the day it is deposited in the U.S.
Mail, if sent by certified mail, return receipt requested, postage prepaid,
(iii) the day after it is delivered to a recognized overnight courier service
with instructions for next day delivery, or (d) the day it is faxed, in each
case to the address or fax number as aforesaid.

      10.5 Any failure or delay by MTB in exercising any of its rights hereunder
shall not be deemed to be a waiver by MTB of such or any other right, nor in any
manner impair the subsequent exercise of the same or any other right, and any
waiver by MTB of any default shall not constitute a waiver of any subsequent
default. This Agreement is binding on the Company, its successors and assigns
and inures to the benefit of MTB, its successors and assigns. The Company agrees
that MTB may delegate its duties under this Agreement.

                                     - 13 -
<PAGE>

      10.6 The Company agrees and acknowledges that MTB and its authorized
representatives are engaged in the provision of factoring services pursuant to
this Agreement. By entering into this Agreement, the Company expressly
acknowledges that it will not seek advice or counsel from MTB or any of its
representatives with respect to the management and/or operation of the Company's
business and if the Company deems such advice or counsel to have been offered,
directly or indirectly, the Company will evaluate it and act or decline to act
upon it based upon its own careful analysis and/or the advice or counsel of its
own independent expert(s) or consultant(s). The Company agrees that it will not
seek or attempt to establish a fiduciary relationship between MTB and/or its
representatives and the Company, or any other entity affiliated or controlled by
the Company. The Company hereby expressly waives any right to assert, now or in
the future, that there was or is a fiduciary relationship between the Company
and MTB and/or its representatives in any action, proceeding or claim for
damages.

      10.7 THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED IN AND TO BE PERFORMED WHOLLY WITHIN THE STATE
OF NEW YORK. IN ANY SUIT OR PROCEEDING BETWEEN THEM, WHETHER RELATING TO THIS
AGREEMENT OR OTHERWISE, THE PARTIES MUTUALLY WAIVE TRIAL BY JURY AND THE COMPANY
IRREVOCABLY A) WAIVES ALL CLAIMS INSOFAR AS THEY ARE BASED ON SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, AND B) CONSENTS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date set forth above.

                                          MTB BANK

                                          By: /s/ [ILLEGIBLE]
                                             -----------------------------------
                                          Title:  V.P.
                                                --------------------------------

                                          ROCKY APPAREL, LLC

                                          By: /s/ Gabriel Zeitouni
                                             -----------------------------------
                                               Gabriel Zeitouni
                                               President

                                     - 14 -
<PAGE>

STATE OF NEW YORK    )
                     ) ss:
COUNTY OF NEW YORK   )

            On the 24th day of November, 1999, before me, the undersigned, a
notary public in and for said state, personally appeared Gabriel Zeitouni,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.

                                                    /s/ Barbara Kotsogiannis
                                                  ------------------------------
                                                           Notary Public

       BARBARA KOTSOGIANNIS
 NOTARY PUBLIC, State of New York
          No. 41-4935259
    Qualified in Queens County
Commission Expires August 12, 2001

                                     - 15 -
<PAGE>

                                  SCHEDULE 1
                                  ----------

Chief Executive Office:

      1384 Broadway
      New York, New York 10018

Other Places of Business; Other locations of Collateral:

      P.O. Box 457                              200 W. Floyce Street
      137-1/2 S. Bowden Avenue                  Ruleville, MS 38771
      Ruleville, Mississippi 38771

      Rt 49 E/Rt 82 (1803 Hwy 82W)              1519 LaSalle St.
      Greenwood, MS 38930                       Greenwood, MS

      422 Industrial Dr.
      Vardman, MS

Location of Books and Records:

      137-1/2 S. Bowden Avenue
      Ruleville, Mississippi 38771

Business and/or Trade Names:

      NONE

Federal Employer I.D. #:

      13-3770741

                                     - 16 -
<PAGE>

                             ASSIGNMENT AGREEMENT
                             --------------------

KNOW ALL MEN BY THESE PRESENTS:

      That Rocky Apparel, LLC, a Delaware limited liability company with offices
at 1384 Broadway, New York, New York 10018 (herein the "Company"), in
consideration of certain financial accommodations extended to the Company by MTB
Bank at 90 Broad Street, New York, New York 10004 (herein the "Bank") and for
other good and valuable consideration, the receipt whereof is hereby
acknowledged, does hereby irrevocably assign and transfer to the ABL Division of
the Bank (the "ABL Division") all of the rights of the Company in and to
proceeds or monies due it under the Factoring Agreement between the Company and
the Factoring Division of MTB Bank (herein the "Factor") dated November 24,
1999, and any amendments, supplements, modifications, extensions and renewals
thereof, (herein the "Factoring Agreement") including without limitation, the
right to receive all proceeds of the Factoring Agreement, and all sums of money
now due or which may hereafter become due to the Company thereunder.

            This Assignment and transfer is made to the ABL Division, its
successors, endorsers or assigns, as collateral security for the payment of any
and all liabilities and obligations of the Company to the Bank and any claims of
the Bank against the Company, whether now existing or hereafter incurred whether
originally contracted with the Bank and/or with another and now or hereafter
owing to or acquired by the Bank, whether contracted by the Company alone or
jointly and/or severally with another or others, and whether absolute or
contingent, secured or unsecured, matured or unmatured (all of the foregoing
being herein called "Obligations").

            The Factor is hereby authorized to remit proceeds when due and
payable under the Factoring Agreement (subject to the reserve, if any, which the
Factor in its sole discretion may decide to retain, and subject to all of the
Factor's other rights under the Factoring Agreement including Factor's rights to
charge back as set forth in the Factoring Agreement and to apply to the
Company's account any indebtedness owing to the Factor by reason of the
Company's purchases from other entities factored by the Factor) directly to the
ABL Division; to furnish the ABL Division with copies of the accounts current
rendered by the Factor to the undersigned; and to recognize the ABL Division's
claim and rights hereunder without investigating the reason therefor, or the
validity of the amount of any Obligations, or the existence of any default or
the application to be made by the Bank of any of the sums paid hereunder.
<PAGE>

            This Assignment is to continue in effect until written notice of
termination is served by any one of the parties hereto on the others, but such
termination shall not affect any assignment or right to receive any balances, as
herein provided, for which an account current has been rendered to the ABL
Division prior to the date of termination.

            This Agreement is not in any way intended to limit any obligation
contained in any agreement, note, assignment, security agreement, certificate,
document, or instrument executed in connection with any of the Obligations of
the Company to the Bank, and shall in all respects be cumulative therewith.

            The Company agrees, acknowledges and recognizes that the ABL
Division and the Factor are two divisions of the Bank, which is one legal
entity, and nothing in this Assignment Agreement shall in any way diminish the
Bank's rights with respect to the Company or the Company's obligations to the
Bank, whether to its ABL Division, to the Factor, or otherwise, and whether or
not contained in any agreement or other document with the ABL Division, the
Factor or otherwise.

            This Agreement shall be governed by the laws of the State of New
York.

Dated:  New York, New York
        November 24, 1999

                                              ROCKY APPAREL, LLC

                                              By: /s/ [ILLEGIBLE]
                                                 -------------------------------

AGREED AND ACKNOWLEDGED:

MTB BANK
(Factoring Division)

By: /s/ [ILLEGIBLE]
   -----------------------------

MTB BANK
(Asset Based Lending Division)

By: /s/ [ILLEGIBLE]
   -----------------------------

                                     - 2 -
<PAGE>

                                   MTB BANK

Certified Resolutions to Borrow and Incumbency

      I, Gerard Guez, the sole Manager of Rocky Apparel, LLC, a Delaware limited
liability company, having its principal office at 1384 Broadway, New York, New
York 10018 (the "Company"), hereby CERTIFY that the following preamble and
resolutions are now in full force and effect without revocation or change:

      "WHEREAS, the Company has requested that MTB Bank, a commercial bank
organized under the New York Banking Laws ("MTB") lend, advance and extend
certain financial accommodations to the Company.

      NOW, THEREFORE, it is hereby resolved:

            1. That any one or more of the officers of the Company be, and each
hereby is, authorized and directed, in the name and on behalf of the Company:

                  (a) To borrow money and obtain credit and other financial
accommodations for or on behalf of the Company, and at any time from time to
time, from MTB upon such terms and conditions, including, without limitation,
rates of interest, amortization and maturity, as may be satisfactory to MTB, and
to execute and deliver to MTB one or more factoring agreements, financing
agreements, promissory notes and other evidences of indebtedness (collectively,
the "Financing Agreements"), in form and substance satisfactory to MTB, to
evidence such borrowings, credit and financial accommodations, the execution and
delivery of the Financing Agreements by such officer or officers of the Company
to be deemed conclusive evidence of the approval by the Company of the terms,
provisions and conditions thereof;

            (b) To pledge with, or assign to, MTB or to grant to MTB a security
interest in, such assets and property of the Company, both real and personal, as
may now or hereafter be required by MTB as security for all indebtedness and
obligations of the Company to MTB, now existing or hereafter arising and to
execute and deliver in connection therewith one or more mortgages, assignments
or security agreements (collectively, the "Security Agreements"), in form and
substance satisfactory to MTB, the execution and delivery of the Security
Agreements by such officer or officers of the Company to be deemed conclusive
evidence of the approval by the Company of the terms, provisions and conditions
thereof; and

            (c) To make, execute and deliver to MTB any and all financing
statements, consents, certificates, documents, instruments, amendments, papers
or writings as may be required by
<PAGE>

MTB in connection with or in furtherance of the Financing Agreements, the
Security Agreements and any other transactions above described, the same to be
in form and substance satisfactory to MTB, and to do any and all other acts
necessary or desirable to effectuate the foregoing Resolutions, the execution,
delivery and performance thereof by such officer or officers of the Company to
be deemed conclusive evidence of the approval by the Company of the terms,
provisions and conditions thereof.

      2. That any bank, banker or trust company be, and hereby is, authorized
and requested to receive for deposit to the credit of MTB, without further
inquiry, all checks, drafts and other instruments of payment of money payable to
the Company or its order, and that said bank, banker or trust company shall be
under no liability to the Company for the disposition which MTB may or shall
make of said instruments or the proceeds thereof, and that any officer or agent
of MTB is hereby authorized and empowered to endorse the name of the Company to
any and all checks, drafts and other instruments payable to the Company or its
order.

      3. That any officer of the Company be, and hereby is, authorized to
certify and deliver to MTB, copies of these Resolutions."

            AND, I further certify that annexed hereto as Exhibits A & B are
true and correct copies of the Certificate of Formation and Operating Agreement
of the Company as in effect on the date hereof. Also attached as Exhibit C
hereto is a certificate of Good Standing for the corporation from the Secretary
of State of Delaware.

       AND, I further CERTIFY that, of my own knowledge, the following named
persons are the duly authorized officers of the Company, presently serving as
such, and that following each name is the true signature of each officer.

       Name                    Title                   Signature
       ----                    -----                   ---------

       Gabriel Zeitouni       President            /s/ Gabriel Zeitouni
                                                   ----------------------

       George Martin, Jr.     CFO                  /s/ George Martin, Jr.
                                                   ----------------------

                                     - 2 -
<PAGE>

      AND, I further CERTIFY that my own knowledge, the following named entity
is the sole member of the Company:

      Name of Stockholder                Percentage of Membership Interest Owned
      -------------------                ---------------------------------------

      Tarrant Apparel Group, Inc.                        100%

            IN WITNESS WHEREOF, the undersigned does hereby certify that the
foregoing certificate is, in all respects, true and accurate.

                                                          /s/ Gerard Guez
                                                     ---------------------------
                                                     Gerard Guez, Sole Manager

STATE OF California   )
                      ) ss.:
COUNTY OF Los Angeles )

Sworn to and subscribed to
before me this 23rd day of
November, 1999.

/s/ Fatima A. Palacios
-------------------------------
      Notary Public

------------------------------------
             FATIMA A. PALACIOS
            Commission # 1131492
[SEAL]   Notary Public - California
             Los Angeles County
        My Comm. Expires Mar 26,2001
------------------------------------

                                     - 3 -<PAGE>

                                                                   EXHIBIT 10.83

                   MACHINERY AND EQUIPMENT PLEDGE AGREEMENT

                                 by and among

                      TARRANT MEXICO, S.DE R.L. DE C.V.,
                                  as Pledgor,

                            TRANSIT HOLDING, INC.,
          A SUBSIDIARY OF BANC OF AMERICA LEASING & CAPITAL, L.L.C.,
                                  as Pledgee

                                      and

                            MRS. NAFISEH SEDAGHAT,
                                 as Depositary

                       ________________________________

                               November 17, 1999
<PAGE>

    Machinery and Equipment Pledge Agreement dated as of November 17, 1999

                                 by and among

                Tarrant Mexico, S. de R.L. de C.V., as Pledgor,

                            Transit Holding, Inc.,
     a subsidiary of Banc of America Leasing & Capital, L.L.C., as Pledgee

                                      and

                     Mrs. Nafiseh Sedaghat, as Depositary
                               (the "Agreement")
                                     ---------

                                     INDEX
                                     =====

Item or Document                                                         Tab No.
----------------                                                         -------

Machinery and Equipment Pledge Agreement with Exhibits                        1

      Exhibit A: List of Existing Equipment

      Exhibit B: Copy of the Facility (Lease Intended as Security)

      Exhibit C: Depository Takeover Letter

Lease Intended as Security between Transit Holding, Inc. ("Lessor")           2
  and TAG MEX, Inc. ("Lessee") dated as of November 3, 1999 (the "Lease
  Agreement")

      Appendix No. 1 to Lease Intended as Security

      Exhibit A: Acceptance Certificate No. 1 with Annex A to
      Acceptance Certificate No. 1

      Exhibit B: Schedule No. 1

Corporate Resolution to Lease or Sell and Leaseback                           3

Guaranty                                                                      4

Resolution Authorizing Execution of Guaranty                                  5

Opinion of Lessee's Counsel with Schedule 1 consisting of Acceptance          6
  Certificate No. 1, Annex A to Acceptance Certificate No. 1, Exhibit A
  and Schedule No. 1 to Acceptance Certificate No. 1
<PAGE>

                                                          TO BE
                                                          RATIFIED
                                                          BEFORE A
                                                          NOTARY PUBLIC

MACHINERY AND EQUIPMENT PLEDGE AGREEMENT (THE "AGREEMENT") ENTERED INTO ON
                                               ---------
NOVEMBER 17, 1999, BY AND AMONG TARRANT MEXICO, S. DE R.L. DE C.V. (THE
"PLEDGOR"), TRANSIT HOLDING, INC., A SUBSIDIARY OF BANC OF AMERICA LEASING &
 -------
CAPITAL, L.L.C. (THE "PLEDGEE"), AND MRS. NAFISEH SEDAGHAT (THE "DEPOSITARY").
                      -------                                    ----------

                                   RECITALS
                                   --------

            I. Pledgor acting through its legal representative hereby declares
as follows:

            A. Pledgor is a company duly organized and existing under the laws
of the United Mexican States ("Mexico"), and has all the necessary
                               ------
authorizations, corporate, governmental or otherwise for the execution, delivery
and performance of this Agreement in its capacity as pledgor hereunder.

            B. Neither the execution and delivery by Pledgor of this Agreement
nor the performance of its obligations hereunder, will contravene or conflict
with, or result in a breach or violation of applicable law or its organization
documents.

            C. Pledgor's obligations hereunder constitute its valid an binding
obligations enforceable against it in accordance with its terms.

            D. The representative of Pledgor has all necessary powers and
authority to execute this Agreement, which powers and authority have not been
revoked or otherwise modified.

            E. In the ordinary course of business, Pledgor has acquired and
currently is the owner of machinery and equipment which it utilizes for its
business and which is more fully described in Exhibit "A" hereof and
                                              -----------
incorporated
<PAGE>

                                        Machinery and Equipment Pledge Agreement

herein by this reference (all such machinery and equipment the "Existing
                                                                --------
Equipment"), which Existing Equipment is free of all encumbrances and
---------
limitations of ownership whatsoever and Pledgor has the authority to encumber it
as provided for herein.

            F.   In the future it may acquire other machinery and equipment (the
"Future Equipment"). The Existing Equipment and the Future Equipment are herein
 ----------------
collectively referred to as the "Equipment".
                                 ---------

            II.  Pledgee, acting through its legal representative hereby
declares as follows:

            A.   Pledgee is a limited liability company duly organized and
existing under the laws of Delaware, and has all the necessary authorizations,
corporate, governmental or otherwise, to enter into this Agreement.

            B.   Pledgee has the necessary authority for the execution and
delivery hereof and performance hereunder in accordance with its corporate
documents.

            C.   Neither the execution and delivery by Pledgee of this Agreement
nor the performance of its obligations hereunder, will contravene or conflict
with, or result in a breach or violation of applicable law or its corporate
documents.

            D.   The representative of Pledgee has all necessary powers and
authority to execute this Agreement, which powers and authority have not been
revoked or otherwise modified.

            III. The Depositary declares that she is legally able to enter into
this Agreement and to be bound by the terms hereof.

            IV. Pledgee and Pledgor, acting through their respective legal
representatives, declare that Pledgee, acting as lessor, entered into a Lease
Intended as Security Agreement (the "Facility"), dated as of November 3, 1999,
                                     --------
with Tag Mex, Inc., an affiliated company of Pledgor, acting as lessee
("Lessee"), whereunder Pledgee agreed to finance certain equipment to Lessee in
  ------
an amount not to exceed $5,200,000 (FIVE MILLION TWO HUNDRED THOUSAND

                                       2
<PAGE>

                                        Machinery and Equipment Pledge Agreement

DOLLARS) and Lessee agreed to pay Pledgee rent and make other payments in the
amounts and at the times specified in the Appendix and the Schedule to the
Facility (each a "Payment" and collectively the "Payments"). The documents
                  -------                        --------
executed or to be executed to document the Facility, the documents issued
thereunder and the security agreements relating to the Facility will be
hereinafter collectively referred to as the "Documents".
                                             ---------

            V.  Pledgee and Pledgor acting through their respective legal
representatives declare that under the Facility, Pledgor shall make the payments
specified therein, in the terms and conditions described in the Facility, a copy
of which is attached hereto as Exhibit "B".
                               -----------

            VI. That in compliance with the terms of the Facility and in order
to secure payment of the Payments as well as the fulfillment of each and all
other obligations of Pledgor (the "Secured Obligations") under the Documents,
                                   -------------------
Pledgor wishes hereby to create in favor of Pledgee a first priority security
interest on the Equipment.

            NOW, THEREFORE, in consideration of the foregoing, the parties
hereto hereby agree as follows:

                                    CLAUSES
                                    -------

            FIRST. Creation of the Pledge.
                   ----------------------

            (a) In order to secure the full and punctual payment and performance
of the Secured Obligations, including by way of illustration and not by way of
limitation all Payments when due (whether at stated maturity, by acceleration or
otherwise) of the principal amount, ordinary and penalty interest under the
Documents, and such expenses as Pledgee may incur in order to enforce is rights
under the Documents, Pledgor hereby pledges to Pledgee and grants to Pledgee a
first priority lien on and security interest in the Equipment, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto.

            (b) The pledge hereby created is granted as security only and shall
not subject Pledgee to, or transfer or in any way affect or modify, any
obligation or liability of Pledgor with respect to any of the Equipment, or
except as

                                       3
<PAGE>

                                        Machinery and Equipment Pledge Agreement

otherwise provided in this Agreement, any transaction in connection therewith.

            (c) Pledgee may at any time request that Pledgor ratify this
Agreement before a Notary Public, if deemed advisable by Pledgee, and Pledgor
shall promptly comply with any such request.

            (d) The parties hereby irrevocably agree, accept and acknowledge
that solely by the fact that Future Equipment owned by Pledgor enters the
Premises (as defined below), a deposit of such Future Equipment with the
Depositary shall have taken place pursuant to Article 334 of the Commerce Code
of Mexico (Codigo de Comercio) and for the purposes of Article 334 Section IV of
the General Law of Credit Instruments and Transactions of Mexico (Ley General de
Titulos y Operaciones de Credito).

            (e) On the date hereof, Pledgor and the Depositary deliver to
Pledgee an itemized list of the Existing Equipment as described in Exhibit "A"
                                                                   -----------
hereto. Pledgor and the Depositary are obligated to deliver to Pledgee during
the months of January and July of each year, substantially in the form of
Exhibit "C" hereto, a written report of Future Equipment acquired by Pledgor
-----------
during the preceeding calendar month and of compliance with Clause Second
hereof. Pledgee is not obligated to review or verify the accuracy of such
report.

            SECOND. Deposit of the Equipment; Depositary.
                    ------------------------------------

            (a) The pledge subject matter hereof is created pursuant to Article
334 Section IV of the General Law of Credit Instruments and Transactions of
Mexico. To that effect, Pledgor hereby delivers the Equipment to the Depositary
and the Depositary hereby takes delivery of the Equipment, all of which is in
good condition and suitable for operation, both in terms and for all purposes
provided for by Article 334 of the Commerce Code of Mexico and the Depositary is
hereby appointed by Pledgee and Pledgor as depositary of such Equipment. The
Depositary, in turn, hereby irrevocably accepts his/her appointment as
depositary of the Equipment and accepts that she will receive no consideration
for the performance of his/her duties hereunder.

            (b) Pledgor shall deliver to Pledgee as soon as available and in any
event within 75 (seventy five) days after the end of each month of January and
July of each year the financial statements for the two previous quarters

                                       4
<PAGE>

                                        Machinery and Equipment Pledge Agreement

together with a certificate of a high ranking financial officer of Pledgor
identifying the information relating to the Equipment therein.

            (c) Pledgor expressly authorizes the Depositary to enter and exit
the Premises at any time in order to fulfill the Depositary's obligations
hereunder, and shall facilitate compliance by the Depositary with such
obligations.

            (d) As required by Article 334 Section IV of the General Law of
Credit Instruments and Transactions of Mexico, Pledgor expressly authorizes.
Pledgee and its designees to enter and exit the Premises at any time exclusively
for purposes of this Agreement. During the life of this Agreement, Pledgor and
the Depositary shall refrain from limiting or obstructing, directly or
indirectly, Pledgee's access to the Equipment.

            (e) Pledgor will allow Pledgee and the accounting and legal firms
selected by Pledgee to review, during normal business hours, the accounting
books, records and files of Pledgor related to the Equipment at any time with
prior written notice given by Pledgee to Pledgor at least 2 (two) business days
in advance.

            (f) The Depositary shall keep the legal possession of the Equipment
and agrees that such Equipment shall be physically kept at Lote 1, A.B.C., S/N,
Corredor Industrial Ixtacuixcla, Fraccionamiento San Diego Xocoyucan, Tlaxcala,
Tlaxcala (the "Premises"). The Equipment shall not be removed from the Premises
               --------
without Pledgee's prior written consent; provided, however, that any item of
                                         --------  -------
Equipment may, under the strict responsibility of the Depositary, be removed
from the Premises without Pledgee's prior written consent for the sole and
exclusive purpose of conducting repairs to same and the Depositary maintains at
all times, and it shall be deemed that the Depositary has maintained at all
times, legal possession thereof. Upon completion of any such repairs any such
item of Equipment shall immediately be returned to the Premises. Provided no
breach in terms of the Facility or otherwise violation of any provision or
obligation under the Facility exists and is continuing, and that Pledgor has not
become insolvent or be in a suspension of payments scenario, the Depositary
shall allow Pledgor or a third party to make reasonable use of the Equipment at
the Premises, in accordance with its nature and purpose, and in compliance with
all applicable laws, rules, regulations and concessions or agreements affecting
the Equipment.

                                       5
<PAGE>

                                        Machinery and Equipment Pledge Agreement

            (g) The Depositary shall be responsible to Pledgee, personally and
up to an amount equal to the market price of the Equipment granted in pledge
hereunder, for any and all deterioration, loss, consequential, incidental and/or
expectation damages caused by Pledgor's willful misconduct, negligence or abuse
of the Equipment, except normal tear and wear, which results in the reduction of
the value of the Equipment and the resulting reduction in value or insufficiency
of the pledge granted herein.

            (h) The Depositary shall also be responsible to Pledgee, personally
and up to an amount equal to the market price of the Equipment granted in pledge
hereunder, for all consequential, incidental and/or expectation damages caused
by or arising from the Depositary's loss of possession of the Equipment and/or
from any situation that results in damage to or loss of the Equipment in any way
affecting Pledgee's rights over said Equipment, except normal tear and wear.

            (i) Upon the occurrence of a breach under the Facility and upon
written notice by Pledgee to the Depositary of the occurrence of such breach,
with an explanation of such breach, the Depositary shall immediately (y) return
the Equipment to the address specified by Pledgee in the United States of
America or within Mexico, and (z) deliver possession of the Equipment to
Pledgee.

            (j) If the Depositary passes away or fails to comply with his/her
obligations hereunder Pledgee and Pledgor shall appoint a new depositary of the
Equipment within 5 days following the date on which the Depositary passed away
or, as the case may be, the date on which either Pledgee or Pledgor notified the
other of the Depositary's failure to comply with his/her obligations. If a new
depositary is not appointed and accepts his/her position within such period of
time, without the need for notice or judicial or extrajudicial resolution of any
kind, no late than the 5th (fifth) following business day, possession of the
Equipment shalt be delivered to Pledgee or its designated agent for all purposes
of Article 334 Section I of the General Law of Credit Instruments and
Transactions of Mexico, at the place indicated by Pledgee.

            THIRD. Further Acts. Pledgor agrees to do such further acts and
                   ------------
things, and to execute and deliver such additional agreements and instruments,
as Pledgee may at any time reasonably request in connection with the
administration and enforcement of this Agreement or with respect to the
Equipment

                                       6
<PAGE>

                                        Machinery and Equipment Pledge Agreement

or any part thereof as the case may be or in order better to assure and confirm
unto Pledgee its rights and remedies hereunder.

            FOURTH. Release of the Pledge. Upon full compliance of all of the
                    ---------------------
Secured Obligations, Pledgee shall release the pledge hereby created. The
release of Equipment upon the termination of this Agreement shall be without
warranty by Pledgee and shall be made by Pledgee at the expense of Pledgor.

            FIFTH. Duration. The security interest hereby created and the
                   --------
obligations of the Depositary hereunder shall remain in full force and effect
until the date on which the Payments are paid in full pursuant to the terms
provided for in the Documents. Pledgor hereby waives any present or future right
it may have to demand the total or partial release of the security interest
hereby created as a result of any reduction of the Secured Obligations.

            SIXTH. Representation and Warranties of Pledgor. Pledgor represents
                   ----------------------------------------
and warrants to Pledgee that:

            (a) It is the record legal owner of the Equipment and that it has
complied with all laws, regulations and legal rules and obtained all
authorizations, licenses, permits and consents of any kind as necessary to be
able to comply with its obligations, contractual or otherwise, arising hereunder
or affecting the Equipment, and to enforce its rights, contractual or otherwise,
arising hereunder or affecting the Equipment;

            (b) By the execution of this Agreement and delivery to the
Depositary of the Equipment, Pledgee has acquired a valid and perfected security
interest in the Equipment subject to no prior lien. The security interest in the
Equipment created hereby constitutes a first, prior, and indefeasible security
interest with respect to such Equipment;

            (c) It has the legal right, power and capacity to pledge and grant a
security interest in the Equipment in its capacity in the manner provided
herein; and

            (d) All of its representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement, until the Secured Obligations have been satisfied in full.

                                       7
<PAGE>

                                        Machinery and Equipment Pledge Agreement

            SEVENTH. Assignability. This Agreement shall be binding upon and
                     -------------
inure to the benefit of each of Pledgor and Pledgee and their respective
successors. Pledgor may not assign any of its rights or obligations hereunder.
Pledgee shall have the right at any time, upon notice to Pledgor, to sell,
assign, transfer, negotiate or grant participation in all or any of its rights
hereunder. Due to the ancillary nature of this Agreement, the parties hereto
expressly agree that the pledge interest granted herein shall be automatically
transferred, without prior notice to Pledgor, upon the sale or endorsement,
assignment, transfer, negotiation or granting of participation of the Facility
it secures.

            EIGHT. Rights Absolute. All rights of Pledgee hereunder, the grant
                   ---------------
of a security interest in the Equipment and all obligations of Pledgor hereunder
shall be absolute and unconditional irrespective of any perfection, exchange,
release or non-perfection of any other collateral, or any release or amendment
or waiver of or consent to or departure from any guaranty, for all or any of the
Secured Obligations. No failure or delay of Pledgee and, to the extent
applicable, Pledgor in exercising any right, power or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.

            NINTH. Modification. No amendment, modification, termination, or
                   ------------
waiver of any provision of this Agreement shall be effective unless the same is
in writing and signed by the party against which the enforcement of the
amendment, modification, termination or waiver shall be sought and delivered to
the Pledgee.

            TENTH. Notices. All notices, requests, demands, directions, consents
                   -------
and other communications given or sent under this Agreement shall be in writing
and mailed (return receipt requested) or telegraphed, telefaxed or delivered to
the applicable party at its address or telefax indicated below, or with respect
to any party, at such other address as such party may designate by written
notice to the other parties. Notices shall be deemed to have been received, if
given by telefax, on possession of a correct transmission slip; if delivered by
hand, at the time of such delivery; and if delivered by mail on possession of
evidence of delivery to the respective addressee.

                                       8
<PAGE>

                                        Machinery and Equipment Pledge Agreement

Pledgor:                                  Pledgee:

Tarrant Mexico, S. de R.L. de C.V.        Transit Holding, Inc.

Lote 1, A.B.C., S/N,                      555 California Street, 4th Floor
Corredor Industrial Ixtacuixcla,          San Francisco, CA 94104
Fraccionamiento San Diego Xocoyucan,
Tlaxcala, Tiaxcala                        Att'n.: Contract Administrator

Telephone: (248) 471-25                   Telephone: (415) 765-7300

Facsimile: (248) 422-18                   Facsimile: (415) 765-7373

Depositary:

Mrs. Nafiseh Sedaghat

Lote 1, A.B.C., S/N,
Corredor Industrial Ixtacuixcla,
Fraccionamiento San Diego Xocoyucan,
Tlaxcala, Tlaxcala

Telephone:  (248) 471-25

Facsimile:  (248) 422-18

            ELEVENTH. Language. This Agreement is executed in the English and
                      --------
Spanish languages. The parties agree that, in case of dispute, the Spanish
version shall prevail, except in actions instituted in any country where English
is the official language, in which case the English version shall prevail.

            TWELFTH. Novation. Neither the execution hereof nor the pledge on
                     --------
the Equipment hereunder constitutes a novation, amendment, payment, satisfaction
or extinction of Pledgor's obligations under the Documents or any other
documents, security arrangements or agreements related to the Documents.

            THIRTEENTH. Governing Law; Jurisdiction. This Agreement shall be
                        ---------------------------
governed by the laws of Mexico.

                                       9
<PAGE>

                                        Machinery and Equipment Pledge Agreement

            FOURTEEN. Expenses. All expenses, fees, taxes and duties arising
                      --------
from or relating to the execution of this Agreement, including duties, taxes and
charges arising either from the return of the Equipment to the United States of
America or the definitive import of the Equipment into Mexico and, as the case
may be, notarization, registration and recordation of this Agreement, shall be
paid exclusively by Pledgor.

            FIFTEEN. Counterparts. This Agreement may be executed and
                     ------------
acknowledged in any number of counterparts and each such counterpart shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same document.

                           (Signature page follows)

                                      10
<PAGE>

                                        Machinery and Equipment Pledge Agreement

            IN WITNESS WHEREOF, the parties hereto have themselves executed or
caused this Machinery and Equipment Pledge Agreement to be executed by their
duly authorized representatives as of the date first above written.

---------------------------------------
               FATIMA A. PALACIOS
              Commission # 1131492
[SEAL]     Notary Public-- California
               Los Angeles County
          My Comm. Expires Mar 26, 2001
---------------------------------------
[Illegible]
NOTARY PUBLIC

                              "Pledgor"

                              TARRANT MEXICO, S. DE R.L. DE C.V.

                              By: /s/ Corazon Reyes
                                  ------------------------------
                              Name: Mrs. Corazon Reyes
                              Title: Attorney-in-fact

                              "Pledgee"

                              TRANSIT HOLDING, INC.

                              By: /s/ GAIL D. SMEDAL
                                  ------------------------------
                              Name: GAIL D. SMEDAL
                              Title: VICE PRESIDENT

                              "Depositary"

                              MRS. NAFISEH SEDAGHAT

                              /s/ NAFISEH SEDAGHAT
                              ----------------------------------

                                      11
<PAGE>

                                                      Exhibit A to the Machinery
                                                  and Equipment Pledge Agreement

LIST OF EXISTING EQUIPMENT
--------------------------

DESCRIPTION
-----------
<PAGE>

--------------------------------------------------------------------------------
COMPANY NAME                      DESCRIPTION                   INVOICE AMOUNT
--------------------------------------------------------------------------------
Taylor-Dunn                       Rover                           $14,996.27
--------------------------------------------------------------------------------
                                  Rover                            $4,998.76
--------------------------------------------------------------------------------
                                  Loadmaster                       $5,013.80
--------------------------------------------------------------------------------
Total Taylor-Dunn                                                 $25,008.83
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Gertier Technology                AccuPlot 320 Plotter           $130,925.00
--------------------------------------------------------------------------------
                                  Automatic Cutter               $276,293.00
--------------------------------------------------------------------------------
                                  Automatic Cutter               $262,391.00
--------------------------------------------------------------------------------
Total Gerber Technology                                          $669,609.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
West Point Foundry                Warping Machines             $1,691,108.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Pacific Stream Equipment          Air Compressor                 $100,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Bruckner                          Textile Equipment            $1,000,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Ludell Manufacturing Co.          Water Heater                   $117,000.00
--------------------------------------------------------------------------------
                                  Water Heater                    $63,000.00
--------------------------------------------------------------------------------
Total Ludell                                                     $180,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Jarke Corporation                 Racks                           $20,116.50
--------------------------------------------------------------------------------
                                  Racks                           $23,385.80
--------------------------------------------------------------------------------
                                  Racks                           $20,116.50
--------------------------------------------------------------------------------
                                  Racks                           $23,385.80
--------------------------------------------------------------------------------
                                  Racks                            $9,859.60
--------------------------------------------------------------------------------
                                  Racks                           $23,385.80
--------------------------------------------------------------------------------
Total Jarke                                                      $120,250.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Termoelectronica                  Dyeing Equipment               $700,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Hoffman/New Yorker, Inc.          Legger Press                   $109,106.66
--------------------------------------------------------------------------------
                                  Legger Press                    $97,560.00
--------------------------------------------------------------------------------
                                  Legger Press                   $103,333.34
--------------------------------------------------------------------------------
Total Hoffman                                                    $310,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Applied membranes, Inc.           Water Treatment System         $489,201.17
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
GRAND TOTAL                                                    $5,285,177.00
--------------------------------------------------------------------------------
<PAGE>

                                                      Exhibit B to the Machinery
                                                  and Equipment Pledge Agreement

COPY OF THE FACILITY
--------------------
<PAGE>

                                                                 Lease No. 16501

          LEASE INTENDED AS SECURITY ("Lease") dated as of November 3, 1999,
      between TRANSIT HOLDING, INC., a Delaware corporation, a subsidiary of
      Banc of America Leasing & Capital LLC with an office at 555 California
      Street, 4th Floor, San Francisco, California, 94104 ("Lessor") and TAG
      MEX, INC., a California corporation, with its principal office at 3151
      Washington Blvd., Los Angeles, CA 90023 ("Lessee").

      Lessor agrees to acquire and lease to Lessee and Lessee agrees to lease
from Lessor certain personal property (the "Units" and individually a "Unit")
described in the appendix to the Lease attached hereto and made a part hereof,
or any other appendix hereto that Lessor and Lessee may enter into from time to
time (each an "Appendix") hereof, on the terms and conditions set forth herein
and in the relevant Appendix.

Section 1 Procurement, Delivery and Acceptance.
--------- ------------------------------------

   1.1   Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one or
more vendors ("Vendors"). Lessee shall, on the date of each Appendix, assign to
Lessor all of Lessee's right, title and interest in and to the Purchase
Agreements for the Units described in the Appendix by executing and delivering
to Lessor a Purchase Agreement Assignment in the form of Exhibit A (a "Purchase
                                                         ---------
Agreement Assignment"). Lessor agrees to (a) accept the assignment and (b)
subject to Section 1.2, assume the obligations of Lessee under the Purchase
Agreements to purchase and pay for the Units, but no other duties and
obligations thereunder. Nevertheless, Lessee shall remain liable to Vendor with
respect to its duties and obligations in accordance with the Purchase
Agreements.

    1.2  The obligation of Lessor to pay for each Unit is subject to
satisfaction of the conditions precedent set forth in Paragraph B.2 of the
relevant Appendix. If any of those conditions is not met with respect to any
Unit, Lessor shall assign to Lessee all of Lessor's right, title and interest in
and to the Unit and any bill of sale or Purchase Agreement previously assigned
to Lessor as it relates to the Unit.

    1.3  Lessee shall forward to Lessor original invoices relating to each Unit
to be accepted under the terms of this Lease and the relevant Appendix. If
Lessee has received title and possession of the Unit before executing a Purchase
Agreement Assignment relating thereto, Lessee will execute a bill of sale
conveying title thereto to Lessor. Lessor shall prepare an Acceptance
Certificate in the form of Exhibit B (an "Acceptance Certificate") together with
                           ---------
a Schedule to the Acceptance Certificate in the form of Exhibit C (a "Schedule")
                                                        ---------
based upon the criteria in the relevant Appendix. Lessee shall execute and
return the Acceptance Certificate and Schedule within five (5) business days
after the preparation of such Schedule confirming the date Lessee has received
such Unit, or, the date when any required installation and testing is completed
(the "Delivery Date"), and confirming that the Lessee has accepted the Unit
under Lease as of its Delivery Date. Upon receipt of the executed Acceptance
Certificate and Schedule, Lessor shall pay the Purchase Price (as defined in the
relevant Appendix) with respect to the Units described therein.

Section 2 Term, Rent and Payment.
--------- ----------------------

    2.1  The term of this Lease for each Unit (its "Lease Term") shall begin on
the date of the Appendix describing the Unit and continue as specified in its
Appendix and Schedule.

    2.2  Lessee shall pay Lessor rent for each Unit in the amounts and at the
times specified in its Appendix and Schedule.

    2.3  Rent and all other sums due Lessor hereunder shall be paid at the
office of Lessor set forth below, unless otherwise specified by Lessor.

    2.4  THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ABATEMENT
OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY REASON OF
ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST LESSOR OR
OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LEASE SHALL NOT
TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE OTHERWISE AFFECTED
BY ANY CIRCUMSTANCE, including, without limitation, (a) any defect in, damage
to, loss of possession or use or destruction of any Unit, however caused, (b)
the attachment of any lien, encumbrance, security interest or other right or
claim of any third party to any Unit, (c) any prohibition or restriction of or
interference with Lessee's use of any Unit by any person or entity, (d) the
insolvency of or the commencement by or against Lessee of any bankruptcy,
reorganization or similar proceeding, or (e) any other cause, whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. IT IS THE INTENTION OF THE PARTIES THAT ALL RENT AND OTHER
AMOUNTS PAYABLE BY LESSEE HEREUNDER SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER
AND AT THE TIMES HEREIN PROVIDED UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF
HAVE BEEN TERMINATED PURSUANT TO EXPRESS PROVISIONS HEREOF.

                                                                   LESSOR'S COPY

                                       1
<PAGE>

    2.5  Payments shall be applied in the following order: (a) Lessor's
expenses, including without limitation those set forth in Sections 8.4 and 19;
(b) interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.

Section 3 Representations and Warranties.
--------- ------------------------------

Lessee hereby represents and warrants to Lessor as follows:

    3.1  Lessee is a corporation duly organized and existing under the laws of
the state of its incorporation, is qualified to do business in every state in
which the quantity or nature of its business or property make such qualification
necessary, is in good standing in each such state and has full and adequate
corporate powers to carry on and conduct its business as now conducted.

    3.2  The Lease has been duly authorized, executed and delivered by Lessee
and is a legal, valid and binding agreement of Lessee.

    3.3  Lessee has the power and authority to execute and deliver the Lease and
perform its obligations under this Lease; and the execution and delivery of the
Lease by Lessee does not, and performance by Lessee thereof will not, materially
contravene any charter or by-law provision of Lessee or of any indenture,
covenant, instrument or agreement of to which Lessee is a party or by which
Lessee or any of its properties is bound or affected.

    3.4  No approval, consent, exemption, authorization or other action by, or
notice to or filing with, any government authority is necessary in connection
with the execution, delivery, performance by Lessee or enforcement by Lessor of
the Lease, or if necessary the same has been obtained.

    3.5  There is no law, rule or regulation that would be contravened by the
execution, delivery, performance by Lessee or enforcement by Lessor of the
Lease, nor to Lessee's knowledge are there, as of the date hereof, any actions,
suits, or proceedings (whether or not purportedly on behalf of Lessee) pending,
or to Lessee's knowledge, threatened against or affecting Lessee, at law or in
equity or before any Federal, state, municipal or other governmental department,
commission, board, bureau, agency, court or instrumentality, which involve the
possibility of any judgment, or liability, which items are not fully covered by
insurance, or which may result in any material adverse effect in the business,
operations, properties or assets or in the condition, financial or otherwise, of
Lessee, or the ability of Lessee to carry on its business and the performance of
its obligations hereunder, and Lessee has no knowledge of any default on
Lessee's part with respect to any order, writ, injunction or decree of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that may result in such material
adverse effect.

    3.6  The Lease is enforceable against Lessee in accordance with its terms,
except as such enforcement may be subject to applicable bankruptcy,
rehabilitation, liquidation, conservation, dissolution, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and is subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity.

LESSEE ACKNOWLEDGES AND AGREES THAT (a) EACH UNIT IS OF A SIZE, DESIGN, CAPACITY
AND MANUFACTURE SELECTED BY LESSEE, (b) LESSEE IS SATISFIED THAT THE SAME IS
SUITABLE FOR ITS PURPOSES, (c) LESSOR IS NOT A MANUFACTURER THEREOF NOR A DEALER
IN PROPERTY OF SUCH KIND AND (d) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE,
ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS FOR
PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the extent
assignable, any warranties, covenants and representations of Vendor with respect
to any Unit, but any action taken by Lessee by reason thereof shall be at
Lessee's expense and shall be consistent with Lessee's obligations under Section
2.

Section 4 Possession, Use and Maintenance.
--------- -------------------------------

    4.1  Lessee shall not (a) use, operate, maintain or store any Unit
improperly, carelessly or in violation of any applicable law or regulation of
any government authority, (b) abandon any Unit, (c) sublease any Unit or permit
its use by anyone other than Lessee without the prior written consent of Lessor,
(d) permit any Unit to be removed from the location or principal base, as the
case may be, specified in the relevant Appendix or permit any Unit that is a
motor vehicle to be registered in any state other than as specified in the
relevant Appendix without the prior written consent of Lessor within 15 days
therefrom, (e) affix or place any Unit to or on any other personal property or
any real property without first obtaining and delivering to Lessor such waivers
as Lessor may reasonably require to assure Lessor's legal title and security
interest and right to remove the Unit free from any lien, encumbrance, right or
claim asserted by any third party or (f) sell, assign or transfer, or directly
or indirectly create, incur or suffer to exist any lien, encumbrance, right or
claim of any kind on any of its rights hereunder or in any Unit.

                                       2
<PAGE>

    4.2  Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.

    4.3  Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit if that would impair any applicable warranty, the originally
intended function or the value of the Unit. All repairs, parts, accessories,
equipment and devices furnished, affixed to or installed on any Unit, excluding
temporary replacements, shall thereupon become subject to the security interest
of Lessor.

    4.4  If Lessor supplies Lessee with a label, plate or other marking stating
that each Unit is leased from Lessor, Lessee shall affix and keep it on a
prominent place on each Unit to the extent attachable and so as not to damage
the Unit or expose the Unit to partial damage during its Lease Term.

    4.5  Upon 2 business days prior notice to Lessee, Lessor and its designees
shall have the right at all reasonable times to inspect any Unit, observe its
use and inspect records related thereto.

Section 5 General Tax Indemnity.
--------- ---------------------

    5.1  Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all government fees (including, but not limited to, license.
documentation, recording or registration fees) and all sales, use, gross
receipts, property, occupational, value-added or other taxes, levies, imposts,
duties, assessments, charges or withholdings of any nature whatsoever, together
with any penalties, fines or additions to tax, or interest thereon (each of the
foregoing being hereafter referred to as an "Imposition"), arising at any time
before or during the Lease Term, or upon any termination of this Lease or return
of the Units to Lessor, and levied or imposed on Lessor, directly or otherwise,
by any federal, state or local government or taxing authority in the United
States or by any foreign country or foreign or international taxing authority on
or with respect to (a) any Unit, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any Unit
or (d) this Lease or any payment made hereunder, excluding, however, taxes
measured by Lessor's net income imposed or levied by the United States or any
state thereof or any other jurisdiction unless such taxes are in lieu of or in
substitution for any Impositions Lessee would otherwise have been obligated to
pay, reimburse or indemnify hereunder.

    5.2  Lessee shall pay on or before the time or times presented by law each
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1), but Lessee
shall have no obligation to pay an Imposition that Lessee is contesting in good
faith and by appropriate legal proceedings and the nonpayment thereof does not,
in the reasonable opinion of Lessor, adversely affect the title, property, use,
disposition or other rights of Lessor with respect to the Units. If any
Imposition (except an Imposition excluded by Section 5.1) is charged or levied
against Lessor directly and paid by Lessor, Lessee shall reimburse Lessor on
presentation of an invoice therefor.

    5.3  If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1 or 5.2 and the payment or reimbursement constitutes income to Lessor, then
Lessee shall also pay to Lessor the amount of any Imposition Lessor is obligated
to pay in respect of (a) such payment or reimbursement by Lessee and (b) any
payment by Lessee made pursuant to this Section 5.3.

    5.4  Lessee shall prepare and file, in a manner satisfactory to Lessor, any
reports or returns required with respect to the Units. Lessee shall furnish on
Lessor's request reports or returns so filed.

Section 6 Risk of Loss: Waiver and Indemnity.
--------- ----------------------------------

    6.1  If any Unit is worn out, lost, stolen, destroyed or irreparably
damaged, from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during its Lease Term, Lessee shall give Lessor prompt notice thereof.
On the first rent payment date after the Casualty Occurrence or, if there is no
such rent payment date, 30 days after the Casualty Occurrence, Lessee shall pay
to Lessor, in addition to any amounts then due and owing, an amount equal to the
then "Balance Due" (as hereinafter defined) for the Unit and any "Other Charges"
required under the relevant Appendix. The Balance Due for each Unit is the sum
of

         (a) any and all amounts with respect to such Unit which under the terms
of this Lease may be then due (other than any Other Charges) or which may have
accrued to such payment date (computing the rent for any number of days less
than a full rent period by multiplying the rent for such rental period by a
fraction of which the numerator is such number of days and the denominator is
the total number of days in such full rent period); plus

                                       3
<PAGE>

         (b) before the Base Date for such Unit, as set forth in the relevant
Appendix, the amount Lessor is obligated to pay for such Unit, and thereafter,
the sum of (i) the present value, as of such payment date, of the entire unpaid
balance of all rent for such Unit that would otherwise have accrued hereunder
from such payment date to the end of its Lease Term and (ii) the present value,
as of such payment date, of the Purchase Amount therefor as defined in the
relevant Appendix.

    Present values are to be computed in each case by discounting at the
applicable Implicit Interest Rate set forth in the relevant Appendix.

    Upon the making of such payment by Lessee in respect of any Unit, the rent
for the Unit shall cease to accrue, its Lease Term shall terminate and Lessee
shall be entitled to possession of such Unit. If Lessor receives the Balance Due
and Other Charges for a Unit, Lessee shall be entitled to the proceeds of any
recovery in respect of the Unit, from insurance or otherwise, and Lessor,
subject to the rights of any insurer insuring the Units as provided herein,
shall execute and deliver, to Lessee, or to its assignee or nominee, a bill of
sale (without representations or warranties except that the Unit is free and
clear of all claims, liens, security interests and other encumbrances by or in
favor of any person claiming by, through or under Lessor) for the Unit, and such
other documents as may be required to release the Unit from this Lease and to
transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense, except as
provided in this Section 6.1, Lessee shall not be released from its obligations
hereunder in the event of, and shall bear the risk of any Casualty Occurrence to
any Unit before or during its Lease Term.

    6.2   Lessee waives and releases any claim now or hereafter existing against
Lessor, any company controlled by, controlling, or under common control with
Lessor and all of their directors, officers, employees, agents, attorneys,
successors and assigns (each, an "Indemnified Person") on account of, and shall
indemnify, reimburse and hold each Indemnified Person harmless from, any and all
claims (including, but not limited to, claims based on or relating to copyright,
trademark or patent infringement, environmental liability, negligence, strict
liability in tort, statutory liability or violation of laws), losses, damages,
obligations, penalties, liabilities, demands, suits, judgments or causes of
action (collectively, "Claims"), and all legal proceedings, and any reasonable
costs or expenses in connection therewith, including reasonable attorneys' fees,
including reasonable allocated time charges of internal counsel, in each case
imposed on, incurred by or asserted against the Indemnified Person in any way
relating to or arising in any manner out of (a) the registration, purchase,
taking or foreclosure of a security interest in, or the ownership, delivery,
condition, lease, assignment, storage, transportation, possession, use,
operation, return, repossession, sale or other disposition of, any Unit, before
or during its Lease Term, (b) any alleged or actual defect in any Unit (whether
arising from the material or any article used therein, the design, testing, use,
maintenance, service, repair or overhaul thereof or otherwise) regardless of
when such defect is discovered or alleged, whether or not the Unit is in
Lessee's possession and no matter where it is located or (c) this Lease or any
other related document, the enforcement hereof or thereof or the consummation of
the transactions contemplated hereby or thereby, other than any Claim resulting
solely from the gross negligence or willful misconduct of Lessor (other than any
gross negligence or willful misconduct of another party imputed to Lessor),
unless covered by the insurance Lessee is required to maintain hereunder.

Section 7 Insurance.
--------- ---------

    Lessee, at its own cost and expense, shall keep each Unit insured against
all risks, in no event for less than the amount set forth in Section 6.1(b) with
respect to such Unit, and shall maintain public liability insurance against such
risks and for such amounts as Lessor may require. All such insurance shall be in
such form and with such companies as Lessor shall approve, shall specify Lessor
and Lessee as insureds and shall provide that such insurance may not be canceled
as to Lessor or altered in any way that would affect the interest of Lessor
without at least 30 days prior written notice to Lessor (10 days in the case of
nonpayment of premium). All insurance shall be primary, without right of
contribution from any other insurance carried by Lessor, shall contain a "breach
of warranty" provision satisfactory to Lessor, and shall provide that all
amounts payable by reason of loss or damage to the Units shall be payable solely
to Lessor, unless Lessor otherwise agrees. Lessee shall provide Lessor with
evidence satisfactory to Lessor of the required insurance of the time specified
in Paragraph B.2 of the relevant Appendix.

Section 8 Defaults; Remedies.
--------- ------------------

    8.1  The following shall constitute events of default ("Events of Default")
hereunder:

         (a) Lessee fails to make any payments to Lessor when due hereunder;

         (b) any representation or warranty of Lessee contained herein or in any
document furnished to Lessor in connection herewith is incorrect or misleading
in any material respect when made;

         (c) Lessee fails to observe or perform any other covenant, agreement or
warranty made by Lessee hereunder or under any document delivered pursuant
hereto and such failure continues for 10 days after written notice thereof to
Lessee;

                                       4
<PAGE>

         (d) any default occurs under any other agreement for borrowing money or
receiving credit under which Lessee or any guarantor or general partner of
Lessee may be obligated as borrower, lessee or guarantor, if such default (i)
consists of the failure to pay any indebtedness when due or perform any other
obligation thereunder and (ii) gives the holder of the indebtedness the right to
accelerate the indebtedness;

         (e) Lessee, any guarantor of this Lease or any general partner of
Lessee makes an assignment for the benefit of creditors or files any petition or
action under any bankruptcy, reorganization, insolvency or moratorium law, or
any other law or laws for the relief of, or relating to, debtors;

         (f) any guarantor of this Lease breaches or fails to perform any
covenant in its guaranty, required by this Lease expires or terminates without
Lessor's consent;

         (g) an involuntary petition is filed under any bankruptcy statute
against Lessee, any guarantor of this Lease or any general partner of Lessee, or
any receiver, trustee, custodian or similar official is appointed to take
possession of the properties of Lessee, any guarantor of this Lease or any
general partner of Lessee, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 60 days from the date of the filing
or appointment; or

         (h) Lessee, any guarantor of this Lease liquidates, dissolves, or
sells, leases or disposes of a substantial portion of its business or assets.

   8.2   If any Event of Default occurs, Lessor, at its option, may:

         (a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof; or

         (b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to retain possession of and use the Units shall terminate, but
Lessee shall remain liable as hereinafter provided, and Lessor may, at its
option, do any one or more of the following: (i) declare the aggregate Balance
Due with respect to the Units and all Other Charges immediately due and payable
and recover any damages and expenses in addition thereto Lessor sustains by
reason of the breach of any covenant, representation or warranty contained in
this Lease other than for the payment of rent; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code or any other
law; (iii) enter upon the premises where any of the Units may be and take
possession of all or any of such Units; and (iv) require Lessee to return the
Units as provided in Section 9.

    8.3  Lessor shall have any and all rights given to a secured party by law,
and may, but is not required to, sell the Units in one or more sales. Lessor may
purchase the Units at such sale. Lessee acknowledges that sales for cash or on
credit to a wholesaler, retailer or user of the Units, or at public or private
auction, are all commercially reasonable. The proceeds of such sale shall be
applied in the following order. First, to the reasonable expenses of retaking,
                                -----
holding, preparing for sale and selling, including the allocated time charges,
costs and expenses of internal counsel for Lessor and any other attorneys' fees
and expenses incurred by Lessor; Second, to the amounts, except those specified
                                 ------
below, which under the terms of this Lease are due or have accrued; Third, to
                                                                    -----
late charges; and Fourth, to the aggregate Balance Due. Any surplus shall be
                  ------
paid to the person or persons entitled thereto. If there is a deficiency, Lessee
will promptly pay the same to Lessor.

    8.4  Lessee agrees to pay all reasonable allocated time charges, costs and
expenses of internal counsel for Lessor and any other attorneys' fees, expenses
or out-of-pocket costs incurred by Lessor in enforcing this Lease.

    8.5  The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.

   8.6  If Lessee fails to perform any of its agreements contained herein,
Lessor may perform such agreement, and Lessee shall pay the expenses incurred by
Lessor in connection with such performance upon demand.

Section 9 Return of Units.
--------- ---------------

    If Lessor rightfully demands possession of any Unit pursuant to this Lease
or otherwise, Lessee, at its expense, shall forthwith deliver possession of the
Unit to Lessor, together with its manuals and maintenance records, in the
condition required by Section 4 and any additional return requirements specified
in the relevant Appendix, by preparing and appropriately protecting the Unit for
shipment and, at the option of Lessor, (a) surrendering it to Lessor at a
location within the Republic of Mexico as specified by Lessor or (b) loading the
Unit on board such carrier as Lessor shall specify and shipping the same,
freight collect, to Lessor as the place designated by Lessor in the state where
the Unit was located or based pursuant to the relevant Appendix.

                                       5
<PAGE>

Section 10 Assignment.
---------- ----------

    Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and advantages
of Lessor hereunder, including the rights to receive payment of rent or any
other payment hereunder, Lessor's title to the Units and any and all obligations
of Lessor in connection herewith. Lessor may disclose to any potential or actual
assignee or transferee any information in the possession of Lessor or any of its
affiliates relating to Lessee or this Lease. Lessor may not disclose any
information in the possession of Lessor that as subject to a confidentiality
agreement without the prior written consent of Lessee, which shall not be
unreasonably withheld. Any such assignment or transfer shall be subject and
subordinate to this Lease and the rights and interests of Lessee hereunder. NO
ASSIGNMENT OF THIS LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE MADE BY
LESSEE OR ANY ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
WHICH SHALL NOT BE UNREASONABLY WITHHELD.

Section 11 Ownership and Security Interest: Further Assurances.
---------- ---------------------------------------------------

    Unless assigned by Lessor, or applicable law otherwise provides, title to
and ownership of the Units shall remain in Lessor as security for the
obligations of Lessee hereunder until Lessee has fulfilled all of its
obligations hereunder. Lessee hereby grants to Lessor a continuing security
interest in the Units to secure the payment of all sums due hereunder.

    Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may materially and adversely affect its financial condition or
impair its ability to perform its obligations hereunder. Lessee will, at its
expense, maintain its legal existence in good standing and do any further act
and execute, acknowledge, deliver, file, register and record any further
documents Lessor may reasonably request in order to protect Lessor's title to
and security interest in the Units and Lessor's rights and benefits under this
Lease.

Section 12 Late Payments.
---------- -------------

    Lessee shall pay to Lessor, on demand, interest at the rate set forth in the
relevant Appendix on the amount of any payment not made when due hereunder from
the dame due until payment is made.

Section 13 Effect of Waiver.
---------- ----------------

    No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breech or default under this Lease must
be in writing specifically set forth.

Section 14 Survival of Covenants.
---------- ---------------------

    All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 2, 9, 11 and 12
hereof and under each Appendix shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.

Section 15 Applicable Law; Severability.
---------- ----------------------------

    This Lease shall be governed by and construed under the laws of California,
to the jurisdiction of which and of federal courts in California, the parties
hereto submit. If any provision hereof is held invalid, the remaining provisions
shall remain in full force and effect.

Section 16 Financial Information.
---------- ---------------------

    Lessee shall, and shall cause any guarantor to, keep its books and records
in accordance with generally accepted accounting principles and practices
consistently applied and shall, and shall cause any guarantor to, deliver to
Lessor (i) annual CPA-audited financial statements within 120 days of its fiscal
year end, (ii) quarterly company-prepared financial statements upon Lessor's
request, and (iii) such financial statement and information as may be set forth
in the relevant Appendix or as Lessor may reasonably request. Credit information
relating to Lessee, any guarantor or any general partner of Lessee may be
disseminated among Lessor and any of its affiliates and any of their respective
successors and assigns.

Section 17 Notices.
---------- -------

    All demands, notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or when
deposited in the mail, first class postage prepaid, or delivered to an express
carrier, charges prepaid, or sent by facsimile

                                       6
<PAGE>

transmission (with electronic confirmation of receipt) addressed to each party
at the address set forth below the signature of such party on the signature
page, or at such other address as may hereafter be furnished in writing by such
party to the other.

Section 18 Counterparts.
---------- ------------

    Two counterparts of this Lease have been executed by the parties hereto. One
counterpart has been prominently marked "Lessor's Copy". One counterpart has
been prominently marked "Lessee's Copy". Only the counterpart marked "Lessor's
Copy" shall evidence a monetary obligation of Lessee.

Section 19 Transaction Costs.
---------- -----------------

    Lessee will reimburse Lessor for any reasonable out-of-pocket costs or
expenses incurred in connection with the preparation and negotiation of the
lease documents, including but not limited to UCC searches, UCC filings,
appraisals, title searches and title insurance. If Lessor uses counsel in
connection with negotiating, drafting or altering this Lease or any related
documents, Lessee shall reimburse Lessor for any legal expenses of Lessor
(including allocated time charges of internal counsel for Lessor).

Section 20 Noninterference.
---------- ---------------

    So long as no Event of Default or event that, upon giving of notice or lapse
of time, could become an Event of Default exists, Lessor will not interfere with
the rights of enjoyment and use of the Units by Lessee.

Section 21 Effect and Modification of Lease.
---------- --------------------------------

    This Lease exclusively and completely states the rights of Lessor and Lessee
with respect to the leasing of the Units and supersedes all prior agreements,
oral or written, with respect thereto. No variation or modification of this
Lease shall be valid unless in writing.

         The parties hereto have executed this Lease as of the day and year
first written above.

TRANSIT HOLDING, INC.                      TAG MEX, INC.

By: /s/ [ILLEGIBLE]                        By: /s/ [ILLEGIBLE]
    ---------------------------                --------------------------

Title: Vice President                      Title: Chief Operating Officer
       ------------------------                   -----------------------

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

Address:       555 California Street,      Address:       3151 Washington Blvd.
               4th Floor                                  Los Angeles, CA 90023
               San Francisco, CA 94104     Attn:          Patrick Chow
Attn:          Contract Administration     Facsimile No.: (323) 415-0403
Facsimile No.: (415) 765-7373

                                       7
<PAGE>

          APPENDIX NO. 1 (this "Appendix") dated November 3, 1999 to LEASE
      INTENDED AS SECURITY number 16501 (the "Lease Agreement" and, together
      with this Appendix, the "Lease") dated as of November 3, 1999 between
      TRANSIT HOLDING, INC. ("Lessor") and TAG MEX, INC. ("Lessee"), defined
      terms therein not defined herein being used herein as so defined.

A.    Units.
      -----

      The Unit(s) to be leased under the Lease Agreement by this Appendix
consists of the new and used apparel manufacturing and production equipment, and
all accessories, modifications, replacements and substitutions, subject to
Lessor's right to disapprove any particular equipment for leasing hereunder.

B.    Purchase Price; Conditional Precedent.
      -------------------------------------

      1.   Purchase Price.
           --------------

           (a) "Purchase Price" with respect to each Unit means the amount
Lessor pays for the Unit. Without the prior written consent of Lessor: (i) the
purchase price of all Units shall not exceed $5,200,000 (the "Maximum Purchase
Price"); (ii) the Purchase Price of each Unit shall not exceed, in the case of
Units delivered to Lessee not more than 90 days before the date hereof, the
amount invoiced by Vendor therefor and, in the case of Units delivered to Lessee
more than 90 days before the date hereof; the fair market value for similar used
equipment; (iii) the aggregate amount of installation, transportation, any
applicable sales, use or similar front-end tax, any software costs or licensing
fees and any similar costs with respect to the aggregate of all Units shall not
exceed 20% of the total Purchase Price therefor; and (iv) Lessor shall not be
obligated to make payments of the Purchase Price of Units leased under this
Appendix more frequently than once in each calendar month and in aggregate
amounts on each such occasion of less than $100,000.

           (b) Lessor shall pay the Purchase Price directly to the relevant
Vendor, unless (i) Lessee pays any portion or the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) or (ii) Lessee has already
acquired title to the Units, in either of which cases Lessor shall pay the
relevant amount to Lessee.

      2.  Conditions Precedent to Funding. The obligation of Lessor to purchase
          -------------------------------
and pay for each Unit is subject to satisfaction of the following conditions
precedent:

          (a)  Lessee shall have executed and delivered to Lessor the
               Certificate and any Purchase Agreement Assignment or bill of sale
               and invoice therefor as required under Sections 1.1 and 1.3 of
               the Lease Agreement;

          (b)  the Delivery Date of the Unit shall be during the Utilization
               Period set forth below;

          (c)  there shall exist no Event of Default (nor any event which, with
               notice or lapse of time or both, would become an Event of
               Default);

          (d)  no material adverse change in Lessee's or any guarantor's or
               general partner of Lessee's financial condition shall have
               occurred since the date hereof;

          (e)  satisfactory resolution of any environmental issues; and

          (f)  delivery to Lessor, no later than the first assignment by Lessee
               of a Purchase Agreement under this Appendix (or, in the case of a
               sale and leaseback, the first Delivery Date), at Lessee's sole
               expense, of the following documents, in form and substance
               satisfactory to Lessor;

               (i)   evidence of Lessee's and any guarantor's authority to enter
                     into and perform its obligations under the Lease, and of
                     the incumbency of corporate or partnership officers or
                     identity of individuals authorized to execute and deliver
                     the Lease and any other agreement or document required
                     thereunder, including specimen signatures of such persons;

               (ii)  an opinion of counsel of Lessee and any guarantor;

               (iii) insurance certificates or other evidence acceptable to
                     Lessor that Lessee has complied with Section 7 of the Lease
                     Agreement;

                                       1
<PAGE>

               (iv)   UCC financing statements executed by Lessee together with,
                      at Lessor's option, certificates of filing officers as to
                      the nonexistence of any prior UCC filings and, in the case
                      of a sale and leaseback, evidence satisfactory to Lessor
                      that each Unit is free and clear of all claims, liens,
                      security interests and encumbrances;

               (v)    a guaranty of Tarrant Apparel Group;

               (vi)   an appraisal of the Units, other than new equipment,
                      satisfactory to Lessor, by an independent appraiser
                      acceptable to Lessor;

               (vii)  resolution, satisfactory to Lessor, of issues relating to
                      the arrangement of the transaction between Lessee and its
                      affiliate or subsidiary. Any documentation between Lessee
                      and its affiliate or subsidiary shall be reviewed by
                      Lessor and found reasonably acceptable to Lessor;

               (viii) a binding commitment from a U.S. financial institution or
                      a group of lenders for a working capital line of credit of
                      at least $100,000,000. Evidence of credit line commitment
                      shall be in form acceptable to Lessor; and

               (ix)   any other documents specified in this Appendix and such
                      other documents as Lessor may reasonably request.

C.    Interim Term and Base Term.
      --------------------------

      Rent for each Unit will accrue under the Lease during its Interim Term and
its Base Term. The "Scheduling Date" for each Unit is the date Lessor prepares
the Acceptance Certificate and Schedule. The "Interim Term" for each Unit will
begin on, and include, the date Lessor finds the Acceptance Certificate and
Schedule and continue until, and include, the day before its "Base Date". The
"Base Term" for each Unit will begin on, and include, its Base Date and continue
for 60 months. The "Base Date" for each Unit will be the first or fifteenth day
of the month during or immediately following the month in which the Scheduling
Date occurs, as specified by Lessor in the relevant Schedule.

      If Lessee does not execute and deliver to Lessor the Acceptance
Certificate and the Schedule for the Unit pursuant so Section 1.3 of the Lease
Agreement, Lessor may either terminate the Lease as to such Unit (and will do so
if any Unit requires installation or testing and the same is not completed to
Lessee's satisfaction) or reschedule the Base Date to the next succeeding month,
in which event the provisions of this sentence shall continue to apply.

D.    Utilization Period.
      ------------------

      All Delivery Dates for Units leased hereunder must occur between the date
of this Appendix and December 31, 1999, inclusive, which date may be extended by
Lessor by written notice to Lessee and any guarantor (the "Utilization Period").

E.   Rent.
     ----

     1.   Interim Rent. Lessee shall pay rent for each Unit ("Interim Rent") for
          ------------
each day of its Interim Term. Interim Rent shall be computed on the full amount
of the Purchase Price of the Unit at a daily rate equal to the daily equivalent
of the Unit's Base Rent.

     Interim rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Interim Rent is due and payable when billed by Lessor.

     2.   Base Rent. Lessee shall pay Lessor "Fixed Base Rent" "and Variable
          ---------
Base Rent" (collectively, "Base Rent") for each Unit during the ease Term in
arrears in 60 consecutive monthly installments, with the first such installment
due one month following the Base Date.

     The Fixed Base Rent installments will be applied to reduce the unamortized
balance of the Purchase Price and shall be in amounts sufficient to amortize the
Purchase Price of the Unit down to its Purchase Amount at the Initial Implicit
Interest Rate over its Base Term.

     Each Variable Base Rent installment shall be equal to interest during each
Rent Period on the unamortized balance of the Purchase Price of the Unit at the
Implicit Interest Rate for the Unit for such Rent Period.

                                       2
<PAGE>

      A "Rent Period" is the period beginning on, and including, a Base Rent
payment date (or, in the case of the first Rent Period, the Base Date) and
ending on, and excluding, the next succeeding Base Rent payment date.

      The Initial Implicit Interest Rate as to each Unit shall be established as
of 11:00 a.m. London time two business days before the Base Date and shall be
adjusted as of each Base Rent payment date during the Base Term (each an
"Adjustment Date"). The Base Rent installments shall be subject to further
adjustment at any time to reflect any reserve requirements or other charges that
may be imposed on Bank of America National Trust and Savings Association by the
Board of Governors of the Federal Reserve System or the Federal Deposit
Insurance Corporation, or any other regulatory agency. The amount of the initial
Base Rent installment shall be set forth in the Schedule to the relevant
Acceptance Certificate, and adjustments thereto shall be set forth in written
notices from Lessor to Lessee.

F.    Implicit Interest Rate. The "Implicit Interest Rate" for each Unit is a
      ----------------------
nominal rate per annum equal to 2.50 percentage points (the "Spread") in excess
of the Index Rate, compounded monthly and computed on the basis of a year of 360
days and 12 30-day months, which may result in more rent than if a 365-day year
were used. "Index Rate" with respect to each Unit means the average interbank
offered rate per annum ("LIBOR") for 3-month U.S. dollar deposits in the London
market at 11:00 a.m. (London time) at five major banks in London, New York and
San Francisco, two business days before the first day of each Rent Period in an
amount approximately equal to the unamortized balance of the Purchase Price at
the beginning of such Rent Period, as reported in Telerate System Page 3750 (or
any successor page).

      If for any reason LIBOR is not so quoted on any relevant date of
determination, the Index Rate during the relevant Rent Period will be an
equivalent rate per annum determined by Lessor.

G.    Location.
      --------

      The Units shall be located in Puebla, Mexico unless otherwise specified in
the Acceptance Certificate. Lessee shall give Lessor written notice of any
change in such location within 10 days of the date thereof.

H.    Other Charges.
      -------------

      I.  Late Payment Charges. The interest rate on late payments shall be 14%
          --------------------
per annum, computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.

      2.  Early Termination Charges.
          -------------------------

          (a)  Initial Direct Costs. Lessee acknowledges that Lessor will incur
               --------------------
certain costs in establishing this transaction ("Initial Direct Costs") and that
Lessor will amortize the Initial Direct Costs over the scheduled full term of
the Lease. Lessor estimates those costs as, and establishes on its books a
reserve therefor, in an amount equal to 1% of the aggregate Base Rent for the
Units. If the Lease is terminated for any reason before the scheduled expiration
of the Base Term, whether upon the exercise of any early termination option, a
casualty occurrence or a default, in addition to all other amounts to be paid by
Lessee, Lessee shall pay Lessor an amount equal to the unamortized portion of
the Initial Direct Costs.

1.   Early Termination.
     -----------------

     If no Event of Default exists, Lessee may, by notice to Lessor, terminate
the Lease with respect to all but not less than all the Units for which the
Lease expires on the same date. Such notice shall specify a date (the
"Termination Date") with respect to each Unit, not more than 120 and not less
than 30 days after such notice is given, which shall be a Base Rent payment date
on or after the later of the 24th month of the Base Term for the Unit or
one-half of the Base Term of the Unit. On the Termination Date of each Unit,
Lessee shall pay to Lessor the Balance Due for the Unit computed as of such date
and any Other Charges required hereunder. Upon such payment, the obligation of
Lessee to pay rent hereunder with respect to the Unit after the Termination Date
shall cease, the term for the Unit shall end on the Termination Date, and Lessor
shall execute and deliver to Lessee or its assignee or nominee a bill of sale
(without representations or warranties except that the Unit is free and clear of
all claims, liens, security interests and other encumbrances by or in favor of
any person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the terms of the Lease and
to transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense.

J.    Purchase Provision.
      ------------------

      At the end of the Base Term for a Unit, if the Lease has not been earlier
terminated with respect to the Unit, Lessee shall purchase the Unit for $1.00
(the "Purchase Amount").

                                       3
<PAGE>

      Upon Lessee's payment of the Purchase Amount, Lessor shall execute and
deliver, to Lessee, or its assignee or nominee, a bill of sale (without
representations or warranties except that the Unit is free and clear of all
claims, liens, security interests and other encumbrances by or in favor of any
person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the Lease and to transfer
title thereto to Lessee or such assignee or nominee, in such form as may
reasonably be requested by Lessee, all at Lessee's expense.

K.    Sale-Leaseback.
      --------------

      Section 1.1 shall not be applicable with respect to the Units identified
in Annex A to the bill of sale in a form acceptable to Lessor. The following
provisions shall govern the procurement, delivery and acceptance of such Units:

      1. On a date or dates to be agreed upon by Lessor and Lessee (individually
a "Delivery Date"). Lessor will purchase from and lease back to Lessee for an
amount equal to the agreed upon value of the Units identified in Annex A to the
bill of sale, and Lessee will sell to and lease back from Lessor each Unit, but
all Delivery Dates for such Units must be during the Utilization Period set
forth in this Appendix.

      2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:

         (a) On or before its Delivery Date, Lessee shall execute and deliver to
Lessor a bill of sale with respect to the Unit, dated as of the Delivery Date;
and

         (b) Lessor shall receive evidence, satisfactory to Lessor, that each
Unit is free and clear of all claims, liens, security interests and
encumbrances.

      If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no obligation to either Lessee or any third party to pay
the purchase price for such Unit.

      Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.

      3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessees right, title and interest in the Unit are, or will be as of its
Delivery Date, free from all claims, liens, security interests and encumbrances,
(c) Lessee will defend the sale against claims and demands of all persons and
(d) the purchase price of the Unit is equal to its fair market value at the time
of the sale.

L.    Deposit
      -------

      Lessee has paid to Lessor a Deposit of $10,000, representing .1923% of the
Maximum Purchase Price act forth in this Appendix (the "Commitment Percentage").
This fee will be applied to the first Base Rent installment, up to the full
amount of such installment, as such installments become due, until the deposit
is fully applied thereto. No part of this fee will be refunded or applied to any
other rent.

M.    Financial Benchmarks.
      --------------------

      Lessee shall at all times observe the following benchmarks (all
computations and definitions being determined in accordance with generally
accepted accounting principles). If a breach of any of the following benchmarks
occurs, Lessor, at its option, may cause the remaining unamortized balance of
the Purchase Price to be amortized over six (6) consecutive monthly
installments, with the first such installment to be due on the next succeeding
Base Rent payment date.

      (1)   maintain "Interest Coverage" (net income before taxes plus interest
            expense divided by interest expense) of not less than 3.0: 1.00; and

      (2)   total liabilities less debt subordinated to exceed 2.0 times
            tangible net worth (shareholder's equity less intangible assets)
            plus debt subordinated. Debt subordinated shall be calculated in a
            manner acceptable to Lessor.

N.    Maintenance Contract.
      --------------------

      In addition to the maintenance required by Section 4 of the Lease
Agreement, Lessee shall execute, at its own expense, a transferable and
assignable maintenance contract with the Vendor of the Units or other third
party which normally services such equipment in the ordinary course of business
and is acceptable to Lessor, and shall keep the contract in force until the
Units are surrendered to Lessor.

                                       4
<PAGE>

O.    Year 2000 Representation.
      ------------------------

      On the basis of a comprehensive review and assessment of Lessee's systems
and equipment and inquiry made of Lessee's material suppliers, vendors and
customers, Lessee's management is of the view that the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a material adverse change in the operations, business,
properties, condition (financial or otherwise) of Lessee. Lessee has developed
feasible contingency plans adequately to insure uninterrupted and unimpaired
business operation in the event of failure of its own or a third party's systems
or equipment due to the Year 2000 problem, including those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.

      The parties hereto have executed this Appendix as of the day and year
first above written.

TRANSIT HOLDING, INC.                   TAG MEX, INC.

By: /s/ [ILLEGIBLE]                     By: /s/ [ILLEGIBLE]
    -----------------------------           -----------------------------

Title: Vice President                   Title: Chief Operating Officer
       --------------------------              --------------------------

By:                                     By:
    -----------------------------           -----------------------------

Title:                                  Title:
       --------------------------              --------------------------

Address:       555 California Street,      Address:       3151 Washington Blvd.
               4th Floor                                  Los Angeles, CA 90023
               San Francisco, CA 94104     Attn:          Patrick Chow
Attn:          Contract Administration     Facsimile No.: (323) 415-0403
Facsimile No.: (415) 765-7373

                                       5
<PAGE>

                                                                       EXHIBIT A
                                                                              TO
                                                      LEASE INTENDED AS SECURITY
                                                      --------------------------

                          ACCEPTANCE CERTIFICATE NO.
                          ------------------------------

      Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. __ thereto dated ______________ 19__, the "Lease");
capitalized terms otherwise defined herein having the same meanings as in the
Lease). The Lease is incorporated herein by reference.

      1.  ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
          -------------------------
equipment delivered in Annex A have been delivered to, are in the
                       -------
possession of and are accepted by Lessee for leasing under, and constitute
"Units" subject to and governed by, the Lease, the Units (i) have been fully
inspected by qualified agents of Lessee and are in good order, operating
condition and repair, (ii) have been properly installed (subject only to any
minor undischarged obligations of suppliers, manufacturers or installers thereof
to promptly update and conform same as provided by their respective agreements
and warranties), (iii) meet all recommended or applicable safety standards, (iv)
are, as of the Delivery Date set forth below, available for use and service
by Lessee and Lessor and (v) have been marked or labeled showing Lessor's
interest in the [ILLEGIBLE] and to the extent required by the Lease, (C) the
dollar amounts set forth in Annex A with respect to such equipment are correct
and (D) Lessee its pay the rent and all other sums provided for in the Lease
with respect to such Units.

      2.  DELIVERY DATE. The Delivery Date of the Units is _____________, 1999.
          -------------

      3.  PURCHASE PRICE. The Purchase Price of the Units is $________, as set
          --------------
forth in Annex A.

      4.  SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
          --------
Units will be determined pursuant to the [ILLEGIBLE] Appendix and set forth in a
Schedule to this Acceptance Certificate.

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.

Lessor                                  Lessee:
TRANSIT HOLDING, INC.                   TAG MEX, INC.

By:                                     By:
    ------------------------------          ------------------------------

Title:  NOT FOR EXECUTION               Title:  NOT FOR EXECUTION
       ---------------------------             ---------------------------

                                       1
<PAGE>

                                                                         ANNEX A
                                                                              TO
                                                      ACCEPTANCE CERTIFICATE NO.
                                                      --------------------------

<TABLE>
<CAPTION>
============================================================================================================
Description (Quantity; Manufacturer, Make,      Location (Street Address, City,      Delivery       Purchase
Model No. Serial No.)                           County, State)                         Date           Date
------------------------------------------------------------------------------------------------------------
<S>                                             <C>                                  <C>            <C>

------------------------------------------------------------------------------------------------------------
</TABLE>

                                                  Total Sales Tax          $
                                                  Total Transportation     $
                                                  Total Installation       $
                                                  Total Purchase Price     $

                                                  Less Advances            $
                                                  Remaining Balance        $

                                       2
<PAGE>

                                                                       EXHIBIT B
                                                                              TO
                                                      LEASE INTENDED AS SECURITY
                                                      --------------------------

                                 SCHEDULE NO.
                                 ------------

      SCHEDULE (this "Schedule") dated _________, 19 ______ to Acceptance
Certificate No. ____ dated _____ 19 ____ "Acceptance Certificate") to the Lease
Intended as Security dated as of November 3, 1999 between TRANSIT HOLDING, INC.,
as Lessor, and MEX, INC., as Lessee (together with Appendix No. ____ thereto,
the "Lease"; capitalized terms not otherwise defined herein having the meanings
as in the Lease).

      1.  SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
          --------------------------
described in the Acceptance Certificate is dated _____________, 19___. The Base
Date for the Units is dated ______,19___.

      2.  INDEX RATE. The Index Rate on the Scheduling Date is _____% per annum.
          ----------

      3.  RENT. The Base Rent for the Units is comprised of 60 monthly
          ----
installments, each in the amount of $______________, with the such installment
due on ____________. Lessor will invoice Lessee for any Interim or Advance Rent
due as described in the terms of the Appendix based upon the date on which
Lessor funds the Acceptance Certificate and this Schedule.

      4.  CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
          --------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code, Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.

Lessor:                                 Lessee:
TRANSIT HOLDING, INC.                   TAG MEX, INC.

By:                                     By:
   ---------------------------             ---------------------------

Title:  NOT FOR EXECUTION               Title:  NOT FOR EXECUTION
      ------------------------                ------------------------
<PAGE>

                                                      Exhibit C to the Machinery
                                                  and Equipment Pledge Agreement

                                                              [Date]

TRANSIT HOLDING, INC.

Gentlemen:

                  Pursuant to the Machinery and Equipment Pledge Agreement,
dated November __, 1999, by and among Tarrant Mexico, S. de R.L. de C.V. as
Pledgor, Transit Holding, Inc., as Pledgee, and Mrs. Nafiseh Sedaghat as
Depositary, please be advised as follows:

                  Between [date of prior report submitted to Pledgee or, in the
case of the first report, date of the Pledge Agreement] and ________,
[1999/200_] the following new items of machinery and/or equipment owned by
Pledgor have entered the Premises and have therefore been received in deposit by
the Depositary for the account of Pledgee and are pledged in favor of Pledgee:

                  [List new machinery and/or equipment].

                  Furthermore, we each separately confirm to you that Pledgor
and the Depositary have each complied at all times with their respective
obligations under Clause Second of the Machinery and Equipment Pledge Agreement.

                                   Very truly yours,

                                   Tarrant Mexico, S. de R.L. de C.V.

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

                                   The Depositary

                                   Mrs. Nafiseh Sedaghat

                                   --------------------------------------
<PAGE>

                                                                 Lease No. 16501

          LEASE INTENDED AS SECURITY ("Lease") dated as of November 3, 1999,
      between TRANSIT HOLDING, INC., a Delaware corporation, a subsidiary of
      Banc of America Leasing & Capital LLC with an office at 555 California
      Street, 4th Floor, San Francisco, California, 94104 ("Lessor") and TAG
      MEX, INC., a California corporation, with its principal office at 3151
      Washington Blvd., Los Angeles, CA 90023 ("Lessee").

      Lessor agrees to acquire and lease to Lessee and Lessee agrees to lease
from Lessor certain personal property (the "Units" and individually a "Unit")
described in the appendix to the Lease attached hereto and made a part hereof,
or any other appendix hereto that Lessor and Lessee may enter into from time to
time (each an "Appendix") hereof, on the terms and conditions set forth herein
and in the relevant Appendix.

Section 1 Procurement, Delivery and Acceptance.
--------- ------------------------------------

    1.1  Lessee has ordered or shall order the Units pursuant to one or more
purchase orders or other contracts of sale ("Purchase Agreements") from one or
more vendors ("Vendors"). Lessee shall, on the date of each Appendix, assign to
Lessor all of Lessee's right, title and interest in and to the Purchase
Agreements for the Units described in the Appendix by executing and delivering
to Lessor a Purchase Agreement Assignment in the form of Exhibit A (a "Purchase
                                                         ---------
Agreement Assignment"). Lessor agrees to (a) accept the assignment and (b)
subject to Section 1.2, assume the obligations of Lessee under the Purchase
Agreements to purchase and pay for the Units, but no other duties and
obligations thereunder. Nevertheless, Lessee shall remain liable to Vendor with
respect to its duties and obligations in accordance with the Purchase
Agreements.

    1.2  The obligation of Lessor to pay for each Unit is subject to
satisfaction of the conditions precedent set forth in Paragraph B.2 of the
relevant Appendix. If any of those conditions is not met with respect to any
Unit, Lessor shall assign to Lessee all of Lessor's right, title and interest in
and to the Unit and any bill of sale or Purchase Agreement previously assigned
to Lessor as it relates to the Unit.

    1.3  Lessee shall forward to Lessor original invoices relating to each Unit
to be accepted under the terms of this Lease and the relevant Appendix. If
Lessee has received title and possession of the Unit before executing a Purchase
Agreement Assignment relating thereto, Lessee will execute a bill of sale
conveying title thereto to Lessor. Lessor shall prepare an Acceptance
Certificate in the form of Exhibit B (an "Acceptance Certificate") together with
                           ---------
a Schedule to the Acceptance Certificate in the form of Exhibit C (a "Schedule")
                                                        ---------
based upon the criteria in the relevant Appendix. Lessee shall execute and
return the Acceptance Certificate and Schedule within five (5) business days
after the preparation of such Schedule confirming the date Lessee has received
such Unit, or, the date when any required installation and testing is completed
(the "Delivery Date"), and confirming that the Lessee has accepted the Unit
under Lease as of its Delivery Date. Upon receipt of the executed Acceptance
Certificate and Schedule, Lessor shall pay the Purchase Price (as defined in the
relevant Appendix) with respect to the Units described therein.

Section 2 Term, Rent and Payment.
--------- ----------------------

    2.1  The term of this Lease for each Unit (its "Lease Term") shall begin on
the date of the Appendix describing the Unit and continue as specified in its
Appendix and Schedule.

    2.2  Lessee shall pay Lessor rent for each Unit in the amounts and at the
times specified in its Appendix and Schedule.

    2.3  Rent and all other sums due Lessor hereunder shall be paid at the
office of Lessor set forth below, unless otherwise specified by Lessor.

    2.4  THIS LEASE IS A NET LEASE AND LESSEE SHALL NOT BE ENTITLED TO ANY
ABATEMENT OR REDUCTION OF RENT OR ANY SETOFF AGAINST RENT, WHETHER ARISING BY
REASON OF ANY PAST, PRESENT OR FUTURE CLAIM OF ANY NATURE BY LESSEE AGAINST
LESSOR OR OTHERWISE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LEASE
SHALL NOT TERMINATE, NOR SHALL THE OBLIGATIONS OF LESSOR OR LESSEE BE OTHERWISE
AFFECTED BY ANY CIRCUMSTANCE, including, without limitation, (a) any defect in,
damage to, loss of possession or use or destruction of any Unit, however caused,
(b) the attachment of any lien, encumbrance, security interest or other right or
claim of any third party to any Unit, (c) any prohibition or restriction of or
interference with Lessee's use of any Unit by any person or entity, (d) the
insolvency of or the commencement by or against Lessee of any bankruptcy,
reorganization or similar proceeding, or (e) any other cause, whether similar or
dissimilar to the foregoing, any present or future law to the contrary
notwithstanding. IT IS THE INTENTION OF THE PARTIES THAT ALL RENT AND OTHER
AMOUNTS PAYABLE BY LESSEE HEREUNDER SHALL BE PAYABLE IN ALL EVENTS IN THE MANNER
AND AT THE TIMES HEREIN PROVIDED UNLESS LESSEE'S OBLIGATIONS IN RESPECT THEREOF
HAVE BEEN TERMINATED PURSUANT TO EXPRESS PROVISIONS HEREOF.

                                                                   LESSOR'S COPY

                                       1
<PAGE>

    2.5  Payments shall be applied in the following order: (a) Lessor's
expenses, including without limitation those set forth in Sections 8.4 and 19;
(b) interest on late payments; and (c) rent and all other sums due hereunder.
Payments shall be conclusively evidenced by entries in records maintained by
Lessor.

Section 3 Representations and Warranties.
--------- ------------------------------

Lessee hereby represents and warrants to Lessor as follows:

    3.1  Lessee is a corporation duly organized and existing under the laws of
the state of its incorporation, is qualified to do business in every state in
which the quantity or nature of its business or property make such qualification
necessary, is in good standing in each such state and has full and adequate
corporate powers to carry on and conduct its business as now conducted.

    3.2  The Lease has been duly authorized, executed and delivered by Lessee
and is a legal, valid and binding agreement of Lessee.

    3.3  Lessee has the power and authority to execute and deliver the Lease and
perform its obligations under this Lease; and the execution and delivery of the
Lease by Lessee does not, and performance by Lessee thereof will not, materially
contravene any charter or by-law provision of Lessee or of any indenture,
covenant, instrument or agreement of to which Lessee is a party or by which
Lessee or any of its properties is bound or affected.

    3.4  No approval, consent, exemption, authorization or other action by, or
notice to or filing with, any government authority is necessary in connection
with the execution, delivery, performance by Lessee or enforcement by Lessor of
the Lease, or if necessary the same has been obtained.

    3.5  There is no law, rule or regulation that would be contravened by the
execution, delivery, performance by Lessee or enforcement by Lessor of the
Lease, nor to Lessee's knowledge are there, as of the date hereof, any actions,
suits, or proceedings (whether or not purportedly on behalf of Lessee) pending,
or to Lessee's knowledge, threatened against or affecting Lessee, at law or in
equity or before any Federal, state, municipal or other governmental department,
commission, board, bureau, agency, court or instrumentality, which involve the
possibility of any judgment, or liability, which items are not fully covered by
insurance, or which may result in any material adverse effect in the business,
operations, properties or assets or in the condition, financial or otherwise, of
Lessee, or the ability of Lessee to carry on its business and the performance of
its obligations hereunder, and Lessee has no knowledge of any default on
Lessee's part with respect to any order, writ, injunction or decree of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, that may result in such material
adverse effect.

    3.6  The Lease is enforceable against Lessee in accordance with its terms,
except as such enforcement may be subject to applicable bankruptcy,
rehabilitation, liquidation, conservation, dissolution, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally and is subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity.

LESSEE ACKNOWLEDGES AND AGREES THAT (a) EACH UNIT IS OF A SIZE, DESIGN, CAPACITY
AND MANUFACTURE SELECTED BY LESSEE, (b) LESSEE IS SATISFIED THAT THE SAME IS
SUITABLE FOR ITS PURPOSES, (c) LESSOR IS NOT A MANUFACTURER THEREOF NOR A DEALER
IN PROPERTY OF SUCH KIND AND (d) LESSOR HAS NOT MADE, AND DOES NOT HEREBY MAKE,
ANY REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE TITLE,
MERCHANTABILITY, CONDITION, QUALITY, DESCRIPTION, DURABILITY, FITNESS FOR
PURPOSE OR SUITABILITY OF ANY UNIT IN ANY RESPECT OR IN CONNECTION WITH OR FOR
THE PURPOSES AND USES OF LESSEE. Lessor hereby assigns to Lessee, to the extent
assignable, any warranties, covenants and representations of vendor with respect
to any Unit, but any action taken by Lessee by reason thereof shall be at
Lessee's expense and shall be consistent with Lessee's obligations under Section
2.

Section 4 Possession, Use and Maintenance.
--------- -------------------------------

    4.1  Lessee shall not (a) use, operate, maintain or store any Unit
improperly, carelessly or in violation of any applicable law or regulation of
any government authority, (b) abandon any Unit, (c) sublease any Unit or permit
its use by anyone other than Lessee without the prior written consent of Lessor,
(d) permit any Unit to be removed from the location or principal base, as the
case may be, specified in the relevant Appendix or permit any Unit that is a
motor vehicle to be registered in any state other than as specified in the
relevant Appendix without the prior written consent of Lessor within 15 days
therefrom, (e) affix or place any Unit to or on any other personal property or
any real property without first obtaining and delivering to Lessor such waivers
as Lessor may reasonably require to assure Lessor's legal title and security
interest and right to remove the Unit free from any lien, encumbrance, right or
claim asserted by any third party or (f) sell, assign or transfer, or directly
or indirectly create, incur or suffer to exist any lien, encumbrance, right or
claim of any kind on any of its rights hereunder or in any Unit.

                                       2
<PAGE>

    4.2  Lessee shall at its expense maintain each Unit during its Lease Term in
good operating order, repair, condition and appearance and in accordance with
the manufacturer's recommended procedures.

    4.3  Lessee shall not alter any Unit or install any accessory, equipment or
device on any Unit if that would impair any applicable warranty, the originally
intended function, or the value of the Unit. All repairs, parts, accessories,
equipment and devices furnished, affixed to or installed on any Unit, excluding
temporary replacements, shall thereupon become subject to the security interest
of Lessor.

    4.4  If Lessor supplies Lessee with a label, plate or other marking stating
that each Unit is leased from Lessor, Lessee shall affix and keep it on a
prominent place on each Unit to the extent attachable and so as not to damage
the Unit or expose the Unit to partial damage during its Lease Term.

    4.5  Upon 2 business days prior notice to Lessee, Lessor and its designees
shall have the right at all reasonable times to inspect any Unit, observe its
use and inspect records related thereto.

Section 5 General Tax Indemnity.
--------- ---------------------

    5.1  Lessee shall pay or reimburse Lessor for, and indemnify and hold Lessor
harmless from, all government fees (including, but not limited to, license,
documentation, recording or registration fees) and all sales, use, gross
receipts, property, occupational, value-added or other taxes, levies, imposts,
duties, assessments, charges or withholdings of any nature whatsoever, together
with any penalties, fines or additions to tax, or interest thereon (each of the
foregoing being hereafter referred to as an "Imposition"), arising at any time
before or during the Lease Term, or upon any termination of this Lease or return
of the Units to Lessor, and levied or imposed on Lessor, directly or otherwise,
by any federal, state or local government or taxing authority in the United
States or by any foreign country or foreign or international taxing authority on
or with respect to (a) any Unit, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, transportation, return, sale, transfer of title or other
disposition thereof, (c) the rents, receipts, or earnings arising from any Unit
or (d) this Lease or any payment made hereunder, excluding, however, taxes
measured by Lessor's net income imposed or levied by the United States or any
state thereof or any other jurisdiction unless such taxes are in lieu of or in
substitution for any Impositions Lessee would otherwise have been obligated to
pay, reimburse or indemnify hereunder.

    5.2  Lessee shall pay on or before the time or times prescribed by law each
Imposition for which Lessee is primarily responsible under applicable law and
any other Imposition (except any Imposition excluded by Section 5.1), but Lessee
shall have no obligation to pay an Imposition that Lessee is contesting in good
faith and by appropriate legal proceedings and the nonpayment thereof does not,
in the reasonable opinion of Lessor, adversely affect the title, property, use,
disposition or other rights of Lessor with respect to the Units. If any
Imposition (except an Imposition excluded by Section 5.1) is charged or levied
against Lessor directly and paid by Lessor, Lessee shall reimburse Lessor on
presentation of an invoice therefor.

    5.3  If Lessor is not entitled to a corresponding and equal deduction with
respect to any Imposition Lessee is required to pay or reimburse under Section
5.1 or 5.2 and the payment or reimbursement constitutes income to Lessor, then
Lessee shall also pay to Lessor the amount of any Imposition Lessor is obligated
to pay in respect of (a) such payment or reimbursement by Lessee and (b) any
payment by Lessee made pursuant to this Section 5.3.

    5.4  Lessee shall prepare and file, in a manner satisfactory to Lessor, any
reports or returns required with respect to the Units. Lessee shall furnish on
Lessor's request reports or returns so filed.

Section 6 Risk of Loss; Waiver and Indemnity.
--------- ----------------------------------

    6.1  If any Unit is worn out, lost, stolen, destroyed or irreparably
damaged, from any cause whatsoever, or taken or requisitioned by condemnation or
otherwise (any such occurrence being hereinafter called a "Casualty Occurrence")
before or during its Lease Term, Lessee shall give Lessor prompt notice thereof.
On the first rent payment date after the Casualty Occurrence or, if there is no
such rent payment date, 30 days after the Casualty Occurrence, Lessee shall pay
to Lessor, in addition to any amounts then due and owing, an amount equal to the
then "Balance Due" (as hereinafter defined) for the Unit and any "Other Charges"
required under the relevant Appendix. The Balance Due for each Unit is the sum
of

         (a) any and all amounts with respect to such Unit which under the terms
of this Lease may be then due (other than any Other Charges) or which may have
accrued to such payment date (computing the rent for any number of days less
than a full rent period by multiplying the rent for such rental period by a
fraction of which the numerator is such number of days and the denominator is
the total number of days in such full rent period); plus

                                       3
<PAGE>

         (b) before the Base Date for such Unit, as set forth in the relevant
Appendix, the amount Lessor is obligated to pay for such Unit, and thereafter,
the sum of (i) the present value, as of such payment date, of the entire unpaid
balance of all rent for such Unit that would otherwise have accrued hereunder
from such payment date to the end of its Lease Term and (ii) the present value,
as of such payment date, of the Purchase Amount therefor as defined in the
relevant Appendix.

Present values are to be computed in each case by discounting at the applicable
Implicit Interest Rate set forth in the relevant Appendix.

    Upon the making of such payment by Lessee in respect of any Unit, the rent
for the Unit shall cease to accrue, its Lease Term shall terminate and Lessee
shall be entitled to possession of such Unit. If Lessor receives the Balance Due
and Other Charges for a Unit, Lessee shall be entitled to the proceeds of any
recovery in respect of the Unit, from insurance or otherwise, and Lessor,
subject to the rights of any insurer insuring the Units as provided herein,
shall execute and deliver, to Lessee, or to its assignee or nominee, a bill of
sale (without representations or warranties except that the Unit is free and
clear of all claims, liens, security interests and other encumbrances by or in
favor of any person claiming by, through or under Lessor) for the Unit, and such
other documents as may be required to release the Unit from this Lease and to
transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense. Except as
provided in this Section 6.1, Lessee shall not be released from its obligations
hereunder in the event of, and shall bear the risk of, any Casualty Occurrence
to any Unit before or during its Lease Term.

    6.2  Lessee waives and releases any claim now or hereafter existing against
Lessor, any company controlled by, controlling, or under common control with
Lessor and all of their directors, officers, employees, agents, attorneys,
successors and assigns (each, an "Indemnified Person") on account of, and shall
indemnify, reimburse and hold each Indemnified Person harmless from, any and all
claims (including, but not limited to, claims based on or relating to copyright,
trademark or patent infringement, environmental liability, negligence, strict
liability in tort, statutory liability or violation of laws), losses, damages,
obligations, penalties, liabilities, demands, suits, judgments or causes of
action (collectively, "Claims"), and all legal proceedings, and any reasonable
costs or expenses in connection therewith, including reasonable attorneys' fees,
including reasonable allocated time charges of internal counsel, in each case
imposed on, incurred by or asserted against the Indemnified Person in any way
relating to or arising in any manner out of (a) the registration, purchase,
taking or foreclosure of a security interest in, or the ownership, delivery,
condition, lease, assignment, storage, transportation, possession, use,
operation, return, repossession, sale or other disposition of, any Unit, before
or during its Lease Term, (b) any alleged or actual defect in any Unit (whether
arising from the material or any article used therein, the design, testing, use,
maintenance, service, repair or overhaul thereof or otherwise) regardless of
when such defect is discovered or alleged, whether or not the Unit is in
Lessee's possession and no matter where it is located or (c) this Lease or any
other related document, the enforcement hereof or thereof or the consummation of
the transactions contemplated hereby or thereby, other than any Claim resulting
solely from the gross negligence or willful misconduct of Lessor (other than any
gross negligence or willful misconduct of another party imputed to Lessor),
unless covered by the insurance Lessee is required to maintain hereunder,

Section 7 Insurance.
--------- ---------

    Lessee, at its own cost and expense, shall keep each Unit insured against
all risks, in no event for less than the amount set forth in Section 6.1(b) with
respect to such Unit, and shall maintain public liability insurance against such
risks and for such amounts as Lessor may require. All such insurance shall be in
such form and with such companies as Lessor shall approve, shall specify Lessor
and Lessee as insureds and shall provide that such insurance may not be canceled
as to Lessor or altered in any way that would affect the interest of Lessor
without at least 30 days prior written notice to Lessor (10 days in the case of
nonpayment of premium). All insurance shall be primary, without right of
contribution from any other insurance carried by Lessor, shall contain a "breach
of warranty" provision satisfactory to Lessor, and shall provide that all
amounts payable by reason of loss or damage to the Units shall be payable solely
to Lessor, unless Lessor otherwise agrees. Lessee shall provide Lessor with
evidence satisfactory to Lessor of the required insurance at the time specified
in Paragraph B.2 of the relevant Appendix.

Section 8 Defaults; Remedies.
--------- ------------------

    8.1  The following shall constitute events of default ("Events of Default")
hereunder:

         (a) Lessee fails to make any payments to Lessor when due hereunder;

         (b) any representation or warranty of Lessee contained herein or in any
document furnished to Lessor in connection herewith is incorrect or misleading
in any material respect when made;

         (c) Lessee fails to observe or perform any other covenant, agreement or
warranty made by Lessee hereunder or under any document delivered pursuant
hereto and such failure continues for 10 days after written notice thereof to
Lessee;

                                       4
<PAGE>

         (d) any default occurs under any other agreement for borrowing money or
receiving credit under which Lessee or any guarantor or general partner of
Lessee may be obligated as borrower, lessee or guarantor, if such default (i)
consists of the failure to pay any indebtedness when due or perform any other
obligation thereunder and (ii) gives the holder of the indebtedness the right to
accelerate the indebtedness;

         (e) Lessee, any guarantor of this Lease or any general partner of
Lessee makes an assignment for the benefit of creditors or files any petition or
action under any bankruptcy, reorganization, insolvency or moratorium law, or
any other law or laws for the relief of, or relating to, debtors;

         (f) any guarantor of this Lease breaches or fails to perform any
covenant in its guaranty, required by this Lease expires or terminates without
Lessor's consent;

         (g) an involuntary petition is filed under any bankruptcy statute
against Lessee, any guarantor of this Lease or any general partner of Lessee, or
any receiver, trustee, custodian or similar official is appointed to take
possession of the properties of Lessee, any guarantor of this Lease or any
general partner of Lessee, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within 60 days from the date of the filing
or appointment; or

         (h) Lessee, any guarantor of this Lease liquidates, dissolves, or
sells, leases or disposes of a substantial portion of its business or assets.

    8.2  If any Event of Default occurs, Lessor, at its option, may:

         (a) proceed by appropriate court action or actions either at law or in
equity, to enforce performance by Lessee of the applicable covenants of this
Lease or to recover damages for the breach thereof; or

         (b) by notice in writing to Lessee terminate this Lease, whereupon all
rights of Lessee to retain possession of and use the Units shall terminate, but
Lessee shall remain liable as hereinafter provided, and Lessor may, at its
option, do any one or more of the following: (i) declare the aggregate Balance
Due with respect to the Units and all Other Charges immediately due and payable
and recover any damages and expenses in addition thereto Lessor sustains by
reason of the breach of any covenant, representation or warranty contained in
this Lease other than for the payment of rent; (ii) enforce the security
interest given hereunder pursuant to the Uniform Commercial Code or any other
law; (iii) enter upon the premises where any of the Units may be and take
possession of all or any of such Units; and (iv) require Lessee to return the
Units as provided in Section 9.

    8.3  Lessor shall have any and all rights given to a secured party by law,
and may, but is not required to, sell the Units in one or more sales. Lessor may
purchase the Units at such sale. Lessee acknowledges that sales for cash or on
credit to a wholesaler, retailer or user of the Units, or at public or private
auction, are all commercially reasonable. The proceeds of such sale shall be
applied in the following order: First, to the reasonable expenses of retaking,
                                -----
holding, preparing for sale and selling, including the allocated time charges,
costs and expenses of internal counsel for Lessor and any other attorneys' fees
and expenses incurred by Lessor; Second, to the amounts, except those specified
                                 ------
below, which under the terms of this Lease are due or have accrued; Third, to
                                                                    -----
late charges; and Fourth, to the aggregate Balance Due. Any surplus shall be
                  ------
paid to the person or persons entitled thereto. If there is a deficiency, Lessee
will promptly pay the same to Lessor.

    8.4  Lessee agrees to pay all reasonable allocated time charges, costs and
expenses of internal counsel for Lessor and any other attorneys' fees, expenses
or out-of-pocket costs incurred by Lessor in enforcing this Lease.

    8.5  The remedies herein provided in favor of Lessor shall not be deemed
exclusive, but shall be cumulative, and shall be in addition to all other
remedies in its favor existing at law or in equity.

    8.6  If Lessee fails to perform any of its agreements contained herein,
Lessor may perform such agreement, and Lessee shall pay the expenses incurred by
Lessor in connection with such performance upon demand.

Section 9 Return of Units,
--------- ---------------

    If Lessor rightfully demands possession of any Unit pursuant to this Lease
or otherwise, Lessee, at its expense, shall forthwith deliver possession of the
Unit to Lessor, together with its manuals and maintenance records, in the
condition required by Section 4 and any additional return requirements specified
in the relevant Appendix, by preparing and appropriately protecting the Unit for
shipment and, at the option of Lessor, (a) surrendering it to Lessor at a
location within the Republic of Mexico as specified by Lessor or (b) loading the
Unit on board such carrier as Lessor shall specify and shipping the same,
freight collect, to Lessor at the place designated by Lessor in the state where
the Unit was located or based pursuant to the relevant Appendix.

                                       5
<PAGE>

Section 10 Assignment.
---------- ----------

    Lessor may at any time assign or transfer all or any of the right, title or
interest of Lessor in and to this Lease, and the rights, benefits and advantages
of Lessor hereunder, including the rights to receive payment of rent or any
other payment hereunder, Lessor's title to the Units and any and all obligations
of Lessor in connection herewith. Lessor may disclose to any potential or actual
assignee or transferee any information in the possession of Lessor or any of its
affiliates relating to Lessee or this Lease. Lessor may not disclose any
information in the possession of Lessor that is subject to a confidentiality
agreement without the prior written consent of Lessee, which shall not be
unreasonably withheld. Any such assignment or transfer shall be subject and
subordinate to this Lease and the rights and interests of Lessee hereunder. NO
ASSIGNMENT OF THIS LEASE OR ANY RIGHT OR OBLIGATION HEREUNDER MAY BE MADE BY
LESSEE OR ANY ASSIGNEE OF LESSEE WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR,
WHICH SHALL NOT BE UNREASONABLY WITHHELD.

Section 11 Ownership and Security Interest; Further Assurances.
---------- ---------------------------------------------------

    Unless assigned by Lessor, or applicable law otherwise provides, title to
and ownership of the Units shall remain in Lessor as security for the
obligations of Lessee hereunder until Lessee has fulfilled all of its
obligations hereunder. Lessee hereby grants to Lessor a continuing security
interest in the Units to secure the payment of all sums due hereunder.

    Lessee confirms there is no pending litigation, tax claim, proceeding or
dispute that may materially and adversely affect its financial condition or
impair its ability to perform its obligations hereunder. Lessee will, at its
expense, maintain its legal existence in good standing and do any further act
and execute, acknowledge, deliver, file, register and record any further
documents Lessor may reasonably request in order to protect Lessor's title to
and security interest in the Units and Lessor's rights and benefits under this
Lease.

Section 12 Late Payments.
---------- -------------

    Lessee shall pay to Lessor, on demand, interest at the rate set forth in the
relevant Appendix on the amount of any payment not made when due hereunder from
the date due until payment is made.

Section 13 Effect of Waiver.
---------- ----------------

    No delay or omission to exercise any right, power or remedy accruing to
Lessor upon any breach or default of Lessee hereunder shall impair any such
right, power or remedy nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein or of any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lessor of any breach or default under this Lease must
be in writing specifically set forth.

Section 14 Survival of Covenants.
---------- ---------------------

    All obligations of Lessee under Sections 1, 2, 4, 5, 6, 7, 8, 9, 11 and 12
hereof and under each Appendix shall survive the expiration or termination of
this Lease to the extent required for their full observance and performance.

Section 15 Applicable Law; Severability.
---------- ----------------------------

    This Lease shall be governed by and construed under the laws of California,
to the jurisdiction of which, and of federal courts in California, the parties
hereto submit. If any provision hereof is held invalid, the remaining provisions
shall remain in full force and effect.

Section 16 Financial Information.
---------- ---------------------

    Lessee shall, and shall cause any guarantor to, keep its books and records
in accordance with generally accepted accounting principles and practices
consistently applied and shall, and shall cause any guarantor to, deliver to
Lessor (i) annual CPA-audited financial statements within 120 days of its fiscal
year end, (ii) quarterly company-prepared financial statements upon Lessor's
request, and (iii) such financial statements and information as may be set forth
in the relevant Appendix or as Lessor may reasonably request. Credit information
relating to Lessee, any guarantor or any general partner of Lessee may be
disseminated among Lessor and any of its affiliates and any of their respective
successors and assigns.

Section 17 Notices.
---------- -------

    All demands, notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given when personally delivered or when
deposited in the mail, first class postage prepaid, or delivered to an express
carrier, charges prepaid, or sent by facsimile

                                       6
<PAGE>

transmission (with electronic confirmation of receipt) addressed to each party
at the address set forth below the signature of such party on the signature
page, or at such other address as may hereafter be furnished in writing by such
party to the other.

Section 18 Counterparts.
---------- ------------

    Two counterparts of this Lease have been executed by the parties hereto. One
counterpart has been prominently marked "Lessor's Copy". One counterpart has
been prominently marked "Lessee's Copy". Only the counterpart marked "Lessor's
Copy" shall evidence a monetary obligation of Lessee.

Section 19 Transaction Costs.
---------- -----------------

    Lessee will reimburse Lessor for any reasonable out-of-pocket costs or
expenses incurred in connection with the preparation and negotiation of the
lease documents, including but not limited to UCC searches, UCC filings,
appraisals, title searches and title insurance. If Lessor uses counsel in
connection with negotiating, drafting or altering this Lease or any related
documents, Lessee shall reimburse Lessor for any legal expenses of Lessor
(including allocated time charges of internal counsel for Lessor).

Section 20 Noninterference.
---------- ---------------

    So long as no Event of Default or event that, upon giving of notice or lapse
of time, could become an Event of Default exists, Lessor will not interfere with
the rights of enjoyment and use of the Units by Lessee.

Section 21 Effect and Modification of Lease.
---------- --------------------------------

    This Lease exclusively and completely states the rights of Lessor and Lessee
with respect to the leasing of the Units and supersedes all prior agreements,
oral or written, with respect thereto. No variation or modification of this
Lease shall be valid unless in writing.

         The parties hereto have executed this Lease as of the day and year
first written above.

TRANSIT HOLDING, INC.                    TAG MEX, INC.

By:     /s/ [ILLEGIBLE]                  By:     /s/ [ILLEGIBLE]
        ------------------------                 ------------------------

Title:  Vice President                   Title:  Chief Operating Officer
        ------------------------                 ------------------------

By:                                      By:
        ------------------------                 ------------------------

Title:                                   Title:
        ------------------------                 ------------------------

Address:       555 California Street,    Address:         3151 Washington Blvd.
               4th Floor                                  Los Angeles, CA 90023
               San Francisco, CA 94104   Attn:            Patrick Chow
Attn:          Contract Administration   Facsimile No..:  (323) 415-0403
Facsimile No..: (415) 765-7373

                                       7
<PAGE>

          APPENDIX NO. I (this "Appendix") dated November 3, 1999 to LEASE
      INTENDED AS SECURITY number 16501 (the "Lease Agreement" and, together
      with this Appendix, the "Lease") dated as of November 3, 1999 between
      TRANSIT HOLDING, INC. ("Lessor") and TAG MEX, INC. ("Lessee"), defined
      terms therein not defined herein being used herein as so defined.

A.    Units.
      -----

      The Unit(s) to be leased under the Lease Agreement by this Appendix
consists of the new and used apparel manufacturing and production equipment, and
all accessories, modifications, replacements and substitutions, subject to
Lessor's right to disapprove any particular equipment for leasing hereunder.

B.    Purchase Price; Conditions Precedent.
      ------------------------------------

      1.  Purchase Price.
          --------------

          (a) "Purchase Price' with respect to each Unit means the amount Lessor
pays for the Unit. Without the prior written consent of Lessor: (i) the purchase
price of all Units shall not exceed $5,200,000 (the "Maximum Purchase Price");
(ii) the Purchase Price of each Unit shall not exceed, in the case of Units
delivered to Lessee not more than 90 days before the date hereof, the amount
invoiced by Vendor therefor and, in the case of Units delivered to Lessee more
than 90 days before the date hereof, the fair market value for similar used
equipment; (iii) the aggregate amount of installation, transportation, any
applicable sales, use or similar front-end tax, any software costs or licensing
fees and any similar costs with respect to the aggregate of all Units shall not
exceed 20% of the total Purchase Price therefor; and (iv) Lessor shall not be
obligated to make payments of the Purchase Price of Units leased under this
Appendix more frequently than once in each calendar month and in aggregate
amounts on each such occasion of less than $100,000.

          (b) Lessor shall pay the Purchase Price directly to the relevant
Vendor, unless (i) Lessee pays any portion of the Purchase Price to the relevant
Vendor (cancelled checks to be provided to Lessor) or (ii) Lessee has already
acquired title to the Units, in either of which cases Lessor shall pay the
relevant amount to Lessee.

      2.  Conditions Precedent to Funding. The obligation of Lessor to purchase
          -------------------------------
and pay for each Unit is subject to satisfaction of the following conditions
precedent:

          (a)  Lessee shall have executed and delivered to Lessor the Acceptance
               Certificate and any Purchase Agreement Assignment or bill of sale
               and invoice therefor as required under Sections 1.1 and 1.3 of
               the Lease Agreement;

          (b)  the Delivery Date of the Unit shall be during the Utilization
               Period set forth below;

          (c)  there shall exist no Event of Default (nor any event which, with
               notice or lapse of time or both, would become an Event of
               Default);

          (d)  no material adverse change in Lessee's or any guarantor's or
               general partner of Lessee's financial condition shall have
               occurred since the date hereof;

          (e)  satisfactory resolution of any environmental issues; and

          (f)  delivery to Lessor, no later than the first assignment by Lessee
               of a Purchase Agreement under this Appendix (or, in the case of a
               sale and leaseback, the first Delivery Date), at Lessee's sole
               expense, of the following documents, in form and substance
               satisfactory to Lessor:

               (i)   evidence of Lessee's and any guarantor's authority to enter
                     into and perform its obligations under the Lease, and of
                     the incumbency of corporate or partnership officers or
                     identity of individuals authorized to execute and deliver
                     the Lease and any other agreement or document required
                     thereunder, including specimen signatures of such persons;

               (ii)  an opinion of counsel of Lessee and any guarantor;

               (iii) insurance certificates or other evidence acceptable to
                     Lessor that Lessee has complied with Section 7 of the Lease
                     Agreement;

                                       1
<PAGE>

               (iv)   UCC financing statements executed by Lessee together with,
                      at Lessor's option, certificates of filing officers as to
                      the nonexistence of any prior UCC filings and, in the case
                      of a sale and leaseback, evidence satisfactory to Lessor
                      that each Unit is free and clear of all claims, liens,
                      security interests and encumbrances;

               (v)    a guaranty of Tarrant Apparel Group;

               (vi)   an appraisal of the Units, other than new equipment,
                      satisfactory to Lessor, by an independent appraiser
                      acceptable to Lessor;

               (vii)  resolution, satisfactory to Lessor, of issues relating to
                      the arrangement of the transaction between Lessee and its
                      affiliate or subsidiary. Any documentation between Lessee
                      and its affiliate or subsidiary shall be reviewed by
                      Lessor and found reasonably acceptable to Lessor;

               (viii) a binding commitment from a U.S. financial institution or
                      a group of lenders for a working capital line of credit of
                      at least $100,000,000. Evidence of credit line commitment
                      shall be in form acceptable to Lessor; and

               (ix)   any other documents specified in this Appendix and such
                      other documents as Lessor may reasonably request.

C.    Interim Term and Base Term.
      --------------------------

      Rent for each Unit will accrue under the Lease during its Interim Term and
its Base Term. The "Scheduling Date" for each Unit is the date Lessor prepares
the Acceptance Certificate and Schedule. The "Interim Term" for each Unit will
begin on, and include, the date Lessor funds the Acceptance Certificate and
Schedule and continue until, and include, the day before its "Base Date". The
"Base Term" for each Unit will begin on, and include, its Base Date and continue
for 60 months. The "Base Date" for each Unit will be the first or fifteenth day
of the month during or immediately following the month in which the Scheduling
Date occurs, as specified by Lessor in the relevant Schedule.

      If Lessee does not execute and deliver to Lessor the Acceptance
Certificate and the Schedule for the Unit pursuant to Section 1.3 of the Lease
Agreement, Lessor may either terminate the Lease as to such Unit (and will do so
if any Unit requires installation or testing and the same is not completed to
Lessee's satisfaction) or reschedule the Base Date to the next succeeding month,
in which event the provisions of this sentence shall continue to apply.

D.    Utilization Period.
      ------------------

      All Delivery Dates for Units leased hereunder must occur between the date
of this Appendix and December 31, 1999, inclusive, which date may be extended by
Lessor by written notice to Lessee and any guarantor (the "Utilization Period").

E.    Rent.
      ----

      1. Interim Rent. Lessee shall pay rent for each Unit ("Interim Rent") for
         ------------
each day of its Interim Term. Interim Rent shall be computed on the full amount
of the Purchase Price of the Unit at a daily rate equal to the daily equivalent
of the Unit's Base Rent.

      Interim rent is determined, in part, on the basis of a 360-day year and
actual days elapsed which results in a higher rent than if a 365-day year is
used. Interim Rent is due and payable when billed by Lessor.

      2. Base Rent. Lessee shall pay Lessor "Fixed Base Rent" "and Variable Base
         ---------
Rent" (collectively, "Base Rent") for each Unit during the Base Term in arrears
in 60 consecutive monthly installments, with the first such installment due one
month following the Base Date.

      The Fixed Base Rent installments will be applied to reduce the unamortized
balance of the Purchase Price and shall be in amounts sufficient to amortize the
Purchase Price of the Unit down to its Purchase Amount at the Initial Implicit
Interest Rate over its Base Term.

      Each Variable Base Rent installment shall be equal to interest during each
Rent Period on the unamortized balance of the Purchase Price of the Unit at the
Implicit Interest Rate for the Unit for such Rent Period.

                                       2
<PAGE>

      A "Rent Period" is the period beginning on, and including, a Base Rent
payment date (or, in the case of the first Rent Period, the Base Date) and
ending on, and excluding, the next succeeding Base Rent payment date.

      The Initial Implicit Interest Rate as to each Unit shall be established as
of 11:00 a.m. London time two business days before the Base Date and shall be
adjusted as of each Base Rent payment date during the Base Term (each an
"Adjustment Date"). The Base Rent installments shall be subject to further
adjustment at any time to reflect any reserve requirements or other charges that
may be imposed on Bank of America National Trust and Savings Association by the
Board of Governors of the Federal Reserve System or the Federal Deposit
Insurance Corporation, or any other regulatory agency. The amount of the initial
Base Rent installment shall be set forth in the Schedule to the relevant
Acceptance Certificate, and adjustments thereto shall be set forth in written
notices from Lessor to Lessee.

F.    Implicit Interest Rate. The "Implicit Interest Rate" for each Unit is a
      ----------------------
nominal rate per annum equal to 2.50 percentage points (the "Spread") in excess
of the Index Rate, compounded monthly and computed on the basis of a year of 360
days and 12 30-day months, which may result in more rent than if a 365-day year
were used. "Index Rate" with respect to each Unit means the average interbank
offered rate per annum ("LIBOR") for 3 -month U.S. dollar deposits in the London
market at 11:00 a.m. (London time) at five major banks in London, New York and
San Francisco, two business days before the first day of each Rent Period in an
amount approximately equal to the unamortized balance of the Purchase Price at
the beginning of such Rent Period, as reported in Telerate System Page 3750 (or
any successor page).

      If for any reason LIBOR is not so quoted on any relevant date of
determination, the Index Rate during the relevant Rent Period will be an
equivalent rate per annum determined by Lessor.

G.    Location.
      --------

      The Units shall be located in Puebla, Mexico unless otherwise specified in
the Acceptance Certificate. Lessee shall give Lessor written notice of any
change in such location within 10 days of the date thereof.

H.    Other Charges.
      -------------

      1. Late Payment Charges. The interest rate on late payments shall be 14%
         --------------------
per annum, computed daily on the basis of a 360-day year and actual days elapsed
which results in more interest than if a 365-day year is used.

      2. Early Termination Charges.
         -------------------------

         (a) Initial Direct Costs. Lessee acknowledges that Lessor will incur
             --------------------
certain costs in establishing this transaction ("Initial Direct Costs") and that
Lessor will amortize the Initial Direct Costs over the scheduled full term of
the Lease. Lessor estimates those costs as, and establishes on its books a
reserve therefor, in an amount equal to 1% of the aggregate Base Rent for the
Units. If the Lease is terminated for any reason before the scheduled expiration
of the Base Term, whether upon the exercise of any early termination option, a
casualty occurrence or a default, in addition to all other amounts to be paid by
Lessee, Lessee shall pay Lessor an amount equal to the unamortized portion of
the Initial Direct Costs.

I.    Early Termination.
      -----------------

      If no Event of Default exists, Lessee may, by notice to Lessor, terminate
the Lease with respect to all but not less than all the Units for which the
Lease expires on the same date. Such notice shall specify a date (the
"Termination Date") with respect to each Unit, not more than 120 and not less
than 30 days after such notice is given, which shall be a Base Rent payment date
on or after the later of the 24th month of the Base Term for the Unit or
one-half of the Base Term of the Unit. On the Termination Date of each Unit,
Lessee shall pay to Lessor the Balance Due for the Unit computed as of such date
and any Other Charges required hereunder. Upon such payment, the obligation of
Lessee to pay rent hereunder with respect to the Unit after the Termination Date
shall cease, the term for the Unit shall end on the Termination Date, and Lessor
shall execute and deliver to Lessee or its assignee or nominee a bill of sale
(without representations or warranties except that the Unit is free and clear of
all claims, liens, security interests and other encumbrances by or in favor of
any person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the terms of the Lease and
to transfer title thereto to Lessee or such assignee or nominee, in such form as
may reasonably be requested by Lessee, all at Lessee's expense.

J.    Purchase Provision.
      ------------------

      At the end of the Base Term for a Unit, if the Lease has not been earlier
terminated with respect to the Unit, Lessee shall purchase the Unit for $1.00
(the "Purchase Amount").

                                       3
<PAGE>

      Upon Lessee's payment of the Purchase Amount, Lessor shall execute and
deliver, to Lessee, or its assignee or nominee, a bill of sale (without
representations or warranties except that the Unit is free and clear of all
claims, liens, security interests and other encumbrances by or in favor of any
person claiming by, through or under Lessor) for the Unit, and such other
documents as may be required to release the Unit from the Lease and to transfer
title thereto to Lessee or such assignee or nominee, in such form as may
reasonably be requested by Lessee, all at Lessee's expense.

K.    Sale-Leaseback.
      --------------

      Section 1.1 shall not be applicable with respect to the Units identified
in Annex A to the bill of sale in a form acceptable to Lessor. The following
provisions shall govern the procurement, delivery and acceptance of such Units:

      1. On a date or dates to be agreed upon by Lessor and Lessee (individually
a "Delivery Date"), Lessor will purchase from and lease back to Lessee for an
amount equal to the agreed upon value of the Units identified in Annex A to the
bill of sale, and Lessee will sell to and lease back from Lessor each Unit, but
all Delivery Dates for such Units must be during the Utilization Period set
forth in this Appendix.

      2. The obligation of Lessor to pay for each Unit is subject to the
following additional conditions:

         (a) On or before its Delivery Date, Lessee shall execute and deliver to
Lessor a bill of sale with respect to the Unit, dated as of the Delivery Date;
and

         (b) Lessor shall receive evidence, satisfactory to Lessor, that each
Unit is free and clear of all claims, liens, security interests and
encumbrances.

      If any of the foregoing conditions is not met with respect to any such
Unit, Lessor shall have no obligation to either Lessee or any third party to pay
the purchase price for such Unit.

      Any attempted or purported sale of a Unit by Lessee to Lessor after its
Delivery Date shall not be effective whether or not accepted by Lessor and
Lessor shall not incur any obligations with respect to the Unit, including the
obligation to pay for the Unit.

      3. Lessee represents, warrants and covenants with respect to each Unit
that (a) Lessee has the right to sell the Unit as set forth herein, (b) both the
Unit and Lessee's right, title and interest in the Unit are, or will be as of
its Delivery Date, free from all claims, liens, security interests and
encumbrances, (c) Lessee will defend the sale against claims and demands of all
persons and (d) the purchase price of the Unit is equal to its fair market value
at the time of the sale.

L.    Deposit
      -------

      Lessee has paid to Lessor a Deposit of $10,000, representing .1923% of the
Maximum Purchase Price set forth in this Appendix (the "Commitment Percentage").
This fee will be applied to the first Base Rent installment, up to the full
amount of such installment, as such installments become due, until the deposit
is fully applied thereto. No part of this fee will be refunded or applied to any
other rent.

M.    Financial Benchmarks.
      --------------------

      Lessee shall at all times observe the following benchmarks (all
computations and definitions being determined in accordance with generally
accepted accounting principles). If a breach of any of the following benchmarks
occurs, Lessor, at its option, may cause the remaining unamortized balance of
the Purchase Price to be amortized over six (6) consecutive monthly
installments, with the first such installment to be due on the next succeeding
Base Rent payment date.

      (1)   maintain "Interest Coverage" (net income before taxes plus interest
            expense divided by interest expense) of not less than 3.0: 1.00; and

      (2)   total liabilities less debt subordinated to exceed 2.0 times
            tangible net worth (shareholder's equity less intangible assets)
            plus debt subordinated. Debt subordinated shall be calculated in a
            manner acceptable to Lessor.

N.    Maintenance Contract.
      --------------------

      In addition to the maintenance required by Section 4 of the Lease
Agreement, Lessee shall execute, at its own expense, a transferable and
assignable maintenance contract with the Vendor of the Units or other third
party which normally services such equipment in the ordinary course of business
and is acceptable to Lessor, and shall keep the contract in force until the
Units are surrendered to Lessor.

                                       4
<PAGE>

O.    Year 2000 Representation.
      ------------------------

      On the basis of a comprehensive review and assessment of Lessee's systems
and equipment and inquiry made of Lessee's material suppliers, vendors and
customers, Lessee's management is of the view that the "Year 2000 problem" (that
is, the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a material adverse change in the operations, business,
properties, condition (financial or otherwise) of Lessee. Lessee has developed
feasible contingency plans adequately to insure uninterrupted and unimpaired
business operation in the event of failure of its own or a third party's systems
or equipment due to the Year 2000 problem, including those of vendors,
customers, and suppliers, as well as a general failure of or interruption in its
communications and delivery infrastructure.

      The parties hereto have executed this Appendix as of the day and year
first above written.

TRANSIT HOLDING, INC.                    TAG MEX, INC.

By: /s/ [ILLEGIBLE]                      By: /s/ [ILLEGIBLE]
    ---------------------------              ---------------------------

Title: Vice President                    Title: Chief Operating Officer
       ------------------------                 ------------------------

By:                                      By:
    ---------------------------              ---------------------------

Title:                                   Title:
       ------------------------                 ------------------------

Address:       555 California Street,    Address:         3151 Washington Blvd.
               4th Floor                                  Los Angeles, CA 90023
               San Francisco, CA 94104   Attn:            Patrick Chow
Attn:          Contract Administration   Facsimile No.:   (323) 415-0403
Facsimile No.: (415) 765-7373

                                       5
<PAGE>

                                                                 Lease No. 16501

               FIRST AMENDMENT TO LEASE entered into as of November 23, 1999
          by and between TRANSIT HOLDING, INC., with its principal office at
          555 California Street, 4th Floor, San Francisco, California 94104
          ("Lessor") and TAG MEX, INC., a California corporation ("Lessee")
          with reference to the following:

      Lessor and Lessee have entered into Appendix No. 1 dated November 3, 1999,
to Lease Intended As Security Agreement dated as of November 3, 1999 (together,
the "Lease"; all defined terms therein not otherwise defined herein being used
with their meanings as defined therein); and

      Lessor and Lessee now desire to amend the Lease as hereinafter set forth:

      NOW, THEREFORE, the parties hereto agree as follows:

      1.    Paragraph B(2)(f)(viii) of Appendix No. 1 Shall be deleted in its
            entirety.

      2.    The following shall be added to Paragraph B of Appendix No. 1:

            "3. Condition Subsequent to Funding. Lessee shall provide to Lessor
                -------------------------------
      a binding commitment from a U.S. financial institution or a group of
      lenders for a working capital line of credit of at least $100,000,000.
      Evidence of the working capital credit line commitment be in a form
      acceptable to Lessor. Lessee shall provide such evidence of the working
      capital credit line commitment to Lessor by March 31, 2000."

      Except as is herein specifically amended, all of the terms, covenants, and
provisions of the Lease remain in full force and effect.

   IN WITNESS WHEREOF, the parties hereto have executed this FIRST AMENDMENT TO
LEASE as of the day and year written above.

TRANSIT HOLDING, INC.                    TAG MEX, INC.

By: /s/ [ILLEGIBLE]                      By: /s/ [ILLEGIBLE]
    ---------------------------              ---------------------------

Title: Vice President                    Title: Chief Operating Officer
       ------------------------                 ------------------------

                                 LESSOR'S COPY
<PAGE>

                                                                       EXHIBIT A
                                                                              TO
                                                      LEASE INTENDED AS SECURITY
                                                      --------------------------

                          ACCEPTANCE CERTIFICATE NO.
                          ------------------------------

      Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. ___ thereto dated __________________, 19 __, the
"Lease"); capitalized terms otherwise defined herein having the same meanings as
in the Lease). The Lease is incorporated herein by reference.

      1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
         -------------------------
equipment delivered in Annex A have been delivered to, are in the possession of
                       -------
and are accepted by Lessee for leasing under, and constitute "Units" subject to
and governed by, the Lease, the Units (i) have been fully inspected by qualified
agents of Lessee and are in good order, operating condition and repair, (ii)
have been properly installed (subject only to any minor undischarged obligations
of suppliers, manufacturers or installers thereof to promptly update and conform
same as provided by their respective agreements and warranties), (iii) meet all
recommended or applicable safety standards, (iv) are, as of the Delivery Date
set forth below, available for use and service by Lessee and Lessor and (v) have
been marked or labeled showing Lessor's interest in the form and to the extent
required by the Lease, (C) the dollar amounts set forth in Annex A with respect
to such equipment are correct and (D) Lessee [ILLEGIBLE] pay the rent and all
other sums provided for in the Lease with respect to such Units.

      2. DELIVERY DATE. The Delivery Date of the Units is _______________, 1999.
         -------------

      3. PURCHASE PRICE. The Purchase Price of the Units is $____________, as
         --------------
set forth in Annex A.

      4. SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
         --------
Units will be determined pursuant to the relevant Appendix and set forth in a
Schedule to this Acceptance Certificate.

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.

Lessor:                                    Lessee:
TRANSIT HOLDING, INC.                      TAG MEX, INC.

By:                                        By:
       --------------------------                  -----------------------------
Title:     NOT FOR EXECUTION               Title:         NOT FOR EXECUTION
       --------------------------                  -----------------------------

                                       1
<PAGE>

                                                                         ANNEX A
                                                                              TO
                                                      ACCEPTANCE CERTIFICATE NO.
                                                      --------------------------

================================================================================
Description (Quantity;       Location (Street
Manufacturer, Make,          Address, City,          Delivery         Purchase
Model No.; Serial No.)       County, State)            Date            Price
--------------------------------------------------------------------------------

================================================================================

                                              Total Sales Tax        $
                                              Total Transportation   $
                                              Total Installation     $
                                              Total Purchase Price   $

                                              Less Advances          $
                                              Remaining Balance      $

                                       2
<PAGE>

                                                                       EXHIBIT B
                                                                              TO
                                                      LEASE INTENDED AS SECURITY
                                                      --------------------------

                                 SCHEDULE NO.
                                 ------------

      SCHEDULE (this "Schedule") dated ______________________, 19___ to
Acceptance Certificate No. ____ dated _____ 19__ "Acceptance Certificate") to
the Lease Intended as Security dated as of November 3, 1999 between TRANSIT
HOLDING, INC., as Lessor, and MEX, INC., as Lessee (together with Appendix No.
_____ thereto, the "Lease"; capitalized terms not otherwise defined herein
having the meanings as in the Lease).

      1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
         --------------------------
described in the Acceptance Certificate is dated _____________, 19___. The Base
Date for the Units is dated _______, 19____.

      2. INDEX RATE. The Index Rate on the Scheduling Date is _____% per annum.
         ----------

      3. RENT. The Base Rent for the Units is comprised of 60 monthly
         ----
installments, each in the amount of $__________, with the such installment due
on ____________. Lessor will invoice Lessee for any Interim or Advance Rent due
as described in the terms of the Appendix based upon the date on which Lessor
funds the Acceptance Certificate and this Schedule.

      4. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
         --------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code, Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.

Lessor:                                    Lessee:
TRANSIT HOLDING, INC.                      TAG MEX, INC.

By:                                        By:
       --------------------------                  -----------------------------
Title:     NOT FOR EXECUTION               Title:         NOT FOR EXECUTION
       --------------------------                  -----------------------------
<PAGE>

              CORPORATE RESOLUTION TO LEASE OR SELL AND LEASEBACK

      RESOLVED; That this corporation, TAG MEX, INC. lease from or sell to and
lease back from, as the case may be, TRANSIT HOLDING, INC., a Delaware
corporation, a subsidiary of Banc of America Leasing & Capital LLC hereinafter
referred to as Lessor, such items of equipment and ancillary property, and upon
such terms and conditions, as any officer or officers hereinafter authorized, in
their discretion, acting jointly or singly, may deem necessary or advisable.

      RESOLVED FURTHER; That

   Corazon Reyes                                    the  Chief Operating Officer
---------------------------------------------------     ------------------------
(print name here, provide specimen signature below)               (title)

or Barry Aved                                       the   President
  -------------------------------------------------     ------------------------
(print name here, provide specimen signature below)               (title)

or_________________________________________________ the ________________________
(print name here, provide specimen signature below)               (title)

or_________________________________________________ the ________________________
(print name here, provide specimen signature below)               (title)

of this corporation (the officer or officers authorized to act pursuant hereto
being hereinafter designated as "authorized officers"), be, and they hereby are
authorized, directed and empowered, acting jointly or singly, in the name of
this corporation, to execute and deliver to Lessor, and Lessor is requested to
accept, such deeds, bills of sale, and other instruments to effect any such
sale, and any lease that may be required by Lessor in connection with such
leasing of personal property.

      RESOLVED FURTHER: That the authorized officers be, and they hereby are,
individually authorized, directed and empowered, acting jointly or singly, in
the name of this corporation, to do or cause to be done all such further acts
and things as they, acting jointly or singly, may deem necessary, advisable,
convenient, or proper in connection with the execution and delivery of any such
lease and in connection with or incidental to the carrying of the same into
effect, including without limitation the execution, acknowledgment, and delivery
of any and all instruments and documents which may be required by Lessor under
or in connection with any such lease.

      RESOLVED FURTHER: That Lessor is authorized to act upon this resolution
until written notice of its revocation is delivered to Lessor and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.

      I, Corazon Reyes, Secretary of TAG MEX, INC., a corporation incorporated
under the laws of the State of California, do hereby certify that the foregoing
is a full, true and correct copy of a resolution of the Board of Directors of
said corporation, duly and regularly passed or adopted by said Board of
Directors as required by law and by the by-laws of said corporation on Nov. 10,
1999, that said resolution is still in full force and effect and has not been
amended or revoked and that set forth below are specimen signatures of the
officers authorized to sign for said corporation by virtue of said resolution.

      IN WITNESS WHEREOF, I have signed as such Secretary and affixed the
corporate seal of said corporation on 11-10-99, 19__.

      SPECIMEN SIGNATURES:

/s/ Corazon Reyes                             /s/ Corazon Reyes
----------------------------                  ----------------------------------
/s/ [ILLEGIBLE]                               SECRETARY OF TAG MEX, INC.
----------------------------                  A CALIFORNIA CORPORATION

----------------------------
                                              /s/ Barry Aved
----------------------------                  ----------------------------------
                                              PRESIDENT OR ASSISTANT SECRETARY
                                              OF TARRANT APPAREL

                                                               [SEAL]
<PAGE>

                                   GUARANTY

      1. The Guaranty. For valuable consideration, the undersigned ("Guarantor")
         ------------
hereby unconditionally guarantees and promises to pay to TRANSIT HOLDING, INC.,
a subsidiary of Banc of America Leasing & Capital LLC ("Lessor"), or order, on
demand, in lawful money of the United States, any and all payment and
performance obligations, whether now existing or hereafter arising or matured or
contingent (the "Obligations") of TAG MEX, INC. ("Lessee") to Lessor under or in
respect of that certain Lease Intended as Security executed by Lessee and Lessor
dated August 23, 1999 (together with all schedules, appendices and other
attachments thereto, and any renewals, modifications, or extensions thereof, the
"Lease") providing for the lease or financing of equipment or other personal or
real property ("Leased Property") by Lessor to Lessee. The obligations of
Guarantor hereunder are independent of the Obligations and exclusive of and in
addition to liability under any other guaranty executed by Guarantor for the
benefit of Lessor or any company related to Lessor, and a separate action or
actions may be brought and prosecuted against Guarantor whether action is
brought against Lessee or whether Lessee is joined in any such action or
actions.

      2. Authorization of Renewals, Etc. Guarantor authorizes Lessor, without
         ------------------------------
notice or demand and without affecting its liability hereunder, from time to
time to:

         (a) renew, compromise, extend, accelerate, or otherwise change the time
for or amount of any payment, or substitute or exchange Leased Property, or
otherwise change the terms of the Lease or the Obligations or any other
obligations of Lessee to Lessor ("Other Obligations");

         (b) receive and hold security for the payment of this Guaranty or the
Obligations or any Other Obligations, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of, any such security;

         (c) apply such security and direct the order or manner of sale thereof
as Lessor in its discretion may determine; and

         (d) release or substitute any one or more of any endorsers or
guarantors of the Obligations.

      3. Waiver of Certain Rights. Guarantor waives any right to require Lessor
         ------------------------
to:

         (a) proceed against Lessee;

         (b) proceed against or exhaust any security for the Obligations or any
other Obligations, or repossess, dispossess or remarket Leased Property, or
otherwise mitigate damages; or

         (c) exercise or pursue any other right or remedy in Lessor's power
whatsoever.

      4. Waiver of Certain Defenses. Guarantor waives any defense arising by
         --------------------------
reason of any disability or other defense of Lessee, or the cessation from any
cause whatsoever of the liability of Lessee, or any claim that Guarantor's
obligations exceed or are more burdensome than those of Lessee, including any of
the foregoing arising by virtue of any provision of the U.S. Bankruptcy Code
(Title 11, U.S. Code) (the "Bankruptcy Code").

      5. Waiver of Subrogation and Other Rights and Defenses.
         ---------------------------------------------------

         (a) Until the Obligations and any Other Obligations are paid in full,
Guarantor waives (i) any right of subrogation, reimbursement, indemnification
and contribution (contractual, statutory, or otherwise), including any claim or
right of subrogation under the Bankruptcy Code, arising from the existence or
performance of this Guaranty, (ii) any right to enforce any remedy Lessor now
has or may hereafter have against Lessee and (iii) any benefit of, and any right
to participate in, any security now or hereafter held by Lessor. After the
Obligations and any Other Obligations are paid in full, to the extent there is
any value in the security or other collateral securing the Obligations or Other
Obligations, Lessor agrees to execute and deliver such further documents as
Guarantor may reasonably request to vest title to such security or other
collateral in Guarantor.

         (b) Guarantor understands and acknowledges that if Lessor forecloses,
either by judicial foreclosure or by exercise of power of sale, any deed of
trust securing the Obligations, that foreclosure could impair or destroy any
ability Guarantor may have to seek reimbursement, contribution, or
indemnification from Lessee or others based on any right Guarantor may have of
subrogation, reimbursement, contribution, or indemnification for any amounts
paid by Guarantor under this Guaranty. Guarantor further understands and
acknowledges that in the absence of this paragraph, such potential impairment or
destruction of Guarantor's rights, if any, may entitle Guarantor to assert a
defense to this Guaranty based on Section 580d of the California Code of Civil
Procedure ("CCP") as interpreted in

                                       1
<PAGE>

Union Bank v. Gradsky, 265 Cal. App. 2d. 40 (1968). By executing this Guaranty,
---------------------
Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes
that defense and agrees that Guarantor will be fully liable under this Guaranty
even though Lessor may foreclose, either by judicial foreclosure or by exercise
of power of sale, any deed of trust securing the Obligations; (ii) agrees that
Guarantor will not assert that defense in any action or proceeding Lessor may
commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights
and defenses waived by Guarantor in this Guaranty include any right or defense
Guarantor may have or be entitled to assert based upon or arising out of any one
or more of CCP ss.ss.580a, 580b, 580d, or 726 or Section 2848 of the California
Civil Code ("CC") and (iv) acknowledges and agrees that Lessor is relying on
this waiver in creating the Obligations, and that this waiver is a material part
of the consideration therefor.

          (c) Guarantor waives any rights and defenses that are or may become
available to Guarantor under CC ss.ss.2787 to 2855, inclusive.

          (d) Guarantor waives the benefit of any statute of limitations
affecting its liability hereunder.

      6.  Waiver of Presentments, Etc. Guarantor waives all presentments,
          ---------------------------
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional Obligations or any
Other Obligations.

      7.  Information Relating to Lessee. Guarantor acknowledges and agrees that
          ------------------------------
it has sole responsibility for obtaining from Lessee such information concerning
Lessee's financial condition or business operations or the Leased Property as
Guarantor may require, and that Lessor has no duty at any time to disclose to
Guarantor any information relating to the business operations or financial
condition of Lessee or the Leased Property.

      8.  Financial Information. Guarantor shall keep its books and records in
          ---------------------
accordance with generally accepted accounting principles and practices
consistently applied and shall deliver to Lessor (i) annual CPA audited
financial statements within 120 days of its fiscal year end, (ii) quarterly
company-prepared financial statements upon Lessor's request, and (iii) such
financial statements as Lessor may reasonably request. Credit information
relating to Guarantor may be disseminated among Lessor and any of its affiliates
and any of their respective successors and assigns.

      9.  Security. To secure all of Guarantor's obligations hereunder,
          --------
Guarantor assigns and grants to Lessor a security interest in all moneys,
securities and other property of Guarantor now or hereafter in the possession of
Lessor, all deposit accounts of Guarantor maintained with Lessor or any
affiliate of Lessor (including Bank of America National Trust and Savings
Association), and all proceeds thereof. Upon default or breach of any of
Guarantor's obligations to Lessor hereunder, Lessor may apply any such deposit
account to reduce the Obligations, and may foreclose any collateral as provided
in the Uniform Commercial Code and in any security agreements between Lessor and
Guarantor.

      10. Subordination. Any obligations of Lessee to Guarantor, now or
          -------------
hereafter existing, including any obligations to Guarantor as subrogee of Lessor
or resulting from Guarantor's performance under this Guaranty, are hereby
subordinated to the Obligations and any Other Obligations. Such obligations of
Lessee to Guarantor if Lessor so requests shall be enforced and performance
received by Guarantor as trustee for Lessor, and the proceeds thereof shall be
paid over to Lessor on account of the Obligations and all Other Obligations, but
without reducing or affecting in any manner the liability of Guarantor under the
other provisions of this Guaranty.

      11. Lessee's Authorization. Where Lessee is a corporation, partnership, or
          ----------------------
limited liability company, it is not necessary for Lessor to inquire into the
powers of Lessee or of the officers, directors, partners, members, managers, or
agents acting or purporting to act on its behalf, and any Obligations made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.

      12. Assignments. Lessor may, without notice to Guarantor and without
          -----------
affecting Guarantor's obligations hereunder, sell, assign, grant participations
in, or otherwise transfer to any other person, firm, or corporation the Lease,
the Leased Property, the Obligations and this Guaranty, in whole or in part.
Guarantor agrees that Lessor may disclose to any such assignee or purchaser, or
any prospective assignee or purchaser, of all or part of the Lease or the
Obligations any information in Lessors possession concerning Guarantor, this
Guaranty and any security for this Guaranty.

      13. Reinstatement of Guaranty. If any payment or transfer of any interest
          -------------------------
in property by Lessee to Lessor is rescinded or must be returned by Lessor to
Lessee, (a) this Guaranty shall be reinstated with respect to any such payment
or transfer, even if this Guaranty was previously returned or canceled, and (b)
Guarantor shall remain fully liable with respect to any such amount as if such
amount had not been paid by Lessee.

                                       2
<PAGE>

      14. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys'
          ------------------
fees, including allocated costs of Lessor's internal counsel, and all other
costs and expenses Lessor may incur (a) in the enforcement of this Guaranty or
(b) in the preservation, protection, or enforcement of any rights of Lessor in
any case commenced by or against Guarantor under the Bankruptcy Code or any
similar statute.

      15. Governing Law. This Guaranty shall be governed by and construed under
          -------------
the laws of California, to the jurisdiction of which, and of the Federal courts
in California, Guarantor hereby submits.

      16. Interpretation. No provision or waiver in this Guaranty shall be
          --------------
construed as limiting the generality of any other waiver in this Guaranty. The
term "including" is not limiting and means "including without limitation".
Section headings are for convenience of reference only and do not affect the
interpretation of this Guaranty. The invalidity of any portion of this Guaranty
shall not affect the remaining provisions. Where more than one Guarantor
executes this Guaranty, all of the provisions hereof shall apply to each of such
persons singly, and the obligations of each such person shall be joint and
several.

          Executed as of ___________________________.

      Guarantor:

      /s/ Gerard Guez
      -----------------------
      Tarrant Apparel Group
      Print Name

           Gerard Guez
      -----------------------
      Address

Address for notices to Lessor:       Address for notices to Guarantor:
3151 Washington Blvd.
Los Angeles, CA 90023                 3151 E, Washington Blvd.
                                      ---------------------------------
                                      Los Angeles, CA 90023
                                      ---------------------------------

      Guarantor:

      /s/ Corazon Reyes
      -----------------------
      TARRANT APPAREL GROUP
      Print Name

           Corazon Reyes
      -----------------------
      Address

                                          Address for notices to Guarantor:

                                             3151 E. Washington Blvd.
                                          ---------------------------------
                                             Los Angeles, CA  90023
                                          ---------------------------------

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

                                       3
<PAGE>

                 RESOLUTION AUTHORIZING EXECUTION OF GUARANTY

      WHEREAS, TRANSIT HOLDING, INC., subsidiary of Banc of America Leasing &
Capital LLC ("Lessor"), is willing to enter into a lease agreement or lease
agreements with TAG MEX, INC. ("Lessee") if the obligations of Lessee arising
thereunder are guaranteed by this corporation; and

      WHEREAS, it is of a business benefit to this corporation that such lease
agreement or lease agreements be entered into by Lessor and Lessee;

      NOW, THEREFORE, BE IT RESOLVED that this corporation guarantee the
obligations of Lessee to Lessor under any lease or other agreement or agreements
entered into between Lessor and Lessee before actual receipt by Lessor of
written notice of revocation of this resolution as to future agreements.

      RESOLVED FURTHER that

    Gerard Guez                                  , the  Chief Operating Officer
-------------------------------------------------      -------------------------
(print name here, provide specimen signature below)               (title)

or Corazon Reyes                                 , the  Chief Executive Officer
   ----------------------------------------------      -------------------------
(print name here, provide specimen signature below)               (title)

or Barry Aved                                    , the  President
   ----------------------------------------------      -------------------------
(print name here, provide specimen signature below)               (title)

of this corporation are hereby individually authorized and directed on behalf of
this corporation to execute and deliver to Lessor a guaranty in such form as may
be agreed upon by any of said officers and Lessor, and the signatures of either
of said officers to the guaranty shall evidence their agreement.

      RESOLVED FURTHER that Lessor is authorized to act upon this resolution
until written notice of its revocation is delivered to Lessor and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.

      I, Corazon Reyes, Secretary of Tarrant Apparel Group, a corporation
incorporated under the laws of the State of Calif. do hereby certify that the
foregoing is a full, true and correct copy of a resolution of the Board of
Directors of said corporation, duly and regularly passed or adopted by said
Board Directors as required by law and by the by-laws of said corporation, on
Nov. 10, 19__, that said resolution is still in full force and effect and has
not been amended or revoked and that set forth below are specimen signatures of
the officers authorized to sign for said corporation by virtue of the said
resolutions.

      IN WITNESS WHEREOF, I have signed as such Secretary and affixed the
corporate seal of said corporation on 11-10, 1999

SPECIMEN SIGNATURES:

     /s/ Gerard Guez
-------------------------------
      (Signature)

     /s/ Corazon Reyes                                /s/ Corazon Reyes
-------------------------------               ----------------------------------
       (Signature)                            SECRETARY OF TARRANT APPAREL GROUP

    /s/ Barry Aved                                    /s/ Barry Aved
-------------------------------               ----------------------------------
       (Signature)                            PRESIDENT OR ASSISTANT SECRETARY
                                              OF TARRANT APPAREL GROUP

                                                         [SEAL]
<PAGE>

                     (LETTERHEAD OF MANATT PHELPS PHILLIPS)

November 24,1999

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
555 California Street, 4th Floor
San Francisco, California 94104

      Re:   Lease Intended as Security, dated as of November 3, 1999, between
            Transit Holdings, Inc., a subsidiary of BA Leasing & Capital
            Corporation, and Tag Mex, Inc.

Ladies and Gentlemen:

      We have acted as counsel to Tag Mex, Inc., a California corporation
("Lessee") and Tarrant Apparel Group, a California corporation ("Guarantor") in
connection with the negotiation, execution, and delivery of that certain Lease
Intended as Security dated as of November 3, 1999 (the "Lease"), between Lessee
and Transit Holdings, Inc., a subsidiary of Banc of America Leasing & Capital,
LLC ("BA Leasing"), and certain related documents. Unless otherwise defined
herein, or the context otherwise requires, all capitalized terms used in this
Opinion Letter shall have the meanings assigned to them in the Lease.

      In rendering this Opinion Letter, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the following:

            (1)   The Lease;

            (2)   Appendix No. 1 to the Lease;

            (3)   The Guaranty made in connection with the Lease;

            (4)   The Machinery and Equipment Pledge Agreement;

      The documents referred to in items (1) through (4) above, inclusive, are
hereinafter collectively referred to as the "Lease Documents".

      In our capacity as such counsel, we have been furnished with, and have
examined originals or copies, certified or otherwise identified to our
satisfaction as being true copies of, such records, agreements, instruments, and
documents as, in our judgment, are necessary or relevant as the basis for the
opinions expressed below.
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 2

      We are admitted to practice law only in the State of California. Our
opinions expressed herein are limited to the law of the State of California and
to the federal law of the United States, and we express no opinion herein as to
the application or effect of the law of any other jurisdiction.

      We have obtained and relied upon certificates and assurances from public
officials concerning the due incorporation, valid existence and good standing of
the Lessee and Guarantor in its jurisdiction of organization, a copy of which we
have delivered to you.

      We have obtained and relied upon such certificates and assurances from
public officials as we have deemed necessary. We have investigated such
questions of law and fact for the purpose of rendering this opinion as we have
deemed necessary.

      For the purpose of rendering the opinions set forth herein, and with your
consent, we have assumed, without investigation that:

      (a) All documents submitted to us as originals are complete and authentic;
all copies of documents submitted to us conform in all respects to the originals
thereof, including all amendments or modifications thereto; all signatures to
documents are genuine, other than those of Lessee or Guarantor; all originals or
copies submitted to us have not been amended or modified since the date they
were submitted to us by written or oral agreement of the parties thereto, by the
conduct of the parties thereto, or otherwise; and all representations and
certificates dated prior to or on the date hereof upon which we have relied are
and remain accurate, adequate and complete on and as of the date hereof.

      (b) All parties to the Lease Documents except Lessee and Guarantor (a)
have duly authorized the transactions contemplated thereby; and (b) have the
corporate power and corporate authority to enter into the Lease Documents and to
perform their respective obligations thereunder. All parties (except Lessee and
Guarantor) to the Lease Documents have complied with all regulatory requirements
applicable to them in entering into and performing the Lease Documents to carry
out the transactions contemplated thereby.

      (c) The Lease Documents will be enforced and performed in good faith and
in a commercially reasonable manner.

      (d) The factual representations and warranties made by the parties to the
Lease Documents or any other documents or instruments executed in connection
therewith are accurate, adequate and complete in all respects as of the date
made and as of the date hereof.

      (e) BA Leasing is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has full power,
authority and legal right to enter into
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 3

and perform all agreements to which it is a party, and to carry on its business
as it is currently being conducted, each such agreement has been duly
authorized, executed and delivered by BA Leasing and constitutes the legal,
valid and binding obligation of BA Leasing.

      (f) Except for the Lease Documents, there are no agreements with BA
Leasing which would (a) expand or otherwise modify the respective rights and
obligations of the Parties or (b) have any effect on any of the opinions set
forth in this letter.

      (g) None of the Collateral, nor any portion thereof, consists or will
consist of farm products, crops, timber or minerals (including, but not limited
to, oil and gas), accounts resulting from the sale of any thereof, consumer
goods, beneficial interests in a trust or decedent's estate, letters of credit
or tangible or intangible property which are subject to any law, statute,
ordinance, regulation or treaty of the United States, any state thereof or
foreign country which provides for a registration or a certificate of title for
the perfection of a security interest therein or which specifies a place of
filing other than that specified in the California Uniform Commercial Code
("CUCC") for filing to perfect such security interest or the appropriate county
recorder's office.

      (h) Lessee and Guarantor have not changed their chief executive office,
principal place of business or its office where it keeps its records concerning
accounts, within the past four months.

      (i) Lessee and Guarantor own good and marketable title to their property
interests in the Collateral, and concurrently with the execution and delivery of
the Lease Documents, value has been given by BA Leasing to Lessee and Guarantor
in connection with the execution and delivery of such documents.

      (j) The conduct of all parties pursuant to the Lease Documents will
conform with all applicable notice requirements and statutes, laws, rules,
regulations and ordinances of the appropriate state, including, without
limitation, Section 2954.5 of the California Civil Code, unless such notice
requirements have been validly waived.

      (k) Each of Lessee and Guarantor: (a) has not incurred any obligations or
granted any security interest under any of the Lease Documents with an actual
intent to hinder, delay or defraud any of its creditors; (b) is neither
insolvent nor will it become insolvent as a result of incurring such
obligations; (c) does not intend to incur and does not believe that it would
incur debts that would be beyond its ability to pay as such debts mature; and
(d) has received fair and reasonably equivalent consideration or value in
exchange for incurring any obligations or granting any security interest under
any of the Lease Documents.
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital. LLC
November 24, 1999
Page 4

      Whenever our opinions herein are stated to be to our knowledge, such
statement is intended to signify that, during the course of our representation
of Lessee and Guarantor in connection with the Lease Documents, no information
has come to the attention of Harold P. Reichwald, Andres Gonzalez, Jonathan A.
Meretsky and David Rodriguez, lawyers within our firm with principal
responsibility for the Lease Documents or this opinion letter, which would give
us actual knowledge of facts contrary to the existence or absence of the facts
indicated. However, except where expressly stated otherwise, we have not
undertaken any special or independent investigation to determine the existence
or absence of such facts, and no inference as to our knowledge of the existence
or absence of such facts should be drawn from our representation of Lessee and
Guarantor in connection with the Lease Documents. With your consent, we have not
undertaken any lien or judgment searches, and we have not searched the court
dockets of any jurisdiction or any of our files relating to Lessee and
Guarantor.

      On the basis of the foregoing, and in reliance thereon, and subject to the
qualifications and limitations set forth therein, we are of the opinion that:

      1. Lessee and Guarantor are corporations duly incorporated, validly
existing, and in good standing under the laws of the State of California.

      2. Lessee and Guarantor are qualified to do business in the states listed
below its name on Schedule 1 attached hereto.

      3. Lessee and Guarantor have the corporate power and authority to execute
and deliver each Lease Document to which it is a party and perform its
obligations thereunder, to own and operate its properties and assets, and to
carry on its business as currently conducted and as contemplated to be conducted
pursuant to the terms of the Lease Documents.

      4. The execution, delivery, and performance of the Lease Documents by
Lessee and Guarantor, the incurrence and repayment of the indebtedness and other
monetary obligations of Lessee and Guarantor pursuant to the Lease Documents,
and the granting by Lessee and Guarantor of security interests in Collateral
pursuant to the Lease Documents, have been duly authorized by all necessary
corporate action on the part of Lessee and Guarantor. Each Lease Document has
been duly executed and delivered by Lessee and Guarantor.

      5. Assuming the Collateral was located in California, the Lease Documents
constitute the legal and valid obligations of Lessee and Guarantor, enforceable,
in each case, to the extent it is a party thereto in accordance with their
respective terms.

      6. The execution, delivery, and performance of the Lease Documents by
Lessee and Guarantor, in each case to the extent it is a party thereto, the
compliance with the terms and conditions thereof, and the consummation of the
transactions contemplated thereby, do not and
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 5

will not conflict with, result in a breach of, or constitute a default under,
any of the terms, conditions, or provisions of the articles of incorporation or
bylaws of Lessee and Guarantor.

      In addition, notwithstanding anything contained in this letter to the
contrary, with your consent, we expressly disclaim any opinion as to:

      A. the effect of the Laws of any municipality, county or other political
subdivision of the State of California and the United Mexican States;

      B. the effect of court decisions invoking statutes or principles of equity
which hold that certain covenants and provisions of agreements are unenforceable
where the enforcement of such covenants or provisions under the circumstances
would violate the implied covenant of good faith and fair dealing;

      C. the truth, accuracy and completeness of any of the representations or
warranties given by Lessee and Guarantor or required of Lessee and Guarantor
under the Lease Documents or any other documents or instruments executed in
connection therewith as we have undertaken no independent investigation with
respect to the same;

      D. the enforceability under certain circumstances of provisions to the
effect that (a) rights or remedies are not exclusive, (b) every right or remedy
is cumulative and may be exercised in addition to or with any other right or
remedy, (c) the election of a particular remedy or remedies does not preclude
recourse to one or more other remedies and (d) the delay or failure to exercise
rights or remedies will not operate as a waiver of such right or remedy;

      E. the enforceability under certain circumstances of provisions imposing
penalties, forfeitures, late payment charges or an increase in interest rate
upon delinquency in payment or the occurrence of a default;

      F. the enforceability under certain circumstances of contractual
provisions respecting self-help or summary remedies without notice or
opportunity for hearing or correction;

      G. the effect of any state or Federal Laws or regulations applicable to
the transactions because of the nature of BA Leasing's business or because of
the methods by which BA Leasing conducts its business;

      H. the effect of Section 1670.5 of the California Civil Code, as amended,
which provides that if a court finds a contract or a clause thereof to be
unconscionable at the time it was made, the court may: (a) refuse to enforce the
contract; (b) enforce the contract without the unconscionable clause; or (c)
limit the application of the unconscionable clause to avoid an unconscionable
result;
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 6

      I. the effect of any Federal or California laws relating to permanent
rates of interest upon the transactions contemplated by the Lease Documents or
the enforceability of any purported waiver of such laws (this disclaimer applies
only to the extent that BA Leasing is not a class of lender excluded from the
application of the California usury law (Cal. Const. Art XV (S) 1));

      J. the effect of: (a) any modification to or amendment of the obligations
of Lessee and Guarantor which materially increases such obligations after the
date hereof; (b) any election of remedies by a lender following the occurrence
of an event of default; or (c) any other action by a lender which prejudices a
borrower if, in any such instance specified in any of the foregoing clauses (a),
(b), and (c), such modification, election or action occurs without notice to
such borrower and without granting to such borrower an opportunity to cure any
default;

      K. the effect of noncompliance with the Federal Assignment of Claims Act
or the perfecting of a security interest in: (a) items of personal property to
the extent that a security interest in such personal property may be perfected
without filing under Division 9 of the CUCC; (b) any interest in or claim in or
under any policy of insurance or deposit accounts; (c) goods as against the
rights of any party which may now or hereafter have a perfected "purchase money
security interest" (within the meaning of Division 9 of the CUCC) therein; (d)
goods as against a consignor which has delivered or may hereafter deliver such
goods under a true consignment (as distinguished from a consignment intended as
a security); (e) goods as against another security interest therein perfected
under the laws of any jurisdiction other than the State of California; (e) goods
as against a security interest therein created by a person other than Lessee and
Guarantor prior to the acquisition by Lessee and Guarantor; (g) goods as against
a "buyer in the ordinary course of business" (as such term is defined in
Division 1 of the CUCC) of such goods; (h) goods covered by a document of title
or certificate of title; (i) goods as against a lien thereon given by statute or
rule of law for materials or services; (i) goods which are installed in or
affixed to, or become a part of a product with, goods which are not part of any
of the trust estates; (k) the Collateral as against any claim or lien in favor
of the United States or any agency or instrumentality thereof (including,
without limitation, federal tax liens under the Title IV of ERISA); (l) goods
which have not been continuously within the State of California for a period in
excess of four months; and (m) without limiting the foregoing, the priority of
any security interest;

      L. matters excluded from Division 9 of the CUCC by virtue of Section 9104
thereof;

      M. the enforceability, under certain circumstances, of provisions in the
Lease Documents regarding the procedure and effect of a private sale of personal
property collateral and whether, under the factual circumstances existing at the
time of the sale of such collateral, the sale would be commercially reasonable;
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 7

      N. the enforceability of any "integration" clause contained in the Lease
Documents, to the extent that a court determines that the presentation of
extrinsic evidence is required in order to interpret any provision of a Lease
Document or to ascertain the intent of the parties thereto; and

      O. the existence or quality of any right, title or interest to any
property covered by any Financing Statement.

      P. the enforceability of remedies against any Collateral located outside
the jurisdiction of the United States.

      The opinions expressed herein are further qualified to the extent they may
be limited or affected by:

      1. limitations as to the availability of remedies for nonmaterial
violations or breaches;

      2. the unenforceability under certain circumstances of provisions
releasing or indemnifying a party against liability for its wrongful or
negligent acts or where such indemnification is contrary to public policy;

      3. limitations as to a party's ability to obtain payment or reimbursement
of costs and expenses or indemnification for claims, losses, or liabilities in
excess of amounts set by law or a reasonable amount determined by a court of
competent jurisdiction or a tribunal;

      4. the effect of applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance and other laws affecting the rights of
creditors generally, as well as standards of commercial reasonableness;

      5. limitations on the availability of specific performance and injunctive
and other forms of equitable remedies (regardless of whether considered in a
proceeding in equity or at law):

      6. in the case of collateral (as such term is defined in Division 9 of the
CUCC) in which a debtor (as such term is defined in Division 9 of the CUCC) has
no present rights, a security interest will be created therein only when the
debtor acquires the rights to such collateral;

      7. in the case of collateral which becomes subject to a security agreement
(as such term is defined in Division 9 of the CUCC) after the execution thereof,
Section 552 of the Bankruptcy Reform Act of 1978, as amended (the "Federal
Bankruptcy Code"), may limit the extent to which such collateral acquired after
the commencement of a case under the Federal
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 8

Bankruptcy Code may be subject to a security interest arising from a security
agreement entered into before the commencement of such case;

      8.  in the case of property which is acquired by Lessee and Guarantor and
becomes subject to the Lease Documents after the date hereof ("After Acquired
Property"), Section 547 of the Federal Bankruptcy Code provides that a transfer
is not made until the debtor has rights in the property transferred, so a
security interest in After Acquired Property, which is security for other than a
contemporaneous advance, may be treated as a voidable preference under the
conditions, and subject to the exceptions provided by Section 547 of the Federal
Bankruptcy Code;

      9.  Section 364 of the Federal Bankruptcy Code, which provides that the
extension of secured credit after the commencement of a case under the Federal
Bankruptcy Code would require court approval;

      10. the right of a lender to apply amounts collected under fire or other
casualty insurance policies or to apply awards of damages in condemnation
proceedings against the outstanding indebtedness may be subject to the
requirement that such application is reasonably necessary to protect against the
impairment of a lender's security;

      11. in the case of an exercise by BA Leasing of any remedy in connection
with the security interests created by the provisions of any of the Lease
Documents, including, but not limited to, the exercise of any voting or
consensual rights or any powers of ownership such as the power to sell, lease,
assign or otherwise dispose of any real or personal property, BA Leasing may
have to obtain, in accordance with applicable law, prior to such exercise,
licenses, authorizations, consents or approvals;

      12. the requirements of California law relating to the exercise of
remedies by a secured party (e.g., CUCC Section 9501 et seq., regarding a
secured party's rights with respect to personal property collateral upon the
occurrence of a default in the obligation secured thereby);

      13. the limitations set forth in Section 9306 of the CUCC with respect to
the continuation of perfection of any security interest in proceeds (other than
identifiable cash proceeds); and

      14. with respect to any collateral in which a security interest is
perfected by possession, the continuation of such possession.

      The opinions expressed herein are solely for the benefit of BA Leasing in
connection with the above transactions and may not be relied on in any manner or
for any purpose by any other person. In rendering this opinion, we have no
obligation to revise or supplement it should
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 9

the current laws which form the basis of this opinion be changed by legislative
action, judicial decision or otherwise or if we become aware of any facts that
change the opinion expressed herein after the date hereof.

                                                Very truly yours,

                                         /s/ MANATT, PHELPS & PHILLIPS, LLP
<PAGE>

MANATT, PHELPS & PHILLIPS, LLP

Transit Holdings, Inc., a subsidiary of
Banc of America Leasing & Capital, LLC
November 24, 1999
Page 10

                                  SCHEDULE 1

                 Lessee      California

                 Guarantor   California
<PAGE>

                        ACCEPTANCE CERTIFICATE NO. 001
                        ------------------------------

      Reference is made to the Lease Intended as Security dated as of November
3, 1999 between TRANSIT HOLDING, INC., as Lessor, TAG MEX, INC., as Lessee
(together with Appendix No. 1 thereto dated November 3, 1999, the "Lease");
capitalized terms not otherwise defined herein having the same meanings as in
the Lease). The Lease is incorporated herein by reference.

      1. ACCEPTANCE; CONFIRMATIONS. Lessee confirms that (A) the items of
         -------------------------
equipment delivered in Annex A have been delivered to, are in the possession of
and are accepted by Lessee for leasing under, and constitute "Units" subject to
and governed by, the Lease, the Units (i) have been fully inspected by qualified
agents of Lessee and are in good order, operating condition and repair, (ii)
have been properly installed (subject only to any minor undischarged obligations
of suppliers, manufacturers or installers thereof to promptly update and conform
same as provided by their respective agreements and warranties), (iii) meet all
recommended or applicable safety standards, (iv) are, as of the Delivery Date
set forth below, available for use and service by Lessee and Lessor and (v) have
been marked or labeled showing Lessor's interest in the [ILLEGIBLE] and to the
extent required by the Lease, (C) the dollar amounts set forth in Annex A with
respect to such equipment are correct and (D) Lessee may pay the rent and all
other sums provided for in the Lease with respect to such Units.

      2. DELIVERY DATE. The Delivery Date of the Units is November 29, 1999.
         -------------

      3. PURCHASE PRICE. The Purchase Price of the Units is $5,200,000, as set
         --------------
fort in Annex A.

      4. SCHEDULE. The Base Date, the Base Rent and any Interim Rent for the
         --------
Units will be determined pursuant to the relevant Appendix and set forth in a
Schedule to this Acceptance Certificate.

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Acceptance
Certificate as of the Delivery Date set forth above.

Lessor                                   Lessee:
TRANSIT HOLDING, INC.                    TAG MEX, INC.

By:    /s/ [ILLEGIBLE]                   By:      /s/ Corazon Reyes
       ------------------------                  -------------------------------
Title:     VICE PRESIDENT                Title:      Chief Operating Officer
       ------------------------                  -------------------------------

                                 LESSOR'S COPY
<PAGE>

                                                                         ANNEX A
                                                                              TO
                                                  ACCEPTANCE CERTIFICATE NO. 001
                                                  ------------------------------

<TABLE>
<CAPTION>
================================================================================================
Description (Quantity;
Manufacturer, Make,          Location (Street Address, City,    Delivery            Purchase
Model No.; Serial No.)       County, State)                       Date                Price
------------------------------------------------------------------------------------------------
<S>                          <C>                              <C>                  <C>
Miscellaneous Apparel        Lote 1, A.B.C. S/N, Corredor     November 29, 1999    $5,200,000.00
Manufacturing Equipment      Industrial Ixtacuixcla,
See Exhibit A attached       Fraccionamiento San Diego
hereto. See Invoices for     Xocoyucan, Tlaxcala, Tlaxcala
Specific Equipment
Description.

================================================================================================
</TABLE>

                                             Total Purchase Price $ 5,200,000.00
                                                                  --------------

                                 LESSOR'S COPY

                                       2
<PAGE>

                                   Exhibit A

--------------------------------------------------------------------------------
        COMPANY NAME                              INVOICE AMOUNT
--------------------------------------------------------------------------------
Taylor-Dunn                                       $   14,996.27
--------------------------------------------------------------------------------
                                                  $    4,998.76
--------------------------------------------------------------------------------
                                                  $    5,013.80
--------------------------------------------------------------------------------
Total Taylor-Dunn                                 $   25,008.83
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Gerber Technology                                 $  130,925.00
--------------------------------------------------------------------------------
                                                  $  276,293.00
--------------------------------------------------------------------------------
                                                  $  262,391.00
--------------------------------------------------------------------------------
Total Gerber Technology                           $  669,609.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
West Point Foundry & Machinery Co.                $1,691,108.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Pacific Steam Equipment, Inc.                     $  100,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Bruckner                                          $1,000,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Ludell Manufacturing Co., Inc.                    $  117,000.00
--------------------------------------------------------------------------------
                                                  $   63,000.00
--------------------------------------------------------------------------------
Total Ludell                                      $  l80,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Jarke Corporation                                 $   20,116.50
--------------------------------------------------------------------------------
                                                  $   23,385.80
--------------------------------------------------------------------------------
                                                  $   20,116.50
--------------------------------------------------------------------------------
                                                  $   23,385.80
--------------------------------------------------------------------------------
                                                  $    9,859.60
--------------------------------------------------------------------------------
                                                  $   23,385.80
--------------------------------------------------------------------------------
Total Jarke                                       $  120,250.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Termoelettronica                                  $  700,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Hoffman/New Yorker, Inc.                          $  109,106.66
--------------------------------------------------------------------------------
                                                  $   97,560.00
--------------------------------------------------------------------------------
                                                  $  103,333.34
--------------------------------------------------------------------------------
Total Hoffman/New Yorker                          $  310,000.00
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Applied Membranes, Inc.                           $  489,201.17
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
GRAND TOTAL                                       $5,285,177.00
--------------------------------------------------------------------------------
<PAGE>

                               SCHEDULE NO. 001
                               ----------------

      SCHEDULE (this "Schedule") dated November 29, 1999 to Acceptance
Certificate No. 001 dated November 29, 1999 (the "Acceptance Certificate") to
the Lease Intended as Security dated as of November 3, 1999 between TRANSIT
HOLDING, INC., as Lessor, and TAG MEX, INC., as Lessee (together with Appendix
No. 1 thereto, the "Lease"; capitalized terms not otherwise defined herein
having the same meanings as in the Lease).

      1. SCHEDULING DATE; BASE DATE. The Scheduling Date of the equipment
         --------------------------
described in the Acceptance Certificate is dated November 26, 1999. The Base
Date for the Units is dated December 1, 1999.

      2. INDEX RATE. The Index Rate on the Scheduling Date is 6.4763% per annum.
         ----------

      3. RENT. The Base Rent for the Units is comprised of 60 monthly
         ----
installments, with the first monthly installment of $107,883.54 due on January
1, 2000. Lessor will invoice Lessee for any Interim or Advance Rent due as
described in the terms of the Appendix and based upon the date on which Lessor
funds the Acceptance Certificate and this Schedule.

      4. CHATTEL PAPER COUNTERPARTS. Two counterparts of this Supplement have
         --------------------------
been executed by Lessor and Lessee. One counterpart has been prominently marked
"Lessor's Copy". One counterpart has been prominently marked "Lessee's Copy".
Only the counterpart marked "Lessor's Copy" shall evidence a monetary obligation
of Lessee and, therefore, to the extent this Lease may be considered "chattel
paper" as defined in the Uniform Commercial Code. Lessor's interest in this
Lease may be transferred only by transfer of possession of the counterpart of
this Schedule marked "Lessor's Copy".

      IN WITNESS WHEREOF, Lessor and Lessee have executed this Schedule as of
the date set forth above.

Lessor:                                  Lessee:
TRANSIT HOLDING, INC.                    TAG MEX, INC.

By:       /s/ [ILLEGIBLE]                By:         /s/ Corazon Reyes
       ------------------------                  -------------------------------
Title:     VICE PRESIDENT                Title:
       ------------------------                  -------------------------------

                                 LESSOR'S COPY

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