EXECUTION COPY





THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE  "ACT") OR ANY  STATE  SECURITIES  LAWS.  NO  INTEREST  IN THIS NOTE MAY BE
OFFERED OR SOLD  EXCEPT:  (i) PURSUANT TO AN  EFFECTIVE  REGISTRATION  STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE  DISPOSITION OF  SECURITIES),
OR (iii)  UPON THE  DELIVERY  BY THE  HOLDER TO THE  COMPANY  OF AN  OPINION  OF
COUNSEL,  REASONABLY  SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION
FROM REGISTRATION UNDER THE ACT IS AVAILABLE.


                                 CANDIE'S, INC.

                      8% SENIOR SUBORDINATED NOTE DUE 2012


$11,000,000                                        Dated: As of April 23, 2002



     FOR VALUE RECEIVED, the undersigned, Candie's, Inc., a Delaware corporation
(the "Company"),  hereby promises to pay to the order of Sweet  Sportswear,  LLC
("Payee"),  at Payee's address as specified below (or at such other place as the
holder of this Note (the  "Holder")  may from time to time  hereafter  direct by
notice in writing to the Company),  the principal amount of $11,000,000 on April
23, 2012 (the "Maturity Date").

1. Interest and Payment.

     1.1. The principal  amount of this Note outstanding from time to time shall
bear  interest  at the annual  rate of 8%  commencing  as of  February  1, 2003,
payable in arrears  beginning May 16, 2003, and payable  quarterly in arrears on
each August 16th, November 16th, February 16th and May 16th thereafter (each, an
"Interest  Payment Date"),  and, together with the principal amount of this Note
at the time outstanding, on the Maturity Date.


     If the  principal of, or any  installment  of interest on, this Note is not
paid when due, then the overdue amount shall bear interest ("Default  Interest")
at the  annual  rate of 10%,  which  interest  shall  accrue  from the date such
overdue  amount  became due  through  the date  payment of such  overdue  amount
(including  interest thereon) has been duly made or provided for. Interest shall
be  computed on the basis of a 360-day  year of twelve  30-day  months,  for the
actual number of days elapsed.  All accrued Default Interest shall be payable on
demand.  Notwithstanding  anything to the contrary  contained in this Note,  the
Company  shall not be  obligated to pay, and the Holder shall not be entitled to
charge,  collect or receive  interest in excess of the maximum  rate  allowed by
applicable law. If during any period of time the interest rate specified  herein
exceeds such maximum rate, then, any amounts of interest collected by the Holder
in excess of such maximum  rate shall be applied to the  reduction of the unpaid
principal amount of this Note.

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<PAGE>

     1.2.  All  payments of the  principal  of,  accrued  interest on, and other
amounts payable under this Note shall be payable in such coin or currency of the
United States of America as at the time shall be legal tender for the payment of
public and private debts.  At the option of the Holder of this Note, the Company
will make all payments on account of this Note by electronic  funds  transfer in
funds immediately  available at the place of payment to a deposit account with a
commercial bank designated by the Holder in writing at least three business days
prior to the relevant  Interest Payment Date,  Maturity Date or prepayment date.
All  payments  received  on account  of this Note shall be applied  first to the
payment of accrued and unpaid interest on this Note and then to the reduction of
the unpaid principal amount of this Note.

     1.3. In the event that the date for the payment of any amount payable under
this Note falls due on a Saturday,  Sunday or public  holiday  under the laws of
the State of New York,  the time for payment of such amount shall be extended to
the next  succeeding  business day and any  principal  amount  otherwise due and
payable  shall  continue to bear  interest  until paid in full on such  extended
payment date.

2.  Prepayment.  The Company may, upon at least five business days prior written
notice to the Holder of this Note, prepay the principal of this Note outstanding
at any time, in whole at any time and in part from time to time, without penalty
or premium, together with interest on the principal amount being prepaid accrued
through the date of prepayment.

3. Covenants.  The Company  covenants and agrees that for so long as any portion
of the  indebtedness  evidenced  by this Note,  whether  principal,  accrued and
unpaid interest or any other amount at any time due hereunder, remains unpaid:

     3.1. The Company will not, without the consent of the Holder, which consent
shall not be unreasonably withheld, delayed or conditioned:

     (a) Issue, create, incur, assume, permit,  guarantee or suffer to exist any
indebtedness  or other  obligations  for money  borrowed,  except  for (i) trade
credit in the ordinary course of the Company's business, (ii) indebtedness under
this Note and any  extension,  renewal  or  refinancing  thereof,  (iii)  Senior
Indebtedness  (as  such  term  is  defined  in  Section  7.9  below),  and  (iv)
indebtedness or other  obligations for money borrowed which are subordinated (in
right of payment) in all respects to this Note.

     (b) Effect a merger or  consolidation  in which  neither  the Company nor a
wholly-owned  subsidiary  of the  Company is the  surviving  entity  unless such
merger or  consolidation  is in  compliance  with the  provisions  of  Section 8
hereof.

     (c) Liquidate, wind up its affairs or dissolve.

     (d) Except as may be required  under the Company's  Share  Purchase  Rights
Plan,  (i) redeem,  purchase or  otherwise  acquire for cash  consideration  any
shares of the  Company's  common  stock,  par value $.001 per share  ("Shares");
provided;  however,  that the Company may at any time  repurchase  Shares issued
pursuant to any Stock Option Plan of the Company from employees, consultants and
directors  upon  termination  of their  relationships  with the  Company or (ii)
declare,  pay or set aside sums for  payment of any cash  dividends  or make any
other cash distributions on any Shares.

                                      -2-
<PAGE>

     3.2. The Company will:

     (a) Do or cause to be done all things  reasonably  necessary  to  preserve,
renew and keep in full  force and  effect its  corporate  existence,  rights and
franchises,  provided  that the Company may effect a  transaction  in accordance
with Section 8 hereof.

     (b) Promptly  following  the  occurrence  of any event that is or, with the
passage of time or the  giving of notice or both,  would be, an Event of Default
("Default"),  furnish to the Holder a statement  of the  Company's  President or
Chief Financial Officer setting forth the details of such Default and the action
which the Company proposes to take with respect thereto.

     4. Events of Default.  If any of the  following  events  (each an "Event of
Default") shall occur:

     4.1. The Company fails to pay the principal of, any installment of interest
accrued on, or any other  amount at anytime  owing under,  the Note,  within ten
days of when the same becomes due and payable hereunder; or

     4.2.  The  Company  defaults in the due  observance  or  performance  of or
breaches  any of its  covenants  contained  in this Note and such default is not
cured  within 30 days  after the  Company  has  received  written  notice of the
occurrence of such default; or

     4.3. The Company shall (i) become insolvent,  however evidenced, (ii) apply
for or  consent  to the  appointment  of,  or the  taking  of  possession  by, a
receiver,  trustee  or similar  official  of or for itself or of or for all or a
substantial  part of its property,  (iii) make an assignment  for the benefit of
its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code,
as now or hereafter in effect (the "Code"),  (v) file a petition seeking to take
advantage of any other  bankruptcy,  insolvency,  moratorium,  reorganization or
other similar law of any jurisdiction  ("Other Laws"),  (vi) acquiesce as to, or
fail to controvert in a timely or appropriate  manner, an involuntary case filed
against it under the Code, or (vii) take any corporate  action in furtherance of
any of the foregoing; or

     4.4. A  proceeding  or  involuntary  case shall be  commenced,  without the
application  or consent of the Company,  in any court of competent  jurisdiction
(i) under the  Code,  (ii)  seeking  liquidation,  reorganization,  dissolution,
winding up or composition or  readjustment of its debts under any Other Laws, or
(iii) seeking the appointment of a trustee,  receiver or similar official for it
or for all or any  substantial  part of its assets,  and any such  proceeding or
case shall continue  undismissed,  or unstayed and in effect, for a period of 90
days; or

     4.5. A final  non-appealable  judgment  for the  payment of money  shall be
rendered  by a court of  competent  jurisdiction  against  the  Company  and the
Company shall not  discharge  the same,  or procure a stay of execution  thereof
within 90 days from the date of entry  thereof  and within such 90 day period or
such longer  period  during  which  execution of such  judgment  shall have been
stayed,  appeal  therefrom and cause the  execution  thereof to be stayed during
such appeal,  and such judgment,  together with all other judgments  against the
Company,  shall exceed in the aggregate $1,000,000 in excess of any insurance as
to the  subject  matter of such  judgments,  as to which  coverage  has not been
declined or the underlying claim rejected by the applicable insurer; or

                                      -3-
<PAGE>

     4.6. The  liquidation  or  dissolution  of the Company or any vote in favor
thereof by the board of directors and shareholders of the Company; or

     4.7. A proceeding is commenced to foreclose a security  interest in or lien
on any  asset  of the  Company  as a  result  of a  default  in the  payment  or
performance of any indebtedness of the Company in excess of $1,000,000, together
with accrued unpaid interest thereon and related costs (other than the Note) and
such  proceeding has not been dismissed  within 90 days of the  commencement  of
such proceeding; or

     4.8.  An  attachment  or  garnishment  is levied  against the assets of the
Company involving an amount in excess of $1,000,000 and the lien created by such
levy is not  vacated,  bonded  or  stayed  within  90 days  after  such lien has
attached to such assets; or

     4.9. The Company defaults in the payment (regardless of amount) when due of
the  principal  of,  interest  on, or any other  liability  on  account  of, any
indebtedness  of the Company  (other than this Note) having an unpaid  principal
amount in excess of $1,000,000 and the holder of such  indebtedness  accelerates
the maturity of such  indebtedness,  or a default  occurs in the  performance or
observance  by the  Company of any  covenant  or  condition  (other than for the
payment of money)  contained  in any note  (other  than this Note) or  agreement
evidencing  or pertaining to any  indebtedness  of the Company  (other than this
Note) having an unpaid  principal  amount in excess of $1,000,000 and the holder
of such indebtedness accelerates the maturity of such indebtedness;


then,  (i) upon the  occurrence  and  continuance of any Event of Default (other
than an Event of  Default  referred  to in clause  (ii)  below),  the Holder may
declare  the  outstanding  principal  amount  of this  Note and  accrued  unpaid
interest thereon to be due and payable, whereupon such principal and accrued and
unpaid interest shall be due and payable forthwith, and (ii) upon the occurrence
and  continuance  of any Event of Default  specified in Section 4.3, 4.4 or 4.6,
the unpaid  principal  balance of this Note,  together  with  accrued and unpaid
interest on this Note  through the date of such Event of Default,  shall  become
and be immediately  due and payable  without any  declaration or other action by
the Holder of this Note and without presentment, demand, protest or other notice
or other  requirements of any kind, all of which are hereby  expressly waived by
the Company.

5. Suits for  Enforcement  and  Remedies.  If any one or more  Events of Default
shall  occur and shall  continue,  the Holder may  proceed  to (i)  protect  and
enforce  Holder's  rights either by suit in equity or by action at law, or both,
whether for the specific  performance  of any  covenant,  condition or agreement
contained in this Note or in any agreement or document  referred to herein or in
aid of the  exercise of any power  granted in this Note or in any  agreement  or
document  referred to herein,  (ii)  enforce the payment of this Note,  or (iii)
enforce any other  legal or  equitable  right of the Holder.  No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Note is intended  to be  exclusive  of any other  right or remedy,  and each and
every such right or remedy shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.

6.  Restriction on Transfer.  This Note has been acquired for investment and has
not been registered under the securities laws of the United States of America or
any state thereof.  Accordingly,  neither this Note nor any interest therein may
be offered for sale,  sold or  transferred  in the absence of  registration  and


                                      -4-
<PAGE>

qualification of this Note under applicable federal and state securities laws or
an opinion of counsel of the Holder reasonably  satisfactory to the Company that
such registration and qualification are not required.

7. Subordination.

     7.1.  The  Company  covenants  and agrees,  and the  Holder,  by his or its
acceptance hereof, likewise covenants and agrees, that, to the extent and in the
manner hereinafter set forth in this Section 7, the indebtedness  represented by
this Note and the payment of the principal of accrued interest on, and all other
amounts  payable in respect of this Note are hereby  expressly made  subordinate
and  subject  in right of  payment  to the prior  payment  in full of all Senior
Indebtedness; provided, however, that, notwithstanding the foregoing or anything
else to the contrary  contained in this Section 7, payments,  if any, in respect
of this Note from the sale of Pledged  Collateral under the circumstances and in
the manner set forth in the Collateral  Pledge Agreement between the Company and
Michael Caruso & Co., Inc. ("Caruso"),  on the one hand, and Payee, on the other
hand,  dated as of April 23, 2002 and attached  hereto as Exhibit A (the "Pledge
Agreement"), shall not be subordinate, and shall, in fact, be senior in right of
payment, to the Senior Indebtedness and enforcement by Payee of its rights under
the terms and  conditions  of such  Pledge  Agreement  shall not be  impaired or
limited by reason of this Section 7.

     7.2. Upon any distribution of assets of the Company in the event of:

     (a) any insolvency or bankruptcy case or proceeding,  or any  receivership,
liquidation, reorganization or other similar case or proceeding, relative to the
Company or to its creditors, as such, or to its assets, or

     (b) any  liquidation,  dissolution  or  other  winding  up of the  Company,
whether  voluntary or  involuntary  and whether or not  involving  insolvency or
bankruptcy, or

     (c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Company, or

     (d) any other event which would constitute an Event of Default specified in
Section 4.3 or Section 4.4 hereof,


then,  and in any such  event,  the  holders  of  Senior  Indebtedness  shall be
entitled to receive:

     (1) payment in full of all amounts due or to become due on or in respect of
all Senior Indebtedness, or provision shall be made for such payment, before the
Holder is  entitled  to receive  any  payment on  account of the  principal  of,
accrued interest on, or any other amount payable or in respect of this Note, and


     (2) any payment or distribution of any kind or character,  whether in cash,
property or  securities,  which may be payable or deliverable in respect of this
Note in any such case, proceeding, dissolution,  liquidation or other winding up
or event,  including  any such payment or  distribution  which may be payable or
deliverable  by reason of the payment of any other  indebtedness  of the Company
being subordinated to the payment of this Note.


                                      -5-
<PAGE>

     In the event that, notwithstanding the foregoing provisions of this Section
7.2,  the Holder  shall  have  received  in respect of this Note any  payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities,  including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company  being  subordinated  to the  payment  of this  Note,  before all Senior
Indebtedness is paid in full, or payment  thereof  provided for, and if prior to
the time of such payment or distribution, the Holder shall have received written
notice from the Company or a holder of Senior  Indebtedness of the occurrence of
any such  event and the fact that the Senior  Indebtedness  has not been paid in
full, then, in such event, all such payments or distributions received following
such  notice  shall  be paid  over or  delivered  forthwith  to the  trustee  in
bankruptcy,  receiver,  liquidating trustee, custodian, assignee, agent or other
person making payment or  distribution  of assets of the Company for application
to the  payment  of all  Senior  Indebtedness  remaining  unpaid,  to the extent
necessary  to pay, or provide for the  payment  of, all Senior  Indebtedness  in
full,  after giving effect to any concurrent  payment or  distribution to or for
the holders of Senior Indebtedness.

     7.3.  The  Company may not make any payment of the  principal  of,  accrued
interest  on, or any other amount  payable in respect of, the Note,  nor may the
Company  acquire the Note for cash or property  (other than for capital stock of
the Company) if:

     (a) a payment  default  on any  Senior  Indebtedness  has  occurred  and is
continuing beyond any applicable grace period with respect thereto; or

     (b) a default  (other than a default  referred to in the  preceding  clause
(1)) on any Senior Indebtedness occurs and is continuing that permits holders of
such Senior  Indebtedness to accelerate the maturity  thereof and the default is
the subject of judicial  proceedings or the Company receives a notice of default
thereof from any person or other  entity which may give such notice  pursuant to
the  instrument  evidencing or document  governing such Senior  Indebtedness  (a
"Senior Indebtedness Default Notice").


     If the  Company  receives  a Senior  Indebtedness  Default  Notice,  then a
similar notice received within one year thereafter  relating to the same default
on the same issue of Senior  Indebtedness shall not be effective for purposes of
this Section 7.3. The Company may resume payment on the Note and may acquire the
Note if and when:

     (1) the  default  referred  to  above is cured or  waived  as  provided  or
permitted in accordance with the terms of the applicable Senior Indebtedness; or

     (2) in the case of a default  referred  to in clause  (b) of the  preceding
paragraph,  90 or more days pass after the  receipt by the Company of the Senior
Indebtedness Default Notice described in clause (b) above; and

this Note otherwise permits the payment or acquisition at that time.

     In the event that,  notwithstanding  the  foregoing,  the  Company  makes a
payment to the Holder  prohibited  by the  foregoing  provisions of this Section
7.3,  and the Holder  receives  written  notice  from the Company or a holder of
Senior  Indebtedness  prior to the receipt of such payment that any such payment
is  prohibited,  then,  and in such  event,  such  payment  shall (to the extent
permitted by law) be paid over and  delivered  forthwith to the Company by or on
behalf of the  person or entity  holding  such  payment  for the  benefit of the
holders of the Senior  Indebtedness.  The Company  shall provide the Holder with


                                      -6-
<PAGE>

copies of all Senior Indebtedness Default Notices that the Company receives from
a holder of Senior Indebtedness.

     The  provisions  of this  Section 7.3 shall not apply to any  payment  with
respect to which Section 7.2 would be applicable.

     7.4. Nothing  contained in this Section 7.4 or elsewhere in this Note shall
prevent  the  Company,  at any time,  except  during the  pendency  of any case,
proceeding,  dissolution,  liquidation  or other winding up,  assignment for the
benefit of  creditors  or other  marshalling  of assets and  liabilities  of the
Company referred to in Section 7.2 or under the conditions  described in Section
7.3, from making payments at any time of the principal of, accrued  interest on,
or other amounts payable, in respect of this Note.

     7.5.  Subject to payment in full of all Senior  Indebtedness  to the extent
and in the manner set forth in this Section 7, the Holder shall be subrogated to
the extent of the payments or  distributions  made to the holders of such Senior
Indebtedness  pursuant to the  provisions of this Section 7 to the rights of the
holders of such Senior  Indebtedness  to receive  payments or  distributions  of
cash,  property and securities  applicable to the Senior  Indebtedness until the
principal  amount of, or other  amount  payable,  accrued  interest on, or other
amount  payable,  in respect of, the Note shall be paid in full. For purposes of
such  subrogation,  no  payments or  distributions  to the holders of the Senior
Indebtedness  of any cash,  property or  securities  to which the Holder of this
Note would be  entitled,  except for the  provisions  of this  Section 7, and no
payments  over  pursuant to the  provisions  of this Section 7 to the holders of
Senior Indebtedness by the Holder of this Note, shall as among the Company,  its
creditors other than holders of Senior Indebtedness and the Holder, be deemed to
be a payment  or  distribution  by the  Company  to or on  account of the Senior
Indebtedness.

     7.6. The  provisions of this Section 7 are and are intended  solely for the
purpose of defining the relative  rights of the Holder of this Note,  on the one
hand,  and the  holders  of  Senior  Indebtedness,  on the other  hand.  Nothing
contained in this Section 7 or elsewhere in the Note is intended to or shall (a)
impair,  as among the  Company,  its  creditors  other  than  holders  of Senior
Indebtedness  and the Holder,  the obligation of the Company,  which is absolute
and unconditional (and which,  subject to the rights under this Section 7 of the
holders of Senior Indebtedness,  is intended to rank senior to all other general
obligations  of the Company),  to pay to the Holder the  principal  of,  accrued
interest on, or other amounts in respect of the Note, as and when the same shall
become due and payable in  accordance  with the terms of the Note; or (b) affect
the  relative  rights  against  the Company of the Holder and  creditors  of the
Company other than the holders of Senior Indebtedness; or (c) prevent the Holder
from exercising all remedies otherwise  permitted by applicable law upon default
under the Note,  subject to the  rights,  if any,  under  this  Section 7 of the
holders  of  Senior  Indebtedness  to  receive  cash,  property  and  securities
otherwise payable or deliverable to the Holder.

     7.7. No right of any present or future holder of any Senior Indebtedness to
enforce  subordination  as  herein  provided  shall  at any  time  in any way be
prejudiced  or  impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder,  or by any  noncompliance by
the Company with the terms, provisions and covenants of this Note, regardless of
any knowledge thereof any such holder may have or be otherwise charged with.

                                      -7-
<PAGE>


     Without in any way limiting the generality of the foregoing paragraph,  the
holders of Senior  Indebtedness may, at any time and from time to time,  without
the  consent  of or  notice  to the  Holder  of  this  Note,  without  incurring
responsibility to the Holder of this Note and without impairing or releasing the
subordination  provided in this  Section 7 or the  obligations  hereunder of the
Holder of this Note to the holders of Senior Indebtedness, do any one or more of
the  following:  (i) change the manner,  place or terms of payment or extend the
time of  payment  of,  or renew,  increase  or alter,  Senior  Indebtedness,  or
otherwise   amend,   replace,   restate  or  supplement  in  any  manner  Senior
Indebtedness or any instrument  evidencing the same or any agreement under which
Senior Indebtedness is outstanding;  (ii) sell,  exchange,  release or otherwise
deal  with  any  property  pledged,   mortgaged  or  otherwise  securing  Senior
Indebtedness;  (iii) release any Person liable in any manner for the  collection
of Senior Indebtedness;  and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.

     7.8. Upon any payment or distribution of assets of the Company  referred to
in this  Section 7, the Holder of this Note shall be  entitled  to rely upon any
final,  nonappealable  order  or  decree  entered  by  any  court  of  competent
jurisdiction in which such insolvency,  bankruptcy,  receivership,  liquidation,
reorganization,  dissolution,  winding  up or  similar  case  or  proceeding  is
pending,  or a certificate  of the trustee in bankruptcy,  liquidating  trustee,
custodian,  receiver,  assignee  for the  benefit of  creditors,  agent or other
person making such payment or distribution, delivered to the Holder of this Note
for the purpose of  ascertaining  the Persons  entitled to  participate  in such
payment  or  distribution,  the  holders of the  Senior  Indebtedness  and other
indebtedness of the Company,  the amount thereof or payable thereon,  the amount
or amounts paid or distributed  thereon and all other facts pertinent thereto or
to this Section 7.

     7.9. As used in this Section 7, the following  capitalized  terms will have
the definition set forth below:


     "Senior Indebtedness" means, without duplication, (a) the principal of, and
premium (if any), and unpaid interest, fees and other amounts on (i) all present
and  future  obligations  incurred  by  the  Company  (whether  as  borrower  or
guarantor)  under or pursuant to any loan or credit  agreement  between or among
the Company and one or more banks and/or other institutional  lenders (including
but  not  limited  to the  factoring  agreement  between  the  Company  and  CIT
Commercial  Services,  Inc.  dated as of January 23, 2002)  (each,  a "Financing
Agreement"), or any agreement between or among the Company and one or more banks
and/or other  institutional  lenders  providing  for the  extension,  amendment,
renewal, refunding, expansion or refinancing of such obligations (a "Refinancing
Agreement"),  whether now  existing or  hereafter  entered  into or  contracted,
including,   without  limitation,  the  principal  balance  of  all  loans  made
thereunder  and interest and fees  accruing  with respect to such loans and (ii)
all other present and future obligations, liabilities, and indebtedness incurred
by the Company under or pursuant to any present or future Financing Agreement or
Refinancing Agreement, including, without limitation,  reimbursement obligations
with respect to letters of credit issued pursuant to a Financing  Agreement or a
Refinancing  Agreement  (and all  fees,  commissions  and  charges  incurred  in
connection  with the  issuance  and  maintenance  of such  letters of credit) or
obligations with respect to acceptances  issued or overdrafts  extended pursuant
to a Financing Agreement or a Refinancing  Agreement;  (b) indebtedness incurred
by the Company to finance the acquisition by it of assets  classified as capital
assets  under  GAAP,  provided  such  indebtedness  is not secured by any of the
Company's  assets other than the assets being acquired  ("Purchase Money Debt");
and (c)  obligations  of the  Company  as lessee  under  leases  required  to be
capitalized  on the  balance  sheet of the  lessee  under  GAAP,  provided  such


                                      -8-
<PAGE>

obligations  are not  secured  by any of the  Company's  assets  other than such
leases;  in each case, (1) whether now existing or hereafter arising and whether
such   indebtedness  or  obligations   arise  or  accrue  before  or  after  the
commencement  of  any  bankruptcy,   insolvency  or  receivership   proceedings,
including,  without  limitation,  interest  and fees  accruing  pre-petition  or
post-petition  at the rate or  rates  prescribed  in a  Financing  Agreement,  a
Refinancing   Agreement   and/or  Purchase  Money  Debt  and/or  any  extension,
amendment, renewal, refunding, expansion or refinancing of any of the foregoing,
and costs,  expenses,  and attorneys' fees and disbursements,  whenever incurred
(and,  whether  or  not  such  claims,   interest,   costs,  expenses,  fees  or
disbursements are allowed or allowable in any such  proceeding);  and (2) unless
the document, instrument or agreement creating or evidencing the indebtedness or
obligation or pursuant to which the same is outstanding,  provides (A) that such
indebtedness  is not  superior  in right of payment to the Note or (B) that such
indebtedness or obligation shall be subordinated to any other such  indebtedness
or obligation, unless such indebtedness or obligation expressly provides that it
shall be senior in right of payment to the Note.

8. Consolidation, Merger, Conveyance, Transfer or Lease.

     8.1. (a) Without the consent of the Holder,  the Company will not (i) merge
with or into or  consolidate  with any other person,  permit any other person to
merge or consolidate with or into it, or (ii) sell all or  substantially  all of
its  property  to any  other  person;  provided,  however,  that  the  foregoing
restriction  does not apply to the merger or  consolidation  of the Company with
another  entity or the transfer of all or  substantially  all of the property of
the  Company  to any other  person or entity if:  (1) (A) the  corporation  that
results from such merger or consolidation  or to which all or substantially  all
of the property of the Company is transferred  (the "Surviving  Corporation") is
organized under the laws of, and conducts  substantially all of its business and
has substantially all of its properties  within, the United States of America or
any  jurisdiction or  jurisdictions  thereof;  (B) the Surviving  Corporation is
Creditworthy,  as defined  in Section  8.1(b)  below;  (C) the due and  punctual
payment of the  principal  of, and  interest  on this Note,  according  to their
tenor, and the due and punctual  performance and observance of all the covenants
in this Note, to be performed or observed by the Company,  are expressly assumed
pursuant to such assumption agreements and instruments in such forms as shall be
approved  reasonably  by the  Holder,  or assumed by  operation  of law,  by the
Surviving  Corporation;  and (D) immediately prior to, and immediately after the
consummation of the transaction,  and after giving effect thereto, no Default or
Event of Default exists or would exist,  or (2) (A) the Company is the Surviving
Corporation;  (B) the  stockholders  of the  Company  immediately  prior to such
transaction  own at least a majority  of the voting  securities  of the  Company
following the transaction;  and (C) immediately  prior to, and immediately after
the consummation of the transaction, and after giving effect thereto, no Default
or Event of Default exists or would exist.

     (b) For purposes of this Section  8.1,  "Creditworthy"  shall mean that the
Debt to Cash Flow Ratio of the  Surviving  Corporation  is not greater  than the
Debt to Cash Flow Ratio of the Company for the most recent fiscal quarter ending
immediately  prior to such merger or  consolidation  and (ii) the  shareholders'
equity of the Surviving Corporation  (excluding goodwill from the calculation of
its assets)  immediately  after such transaction is equal to or greater than the
shareholders'  equity of the Company (excluding goodwill from the calculation of
its assets)  immediately  prior to such merger or  consolidation.  For  purposes
hereof,  "Debt  to  Cash  Flow  Ratio"  shall  mean  the  ratio  of (1)  (A) all
obligations of the Company or the Surviving Corporation, as the case may be, for
borrowed money, (B) all obligations of the Company or the Surviving Corporation,


                                      -9-
<PAGE>

as  the  case  may  be,  evidenced  by  bonds,  debentures,   notes  or  similar
instruments,  or upon which interest  payments are customarily made, and (C) all
guaranties of the Company or the Surviving Corporation, as the case may be, with
respect to  indebtedness  of the type referred to in this  definition of another
person, to (2) the cash flow of the Company or the Surviving Corporation, as the
case may be, each as determined in accordance with GAAP.

     (c) In connection  with any  transaction  as to which Section  8.1(a) shall
apply, the Company shall deliver to the Holder an Officer's  Certificate stating
that  such  consolidation,   merger,   conveyance,   transfer,  lease  or  other
disposition, comply with this Section 8 and that all conditions precedent herein
provided  for  relating to such  transaction  have been  complied  with,  and an
Opinion  of  Counsel  that,  to its  knowledge,  no  Default or Event of Default
exists.

     8.2. Upon any  consolidation  of the Company with, or merger of the Company
into,  any  other  entity  or any  conveyance,  transfer,  sale,  lease or other
disposition of all or substantially all the properties and assets of the Company
in  accordance   with  Section  8.1,  the   successor   entity  formed  by  such
consolidation or into which the Company is merged,  or to which such conveyance,
transfer,  sale,  lease or other  disposition is made,  shall succeed to, and be
substituted  for, and may exercise  every right and power of, the Company  under
this Note with the same effect as if such successor entity had been named as the
Company herein,  and thereafter,  except in the case of a conveyance,  transfer,
sale, lease or other  disposition,  the predecessor  entity shall be relieved of
all obligations and covenants under this Note.

     8.3. The  consolidation of the Company with, or merger of the Company into,
another entity or the  liquidation  or dissolution of the Company  following the
conveyance,  transfer,  sale, lease or other disposition of all or substantially
all the  properties  and assets of the Company in  accordance  with Section 8.1,
shall not be deemed a  dissolution,  winding  up,  liquidation,  reorganization,
assignment for the benefit of creditors or marshalling of assets and liabilities
of the  Company  for the  purposes  of this  Note if the  entity  formed by such
consolidation  or into which the Company is merged or the entity which  acquires
by conveyance or transfer such assets substantially as an entirety,  as the case
may be, shall, as part of such  consolidation,  merger,  conveyance or transfer,
comply with the conditions set forth in Section 8.1.

9. Miscellaneous.

     9.1. The  obligations  to make the  payments  provided for in this Note are
absolute  and   unconditional   and  not  subject  to  any   defense,   set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.

     9.2. If,  following the occurrence and  continuance of an Event of Default,
the Holder of this Note shall seek to enforce  the  collection  of any amount of
principal  and/or accrued  interest on this Note, there shall be immediately due
and payable by the  Company,  in addition to the then unpaid  principal  of, and
accrued  unpaid  interest  on,  this Note,  all  reasonable  costs and  expenses
incurred by the Holder of this Note in connection therewith,  including, without
limitation, reasonable attorneys' fees and disbursements.

     9.3. No forbearance,  indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any Default,  nor shall any single or partial exercise of any right or remedy
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or remedy.

                                      -10-
<PAGE>

     9.4. This Note may not be modified or  discharged  (other than by payment),
except by a writing duly executed by the Company and Holder.

     9.5. The headings of various  sections and subsections of this Note are for
convenience  of  reference  only and shall in no way  modify any of the terms or
provisions of this Note.

     9.6. The Company and, by its acceptance of this Note, the Holder agree that
any notice,  request,  demand or other communication required or permitted to be
given to the Company or the Holder pursuant to the provisions of this Note shall
be in  writing  and (a)  personally  delivered,  (b)  sent via  facsimile,  with
confirmed  transmission  and receipt,  and followed  promptly by delivery of the
original,  or (c) sent by a  nationally-recognized  courier or overnight service
such as Federal Express,  (for next business day delivery)  postage prepaid,  as
follows:

                    (i)  if to the Company, to:

                         Candie's, Inc.
                         400 Columbus Avenue
                         Valhalla, New York 10595
                         Attn: Deborah Sorell Stehr, Esq,
                               Senior Vice President and General Counsel
                         Facsimile No.: (914) 769-8103

                         With a copy to (which does not constitute notice):
                         Blank Rome Tenzer Greenblatt LLP
                         405 Lexington Avenue
                         New York, NY 10174
                         Attn: Robert J. Mittman, Esq.
                         Fax: (212) 885-5001

                    (ii) if to the  Holder of this Note,  to the  address or the
                         facsimile number (as the case may be) of such Holder as
                         shown on the Company's  books and records;  the address
                         for the Payee is as follows:

                         Sweet Sportswear, LLC
                         5804 E. Slauson Avenue
                         Commerce, California 90040
                         Attn: Deborah Greaves, General Counsel
                         Facsimile No.: (323) 728-1641

                         With a copy to (which does not constitute notice):

                         Akin, Gump, Strauss, Hauer & Feld, L.L.P.
                         2029 Century Park East - Suite 2400
                         Los Angeles, California  90067
                         Fax:  (310) 229-1001
                         Attn:  David Antheil, Esq.

                                      -11-
<PAGE>

     Either the Company or the Holder (and each of their permitted  assigns) may
change its address for receipt of future  notices  hereunder  by giving  written
notice to the other in the manner provided herein. Notices shall be deemed given
and  received  at  the  time  of  personal   delivery  or  completed   facsimile
transmission, or, if sent by Federal Express or other overnight delivery service
one  business  day after such  sending.

     9.7.  The Company may not  delegate its  obligations  under this Note.  The
Holder may assign,  pledge or otherwise transfer this Note without prior written
consent of the Company. This Note inures to the benefit of Payee, its successors
and its  assignee of this Note and binds the  Company,  and its  successors  and
assigns, and the terms "Payee" and "the Company" whenever occurring herein shall
be deemed and construed to include such respective successors and assigns.

     9.8. This Note shall continue to be effective or be reinstated, as the case
may be, if at any time any  payment  made  pursuant to it is  rescinded  or must
otherwise  be  returned  by the Holder  upon  bankruptcy  or  reorganization  or
otherwise of the Company, all as though such payment had not been made.

     9.9.   This  Note  shall  be  governed  as  to  validity,   interpretation,
construction,  effect and in all other respects by the internal substantive laws
of the  State of New York,  without  giving  effect  to the  choice of law rules
thereof.

     9.10.  The Company and, by its acceptance of this Note, the Holder agree as
follows:

     (a) The Holder hereby  irrevocably agrees that any lawsuit commenced by the
Holder  against the  Company in  connection  with any dispute  arising out of or
relating to this Note (each, a "Holder Lawsuit") shall be brought by the Holder,
unless  otherwise  agreed to in writing by the  Company,  solely in a federal or
state court located  within the County of New York,  State of New York,  and, in
connection  with  each  Holder  Lawsuit,  each of the  Company  and  the  Holder
irrevocably  agrees to submit to the  exclusive  jurisdiction  of any federal or
state  court  located  within  the  County  of New  York,  State of New York and
irrevocably  agrees to waive, to the fullest extent permitted by applicable law,
any objection  which it may now or hereafter  have to the laying of venue of any
Holder Lawsuit  brought in such court or any defense of  inconvenient  forum for
the maintenance of such Holder Lawsuit in such court.

     (b) The Company hereby irrevocably agrees that any lawsuit commenced by the
Company  against the Holder in  connection  with any  dispute  arising out of or
relating  to this Note  (each,  a  "Company  Lawsuit")  shall be  brought by the
Company,  unless  otherwise  agreed to in  writing by such  Holder,  solely in a
federal  or state  court  located  within the  County of Los  Angeles,  State of
California,  and, in connection with each Company  Lawsuit,  each of the Company
and the Holder irrevocably agrees to submit to the exclusive jurisdiction of any
federal  or  state  court  located  with the  County  of Los  Angeles,  State of
California and irrevocably waives, to the fullest extent permitted by applicable
law, any objection  which it may now or hereafter have to the laying of venue of
any Company Lawsuit  brought in such court or any defense of inconvenient  forum
for the maintenance of such Company Lawsuit in such court.

                                      -12-
<PAGE>

     (c) Each of the Company and the Holder agrees that a judgment in any Holder
Lawsuit or Company Lawsuit may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

     (d) Each of the Company and the Holder  consents to process being served by
any party to this Agreement in any suit,  action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 9.6 hereof.

     9.11. This Note is exchangeable, without expense, upon the surrender hereof
by the Holder at the principal executive office of the Company,  for two or more
new Notes of like tenor and date  (except  for the  principal  amounts  thereof)
representing  in the aggregate the same  principal  amount as this Note, in such
denominations  as shall be designated by the Holder  thereof at the time of such
surrender,   provided   that  such  new  Notes  shall  be  issuable  in  minimum
denominations of $10,000 and integral multiples thereof.

     Upon receipt by the Company of evidence  reasonably  satisfactory  to it of
the loss,  theft,  destruction or mutilation of this Note, and, in case of loss,
theft or destruction,  of indemnity or security  reasonably  satisfactory to it,
and reimbursement to the Company of all reasonable  expenses incidental thereto,
and upon surrender and cancellation of this Note, if mutilated, the Company will
make and deliver a new Note of like date and tenor,  in lieu  thereof.

     9.12. By acceptance of this Note, the Holder agrees and  acknowledges  that
the Company does not retain any right, title or interest in or to any Assets (as
defined in the  Capital  Contribution  Agreement)  conveyed by the Company to IP
Holdings  LLC ("IP  Holdings")  pursuant to that  certain  Capital  Contribution
Agreement  dated as of August 20, 2002 by and among the  Company and Caruso,  as
transferors, and IP Holdings, as transferee (as amended or modified from time to
time, the "Capital Contribution Agreement").


                                CANDIE'S, INC.

                                By: /s/ Neil Cole
                                    --------------------------------------------
                                    Name: Neil Cole
                                    Title: Chief Executive Officer and President


Receipt of this Note is hereby accepted and
acknowledged this 18th day of October, 2002, by:

SWEET SPORTSWEAR, LLC

By: /s/ Hubert Guez
    -----------------------------
    Name: Hubert Guez
    Title: Manager

                                      -13-
<PAGE>

                                    EXHIBIT A

                           COLLATERAL PLEDGE AGREEMENT




                                      -14-