Document:

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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     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.

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     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

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     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

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<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.

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<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

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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.

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<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

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<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-EXECUTION COPY

                           COLLATERAL PLEDGE AGREEMENT

     This Collateral  Pledge Agreement  ("Agreement"),  is made and entered into
this 18th day of October,  2002,  effective as of April 23, 2002, by and between
Candie's,  Inc.  ("Candie's")  and Michael  Caruso & Co.,  Inc.  (together  with
Candie's, the "Pledgor") and Sweet Sportswear LLC ("Secured Party").

                                   Background

     A. To induce  Secured  Party to extend  credit to Candie's  pursuant to the
terms of that certain 8% Senior Subordinated Note due 2012 issued by Candie's to
Secured Party as of April 23, 2002 (the  "Note"),  Pledgor and Secured Party are
entering into this Agreement.

     B. This  Agreement is given and is intended to provide  Secured  Party with
certain  security for (i) (x) the obligations of Candie's under the Note and (y)
all  other   obligations  and  liabilities   (including,   without   limitation,
indemnities,  fees,  and interest  thereon) of Pledgor,  whether now existing or
hereafter  incurred,  under,  arising out of, or in connection with the Note and
the due performance and compliance by Pledgor with all of the terms, conditions,
and agreements  contained in the Note; (ii) any and all sums advanced by Secured
Party in order to preserve  the  Pledged  Collateral  or  preserve  its lien and
security  interest  in  the  Pledged  Collateral;  (iii)  in  the  event  of any
proceeding for the collection or enforcement of any  indebtedness,  obligations,
or  liabilities  referred  to in  clauses  (i) and (ii)  above,  the  reasonable
expenses of any exercise by Secured Party of its rights hereunder, together with
reasonable attorneys' fees and court costs; and (iv) to the extent not otherwise
included in clauses (i), (ii), and (iii) above,  Pledgor's obligations set forth
in Section 17 (the "Obligations").

     C. All capitalized  terms used herein and not otherwise  defined shall have
the same meanings assigned to such terms in the Note.

     NOW THEREFORE, for other good and sufficient consideration,  the receipt of
which is hereby  acknowledged,  Pledgor,  intending to be legally  bound hereby,
covenants and agrees as follows:

     1.  Pledgor,  for the purpose of granting a  continuing  lien and  security
interest,  does hereby assign,  pledge,  hypothecate,  deliver,  and set over to
Secured  Party,  its  successors,  and  assigns (i) all of the shares of capital
stock  of  IP  Holdings  and  Management  Corporation,  a  Delaware  corporation
("IPHM"),  identified in Schedule I, whether now owned or hereafter  acquired by
Pledgor,  together with all certificates representing such shares (collectively,
the  "Pledged  Collateral"),  (ii)  all  ownership  interests  of any  class  or
character of a successor  entity formed by or resulting from a consolidation  or
merger  in  which  IPHM is not the  surviving  entity,  and  (iii)  all  shares,
securities,  moneys,  or property  representing a dividend on any of the Pledged
Collateral,  or  representing  a  distribution  or return of capital  upon or in
respect of the Pledged  Collateral,  or  resulting  from a  split-up,  revision,
reclassification,  or other like change of the Pledged  Collateral  or otherwise
received in exchange therefor, and any subscription warrants, rights, or options
issued to the holders of, or otherwise in respect of, the Pledged Collateral.

                                      -1-
<PAGE>

     2. The pledge and security  interest  described  herein  shall  continue in
effect to secure the Obligations  until such Obligations have been paid in full.
Unless the Pledged Collateral is disposed of by Secured Party in accordance with
the provisions of Section 8 below,  Secured Party shall return the  certificates
representing  the Pledged  Collateral to Pledgor upon Secured Party's receipt of
payment in full of the Obligations.

     3.  Contemporaneously  with the execution hereof, Pledgor agrees to deliver
to Secured Party or its nominee all certificates  representing or evidencing the
Pledged  Collateral,  accompanied  by duly executed  instruments  of transfer or
assignments  in blank,  to be held by Secured Party or its nominee in accordance
with the terms hereof.

     4. Pledgor hereby  authorizes  Secured Party, and agrees itself to take all
such other  actions and to execute  and deliver and file,  or cause to be filed,
such other instruments or documents,  as Secured Party may reasonably require in
order to  establish  and  maintain a  perfected,  valid,  and  continuing  first
priority security interest and lien in the Pledged Collateral in accordance with
this Agreement and the UCC and other applicable law.

     5. Pledgor  shall (i) give prompt  written  notice to Secured Party of, and
(ii) defend the Pledged  Collateral  against,  any suit,  action,  or proceeding
related to the Pledged  Collateral or which could adversely  affect the security
interests and liens granted hereunder.

     6. Pledgor hereby represents and warrants that:

     (a) Except as pledged herein, (i) Pledgor is and will be the sole legal and
beneficial  owner  of all of the  Pledged  Collateral  now  owned  or  hereafter
acquired, (ii) Pledgor has not sold, assigned, transferred,  pledged, or granted
any  option or  security  interest  in or  otherwise  hypothecated  the  Pledged
Collateral,  and (iii) the Pledged Collateral is pledged herewith free and clear
of any  and  all  liens,  security  interests,  encumbrances,  claims,  pledges,
restrictions, legends, and options;

     (b) As of the  date  hereof  and on the date of  delivery  or  transfer  to
Secured Party of any Pledged  Collateral under this Agreement,  Pledgor has good
and marketable title to the Pledged Collateral;

     (c) The Pledged  Collateral (i) is, and all the other Pledged Collateral in
which Pledgor  shall  hereafter  acquire an interest  will be, duly  authorized,
validly  existing,  fully paid,  and  non-assessable  (in the case of any equity
interest in a corporation)  and duly issued and  outstanding (in the case of any
equity interest in any other entity),  and none of such Pledged Collateral is or
will be subject to any contractual  restriction,  or any  restriction  under the
charter, bylaws,  partnership agreement, or other organizational document of the
respective  issuer,  upon the  transfer  of such  Pledged  Collateral,  and (ii)
constitutes all of the issued and outstanding shares of capital stock of IPHM as
set  forth in  Schedule  I  beneficially  owned by  Pledgor  on the date  hereof
(whether  or not  registered  in the name of Pledgor)  and  Schedule I correctly
identifies, as at the date hereof, IPHM as the issuer of such Pledged Collateral
and the respective class and par value of the shares  constituting  such Pledged
Collateral and the respective  number of shares (and registered  owners thereof)
represented by each such certificate.

                                      -2-
<PAGE>

     (d)  Pledgor has the full power and  authority  to  execute,  deliver,  and
perform under this Agreement and to pledge the Pledged Collateral hereunder; and

     (e) This Agreement constitutes the valid and binding obligation of Pledgor,
enforceable  in  accordance  with  its  terms,  and the  pledge  of the  Pledged
Collateral  referred to herein is not in  violation  of and shall not create any
default under any agreement, undertaking, or obligation of Pledgor.

     7. Unless and until an Event of Default (as defined below) has occurred and
is  continuing,  Pledgor shall be entitled to receive and retain any  dividends,
distributions, or proceeds in respect of the Pledged Collateral. If any Event of
Default  shall  have  occurred,  then so long as such  Event  of  Default  shall
continue,  and whether or not Secured Party  exercises  any  available  right to
declare any  Obligation  due and payable or seeks or pursues any other relief or
remedy  available  to it  hereunder  or under the Note or  applicable  law,  all
dividends  and  other  distributions  on the  Pledged  Collateral  shall be paid
directly to Secured Party and either,  at the  Pledgor's  option (a) retained by
the  Secured  Party as part of the Pledged  Collateral,  subject to the terms of
this Agreement,  or (b) in the case of cash dividends or distributions,  applied
against the Pledgor's  Obligations in reduction  thereof,  and, if Secured Party
shall so  request,  Pledgor  agrees to execute  and  deliver  to  Secured  Party
appropriate additional dividend, distribution, and other orders and documents to
that end.

     8. (a)  Notwithstanding  anything to the contrary or inconsistent  herewith
contained  in the Note,  an "Event of  Default"  shall  exist  hereunder  if (i)
Candie's shall commence a voluntary case, or acquiesce as to an involuntary case
filed  against it,  under the Federal  Bankruptcy  Code,  as now or hereafter in
effect (the "Code"), or (ii) a proceeding or involuntary case shall be commenced
against Candie's under the Code in any court of competent jurisdiction,  without
the  application  or  consent of  Candie's,  and such  proceeding  or case shall
continue  undismissed,  or unstayed  and in effect,  for a period of ninety (90)
days.  Upon,  and only upon,  the  occurrence of an Event of Default  hereunder,
Secured Party shall have the right to and may, at its sole option,  exercise any
and/or all rights and remedies with respect to the Pledged Collateral  available
to it hereunder,  under the Uniform  Commercial  Code as adopted in the State of
New York ("UCC"),  or otherwise available to it, at law or in equity, to enforce
the pledge granted herein, including,  without limitation,  the right to dispose
of the Pledged Collateral at a public or private sale.

     (b) Without precluding any other methods of sale or other disposition,  the
sale or other disposition of the Pledged Collateral or any portion thereof shall
have been made in a  commercially  reasonable  manner if conducted in conformity
with reasonable commercial practices of creditors disposing of similar property;
but in any event  Secured  Party may sell,  lease,  deliver,  grant  options  to
purchase, or otherwise retain,  liquidate, or dispose such Pledged Collateral on
such terms and to such purchaser(s)  (including  Secured Party if such sale is a
public sale) as Secured  Party in its absolute  discretion  may choose,  and for
cash or for credit or for future delivery,  without assuming any credit risk, at
public or private sale or other disposition,  without demand of performance, and
without any  obligation  to advertise or give notice of any kind other than that
necessary  under  applicable  law.  Pledgor  hereby  waives and  releases to the
fullest extent  permitted by law any right or equity of redemption  with respect
to the Pledged  Collateral after sale or other  disposition  hereunder,  and all
rights, if any, of marshalling the Pledged Collateral and any other security for
the  Obligations  or  otherwise.  At  any  such  public  sale  or  other  public
disposition,  unless prohibited by applicable law, Secured Party may bid for and
purchase  all or any part of the Pledged  Collateral  so sold free from any such
right or equity of redemption.  Secured Party shall not be liable for failure to
collect or realize upon any or all of the Pledged Collateral or for any delay in
so doing nor shall it be under any obligation to take any action whatsoever with
regard thereto.

                                      -3-
<PAGE>

     (c) Secured  Party shall incur no  liability as a result of the sale of the
Pledged  Collateral,  or any part thereof,  at any private sale pursuant to this
Agreement  conducted  in a  commercially  reasonable  manner  and  otherwise  in
accordance  with  applicable  law.  Assuming the  disposition  is conducted in a
commercially  reasonable  manner and in accordance with applicable law,  Pledgor
hereby  waives any claims  against  Secured  Party arising by reason of the fact
that the  price at which  the  Pledged  Collateral  may have been sold at such a
private  sale was less than the price that might have been  obtained at a public
sale or was less than the aggregate amount of the  Obligations,  even if Secured
Party accepts the first offer received and does not offer the Pledged Collateral
to more than one offeree.

     9.  Pledgor  may at  any  time  sell  all or  any  portion  of the  Pledged
Collateral provided that the full amount of the then outstanding Obligations are
paid to Secured Party in conjunction with the closing of such sale.

     10. The proceeds of any Pledged Collateral received by Secured Party at any
time, whether from the sale of Pledged Collateral or otherwise, shall be applied
to or on account of the  Obligations and any excess  proceeds,  after payment in
full of the Obligations,  shall be immediately  remitted to Pledgor.  In case of
any deficiency and if permitted by applicable law, Pledgor shall, whether or not
then due, remain liable therefor.

     11.  In the  event  that any  change  is made or  declared  in the  capital
structure  of  IPHM,  or  Pledgor  acquires  or in  any  other  manner  receives
additional  shares  in  IPHM,  any  and  all  new,  substituted,  or  additional
certificates  representing  or evidencing  such shares which have been issued by
reason of any such change, shall be delivered to and held by Secured Party under
the terms hereof in the same manner as the Pledged Collateral originally pledged
hereunder.

     12.  Pledgor (i) shall give five (5) business days' prior written notice to
Secured Party of any merger, consolidation,  share exchange,  reorganization, or
other business  combination  affecting or involving IPHM or IP Holdings,  LLC, a
wholly owned subsidiary of IPHM ("IP Holdings"),  (ii) shall not take any action
as a  shareholder  of IPHM that would cause or permit IPHM to (a) sell,  assign,
license,  transfer,  exchange, or otherwise dispose of, or grant any option with
respect  to, any of IPHM's  membership  interests  in IP Holdings or (b) create,
incur,  or permit to exist any lien or  encumbrance on or with respect to any of
the assets of IPHM, any interest therein,  or any proceeds  thereof,  except for
the security interests,  liens, and/or encumbrances  created with respect to the
Bond Transaction,  defined below, or any modification thereof or any refinancing
thereof  by  or  through  IP  Holdings  or  any  affiliate  of  IP  Holdings  (a
"Refinancing"),  and (iii)  shall not take any action as a  shareholder  of IPHM
that would cause or allow IP Holdings to (a) prior to the payment in full of the
Asset-Backed Notes or any Refinancing thereof, sell, assign, transfer, exchange,
or otherwise  dispose of, or grant any option with respect to, any of the assets
of IP  Holdings in  contravention  of the terms of the Bond  Documents,  defined
below,  or the documents  relating to the  Refinancing,  as the case may be, or,
following  the  payment in full of the  Asset-Backed  Notes and any  Refinancing
thereof, sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, any of the  intellectual  property assets of IP Holdings
(but in no event shall the foregoing be construed to limit IP Holdings' right to
license its intellectual property assets either before or after the repayment of

                                      -4-
<PAGE>

the  Asset-Backed  Notes) or (b) create,  incur,  or permit to exist any lien or
encumbrance on or with respect to any of the assets of IP Holdings, any interest
therein,  or any proceeds thereof,  except for the security  interests and liens
created with respect to the Bond Transaction or any modification  thereof or any
Refinancing.  As used herein the term "Bond Transaction" shall mean and refer to
the series of transactions described in and/or contemplated by the documents set
forth on  Schedule  II (the  "Bond  Documents")  including  the  issuance  by IP
Holdings of  $20,000,000  principal  amount of its 7.93%  asset-backed  notes on
August 20, 2002 (the "Asset-Backed  Notes") and all of the transactions effected
in contemplation, or as a result, thereof or in connection therewith.

     13. So long as no Event of Default has occurred hereunder, and, thereafter,
until  Secured Party  notifies  Pledgor in writing of the exercise of its rights
hereunder,  Pledgor  shall retain the sole right to vote the Pledged  Collateral
and exercise all rights of ownership with respect to all corporate questions for
all purposes not inconsistent with the terms hereof.

     14. To the extent  Secured  Party is required by law to give Pledgor  prior
notice of any  public or  private  sale,  or other  disposition  of the  Pledged
Collateral,  Pledgor  agrees that ten (10) business days prior written notice to
Pledgor shall be a commercially reasonable and sufficient notice of such sale or
other intended disposition.

     15. Without limiting any rights or powers granted to Secured Party pursuant
to this Agreement,  applicable law or otherwise, Pledgor hereby appoints Secured
Party as its  attorney-in-fact,  with full power and  authority in the place and
stead of Pledgor and in the name of Pledgor or  otherwise,  from time to time in
Secured Party's discretion to take any and all action and to execute,  file, and
record any and all  instruments,  agreements,  and documents which Secured Party
may deem  necessary or advisable to accomplish  the purposes of this  Agreement.
The  appointment set forth in this Section 15 is coupled with an interest and is
irrevocable.

     16. If Pledgor  fails to perform any  agreement,  covenant,  or  obligation
contained herein after reasonable  notice from Secured Party,  Secured Party may
itself perform, or cause performance of such agreement,  covenant, or obligation
and the expenses and costs of Secured  Party  incurred in  connection  therewith
shall be payable by Pledgor.

     17.  Secured  Party shall not have any liability to any person and shall be
indemnified and held harmless by Pledgor for any liability incurred by reason of
taking or  refraining  from  taking  any  action  with  respect  to the  Pledged
Collateral,  except in the case of Secured  Party's gross  negligence or willful
misconduct.  Pledgor agrees to indemnify  Secured Party from and against any and
all  claims,  losses,  and  liabilities  arising out of or  connected  with this
Agreement (including, without limitation, enforcement of this Agreement), except
such claims,  losses, or liabilities resulting solely from Secured Party's gross
negligence or willful misconduct.  This Section 17 shall survive any termination
of this Agreement.

     18. This Agreement  constitutes  the entire  agreement  between the parties
hereto regarding the subject matter hereof and may be modified only by a written
instrument signed by Pledgor and Secured Party.

                                      -5-
<PAGE>

     19. This  Agreement  is made in and shall be governed by and  construed  in
accordance  with the laws of the State of New York,  without  regard to New York
conflicts of law rules,  and the provisions  hereof shall be deemed severable in
the event of the invalidity of any provision.

     20.  Any  amendment,  modification,  or  waiver  of any  provision  of this
Agreement shall be in writing and executed by the parties  hereto,  and any such
waiver  shall be effective  only for the specific  purpose for which it is given
and for the specific time period, if any, contemplated therein.

     21. No failure or delay by Secured  Party in exercising  any right,  power,
privilege,  or remedy  hereunder  or under the UCC or any other  applicable  law
shall operate as a waiver hereof or thereof and no single or partial exercise by
Secured  Party of any  right,  power,  privilege,  or  remedy of  Secured  Party
hereunder or thereunder  shall  preclude any  subsequent or further  exercise by
Secured  Party  thereof  or of any  other  right,  power,  privilege,  or remedy
hereunder or thereunder.

     22. If any provision of this Agreement is invalid or  unenforceable,  then,
to the extent possible,  all of the remaining provisions of this Agreement shall
remain in full force and effect and shall be binding on the parties hereto.

     23. Upon any  consolidation  of Candie's  with, or merger of Candie's into,
any other entity or any conveyance,  transfer,  sale, lease or other disposition
of all or  substantially  all  of the  properties  and  assets  of  Candie's  in
accordance  with Section 8.1 of the Note,  the  successor  entity formed by such
consolidation  or into which  Candie's 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 Pledgor  under
this Agreement  with the same effect as if such successor  entity had been named
as the Pledgor herein, and thereafter,  the predecessor entity shall be relieved
of all obligations  and covenants under this Agreement.  Other than as set forth
in the preceding sentence, Pledgor shall not have the right to assign its rights
or delegate  its  obligations  hereunder or any part thereof to any other person
without Secured Party's prior written consent.

     24. Pledgor and Secured Party agree as follows:

     (a) Secured Party hereby  irrevocably  agrees that any lawsuit commenced by
Secured Party against  Pledgor in connection  with any dispute arising out of or
relating to this Agreement (each, a "Secured Party Lawsuit") shall be brought by
Secured Party,  unless  otherwise  agreed to in writing by Pledgor,  solely in a
federal or state court located within the County of New York, State of New York,
and, in connection  with each Secured Party  Lawsuit,  each of Secured Party and
Pledgor  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 Secured Party Lawsuit  brought in such court or any defense of  inconvenient
forum for the maintenance of such Secured Party Lawsuit in such court.

     (b) Pledgor hereby irrevocably agrees that any lawsuit commenced by Pledgor
against  Secured Party in connection with any dispute arising out of or relating
to this  Agreement  (each,  a "Pledgor  Lawsuit")  shall be brought by  Pledgor,
unless otherwise  agreed to in writing by Secured Party,  solely in a federal or
state court located within the County of Los Angeles, State of California,  and,
in  connection  with each  Pledgor  Lawsuit,  each of Pledgor and Secured  Party

                                      -6-
<PAGE>

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
Pledgor Lawsuit  brought in such court or any defense of inconvenient  forum for
the maintenance of such Pledgor Lawsuit in such court.

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

     (d) Each of Pledgor and Secured  Party  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 25 below.

     25.  Any  notice,  request,  demand,  or other  communication  required  or
permitted to be given to Pledgor or Secured Party  pursuant to the provisions of
this Agreement shall be in writing and (i) personally  delivered,  (ii) sent via
facsimile,  with confirmed  transmission and receipt,  and followed  promptly by
delivery of the original,  or (iii) sent by a  nationally-recognized  courier or
overnight  service such as Federal  Express,  (for next  business-day  delivery)
postage prepaid, as follows:

               (a)  if to Pledgor, to:

                    Candie's,  Inc. or Michael  Caruso & Co.,  Inc., as the case
                    may be, each at:

                    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.
                    Facsimile No.:  (212) 885-5001

               (b)  if to Secured Party, to:

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

                                      -7-
<PAGE>

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

                    Akin Gump Strauss Hauer & Feld LLP
                    2029 Century Park East, Suite 2400
                    Los Angeles, California 90067
                    Attn.:  David Antheil, Esq.
                    Facsimile No.:  (310) 229-1001

Either  Pledgor or Secured  Party 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 (1) business day after such sending.

     26. This  Agreement  shall be binding  upon and inure to the benefit of the
parties hereto, and their respective successors and assigns.

                            [Signature pages follow]

                                      -8-
<PAGE>

     IN WITNESS WHEREOF,  this Collateral Pledge Agreement has been executed and
delivered as of the date first set forth above.

                                    CANDIE'S, INC.

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

                                    MICHAEL CARUSO & CO., INC.

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

                                    SWEET SPORTSWEAR LLC

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

                                      -9-
<PAGE>

                                   SCHEDULE I

                               Pledged Collateral

     All of the outstanding shares of common stock of IP Holdings and Management
Corporation,  a Delaware  corporation  ("IPHM"),  par value $0.01 per share (the
"Shares"),  are hereby pledged by Candie's, Inc. ("Candie's") and Michael Caruso
& Co.,  Inc.  ("Michael  Caruso"),  the sole  stockholders  of IPHM, as outlined
below, to Sweet  Sportswear LLC pursuant to the Collateral  Pledge  Agreement to
which this Schedule is attached:

                                              Number             Number
                                                of                 of
                                          Shares of IPHM     Shares of IPHM
                                            (and Stock         (and Stock
       Total               Total           Certificate        Certificate
       Number              Number            Number)            Number)
         of                  of               Issued             Issued
 Shares Authorized    Shares Issued by          to                 to
to be Issued by IPHM        IPHM             Candie's        Michael Caruso
------------------------------------------------------------------------------

                                            60 Shares/         40 Shares/
     100 Shares          100 Shares        Certificate        Certificate
                                              No. 1              No. 2
------------------------------------------------------------------------------

                                      -10-
<PAGE>

                                   SCHEDULE II

                                 Bond Documents

1. Indenture, dated August 20, 2002, between IP Holdings LLC ("IP Holdings") and
Wilmington Trust Company, a Delaware Business Trust ("Trustee")

2. Capital Contribution Agreement, dated August 20, 2002, by and among Candie's,
Inc. ("Candie's"), Michael Caruso & Co., Inc. ("Caruso") and IP Holdings

3. Capital Contribution Agreement, dated August 20, 2002, by and among Candie's,
Caruso and IP Holdings and Management Corporation ("IPHM")

4.  Assignment  and  Acceptance  Agreement,  dated August 20, 2002, by and among
Candies', Caruso and IPHM

5. Servicing Agreement,  dated August 20, 2002, between UCC Servicing,  LLC (the
"Servicer") and IP Holdings

6. Management  Agreement,  dated August 20, 2002, by and among IP Management LLC
("IP Management"), IP Holdings, IPHM and Servicer

7. Back-up  Manager  Management  Agreement,  dated August 20, 2002, by and among
Strategic  Consulting  Network,  LLC (d/b/a/  Jassin-O'Rourke  Group,  LLC) (the
"Back-Up Manager"), IP Holdings and Servicer

8. Management Support Agreement,  dated August 20, 2002, between Candie's and IP
Management

9. Operating Agreement of IP Holdings

10. Operating Agreement of IP Management

11. By-Laws of IPHM

12.  Certificate of Incorporation of IPHM (Certificate of  Incorporation,  dated
August 15, 2002 and Amendment to Certificate of Incorporation,  dated August 20,
2002)

                                      -11-
<PAGE>

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