Document:

Exhibit 10.34

                                                                                                      EXHIBIT 10.34

                              THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
                                    SECURITIES THAT HAVE BEEN REGISTERED UNDER
                                            THE SECURITIES ACT OF 1933

                  AMENDED AND RESTATED NAVISTAR INTERNATIONAL CORPORATION STOCK OWNERSHIP PROGRAM

                                        (Effective as of October 15, 2002)
INTRODUCTION

                   On June 16, 1997,  the Board of Directors  (the "Board") of Navistar  International  Corporation
(the  "Company")  approved the terms of the Stock  Ownership  Program,  and on April 17, 2001 and October 15, 2002,
the Board  approved  certain  amendments  thereto (as  amended,  the  "Program")  in which all  officers and senior
managers  in Pay Levels  9-12 (the  "Participants")  will  participate.  The  Program  will  require  you to make a
substantial investment in the common stock of the Company.  This memorandum describes the terms of the Program.

                   Senior  management and the Board believe that, in order for the Company to become the best truck
and engine company in North America,  senior  management of the Company must have a significant  ownership stake in
the Company.  The Program  requires you and every other  member of senior  management  to acquire such an ownership
stake,  and to do so promptly.  The goal of the Program is to secure your  individual  commitment to the management
team that intends to implement  the vision for the Company and our  shareholders,  by requiring  you to make an "at
risk"  investment  of personal  funds as well as career  success in the  Company.  In this way,  the  Program  will
reinforce the behavior of every member of senior management to act like an owner.

                   In connection with the adoption of the Program,  the Board also approved  certain changes to the
executive  severance  agreements that the Company enters into with Officers and Senior  Managers.  The new terms of
the severance  agreement  enhance your  protection in the event of termination of employment or a change in control
of the  Company.  In this  way,  the  Company  is making a  greater  commitment  to you at the same time as you are
making a greater commitment to the Company.

THE STOCK OWNERSHIP REQUIREMENT

                   Mandatory  Ownership  Requirement.  The Program imposes a mandatory  requirement  that you own a
specified  amount of the Company's common stock,  $0.10 par value per share ("Stock").  Failure to continuously own
the required  amounts of Stock at the times required under the Program will  constitute  grounds for termination of
your employment with the Company and its subsidiaries.

                   Required Levels of Stock Ownership.  Under the Program,  you will be required to own a number of
shares  calculated  by reference to your salary,  a multiplier  assigned to your pay level,  and the average of the
high and low prices of Stock (rounded down to the nearest  dollar) on the date the Program became  effective,  June
16, 1997 (the "Effective  Date"),  which was $17.00 per share.  The actual number of shares you will be required to
own under the Program  (the  "Ownership  Requirement")  will be  specified  in Exhibit A, which will be sent to you
under separate cover.

                                                       E-10
                                                                                          EXHIBIT 10.34 (continued)

                  Your Ownership  Requirement  will not vary with changes in the market price of Stock during the
life of the  Program,  subject to the Board's  right of review.  Nor will your  Ownership  Requirement  change if
your salary is increased or decreased but you remain in the same Pay Level.

                  Unless  otherwise  determined by the Board, in the event you are promoted to a higher Pay Level
after you become  subject to the Program,  you will become  subject to the  Ownership  Requirement  applicable to
that Pay Level,  based on your  then-current  base salary.  The  additional  number of shares needed to meet your
new Ownership  Requirement  will be calculated  based on the average of the high and low prices of Stock (rounded
down to the  nearest  dollar)  on the date of your  promotion  (net of the  dollar  amount  associated  with your
original  Ownership  Requirement  using the  average  of the high and low  prices of Stock  (rounded  down to the
nearest  dollar) on the date you became subject to the Program).  For example,  assume a Participant in Pay Level
10 is  required to own 13,235  shares  based on a $150,000  salary,  a  multiplier  of 1.5 times his salary and a
$17.00 market price on the Effective  Date.  Further assume that the Participant is promoted to Pay Level 11 at a
salary of $200,000 when the market price of the Stock on his date of promotion is $20. The  additional  number of
shares needed to satisfy his new Ownership Requirement is 11,250, calculated as follows:

        Level 10:         150,000      Salary
                            x 1.5      Pay Level Multiplier
                          225,000      Divided by 17.00 = 13,235*   Original Ownership Requirement
                                                         ======

        Level 11:         200,000      Salary
                           x 2.25      Pay Level Multiplier
                          450,000
                         -224,995      (17.00 x 13,235)
                          225,005      Divided by 20.00 = 11,250*  Additional Ownership Requirement
                                                          ======

*Rounded down to the nearest number of whole shares.

            In the case of a person who  becomes  subject to the  Program  after the  Effective  Date  (i.e.,  is
promoted  to Pay Level 9 or above or newly hired at Pay Level 9 or above),  the  Ownership  Requirement  for that
person's  salary  and Pay Level will apply  based upon the  average of the high and low prices of Stock  (rounded
down to the nearest dollar) on the date he or she becomes subject to the Program.

            The Board intends to review the Ownership  Requirements  every three years, but reserves the right to
adjust the  Ownership  Requirements  at any time in its sole  discretion to reflect,  among other things,  market
conditions and the Company's ongoing executive compensation programs.

            Time to Meet Ownership  Requirement.  The Ownership  Requirement  will be phased in, so that you will
be required to own shares representing:

          (i)       one-fifth of your Ownership  Requirement  (the "Initial  Ownership  Requirement") by the 60th
                    day after the date you become subject to the Program (the "1st Tranche Deadline");

                                                      E-11
                                                                                        EXHIBIT 10.34 (continued)

         (ii)       three-fifths  of your  Ownership  Requirement  (the  "Second  Ownership  Requirement")  by 36
                    months after the date you become subject to the Program (the "2nd Tranche Deadline"); and

         (iii)      the full amount of your  Ownership  Requirement  (the "Final  Ownership  Requirement")  by 60
                    months after the date you become subject to the Program (the "Ownership Deadline").

             In the case of any promoted or newly hired member of  management,  any  additional  or new Ownership
Requirement  will be phased in so that one-fifth of such additional or new Ownership  Requirement  must be met on
the 60th day  after  the  promotion  or  hiring,  three-fifths  after 36  months,  and in full  after 60  months.
Deadlines applicable to any original Ownership Requirement will not be altered.

             Restriction on Sales or  Dispositions  of Stock.  Once your  Ownership  Requirement is met, you must
continue to own sufficient Stock to meet the Ownership  Requirement  until the Ownership  Requirement  lapses (as
discussed  below) or the  Program is  terminated.  The  Program is  indefinite  in  duration,  although it may be
terminated or modified at any time by the Board.

             Under the  Program,  you may not sell or dispose of any shares of Stock that you own (as  determined
under the Program) at any time that you have not met the full  Ownership  Requirement,  or to the extent the sale
or  disposition  would cause your  ownership  to fall below your  Ownership  Requirement.  This means  that,  for
example,  even if you own shares in excess of one-fifth  of your  Ownership  Requirement  between the 1st Tranche
Deadline and the 2nd Tranche  Deadline,  you could not sell such excess  shares.  You can only sell shares if you
have met your full Ownership Requirement.

             As stated above, the sale or disposition of shares in violation of the Program's  requirements  will
constitute  grounds for  termination  of  employment.  The  Program  does not impose a legal  restriction  on the
transferability  of the shares (other than Deferred Shares and Premium Shares,  discussed below), but imposes the
potential  penalty of termination  (and forfeiture of Deferred Shares and Premium  Shares,  as discussed  below).
Thus,  it is up to you to ensure that shares  subject to the Program are not sold.  The Program does not prohibit
a pledge of shares as  security  for a loan,  but if the shares are  disposed  of as a result of such pledge (for
example,  due to a default by you on such loan),  such  disposition  will  constitute  grounds for termination of
employment  under the Program.  Short  positions and "put  equivalent"  derivative  securities  positions will be
deemed dispositions for purposes of the Program.

             If you are an officer of the Company  subject to the reporting  and  short-swing  profits  liability
provisions  of Section 16 of the  Securities  Exchange Act of 1934,  any purchases you make in the open market in
order to meet your Ownership  Requirement  will be non-exempt  transactions,  which could  potentially be matched
with any sale  within  less than six  months  before  the  purchase  or six months  after the  purchase  to yield
short-swing profits liability.

                                                      E-12
                                                                                        EXHIBIT 10.34 (continued)

             All  purchases  and sales of Stock in the market are subject to federal  and state laws  prohibiting
transactions  while  in  possession  of  certain  material  non-public  information,   and  to  Company  Policies
prohibiting  trading on the basis of material  non-public  information.  Under the  Company's  policies,  you are
required to pre-clear any  transaction  with the Company's  General  Counsel or Corporate  Secretary.  All shares
purchased or sold must be reported to the Office of the Secretary on Exhibit B.

             Shares  Deemed Owned Under the Program.  Shares of Stock that count  toward  meeting your  Ownership
Requirement  are shares in which you have an exclusive  pecuniary  interest,  and shares in which you and members
of your  immediate  family have an exclusive  pecuniary  interest if such  members have  consented to such shares
being  deemed  owned by you for purposes of the Program.  This would  include  shares of Stock owned  directly by
you,  either in record name or in a brokerage  account,  shares owned by you as a  participant  in the  Company's
401(k)  Retirement  Savings Plan,  shares  acquired under the share purchase  features of the Program,  including
units  representing  Deferred Shares and Premium Shares acquired under the Program  (discussed below), and shares
or share  units  under any other  plan or  program  of the  Company  or any  subsidiary  if and to the  extent so
designated by the  administrator of the Program.  In addition,  shares of restricted Stock held under any Company
plan under which the vesting  conditions are not dependent upon the achievement of a performance  goal will count
toward meeting your Ownership  Requirements;  provided,  however,  that in the event you have irrevocably elected
stock  withholding in connection  with an award of such  restricted  Stock,  the number of such shares that count
toward  meeting your  Ownership  Requirements  will be reduced to the net number of such shares  remaining  after
applying a 44.5% rate of withholding (rounded down to the  nearest whole share).

             On the other hand,  shares of restricted  Stock held under any Company plan that may or may not vest
depending  on the  achievement  of a  performance  goal will not be deemed to be owned by you until  such time as
such shares have become  vested,  and shares  which may be acquired  upon  exercise of an option  (whether or not
then  exercisable)  will not be deemed  owned by you until such option is duly  exercised.  In this  regard,  the
surrender or  withholding  of shares of Stock to pay the  exercise  price or tax  withholding  with respect to an
option or vesting of  restricted  Stock will not be deemed a sale or  disposition  of such shares for purposes of
the  Program.  Shares in which any other  person  (other  than an  immediate  family  member if such  member  has
consented  as  aforesaid)  has a  pecuniary  interest  will not be deemed to be owned by you for  purposes of the
Program, and will not be subject to restrictions on sale or disposition.

             Lapse of Ownership  Requirement;  Change in Control. Your Ownership Requirement will lapse upon your
termination  of  employment  for any reason.  In  addition,  all  Ownership  Requirements  lapse upon a Change in
Control.

             For  purposes  of the  Program,  a "Change in  Control"  will be deemed to have  occurred if (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the  Securities  Exchange Act of 1934),
other than employee or retiree benefit plans or trusts  sponsored or established by the Company or  International
Truck and Engine  Corporation  ("International"),  is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Securities  Exchange Act of 1934),  directly or indirectly,  of securities of the Company  representing
25% or more of the  combined  voting power of the  Company's  then  outstanding  securities;  (ii) the  following
individuals  cease for any reason to constitute more than  three-fourths  of the number of directors then serving
on the Board: individuals who, on the

                                                      E-13
                                                                                        EXHIBIT 10.34 (continued)

date hereof,  constitute  the Board and any new  director  (other than a director  whose  initial  assumption  of
office is in connection  with an actual or threatened  election  contest,  including but not limited to a consent
solicitation,  relating to election of directors of the Company)  whose  appointment  or election by the Board or
nomination for election by the Company's  stockholders  was approved by the vote of at least  two-thirds (2/3) of
the directors  then still in office or whose  appointment,  election or nomination  was previously so approved or
recommended;  (iii) any dissolution or liquidation of the Company or  International or sale or disposition of all
or  substantially  all (more than 50%) of the assets of the Company or of  International  occurs;  or (iv) as the
result of, or in connection with, any cash tender offer,  exchange offer,  merger or other business  combination,
sale of assets, proxy or consent  solicitation,  contested election or substantial stock accumulation (a "Control
Transaction"),  the members of the Board  immediately  prior to the first  public  announcement  relating to such
Control  Transaction shall  immediately  thereafter,  or within two years,  cease to constitute a majority of the
Board.  Notwithstanding  the foregoing,  the sale or disposition of any or all of the assets or stock of Navistar
Financial Corporation shall not be deemed a Change in Control.

            Ownership  Reporting and  Certification.  Participants  will be required to periodically file reports
as to their  ownership  of shares of Stock under the  Program,  including  purchases,  sales or  dispositions  of
Stock.

ACQUISITIONS OF SHARES UNDER THE PROGRAM

            Overview.  The Program  includes a number of features to enable  Participants to acquire  shares,  as
well as  features  to  encourage  Participants  to make a  substantial  and prompt  commitment  to meeting  their
Ownership Requirements.

         Company  Loans To Meet  Ownership  Requirements.  In accordance  with Section 402 of the  Sarbanes-Oxley
Act of 2002,  effective  July 30, 2002,  the Company will no longer extend or arrange for credit to  Participants
to assist them in meeting their  Ownership  Requirements.  Any loans extended to  Participants  to assist them in
meeting  their  Ownership  Requirements  prior to July 30,  2002 will be  grand-fathered  and remain in effect in
accordance with the terms and conditions as contained in their promissory note.

            Acquisitions  From the Company.  The Program  provides for  acquisitions  of shares of Stock from the
Company,  by purchase and through the crediting of units  representing  shares as an incentive to Participants to
promptly  acquire  shares to meet their  Ownership  Requirements.  A  Participant  may  acquire  shares  from the
Company as follows:

o        Salary  Reduction.  Up to four-fifths of your Ownership  Requirement may be satisfied by salary reduction.
             You may  purchase  units  representing  shares  ("Deferred  Shares") by electing to have your salary
             reduced,  on a pre-tax  basis,  over any period up to five  years.  You may elect to apply an amount
             between 10% and 50% of your future  monthly  salary to such  purchases.  Your  election must be made
             within 30 days after becoming  subject to the Program,  or if you are already  participating  in the
             Program,  your election to purchase Deferred Shares through salary reduction must be made at least 6
             months in advance of the date your salary  reduction  is to begin.  In the event of a  promotion  in
             Pay Level that results in an increase in your  Ownership  Requirement,  you may increase an existing
             salary

                                                      E-14
                                                                                        EXHIBIT 10.34 (continued)

             reduction  election,  or make a salary  reduction  election if there is not one currently in effect,
             within 20 days of your being notified of the promotional  increase.  If you make a salary  reduction
             election,  you will acquire  Deferred Shares at the date your salary  reduction would otherwise have
             been paid to you in an amount  determined  by dividing (i) the amount of the salary  reduction to be
             applied to the  purchase  by (ii) the  average of the high and low prices of a share of Stock as set
             forth in the New York Stock Exchange  Composite  Transactions  listing  published in the Wall Street
             Journal or  equivalent  financial  publication  (the "Fair  Market  Value") on the date your  salary
             reduction  would have been  otherwise  payable  (or if that date is not a trading  day,  on the most
             recent  previous  trading date).  Deferred  Shares  acquired  through the application of your salary
             reduction  will vest  immediately,  but  vested  Deferred  Shares  generally  will not be settled by
             delivery of actual  Stock  until your  termination  of  employment  (as  described  below).  You may
             terminate  your election with respect to any future salary  reduction  that has not yet been applied
             to acquire Deferred Shares by giving six months advance notice to the Company.

o        Annual  Incentive  Payouts.  You may  purchase  Deferred  Shares by  electing  to have a portion of future
             annual  incentive  payments to which you may become entitled under any plan of the Company  applied,
             on a pre-tax  basis,  to such  purchases.  You may elect to apply an amount  between 50% and 100% of
             your future annual  incentives to such  purchases.  Your election may be made on an annual basis and
             must be made prior to January 1st of each fiscal year. If you make this  election,  you will acquire
             Deferred Shares at the date an annual incentive  payment would otherwise be made to you in an amount
             determined by dividing the amount of the annual  incentive to be applied to the purchase by the Fair
             Market  Value of  Deferred  Shares  at the date the  annual  incentive  would  have  been  otherwise
             payable.  Deferred Shares acquired  through the  application of annual  incentive  payouts will vest
             immediately,  but vested Deferred  Shares  generally will not be settled by delivery of actual Stock
             until your termination of employment (as described below).

o        Premium  Shares.  Units  representing  shares  ("Premium  Shares")  will be credited to an account for the
             Participant as a reward for certain acquisitions of shares, as follows:

-        To the extent any shares  comprising  your  Initial  Ownership  Requirement  consist of  restricted  Stock
                 awarded by the Company or are  purchased  on or before the 60th day after you become  subject to
                 the  Program  in the open  market or from the  Company  (including  by  exercise  of  options or
                 Deferred  Shares  acquired by salary  reduction)  using  personal funds or funds obtained from a
                 source  other  than the  Company,  you will be  credited  (as of the 60th day after  you  become
                 subject to the Program)  with a number of Premium  Shares  equal to 15% of such  shares.  To the
                 extent any shares  comprising your Second  Ownership  Requirement  (less your Initial  Ownership
                 Requirement)  consist of  restricted  Stock awarded by the Company or are purchased on or before
                 the 18th month  after the date you become  subject to the Program in the open market or from the
                 Company  (including by exercise of options or Deferred Shares  acquired by salary  reduction but
                 excluding  Deferred Shares acquired by elective  deferral of annual  incentive  payments and all
                 Premium  Shares),  you will be credited (as of the 18th month after the date you become  subject
                 to the Program) with a number of Premium  Shares equal to 25% of such shares.  To the extent any
                 shares comprising your Final Ownership

                                                      E-15
                                                                                        EXHIBIT 10.34 (continued)

                Requirement (less your Second Ownership  Requirement)  consist of restricted Stock awarded by the
                Company or are  purchased  on or before the 36th month  after the date you become  subject to the
                Program,  in the open  market or from the Company  (including  by exercise of options or Deferred
                Shares  acquired by salary  reduction  or elective  deferral of annual  incentive  payments,  but
                excluding  all Premium  Shares),  you will be  credited  (as of the 18th month after the date you
                become subject to the Program) with a number of Premium Shares equal to 25% of such shares.

-        Deferred  Shares  acquired by salary  reduction  will be counted as shares  owned by the  Participant  for
                 purposes of determining a Participant's eligibility to earn Premium Shares.

-        If you acquire  Deferred  Shares as a result of your election to apply 50% of any future annual  incentive
                 payment toward their purchase,  you will be credited with a number of Premium Shares equal to 5%
                 of the number of Deferred  Shares so  acquired;  if you acquire  Deferred  Shares as a result of
                 your election to apply 100% of any future annual  incentive  payment toward their purchase,  you
                 will be credited with a number of Premium  Shares equal to 15% of the number of Deferred  Shares
                 so acquired;  and if you acquire Deferred Shares as a result of your election to apply more than
                 50% but less than 100% of any future annual  incentive  payment toward their purchase,  you will
                 be credited with a number of Premium  Shares  determined  by  interpolating  on a  straight-line
                 basis between 5% and 15% of the number of Deferred  Shares so acquired.  Premium Shares credited
                 to you in  connection  with an  annual  incentive  will be  credited  as of the date the  annual
                 incentive would have been otherwise payable.

             Terms of Deferred Shares and Premium Shares.  Deferred Shares and Premium Shares will be credited to
a  Participant's  account in whole shares  (rounded down to the nearest whole number).  For each such Deferred or
Premium Share credited to a Participant's  account on a record date for a dividend,  a dollar amount will be paid
to the  Participant at the dividend  payment date equal to the amount of dividends  paid on one share;  provided,
however,  that the Committee on Compensation and Governance may require any  extraordinary  dividend to be deemed
reinvested  in  additional  Deferred  Shares or Premium  Shares (as the case may be) at the Fair Market  Value of
shares at the dividend  payment date.  Deferred  Shares and Premium  Shares may not be transferred or disposed of
by a Participant.

             All Premium Shares are forfeitable  until such time as they have vested.  In the event the Committee
on  Compensation  and  Governance  elects  to  require  an  extraordinary  dividend  to be deemed  reinvested  in
additional  Deferred Shares or Premium Shares,  such Deferred Shares and Premium Shares acquired through dividend
reinvestment on unvested Deferred Shares and unvested Premium Shares  ("Original  Shares") will vest at the times
and in proportion to the vesting of the Original  Shares.  Deferred  Shares and Premium Shares  acquired  through
dividend  reinvestment on vested Deferred Shares and vested Premium Shares will be immediately  vested.  Deferred
Shares  acquired by application of salary  reduction or by  application  of annual  incentive  payments are fully
vested (i.e., non-forfeitable) at all times.

                                                      E-16
                                                                                        EXHIBIT 10.34 (continued)

             Except as  described  above with  respect to  extraordinary  dividends  deemed to be  reinvested  in
additional  Premium Shares,  Premium Shares vest in equal  installments on each of the first three  anniversaries
of the date on which they are credited,  or earlier upon the  occurrence of a Change in Control or termination of
employment  due to death,  disability,  or retirement  approved in advance by the Committee on  Compensation  and
Governance.  In the event a  Participant's  employment  with the Company or its  subsidiaries  terminates for any
reason,  any unvested  Deferred Shares and unvested Premium Shares shall be immediately  forfeited.  In addition,
in the event a  Participant  sells or otherwise  disposes of other  purchased  shares in respect of which Premium
Shares were  credited,  all of the  Participant's  unvested  Premium  Shares shall be  immediately  forfeited.  A
Participant  shall not be treated as having sold or otherwise  disposed of  purchased  shares in respect of which
Premium  Shares were  credited  unless he or she has sold or disposed of shares in excess of the number of his or
her shares in respect of which no Premium Shares were credited.

             Each vested  Deferred  Share and each vested  Premium Share will be settled by delivery of one share
of Stock.  Such settlement  shall occur within ten days after a  Participant's  termination of employment (or, in
the case of a  Participant  who  retires,  such  later  date as may have  been  elected  by a  Participant  under
procedures approved by the Program  administrator);  provided,  however,  that settlement shall be accelerated to
the date  immediately  prior to a Change in Control  (subject  to any  deferral  of  settlement  as may have been
elected by a Participant under procedures approved by the Program administrator).

             Deferred  Shares and  Premium  Shares  will be  appropriately  adjusted by the Board in the event of
stock  splits,  stock  dividends  and  other  extraordinary,  special,  and  non-recurring  dividends,  and other
extraordinary corporate events.

             Right to Put Shares to the Company.  A Participant  under the Program has the right, in the event of
a Change in  Control  by action of the UAW or the  Supplementary  Trust,  to "put" to the  Company  any shares of
Stock acquired by the  Participant on and after the date such  Participant  becomes subject to the Program (other
than Premium  Shares) and owned under the Program  immediately  prior to the Change in Control,  on the following
terms and  conditions  (the "Put Right").  The Put Right  represents a right of the  Participant  to sell, and an
obligation of the Company to buy, each share of Stock (other than a Premium  Share)  acquired  under the Program,
exercisable by the  Participant  during a period of 30 days following such Change in Control (as defined  above).
The purchase price ("strike  price")payable  by the Company to the  Participant  for each share to be sold to the
Company  upon a  Participant's  exercise  of the  Put  Right  shall  equal  the  amount  paid  per  share  by the
Participant;  provided,  however, that if the Participant exercises the Put Right as to all shares purchased with
a loan from the Company under the Program,  the purchase  price for such shares shall be deemed to be the greater
of the aggregate  purchase price of such shares or the unpaid balance  (principal  plus accrued  interest) on the
loan,  and such  purchase  price shall be applied to the  repayment in full of such unpaid loan balance (with any
remaining amount paid to the Participant together with interest thereon as specified in their promissory note).

             The  Participant  may exercise the Put Right as to all or less than all of the shares subject to the
Put Right, and shall identify such shares in a manner  sufficient to identify the original  purchase price of the
shares as to which the Put Right is exercised.

                                                      E-17
                                                                                        EXHIBIT 10.34 (continued)

             Notwithstanding  the  Company's  power to  terminate  or amend  the  Program,  the  Company  may not
terminate or amend the Put Right  following a Change in Control in a manner adverse to a Participant  without his
or her written consent.

MARKET PRICE RANGE

             For the three years ending  December 31, 2001, the high and low sales price for the Company's  Stock
for the periods indicated was as follows:

                                                                              Stock Price
                                   Year Ending                        High                   Low
                                December 31, 2001                   $ 41.20                $ 21.78
                                December 31, 2000                   $ 48.00                $ 18.25
                                December 31, 1999                   $ 56.25                $ 27.13

             Prior to  investing  in the  Stock,  Participants  are  encouraged  to  obtain  current  information
concerning the price of the Stock:

RISK FACTORS

OWNERSHIP OF THE STOCK INVOLVES  CERTAIN RISKS.  PARTICIPANTS  SHOULD CAREFULLY  CONSIDER THE FOLLOWING  FACTORS AS
WELL AS OTHER  INFORMATION  INCLUDED IN THIS  MEMORANDUM  BEFORE  MAKING AN  INVESTMENT IN THE STOCK OFFERED BY THE
PROGRAM.

The Company's Profitability Could Suffer Due to the Considerable Volatility of the Markets in Which It Competes

         The  Company's  ability to be  profitable  depends in part on the varying  conditions in the medium truck,
heavy truck,  severe service vehicles,  school bus, mid-range diesel engine and service parts markets.  The markets
in which the Company  competes is subject to  considerable  volatility.  Such markets move in response to cycles in
the overall  business  environment  and are  particularly  sensitive to the industrial  sector,  which  generates a
significant  portion of the  freight  tonnage  hauled.  Truck and engine  demand  also  depend on general  economic
conditions, interest rate levels and fuel costs.

The Company Operates in the Highly Competitive North American Truck Market, Which May Require It to Discount Its
Prices, Thereby Lowering the Company's Margins

         The North  American  truck  market in which the Company  competes  is highly  competitive.  The  Company's
major  U.S.   domestic   competitors   include   PACCAR,   Ford  and  General  Motors   Corporation,   as  well  as
foreign-controlled  domestic  manufacturers,  such as Freightliner (Daimler Chrysler),  Sterling (Daimler Chrysler)
and Mack/Volvo.  In addition,  manufacturers from Japan such as Hino (Toyota),  Isuzu,  Nissan and Mitsubishi,  are
attempting to increase  their North  American sales levels.  The intensity of this  competition,  which is expected
to continue,  results in price  discounting and margin pressures  throughout the industry and adversely affects the
Company's  ability to  increase  or  maintain  vehicle  prices.  Many of the  Company's  competitors  have  greater
financial resources than it, which may place the

                                                       E-18
                                                                                        EXHIBIT 10.34 (continued)

Company at a competitive  disadvantage in responding to substantial  industry  changes.  These industry changes may
include  changes in governmental  regulations  that require major  additional  capital  expenditures.  In addition,
certain of the Company's competitors may have lower overall labor costs.

The Company's Business May be Adversely Impacted by Work Stoppages and Other Labor Relations Matters

         The Company is subject to risk of work stoppages and other labor  relations  matters because its workforce
is highly  unionized.  Any prolonged  work stoppage or strike at any one of the Company's  principal  manufacturing
facilities could have a negative impact on its business, financial condition and results of operations.

The Loss of Ford, the Company's Largest Customer, Would Have a Negative Impact on the Company's Business,
Financial Condition and Results of Operations

         Ford accounted for  approximately  21% of Company revenues during fiscal 2001, 18% for fiscal 2000 and 17%
for fiscal 1999. In addition,  Ford  accounted  for  approximately  82%, 76% and 75% of Company  diesel engine unit
volume in fiscal 2001,  fiscal 2000 and fiscal 1999,  respectively.  Although the Company has agreements  with Ford
that continue  through  2012,  these  agreements  provide that it will supply Ford's  requirements  for  particular
models,  rather  than for  manufacturing  a specific  quantity  of  products.  The loss of Ford as a customer  or a
significant  decrease in demand for the models or a group of related  models that utilize  Company  products  would
have a negative impact on the Company's business, financial condition and results of operations.

The Failure to Meet the Company's Future Capital Requirements Would Hinder Company Product Development Initiatives

         The Company's current product  development  initiatives,  including its next generation  vehicle,  or NGV,
and next  generation  diesel  engine,  or NGD,  programs,  will  require  significant  capital to fund  development
activities  and capital  expenditures.  Historically,  the Company has relied on cash  balances,  cash  provided by
operations  and  borrowings to meet the Company's  funding  requirements.  The amount of cash  generated by Company
business  varies with industry  volumes in the medium and heavy truck  markets.  No assurance can be given that the
Company will have the cash  balances  necessary to implement  the NGV or NGD programs and to meet its other capital
requirements  or that  financing  will be available  or, if  available,  that it will be available on  satisfactory
terms.  The future  availability  of financing  will depend on many  factors,  including  the  Company's  earnings,
credit  ratings,  the outlook for truck industry  demand and the capital  resources of financial  institutions.  In
addition,  restrictive  covenants in the Company's  financing  agreements  may limit how much debt financing it can
raise,  and a need to  preserve  its net  operating  losses may limit our  ability to raise  equity  financing.  If
adequate funds are not available,  the Company may be required to cut back or discontinue  its product  development
or capital improvement programs.

                                                      E-19
                                                                                        EXHIBIT 10.34 (continued)

The Costs Associated With Complying With Environmental and Safety Regulations Could Lower the Company's Margins

         Truck  and  engine  manufacturers  continue  to face  heavy  governmental  regulation  of their  products,
especially  in the areas of  environment  and safety.  As a diesel  engine  manufacturer,  the Company has incurred
research,  development  and  tooling  costs  to  design  its  engine  product  lines  to  meet  new  United  States
Environmental  Protection  Agency,  or EPA, and California Air Resources  Board, or CARB,  emission  standards.  In
addition,  the  Company  expects to  continue  to incur  research,  design  and  tooling  costs to achieve  further
reductions in  ozone-causing  exhaust  emissions by 2004 in accordance  with the  settlement  agreement the Company
entered  into with the EPA and CARB . The  Company  expects  that its  diesel  engines  will be able to meet all of
these standards within the required time frames.

         Truck  manufacturers  also are subject to various  noise  standards  imposed by  federal,  state and local
regulations,  and to the National  Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety  Standards
promulgated by the National Highway Traffic Safety Administration.

            Complying  with such laws and  regulations  has added and will continue to add to the cost of Company
products,  and increases the  capital-intensive  nature of the Company's business.  If the present level of price
competition  continues,  it may become increasingly  difficult for manufacturers of engines and trucks to recover
these costs and, accordingly, lower margins may result.

The Company Has Significant Underfunded Postretirement Obligations

         The Company has significant  underfunded  postretirement  obligations.  In the event the Company's pension
plans are terminated for any reason and plan assets are  insufficient to meet guaranteed  liabilities,  the Pension
Benefit  Guaranty  Corporation,  or PBGC,  may have a right to take over  these  plans as their  administrator  and
trustee.  In this event, the actual present value of guaranteed  pension  liabilities may be determined in a manner
different from that used by the Company to determine its unfunded vested pension  liability,  which  determinations
could  result in a higher  level of  underfunding.  Subject  to  certain  limitations,  the PBGC would have a claim
against  the Company to the extent that plan assets were not  sufficient  to meet the  actuarial  present  value of
guaranteed liabilities.

The Company's Ability to Use Net Operating Loss Carryovers to Reduce Future Tax Payments may be Limited if There
is a Change in Ownership of the Company

         Currently  there is no annual  limitation  on the  Company's  ability to use NOLs to reduce  future income
taxes.  However,  if an  ownership  change as defined in  Section  382 of the  Internal  Revenue  Code of 1986,  as
amended,  occurs with respect to the Company's  capital stock, its ability to use NOLs would be limited to specific
annual  amounts.  Generally,  an ownership  change occurs if certain  persons or groups  increase  their  aggregate
ownership by more than 50 percentage points of our total capital stock in any three-year period.

        If an  ownership  change  occurs,  the  Company's  ability to use domestic  NOLs to reduce  income taxes is
limited to an annual  amount based on the Company's  fair market value  immediately  prior to the ownership  change
multiplied by the long-term tax-exempt interest rate.  The long-term tax-exempt

                                                       E-20
                                                                                        EXHIBIT 10.34 (continued)

interest rate is published  monthly by the Internal  Revenue  Service.  NOLs that exceed the Section 382 limitation
in any year continue to be allowed as  carryforwards  for the remainder of the 15- or 20-year  carryforward  period
and can be used to offset  taxable  income for years within the carryover  period subject to the limitation in each
year.  The Company's use of new NOLs arising after the date of an ownership change would not be affected.

        It is  impossible  for us to ensure that an  ownership  change will not occur in the future.  In  addition,
the  Company may decide in the future that it is  necessary  or in its  interest  to take  certain  actions,  which
result in an ownership  change.  If a more than 50% ownership  change were to occur,  use of the Company's  NOLs to
reduce  payments of federal income tax may be deferred to later years within the 15- or 20-year  carryover  period,
or, if the  carryover  period for any loss year expires,  the use of the  remaining  NOLs for the loss year will be
prohibited.

Anti-takeover Effect of Certain Charter and Statutory Provisions

         The Company's  certificate of  incorporation  provides that the affirmative vote of holders of the greater
of (a) a  majority  of the  voting  power of all  common  stock or (b) at least 85% of the  shares of common  stock
present at a meeting is required to approve certain mergers and  consolidations  or a sale of all or  substantially
all of the  Company's  assets,  or a  supermajority  transaction.  Accordingly,  any  holder  of 15% or more of the
aggregate  outstanding  common  stock  represented  at any  meeting  of  shareowners  will  be able  to  block  any
supermajority  transaction.  The Company's  certificate of incorporation and by-laws also contain  provisions which
(1) permit the Company to issue  so-called  "flexible"  preferred  stock,  (2) provide  for a  classified  board of
directors  (which has the effect under  Delaware law of  precluding  shareowners  from removing  directors  without
cause),  (3) limit the filling of board vacancies to the remaining  directors,  and (4) prohibit  shareowners  from
taking action by written  consent or calling  special  meetings.  The Company also is subject to Section 203 of the
Delaware General  Corporation Law, or DGCL, which restricts it from engaging in certain business  combinations with
"interested  stockholders." The fact that the Company's  utilization of its net operating losses could be adversely
affected by a change of control also could have an anti-takeover effect.

         Although not intended,  the foregoing  provisions  may adversely  affect the  marketability  of the common
stock by  discouraging  potential  investors from acquiring  stock of the Company.  In addition,  these  provisions
could delay or frustrate the removal of incumbent  directors and could make more  difficult a merger,  tender offer
or proxy contest  involving the Company,  or impede an attempt to acquire a significant or controlling  interest in
the Company, even if such events might be beneficial to the Company and its shareowners.

Possible Volatility of the Company Share Price Increases the Risk of Your Investment

         Numerous factors may  significantly  affect the market price for the Company's common stock.  Such factors
include  the  announcement  of new  products or other  strategic  initiatives  by the  Company or its  competitors,
technological  innovations by the Company or its competitors,  the growth and expansion of the Company's  business,
trends and  uncertainties  affecting the truck  manufacturing  industry as a whole,  issuances and  repurchases  of
common stock,  quarterly  variations in the Company's  operating  results or the operating results of the Company's
competitors,  investors'  expectations  of the Company's  prospects,  changes in earnings  estimates by analysts or
reported results that vary materially from such

                                                       E-21
                                                                                        EXHIBIT 10.34 (continued)

estimates and general economic and other conditions,  including the cyclical nature of the Company's  business.  In
addition,  in recent years the stock market has experienced extreme price  fluctuations.  This volatility has had a
substantial  effect on the market  prices of  securities  issued by many  companies  for reasons  unrelated  to the
operating  performance of the specific  companies.  These broad market fluctuations may adversely affect the market
price of the common stock.

FEDERAL INCOME TAX CONSEQUENCES

             Shares  purchased in the open market or from the Company  under the Program with  personal  funds or
the  proceeds of a loan,  which are held in the form of actual  shares,  will  represent  share  ownership by the
Participant,  so that gains or losses  realized  upon the  ultimate  disposition  of such  shares will be capital
gains or losses to the  Participant.  Deferred  Shares and Premium  Shares  will be rights  acquired on a pre-tax
basis,  so that their  settlement  by issuance  and  delivery  of shares  will  result in ordinary  income to the
Participant  equal to the then-fair  market value of the shares  delivered.  Employment taxes (FICA and Medicare)
will be due and payable when Deferred  Shares and Premium  Shares vest,  even though income tax liability will be
deferred  until shares are  delivered.  Interest on a Company loan will be treated as  "investment  interest" and
will be deductible by a Participant when paid,  subject to the limitations  applicable to "investment  interest."
Deloitte  &  Touche  LLP has  rendered  an  opinion  that the  exercise  of a Put  Right  will  not  result  in a
Participant's  recognition  of  income,  gain or loss to the extent the  amount  paid by the  Company  equals the
amount paid per share by the Participant.

             The foregoing is a general  summary of certain  Federal income tax  consequences.  Participants  are
urged to consult  their  personal tax advisors  regarding  the tax  consequences  of their  participation  in the
Program.

OTHER INFORMATION

             Administrator.  The Program is administered by the Company's Senior Vice President,  Human Resources
and Administration.

             Program Not Otherwise  Tax-Qualified  or Subject to ERISA.  The Program is not qualified  under Code
Section  401(a) and is intended to qualify for the "top hat"  exemption  from the  requirements  of the  Employee
Retirement Income Security Act of 1974, as amended.

             Registration:  Additional Information.  On June 16, 1997, the Company filed a registration statement
on Form S-8 (the  "Registration  Statement") with the Securities and Exchange  Commission (the "SEC") registering
under the Securities Act of 1933, as amended (the  "Securities  Act"), the offer and sale of up to 650,000 shares
in connection with the Program.

             Certain  documents  filed by the Company with the SEC under the Securities  Exchange Act of 1934, as
amended (the  "Exchange  Act"),  before the Company  filed the  Registration  Statement,  including the Company's
then-most recent Annual Report on Form 10-K, as well as periodic reports,  current reports,  and proxy statements
filed after the date of such Registration Statement, are

                                                      E-22
                                                                                        EXHIBIT 10.34 (continued)

incorporated by reference into the  Registration  Statement.  These documents are also  incorporated by reference
into this memorandum and form part of the prospectus for the Program under the Registration Statement.

            The Company may from time to time update this  memorandum  to reflect  material  changes  relating to
the Program.  Such updated  information,  which will be delivered to Officers and Senior Managers  subject to the
Program,  should be read in  conjunction  with this  memorandum  and the  other  documents  that form part of the
prospectus  for the Program,  except to the extent that  statements in this  memorandum  and the other  documents
have been modified or superseded by statements in a subsequent  memorandum or other document  forming part of the
prospectus for the Program.

            The Company will provide  without charge to each person  subject to the Program,  upon the written or
oral request of such person,  a copy of any or all of the  documents  incorporated  by reference  herein  (except
that  exhibits to such  documents  will not be provided  without  charge  unless such  exhibits are  specifically
incorporated by reference into such  documents),  a copy of any or all other documents  constituting  part of the
prospectus  for the  Program  previously  delivered  to such  person,  and a copy of any or all  other  documents
required to be delivered to such persons by SEC rules.  Such requests,  and requests for  additional  information
about the Program and its administrator, should be directed to:

                                       Navistar International Corporation
                                       4201 Winfield Road
                                       Warrenville, Illinois 60555
                                       (630) 753-2149

            The Company  will  deliver to each person to whom  offers and sales are made under the  Program,  who
otherwise  does  not  receive  such  material,  copies  of  all  future  reports,  proxy  statements,  and  other
communications  distributed  to its  shareowners,  generally  no later  than the time  such  material  is sent to
shareowners.

                                                      E-23EXECUTION COPY

                               EQUITY ACQUISITION

                                    AGREEMENT

                                     between

                           MICHAEL CARUSO & CO., INC.

                                 CANDIE'S, INC.

                                       and

                              SWEET SPORTSWEAR, LLC

                           Dated as of April 23, 2002

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                             <C>

ARTICLE I. PURCHASE AND SALE OF UNZIPPED INTEREST.................................................................1

   SECTION 1.01                     Sale of Interest..............................................................1
   SECTION 1.02                     Purchase Price................................................................2
   SECTION 1.03                     Closing.......................................................................2

ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MC..................................................3

   SECTION 2.01                     Organization, Qualifications and Corporate Power..............................3
   SECTION 2.02                     Authorization; No Conflict; NonContravention..................................3
   SECTION 2.03                     Consents and Approvals........................................................4
   SECTION 2.04                     Validity......................................................................4
   SECTION 2.05                     Authorized Capital Stock......................................................5
   SECTION 2.06                     SEC Reports...................................................................6
   SECTION 2.07                     Litigation; Compliance with Law...............................................7
   SECTION 2.08                     Taxes.........................................................................8
   SECTION 2.09                     Offering of the Shares........................................................8
   SECTION 2.10                     Registration Rights...........................................................9

ARTICLE III. REPRESENTATIONS and WARRANTIES OF SWEET..............................................................9

   SECTION 3.01                     Investment Representations....................................................9
   SECTION 3.02                     Organization; Authorization, Noncontravention................................10
   SECTION 3.03                     Validity.....................................................................10
   SECTION 3.04                     Consents and Approvals.......................................................10
   SECTION 3.05                     Unencumbered Title...........................................................10
   SECTION 3.06                     Financial Statements of Unzipped.............................................11
   SECTION 3.07                     Litigation; Compliance with Law..............................................11
   SECTION 3.08                     Taxes........................................................................12
   SECTION 3.09                     Acknowledgement Regarding Intellectual Property..............................12

ARTICLE IV. CONDITIONS TO CLOSING................................................................................12

   SECTION 4.01                     Conditions to Sweet's Obligations at the Closing.............................12
   SECTION 4.02                     Conditions to the Company's and MC's Obligations at the Closing..............14

ARTICLE V. COVENANTS OF THE COMPANY..............................................................................16

   SECTION 5.01                     Directors and Officers Insurance.............................................16
   SECTION 5.02                     Board Rights.................................................................16
   SECTION 5.03                     Expenses of Director.........................................................16
   SECTION 5.04                     Payment of Azteca Receivables/Debt; Release of Azteca........................16
   SECTION 5.05                     Compliance with Law; Corporate Existence.....................................17

ARTICLE VI. COVENANTS of SWEET...................................................................................17

   SECTION 6.01                     Restrictions on Transfer.....................................................17
   SECTION 6.02                     Voting Restriction...........................................................18
   SECTION 6.03                     Legends......................................................................18

                                     -(i)-
<PAGE>

ARTICLE VII. SURVIVAL; INDEMNIFICATION...........................................................................19

   SECTION 7.01                     Survival of Representations and Warranties...................................19
   SECTION 7.02                     Indemnification by the Company...............................................19
   SECTION 7.03                     Indemnification by Sweet.....................................................19
   SECTION 7.04                     Procedure for Indemnification................................................20
   SECTION 7.05                     Assistance...................................................................21
   SECTION 7.06                     Other Remedies...............................................................21

ARTICLE VIII. RELEASE OF CERTAIN LIABILITIES.....................................................................21

   SECTION 8.01                     The Release..................................................................21
   SECTION 8.02                     Statutory Waiver.............................................................21

ARTICLE IX. Miscellaneous........................................................................................22

   SECTION 9.01                     Expenses.....................................................................22
   SECTION 9.02                     Brokerage....................................................................22
   SECTION 9.03                     Parties in Interest..........................................................22
   SECTION 9.04                     Specific Performance.........................................................22
   SECTION 9.05                     Further Assurances...........................................................22
   SECTION 9.06                     Submission to Jurisdiction; Consent to Service of Process....................23
   SECTION 9.07                     Notices......................................................................23
   SECTION 9.08                     Governing Law................................................................24
   SECTION 9.09                     Entire Agreement.............................................................24
   SECTION 9.10                     Attorney's Fees..............................................................25
   SECTION 9.11                     Counterparts.................................................................25
   SECTION 9.12                     Amendments and Waivers.......................................................25
   SECTION 9.13                     Successors and Assigns.......................................................25
   SECTION 9.14                     Severability.................................................................25
   SECTION 9.15                     Titles and Subtitles.........................................................25
   SECTION 9.16                     Adjustments for Stock Splits, Etc............................................25
   SECTION 9.17                     Construction.................................................................26
   SECTION 9.18                     Schedules....................................................................26
   SECTION 9.19                     Remedies.....................................................................26
   SECTION 9.20                     Certain Defined Terms........................................................26
   SECTION 9.21                     Incorporation of Exhibits, Annexes and Schedules.............................28

</TABLE>

INDEX TO EXHIBITS

EXHIBIT A                  Note
EXHIBIT B                  Investor Rights Agreement
EXHIBIT C                  Management Agreement
EXHIBIT D                  Amended Supply Agreement
EXHIBIT E                  Amended Distribution Agreement
EXHIBIT F                  Collateral Pledge Agreement
EXHIBIT G                  Sweet Proxy
EXHIBIT H                  Opinions of Company's Counsel
EXHIBIT I                  Indemnification Agreement
EXHIBIT J                  Opinion of Sweet's Counsel
EXHIBIT K                  Transfer Restriction Agreement for A Shares

                                     -(ii)-
<PAGE>

EXHIBIT L                  Transfer Restriction Agreement for B Shares
EXHIBIT M                  Transferee Proxy
EXHIBIT N                  Unzipped Financial Statements

                                     -(iii)-
<PAGE>

                             INDEX OF DEFINED TERMS

Defined Term                                              Location of Definition
A Shares                                                  Section 1.02
Acceleration                                              Recitals
ADS                                                       Section 1.03
Agreement                                                 Preamble
Affiliate                                                 Section 9.20
Affiliated Transferee                                     Section 6.02
Amended Distribution Agreement                            Section 1.03
Amended Supply Agreement                                  Section 1.03
Azteca                                                    Section 1.03
B Shares                                                  Section 1.02
Bylaws                                                    Section 2.02
Capital Contribution Agreement                            Section 3.09
Certificate of Designations                               Section 2.02
Charter                                                   Section 2.02
Claims                                                    Section 8.01
Closing                                                   Section 1.03
Closing Date                                              Section 1.03
Collateral Pledge Agreement                               Section 1.03
Common Stock                                              Section 1.02
Company                                                   Preamble
Company Basket Amount                                     Section 7.03(b)
Company Lawsuit                                           Section 9.06(a)
Company's knowledge                                       Section 9.20
Effective Date                                            Preamble
Encumbrances                                              Section 3.05
Exchange Act                                              Section 9.20
Financial Statements                                      Section 9.20
GAAP                                                      Section 9.20
Indemnified Company Parties                               Section 7.03(a)
Indemnified Company Parties' Losses                       Section 7.03(a)
Indemnified Sweet Parties                                 Section 7.02(a)
Indemnified Sweet Parties' Losses                         Section 7.02(a)
Interest                                                  Section 1.01
Investor Rights Agreement                                 Section 1.03
IP Holdings                                               Section 3.09
Lien                                                      Section 9.20
Management Agreement                                      Section 1.03
Material Adverse Effect                                   Section 9.20
MC                                                        Preamble
Note                                                      Section 1.02
Operating Agreement                                       Recitals

                                     -(iv)-
<PAGE>

Permits                                                   Section 9.20
Person                                                    Section 9.20
Permitted Transferee                                      Section 6.01(b)
Preferred Stock                                           Section 2.05(a)
Purchase Price                                            Section 1.02
Purchase/Sell Obligation                                  Recitals
Recent SEC Reports                                        Section 2.06(a)
Schedules                                                 Section 9.18
SEC                                                       Section 2.06(a)
SEC Reports                                               Section 2.06(a)
Securities Act                                            Section 2.05(b)
Shares                                                    Section 1.02
Subsidiary                                                Section 9.20
Sweet                                                     Preamble
Sweet Basket Amount                                       Section 7.02(b)
Sweet Interest                                            Section 9.20
Sweet Lawsuit                                             Section 9.06(a)
Sweet Proxy                                               Section 1.03
Sweet Representative                                      Section 8.01
Sweet's knowledge                                         Section 9.20
Term Sheet                                                Recitals
Transaction Documents                                     Section 9.20
Transfer Restriction Agreement for A Shares               Section 6.01(b)
Transfer Restriction Agreement for B Shares               Section 6.01(c)
Transferee Proxy                                          Section 6.02
Unzipped                                                  Recitals
Unzipped Financial Statements                             Section 9.20

                                     -(v)-
<PAGE>

     This EQUITY ACQUISITION AGREEMENT (this "Agreement"),  made as of April 23,
2002 (the "Effective  Date"), is entered into by and between  Candie's,  Inc., a
Delaware  corporation  (the  "Company")  and  Michael  Caruso  &  Co.,  Inc.,  a
California  corporation and a wholly-owned  subsidiary of the Company ("MC"), on
the one hand, and Sweet Sportswear,  LLC, a California limited liability company
("Sweet"),  on the other hand. Certain capitalized terms used herein are defined
in Section 9.20 of this Agreement.

                                    RECITALS

     WHEREAS,  pursuant to Section 12 of that certain Limited  Liability Company
Operating  Agreement of Unzipped  Apparel  LLC,  dated as of October 7, 1998 (as
subsequently amended and/or modified prior to the Effective Date, the "Operating
Agreement"), among Sweet, MC, and Unzipped Apparel LLC ("Unzipped"), the Company
had an  obligation  to  purchase  and Sweet had an  obligation  to sell,  all of
Sweet's   interest  in   Unzipped  on  January  31,  2003  (the   "Purchase/Sell
Obligation");

     WHEREAS, the Company desired to accelerate the consummation of its purchase
of Sweet's  interest  in  Unzipped  and to purchase  such  interest  through the
Company's wholly-owned subsidiary, MC;

     WHEREAS,  Sweet  desired to accept the  acceleration  of the  Purchase/Sell
Obligation  subject to the  modification of the terms set forth in Section 12 of
the  Operating  Agreement  relating to, among other  things,  the  consideration
payable to Sweet by the Company; and

     WHEREAS, on the Effective Date, the Company, Sweet and MC entered into that
certain  binding term sheet (the "Term  Sheet")  pursuant to which Sweet and the
Company  accelerated,  effective as of the Effective  Date, the  consummation of
each of Sweet's and the Company's  obligations with respect to the Purchase/Sell
Obligation,  subject to certain  modifications,  including  modifications to the
terms of the consideration  payable by the Company pursuant to the Purchase/Sell
Obligation (the "Acceleration"); and

     WHEREAS,  the  parties  desire  to set forth in more  detail  and with more
definitive language the terms and conditions relating to the Acceleration and to
modify and  supersede  the terms and  conditions  of the parties'  agreement set
forth in the Term Sheet.

     NOW,  THEREFORE,   in  consideration  of  the  premises,   representations,
warranties and the mutual  covenants  contained in this  Agreement,  the parties
agree as follows:

                                   ARTICLE I.

                     PURCHASE AND SALE OF UNZIPPED INTEREST

     SECTION  1.01      Sale of Interest. On the Effective Date, pursuant to the
terms and conditions of the Term Sheet (as modified, clarified and superseded on
the  Closing  Date,  effective  as of  the  Effective  Date,  by the  terms  and
conditions  of  this  Agreement),   Sweet,  in  full   satisfaction  of  Sweet's
obligations with respect to the Purchase/Sell  Obligation,  sold and transferred

                                      -1-
<PAGE>

to MC, and MC, in full satisfaction of the Company's obligations with respect to
the  Purchase/Sell  Obligation,  purchased,  all of  Sweet's  right,  title  and
interest in the Sweet  Interest in Unzipped in exchange for the  Purchase  Price
described in Section 1.02 below. Effective as of the Effective Date, Sweet is no
longer a party to the  Operating  Agreement  and  neither  Sweet  nor any of its
designees are members or managers of Unzipped  under the Operating  Agreement or
(other than as set forth in the Management  Agreement,  defined below) otherwise
or have any rights thereunder, and neither Sweet nor the Company has any further
obligations with respect to Section 12 thereof.

     SECTION  1.02  Purchase  Price.  The Company has issued to Sweet  3,000,000
shares (as such shares may be adjusted for any stock  dividends,  stock  splits,
combinations,  mergers, reorganizations and similar events, the "Shares") of the
Company's Common Stock,  par value $.001 per share (the "Common  Stock"),  as of
May 17, 2002, as evidenced by Stock Certificate No. 61-6035 for 2,000,000 Shares
(the "A Shares") and Stock  Certificate No. 61-6034 for 1,000,000 Shares (the "B
Shares"),  and, at the Closing (as defined in Section 1.03 hereof),  the Company
shall issue to Sweet,  in lieu of the  Preferred  Stock  referred to in the Term
Sheet, an 8% Senior  Subordinated  Note of the Company due in 2012 (the "Note"),
each in consideration for the Sweet Interest in Unzipped (the "Purchase Price"),
on the terms and subject to the conditions of this Agreement.

     SECTION  1.03  Closing.  The Closing  shall take place at 10:00 a.m. at the
offices of Blank Rome  Tenzer  Greenblatt  LLP in New York City,  on October 18,
2002, or at such other  location,  date and time as may be agreed upon among the
parties  hereto (such  closing being called the "Closing" and such date and time
being called the "Closing Date").  Except to the extent prohibited by applicable
law, and  regardless of the actual  Closing Date, the Closing will be considered
to have been  effective  at 12:01 a.m. on the  Effective  Date.  At the Closing,
effective as of the Effective  Date,  (a) the Company shall issue and deliver to
Sweet (i) the Note  substantially  in the form  attached  hereto as  Exhibit  A,
executed by the Company, (ii) the Investor Rights Agreement substantially in the
form attached hereto as Exhibit B (the "Investor Rights Agreement"), executed on
behalf of the Company, (iii) the Management Services Agreement  substantially in
the form attached hereto as Exhibit C (the "Management Agreement"),  executed on
behalf of  Unzipped,  the Company and MC, (iv) the Amended and  Restated  Supply
Agreement between Unzipped and Azteca Production International,  Inc. ("Azteca")
substantially  in the form  attached  hereto as Exhibit D (the  "Amended  Supply
Agreement"),  executed  on behalf of  Unzipped,  (v) the  Amended  and  Restated
Distribution  Agreement between Unzipped and Apparel Distribution  Services, LLC
("ADS") in  substantially  the form  attached  hereto as Exhibit E (the "Amended
Distribution  Agreement"),   executed  on  behalf  of  Unzipped,  and  (vi)  the
Collateral Pledge Agreement substantially in the form attached hereto as Exhibit
F (the "Collateral  Agreement");  and (b) Sweet shall deliver to the Company (i)
an instrument  of transfer and  assignment  or such other  documentation  as the
Company  deems  reasonably  necessary  to  evidence  the  transfer  of the Sweet
Interest  in Unzipped to MC, (ii) the  Investor  Rights  Agreement,  executed on
behalf of Sweet,  (iii) the proxy  substantially  in the form attached hereto as
Exhibit G (the "Sweet Proxy"),  executed on behalf of Sweet, (iv) the Management
Agreement,  executed  on behalf  of Sweet,  (v) the  Amended  Supply  Agreement,
executed  on behalf of  Azteca,  and (vi) the  Amended  Distribution  Agreement,
executed on behalf of ADS.

                                      -2-
<PAGE>

                                   ARTICLE II

              REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MC

     The  Company,  and, as to Sections  2.01(b),  2.02(b),  2.03(b) and 2.04(b)
below,  MC, each represents and warrants to Sweet (except not to the extent such
representations  and  warranties  extend  to  or  encompass  the  operations  of
Unzipped,  as to which no  representation  or warranty is made) that,  as of the
Effective  Date  (or in the  event  and in such  instances  as other  dates  are
specifically set forth in this Article II, as of such other dates):

     SECTION 2.01 Organization, Qualifications and Corporate Power.

     (a) The Company is a corporation  duly organized,  validly  existing and in
good  standing  under the laws of the State of  Delaware  and, as of the Closing
Date,  is  duly  licensed  or  qualified  to  transact  business  as  a  foreign
corporation and is in good standing in each  jurisdiction in which the nature of
the business transacted by it or the character of the properties owned or leased
by it requires such licensing or  qualification,  except where the failure to be
so  licensed,  qualified  or in good  standing  would  not  cause or  could  not
reasonably be expected to cause a Material  Adverse Effect.  As of May 17, 2002,
the Company had the requisite corporate power and authority to issue and deliver
the Shares to Sweet and, as of the Closing  Date,  the Company has the requisite
corporate power and authority to own and hold its properties and to carry on its
business as now  conducted and to execute,  deliver and perform its  obligations
under this Agreement and each of the other Transaction Documents.

     (b) MC is a  corporation  duly  organized,  validly  existing  and in  good
standing under the laws of the State of California, is a wholly-owned subsidiary
of the Company,  and, as of the Closing Date, has the requisite  corporate power
and  authority  to  execute,  deliver and  perform  its  obligations  under this
Agreement.

     SECTION 2.02 Authorization; No Conflict; NonContravention.

     (a) The Company's (i) execution and delivery of this  Agreement and each of
the other Transaction Documents and performance of its obligations hereunder and
thereunder,  and (ii)  issuance  and  delivery  of the  Shares,  have  been duly
authorized  by all  requisite  corporate  action (in the case of (i),  as of the
Closing  Date,  and in the case of (ii),  as of May 17,  2002)  and will not (A)
result  in a  violation  of the  Company's  Certificate  of  Incorporation  (the
"Charter")  in effect as of, in the case of (i),  the Closing  Date,  and in the
case of (ii), May 17, 2002, or the Company's  Bylaws, as amended (the "Bylaws"),
(B) result in a violation of any  applicable  law,  rule or  regulation,  or any
material order,  injunction,  judgment or decree of any court or other agency of
government,  (C) conflict with,  result in a breach of, or constitute  (or, with
due notice or lapse of time or both, would  constitute) a default under, or give
rise to any  right of  termination,  acceleration  or  cancellation  under,  any
material indenture,  agreement,  contract, license, arrangement,  understanding,
evidence of  indebtedness,  note, lease or other instrument to which the Company
or any of its  properties  or assets is bound,  or (D) result in the creation or
imposition of any material Lien,  charge,  restriction,  claim or encumbrance of
any  nature  whatsoever  upon  the  Company  or any of  the  Company's  material
properties or assets.

                                      -3-
<PAGE>

     (b) MC's (i) execution and delivery of this  Agreement and  performance  of
its obligations hereunder,  and (ii) purchase of the Sweet Interest in Unzipped,
have each been duly authorized by all requisite corporate action (in the case of
(i) above,  as of the Closing  Date,  and in the case of (ii)  above,  as of the
Effective  Date) and will not (A) result in a violation of MC's  Certificate  of
Incorporation  in effect as of, in the case of (i), the Closing Date, and in the
case of (ii), the Effective  Date, or MC's Bylaws,  as amended,  (B) result in a
violation of any  applicable  law, rule or  regulation,  or any material  order,
injunction,  judgment or decree of any court or other agency of government,  (C)
conflict  with,  result in a breach of, or  constitute  (or,  with due notice or
lapse of time or both,  would  constitute) a default under,  or give rise to any
right  of  termination,   acceleration  or  cancellation   under,  any  material
indenture, agreement, contract, license, arrangement, understanding, evidence of
indebtedness,  note,  lease  or  other  instrument  to  which  MC or  any of its
properties  or assets is bound,  or (D) result in the creation or  imposition of
any material  Lien,  charge,  restriction,  claim or  encumbrance  of any nature
whatsoever upon MC or any of MC's material properties or assets.

     SECTION 2.03 Consents and Approvals.

     (a) Subject to the accuracy of Sweet's  representations  and warranties set
forth in Section  3.01 below,  no  registration  or filing  with,  or consent or
approval of or other action by, any federal,  state or other governmental agency
or  instrumentality or any third party is or will be necessary for the Company's
valid  execution,  delivery  and  performance  of this  Agreement  and the other
Transaction  Documents to which the Company is a party, or was necessary,  as of
May 17, 2002, for the Company's issuance and delivery of the Shares,  other than
those (i) which have  previously been obtained or made or will be obtained on or
prior to the Closing Date or (ii) which are required to be made under federal or
state  securities  laws,  which will be obtained or made,  and will be effective
within the time periods required by law.

     (b) Subject to the accuracy of Sweet's  representations  and warranties set
forth in Section  3.01 below,  no  registration  or filing  with,  or consent or
approval of or other action by, any federal,  state or other governmental agency
or  instrumentality  or any third party is or will be  necessary  for MC's valid
execution,  delivery and performance of this Agreement and the other Transaction
Documents  to which MC is a party,  other than  those (i) which have  previously
been  obtained or made or will be  obtained  on or prior to the Closing  Date or
(ii) which are required to be made under federal or state securities laws, which
will be obtained or made, and will be effective within the time periods required
by law.

     SECTION 2.04 Validity.

     (a) On the Closing Date, effective as of the Effective Date, this Agreement
and each of the other Transaction Documents to which the Company is a party have
been duly executed and delivered by the Company and constitute the legal,  valid
and  binding  obligations  of the  Company  enforceable  against  the Company in
accordance  with their  terms,  except to the extent  limited by (i)  applicable
bankruptcy,  insolvency,  reorganization,  moratorium or similar laws of general
application  related to the enforcement of creditors'  rights generally and (ii)
general  principles  of  equity,  and  except  that  enforcement  of  rights  to
indemnification and contribution  contained therein and herein may be limited by
applicable  federal  or state laws or the public  policy  underlying  such laws,
regardless of whether  enforcement is considered in a proceeding in equity or at
law.

                                      -4-
<PAGE>

     (b) On the Closing Date, effective as of the Effective Date, this Agreement
and each of the other  Transaction  Documents to which MC is a party,  have been
duly executed and delivered by MC and  constitute  the legal,  valid and binding
obligations of MC, enforceable against MC in accordance with their terms, except
to the extent limited by (a) applicable bankruptcy, insolvency,  reorganization,
moratorium or similar laws of general  application related to the enforcement of
creditors'  rights generally and (ii) general  principles of equity,  and except
that enforcement of rights to indemnification and contribution contained therein
and  herein may be  limited  by  applicable  federal or state laws or the public
policy underlying such laws,  regardless of whether enforcement is considered in
a proceeding in equity or at law.

     SECTION 2.05 Authorized Capital Stock.

     (a) The Company's authorized capital stock consists of (i) 5,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), 18,000 of
which have been designated  Series A Junior  Participating  Preferred Stock, and
(ii) 30,000,000  shares of Common Stock as of the Effective Date, and 75,000,000
shares of Common Stock as of the Closing Date. As of the Effective  Date,  there
were approximately  20,916,139 shares of Common Stock (not including the Shares)
validly issued and outstanding,  fully paid and  nonassessable  and no shares of
Preferred Stock were outstanding.  In addition,  as of the Effective Date, there
were  approximately  7,062,025 shares of Common Stock reserved for issuance upon
exercise of outstanding options,  warrants or other securities  exchangeable for
or convertible into Common Stock,  1,158,125  additional  shares of Common Stock
reserved for issuance  upon  exercise of options  available  for grant under the
Company's  stock option and incentive  stock plans,  and 84,500 shares of Common
Stock held in the Company's treasury.  As of the Closing Date, the designations,
powers,  preferences,  rights,  qualifications,  limitations and restrictions in
respect of each class and series of the Company's  authorized  capital stock are
as set  forth in the  Charter  in effect as of the  Closing  Date,  and all such
designations,  powers,  preferences,  rights,  qualifications,  limitations  and
restrictions  are valid,  binding and  enforceable  and in  accordance  with all
applicable laws.  Except as set forth in the Schedule 2.05 hereto, as of October
18, 2002: (i) no subscription,  warrant, option,  convertible security, or other
right  (contingent or other) to purchase or otherwise  acquire equity securities
of the Company was authorized or outstanding  and (ii) there is no commitment by
the Company to issue shares,  subscriptions,  warrants, options,  convertible or
exchangeable securities, or other such rights or to distribute to holders of any
of its  outstanding  equity  securities any evidence of  indebtedness  or asset.
Except as set forth in Schedule  2.05  hereto,  the  Company  has no  obligation
(contingent  or other) to  purchase,  repurchase,  redeem,  retire or  otherwise
acquire any of its outstanding  equity  securities or any interest therein or to
pay any dividend or make any other  distribution in respect thereof.  Other than
as set forth  herein,  there are no voting trusts or  agreements,  stockholder's
agreements,  pledge  agreements,  buy sell agreements,  rights of first refusal,
preemptive  rights or other  similar  rights or proxies  relating  to any of the
Company's  outstanding  securities.  All of the  outstanding  securities  of the
Company  were  issued  in  compliance  with all  applicable  federal  and  state
securities laws.

                                      -5-
<PAGE>

     (b) The Shares have been duly  authorized  and, when issued,  were duly and
validly issued,  fully paid and nonassessable  shares of Common Stock. As of May
17, 2002,  the Shares were free and clear of all Liens,  charges,  restrictions,
claims and  encumbrances,  other than  restrictions on transfer  imposed by this
Agreement, the Investor Rights Agreement, the Sweet Proxy, the Securities Act of
1933, as amended (the  "Securities  Act") and applicable  state securities laws.
The  issuance,  sale or delivery of the Shares is not subject to any  preemptive
right of the  Company's  stockholders  or to any right of first refusal or other
right in favor of any Person. The consummation of the transactions  contemplated
hereunder  will not  result in any  anti-dilution  adjustment  or other  similar
adjustment to any of the Company's outstanding securities.

     SECTION 2.06 SEC Reports.

     (a) As of each of the Effective  Date and the Closing Date, the Company has
filed all forms, reports and other documents required to be filed by the Company
with the Securities and Exchange  Commission  (the "SEC") as of such dates ("SEC
Reports").  As of their  respective  dates,  all of such SEC Reports filed since
January  1, 2002 (as such  documents  have since the time of their  filing  been
amended or  supplemented,  the "Recent SEC  Reports")  complied in all  material
respects with the  requirements  of the  Securities Act and the Exchange Act, as
applicable,  and  none  of the  Recent  SEC  Reports  (including  all  financial
statements included therein and all exhibits and schedules thereto and documents
incorporated  by reference  therein)  contained (as of their  respective  filing
dates) any untrue  statement  of a material  fact or omitted to state a material
fact required to be stated therein or necessary to make the  statements  therein
in light of the circumstances under which they were made, not misleading, except
for  such  statements,  if any,  as have  been  modified  or  superseded  by any
subsequent  filings.  The Financial  Statements  comply in all material respects
with the  rules  and  regulations  of the SEC with  respect  thereto,  have been
prepared  in  accordance  with GAAP  applied on a  consistent  basis  during the
periods involved  (except as may be indicated in the notes thereto),  and fairly
present the consolidated  financial position of the Company and its Subsidiaries
as at the dates thereof and the  consolidated  results of their  operations  and
cash flows for the periods then ended.

     (b)  As of  the  date  hereof,  none  of the  Company's  Subsidiaries  is a
reporting  company  under the  Exchange  Act,  and none is  required to file any
regular and periodic filings,  notices,  forms,  reports, or statements with the
United States Department of Justice,  the Federal Trade Commission,  the NASD or
the SEC.

     (c) To the best of the  Company's  knowledge  (as such term is  defined  in
Section 9.20 below),  except as disclosed in SEC Reports,  or as contemplated by
or disclosed in this Agreement,  since January 31, 2002 (or, in the case of (vi)
below, since October 18, 2002), the Company's business has been conducted in the
ordinary course and there has not been any:

(i)  event,  situation or occurrence  that  individually or in the aggregate has
     had a Material Adverse Effect on the Company;

(ii) amendment to the Company's or any of the Company's  Subsidiaries'  charter,
     bylaws or other organizational documents;

                                      -6-
<PAGE>

(iii)sale, assignment,  disposition,  transfer, pledge, mortgage or lease of any
     material  portion of the assets  primarily  used in the Company's  business
     taken as a whole, other than to a wholly-owned subsidiary of the Company or
     in the ordinary course of business;

(iv) incurrence  of any  material  indebtedness,  other than that arising in the
     ordinary course of business, consistent with past practice;

(v)  increase  in the  compensation  or  fringe  benefits  payable  or to become
     payable  to any  executive  officer  of the  Company,  other  than  routine
     increases made in the ordinary  course of business and consistent with past
     practice or as required by law or under any existing agreements  heretofore
     disclosed to Sweet;

(vi) amendment,  alteration  or  modification  in the  terms  of  any  currently
     outstanding options, warrants or other rights to purchase any capital stock
     or equity  interest in the Company or any  securities  convertible  into or
     exchangeable for such capital stock or equity interest,  including  without
     limitation  any reduction in the exercise or  conversion  price of any such
     rights or securities,  any change to the vesting or  acceleration  terms of
     any such rights or  securities,  or any change to the terms relating to the
     grant of any such rights or securities;

(vii)declaration  or  payment  of any  dividend  or other  distribution,  or the
     transfer of any assets,  by the Company to any  stockholders of the Company
     with respect to the Common Stock,  or any  redemption,  repurchase or other
     acquisition  by the Company of its capital  stock,  except in the  ordinary
     course of business;

(viii) change by the Company in any of its  significant  accounting  principles,
     methods or practices;

(ix) material  closure,  shut down or other  elimination of any of the Company's
     offices,  franchises  or any other change in the character of its business,
     properties  or  assets,   except  for  closures,   shut  downs,   or  other
     eliminations or changes that have not had a Material  Adverse Effect on the
     Company;

(x)  loan or advance to or other such  agreement  with any of its  stockholders,
     officers,    directors,    employees,    agents,   consultants   or   other
     representatives, except in the ordinary course of business, consistent with
     past practice;

(xi) damage, destruction or loss with respect to any of the properties or assets
     of the Company that would reasonably be expected to have a Material Adverse
     Effect on the Company; or

(xii) agreement to do, cause or suffer any of the foregoing.

     SECTION 2.07  Litigation;  Compliance  with Law. Other than as set forth in
the  SEC  Reports,   there  is  no  (a)  action,  suit,  claim,   proceeding  or
investigation  pending or, to the best of the Company's  knowledge,  threatened,

                                      -7-
<PAGE>

against or adversely  affecting the Company or its properties or assets,  at law
or  in  equity,  or  before  or  by  any  federal,  state,  municipal  or  other
governmental   body,   department,   commission,   board,   bureau,   agency  or
instrumentality,  domestic or foreign, (b) arbitration proceeding pending or, to
the best of the Company's knowledge,  threatened, against or adversely affecting
the Company or its properties or assets or (c) governmental  inquiry pending or,
to the  best  of the  Company's  knowledge,  threatened,  against  or  adversely
affecting the Company or its properties or assets (including  without limitation
any inquiry as to the Company's  qualification to hold or receive any license or
permit),  except,  in the case of each of (a),  (b) and (c) above,  those  which
could not reasonably be expected to have a Material Adverse Effect,  and, to the
best of the Company's knowledge,  there is no basis for any of the foregoing. To
the best of the Company's knowledge,  the Company is not in default with respect
to any order, writ,  judgment,  injunction or decree known to or served upon the
Company of any court or of any federal,  state,  municipal or other governmental
body, department, commission, board, bureau, agency or instrumentality, domestic
or foreign  except those defaults which could not reasonably be expected to have
a Material Adverse Effect. To the best of the Company's  knowledge,  there is no
action,  suit or proceeding by the Company  pending,  threatened or contemplated
against others other than those which are immaterial in nature and instituted in
the ordinary course of business.

     SECTION 2.08 Taxes. To the best of the Company's knowledge, the Company has
filed all federal,  state,  municipal and local tax returns (whether relating to
income, sales, franchise,  withholding, real or personal property or other types
of  taxes)  required  to be  filed  under  the  laws of the  United  States  and
applicable  states  or has  duly  obtained  extensions  of time  for the  filing
thereof,  and has paid in full all taxes which have become due  pursuant to such
returns  or claimed to be due by any  taxing  authority  other than those  being
contested in good faith and, to the best of the Company's knowledge, each of the
tax returns  heretofore filed by the Company  correctly and accurately  reflects
the  amount  of its tax  liability  thereunder.  To the  best  of the  Company's
knowledge,  except as set forth on  Schedule  2.8  hereto,  the  Company has not
executed or filed with any taxing authority,  foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes and is not
a  party  to any  pending  action  or  proceeding  by any  foreign  or  domestic
governmental  agency for  assessment or  collection of taxes;  and no claims for
assessment or collection of taxes have been asserted against the Company.

     SECTION  2.09  Offering of the  Shares.  Assuming  the  accuracy of Sweet's
representations  and warranties  set forth in Section 3.01 below,  as of May 17,
2002, the Company has complied with all applicable  federal and state securities
laws in connection with the offer, issuance and sale of the Shares.  Neither the
Company nor any Person  authorized or employed by the Company as agent,  broker,
dealer  or  otherwise  has  taken or will take any  action  (including,  without
limitation,  any offer,  issuance or sale of any  security of the Company  under
circumstances  which might  require the  integration  of such  security with the
Shares under the Securities  Act or the rules and  regulations of the Commission
promulgated thereunder),  in either case so as to subject the offering, issuance
or sale of the Shares to the registration  provisions of the Securities Act, and
neither the  Company  nor any such  Person  acting on its behalf has offered the
Shares to any Person by means of general  or public  solicitation  or general or
public  advertising,  such  as  by  newspaper  or  magazine  advertisements,  by
broadcast  media, or at any seminar or meeting whose attendees were solicited by
such means.

                                      -8-
<PAGE>

     SECTION  2.10  Registration  Rights.  Except  for the  rights  specifically
granted to Sweet under the Investors Rights  Agreement,  no Person has demand or
other rights to cause the Company to file any  registration  statement under the
Securities  Act  relating  to any  securities  of the  Company  or any  right to
participate in any such registration statement,  including,  without limitation,
piggyback registration rights.

                                  ARTICLE III.

                     REPRESENTATIONS and WARRANTIES OF SWEET

Sweet  represents and warrants to the Company that, as of the Effective Date (or
in the event and in such instances as other dates are  specifically set forth in
this Article III, as of such other dates):

     SECTION 3.01 Investment Representations. As of May 17, 2002:

     (a) Sweet was an "accredited investor" within the meaning of Rule 501(a)(8)
of Regulation D under the Securities Act;

     (b) Sweet acquired the Shares for its own account for  investment  purposes
only;

     (c) Sweet  understood that (i) the issuance by the Company of the Shares to
Sweet was not registered  under the Securities Act or the securities laws of any
state,  based upon applicable  exemptions from such  registration  requirements,
(ii) the Shares are "restricted securities," as said term is defined in rule 144
of the Rules and  Regulations  promulgated  under the Securities  Act, (iii) the
Shares  may not be sold or  otherwise  transferred  unless  they have been first
registered  under the Act and all applicable  state  securities  laws, or unless
exemptions from such registration  provisions are available with respect to said
resale or transfer,  (iv) a legend to the foregoing  effect may be placed on the
certificate  or  certificates  representing  the Shares,  and (v) stop  transfer
instructions  with  respect to the  foregoing  will be placed with the  transfer
agent for the Common Stock with respect to the Shares;

     (d) Sweet  acknowledges that  representatives of Sweet have reviewed copies
of the Recent SEC  Reports  available  via EDGAR,  including  in each case,  the
exhibits thereto and all of the documents incorporated by reference therein, and
representatives  of  Sweet  have had the  opportunity  to ask  questions  of and
receive answers from  representatives of the Company concerning the business and
financial  condition  of the  Company  and  the  terms  and  conditions  of this
Agreement,  and all of such questions have been answered to the  satisfaction of
Sweet and its representatives.  Such acknowledgment,  however, shall in no event
have any impact on Sweet's right or ability to rely upon the representations and
warranties of the Company to Sweet set forth in Article II above; and

     (e) Sweet  acknowledges that the Company has relied on the  representations
contained   herein  and  that  the  statutory   basis  for  exemption  from  the
requirements  of  Section  5 of  the  Securities  Act  may  not be  present  if,
notwithstanding such representations, Sweet were acquiring the Shares for resale
or  distribution  upon the occurrence or  non-occurrence  of some  predetermined
event.

                                      -9-
<PAGE>

     SECTION  3.02  Organization;  Authorization,  Noncontravention.  Sweet is a
limited liability company duly organized,  validly existing and in good standing
under the laws of the State of California  and, as of the Closing Date, has full
limited  liability  company power and authority to execute,  deliver and perform
its obligations under this Agreement and each of the other Transaction Documents
to which it is a party. Sweet's (a) execution and delivery of this Agreement and
each of the other  Transaction  Documents to which it is a party and performance
of its  obligations  hereunder  and  thereunder,  and (b) sale,  assignment  and
transfer of the Sweet Interest in Unzipped, have all been duly authorized by all
requisite  limited liability company action, in the case of (a) above, as of the
Closing Date, and in the case of (b) above,  as of the Effective  Date, and will
not (i)  result  in a  violation  of the  Limited  Liability  Company  Operating
Agreement of Sweet in effect as of, in the case of (a) above,  the Closing Date,
and in the case of (b) above,  the Effective Date, (ii) result in a violation of
any  applicable  law, rule or  regulation,  or any material  order,  injunction,
judgment or decree of any court or other agency of  government,  (iii)  conflict
with, result in a breach of, or constitute (or, with due notice or lapse of time
or both,  would  constitute)  a  default  under,  or give  rise to any  right of
termination,   acceleration  or  cancellation  under,  any  material  indenture,
agreement,   contract,   license,   arrangement,   understanding,   evidence  of
indebtedness,  note,  lease or  other  instrument  to which  Sweet or any of its
properties  or assets is bound,  or (iv) result in the creation or imposition of
any material  Lien,  charge,  restriction,  claim or  encumbrance  of any nature
whatsoever upon Sweet or any of Sweet's material properties or assets.

     SECTION 3.03 Validity.  This Agreement and the other Transaction  Documents
to which Sweet is a party have been duly  executed and  delivered by Sweet as of
the Closing Date,  effective as of the Effective Date, and constitute the legal,
valid and binding obligations of Sweet,  enforceable against Sweet in accordance
with their terms,  except to the extent  limited by (a)  applicable  bankruptcy,
insolvency,  reorganization,  moratorium or similar laws of general  application
related to the  enforcement  of  creditors'  rights  generally  and (b)  general
principals of equity,  and except that enforcement of rights to  indemnification
and  contribution  contained  therein  and herein  may be limited by  applicable
federal or state laws or the public policy  underlying such laws,  regardless of
whether enforcement is considered in a proceeding in equity or at law.

     SECTION 3.04 Consents and  Approvals.  No  registration  or filing with, or
consent  or  approval  of or  other  action  by,  any  federal,  state  or other
governmental  agency  or  instrumentality  or any  third  party  is or  will  be
necessary  for  Sweet's  valid  execution,  delivery  and  performance  of  this
Agreement and the other  Transaction  Documents  other than those (a) which have
previously  been obtained or made or will be obtained on or prior to the Closing
Date (b) those which are required to be made under  federal or state  securities
laws,  which will be obtained  or made,  and will be  effective  within the time
periods required by law.

     SECTION 3.05 Unencumbered  Title. At all times prior to the Effective Date,
Sweet was the sole owner of the Sweet Interest and had no equity-related  rights
in or to and no ownership interest in Unzipped other than the Sweet Interest. On
the Effective  Date, all of the Sweet Interest was transferred to MC pursuant to
the  terms  and  conditions  of the  Term  Sheet  (as  modified,  clarified  and
superseded on the Closing Date, effective as of the Effective Date, by the terms

                                      -10-
<PAGE>

and  conditions  of this  Agreement).  At the time of such  transfer,  the Sweet
Interest was not subject to any Lien, charge, restriction,  claim or encumbrance
or  to  any  option,  warrant  or  right  (collectively,   "Encumbrances")  that
restricted  Sweet  from  transferring  good and  marketable  title to the  Sweet
Interest to MC, free and clear of any  Encumbrances.  Following Sweet's transfer
of the Sweet Interest to MC, Sweet has not had any  equity-related  rights in or
to and no ownership interest in Unzipped.

     SECTION 3.06 Financial Statements of Unzipped.

     (a) Sweet hereby  represents  and warrants to the Company that the Unzipped
Financial  Statements  have been prepared in  accordance  with GAAP applied on a
consistent  basis during the periods involved (except as may be indicated in the
notes  thereto)  and,  as of the  dates  thereof,  (A)  the  Unzipped  Financial
Statements  were to the best of Sweet's  knowledge,  as defined in Section  9.20
below,  true and accurate in all  material  respects  and fairly  presented  the
financial  position  of  Unzipped  as of  such  dates  and  the  results  of its
operations  and cash flows for the periods  then ended,  and (B) Unzipped had no
liabilities (including off balance sheet liabilities),  contingent or otherwise,
which  were  material  individually  or in  the  aggregate,  except  liabilities
provided for or reserved against in the Unzipped Financial Statements.

     (b) To the best of Sweet's  knowledge,  except as described in the Unzipped
Financial  Statements,  since  January 31,  2002,  Unzipped's  business has been
conducted in the ordinary course, and there has not been any:

          (i)  event,  situation  or  occurrence  that  individually  or in  the
               aggregate has had a Material Adverse Effect on Unzipped;

          (ii) sale,  assignment,  disposition,  transfer,  pledge,  mortgage or
               lease of any  material  portion of the assets  primarily  used in
               Unzipped's business taken as a whole;

          (iii)incurrence  of any  liabilities  or  indebtedness,  contingent or
               otherwise,  which are material  individually or in the aggregate,
               other than  those  arising in the  ordinary  course of  business,
               consistent with past practice;

          (iv) material   change  in  the  character  of  Unzipped's   business,
               properties  or  assets,  except for  changes  that have not had a
               Material Adverse Effect on Unzipped;

          (v)  damage, destruction or loss with respect to any of the properties
               or assets of Unzipped that would reasonably be expected to have a
               Material Adverse Effect on Unzipped; or

          (vi) agreement to do, cause or suffer any of the foregoing.

     SECTION 3.07  Litigation;  Compliance  with Law. Other than as set forth in
Schedule  3.07  hereto,  there is no (a)  action,  suit,  claim,  proceeding  or
investigation pending or, to the best of Sweet's knowledge,  threatened, against
or  adversely  affecting  Unzipped  or its  properties  or assets,  at law or in
equity,  or before or by any federal,  state,  municipal  or other  governmental
body, department, commission, board, bureau, agency or instrumentality, domestic

                                      -11-
<PAGE>

or  foreign,  (b)  arbitration  proceeding  pending  or, to the best of  Sweet's
knowledge, threatened, against or adversely affecting Unzipped or its properties
or  assets  or (c)  governmental  inquiry  pending  or,  to the best of  Sweet's
knowledge, threatened, against or adversely affecting Unzipped or its properties
or  assets  (including  without  limitation  any  inquiry  as to the  Unzipped's
qualification to hold or receive any license or permit),  except, in the case of
each of (a), (b) and (c) above,  those which could not reasonably be expected to
have a Material Adverse Effect, and, to the best of Sweet's knowledge,  there is
no basis for any of the foregoing. To the best of Sweet's knowledge, Unzipped is
not in default with respect to any order, writ,  judgment,  injunction or decree
known  to or  served  upon  Unzipped  of any  court  or of any  federal,  state,
municipal or other governmental body,  department,  commission,  board,  bureau,
agency or instrumentality, domestic or foreign except those defaults which could
not  reasonably be expected to have a Material  Adverse  Effect.  To the best of
Sweet's knowledge,  there is no action,  suit or proceeding by Unzipped pending,
threatened or contemplated against others.

     SECTION 3.08 Taxes.  To the best of Sweet's  knowledge,  Unzipped has filed
all federal, state, municipal and local tax returns (whether relating to income,
sales,  franchise,  withholding,  real or  personal  property  or other types of
taxes)  required to be filed under the laws of the United States and  applicable
states or has duly obtained  extensions of time for the filing thereof,  and has
paid in full all taxes which have become due pursuant to such returns or claimed
to be due by any  taxing  authority  other than those  being  contested  in good
faith, and, to the best of Sweet's knowledge, each of the tax returns heretofore
filed by  Unzipped  correctly  and  accurately  reflects  the  amount of its tax
liability  thereunder.  To the  best  of  Sweet's  knowledge,  Unzipped  has not
executed or filed with any taxing authority,  foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes and is not
a  party  to any  pending  action  or  proceeding  by any  foreign  or  domestic
governmental  agency for  assessment or  collection of taxes;  and no claims for
assessment or collection of taxes have been asserted against Unzipped.

     SECTION 3.09 Acknowledgement  Regarding Intellectual Property. Sweet 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 MC, as  transferors,  and IP Holdings,  as transferee (as amended or
modified from time to time, the "Capital Contribution Agreement").

                                  ARTICLE IV.

                              CONDITIONS TO CLOSING

     SECTION 4.01  Conditions  to Sweet's  Obligations  at the Closing.  Sweet's
obligations under this Agreement are subject to the  satisfaction,  on or before
the Closing  Date, of the  following  conditions,  any of which may be waived in
whole or in part by Sweet:

     (a) Opinions of Company's Counsel. Sweet shall have received (i) from Blank
Rome Tenzer  Greenblatt  LLP,  counsel  for the  Company,  an opinion  dated the
Closing  Date that the Shares were duly  authorized  and validly  issued and are
fully paid and  non-assessable  and (ii) an opinion  of Deborah  Sorrell  Stehr,
in-house  counsel for the Company,  as to the due  authorization,  execution and
delivery of this Agreement and the other Transaction Documents, in substantially
the forms set forth in Exhibit H hereto.

                                      -12-
<PAGE>

     (b)   Representations   and   Warranties  to  be  True  and  Correct.   The
representations  and  warranties  of the Company and MC  contained in Article II
shall be true, complete and correct at and as of the Closing Date, with the same
effect as though such  representations and warranties had been made on and as of
such date.

     (c)  Performance.  Each of the  Company  and MC shall  have  performed  and
complied in all material  respects with all agreements  and covenants  contained
herein  required  to be  performed  or  complied  with by it  prior to or at the
Closing Date.

     (d) All Proceedings to be Satisfactory. All corporate and other proceedings
to be taken by the  Company in  connection  with the  transactions  contemplated
hereby and all documents  incident thereto,  including without  limitation,  the
Company obtaining all necessary approvals from the Board,  including an approval
of the transactions  contemplated  hereby in satisfaction of the requirements of
Section 203 of the General  Corporation  Law of the State of Delaware,  shall be
satisfactory  in form and  substance  to Sweet and its counsel and Sweet and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.

     (e)  Approvals.  Each of the Company and MC shall have obtained any and all
consents, waivers,  registrations,  approvals or authorizations,  with or by any
governmental body and all consents,  waivers, approvals or authorizations of any
other Person  required for the valid execution of this Agreement and each of the
other  Transaction  Documents to which it is a party and for the consummation of
the transactions contemplated hereby and thereby.

     (f) No  Injunction.  No  governmental  body or any other  Person shall have
issued an order, injunction,  judgment, decree, ruling or assessment which shall
then be in effect  restraining or prohibiting the completion of the transactions
contemplated hereby or under any of the other Transaction Documents,  nor, shall
any such order,  injunction,  judgment,  decree, ruling or assessment be pending
or, to the Company's knowledge, threatened.

     (g)  Deliveries.  The  Company  shall have  delivered  each of the  closing
deliveries identified in Section 1.03(a) hereof.

     (h)  Indemnification   Agreement.  The  Company  shall  have  executed  and
delivered  to Hubert Guez an  Indemnification  Agreement,  in the form  attached
hereto as Exhibit I.

     (i) Supporting Documents.  Sweet and its counsel shall have received copies
of the following documents:

          (i)  (A) the Charter,  certified as of a recent date by the  Secretary
               of State of the State of Delaware and (B) a  certificate  of said
               Secretary  dated  as of a  recent  date as to the  Company's  due
               incorporation  and good standing and the Company's payment of all
               franchise taxes, and listing all documents of the Company on file
               with said Secretary;

                                      -13-
<PAGE>

          (ii) a certificate of the Company's  Secretary dated the Closing Date,
               certifying:  (A) that  attached  thereto is a true,  correct  and
               complete  copy of the  Bylaws  as in  effect  on the date of such
               certification  and that no  amendments or  modifications  to such
               Bylaws have been authorized; (B) that attached thereto is a true,
               correct and complete copy of all resolutions adopted by the Board
               authorizing  the execution,  delivery and  performance of each of
               the Transaction  Documents,  MC's purchase of the Sweet Interest,
               and the issuance,  sale and delivery of the Shares,  and that all
               such  resolutions  are in full  force and  effect,  have not been
               amended,  modified  or  rescinded  and are the  only  resolutions
               adopted  by  the  Board  in  connection  with  the   transactions
               contemplated by the Transaction  Documents;  (C) that the Charter
               has  not  been  amended  since  the  date of the  last  amendment
               referred  to in the  certificate  delivered  pursuant  to  clause
               (i)(A)  above;  and (D) to the  incumbency of each officer of the
               Company  executing any of the  Transaction  Documents,  the stock
               certificates  representing  the  Shares  and any  certificate  or
               instrument  furnished  pursuant  thereto,  and a certification by
               another  authorized  officer of the Company as to the  incumbency
               and signature of the officer signing the certificate  referred to
               in this clause (ii);

          (iii)a certificate,  executed by an officer of the Company,  dated the
               Closing  Date,  certifying  to the  fulfillment  of the  specific
               conditions  set forth in Sections  4.01(b) and 4.01(c) hereto and
               to the  fulfillment of all of the conditions in this Section 4.01
               in general; and

          (iv) such additional  supporting  documents and other information with
               respect to the Company's  operations  and affairs as Sweet or its
               counsel  reasonably  may  request.  All such  documents  shall be
               satisfactory in form and substance to Sweet and its counsel.

     SECTION  4.02  Conditions  to the  Company's  and MC's  Obligations  at the
Closing. The Company's and MC's obligations under this Agreement, are subject to
the  satisfaction,  on or before the Closing Date, of the following  conditions,
any of which may be waived in whole or in part by the Company and MC:

     (a) Opinion of Sweet's Counsel. The Company and MC shall have received from
Deborah Greaves,  in-house counsel for Sweet, an opinion dated the Closing Date,
as to the due  authorization,  execution and delivery of this  Agreement and the
other Transaction Documents, in substantially the form set forth in Exhibit J.

     (b)   Representations   and   Warranties  to  be  True  and  Correct.   The
representations  and warranties of Sweet contained in Article III shall be true,
complete  and  correct at and as of the  Closing  Date,  with the same effect as
though such representations and warranties had been made on and as of such date.

     (c)  Performance.  Sweet shall have  performed and complied in all material
respects with all  agreements  and  covenants  contained  herein  required to be
performed or complied with by it prior to or at the Closing Date.

                                      -14-
<PAGE>

     (d) All Proceedings to be Satisfactory. All corporate and other proceedings
to be taken by Sweet in connection with the transactions contemplated hereby and
all documents incident thereto,  including without  limitation,  Sweet obtaining
all necessary approvals from its members and/or managers,  shall be satisfactory
in form and  substance  to the  Company  and its counsel and the Company and its
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they reasonably may request.

     (e)  Deliveries.  Sweet shall have  delivered  to the  Company  each of the
closing deliveries identified in Section 1.03(b), hereof.

     (f)  Approvals.  Sweet shall have obtained any and all  consents,  waivers,
registrations, approvals or authorizations, with or by any governmental body and
all consents,  waivers, approvals or authorizations of any other Person required
for the valid  execution  of this  Agreement  and each of the other  Transaction
Documents and for the consummation of the transactions  contemplated  hereby and
thereby.

     (g) No  Injunction.  No  governmental  body or any other  Person shall have
issued an order, injunction,  judgment, decree, ruling or assessment which shall
then be in effect  restraining or prohibiting the completion of the transactions
contemplated hereby or under any of the other Transaction Documents,  nor, shall
any such order, injunction, judgment, decree, ruling or assessment be threatened
or pending.

     (h) Supporting  Documents.  The Company and its counsel shall have received
copies of the following documents:

          (i)  certificate   of  Sweet's   Manager   dated  the  Closing   Date,
               certifying:  (A) that  attached  thereto is a true,  correct  and
               complete copy of all  resolutions  adopted by the members  and/or
               managers  of  Sweet  authorizing  the  execution,   delivery  and
               performance  of  each  of  the  Transaction   Documents  and  the
               transfer,  sell and  assignment of the Sweet  Interest to MC, and
               that all such resolutions are in full force and effect,  have not
               been amended,  modified or rescinded and are the only resolutions
               adopted in connection with the  transactions  contemplated by the
               Transaction Documents;  and (B) to the incumbency of each officer
               or manager of Sweet  executing any of the  Transaction  Documents
               and any certificate or instrument furnished pursuant thereto, and
               a certification by another authorized officer or manager of Sweet
               as to the  incumbency  and  signature of the officer  signing the
               certificate referred to in this clause (i) certificate;

          (ii) certificate,  executed by an officer of Sweet,  dated the Closing
               Date,  certifying to the  fulfillment of the specific  conditions
               set forth in  Sections  4.02(b)  and  4.02(c)  hereto  and to the
               fulfillment  of all of the  conditions  in this  Section  4.02 in
               general; and

          (iii)such additional  supporting  documents and other information with
               respect to Sweet's and  Unzipped's  operations and affairs as the
               Company or its counsel reasonably may request. All such documents
               shall be  satisfactory  in form and  substance to the Company and
               its counsel.

                                      -15-
<PAGE>

                                   ARTICLE V.

                            COVENANTS OF THE COMPANY

                The Company covenants and agrees with Sweet that:

     SECTION 5.01 Directors and Officers  Insurance.  The Company shall maintain
customary  directors  and officers  liability  insurance  and shall at all times
maintain and exercise the powers granted to it by its Charter,  its Bylaws,  and
by applicable law to indemnify and hold harmless to the fullest extent permitted
by  applicable  law  present or former  directors  and  officers  of the Company
against  any   threatened  or  actual  claim,   action,   suit,   proceeding  or
investigation made against them arising from their service in such capacities.

     SECTION 5.02 Board  Rights.  Until the later of (i) the  expiration  and/or
termination  of the  Management  Agreement,  (ii) such date as the Note has been
repaid in full, or (iii) such date as Sweet and/or Sweet's Permitted Transferees
(as defined in Section  6.01 hereof)  shall cease to own all of the Shares,  the
Company  shall  recommend  and  include  Hubert  Guez on the  slate of  director
nominees  included  in the  Company's  proxy  statements  soliciting  proxies in
connection with the Annual Meeting of  Shareholders  relating to the election of
directors,  unless the  Company has  reasonable  grounds  for  objecting  to his
continuance  as a director in which case Sweet shall have the right to designate
a replacement nominee satisfactory to the Company.

     SECTION 5.03  Expenses of Director.  The Company shall  promptly  reimburse
Hubert  Guez,  or, in the event a  replacement  nominee  designated  by Sweet is
elected  as a member  of the  Company's  Board of  Directors,  such  replacement
nominee, in full for all of his reasonable  out-of-pocket expenses incurred as a
member of the  Company's  Board of Directors  in  attending  each meeting of the
Board or any committee thereof.

     SECTION 5.04 Payment of Azteca  Receivables/Debt;  Release of Azteca. On or
prior to February 1, 2003, the Company shall:

     (a) remit  payment to Azteca  for all  receivables  due to Azteca  from the
Company and/or Unzipped which are or will be greater than 30 days past due as of
February 1, 2003;

     (b) pay or cause Unzipped to pay to Azteca all amounts (including principal
and interest)  outstanding as of such payment date under that certain commercial
loan note, dated as of March 15, 2002, by Unzipped in favor of Azteca; and

     (c)  obtain  from  Congress  Financial  a  release,  in form and  substance
reasonably  satisfactory  to Sweet,  of Sweet,  Hubert Guez,  Azteca and each of
their  respective  Affiliates  from any  obligations to Congress  Financial with
respect  to  Unzipped's  line of  credit  with  Congress  Financial  dated as of
December 21, 1998, including any of their obligations as guarantors thereunder.

     The  Company  hereby  expressly  acknowledges  that Azteca is a third party
beneficiary to the provisions of this Section 5.04.

                                      -16-
<PAGE>

     SECTION 5.05 Compliance with Law; Corporate  Existence.  The Company shall,
and shall cause each of its  Subsidiaries to (subject,  in the case of Unzipped,
to  Sweet's  compliance  with the  provisions  of  Section  8 of the  Management
Agreement),  comply in all material  respects with all applicable  laws,  rules,
statutes,  regulations,  decrees and orders of, and all applicable  restrictions
imposed by, all  governmental  bodies,  domestic  or foreign,  in respect of the
conduct of their  business  and the  ownership  of their  property  except where
failure to comply could not  reasonably  be expected to have a Material  Adverse
Effect.  The  Company  shall  do or cause to be done  all  things  necessary  to
preserve  and keep in full  force and effect  its or its  successor's  corporate
existence  and the  corporate,  partnership  or other  existence  of each of its
Subsidiaries  in  accordance  with  the  respective  charter  documents  of such
Subsidiary  (charter and statutory),  licenses and franchises of the Company and
each of its  Subsidiaries,  provided,  however,  that the  Company  shall not be
required to preserve any such right,  license or  franchise,  or the  corporate,
partnership or other existence of any Subsidiary,  if the Board shall determine,
in the exercise of business judgment, that the preservation thereof is no longer
desirable  in the conduct of the  business  of the Company and its  Subsidiaries
taken as a whole, and the loss thereof would not have a Material Adverse Effect.

                                  ARTICLE VI.

                               COVENANTS OF SWEET

     SECTION  6.01  Restrictions  on  Transfer.  Without in any way limiting the
representations  set forth above in Section  3.01,  Sweet shall abide by each of
the following transfer restrictions:

     (a)  Sweet  shall not make any  disposition  of all or any  portion  of the
Shares at any time (i) unless and until  there is then in effect a  registration
statement  under the Securities Act covering such proposed  disposition and such
disposition  is made in accordance  with such  registration  statement,  or (ii)
Sweet shall have notified the Company of the proposed disposition and shall have
furnished  the Company with a statement  of the  circumstances  surrounding  the
proposed disposition,  and with an opinion of counsel that such disposition will
not require  registration of such  securities  under the Securities Act; and

     (b) Sweet  shall not make any  disposition  of all or any  portion of the A
Shares until April 23, 2003, except (i) to one of Sweet's current members,  (ii)
to the estate of any such  member,  or (iii) for the  transfer by gift,  will or
intestate  succession  by  any  such  member  to his or  her  spouse  or  lineal
descendants  or  ancestors  or  any  trust  for  any of the  foregoing  (each  a
"Permitted  Transferee"),  who has  executed  and  delivered  to the  Company  a
transfer  restriction  agreement  in the  form  attached  hereto  as  Exhibit  K
("Transfer Restriction Agreement for A Shares"); and

     (c) Sweet  shall not make any  disposition  of all or any  portion of the B
Shares until April 23, 2004,  except to Permitted  Transferees in the manner set
forth in Section  6.01(b) above,  each of whom has executed and delivered to the
Company a transfer restriction  agreement in the form attached hereto as Exhibit
L ("Transfer Restriction Agreement for B Shares").

                                      -17-
<PAGE>

     SECTION 6.02 Voting Restriction. Sweet shall be bound by and subject to the
voting restrictions relating to the Shares set forth in the Sweet Proxy, and, in
addition to any transfer  restrictions  set forth in Section 6.01 above,  if the
transfer of Shares by Sweet is to a transferee  that is (i) an officer,  manager
or member of Sweet, (ii) an affiliate of Sweet or any of the persons or entities
set forth in (i) above, or (iii) a family member of any of the persons set forth
in (i) or (ii)  above  (each,  an  "Affiliated  Transferee"),  Sweet  shall not,
without the prior written consent of the Company,  dispose of all or any portion
of such Shares,  unless such Affiliated  Transferee executes and delivers to the
Company a proxy in the form attached hereto as Exhibit M ("Transferee Proxy").

     SECTION 6.03 Legends.  Sweet acknowledges that the certificates  evidencing
the Shares will bear the legends set forth below:

     (a)  Securities Act Legend.

          THE  SECURITIES   REPRESENTED  BY  THIS   CERTIFICATE  HAVE  NOT  BEEN
          REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE
          SOLD, TRANSFERRED,  PLEDGED,  HYPOTHECATED OR OTHERWISE DISPOSED OF IN
          THE  ABSENCE  OF (I) AN  EFFECTIVE  REGISTRATION  STATEMENT  FOR  SUCH
          SECURITIES  UNDER SAID ACT OR (II) AN OPINION OF COMPANY  COUNSEL THAT
          SUCH REGISTRATION IS NOT REQUIRED.

The legend set forth above shall be removed by the Company from any  certificate
evidencing Shares, and the Company shall issue a certificate without such legend
to the holder thereof,  if the holder receives an opinion of counsel  reasonably
satisfactory  to the Company  (which may be counsel for the Company) that all of
the Shares may be freely  transferred  in a public sale  (without  limitation or
restriction  as to  quantity  or  timing  and  without  registration  under  the
Securities  Act) under  rule  144(k)  promulgated  under the  Securities  Act or
otherwise.

     (b)  Contractual Restrictions Legend.

          THE TRANSFER AND VOTING OF THE SHARES  REPRESENTED BY THIS CERTIFICATE
          ARE  SUBJECT  TO  CERTAIN  CONTRACTUAL  RESTRICTIONS  AGREED TO BY THE
          HOLDER  OF  THIS  CERTIFICATE  AND  CANDIE'S  INC.  AND A COPY OF SUCH
          RESTRICTIONS ARE AVAILABLE AT THE OFFICES OF CANDIE'S, INC.

The legend set forth above shall be removed by the Company from any  certificate
evidencing Shares, and the Company shall issue a certificate without such legend
to the  holder  thereof,  if the  holder  receives  an opinion of counsel to the
Company that none of the contractual  restrictions referred to in the legend are
applicable to any of the Shares evidenced by such certificate.

                                      -18-
<PAGE>

                                  ARTICLE VII.

                            SURVIVAL; INDEMNIFICATION

     SECTION   7.01   Survival   of   Representations   and   Warranties.    All
representations  and warranties of the parties  contained in or made pursuant to
this Agreement or in any certificate or instrument  delivered  pursuant to or in
connection  with this Agreement  shall survive the execution and delivery of all
of the Transaction Documents and the issuance,  sale and delivery of the Shares,
provided,  however,  that, other than the  representations and warranties in the
first  sentence of Section  2.05(b) and those in  Sections  2.08,  3.01 and 3.08
hereof which shall survive the Closing for the  applicable  period of time under
the  statute  of  limitations  for the  matters  described  therein,  the  other
representations  and  warranties  of the  parties  set forth  herein  shall only
survive the Closing for a period of one year.

     SECTION 7.02  Indemnification by the Company.(a) Subject to the limitations
of Section 7.02(b) below, the Company shall indemnify,  defend and hold harmless
Sweet and its  members  (and each  officer  and  director  thereof),  directors,
managers,  officers,  employees,   Affiliates,  agents  and  permitted  assigns)
(collectively, "Indemnified Sweet Parties") from and against any and all losses,
claims,  liabilities,  damages,  deficiencies,  costs  or  expenses  (including,
without   limitation,   interest,   penalties,   reasonable   attorneys'   fees,
disbursements  and related charges and any costs or expenses that an Indemnified
Sweet  Party  incurs to  enforce  its right to  indemnification)  (collectively,
"Indemnified Sweet Parties' Losses"),  any of them may sustain,  suffer or incur
and which arise out of, are caused by, or result or occur in connection with any
material misrepresentation of a material fact contained in any representation of
the Company  contained  herein or the breach by the  Company of any  warranty or
covenant made by the Company herein.

     (b) The Company shall not be obligated to indemnify the  Indemnified  Sweet
Parties unless and until the  Indemnified  Sweet Parties' Losses equal or exceed
$100,000  (the  "Sweet  Basket  Amount"),  in which  case the  Company  shall be
obligated  to  indemnify  the  Indemnified  Sweet  Parties for the excess of the
aggregate amount of all Indemnified  Sweet Parties' Losses over the Sweet Basket
Amount. Notwithstanding anything contained herein to the contrary, the Company's
liability   for   indemnity   under  this  Section  7.02  shall  be  limited  to
$17,0500,000.

     SECTION 7.03  Indemnification  by Sweet.(a)  Subject to the  limitations of
Section  7.03(b)  below,  Sweet shall  indemnify,  defend and hold  harmless the
Company and its subsidiaries (and each officer and director thereof), directors,
officers,  stockholders,  employees,  Affiliates,  agents and permitted assigns)
(collectively,  "Indemnified  Company  Parties")  from and  against  any and all
losses,  claims,   liabilities,   damages,   deficiencies,   costs  or  expenses
(including, without limitation, interest, penalties, reasonable attorneys' fees,
disbursements  and related charges and any costs or expenses that an Indemnified
Company  Party  incurs to enforce its right to  indemnification)  (collectively,
"Indemnified Company Parties' Losses"), any of them may sustain, suffer or incur
and which arise out of, are caused by, or result or occur in connection with any
material misrepresentation of a material fact contained in any representation of
Sweet  contained  herein or the breach by Sweet of any warranty or covenant made
by Sweet herein.

                                      -19-
<PAGE>

     (b) Sweet shall not be  obligated  to  indemnify  the  Indemnified  Company
Parties unless and until the Indemnified Company Parties' Losses equal or exceed
$100,000 (the "Company Basket  Amount"),  in which case Sweet shall be obligated
to indemnify  the  Indemnified  Company  Parties for the excess of the aggregate
amount of all  Indemnified  Company  Parties'  Losses  over the  Company  Basket
Amount.  Notwithstanding  anything  contained  herein to the  contrary,  Sweet's
liability for indemnity  under this Section 7.03 shall be limited to $17,000,000
and may be offset against amounts outstanding under the Note.

     SECTION 7.04 Procedure for Indemnification.  If a claim by a third party is
made against any party or parties  hereto and the party or parties  against whom
said claim is made intends to seek  indemnification  with respect  thereto under
Sections 7.02 or 7.03 hereof, the party or parties seeking such  indemnification
shall promptly notify the  indemnifying  party or parties,  in writing,  of such
claim; provided,  however, that the failure to give such notice shall not affect
the rights of the indemnified party or parties  hereunder,  except to the extent
that such failure  materially and adversely  affects the  indemnifying  party or
parties due to the  inability  to timely  defend such action.  The  indemnifying
party or parties shall have ten (10) business days after said notice is given to
elect,  by  written  notice  given  to the  indemnified  party  or  parties,  to
undertake,  conduct and control,  through counsel of their own choosing (subject
to the  consent of the  indemnified  party or  parties,  such  consent not to be
unreasonably  withheld)  and at their  sole  risk and  expense,  the good  faith
settlement or defense of such claim, and the indemnified  party or parties shall
cooperate with the indemnifying parties in connection therewith;  provided:  (a)
all settlements  require the prior reasonable  consultation with the indemnified
party and the prior  written  consent of the  indemnified  party,  which consent
shall not be unreasonably  withheld,  and (b) the  indemnified  party or parties
shall be entitled to participate in such  settlement or defense  through counsel
chosen by the indemnified party or parties,  provided that the fees and expenses
of  such  counsel  shall  be  borne  by  the   indemnified   party  or  parties.
Notwithstanding  the  foregoing,  with  respect to any  third-party  claim,  the
defense,  negotiation  or settlement of which the  indemnifying  party has taken
control,  the indemnified  party shall have the right to retain separate counsel
to represent it, and the  indemnifying  party shall pay the reasonable  fees and
expenses of such  separate  counsel,  if the  third-party  claim  includes  both
indemnifying  and  indemnified  parties  and the  indemnified  party  reasonably
determines  that a conflict of interest may exist or that defenses are available
to  it  that  are  unavailable  to  the  indemnifying  party.  So  long  as  the
indemnifying  party or parties are contesting any such claim in good faith,  the
indemnified  party or parties shall not pay or settle any such claim;  provided,
however,  that  notwithstanding the foregoing,  the indemnified party or parties
shall have the right to pay or settle any such claim at any time,  provided that
in such event  they shall  waive any right of  indemnification  therefor  by the
indemnifying party or parties.  If the indemnifying party or parties do not make
a timely election to undertake the good faith defense or settlement of the claim
as aforesaid, or if the indemnifying parties fail to proceed with the good faith
defense or settlement of the matter after making such election,  then, in either
such event,  the  indemnified  party or parties shall have the right to contest,
settle or compromise  (provided that all settlements or compromises  require the
prior reasonable  consultation with the indemnifying party and the prior written
consent of the  indemnifying  party,  which  consent  shall not be  unreasonably
withheld) the claim at their  exclusive  discretion,  at the risk and expense of
the indemnifying parties.

                                      -20-
<PAGE>

     SECTION  7.05  Assistance.  Regardless  of which party is  controlling  the
defense of any  claim,  each  party  shall act in good  faith and shall  provide
reasonable documents and cooperation to the party handling the defense.

     SECTION 7.06 Other  Remedies.  The provisions of this Article VII shall not
limit or impair any right or remedy of either Sweet or the Company  arising from
breach of this  Agreement.  In  addition  to any other  remedy  provided by law,
injunctive  relief may be  obtained  by either  party to enjoin the  breach,  or
threatened  breach, of any provision of this Agreement and either party shall be
entitled to specific performance by the other of its obligations hereunder.  All
of a party's  remedies  under  this  Agreement,  by law or as may  otherwise  be
afforded, shall be cumulative.

                                 ARTICLE VIII.

                         RELEASE OF CERTAIN LIABILITIES

     SECTION 8.01 The  Release.  Each of the  Company,  MC and  Unzipped  hereby
releases and forever discharges Sweet and its officers, directors, employees and
members,  solely in their  capacities  as such (each a "Sweet  Representative"),
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings,  bonds, bills,  specialties,  controversies,  agreements,  promises,
variances,  trespasses,  damages,  liabilities,  judgments, extents, executions,
claims and demands  whatsoever,  in law or equity,  which the Company, MC and/or
Unzipped ever had, now has or hereafter  can, shall or may have against Sweet or
a Sweet  Representative,  arising  out of Sweet's  obligations  with  respect to
Unzipped  (whether to Unzipped or to third  parties),  from the beginning of the
world to the Closing Date (collectively,  "Claims"),  other than any such Claims
arising from the fraud,  willful  misconduct,  or gross negligence of Sweet or a
Sweet  Representative  and  provided  that no  release is given  hereunder  with
respect to any  obligation,  representation,  warranty or covenant (or any Claim
arising  therefrom)  of  Sweet  or a  Sweet  Representative  contained  in  this
Agreement or any other Transaction Document.

     SECTION 8.02 Statutory Waiver

     (a) Each of the Company,  MC and Unzipped hereby  warrants,  represents and
agrees that it is fully aware of the provisions of California Civil Code Section
1542, which provides as follows:

          "A general  release does not extend to claims which the creditor  does
          not know or suspect to exist in his favor at the time of executing the
          release,  which  if known by him must  have  materially  affected  his
          settlement with the debtor."

     (b) Each of the Company and Unzipped  knowingly and voluntarily  waives the
provisions of  California  Civil Code Section  1542,  and any other  statutes or
common law principle of similar effect, as to any and all Claims, other than any

                                      -21-
<PAGE>

such Claims arising from (i) the fraud, willful misconduct,  or gross negligence
of  Sweet or a Sweet  Representative  or (ii)  any  obligation,  representation,
warranty  or  covenant  of Sweet  or a Sweet  Representative  contained  in this
Agreement or any other Transaction Document.

                                   ARTICLE IX.

                                  Miscellaneous

     SECTION 9.01 Expenses.  The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Shares.

     SECTION 9.02 Brokerage.  Each party hereto will indemnify and hold harmless
the  others  against  and in  respect  of  any  claim  for  brokerage  or  other
commissions  relative  to this  Agreement  or to the  transactions  contemplated
hereby,  based in any way on agreements,  arrangements or understandings made or
claimed to have been made by such party with any third party.

     SECTION  9.03  Parties  in  Interest.   All  representations,   warranties,
covenants and  agreements  contained in this Agreement by or on behalf of any of
the  parties  hereto  shall  bind and  inure to the  benefit  of the  respective
successors and assigns of the parties hereto whether so expressed or not. Except
as set  forth in  Sections  5.04,  7.02 and 7.03  above and as  provided  below,
nothing in this  Agreement  shall create or be deemed to create any  third-party
beneficiary  rights in any Person not a party to this Agreement.  Whether or not
any express  assignment  has been made,  the provisions of the first sentence of
Section  2.05(b) and Section 2.10 of this  Agreement,  each of which are for the
benefit of Sweet as a holder of Shares (or any  securities for which such Shares
may be converted or exchanged),  are also for the benefit of and enforceable (to
the same extent such  provisions  would have been  enforceable  by Sweet) by any
subsequent  holder of such  Shares who (a) is a  Permitted  Transferee,  (b) has
agreed in  writing  with the  Company  to be bound by the terms of Article VI of
this Agreement to the same extent as if the transferee were Sweet hereunder, and
(c)  acquires at least  500,000 of the Shares.  Without the consent of the other
parties to this  Agreement,  this  Agreement  may not be  assigned  by any party
hereto.

     SECTION  9.04  Specific  Performance.  Each party hereto  acknowledges  and
agrees  that the  other  parties  hereto  would be  irreparably  damaged  if any
provision of this  Agreement is not  performed in  accordance  with its specific
terms or is otherwise breached.  Accordingly,  each party hereto agrees that the
other parties hereto will be entitled to an injunction or injunctions to prevent
breaches of the  provisions of this Agreement and to  specifically  enforce this
Agreement and its terms and provisions in any action  instituted in any court of
the United States or any state thereof having  jurisdiction  over the parties in
the matter  subject to Sections  8.06 and 8.08 hereof,  in addition to any other
remedy to which they may be entitled, at law or in equity.

     SECTION 9.05 Further  Assurances.  The Company and Sweet each agree to take
such actions and execute and deliver such other  documents or  agreements as may
be necessary or reasonably  requested for the  implementation  of this Agreement
and the other  Transaction  Documents and the  consummation of the  transactions
contemplated  hereby  and  thereby,  including  those  necessary  or  reasonably
desirable to reflect Sweet's  relinquishment of any rights, control or authority
with respect to Unzipped arising out of the Operating Agreement.

                                      -22-
<PAGE>

     SECTION 9.06 Submission to Jurisdiction; Consent to Service of Process.

     (a) Sweet  hereby  irrevocably  agrees that any lawsuit  commenced by Sweet
against  the  Company or MC in  connection  with any  dispute  arising out of or
relating to this Agreement or any of the transactions contemplated hereby (each,
a "Sweet  Lawsuit") shall be brought by Sweet solely in a federal or state court
located  within the County of New York,  State of New York,  and, in  connection
with each Sweet Lawsuit, each of the parties hereto 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 Sweet Lawsuit brought in such court
or any defense of  inconvenient  forum for the maintenance of such Sweet Lawsuit
in such court.  Each of the Company  and MC hereby  irrevocably  agrees that any
lawsuit  commenced  by the Company or MC against  Sweet in  connection  with any
dispute arising out of or relating to this Agreement or any of the  transactions
contemplated  hereby (each, a "Company Lawsuit") shall be brought by the Company
or MC, as the case may be, 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  parties  hereto  irrevocably  agrees  to  submit  to the
exclusive  jurisdiction  of any federal or state court located within 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.  Each of the  parties  hereto  agrees  that a judgment in any Sweet
Lawsuit or Company Lawsuit may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

     (b) Each of the parties  hereto hereby  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 9.07 hereof.

     SECTION 9.07 Notices.  Any notice,  request,  demand or other communication
required or permitted to be given to a party  pursuant to the provisions of this
Agreement  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:

         If to Sweet:

         Sweet Sportswear, LLC
         5804 E. Slauson Avenue
         Commerce, CA 90040
         Fax: (323) 728-1641
         Attn: Deborah Greaves, General Counsel

                                      -23-
<PAGE>

         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
         Phone: (310) 229-1000
         Fax: (310) 229-1001
         Attn: David Antheil, Esq.

         If to the Company:

         Candie's, Inc.
         400 Columbus Avenue
         Valhalla, New York
         Phone: (914) 769-8600
         Fax: (914) 769-8103
         Attn: Deborah Sorell Stehr, Senior Vice President & General Counsel

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

         Blank Rome Tenzer Greenblatt LLP
         405 Lexington Avenue
         New York, NY 10174
         Phone: (212) 885-5555
         Fax: (212) 885-5001
         Attn: Robert J. Mittman, Esq.

     Any party  hereto  (and such  party's  permitted  assigns)  may change such
party's address for receipt of future notices hereunder by giving written notice
to the  Company  and the other  parties  hereto 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 such other
overnight delivery service one business day after such sending.

     SECTION 9.08  Governing  Law.  This  Agreement and the  performance  of the
transactions  and the  obligations of the parties  hereunder will be governed by
and construed and enforced in accordance with the laws of the State of Delaware,
without giving effect to any choice of law principles.

     SECTION 9.09 Entire Agreement.  This Agreement,  together with the Exhibits
and Schedules hereto, the certificates, documents, instruments and writings that
are  delivered  pursuant  hereto  and each of the other  Transaction  Documents,
constitutes  the entire  agreement and  understanding  of the parties  hereto in
respect  of  its  subject  matters  and  supersedes  all  prior  understandings,
agreements, or representations,  including,  without limitation, the Term Sheet,
by or among the parties  hereto,  written or oral,  to the extent they relate in
any way to the subject matter hereof or the transactions contemplated hereby.

                                      -24-
<PAGE>

     SECTION  9.10  Attorney's  Fees.  In the  event  that any suit or action is
instituted to enforce any provision in this Agreement,  the prevailing  party in
such dispute shall be entitled to recover from the losing party all fees,  costs
and  expenses  of  enforcing  any right of such  prevailing  party under or with
respect to this Agreement,  including without  limitation,  such reasonable fees
and  expenses  of  attorneys  and  accountants,  which  shall  include,  without
limitation, all reasonable fees, costs and expenses of appeals.

     SECTION 9.11  Counterparts.  This  Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.

     SECTION 9.12  Amendments and Waivers.  This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the written consent of
the Company and Sweet.  No action taken  pursuant to this  Agreement,  including
without  limitation,  any  investigation by or on behalf of any party,  shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant or agreement contained herein. The waiver
by any party  hereto of a breach of any  provision of this  Agreement  shall not
operate or be construed as a further or continuing waiver of such breach or as a
waiver of any other or subsequent breach. No failure on the part of any party to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise of such
right,  power or remedy by such party  preclude  any other or  further  exercise
thereof  or the  exercise  of any other  right,  power or remedy.  All  remedies
hereunder are cumulative and are not exclusive of any other remedies provided by
law.

     SECTION 9.13  Successors  and Assigns.  This  Agreement  and the rights and
obligations  of the  parties  hereunder  shall  inure to the  benefit of, and be
binding upon, their respective successors, assigns and legal representatives.

     SECTION 9.14 Severability.  The provisions of this Agreement will be deemed
severable and the invalidity or  unenforceability  of any provision  hereof will
not  affect the  validity  or  enforceability  of the other  provisions  hereof;
provided that if any provision of this Agreement,  as applied to any Party or to
any  circumstance,  is  adjudged  by  a  court,  governmental  body  not  to  be
enforceable  in  accordance  with its terms,  the Parties  agree that the court,
governmental  body, making such  determination will have the power to modify the
provision  in  a  manner   consistent  with  its  objectives  such  that  it  is
enforceable,  and/or to delete  specific  words or  phrases,  and in its reduced
form, such provision will then be enforceable and will be enforced.

     SECTION  9.15  Titles and  Subtitles.  The  article  and  section  headings
contained  in this  Agreement  and in the  Exhibits  and  Schedules  thereto are
inserted  for  convenience  only and will not  affect in any way the  meaning or
interpretation of this Agreement.

     SECTION 9.16 Adjustments for Stock Splits,  Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of any class or series,  then,  upon the  occurrence  of any  subdivision,
combination  or stock  dividend of such class or series of stock,  the  specific
number of shares so  referenced  in this  Agreement  with  respect to any period
following  the date of such  adjustment  will  automatically  be  proportionally
adjusted  to  reflect  the  effect  of such  subdivision,  combination  or stock
dividend on the outstanding shares of such class or series of stock.

                                      -25-
<PAGE>

     SECTION 9.17 Construction.  The parties hereto have jointly participated in
the negotiation  and drafting of this Agreement.  If an ambiguity or question of
intent or interpretation  arises, this Agreement will be construed as if drafted
jointly by the parties  hereto and no  presumption or burden of proof will arise
favoring  or  disfavoring  any party  hereto  because of the  authorship  of any
provision of this  Agreement.  Any  reference to any  federal,  state,  local or
foreign  law will also be deemed to refer to such law as  amended  and all rules
and regulations promulgated  thereunder,  unless the context otherwise requires.
The  word  "including"  means  "including,  without  limitation".   Pronouns  in
masculine,  feminine  and neuter  genders will be construed to include any other
gender,  and words in the singular  form will be construed to include the plural
and  vice  versa,  unless  the  context  otherwise  requires.  The  words  "this
Agreement",  "herein",  "hereof",  "hereby",  "hereunder"  and words of  similar
import refer to this Agreement as a whole and not to any particular  subdivision
unless expressly so limited. The parties hereto intend that each representation,
warranty and covenant  contained herein will have independent  significance.  If
any party hereto has breached any representation, warranty or covenant contained
herein  in any  respect,  the fact that  there  exists  another  representation,
warranty or covenant  relating to the same  subject  matter  (regardless  of the
relative levels of specificity) which such party has breached,  will not detract
from  or  mitigate  the  fact  that  such  party  is  in  breach  of  the  first
representation, warranty or covenant.

     SECTION 9.18 Schedules.  The Schedules delivered pursuant to this Agreement
(collectively,  the "Schedules") are an integral part hereof, and are considered
to be part of the representations and warranties to which they relate. Each such
Schedule  shall be in writing and shall  indicate the  subparagraph  pursuant to
which it is being delivered. Notwithstanding anything to the contrary in Section
9.17 hereof,  for purposes of this Agreement,  information which is necessary to
make a given Schedule  complete and accurate,  but is omitted  therefrom,  shall
nevertheless  be deemed to be contained  therein if it is contained on any other
Schedule;  but only if such  information  appears on such other Schedule in such
form  and  detail  that it is  responsive  to the  requirements  of  such  given
Schedule.  A party may, at its option,  include in one or more of the  Schedules
delivered  by it pursuant  hereto  items which are not  "material"  or otherwise
required to be disclosed; and the inclusion of any such item shall not be deemed
to be an  acknowledgement  by such  party  that it is  "material"  or that it is
required to be disclosed.

     SECTION  9.19  Remedies.  The parties  hereto  shall have all  remedies for
breach of this Agreement available to them as provided by this Agreement, law or
equity.

     SECTION  9.20  Certain  Defined  Terms.  As  used in  this  Agreement,  the
following  terms shall have the following  meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):

     "Affiliate"  means,  with respect to any Person,  (a) any other Person that
directly  or  indirectly  through  one  or  more  intermediaries   controls,  is
controlled by, or is under common control with such Person, or (b) an officer or
director of such Person or of an Affiliate of such Person  within the meaning of
clause (a) of this  definition.  For purposes of clause (a) of this  definition,
(i) a Person  shall be deemed to control  another  Person if such Person (A) has

                                      -26-
<PAGE>

sufficient  power to  enable  such  Person to elect a  majority  of the board of
directors of such Person, or (B) owns a majority of the beneficial  interests in
income and capital of such Person;  and (ii) a Person shall be deemed to control
any partnership of which such Person is a general partner.

     "Company's  knowledge"  means the actual  knowledge  of Neil Cole,  Deborah
Sorell Stehr or Richard Danderline.

     "Exchange Act" means the Securities and Exchange Act of 1934, as amended.

     "GAAP" means United States generally accepted  accounting  principals as in
effect on the date hereof.

     "Financial   Statements"  means  the  Company's  (a)  audited  consolidated
financial  statements  for the  year  ended  January  31,  2002,  including  its
consolidated  balance sheet as of January 31, 2002, and the related consolidated
income statements, statement of stockholder's equity and statement of cash flows
for the year  ended  January  31,  2002,  and the  notes  with  respect  to such
statements,  in each case as contained in the  Company's  Annual  Report on Form
10-K for the fiscal  year ended  January  31,  2002 filed with the SEC on May 1,
2002; and (b) unaudited  consolidated financial statements for the three and six
months ended July 31, 2002,  including its consolidated balance sheet as of July
31, 2002 and the related consolidated statements of income for the three and the
six months  ended July 31,  2002,  and the  related  consolidated  statement  of
stockholder's  equity and  statement of cash flows for the six months ended July
31,  2002,  and the  notes  with  respect  to such  statements  in each  case as
contained in the Company's  Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 2002 filed with the SEC on September 16, 2002.

     "Lien"  shall  mean a  mortgage,  deed  of  trust,  pledge,  hypothecation,
assignment,  encumbrance,  lien  (statutory  or  otherwise,  including,  without
limitation,  any lien for taxes), security interest,  preference,  participation
interest, priority or security agreement or preferential arrangement of any kind
or nature whatsoever,  including,  without  limitation,  any conditional sale or
other title retention  agreement,  any financing lease having  substantially the
same  economic  effect as any of the  foregoing  and the filing of any  document
under the law of any applicable jurisdiction to evidence any of the foregoing.

     "Material  Adverse  Effect"  shall  mean a material  adverse  effect on the
business,  operations, assets, liabilities,  properties,  financial condition or
results of operations  of the relevant  entity and its  subsidiaries  taken as a
whole.

     "Permits"  shall  mean  permits,   consents,   approvals,   authorizations,
certifications and registrations.

     "Person" shall mean an individual, corporation, trust, partnership, limited
liability company, joint venture,  unincorporated organization,  government body
or any agency or political subdivision thereof, or any other entity.

                                      -27-
<PAGE>

     "Subsidiary"  shall mean, as to the Company,  any entity of which more than
fifty percent (50%) of the outstanding stock or equity or capital interests,  as
the case may be, having  ordinary  voting power to elect a majority of the Board
of Directors of such entity (irrespective of whether or not at the time stock of
any other class or classes of such  corporation  shall have or might have voting
power by reason of the happening of any  contingency) is at the time directly or
indirectly owned by the Company,  or by one or more of its  subsidiaries,  or by
the Company and one or more of its subsidiaries.

     "Sweet's  knowledge"  shall means the actual  knowledge of Hubert Guez, Dov
Haddad, Deborah Greaves or Fred Kalmar.

     "Sweet Interest" shall mean Sweet's 50% share of Unzipped's Profits, Losses
and distributions of Cash Flow (each as defined in the Operating  Agreement) and
its 50% equity ownership interest in Unzipped.

     "Transaction Documents" shall mean this Agreement, the Note, the Collateral
Agreement,  the  Investor  Rights  Agreement,  the Sweet Proxy,  the  Management
Agreement, the Amended Distribution Agreement and the Amended Supply Agreement.

     Unzipped Financial  Statements" shall mean Unzipped's (a) audited financial
statements  for the fiscal year ended  January 31, 2002,  including  its balance
sheet as of January 31,  2002,  and  related  statement  of income and  retained
earnings and statement of cash flows for the fiscal year ended January 31, 2002,
and the notes with respect to such  statements,  in each case as attached hereto
as part of Exhibit N; and (b) unaudited  financial  statements for the three and
six months ended July 31, 2002,  including its balance sheet as of July 31, 2002
and the related  statement of income and retained earnings for the three and six
months ended July 31, 2002 and  statement of cash flows for the six months ended
July 31, 2002, in each case as attached hereto as part of Exhibit N.

     SECTION  9.21  Incorporation  of  Exhibits,   Annexes  and  Schedules.  The
exhibits,  annexes and schedules  identified in this Agreement are  incorporated
herein by reference and made a part hereof.

                            [SIGNATURE PAGES FOLLOW]

                                      -28-
<PAGE>

     IN WITNESS  WHEREOF,  the  Company  and Sweet  have  executed  this  Equity
Acquisition Agreement as of the day and year first above written.

COMPANY:                                CANDIE'S, INC.

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

MC:                                     MICHAEL CARUSO & CO., INC.

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

SWEET:                                  SWEET SPORTSWEAR, LLC

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

     For purposes of consenting to the modification of the Operating  Agreement,
including the  Purchase/Sell  Obligation,  and in order to induce Sweet to enter
into this Agreement, the undersigned hereby consents and agrees to the terms and
provisions  set forth  herein,  including  but not limited to the  provisions of
Article VIII hereto,  and the  transactions  contemplated  hereby as of the date
first above written.

                                     UNZIPPED APPAREL LLC
                                     By: Michael Caruso & Co., Inc., its Manager

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

                                      -29-
<PAGE>

     The  Registrant  will  supplementally  provide the  Securities and Exchange
Commission  with  copies of the  omitted  Schedules  and  Exhibits to the Equity
Acquisition Agreement upon request.

Schedules
Schedule 2.05 - Capitalization
Schedule 2.08 - Taxes
Schedule 3.07 - Litigation

Exhibits
EXHIBIT A                  Note
EXHIBIT B                  Investor Rights Agreement
EXHIBIT C                  Management Agreement
EXHIBIT D                  Amended Supply Agreement
EXHIBIT E                  Amended Distribution Agreement
EXHIBIT F                  Collateral Pledge Agreement
EXHIBIT G                  Sweet Proxy
EXHIBIT H                  Opinions of Company's Counsel
EXHIBIT I                  Indemnification Agreement
EXHIBIT J                  Opinion of Sweet's Counsel
EXHIBIT K                  Transfer Restriction Agreement for A Shares
EXHIBIT L                  Transfer Restriction Agreement for B Shares
EXHIBIT M                  Transferee Proxy
EXHIBIT N                  Unzipped Financial Statements

                                      -30-
<PAGE>

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