EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT (the "Agreement"), dated as of February 1, 2002, by and between Candie's, Inc., a Delaware corporation (the "Company"), and Neil Cole (the "Executive").

W I T N E S S E T H:

WHEREAS, the Executive possesses unique personal knowledge, experience and expertise concerning the business and operations conducted by the Company; and

WHEREAS, the Company desires to continue to employ the Executive beyond the term of the current employment agreement between the Executive and the Company, and the Executive desires to continue to be employed by the Company, upon the terms and subject to the conditions set forth this Agreement.

NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. EMPLOYMENT AND DUTIES

1.1. Term of Employment. The Executive's employment under this Agreement shall commence on February 1, 2002 (the "Start Date") and shall continue until the third anniversary of the Start Date, unless earlier terminated or canceled as provided in this Agreement (the "Term").

1.2.1. During the Term, the Executive shall have the title of the President and Chief Executive Officer of the Company and shall have such duties as may be from time to time delegated to him by the Board of Directors of the Company (the "Board"). The Executive shall faithfully and diligently discharge his duties hereunder and use his best efforts to implement the policies established by the Board. No other officer will be appointed with authority over the executive or business affairs of the Company and the Executive's responsibilities shall include, among other things, the power to enter into banking relationships; to hire and fire employees; to order merchandise; to engage in advertising and promotion; and to employ outside consultants and professionals.

1.2.2. The Executive shall devote all of his business time, attention, knowledge and skills faithfully, diligently and to the best of his ability, in furtherance of the business and activities of the Company; provided, however, that nothing in this Agreement shall preclude the Executive from devoting reasonable periods of time required for:

(i) serving as a director or member of a committee of any organization or corporation involving no conflict of interest with the interests of the Company and with the written consent of the Company, which consent shall not be unreasonably withheld;

(ii) delivering lectures, fulfilling speaking engagements, and any writing of publication relating to his area of expertise;

(iii) engaging in professional organization and program activities; and

(iv) managing his personal investments;

provided that such activities do not materially interfere with the due performance of his duties and responsibilities under this Agreement as determined by the Board.

1.2.3. During the Term, the Board shall vote to recommend the election of the Executive by the Company's stockholders as a director, and the Executive shall act as Chairman of the Board at all meetings thereof.

1.3. Reimbursement of Expenses. The Company shall pay to the Executive the reasonable expenses incurred by him in the performance of his duties hereunder, including, without limitation, those incurred in connection with the use of an automobile, business related travel or entertainment, or, if such expenses are paid directly by the Executive, the Company shall promptly reimburse him for such payments, provided that the Executive properly accounts for such expenses in accordance with the Company's policy.

2. COMPENSATION

2.1. Base Salary. During the Term, the Executive shall be entitled to receive a base salary ("Base Salary") at a rate of five hundred thousand dollars ($500,000.00) per annum, payable in arrears in equal installments not less frequently than on a bi-monthly basis in accordance with the payroll practices of the Company, with such increases as may be determined by the Board from time to time.

2.2.1. In additional to the Base Salary, the Executive shall receive in each fiscal year of the Company during the Term that the Company meets at least 662/3% of its net income target for such fiscal year as determined by the Board (subject to subsection 2.2.2 below) (the "Target"), as incentive compensation, an amount equal to the product of (x) the Base Salary and (y) a fraction, the numerator of which is the Company's actual net income for such fiscal year (as set forth in the Company's audited financial statements), and the denominator of which is the Target for such fiscal year (the "Bonus"); provided that the Executive is employed by the Company during the entire fiscal year. The Bonus, if applicable, shall be due and payable by the Company to the Executive within thirty (30) days after the filing by the Company of its Annual Report on Form 10-K with the Securities and Exchange Commission with respect to such fiscal year. Anything contained in this Section 2.2 to the contrary notwithstanding, in the event that the Executive's employment hereunder is terminated by the Company without Cause or by the Executive for Good Reason (as such terms are defined in
Section 5.1 hereof) prior to the end of a fiscal year and the Executive would have been entitled to a Bonus under this Section 2.2 for such fiscal year but for such termination, the Executive shall be entitled to a pro rata portion of the Bonus that would have been payable but for such termination through the Date of Termination (as defined in Section 5.3 hereof).

2.2.2. The Target for the Company's fiscal year ending January 31, 2003 shall be $9,200,000. The Target for each fiscal year of the Company thereafter shall be determined by the Board and provided in writing to the Executive at least ten days prior to the commencement of each such fiscal year of the Company.

2.3. Stock Options. In addition to the Base Salary and the Bonus, the Executive shall receive, as incentive compensation, options ("Options") to purchase up to an aggregate of 600,000 shares (the "Shares") of common stock of the Company, pursuant to and upon the terms and conditions set forth in the Company's 2000 Stock Option Plan ("Plan"). The Options shall vest and become exercisable at any time during the ten year period commencing upon the date of grant, subject to earlier termination as provided in the Plan and the option agreement between the Company and the Executive, with respect to (i) one third of the number of Shares covered thereby on the first anniversary of the Start Date and (ii) one third of the number of Shares covered thereby on each of the second and third anniversaries of the Start Date, at an exercise price per share equal to the last sales price for the Company's common stock on the date hereof.

2.4. Additional Compensation. In addition to the Base Salary, the Bonus and the Options, the Executive shall be entitled to receive such other cash bonuses and such other compensation in the form of stock, stock options or other property or rights as may from time to time be awarded him by the Board during or in respect of his employment hereunder.

2.5. Payment Upon Sale of the Company. In the event of the sale of all or substantially all of the assets or capital stock of the Company (as the case may be, a "Sale") for an aggregate sale price ("Sale Price") of at least $5 per share (subject to appropriate adjustment by the Board in the event of any stock split, dividend or similar division of shares of the Company's common stock or reverse split or similar combination of such common stock) of the Company's common stock on a fully diluted basis at the time of the closing of the Sale, the Company shall pay to the Executive an amount equal to 5% of the Sale Price (the "Payout"). In the event that the Sale involves a sale of the Company's assets, the Sale Price shall be determined by dividing the aggregate consideration received by the Company in the Sale by the total number of outstanding shares of the Company's common stock, on a fully-diluted basis, at the time of the closing of the Sale.

For purposes of the foregoing, the following shall be considered to be part of the Sale Price: contingent future payments (based upon future profits or otherwise) paid to the Company or to all of its stockholders; payments for noncompete covenants paid to the Company or to all of its stockholders; and the value of all assumed liabilities (including, without limitation, indebtedness for borrowed money, pension liabilities and guarantees). In the event that the Sale Price is paid in whole or in part in the form of securities, the value of such securities, for purposes of calculating the Payout, shall be deemed to be the fair market value thereof on the day prior to the consummation of the Sale as determined by the Board; provided, however, that if such securities consist of securities for which there is an existing public trading market (whether or not such securities would be deemed to be "restricted stock" within the meaning of Rule 144(a)(3) of the General Rules and Regulations promulgated under the Securities Act of 1933, as amended), the fair market value thereof shall be deemed to be the average of the last sales prices for such securities on the five (5) trading days ending five (5) days prior to the consummation of the Sale.

The Payout shall be paid by the Company to the Executive, in full, within fifteen (15) days after the consummation of the Sale, and shall be payable, at the option of the Company, in cash or in kind (in the event that the Sale Price includes consideration other than cash). If the Sale Price is increased by contingent payments, or if a portion of the Sale Price is paid into escrow, the portion of the Payout relating thereto shall be calculated and paid when and as such contingent payments are made, or when such portion of the proceeds is released from escrow, as the case may be. The determination of the amount of the Payout shall be made by the Board or its designee whose decision shall be final.

3. PLACE OF PERFORMANCE. In connection with his employment by the Company, the Executive shall be based at the Company's principal executive offices in Valhalla, New York, or at the Company's offices in New York, New York, subject to the mutual agreement of the Executive and the Company to relocate him to another office of the Company. Subject to the foregoing, in connection with any relocation or transfer of the Executive outside of the greater New York metropolitan area, the Company will promptly pay (or reimburse the Executive for) all reasonable moving and moving-related expenses (including any losses incurred as a result of the sale of the Executive's personal residence) incurred by the Executive as a consequence of a change of his principal residence in connection with any such relocation or transfer.

4. EMPLOYEE BENEFITS

4.1. Benefit Plans. The Executive shall, during the Term, be included to the extent eligible thereunder in all employee benefit plans, programs or arrangements of general application (including, without limitation, any plans, programs or arrangements providing for retirement benefits, options and other equity-based incentive compensation, profit sharing, bonuses, disability benefits, health and life insurance, or vacation and paid holidays) which shall be established by the Company or any affiliate of the Company, for, or made available to, their respective senior executives. During the Term, the benefits described in this paragraph 4 may only be reduced as a result of a general reduction for senior executives.

4.2. Vacation. The Executive shall be entitled to not less than four
(4) weeks vacation at full pay for each year during the Term. Such vacation may be taken in the Executive's discretion, and at such time or times as are not inconsistent with the reasonable business needs of the Company.

4.3. Life Insurance Coverage. The Company shall use its best efforts to obtain and maintain in full force and effect during the Term life insurance covering the life of the Executive for the benefit of his designee in the amount of $3,000,000, $4,000,000 and $5,000,000, respectively, for the Company's fiscal years ending on January 31, 2003, 2004 and 2005, respectively.

5. TERMINATION OF EMPLOYMENT

5.1. General. The Executive's employment under this Agreement may be terminated without any breach of this Agreement only on the following circumstances:

5.1.1. Death. The Executive's employment under this Agreement shall terminate upon his death.

5.1.2. Disability. If, as a result of the Executive's Disability (as defined below), the Executive shall have been absent from his duties under this Agreement for sixty (60) consecutive days, the Company may terminate the Executive's upon thirty (30) days prior written notice; provided that the Executive has not returned to full time performance of his duties during such thirty (30) day period. For purposes hereof, "Disability" shall mean that the Executive is unable to perform his normal and customary duties hereunder as a result of physical or mental illness.

5.1.3. Good Reason. The Executive may terminate his employment for Good Reason at any time. For purposes of this Agreement, "Good Reason" shall mean:

(i) the failure by the Company to comply with its material obligations and agreements contained in this Agreement;

(ii) a material diminution of the responsibilities or title of the Executive with the Company without the express written consent of the Executive;

(iii)a reduction by the Company in the Base Salary as in effect on the date hereof, or as the same may be increased from time to time without the express written consent of the Executive; or

(iv) the re-location of the Executive to an office outside of the greater New York metropolitan area, unless mutually agreed to;

provided, however, that the Executive shall have provided the Company with written notice that such actions are occurring and the Company has been afforded a reasonable opportunity of at least thirty (30) days to cure same.

5.1.4. Cause. The Company may terminate the Executive's employment under this Agreement for Cause. Termination for "Cause" shall mean termination of the Executive's employment because of the occurrence of any of the following as determined by the Board:

(i) the willful and continued failure by the Executive to substantially perform his obligations under this Agreement (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); provided, however, that the Company shall have provided the Executive with written notice that such actions are occurring and the Executive has been afforded a reasonable opportunity of at least thirty (30) days to cure same, or

(ii) the indictment of the Executive for a felony or other crime involving moral turpitude or dishonesty; or

(iii)the willful engaging in misconduct (including theft, fraud, embezzlement, and securities law violations) which is injurious to the Company, monetarily, or otherwise. For purposes of this Section 5.1.4(iii), no act, or failure to act, on the part of the Executive shall be considered "willful" unless done, or omitted to be done, by him in bad faith and without reasonable belief that his action or omission was in the best interest of the Company.

5.2. Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive (other than termination by reason of the Executive's death) shall be communicated by written Notice of Termination to the other party of this Agreement. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated.

5.3. Date of Termination. The "Date of Termination" shall mean (a) if the Executive's employment is terminated by his death, the date of his death, (b) if the Executive's employment is terminated pursuant to subsection 5.1.2 above, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period), (c) if the Executive's employment is terminated pursuant to subsections 5.1.3 or 5.1.4 above, the date specified in the Notice of Termination after the expiration of any applicable cure periods, and (d) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given the party or parties receiving such Notice of Termination notifies the other party or parties that a dispute exists concerning such termination, the Date of Termination shall be the date on which the dispute is finally determined by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected).

5.4.1. Termination for Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his Base Salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, and all expenses and accrued benefits arising prior to such termination which are payable to the Executive pursuant to this Agreement through the Date of Termination and the Company shall have no further obligation with respect to this Agreement.

5.4.2. Termination without Cause or For Good Reason. Subject to the provisions of subsection 5.4.3 hereof, if, prior to the expiration of the Term, the Executive's employment hereunder is terminated by the Executive for Good Reason or by the Company without Cause (other than a termination by reason of Disability), the Company shall pay to the Executive all expenses and accrued benefits arising prior to such termination which are payable to the Executive pursuant to this Agreement through the Date of Termination and the Company shall continue to pay the Executive his Base Salary as then in effect for the greater of (i) the remainder of the original Term or (ii) a period of one year (1) year from the Date of Termination (such period being referred to hereinafter as the "Severance Period"), payable in monthly installments. In addition, during the Severance Period, the Executive shall be entitled to continue to participate in all employee benefit plans that the Company provides (and continues to provide) generally to its senior executives. The Company shall also pay all indemnity payments and all legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement.

5.4.3. Death During Severance Period. In the event of the Executive's death during the Severance Period, payments of Base Salary under this Section 5.4 and payments under the Company's employee benefit plan(s) shall continue to be made in accordance with their terms during the remainder of the Severance Period to the beneficiary designated in writing for such purpose by the Executive or, if no such beneficiary is specifically designated, to the Executive's estate.

(i) Anything contained herein to the contrary notwithstanding, in the event the Executive's employment hereunder is terminated within twelve (12) months following a Change in Control (as defined below) by the Company without Cause, or any joint venturer or partner of the Company existing as of the date hereof, or by the Executive with Good Reason, then the Company shall pay to the Executive in complete satisfaction of its obligations under this Agreement, as severance pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within fifteen (15) days after the Date of Termination, an amount equal to $100 less than three times the Executive's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump sum severance payment, either alone or together with other payments or benefits, either cash or non-cash, that the Executive has the right to receive from the Company, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to the Executive under any plan for the benefit of employees, which would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by the Executive of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by the Company's independent auditors at the sole expense of the Company. For purposes of clarification the value of any options described above will be determined by the Company's independent auditors using a Black-Scholes valuation methodology.

For purposes of this Agreement, a "Change in Control" shall be deemed to occur (i) when any "person" as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as used in Section 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange Act, but excluding the Executive, the Company or any subsidiary or any affiliate of the Company or any employee benefit plan sponsored or maintained by the Company or any subsidiary of the Company (including any trustee of such plan acting as trustee), becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act) of securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; or (ii) when, during any period of twenty-four (24) consecutive months, the individuals who, at the beginning of such period, constitute the Board of Directors (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof; provided, however, that a director who was not a director at the beginning of such twenty-four (24) month period shall be deemed to have satisfied such twenty-four (24) month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds (2/3) of the directors who then qualified as Incumbent Directors either actually (because they were directors at the beginning of such twenty-four (24) month period) or through the operation of this proviso; or (iii) the occurrence of a transaction requiring stockholder approval for the acquisition of the Company by an entity other than the Company or a subsidiary or an affiliated company of the Company through purchase of assets, or by merger, or otherwise.

(ii) If within twelve (12) months after the occurrence of a Change in Control, the Company shall terminate the Executive's employment without Cause or the Executive terminates his employment for Good Reason, then notwithstanding the vesting and exercisability schedule in any stock option agreement between the Company and the Executive, all unvested stock options granted by the Company to the Executive pursuant to such agreement shall immediately vest and become exercisable and shall remain exercisable for not less than 180 days thereafter.

5.4.5. Termination upon Death or Retirement. In the event of the termination of the Executive's employment by reason of death or retirement, the Company shall pay the Executive his Base Salary through the Date of Termination, at the rate then in effect, and all expenses or accrued benefits arising prior to such termination which are payable to the Executive pursuant to this Agreement through the Date of Termination. In addition, the Executive and/or his beneficiaries shall be entitled to such other benefits as shall be determined in accordance with the benefit plans maintained by the Company, including, without limitation, any benefits to which they are entitled under the life insurance policy provided for in Section 4.3 hereof.

5.4.6. Termination upon Disability. In the event of the termination of the Executive's employment by reason of Disability in accordance with the provisions of Section 5.1.2 hereof, the Company shall pay to the Executive a lump sum cash payment in an amount equal to the present value of the Base Salary that would have been payable to the Executive during the remainder of the original Term had the Agreement not been so terminated, together with all expenses and accrued benefits arising prior to such termination which are payable to the Executive pursuant to this Agreement through the Date of Termination. In addition, the Executive and/or his beneficiaries shall be entitled to such other benefits as shall be determined in accordance with the benefit plans maintained by the Company.

5.4.7. The Executive shall not be required to mitigate the amount of any payment provided for in this Section 5.4 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 5.4 be reduced by any compensation earned by the Executive as the result of employment by another employer or business or by profits earned by the Executive from any other source at any time before and after the Date of Termination.

6. INSURABILITY; RIGHT TO INSURE

During the continuance of the Executive's employment hereunder, the Company shall have the right to maintain key man life insurance in its own name covering the Executive's life in such amount as shall be determined by the Company, for a term ending on the termination or expiration of this Agreement. The Executive shall aid in the procuring of such insurance by submitting to the required medical examinations, if any, and by filling out, executing and delivering such applications and other instrument in writing as may be reasonably required by an insurance company or companies to which application or applications for insurance may be made by or for the Company.

7. CONFIDENTIALITY; NONCOMPETITION; NONSOLICITATION; NONDISPARAGEMENT

7.1. The Company and the Executive acknowledge that the services to be performed by the Executive under this Agreement are unique and extraordinary and, as a result of such employment, the Executive shall be in possession of confidential information relating to the business practices of the Company. The term "confidential information" shall mean any and all information (oral and written) relating to the Company or any of its affiliates, or any of their respective activities, other than such information which (i) can be shown by the Executive to be in the public domain (such information not being deemed to be in the public domain merely because it is embraced by more general information which is in the public domain) other than as the result of breach of the provisions of this paragraph 7 or (ii) the Executive is required to disclose under any applicable laws, regulations or directives of any government agency, tribunal or authority having jurisdiction in the matter or under subpoena or other process of law. The Executive shall not, during the Term and for a period of two (2) years thereafter, except as may be required in the course of the performance of his duties hereunder, directly or indirectly, use, communicate, disclose or disseminate to any person, firm or corporation any confidential information regarding the clients, customers or business practices of the Company acquired by the Executive, without the prior written consent of the Company; provided, however, that the Executive understands that Executive shall be prohibited from misappropriating any trade secret at any time during or after the Term.

7.2. Upon the termination of the Executive's employment for any reason whatsoever, all documents, records, notebooks, equipment, price lists, specifications, programs, customer and prospective customer lists and other materials which refer or relate to any aspect of the business of the Company which are in the possession of the Executive, including all copies thereof, shall be promptly returned to the Company.

7.3. The Executive hereby agrees that he shall not, during the Term, and, in the event that the Executive's employment hereunder is terminated by the Company for Cause or by the Executive without Good Reason, for a period of two years after the date of such termination, directly or indirectly, within any county (or adjacent county) in any State within a fifty (50) mile radius of the location of any of the Company's offices, engage, have an interest in or render any services to any business (whether as owner, manager, operator, licensor, licensee, lender, partner, stockholder, joint venturer, employee, consultant or otherwise) competitive with the business activities conducted by the Company, its subsidiaries, or affiliates during the Term. Notwithstanding the foregoing, nothing herein shall prevent the Executive from owning stock in a publicly traded corporation whose activities compete with those of the Company's, provided that such stock holdings are not greater than five percent (5%) of such corporation.

7.4. The Executive shall not, during the Term, and, in the event that the Executive's employment hereunder is terminated by the Company for Cause or by the Executive without Good Reason, for a period of two years after the date of such termination, directly or indirectly, take any action which constitutes an interference with or a disruption of any of the Company's business activities including, without limitation, the solicitations of the Company's customers, or persons listed on the personnel lists of the Company.

7.5. For purposes of clarification, but not of limitation, the Executive hereby acknowledges and agrees that the provisions of Sections 7.3 and 7.4 above shall serve as a prohibition against him from, during the period referred to therein, directly or indirectly, hiring, offering to hire, enticing, soliciting or in any other manner persuading or attempting to persuade any officer, employee, agent, lessor, lessee, licensor, licensee or customer of the Company (but only those suppliers existing during the time of the Executive's employment by the Company, or at the termination of his employment), to discontinue or alter his, her or its relationship with the Company.

7.6. At no time during or after the Term shall either party hereto, directly or indirectly, disparage the commercial, business, professional or financial, as the case may be, reputation of the other party.

7.7. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in this paragraph 7 may result in material and irreparable injury to the Company, or its affiliates or subsidiaries, for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat the Company shall be entitled to seek a temporary restraining order and/or a preliminary or permanent injunction restraining the Executive from engaging in activities prohibited by this paragraph 7 or such other relief as may be required specifically to enforce any of the covenants in this paragraph 7. If for any reason it is held that the restrictions under this paragraph 7 are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted or modified to include as much of the duration and scope identified in this paragraph as will render such restrictions valid and enforceable.

8. RIGHTS OF INDEMNIFICATION

8.1. The Company shall indemnify the Executive to the fullest extent permitted by the General Corporation Law of the State of Delaware, as amended from time to time, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorney's fees) incurred or paid by the Executive in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Executive of services for, or the acting by the Executive as a director, officer or employee of the Company, or any other person or enterprise at the Company's request.

8.2. The Company shall use its best efforts to obtain and maintain in full force and effect during the Term, directors' and officers' liability insurance policies providing full and adequate protection to the Executive for his capacities, provided that the Board shall have no obligation to purchase such insurance if, in its opinion, coverage is available only on unreasonable terms.

9. MISCELLANEOUS

9.1. Notices. All notices or communications hereunder shall be in writing, addressed as follows:

To the Company:           Candie's, Inc.
                          400 Columbus Avenue
                          Valhalla, NY  10595
         Attn: Deborah Sorell Stehr
               Senior Vice President and General Counsel

                                   with a copy to:

                           Blank Rome Tenzer Greenblatt LLP
                           405 Lexington Avenue
                           New York, NY  10174
                           Attn:  Robert J. Mittman, Esq.

To the Executive:          Neil Cole
                           525 East 72nd Street
                           Apt 15E
                           New York, NY 10021

All such notices shall be conclusively deemed to be received and shall be effective (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy or facsimile transmission, upon confirmation of receipt by the sender of such transmission, (iii) if sent by overnight courier, one business day after being sent by overnight courier, or (iv) if sent by registered or certified mail, postage prepaid, return receipt requested, on the fifth day after the day on which such notice is mailed.

9.2. Severability. Each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

9.3. Binding Effect; Benefits. Executive may not delegate his duties or assign his rights hereunder. This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

9.4. Entire Agreement. This Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the Company and the Executive, including, without limitation, that certain Employment Agreement dated February 23, 1993, as amended, between the Company and the Executive. This Agreement may be amended at any time by mutual written agreement of the parties hereto. In the case of any conflict between any express term of this Agreement and any statement contained in any employment manual, memo or rule of general applicability of the Company, this Agreement shall control.

9.5. Withholding. The payment of any amount pursuant to this Agreement shall subject to applicable withholding and payroll taxes, and such other deductions as may be required under the Company's employee benefit plans,if any.

9.6. Governing Law. This Agreement and the performance of the parties hereunder shall be governed by the internal laws (and not the law of conflicts) of the State of New York. Any claim or controversy arising out of or in connection with this Agreement, or the breach thereof, shall be adjudicated exclusively by the Supreme Court, New York County, State of New York, or by a federal court sitting in Manhattan in New York City, State of New York. The parties hereto agree to the personal jurisdiction of such courts and agree to accept process by regular mail in connection with any such dispute.

9.7. Legal Fees and Court Costs. In the event that any action, suit or other proceeding in law or in equity is brought to enforce the provisions of this Agreement, and such action results in the award of a judgment for money damages or in the granting of any injunction in favor of the Company, all expenses (including reasonable attorneys' fees) of the Company in such action, suit or other proceeding shall be paid by the Executive. In the event that any action, suit or other proceeding in law or in equity is brought to enforce the provisions of this Agreement, and such action results in the award of a judgment for money damages or in the granting of any injunction in favor of the Executive, all expenses (including reasonable attorneys' fees and travel expenses) of the Executive in such action, suit or other proceeding shall be paid by the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and the Executive has hereunto set his hand, as of the day and year first above written,

THE COMPANY:

CANDIE'S, INC.

EXECUTIVE

Neil Cole

Employment Agreement

Employment Agreement, dated as of February 1, 2002, by and between Candie's, Inc., a Delaware corporation (the "Company" or "Employer") and Deborah Sorell Stehr (the "Executive").

W I T N E S S E T H

WHEREAS, the Executive is currently the Company's Senior Vice President and General Counsel; and

WHEREAS, the Company and Executive entered into an Employment Agreement dated October 13, 1998, as amended on January 27, 2000 (the "Original Agreement"); and

WHEREAS, the term of the Original Agreement expires on January 31, 2002; and

WHEREAS, the Company wishes, among other things, to continue the Executive's employment with the Company beyond the term currently provided by the Original Agreement pursuant to the terms as provided herein;

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Employer and Executive hereby agree as follows:

1. Term. The Company hereby agrees to employ the Executive for a period commencing on February 1, 2002 and ending on January 31, 2004 (the "Term").

2. Title; Duties. The Executive shall render services to the Company as chief counsel to the Company in the position of Senior Vice President - General Counsel. Executive's duties and responsibilities shall be consistent with the duties undertaken by the senior legal officer of a corporation. Executive shall report directly to Neil Cole.

3. Compensation.

(a) Base Salary. Executive's base salary for the First Year (as defined below) will be at a rate of not less than $225,000 per annum paid in accordance with the Company's payroll practices and policies. Executive's base salary for the Second Year (as defined below) will be at a rate of not less that $235,000 per annum paid in accordance with the Company's payroll practices and policies. For the purposes of this Agreement, the "First Year" shall mean the period February 1, 2002 through January 31, 2003 and the "Second Year" shall mean the period February 1, 2003 through January 31, 2004.

(b) Bonus. Executive will be eligible for a bonus pursuant to the Company's executive bonus program, which shall be established during the First Year. If, for any reason, the Company does not establish such a bonus pool or plan during the First Year, the Company will meet with Executive prior to the end of the First Year to discuss a mutually acceptable alternative therefor, including, but not limited to, a guaranteed bonus for the Second Year.

(c) The Company shall lease a car for Executive with monthly lease payments not to exceed $700. The Company shall, in addition, reimburse Executive for all parking, maintenance, repairs, insurance, gas, tolls and other related expenses promptly upon Executive's submission of appropriate documentation.

4. Other Benefits and Expenses.

(a) Executive shall be permitted during the Term to participate (without any waiting periods) in any and all benefit plans, hospitalization, medical, health, disability, officer/director or employee liability insurance plans, pension and 401K plans or other benefit plans (including any to-be-established bonus plans) on the same terms and conditions as extended to other executive officers of the Company.

(b) The Company shall promptly reimburse Executive for all reasonable and necessary travel and entertainment expenses and other disbursements or costs Executive may incur in connection with promoting the business of the Company.

(c) Executive shall be entitled to four weeks of paid vacation per year. If, in any year, Executive does not take some or all of her vacation, such unused days will be banked and carried over into the next year, as may be applicable.

5. Establishment and Operation of Legal Department.

(a) Executive shall be entitled to a full-time dedicated secretary or assistant.

(b) Executive shall be permitted to attend such professional conferences, receive such professional publications, acquire such professional books and materials to build a library, and receive such other facilities and support as are reasonable and necessary to establish a legal department and perform her duties hereunder.

(c) Executive shall be provided with all reasonable and necessary facilities and equipment to carry out her duties, including but not limited to a laptop computer, cellular phone and home fax machine.

6. Termination.

(a) Executive's employment may be terminated by the Company prior to the expiration of the Term of this Agreement only for "Cause" by giving Executive prior written notice of the basis for the proposed termination and a reasonable chance to cure. As used in this agreement, the term "Cause" shall mean: (a) Executive's willful and continuing malfeasance and failure to perform having a material adverse effect on the Company; (b) Executive's willful engagement in fraud or dishonesty against the Company having a material adverse effect on the Company; or (c) Executive's conviction of a felony involving moral turpitude.

(b) Executive may terminate this Agreement at any time for "Good Reason" by giving the Company prior written notice of the basis for the proposed termination and a reasonable chance to cure. "Good Reason" shall mean any of the following: (i) a breach by the Company of any of its payment obligations to Executive hereunder; (ii) relocation of the Company outside a 50-mile radius of New York City unless the Company shall provide Executive with a suitable location from which to work within such radius; (iii) a proposed material modification or reduction of Executive's duties or position as chief counsel;
(iv) the bankruptcy, reorganization or liquidation of the Company; or (v) a failure of any successor corporation to the Company to assume the obligations under this Agreement.

7. Effect of Termination.

(a) Upon termination of Executive's employment for Cause (or upon Executive's death or disability rendering her unable to perform), Executive (or Executive's heirs and representatives) shall receive any accrued salary, pro-rated bonus and vacation due through the date of termination and be reimbursed for any outstanding business expenses (including those relating to Executive's car) incurred prior to the date of termination. Executive (or Executive's heirs or representatives, if applicable) shall also be entitled to continuation of health and medical benefits for 3 months from the date of termination.

(b) If the Company terminates Executive's employment without Cause or Executive terminates Executive's employment for Good Reason within 12 months after a Change in Control (as defined in Subsection 7(d)), then the Company shall pay to Executive in complete satisfaction of its obligations under this Agreement, as severance pay and as liquidated damages (because actual damages are difficult to ascertain), in a lump sum, in cash, within 15 days after the date of Executive's termination, an amount equal to $100 less than three times Executive's "annualized includable compensation for the base period" (as defined in Section 280G of the Internal Revenue Code of 1986); provided, however, that if such lump sum severance payment, either alone or together with other payments or benefits, either cash or non-cash, that Executive has the right to receive from the Company, including, but not limited to, accelerated vesting or payment of any deferred compensation, options, stock appreciation rights or any benefits payable to Executive under any plan for the benefit of employees, which would constitute an "excess parachute payment" (as defined in Section 280G of the Internal Revenue Code of 1986), then such lump sum severance payment or other benefit shall be reduced to the largest amount that will not result in receipt by Executive of a parachute payment. The determination of the amount of the payment described in this subsection shall be made by the Company's independent auditors at the sole expense of the Company. For purposes of clarification the value of any options described above will be determined by the Company's independent auditors using a Black-Scholes valuation methodology.

(c) If within 12 months after the occurrence of a Change of Control, the Company shall terminate Executive's employment without Cause or Executive terminates Executive's employment for Good Reason, then notwithstanding the vesting and exercisability schedule in any stock option agreement between the Company and Executive, all unvested stock options granted by the Company to Executive pursuant to such agreement shall immediately vest and become exercisable and shall remain exercisable for not less than 180 days thereafter.

(d) A "Change in Control" shall mean any of the following:

(1) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company common stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger;

(2)      any sale,  lease,  exchange or other transfer (in one transaction or a
series of related  transactions) of all or substantially all of the assets of
the Company;

(3)      any  approval  by the  stockholders  of the  Company  of any  plan  or
proposal  for the  liquidation  or dissolution of the Company;

(4) the cessation of control (by virtue of their not constituting a majority of directors) of the Company's Board of Directors by the individuals (the "Continuing Directors") who (x) at the date of this Agreement were directors or
(y) become directors after the date of this Agreement and whose election or nomination for election by the Company's stockholders, was approved by a vote of at least two-thirds of the directors then in office who were directors at the date of this Agreement or whose election or nomination for election was previously so approved); or

(5) (A) the acquisition of beneficial ownership ("Beneficial Ownership"), within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of an aggregate of 15% or more of the voting power of the Company's outstanding voting securities by any person or group (as such term is used in Rule 13d-5 under the Exchange Act) who beneficially owned less than 10% of the voting power of the Company's outstanding voting securities on the effective date of this Agreement, (B) the acquisition of Beneficial Ownership of an additional 5% of the voting power of the Company's outstanding voting securities by any person or group who beneficially owned at least 10% of the voting power of the Company's outstanding voting securities on the effective date of this agreement, or (C) the execution by the Company and a stockholder of a contract that by its terms grants such stockholder (in its, hers or his capacity as a stockholder) or such stockholder's Affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933 (an "Affiliate")) including, without limitation, such stockholder's nominee to the Company's Board of Directors (in its, hers or his capacity as an Affiliate of such stockholders), the right to veto or block decisions or actions of the Company's Board of Directors' provided however, that notwithstanding the foregoing, the events described in items (A), (B) or (C) above shall not constitute a Change in Control hereunder if the acquiror is (aa) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or one of its affiliated entities and acting in such capacity, (bb) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of voting securities of the Company or (cc) a person or group meeting the requirements of clauses (ii) and (ii) of Rule 13d-1(b)(1) under the Exchange Act;

(6) subject to applicable law, in a Chapter 11 bankruptcy proceeding, the appointment of a trustee or the conversion of a case involving the Company to a case under Chapter 7.

(e) Executive shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise, nor shall the amount of any payment provided for in this Section 7 be reduced by any compensation earned by Executive as the result of Executive's employment by another employer or business or by profits earned by Executive from any other source at any time before and after Executive date of termination.

8. Indemnification. The Employer shall indemnify and hold harmless the Executive against any and all expenses reasonably incurred by her in connection with or arising out of (a) the defense of any action, suit or proceeding in which she is a party, or (b) any claim asserted or threatened against her, in either case by reason of or relating to her being or having been an employee, officer or director of the Company, whether or not she continues to be such an employee, officer or director at the time of incurring such expenses, except insofar as such indemnification is prohibited by law. Such expenses shall include, without limitation, the fees and disbursements of attorneys, amounts of judgments and amounts of any settlements, provided that such expenses are agreed to in advance by the Employer. The foregoing indemnification obligation is independent of any similar obligation provided in the Employer's Certificate of Incorporation or Bylaws, and shall apply with respect to any matters attributable to periods prior to the Effective Date, and to matters attributable to Executive's employment hereunder, without regard to when asserted.

9. Miscellaneous.

(a) This Agreement shall be governed by the laws of the State of New York and each Party agrees that in the event of a dispute relating to the terms hereof the other will submit to the exclusive jurisdiction of the state or federal courts sitting within the City of New York.

(b) If not terminated in accordance with its terms, this Agreement shall be binding upon, and inure to the benefit of, the Parties, their heirs, legal representatives, successors and permitted assigns.

(c) The invalidity or unenforceability of any provision hereof shall not in any way affect the validity or enforceability of any other provision. This Agreement reflects the entire understanding between the Parties.

(d) This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of the Executive by the Employer and contains all of the covenants and agreements between the parties with respect to such employment in any manner whatsoever. Any modification or termination of this Agreement will be effective only if it is in writing signed by the party to be charged.

(e) This Agreement may be executed by the parties in one or more counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts has been signed by each of the parties hereto and delivered to each of the other parties hereto.

10. Notices. All notices relating to this Agreement shall be in writing and shall be either personally delivered, sent by telecopy (receipt confirmed) or mailed by certified mail, return receipt requested, to be delivered at such address as is indicated below, or at such other address or to the attention of such other person as the recipient has specified by prior written notice to the sending party. Notice shall be effective when so personally delivered, one business day after being sent by telecopy or five days after being mailed.

To the Employer:

Candie's, Inc.
400 Columbus Avenue
Valhalla, NY 10595

Attention: Neil Cole, Chief Executive Officer

With a copy in the same manner to:

Blank Rome Tenzer Greenblatt LLP 405 Lexington Avenue New York, New York 10174 Attention: Robert J. Mittman, Esq.

To the Executive:

Deborah Sorell Stehr
320 East 46th Street, Apt 11A
New York, New York 10017

IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the 1st day of February, 2002.

CANDIE'S, INC.

By: /s/ Neil Cole
    -----------------------
    Neil Cole,
    Chief Executive Officer

    /s/Deborah Sorell Stehr
    -----------------------
    Deborah Sorell Stehr

January 23, 2002

CANDlE'S INC.
400 Columbus Avenue
Valhalla, NY 10595-1335

NOTIFICATION FACTORING AGREEMENT

Ladies and Gentlemen:

We are pleased to confirm the terms and conditions that shall govern our full recourse funds in use accounting factoring arrangement with advances (the "Agreement").

1. SALE OF ACCOUNTS

1. You hereby sell, assign and transfer to us, and we hereby purchase as absolute owner, all of your accounts created by or arising from the sale of goods or rendition of services by you (referred to herein collectively as the "Accounts", individually as an `Account"). This includes, without limitation, all sales made and services rendered under any of your trade names or styles or through any of your divisions. Anything contained herein to the contrary notwithstanding, for purposes of paragraphs 4, 5 and 6 hereof, the term "Accounts" shall not include accounts arising from sales to any subsidiary, parent or affiliated company of yours.

2. RISK OF NON-PAYMENT

2. Under no circumstances are we to be deemed to have assumed any risk of non-payment with respect to any Accounts, it being understood that all Accounts shall be at your exclusive risk and with recourse back to you if payment is not made on any Account for any reason whatsoever.

3. INVOICING

3. Each of your invoices shall bear a notice (in form and content approved by us) that the Account represented thereby has been sold, assigned and transferred to us, and is owned by and payable only to us. All invoices shall be mailed by you to your customers at your expense. You shall provide us with copies of all invoices, and with such confirmation of the transfer of Accounts to us and such proof of order, shipment or delivery as we may require. Your printed name or rubber stamp signature on invoices and confirmatory assignment schedules shall have the same legal effect as a manual signature by one of your authorized officers or agents. Should you for any reason defer shipment of goods which you have sold and invoiced to a customer (such sales are also known as bill and hold sales) you shall: so advise us promptly, submit all relevant details to us, and comply with such conditions as we deem necessary as a prerequisite to our handling the Accounts arising therefrom on our books.

4. REPRESENTATIONS AND WARRANTIES

4.1 You hereby represent and warrant that: each Account is based upon an actual and bona fide sale and delivery of goods or rendition of services to customers, made by you in the ordinary course of your business; the goods and inventory being sold and the Accounts created are your exclusive property and are not and shall not be subject to any lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever, other than in our favor; at the time of purchase by us of the Account, your customers have accepted the goods or services, owe and are obligated to pay the full amounts stated in the invoices according to their terms, without dispute, claim, offset, defense, deduction, recoupment, counterclaim or contra account (any of the foregoing being referred to herein as a "Customer Claim") unless you have notified us pursuant to paragraph 8; all amounts are due in United States Dollars; all original invoices bear notice of the assignment and transfer to us; any taxes or fees relating to your Accounts or goods are solely your responsibility; and none of the Accounts factored with us hereunder represent sales to any subsidiary, parent or affiliated company of yours.

4.2 You further represent and warrant that: your legal name is exactly as set forth on the signature page of this Agreement, you are a duly organized and validly existing business organization incorporated or registered in the state of New York, and are qualified to do business in all states where required; the most recent financial statements provided by you to us accurately reflect your financial condition as of that date and there has been no material adverse change in your financial condition since the date of those financial statements. You agree to furnish us with such information concerning your business affairs and financial condition as we may reasonably request from time to time. You will furnish to us as soon as possible, but not later than one hundred twenty (120) days after the close of each of your fiscal years, your and your consolidated subsidiaries financial statements as of the end of such year, on a consolidated basis, audited by a firm of independent, certified public accountants, which as of the date of this Agreement is BDO Seidman, LLP and which is acceptable to us of such date, or such other firm as may be mutually acceptable to us, and consolidating statements certified by one of your financial officers. In addition, you shall deliver to us promptly upon their becoming available, a copy of (A) all consultants' reports, investment bankers' reports, accountants' management letters, business plans and similar documents, (b) all reports, financial statements or other information delivered to your shareholders and/or filed with the SEC or any other governmental authority, (C) all reports, proxy statements, financial statements and other information generally distributed by you to your creditors or the financial community in general; and (D) any audit or other reports submitted to you by independent accountants in connection with any annual, interim or special audit.

4.3 You agree that you will promptly notify us of any change in your: name, state of incorporation or registration, location of your chief executive office, place(s) of business, and legal or business structure. Further, you agree that you will promptly notify us of any change in control of the ownership of your business organization, and of significant law suits or proceedings against you.

4.4 You further represent and warrant that (a) the trademark and/or tradename "Candies" together with all related intellectual property is owned by you and (b) the trademark and/or tradename "Bongo" together with all related intellectual property is owned by your wholly owned subsidiary, Michael Caruso & Co., Inc, in each case free and clear of all liens and/or security interest. You agree that said trademarks and/or tradenames shall not be sold or transferred without our prior written consent.

5. PURCHASE OF ACCOUNTS

5. We shall purchase the Accounts for the gross amount of the respective invoices, less factoring fees or commissions relating thereto, trade and cash discounts allowable to your customers and credits and allowances (the "Purchase Price of Accounts"). Our purchase of the Accounts shall be reflected on the Statements of Account which we shall render to you, and such statements shall also reflect all credits and discounts made available to your customers (whether or not taken) and anticipation earned by your customers. A more detailed description of these and all other accounting procedures used hereunder is contained in the Guide.

6. ADVANCES

6. At your request, and in our sole discretion, we may advance funds to you and Bright Star Footwear, Inc. ("Bright Star"), under its separate Factoring Agreement with us, in an aggregate amount of up to the lesser of (A) $20,000,000 or (B) the sum of: (i) up to eighty-five percent (85%) prior to the collection of the Accounts, (ii) subject to your execution and delivery of an inventory security agreement supplement in form and substance satisfactory to us, in amounts of up to sixty percent (60%) of the value of your Eligible Inventory (as defined in the Inventory Security Agreement) calculated on the basis of the lower of cost or market, with cost calculated on a first in-first out basis,
(iii) subject to your execution and delivery of a letter of credit security agreement supplement in form and substance satisfactory to us, we will, in our sole discretion, assist you in establishing or opening letters of credit for your account or guarantee the payment or performance of such letters of credit up to an aggregate face amount not exceeding $3,000,000 at any one time outstanding for you and Bright Star and (iv) we may make available to you and Bright Star, in our sole discretion, an overadvance accommodation of up to $5,000,000.00 in the aggregate outstanding at any onetime. (For purposes hereof, "overadvances" shall mean advances in excess of the percentage limitations set forth above.). In addition, we will establish a discretionary line for you and Bright Star of up to $250,000.00 in the aggregate outstanding at any one time for Ledger Debt (as defined in section 11). This line will be available to you provided that (a) this Agreement is in full force and effect, (b) no Event of Default hereunder is then outstanding and (c) there is no material deterioration in your credit worthiness in our reasonable opinion. At your request, we may in our sole discretion, make advances to you prior to the collection of Accounts, subject to our right to hold any reserves we deem necessary as security for the payment and performance of any and all of your Obligations, as defined herein. All amounts owing to us by you, including, without limitation, any advances which may be made to you prior to shipment and any debit balance in your Client Position Account (as defined below), shall be payable to us on demand. We may send to you at any time any credit balance in your Funds-In-Use Account (as defined below), without prior notice to you.

7. PAYMENT OF ACCOUNTS

7. Checks and other proceeds received by us in payment of Accounts will be promptly applied to your account with us after crediting your customer's account; however, we shall debit your account monthly with the cost of two (2) additional business days on all such amounts. The foregoing shall be computed at the rate charged by us on debit balances, as set forth in paragraph 13.1 hereof. No checks, drafts or other instruments received by us shall constitute final payment of an Account unless and until such instruments have actually been collected.

8. CUSTOMER CLAIMS AND CHARGEBACKS

8. You shall notify us promptly of any matter affecting the value, enforceability or collectability of any Account and of all Customer Claims, returns and rejections. You shall issue credit memoranda promptly upon accepting returns or granting allowances, (and upon our request, send duplicates and/or confirm the assignment of such credit memoranda to us). We may at any time debit or charge back to your account the amount of: any Account which is not paid in full when due for any reason and any Account with respect to which we determine that there has been a breach of any representation or warranty hereunder. Any deduction taken by a customer shall be charged back to your account immediately, and we may at any time debit or charge back to your account the amount of: (i) payments we receive on Accounts which we are required thereafter to turnover or return; (ii) any and all expenses and attorneys' fees incurred by us in collecting or attempting to collect any Account charged back to you or any Obligation hereunder; and (iii) any expenses incurred by us as a result of remittances made by customers on Accounts that are not finally paid, for whatever reason. Further, we shall be entitled to charge you a reasonable fee for each Account which we may place with a collection agency or attorney for collection, which fee shall be charged to your account in addition to any fees or expenses of such collection agency or attorney. We may bring suit or otherwise enforce collection, in your name or ours, and generally shall have all other rights respecting said Accounts, including, without limitation, the right to: accelerate or extend the time of payment, modify the terms of payment, settle, compromise, release in whole or in part any amounts owing, and issue credits in your name or ours. To the extent applicable, you hereby waive any and all claims and defenses based on suretyship. We may endorse or sign your name or ours on any checks or other instruments or documents with respect to Accounts or the goods covered thereby.

9. STATEMENTS OF ACCOUNT

9. After the end of each month, within ten (10) business days on the end of each month, we shall send to you one or more reports showing the accounting for sales, charges, advances and other transactions between us during that month (herein the "Reports"). The Reports sent to you each month will include, among other things, a Statement of Account which will reflect transactions in three accounts: an accounts receivable account (the "Accounts Receivable Account"), a client position account (the "Client Position Account') and a funds-in-use account (the "Funds-In-Use Account"). All financial transactions between us will be reflected on these monthly Reports. The monthly Reports shall be deemed correct and binding upon you and shall constitute an account stated between us, unless we receive a written statement of your exceptions within thirty (30) days after the date the same are received by you.

10. GRANT OF SECURITY INTEREST

10.1 In addition to the sale of Accounts hereunder, and without the necessity of any further formality, writing or evidence, you hereby transfer and assign to us and grant us a security interest in all of your right, title and interest in and to all of your now existing and future (herein collectively the "Collateral"): (a) accounts (including the Accounts), instruments, documents, chattel paper (including electronic chattel paper), general intangibles (including all payment intangibles and all other rights to payment), and any other obligations owing to you; (b) unpaid seller's rights (including rescission, repossession, replevin, reclamation and stoppage in transit); (c) rights to any inventory represented by the foregoing, including returned or repossessed goods; (d) reserves and credit balances arising hereunder; (e) guarantees, collateral, supporting obligations and letter of credit rights with respect to the foregoing; (0 insurance policies, proceeds or rights relating to the foregoing; (g) federal, state and local income tax refunds; (h) cash and non-cash proceeds of the foregoing; (i) Books and Records (defined in section 12 below) evidencing or pertaining to the foregoing; and U) all now existing and future patents and trademarks, including those registered in the United States Patent and Trademark Office, the goodwill of the business in connection therewith, and any and all proceeds, royalties and other fees which are or may become due therefrom or for the use thereof.. (It is understood that we shall have no obligation to perform in any respect, any contracts relating to any Accounts).

10.2 You agree to comply with all applicable laws to perfect our security interest in collateral pledged to us hereunder, and to execute such documents as we may require to effectuate the foregoing and to implement this Agreement. You irrevocably authorize us to file financing statements and all amendments and continuations with respect thereto, all in order to create, perfect or maintain our security interest in the Collateral, and you hereby ratify and confirm any and all financing statement, amendments and continuations with respect thereto heretofore and hereafter filed by us pursuant to the foregoing authorization.

11. OBLIGATIONS SECURED

11. The security interest granted hereunder and any lien or security interest that we now or hereafter have in any of your other assets, collateral or property, secure the payment and performance of all of your now existing and future indebtedness and obligations to us, whether absolute or contingent, whether arising under this Agreement or any other agreement or arrangement between us, by operation of law or otherwise ("Obligations"). Obligations also include ledger debt (which means indebtedness for goods and services purchased by you from any party whose accounts receivable are factored or financed by us) ("Ledger Debt"), and indebtedness arising under any guaranty, credit enhancement or other credit support granted by you in our favor. Any reserves or balances to your credit and any other assets, collateral or property of yours in our possession constitutes security for any and all Obligations.

12. BOOKS AND RECORDS AND EXAMINATIONS

12. You agree: to make your records, files and books of account (including, without limitation, paper records, computer-based data, records or media, electronic records, tapes, discs, etc., and all programs and procedure manuals relating thereto) (all of the foregoing referred to herein as "Books and Records") available to us on request; to permit us to visit your premises during business hours to examine the same and to make copies or extracts thereof; and to conduct such examinations as we deem necessary. In order to cover costs and expenses we may incur in connection with any such examinations, we shall be entitled to charge you a fee of $750.00 for each day or part thereof for each examiner during which such examination is conducted, which fee shall be charged to your account, in addition to any out-of-pocket costs and expenses we incur as a result of conducting said examinations.

13. INTEREST, FACTORING FEES OR COMMISSIONS AND OTHER CHARGES

13.1 Interest shall be charged as of the last day of each month on the debit balance in your Funds-In-Use Account each day during that month. The amount that appears in your Funds-In-Use Account is the difference between the balance in your Accounts Receivable Account and the balance in your Client Position Account. Interest is charged as of the last day of each month based on the daily debit balances in your Funds In Use account for that month, at a rate equal to the sum of one percent (1%) plus the Chase Prime Rate (defined below). The Chase Rate is the per annum rate of interest publicly announced by The Chase Manhattan Bank in New York, New York from time to time as its prime rate. (The prime rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers.) Any change in the rate of interest hereunder due to a change in the Chase Rate shall take effect as of the first of the month following such change in the Chase Rate. Interest shall be calculated based on a 360 day year. Interest shall be credited as of the last day of each month on any credit balance in your Funds-In-Use Account each day during that month, at a rate four percent (4%) per annum below the Chase Rate being used to calculate interest hereunder for the period. In no event, shall the rate charged hereunder exceed the highest rate permitted under applicable law. In the event, however, that we do receive interest hereunder in excess of the highest rate permissible, you agree that your sole remedy shall be to seek repayment of such excess, and you hereby waive any and all other rights and remedies which may be available to you under law or in equity.

13.2 If you, as a client of ours, purchase goods or services from another client of ours and your payments on these invoices are not timely received, a late interest payment, at our then late interest rate, will be charged to your account with us and shall be deemed an Obligation under this Agreement.

13.3 For our services hereunder, you will pay us a factoring fee or charge of one-quarter of one percent (.25%) of the gross face amount of all Accounts factored with us, but in no event less than $1.00 per invoice. All factoring fees or charges are due and charged to your account upon our purchase of the underlying Account. Commencing on even date herewith, if the actual factoring fees or charges paid to us by you during any Contract Year, is less than $100,000.00 ("Minimum Factoring Fees"), we shall charge your account as of the end of such Contract Year with an amount equal to the difference between the actual factoring fees or charges paid during such Period and said Minimum Factoring Fees. "Contract Year" shall mean the period ending on the last day of the month occurring one year from the date of this Agreement and each subsequent Contract Year shall be the twelve month period ending on the same day in each year thereafter.

13.4 In addition to the foregoing, you shall pay all costs and expenses incurred by us in connection with the preparation, execution, administration and enforcement of this Agreement, including, without limitation, all reasonable fees and expenses attributable to the services of our attorneys (whether in-house or outside), all search fees and the cost of all public record filings. Furthermore, you shall pay to us a reasonable fee for: all special reports prepared by us at your request and all wire transfers. All such fees shall be charged to your account and may be changed by us from time to time upon notice to you. Notwithstanding the foregoing, in no event shall the fees for preparation and execution of this Agreement exceed $10,000 in the aggregate, plus all search and fling fees.

13.5 In addition to the fees and charges under this Agreement, you and your affiliate, Bright Star Footwear, Inc., jointly and severally agree to pay us, as of the date hereof, a Documentation Fee, set forth in 13.4 above, in the amount of $10,000 in the aggregate, to compensate us for the use of our in-house legal department and facilities in documenting this Agreement.

13.6 If any tax by any governmental authority (other than income and franchise taxes imposed on us which are not related to any transaction between us) is or may be imposed on, or arises as a result of, any transactions between us, any sales made by you, or any inventory or goods relating to such sales, and we are or may be required to withhold or pay such tax and any interest or penalties related thereto, you shall indemnify and hold us harmless in respect thereof and pay to us the amount of any such tax, interest or penalties.

14. TERMINATION

14. Except as otherwise provided herein, you may terminate this Agreement for any reason whatsoever, but only as of an Anniversary Date, as defined herein, and then only by giving us at least sixty (60) days prior written notice of termination. We may terminate this Agreement for any reason whatsoever at any time by giving you written notice stating a termination date not less than sixty
(60) days from the date such notice is given, or immediately at any time without prior notice to you upon and after the occurrence of an Event of Default (as defined below). This Agreement continues uninterrupted unless terminated as herein provided. As used herein, the term "Anniversary Date" shall mean the last day of the month occurring three years from the date hereof or the same date in any year thereafter. In the event you terminate this Agreement prior to an Anniversary Date you shall pay to us and we shall be entitled to receive an amount equal to the difference between the actual commissions paid to us under paragraph 13.3 hereof and the aggregate of the Minimum Factoring Fees for the Contract Year during which this Agreement is terminated and each additional Contract Year occurring thereafter prior to the next Anniversary Date; provided however, no termination fees of any kind shall be imposed in the event of any replacement of this factoring agreement by us. Unless sooner demanded, all Obligations shall become due and payable upon termination of this Agreement and, pending a final accounting, we may withhold any balances in your account unless supplied with an indemnity satisfactory to us to cover all Obligations. All our rights, liens and security interests hereunder shall continue and remain in effect after termination of this Agreement, whether said termination is upon notice or as a result of the occurrence of an Event of Default, and you shall continue to assign accounts receivable to us and to remit to us all collections on accounts receivable, until all Obligations have been paid in full or we have been supplied with an indemnity satisfactory to us to cover all Obligations.

15. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT

15.1 An "Event of Default" shall be deemed to have occurred under this Agreement upon: (a) the cessation of your business or the calling of a meeting of your creditors; (b) your failure to meet your debts as they mature; (c) the commencement by or against you of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law; (d) breach by you of any representation, warranty or covenant contained herein or in any other agreement between us; (e) your failure to pay any Obligation within five (5) days of the due date thereof or (0 the occurrence of an Event of Default under or termination of our Factoring Agreement with Bright Star.

15.2 Upon and after the occurrence of an Event of Default, this Agreement may be terminated by us immediately at anytime, without notice to you, and all Obligations shall, at our option and without notice or demand of any kind (all of which you hereby expressly waive), become due and payable immediately. Further, we may remove, from any premises where the same may be located, any and all documents, instruments, Books and Records (and any receptacles or cabinets containing the same) pertaining to the Accounts or other collateral hereunder and/or we may use (at your expense) such of your personnel, supplies and space at your place of business or elsewhere, as may be necessary to properly administer and enforce our rights in the Accounts and any other collateral hereunder, and to facilitate the collection thereof and realization thereon. We may sell, assign or otherwise dispose of the Accounts and any returned, reclaimed or repossessed inventory, goods or other property relating thereto, whether held by you or by us, at public or private sale, for cash, on credit or otherwise, at such price and on such terms as we in our sole option and discretion may determine, and we may bid or become purchasers at any such sale, or acquire an interest in or dispose of said property. You hereby acknowledge that you have no right to notice, or to an accounting or right of redemption with respect to any such sale or other disposition of the aforesaid Accounts or aforesaid goods. With respect to any other property or collateral in which we have a security interest, we shall have all of the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code. If notice of intended disposition of any of said property or collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notice. The net cash proceeds resulting from the exercise of any of the foregoing rights, after deducting all charges, costs and expenses (including reasonable attorneys' fees) shall be applied by us to the payment or satisfaction of the Obligations, whether due or to become due, in such order as we may elect, and you shall remain liable to us for any deficiencies. Upon and after the occurrence of an Event of Default, or in the event of a termination of this Agreement by us, we are hereby authorized by you to notify postal authorities at any time to change the address for delivery of mail to you to such address as we may designate, and to receive and open mail addressed to you to enable us to carry out our rights under this Agreement.

15.3 Anything contained herein to the contrary notwithstanding you shall have the right to terminate this Agreement without the imposition of any Minimum Factoring Fees or other termination fees if we have not offered you a term loan facility substantially on the terms set forth in our proposal letter of December 21, 2001 in the amount of not less $12,500,000 within ninety (90) days from the date first written above on the terms and conditions set forth therein.

16. MISCELLANEOUS PROVISIONS

16.1 This Agreement, and all attendant documentation, as the same may be amended from time to time, constitutes the entire agreement between us with regard to the subject matter hereof, and supersedes any prior agreements or understandings. Furthermore, unless specifically provided otherwise herein, this Agreement can be changed only by a writing signed by both of us, and shall bind and benefit each of us and our respective successors and assigns, provided, however, that you may not assign this Agreement or your rights hereunder without our prior written consent. Our failure or delay in exercising any right hereunder shall not constitute a waiver thereof or bar us from exercising any of our rights at anytime. The validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of New York Jurisdiction to be in New York County.

16.2 If any provision of this Agreement (including, without limitation, any provision relating to charges constituting interest payable by you) is contrary to, prohibited by, or deemed invalid under applicable laws or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

16.3 Paragraph headings are for convenience only and shall not be deemed to be a controlling part of this Agreement.

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17. JURY TRIAL WAIVER

17. To the extent permitted by applicable law, you and we each hereby waive any right to a trial by jury in any action or proceeding arising directly or indirectly out of this Agreement, or any other agreement or transaction between us or to which we are both parties.

If the foregoing is in accordance with, and accurately reflects, your understanding, please so indicate by signing and returning to us the original and one copy of this Agreement. This Agreement shall take effect as of the date set forth above, but only after being accepted below by one of our officers in New York, New York, after which, we shall forward your fully executed copy to you for your files.

Very truly yours,

THE CIT GROUP/COMMERCIAL SERVICES, INC.

By:/s/ Richard Lyons
-------------------------------------
Name:  Richard Lyons
Title: Vice President

Read and Agreed:

CANDIES, INC

By:/s/ Richard Danderline
-----------------------------------
Name:  Richard Danderline
Title: Executive Vice President

Accepted at New York, New York
THE CIT GROUP/COMMERCIAL SERVICES, INC.

By:/s/ Jonathan A. Lucas
-------------------------------------
Name:  Jonathan A. Lucas
Title: Senior Vice President

January 23, 2002

BRIGHT STAR FOOTWEAR, INC.
400 Columbus Avenue
Valhalla, NY 10595-1335

NOTIFICATION FACTORING AGREEMENT

Ladies and Gentlemen:

We are pleased to confirm the terms and conditions that shall govern our full recourse funds in use accounting factoring arrangement with advances (the Agreement").

1. SALE OF ACCOUNTS

1. You hereby sell, assign and transfer to us, and we hereby purchase as absolute owner, all of your accounts created by or arising from the sale of goods or rendition of services by you (referred to herein collectively as the "Accounts", individually as an "Account"). This includes, without limitation, all sales made and services rendered under any of your trade names or styles or through any of your divisions. Anything contained herein to the contrary notwithstanding, for purposes of paragraphs 4,5 and 6 hereof, the term `accounts shall not include accounts arising from sales to any subsidiary, parent or affiliated company of yours

2. RISK OF NON-PAYMENT

2. Under no circumstances are we to be deemed to have assumed any risk of non-payment with respect to any Accounts, it being understood that all Accounts shall be at your exclusive risk and with recourse back to you if payment is not made on any Account for any reason whatsoever.

3. INVOICING

3. Each of your invoices shall bear a notice (in form and content approved by us) that the Account represented thereby has been sold, assigned and transferred to us, and is owned by and payable only to us. All invoices shall be mailed by you to your customers at your expense. You shall provide us with copies of all invoices, and with such confirmation of the transfer of Accounts to us and such proof of order, shipment or delivery as we may require. Your printed name or rubber stamp signature on invoices and confirmatory assignment schedules shall have the same legal effect as a manual signature by one of your authorized officers or agents. Should you for any reason defer shipment of goods which you have sold and invoiced to a customer (such sales are also known as bill and hold sales) you shall: so advise us promptly, submit all relevant details to us, and comply with such conditions as we deem necessary as a prerequisite to our handling the Accounts arising therefrom on our books.

4. REPRESENTATIONS AND WARRANTIES

4.1 You hereby represent and warrant that: each Account is based upon an actual and bona fide sale and delivery of goods or rendition of services to customers, made by you in the ordinary course of your business; the goods and inventory being sold and the Accounts created are your exclusive property and are not and shall not be subject to any lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever, other than in our favor; at the time of purchase by us of the Account, your customers have accepted the goods or services, owe and are obligated to pay the full amounts stated in the invoices according to their terms, without dispute, claim, offset, defense, deduction, recoupment, counterclaim or contra account (any of the foregoing being referred to herein as a "Customer Claim') unless you have notified pursuant to paragraph 8; all amounts are due in United States Dollars; all original invoices bear notice of the assignment and transfer to us; any taxes or fees relating to your Accounts or goods are solely your responsibility; and none of the Accounts factored with us hereunder represent sales to any subsidiary, parent or affiliated company of yours.

4.2 You further represent and warrant that: your legal name is exactly as set forth on the signature page of this Agreement, you are a duly organized and validly existing business organization incorporated or registered in the state of New York, and are qualified to do business in all states where required; the most recent financial statements provided by you to us accurately reflect your financial condition as of that date and there has been no material adverse change in your financial condition since the date of those financial statements. You agree to furnish us with such information concerning your business affairs and financial condition as we may reasonably request from time to time. You will furnish to us as soon as possible, but not later than one hundred twenty (120) days after the close of each of your fiscal years, your and your consolidated subsidiaries financial statements as of the end of such year, on a consolidated basis, audited by a firm of independent, certified public accountants, which as of the date of this Agreement is BDO Seidman, LLP and which is acceptable to us of such date, or such other firm as may be mutually acceptable to us, and consolidating statements certified by one of your financial officers. In addition, you shall deliver to us promptly upon their becoming available, a copy of (A) all consultants' reports, investment bankers' reports, accountants' management letters, business plans and similar documents, (b) all reports, financial statements or other information delivered to your shareholders and/or filed with the SEC or any other governmental authority, (C) all reports, proxy statements, financial statements and other information generally distributed by you to your creditors or the financial community in general; and (D) any audit or other reports submitted to you by independent accountants in connection with any annual, interim or special audit.

4.3 You agree that you will promptly notify us of any change in your: name, state of incorporation or registration, location of your chief executive office, place(s) of business, and legal or business structure. Further, you agree that you will promptly notify us of any change in control of the ownership of your business organization, and of significant law suits or proceedings against you.

4.4 You further represent and warrant that (a) the trademark and/or tradename "Candies" together with all related intellectual property is owned by you and (b) the trademark and/or tradename "Bongo" together with all related intellectual property is owned by your wholly owned subsidiary, Michael Caruso & Co., lnc, in each case free and clear of all liens and/or security interest. You agree that said trademarks and/or tradenames shall not be sold or transferred without our prior written consent.

5. PURCHASE OF ACCOUNTS

5. We shall purchase the Accounts for the gross amount of the respective invoices, less factoring fees or commissions relating thereto, trade and cash discounts allowable to your customers and credits and allowances (the "Purchase Price of Accounts"). Our purchase of the Accounts shall be reflected on the Statements of Account which we shall render to you, and such statements shall also reflect all credits and discounts made available to your customers (whether or not taken) and anticipation earned by your customers. A more detailed description of these and all other accounting procedures used hereunder is contained in the Guide.

6. ADVANCES

6. At your request, and in our sole discretion, we may advance funds to you and Candie's, Inc. ("Candies"), under its separate Factoring Agreement with us, in an aggregate amount of up to the lesser of (A) $20,000,000 or (B) the sum of:
(i) up to eighty-five percent (85%) prior to the collection of the Accounts,
(ii) subject to your execution and delivery of an inventory security agreement supplement in form and substance satisfactory to us, in amounts of up to sixty percent (60%) of the value of your Eligible Inventory (as defined in the Inventory Security Agreement) calculated on the basis of the lower of cost or market, with cost calculated on a first in-first out basis, (iii) subject to your execution and delivery of a letter of credit security agreement supplement in form and substance satisfactory to us, we will, in our sole discretion, assist you in establishing or opening letters of credit for your account or guarantee the payment or performance of such letters of credit up to an aggregate face amount not exceeding $3,000,000 at any one time outstanding for you and Candies and (iv) we may make available to you and Candies, in our sole discretion, an overadvance accommodation of up to $5,000,000.00 in the aggregate outstanding at any onetime. (For purposes hereof, "overadvances" shall mean advances in excess of the percentage limitations set forth above.). In addition, we will establish a discretionary line for you and Candies of up to $250,000.00 in the aggregate outstanding at any one time for Ledger Debt (as defined in section 11). This line will be available to you provided that (a) this Agreement is in full force and effect, (b) no Event of Default hereunder is then outstanding and (c) there is no material deterioration in your credit worthiness in our reasonable opinion. At your request, we may in our sole discretion, make advances to you prior to the collection of Accounts, subject to our right to hold any reserves we deem necessary as security for the payment and performance of any and all of your Obligations, as defined herein. All amounts owing to us by you, including, without limitation, any advances which may be made to you prior to shipment and any debit balance in your Client Position Account (as defined below), shall be payable to us on demand. We may send to you at any time any credit balance in your Funds-In-Use Account (as defined below), without prior notice to you.

7. PAYMENT OF ACCOUNTS

7. Checks and other proceeds received by us in payment of Accounts will be promptly applied to your account with us after crediting your customer's account; however, we shall debit your account monthly with the cost of two (2) additional business days on all such amounts. The foregoing shall be computed at the rate charged by us on debit balances, as set forth in paragraph 13.1 hereof. No checks, drafts or other instruments received by us shall constitute final payment of an Account unless and until such instruments have actually been collected.

8. CUSTOMER CLAIMS AND CHARGEBACKS

8. You shall notify us promptly of any matter affecting the value, enforceability or collectability of any Account and of all Customer Claims, returns and rejections. You shall issue credit memoranda promptly upon accepting returns or granting allowances, (and upon our request, send duplicates and/or confirm the assignment of such credit memoranda to us). We may at any time debit or charge back to your account the amount of: any Account which is not paid in full when due for any reason and any Account with respect to which we determine that there has been a breach of any representation or warranty hereunder. Any deduction taken by a customer shall be charged back to your account immediately, and we may at any time debit or charge back to your account the amount of: (i) payments we receive on Accounts which we are required thereafter to turnover or return; (ii) any and all expenses and attorneys' fees incurred by us in collecting or attempting to collect any Account charged back to you or any Obligation hereunder; and (iii) any expenses incurred by us as a result of remittances made by customers on Accounts that are not finally paid, for whatever reason. Further, we shall be entitled to charge you a reasonable fee for each Account which we may place with a collection agency or attorney for collection, which fee shall be charged to your account in addition to any fees or expenses of such collection agency or attorney. We may bring suit or otherwise enforce collection, in your name or ours, and generally shall have all other rights respecting said Accounts, including, without limitation, the right to: accelerate or extend the time of payment modify the terms of payment, settle, compromise, release in whole or in part any amounts owing, and issue credits in your name or ours. To the extent applicable, you hereby waive any and all claims and defenses based on suretyship. We may endorse or sign your name or ours on any checks or other instruments or documents with respect to Accounts or the goods covered thereby.

9. STATEMENTS OF ACCOUNT

9. After the end of each month, within ten (10) business days on the end of each month, we shall send to you one or more reports showing the accounting for sales, charges, advances and other transactions between us during that month (herein the "Reports"). The Reports sent to you each month will include, among other things, a Statement of Account which will reflect transactions in three accounts: an accounts receivable account (the "Accounts Receivable Account"), a client position account (the "Client Position Account") and a funds-in-use account (the "Funds-In-Use Account"). All financial transactions between us will be reflected on these monthly Reports. The monthly Reports shall be deemed correct and binding upon you and shall constitute an account stated between us, unless we receive a written statement of your exceptions within thirty (30) days after the date the same are received by you.

10. GRANT OF SECURITY INTEREST

10.1 In addition to the sale of Accounts hereunder, and without the necessity of any further formality, writing or evidence, you hereby transfer and assign to us and grant us a security interest in all of your right, title and interest in and to all of your now existing and future (herein collectively the "Collateral'): (a) accounts (including the Accounts), instruments, documents, chattel paper (including electronic chattel paper), general intangibles (including all payment intangibles and all other rights to payment), and any other obligations owing to you; (b) unpaid seller's rights (including rescission, repossession, replevin, reclamation and stoppage in transit); (c) rights to any inventory represented by the foregoing, including returned or repossessed goods; (d) reserves and credit balances arising hereunder; (e) guarantees, collateral, supporting obligations and letter of credit rights with respect to the foregoing; (0 insurance policies, proceeds or rights relating to the foregoing; (g) federal, state and local income tax refunds; (h) cash and non-cash proceeds of the foregoing; (i) Books and Records (defined in section 12 below) evidencing or pertaining to the foregoing; and (j) all now existing and future patents and trademarks, including those registered in the United States Patent and Trademark Office, the goodwill of the business in connection therewith, and any and all proceeds, royalties and other fees which are or may become due therefrom or for the use thereof.. (It is understood that we shall have no obligation to perform in any respect, any contracts relating to any Accounts).

10.2 You agree to comply with all applicable laws to perfect our security interest in collateral pledged to us hereunder, and to execute such documents as we may require to effectuate the foregoing and to implement this Agreement. You irrevocably authorize us to file financing statements and all amendments and continuations with respect thereto, all in order to create, perfect or maintain our security interest in the Collateral, and you hereby ratify and confirm any and all financing statement, amendments and continuations with respect thereto heretofore and hereafter filed by us pursuant to the foregoing authorization.

11. OBLIGATIONS SECURED

11. The security interest granted hereunder and any lien or security interest that we now or hereafter have in any of your other assets, collateral or property, secure the payment and performance of all of your now existing and future indebtedness and obligations to us, whether absolute or contingent, whether arising under this Agreement or any other agreement or arrangement between us, by operation of law or otherwise ("Obligations"). Obligations also include ledger debt (which means indebtedness for goods and services purchased by you from any party whose accounts receivable are factored or financed by us) ("Ledger Debt"), and indebtedness arising under any guaranty, credit enhancement or other credit support granted by you in our favor. Any reserves or balances to your credit and any other assets, collateral or property of yours in our possession constitutes security for any and all Obligations.

12. BOOKS AND RECORDS AND EXAMINATIONS

12. You agree: to make your records, files and books of account (including, without limitation, paper records, computer-based data, records or media, electronic records, tapes, discs, etc., and all programs and procedure manuals relating thereto) (all of the foregoing referred to herein as "Books and Records") available to us on request; to permit us to visit your premises during business hours to examine the same and to make copies or extracts thereof; and to conduct such examinations as we deem necessary. In order to cover costs and expenses we may incur in connection with any such examinations, we shall be entitled to charge you a fee of $750.00 for each day or part thereof for each examiner during which such examination is conducted, which fee shall be charged to your account, in addition to any out-of-pocket costs and expenses we incur as a result of conducting said examinations.

13. INTEREST, FACTORING FEES OR COMMISSIONS AND OTHER CHARGES

13.1 Interest shall be charged as of the last day of each month on the debit balance in your Funds-In-Use Account each day during that month. The amount that appears in your Funds-In-Use Account is the difference between the balance in your Accounts Receivable Account and the balance in your Client Position Account. Interest is charged as of the last day of each month based on the daily debit balances in your Funds In Use account for that month, at a rate equal to the sum of one percent (1%) plus the Chase Prime Rate (defined below). The Chase Rate is the per annum rate of interest publicly announced by The Chase Manhattan Bank in New York, New York from time to time as its prime rate. (The prime rate is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers.) Any change in the rate of interest hereunder due to a change in the Chase Rate shall take effect as of the first of the month following such change in the Chase Rate. Interest shall be calculated based on a 360 day year Interest shall be credited as of the last day of each month on any credit balance in your Funds-In-Use Account each day during that month, at a rate four percent (4%) per annum below the Chase Rate being used to calculate interest hereunder for the period. In no event, shall the rate charged hereunder exceed the highest rate permitted under applicable law. In the event however, that we do receive interest hereunder in excess of the highest rate permissible, you agree that your sole remedy shall be to seek repayment of such excess, and you hereby waive any and all other rights and remedies which may be available to you under law or in equity.

13.2 If you, as a client of ours, purchase goods or services from another client of ours and your payments on these invoices are not timely received, a late interest payment, at our then late interest rate, will be charged to your account with us and shall be deemed an Obligation under this Agreement.

13.3 For our services hereunder, you will pay us a factoring fee or charge of one-quarter of one percent (.25%) of the gross face amount of all Accounts factored with us but in no event less than $1.00 per invoice. All factoring fees or charges are due and charged to your account upon our purchase of the underlying Account. Commencing on even date herewith, if the actual factoring fees or charges paid to us by you during any Contract Year, is less than $100,000.00 ("Minimum Factoring Fees"), we shall charge your account as of the end of such Contract Year with an amount equal to the difference between the actual factoring fees or charges paid during such Period and said Minimum Factoring Fees. "Contract Year" shall mean the period ending on the last day of the month occurring one year from the date of this Agreement and each subsequent Contract Year shall be the twelve month period ending on the same day in each year thereafter.

13.4 In addition to the foregoing, you shall pay all costs and expenses incurred by us in connection with the preparation, execution, administration and enforcement of this Agreement, including, without limitation, all reasonable fees and expenses attributable to the services of our attorneys (whether in-house or outside), all search fees and the cost of all public record filings. Furthermore, you shall pay to us a reasonable fee for: all special reports prepared by us at your request and all wire transfers. All such fees shall be charged to your account and may be changed by us from time to time upon notice to you. Notwithstanding the foregoing, in no event shall the fees for preparation and execution of this Agreement exceed $1000 in the aggregate, plus all search and filing fees.

13.5 In addition to the fees and charges under this Agreement, you and your affiliate, Bright Star Footwear, Inc., jointly and severally agree to pay us, as of the date hereof, a Documentation Fee, set forth in 13.4 above, in the amount of $10,000 in the aggregate to compensate us for the use of our in-house legal department and facilities in documenting this Agreement.

13.6 If any tax by any governmental authority (other than income and franchise taxes imposed on us which are not related to any transaction between us) is or may be imposed on, or arises as a result of, any transactions between us, any sales made by you, or any inventory or goods relating to such sales, and we are or may be required to withhold or pay such tax and any interest or penalties related thereto, you shall indemnify and hold us harmless in respect thereof and pay to us the amount of any such tax, interest or penalties.

14. TERMINATION

14. Except as otherwise provided herein, you may terminate this Agreement for any reason whatsoever, but only as of an Anniversary Date, as defined herein, and then only by giving us at least sixty (60) days prior written notice of termination. We may terminate this Agreement for any reason whatsoever at any time by giving you written notice stating a termination date not less than sixty
(60) days from the date such notice is given, or immediately at any time without prior notice to you upon and after the occurrence of an Event of Default (as defined below). This Agreement continues uninterrupted unless terminated as herein provided. As used herein, the term "Anniversary Date shall mean the last day of the month occurring three years from the date hereof or the same date in any year thereafter. In the event you terminate this Agreement prior to an Anniversary Date you shall pay to us and we shall be entitled to receive an amount equal to the difference between the actual commissions paid to us under paragraph 13.3 hereof and the aggregate of the Minimum Factoring Fees for the Contract Year during which this Agreement is terminated and each additional Contract Year occurring thereafter prior to the next Anniversary Date; provided however, no termination fees of any kind shall be imposed in the event of any replacement of this factoring agreement by us. Unless sooner demanded, all Obligations shall become due and payable upon termination of this Agreement and, pending a final accounting, we may withhold any balances in your account unless supplied with an indemnity satisfactory to us to cover all Obligations. All our rights, liens and security interests hereunder shall continue and remain in effect after termination of this Agreement, whether said termination is upon notice or as a result of the occurrence of an Event of Default, and you shall continue to assign accounts receivable to us and to remit to us all collections on accounts receivable, until all Obligations have been paid in full or we have been supplied with an indemnity satisfactory to us to cover all Obligations.

15. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT

15.1 An "Event of Default" shall be deemed to have occurred under this Agreement upon: (a) the cessation of your business or the calling of a meeting of your creditors; (b) your failure to meet your debts as they mature; (c) the commencement by or against you of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law; (d) breach by you of any representation, warranty or covenant contained herein or in any other agreement between us; (e) your failure to pay any Obligation within five (5) days of the due date thereof or (f) the occurrence of an Event of Default under or termination of our Factoring Agreement with Candies.

15.2 Upon and after the occurrence of an Event of Default, this Agreement may be terminated by us immediately at anytime, without notice to you, and all Obligations shall, at our option and without notice or demand of any kind (all of which you hereby expressly waive), become due and payable immediately. Further, we may remove, from any premises where the same may be located, any and all documents, instruments, Books and Records (and any receptacles or cabinets containing the same) pertaining to the Accounts or other collateral hereunder and/or we may use (at your expense) such of your personnel, supplies and space at your place of business or elsewhere, as may be necessary to properly administer and enforce our rights in the Accounts and any other collateral hereunder, and to facilitate the collection thereof and realization thereon. We may sell, assign or otherwise dispose of the Accounts and any returned, reclaimed or repossessed inventory, goods or other property relating thereto, whether held by you or by us, at public or private sale, for cash, on credit or otherwise, at such price and on such terms as we in our sole option and discretion may determine, and we may bid or become purchasers at any such sale, or acquire an interest in or dispose of said property. You hereby acknowledge that you have no right to notice, or to an accounting or right of redemption with respect to any such sale or other disposition of the aforesaid Accounts or aforesaid goods. With respect to any other property or collateral in which we have a security interest, we shall have all of the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code. If notice of intended disposition of any of said property or collateral is required by law, it is agreed that ten (10) days notice shall constitute reasonable notice. The net cash proceeds resulting from the exercise of any of the foregoing rights, after deducting all charges, costs and expenses (including reasonable attorneys' fees) shall be applied by us to the payment or satisfaction of the Obligations, whether due or to become due, in such order as we may elect, and you shall remain liable to us for any deficiencies. Upon and after the occurrence of an Event of Default, or in the event of a termination of this Agreement by us, we are hereby authorized by you to notify postal authorities at any time to change the address for delivery of mail to you to such address as we may designate, and to receive and open mail addressed to you to enable us to carry out our rights under this Agreement.

15.3 Anything contained herein to the contrary notwithstanding you shall have the right to terminate this Agreement without the imposition of any Minimum Factoring Fees or other termination fees if we have not offered you a term loan facility substantially on the terms set forth in our proposal letter of December 21, 2001 in the amount of not less $12,500,000 within ninety (90) days from the date first written above on the terms and conditions set forth therein.

16. MISCELLANEOUS PROVISIONS

16.1 This Agreement, and all attendant documentation, as the same may be amended from time to time, constitutes the entire agreement between us with regard to the subject matter hereot and supersedes any prior agreements or understandings. Furthermore, unless specifically provided otherwise herein, this Agreement can be changed only by a writing signed by both of us, and shall bind and benefit each of us and our respective successors and assigns, provided, however, that you may not assign this Agreement or your rights hereunder without our prior written consent. Our failure or delay in exercising any right hereunder shall not constitute a waiver thereof or bar us from exercising any of our rights at anytime. The validity, interpretation and enforcement of this Agreement shall be governed by the laws of the State of New York Jurisdiction to be in New York County.

16.2 If any provision of this Agreement (including, without limitation, any provision relating to charges constituting interest payable by you) is contrary to, prohibited by, or deemed invalid under applicable laws or regulations, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

16.3 Paragraph headings are for convenience only and shall not be deemed to be a controlling part of this Agreement.

[Remainder of page intentionally left blank]

17. JURY TRIAL WAIVER

17. To the extent permitted by applicable law, you and we each hereby waive any right to a trial by jury in any action or proceeding arising directly or indirectly out of this Agreement, or any other agreement or transaction between us or to which we are both parties.

If the foregoing is in accordance with, and accurately reflects, your understanding, please so indicate by signing and returning to us the original and one copy of this Agreement. This Agreement shall take effect as of the date set forth above, but only after being accepted below by one of our officers in New York, New York, after which, we shall forward your fully executed copy to you for your files.

Very truly yours,

THE CIT GROUP/COMMERCIAL SERVICES, INC.

By:/s/ Richard Lyons
-------------------------------------
Name:  Richard Lyons
Title: Vice President

Read and Agreed:

BRIGHT STAR FOOTWEAR, INC

By:/s/ Richard Danderline
-----------------------------------
Name:  Richard Danderline
Title: Executive Vice President

Accepted at New York, New York
THE CIT GROUP/COMMERCIAL SERVICES, INC.

By:/s/ Jonathan A. Lucas
-------------------------------------
Name:  Jonathan A. Lucas
Title: Senior Vice President

2001 STOCK OPTION PLAN
OF
CANDIE'S, INC.

1. Purpose

Candie's, Inc. (the "Company") desires to attract and retain the best available talent and encourage the highest level of performance in order to continue to serve the best interests of the Company, and its stockholder(s). By affording key personnel the opportunity to acquire proprietary interests in the Company and by providing them incentives to put forth maximum efforts for the success of the business, the 2001 Stock Option Plan of Candie's, Inc. (the "2001 Plan") is expected to contribute to the attainment of those objectives.

The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any corporation, fifty percent or more of the voting stock of which is owned by the Company.

2. Scope and Duration

Options under the 2001 Plan may only be granted in the form of nonqualified stock options. No incentive stock options as provided in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") may be granted under the 2001 Plan. The maximum aggregate number of shares as to which options may be granted from time to time under the 2001 Plan is 2,000,000 shares of the common stock of the Company ("Common Stock"), which shares may be, in whole or in part, authorized but unissued shares or shares reacquired by the Company. If an option shall expire, terminate or be surrendered for cancellation for any reason without having been exercised in full, the shares represented by the option or portion thereof not so exercised shall (unless the 2001 Plan shall have been terminated) become available for subsequent option grants under the 2001 Plan. As provided in Paragraph 12 hereof, the 2001 Plan shall become effective on December 12, 2001, and unless terminated sooner pursuant to Paragraph 13 hereof, the 2001 Plan shall terminate on December 11, 2011, and no option shall be granted hereunder after that date.

3. Administration

The 2001 Plan shall be administered by the Board of Directors of the Company, or, at their discretion, by a committee which is appointed by the Board of Directors to perform such function (the "Committee"). The Committee shall consist solely of at least two members of the Board of Directors, each of whom shall serve at the pleasure of the Board of Directors and shall be a "Non-Employee Director" as defined in Rule l6b-3 pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule. Vacancies occurring in the membership of the Committee shall be filled by appointment by the Board of Directors.

The Board of Directors or the Committee, as the case may be, shall have plenary authority in its sole discretion, subject to and not inconsistent with the express provisions of the 2001 Plan, to grant options, to determine the purchase price of the Common Stock covered by each option, the term of each option, the persons to whom, and the time or times at which, options shall be granted and the number of shares to be covered by each option; to interpret the 2001 Plan; to prescribe, amend and rescind rules and regulations relating to the 2001 Plan; to determine the terms and provisions of the option agreements (which need not be identical) entered into in connection with options under the 2001 Plan; and to make all other determinations deemed necessary or advisable for the administration of the 2001 Plan. The Board of Directors or the Committee, as the case may be, may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Board of Directors or the Committee, as the case may be, or any person to whom it has delegated duties as aforesaid may employ or engage one or more persons to render advice with respect to any responsibility the Board of Directors or the Committee, as the case may be, or such person may have under the 2001 Plan.

4. Eligibility; Factors to be Considered in Granting Options

Except as provided below, an option may be granted under the 2001 Plan to any person, including, but not limited to, employees, independent agents, consultants and attorneys, who the Board of Directors or the Committee, as the case may be, believes has contributed, or will contribute, to the success of the Company.

5. Option Price

The purchase price of the Common Stock covered by each option shall be determined by the Board of Directors or the Committee, as the case may be, and shall not be less than 100% of the Fair Market Value (as defined in Paragraph 14 hereof) of a share of the Common Stock on the date on which the option is granted. Such price shall be subject to adjustment as provided in Paragraph 11 hereof. The Board of Directors or the Committee, as the case may be, shall determine the date on which an option is granted; in the absence of such a determination, the date on which the Board of Directors or the Committee, as the case may be, adopts a resolution granting an option shall be considered the date on which such option is granted.

6. Term of Options

The term of each option shall be not more than 10 years from the date of grant, as the Board of Directors or the Committee, as the case may be, shall determine, subject to earlier termination as provided in Paragraphs 9 and 10 hereof.

7. Exercise of Options

(a) Subject to the provisions of the 2001 Plan and unless otherwise provided in the option agreement, options granted under the 2001 Plan shall become exercisable as determined by the Board of Directors or Committee. In its sole discretion, the Board of Directors or the Committee, as the case may be, may, in any case or cases, prescribe that options granted under the 2001 Plan become exercisable in installments or provide that an option may be exercisable in full immediately upon the date of its grant. The Board of Directors or the Committee, as the case may be, may, in its sole discretion, also provide that an option granted pursuant to the 2001 Plan shall immediately become exercisable in full upon the happening of any of the following events: (i) a "change in control" of the Company as hereafter defined; (ii) with respect to an employee, on his 65th birthday; or (iii) with respect to an employee, on the employee's involuntary termination from employment, except as provided in Paragraph 9 hereof. In the event of a question or controversy as to whether or not any of the events hereinabove described has taken place, a determination by the Board of Directors or the Committee, as the case may be, that such event has or has not occurred shall be conclusive and binding upon the Company and participants in the 2001 Plan.

(b) For purposes of the 2001 Plan, a "change in control of the Company" shall be deemed to occur, unless previously consented to in writing by the optionee or any person entitled to act under Paragraph 10 hereof, upon (i) the actual acquisition or the execution of an agreement to acquire 15% or more of the voting securities of the Company by any person or entity not affiliated with the optionee, or any person entitled to act under Paragraph 10 hereof (other than pursuant to a bona fide underwriting agreement relating to a public distribution of securities of the Company), (ii) the commencement of a tender or exchange offer for more than 15% of the voting securities of the Company by any person or entity not affiliated with the optionee, or any persons entitled to act under Paragraph 10 hereof, (iii) the commencement of a proxy contest against the management for the election of a majority of the Board of Directors of the Company if the group conducting the proxy contest owns, has or gains the power to vote at least 15% of the voting securities of the Company, (iv) a vote by the Board of Directors to merge, consolidate, sell all or substantially all of the assets of the Company to any person or entity not affiliated with the optionee, or any persons entitled to act under Paragraph 10 hereof, or (v) the election of directors constituting a majority of the Board of Directors who have not been nominated or approved by the Company; provided, however, for purposes of the 2001 Plan, it shall not be deemed a change in control of the Company if such person or entity acquires 15% or more of the voting securities of the Company (A) as a result of a combination of the Company or a subsidiary of Company with another entity owned or controlled by such persons or entity (whether effected by a merger, sale of assets or exchange of stock or otherwise) (the "Combination") and (B) after completion of the Combination and for a continuous period of not less than twelve (12) months thereafter (I) executive officers of the Company (as designated in the Company's most recent Annual Report on Form 10-K or its most recent Proxy Statement filed with the Securities and Exchange Commission with respect to its Annual Meeting of Stockholders) immediately prior to the Combination constitute not less than 50% of the executive officers of the Company after the Combination or (II) the members of the Board of Directors of Company immediately prior to the Combination constitute not less than 50% of the membership of the Board of Directors of the Company after the Combination. For purposes of calculating the executive officers of the Company after the Combination, those executive officers who are terminated by the Company for cause or who terminate their employment without good reason, as determined by the Board of Directors or Committee shall be excluded from the calculation entirely.

(c) Any option at any time granted under the 2001 Plan may contain a provision to the effect that the optionee (or any persons entitled to act under Paragraph 10 hereof) may, at any time at which Fair Market Value of a share of Common Stock is in excess of the exercise price and prior to exercising the option, in whole or in part, request that the Company purchase all or any portion of the option as shall then be exercisable at a price equal to the difference between (i) an amount equal to the option price multiplied by the number of shares subject to that portion of the option in respect of which such request shall be made and (ii) an amount equal to such number of shares multiplied by the Fair Market Value of the Common Stock on the date of purchase. The Company shall have no obligation to make any purchase pursuant to such request, but if it elects to do so, such portion of the option as to which the request is made shall be surrendered to the Company. The purchase price for the portion of the option to be so surrendered shall be paid by the Company, less any applicable withholding tax obligations imposed upon the Company by reason of the purchase, at the election of the Board of Directors or the Committee, as the case may be, either in cash or in shares of Common Stock (valued as of the date and in the manner provided in clause (ii) above), or in any combination of cash and Common Stock, which may consist, in whole or in part, of shares of authorized but unissued Common Stock or shares of Common Stock held in the Company's treasury. No fractional share of Common Stock shall be issued or transferred and any fractional share shall be disregarded. Shares covered by that portion of any option purchased by the Company pursuant hereto and surrendered to the Company shall not be available for the granting of further options under the 2001 Plan. All determinations to be made by the Company hereunder shall be made by the Board of Directors or the Committee, as the case may be.

(d) An option may be exercised, at any time or from time to time, as to any or all full shares as to which the option has become exercisable until the expiration of the period set forth in Paragraph 6 hereof, by the delivery to the Company, at its principal place of business, of (i) written notice of exercise in the form specified by the Board of Directors or the Committee, as the case may be, specifying the number of shares of Common Stock with respect to which the option is being exercised and signed by the person exercising the option as provided herein, (ii) payment of the purchase price; and (iii) payment in cash of all withholding tax obligations imposed on the Company by reason of the exercise of the option. Upon acceptance of such notice, receipt of payment in full, and receipt of payment of all withholding tax obligations, the Company shall cause to be issued a certificate representing the shares of Common Stock purchased. In the event the person exercising the option delivers the items specified in (i) and (ii) of this Subsection (d), but not the item specified in
(iii) hereof, if applicable, the option shall still be considered exercised upon acceptance by the Company for the full number of shares of Common Stock specified in the notice of exercise but the actual number of shares issued shall be reduced by the smallest number of whole shares of Common Stock which, when multiplied by the Fair Market Value of the Common Stock as of the date the option is exercised, is sufficient to satisfy the required amount of withholding tax.

(e) Any option granted under the 2001 Plan may also contain a provision to the effect that the payment of the exercise price may be made by delivery to the Company by the optionee of an executed exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares sold or margined and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price.

(f) The purchase price of the shares as to which an option is exercised shall be paid in full at the time of exercise. Payment shall be made in cash, which may be paid by check or other instrument acceptable to the Company; in addition, subject to compliance with applicable laws and regulations and such conditions as the Board of Directors or the Committee, as the case may be, may impose, the Board of Directors or the Committee, as the case may be, in its sole discretion, may on a case-by-case basis elect to accept payment in shares of Common Stock of the Company which are already owned by the option holder, valued at the Fair Market Value thereof (as defined in Paragraph 14 hereof) on the date of exercise; provided, however, that no such discretion may be exercised unless the option agreement permits the payment of the purchase price in that manner and no discretion may be exercised if it would result in an adverse effect on the Company's earnings under then applicable accounting rules.

(g) Except as provided in Paragraphs 9 and 10 hereof, or except as otherwise provided in writing by the Board or Committee, as the case may be, no option granted to an employee may be exercised at any time by such employee unless such employee is then an employee of the Company or a Subsidiary.

8. Non-Transferability of Options

Except as may be otherwise provided in writing by the Board or Committee, as the case may be, or in the option agreements with respect to an option granted under the 2001 Plan, options granted under the 2001 Plan shall not be transferable otherwise than by will or the laws of descent and distribution, and options may be exercised during the lifetime of the optionee only by the optionee. No transfer of an otherwise non-transferable option by the optionee by will or by the laws of descent and distribution shall be effective to bind the Company unless the Company shall have been furnished with written notice thereof and a copy of the will and such other evidence as the Company may deem necessary to establish the validity of the transfer and the acceptance by the transferor or transferees of the terms and conditions of such option.

9. Termination of Employment

In the event that the employment of an employee to whom an option has been granted under the 2001 Plan shall be terminated (except as set forth in Paragraph 10 hereof), such option may be, subject to the provisions of the 2001 Plan, exercised (to the extent that the employee was entitled to do so at the termination of his employment) at any time within three (3) months after such termination, but not later than the date on which the option terminates; provided, however, that any option which is held by an employee whose employment is terminated for cause or due to the resignation of the employee or the retirement of the employee prior to the age of 65 shall, to the extent not theretofore exercised, automatically terminate as of the date of termination of employment. As used herein, "cause" shall mean conduct amounting to fraud, dishonesty, negligence, the employee's failure to perform his or her duties and responsibilities required by the Company or engaging in competition or solicitations in competition with the Company and breaches of any applicable employment agreement between the Company and the optionee. Options granted to employees under the 2001 Plan shall not be affected by any change of duties or position so long as the holder continues to be a regular employee of the Company or any of its current or future Subsidiaries. Any option agreement or any rules and regulations relating to the 2001 Plan may contain such provisions as the Board of Directors or the Committee, as the case may be, shall approve with reference to the determination of the date employment terminates and the effect of leaves of absence.

10. Death or Disability of Employee

If an employee to whom an option has been granted under the 2001 Plan shall die while employed by the Company or a Subsidiary or within three (3) months after the termination of such employment (other than termination for cause, resignation, or retirement prior to the age of 65), such option may be exercised, to the extent exercisable by the employee on the date of death, by a legatee or legatees of the employee under the employee's last will, or by the employee's personal representative or distributees, at any time within one year after the date of the employee's death, but not later than the date on which the option terminates. In the event that the employment of an employee to whom an option has been granted under the 2001 Plan shall be terminated as the result of a disability, such option may be exercised, to the extent exercisable by the employee on the date of such termination, at any time within one year after the date of such termination, but not later than the date on which the option terminates.

11. Adjustments Upon Changes in Capitalization, Etc.

Notwithstanding any other provision of the 2001 Plan, the Board of Directors or the Committee, as the case may be, may, at any time, make or provide for such adjustments to the 2001 Plan, to the number and class of shares issuable thereunder or to any outstanding options as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of changes in the outstanding Common Stock by reason of stock dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. In the event of any offer to holders of Common Stock generally relating to the acquisition of their shares, the Board of Directors or the Committee, as the case may be, may make such adjustment as it deems equitable in respect of outstanding options and rights, including in its sole discretion revision of outstanding options and rights so that they may be exercisable for the consideration payable in the acquisition transaction. Any such determination by the Board of Directors or the Committee, as the case may be, shall be conclusive and binding upon the Company and the participants in the 2001 Plan. Any fractional shares resulting from such adjustments shall be eliminated.

12. Effective Date

The 2001 Plan shall become effective on December 12, 2001, the date of adoption by the Board of Directors of the Company.

13. Termination and Amendment

The Board of Directors of the Company may suspend, terminate, modify or amend the 2001 Plan. No suspension, termination, modification or amendment of the 2001 Plan may, without the consent of the person to whom an option shall theretofore have been granted, adversely affect the rights of such person under such option.

14. Miscellaneous

As said term is used in the 2001 Plan, the "Fair Market Value" of a share of Common Stock on any day means: (a) if the principal market for the Common Stock is a national securities exchange or the National Association of Securities Dealers Automated Quotations System ("NASDAQ), the closing sales price of the Common Stock on such day as reported by such exchange or market system, or on a consolidated tape reflecting transactions on such exchange or market system, or (b) if the principal market for the Common Stock is not a national securities exchange and the Common Stock is not quoted on NASDAQ, the mean between the highest bid and lowest asked prices for the Common Stock on such day as reported by the National Quotation Bureau, Inc.; provided that if clauses (a) and (b) of this paragraph are both inapplicable, or if no trades have been made or no quotes are available for such day, the Fair Market Value of the Common Stock shall be determined by the Board of Directors or the Committee, as the case may be, and shall be conclusive as to the Fair Market Value of the Common Stock.

The Board of Directors or the Committee, as the case may be, may require, as a condition to the exercise of any options granted under the 2001 Plan, that to the extent required at the time of exercise, (i) the shares of Common Stock reserved for purposes of the 2001 Plan shall be duly listed, upon official notice of issuance, upon stock exchange(s) on which the Common Stock is listed,
(ii) a Registration Statement under the Securities Act of 1933, as amended, with respect to such shares shall be effective, and/or (iii) the person exercising such option deliver to the Company such documents, agreements and investment and other representations as the Board of Directors or the Committee, as the case may be, shall determine to be in the best interests of the Company.

During the term of the 2001 Plan, the Board of Directors or the Committee, as the case may be, in its sole discretion, may offer one or more option holders the opportunity to surrender any or all unexpired options for cancellation or replacement. If any options are so surrendered, the Board of Directors or the Committee, as the case may be, may then grant new Non-Qualified or Incentive Options to such holders for the same or different numbers of shares at higher or lower exercise prices than the surrendered options. Such new options may have a different term and shall be subject to the provisions of the 2001 Plan the same as any other option.

Anything herein to the contrary notwithstanding, the Board of Directors or the Committee, as the case may be, may, in its sole discretion, impose more restrictive conditions on the exercise of an option granted pursuant to the 2001 Plan; however, any and all such conditions shall be specified in the option agreement limiting and defining such option.

Nothing in the 2001 Plan or in any option granted pursuant to the 2001 Plan shall confer upon any employee any right to continue in the employ of the Company or any of its Subsidiaries or parent or affiliated companies or interfere in any way with the right of the Company or any such Subsidiary or parent or affiliated companies to terminate such employment at any time.

15. Compliance with SEC Regulations.

It is the Company's intent that the 2001 Plan comply in all respects with Rule 16b-3 of the Exchange Act and any regulations promulgated thereunder. If any provision of the 2001 Plan is later found not to be in compliance with said Rule, the provisions shall be deemed null and void.