EXECUTION COPY
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR ANY STATE SECURITIES LAWS. NO INTEREST IN THIS NOTE MAY BE
OFFERED OR SOLD EXCEPT: (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION
FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
CANDIE'S, INC.
8% SENIOR SUBORDINATED NOTE DUE 2012
$11,000,000 Dated: As of April 23, 2002
FOR VALUE RECEIVED, the undersigned, Candie's, Inc., a Delaware corporation
(the "Company"), hereby promises to pay to the order of Sweet Sportswear, LLC
("Payee"), at Payee's address as specified below (or at such other place as the
holder of this Note (the "Holder") may from time to time hereafter direct by
notice in writing to the Company), the principal amount of $11,000,000 on April
23, 2012 (the "Maturity Date").
1. Interest and Payment.
1.1. The principal amount of this Note outstanding from time to time shall
bear interest at the annual rate of 8% commencing as of February 1, 2003,
payable in arrears beginning May 16, 2003, and payable quarterly in arrears on
each August 16th, November 16th, February 16th and May 16th thereafter (each, an
"Interest Payment Date"), and, together with the principal amount of this Note
at the time outstanding, on the Maturity Date.
If the principal of, or any installment of interest on, this Note is not
paid when due, then the overdue amount shall bear interest ("Default Interest")
at the annual rate of 10%, which interest shall accrue from the date such
overdue amount became due through the date payment of such overdue amount
(including interest thereon) has been duly made or provided for. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months, for the
actual number of days elapsed. All accrued Default Interest shall be payable on
demand. Notwithstanding anything to the contrary contained in this Note, the
Company shall not be obligated to pay, and the Holder shall not be entitled to
charge, collect or receive interest in excess of the maximum rate allowed by
applicable law. If during any period of time the interest rate specified herein
exceeds such maximum rate, then, any amounts of interest collected by the Holder
in excess of such maximum rate shall be applied to the reduction of the unpaid
principal amount of this Note.
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1.2. All payments of the principal of, accrued interest on, and other
amounts payable under this Note shall be payable in such coin or currency of the
United States of America as at the time shall be legal tender for the payment of
public and private debts. At the option of the Holder of this Note, the Company
will make all payments on account of this Note by electronic funds transfer in
funds immediately available at the place of payment to a deposit account with a
commercial bank designated by the Holder in writing at least three business days
prior to the relevant Interest Payment Date, Maturity Date or prepayment date.
All payments received on account of this Note shall be applied first to the
payment of accrued and unpaid interest on this Note and then to the reduction of
the unpaid principal amount of this Note.
1.3. In the event that the date for the payment of any amount payable under
this Note falls due on a Saturday, Sunday or public holiday under the laws of
the State of New York, the time for payment of such amount shall be extended to
the next succeeding business day and any principal amount otherwise due and
payable shall continue to bear interest until paid in full on such extended
payment date.
2. Prepayment. The Company may, upon at least five business days prior written
notice to the Holder of this Note, prepay the principal of this Note outstanding
at any time, in whole at any time and in part from time to time, without penalty
or premium, together with interest on the principal amount being prepaid accrued
through the date of prepayment.
3. Covenants. The Company covenants and agrees that for so long as any portion
of the indebtedness evidenced by this Note, whether principal, accrued and
unpaid interest or any other amount at any time due hereunder, remains unpaid:
3.1. The Company will not, without the consent of the Holder, which consent
shall not be unreasonably withheld, delayed or conditioned:
(a) Issue, create, incur, assume, permit, guarantee or suffer to exist any
indebtedness or other obligations for money borrowed, except for (i) trade
credit in the ordinary course of the Company's business, (ii) indebtedness under
this Note and any extension, renewal or refinancing thereof, (iii) Senior
Indebtedness (as such term is defined in Section 7.9 below), and (iv)
indebtedness or other obligations for money borrowed which are subordinated (in
right of payment) in all respects to this Note.
(b) Effect a merger or consolidation in which neither the Company nor a
wholly-owned subsidiary of the Company is the surviving entity unless such
merger or consolidation is in compliance with the provisions of Section 8
hereof.
(c) Liquidate, wind up its affairs or dissolve.
(d) Except as may be required under the Company's Share Purchase Rights
Plan, (i) redeem, purchase or otherwise acquire for cash consideration any
shares of the Company's common stock, par value $.001 per share ("Shares");
provided; however, that the Company may at any time repurchase Shares issued
pursuant to any Stock Option Plan of the Company from employees, consultants and
directors upon termination of their relationships with the Company or (ii)
declare, pay or set aside sums for payment of any cash dividends or make any
other cash distributions on any Shares.
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3.2. The Company will:
(a) Do or cause to be done all things reasonably necessary to preserve,
renew and keep in full force and effect its corporate existence, rights and
franchises, provided that the Company may effect a transaction in accordance
with Section 8 hereof.
(b) Promptly following the occurrence of any event that is or, with the
passage of time or the giving of notice or both, would be, an Event of Default
("Default"), furnish to the Holder a statement of the Company's President or
Chief Financial Officer setting forth the details of such Default and the action
which the Company proposes to take with respect thereto.
4. Events of Default. If any of the following events (each an "Event of
Default") shall occur:
4.1. The Company fails to pay the principal of, any installment of interest
accrued on, or any other amount at anytime owing under, the Note, within ten
days of when the same becomes due and payable hereunder; or
4.2. The Company defaults in the due observance or performance of or
breaches any of its covenants contained in this Note and such default is not
cured within 30 days after the Company has received written notice of the
occurrence of such default; or
4.3. The Company shall (i) become insolvent, however evidenced, (ii) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, trustee or similar official of or for itself or of or for all or a
substantial part of its property, (iii) make an assignment for the benefit of
its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code,
as now or hereafter in effect (the "Code"), (v) file a petition seeking to take
advantage of any other bankruptcy, insolvency, moratorium, reorganization or
other similar law of any jurisdiction ("Other Laws"), (vi) acquiesce as to, or
fail to controvert in a timely or appropriate manner, an involuntary case filed
against it under the Code, or (vii) take any corporate action in furtherance of
any of the foregoing; or
4.4. A proceeding or involuntary case shall be commenced, without the
application or consent of the Company, in any court of competent jurisdiction
(i) under the Code, (ii) seeking liquidation, reorganization, dissolution,
winding up or composition or readjustment of its debts under any Other Laws, or
(iii) seeking the appointment of a trustee, receiver or similar official for it
or for all or any substantial part of its assets, and any such proceeding or
case shall continue undismissed, or unstayed and in effect, for a period of 90
days; or
4.5. A final non-appealable judgment for the payment of money shall be
rendered by a court of competent jurisdiction against the Company and the
Company shall not discharge the same, or procure a stay of execution thereof
within 90 days from the date of entry thereof and within such 90 day period or
such longer period during which execution of such judgment shall have been
stayed, appeal therefrom and cause the execution thereof to be stayed during
such appeal, and such judgment, together with all other judgments against the
Company, shall exceed in the aggregate $1,000,000 in excess of any insurance as
to the subject matter of such judgments, as to which coverage has not been
declined or the underlying claim rejected by the applicable insurer; or
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4.6. The liquidation or dissolution of the Company or any vote in favor
thereof by the board of directors and shareholders of the Company; or
4.7. A proceeding is commenced to foreclose a security interest in or lien
on any asset of the Company as a result of a default in the payment or
performance of any indebtedness of the Company in excess of $1,000,000, together
with accrued unpaid interest thereon and related costs (other than the Note) and
such proceeding has not been dismissed within 90 days of the commencement of
such proceeding; or
4.8. An attachment or garnishment is levied against the assets of the
Company involving an amount in excess of $1,000,000 and the lien created by such
levy is not vacated, bonded or stayed within 90 days after such lien has
attached to such assets; or
4.9. The Company defaults in the payment (regardless of amount) when due of
the principal of, interest on, or any other liability on account of, any
indebtedness of the Company (other than this Note) having an unpaid principal
amount in excess of $1,000,000 and the holder of such indebtedness accelerates
the maturity of such indebtedness, or a default occurs in the performance or
observance by the Company of any covenant or condition (other than for the
payment of money) contained in any note (other than this Note) or agreement
evidencing or pertaining to any indebtedness of the Company (other than this
Note) having an unpaid principal amount in excess of $1,000,000 and the holder
of such indebtedness accelerates the maturity of such indebtedness;
then, (i) upon the occurrence and continuance of any Event of Default (other
than an Event of Default referred to in clause (ii) below), the Holder may
declare the outstanding principal amount of this Note and accrued unpaid
interest thereon to be due and payable, whereupon such principal and accrued and
unpaid interest shall be due and payable forthwith, and (ii) upon the occurrence
and continuance of any Event of Default specified in Section 4.3, 4.4 or 4.6,
the unpaid principal balance of this Note, together with accrued and unpaid
interest on this Note through the date of such Event of Default, shall become
and be immediately due and payable without any declaration or other action by
the Holder of this Note and without presentment, demand, protest or other notice
or other requirements of any kind, all of which are hereby expressly waived by
the Company.
5. Suits for Enforcement and Remedies. If any one or more Events of Default
shall occur and shall continue, the Holder may proceed to (i) protect and
enforce Holder's rights either by suit in equity or by action at law, or both,
whether for the specific performance of any covenant, condition or agreement
contained in this Note or in any agreement or document referred to herein or in
aid of the exercise of any power granted in this Note or in any agreement or
document referred to herein, (ii) enforce the payment of this Note, or (iii)
enforce any other legal or equitable right of the Holder. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Note is intended to be exclusive of any other right or remedy, and each and
every such right or remedy shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
6. Restriction on Transfer. This Note has been acquired for investment and has
not been registered under the securities laws of the United States of America or
any state thereof. Accordingly, neither this Note nor any interest therein may
be offered for sale, sold or transferred in the absence of registration and
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qualification of this Note under applicable federal and state securities laws or
an opinion of counsel of the Holder reasonably satisfactory to the Company that
such registration and qualification are not required.
7. Subordination.
7.1. The Company covenants and agrees, and the Holder, by his or its
acceptance hereof, likewise covenants and agrees, that, to the extent and in the
manner hereinafter set forth in this Section 7, the indebtedness represented by
this Note and the payment of the principal of accrued interest on, and all other
amounts payable in respect of this Note are hereby expressly made subordinate
and subject in right of payment to the prior payment in full of all Senior
Indebtedness; provided, however, that, notwithstanding the foregoing or anything
else to the contrary contained in this Section 7, payments, if any, in respect
of this Note from the sale of Pledged Collateral under the circumstances and in
the manner set forth in the Collateral Pledge Agreement between the Company and
Michael Caruso & Co., Inc. ("Caruso"), on the one hand, and Payee, on the other
hand, dated as of April 23, 2002 and attached hereto as Exhibit A (the "Pledge
Agreement"), shall not be subordinate, and shall, in fact, be senior in right of
payment, to the Senior Indebtedness and enforcement by Payee of its rights under
the terms and conditions of such Pledge Agreement shall not be impaired or
limited by reason of this Section 7.
7.2. Upon any distribution of assets of the Company in the event of:
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding, relative to the
Company or to its creditors, as such, or to its assets, or
(b) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy, or
(c) any assignment for the benefit of creditors or any other marshalling of
assets and liabilities of the Company, or
(d) any other event which would constitute an Event of Default specified in
Section 4.3 or Section 4.4 hereof,
then, and in any such event, the holders of Senior Indebtedness shall be
entitled to receive:
(1) payment in full of all amounts due or to become due on or in respect of
all Senior Indebtedness, or provision shall be made for such payment, before the
Holder is entitled to receive any payment on account of the principal of,
accrued interest on, or any other amount payable or in respect of this Note, and
(2) any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or deliverable in respect of this
Note in any such case, proceeding, dissolution, liquidation or other winding up
or event, including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of this Note.
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In the event that, notwithstanding the foregoing provisions of this Section
7.2, the Holder shall have received in respect of this Note any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, including any such payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of this Note, before all Senior
Indebtedness is paid in full, or payment thereof provided for, and if prior to
the time of such payment or distribution, the Holder shall have received written
notice from the Company or a holder of Senior Indebtedness of the occurrence of
any such event and the fact that the Senior Indebtedness has not been paid in
full, then, in such event, all such payments or distributions received following
such notice shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay, or provide for the payment of, all Senior Indebtedness in
full, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Indebtedness.
7.3. The Company may not make any payment of the principal of, accrued
interest on, or any other amount payable in respect of, the Note, nor may the
Company acquire the Note for cash or property (other than for capital stock of
the Company) if:
(a) a payment default on any Senior Indebtedness has occurred and is
continuing beyond any applicable grace period with respect thereto; or
(b) a default (other than a default referred to in the preceding clause
(1)) on any Senior Indebtedness occurs and is continuing that permits holders of
such Senior Indebtedness to accelerate the maturity thereof and the default is
the subject of judicial proceedings or the Company receives a notice of default
thereof from any person or other entity which may give such notice pursuant to
the instrument evidencing or document governing such Senior Indebtedness (a
"Senior Indebtedness Default Notice").
If the Company receives a Senior Indebtedness Default Notice, then a
similar notice received within one year thereafter relating to the same default
on the same issue of Senior Indebtedness shall not be effective for purposes of
this Section 7.3. The Company may resume payment on the Note and may acquire the
Note if and when:
(1) the default referred to above is cured or waived as provided or
permitted in accordance with the terms of the applicable Senior Indebtedness; or
(2) in the case of a default referred to in clause (b) of the preceding
paragraph, 90 or more days pass after the receipt by the Company of the Senior
Indebtedness Default Notice described in clause (b) above; and
this Note otherwise permits the payment or acquisition at that time.
In the event that, notwithstanding the foregoing, the Company makes a
payment to the Holder prohibited by the foregoing provisions of this Section
7.3, and the Holder receives written notice from the Company or a holder of
Senior Indebtedness prior to the receipt of such payment that any such payment
is prohibited, then, and in such event, such payment shall (to the extent
permitted by law) be paid over and delivered forthwith to the Company by or on
behalf of the person or entity holding such payment for the benefit of the
holders of the Senior Indebtedness. The Company shall provide the Holder with
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copies of all Senior Indebtedness Default Notices that the Company receives from
a holder of Senior Indebtedness.
The provisions of this Section 7.3 shall not apply to any payment with
respect to which Section 7.2 would be applicable.
7.4. Nothing contained in this Section 7.4 or elsewhere in this Note shall
prevent the Company, at any time, except during the pendency of any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshalling of assets and liabilities of the
Company referred to in Section 7.2 or under the conditions described in Section
7.3, from making payments at any time of the principal of, accrued interest on,
or other amounts payable, in respect of this Note.
7.5. Subject to payment in full of all Senior Indebtedness to the extent
and in the manner set forth in this Section 7, the Holder shall be subrogated to
the extent of the payments or distributions made to the holders of such Senior
Indebtedness pursuant to the provisions of this Section 7 to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal amount of, or other amount payable, accrued interest on, or other
amount payable, in respect of, the Note shall be paid in full. For purposes of
such subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holder of this
Note would be entitled, except for the provisions of this Section 7, and no
payments over pursuant to the provisions of this Section 7 to the holders of
Senior Indebtedness by the Holder of this Note, shall as among the Company, its
creditors other than holders of Senior Indebtedness and the Holder, be deemed to
be a payment or distribution by the Company to or on account of the Senior
Indebtedness.
7.6. The provisions of this Section 7 are and are intended solely for the
purpose of defining the relative rights of the Holder of this Note, on the one
hand, and the holders of Senior Indebtedness, on the other hand. Nothing
contained in this Section 7 or elsewhere in the Note is intended to or shall (a)
impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holder, the obligation of the Company, which is absolute
and unconditional (and which, subject to the rights under this Section 7 of the
holders of Senior Indebtedness, is intended to rank senior to all other general
obligations of the Company), to pay to the Holder the principal of, accrued
interest on, or other amounts in respect of the Note, as and when the same shall
become due and payable in accordance with the terms of the Note; or (b) affect
the relative rights against the Company of the Holder and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the Holder
from exercising all remedies otherwise permitted by applicable law upon default
under the Note, subject to the rights, if any, under this Section 7 of the
holders of Senior Indebtedness to receive cash, property and securities
otherwise payable or deliverable to the Holder.
7.7. No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder, or by any noncompliance by
the Company with the terms, provisions and covenants of this Note, regardless of
any knowledge thereof any such holder may have or be otherwise charged with.
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Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Holder of this Note, without incurring
responsibility to the Holder of this Note and without impairing or releasing the
subordination provided in this Section 7 or the obligations hereunder of the
Holder of this Note to the holders of Senior Indebtedness, do any one or more of
the following: (i) change the manner, place or terms of payment or extend the
time of payment of, or renew, increase or alter, Senior Indebtedness, or
otherwise amend, replace, restate or supplement in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights
against the Company and any other Person.
7.8. Upon any payment or distribution of assets of the Company referred to
in this Section 7, the Holder of this Note shall be entitled to rely upon any
final, nonappealable order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
person making such payment or distribution, delivered to the Holder of this Note
for the purpose of ascertaining the Persons entitled to participate in such
payment or distribution, the holders of the Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Section 7.
7.9. As used in this Section 7, the following capitalized terms will have
the definition set forth below:
"Senior Indebtedness" means, without duplication, (a) the principal of, and
premium (if any), and unpaid interest, fees and other amounts on (i) all present
and future obligations incurred by the Company (whether as borrower or
guarantor) under or pursuant to any loan or credit agreement between or among
the Company and one or more banks and/or other institutional lenders (including
but not limited to the factoring agreement between the Company and CIT
Commercial Services, Inc. dated as of January 23, 2002) (each, a "Financing
Agreement"), or any agreement between or among the Company and one or more banks
and/or other institutional lenders providing for the extension, amendment,
renewal, refunding, expansion or refinancing of such obligations (a "Refinancing
Agreement"), whether now existing or hereafter entered into or contracted,
including, without limitation, the principal balance of all loans made
thereunder and interest and fees accruing with respect to such loans and (ii)
all other present and future obligations, liabilities, and indebtedness incurred
by the Company under or pursuant to any present or future Financing Agreement or
Refinancing Agreement, including, without limitation, reimbursement obligations
with respect to letters of credit issued pursuant to a Financing Agreement or a
Refinancing Agreement (and all fees, commissions and charges incurred in
connection with the issuance and maintenance of such letters of credit) or
obligations with respect to acceptances issued or overdrafts extended pursuant
to a Financing Agreement or a Refinancing Agreement; (b) indebtedness incurred
by the Company to finance the acquisition by it of assets classified as capital
assets under GAAP, provided such indebtedness is not secured by any of the
Company's assets other than the assets being acquired ("Purchase Money Debt");
and (c) obligations of the Company as lessee under leases required to be
capitalized on the balance sheet of the lessee under GAAP, provided such
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obligations are not secured by any of the Company's assets other than such
leases; in each case, (1) whether now existing or hereafter arising and whether
such indebtedness or obligations arise or accrue before or after the
commencement of any bankruptcy, insolvency or receivership proceedings,
including, without limitation, interest and fees accruing pre-petition or
post-petition at the rate or rates prescribed in a Financing Agreement, a
Refinancing Agreement and/or Purchase Money Debt and/or any extension,
amendment, renewal, refunding, expansion or refinancing of any of the foregoing,
and costs, expenses, and attorneys' fees and disbursements, whenever incurred
(and, whether or not such claims, interest, costs, expenses, fees or
disbursements are allowed or allowable in any such proceeding); and (2) unless
the document, instrument or agreement creating or evidencing the indebtedness or
obligation or pursuant to which the same is outstanding, provides (A) that such
indebtedness is not superior in right of payment to the Note or (B) that such
indebtedness or obligation shall be subordinated to any other such indebtedness
or obligation, unless such indebtedness or obligation expressly provides that it
shall be senior in right of payment to the Note.
8. Consolidation, Merger, Conveyance, Transfer or Lease.
8.1. (a) Without the consent of the Holder, the Company will not (i) merge
with or into or consolidate with any other person, permit any other person to
merge or consolidate with or into it, or (ii) sell all or substantially all of
its property to any other person; provided, however, that the foregoing
restriction does not apply to the merger or consolidation of the Company with
another entity or the transfer of all or substantially all of the property of
the Company to any other person or entity if: (1) (A) the corporation that
results from such merger or consolidation or to which all or substantially all
of the property of the Company is transferred (the "Surviving Corporation") is
organized under the laws of, and conducts substantially all of its business and
has substantially all of its properties within, the United States of America or
any jurisdiction or jurisdictions thereof; (B) the Surviving Corporation is
Creditworthy, as defined in Section 8.1(b) below; (C) the due and punctual
payment of the principal of, and interest on this Note, according to their
tenor, and the due and punctual performance and observance of all the covenants
in this Note, to be performed or observed by the Company, are expressly assumed
pursuant to such assumption agreements and instruments in such forms as shall be
approved reasonably by the Holder, or assumed by operation of law, by the
Surviving Corporation; and (D) immediately prior to, and immediately after the
consummation of the transaction, and after giving effect thereto, no Default or
Event of Default exists or would exist, or (2) (A) the Company is the Surviving
Corporation; (B) the stockholders of the Company immediately prior to such
transaction own at least a majority of the voting securities of the Company
following the transaction; and (C) immediately prior to, and immediately after
the consummation of the transaction, and after giving effect thereto, no Default
or Event of Default exists or would exist.
(b) For purposes of this Section 8.1, "Creditworthy" shall mean that the
Debt to Cash Flow Ratio of the Surviving Corporation is not greater than the
Debt to Cash Flow Ratio of the Company for the most recent fiscal quarter ending
immediately prior to such merger or consolidation and (ii) the shareholders'
equity of the Surviving Corporation (excluding goodwill from the calculation of
its assets) immediately after such transaction is equal to or greater than the
shareholders' equity of the Company (excluding goodwill from the calculation of
its assets) immediately prior to such merger or consolidation. For purposes
hereof, "Debt to Cash Flow Ratio" shall mean the ratio of (1) (A) all
obligations of the Company or the Surviving Corporation, as the case may be, for
borrowed money, (B) all obligations of the Company or the Surviving Corporation,
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as the case may be, evidenced by bonds, debentures, notes or similar
instruments, or upon which interest payments are customarily made, and (C) all
guaranties of the Company or the Surviving Corporation, as the case may be, with
respect to indebtedness of the type referred to in this definition of another
person, to (2) the cash flow of the Company or the Surviving Corporation, as the
case may be, each as determined in accordance with GAAP.
(c) In connection with any transaction as to which Section 8.1(a) shall
apply, the Company shall deliver to the Holder an Officer's Certificate stating
that such consolidation, merger, conveyance, transfer, lease or other
disposition, comply with this Section 8 and that all conditions precedent herein
provided for relating to such transaction have been complied with, and an
Opinion of Counsel that, to its knowledge, no Default or Event of Default
exists.
8.2. Upon any consolidation of the Company with, or merger of the Company
into, any other entity or any conveyance, transfer, sale, lease or other
disposition of all or substantially all the properties and assets of the Company
in accordance with Section 8.1, the successor entity formed by such
consolidation or into which the Company is merged, or to which such conveyance,
transfer, sale, lease or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Note with the same effect as if such successor entity had been named as the
Company herein, and thereafter, except in the case of a conveyance, transfer,
sale, lease or other disposition, the predecessor entity shall be relieved of
all obligations and covenants under this Note.
8.3. The consolidation of the Company with, or merger of the Company into,
another entity or the liquidation or dissolution of the Company following the
conveyance, transfer, sale, lease or other disposition of all or substantially
all the properties and assets of the Company in accordance with Section 8.1,
shall not be deemed a dissolution, winding up, liquidation, reorganization,
assignment for the benefit of creditors or marshalling of assets and liabilities
of the Company for the purposes of this Note if the entity formed by such
consolidation or into which the Company is merged or the entity which acquires
by conveyance or transfer such assets substantially as an entirety, as the case
may be, shall, as part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Section 8.1.
9. Miscellaneous.
9.1. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment or adjustment whatsoever.
9.2. If, following the occurrence and continuance of an Event of Default,
the Holder of this Note shall seek to enforce the collection of any amount of
principal and/or accrued interest on this Note, there shall be immediately due
and payable by the Company, in addition to the then unpaid principal of, and
accrued unpaid interest on, this Note, all reasonable costs and expenses
incurred by the Holder of this Note in connection therewith, including, without
limitation, reasonable attorneys' fees and disbursements.
9.3. No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver or as an acquiescence
in any Default, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy.
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9.4. This Note may not be modified or discharged (other than by payment),
except by a writing duly executed by the Company and Holder.
9.5. The headings of various sections and subsections of this Note are for
convenience of reference only and shall in no way modify any of the terms or
provisions of this Note.
9.6. The Company and, by its acceptance of this Note, the Holder agree that
any notice, request, demand or other communication required or permitted to be
given to the Company or the Holder pursuant to the provisions of this Note shall
be in writing and (a) personally delivered, (b) sent via facsimile, with
confirmed transmission and receipt, and followed promptly by delivery of the
original, or (c) sent by a nationally-recognized courier or overnight service
such as Federal Express, (for next business day delivery) postage prepaid, as
follows:
(i) if to the Company, to:
Candie's, Inc.
400 Columbus Avenue
Valhalla, New York 10595
Attn: Deborah Sorell Stehr, Esq,
Senior Vice President and General Counsel
Facsimile No.: (914) 769-8103
With a copy to (which does not constitute notice):
Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attn: Robert J. Mittman, Esq.
Fax: (212) 885-5001
(ii) if to the Holder of this Note, to the address or the
facsimile number (as the case may be) of such Holder as
shown on the Company's books and records; the address
for the Payee is as follows:
Sweet Sportswear, LLC
5804 E. Slauson Avenue
Commerce, California 90040
Attn: Deborah Greaves, General Counsel
Facsimile No.: (323) 728-1641
With a copy to (which does not constitute notice):
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
2029 Century Park East - Suite 2400
Los Angeles, California 90067
Fax: (310) 229-1001
Attn: David Antheil, Esq.
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Either the Company or the Holder (and each of their permitted assigns) may
change its address for receipt of future notices hereunder by giving written
notice to the other in the manner provided herein. Notices shall be deemed given
and received at the time of personal delivery or completed facsimile
transmission, or, if sent by Federal Express or other overnight delivery service
one business day after such sending.
9.7. The Company may not delegate its obligations under this Note. The
Holder may assign, pledge or otherwise transfer this Note without prior written
consent of the Company. This Note inures to the benefit of Payee, its successors
and its assignee of this Note and binds the Company, and its successors and
assigns, and the terms "Payee" and "the Company" whenever occurring herein shall
be deemed and construed to include such respective successors and assigns.
9.8. This Note shall continue to be effective or be reinstated, as the case
may be, if at any time any payment made pursuant to it is rescinded or must
otherwise be returned by the Holder upon bankruptcy or reorganization or
otherwise of the Company, all as though such payment had not been made.
9.9. This Note shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal substantive laws
of the State of New York, without giving effect to the choice of law rules
thereof.
9.10. The Company and, by its acceptance of this Note, the Holder agree as
follows:
(a) The Holder hereby irrevocably agrees that any lawsuit commenced by the
Holder against the Company in connection with any dispute arising out of or
relating to this Note (each, a "Holder Lawsuit") shall be brought by the Holder,
unless otherwise agreed to in writing by the Company, solely in a federal or
state court located within the County of New York, State of New York, and, in
connection with each Holder Lawsuit, each of the Company and the Holder
irrevocably agrees to submit to the exclusive jurisdiction of any federal or
state court located within the County of New York, State of New York and
irrevocably agrees to waive, to the fullest extent permitted by applicable law,
any objection which it may now or hereafter have to the laying of venue of any
Holder Lawsuit brought in such court or any defense of inconvenient forum for
the maintenance of such Holder Lawsuit in such court.
(b) The Company hereby irrevocably agrees that any lawsuit commenced by the
Company against the Holder in connection with any dispute arising out of or
relating to this Note (each, a "Company Lawsuit") shall be brought by the
Company, unless otherwise agreed to in writing by such Holder, solely in a
federal or state court located within the County of Los Angeles, State of
California, and, in connection with each Company Lawsuit, each of the Company
and the Holder irrevocably agrees to submit to the exclusive jurisdiction of any
federal or state court located with the County of Los Angeles, State of
California and irrevocably waives, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to the laying of venue of
any Company Lawsuit brought in such court or any defense of inconvenient forum
for the maintenance of such Company Lawsuit in such court.
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(c) Each of the Company and the Holder agrees that a judgment in any Holder
Lawsuit or Company Lawsuit may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(d) Each of the Company and the Holder consents to process being served by
any party to this Agreement in any suit, action or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 9.6 hereof.
9.11. This Note is exchangeable, without expense, upon the surrender hereof
by the Holder at the principal executive office of the Company, for two or more
new Notes of like tenor and date (except for the principal amounts thereof)
representing in the aggregate the same principal amount as this Note, in such
denominations as shall be designated by the Holder thereof at the time of such
surrender, provided that such new Notes shall be issuable in minimum
denominations of $10,000 and integral multiples thereof.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Note, if mutilated, the Company will
make and deliver a new Note of like date and tenor, in lieu thereof.
9.12. By acceptance of this Note, the Holder agrees and acknowledges that
the Company does not retain any right, title or interest in or to any Assets (as
defined in the Capital Contribution Agreement) conveyed by the Company to IP
Holdings LLC ("IP Holdings") pursuant to that certain Capital Contribution
Agreement dated as of August 20, 2002 by and among the Company and Caruso, as
transferors, and IP Holdings, as transferee (as amended or modified from time to
time, the "Capital Contribution Agreement").
CANDIE'S, INC.
By: /s/ Neil Cole
--------------------------------------------
Name: Neil Cole
Title: Chief Executive Officer and President
Receipt of this Note is hereby accepted and
acknowledged this 18th day of October, 2002, by:
SWEET SPORTSWEAR, LLC
By: /s/ Hubert Guez
-----------------------------
Name: Hubert Guez
Title: Manager
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EXHIBIT A
COLLATERAL PLEDGE AGREEMENT
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