EXECUTION COPY
COLLATERAL PLEDGE AGREEMENT
This Collateral Pledge Agreement ("Agreement"), is made and entered into
this 18th day of October, 2002, effective as of April 23, 2002, by and between
Candie's, Inc. ("Candie's") and Michael Caruso & Co., Inc. (together with
Candie's, the "Pledgor") and Sweet Sportswear LLC ("Secured Party").
Background
A. To induce Secured Party to extend credit to Candie's pursuant to the
terms of that certain 8% Senior Subordinated Note due 2012 issued by Candie's to
Secured Party as of April 23, 2002 (the "Note"), Pledgor and Secured Party are
entering into this Agreement.
B. This Agreement is given and is intended to provide Secured Party with
certain security for (i) (x) the obligations of Candie's under the Note and (y)
all other obligations and liabilities (including, without limitation,
indemnities, fees, and interest thereon) of Pledgor, whether now existing or
hereafter incurred, under, arising out of, or in connection with the Note and
the due performance and compliance by Pledgor with all of the terms, conditions,
and agreements contained in the Note; (ii) any and all sums advanced by Secured
Party in order to preserve the Pledged Collateral or preserve its lien and
security interest in the Pledged Collateral; (iii) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities referred to in clauses (i) and (ii) above, the reasonable
expenses of any exercise by Secured Party of its rights hereunder, together with
reasonable attorneys' fees and court costs; and (iv) to the extent not otherwise
included in clauses (i), (ii), and (iii) above, Pledgor's obligations set forth
in Section 17 (the "Obligations").
C. All capitalized terms used herein and not otherwise defined shall have
the same meanings assigned to such terms in the Note.
NOW THEREFORE, for other good and sufficient consideration, the receipt of
which is hereby acknowledged, Pledgor, intending to be legally bound hereby,
covenants and agrees as follows:
1. Pledgor, for the purpose of granting a continuing lien and security
interest, does hereby assign, pledge, hypothecate, deliver, and set over to
Secured Party, its successors, and assigns (i) all of the shares of capital
stock of IP Holdings and Management Corporation, a Delaware corporation
("IPHM"), identified in Schedule I, whether now owned or hereafter acquired by
Pledgor, together with all certificates representing such shares (collectively,
the "Pledged Collateral"), (ii) all ownership interests of any class or
character of a successor entity formed by or resulting from a consolidation or
merger in which IPHM is not the surviving entity, and (iii) all shares,
securities, moneys, or property representing a dividend on any of the Pledged
Collateral, or representing a distribution or return of capital upon or in
respect of the Pledged Collateral, or resulting from a split-up, revision,
reclassification, or other like change of the Pledged Collateral or otherwise
received in exchange therefor, and any subscription warrants, rights, or options
issued to the holders of, or otherwise in respect of, the Pledged Collateral.
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2. The pledge and security interest described herein shall continue in
effect to secure the Obligations until such Obligations have been paid in full.
Unless the Pledged Collateral is disposed of by Secured Party in accordance with
the provisions of Section 8 below, Secured Party shall return the certificates
representing the Pledged Collateral to Pledgor upon Secured Party's receipt of
payment in full of the Obligations.
3. Contemporaneously with the execution hereof, Pledgor agrees to deliver
to Secured Party or its nominee all certificates representing or evidencing the
Pledged Collateral, accompanied by duly executed instruments of transfer or
assignments in blank, to be held by Secured Party or its nominee in accordance
with the terms hereof.
4. Pledgor hereby authorizes Secured Party, and agrees itself to take all
such other actions and to execute and deliver and file, or cause to be filed,
such other instruments or documents, as Secured Party may reasonably require in
order to establish and maintain a perfected, valid, and continuing first
priority security interest and lien in the Pledged Collateral in accordance with
this Agreement and the UCC and other applicable law.
5. Pledgor shall (i) give prompt written notice to Secured Party of, and
(ii) defend the Pledged Collateral against, any suit, action, or proceeding
related to the Pledged Collateral or which could adversely affect the security
interests and liens granted hereunder.
6. Pledgor hereby represents and warrants that:
(a) Except as pledged herein, (i) Pledgor is and will be the sole legal and
beneficial owner of all of the Pledged Collateral now owned or hereafter
acquired, (ii) Pledgor has not sold, assigned, transferred, pledged, or granted
any option or security interest in or otherwise hypothecated the Pledged
Collateral, and (iii) the Pledged Collateral is pledged herewith free and clear
of any and all liens, security interests, encumbrances, claims, pledges,
restrictions, legends, and options;
(b) As of the date hereof and on the date of delivery or transfer to
Secured Party of any Pledged Collateral under this Agreement, Pledgor has good
and marketable title to the Pledged Collateral;
(c) The Pledged Collateral (i) is, and all the other Pledged Collateral in
which Pledgor shall hereafter acquire an interest will be, duly authorized,
validly existing, fully paid, and non-assessable (in the case of any equity
interest in a corporation) and duly issued and outstanding (in the case of any
equity interest in any other entity), and none of such Pledged Collateral is or
will be subject to any contractual restriction, or any restriction under the
charter, bylaws, partnership agreement, or other organizational document of the
respective issuer, upon the transfer of such Pledged Collateral, and (ii)
constitutes all of the issued and outstanding shares of capital stock of IPHM as
set forth in Schedule I beneficially owned by Pledgor on the date hereof
(whether or not registered in the name of Pledgor) and Schedule I correctly
identifies, as at the date hereof, IPHM as the issuer of such Pledged Collateral
and the respective class and par value of the shares constituting such Pledged
Collateral and the respective number of shares (and registered owners thereof)
represented by each such certificate.
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(d) Pledgor has the full power and authority to execute, deliver, and
perform under this Agreement and to pledge the Pledged Collateral hereunder; and
(e) This Agreement constitutes the valid and binding obligation of Pledgor,
enforceable in accordance with its terms, and the pledge of the Pledged
Collateral referred to herein is not in violation of and shall not create any
default under any agreement, undertaking, or obligation of Pledgor.
7. Unless and until an Event of Default (as defined below) has occurred and
is continuing, Pledgor shall be entitled to receive and retain any dividends,
distributions, or proceeds in respect of the Pledged Collateral. If any Event of
Default shall have occurred, then so long as such Event of Default shall
continue, and whether or not Secured Party exercises any available right to
declare any Obligation due and payable or seeks or pursues any other relief or
remedy available to it hereunder or under the Note or applicable law, all
dividends and other distributions on the Pledged Collateral shall be paid
directly to Secured Party and either, at the Pledgor's option (a) retained by
the Secured Party as part of the Pledged Collateral, subject to the terms of
this Agreement, or (b) in the case of cash dividends or distributions, applied
against the Pledgor's Obligations in reduction thereof, and, if Secured Party
shall so request, Pledgor agrees to execute and deliver to Secured Party
appropriate additional dividend, distribution, and other orders and documents to
that end.
8. (a) Notwithstanding anything to the contrary or inconsistent herewith
contained in the Note, an "Event of Default" shall exist hereunder if (i)
Candie's shall commence a voluntary case, or acquiesce as to an involuntary case
filed against it, under the Federal Bankruptcy Code, as now or hereafter in
effect (the "Code"), or (ii) a proceeding or involuntary case shall be commenced
against Candie's under the Code in any court of competent jurisdiction, without
the application or consent of Candie's, and such proceeding or case shall
continue undismissed, or unstayed and in effect, for a period of ninety (90)
days. Upon, and only upon, the occurrence of an Event of Default hereunder,
Secured Party shall have the right to and may, at its sole option, exercise any
and/or all rights and remedies with respect to the Pledged Collateral available
to it hereunder, under the Uniform Commercial Code as adopted in the State of
New York ("UCC"), or otherwise available to it, at law or in equity, to enforce
the pledge granted herein, including, without limitation, the right to dispose
of the Pledged Collateral at a public or private sale.
(b) Without precluding any other methods of sale or other disposition, the
sale or other disposition of the Pledged Collateral or any portion thereof shall
have been made in a commercially reasonable manner if conducted in conformity
with reasonable commercial practices of creditors disposing of similar property;
but in any event Secured Party may sell, lease, deliver, grant options to
purchase, or otherwise retain, liquidate, or dispose such Pledged Collateral on
such terms and to such purchaser(s) (including Secured Party if such sale is a
public sale) as Secured Party in its absolute discretion may choose, and for
cash or for credit or for future delivery, without assuming any credit risk, at
public or private sale or other disposition, without demand of performance, and
without any obligation to advertise or give notice of any kind other than that
necessary under applicable law. Pledgor hereby waives and releases to the
fullest extent permitted by law any right or equity of redemption with respect
to the Pledged Collateral after sale or other disposition hereunder, and all
rights, if any, of marshalling the Pledged Collateral and any other security for
the Obligations or otherwise. At any such public sale or other public
disposition, unless prohibited by applicable law, Secured Party may bid for and
purchase all or any part of the Pledged Collateral so sold free from any such
right or equity of redemption. Secured Party shall not be liable for failure to
collect or realize upon any or all of the Pledged Collateral or for any delay in
so doing nor shall it be under any obligation to take any action whatsoever with
regard thereto.
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(c) Secured Party shall incur no liability as a result of the sale of the
Pledged Collateral, or any part thereof, at any private sale pursuant to this
Agreement conducted in a commercially reasonable manner and otherwise in
accordance with applicable law. Assuming the disposition is conducted in a
commercially reasonable manner and in accordance with applicable law, Pledgor
hereby waives any claims against Secured Party arising by reason of the fact
that the price at which the Pledged Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public
sale or was less than the aggregate amount of the Obligations, even if Secured
Party accepts the first offer received and does not offer the Pledged Collateral
to more than one offeree.
9. Pledgor may at any time sell all or any portion of the Pledged
Collateral provided that the full amount of the then outstanding Obligations are
paid to Secured Party in conjunction with the closing of such sale.
10. The proceeds of any Pledged Collateral received by Secured Party at any
time, whether from the sale of Pledged Collateral or otherwise, shall be applied
to or on account of the Obligations and any excess proceeds, after payment in
full of the Obligations, shall be immediately remitted to Pledgor. In case of
any deficiency and if permitted by applicable law, Pledgor shall, whether or not
then due, remain liable therefor.
11. In the event that any change is made or declared in the capital
structure of IPHM, or Pledgor acquires or in any other manner receives
additional shares in IPHM, any and all new, substituted, or additional
certificates representing or evidencing such shares which have been issued by
reason of any such change, shall be delivered to and held by Secured Party under
the terms hereof in the same manner as the Pledged Collateral originally pledged
hereunder.
12. Pledgor (i) shall give five (5) business days' prior written notice to
Secured Party of any merger, consolidation, share exchange, reorganization, or
other business combination affecting or involving IPHM or IP Holdings, LLC, a
wholly owned subsidiary of IPHM ("IP Holdings"), (ii) shall not take any action
as a shareholder of IPHM that would cause or permit IPHM to (a) sell, assign,
license, transfer, exchange, or otherwise dispose of, or grant any option with
respect to, any of IPHM's membership interests in IP Holdings or (b) create,
incur, or permit to exist any lien or encumbrance on or with respect to any of
the assets of IPHM, any interest therein, or any proceeds thereof, except for
the security interests, liens, and/or encumbrances created with respect to the
Bond Transaction, defined below, or any modification thereof or any refinancing
thereof by or through IP Holdings or any affiliate of IP Holdings (a
"Refinancing"), and (iii) shall not take any action as a shareholder of IPHM
that would cause or allow IP Holdings to (a) prior to the payment in full of the
Asset-Backed Notes or any Refinancing thereof, sell, assign, transfer, exchange,
or otherwise dispose of, or grant any option with respect to, any of the assets
of IP Holdings in contravention of the terms of the Bond Documents, defined
below, or the documents relating to the Refinancing, as the case may be, or,
following the payment in full of the Asset-Backed Notes and any Refinancing
thereof, sell, assign, transfer, exchange, or otherwise dispose of, or grant any
option with respect to, any of the intellectual property assets of IP Holdings
(but in no event shall the foregoing be construed to limit IP Holdings' right to
license its intellectual property assets either before or after the repayment of
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the Asset-Backed Notes) or (b) create, incur, or permit to exist any lien or
encumbrance on or with respect to any of the assets of IP Holdings, any interest
therein, or any proceeds thereof, except for the security interests and liens
created with respect to the Bond Transaction or any modification thereof or any
Refinancing. As used herein the term "Bond Transaction" shall mean and refer to
the series of transactions described in and/or contemplated by the documents set
forth on Schedule II (the "Bond Documents") including the issuance by IP
Holdings of $20,000,000 principal amount of its 7.93% asset-backed notes on
August 20, 2002 (the "Asset-Backed Notes") and all of the transactions effected
in contemplation, or as a result, thereof or in connection therewith.
13. So long as no Event of Default has occurred hereunder, and, thereafter,
until Secured Party notifies Pledgor in writing of the exercise of its rights
hereunder, Pledgor shall retain the sole right to vote the Pledged Collateral
and exercise all rights of ownership with respect to all corporate questions for
all purposes not inconsistent with the terms hereof.
14. To the extent Secured Party is required by law to give Pledgor prior
notice of any public or private sale, or other disposition of the Pledged
Collateral, Pledgor agrees that ten (10) business days prior written notice to
Pledgor shall be a commercially reasonable and sufficient notice of such sale or
other intended disposition.
15. Without limiting any rights or powers granted to Secured Party pursuant
to this Agreement, applicable law or otherwise, Pledgor hereby appoints Secured
Party as its attorney-in-fact, with full power and authority in the place and
stead of Pledgor and in the name of Pledgor or otherwise, from time to time in
Secured Party's discretion to take any and all action and to execute, file, and
record any and all instruments, agreements, and documents which Secured Party
may deem necessary or advisable to accomplish the purposes of this Agreement.
The appointment set forth in this Section 15 is coupled with an interest and is
irrevocable.
16. If Pledgor fails to perform any agreement, covenant, or obligation
contained herein after reasonable notice from Secured Party, Secured Party may
itself perform, or cause performance of such agreement, covenant, or obligation
and the expenses and costs of Secured Party incurred in connection therewith
shall be payable by Pledgor.
17. Secured Party shall not have any liability to any person and shall be
indemnified and held harmless by Pledgor for any liability incurred by reason of
taking or refraining from taking any action with respect to the Pledged
Collateral, except in the case of Secured Party's gross negligence or willful
misconduct. Pledgor agrees to indemnify Secured Party from and against any and
all claims, losses, and liabilities arising out of or connected with this
Agreement (including, without limitation, enforcement of this Agreement), except
such claims, losses, or liabilities resulting solely from Secured Party's gross
negligence or willful misconduct. This Section 17 shall survive any termination
of this Agreement.
18. This Agreement constitutes the entire agreement between the parties
hereto regarding the subject matter hereof and may be modified only by a written
instrument signed by Pledgor and Secured Party.
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19. This Agreement is made in and shall be governed by and construed in
accordance with the laws of the State of New York, without regard to New York
conflicts of law rules, and the provisions hereof shall be deemed severable in
the event of the invalidity of any provision.
20. Any amendment, modification, or waiver of any provision of this
Agreement shall be in writing and executed by the parties hereto, and any such
waiver shall be effective only for the specific purpose for which it is given
and for the specific time period, if any, contemplated therein.
21. No failure or delay by Secured Party in exercising any right, power,
privilege, or remedy hereunder or under the UCC or any other applicable law
shall operate as a waiver hereof or thereof and no single or partial exercise by
Secured Party of any right, power, privilege, or remedy of Secured Party
hereunder or thereunder shall preclude any subsequent or further exercise by
Secured Party thereof or of any other right, power, privilege, or remedy
hereunder or thereunder.
22. If any provision of this Agreement is invalid or unenforceable, then,
to the extent possible, all of the remaining provisions of this Agreement shall
remain in full force and effect and shall be binding on the parties hereto.
23. Upon any consolidation of Candie's with, or merger of Candie's into,
any other entity or any conveyance, transfer, sale, lease or other disposition
of all or substantially all of the properties and assets of Candie's in
accordance with Section 8.1 of the Note, the successor entity formed by such
consolidation or into which Candie's is merged, or to which such conveyance,
transfer, sale, lease or other disposition is made, shall succeed to, and be
substituted for, and may exercise every right and power of the Pledgor under
this Agreement with the same effect as if such successor entity had been named
as the Pledgor herein, and thereafter, the predecessor entity shall be relieved
of all obligations and covenants under this Agreement. Other than as set forth
in the preceding sentence, Pledgor shall not have the right to assign its rights
or delegate its obligations hereunder or any part thereof to any other person
without Secured Party's prior written consent.
24. Pledgor and Secured Party agree as follows:
(a) Secured Party hereby irrevocably agrees that any lawsuit commenced by
Secured Party against Pledgor in connection with any dispute arising out of or
relating to this Agreement (each, a "Secured Party Lawsuit") shall be brought by
Secured Party, unless otherwise agreed to in writing by Pledgor, solely in a
federal or state court located within the County of New York, State of New York,
and, in connection with each Secured Party Lawsuit, each of Secured Party and
Pledgor irrevocably agrees to submit to the exclusive jurisdiction of any
federal or state court located within the County of New York, State of New York,
and irrevocably agrees to waive, to the fullest extent permitted by applicable
law, any objection which it may now or hereafter have to the laying of venue of
any Secured Party Lawsuit brought in such court or any defense of inconvenient
forum for the maintenance of such Secured Party Lawsuit in such court.
(b) Pledgor hereby irrevocably agrees that any lawsuit commenced by Pledgor
against Secured Party in connection with any dispute arising out of or relating
to this Agreement (each, a "Pledgor Lawsuit") shall be brought by Pledgor,
unless otherwise agreed to in writing by Secured Party, solely in a federal or
state court located within the County of Los Angeles, State of California, and,
in connection with each Pledgor Lawsuit, each of Pledgor and Secured Party
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irrevocably agrees to submit to the exclusive jurisdiction of any federal or
state court located with the County of Los Angeles, State of California, and
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of venue of any
Pledgor Lawsuit brought in such court or any defense of inconvenient forum for
the maintenance of such Pledgor Lawsuit in such court.
(c) Each of Pledgor and Secured Party agrees that a judgment in any Secured
Party Lawsuit or Pledgor Lawsuit may be enforced in other jurisdictions by suit
on the judgment or in any other manner provided by law.
(d) Each of Pledgor and Secured Party consents to process being served by
any party to this Agreement in any suit, action, or proceeding by the mailing of
a copy thereof in accordance with the provisions of Section 25 below.
25. Any notice, request, demand, or other communication required or
permitted to be given to Pledgor or Secured Party pursuant to the provisions of
this Agreement shall be in writing and (i) personally delivered, (ii) sent via
facsimile, with confirmed transmission and receipt, and followed promptly by
delivery of the original, or (iii) sent by a nationally-recognized courier or
overnight service such as Federal Express, (for next business-day delivery)
postage prepaid, as follows:
(a) if to Pledgor, to:
Candie's, Inc. or Michael Caruso & Co., Inc., as the case
may be, each at:
400 Columbus Avenue
Valhalla, New York 10595
Attn.: Deborah Sorell Stehr, Esq.
Senior Vice President and General Counsel
Facsimile No.: (914) 769-8103
With a copy to (which does not constitute notice):
Blank Rome Tenzer Greenblatt LLP
405 Lexington Avenue
New York, NY 10174
Attn.: Robert J. Mittman, Esq.
Facsimile No.: (212) 885-5001
(b) if to Secured Party, to:
Sweet Sportswear LLC
5804 E. Slauson Avenue
Commerce, California 90040
Attn.: Deborah Greaves
General Counsel
Facsimile No.: (323) 728-1641
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With a copy to (which does not constitute notice):
Akin Gump Strauss Hauer & Feld LLP
2029 Century Park East, Suite 2400
Los Angeles, California 90067
Attn.: David Antheil, Esq.
Facsimile No.: (310) 229-1001
Either Pledgor or Secured Party may change its address for receipt of future
notices hereunder by giving written notice to the other in the manner provided
herein. Notices shall be deemed given and received at the time of personal
delivery or completed facsimile transmission, or, if sent by Federal Express or
other overnight delivery service, one (1) business day after such sending.
26. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and assigns.
[Signature pages follow]
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IN WITNESS WHEREOF, this Collateral Pledge Agreement has been executed and
delivered as of the date first set forth above.
CANDIE'S, INC.
By: /s/ Neil Cole
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Name: Neil Cole
Title: Chief Executive Officer and President
MICHAEL CARUSO & CO., INC.
By: /s/ Neil Cole
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Name: Neil Cole
Title: Chief Executive Officer
SWEET SPORTSWEAR LLC
By: /s/ Hubert Guez
----------------------------------------
Name: Hubert Guez
Title: Manager
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SCHEDULE I
Pledged Collateral
All of the outstanding shares of common stock of IP Holdings and Management
Corporation, a Delaware corporation ("IPHM"), par value $0.01 per share (the
"Shares"), are hereby pledged by Candie's, Inc. ("Candie's") and Michael Caruso
& Co., Inc. ("Michael Caruso"), the sole stockholders of IPHM, as outlined
below, to Sweet Sportswear LLC pursuant to the Collateral Pledge Agreement to
which this Schedule is attached:
Number Number
of of
Shares of IPHM Shares of IPHM
(and Stock (and Stock
Total Total Certificate Certificate
Number Number Number) Number)
of of Issued Issued
Shares Authorized Shares Issued by to to
to be Issued by IPHM IPHM Candie's Michael Caruso
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60 Shares/ 40 Shares/
100 Shares 100 Shares Certificate Certificate
No. 1 No. 2
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SCHEDULE II
Bond Documents
1. Indenture, dated August 20, 2002, between IP Holdings LLC ("IP Holdings") and
Wilmington Trust Company, a Delaware Business Trust ("Trustee")
2. Capital Contribution Agreement, dated August 20, 2002, by and among Candie's,
Inc. ("Candie's"), Michael Caruso & Co., Inc. ("Caruso") and IP Holdings
3. Capital Contribution Agreement, dated August 20, 2002, by and among Candie's,
Caruso and IP Holdings and Management Corporation ("IPHM")
4. Assignment and Acceptance Agreement, dated August 20, 2002, by and among
Candies', Caruso and IPHM
5. Servicing Agreement, dated August 20, 2002, between UCC Servicing, LLC (the
"Servicer") and IP Holdings
6. Management Agreement, dated August 20, 2002, by and among IP Management LLC
("IP Management"), IP Holdings, IPHM and Servicer
7. Back-up Manager Management Agreement, dated August 20, 2002, by and among
Strategic Consulting Network, LLC (d/b/a/ Jassin-O'Rourke Group, LLC) (the
"Back-Up Manager"), IP Holdings and Servicer
8. Management Support Agreement, dated August 20, 2002, between Candie's and IP
Management
9. Operating Agreement of IP Holdings
10. Operating Agreement of IP Management
11. By-Laws of IPHM
12. Certificate of Incorporation of IPHM (Certificate of Incorporation, dated
August 15, 2002 and Amendment to Certificate of Incorporation, dated August 20,
2002)
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