Exhibit 10.2

[EXECUTION COPY]

THIRD AMENDED AND RESTATED

PLEDGE AND SECURITY AGREEMENT

THIS THIRD AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as such agreement
may be amended, supplemented, modified or amended and restated from time to
time, this “Agreement”), dated as of April 23, 2008, is made by ANNTAYLOR, INC.,
a Delaware corporation (“ATI”), ANNTAYLOR STORES CORPORATION, a Delaware
corporation (the “Parent”), ANNCO, INC., a Delaware corporation (“ANNCO”),
ANNTAYLOR DISTRIBUTION SERVICES, INC., a Delaware corporation (“ATDS”), and
ANNTAYLOR RETAIL, INC., a Delaware corporation (“ATR” and, together with ATI,
the Parent, ANNCO and ATDS, the “Grantors” and each, individually, a “Grantor”)
in favor of BANK OF AMERICA, N.A., in its capacity as administrative agent for
each of the Lenders now or hereafter party to the Credit Agreement (as defined
below) (the “Agent”).

W I T N E S S E T H:

WHEREAS, ATI, ANNCO, ATDS, ATR, the Agent, the lenders referred to therein, the
syndication agents named therein, and the issuing banks named therein have
entered into that certain $175,000,000 Second Amended and Restated Credit
Agreement dated November 14, 2003 (as amended, the “Original Credit Agreement”);
and

WHEREAS, at the Borrowers’ request, Lenders, the Agent and the syndication
agents named therein have agreed to amend and restate the Original Credit
Agreement in its entirety pursuant to that certain Third Amended and Restated
Credit Agreement dated as of the date hereof (as so amended and restated and as
such agreement may be further amended, supplemented, modified, or amended and
restated from time to time, the “Credit Agreement”); and

WHEREAS, the Parent is the parent of each of ATI, ANNCO, ATDS and ATR and has
and will materially benefit from the Loans made or to be made and the Letters of
Credit issued or to be issued under the Credit Agreement, and in connection
therewith and pursuant to the terms of the Credit Agreement, the Parent
simultaneously herewith has entered into that certain Third Amended and Restated
Parent Guaranty and is required to execute and deliver this Agreement; and

WHEREAS, each of ANNCO, ATDS and ATR is, directly or indirectly, a wholly owned
Subsidiary of ATI and has and will materially benefit from the Loans and
Advances made and to be made, and the Letters of Credit issued and to be issued,
under the Credit Agreement; and

WHEREAS, the parties hereto have entered into that certain Second Amended and
Restated Pledge and Security Agreement dated November 14, 2003 (as amended, the
“Original Pledge and Security Agreement”), pursuant to which the Grantors
granted a security interest in certain personal property and assets as
collateral security for the payment and performance of such Grantors’
obligations under the loan documents relating to and including the Original
Credit Agreement; and

--------------------------------------------------------------------------------

WHEREAS, as collateral security for payment and performance by each Grantor of
its Obligations, each Grantor is willing to continue, amend and grant to the
Lender, as the case may be, a security interest in certain of its personal
property and assets pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of the above premises and in order to induce
the Lenders and each Letter of Credit Issuer to amend and restate the Original
Credit Agreement and continue to, respectively, make Loans and issue Letters of
Credit under the Credit Agreement, each Grantor hereby agrees with the Agent for
its benefit, and for the benefit of the Lenders and each Letter of Credit
Issuer, by acceptance hereof, as follows:

1. DEFINED TERMS. The following terms shall have the following respective
meanings:

“Accounts” means all of each Grantor’s now owned or hereafter acquired or
arising accounts, as defined in the UCC, including all Credit Card Accounts and
any rights to payment for the sale or lease of goods or rendition of services,
whether or not they have been earned by performance.

“Affiliate” as applied to any Person, shall mean any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For purposes of this definition, “control” (including, with correlative
meanings, the terms “controlling”, “controlled by” and “under common control
with”), as applied to any Person, means the possession, directly or indirectly,
of the power to vote 10% or more of the Securities having voting power for the
election of directors of such Person or otherwise to direct or cause the
direction of the management and policies of that Person, whether through the
ownership of voting Securities or by contract or otherwise; provided that no
financial institution, mutual fund or investment banking firm shall be an
Affiliate of any Grantor unless it owns, directly or indirectly, at least 20% of
such Securities of such Grantor.

“Chattel Paper” means all of each Grantor’s now owned or hereafter acquired
chattel paper, as defined in the UCC, including electronic chattel paper.

“Copyrights” means all of each Grantor’s right, title and interest, whether now
owned or hereafter acquired, in and to all United States and foreign copyrights
and copyright applications (including without limitation the copyrights and
copyright applications identified on Schedule III attached hereto and
incorporated herein by reference) and including the right to recover for all
past, present and future infringements thereof and all reissues, divisions,
continuations, continuations-in-part, substitutes, renewals, and extensions
thereof, all improvements thereon, and all other rights of any kind whatsoever
of such Grantor accruing thereunder or pertaining thereto.

“Deposit Accounts” means all “deposit accounts” as such term is defined in the
UCC, now or hereafter held in the name of any Grantor.

 

2

--------------------------------------------------------------------------------

“Documents” means all documents as such term is defined in the UCC, including
bills of lading, warehouse receipts or other documents of title, now owned or
hereafter acquired by any Grantor.

“Equipment” means all of each Grantor’s now owned and hereafter acquired
machinery, equipment, furniture, furnishings, fixtures, and other tangible
personal property (except Inventory), including embedded software, motor
vehicles with respect to which a certificate of title has been issued, aircraft,
dies, tools, jigs, molds and office equipment, as well as all of such types of
property leased by such Grantor and all of such Grantor’s rights and interests
with respect thereto under such leases (including, without limitation, options
to purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.

“Equity Interests” means, with respect to any Person, all shares, interests,
participations or other equivalent ownership interests (however, designated,
whether voting or non-voting) of such Person’s capital, whether now outstanding
or issued after the Effective Date.

“Excluded Notes” means any promissory note with an original principal amount of
less than $1,000,000 owing to any Grantor from a senior executive or key
employee of such Grantor.

“General Intangibles” means all of each Grantor’s now owned or hereafter
acquired general intangibles, choses in action and causes of action and all
other intangible personal property of such Grantor of every kind and nature
(other than Accounts), including, without limitation, all contract rights,
payment intangibles, corporate or other business records, inventions, designs,
blueprints, plans, specifications, trade secrets, goodwill, computer software,
customer lists, registrations, licenses, franchises, tax refund claims, any
funds which may become due to such Grantor in connection with the termination of
any employee benefit plan or any rights thereto and any other amounts payable to
such Grantor from any employee benefit plan, rights and claims against carriers
and shippers, rights to indemnification, business interruption insurance and
proceeds thereof, property, casualty or any similar type of insurance and any
proceeds thereof, proceeds of insurance covering the lives of key employees on
which such Grantor is beneficiary, all Pledged Equity Interests constituting
“general intangibles” as defined in the UCC, rights to receive dividends,
distributions, cash and other property in respect of or in exchange for pledged
equity interests or Investment Property and any letter of credit, guarantee,
claim, security interest or other security held by or granted to such Grantor,
and including without limitation, all Credit Card Accounts and Patents,
Trademarks and Copyrights constituting “general intangibles” as defined in the
UCC.

“Goods” means all “goods” as defined in the UCC, now owned or hereafter acquired
by any Grantor, wherever located, including embedded software to the extent
included in “goods” as defined in the UCC.

 

3

--------------------------------------------------------------------------------

“Instruments” means all instruments as such term is defined in the UCC, now
owned or hereafter acquired by any Grantor, including, without limitation, all
Pledged Notes constituting “instruments” as defined in the UCC.

“Inventory” means all of each Grantor’s now owned and hereafter acquired
inventory, goods and merchandise, wherever located, to be furnished under any
contract of service or held for sale or lease, all returned goods, raw
materials, work-in-process, finished goods (including embedded software), other
materials and supplies of any kind, nature or description which are used or
consumed in such Grantor’s business or used in connection with the packing,
shipping, advertising, selling or finishing of such goods, merchandise, and all
documents of title or other Documents representing them.

“Investment Property” means all of each Grantor’s right title and interest in
and to any and all: (a) securities whether certificated or uncertificated;
(b) securities entitlements; (c) securities accounts; (d) commodity contracts;
or (e) commodity accounts, including, without limitation, all Pledged Equity
Interests constituting “investment property” as defined in the UCC.

“Letter-of-Credit Rights” means “letter-of-credit rights” as such term is
defined in the UCC, now owned or hereafter acquired by any Grantor, including
rights to payment or performance under a letter of credit, whether or not such
Grantor, as beneficiary, has demanded or is entitled to demand payment or
performance.

“LLC Agreement” means the limited liability company agreement, operating
agreement and other organizational document of a Securities Issuer which is a
limited liability company, as the same may be amended, restated, amended and
restated, supplemented or otherwise modified from time to time.

“Partnership Agreement” means the partnership agreement and other organizational
document of a Securities Issuer which is a partnership, as the same way be
amended, restated, amended and restated, supplemented or otherwise modified from
time to time.

“Patents” means all of each Grantor’s right, title and interest, whether now
owned or hereafter acquired, in and to all United States and foreign patents and
patent applications (including without limitation the patents and patent
applications identified on Schedule III attached hereto and incorporated herein
by reference) and including the right to recover for all past, present and
future infringements thereof and all reissues, divisions, continuations,
continuations in part, substitutes, renewals, and extensions thereof, all
improvements thereon, and all other rights of any kind whatsoever of such
Grantor accruing thereunder or pertaining thereto.

“Pledged Collateral” is defined in Section 3(c) hereof.

“Pledged Equity Interests” means all Pledged Shares, Pledged Partnership
Interests and Pledged Membership Interests.

 

4

--------------------------------------------------------------------------------

“Pledged Membership Interests” means all Equity Interests of each Securities
Issuer which is a limited liability company identified in Item C of Schedule IV
opposite the name of any Grantor and all additional Equity Interests of any such
Securities Issuer from time to time acquired by such Grantor in any manner,
including, in each case, (i) the LLC Agreement of such Securities Issuer,
(ii) all rights (but not obligations) of such Grantor as a member thereof and
all rights to receive dividends or distributions (whether payable in cash,
securities or otherwise) and all principal, interest, and other payments and
rights from time to time received, receivable, or otherwise distributed
thereunder, (iii) all claims of such Grantor for damages arising out of or for
breach of or default under such LLC Agreement, (iv) the right of such Grantor to
terminate such LLC Agreement, to perform and exercise consensual or voting
rights thereunder, and to compel performance and otherwise exercise all remedies
thereunder, (v) all rights of such Grantor, whether as a member thereof or
otherwise, to all property and assets of such Securities Issuer (whether real
property, inventory, equipment, accounts, general intangibles, securities,
instruments, chattel paper, documents, choses in action, financial assets, or
otherwise) and (vi) all certificates or instruments evidencing such Equity
Interests.

“Pledged Notes” means all promissory notes of each Securities Issuer identified
in Item A of Schedule IV hereto opposite the name of any Grantor and all other
promissory notes of any such Securities Issuer issued from time to time to such
Grantor other than any Excluded Notes, as such promissory notes are amended,
modified, supplemented, restated or otherwise modified from time to time and
together with any promissory note of any Securities Issuer taken in extension or
renewal thereof or substitution therefor.

“Pledged Partnership Interests” means all Equity Interests of each Securities
Issuer which is a partnership identified in Item D of Schedule IV opposite the
name of any Grantor and all additional Equity Interests of any such Securities
Issuer from time to time acquired by such Grantor in any manner, including, in
each case, (i) the Partnership Agreement of such Securities Issuer, (ii) all
rights (but not obligations) of such Grantor as a partner thereof and all rights
to receive dividends or distributions (whether payable in cash, securities or
otherwise) and all principal, interest, and other payments and rights from time
to time received, receivable, or otherwise distributed thereunder, (iii) all
claims of such Grantor for damages arising out of or for breach of or default
under such Partnership Agreement, (iv) the right of such Grantor to terminate
such Partnership Agreement, to perform and exercise consensual or voting rights
thereunder, and to compel performance and otherwise exercise all remedies
thereunder, (v) all rights of such Grantor, whether as a partner thereof or
otherwise, to all property and assets of such Securities Issuer (whether real
property, inventory, equipment, accounts, general intangibles, securities,
instruments, chattel paper, documents, choses in action, financial assets, or
otherwise) and (vi) all certificates or instruments evidencing such Equity
Interests.

“Pledged Shares” means all issued and outstanding shares of capital stock of
each Securities Issuer which is a corporation (or similar type of issuer)
identified in Item B of Schedule IV hereto opposite the name of any Grantor
including, in each case, (i) all rights (but not obligations) of such Grantor as
an owner thereof and all rights to receive dividends or distributions (whether
payable in cash, securities or otherwise) and all principal, interest, and other
payments and rights from time to time received, receivable, or otherwise
distributed thereunder, (ii) all rights of such Grantor, whether as an owner
thereof or otherwise, to all

 

5

--------------------------------------------------------------------------------

property and assets of such Securities Issuer (whether real property, inventory,
equipment, accounts, general intangibles, securities, instruments, chattel
paper, documents, choses in action, financial assets, or otherwise) and
(iii) all additional shares of capital stock of any such Securities Issuer from
time to time acquired by such Grantor in any manner, and (iv) the certificates
representing such shares of capital stock.

“Securities Issuer” means any Person listed on Schedule IV hereto that has
issued or may issue a Pledged Equity Interest or a Pledged Note.

“Software” means all “software” as such term is defined in the UCC, now owned or
hereafter acquired by any Grantor, other than software embedded in any category
of Goods, including all computer programs and all supporting information
provided in connection with a transaction related to any program.

“Supporting Obligations” means all supporting obligations as such term is
defined in the UCC.

“Trademarks” means all of each Grantor’s right, title and interest, whether now
owned or hereafter acquired, in and to all United States and foreign trademarks,
trade names, trade dress, service marks, trademark and service mark
registrations, and applications for trademark or service mark registration and
any renewals thereof (including without limitation each trademark, trade name,
trade dress, registration and application identified in Schedule III attached
hereto and incorporated herein by reference) and including all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto (including without limitation damages for past or future
infringements thereof), the right to sue or otherwise recover for all past,
present and future infringements thereof, all rights corresponding thereto
throughout the world (but only such rights as now exist or may come to exist
under applicable local law) and all other rights of any kind whatsoever of each
Grantor accruing thereunder or pertaining thereto, together in each case with
the goodwill of the business connected with the use of, and symbolized by, each
such trademark and service mark.

“UCC” means the Uniform Commercial Code, as in effect from time to time, of the
State of New York or of any other state the laws of which are required as a
result thereof to be applied in connection with the issue of perfection of
security interests.

“Uniform Commercial Code jurisdiction” means any jurisdiction that has adopted
“Revised Article 9” of the UCC on or after July 1, 2001.

All other capitalized terms used but not otherwise defined herein have the
meanings given to them in the Credit Agreement or in Annex A thereto. All other
undefined terms contained in this Agreement, unless the context indicates
otherwise, have the meanings provided for by the UCC to the extent the same are
used or defined therein.

2. GRANT OF LIEN.

(a) As security for all Obligations, each Grantor hereby pledges, assigns,
charges, mortgages, delivers, transfers and grants to the Agent, for the benefit
of the Agent and

 

6

--------------------------------------------------------------------------------

the Lenders, a continuing security interest in, lien on, assignment of and right
of set-off against, all of the following property and assets of such Grantor,
whether now owned or existing or hereafter acquired or arising, regardless of
where located:

(i) all Accounts;

(ii) all Inventory;

(iii) all contract rights;

(iv) all Chattel Paper;

(v) all Documents;

(vi) all Instruments;

(vii) all Supporting Obligations and Letter-of-Credit Rights;

(viii) all General Intangibles (including payment intangibles and Software);

(ix) all Goods;

(x) all Equipment;

(xi) all Investment Property;

(xii) all money, cash, cash equivalents, securities and other property of any
kind of such Grantor held directly or indirectly by the Agent or any Lender;

(xiii) all of such Grantor’s Deposit Accounts, credits, and balances with and
other claims against the Agent or any Lender or any of their Affiliates or any
other financial institution with which such Grantor maintains deposits,
including the Payment Account;

(xiv) all books, records and other property related to or referring to any of
the foregoing, including books, records, account ledgers, data processing
records, computer software and other property and General Intangibles at any
time evidencing or relating to any of the foregoing;

(xv) all accessions to, substitutions for and replacements, products and
proceeds of any of the foregoing, including, but not limited to, proceeds of any
insurance policies, claims against third parties, and condemnation or
requisition payments with respect to all or any of the foregoing;

Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and no Grantor shall be deemed to have granted a security
interest in (a) any lease, license, contract, property rights or agreement to
which any Grantor is a party or any of its rights or interests thereunder, or
any property or assets subject to any lease, license, contract or agreement if
and for so long as the grant of such security interest shall constitute or
result in (i) the abandonment,

 

7

--------------------------------------------------------------------------------

invalidation or unenforceability of any right, title or interest of any Grantor
therein or (ii) in a breach or termination pursuant to the terms of, or a
default under, any such lease license, contract property rights or agreement
(other than to the extent that any such term would be rendered ineffective
pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor
provision or provisions) of any relevant jurisdiction or any other applicable
law (including the Bankruptcy Code) or principles of equity), provided however
that such security interest shall attach immediately at such time as the
condition causing such abandonment, invalidation or unenforceability shall be
remedied and, to the extent severable, shall attach immediately to any portion
of such lease, license, contract, property rights or agreement, or such property
or assets subject to any lease, license, contract or agreement that does not
result in any of the consequences specified in (i) or (ii), (b) any real
property leasehold held by a Grantor, (c) any of the outstanding Equity
Interests of a Foreign Subsidiary in excess of 65% of the voting power of all
classes of Equity Interests of such Foreign Subsidiary entitled to vote, (d) any
Excluded Notes, (e) motor vehicles covered by certificates of title, (f) patent
number 6,427,855 issued on August 6, 2002 and owned by ANNCO and (g) any shares
of Parent’s capital stock owned by any Grantor or any Margin Stock owned by any
Grantor, unless the Grantors in aggregate own at any time Margin Stock (other
than shares of Parent’s capital stock) with an aggregate value over $1,000,000,
in which case such Margin Stock (other than shares of Parent’s capital stock)
shall be included as Collateral or disposed of for Cash Equivalents to be
included as Collateral).

All of the foregoing, together with the Real Estate covered by the Mortgage(s)
and all other property of such Grantor in which the Agent or any Lender may at
any time be granted a Lien as collateral for the Obligations, is herein
collectively referred to as the “Collateral.”

(b) The Collateral of each Grantor secures (i) in the case of the Borrower, all
Obligations of the Borrower under the Loan Documents, (ii) in the case of the
Parent, the Guaranteed Obligations under the Parent Guaranty and (iii) in the
case of each Subsidiary Guarantor, the Guaranteed Obligations under the
Subsidiary Guaranty. All of the Obligations shall be secured by all of the
Collateral.

(c) This Section 2 continues, reaffirms and amends, as the case may be, those
respective first priority pledge and security interests granted under the
Original Pledge and Security Agreement.

3. PERFECTION AND PROTECTION OF SECURITY INTEREST.

(a) Each Grantor shall, at its expense, perform all steps requested by the Agent
at any time to perfect, maintain, protect, and enforce the Agent’s Liens,
including: (i) executing, delivering and/or filing and recording of the
Mortgage(s), the Trademark Security Agreement and executing and filing financing
or continuation statements, and amendments thereof, in form and substance
reasonably satisfactory to the Agent; (ii) delivering to the Agent warehouse
receipts covering any portion of the Collateral located in warehouses and for
which warehouse receipts are issued and certificates of title covering any
portion of the collateral for which certificates of title have been issued;
(iii) when an Event of Default has occurred and is continuing, transferring
Inventory to warehouses or other locations designated by the Agent; (iv) placing
notations on such Grantor’s books of account to disclose the Agent’s security

 

8

--------------------------------------------------------------------------------

interest; and (v) taking such other steps as are deemed necessary by the Agent
to maintain and protect the Agent’s Liens. Each Grantor agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.

(b) If any Grantor at any time owns Collateral consisting of a negotiable
Document with a value in excess of $1,000,000 or Chattel Paper with an aggregate
value in excess of $1,000,000, such Grantor shall promptly notify Agent thereof
and, upon request of the Agent, deliver such Collateral to the Agent.

(c) All certificates, notes and other instruments representing or evidencing the
Pledged Equity Interests or the Pledged Notes and all other instruments now
owned or at any time hereafter acquired by any Grantor other than any Excluded
Notes (collectively, the “Pledged Collateral”) shall be delivered to and held by
or on behalf of the Agent pursuant hereto (except as otherwise provided in the
last sentence of Section 10(c) hereof) and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignments in blank, all in form and substance satisfactory to the
Agent. Upon the occurrence and during the continuance of an Event of Default,
the Agent shall have the right, at any time in its discretion and without notice
to such Grantor, to transfer to or to register in the name of the Agent or any
nominee of the Agent any or all of the Pledged Collateral, subject only to the
revocable rights specified in Section 10 hereof. In addition, upon the
occurrence and during the continuance of an Event of Default, the Agent shall
have the right at any time to exchange certificates or instruments representing
or evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.

(d) If required by the terms of the Credit Agreement and not waived by Agent in
writing (which waiver may be revoked), each Grantor shall obtain authenticated
control agreements from each issuer of uncertificated securities, securities
intermediary, or commodities intermediary issuing or holding any financial
assets or commodities to or for such Grantor.

(e) If any Grantor is or becomes the beneficiary of a letter of credit in an
amount in excess of $1,000,000, such Grantor shall promptly notify Agent thereof
and enter into a tri-party agreement with Agent and the issuer and/or
confirmation bank with respect to Letter-of-Credit Rights assigning such
Letter-of-Credit Rights to Agent and directing all payments thereunder to the
Payment Account, all in form and substance reasonably satisfactory to Agent.

(f) Each Grantor shall take all steps necessary to grant the Agent control of
all electronic chattel paper in accordance with the Code and all “transferable
records” as defined in the Uniform Electronic Transactions Act.

(g) Each Grantor hereby irrevocably authorizes the Agent at any time and from
time to time to file in any filing office in any Uniform Commercial Code
jurisdiction any initial financing statements and amendments thereto that
(a) indicate the Collateral (i) as all assets of such Grantor or words of
similar effect, regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of the State of New
York or such jurisdiction, or (ii) as being of an equal or lesser scope or with
greater detail, and (b) contain any other information required by part 5 of
Article 9 of the UCC of the State of New

 

9

--------------------------------------------------------------------------------

York for the sufficiency or filing office acceptance of any financing statement
or amendment, including (i) whether such Grantor is an organization, the type of
organization and any organization identification number issued to such Grantor,
and (ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. Each
Grantor agrees to furnish any such information to the Agent promptly upon
request. Each Grantor also ratifies its authorization for the Agent to have
filed in any Uniform Commercial Code jurisdiction any like initial financing
statements or amendments thereto if filed prior to the date hereof.

(h) Each Grantor shall promptly deliver to Agent a copy of any complaint filed
by it asserting any commercial tort claim (as defined in the UCC) in an amount
in excess of $5,000,000 and unless otherwise consented by Agent, such Grantor
shall enter into a supplement to this Agreement, granting to Agent a Lien in
such commercial tort claim.

(i) From time to time, each Grantor shall, upon the Agent’s request, execute and
deliver confirmatory written instruments pledging to the Agent, for the ratable
benefit of the Agent and the Lenders, the Collateral, but such Grantor’s failure
to do so shall not affect or limit any security interest or any other rights of
the Agent or any Lender in and to the Collateral with respect to such Grantor.
So long as the Credit Agreement is in effect and until all Obligations have been
fully satisfied, the Agent’s Liens shall continue in full force and effect in
all Collateral (whether or not deemed eligible for the purpose of calculating
the Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).

(j) No Reincorporation. Without limiting the prohibitions on mergers involving
any Grantor contained in the Credit Agreement or any other Loan Document, no
Grantor shall reincorporate or reorganize itself under the laws of any
jurisdiction other than the jurisdiction in which it is incorporated or
organized as of the date hereof or change its type of entity as identified on
Schedule II without the prior written consent of Agent.

(k) Terminations Amendments Not Authorized. Each Grantor acknowledges that it is
not authorized to file any financing statement covering the Collateral or
amendment or termination statement with respect to any financing statement
covering the Collateral without the prior written consent of Agent and agrees
that it will not do so without the prior written consent of Agent, subject to
such Grantor’s rights under Section 9-509(d)(2).

(l) No Restriction on Payments to Agent. No Grantor shall enter into any
Contract that restricts or prohibits the grant of a security interest in
Accounts, Chattel Paper, Instruments or payment intangibles or the proceeds of
the foregoing to Agent.

4. LOCATION OF COLLATERAL. (a) Each Grantor represents and warrants to the Agent
and the Lenders that: Schedule I is a correct and complete list of the location
of such Grantor’s chief executive office and the location of its books and
records and (b) Schedule I correctly identifies any of such facilities and
locations that are not owned by such Grantor. Each Grantor covenants and agrees
that it will not (i) maintain any Collateral at any location other than those
locations owned or leased by such Grantor or otherwise listed for such Grantor
on Schedule I except for Collateral which is in transit from a supplier to a
Grantor or to

 

10

--------------------------------------------------------------------------------

customers of a Grantor or between any such locations or (ii) change the location
of its chief executive office or location of its books and records from the
location identified in Schedule I, unless it gives the Agent at least thirty
(30) days’ prior written notice thereof. Without limiting the foregoing, each
Grantor represents that all of its Inventory (other than Inventory in transit
from a supplier to a Grantor or to customers of a Grantor or between any such
locations) is, and covenants that all of its Inventory will be, located either
(a) on premises owned by such Grantor, (b) on premises leased by such Grantor,
or (c) in a warehouse or with a bailee, provided that the Agent has received an
executed bailee letter from the applicable Person in form and substance
reasonably satisfactory to the Agent.

5. JURISDICTION OF ORGANIZATION. Schedule II hereto identifies each Grantor’s
name as of the Closing Date as it appears in official filings in the state of
its incorporation or other organization, the type of entity of such Grantor
(including corporation, partnership, limited partnership or limited liability
company), organizational identification number issued by such Grantor’s state of
incorporation or organization or a statement that no such number has been issued
and the jurisdiction in which such Grantor is incorporated or organized. Each
Grantor has only one state of incorporation or organization.

6. TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. Each Grantor represents
and warrants to the Agent and the Lenders and agrees with the Agent and the
Lenders that: (a) such Grantor has rights in and the power to transfer all of
the Collateral free and clear of all Liens whatsoever, except for Liens
permitted by Section 7.10 of the Credit Agreement; (b) the Agent’s Liens in the
Collateral will not be subject to any prior Lien except for those Liens
identified in clause (a), (b), (c), (d) and (f) of the definition of Permitted
Liens and permitted by clauses (b)(iii), (iv), (v), (vi), (vii) and (viii) of
Section 7.10 of the Credit Agreement; and (c) such Grantor will use, store, and
maintain the Collateral in accordance with customary business practices and will
use such Collateral for lawful purposes only.

7. ACCOUNTS.

(a) Each Grantor hereby represents and warrants to the Agent and the Lenders,
with respect to such Grantor’s Accounts that are to be included in the
determination of Eligible Credit Card Accounts, that: (i) such Account arises
from the sale of goods, is owned by such Grantor and represents a complete bona
fide transaction which requires no further act on the part of such Grantor to
make such Account payable by the Account Debtor; (ii) such Account and the
underlying contract related thereto does not contravene in any material respect
any laws, rules or regulations applicable thereto including, without limitation,
rules and regulations relating to truth-in-lending, fair credit billing, fair
credit reporting, equal credit opportunity, fair debt collection practices and
privacy and no Grantor party to the underlying contract related thereto is in
violation of any such laws, rules or regulations in any material respect;
(iii) the goods, the sale of which gave rise to the Account, were not at the
time of the sale subject to any Lien other than Liens permitted under
Section 7.10(b) of the Credit Agreement; and (iv) no Grantor is in material
breach of any express or implied material representations or warranty with
respect to the goods, the sale of which gave rise to such Account nor in
material breach of any material representation or warranty, covenant or other
agreement contained in the Loan Documents with respect to such Account.

 

11

--------------------------------------------------------------------------------

(b) No Grantor shall accept any note or other instrument (except a check or
other instrument for the immediate payment of money) with respect to any Account
without the Agent’s written consent. If the Agent consents to the acceptance of
any such instrument, it shall be considered as evidence of the Account and not
payment thereof and such Grantor will promptly deliver such instrument to the
Agent, endorsed by such Grantor to the Agent in a manner satisfactory in form
and substance to the Agent. Regardless of the form of presentment, demand,
notice of protest with respect thereto, such Grantor shall remain liable thereon
until such instrument is paid in full.

(c) Each Grantor shall notify the Agent promptly of all disputes and claims in
excess of $500,000 with any Account Debtor, and agrees to settle, contest, or
adjust such dispute or claim at no expense to the Agent or any Lender. No
discount, credit or allowance shall be granted to any such Account Debtor
without the Agent’s prior written consent, except for discounts, credits and
allowances made or given in the ordinary course of such Grantor’s business when
no Event of Default exists hereunder. The Agent may at all times when an Event
of Default exists hereunder, settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which the Agent or the Required
Lenders, as applicable, shall consider advisable and, in all cases, the Agent
will credit the Borrower’s Loan Account with the net amounts received by the
Agent in payment of any Accounts in accordance with the provisions of the Credit
Agreement.

8. INVENTORY; PERPETUAL INVENTORY.

(a) Each Grantor represents and warrants to the Agent and the Lenders and agrees
with the Agent and the Lenders that all of the Inventory owned by such Grantor
is and will be held for sale or lease, or to be furnished in connection with the
rendition of services, in the ordinary course of such Grantor’s business, and is
and will be fit for such purposes. Each Grantor will keep its Inventory in good
and marketable condition, except for damaged or defective goods arising in the
ordinary course of such Grantor’s business. No Grantor will, without the prior
written consent of the Agent, acquire or accept any Inventory on consignment or
approval. Each Grantor agrees that all Inventory produced by such Grantor in the
United States of America will be produced in accordance with the Federal Fair
Labor Standards Act of 1938, as amended, and all rules, regulations, and orders
thereunder. Each Grantor will conduct a physical count of the Inventory at least
once per Fiscal Year, and after and during the continuation of an Event of
Default, at such other times as the Agent requests. Each Grantor will maintain a
perpetual inventory reporting system at all times. No Grantor will, without the
Agent’s written consent, sell any Inventory on a bill-and-hold, guaranteed sale,
sale on approval, consignment, or other repurchase or return basis.

(b) If an Event of Default has occurred and is continuing or during any period
that Liquidity is less than $37,500,000, in connection with all Inventory
financed by Letters of Credit, each Grantor will, at the Agent’s request,
instruct all suppliers, carriers, forwarders, customs brokers, warehouses or
others receiving or holding cash, checks, Inventory, Documents or Instruments in
which the Agent holds a security interest to deliver them to the Agent and/or
subject to the Agent’s order, and if they shall come into such Grantor’s
possession, to deliver them, upon request, to the Agent in their original form
and shall also, designate the Agent as the consignee on all bills of lading and
other negotiable and non-negotiable documents.

 

12

--------------------------------------------------------------------------------

9. EQUIPMENT.

(a) Each Grantor represents and warrants to the Agent and the Lenders and agrees
with the Agent and the Lenders that all of the Equipment owned by such Grantor
is and will be used or held for use in such Grantor’s business, and is and will
be fit for such purposes. Each Grantor shall keep and maintain its Equipment in
good operating condition and repair (ordinary wear and tear excepted) and shall
make all necessary replacements thereof.

(b) Each Grantor shall promptly inform the Agent of any additions to or
deletions from the Equipment in an amount in excess of $1,000,000. No Grantor
shall permit any Equipment to become a fixture with respect to real property or
to become an accession with respect to other personal property with respect to
which real or personal property the Agent does not have a Lien. No Grantor will,
without the Agent’s prior written consent, alter or remove any identifying
symbol or number on any of such Grantor’s Equipment constituting Collateral.

(c) Except as permitted by the Credit Agreement, no Grantor shall, without the
Agent’s prior written consent, sell, license, lease as a lessor, or otherwise
dispose of any of such Grantor’s Equipment.

10. PLEDGED COLLATERAL. (a) The Pledged Equity Interests have been duly
authorized and validly issued and are fully paid and non-assessable. The Pledged
Notes of any Grantor’s Subsidiaries (if any), and, to the best of each Grantor’s
knowledge, all other Pledged Notes, have been duly authorized, issued and
delivered, and is the legal, valid, binding and enforceable obligation of the
issuers thereof.

(b) The Pledged Equity Interests indicated on Schedule IV hereto constitute all
of the shares of stock held by each Grantor of the respective issuers thereof
who are not Foreign Subsidiaries and constitute 65% of all of the shares of
stock of the respective issuers who are Foreign Subsidiaries. The Pledged Equity
Interests and the Pledged Notes constitute all of the Pledged Collateral except
for Pledged Collateral consisting of checks and drafts received in the ordinary
course of business and with respect to which the Agent has not at any time
requested possession and which are not a material portion of the Collateral
under this Agreement (the “Personal Property Collateral”), either singly or in
the aggregate.

(c) The pledge and delivery of the Pledged Collateral pursuant to this Agreement
and all other filings and other actions taken by each Grantor to perfect such
security interest prior to the date hereof, create a continuing, valid and
perfected first priority security interest in the Pledged Collateral, securing
the payment of the Obligations except for Pledged Collateral consisting of
checks and drafts received in the ordinary course of business with respect to
which the Agent has not at any time requested possession and which are not a
material portion of the Personal Property Collateral, either singly or in the
aggregate.

 

13

--------------------------------------------------------------------------------

(d) So long as no Event of Default shall have occurred and be continuing:

(i) Each Grantor, and not the Agent, shall be entitled to exercise any and all
voting and other rights of consent or approval pertaining to the Pledged
Collateral or any part thereof for any purpose not inconsistent with the terms
of this Agreement or the Credit Agreement; provided, however, that no Grantor
shall exercise or refrain from exercising any such right without the consent of
the Agent if such action or inaction would have a material adverse effect on the
benefits to the Agent, the Lenders and the Issuing Banks, including, without
limitation, the validity, priority or perfection of the security interest
granted hereby or the remedies of the Agent hereunder.

(ii) Each Grantor, and not the Agent, shall be entitled to receive and retain
any and all dividends, principal and interest paid in respect of the Pledged
Collateral provided, however, that any and all dividends, principal and interest
paid or payable other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral, shall forthwith be delivered to the Agent
to hold as Pledged Collateral and shall, if received by any Grantor, be received
in trust for the benefit of the Lenders and the Issuing Banks, be segregated
from the other property or funds of such Grantor, and be forthwith delivered to
the Agent, as Pledged Collateral in the same form as so received (with any
necessary indorsement).

(iii) The Agent shall promptly execute and deliver (or cause to be executed and
delivered) to each Grantor all such proxies and other instruments as such
Grantor may reasonably request for the purpose of enabling such Grantor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends, principal or interest
payments which it is authorized to receive and retain pursuant to paragraph
(ii) above.

(e) Upon the occurrence and during the continuance of an Event of Default and at
the direction of the Required Lenders:

(i) All rights of any Grantor to exercise the voting and other rights of consent
or approval which it would otherwise be entitled to exercise pursuant to
Section 10(d)(i) hereof and to receive the dividends, principal and interest
payments which it would otherwise be authorized to receive and retain pursuant
to Section 10(d)(ii) hereof shall cease, and all such rights shall thereupon
become vested in the Agent, who shall thereupon have the sole right to exercise
such voting and other rights of consent or approval and to receive and hold as
Pledged Collateral such dividends, principal and interest payments which shall
forthwith be delivered to the Agent to be applied to the Obligations in such
order as provided in Section 7.25 (or, if applicable, Section 3.5) of the Credit
Agreement .

(ii) All dividends, principal and interest payments which are received by any
Grantor contrary to the provisions of paragraph (ii) of Section 10(d) hereof
shall be received in trust for the benefit of the Lenders and the Issuing Banks
and shall be segregated from other funds of such Grantor and shall be forthwith
paid over to the Agent as Pledged Collateral in the same form as so received
(with any necessary indorsement).

 

14

--------------------------------------------------------------------------------

(f) Each Grantor agrees that it will (i) cause each issuer of the Pledged Equity
Interests subject to its control not to issue any stock or other securities in
addition to or in substitution for the Pledged Shares issued by such issuer,
except to such Grantor or as otherwise permitted under the Credit Agreement, and
(ii) pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of each
issuer of the Pledged Equity Interests; provided that in no event shall any
Grantor be required to pledge more than 65% of the shares of any Foreign
Subsidiary. Each Grantor hereby authorizes the Agent to modify this Agreement by
amending Annex IV to include such additional shares or other securities.

(g) Determination by the Agent to exercise its right to sell any or all of the
Pledged Collateral pursuant to Section 19 hereof without making a request of the
relevant Grantor to register such Pledged Collateral under the Securities Act
shall not by the sole fact of such sale be deemed to be commercially
unreasonable.

(h) The Grantors hereby agree that the aggregate principal amount of all
promissory notes described in clause (i) of the definition of Excluded Notes at
any time outstanding shall not exceed $3,000,000.

11. DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. Each Grantor represents and
warrants to the Agent and the Lenders that (a) all Documents, Instruments, and
Chattel Paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine, and (b) all goods evidenced by such Documents are and will be owned by
such Grantor, free and clear of all Liens other than Liens permitted under
Section 7.10(b) of the Credit Agreement.

12. RIGHT TO CURE. The Agent may, in its reasonable discretion, and shall, at
the direction of the Required Lenders, pay any amount or do any act reasonably
required of any Grantor hereunder or under any other Loan Document in order to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
Agent’s Liens therein, and which such Grantor fails to pay or do, including
payment of any judgment against such Grantor, any insurance premium, any
warehouse charge, any finishing or processing charge, any landlord’s or bailee’s
claim, and any other Lien upon or with respect to the Collateral. All payments
that the Agent makes under this Section 12 and all out-of-pocket costs and
expenses that the Agent pays or incurs in connection with any action taken by it
hereunder shall be charged to the Borrower’s Loan Account as a Revolving Loan.
Any payment made or other action taken by the Agent under this Section 12 shall
be without prejudice to any right to assert an Event of Default hereunder and to
proceed thereafter as herein provided.

13. POWER OF ATTORNEY. Each Grantor hereby appoints the Agent and the Agent’s
designee as each Grantor’s attorney, with power: (a) to endorse such Grantor’s
name on any checks, notes, acceptances, money orders, or other forms of payment
or security that come into the Agent’s or any Lender’s possession; (b) to sign
such Grantor’s name on any invoice, bill of lading, warehouse receipt or other
negotiable or non-negotiable Document constituting Collateral, on drafts against
customers, on assignments of Accounts, on notices of assignment, financing
statements and other public records and to file any such financing

 

15

--------------------------------------------------------------------------------

statements by electronic means with or without a signature as authorized or
required by applicable law or filing procedure; (c) so long as any Event of
Default has occurred and is continuing to notify the post office authorities to
change the address for delivery of such Grantor’s mail to an address designated
by the Agent and to receive, open and dispose of all mail addressed to such
Grantor; (d) to send requests for verification of Accounts to customers or
Account Debtors; (e) upon the occurrence and during the continuance of an Event
of Default, to complete in such Grantor’s name or the Agent’s name, any order,
sale or transaction, obtain the necessary Documents in connection therewith, and
collect the proceeds thereof; (f) upon the occurrence and during the continuance
of an Event of Default, to clear Inventory through customs in such Grantor’s
name, the Agent’s name or the name of the Agent’s designee, and to sign and
deliver to customs officials powers of attorney in such Grantor’s name for such
purpose; (g) to the extent such Grantor’s authorization given in Section 3(g)
hereof is not sufficient, to file such financing statements with respect to this
Agreement, with or without such Grantor’s signature, or to file a photocopy of
this Agreement in substitution for a financing statement, as the Agent may deem
appropriate and to execute in such Grantor’s name such financing statements and
amendments thereto and continuation statements which may require such Grantor’s
signature; (h) to receive, indorse and collect all instruments made payable to
such Grantor representing any dividend, interest payment or other distribution
in respect of the Pledged Collateral or any part thereof and to give full
discharge for the same; and (i) to do all things necessary to carry out the
Credit Agreement and this Agreement. Each Grantor ratifies and approves all acts
of such attorney. None of the Lenders or the Agent nor their attorneys will be
liable for any acts or omissions or for any error of judgment or mistake of fact
or law except for their gross negligence or willful misconduct. This power,
being coupled with an interest, is irrevocable until the Credit Agreement has
been terminated and the Obligations have been fully satisfied.

14. THE AGENT’S AND LENDERS’ RIGHTS, DUTIES AND LIABILITIES.

(a) Each Grantor assumes all responsibility and liability arising from or
relating to the use, sale, license or other disposition of the Collateral. The
Obligations shall not be affected by any failure of the Agent or any Lender to
take any steps to perfect the Agent’s Liens or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release any Grantor
from any of the Obligations. Following the occurrence and during the
continuation of an Event of Default, the Agent may (but shall not be required
to), and at the direction of the Required Lenders shall, without notice to or
consent from any Grantor, sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash, credit,
or otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of any Grantor for the Obligations or under
the Credit Agreement or any other agreement now or hereafter existing between
the Agent and/or any Lender and any Grantor.

(b) It is expressly agreed by each Grantor that, anything herein to the contrary
notwithstanding, each Grantor shall remain liable under each of its contracts
and each of its

 

16

--------------------------------------------------------------------------------

licenses to observe and perform all the conditions and obligations to be
observed and performed by it thereunder. Neither Agent nor any Lender shall have
any obligation or liability under any contract or license by reason of or
arising out of this Agreement or the granting herein of a Lien thereon or the
receipt by Agent or any Lender of any payment relating to any contract or
license pursuant hereto. Neither Agent nor any Lender shall be required or
obligated in any manner to perform or fulfill any of the obligations of any
Grantor under or pursuant to any contract or license, or to make any payment, or
to make any inquiry as to the nature or the sufficiency of any payment received
by it or the sufficiency of any performance by any party under any contract or
license, or to present or file any claims, or to take any action to collect or
enforce any performance or the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

(c) Agent may at any time after an Event of Default has occurred and be
continuing (or if any rights of set-off (other than set-offs against an Account
arising under the contract giving rise to the same Account) or contra accounts
may be asserted with respect to the following), without prior notice to any
Grantor, notify Account Debtors, and other Persons obligated on the Collateral
that Agent has a security interest therein, and that payments shall be made
directly to Agent, for itself and the benefit of Lenders. Upon the request of
Agent, each Grantor shall so notify Account Debtors and other Persons obligated
on Collateral. Once any such notice has been given to any Account Debtor or
other Person obligated on the Collateral, such Grantor shall not give any
contrary instructions to such Account Debtor or other Person without Agent’s
prior written consent.

(d) Agent may at any time in Agent’s own name or in the name of any Grantor
communicate with Account Debtors, parties to Contracts and obligors in respect
of Instruments to verify with such Persons, to Agent’s reasonable satisfaction,
the existence, amount and terms of Accounts, payment intangibles, Instruments or
Chattel Paper. If an Event of Default shall have occurred and be continuing,
each Grantor, at its own expense, shall cause the independent certified public
accountants then engaged by such Grantor to prepare and deliver to Agent and
each Lender at any time and from time to time promptly upon Agent’s request the
following reports with respect to such Grantor: (i) a reconciliation of all
Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a test
verification of such Accounts as Agent may request. Each Grantor, at its own
expense, shall deliver to Agent the results of each physical verification, if
any, which such Grantor may in its discretion have made, or caused any other
Person to have made on its behalf, of all or any portion of its Inventory.

15. PATENT, TRADEMARK AND COPYRIGHT COLLATERAL.

(a) No Grantor has any interest in, or title to, any Trademark, Copyright or
material Patent except as set forth in Schedule III hereto. This Agreement is
effective to create a valid and continuing Lien on and, upon filing of the
Trademark Security Agreement with the United States Patent and Trademark Office,
perfected Liens in favor of Agent on such Grantor’s patents, trademarks and
copyrights and such perfected Liens are enforceable as such as against any and
all creditors of and purchasers from such Grantor. Upon filing of the Trademark
Security Agreement with the United States Patent and Trademark Office and the
filing of appropriate financing statements, all action necessary or desirable to
protect and perfect Agent’s Lien on such Grantor’s patents, trademarks or
copyrights shall have been duly taken.

 

17

--------------------------------------------------------------------------------

(b) Each Grantor shall notify Agent immediately if it knows that any application
or registration relating to any patent, trademark or copyright (now or hereafter
existing) may become abandoned or dedicated, or of any adverse determination or
development (including the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office,
the United States Copyright Office or any court) regarding such Grantor’s
ownership of any such patent, trademark or copyright, its right to register the
same, or to keep and maintain the same.

(c) In no event shall any Grantor, either directly or through any agent,
employee, licensee or designee, file an application for the registration of any
patent, trademark or copyright with the United States Patent and Trademark
Office, the United States Copyright Office or any similar office or agency
without giving Agent written notice thereof, and, upon request of Agent, Grantor
shall execute and deliver any and all patent security agreements, copyright
security agreements or trademark security agreements as Agent may request to
evidence Agent’s Lien on such patent, trademark or copyright, and the General
Intangibles of such Grantor relating thereto or represented thereby.

(d) Each Grantor shall take all actions appropriate under the circumstances or
reasonably requested by Agent to maintain and pursue each patent, trademark and
copyright application currently pending, to obtain the relevant registration and
to maintain the registration of each of the patents, trademarks and copyrights
(now or hereafter existing), including the filing of applications for renewal,
affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings, unless such Grantor shall determine
in its reasonable business judgment that such patent, trademark or copyright is
not material to the conduct of its business.

(e) In the event that any of the patent, trademark or copyright Collateral is
infringed upon, or misappropriated or diluted by a third party, such Grantor
shall notify Agent promptly after such Grantor learns of such infringement. Each
Grantor shall, unless it shall reasonably determine that such patent, trademark
or copyright Collateral is not material to the conduct of its business or
operations, promptly take appropriate action to protect such patent, copyright
or trademark, including, where such Grantor believes in its reasonable business
judgment that it would be prudent to do so, sue for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and shall take such other actions as
Agent shall reasonably request under the circumstances to protect such patent,
trademark or copyright Collateral.

16. INDEMNIFICATION. In any suit, proceeding or action brought by Agent or any
Lender relating to any Collateral for any sum owing with respect thereto or to
enforce any rights or claims with respect thereto, the Grantors, jointly or
severally, will save, indemnify and keep Agent and Lenders harmless from and
against all expense (including reasonable attorneys’ fees and expenses), loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the Account Debtor or other Person
obligated

 

18

--------------------------------------------------------------------------------

on the Collateral, arising out of a breach by any Grantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from such
Grantor, except in the case of Agent or any Lender, to the extent such expense,
loss, or damage is attributable to the gross negligence or willful misconduct of
Agent or such Lender as finally determined by a court of competent jurisdiction.
All such obligations of the Grantors shall be and remain enforceable against and
only against such Grantors and shall not be enforceable against Agent or any
Lender.

17. LIMITATION ON LIENS ON COLLATERAL. No Grantor will create, permit or suffer
to exist, and will defend the Collateral against, and take such other action as
is necessary to remove, any Lien on the Collateral except Liens permitted by
Section 7.10(b) of the Credit Agreement, and will defend the right, title and
interest of Agent and Lenders in and to any of such Grantor’s rights under the
Collateral against the claims and demands of all Persons whomsoever.

18. NOTICE REGARDING COLLATERAL. Each Grantor will advise Agent promptly, in
reasonable detail of any Lien (other than Liens permitted by Section 7.10(b) of
the Credit Agreement) or claim made or asserted against any of the Collateral.

19. REMEDIES; RIGHTS UPON DEFAULT.

(a) In addition to all other rights and remedies granted to it under this
Agreement, the Credit Agreement, the other Loan Documents and under any other
instrument or agreement securing, evidencing or relating to any of the
Obligations, if any Event of Default shall have occurred and be continuing,
Agent may exercise all rights and remedies of a secured party under the UCC.
Without limiting the generality of the foregoing, each Grantor expressly agrees
that in any such event Agent, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon any Grantor or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the UCC and other applicable law), may
forthwith enter upon the premises of such Grantor where any Collateral is
located through self-help, without judicial process, without first obtaining a
final judgment or giving such Grantor or any other Person notice and opportunity
for a hearing on Agent’s claim or action and may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, license, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at a public or
private sale or sales, at any exchange at such prices as it may deem acceptable,
for cash or on credit or for future delivery without assumption of any credit
risk. Agent or any Lender shall have the right upon any such public sale or
sales and, to the extent permitted by law, upon any such private sale or sales,
to purchase for the benefit of Agent and Lenders, the whole or any part of said
Collateral so sold, free of any right or equity of redemption, which equity of
redemption such Grantor hereby releases. Such sales may be adjourned and
continued from time to time with or without notice. Agent shall have the right
to conduct such sales on any Grantor’s premises or elsewhere and shall have the
right to use any Grantor’s premises without charge for such time or times as
Agent deems necessary or advisable. The Agent is authorized, at any such sale,
if it

 

19

--------------------------------------------------------------------------------

deems it advisable so to do, to restrict the prospective bidders or purchasers
of any of the Pledged Collateral to persons who will represent and agree that
they are purchasing for their own account for investment, and not with a view to
the distribution or sale of any such Pledged Collateral, and to take such other
actions as it may deem appropriate to exempt the offer and sale of the
Collateral from any registration requirements of state or federal securities
laws (including, if it deems it appropriate, actions to comply with Regulation D
of the Securities and Exchange Commission under the Securities Act of 1933, as
from time to time amended (the “Securities Act”)).

(b) Each Grantor further agrees, at Agent’s request, to assemble the Collateral
and make it available to Agent at a place or places designated by Agent which
are reasonably convenient to Agent and such Grantor, whether at such Grantor’s
premises or elsewhere. Until Agent is able to effect a sale, lease, or other
disposition of Collateral, Agent shall have the right to hold or use Collateral,
or any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Agent. Agent shall have no obligation to any Grantor to maintain or preserve
the rights of such Grantor as against third parties with respect to Collateral
while Collateral is in the possession of Agent. Agent may, if it so elects, seek
the appointment of a receiver or keeper to take possession of Collateral and to
enforce any of Agent’s remedies (for the benefit of Agent and Lenders), with
respect to such appointment without prior notice or hearing as to such
appointment. Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale to the Obligations as
provided in the Credit Agreement, and only after so paying over such net
proceeds, and after the payment by Agent of any other amount required by any
provision of law, need Agent account for the surplus, if any, to such Grantor.
To the maximum extent permitted by applicable law, each Grantor waives all
claims, damages, and demands against Agent or any Lender arising out of the
repossession, retention or sale of the Collateral except such as arise out of
the gross negligence or willful misconduct of Agent or such Lender as finally
determined by a court of competent jurisdiction. Each Grantor agrees that ten
(10) days prior notice by Agent of the time and place of any public sale or of
the time after which a private sale may take place is reasonable notification of
such matters. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to pay
all Obligations, including any attorneys’ fees or other expenses incurred by
Agent or any Lender to collect such deficiency.

(c) Except as otherwise specifically provided herein, each Grantor hereby waives
presentment, demand, protest or any notice (to the maximum extent permitted by
applicable law) of any kind in connection with this Agreement or any Collateral.

(d) To the extent that applicable law imposes duties on the Agent to exercise
remedies in a commercially reasonable manner, each Grantor acknowledges and
agrees that it is commercially reasonable for the Agent (a) to fail to incur
expenses reasonably deemed significant by the Agent to prepare Collateral for
disposition or otherwise to complete raw material or work in process into
finished goods or other finished products for disposition, (b) to fail to obtain
third party consents for access to Collateral to be disposed of, or to obtain
or, if not required by other law, to fail to obtain governmental or third party
consents for the collection or disposition of Collateral to be collected or
disposed of, (c) to fail to exercise collection remedies

 

20

--------------------------------------------------------------------------------

against Account Debtors or other Persons obligated on Collateral or to remove
Liens on or any adverse claims against Collateral, (d) to exercise collection
remedies against Account Debtors and other Persons obligated on Collateral
directly or through the use of collection agencies and other collection
specialists, (e) to advertise dispositions of Collateral through publications or
media of general circulation, whether or not the Collateral is of a specialized
nature, (f) to contact other Persons, whether or not in the same business as
such Grantor, for expressions of interest in acquiring all or any portion of
such Collateral, (g) to hire one or more professional auctioneers to assist in
the disposition of Collateral, whether or not the Collateral is of a specialized
nature, (h) to dispose of Collateral by utilizing internet sites that provide
for the auction of assets of the types included in the Collateral or that have
the reasonable capacity of doing so, or that match buyers and sellers of assets,
(i) to dispose of assets in wholesale rather than retail markets, (j) to
disclaim disposition warranties, such as title, possession or quiet enjoyment,
(k) to purchase insurance or credit enhancements to insure the Agent against
risks of loss, collection or disposition of Collateral or to provide to the
Agent a guaranteed return from the collection or disposition of Collateral, or
(l) to the extent deemed appropriate by the Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to assist
the Agent in the collection or disposition of any of the Collateral. Each
Grantor acknowledges that the purpose of this Section 19(d) is to provide
non-exhaustive indications of what actions or omissions by the Agent would not
be commercially unreasonable in the Agent’s exercise of remedies against the
Collateral and that other actions or omissions by the Agent shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 19(d). Without limitation upon the foregoing, nothing contained in this
Section 19(d) shall be construed to grant any rights to any Grantor or to impose
any duties on Agent that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this Section 19(d).

20. GRANT OF LICENSE TO USE INTELLECTUAL PROPERTY. For the purpose of enabling
Agent to exercise rights and remedies under Section 19 hereof (including,
without limiting the terms of Section 19 hereof, in order to take possession of,
hold, preserve, process, assemble, prepare for sale, market for sale, sell or
otherwise dispose of Collateral) at such time and for so long as Agent shall be
lawfully entitled to exercise such rights and remedies, each Grantor hereby
grants to Agent, wherever permitted by law or by agreement, for the benefit of
Agent and Lenders, an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to such Grantor) to use, license or
sublicense any Intellectual Property now owned or hereafter acquired by such
Grantor, and wherever the same may be located, and including in such license
access to all media in which any of the licensed items may be recorded or stored
and to all computer software and programs used for the compilation or printout
thereof.

21. LIMITATION ON AGENT’S AND LENDERS’ DUTY IN RESPECT OF COLLATERAL. Agent and
each Lender shall use reasonable care with respect to the Collateral in its
possession or under its control. Neither Agent nor any Lender shall have any
other duty as to any Collateral in its possession or control or in the
possession or control of any agent or nominee of Agent or such Lender, or any
income thereon or as to the preservation of rights against prior parties or any
other rights pertaining thereto.

 

21

--------------------------------------------------------------------------------

22. MISCELLANEOUS.

(a) Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against any Grantor
for liquidation or reorganization, should such Grantor become insolvent or make
an assignment for the benefit of any creditor or creditors or should a receiver
or trustee be appointed for all or any significant part of such Grantor’s
assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Obligations, or any part thereof,
is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though
such payment or performance had not been made. In the event that any payment, or
any part thereof, is rescinded, reduced, restored or returned, the Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.

(b) Notices. Except as otherwise provided herein, whenever it is provided herein
that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other party, or whenever any of the parties desires to give and serve upon any
other party any communication with respect to this Agreement, each such notice,
demand, request, consent, approval, declaration or other communication shall be
in writing and shall be given in the manner, and deemed received, as provided
for in the Credit Agreement.

(c) Severability. Whenever possible, each provision of this Agreement shall be
interpreted in a manner as to be effective and valid under applicable law, but
if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall, to the maximum extent permitted by
applicable law, be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining provisions
of this Agreement. This Agreement is to be read, construed and applied together
with the Credit Agreement and the other Loan Documents which, taken together,
set forth the complete understanding and agreement of Agent, Lenders and Grantor
with respect to the matters referred to herein and therein.

(d) No Waiver; Cumulative Remedies. Neither Agent nor any Lender shall by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Agent and then only to the extent therein set forth. A waiver by Agent of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Agent would otherwise have had on any future occasion.
No failure to exercise nor any delay in exercising on the part of Agent or any
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Agreement may be waived, altered, modified or
amended except by an instrument in writing, duly executed by Agent and each
Grantor.

 

22

--------------------------------------------------------------------------------

(e) Limitation by Law. All rights, remedies and powers provided in this
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this
Agreement are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that
they shall not render this Agreement invalid, unenforceable, in whole or in
part, or not entitled to be recorded, registered or filed under the provisions
of any applicable law.

(f) Termination of this Security Agreement.

(a) Subject to Section 22(a) hereof, this Agreement shall terminate upon all
Letters of Credit being Fully Supported, the payment in full of all other
Obligations (other than indemnification Obligations as to which no claim has
been asserted) and the termination of all Commitments under the Credit
Agreement.

(b) Upon any sale or other transfer by a Grantor of any Collateral that is
permitted under the Credit Agreement to any Person that is not a Grantor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to the Credit Agreement, the
security interest in such Collateral shall automatically be released.

(c) The Agent agrees that upon such termination or release of the security
interests or release of any Collateral, the Agent shall, at the expense of the
Grantors, execute and deliver to each Grantor such documents as such Grantor
shall reasonably request to evidence the termination of the security interests
or the release and reassignment of such Collateral, as the case may be.

(g) Successors and Assigns. This Agreement and all obligations of each Grantor
hereunder shall be binding upon the successors and assigns of each Grantor
(including any debtor-in-possession on behalf of such Grantor) and shall,
together with the rights and remedies of Agent, for the benefit of Agent and
Lenders, hereunder, inure to the benefit of Agent and Lenders, all future
holders of any instrument evidencing any of the Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the Lien granted to Agent, for the benefit of Agent and
Lenders, hereunder. No Grantor may assign, sell, hypothecate or otherwise
transfer any interest in or obligation under this Agreement.

(h) Counterparts. This Agreement may be authenticated in any number of separate
counterparts, each of which shall collectively and separately constitute one and
the same agreement. This Agreement may be authenticated by manual signature,
facsimile or, if approved in writing by Agent, electronic means, all of which
shall be equally valid.

(i) Governing Law. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN
DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED

 

23

--------------------------------------------------------------------------------

AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN THAT STATE, AND ANY APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA. GRANTOR HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW YORK, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY
GRANTOR, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND EACH GRANTOR
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK COUNTY, CITY OF NEW YORK, AND, PROVIDED, FURTHER,
NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH GRANTOR EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND EACH GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. EACH GRANTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO SUCH GRANTOR AT THE ADDRESS SET FORTH IN SECTION 14.8 OF THE
CREDIT AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.

(j) Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX
FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT DISPUTES
ARISING HEREUNDER OR RELATING HERETO BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG AGENT, LENDERS, AND ANY
GRANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO.

 

24

--------------------------------------------------------------------------------

(k) Section Titles. The Section titles contained in this Agreement are and shall
be without substantive meaning or content of any kind whatsoever and are not a
part of the agreement between the parties hereto.

(l) No Strict Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.

(m) Advice of Counsel. Each of the parties represents to each other party hereto
that it has discussed this Agreement and, specifically, the provisions of
Section 22(i) and Section 22(j), with its counsel.

(n) Benefit of Lenders. All Liens granted or contemplated hereby shall be for
the benefit of Agent and Lenders, and all proceeds or payments realized from
Collateral in accordance herewith shall be applied to the Obligations in
accordance with the terms of the Credit Agreement.

 

25

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.

 

ANNTAYLOR, INC. By:  

/s/ Michael J. Nicholson

Name:   Michael J. Nicholson Title:   Executive Vice President, Chief Financial
Officer and Treasurer ANNTAYLOR STORES CORPORATION By:  

/s/ Michael J. Nicholson

Name:   Michael J. Nicholson Title:   Executive Vice President, Chief Financial
Officer and Treasurer ANNCO, INC. By:  

/s/ Michael J. Nicholson

Name:   Michael J. Nicholson Title:   Executive Vice President, Chief Financial
Officer and Treasurer ANNTAYLOR DISTRIBUTION SERVICES, INC. By:  

/s/ Michael J. Nicholson

Name:   Michael J. Nicholson Title:   Executive Vice President, Chief Financial
Officer and Treasurer ANNTAYLOR RETAIL, INC. By:  

/s/ Michael J. Nicholson

Name:   Michael J. Nicholson Title:   Executive Vice President, Chief Financial
Officer and Treasurer

Signature Page

Third Amended and Restated Pledge and Security Agreement

--------------------------------------------------------------------------------

BANK OF AMERICA, N.A., as Agent By:  

/s/ Andrew Cerussi

Name:   Andrew Cerussi Title:   Vice President

Signature Page

Third Amended and Restated Pledge and Security Agreement