Exhibit 10.4

ANNTAYLOR STORES CORPORATION

SPECIAL SEVERANCE PLAN, AS AMENDED

AnnTaylor Stores Corporation, a Delaware corporation (the “Company”), hereby
adopts the AnnTaylor Stores Corporation Special Severance Plan (the “Plan”) for
the benefit of certain employees of the Company and its subsidiaries, on the
terms and conditions hereinafter stated.

The Plan, as set forth herein, is intended to help retain qualified employees,
maintain a stable work environment and provide economic security to certain
employees of the Company in the event of a Qualifying Termination (as defined
herein). The Plan, as a “severance pay arrangement” within the meaning of
Section 3(2)(B)(i) of ERISA, is intended to be excepted from the definitions of
“employee pension benefit plan” and “pension plan” set forth under Section 3(2)
of ERISA, and is intended to meet the descriptive requirements of a plan
constituting a “severance pay plan” within the meaning of regulations published
by the Secretary of Labor at Title 29, Code of Federal Regulations, ss.
2510.3-2(b).

SECTION 1. DEFINITIONS. As hereinafter used:

1.1 “Affiliate” shall mean any corporation, directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common control with
the Company.

1.2 “Annual Compensation” shall mean (i) the Severed Employee’s current rate of
base salary (determined immediately prior to the Qualifying Termination and
without regard to any decrease in such salary constituting Good Reason), plus
(ii) the average of the Severed Employee’s annual bonuses earned in respect of
the three full fiscal years (or the number of full years worked with the
Company, if fewer than three) immediately preceding the year in which the Change
in Control occurs or, if higher, in which the Qualifying Termination occurs.

1.3 “Board” shall mean the Board of Directors of the Company.

1.4 “Cause” shall mean, with respect to a termination of the Employee’s
employment with the Company, (i) the willful and continued failure by the
Employee to substantially perform the Employee’s duties with the Company (other
than by reason of physical or mental incapacity) or (ii) the conviction of the
Employee for the commission of a felony involving moral turpitude.

1.5 “Change in Control” shall be deemed to have occurred if:

(I) any “person”, as such term is used in Sections 13(d) and 14(d) of the
Exchange Act, other than (A) the Company, (B) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or (C) any
corporation owned, directly or indirectly, by the stockholders of the Company
(in substantially the

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same proportion as their ownership of shares), (a “Person”) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company’s then outstanding voting securities;

(II) during any period of not more than two consecutive years, individuals who
at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (I), (III) or (IV)
of this Section 1.5) whose election by the Company’s stockholders was approved
by a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof;

(III) there is consummated a merger or consolidation of the Company with any
other entity, other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) 50% or more of the
combined voting power of the voting securities of the Company or such surviving
or parent entity outstanding immediately after such merger or consolidation or
(B) a merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person is or becomes the beneficial
owner (as defined in clause (I) above), directly or indirectly, of securities of
the Company representing 30% or more of the combined voting power of the
Company’s then outstanding securities; or

(IV) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets (or any transaction having a similar
effect).

1.6 “Code” shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.

1.7 “Committee” shall mean the Compensation Committee of the Board.

1.8 “Company” shall mean AnnTaylor Stores Corporation, a Delaware corporation,
or any successor thereto.

1.9 “Disability” shall mean a physical or mental condition causing the Employee
to be unable to substantially perform his or her duties with the Company,
including, without limitation, such condition entitling him or her to benefits
under any sick pay or disability income policy or program of the Company.

1.10 “Effective Date” shall mean January 1, 2000.

1.11 “Employee” shall mean any employee of the Company or any direct or indirect
subsidiary of the Company who is a Level I, Level II, Level III or Level IV
Employee.

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1.12 “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.

1.13 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

1.14 “Good Reason” shall mean any of the following acts or omissions that take
place on or after the occurrence of a Change in Control: (i) the material
diminution in the Employee’s duties or authority; (ii) a change of the
Employee’s place of employment by more than fifty (50) miles; or (iii) a
reduction in the Employee’s salary or bonus opportunity; provided, however, that
clause (i) above shall only be applicable to an Employee who is as a Level I or
Level II Employee.

1.15 “Level I Employee” shall mean an Employee who has the title of
(i) President of the AnnTaylor Stores, LOFT or AnnTaylor Factory divisions of
the Company, or (ii) Executive Vice President of the Company or any direct or
indirect subsidiary of the Company.

1.16 “Level II Employee” shall mean an Employee who has the title of Senior Vice
President of the Company or any direct or indirect subsidiary of the Company.

1.17 “Level III Employee” shall mean an Employee who has the title of Vice
President of the Company or any direct or indirect subsidiary of the Company.

1.18 “Level IV Employee” shall mean an Employee who is a Director-level employee
of the Company or any direct or indirect subsidiary of the Company (including
District Managers and Merchandising Managers).

1.19 “Person” shall mean any individual, entity or group, within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act.

1.20 “Plan Administrator” shall mean the person or persons designated by the
Committee or by the Board to administer the Plan.

1.21 “Potential Change in Control” shall be deemed to occur in the event that,
after the Effective Date, the Company enters into an agreement, the consummation
of which would result in a Change in Control or the Company, or any Person
publicly announces an intention to take or to consider taking action which, if
consummated, would constitute a Change in Control.

1.22 “Qualifying Termination” shall mean a termination of an Employee’s
employment following a Change in Control and on or before such Employee’s
Qualifying Termination Date, either (i) by the Company without Cause or (ii) by
the Employee for Good Reason. Severance Benefits will not be paid in the event
of termination of an

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Employee’s employment by reason of retirement or death, by the Company for Cause
or Disability or by the Employee without Good Reason. A termination of
employment will not be deemed to have occurred upon (1) the transfer of the
Employee to employment with an Affiliate of the Company if the Affiliate assumes
the Company’s responsibilities under the Plan with respect to the Employee or
(2) the divestiture of a business with which the Employee is primarily
associated if the Employee is offered comparable employment by the successor
company and such successor company assumes the Company’s responsibilities under
the Plan with respect to such Employee.

1.23 “Qualifying Termination Date” shall mean the date occurring twenty-four
(24) months following a Change in Control.

1.24 “Severance Benefits” shall mean the payments and benefits provided to
Severed Employees pursuant to Section 2.1 and 2.2 hereof.

1.25 “Severance Date” shall mean the date on which an Employee incurs a
Qualifying Termination.

1.26 “Severance Multiple” shall mean:

 

  (a) with respect to Level I Employees, two and one-half;

 

  (b) with respect to Level II employees, two;

 

  (c) with respect to Level III Employees, one and one-half; and

 

  (d) with respect to Level IV Employees, one.

1.27 “Severed Employee” shall mean an Employee who has incurred a Qualifying
Termination.

Additional definitions are set forth within the Plan and shall have the meanings
ascribed to them in the Plan.

SECTION 2. BENEFITS.

2.1 (a) Subject to Section 2.4 hereof and to subsections (b) and (c) of this
Section 2.1, each Severed Employee shall be entitled to receive from the Company
an amount equal to the product of (i) the Severed Employee’s Annual Compensation
and (ii) the Severed Employee’s Severance Multiple (the “Severance Amount”). The
Severance Amount shall be paid to such Severed Employee in a lump sum as soon as
practicable following the first date on which the Release referred to in
Section 2.4 hereof is no longer revocable, but in no event later than the last
day of the “applicable 2 1/2 month period”, as such term in defined in Treasury
Regulation § 1.409A-1(b)(4)(i)(A).

(b) Notwithstanding the foregoing, if a Change in Control under the Plan does
not constitute a “change in the ownership or effective control of the
corporation or in the

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ownership of a substantial portion of the assets of the corporation” (within the
meaning of Section 409A of the Code and applicable guidance issued thereunder),
then in the case of a Severed Employee who is either (i) a participant in the
AnnTaylor Stores Corporation Severance Plan or (ii) party to an individual
agreement with the Company providing for non-Change in Control-related severance
payments which are payable other than in a lump sum, the Severance Amount under
this Plan shall be paid to the Severed Employee in substantially equal monthly
installments over a number of years corresponding to the Severed Employee’s
Severance Multiple.

(c) Notwithstanding the foregoing, to the extent required by Section 409A of the
Code and applicable guidance issued thereunder, the payment of amounts under
this Section 2.1 to a Severed Employee who is a “specified employee” (within the
meaning of said Section 409A) shall not be made until the expiration of six
(6) months following the Severed Employee’s Severance Date.

(d) The Severance Amount that a Severed Employee receives under this Plan shall
not be taken into account for purposes of determining benefits under any other
qualified or nonqualified plans of the Company.”

2.2 Subject to Section 2.4 hereof, commencing on the date immediately following
the Severed Employee’s Severance Date and continuing for the period set forth
below (the “Welfare Benefit Continuation Period”), the Company shall provide
each Severed Employee and anyone entitled to claim under or through such Severed
Employee with all Company-paid benefits under any group health plan and life
insurance plan of the Company (as in effect immediately prior to the such
Severed Employee’s Severance Date or, if more favorable to the Severed Employee,
immediately prior to the Change in Control) for which employees of the Company
and its subsidiaries are eligible, to the same extent as if such Severed
Employee had continued to be an employee of the Company or any subsidiary
thereof during the Welfare Benefit Continuation Period. To the extent that the
Severed Employee’s participation in Company benefit plans is not practicable,
the Company shall arrange to provide, at the Company’s sole expense, the Severed
Employee and anyone entitled to claim under or through such Severed Employee
with equivalent health and life insurance benefits under an alternative
arrangement during the Welfare Benefit Continuation Period. The coverage period
for purposes of the group health continuation requirements of Section 4980B of
the Code shall commence at the expiration of the Welfare Benefit Continuation
Period. For purposes of this Section 2.2, the Welfare Benefit Continuation
Period shall be the product of (a) the Severed Employee’s Severance Multiple and
(b) twelve months. Notwithstanding the foregoing, to the extent required by
Section 409A of the Code and applicable guidance issued thereunder, the
provision of benefits under this Section 2.2 to a Severed Employee who is a
“specified employee” (within the meaning of said Section 409A) shall not
commence until the expiration of six (6) months following the Severed Employee’s
Severance Date, at which time the Company shall provide such benefits in respect
of such six-month period (including by way of reimbursement of expenses incurred
by such Severed Employee during such period in respect of the provision of such
benefits).

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2.3 In the event of a claim by an Employee as to the amount or timing of any
payment or benefit under the Plan, such Employee shall present the reason for
his or her claim in writing to the Plan Administrator. The Plan Administrator
shall, within thirty (30) days after receipt of such written claim, send a
written notification to the Employee as to its disposition. In the event the
claim is wholly or partially denied, such written notification shall (i) state
the specific reason or reasons for the denial, (ii) make specific reference to
pertinent Plan provisions on which the denial is based, (iii) provide a
description of any additional material or information necessary for the Employee
to perfect the claim and an explanation of why such material or information is
necessary, and (iv) set forth the procedure by which the Employee may appeal the
denial of his or her claim. In the event an Employee wishes to appeal the denial
of his or her claim, he or she may request a review of such denial by making
application in writing to the Plan Administrator within fifteen (15) days after
receipt of such denial. Such Employee (or his or her duly authorized legal
representative) may, upon written request to the Plan Administrator, review any
documents pertinent to his or her claim, and submit in writing issues and
comments in support of his or her position. Within thirty (30) days after
receipt of a written appeal (unless special circumstances, such as the need to
hold a hearing, require an extension of time, but in no event more than thirty
(30) days after such receipt), the Plan Administrator shall notify the Employee
of the final decision. The final decision shall be in writing and shall include
specific reasons for the decision, written in a manner calculated to be
understood by the claimant, and specific references to the pertinent Plan
provisions on which the decision is based.

2.4 No Employee shall be eligible to receive Severance Benefits under
Section 2.1 or 2.2 above, unless, within forty-five (45) days following such
Employee’s Severance Date, he or she first executes a Release (substantially in
the form of Exhibit A hereto) in favor of the Company and others set forth on
said Exhibit A, relating to all claims or liabilities of any kind relating to
his or her employment with the Company or a subsidiary thereof and the
termination of the Employee’s employment. In the event that a Severed Employee’s
Severance Date occurs within fifty two (52) days before the end of a calendar
year, the provision of Severance Benefits (other than continued life insurance
benefits under Section 2.2) to such Severed Employee shall not commence until
January 1 of the next calendar year.

2.5 The Company shall pay to each Employee all reasonable legal fees and
expenses incurred by such Employee in seeking in good faith to obtain or enforce
any right or benefit provided under this Plan (other than any such fees and
expenses incurred in pursuing any claim determined to be frivolous by an
arbitrator or by a court of competent jurisdiction).

2.6 (a) In the event that any payment or benefit received or to be received
hereunder by a Severed Employee who is a Level I Employee or a Level II Employee
(a “Severed Executive”) would be subject (in whole or in part) to the tax (the
“Excise Tax”) imposed under Section 4999 of the Code, the Company shall pay to
the Severed Executive such additional amounts (the “Gross-Up Payment”) as may be
necessary to

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place the Severed Executive in the same after-tax position in which he or she
would have been had no portion of the Total Payments (as hereinafter defined)
been subject to the Excise Tax. The Gross-Up Payment shall be paid as soon as
practicable following determination of the Excise Tax (but in no event later
than the end of the calendar year following the calendar year in which the
Excise Tax is paid). For purposes of the Plan, “Total Payments” shall mean any
payments made or benefits provided in connection with a Change in Control of the
Company or the termination of the Severed Executive’s employment, whether such
payments or benefits are received pursuant to the terms of this Plan or any
other plan, arrangement or agreement with the Company, any person whose actions
result in a Change in Control of the Company or any person affiliated with the
Company or such person.

(b) In the event that the Excise Tax is subsequently determined to be less than
the amount taken into account hereunder, the Severed Executive shall repay to
the Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to the
reduction (plus that portion of the Gross-Up Payment attributable to the Excise
Tax and federal, state and local income tax imposed on the Gross-Up Payment
being repaid by the Severed Executive to the extent that such repayment results
in a reduction in Excise Tax and/or federal, state or income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder (including by reason of any
payment the existence of which cannot be determined as the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by the Severed
Executive with respect of such excess) at the time that the amount of such
excess if finally determined. The Severed Executive and the Company shall each
reasonably cooperate with the other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for Excise
Tax with respect to the Total Payments.

SECTION 3. PLAN ADMINISTRATION.

3.1 The Plan shall be interpreted, administered and operated by the Plan
Administrator, which shall have complete authority, in its sole discretion
subject to the express provisions of the Plan, to determine who shall be
eligible for Severance Benefits, to interpret the Plan, to prescribe, amend and
rescind rules and regulations relating to it, and to make all other
determinations necessary or advisable for the administration of the Plan.

3.2 All questions of any character whatsoever arising in connection with the
interpretation of the Plan or its administration or operation shall be submitted
to and settled and determined by the Plan Administrator in an equitable and fair
manner in accordance with the procedure for claims and appeals described in
Section 2.3 hereof.

3.3 The Plan Administrator may delegate any of its duties hereunder to such
person or persons from time to time as it may designate.

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3.4 The Plan Administrator is empowered, on behalf of the Plan, to engage
accountants, legal counsel and such other personnel as it deems necessary or
advisable to assist it in the performance of its duties under the Plan. The
functions of any such persons engaged by the Plan Administrator shall be limited
to the specified services and duties for which they are engaged, and such
persons shall have no other duties, obligations or responsibilities under the
Plan. Such persons shall exercise no discretionary authority or discretionary
control respecting the management of the Plan. All reasonable expenses thereof
shall be borne by the Company.

SECTION 4. PLAN MODIFICATION OR TERMINATION.

The Plan may be amended or terminated by the Board at any time; provided,
however, that (i) no termination or amendment of the Plan may reduce the
Severance Benefits payable under the Plan to an Employee if the Employee’s
termination of employment with the Company has occurred prior to such
termination of the Plan or amendment of its provisions and (ii) during the
pendency of a Potential Change in Control and following a Change in Control, the
Plan may not be terminated and may not be amended without the consent of each
affected Employee, if such amendment would be adverse to the interests of any
Employee.

SECTION 5. GENERAL PROVISIONS.

5.1 Except as otherwise provided herein or by law, none of the payments,
benefits or rights of any Employee shall be subject to any claim of any
creditor, and, in particular, to the fullest extent permitted by law, all such
payments, benefits and rights shall be free from attachment, garnishment,
trustee’s process, or any other legal or equitable process available to any
creditor of such Employee. No Employee shall have the right to alienate,
anticipate, commute, pledge, encumber or assign any of the benefits or payments
which he or she may expect to receive, contingently or otherwise, under this
Plan.

5.2 Neither the establishment of the Plan, nor any modification thereof, nor the
creation of any fund, trust or account, nor the payment of any benefits shall be
construed as giving any Employee, or any person whomsoever, the right to be
retained in the service of the Company or any subsidiary thereof, and all
Employees shall remain subject to discharge to the same extent as if the Plan
had never been adopted.

5.3 If any provision of this Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions hereof, and
this Plan shall be construed and enforced as if such provisions had not been
included.

5.4 This Plan shall be binding upon the heirs, executors, administrators,
successors and assigns of the parties, including each Employee, present and
future, and any successor to the Company.

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5.5 The headings and captions herein are provided for reference and convenience
only, shall not be considered part of the Plan, and shall not be employed in the
construction of the Plan.

5.6 The Plan shall not be funded. No Employee shall have any right to, or
interest in, any assets of the Company which may be applied by the Company to
the payment of benefits or other rights under this Plan.

5.7 Any benefit payable to or for the benefit of a minor, an incompetent person
or other person incapable of giving a receipt therefor shall be deemed paid when
paid to such person’s guardian or to the party providing or reasonably appearing
to provide for the care of such person, and such payment shall fully discharge
the Company, its subsidiaries, the Plan Administrator and all other parties with
respect thereto. If a Severed Employee dies prior to the payment of all benefits
due such Severed Employee, such unpaid amounts shall be paid to the executor,
personal representative or estate of such Employee.

5.8 Any notice or other communication required or permitted pursuant to the
terms hereof shall have been duly given when delivered or mailed by United
States mail, first class, postage prepaid, addressed to the intended recipient
at his, her or its last known address.

5.9 This Plan shall be construed and enforced according to the laws of the State
of Delaware, without giving effect to its principles of conflicts of law, to the
extent not preempted by federal law, which shall otherwise control.

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EXHIBIT A

RELEASE AGREEMENT

In consideration of the payments and benefits provided for in the annexed
AnnTaylor Stores Corporation Special Severance Plan (the “Plan”), and the
release from [insert employee’s name] (the “Employee”) set forth herein,
AnnTaylor Stores Corporation (the “Company”) and the Employee agree to the terms
of this Release Agreement. Capitalized terms used and not defined in this
Release Agreement shall have the meanings assigned thereto in the Plan.

1. The Employee acknowledges and agrees that the Company is under no obligation
to offer the Employee the payments and benefits set forth in the annexed Plan,
unless the Employee consents to the terms of this Release Agreement within
forty-five (45) days following the Employee’s severance date.

2. The Employee voluntarily, knowingly and willingly releases and forever
discharges the Company and its Affiliates, together with its and their
respective officers, directors, partners, shareholders, employees and agents,
and each of its and their predecessors, successors and assigns (collectively,
“Releasees”), from any and all charges, complaints, claims, promises,
agreements, controversies, causes of action and demands of any nature whatsoever
that the Employee or his/her executors, administrators, successors or assigns
ever had, now have or hereafter can, shall or may have against Releasees by
reason of any matter, cause or thing whatsoever arising prior to the time of
signing of this Release Agreement by the Employee. The release being provided by
the Employee in this Release Agreement includes, but is not limited to, any
rights or claims relating in any way to the Employee’s employment relationship
with the Company or any its Affiliates, or the termination thereof, or under any
statute, including the federal Age Discrimination in Employment Act of 1967,
Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1990, the
Americans with Disabilities Act of 1990, the Employee Retirement Income Security
Act of 1974, the Family and Medical Leave Act of 1993, each as amended, and any
other federal, state or local law or judicial decision.

3. The Employee acknowledges and agrees that he/she shall not, directly or
indirectly, seek or further be entitled to any personal recovery in any lawsuit
or other claim against the Company or any other Releasee based on any event
arising out of the matters released in paragraph 2.

4. Nothing herein shall be deemed to release (i) any of the Employee’s rights
under the Plan or (ii) any of the vested benefits that the Employee has accrued
prior to the date this Release Agreement is executed by the Employee under the
employee benefit plans and arrangements of the Company or any of its Affiliates.

5. In consideration of the Employee’s release set forth in paragraph 2, the
Company knowingly and willingly releases and forever discharges the Employee
from any and all charges, complaints, claims, promises, agreements,
controversies, causes of action and demands of any nature whatsoever that the
Company now has or hereafter can, shall or may have against him/her by reason of
any matter, cause or

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thing whatsoever arising prior to the time of signing of this Release Agreement
by the Company, provided, however, that nothing herein is intended to release
any claim the Company may have against the Employee for any illegal conduct.

6. The Employee acknowledges that the Company has advised him/her to consult
with an attorney of his/her choice prior to signing this Release Agreement. The
Employee represents that, to the extent he/she desires, he/she has had the
opportunity to review this Release Agreement with an attorney of his/her choice.

7. The Employee acknowledges that he/she has been offered the opportunity to
consider the terms of this Release Agreement for a period of at least forty-five
(45) days, although he/she may sign it sooner should he/she desire. The Employee
further shall have seven additional days from the date of signing this Release
Agreement to revoke his/her consent hereto by notifying, in writing, the General
Counsel of the Company. This Release Agreement will not become effective until
seven days after the date on which the Employee has signed it without
revocation.

 

Dated:  

 

   

 

      [Employee Name]       ANNTAYLOR STORES CORPORATION       By:  

 

      Title: