-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OJZg4wna/C7nxaOawfOrVtvngd7ifimEuNIQIPJTEq9CsTR64Q3fJV6lg+CHEW9m 8EzKk4aUaf6o3wrFERFA/Q== 0000950110-96-001156.txt : 19961001 0000950110-96-001156.hdr.sgml : 19961001 ACCESSION NUMBER: 0000950110-96-001156 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960930 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: TAYLOR ANN STORES CORP CENTRAL INDEX KEY: 0000874214 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 133499319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-42038 FILM NUMBER: 96637231 BUSINESS ADDRESS: STREET 1: 142 WEST 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125413300 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CYGNE DESIGNS INC CENTRAL INDEX KEY: 0000906782 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 042843286 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1372 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2123546474 MAIL ADDRESS: STREET 1: 1372 BROADWAY CITY: NEW YORK STATE: NY ZIP: 10018 SC 13D 1 SCHEDULE 13D - ------------------------------------------ OMB APPROVAL - ------------------------------------------ OMB Number: 3235-0145 Expires: October 31, 1994 Estimated average burden hours per form.....................14.90 - ------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ______)* AnnTaylor Stores Corporation - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $.0068 par value per share - -------------------------------------------------------------------------------- (Title of Class of Securities) 036115103 - -------------------------------------------------------------------------------- (CUSIP Number) Paul D. Baiocchi, Esq., Vice President, General Counsel and Secretary, Cygne Designs, Inc., 1372 Broadway, New York, NY 10018; Telephone (212) 354-6474 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 20, 1996 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|. Check the following box if a fee is being paid with the statement |X|. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to the "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ------------------------- ------------------------------ CUSIP No.036115 10 3 Page 2 of 11 Pages - ------------------------- ------------------------------ - ------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Cygne Designs, Inc.; EIN 04-2843286 - ------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ] (b)[ ] - ------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------ ------ 4 SOURCE OF FUNDS* 00 - ------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - ------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH 7 SOLE VOTING POWER 2,348,145 ------------------------------------------------------------- 8 SHARED VOTING POWER 2,348,145 ------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 2,348,145 ------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 2,348,145 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,348,145 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 9.2 - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. -2- SCHEDULE 13D This statement on Schedule 13D is being filed on behalf of Cygne Designs, Inc. (the "Company" or "Cygne"), a Delaware corporation. The business address of Cygne is 1372 Broadway, New York, New York 10018. Item 1. Security and Issuer This statement on Schedule 13D relates to the common stock, $.0068 par value per share (the "Common Stock"), of AnnTaylor Stores Corporation ("ATSC" or the "Issuer"). The Issuer's principal executive offices are located at 142 West 57th Street, New York, New York 10019. Item 2. Identity and Background Name: See Item 1 of the cover page of this Schedule 13D for the name of the reporting person. The following persons are executive officers, directors or controlling persons of Cygne (the "Executive Officers and Directors"): Bernard M. Manuel Irving Benson James G. Groninger Stuart B. Katz Trevor J. Wright Roy E. Green Gary C. Smith Paul D. Baiocchi STATE OF ORGANIZATION OR CITIZENSHIP: See Item 6 of the cover page of this Schedule 13D for the state of organization of the reporting person. All of the Executive Officers and Directors are citizens of the United States, except Bernard M. Manuel who is a citizen of France and Trevor J. Wright who is a citizen of the United Kingdom. -3- Address of Principal Business or Residence: For: Cygne Designs, Inc. 1372 Broadway New York, New York 10018 For: Bernard M. Manuel Irving Benson Trevor J. Wright Roy E. Green Gary C. Smith Paul D. Baiocchi c/o Cygne Designs, Inc. 1372 Broadway New York, New York 10018 For: James G. Groninger c/o Bay South Company 101 Shockoe Slip - Suite M Richmond, Virginia 23219 For: Stuart B. Katz c/o Furman Selz LLC 230 Park Avenue New York, New York 10169 ADDRESS OF PRINCIPAL OFFICE: See "Address of Principal Business or Residence" listed above in this Item 2 for the address of the principal office of the reporting person and of the Executive Officers and Directors. PRINCIPAL BUSINESS OR OCCUPATION: The Company is a private label designer, merchandiser and manufacturer of women's apparel, serving principally The Limited, Inc. The Company's products include a broad range of woven and knit career and casual women's apparel. As a private label manufacturer, the Company produces apparel upon orders from its customers for sale under the customers' own labels. -4- The principal occupation of each of the Executive Officers and Directors is as follows: Bernard M. Manuel is the Chief Executive Officer and the Chairman of the Board of Directors of Cygne. Irving Benson is the President and a Director of Cygne. James G. Groninger is the President of the Bay South Company and is a Director of Cygne. Stuart B. Katz is a Senior Managing Director of Furman Selz LLC and is a Director of Cygne. Trevor J. Wright is the Executive Vice President -- Design and a Director of Cygne. Roy E. Green is the Senior Vice President -- Chief Financial Officer and Treasurer of Cygne. Gary C. Smith is the Senior Vice President - Manufacturing of Cygne. Paul D. Baiocchi is the Vice President, General Counsel and Secretary of Cygne. NO CONVICTION IN CRIMINAL PROCEEDINGS: The reporting person and the Executive Officers and Directors have not been convicted in any criminal proceeding during the last five years. NO SECURITIES LAWS VIOLATIONS: The reporting person and the Executive Officers and Directors have not been subject, during the last five years, to any judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or any finding of any violation with respect to such laws as a result of a civil proceeding. Item 3. Source and Amount of Funds or Other Consideration On September 20, 1996, Cygne consummated the sale (the "Sale") to Ann Taylor, Inc. ("Ann Taylor") of Cygne's merchandising and sourcing capabilities used for product sales to Ann Taylor, consisting of (a) the Company's 60% interest in each of CAT U.S. Inc., a Delaware corporation ("CAT US"), and C.A.T. (Far East) Limited, a Hong Kong corporation ("CAT Far East", and together with CAT US, "CAT"), the Company's joint venture arrangement with Ann Taylor, which owned the remaining 40% interest in -5- CAT, and (b) the assets of Cygne's Ann Taylor Woven Division (the "Division" and together with CAT, the "Ann Taylor Operations"), pursuant to a Stock and Asset Purchase Agreement by and between Cygne, Cygne Group (F.E.) Limited, a Hong Kong corporation and wholly owned subsidiary of Cygne, Ann Taylor and ATSC, a Delaware corporation and parent corporation to Ann Taylor, dated as of June 7, 1996, as amended (the "Purchase Agreement"). In the transaction, Cygne received 2,348,145 shares (the "AT Shares") of common stock, par value $.0068 per share, of ATSC (determined by dividing $36 million by $15.33125 (the average of the high and low sale prices of the ATSC Common Stock on each of the 10 consecutive trading days ending on the trading day immediately prior to the closing of the transaction)), and $3.2 million in cash (based on the net book value of the inventory of the Division (less related payables and advances and certain other assumed liabilities)) and fixed assets of the Division, subject to post-closing adjustments. Ann Taylor also assumed certain liabilities of the AnnTaylor Operations and paid to Cygne $6.5 million in settlement of accounts receivable for merchandise delivered by Cygne prior to the closing. The Company used the $9.7 million of cash received in the transaction to repay a portion of its outstanding senior bank indebtedness. The Company has granted a security interest in the AT Shares to its senior and subordinated lenders and pledged the AT Shares to its senior lender. The Company intends to sell AT Shares from time to time to repay its outstanding debt obligations and to finance its working capital needs. As a result of the sale, the Company will realize a pre-tax gain of approximately $31 million. In connection with the transaction, the Company entered into two 3-year consulting agreements with Ann Taylor for the services of Mr. Bernard Manuel, the Company's Chairman of the Board and Chief Executive Officer, and Mr. Irving Benson, the Company's President and a director, to facilitate the integration of CAT and the Division into Ann Taylor's operations. These agreements, which provide for an annual fee of $225,000 for the services of each of Messrs. Benson and Manuel, will automatically be assigned to the consultant if his employment with the Company is terminated for any reason. Item 4. Purpose of Transaction Cygne acquired the AT Shares pursuant to the Purchase Agreement as more fully described in Item 3. Neither Cygne nor any of the Executive Officers and Directors has any present plans or proposals which relate to or would result in: (a) The acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer, except pursuant to and in accordance with the Escrow Agreement, the Stockholders Agreement and the security agreements as more fully described in Item 6; -6- (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries; (d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) Any material change in the present capitalization or dividend policy of the Issuer; (f) Any other material change in the Issuer's business or corporate structure, including but not limited to, if the Issuer is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by Section 13 of the Investment Company Act of 1940; (g) Changes in the Issuer's charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) Causing a class of securities of the issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; or (j) Any action similar to any of those enumerated above. Item 5. Interest in Securities of the Issuer (a) See Items 11 and 13 of the cover pages of this Schedule 13D for the aggregate number and percentage of Common Stock of the Issuer held by the reporting person. (b) See Items 7-10 of the cover page of this Schedule 13D for the number of shares of the Issuer's Common Stock held by Cygne in which Cygne has the sole or shared power to vote or direct the vote and the sole or shared power to dispose or direct the disposition. -7- No Executive Officer and Director has the sole or shared power to vote or direct the vote and the sole or shared power to dispose or direct the disposition of any shares of the Issuer's Common Stock, except that the Board of Directors of Cygne may be deemed to have the shared power to vote or direct the vote and the shared power to dispose or direct the disposition of the AT Shares. The Stockholders Agreement among Cygne, Cygne Group (F.E.) Limited, a wholly-owned subsidiary of Cygne ("CGFE"), and ATSC requires that the AT Shares be voted in the same proportion as the votes cast by all other stockholders of ATSC. In addition, upon an event of default under Cygne's credit facility with the Hongkong and Shanghai Banking Corporation Limited (the "HS Bank"), the HS Bank may vote the AT Shares. Further, Cygne's credit arrangement with the HS Bank requires that Cygne dispose of some or all of the AT Shares under certain circumstances. See Item 6 below. (c) On September 20, 1996, Cygne acquired all of the AT Shares listed in Item 11 of the cover pages of this Schedule 13D in the manner described in "Item 3. Source and Amount of Funds or Other Consideration." (d) No person or entity other than Cygne has the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the AT Shares owned by Cygne except that the HS Bank has the right to receive dividends and proceeds under certain circumstances as described under Item 6 below. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issue A. CONTRACTS, ARRANGEMENTS AND UNDERSTANDINGS WITH THE ISSUER RELATING TO THE ISSUER'S COMMON STOCK. In connection with the Sale, the Company entered into a stockholders agreement with ATSC (the "Stockholders Agreement") pursuant to which (i) Cygne received shelf registration rights with respect to the AT Shares, (ii) Cygne became subject to a three-year standstill agreement, (iii) the AT Shares are not transferable except under certain circumstances and (iv) the AT Shares will be present or represented by proxy at all meetings of stockholders for purposes of determining the presence of a quorum at such meetings and will be voted in the same proportion as the votes cast by all other stockholders of ATSC. -8- Shelf Registration. The Stockholders Agreement provides that as soon as practicable, but no later than October 11, 1996, ATSC will file a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), to permit the resale of the AT Shares, and will use its reasonable best efforts to cause the registration statement to be declared effective by the SEC as promptly as practicable. ATSC is obligated to use its reasonable best efforts to keep the registration statement effective under the Securities Act until the earliest to occur of (i) the date all the AT Shares have been sold, (ii) the third anniversary of the Closing or (iii) the date the AT Shares can be resold without registration under the Securities Act pursuant to Rule 144(k) under the Securities Act. Following the first anniversary of the effective date of the registration statement (the "Effective Date"), if requested by ATSC, Cygne will not effect any public sale or distribution of any AT Shares during the 10-day period prior to the date on which ATSC has notified Cygne that it intends to commence the sale of equity securities (or securities convertible into equity securities) pursuant to an underwritten public offering, whether primary or secondary, through the 120-day period following the closing of such offering. In addition, ATSC is permitted to not maintain the effectiveness of the registration statement if to do so would require ATSC to disclose material financing, acquisition or other corporate developments the disclosure of which ATSC determines would not be in the best interests of ATSC and its stockholders. ATSC will pay all expenses relating to the registration of the AT Shares under the Securities Act other than the fees of counsel for Cygne and any commissions. The Stockholders Agreement contains standard indemnity provisions with respect to each of the parties, and prohibits the transfer of the shelf registration rights except in connection with a pledge of the AT Shares in a bona fide transaction to secure indebtedness of Cygne for borrowed money to a lender that agrees in a writing reasonably satisfactory to ATSC to be subject to the terms of the Stockholders Agreement. Cygne has pledged the AT Shares, and has granted an option to have transferred the related shelf registration rights, to the HS Bank to secure its indebtedness to the HS Bank. Standstill Provisions. The Stockholders Agreement provides that during the three-year term of the agreement, neither Cygne nor CGFE shall, and each shall cause each of its Affiliates (as defined in the Stockholders Agreement) not to, singly, or as part of a "group", directly or indirectly, through one or more intermediaries or otherwise, (i) make, or in any way participate, directly or indirectly, in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), with respect to the AT Shares or any securities of ATSC subsidiaries (including by the execution of actions by written consent), become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to ATSC or seek to advise or influence any person or entity with respect to the voting of any shares of ATSC Common Stock or any securities of ATSC subsidiaries; (ii) initiate, propose or participate in the solicitation of stockholders for the approval of one or more stockholder proposals with respect to ATSC, as described in Rule 14a-8 under the Exchange Act, or induce or encourage any other individual or entity to initiate any stockholder proposal relating to ATSC; (iii) form, join, influence or participate in a "group", or act in concert with any other person or entity, for the purpose of acquiring, holding, voting or disposing of any securities of ATSC or ATSC subsidiaries or taking -9- any other actions prohibited under the standstill provisions of the Stockholders Agreement; (iv) hold any discussions with another person regarding, make any proposal to or any public announcement relating to a tender or exchange offer for any securities of ATSC or ATSC subsidiaries, or a merger, business combination, sale of assets, liquidation, restructuring, recapitalization or other extraordinary corporate transaction relating to ATSC or any ATSC subsidiary or its material assets or take any action which might require ATSC to make a public announcement regarding any of the foregoing; (v) cause the merger of Cygne or CGFE with or into, the consolidation of Cygne or CGFE with, or the sale of the business or assets of Cygne or CGFE substantially as an entirety to, any other person unless (A) Cygne or CGFE, as the case may be, is the surviving person or the surviving person agrees in writing to be bound by the Stockholders Agreement and (B) within 120 days after consummation of the transaction, the surviving person disposes of all shares of ATSC common stock owned by it (in excess of those owned by Cygne or CGFE, as the case may be, prior to consummation of the transaction); (vi) act, alone or in concert with others (including by providing financing for another party), to seek or offer to control ATSC; (vii) deposit any AT Shares in a voting trust or subject any AT Shares to any arrangement or agreement with respect to the voting thereof; (viii) execute any written consents; (ix) enter into any discussions, negotiations, arrangements or understandings with or provide any information to any third party with respect to any of the foregoing; (x) disclose any intention, plan or arrangement inconsistent with the foregoing prohibitions or advise or assist any other person in connection with any activity included in the foregoing prohibitions; or (xi) seek, request or propose any waiver, modification, amendment or termination of any provision of the standstill provisions of the Stockholders Agreement (other than any request or proposal made or solicited by ATSC). Transfer Restrictions. Prior to the Effective Date, the Company cannot transfer the AT Shares except pursuant to a pledge to secure indebtedness of Cygne for borrowed money. After the Effective Date, Cygne is permitted to transfer the AT Shares unless the registration statement covering the resale of such shares is not effective or up-do-date. However, except for transfers (i) in connection with a tender offer with respect to which ATSC does not recommend rejection, (ii) pursuant to a settlement of the class action lawsuit pending against Cygne, (iii) pursuant to a pro rata dividend or other pro rata distribution to all Cygne stockholders or (iv) pursuant to an underwritten public offering, Cygne is prohibited from transferring more than two percent of the then outstanding shares of ATSC common stock in any two-week period. In addition, Cygne will be obligated to instruct any underwriter of a public offering or any placement agent, broker or other agent that (x) no transfers of any AT Shares may knowingly be made to any person who beneficially owns in excess of five percent (5%) of the then outstanding shares of ATSC common stock, and (y) no transfer of more than two (2%) of the then outstanding ATSC common stock may knowingly be made to a single purchaser (or group of related purchasers). B. Contracts, Arrangements and Understandings with Cygne's Lenders Relating to the Issuer's Common Stock. -10- In connection with the Company's credit facility with the HS Bank, Cygne has pledged the AT shares to secure the repayment of its obligations to the HS Bank. The HS Bank has the right to receive all dividends paid in respect of the AT Shares and to vote and acquire ownership of the AT Shares following an event of default under Cygne's credit facility. In connection therewith, Cygne entered into an Escrow Agreement, dated as of September 20, 1996, among Cygne, CGFE, HS Bank and Marine Midland Bank (the "Escrow Agreement"), and deposited the AT Shares with Marine Midland Bank as the Escrow Agent. The Escrow Agreement provides that the AT Shares will be sold from time to time upon Cygne's instructions and must be sold to the extent that Cygne's obligations to the HS Bank exceed the lesser of the maximum facility or the borrowing base under the credit facility, subject, in either case, to the restrictions imposed by the Stockholders Agreement. In addition, Cygne has granted to the HS Bank an option to acquire Cygne's rights under the Stockholders Agreement, subject to the HS Bank's assumption of Cygne's obligations under such agreement. In addition, Cygne has granted a security interest in the AT Shares to Mitsubishi Corporation and Mitsubishi International Corporation, its subordinated lenders, which security interest is subordinated to the security interest in favor of the HS Bank. Item 7. Material to be Filed as Exhibits 1. Stock and Asset Purchase Agreement by and between Cygne Designs, Inc., Cygne Group (F.E.) Limited, AnnTaylor Stores Corporation and AnnTaylor, Inc., dated as of June 7, 1996, as amended. (previously filed with the Commission as Exhibit 10.1 to, and incorporated herein by reference from, the Company's quarterly report on Form 10-Q for the fiscal quarter ended August 3, 1996). 2. Stockholders Agreement, dated as of September 20, 1996, by and between ATSC, Cygne and CGFE. 3. Escrow Agreement, dated as of September 20, 1996, by and among Cygne Designs, Inc., Cygne Group (F.E.) Limited, and The Hongkong and Shanghai Banking Corporation Limited, and Marine Midland Bank. 4. Amended and Restated Security Agreement, dated as of September 20,996 between Cygne Designs, Inc. and The Hongkong and Shanghai Banking Corporation Limited. 5. Option Agreement, dated as of September 20, 1996 among Cygne Designs, Inc., Cygne Group (F.E.) Limited and The Hongkong and Shanghai Banking Corporation Limited. -11- 6. Security Agreement, dated as of June 4, 1992, between Mitsubishi Corporation and the Company. (previously filed with the Commission as Exhibit 10.30 to, and incorporated herein by reference from, the Company's Registration Statement on Form S-1 (Registration No. 33-64358).) 7. Security Agreement, dated as of June 4, 1992, between Mitsubishi International Corporation and the Company. (previously filed with the Commission as Exhibit 10.35 to, and incorporated herein by reference from, the Company's Registration Statement on Form S-1 (Registration No. 33-64358).) 8. First Amendment, dated as of May 10, 1994, to Security Agreement, dated as of June 4, 1992, between Mitsubishi Corporation and the Company. (previously filed with the Commission as Exhibit 10.110 to, and incorporated herein by reference from, the Company's Registration Statement on Form S-1 (Registration No. 33-78700).) 9. First Amendment, dated as of May 10, 1994, to Security Agreement, dated as of June 4, 1992, between Mitsubishi International Corporation and the Company. (previously filed with the Commission as Exhibit 10.112 to, and incorporated herein by reference from, the Company's Registration Statement on Form S-1 (Registration No. 33-78700).) 12 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: September 30, 1996 CYGNE DESIGNS, INC. By: /s/ PAUL D. BAIOCCHI --------------------------------- Paul D. Baiocchi Vice President and Secretary -13- EX-2 2 STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT, dated as of September 20, 1996 (the "Agreement"), among AnnTaylor Stores Corporation, a Delaware corporation (the "Company"), Cygne Designs, Inc., a Delaware corporation ("Cygne"), and Cygne Group (F.E.) Limited, a Hong Kong corporation and wholly owned subsidiary of Cygne ("CGFE" and, together with Cygne, "Holder"). WHEREAS, pursuant to that certain Stock and Asset Purchase Agreement, dated as of June 7, 1996 as amended by Amendment dated August 27, 1996 (the "Purchase Agreement"), the Company has acquired (the "Acquisition") from Holder (i) all of the shares of common stock, par value $.01 per share, of CAT US, Inc., a Delaware corporation, and all of the HK $1 ordinary shares of C.A.T. (Far East) Limited, a Hong Kong corporation, owned by Holder and (ii) certain of the assets of Cygne's AnnTaylor Woven Division; WHEREAS, in consideration for the Acquisition, the Company has, among other things, issued to Holder 2,348,145 shares of common stock, par value $.0068 per share (the "Common Stock"), of the Company (the shares of Common Stock issued to Holder in consideration for the Acquisition are hereinafter referred to as the "Acquisition Shares"); and WHEREAS, the Company and Holder have determined that it is in their best interests that certain aspects of their relationship be regulated according to the terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I CERTAIN DEFINITIONS Section 1.01 Definitions. As used in this Agreement, the following terms shall have the following meanings: The term "ACQUISITION" shall have the meaning ascribed to it in the second paragraph of the preamble. The term "ACQUISITION SHARES" shall have the meaning ascribed to it in the third paragraph of the preamble. The term "AFFILIATE" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. The term "AGREEMENT" shall have the meaning ascribed to it in the first paragraph of the preamble. The term "COMMON STOCK" shall have the meaning ascribed to it in the third paragraph of the preamble. The term "COMPANY" shall have the meaning ascribed to it in the first paragraph of the preamble. The term "COMPANY OFFERING" shall mean the sale of equity securities of the Company, or securities convertible into or exchangeable or exercisable for equity securities of the Company, pursuant to a registration statement filed by the Company under the Securities Act (other than (i) a registration statement filed on Form S-4 or any successor form or (ii) a registration statement filed on Form S-8 or any successor form) respecting an underwritten offering, whether primary or secondary, that is declared effective by the SEC. The term "COMPANY SUBSIDIARY" shall mean any Person the majority of the outstanding voting securities or interests of which are owned by the Company, and shall include AnnTaylor Stores Corporation Finance Trust. The term "EFFECTIVE DATE" shall have the meaning ascribed to it in Section 2.02. The term "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. 1 The term "HOLDER" shall have the meaning ascribed to it in the first paragraph of the preamble. The term "LOSSES" shall have the meaning ascribed to it in Section 2.06(a). The term "PERSON" shall mean an individual, trustee, corporation, partnership, business trust, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, union, business association, firm or other entity. The term "PURCHASE AGREEMENT" shall have the meaning ascribed to it in the second paragraph of the preamble. The term "REGISTRATION EXPENSES" shall have the meaning ascribed to it in Section 2.05. The term "RULE 144" shall mean Rule 144 promulgated under the Securities Act (or any successor rule). The term "RULE 415 OFFERING" shall have the meaning ascribed to it in Section 2.01(a). The term "SEC" shall mean the Securities and Exchange Commission. The term "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. The term "SHELF REGISTRATION STATEMENT" shall have the meaning ascribed to it in Section 2.01(a). The term "TRANSFER" shall mean any attempt to, directly or indirectly, offer, sell, assign, transfer, grant a participation in, pledge or otherwise dispose of any of the Acquisition Shares, or the consummation of any such transactions, or the soliciting of any offers to purchase or otherwise acquire, or take a pledge of any of the Acquisition Shares. ARTICLE II REQUIRED REGISTRATION Section 2.01 Required Registration. (a) Form S-3. As promptly as practicable, but in no event later than fifteen (15) business days after the date on which the Acquisition closes, the Company shall use reasonable best efforts to prepare and file with the SEC a registration statement (the "Shelf Registration Statement") on Form S-3 or another appropriate form permitting registration of the Acquisition Shares so as to permit promptly the resale of the Acquisition Shares by Holder pursuant to an offering on a delayed or continuous basis pursuant to Rule 415 (or any successor rule) under the Securities Act (a "Rule 415 Offering") and shall use reasonable best efforts to cause the Shelf Registration Statement to be declared effective by the SEC as promptly as practicable. (b) Effectiveness. The Company shall use reasonable best efforts to keep the Shelf Registration Statement continuously effective under the Securities Act until the date that is the earliest to occur of (i) the date that all Acquisition Shares covered by the Shelf Registration Statement have been sold, (ii) the third anniversary of the date hereof and (iii) when, in the written opinion of counsel to the Company, all outstanding Acquisition Shares held by persons which are not Affiliates of the Company may be resold without registration under the Securities Act pursuant to Rule 144(k) under the Act or any successor provision thereto. (c) Amendments/Supplements. The Company shall amend and supplement the Shelf Registration Statement and the prospectus contained therein if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or if required by the Securities Act; provided, however, that the Company may delay the filing of any such amendment or supplement for up to 90 days if the Company in good faith has a valid business reason for such delay. (d) Offerings. At any time after the effective date of the Shelf Registration Statement, Holder, subject to the restrictions and conditions contained herein, and to compliance which all applicable state and federal securities laws, shall have the right to dispose of all or any portion of the Acquisition Shares from time to time in negotiated or market transactions (which may include delivery to class action plaintiffs or a distribution to Holder's stockholders). 2 Section 2.02 Holdback Agreement. From and after the first anniversary of the date on which the Shelf Registration Statement is declared effective by the SEC (the "Effective Date"), upon the request of the Company, Holder shall not effect any public sale or distribution (including sales pursuant to Rule 144) of Acquisition Shares, during the ten (10)-day period prior to the date on which the Company has notified Holder that the Company intends to commence a Company Offering through the filing of a registration statement with the Securities and Exchange Commission, through the one hundred twenty (120)-day period immediately following the closing date of such Company Offering; provided, however, that Holder shall not be obligated to comply with this Section 2.02 on more than one (1) occasion in any twelve (12)-month period. Section 2.03 Blackout Provisions. The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if the Company voluntarily takes any action that would result in Holder not being able to offer and sell any Acquisition Shares during that period, unless (i) such action is required by applicable law, (ii) upon the occurrence of any event contemplated by Section 2.04(a)(8) below, such action is taken by the Company in good faith and for valid business reasons or (iii) the continued effectiveness of the Shelf Registration Statement would require the Company to disclose a material financing, acquisition or other corporate development, and the proper officers of the Company shall have determined in good faith that such disclosure is not in the best interests of the Company and its stockholders, and, in the case of clause (ii) above, the Company thereafter promptly comply with the requirements of Section 2.04(a)(8) below; provided that the Company takes the same action in respect of the Shelf Registration Statement filed pursuant to that certain Registration Rights Agreement, dated as of April 25, 1996, between the Company and the Initial Purchasers named therein. Section 2.04 Registration Procedures. (a) Procedures. In connection with the registration of the Acquisition Shares pursuant to this Agreement, the Company shall use reasonable best efforts to effect the registration and sale of the Acquisition Shares in accordance with Holder's intended method of disposition thereof and, in connection therewith, the Company shall as expeditiously as practicable: (1) prepare and file with the SEC the Shelf Registration Statement and use reasonable best efforts to cause the Shelf Registration Statement to become and remain effective in accordance with Section 2.01(a) and (b) above; (2) prepare and file with the SEC amendments and supplements to the Shelf Registration Statement and the prospectuses used in connection therewith in accordance with Section 2.01(c) above; (3) before filing with the SEC the Shelf Registration Statement or prospectus or any amendments or supplements thereto, the Company shall furnish to one counsel selected by Holder and one counsel for the underwriter or sales or placement agent, if any, in connection therewith, drafts of all such documents proposed to be filed and provide such counsel with a reasonable opportunity for review thereof and comment thereon, such review to be conducted and such comments to be delivered with reasonable promptness; (4) promptly (i) notify Holder of each of (x) the filing and effectiveness of the Shelf Registration Statement and each prospectus and any amendments or supplements thereto, (y) the receipt of any comments from the SEC or any state securities law authorities or any other governmental authorities with respect to any such Shelf Registration Statement or prospectus or any amendments or supplements thereto, and (z) any oral or written stop order with respect to such registration, any suspension of the registration or qualification of the sale of the Acquisition Shares in any jurisdiction or any initiation or threatening of any proceedings with respect to any of the foregoing and (ii) use reasonable best efforts to obtain the withdrawal of any order suspending the registration or qualification (or the effectiveness thereof) or suspending or preventing the use of any related prospectus in any jurisdiction with respect thereto; (5) furnish to Holder, the underwriters or the sales or placement agent, if any, and one counsel for each of the foregoing, a conformed copy of the Shelf Registration Statement and each amendment and supplement thereto (in each case, including all exhibits thereto) and such additional number of copies of such Shelf 3 Registration Statement, each amendment and supplement thereto (in such case, without such exhibits), the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and prospectus supplements and all exhibits thereto and such other documents as Holder, underwriter, agent or such counsel may reasonably request in order to facilitate the disposition of the Acquisition Shares by Holder; (6) if requested by Holder or the managing underwriter or underwriters of a Rule 415 Offering, subject to approval of counsel to the Company in its reasonable judgment, promptly incorporate in a prospectus, supplement or post-effective amendment to the Shelf Registration Statement such information concerning underwriters and the plan of distribution of the Acquisition Shares as such managing underwriter or underwriters or Holder reasonably shall furnish to the Company in writing and request be included therein, including, without limitation, information with respect to the number of Acquisition Shares being sold by Holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of the underwritten offering of the Acquisition Shares to be sold in such offering; and make all required filings of such prospectus, supplement or post-effective amendment as soon as reasonably practicable after being notified of the matters to be incorporated in such prospectus, supplement or post-effective amendment; (7) use reasonable best efforts to register or qualify the Acquisition Shares under such securities or "blue sky" laws of such jurisdictions as Holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable Holder to consummate the disposition in such jurisdictions in which the Acquisition Shares are to be sold and keep such registration or qualification in effect for so long as the Shelf Registration Statement remains effective under the Securities Act (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph, (ii) subject itself to taxation in any such jurisdiction where it would not otherwise be subject to taxation but for this paragraph or (iii) consent to the general service of process in any jurisdiction where it would not otherwise be subject to general service of process but for this paragraph); (8) notify Holder, at any time when a prospectus relating to the Shelf Registration Statement is required to be delivered under the Securities Act, upon the discovery that, or of the happening of any event as a result of which, the Shelf Registration Statement, as then in effect, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or any fact necessary to make the statements therein not misleading, and, subject to Section 2.03 above, promptly prepare and furnish to the Holder a supplement or amendment to the prospectus contained in the Shelf Registration Statement so that the Shelf Registration Statement shall not, and such prospectus as thereafter delivered to the purchasers of such Acquisition Shares shall not, contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or any fact necessary to make the statements therein not misleading; (9) cause all of the Acquisition Shares to be listed on each national securities exchange and included in each established over-the-counter market on which or through which the Common Stock is then listed or traded; (10) make available for inspection by Holder, any underwriter participating in any disposition pursuant to the Shelf Registration Statement, and any attorney, accountant or other agent retained by Holder or underwriter, all reasonably requested financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees, attorneys and independent accountants to supply all information reasonably requested by Holder, underwriters, attorneys, accountants or agents in connection with the Shelf Registration Statement; information which the Company determines, in good faith, to be confidential shall not be disclosed by such persons unless, subject to Section 2.03 above, (i) the disclosure of such information is required by applicable federal securities laws or is necessary to avoid or correct a misstatement or omission in such Shelf Registration Statement or (ii) the release of such information is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; Holder agrees, on its own behalf and on behalf of all of its underwriters, accountants, attorneys and agents, that the information obtained by any of them as a result of such inspections shall be deemed confidential unless and until such is made generally available to the public; Holder further agrees, on its own behalf and on behalf of all of its underwriters, accountants, attorneys and agents, that it will, upon learning that disclosure of such information is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the information deemed confidential; nothing contained herein shall require the Company to waive any attorney-client privilege or disclose attorney work product; 4 (11) use reasonable best efforts to comply with all applicable laws related to the Shelf Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith (including, without limitation, the Securities Act and the Exchange Act, and the rules and regulations promulgated by the Commission) and make generally available to its security holders as soon as practicable (but in any event not later than fifteen (15) months after the effectiveness of the Shelf Registration Statement) an earnings statement of the Company and the Company Subsidiaries complying with Section 11(a) of the Securities Act; (12) use reasonable best efforts to furnish to Holder a signed counterpart of (x) an opinion of counsel for the Company and (y) a "comfort" letter signed by the independent public accountants who have certified the Company's financial statements included or incorporated by reference in such registration statement, covering such matters with respect to such registration statement and, in the case of the accountants' comfort letter, with respect to events subsequent to the date of such financial statements as are customarily covered in opinions of issuer's counsel and in accountants' comfort letters delivered to the underwriters in underwritten public offerings of securities for the account of, or on behalf of, a holder of common stock, such opinion and comfort letters to be dated the date that such opinion and comfort letters are customarily dated in such transactions; and (13) take other actions as Holder or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Acquisition Shares. (b) Further Agreements. Without limiting any of the foregoing, in the event that the sale of Acquisition Shares is to be made by or through an underwriter, the Company shall enter into an underwriting agreement with a managing underwriter or underwriters selected by Holder containing representations, warranties, indemnities and agreements customarily included (but not inconsistent with the agreements contained herein) by an issuer of common stock in underwriting agreements with respect to offerings of common stock for the account of, or on behalf of, holders of common stock; provided, however, that the Holder shall not utilize the Shelf Registration Statement for more than one underwritten offering during the term of this Agreement. In connection with the sale of Acquisition Shares hereunder, Holder may, at its option, require that any and all representations and warranties by, and the other agreements of, the Company to or for the benefit of such underwriter or underwriters (or which would be made to or for the benefit of such an underwriter or underwriter if such sale of Acquisition Shares were pursuant to a customary underwritten offering) be made to and for the benefit of Holder and that any or all of the conditions precedent to the obligations of such underwriter or underwriters (or which would be so for the benefit of such underwriter or underwriters under a customary underwriting agreement) be conditions precedent to the obligations of Holder in connection with the disposition of its securities pursuant to the terms hereof. In connection with any offering of Acquisition Shares registered pursuant to this Agreement, the Company shall, upon receipt of duly endorsed certificates representing the Acquisition Shares, (x) furnish to the underwriter, if any (or, if no underwriter, Holder), unlegended certificates representing ownership of Acquisition Shares being sold, in such denominations as requested, and (y) instruct any transfer agent and registrar of the Acquisition Shares to release any stop transfer order with respect thereto. Holder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (8) of Section 2.04(a), Holder shall forthwith discontinue its disposition of Acquisition Shares pursuant to the Shelf Registration Statement and prospectus relating thereto until its receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (8) of Section 2.04(a) and, if so directed by the Company, deliver to the Company all copies, other than permanent file copies, then in Holder's possession of the prospectus current at the time of receipt of such notice relating to the Acquisition Shares. Section 2.05 Registration Expenses. All expenses incidental to the Company's performance of, or compliance with, its obligations under this Agreement including, without limitation, all registration and filing fees, all fees and expenses of compliance with securities and "blue sky" laws (including, without limitation, the fees and expenses of counsel for underwriters or placement or sales agents in connection with "blue sky" law compliance), all printing and copying expenses, all messenger and delivery expenses, all reasonable out-of-pocket expenses of underwriters and sales and placement agents in connection therewith (excluding discounts and commissions and the fees and expenses of counsel therefor), all fees and expenses of the Company's independent certified public accountants and counsel (including, without limitation, with respect to "comfort" letters and opinions) and other Persons retained by the Company in connection therewith (collectively, the "Registration Expenses"), shall be borne by the Company. The Company shall not be 5 responsible for and shall not pay the fees and expenses of legal counsel, accountants, agents or experts retained by Holder in connection with the sale of the Acquisition Shares. The Company will pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties, the expense of any annual audit and the expense of any liability insurance) and the expenses and fees for listing the Acquisition Shares on the New York Stock Exchange. Section 2.06 Indemnification. (a) By the Company. The Company agrees to indemnify Holder, its officers, directors, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) Holder or such other indemnified Person against all losses, claims, damages, liabilities and expenses (collectively, the "Losses") caused by, resulting from or relating to any untrue or alleged untrue statement of material fact contained in the Shelf Registration Statement, any prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in, or alleged to be omitted from, any information furnished in writing to the Company by Holder or its underwriter or other agent expressly for use therein or by Holder's failure to deliver, or its underwriter's or other agent's failure to deliver, a copy of the Shelf Registration Statement or prospectus or any amendments or supplements thereto after the Company has furnished Holder with the requested number of copies of the same. In connection with an underwritten offering and without limiting any of the Company's other obligations under this Agreement, the Company shall indemnify such underwriters, their officers, directors, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriters or such other indemnified Person to the same extent as provided above with respect to the indemnification of Holder. (b) By Holder. In connection with the Shelf Registration Statement, Holder shall furnish to the Company in writing information regarding Holder's ownership of Acquisition Shares and its intended method of distribution thereof and shall indemnify the Company, its directors, officers, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or such other indemnified Person against all Losses caused by, resulting from or relating to any untrue or alleged untrue statement of material fact contained in the Shelf Registration Statement, any prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission or alleged untrue statement or omission (i) is caused by, results from or relates to, or is alleged to be omitted from, such information so furnished in writing by Holder or (ii) arises out of or results from Holder's failure to deliver, or its underwriter's or other agent's failure to deliver, a copy of the Shelf Registration Statement or prospectus or any amendments or supplements thereto after the Company has furnished Holder with the requested number of copies of the same; provided, however, that Holder shall not be liable for any claims hereunder in excess of the amount of net proceeds received by Holder from the sale of Acquisition Shares pursuant to the Shelf Registration Statement. In connection with an underwritten offering and without limiting any of Holder's other obligations under this Agreement, (i) Holder shall indemnify such underwriters, their officers, directors, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) such underwriters or such other indemnified Person to the same extent as provided above with respect to the indemnification of the Company and (ii) Holder shall cause each underwriter of an underwritten offering to indemnify the Company, its directors, officers, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) the Company or such indemnified Person against all Losses caused by, resulting from or relating to any untrue or alleged untrue statement of material fact contained in the Shelf Registration Statement, any prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission or alleged untrue statement or omission (x) is caused by, results from or relates to, or is alleged to be omitted from, such information furnished in writing by such underwriter or (y) arises out of or results from such underwriter's failure to delivery a copy of the Shelf Registration Statement or prospectus or any amendments or supplements thereto after the Company has furnished such underwriter with the requested number of copies of the same. (c) Notice. Any Person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided, however, the failure to give 6 such notice shall not release the indemnifying party from its obligation, except to the extent that the indemnifying party has been prejudiced by such failure to provide such notice. (d) Defense of Actions. In any case in which any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this paragraph) be liable to such indemnified party hereunder for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, supervision and monitoring (unless such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying party, in which event the indemnified party shall be reimbursed by the indemnifying party for the reasonable expenses incurred in connection with retaining one separate legal counsel). An indemnifying party shall not be liable for any settlement of an action or claim effected without its consent. The indemnifying party shall lose its right to defend, contest, litigate and settle a matter if it shall fail to diligently contest such matter (except to the extent settled in accordance with the next following sentence). No matter shall be settled by an indemnifying party without the consent of the indemnified party unless such settlement contains a full and unconditional release of the indemnified party. (e) Survival. The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person and will survive the transfer of the Registrable Securities. (f) Contribution. If recovery is not available under the foregoing indemnification provisions for any reason or reasons other than as specified therein, any Person who otherwise would be entitled to indemnification by the terms thereof shall nevertheless be entitled to contribution with respect to any Losses with respect to which such Person would be entitled to such indemnification but for such reason or reasons. In determining the amount of contribution to which the respective Persons are entitled, there shall be considered the Persons' relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not found guilty of such fraudulent misrepresentation. Section 2.07 Transferability of Registration Rights. The rights and obligations of Holder under this ARTICLE II may not be transferred or assigned without the prior written consent of the Company; provided, however, that such rights and obligations may be assigned by Holder in connection with a pledge of the Acquisition Shares in a bona fide transaction to secure indebtedness of Cygne for borrowed money to a lender that agrees in a writing reasonably satisfactory to the Company to be subject to the terms of this Agreement. ARTICLE III STANDSTILL PROVISIONS Section 3.01 Certain Prohibited Actions. During the term of this Agreement, without the prior written consent of the Company, neither Cygne nor CGFE shall, and each shall cause each of its Affiliates not to, singly or as part of a "group", directly or indirectly, through one or more intermediaries or otherwise (i) make, or in any way participate, directly or indirectly, in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A under the Exchange Act) with respect to the Common Stock or any securities of the Company Subsidiaries (including by the execution of actions by written consent), 7 become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to the Company or seek to advise or influence any person or entity with respect to the voting of any shares of Common Stock or any securities of the Company Subsidiaries; (ii) initiate, propose, or participate in the solicitation of stockholders for the approval of one or more stockholder proposals with respect to the Company, as described in Rule 14a-8 under the Exchange Act, or induce or encourage any other individual or entity to initiate any stockholder proposal relating to the Company; (iii) form, join, influence or participate in a "group", or act in concert with any other person or entity, for the purpose of acquiring, holding, voting or disposing of any securities of the Company or the Company Subsidiaries or taking any other actions prohibited under this Section 3.01; (iv) hold any discussions with another Person regarding, make any proposal to or any public announcement relating to a tender or exchange offer for any securities of the Company or the Company Subsidiaries, or a merger, business combination, sale of assets, liquidation, restructuring, recapitalization or other extraordinary corporate transaction relating to the Company or any of the Company Subsidiaries or its or their material assets or take any action which might require the Company to make a public announcement regarding any of the foregoing; (v) cause the merger of Cygne or CGFE with or into, the consolidation of the Cygne or CGFE with, or the sale of the business or assets of Cygne or CGFE substantially as an entirety to, any other Person unless (A) Cygne or CGFE, as the case may be, is the surviving Person or the surviving Person agrees in writing to be bound by this Agreement and (B) within 120 days after consummation of the transaction, the surviving Person disposes of all shares of Common Stock owned by it (in excess of those owned by Cygne or CGFE, as the case may be, prior to consummation of the transaction); (vi) act, alone or in concert with others (including by providing financing for another party), to seek or offer to control the Company; (vii) deposit any Acquisition Shares in a voting trust or subject any Acquisition Shares to any arrangement or agreement with respect to the voting thereof (except pursuant to Section 3.03 below); (viii) execute any written consents; (ix) enter into any discussions, negotiations, arrangements or understandings with or provide any information to any third party with respect to any of the foregoing; (x) disclose any intention, plan or arrangement inconsistent with the foregoing prohibitions or advise or assist any other Person in connection with any activity included in the foregoing prohibitions; or (xi) seek, request, or propose any waiver, modification, amendment or termination of any provision of this Section 3.01 (other than any request or proposal made or solicited by the Company). Section 3.02 Transferability of Acquisition Shares. (a) Lock-up Period. Except pursuant to a pledge in a bona fide transaction to secure indebtedness of Cygne for borrowed money to a lender that agrees in a writing reasonably acceptable to the Company to be subject to the terms of this Agreement, Holder may not Transfer any of the Acquisition Shares prior to the Effective Date. (b) Permitted Transfers. From and after the Effective Date, Holder may not Transfer the Acquisition Shares except in the following circumstances: (i) to the Company or with the Company's prior written consent; (ii) pursuant to a pledge in a bona fide transaction to secure indebtedness of Cygne for borrowed money to a lender that agrees in a writing reasonably acceptable to the Company to be subject to the terms of this Agreement; (iii) to an Affiliate that agrees in a writing reasonably acceptable to the Company to be bound by the terms of this Agreement; (iv) pursuant to a tender offer made by a person with respect to which the Company does not recommend rejection; (v) pursuant to a settlement with the plaintiffs in the class action VERONICA ZUCKER V. SASAKI, ET AL.; (vi) pursuant to a pro rata dividend or other pro rata distribution to all of Cygne's stockholders, upon liquidation of Cygne or otherwise; or (vii) pursuant to Rule 144 or otherwise pursuant to the Shelf Registration Statement; provided, however, that, other than pursuant to clauses (iv)-(vi) above or pursuant to an underwritten public offering, no Transfers of more than two percent (2%) of the Company's then outstanding shares of Common Stock may be made in any two (2)-week period; and provided, further, that any underwriter of a public offering or any placement 8 agent, broker or other agent shall be instructed that (x) no Transfers of any Acquisition Shares may knowingly be made to any person who beneficially owns in excess of five percent (5%) of the then outstanding shares of Common Stock, and (y) no Transfer of more than two percent (2%) of the Company's then outstanding Common Stock may knowingly be made to a single purchaser (or group of related purchasers). Section 3.03 Voting. During the term of this Agreement, the Holder (i) shall be present in person or represented by proxy at all stockholder meetings of the Company so that all Acquisition Shares then beneficially owned by Holder shall be counted for the purpose of determining the presence of a quorum at such meetings, and (ii) shall vote, or act by consent with respect to, all Acquisition Shares then beneficially owned by Holder pro rata in the same proportion as the votes cast by all other stockholders of the Company. ARTICLE IV MISCELLANEOUS Section 4.01 Effectiveness of Agreement. The provisions of this Agreement shall be effective as of the date hereof. Section 4.02 Restrictive Legends. Holder hereby acknowledges and agrees that, during the term of this Agreement, each of the certificates representing Acquisition Shares shall be subject to stop transfer instructions and shall include the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED WHETHER BY SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, GIFT, BEQUEST, APPOINTMENT OR OTHERWISE, AND ANNTAYLOR STORES CORPORATION (THE "COMPANY") WILL NOT REGISTER THE TRANSFER OF SUCH SHARES, EXCEPT PURSUANT AND SUBJECT TO THAT CERTAIN STOCKHOLDERS AGREEMENT DATED SEPTEMBER 20, 1996, AS MAY BE AMENDED FROM TIME TO TIME, BETWEEN ATSC AND CYGNE DESIGNS, INC. A COPY OF SUCH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY." Section 4.03 Recapitalization. In the event that any capital stock or other securities are issued as a dividend or distribution on, in respect of, in exchange for, or in substitution of, any Acquisition Shares, such securities shall be deemed to be Acquisition Shares for all purposes under this Agreement. Section 4.04 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally, by mail (certified or registered mail, return receipt requested), by reputable overnight courier or by facsimile transmission (receipt of which is confirmed): (a) If to the Company, to: AnnTaylor Stores Corporation 142 West 57th Street New York, New York 10019 Attention: General Counsel Facsimile: (212) 541-3299 9 with a copy to: Skadden, Arps, Slate, Meagher & Flom One Rodney Square Wilmington, Delaware 19801 Attention: Patricia Moran Chuff, Esq, Facsimile: (302) 651-3001 (b) If to Holder, to: Cygne Designs, Inc. 1372 Broadway New York, New York 10018 Attention: General Counsel Facsimile: (212) 536-4174 with a copy to: Fulbright and Jaworski, L.L.P. 666 Fifth Avenue New York, New York 10103 Attention: Roy L. Goldman, Esq. Facsimile: (212) 752-5958 or to such other person or address as any party shall specify by notice in writing, given in accordance with this Section 4.04, to the other parties hereto. All such notices, requests, demands, waivers and communications shall be deemed to have been given on the date on which so hand-delivered, on the third business day following the date on which so mailed, on the next business day following the date on which delivered to such overnight courier and on the date of such facsimile transmission and confirmation, except for a notice of change of person or address, which shall be effective only upon receipt thereof. Section 4.05 Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior agreements and understandings, oral and written, with respect to its subject matter. Section 4.06 Severability. Should any provision of this Agreement, or any part thereof, for any reason be declared invalid or unenforceable, such declaration shall not affect the validity or enforceability of any other provision of this Agreement, or any other part thereof, all of which other provisions, and parts, shall remain in full force and effect, and the application of such invalid or unenforceable provision, or such part thereof, to persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent permitted by law. Section 4.07 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, successors and permitted assigns, but, except as expressly contemplated herein, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, by the Company or Holder without the prior written consent of the other. Upon any such assignment, this Agreement shall be amended to substitute the assignee as a party hereto in a writing reasonably acceptable to the other party. Section 4.08 Amendment, Modification and Waiver. This Agreement may be amended, modified or supplemented at any time by written agreement of the parties hereto. Any failure by Holder, on the one hand, or the Company, on the other hand, to comply with any term or provision of this Agreement may be waived by the Company or Holder, respectively, at any time by an instrument in 10 writing signed by or on behalf of the Company and Holder, but such waiver or failure to insist upon strict compliance with such term or provision shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure to comply. Section 4.09 Third-Party Beneficiaries. This Agreement is not intended, and shall not be deemed, to confer upon or give any person except the parties hereto and their respective successors and permitted assigns, any remedy, claim, liability, reimbursement, cause of action or other right under or by reason of this Agreement. Section 4.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 4.11 Interpretation. The article and section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not in any way affect the meaning or interpretation of this Agreement. Section 4.12 Governing Law. This Agreement shall be governed by the laws of the State of New York, without regard to the principles of conflicts of law thereof. Section 4.13 Termination; Restrictive Legend. This Agreement shall terminate on the third anniversary of the date hereof; provided, however, that the provisions of Section 2.06 hereof shall survive termination of this Agreement. It is understood and agreed that any restrictive legends set forth on any Acquisition Shares shall be removed by delivery of substitute certificates without such legends and such Acquisition Shares shall no longer be subject to the terms of this Agreement, upon the resale of such Acquisition Shares in accordance with the terms of this Agreement (other than pursuant to Section 3.02(b) (i), (ii) or (iii)) or, if not theretofore removed, on the third anniversary of the date hereof. IN WITNESS WHEREOF, the undersigned hereby agree to be bound by the terms and provisions of this Stockholders Agreement as of the date first above written. ANNTAYLOR STORES CORPORATION By: /s/ WALTER J. PARKS ---------------------------------- Name: Walter J. Parks Title: Senior Vice President-Finance CYGNE DESIGNS, INC. By: /s/ BERNARD M. MANUEL ---------------------------------- Name: Bernard M. Manuel Title: Chairman and Chief Executive Officer CYGNE GROUP (F.E.) LIMITED By: /s/ BERNARD M. MANUEL --------------------------------- Name: Bernard M. Manuel Title: Chairman and Chief Executive Officer 11 EX-3 3 ESCROW AGREEMENT ESCROW AGREEMENT ESCROW AGREEMENT dated as of September 20, 1996 by and among CYGNE DESIGNS, INC., a Delaware corporation ("CDI"), and Cygne Group (F.E.) Limited, a Hong Kong corporation ("CGFE" and, together with CDI, the "Company"), THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"), and MARINE MIDLAND BANK, a banking corporation and trust company organized and existing under the laws of the State of New York, as the escrow agent hereunder (the "Escrow Agent"). W I T N E S S E T H: WHEREAS, the Company and the Bank are parties to an Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by issuing letters of credit and making loans) to be made by the Bank to the Company in an aggregate face or principal amount not exceeding $17,500,000; WHEREAS, the Credit Agreement provides for the Company (i) to grant a first priority perfected pledge and security interest to the Bank under the Security Agreement (as defined in the Credit Agreement) with respect to all of the validly issued, fully paid and nonassessable shares of common stock of AnnTaylor stores Corporation ("ATSC"), par value $0.0068 per share (the "ATSC Shares"), received by the company in connection with the Stock and Asset Purchase Agreement (as defined in the Credit Agreement), (ii) to effect the sale, assignment and transfer from time to time of the ATSC Shares through an escrow account maintained with the Escrow Agent in accordance with the terms and conditions thereof and (iii) to cause the Escrow Agent to remit all proceeds relating to each such sale, assignment and transfer of ATSC Shares (the "Proceeds") directly to the Collateral Account (as defined in the Credit Agreement); and WHEREAS, the Company and the Bank desire to appoint Marine Midland Bank as the Escrow Agent, and Marine Midland Bank is willing to act as the Escrow Agent hereunder, in accordance with the terms and conditions hereof; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Establishment of Escrow Account. The ATSC Shares delivered by the Bank shall be accepted by the Escrow Agent and placed into an account with the Escrow -2- Agent in the name of the Bank (the "Escrow Account") to be held and administered in accordance with the terms and conditions hereof. Section 3. Establishment of Brokerage Account. The ATSC Shares shall be sold, assigned and transferred pursuant to instructions delivered by the Bank to the Escrow Agent from time to time in accordance with the terms and conditions hereof through an account in the name of the Escrow Agent (the "Brokerage Account") at a Specified Broker (as defined below). The instructions delivered by the Bank to the Escrow Agent shall be based upon instructions provided to the Bank by the Company, which instructions shall specify the number of shares to be sold, the Specified Broker through which the shares are to be sold and any pricing limitations. The Escrow Agent shall deliver a certificate or certificates representing the appropriate number of ATSC Shares to be sold, assigned and transferred to the Specified Broker set forth in the sale instructions of the Company provided to the Bank, against payment on the settlement date of each respective sale, assignment and transfer. For purposes hereof, "Specified Broker" shall mean Bear, Stearns & Co, Inc., Donaldson Lufkin & Jenrette Securities Corporation, J.P. Morgan & Co. and Lehman Brothers Inc. Section 4. Notice of Pledge and Assignment. The Company and the Bank hereby notify the Escrow Agent that (i) the Company has pledged and granted to the Bank under the Security Agreement a first priority perfected pledge and security interest in all of the ATSC Shares owned by the Company and the proceeds thereof and (ii) the Company has assigned to the Bank the Registration Rights (as defined in the Assignment dated as of September 20, 1996 made by the Company in favor of the Bank) of the Company relating to the ATSC Shares as provided in the Stockholders Agreement. The Escrow Agent hereby acknowledges such pledge and security interest and such assignment, and shall, at the request of the Bank, deliver to the Bank the certificate or certificates evidencing the number of ATSC Shares than remaining in the Escrow Account. Section 5. Sale of ATSC Shares; Proceeds. The Company hereby requests the Bank to instruct the Escrow Agent to sell, assign and transfer the ATSC Shares, and remit the Proceeds, in accordance with the provisions set forth below: (a) The Company shall deliver notice to the Escrow Agent and the Bank that the shelf registration filed by ATSC with the Securities Exchange Commission with respect to the ATSC Shares shall have been declared effective, which notice shall include the effective date of such registration (the "Effective Date"); (b) On the day the Company delivers the notice of the Effective Date, and in the case of clause (z) of this Section 5(b), at such other times as it deems appropriate (but in no case more than once a week), and on each day every two (2) weeks thereafter during the term of this Agreement, the Company shall deliver to the Bank a report, certified by the chief financial officer of the Company (the "Obligations Report"), setting forth (i) the obligations of the Company under the Credit Agreement, either then outstanding or to become due and payable within the immediately succeeding two (2) week period, and (ii) the number of ATSC Shares, if any, to be sold, assigned and transferred hereunder to ESCROW AGREEMENT 3 permit the Company (x) to pay to the Bank, and to provide to the Bank collateral security therefor, the face or principal amount of such obligations, including any interest thereon, described in clause (i) above, (y) to comply with the mandatory prepayment obligations of the Company under the Credit Agreement (together with the amount described in clause (x) above, the "Required Collateral Balance"), and (z) to increase the balance in the Collateral Account (the "Cash Collateral Balance"); (c) After the receipt by the Bank of the notice of the Effective Date, and upon receipt of each Obligations Report, the Bank shall instruct the Escrow Agent, in accordance with Section 3 hereof, (i) to deliver to the Specified Broker such certificate or certificates evidencing the number of ATSC Shares equal to or greater than, after disposition and net of related costs, (A) the difference between the Required Collateral Balance and the Cash Collateral Balance pursuant to Sections 5(b)(x) and (y) above, and (B) the amount of the increase, if any, in the Cash Collateral Balance pursuant to Section 5(b)(z) above, but in no event shall the number of shares or clauses (A) and (B) be in excess of two percent (2%) of the then outstanding shares of common stock of ATSC with respect to any two (2) week period, and (ii) to instruct the Specified Broker to execute through the Brokerage Account from time to time the sale, assignment and transfer of such ATSC Shares at the best market price then available; (d) Upon receipt thereof from the Specified Broker, the Escrow Agent shall remit all Proceeds directly to the Collateral Account; and (e) If the Company shall fail in any event to notify the Escrow Agent in a timely fashion with respect to any notice required hereunder, the Bank shall effect such notice. Section 6. Instructions as to Certain Conditions. With respect to each sale, assignment and transfer of ATSC Shares hereunder, the Escrow Agent is hereby instructed to instruct the Specified Broker, that (i) no sale, assignment and transfer of ATSC Shares may knowingly be made to any person who beneficially owns in excess of five percent (5%) of the then outstanding shares of common stock of ATSC and (ii) no sale, assignment and transfer of more than two percent (2%) of the then outstanding shares of common stock of ATSC may knowingly be made to a single purchaser (or group of related purchasers). Section 7. Termination of Escrow Agreement. Upon the receipt of written notice from the Bank that the obligations of the Company to the Bank under the Credit Agreement and the Notes have been paid in full, the Commitments have expired or been terminated, and the Letters of Credit and the Standby Letters of Credit have expired or been terminated, (i) the Escrow Agent shall deliver to the Bank the certificate or certificates evidencing the number of ATSC Shares then remaining in the Escrow Account, and (ii) the Escrow Account shall be deemed dissolved and this Escrow Agreement terminated. Section 8. Commercially Reasonable Manner. The Company acknowledges that the sale, assignment and transfer of ATSC Shares hereunder may or may not be made at the ESCROW AGREEMENT 4 highest possible price available during the term of this Agreement, but agrees that any such transaction and the actions of the parties hereunder shall be deemed to have been made in a commercially reasonable manner. Section 9. Escrow Agent. The Company agrees to pay the Escrow Agent the compensation, pursuant to separate letter agreement between them, promptly upon request therefor, and to reimburse the Escrow Agent for all reasonable expenses or disbursements incurred by the Escrow Agent in the performance of its duties hereunder, including reasonable fees, expenses and disbursements of counsel to the Escrow Agent. The Escrow Agent shall have a lien upon the Escrow Account for its costs, expenses and fees which may arise hereunder and may retain that portion of the Escrow Account equal to such unpaid amounts, until all such costs, expenses and fees have been paid. Ssection 10. Rights, Duties and Immunities of Escrow Agent. Acceptance by the Escrow Agent of its duties under this Escrow Agreement is subject to the following terms and conditions, which all parties hereto hereby agree shall govern and control the rights, duties and immunities of the Escrow Agent. (a) The duties and obligations of the Escrow Agent shall be determined solely by the express provisions hereof and the Escrow Agent shall not be liable except for the performance of such duties and obligations as are specifically set out herein. This Escrow Agreement shall not be deemed to create a fiduciary relationship between the parties hereto under state or federal law. (b) The Escrow Agent shall not be responsible in any manner for the validity or sufficiency of any property delivered hereunder, or for the value or collectability of any note, check or other instrument so delivered, or for any representations made or obligations assumed by any party other than the Escrow Agent. Nothing herein contained shall be deemed to obligate the Escrow Agent to deliver any cash, instruments, documents or any other property referred to herein, unless the same shall have first been received by the Escrow Agent pursuant to this Escrow Agreement. (c) The Company shall reimburse and indemnify the Escrow Agent for, and hold it harmless against, any loss, liability or expense, including but not limited to counsel fees, incurred without bad faith or willful misconduct on the part of the Escrow Agent arising out of or in conjunction with its acceptance, or the performance, of its duties and obligations hereunder as well as the costs and expenses of defending against any claim or liability arising out of or relating to this Escrow Agreement. (d) The Escrow Agent shall be fully protected in acting on and relying upon any written notice, direction, request, waiver, consent, receipt or other paper or document which the Escrow Agent in good faith believes to have been signed and presented by the proper party or parties. ESCROW AGREEMENT 5 (e) The Escrow Agent shall not be liable for any (i) error of judgment, (ii) act done or step taken or omitted by it in good faith, (iii) mistake in act or law, or (iv) action taken or refrained from in connection herewith, except its own willful misconduct. (f) The Escrow Agent may seek the advice of legal counsel in the event of any dispute or question as to the construction of any provision hereof or its duties hereunder, and it shall incur no liability and shall be fully protected in respect of any action taken, omitted or suffered by it in good faith in accordance with the opinion of such counsel. (g) The agreements set forth in this Section 10 shall survive the termination hereof and the payment of all amounts hereunder. Section 11. Resignation of Escrow Agent. The Escrow Agent shall have the right to resign upon thirty (30) days written notice to the Company and the Bank. In the event of such resignation, the Bank shall appoint a successor escrow agent hereunder by delivering to the Escrow Agent a written notice of such appointment. Upon receipt of such notice, the Escrow Agent shall deliver to the designated successor escrow agent all money and other property held hereunder and shall thereupon be released and discharged from any and all further responsibilities whatsoever hereunder; provided, however, that the Escrow Agent shall not be deprived of its compensation earned prior to such time. If no successor Escrow Agent shall have been designated by the date specified in the notice of the Escrow Agent, all obligations of the Escrow Agent hereunder shall nevertheless cease and terminate. Its sole responsibility thereafter shall be to keep safely all property then held by it and to deliver the same to the Bank. Section 12. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing and telecopied, telegraphed, cabled, mailed or delivered, addressed to the parties at the addresses set forth herein or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, 5 Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. Section 13. Successors and Assigns; Assignment. This Escrow Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 14. Amendments, Etc. Any provision hereof may be amended or modified only by an instrument in writing signed by each of the parties hereto. Section 15. Governing Law; Submission to Jurisdiction. This Escrow Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts to be performed entirely within the State of New York, without reference to or application of rules or principles of conflicts of law. Each of the parties hereto ESCROW AGREEMENT 6 hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this agreement or the transactions contemplated hereby. Each of the parties hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 16. Captions. The captions and section headings contained in this Escrow Agreement are included solely for convenience or reference and shall not affect the meaning or interpretation of any provision hereof. Section 17. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Escrow Agreement. Section 18. Counterparts. This Escrow Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Escrow Agreement by signing any such counterpart. Section 19. Severability. If any provision hereof is invalid and unenforceable in any applicable jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. ------------------------------------- ESCROW AGREEMENT 7 IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to be duly executed as of the day and year first above written. CYGNE DESIGNS, INC. By /s/ ROY E. GREEN ------------------------------ Name: Roy E. Green Title: Vice President--Finance Address for Notices: 1372 Broadway - 2nd Floor New York, NY 10018 CYGNE GROUP (F.E.) LIMITED By /s/ ROY E. GREEN ------------------------------ Name: Roy E. Green Title: Director Address for Notices: 1372 Broadway - 2nd Floor New York, NY 10018 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH By /s/ IAN WRIGHT ------------------------------ Name: Ian Wright Title: Vice President Address for Notices: 140 Broadway New York, NY 10005 Attention: NYK CBU TRS MARINE MIDLAND BANK, as Escrow Agent By /s/ PETER WALPERT ------------------------------ Name: Peter Walpert Title: Vice President Address for Notices: Corporate Trust Services 140 Broadway - 12th Floor New York, NY 10005-1180 ESCROW AGREEMENT EX-4 4 AMENDED AND RESTATED SECURITY AGREEMENT AMENDED AND RESTATED SECURITY AGREEMENT AMENDED AND RESTATED SECURITY AGREEMENT dated as of September 20, 1996 between CYGNE DESIGNS, INC., a Delaware corporation having an office at 1372 Broadway, New York, NY 10018 (the "Company"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"). W I T N E S S E T H : WHEREAS, the Company has provided a security interest to the Bank under a Security Agreement dated as of September 28, 1995 (as modified and supplemented and in effect from time to time, the "Existing Agreement"); WHEREAS, the Company has requested that the Existing Agreement, as amended prior to the date hereof and as amended and modified hereby, be restated in its entirety to reflect the amendment of certain provisions thereof; and WHEREAS, the Company and the Bank are parties to an Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by issuing letters of credit and making loans) to be made by the Bank to the Company in an aggregate face or principal amount not exceeding $17,500,000; NOW, THEREFORE, to induce the Bank to enter into the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to continue to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree that the Original Agreement is hereby amended and restated in its entirety as follows: Section 1. Definitions. Terms defined in the Credit Agreement are used herein as defined therein. In addition, as used herein: "Accounts" shall have the meaning ascribed thereto in Section 3(e) hereof. "CAT Shares" shall mean the 6,000 validly issued, fully paid and nonassessable shares of common stock, par value $0.01 per share, of CAT US, Inc., a Delaware corporation, as set forth on Annex I hereto. "Collateral" shall have the meaning ascribed thereto in Section 3 hereof. "Documents" shall have the meaning ascribed thereto in Section 3(j) hereof. -2- "Equipment" shall have the meaning ascribed thereto in Section 3(h) hereof. "Instruments" shall have the meaning ascribed thereto in Section 3(f) hereof. "Inventory" shall have the meaning ascribed thereto in Section 3(g) hereof. "Issuers" shall mean, collectively, the respective corporations identified in Annex 1 hereto under the caption "Issuers". "Lockbox Account" shall have the meaning ascribed thereto in Section 4(a) hereof. "Pledged Stock" shall have the meaning ascribed thereto in Section 3(b) hereof. "Secured Obligations" shall mean, collectively, (a) the principal of and interest on the Loans made by the Bank to, and the Notes held by the Bank of, the Company, and all other amounts from time to time owing to the Bank by the Company under the Credit Agreement or the Notes, (b) all obligations of the Company to the Bank hereunder, and (c) all obligations of the Company under any other Credit Document to which it is party. "Stock Collateral" shall mean, collectively, the Collateral described in clauses (a) through (d) of Section 3 hereof and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers. "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in the State of New York from time to time. Section 2. Representations and Warranties. The Company represents and warrants to the Bank that: (a) the Company is the sole beneficial owner of the Collateral and no Lien exists or will exist upon any Collateral at any time (and, with respect to the Stock Collateral, no right or option to acquire the same exists in favor of any other Person), except for (i) Liens permitted under Section 8.06 of the Credit Agreement and (ii) the pledge and security interest in favor of the Bank created or provided for herein which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral; (b) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto and the ATSC Shares are, and all other Pledged Stock will be, duly authorized, validly issued, fully paid and nonassessable and none of such Pledged Stock is or will be subject to SECURITY AGREEMENT -3- any contractual restriction, or any restriction under the charter or by-laws of the respective Issuers of such Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein or in the Credit Agreement or, with respect to the ATSC Shares, in the Stockholders Agreement or under Federal and state securities law); (c) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto constitutes the indicated percentage of the total issued and outstanding shares of capital stock of any class of the Issuers beneficially owned by the Company on the date hereof (whether or not registered in the name of the Company) and said Annex 1 correctly identifies, as at the date hereof; the respective Issuers of such Pledged Stock, the respective class and par value of the shares comprising such Pledged Stock and the respective number of shares (and registered owner thereof) evidenced by each such certificate; and (d) any goods now or hereafter produced by the Company or any of its Subsidiaries included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended. Section 3. Collateral. As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby continues to pledge and grant to the Bank a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located (all being collectively referred to herein as "Collateral"): (a) all of the ATSC Shares received by the Company in exchange for the sale of the CAT Shares in connection with the CAT Transaction, which shares of common stock, and certain other assets of the Company, the Company has previously pledged to the Bank pursuant to the Existing Agreement; (b) the respective shares of common/preferred stock of the Issuers evidenced by the certificates identified in Annex 1 hereto and all other shares of capital stock of whatever class of the Issuers, now or hereafter owned by the Company, together with in each case the certificates evidencing the same (collectively, together with the ATSC Shares, the "Pledged Stock"); (c) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; SECURTTY AGREEMENT -4- (d) without affecting the obligations of the Company under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger in which any Issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation (unless such successor corporation is the Company itself) formed by or resulting from such consolidation or merger; (e) all accounts and general intangibles (each as defined in the Uniform Commercial Code) of the Company constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively "Accounts"); (f) all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of the Company evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called "Instruments"); (g) all inventory (as defined in the Uniform Commercial Code) of the Company, all goods obtained by the Company in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled therewith or added thereto (herein collectively called "Inventory"); (h) all equipment (as defined in the Uniform Commercial Code) of the Company (herein collectively called "Equipment"); (i) each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment; (j) all documents of title (as defined in the Uniform Commercial Code) or other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called "Documents"); (k) all rights, claims and benefits of the Company against any Person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; SECURITY AGREEMENT -5- (1) the balance from time to time in the Lockbox Account; (m) the balance from time to time in the Collateral Account; (n) the balance from time to time in the Escrow Account; and (o) all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in clauses (a) through (n) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company. Section 4. Lockbox Account. (a) The Company shall maintain a lockbox account (the "Lockbox Account") with Marine Midland Bank (the "Lockbox Bank") in New York City, and shall instruct debtors relating to the Accounts to make all remittances directly to the Lockbox Account, which account (together with any related disbursement account) shall be subject to the exclusive control of the Bank; provided, however, unless and until an Event of Default shall have occurred and be continuing, the Company shall have access to the proceeds of such bank accounts. Upon the occurrence of an Event of Default, the Company shall cease to have access to such bank accounts and the Bank shall have sole access. The Company shall promptly deposit in the Lockbox Account all payments relating to the Accounts received directly by the Company. Without the prior written consent of the Bank, the Company shall not provide debtors relating to the Accounts with payment instructions other than as set forth above. (b) The Lockbox Bank shall serve as the agent of the Bank with respect to (i) the depositing of items comprising collections on Accounts and (ii) the disbursements to be paid from any disbursement account relating to the Lockbox Account. The rights, duties and obligations of the Lockbox Bank, including, without limitation, its fees, shall be as such are set forth in the related agreement between the Bank and the Lockbox Bank. The Company shall pay all fees in connection with the Lockbox Account. SECURITY AGREEMENT -6- Section 5. Further Assurances; Remedies. In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Bank as follows: 5.01 Delivery and Other Perfection. The Company shall: (a) if any of the above-described shares, securities, monies or property required to be pledged by the Company under clauses (a), (b), (c) and (d) of Section 3 hereof are received by the Company, forthwith either (x) transfer and deliver to the Bank such shares or securities so received by the Company (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank) all of which thereafter shall be held by the Bank, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as the Bank shall deem necessary or appropriate to duly record the Lien created hereunder in such shares, securities, monies or property referred to in said clauses (a), (b), (c) and (d); (b) deliver and pledge to the Bank any and all Instruments, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request; provided, that so long as no Default shall have occurred and be continuing, the Company may retain for collection in the ordinary course any Instruments received by it in the ordinary course of business and the Bank shall, promptly upon request of the Company, make appropriate arrangements for making any other Instrument pledged by the Company available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate by the Bank, against trust receipt or like document); (c) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Bank) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Bank to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the Stock Collateral to be transferred of record into the name of the Bank or its nominee (and the Bank agrees that if any Stock Collateral is transferred into its name or the name of its nominee, the Bank will thereafter promptly give to the Company copies of any notices and communications received by it with respect to the Stock Collateral), provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of clause (g) below; (d) upon the acquisition after the date hereof by the Company of any Equipment covered by a certificate of title or ownership, cause the Bank to be listed as the lienholder SECURITY AGREEMENT -7- on such certificate of title and within 120 days of the acquisition thereof deliver evidence of the same to the Bank; (e) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Bank may reasonably require in order to reflect the security interests granted by this Agreement; (f) permit representatives of the Bank, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Bank to be present at the Company's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Bank may require; and (g) upon the occurrence and during the continuance of any Default, upon request of the Bank, promptly notify (and the Company hereby authorizes the Bank so to notify) each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Bank hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Bank. 5.02 Other Financing Statements and Liens. Without the prior written consent of the Bank, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Bank is not named as the sole secured party. 5.03 Preservation of Rights. The Bank shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 5.04 Special Provisions Relating to Stock Collateral. (a) The Company will cause the Stock Collateral to constitute at all times the percentage indicated on Annex 1 hereto of the total number of shares of each class of capital stock of each Issuer then outstanding, but in no event shall such percentage exceed 65% with respect to any class of capital stock of a Foreign Subsidiary; provided, however, the ATSC Shares may constitute a decreasing percentage of the capital stock of the related Issuer in accordance with the terms and conditions of the Credit Agreement. (b) So long as no Event of Default shall have occurred and be continuing, the Company shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Stock Collateral for all purposes not inconsistent with the terms SECURITY AGREEMENT -8- of this Agreement, the Credit Agreement, the Notes or any other instrument or agreement referred to herein or therein, provided that the Company agrees that it will not vote the Stock Collateral in any manner that is inconsistent with the terms of this Agreement, the Credit Agreement, the Notes or any such other instrument or agreement (as determined by the Bank in its reasonable judgment); and the Bank shall execute and deliver to the Company or cause to be executed and delivered to the Company all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Company may reasonably request for the purpose of enabling the Company to exercise the rights and powers which it is entitled to exercise pursuant to this Section 5.04(b). (c) All shares, securities, moneys or other property representing stock which are payable in connection with dividends or liquidating dividends (including without limitation in connection with the liquidation of any Issuer on or after such liquidation) and (ii) all additional Collateral described in clauses (a), (b), (c) and (d) of Section 3 hereof constituting a distribution or return of capital upon or in respect of any Pledged Stock, or resulting from a conversion, split-up, revision, reclassification or other like change of any Pledged Stock or received in exchange therefor as a result of a merger, consolidation or otherwise, shall be paid or transferred directly to the Bank (or its agent or nominee, as the case may be), as part of the Collateral subject to this Agreement. (d) If any Event of Default shall have occurred, then so long as such Event of Default shall continue, and whether or not the Bank exercises any available right to declare any Secured Obligation due and payable or seeks or pursues any other relief or remedy available to it under applicable law or under this Agreement, the Credit Agreement, the Notes or any other agreement relating to such Secured Obligation, all dividends and other distributions on the Stock Collateral shall be paid directly to the Bank and retained by it in the Custodial Trust Account as part of the Stock Collateral, subject to the terms of this Agreement, and, if the Bank shall so request in writing, the Company agrees to execute and deliver to the Bank appropriate additional dividend, distribution and other orders and documents to that end, provided that if such Event of Default is cured, any such dividend or distribution theretofore paid to the Bank shall, upon request of the Company (except to the extent theretofore applied to the Secured Obligations) be returned by the Bank to the Company. 5.05 Events of Default etc. During the period during which an Event of Default shall have occurred and be continuing: (i) the Company shall, at the request of the Bank, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Bank and the Company, designated in its request; SECURITY AGREEMENT -9- (ii) the Bank may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (iii) the Bank shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral (in the case of the ATSC Shares, subject to the Stockholders Agreement) as if the Bank were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right); (iv) the Bank in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (v) the Bank may (in the case of the ATSC Shares, subject to the Stockholders Agreement), upon 10 Business Days' prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Bank, or any of its agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Bank deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Bank or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. The Bank may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time SECURITY AGREEMENT -10- and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 5.05 shall be applied in accordance with Section 5.09 hereof. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Bank may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Company acknowledges that any such private sales may be at prices and on terms less favorable to the Bank than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Bank shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale. 5.06 Deficiency. If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 5.05 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 5.07 Removals, etc. Without at least 30 days prior written notice to the Bank, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at the address indicated beneath the signature of the Company to the Credit Agreement or at one of the locations identified in Annex 2 hereto or in transit from one of such locations to another (or, with respect to Inventory, in transit from one of such locations to a customer of the Company) or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto. 5.08 Private Sale. The Bank shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 5.05 hereof conducted in a commercially reasonable manner. The Company hereby waives any claims against the Bank arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Bank accepts the first offer received and does not offer the Collateral to more than one offeree. SECURITY AGREEMENT -11- 5.09 Application of Proceeds. Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Bank under Section 4 hereof or this Section 5, shall be applied by the Bank: First, to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Bank and the fees and expenses of its agents and counsel, and all expenses and advances made or incurred by the Bank in connection therewith; Next, to the payment in full of the Secured Obligations then due and payable, ratably in accordance with the respective outstanding amounts thereof then due and payable; and Finally, to the payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Section 5, "proceeds" of Collateral shall mean cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 5.10 Attorney-in-Fact. Without limiting any rights or powers granted by this Agreement to the Bank while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Bank is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 5 and taking any action and executing any instruments which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Bank shall be entitled under this Section 5 to make collections in respect of the Collateral, the Bank shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 5.11 Perfection. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall (i) file such financing statements and other documents in such offices as the Bank may request to perfect the security interests granted by Section 3 of this Agreement, and (ii) deliver to the Bank all certificates identified in Annex 1 hereto, accompanied by undated stock powers duly executed in blank. SECURITY AGREEMENT -12- 5.12 Termination. When all Secured Obligations shall have been paid in full and the Facilities of the Bank under the Credit Agreement and all liabilities of the Bank relating to issued Letters of Credit shall have expired or been terminated, this Agreement shall terminate, and the Bank shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company. The Bank shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens on the Collateral. 5.13 Expenses. The Company agrees to pay to the Bank all out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 5, or performance by the Bank of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Bank in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Bank secured under Section 3 hereof. 5.14 Further Assurances. The Company agrees that, from time to time upon the written request of the Bank, the Company will execute and deliver such further documents and do such other acts and things as the Bank may reasonably request in order fully to effect the purposes of this Agreement. 5.15 Collateral Audit. The Company shall permit representatives of the Bank to undertake an annual audit of the Collateral, and the Company agrees to pay all reasonable expenses of the Bank incurred in connection therewith. Section 6. Miscellaneous. 6.01 No Waiver. No failure on the part of the Bank or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Bank or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 6.02 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. SECURITY AGREEMENT -13- 6.03 Notices. All notices, requests, consents and demands hereunder shall be in writing and telexed, telecopied, telegraphed, cabled or delivered to the intended recipient at its address or telex number specified pursuant to Section 10.02 of the Credit Agreement and shall be deemed to have been given at the times specified in said Section 10.02. 6.04 Waivers, etc. The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Company and the Bank. Any such amendment or waiver shall be binding upon the Bank, each holder of any Secured Obligation and the Company. 6.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the respective successors and assigns of the Company, the Bank, and each holder of the Secured Obligations (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Bank). 6.06 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 6.07 Banks. The Bank may employ agents and attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 6.08 Severability. If any provision hereof is invalid and unenforceable in any applicable jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. SECURITY AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed as of the day and year first above written. CYGNE DESIGNS, INC. By /s/ ROY E. GREEN ------------------------- Name: Roy E. Green Title: Vice President--Finance Address for Notices: 1372 Broadway - 2nd Floor New York, NY 10018 Telecopy: (212) 245-7724 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH By /s/ IAN WRIGHT ------------------------- Name: Ian Wright Title: Vice President Address for Notices: 140 Broadway New York, NY 10005 Attention: NYK CBU TRS Telecopy: (212) 658-2813 ANNEX 1 LIST OF PLEDGED STOCK Certificate Registered Issuer Nos. Owner Number of Shares ------ ----------- ---------- ---------------- 1. CAT US, Inc. #9 Cygne Designs, Inc. 6,000 shares of common stock having a par value of $0.01 per share (60% of outstanding capital stock) 2. Cygne Group (F.E.) #7 Cygne Designs, Inc. 65 shares of 99 Limited (formerly shares of common known as Cygne Design stock having a par F.E. Limited) value of HK$1,000 per share (65% of outstanding capital stock) 3. M.T.G.I. Textile N/A Cygne Designs, Inc. 109,050 ordinary Manufacturers shares having a Group (Israel) Ltd. nominal value of NIS 1.00 each (50% of outstanding capital stock) 4. T. Wear Company S.r.l. N/A Cygne Designs, Inc. Shares for lire 150,000,000 (50% of share capital) 5. JMB International, S.A. #18-49 Cygne Designs, Inc. 32 shares of stock having a par value of Ql00.00 each (64% of outstanding capital stock) ANNEX 2 Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS DOMESTIC LOCATIONS - ------------------ FACTORIES --------- AC Services 4915 NW 159 Avenue Miami, FL 33014 AMP/Andy & Cindy 257 W. 39th Street - 6th Floor New York, NY 10018 Artland 25-33 Hall Street - 2nd Floor Brooklyn, NY 11205 Bethel Industries 600 Palisades Avenue Union City, NJ 07087 Dochine Inc. 25-33 Hall Street - 2nd Floor Brooklyn, NY 11205 Double Luck Fashion 655 8th Avenue - 7th Floor New York, NY 10018 Golden Craft 128 Mott Street New York, NY 10013 Gregarious Fashions 46-48 Lispenard Street New York, NY 10013 H. Production/HH 252 West 37th Street - 6th Floor New York, NY 10018 JC Fashiona 54 Canal Street - 8th Floor New York, NY 10002 Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS JDS Cutting 147 West 35th Street - 5th Floor New York, NY 10001 JDLS 34-01 38th Avenue Long Island City, NY 11101 Karene Fashions/Sky Blue 41 Elizabeth Street - 4th Floor New York, NY 10013 Key Trading 54 Canal Street - 9th Floor New York, NY 10002 KTJ 442 Broadway - 3rd Floor New York, NY 10013 L'assassino 226 West 37th Street New York, NY 10018 Lilan Fashion 530A 63rd Street Brooklyn, NY 11220 LTW 252 West 37th Street New York, NY 10018 Luster Star 150 Lafayette Street - 12th Floor New York, NY 10013 M. Mitchell 1607 Manhattan Avenue Union City, NJ 07057 May Fashion 589 8th Avenue - 10th Floor New York, NY 10018 Metro Fusing 315 West 36th Street New York, NY 10018 Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS Mikado Fashions Inc. 46-48 Lispenard Street - 5th Floor New York, NY 10013 MRC 13 V2 Van Houten Street Peterson, NJ 07605 New JKT 53 West 36th Street - 9th Floor New York, NY 10018 One Notch-Up 240 West 35th Street - 11th Floor New York, NY 10001 Our Fashion 589 8th Avenue - 4th Floor New York, NY 10018 Refine Fashion 54 Canal Street - 6th Floor New York, NY 10002 Reliable Cutting Inc. 509 West 34th Street - 4th Floor New York, NY 10018 Sky Blue 129 Lafayette Street - 7th Floor New York, NY 10013 SSCI 1072 West Side Avenue Jersey City, NJ 07306 Sun East 147 West 35th Street - 15th Floor New York, NY 10018 Triple 8 138 33rd Street Brooklyn, NY 11232 Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS WAREHOUSES ---------- Flag Trucking Service Co. Inc. 5 Dwight Place Fairfield, NJ 07005 Freight-A-Rangers 3275 Alum Creek Drive Columbus, OH Pronto Cargo Brokers Inc. 7330 N.W. 66th Street Miami, FL 33166 Summit Building 40 Hackensack Avenue Kearny, NJ DOMINICAN REPUBLIC ------------------ Cibao Manufacturing Co. Zona France Industrial Aptdo. Postal 2A La Vega, D.R. Dominican Republic Modas New York Industrial Free Zone Santiago Dominican Republic Young's NY S.A. Zona France Industrial Moca Dominican Republic GUATEMALA --------- Dong Bang KM 495 Carretaera Panamericana El Tejer. Chimaltenango. Guatemala Dong Kyoung, S.A. KM 17.5 Carr San Juan, Sacatepequez, Guatelama Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS JMB Mfg. S.A. 3a Calle 52-15 Zone 2. Mixco Col. Molino De Las Flores Guatemala City, Guatemala Sam Lucas S.A. KM 37.5 Lote II Granjas Manzanales Santiago, Sacatepequez, Guatemala EL SALVADOR ----------- Do-All Industries S.A. De C.V. Zona Franca El Progreso KM 11 1/2 Carretera Al Puerto De La Libertad Nueva An Salvador El Salvador LIDO Zona Franca El Progreso KM 11 1/2 Carretera al Puerto De La Libertad Nueva San Salvador El Salvador HONG KONG --------- Cygne Far East Ltd. Room 715-718 20 Salisbury Road, TST New World Office Building, West Wing Kowloon, Hong Kong Romax Investment Ltd Flat E & F, 2nd Floor Wong King Industrial Building 2 Tai Yau Street San Po Kong Kowloon, Hong Kong Future Fashion 7 Shing Yip Street Kwun Tong Hong Kong Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS Golden True International Ltd 8 Ng Fong Street San Po Kong Kowloon Hong Kong Merrison Garment Co. Merrison Center 107-109 Wai Yip Street Kwun Tong Kowloon, Hong Kong Pologain Garment Factory Room 4-B, 8th Floor Vanla Industrial Center Tai Lin Pai Road Kwai Chung, N.T. Hong Kong THAILAND -------- Biotex Address to follow HUNGARY ------- Lantos 3963 Karcsa Tarcsics U-1 Hungary Sal-Kon Clothing Factory H-3100 Salgotarjan Ruhagyari, U-32, PF: 29 Hungary Soproni Ruhagyar 9400 Sopron Rakozzi U-8 Hungary ROMANIA ------- Incom Vranco 51 Coda Voda Street Foscani Romania Cygne Designs, Inc. ACTIVE 9/27/95 INVENTORY LOCATIONS ITALY ----- T-Wear Co Via San Paolo. 1 Case lo Autosole Firenze Signa 50018 Scandicci Firenze Italy ISRAEL ------ MTGI Ltd New Industrial Zone Hadera. 28103 Israel EX-5 5 OPTION AGREEMENT OPTION AGREEMENT OPTION AGREEMENT dated as of September 20, 1996 between CYGNE DESIGNS, INC., a Delaware corporation having an office at 1372 Broadway, New York, NY 10018 ("CDI"), and CYGNE GROUP (F.E.) LIMITED, a Hong Kong corporation ("CGFE" and, together with CDI, hereinafter referred to as the "Company"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"). W I T N E S S E T H: WHEREAS, CDI and the Bank are parties to an Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the terms and conditions thereof, for extensions of credit (by issuing letters of credit and making loans) to be made by the Bank to CDI in an aggregate face or principal amount not exceeding $17,500,000; WHEREAS, the Credit Agreement provides for CDI (i) to grant a first priority perfected pledge and security interest under the Security Agreement (as defined in the Credit Agreement) with respect to all of the validly issued, fully paid and nonassessable shares of common stock of AnnTaylor Stores Corporation ("ATSC"), par value $0.0068 per share (the "ATSC Shares"), received by CDI in connection with the Stock and Asset Purchase Agreement (as defmed in the Credit Agreement), and (ii) to assign to the Bank all rights relating to the registration by ATSC of the ATSC Shares with the Securities and Exchange Commission as provided in the Stockholders Agreement dated as of September 20, 1996 between ATSC, CDI and CGFE, as amended from time to time; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as defined therein. Section 2. Option. The Company does hereby grant to the Bank an option (the "Option") to exercise all the Company's rights and interests under the Stockholders Agreement, including with respect to the registration by ATSC of the ATSC Shares with the Securities and Exchange Commission under the Stockholders Agreement, including without limitation, the rights of the Company to cause ATSC to file a registration statement under the Securities Act of 1933, as amended, in accordance with the Stockholders Agreement (collectively, the "Registration Rights"), which Option shall be exercisable in the event the Company fails to take action to cause ATSC to comply with Article II of the Stockholders Agreement. Section 3. (a) Liabilities of the Company. It is expressly agreed that, anything herein contained to the contrary notwithstanding: (i) The Company shall at all times remain liable to ATSC under the Stockholders Agreement to perform all duties and obligations of the Holder (as defined in the Stockholders Agreement) thereunder to the same extent as if this Option Agreement had not been executed, including, without limitation, the Company's obligations with respect to compliance with applicable Federal and state securities law and the indemnification provisions set forth in Section 2.06(b) of the Stockholders Agreement, arising out of or related to the sale of ATSC Shares by the Company (and not by the Bank as a secured creditor) pursuant to the Registration Statement or any other action by the Company under Article II of the Stockholders Agreement. (ii) The exercise by the Bank of any right assigned hereunder shall not release the Company from any of its duties or obligations to ATSC under the Stockholders Agreement. (iii) From and after the date hereof, the Bank shall be subject to all the terms and conditions of Articles I, III and IV of the Stockholders Agreement. (iv) Upon and after the exercise by the Bank of its rights under this Option Agreement with respect to Article II of the Stockholders Agreement (including exercising its rights pursuant to Section 6 hereof) to sell the ATSC Shares pursuant to the Registration Statement, the Bank shall be subject to all the terms and conditions of such Article II. (v) The Bank shall have no liability under the Stockholders Agreement arising out of or related to the sale of ATSC Shares by the Company (and not by the Bank as a secured creditor) pursuant to the Registration Statement or any other action by the Company under Article II of the Stockholders Agreement. 2 (b) Indemnification Limitation. It is expressly agreed that, anything herein contained to the contrary notwithstanding, the Bank shall have no right to indemnification from the Company in respect of the failure of the Bank to meet its obligations under applicable Federal and state securities law. Section 4. ATSC Consent. ATSC hereby consents to the terms of Section 3(a) hereof and, to the extent that Section 3(a) remains in effect, to the granting of the Option under Section 2. ATSC has not reviewed the Credit Agreement or any other agreements between CDI and the Bank (other than this Agreement) and nothing in Sections 1, 2 and 3(a) hereof shall be modified in any manner by the terms or provisions of any such agreement. Section 5. Further Assurances. The Company agrees that at any time and from time to time upon the written request of the Bank, the Company will promptly and duly execute and deliver such further documents and take such further actions as the Bank may reasonably request in order to obtain the full benefits of this Option Agreement and of the rights and powers granted herein. Section 6. Events of Default. Effective from and after the time, if any, that an Event of Default shall occur or be continuing, and until such time as such Event of Default shall no longer be continuing, the Company does hereby constitute the Bank, its successors and assigns, the Company's true and lawful attorney-in-fact irrevocably, with full power (in the name of the Company or otherwise), at the sole cost and expense of the Company, to assert and enforce whatever claims and rights the Bank may have under or arising out of the Stockholders Agreement with respect to the Registration Rights and, for such period as the Bank may exercise rights with respect thereto under this Option Agreement, to file any claims or take any actions or institute (or, if previously commenced, assume control of) any proceedings and to obtain any recovery in connection therewith which the Bank may deem to be necessary or advisable with respect to such claims and rights. Section 7. Representations and Warranties. The Company hereby represents and warrants to the Bank that: (a) The Stockholders Agreement is in full force and effect and is enforceable in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (ii) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3 (b) The Company is not in default under the Stockholders Agreement. (c) The Company has not assigned or pledged, and hereby covenants that, so long as this Option Agreement shall remain in effect, it will not assign or pledge the whole or any part of the rights assigned hereby to anyone other than the Bank. Section 8. Notices. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Option Agreement) shall be given or made in writing and telecopied, telegraphed, cabled, mailed or delivered, addressed to the parties at the addresses set forth herein or, as to either party, at such other address as shall be designated by such party in a notice to the other party. Except as otherwise provided in this Option Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, five (5) Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. Section 9. Successors; Permitted Assigns. This Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. The Bank may assign its rights hereunder to an Affiliate of the Bank that is a member of the HSBC Group, provided such Affiliate assumes the Bank's obligations hereunder. "Affiliate" has the meaning ascribed to it under the United States Federal securities laws. Section 10. Amendments, Etc. Any provision hereof may be amended or modified only by an instrument in writing signed by each of the parties hereto. Section 11. Governing Law, Submission to Jurisdiction. This Option Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York applicable to contracts to be performed entirely within the State of New York, without reference to or application of rules or principles of conflicts of law. Each of the parties hereto hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Option Agreement or the transactions contemplated hereby. Each of the parties hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or 4 hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Section 12. Captions. The captions and section headings contained in this Option Agreement are included solely for convenience or reference and shall not affect the meaning or interpretation of any provision hereof. Section 13. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Option Agreement. Section 14. Counterparts. This Option Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Option Agreement by signing any such counterpart. Section 15. Severability. If any provision hereof is invalid and unenforceable in any applicable jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. 5 IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement to be duly executed as of the day and year first above written. Address for Notices: CYGNE DESIGNS, INC. 1372 Broadway - 2nd Floor New York, NY 10018 By /s/ PAUL BAIOCCHI ------------------------------ Paul Baiocchi Vice President CYGNE GROUP (F.E.) LIMITED By Cygne Designs, Inc. Director Address for Notices: By /s/ PAUL BAIOCCHI c/o Cygne Designs, Inc. ------------------------------ 1372 Broadway - 2nd Floor Paul Baiocchi New York, NY 10018 Vice President Address for Notices: THE HONGKONG AND SHANGHAI BANKING 140 Broadway CORPORATION LIMITED, NEW YORK BRANCH New York, NY 10005 Attention: NYK CBU TRS By /s/ IAN WRIGHT ------------------------------ Ian Wright Vice President Consented and agreed to as to Section 4 only: By /s/ JOCELYN BARANDIARAN - ---------------------------------------------- Name: Jocelyn Barandiaran Title: Senior Vice President 6 -----END PRIVACY-ENHANCED MESSAGE-----