**Exhibit 10.12**

 

**SEVERANCEAGREEMENT**

 

This SEVERANCEAGREEMENT (this “Agreement”) made this 25th day of March 2009, isby and between Citi Trends, Inc., a Delaware corporation (the “Company”),James A. Dunn, an individual (the “Executive”).

 

WHEREAS, theCompany and the Executive are also parties to an Employment Non-Compete,Non-Solicit and Confidentiality Agreement (the “Confidentiality Agreement”)and certain restricted stock award and stock option agreements (collectively,the “Equity Agreements”) which are to remain in full force and effect;

 

NOW,THEREFORE, in consideration of the mutual agreements set forth herein, theparties agree as follows:

 

1.                                     **Termination Payments and Benefits.**  Regardless of the circumstances of theExecutive’s termination, Executive shall be entitled to payment when due of anyearned and unpaid base salary, expense reimbursements and vacation days accruedprior to the termination of Executive’s employment, and other unpaid vestedamounts or benefits under Company retirement and health benefit plans, and, asapplicable, under Equity Agreements in accordance with their terms, and to noother compensation or benefits.  If (i) theCompany terminates the Executive’s employment without Cause, or (ii) theExecutive terminates employment with the Company within twelve (12) monthsfollowing the occurrence of a Change in Control, provided that within suchperiod, either Executive’s job duties have been materially and permanentlydiminished or the Executive’s compensation has been materially decreased, then,in the case of either (i) or (ii) above, the Company will provide theExecutive with separation payments of twelve (12) months base salary atExecutive’s base salary rate at the time of Executive’s termination or ifgreater, the Executive’s base rate in effect on the Change of Control Date; tobe paid in twenty-six (26) regular bi-weekly pay periods beginning on the firstpay period following the termination of the Executive and Executive’s executionof the Separation and General Release Agreement referenced below.

 

For purposes of this Agreement, “Change in Control”shall mean the occurrence of any one of the following events:

 

(1)           the acquisition byany individual, entity or group (within the meaning of Section 13(d)(3) or14(d)(2) of the Securities Exchange Act of 1934, as amended (the “1934Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3promulgated under the 1934 Act) of 50% or more of the combined voting power ofthe then outstanding voting securities of the Company entitled to votegenerally in the election of directors (the “Outstanding Company VotingSecurities”); provided, however, that for purposes of this subsection (1),the following acquisitions shall not constitute a Change of Control: (i) anyacquisition by a Person who is on the date of this Agreement the beneficialowner of 50% or more of the Outstanding Company Voting Securities, (ii) anyacquisition directly from the Company, (iii) any acquisition by theCompany, (iv) any acquisition by any employee benefit plan (or relatedtrust) sponsored or maintained by the Company or any corporation controlled bythe Company, or (v) any acquisition by any corporation pursuant to atransaction which complies with clauses (i), (ii) and (iii) ofsubsection (3) of this definition; or

 

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(2)           individuals who, asof the date of this Agreement, constitute the Board of Directors of the Company(the “Incumbent Board”) cease for any reason to constitute at least amajority of the Board of Directors of the Company; provided, however, that anyindividual becoming a director subsequent to the Effective Date whose election,or nomination for election by the Company’s shareholders, was approved by avote of at least a majority of the directors then comprising the Incumbent Boardshall be considered as though such individual were a member of the IncumbentBoard, but excluding, for this purpose, any such individual whose initialassumption of office occurs as a result of an actual or threatened electioncontest with respect to the election or removal of directors or other actual orthreatened solicitation of proxies or consents by or on behalf of a Personother than the Board of Directors of the Company; or

 

(3)           consummation of areorganization, merger, consolidation or share exchange or sale or otherdisposition of all or substantially all of the assets of the Company (a “BusinessCombination”), in each case, unless, following such Business Combination, (i) allor substantially all of the individuals and entities who were the beneficialowners of the Outstanding Company Voting Securities immediately prior to suchBusiness Combination beneficially own, directly or indirectly, more than 50% ofthe combined voting power of the then outstanding voting securities entitled tovote generally in the election of directors of the corporation resulting fromsuch Business Combination (including, without limitation, a corporation whichas a result of such transaction owns the Company or all or substantially all ofthe Company’s assets either directly or through one or more subsidiaries) insubstantially the same proportions as their ownership, immediately prior tosuch Business Combination of the Outstanding Company Voting Securities, and (ii) noPerson (excluding any corporation resulting from such Business Combination orany employee benefit plan (or related trust) of the Company or such corporationresulting from such Business Combination) beneficially owns, directly orindirectly, 20% or more of the combined voting power of the then outstandingvoting securities of such corporation except to the extent that such ownershipexisted prior to the Business Combination, and (iii) at least a majorityof the members of the board of directors of the corporation resulting from suchBusiness Combination were members of the Incumbent Board at the time of theexecution of the initial agreement, or of the action of the Board, providingfor such Business Combination; or

 

(4)           approval by theshareholders of the Company of a complete liquidation or dissolution of theCompany.

 

These separation payments are conditioned uponExecutive executing a Separation and General Release Agreement at the time oftermination which releases and waives any and all claims against the Companyand its affiliated persons and companies, and is acceptable to the Company.

 

In all other circumstances of separation, including ifthe Executive resigns, retires or is terminated for Cause, the Executive shallnot be entitled to receive any separation payments.  For purposes of this Agreement, “Cause”shall mean the Executive’s:

 

(1)           commission of an act of fraud ordishonesty, the purpose or effect of which, in the CEO and/or Board’s soledetermination, adversely affects the Company;

 

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(2)           conviction of a felony or a crimeinvolving embezzlement, conversion of property or moral turpitude (whether byplea of nolo contendere or otherwise);

 

(3)           engaging in willful or recklessmisconduct or gross negligence in connection with any property or activity ofthe Company, the purpose or effect of which, in the CEO and/or Board’s soledetermination, adversely affects the Company;

 

(4)           material breach of any of theExecutive’s obligations as an employee or stockholder as set forth in the Company’s Information Security Policiesand Code of Business Conduct, the Confidentiality Agreement or any otheragreement in effect between the Company and the Executive; provided that, inthe event such breach is susceptible to cure, the Executive has been given writtennotice by the CEO and/or Board of such breach and 30 days from such noticefails to cure the breach; or

 

(5)           failure or refusal to perform anymaterial duty or responsibility under this Agreement or a determination thatthe Executive has breached his fiduciary obligations to the Company; providedthat, in the event such failure, refusal or breach is susceptible to cure, theExecutive has been given written notice by the CEO and/or Board of suchfailure, refusal or breach and 30 days from such notice fails to cure suchfailure, refusal or breach.

 

2.             **Notice.**  The Executivewill send all communications to the Company in writing, to: Senior VicePresident of Human Resources, Citi Trends, Inc., 104 Coleman Blvd.,Savannah, Georgia 31408, Fax: (912) 443-3663. All communications from the Company to the Executive relating to thisAgreement shall be sent to the Executive in writing at his office and homeaddress as reflected in the Company’s records.

 

3.             **Amendment.**  Noprovisions of this Agreement may be modified, waived, or discharged except by awritten document signed by a duly authorized Company officer and theExecutive.  A waiver of any conditions orprovisions of this Agreement in a given instance shall not be deemed a waiverof such conditions or provisions at any other time in the future.

 

4.             **Choice of Law and Venue.** The validity, interpretation, construction, and performance of thisAgreement shall be governed by the laws of the State of Georgia (excluding anythat mandate the use of another jurisdiction’s laws).  Any action to enforce or for breach of thisAgreement shall be brought exclusively in the state or federal courts of theCounty of Chatman, City of Savannah.

 

5.             **Successors.**  ThisAgreement shall be binding upon, and shall inure to the benefit of, theExecutive and Executive’s estate, but the Executive may not assign or pledgethis Agreement or any rights arising under it, except to the extent permittedunder the terms of the benefit plans in which Executive participates.  Without the Executive’s consent, the Companymay assign this Agreement to any affiliate or to a successor to substantiallyall the business and assets of the Company.

 

6.             **Counterparts.**  ThisAgreement may be executed in one or more counterparts, each of which shall bedeemed to be an original but all of which together shall constitute the sameinstrument.

 

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7.             **Entire Agreement.** This Agreement and the Confidentiality Agreement between the partiesconstitute the entire agreement between the parties and supersede any and allprior contracts, agreements, or understandings between the parties which mayhave been entered into by Company and the Executive relating to the subjectmatter hereof.  This Agreement may not beamended or modified in any manner except by an instrument in writing signed byboth the Company and the Executive.  Thefailure of either party to enforce at any time any of the provisions of thisAgreement shall in no way be construed to be a waiver of any such provision orthe right of such party thereafter to enforce each and every suchprovision.  No waiver of any breach ofthis Agreement shall be held to be a waiver of any other or subsequent breach.  All remedies are cumulative, including theright of either party to seek equitable relief in addition to money damages.

 

8.             **Employment At-WillRelationship. **Executive andthe Company agree that nothing in this Agreement alters the at-will nature ofExecutive’s employment relationship with the Company.

 

IN WITNESS WHEREOF, the parties hereto have set theirhands as of the day and year first written above.

 
|   | CITI TRENDS, INC. |
|--------|-------------------|
|   |              |
|   |              |   |
|   | By:               | /s/ R. Edward Anderson |
|   | Name:             | R. Edward Anderson |
|   | Title:            | Chairman and Chief Executive Officer |
|   |              |   |
|   |              |   |
|   | /s/ James A. Dunn |
|   | James A. Dunn     |

 

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