**Exhibit 10.7**

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**SEVERANCEAGREEMENT**

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This SEVERANCE AGREEMENT(this “Agreement”) made this 25th day of March 2009, is by andbetween Citi Trends, Inc., a Delaware corporation (the “Company”),and R. Edward Anderson, an individual (the “Executive”).

 

WHEREAS, the Company and theExecutive are also parties to an Employment Non-Compete, Non-Solicit andConfidentiality Agreement (the “Confidentiality Agreement”) and certainrestricted stock award and stock option agreements (collectively, the “EquityAgreements”) which are to remain in full force and effect;

 

NOW, THEREFORE, inconsideration of the mutual agreements set forth herein, the parties agree asfollows:

 

1.             **Termination Payments andBenefits.**  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 ControlDate;  to be paid in twenty-six (26)regular bi-weekly pay periods beginning on the first pay period following thetermination of the Executive and Executive’s execution of the Separation andGeneral 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 by anyindividual, 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, as of thedate of this Agreement, constitute the Board of Directors of the Company (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Boardof Directors of the Company; provided, however, that any individual becoming adirector subsequent to the Effective Date whose election, or nomination forelection by the Company’s shareholders, was approved by a vote of at least amajority of the directors then comprising the Incumbent Board shall beconsidered as though such individual were a member of the Incumbent Board, butexcluding, for this purpose, any such individual whose initial assumption ofoffice occurs as a result of an actual or threatened election contest with respectto the election or removal of directors or other actual or threatenedsolicitation of proxies or consents by or on behalf of a Person other than theBoard 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 the shareholdersof the Company of a complete liquidation or dissolution of the Company.

 

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 or dishonesty, thepurpose or effect of which, in the CEO and/or Board’s sole determination,adversely affects the Company;

 

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(2)           conviction of a felony or a crime involvingembezzlement, conversion of property or moral turpitude (whether by plea ofnolo contendere or otherwise);

 

(3)           engaging in willful or reckless misconduct or grossnegligence in connection with any property or activity of the Company, thepurpose or effect of which, in the CEO and/or Board’s sole determination,adversely affects the Company;

 

(4)           material breach of any of the Executive’s obligationsas an employee or  stockholder as setforth in the Company’s Information Security Policies and Code of BusinessConduct, the Confidentiality Agreement or any other agreement in effect betweenthe Company and the Executive; provided that, in the event such breach issusceptible to cure, the Executive has been given written notice by the CEOand/or Board of such breach and 30 days from such notice fails to cure thebreach; or

 

(5)           failure or refusal to perform any material duty orresponsibility under this Agreement or a determination that the Executive hasbreached his fiduciary obligations to the Company; provided that, in the eventsuch failure, refusal or breach is susceptible to cure, the Executive has beengiven written notice by the CEO and/or Board of such failure, refusal or breachand 30 days from such notice fails to cure such failure, refusal or breach.

 

2.             **Notice.** The Executive will send all communications to the Company in writing,to: Senior Vice President of Human Resources, Citi Trends, Inc., 104Coleman Blvd., Savannah, Georgia 31408, Fax: (912) 443-3663.  All communications from the Company to theExecutive relating to this Agreement shall be sent to the Executive in writingat his office and home address as reflected in the Company’s records.

 

3.             **Amendment.** No provisions of this Agreement may be modified, waived, or dischargedexcept by a written document signed by a duly authorized Company officer andthe Executive.  A waiver of anyconditions or provisions of this Agreement in a given instance shall not bedeemed a waiver of such conditions or provisions at any other time in thefuture.

 

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.** This Agreement shall be binding upon, and shall inure to the benefit of,the Executive and Executive’s estate, but the Executive may not assign orpledge this Agreement or any rights arising under it, except to the extentpermitted under the terms of the benefit plans in which Executiveparticipates.  Without the Executive’sconsent, the Company may assign this Agreement to any affiliate or to asuccessor to substantially all the business and assets of the Company.

 

6.             **Counterparts.** This Agreement may be executed in one or more counterparts, each ofwhich shall be deemed to be an original but all of which together shallconstitute the same instrument.

 

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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-Will Relationship. **Executiveand the Company agree that nothing in this Agreement alters the at-will natureof Executive’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/ Bruce D. Smith |
|   | Name:                  | Bruce D. Smith |
|   | Title:                 | Chief Financial Officer |
|   |                   |   |
|   |                   |   |
|   | /s/ R. Edward Anderson |
|   | R. Edward Anderson     |

 

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