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Delaware		5600		52-2150697
(State or other jurisdiction of incorporation or organization)		(Primary standard industrial classification code number)		(IRS employer identification number)

William F. Schwitter, Esq.		Richard C. Tilghman, Jr., Esq.
Paul, Hastings, Janofsky & Walker LLP		Wm. David Chalk, Esq.
75 East 55th Street		DLA Piper Rudnick Gray Cary US LLP
New York, New York 10022		6225 Smith Avenue
(212) 318-6000		Baltimore, Maryland 21209
(212) 319-4090 (fax)		(410) 580-3000
		(410) 580-3001 (fax)

Title of Each Class of			Proposed Maximum			Amount of
Securities to be Registered			Aggregate Offering Price(1)(2)			Registration Fee
Common Stock, par value $.01 per share			$57,500,000			$6,767.75

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2)	Includes shares of common stock subject to the underwriters’ over-allotment option.

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The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

		Per Share				Total
Price to the public		$				$
Underwriting discount		$				$
Proceeds to Citi Trends, Inc.		$				$
Proceeds to the selling stockholders		$				$

Piper Jaffray	SG Cowen & Co.	Wachovia Securities

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		Page
Prospectus Summary			1
Risk Factors			6
Special Note Regarding Forward-Looking Statements			16
Use of Proceeds			17
Dividend Policy			17
Capitalization			18
Dilution			19
Selected Financial and Operating Data			20
Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Business			33
Management			42
Related Party Transactions			55
Principal and Selling Stockholders			57
Description of Capital Stock			58
Shares Eligible for Future Sale			62
Underwriting			64
Legal Matters			67
Experts			67
Where You Can Find More Information			67
Index to Financial Statements			F-1
FORM OF UNDERWRITING AGREEMENT
FORM OF SECOND AMENDED & RESTATED CERTIFICATE OF INCORPORATION
FORM OF AMENDED & RESTATED BY-LAWS
LETTER AGREEMENT
EMPLOYMENT AND NON-INTERFERENCE AGREEMENT
AMENDED EMPLOYMENT & NON-INTERFERENCE AGREEMENT
LOAN AND SECURITY AGREEMENT
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
LEASE AGREEMENT
BANK OF AMERICA REVOLVING LINE OF CREDIT
FORM OF 2005 LONG TERM STOCK INCENTIVE PLAN
CONSENT OF KPMG LLP

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	•	focus on providing a timely and fashionable assortment of urban apparel and accessories;
	•	superior value proposition, with nationally recognized brands offered at 20% to 60% discounts to department and specialty stores’ regular prices;
	•	merchandise mix that appeals to the entire family, distinguishing our stores from many competitors that focus only on women and reducing our exposure to fashion trends and demand cycles in any single category;
	•	strong and flexible sourcing relationships managed by our 20-member buying team, staffed by individuals with an average of more than 20 years of retail experience;
	•	attractive fashion presentation and store environment similar to a specialty apparel retailer, rather than a typical off-price store; and
	•	highly profitable store model.

	•	a growing market with favorable demographics;
	•	our core consumers’ significant spending on apparel; and
	•	the expanding appeal of urban apparel brands.

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Common stock offered by Citi Trends, Inc.		shares
Common stock offered by the selling stockholders		shares
Common stock to be outstanding after the offering		shares
Use of proceeds		We estimate that the net proceeds to be received by us from this offering will be approximately $           million, after deducting underwriting discounts and commissions and offering expenses payable by us. Approximately $           million of these net proceeds will be used to redeem all of our outstanding Series A preferred stock, $.01 par value per share, or Series A Preferred Stock, and to pay all accrued and unpaid dividends thereon, and $           million will be used to repay outstanding indebtedness. We expect that the remainder of our net proceeds will be used for new store openings, the acquisition or design and construction of a new distribution center in fiscal 2006 and general corporate purposes. We will not receive any of the proceeds from the sale of shares of common stock offered by the selling stockholders.
Proposed Nasdaq National Market Symbol		“CTRN”

	•	a                     for-one stock split of our common stock, which will occur simultaneously with the completion of this offering;
	•	no exercise of outstanding options to purchase                      shares of common stock outstanding as of                     , 2005; and
	•	no exercise of the underwriters’ over-allotment option.

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	Our success depends on our ability to anticipate, identify and respond rapidly to changes in consumers’ fashion tastes, and our failure to evaluate adequately fashion trends could have a material adverse effect on our business, financial condition and results of operations.

	The success of our growth strategy depends on our ability to add a significant number of new stores, and we may be unable to do so. Also, the addition of a significant number of stores could strain our resources and cause the performance of our existing stores to suffer.

	•	identifying suitable markets and sites within those markets for new store locations;
	•	negotiating acceptable lease terms for new store locations;
	•	hiring, training and retaining competent sales and store management personnel;
	•	obtaining adequate capital;
	•	effectively managing higher levels of inventory to meet the needs of new and existing stores on a timely basis;
	•	maintaining the appropriate proportion of new stores to existing stores in a particular market so that sales at existing stores do not decline due to a lack of new customers and a dispersion of existing customers;
	•	fostering existing and new relationships with suppliers capable of providing us with a sufficient amount of merchandise to meet our growing needs as we increase the number of our stores;
	•	successfully integrating the new stores into our existing operations and expanding our infrastructure to accommodate our growing number of stores; and
	•	developing and operating additional distribution capacity as we increase the number of stores.

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	Expansion into new markets may present risks different from our existing markets, and we may have difficulty overcoming them.

	•	present competitive and distribution challenges that are different from those we currently face;
	•	require us to alter our merchandise to appeal to fashion preferences in new markets that are different from those in our existing markets;
	•	require us to alter our merchandise selection to meet cultural and/or climate differences, such as colder winter weather than in the southeastern United States where most of our current stores are located;
	•	result in higher costs, such as rent, distribution, labor and advertising; and
	•	cause the stores we open in new markets to achieve lower sales because consumers are not familiar with the Citi Trends name and concept in new markets.

	Our net sales, inventory levels and earnings fluctuate on a seasonal basis, which makes our business more susceptible to adverse events that occur during those seasons.

	Our business and growth strategies depend on our ability to obtain a sufficient amount of merchandise, and our failure to meet current and increased merchandising needs could have a material adverse effect on our business, financial condition and results of operations.

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	•	fashion trends, including consumer response to new and existing styles;
	•	seasonal demand for apparel;
	•	calendar shifts of holidays;
	•	our merchandise mix and the gross margins we achieve on the various merchandise we sell;
	•	our ability to source, manage and distribute merchandise effectively;
	•	changes in general economic conditions, the retail sales environment and consumer spending patterns;
	•	weather conditions, natural disasters, acts of war or terrorism and other events outside of our control;
	•	actions of our competitors or anchor tenants in the strip shopping centers where our stores are located;
	•	the timing and effectiveness of our advertising and other marketing campaigns;
	•	the level of pre-opening expenses associated with new stores; and
	•	the timing of new store openings and the relative proportion of new stores to existing stores.

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	•	actual or anticipated fluctuations in our operating results;
	•	changes in securities analysts’ recommendations or estimates of our financial performance;
	•	publication of research reports by analysts;
	•	changes in market valuations of companies similar to ours;
	•	announcements by us, our competitors or other retailers;
	•	the trading volume of our common stock in the public market;
	•	changes in economic conditions;
	•	financial market conditions; and
	•	the realization of some or all of the risks described in this section entitled “Risk Factors.”

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	•	implementation of our growth strategy;
	•	our ability to anticipate and respond to fashion trends;
	•	competition in our markets;
	•	consumer spending patterns;
	•	actions of our competitors or anchor tenants in the strip shopping centers where our stores are located;
	•	anticipated fluctuations in our operating results; and
	•	economic conditions in general.

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	•	$           million to redeem all of our outstanding Series A Preferred Stock and to pay all accrued and unpaid dividends thereon;
	•	$           million to repay outstanding indebtedness under the loan from National Bank of Commerce to us, that is secured by our Savannah, Georgia headquarters, and bears interest at a fixed rate of 6.80% and matures on July 12, 2007;
	•	to repay outstanding indebtedness under our $3.0 million revolving line of credit with Bank of America that, as of October 30, 2004, bears interest at a rate of 3.96% per annum;
	•	to repay outstanding indebtedness under our $25.0 million revolving line of credit with Congress Financial that, as of October 31, 2004, bears interest at a rate of 4.75% per annum; and
	•	any remaining net proceeds for new store openings, including the acquisition or design and construction of a new distribution center in fiscal 2006 and general corporate purposes.

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	•	on an actual basis; and
	•	as adjusted to give effect to (a) the sale by us of shares of common stock in this offering, (b) the receipt and application of net proceeds of $      million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the repayment of indebtedness described under the section entitled “Use of Proceeds” and (c) the filing of our second amended and restated certificate of incorporation upon consummation of this offering.

					As of October 30, 2004
					Actual				As Adjusted
					(in thousands, except share and per
					share amounts)
Cash and cash equivalents					$	2,156			$
Long-term debt (including current portion)					$	1,521			$	-
Capital lease obligations (including current portion)					$	1,261			$
Preferred shares subject to mandatory redemption:
	Series A preferred stock, $.01 par value per share, 3,500 shares authorized, issued and outstanding, actual; none authorized, issued or outstanding, as adjusted(1)					4,404				-
Stockholders’ equity:
	Common stock, $.01 par value per share,            shares authorized,            issued and outstanding, actual;            issued or outstanding, as adjusted					4
	Preferred stock, $.01 par value per share, none authorized, issued or outstanding, actual;      authorized, none issued or outstanding, as adjusted					-				-
	Additional paid-in capital					4,110
	Subscription receivable					(25	)			-
	Retained earnings					15,197
	Treasury stock					(165	)
		Total stockholders’ equity				19,121
			Total capitalization		$	26,307			$

(1)	Our Series A Preferred Stock, which will be redeemed using a portion of the net proceeds from this offering, was reclassified as debt as of the second quarter of fiscal 2003, in accordance with SFAS No. 150.

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	•	an increase in our total assets to reflect the net proceeds from this offering (assuming an initial public offering price of $          per share); and
	•	the issuance of an additional                      shares of common stock in this offering.

Assumed initial public offering price per share of common stock			$
	Pro forma net tangible book value per share of common stock as of October 30, 2004		$
	Increase in net tangible book value per share of common stock attributable to this offering		$
Pro forma net tangible book value per share of common stock as of October 30, 2004 after giving effect to adjustments related to this offering			$
Dilution per share of common stock to new investors in this offering			$		(1)

(1)	Assuming exercise of all exercisable options to purchase common stock outstanding as of             , 2005, the dilution per share of common stock to new investors in this offering would be $        .

Share Purchased

Total Consideration

Average Price

Number

Percent

Amount

Percent

Per Share

Existing stockholders(1)

%

$

%

$

New investors

%

$

%

$

Totals

%

$

%

$

(1)	Does not give effect to sales of shares by the selling stockholders in this offering.

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				Fiscal Year Ended(1)																				39 Weeks Ended
				January 29,				February 3,				February 2,				February 1,				January 31,				November 1,				October 30,
				2000(2)				2001				2002				2003				2004				2003				2004
				(dollars in thousands, except per share data amounts)
Statement of Operations Data:
	Net sales			$	42,220			$	80,939			$	97,933			$	124,951			$	157,198			$	107,952			$	137,129
	Cost of sales				27,717				51,762				62,050				77,807				98,145				67,466				86,288
	Gross profit				14,503				29,177				35,883				47,144				59,053				40,486				50,841
	Selling, general and administrative expenses				14,976				26,834				31,405				38,760				48,845				35,932				46,014
	Income (loss) from operations				(472	)			2,343				4,478				8,385				10,208				4,554				4,827
	Interest expense (3)				172				787				455				256				563				315				558
	Income (loss) before income taxes				(645	)			1,556				4,023				8,129				9,645				4,239				4,269
	Income tax expense				19				358				1,566				3,101				3,727				1,638				1,644
	Net income (loss)			$	(664	)		$	1,198			$	2,457			$	5,028			$	5,918			$	2,601			$	2,625
	Net income per common share:
		Basic		$				$				$				$				$				$				$
		Diluted		$				$				$				$				$				$				$
	Weighted average shares used to compute net income per share:
		Basic
		Diluted

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			Fiscal Year Ended(1)																				39 Weeks Ended
			January 29,				February 3,				February 2,				February 1,				January 31,				November 1,				October 30,
			2000(2)				2001				2002				2003				2004				2003				2004
			(dollars in thousands, except per share data amounts)
Additional Operating Data:
	Number of stores:
	Opened during period			–				23				12				16				25				23				35
	Closed during period			–				0				4				2				1				1				1
	Open at end of period			92				115				123				137				161				159				195
	Comparable store sales increase(4)			–				17.6%				6.5%				14.6%				5.5%				5.9%				2.3%
Balance Sheet Data:
	Cash and cash equivalents		$	1,857			$	1,496			$	4,098			$	5,825			$	9,954			$	2,910			$	2,156
	Total assets			17,442				25,023				29,733				36,127				49,213				46,862				60,908
	Total liabilities			11,001				17,404				19,489				20,693				32,709				33,696				41,787
	Total stockholders’ equity			2,614				3,471				5,736				10,598				16,504				13,166				19,121

(1)	Our fiscal year ends on the Saturday closest to January 31 of each year. Fiscal years 2001, 2002 and 2003 comprise 52 weeks. Fiscal year 2000 comprises 53 weeks.
(2)	The fiscal year ended January 29, 2000 consists only of the period from April 13, 1999 (the date we were acquired by Hampshire Equity Partners) to January 29, 2000. The period contained 41 weeks and five days.
(3)	Our Series A Preferred Stock, which will be redeemed using a portion of the net proceeds from this offering, was reclassified as debt as of the second quarter of fiscal 2003, in accordance with SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The amount of dividends treated as interest expense in fiscal 2003 was $189,000 and none in fiscal 2002. For the 39-week periods ended October 30, 2004 and November 1, 2003, the amount of dividends treated as interest expense was $243,000 and $108,000, respectively.
(4)	Stores included in the comparable store sales calculation for any period are those stores that were opened prior to the beginning of the preceding fiscal year and were still open at the end of such period. Relocated stores and expanded stores are included in the comparable store sales results.

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		Fiscal Year Ended																								39 Weeks Ended
		February 2,								February 1,								January 31,								November 1,								October 30,
		2002								2003								2004								2003								2004
		(dollars in thousands)
Statements of Income Data
Net sales		$	97,933				100.0	%		$	124,951				100.0	%		$	157,198				100.0	%		$	107,952				100.0	%		$	137,129				100.0	%
Cost of sales			62,050				63.4				77,807				62.3				98,145				62.4				67,466				62.5				86,288				62.9
Gross profit			35,883				36.6				47,144				37.7				59,053				37.6				40,486				37.5				50,841				37.1
Selling, general and administrative expenses			31,405				32.1				38,760				31.0				48,845				31.1				35,932				33.3				46,014				33.6
Income from operations			4,478				4.6				8,385				6.7				10,208				6.5				4,554				4.2				4,827				3.5
Interest expense			455				0.5				256				0.2				563				0.4				315				0.3				558				0.4
Income before income taxes			4,023				4.1				8,129				6.5				9,645				6.1				4,239				3.9				4,269				3.1
Income tax expense			1,566				1.6				3,101				2.5				3,727				2.4				1,638				1.5				1,644				1.2
Net income		$	2,457				2.5	%		$	5,028				4.0	%		$	5,918				3.8	%		$	2,601				2.4	%		$	2,625				1.9	%

		Fiscal Year Ended												39 Weeks Ended
		February 2,				February 1,				January 31,				November 1,				October 30,
		2002				2003				2004				2003				2004
Total stores open, beginning of period			115				123				137				137				161
New stores			12				16				25				23				35
Closed stores			4				2				1				1				1
Total stores open, end of period			123				137				161				159				195
Comparable store sales increase			6.5	%			14.6	%			5.5	%			5.9	%			2.3	%

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			Quarter Ended
			May 4,				Aug. 3,				Nov. 2,				Feb. 1,				May 3,				Aug. 2,				Nov. 1,				Jan. 31,				May 1,				July 31,				Oct. 30,
			2002				2002				2002				2003				2003				2003				2003				2004				2004				2004				2004
			(dollars in thousands)
Statement of Operations Data:
	Net sales		$	31,024			$	28,434			$	27,895			$	37,598			$	37,575			$	34,209			$	36,168			$	49,246			$	48,069			$	43,011			$	46,049
	Cost of sales			18,706				17,935				17,687				23,479				22,023				22,452				22,991				30,679				29,034				28,095				29,159
	Gross profit			12,318				10,499				10,208				14,119				15,552				11,757				13,177				18,567				19,035				14,916				16,890
	Selling, general and administrative expenses			8,969				9,355				9,793				10,642				11,719				11,655				12,558				12,913				15,014				14,745				16,255
	Income from operations			3,349				1,144				415				3,477				3,833				102				619				5,654				4,021				171				635
	Interest expense			36				60				89				70				57				98				160				248				174				176				208
	Earnings (loss) before income taxes			3,313				1,084				326				3,407				3,776				4				459				5,406				3,847				(5	)			427
	Income tax expense (benefit)			1,264				413				124				1,300				1,459				2				177				2,089				1,481				(2	)			165
	Net income (loss)		$	2,049			$	671			$	202			$	2,107			$	2,317			$	2			$	282			$	3,317			$	2,366			$	(3	)		$	262
Additional Operating Data:
	Number of Stores:
	Open, beginning of quarter			123				126				129				132				137				147				154				159				161				178				182
	Opened during quarter			3				5				3				5				10				7				6				2				17				5				13
	Closed during quarter			-				2				-				-				-				-				1				-				-				1				-
	Total open at end of period			126				129				132				137				147				154				159				161				178				182				195
	Comparable store sales increase			14.3%				18.6%				13.7%				12.6%				3.2%				5.6%				9.6%				4.3%				3.5%				0.3%				3.0%

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		Payments Due by Period
						Less than												More than
		Total				1 Year				1-3 Years				3-5 Years				5 Years
		(in thousands)
Contractual obligations:
Series A Preferred Stock(1)		$	5,864			$	-			$	-			$	5,864			$	-
Debt maturing within one year(2)			5,388				5,388				-				-				-
Long-term debt(3)			1,758				179				1,579				-				-
Capital leases			1,372				736				636				-				-
Operating leases(4)			31,459				7,898				13,588				8,105				1,868
Purchase obligations			31,461				31,461				-				-				-
Consulting fee(5)			780				240				480				60				-
Total contractual cash obligations		$	78,082			$	45,902			$	16,284			$	14,029			$	1,868

(1)	Includes Series A Preferred Stock of $3.6 million, accrued dividends of approximately $799,000 as of October 30, 2004 and dividends of $1.5 million accruing through maturity in April 2009. The board of directors approved a resolution whereby we began making payments of approximately $500,000 per quarter beginning in the second quarter of fiscal 2004. Our Series A Preferred Stock will be redeemed using a portion of the net proceeds from this offering.
(2)	Does not include interest on our revolving lines of credit, which is variable. Upon consummation of this offering, we intend to repay any outstanding balance.
(3)	Our outstanding long-term debt will be repaid using a portion of the net proceeds from this offering.
(4)	Represents fixed minimum rentals in stores and does not include rentals which are computed as a percentage of net sales.
(5)	Represents minimum payments for the four year term of a management consulting agreement that is subject to automatic annual renewals unless terminated with 60 days notice by either party. Upon consummation of this offering, the parties shall terminate the consulting agreement and we will pay the consultant a termination fee of $1.2 million.

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	•	focusing our merchandise offerings on more urban fashion apparel for the entire family, with greater emphasis on nationally recognized brands;
	•	accelerating and completing the remodeling of virtually all of the 85 stores acquired in 1999 to create a more appealing shopping environment;
	•	refining our new store model and implementing a real estate approach focused on locating stores in low to moderate income neighborhoods close to our core customers;
	•	rebranding our stores and our company to Citi Trends in order to convey more effectively our positioning to consumers;
	•	investing in infrastructure to support growth, including opening an additional distribution center and installing new point of sale systems in all of our stores; and
	•	implementing an aggressive growth strategy, including entering several new markets such as Houston, Norfolk and, most recently, Baltimore and Washington, D.C.

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Alabama—17			Louisiana—23		South Carolina—32
	Birmingham—4		Shreveport—3		Charleston—2
	Montgomery—2		Baton Rouge—2		Columbia—2
	Mobile—2		Monroe—2		Orangeburg—2
	Single store locations—9		New Orleans—2		Single store locations—26
Arkansas—4			Single store locations—14		Tennessee—9
	Little Rock—3		Maryland—3		Memphis—6
	Single store locations—1		Baltimore—2		Nashville—2
Florida—13			Single store locations—1		Single store locations—1
	Jacksonville—3		Mississippi—15		Texas—6
	Tampa—2		Jackson—2		Houston—6
	Single store locations—8		Single store locations—13		Virginia—11
Georgia—41			North Carolina—26		Norfolk—6
	Atlanta—9		Durham—2		Richmond—4
	Albany—2		Fayetteville—2		Single store locations—1
	Augusta—2		Greensboro—2
	Macon—2		Single store locations—20
	Savannah—2
	Single store locations—24

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		Percentage of
		Net Sales
Women’s		38%
Children’s		27%
Men’s		21%
Accessories		13%
Home décor		1%

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Name		Age				Position
R. Edward Anderson			55			Chief Executive Officer and Director
George A. Bellino*			57			President, Chief Merchandising Officer and Director
Thomas W. Stoltz			44			Chief Financial Officer
James A. Dunn			48			Vice President of Store Operations
Gregory P. Flynn			48			Chairman of the Board of Directors
Laurens M. Goff*			32			Director
John S. Lupo			58			Director
Tracy L. Noll			56			Director
**						Director Nominee

	*	Will resign from our board of directors upon the consummation of this offering.

**	Will join our board of directors upon the consummation of this offering.

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	Audit Committee

	•	have direct responsibility for the selection, compensation, retention, replacement and oversight of the work of our independent auditors, including prescribing what services are allowable and approve in advance all services provided by the auditors;
	•	set clear hiring policies for employees or former employees of the independent auditors;
	•	review all proposed company hires formerly employed by the independent auditors;
	•	have direct responsibility for ensuring its receipt from the independent auditors at least annually of a formal written statement delineating all relationships between the auditor and us, consistent with Independence Standards Board Standard No. 1;
	•	discuss with the independent directors any disclosed relationships or services that may impact the objectivity and independence of the auditor and for taking, or recommending that the full board of directors take, appropriate action to oversee the independence of the independent auditor;
	•	discuss with the internal auditors and the independent auditors the overall scope and plans for their respective audits including the adequacy of staffing, compensation and resources;
	•	review, at least annually, the results and scope of the audit and other services provided by our independent auditors and discuss any audit problems or difficulties and management’s response;
	•	review our annual audited financial statement and quarterly financial statements and discuss the statements with management and the independent auditors (including disclosures in our Exchange Act reports in response to Item 303, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Regulation S-K);
	•	review and discuss with management, the internal auditors and the independent auditors the adequacy and effectiveness of our internal controls, including our ability to monitor and manage business risk, legal and ethical compliance programs and financial reporting;
	•	review and discuss separately with the internal auditors and the independent auditors, with and without management present, the results of their examinations;
	•	review our compliance with legal and regulatory independence;
	•	review and discuss our interim financial statements and the earnings press releases prior to the filing of our quarterly reports on Form 10-Q, as well as financial information and earnings guidance provided to analysts and rating agencies;
	•	review and discuss our risk assessment and risk management policies;
	•	prepare an audit committee report required by the Securities and Exchange Commission to be included in our annual proxy statement;
	•	engage independent counsel and other advisors to assist the audit committee in carrying out its duties;

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	•	review and approve all related party transactions consistent with the rules applied to companies listed on the Nasdaq National Market; and
	•	establish procedures regarding complaints received by us or our employees regarding accounting, accounting controls or accounting matters.

	Compensation Committee

	•	review and approve corporate goals and objectives relevant to our Chief Executive Officer’s and other named executive officers’ compensation;
	•	evaluate the Chief Executive Officer’s performance in light of these goals and objectives;
	•	either as a committee, or together with the other independent directors, determine and approve the Chief Executive Officer’s compensation;
	•	make recommendations to our board of directors regarding the salaries, incentive compensation plans and equity-based plans for our employees; and
	•	produce a compensation committee report on executive compensation as required by the Commission to be included in our annual proxy statements or annual reports on Form 10-K filed with the Commission.

	Compensation Committee Interlocks and Insider Participation

	Nominating and Corporate Governance Committee

	•	identify individuals qualified to become board members, consistent with criteria approved by the board of directors;
	•	recommend the individuals identified be selected as nominees at annual meetings of our stockholders;
	•	develop and recommend to the board of directors a set of corporate governance principles applicable to us; and
	•	oversee the evaluation of the board of directors and management.

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	Code of Ethics

	•	honest and ethical conduct;
	•	full, fair, accurate, timely and understandable disclosure in reports and documents that we file with the Commission and in our other public communications;
	•	compliance with applicable laws, rules and regulations, including insider trading compliance; and
	•	accountability for adherence to the code and prompt internal reporting of violations of the code, including illegal or unethical behavior regarding accounting or auditing practices.

															Long-Term
			Annual Compensation(1)												Compensation
															Securities
Name and Principal Position			Fiscal Year				Salary				Bonus				Underlying Options
R. Edward Anderson				2003			$	300,000			$	78,000
	Chief Executive Officer
George A. Bellino				2003			$	231,923			$	90,476
	President and Chief
	Merchandising Officer
Thomas W. Stoltz				2003			$	165,000			$	21,780
	Chief Financial Officer
James A. Dunn				2003			$	116,923			$	24,968
	Vice President of Store Operations

(1)	Excludes perquisites and other benefits, which for each named individual are less than 10% of the sum of such individual’s annual salary and bonus.

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Potential

Realizable Value

at Assumed

Rates of Stock

Price

% of Total Options

Appreciation for

Number of Securities

Granted to

Exercise

Option Term(1)

Underlying Options

Employees in

Price Per

Expiration

Name

Granted

Fiscal Year

Share

Date

5%

10%

R. Edward Anderson

0.3

%

10/30/14

George A. Bellino

0.7

%

10/30/14

Thomas W. Stoltz

–

James A. Dunn

–

(1)

Potential realizable value is based upon the assumed initial public offering price of our common stock of $            . Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the Commission, based on the assumed initial public offering price of $        per share and do not represent our estimate or projection of the future stock price.

		Number of Securities								Value of Unexercised
		Underlying Unexercised								In-the-Money Options
		Options at Fiscal Year End								at Fiscal Year End(1)
Name		Exercisable				Unexercisable				Exercisable				Unexercisable
R. Edward Anderson										$	2,017,140			$	672,000
George A. Bellino											2,217,792				—
Thomas W. Stoltz											480,000				—
James A. Dunn											316,000				84,000

(1)

The options were granted under our Amended and Restated 1999 Stock Option Plan. These options generally vest in equal installments over four years from the date of grant and are generally exercisable up to ten years from the date of grant. The fair value of the options granted during the year ended January 31, 2004 was $34.18 using the Black-Scholes option-pricing model, with weighted average assumptions: no dividend yield; 50% expected volatility; 2.50% risk-free interest rate; ten year expected life and a 10% forfeiture rate.

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	Shares Subject to the Plan

	Administration

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	Eligibility

	Stock Options

	Stock Appreciation Rights (SARs)

	Exercise Price for Stock Options and SARs

	Exercise and Term of Options and SARs

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	Restricted Shares

	Performance Awards

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	Tandem Awards

	Income Tax Withholding

	Transferability

	Certain Corporate Transactions

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	•	conviction or guilty plea to a serious felony, a crime of moral turpitude or other specified financial offenses,
	•	a board determination that Mr. Bellino has committed a crime of moral turpitude,

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	•	a board determination that Mr. Bellino knowingly breach his fiduciary obligations to us, subject to notice and a cure period,
	•	Mr. Bellino’s failure to discharge his duties under the agreement or substance abuse which materially interferes with the discharge of his duties, subject to notice and a cure period,
	•	Mr. Bellino’s material violation of any non-competition or confidentiality agreement with us,
	•	Mr. Bellino’s material violation of any other personal obligations under his agreement, subject to notice and a cure period, and
	•	any other violation of law by Mr. Bellino that could have a material adverse effect on us, subject to notice and a cure period.

	•	own, manage, operate, control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, lender, director, officer, employee, joint venturer, investor, lessor, agent, representative or other participant, in any business which competes with us in any state where we operate.
	•	Recruit, solicit or otherwise induce or influence any proprietor, partner, stockholder, lender, director, officer, employee, sales agent, joint venturer, investor, lessor, customer, agent, representative or any other person with a business relationship with us to discontinue, reduce or modify their relationship with us.

	•	any breach of the director’s duty of loyalty to us or our stockholders;
	•	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	•	any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or
	•	any transaction from which the director derived an improper personal benefit.

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	•	we may indemnify our directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;
	•	we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and
	•	the rights provided in our bylaws are not exclusive.

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	•	four members of our board of directors may be designated by the owners of the majority of the voting stock beneficially owned by Hampshire Equity Partners and its affiliates,
	•	our stockholders have agreed generally not to transfer their shares,
	•	our management stockholders have been granted tag-along rights in the event of the sale of more than 50% of our common stock,
	•	our management stockholders have agreed to cooperate in any sale of the company by Hampshire Equity Partners, and
	•	we have agreed to register shares of our common stock held by the stockholder parties in the event that we register additional shares of our common stock under the Securities Act, other than on a registration statement on Form S-4 or S-8, or in connection with an exchange offer, merger, acquisition, dividend reinvestment plan, stock option or other employee benefit plan.

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	•	each stockholder known by us to own beneficially more than 5% of our common stock;
	•	each of our directors and named executive officers;
	•	all directors and executive officers as a group; and
	•	each of the selling stockholders.

Number of

Number of

Shares

Percentage

Shares

Beneficially

of Shares

Percentage of

Beneficially

Number of

Owned

Outstanding

Shares

Owned Prior

Shares Being

After the

Before the

Outstanding After

Name of Beneficial Owner

to the Offering

Offered

Offering

Offering

the Offering

Directors and Named Executive Officers:

R. Edward Anderson

George A. Bellino

Thomas W. Stoltz

James A. Dunn

Tracy L. Noll

John S. Lupo

Gregory P. Flynn

Laurens Goff

Directors and executive officers as a group (eight persons)

5% Stockholder:

Hampshire Equity Partners II, L.P.

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	•	the business combination, or the transaction in which the stockholder became an interested stockholder, is approved by our board of directors prior to the time the interested stockholder attained that status;
	•	upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
	•	at or after the time a person became an interested stockholder, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

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	•	for breach of duty of loyalty;
	•	for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law;
	•	under Section 174 of the Delaware General Corporation Law (unlawful dividends or stock repurchases); or
	•	for transactions from which the director derived improper personal benefit.

	•	the prohibition on stockholder action by written consent;
	•	the ability to call a special meeting of stockholders being vested solely in (1) the chairman of our board of directors, (2) our board of directors pursuant to a resolution adopted by our board of directors and (3) our board of directors upon a request by holders of at least 50% in voting power of all the outstanding shares entitled to vote at that meeting;

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	•	the provisions relating to the classification of our board of directors;
	•	the provisions relating to the size of our board of directors;
	•	the provisions relating to the quorum requirements for stockholder action and the removal of directors;
	•	the limitation on the liability of our directors to us and our stockholders;
	•	the provisions granting authority to our board of directors to amend or repeal our by-laws without a stockholder vote, as described in more detail in the next succeeding paragraph; and
	•	the supermajority voting requirements listed above.

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Underwriters			Number of Shares
CIBC World Markets Corp.
Piper Jaffray & Co.
SG Cowen & Co.
Wachovia Capital Markets, LLC
	Total

Total Without

Total With Full

Exercise of Over-

Exercise of Over-

Per Share

Allotment Option

Allotment Option

Citi Trends, Inc.

$

$

Selling Stockholders

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	•	the history and prospects for the industry in which we compete;
	•	our past and present operations;
	•	our historical results of operations;
	•	our prospects for future business and earning potential;
	•	our management;
	•	the general condition of the securities markets at the time of this offering;
	•	the recent market prices of securities of generally comparable companies; and
	•	the market capitalization and stages of development of other companies which we and the representative believe to be comparable to us.

	•	Stabilizing transactions—The representative may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum.
	•	Over-allotments and syndicate covering transactions—The underwriters may sell more shares of our common stock in connection with this offering than the number of shares than they have committed to purchase. This over-allotment creates a short position for the underwriters. This short sales position may involve either

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		“covered” short sales or “naked” short sales. Covered short sales are short sales made in an amount not greater than the underwriters’ over-allotment option to purchase additional shares in this offering described above. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market, as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are short sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that, in the open market after pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering.
	•	Penalty bids—If the representative purchases shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering.

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FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED JANUARY 31, 2004 AND FEBRUARY 1, 2003
Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets as of January 31, 2004 and February 1, 2003		F-3
Statements of Income for the Years Ended January 31, 2004 and February 1, 2003		F-4
Statements of Cash Flows for the Years Ended January 31, 2004 and February 1, 2003		F-5
Statements of Stockholders’ Equity for the Years Ended January 31, 2004 and February 1, 2003		F-6
Notes to Financial Statements for the Years Ended January 31, 2004 and February 1, 2003		F-7
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED FEBRUARY 2, 2002
Balance Sheet as of February 2, 2002		F-17
Statement of Income for the Year Ended February 2, 2002		F-18
Statement of Cash Flows for the Year Ended February 2, 2002		F-19
Statement of Stockholders’ Equity for the Year Ended February 2, 2002		F-20
Notes to Financial Statements for the Year Ended February 2, 2002		F-21
CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE 39 WEEKS ENDED OCTOBER 30, 2004 AND NOVEMBER 1, 2003
Condensed Balance Sheets as of October 30, 2004 and November 1, 2003		F-29
Condensed Statements of Income for 39 Weeks Ended October 30, 2004 and November 1, 2003		F-30
Condensed Statements of Cash Flows for the 39 Weeks Ended October 30, 2004 and November 1, 2003		F-31
Notes to Condensed Financial Statements for the 39 Weeks Ended October 30, 2004 and November 1, 2003		F-32

F-1

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F-2

---

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				January 31,				February 1,
				2004				2003
Assets
Current assets:
	Cash and cash equivalents			$	9,954,232				5,824,847
	Inventory				22,712,369				17,042,512
	Prepaid and other current assets				1,770,998				1,193,007
	Income tax receivable				—				195,068
	Deferred tax asset				530,604				374,604
		Total current assets			34,968,203				24,630,038
Property and equipment, net					12,749,601				9,995,996
Goodwill					1,371,404				1,371,404
Other assets					123,992				129,118
		Total assets		$	49,213,200				36,126,556
Liabilities and Stockholders’ Equity
Current liabilities:
	Borrowings under revolving lines of credit			$	—				—
	Accounts payable				19,577,370				13,469,260
	Accrued expenses				2,121,520				1,642,493
	Accrued compensation				1,669,462				1,917,368
	Current portion of long-term debt				74,762				71,440
	Current portion of capital lease obligations				566,667				774,052
	Income tax payable				331,342				—
	Layaway deposits				133,028				161,789
		Total current liabilities			24,474,151				18,036,402
Long-term debt , less current portion					1,494,302				1,566,129
Capital lease obligations, less current portion					494,547				490,208
Preferred shares subject to mandatory redemption					5,160,313				—
Deferred tax liability					333,445				15,562
Other long-term liabilities					752,574				584,556
		Total liabilities			32,709,332				20,692,857
Series A preferred stock, $0.01 par value. Liquidation preference of $1,000 per share. Authorized 5,000 shares; issued and outstanding 3,605 shares in 2003 and 2002					—				4,835,863
Stockholders’ equity:
	Common stock, $0.01 par value. Authorized 500,000 shares; 363,275 shares issued in 2004 and 2003				3,633				3,633
	Paid-in-capital				4,011,601				3,888,328
	Retained earnings				12,571,384				6,788,625
	Treasury stock, at cost; 5,775 shares				(57,750	)			(57,750	)
	Subscription receivable				(25,000	)			(25,000	)
		Total stockholders’ equity			16,503,868				10,597,836
Commitments and contingencies (note 9)
		Total liabilities and stockholders’ equity		$	49,213,200				36,126,556

F-3

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				Fiscal				Fiscal
				2003				2002
Net sales				$	157,198,306			$	124,950,935
Cost of sales					98,145,216				77,806,541
		Gross profit			59,053,090				47,144,394
Selling, general and administrative expenses					48,844,888				38,759,624
		Income from operations			10,208,202				8,384,770
Interest expense, including redeemable preferred stock dividend					563,342				255,708
		Income before provision for income taxes			9,644,860				8,129,062
Provision for income taxes					3,726,914				3,101,237
		Net income		$	5,917,946			$	5,027,825
Basic income per common share				$	15.92			$	12.95
Diluted income per common share				$	13.77			$	11.21
Average number of shares outstanding
	Basic				363,275				363,275
	Diluted				420,060				419,510

F-4

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						Fiscal				Fiscal
						2003				2002
Operating activities:
	Net income					$	5,917,946				5,027,825
	Adjustment to reconcile net income to net cash provided by operating activities:
		Dividends on preferred shares subject to mandatory redemption					189,263				—
		Depreciation and amortization					4,032,602				3,014,549
		Deferred income taxes					161,883				541,742
		Loss on disposal of fixed assets					23,396				93,189
		Noncash compensation expense					123,273				161,882
		Changes in assets and liabilities:
			Inventory				(5,669,857	)			(2,110,472	)
			Prepaid and other current assets				(577,991	)			374,919
			Income tax receivable				195,068				60,795
			Other assets				(16,020	)			(39,294	)
			Accounts payable				6,108,110				1,956,945
			Accrued expenses and other long-term liabilities				647,045				576,631
			Accrued compensation				(247,906	)			880,225
			Income tax payable				331,342				—
			Layaway deposits				(28,761	)			(82,278	)
				Net cash provided by operating activities			11,189,393				10,456,658
Investing activities:
	Purchase of property and equipment						(6,117,954	)			(5,926,622	)
Financing activities:
	Fee paid for continuance of revolving line of credit						—				(50,000	)
	Net repayments under revolving line of credit						—				(3,689,938	)
	Repayments on long-term debt and capital lease obligations						(942,054	)			(742,969	)
	Proceeds from issuance of long-term debt						—				1,680,000
	Purchase of treasury stock						—				—
	Proceeds from sale of stock						—				—
				Net cash used in financing activities			(942,054	)			(2,802,907	)
				Net increase (decrease) in cash and cash equivalents			4,129,385				1,727,129
Cash and cash equivalents:
	Beginning of period						5,824,847				4,097,718
	End of period					$	9,954,232				5,824,847
Supplemental disclosures of cash flow information:
	Cash paid for interest					$	352,933				255,708
	Cash paid for income taxes					$	3,036,620				2,498,700
Supplemental disclosures of noncash activities:
	Dividends accrued on redeemable preferred stock					$	135,187				327,713
	Purchases of property and equipment financed by entering into capital leases					$	670,503				660,012
	Insurance settlement not yet received related to loss of fixed assets and inventory related to store fire					$	192,384				—

F-5

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		Common Stock																Treasury Stock
										Paid-in				Retained												Subscription
		Shares				Amount				Capital				Earnings				Shares				Amount				Receivable				Total
Balance— February 2, 2002			363,275				3,633				3,726,446				2,088,513				5,775				(57,750	)			(25,000	)			5,735,842
Expense recorded in connection with issuance of stock options											161,882																				161,882
Accrued preferred stock dividends															(327,713	)															(327,713	)
Net income															5,027,825																5,027,825
Balance— February 1, 2003			363,275				3,633				3,888,328				6,788,625				5,775				(57,750	)			(25,000	)			10,597,836
Expense recorded in connection with issuance of stock options											123,273																				123,273
Accrued preferred stock dividends															(135,187	)															(135,187	)
Net income															5,917,946																5,917,946
Balance— January 31, 2004			363,275				3,633				4,011,601				12,571,384				5,775				(57,750	)			(25,000	)			16,503,868

F-6

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Table of Contents

(1)	Organization and Business

(2)	Summary of Significant Accounting Policies

(a)	Fiscal Year

(b)	Cash and Cash Equivalents

(c)	Inventory

(d)	Property and Equipment, net

(e)	Goodwill

(f)	Impairment of Long-Lived Assets

F-7

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(g)	Stock-Based Compensation

			2003				2002
Net income, as reported			$	5,917,946				5,027,825
Add stock-based employee compensation expense included in reported net income, net of tax of $45,855 and $62,729, respectively				77,415				99,153
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax of $68,120 and $47,157, respectively				(114,997	)			(74,538	)
	Pro forma net income		$	5,880,364				5,052,440
Pro forma Basic Income per common share				15.81				13.01
Pro forma Diluted Income per common share				13.68				11.27

(h)	Revenue Recognition

(i)	Certain Financial Instruments with Characteristics of Liabilities and Equity

F-8

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Table of Contents

			2003				2002
Net income, as reported			$	5,917,946				5,027,825
Add dividends on preferred shares subject to mandatory redemption				189,263				—
	Pro forma net income		$	6,107,209				5,027,825

(j)	Earnings per Share

			2003				2002
Net income, as reported			$	5,917,946				5,027,825
Subtract dividends on preferred shares subject to mandatory redemption				135,188				324,450
	Numerator for EPS Calculation		$	5,782,758				4,703,375

		2003				2002
Average number of common shares outstanding			363,275				363,275
Incremental shares from assumed exercises of stock options			56,785				56,235
Average number of common shares and common stock equivalents outstanding			420,060				419,510

(k)	Advertising

F-9

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(l)	Store Opening and Closing Costs

(m)	Income Taxes

(n)	Use of Estimates

(o)	Business Reporting Segments

(p)	Other Comprehensive Income

(3)	Property and Equipment, Net

		2004				2003
Land		$	810,000				810,000
Building			1,340,000				1,340,000
Leasehold improvements			8,885,163				6,134,865
Furniture, fixtures, and equipment			9,000,105				5,779,811
Computer equipment			4,823,922				4,126,003
			24,859,190				18,190,679
Accumulated depreciation and amortization			12,109,589				8,194,683
		$	12,749,601				9,995,996

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(4)	Revolving Lines of Credit

(5)	Long-term Debt and Capital Lease Obligations

		2004				2003
Mortgage payable issued to finance purchase of land and building; payable in monthly installments of $14,913, including interest, through April 2007 with a balloon payment of $1,303,412 due May 2007; interest at a fixed rate of 6.80%; secured by land and building		$	1,569,064				1,637,569
Capital lease obligations issued to finance purchase of computer equipment; payable in monthly installments averaging approximately $53,123, $32,101 and $11,106 in 2004, 2005 and 2006, with maturity dates ranging from August 2003 to October 2006; interest at rates ranging from 0.6% to 11.5%; secured by computer equipment			1,061,214				1,264,260
			2,630,278				2,901,829
Less current portion of long-term debt and capital lease obligations			641,429				845,492
		$	1,988,849				2,056,337

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		Long-term				Capital Lease
Fiscal Year		Debt				Obligations
2004		$	74,762				637,482
2005			80,007				385,217
2006			85,620				133,277
2007			1,328,675				—
			1,569,064				1,155,976
Less portion attributable to future interest payments (at rates ranging from 0.6% to 11.5%)			—				94,762
		$	1,569,064				1,061,214

(6)	Income Taxes

			2003				2002
Current:
	Federal		$	2,987,496				2,136,445
	State			577,535				423,050
				3,565,031				2,559,495
Deferred:
	Federal			135,658				465,423
	State			26,225				76,319
				161,883				541,742
			$	3,726,914				3,101,237

			2003				2002
Statutory rate applied to income before income taxes			$	3,279,252				2,763,881
State income taxes, net of federal benefit				385,794				329,584
General business credits				(161,023	)			(117,004	)
Dividends on preferred stock				66,240				—
Other				156,651				124,776
	Provision for income taxes		$	3,726,914				3,101,237

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				2004				2003
Deferred tax assets:
	Book and tax depreciation differences			$	—				73,522
	Deferred rent amortization				189,682				151,456
	Inventory capitalization				572,515				361,057
	Vacation liability				61,750				47,500
	Stock compensation				129,071				80,848
	Other				16,000				100,884
					969,018				815,267
Deferred tax liabilities:
	Book and tax depreciation differences				(188,881	)			—
	Prepaid expenses				(309,464	)			(286,292	)
	Goodwill				(129,612	)			(88,572	)
	Other				(143,902	)			(81,361	)
					(771,859	)			(456,225	)
		Net deferred tax asset		$	197,159				359,042

(7)	Preferred Shares Subject to Mandatory Redemption

(8)	Stockholders’ Equity

(a)	Stockholders Agreement

F-13

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(b)	Equity Transactions with Officer

(c)	Equity Transactions with Majority Stockholder

(d)	Stock Options

		2003								2002
						Wtd Avg								Wtd Avg
						Exercise								Exercise
		Shares				Price				Shares				Price
Outstanding at beginning of period			66,496				11				66,096			$	10
Granted			7,403				99				1,800				54
Exercised			—				—				—				—
Forfeited			(5,000	)			18				(1,400	)			10
Outstanding end of period			68,899				20				66,496				11
Options exercisable end of period			53,196				11				37,035			$	10

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Table of Contents

						Weighted Average
		Number				Remaining				Number
Exercise Price		Outstanding				Contractual Life				Exercisable
$ 10			60,496				6.0				52,696
$ 50			800				8.0				200
$ 70			400				8.5				100
$ 94			4,603				8.9				200
$ 99			1,400				9.6				—
$116			1,200				9.8				—
			68,899								53,196

		2004				2003
Dividend yield			0.00%				0.00%
Expected volatility			50.00%				50.00%
Risk-free interest rate			2.50%				3.60%
Expected life, in years			10  years				10  years
Forfeiture rate			10.00%				10.00%

(9)	Commitments and Contingencies

Fiscal Year Ending:
2004			$	5,919,819
2005				4,903,143
2006				4,025,774
2007				3,073,088
2008				1,942,456
Thereafter				2,109,233
	Total future minimum lease payments		$	21,973,513

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(10)	Related Party Transactions

F-16

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Assets
Current assets:
	Cash and cash equivalents			$	4,097,717
	Inventory				14,932,040
	Prepaid and other assets				1,525,868
	Income tax receivable				255,863
	Deferred tax asset				352,146
		Total current assets			21,163,634
	Property and equipment				6,544,275
	Goodwill, net of accumulated amortization of $197,196				1,371,404
	Deferred tax asset				548,638
	Other assets				104,707
		Total assets		$	29,732,658
Liabilities and Stockholders’ Equity
Current liabilities:
	Borrowing under revolving line of credit			$	3,689,938
	Accounts payable				11,512,314
	Accrued expenses				1,198,143
	Accrued compensation				932,272
	Current portion of capital lease obligation				814,053
	Layaway deposits				244,067
		Total current liabilities			18,390,787
Long-term capital lease obligation					490,733
Other long-term liabilities					607,146
		Total liabilities			19,488,666
	Series A preferred stock, $0.01 par value. Liquidation preference of $1,000 per share. Authorized 5,000 shares; issued and outstanding 3,605 shares in 2001				4,508,150
Stockholders’ equity:
	Common stock, $0.01 par value. Authorized 500,000 shares; 363,275 shares issued in 2001				3,633
	Paid-in-capital				3,726,446
	Subscription receivable				(25,000	)
	Retained earnings				2,088,513
	Treasury stock, at cost; 5,775 shares				(57,750	)
		Total stockholders’ equity			5,735,842
	Commitments and contingencies (note 8)
		Total liabilities and stockholders’ equity		$	29,732,658

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Net sales				$	97,933,306
Cost of sales					62,050,323
		Gross profit			35,882,983
Selling, general and administrative expenses					31,405,480
		Income from operations			4,477,503
Interest expense					454,597
		Income before provision for income taxes			4,022,906
Provision for income taxes					1,565,566
		Net income		$	2,457,340
Basic income per common share				$	5.93
Diluted income per common share				$	5.59
Average number of shares outstanding
	Basic				360,158
	Diluted				382,190

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Operating activities:
	Net income					$	2,457,340
	Adjustment to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization					2,737,797
		Deferred tax asset					(442,228	)
		Loss on disposal of fixed assets					96,430
		Noncash compensation expense					97,329
		Changes in assets and liabilities:
			Inventory				(1,928,967	)
			Prepaid and other assets				(633,385	)
			Tax receivable				206,351
			Accounts payable				86,450
			Accrued expenses and other liabilities				157,048
			Layaway deposits				49,000
				Net cash provided by operating activities			2,883,165
Investing activities:
	Purchase of property and equipment						(2,124,820	)
Financing activities:
	Net repayment under revolving line of credit						(1,223,850	)
	Repayments under capital lease						(769,163	)
	Purchase of treasury stock						(12,000	)
	Proceeds from sale of stock						82,000
			Net cash used in financing activities				(1,923,013	)
			Net decrease in cash				(1,164,668	)
Cash:
	Beginning of period						5,262,386
	End of period					$	4,097,718
Supplemental disclosures of cash flow information:
	Cash paid for interest					$	454,597
	Cash paid for income taxes						1,801,443
Supplemental disclosures of noncash activities:
		Dividends accrued on redeemable preferred stock				$	324,450
		Purchases of property and equipment financed by entering into capital leases				$	18,200

F-19

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																		Retained
		Common Stock																earnings				Treasury Stock
										Paid-in				Subscription				(accumulated
		Shares				Amount				capital				receivable				deficit)				Shares				Amount				Total
Balance — February 3, 2001			358,575			$	3,586				3,582,164				(25,000	)			(44,377	)			4,575			$	(45,750	)		$	3,470,623
Exercise of stock options			1,200				12				11,988																				12,000
Purchase of 1,200 shares of common stock for cash																							1,200				(12,000	)			(12,000	)
Issuance of 3,500 and 35 shares of preferred and common stock, respectively, for cash			3,500				35				104,965																				105,000
Expense recorded in connection with issuance of stock options											27,329																				27,329
Accrued preferred stock dividends																			(324,450	)											(324,450	)
Net income																			2,457,340												2,457,340
Balance — February 2, 2002			363,275				3,633				3,726,446				(25,000	)			2,088,513				5,775				(57,750	)			5,735,842

F-20

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(1)	Organization and Business

(2)	Summary of Significant Accounting Policies

(a)	Fiscal Year

(b)	Cash and Cash Equivalents

(c)	Inventory

(d)	Property and Equipment, net

(e)	Goodwill

(f)	Impairment of Long-Lived Assets

F-21

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(g)	Stock-Based Compensation

Net income, as reported				$	2,457,340
Add stock-based employee compensation expense included in reported net income, net of tax of $37,877					59,452
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax of $47,359					(74,336	)
		Pro forma net income		$	2,442,456
	Pro forma Basic Income per common share				5.89
	Pro forma Diluted Income per common share				5.55

(h)	Revenue Recognition

(i)	Earnings Per Share

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Net income, as reported			$	2,457,340
Subtract dividends on preferred shares subject to mandatory redemption				321,563
	Numerator for EPS Calculation		$	2,135,777

Average number of common shares outstanding			360,158
Incremental shares from assumed exercises of stock options			22,032
Average number of common shares and common stock equivalents outstanding			382,190

(j)	Advertising

(k)	Store Opening and Closing Costs

(l)	Income Taxes

(m)	Use of Estimates

(n)	Business Reporting Segments

F-23

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(o)	Derivative Financial Instruments and Hedging Activities

(3)	Property and Equipment

Land		$
Leasehold improvements			7,277,129
Furniture, fixtures, and equipment			1,421,121
Computer equipment			3,063,516
			11,761,766
Accumulated depreciation			5,217,491
		$	6,544,275

(4)	Revolving Line of Credit

(5)	Long-term Debt and Capital Lease Obligations

Capital lease obligations issued to finance purchase of computer equipment; payable in monthly installments averaging approximately $73,718, and $41,579 in 2002, and 2003, with maturity dates ranging from August 2003 to December 2003; interest at rates ranging from 2.5% to 13.1%; secured by computer equipment			1,304,786
			1,304,786
Less current portion of long-term debt and capital lease obligations			(814,053	)
		$	490,733

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Fiscal Year
2004		$	884,621
2005			498,953
2006			—
2007			—
2008			—
			1,383,574
Less portion attributable to future interest payments (at rates ranging from 2.5% to 13.1%)			(78,788	)
		$	1,304,786

(6)	Income Taxes

Current:
	Federal		$	1,694,322
	State			313,472
				2,007,794
Deferred:
	Federal			(372,329	)
	State			(69,899	)
				(442,228	)
			$	1,565,566

Statutory rate applied to income before income taxes			$	1,367,547
State income taxes, net of federal benefit				160,578
Other				37,441
	Income tax expense		$	1,565,566

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Deferred tax assets:
	Book and tax depreciation differences			$	621,354
	Deferred rent amortization				136,234
	Inventory capitalization				427,852
	Vacation liability				33,600
	Other				53,200
					1,272,240
Deferred tax liabilities:
	Prepaid expenses				(293,540	)
	Other				(77,916	)
					(371,456	)
		Net deferred tax asset		$	900,784

(7)	Stockholders’ Equity

(a)	Preferred Shares Subject to Mandatory Redemption

(b)	Stockholders Agreement

(c)	Equity Transactions with New Officer

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(d)	Stock Options

Outstanding at beginning of period			46,646
Granted			23,850
Exercised			(1,200	)
Forfeited			(3,200	)
Outstanding at end of period			66,096
Options exercisable at end of period			22,023

Dividend yield			0.00	%
Expected volatility			0.00	%
Risk-free interest rate			5.35	%
Expected life, in years			10 years

(8)	Commitments

Fiscal year ending:
	2002			$	3,756,180
	2003				3,524,248
	2004				2,710,859
	2005				1,428,603
	2006				654,805
	Thereafter				1,465,129
		Total future minimum lease payments			13,539,824

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(9)	Related Party Transactions

F-28

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				10/30/04				1/31/04
Assets
Current assets:
	Cash and cash equivalents			$	2,156,019				9,954,232
	Inventory				37,439,758				22,712,369
	Prepaid and other current assets				2,494,550				1,770,998
	Income tax receivable				579,386				—
	Deferred tax asset				668,604				530,604
		Total current assets			43,338,317				34,968,203
Property and equipment, net					16,078,755				12,749,601
Goodwill					1,371,404				1,371,404
Other assets					119,704				123,992
		Total assets		$	60,908,180				49,213,200
Liabilities and Stockholders’ Equity
Current liabilities:
	Borrowings under revolving lines of credit			$	5,388,067				—
	Accounts payable				20,615,716				19,577,370
	Accrued expenses				2,923,041				2,121,520
	Accrued compensation				2,655,387				1,669,462
	Current portion of long-term debt				77,949				74,762
	Current portion of capital lease obligations				614,373				566,667
	Income tax payable				—				331,342
	Layaway deposits				1,141,656				133,028
		Total current liabilities			33,416,189				24,474,151
Long-term debt, less current portion					1,442,757				1,494,302
Capital lease obligations, less current portion					646,425				494,547
Preferred shares subject to mandatory redemption					4,403,651				5,160,313
Deferred tax liability					471,445				333,445
Other long-term liabilities					1,406,482				752,574
		Total liabilities			41,786,949				32,709,332
Stockholders’ equity:
	Common stock, $0.01 par value. Authorized 500,000 shares; 363,875 and 363,275 shares issued in 2004 and 2003				3,639				3,633
	Paid-in-capital				4,109,737				4,011,601
	Retained earnings				15,196,868				12,571,384
	Treasury stock, at cost; 6,375 and 5,775 shares in 2004 and 2003				(164,550	)			(57,750	)
	Subscription receivable				(24,463	)			(25,000	)
		Total stockholders’ equity			19,121,231				16,503,868
Commitments and contingencies (note 10)
		Total liabilities and stockholders’ equity		$	60,908,180				49,213,200

F-29

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				2004				2003
Net sales				$	137,128,892			$	107,952,093
Cost of sales					86,288,239				67,466,353
		Gross profit			50,840,653				40,485,740
Selling, general and administrative expenses					46,013,981				35,931,919
		Income from operations			4,826,672				4,553,821
Interest expense, including redeemable preferred stock dividend					557,590				315,048
		Income before provision for income taxes			4,269,082				4,238,773
Provision for income taxes					1,643,596				1,637,924
		Net income		$	2,625,486			$	2,600,849
Basic income per common share				$	7.22			$	6.79
Diluted income per common share				$	6.20			$	5.89
Average number of shares outstanding
	Basic				363,808				363,275
	Diluted				423,701				418,532

F-30

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						2004				2003
Operating activities:
	Net income					$	2,625,486				2,600,849
	Adjustment to reconcile net income to net cash provided by operating activities:
		Dividends on preferred shares subject to mandatory redemption					243,338				108,150
		Depreciation and amortization					3,569,848				3,004,906
		Noncash compensation expense					92,142				102,163
		Changes in assets and liabilities:
			Inventory				(14,727,389	)			(10,835,495	)
			Prepaid and other current assets				(723,552	)			(65,577	)
			Income tax receivable				(910,729	)			(27,780	)
			Other assets				4,288				5,555
			Accounts payable				1,038,347				3,939,674
			Accrued expenses and other long-term liabilities				1,455,430				215,119
			Accrued compensation				985,925				(70,322	)
			Layaway deposits				1,008,627				938,281
				Net cash used in operating activities			(5,338,239	)			(84,477	)
Investing activities:
	Purchase of property and equipment						(6,230,583	)			(5,094,521	)
Financing activities:
	Net Borrowing (repayments) under revolving line of credit						5,388,067				3,043,894
	Repayments on long-term debt and capital lease obligations						(623,458	)			(780,013	)
	Payment of dividends on preferred shares subject to mandatory redemption						(1,000,000	)			—
	Proceeds from issuance of Capital Stock						6,000				—
				Net cash provided by financing activities			3,770,609				2,263,881
				Net decrease in cash and cash equivalents			(7,798,213	)			(2,915,117	)
Cash and cash equivalents:
	Beginning of period						9,954,232				5,824,847
	End of period					$	2,156,019				2,909,730
Supplemental disclosures of cash flow information:
	Cash paid for interest					$	296,900				189,546
	Cash paid for income taxes					$	2,559,729				1,663,704
Supplemental disclosures of noncash activities:
	Dividends accrued on redeemable preferred stock					$	243,338				243,338
	Purchases of property and equipment financed by entering into capital leases					$	670,503				660,012

F-31

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(1)	Basis of Presentation

(2)	Organization and Business

(3)	Use of Estimates

(4)	Recently Adopted Accounting Standards

(5)	Revolving Lines of Credit

F-32

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(6)	Preferred Shares Subject to Mandatory Redemption

(7)	Certain Financial Instruments with Characteristics of Liabilities and Equity

			2004				2003
Net income, as reported			$	2,625,486				2,600,848
Add dividends on preferred shares subject to mandatory redemption				243,338				108,150
	Pro forma net income		$	2,868,824				2,708,998

(8)	Stock-Based Compensation

F-33

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			2004				2003
Net income, as reported			$	2,625,486				2,600,849
Add stock-based employee compensation expense included in reported net income, net of tax of $48,224 and $60,220, respectively				75,049				101,662
Deduct total stock-based employee compensation expense determined under fair-value-based method for all awards, net of tax of 73,626 and $50,492, respectively				(114,580	)			(85,239	)
	Pro forma net income		$	2,585,955				2,617,272
	Pro forma Basic Income per common share			7.11				6.83
	Pro forma Diluted Income per common share			6.10				5.93

(9)	Related Party Transactions

(10)	Contingencies

F-34

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(11)	Recently Issued Accounting Standards Not Currently Effective

F-35

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Item 13.	Other Expenses of Issuance and Distribution.

SEC Registration fee		$	6,767.75
NASD filing fee			6,250.00
Nasdaq national market listing fee			5,000.00
Printing			*
Legal fees and expenses			*
Accounting fees and expenses			*
Transfer agent and registrar fees			*
Miscellaneous			*
Total		$	*

*	To be provided by amendment

Item 14.	Indemnification of Directors and Officers.

	•	any breach of the director’s duty of loyalty to us or our stockholders;
	•	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
	•	any act related to unlawful stock repurchases, redemptions or other distributions or payment of dividends; or
	•	any transaction from which the director derived an improper personal benefit.

	•	we may indemnify our directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;
	•	we may advance expenses to our directors, officers and employees in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and
	•	the rights provided in our amended and restated by-laws are not exclusive.

II-1

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Item 15.	Recent Sales of Unregistered Securities.

II-2

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Item 16.	Exhibits and Financial Statement Schedules

Exhibit No.				Description
	1.1			Form of Underwriting Agreement
	3.1			Form of Second Amended and Restated Certificate of Incorporation
	3.2			Form of Amended and Restated By-laws
	4.1			Specimen certificate for shares of common stock, $.01 par value*
	5.1			Opinion of Paul, Hastings, Janofsky & Walker LLP*
	10.1			Letter Agreement by and between R. Edward Anderson and Citi Trends, Inc., dated November 16, 2001
	10.2			Employment and Non-Interference Agreement by and between George Bellino and Citi Trends, Inc., dated as of April 13, 1999
	10.3			Amendment No. 1 to the Employment and Non-Interference Agreement by and between George Bellino and Citi Trends, Inc., dated as of December 2001
	10.4			The Loan and Security Agreement, dated as of April 2, 1999, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.5			First Amendment to Loan and Security Agreement, dated as of June 28, 2000, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.6			Second Amendment to Loan and Security Agreement, dated as of November 30, 2000, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.7			Third Amendment to Loan and Security Agreement, dated as of January 2003, by and between Congress Financial Corporation (Southwest) and Citi Trends, Inc.
	10.8			Fourth Amendment to Loan and Security Agreement, dated as of February 9, 2005, by and between Congress Financial Corporation (Southwest) and Citi Trends, Inc.
	10.9			Lease Agreement, dated as of September 30, 2004, by and between Meyer Warehouse, LLC, as landlord, and Citi Trends, Inc., as tenant
	10.1	0		$3.0 Million Promissory Note of Citi Trends, Inc. payable to Bank of America issued on June 21, 2004
	10.1	1		Form of 2005 Long Term Incentive Plan
	10.1	2		Nominating Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Equity Partners II, L.P.*
	10.1	3		Registration Rights Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Equity Partners II, L.P.*

II-3

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Table of Contents

Exhibit No.				Description
	10.1	4		Termination Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Management Company LLC*
	14.1			Citi Trends, Inc. Code of Business Conduct and Ethics*
	23.1			Consent of KPMG LLP
	23.2			Consent of Paul Hastings, Janofsky & Walker LLP (included in Exhibit 5.1)*
	24.1			Power of Attorney (included on the signature page hereto)

Item 17.	Undertakings.

	(1)     For purposes of determining any liability under the Securities Act of 1933, as amended, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to be part of this registration statement as of the time it was declared effective.
	(2)     For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-4

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Table of Contents

	CITI TRENDS, INC.

	By:	/s/ R. Edward Anderson

	R. Edward Anderson
	Chief Executive Officer

Signature		Title		Date
/s/ R. Edward Anderson   R. Edward Anderson		Chief Executive Officer (Principal Executive Officer)		February 28, 2005
/s/ Thomas W. Stoltz   Thomas W. Stoltz		Chief Financial Officer (Principal Financial Officer)		February 28, 2005
/s/ George A. Bellino   George A. Bellino		Director		February 28, 2005
/s/ Gregory P. Flynn   Gregory P. Flynn		Director		February 28, 2005
/s/ Laurens M. Goff   Laurens M. Goff		Director		February 28, 2005
/s/ John S. Lupo   John S. Lupo		Director		February 28, 2005
/s/ Tracy L. Noll   Tracy L. Noll		Director		February 28, 2005

II-5

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Table of Contents

Exhibit No.				Description
	1.1			Form of Underwriting Agreement
	3.1			Form of Second Amended and Restated Certificate of Incorporation
	3.2			Form of Amended and Restated By-laws
	4.1			Specimen certificate for shares of common stock, $.01 par value*
	5.1			Opinion of Paul, Hastings, Janofsky & Walker LLP*
	10.1			Letter Agreement by and between R. Edward Anderson and Citi Trends, Inc., dated November 16, 2001
	10.2			Employment and Non-Interference Agreement by and between George Bellino and Citi Trends, Inc., dated as of April 13, 1999
	10.3			Amendment No. 1 to the Employment and Non-Interference Agreement by and between George Bellino and Citi Trends, Inc., dated as of December 2001
	10.4			The Loan and Security Agreement, dated as of April 2, 1999, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.5			First Amendment to Loan and Security Agreement, dated as of June 28, 2000, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.6			Second Amendment to Loan and Security Agreement, dated as of November 30, 2000, by and between Congress Financial Corporation (Southwest) and Allied Fashion, Inc.
	10.7			Third Amendment to Loan and Security Agreement, dated as of January 2003, by and between Congress Financial Corporation (Southwest) and Citi Trends, Inc.
	10.8			Fourth Amendment to Loan and Security Agreement, dated as of February 9, 2005, by and between Congress Financial Corporation (Southwest) and Citi Trends, Inc.
	10.9			Lease Agreement, dated as of September 30, 2004, by and between Meyer Warehouse, LLC, as landlord, and Citi Trends, Inc., as tenant
	10.1	0		$3.0 Million Promissory Note of Citi Trends, Inc. payable to Bank of America issued on June 21, 2004
	10.1	1		Form of 2005 Long Term Incentive Plan
	10.1	2		Nominating Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Equity Partners II, L.P.*
	10.1	3		Registration Rights Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Equity Partners II, L.P.*
	10.1	4		Termination Agreement, dated as of           , 2005, by and between Citi Trends, Inc. and Hampshire Management Company LLC*

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Table of Contents

Exhibit No.				Description
	14.1			Citi Trends, Inc. Code of Business Conduct and Ethics*
	23.1			Consent of KPMG LLP
	23.2			Consent of Paul Hastings, Janofsky & Walker LLP (included in Exhibit 5.1)*
	24.1			Power of Attorney (included on the signature page hereto)

                                                                     Exhibit 1.1

                              ______________ Shares

                                CITI TRENDS, INC.

                                  Common Stock

                             UNDERWRITING AGREEMENT
                             ----------------------
                                                                  ________, 2005

CIBC World Markets Corp.
Wachovia Capital Markets, LLC
SG Cowen & Co., LLC
Piper Jaffray & Co.
  as Representatives of the several
  Underwriters named in Schedule I hereto
c/o CIBC World Markets Corp.
300 Madison Avenue
New York, New York 10017

Ladies and Gentlemen:

            Citi Trends, Inc., a Delaware corporation (the "Company") and the
persons listed on Schedule II hereto (each, a "Selling Stockholder," and
together, the "Selling Stockholders"), propose, subject to the terms and
conditions contained herein, to sell to you and the other underwriters named on
Schedule I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives (the "Representatives"), an aggregate of ________ shares (the
"Firm Shares") of the Company's common stock, $0.01 par value per share (the
"Common Stock"). Of the _____ Firm Shares, _____ are to be issued and sold by
the Company and _____ are to be sold by the Selling Stockholders. The respective
amounts of the Firm Shares to be purchased by each of the several Underwriters
are set forth opposite their names on Schedule I hereto. In addition, [the
Company proposes to grant to the Underwriters an option to purchase up to an
additional ___________ shares (the "Company Option Shares") of Common Stock from
the Company] [the Selling Stockholders propose to grant to the Underwriters an
option to purchase up to an additional _________ shares (the "Selling
Stockholder Option Shares," and together with the Company Option Shares, the
"Option Shares") of Common Stock from the Selling Stockholders] for the purpose
of covering over-allotments, if any, in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are collectively called the
"Shares."

            [As part of the offering contemplated by this Agreement, the
Company, the Selling Stockholders and the Underwriters agree that up to ________
shares (the "Directed Shares") of the Shares to be purchased by the Underwriters
shall be reserved for sale by the



Underwriters to certain of the Company's directors, officers, employees and
other parties associated with the Company (each, individually a "Participant"
and collectively, the "Participants"), as part of the distribution of the Shares
by the Underwriters, under the terms of the friends and family directed sales
program (the "Friends and Family Program"), and subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. Shares to be sold pursuant to the Friends and Family Program shall
be sold pursuant to this Agreement at the public offering price. To the extent
that any such Directed Shares are not orally confirmed for purchase by a
Participant by the end of the first business day after the date of this
Agreement, such Directed Shares may be offered to the public as part of the
public offering contemplated hereby.]

            The Company has prepared and filed in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the published rules and regulations thereunder (the "Rules") adopted by the
Securities and Exchange Commission (the "Commission") a Registration Statement
(as hereinafter defined) on Form S-1 (No. 333-_____), including a preliminary
prospectus relating to the Shares, and such amendments thereof as may have been
required to the date of this Agreement. Copies of such Registration Statement
(including all amendments thereof) and of the related Preliminary Prospectus (as
hereinafter defined) have heretofore been delivered by the Company to you. The
term "Preliminary Prospectus" means any preliminary prospectus included at any
time as a part of the Registration Statement or filed with the Commission by the
Company pursuant to Rule 424(a) of the Rules. The term "Registration Statement"
as used in this Agreement means the initial registration statement (including
all exhibits, financial schedules), as amended at the time and on the date it
becomes effective (the "Effective Date"), including the information (if any)
contained in the form of final prospectus filed with the Commission pursuant to
Rule 424(b) of the Rules and deemed to be part thereof at the time of
effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an
abbreviated registration statement to register additional Shares pursuant to
Rule 462(b) under the Rules (the "462(b) Registration Statement"), then any
reference herein to the Registration Statement shall also be deemed to include
such 462(b) Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement at the time of effectiveness or, if Rule 430A of the Rules is relied
on, the term Prospectus shall also include the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules. The term "Prospectus" shall
also include any related preliminary prospectus as first filed with the
Commission (whether filed as part of the Registration Statement or any amendment
thereto or pursuant to Rule 424(a) of the Rules) and any amendment thereof or
supplement thereto.

            The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the Prospectus, as soon after the Effective Date and the date of
this Agreement as the Representatives deem advisable. The Company and the
Selling Stockholders hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each Preliminary Prospectus
and are authorized to distribute the Prospectus (as from time to time amended or
supplemented if the Company furnishes amendments or supplements thereto to the
Underwriters).

                                        2



            1.    Sale, Purchase, Delivery and Payment for the Shares. On the
basis of the representations, warranties and agreements contained in, and
subject to the terms and conditions of, this Agreement:

            (a)   The Company agrees to issue and sell to each of the
      Underwriters, and each of the Underwriters agrees, severally and not
      jointly, to purchase from the Company, at a purchase price of $_____ per
      share (the "Initial Price"), the number of Firm Shares set forth opposite
      the name of such Underwriter under the column "Number of Firm Shares to be
      Purchased from the Company" on Schedule I to this Agreement, subject to
      adjustment in accordance with Section 9 hereof. The Selling Stockholders
      agree to sell to each of the Underwriters, and each of the Underwriters
      agrees, severally and not jointly, to purchase from the Selling
      Stockholders, at the Initial Price, the number of Firm Shares set forth
      opposite the name of such Underwriter under the column "Number of Firm
      Shares to be Purchased from the Selling Stockholders" on Schedule I to
      this Agreement, subject to adjustment in accordance with Section 9 hereof.

            (b)   [The Company] [The Selling Stockholders] [The Company and the
      Selling Stockholders] hereby grants to the several Underwriters an option
      to purchase, severally and not jointly, all or any part of the Option
      Shares at the Initial Price. The number of Option Shares to be purchased
      by each Underwriter shall be the same percentage (adjusted by the
      Representatives to eliminate fractions) of the total number of Option
      Shares to be purchased by the Underwriters as such Underwriter is
      purchasing of the Firm Shares. Such option may be exercised only to cover
      over-allotments in the sales of the Firm Shares by the Underwriters and
      may be exercised in whole or in part at any time on or before 12:00 noon,
      New York City time, on the business day before the Firm Shares Closing
      Date (as defined below), and from time to time thereafter within 30 days
      after the date of this Agreement, in each case upon written, facsimile or
      telegraphic notice, or verbal or telephonic notice confirmed by written,
      facsimile or telegraphic notice, by the Representatives to the Company no
      later than 12:00 noon, New York City time, on the business day before the
      Firm Shares Closing Date or at least two business days before the Option
      Shares Closing Date (as defined below), as the case may be, setting forth
      the number of Option Shares to be purchased and the time and date (if
      other than the Firm Shares Closing Date) of such purchase.

            (c)   Payment of the purchase price for, and delivery of
      certificates for, the Firm Shares shall be made at the offices of DLA
      Piper Rudnick Gray Cary US LLP, 6225 Smith Avenue, Baltimore, MD 21209, at
      10:00 a.m., local time, on the third business day following the date of
      this Agreement or at such time on such other date, not later than ten (10)
      business days after the date of this Agreement, as shall be agreed upon by
      the Company and the Representatives (such time and date of delivery and
      payment are called the "Firm Shares Closing Date"). In addition, in the
      event that any or all of the Option Shares are purchased by the
      Underwriters, payment of the purchase price, and delivery of the
      certificates, for such Option Shares shall be made at the above-mentioned
      offices, or at such other place as shall be agreed upon by the
      Representatives and the Company, on each date of delivery as specified in
      the notice from the Representatives to the Company (such time and date of
      delivery and payment are called the "Option Shares Closing

                                        3



      Date"). The Firm Shares Closing Date and any Option Shares Closing Date
      are called, individually, a "Closing Date" and, together, the "Closing
      Dates."

            (d)   Payment shall be made to the Company and the Selling
      Stockholders by wire transfer of immediately available funds or by
      certified or official bank check or checks payable in New York Clearing
      House (same day) funds drawn to the order of the Company and to the
      Selling Stockholders for the shares purchased from the Selling
      Stockholders, against delivery of the respective certificates to the
      Representatives for the respective accounts of the Underwriters of
      certificates for the Shares to be purchased by them.

            (e)   Certificates evidencing the Shares shall be registered in such
      names and shall be in such denominations as the Representatives shall
      request at least two full business days before the Firm Shares Closing
      Date or, in the case of Option Shares, on the day of notice of exercise of
      the option as described in Section 1(b) and shall be delivered by or on
      behalf of the Company to the Representatives through the facilities of the
      Depository Trust Company ("DTC") for the account of such Underwriter. The
      Company will cause the certificates representing the Shares to be made
      available for checking and packaging, at such place as is designated by
      the Representatives, on the full business day before the Firm Shares
      Closing Date (or the Option Shares Closing Date in the case of the Option
      Shares).

            2.    Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Firm Shares Closing Date and as of each Option Shares Closing Date (if any), as
follows:

            (a)   On the Effective Date, the Registration Statement complied,
      and on the date of the Prospectus, the date any post-effective amendment
      to the Registration Statement becomes effective, the date any supplement
      or amendment to the Prospectus is filed with the Commission and each
      Closing Date, the Registration Statement and the Prospectus (and any
      amendment thereof or supplement thereto) will comply, in all material
      respects, with the requirements of the Securities Act and the Rules and
      the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
      the published rules and regulations of the Commission thereunder. The
      Registration Statement did not, as of the Effective Date, contain any
      untrue statement of a material fact or omit to state any material fact
      required to be stated therein or necessary in order to make the statements
      therein not misleading; and on the Effective Date and the other dates
      referred to above neither the Registration Statement nor the Prospectus,
      nor any amendment thereof or supplement thereto, will contain any untrue
      statement of a material fact or will omit to state any material fact
      required to be stated therein or necessary in order to make the statements
      therein not misleading. When any related preliminary prospectus was first
      filed with the Commission (whether filed as part of the Registration
      Statement or any amendment thereto or pursuant to Rule 424(a) of the
      Rules) and when any amendment thereof or supplement thereto was first
      filed with the Commission, such preliminary prospectus as amended or
      supplemented complied in all material respects with the applicable
      provisions of the Securities Act and the Rules and did not contain any
      untrue statement of a material fact or omit to state any material fact
      required to be stated therein

                                        4



      or necessary in order to make the statements therein not misleading. If
      applicable, each Preliminary Prospectus and the Prospectus delivered to
      the Underwriters for use in connection with this offering was identical to
      the electronically transmitted copies thereof filed with the Commission
      pursuant to EDGAR, except to the extent permitted by Regulation S-T. If
      Rule 434 is used, the Company will comply with the requirements of Rule
      434 and the Prospectus shall not be "materially different," as such term
      is used in Rule 434, from the Prospectus included in the Registration
      Statement at the time it became effective. Notwithstanding the foregoing,
      none of the representations and warranties in this Section 2(a) shall
      apply to statements in, or omissions from, the Registration Statement or
      the Prospectus made in reliance upon, and in conformity with, information
      furnished in writing by the Representatives on behalf of the several
      Underwriters for use in the Registration Statement or the Prospectus. With
      respect to the preceding sentence, the Company acknowledges that the only
      information furnished in writing by the Representatives on behalf of the
      several Underwriters for use in the Registration Statement or the
      Prospectus is the statements contained in the [third, fourth, fifth and
      sixth sentences of the fifth paragraph, the tenth paragraph and thirteenth
      and fourteenth paragraphs under the caption "Underwriting" in the
      Prospectus.][Verify once the prospectus is finalized].

            (b)   The Registration Statement is effective under the Securities
      Act and no stop order preventing or suspending the effectiveness of the
      Registration Statement or suspending or preventing the use of the
      Prospectus has been issued by the Commission and no proceedings for that
      purpose have been instituted or are threatened under the Securities Act.
      Any required filing of the Prospectus and any supplement thereto pursuant
      to Rule 424(b) of the Rules has been or will be made in the manner and
      within the time period required by such Rule 424(b).

            (c)   The financial statements of the Company (including all notes
      and schedules thereto) included in the Registration Statement and
      Prospectus present fairly the financial position of the Company at the
      dates indicated and the statement of operations, stockholders' equity and
      cash flows of the Company for the periods specified; and such financial
      statements and related schedules and notes thereto, and the unaudited
      financial information included as part of the Registration Statement, have
      been prepared in conformity with generally accepted accounting principles,
      consistently applied throughout the periods involved. The summary and
      selected financial data included in the Registration Statement and the
      Prospectus present fairly the information shown therein as at the
      respective dates and for the respective periods specified and have been
      presented on a basis consistent with the consolidated financial statements
      set forth in the Registration Statement and the Prospectus and other
      financial information.

            (d)   (i) KPMG LLP, whose reports are filed with the Commission as a
      part of the Registration Statement, are and, during the periods covered by
      their reports, are an independent registered public accounting firm as
      required by the Securities Act and the Rules.

                  (ii) The Company has not had any disagreements with its
       current or former independent auditors on any matter of accounting
       principles or practices, financial statement disclosure, or auditing
       scope or procedure and none of the events listed in Item 304(a)(1)(v)(A)
       through (D) of Regulation S-K promulgated under the Securities Act have
       occurred during the immediately preceding five fiscal years.

                                        5


            (e)   The Company is duly organized, validly existing and in good
      standing under the laws of the State of Delaware. The Company has no
      subsidiary or subsidiaries and does not control, directly or indirectly,
      any corporation, partnership, joint venture, association or other business
      organization. The Company is duly qualified to do business and is in good
      standing as a foreign corporation in each jurisdiction in which the nature
      of the business conducted by it or location of the assets or properties
      owned, leased or licensed by it requires such qualification, except for
      such jurisdictions where the failure to so qualify individually or in the
      aggregate would not have a material adverse effect on the assets,
      properties, condition, financial or otherwise, or in the results of
      operations, business affairs or business prospects of the Company (a
      "Material Adverse Effect"); and to the Company's knowledge, no proceeding
      has been instituted in any such jurisdiction revoking, limiting or
      curtailing, or seeking to revoke, limit or curtail, such power and
      authority or qualification. The Company does not own, lease or license any
      asset or property or conduct any business outside the United States of
      America.

            (f)   The Company has all requisite corporate power and authority,
      and all necessary authorizations, approvals, consents, orders, licenses,
      certificates and permits of and from all governmental or regulatory bodies
      or any other person or entity (collectively, the "Permits"), to own, lease
      and license its assets and properties and conduct its business, all of
      which are valid and in full force and effect, except where the lack of
      such Permits, individually or in the aggregate, could not have a Material
      Adverse Effect. The Company has fulfilled and performed in all material
      respects all of its obligations with respect to such Permits and no event
      has occurred that allows, or after notice or lapse of time would allow,
      revocation or termination thereof or results in any other material
      impairment of the rights of the Company thereunder. Except as may be
      required under the Securities Act and state and foreign blue sky laws, no
      other Permits are required to enter into, deliver and perform this
      Agreement and to issue and sell the Shares.

            (g)   (i) To the best of the Company's knowledge, the Company owns
      or possesses legally enforceable rights to use all patents, patent rights,
      inventions, trademarks, trademark applications, trade names, service
      marks, copyrights, copyright applications, licenses, know-how and other
      similar rights and proprietary knowledge (collectively, "Intangibles")
      currently used in or necessary for the conduct of its business, and (ii)
      to the best of the Company's knowledge, the Company has not knowingly
      infringed upon or misappropriated the intellectual property rights of any
      third-parties, and (iii) no claims in connection with any of the items in
      clause (ii) are pending or, to the Company's knowledge, threatened, and to
      the Company's knowledge there are no bases for such claims. To the best of
      Company's knowledge, none of the Intangibles currently used in connection
      with its business is currently being infringed by a third-party and the
      Company has not made any claims that a third-party has violated or
      infringed any of the Company's rights in such Intangibles.

                                        6



            (h)   The Company has good and marketable title in fee simple to all
      real property, and good and marketable title to all other property owned
      by it, in each case free and clear of all liens, encumbrances, claims,
      security interests and defects, except such as do not materially affect
      the value of such property and do not materially interfere with the use
      made or proposed to be made of such property by the Company. All property
      held under lease by the Company is held by it under valid, existing and
      enforceable leases, free and clear of all liens, encumbrances, claims,
      security interests and defects, except such as are not material and do not
      materially interfere with the use made or proposed to be made of such
      property by the Company. Subsequent to the respective dates as of which
      information is given in the Registration Statement and the Prospectus, (i)
      there has not been any Material Adverse Effect; (ii) the Company has not
      sustained any loss or interference with its assets, businesses or
      properties (whether owned or leased) from fire, explosion, earthquake,
      flood or other calamity, whether or not covered by insurance, or from any
      labor dispute or any court or legislative or other governmental action,
      order or decree which could have a Material Adverse Effect; and (iii)
      since the date of the latest balance sheet included in the Registration
      Statement and the Prospectus, the Company has not (A) issued any
      securities or incurred any liability or obligation, direct or contingent,
      for borrowed money, except such liabilities or obligations incurred in the
      ordinary course of business, (B) entered into any transaction not in the
      ordinary course of business or (C) declared or paid any dividend or made
      any distribution on any shares of its stock or redeemed, purchased or
      otherwise acquired or agreed to redeem, purchase or otherwise acquire any
      shares of its capital stock.

            (i)   There is no document, contract or other agreement required to
      be described in the Registration Statement or Prospectus or to be filed as
      an exhibit to the Registration Statement which is not described or filed,
      as applicable, as required by the Securities Act or Rules. Each
      description of a contract, document, agreement or instrument in the
      Registration Statement and the Prospectus accurately reflects in all
      respects the terms of the underlying contract, document, agreement or
      instrument. Each contract, document or other agreement described in the
      Registration Statement and Prospectus or listed in the Exhibits to the
      Registration Statement is in full force and effect and is valid and
      enforceable by and against the Company, as the case may be, in accordance
      with its terms. Neither the Company nor, to the Company's knowledge, any
      other party is in default in the observance or performance of any term or
      obligation to be performed by it under any such contract, document,
      agreement or instrument, and no event has occurred which with notice or
      lapse of time or both would constitute such a default. No default exists,
      and no event has occurred which with notice or lapse of time or both would
      constitute a default, in the due performance and observance of any term,
      covenant or condition, by the Company of any other contract, document,
      agreement or instrument to which the Company is a party or by which
      Company or its properties or business may be bound or affected which
      default or event, individually or in the aggregate, could have a Material
      Adverse Effect.

            (j)   The statistical and market related data included in the
      Registration Statement are based on or derived from sources that the
      Company believes to be reliable and accurate.

                                        7



            (k)   The Company is not in violation of any term or provision of
      its certificate of incorporation or by-laws, each as amended through the
      date hereof and each Closing Date (respectively, the "Charter" and
      "Bylaws"), or of any franchise, license, permit, judgment, decree, order,
      statute, rule or regulation, where the consequences of such violation,
      individually or in the aggregate, could have a Material Adverse Effect.

            (l)   Neither the execution, delivery and performance of this
      Agreement by the Company nor the consummation of any of the transactions
      contemplated hereby (including, without limitation, the issuance and sale
      by the Company of the Shares) will give rise to a right to terminate or
      accelerate the due date of any payment due under, or conflict with or
      result in the breach of any term or provision of, or constitute a default
      (or an event which with notice or lapse of time or both would constitute a
      default) under, or require any consent or waiver under, or result in the
      execution or imposition of any lien, charge or encumbrance upon any
      properties or assets of the Company pursuant to the terms of, any
      indenture, mortgage, deed of trust or other contract, document, agreement
      or instrument to which the Company is a party or by which the Company or
      any of its properties or businesses is bound, or any franchise, license,
      permit, judgment, decree, order, statute, rule or regulation applicable to
      the Company or violate any provision of the Charter or Bylaws, except for
      such consents or waivers which have already been obtained and are in full
      force and effect.

            (m)   The Company has authorized and outstanding capital stock as
      set forth under the caption "Capitalization" in the Prospectus. The
      certificates evidencing the Shares are in due and proper legal form and
      have been duly authorized for issuance by the Company. All of the issued
      and outstanding shares of Common Stock have been duly and validly issued
      and are fully paid and nonassessable. There are no preemptive or other
      similar rights to subscribe for or to purchase or acquire any shares of
      Common Stock or any such rights pursuant to the Charter or Bylaws or any
      contract, document, agreement or instrument to or by which the Company is
      a party or bound. The Shares, when issued and sold pursuant to this
      Agreement, will be duly and validly issued, fully paid and nonassessable
      and none of them will be issued in violation of any preemptive or other
      similar right. Except as disclosed in the Registration Statement and the
      Prospectus, there is no outstanding option, warrant or other right calling
      for the issuance of, and there is no commitment, plan or arrangement to
      issue, any share of capital stock of the Company or any security
      convertible into, or exercisable or exchangeable for, such capital stock.
      The Common Stock and the Shares conform in all material respects to all
      statements in relation thereto contained in the Registration Statement and
      the Prospectus.

            (n)   No holder of any security of the Company has any right, which
      has not been waived in writing, to have any security owned by such holder
      included in the Registration Statement or to demand registration of any
      security owned by such holder for a period of 180 days after the date of
      this Agreement. Each director and executive officer of the Company and
      each stockholder of the Company listed on Schedule III has delivered to
      the Representatives his enforceable written lock-up agreement in the form
      attached to this Agreement as Exhibit A hereto ("Lock-Up Agreement").

                                        8



            (o)   All necessary corporate action has been duly and validly taken
      by the Company and to authorize the execution, delivery and performance of
      this Agreement and the issuance and sale of the Shares by the Company.
      This Agreement has been duly and validly authorized, executed and
      delivered by the Company and constitute and will constitute legal, valid
      and binding obligations of the Company enforceable against the Company in
      accordance with their respective terms, except as the enforceability
      thereof may be limited by bankruptcy, insolvency, reorganization,
      moratorium or other similar laws affecting the enforcement of creditors'
      rights generally and by general equitable principles.

            (p)   There is not pending or, to the knowledge of the Company,
      threatened any action, suit, proceeding, inquiry or investigation,
      governmental or otherwise, to which the Company is a party, or to its
      which properties or assets are subject, before or brought by any court,
      arbitrator or governmental agency or body.

            (q)   The Company is not involved in any labor dispute nor, to the
      knowledge of the Company, is any such dispute threatened, which dispute
      could have a Material Adverse Effect. The Company is not aware of any
      existing or imminent labor disturbance by the employees of any of its
      principal suppliers or contractors which could have a Material Adverse
      Effect. The Company is not aware of any threatened or pending litigation
      between the Company and any of its officers, directors, employees or
      stockholders which, if adversely determined, could have a Material Adverse
      Effect and has no reason to believe that such officers will not remain in
      the employment of the Company.

            (r)   No transaction has occurred between or among the Company and
      any of its officers, directors, employees or shareholders or any affiliate
      or affiliates of any such officer or director or shareholder that is
      required to be described in and is not described in the Registration
      Statement and the Prospectus.

            (s)   The Company has not taken, nor will it take, directly or
      indirectly, any action designed to or which might reasonably be expected
      to cause or result in, or which has constituted or which might reasonably
      be expected to constitute, the stabilization or manipulation of the price
      of the Common Stock or any security of the Company to facilitate the sale
      or resale of any of the Shares.

            (t)   The Company has filed all federal, state, local and foreign
      tax returns which are required to be filed through the date hereof, which
      returns are true and correct in all material respects or has received
      timely extensions thereof, and has paid all taxes shown on such returns
      and all assessments received by it to the extent that the same are
      material and have become due. There are no tax audits or investigations
      pending, which if adversely determined could have a Material Adverse
      Effect; nor are there any material proposed additional tax assessments
      against the Company.

            (u)   The Shares have been duly authorized for quotation on the
      National Association of Securities Dealers Automated Quotation National
      Market System ("Nasdaq"). The Company has taken all necessary actions to
      ensure that it will be in

                                        9



      compliance with all applicable corporate governance requirements set forth
      in the NASDAQ Marketplace Rules that are in effect with respect to it and
      is actively taking steps to ensure that it will be in compliance with
      other applicable corporate governance requirements set forth in the NASDAQ
      Marketplace Rules which will in the future become applicable to it. A
      registration statement has been filed on Form 8-A pursuant to Section 12
      of the Exchange Act, which registration statement complies in all material
      respects with the Exchange Act.

            (v)   The Company has taken no action designed to, or likely to have
      the effect of, terminating the registration of the Common Stock under the
      Exchange Act or the quotation of the Common Stock on the Nasdaq National
      Market, nor has the Company received any notification that the Commission
      or the Nasdaq National Market is contemplating terminating such
      registration or quotation.

            (w)   The books, records and accounts of the Company accurately and
      fairly reflect, in reasonable detail, the transactions in, and
      dispositions of, the assets of, and the results of operations of, the
      Company. The Company maintains a system of internal accounting controls
      sufficient to provide reasonable assurances that (i) transactions are
      executed in accordance with management's general or specific
      authorizations, (ii) transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles and to maintain asset accountability, (iii) access
      to assets is permitted only in accordance with management's general or
      specific authorization and (iv) the recorded accountability for assets is
      compared with the existing assets at reasonable intervals and appropriate
      action is taken with respect to any differences; the chief executive
      officer and the chief financial officer of the Company have made all
      certifications required by the Sarbanes-Oxley Act of 2002 (the
      "Sarbanes-Oxley Act") and any related rules and regulations promulgated by
      the Commission, and the statements contained in any such certification are
      complete and correct; the Company maintains "disclosure controls and
      procedures" (as defined in Rule 13a-14(c) under the Exchange Act); the
      Company is otherwise in compliance in all material respects with all
      applicable effective provisions of the Sarbanes-Oxley Act and is actively
      taking steps to ensure that it will be in compliance with other applicable
      provisions of the Sarbanes-Oxley Act upon the effectiveness of such
      provisions.

            (x)   Based on the evaluation of its internal control over financial
      reporting, the Company is not aware of (i) any significant deficiency or
      material weakness in the design or operation of internal control over
      financial reporting which are reasonably likely to adversely affect the
      Company's ability to record, process, summarize and report financial
      information or (ii) any fraud, whether or not material, that involves
      management or other employees who have a significant role in the Company's
      internal control over financial reporting.

            (y)   There are no material off-balance sheet arrangements (as
      defined in Regulation S-K Item 303(a)(4)(ii) promulgated under the
      Securities Act) that may have a material current or future effect on the
      assets, properties, condition, financial or otherwise, or in the results
      of operations, business affairs or business prospects of the Company.

            (z)   The Company is insured by insurers of recognized financial
      responsibility against such losses and risks and in such amounts as are
      customary in the businesses in which they are engaged or propose to engage
      after giving effect to the
                                       10



      transactions described in the Prospectus; all policies of insurance and
      fidelity or surety bonds insuring the Company or the Company's businesses,
      assets, employees, officers and directors are in full force and effect;
      the Company is in compliance with the terms of such policies and
      instruments in all material respects; and the Company has no reason to
      believe that it will not be able to renew its existing insurance coverage
      as and when such coverage expires or to obtain similar coverage from
      similar insurers as may be necessary to continue its business at a cost
      that is not materially greater than the current cost. The Company has not
      been denied any insurance coverage which it has sought or for which it has
      applied.

            (aa)  Each approval, consent, order, authorization, designation,
      declaration or filing of, by or with any regulatory, administrative or
      other governmental body necessary in connection with the execution and
      delivery by the Company of this Agreement and the consummation of the
      transactions herein contemplated required to be obtained or performed by
      the Company (except such additional steps as may be required by the
      National Association of Securities Dealers, Inc. (the "NASD") or may be
      necessary to qualify the Shares for public offering by the Underwriters
      under the state securities or blue sky laws) has been obtained or made and
      is in full force and effect.

            (bb)  There are no affiliations with the NASD among the Company's
      officers, directors or, to the knowledge of the Company, any stockholder
      of the Company, except as set forth in the Registration Statement.

            (cc)  (i) The Company is in compliance in all material respects with
      all rules, laws and regulation relating to the use, treatment, storage and
      disposal of toxic substances and protection of health or the environment
      ("Environmental Laws") which are applicable to its business; (ii) the
      Company has not received any notice from any governmental authority or
      third party of an asserted claim under Environmental Laws; (iii) the
      Company has received all permits, licenses or other approvals required of
      it under applicable Environmental Laws to conduct its business and is in
      compliance with all terms and conditions of any such permit, license or
      approval; (iv) to the Company's knowledge, no facts currently exist that
      will require the Company to make future material capital expenditures to
      comply with Environmental Laws; and (v) no property which is or has been
      owned, leased or occupied by the Company has been designated as a
      Superfund site pursuant to the Comprehensive Environmental Response,
      Compensation of Liability Act of 1980, as amended (42 U.S.C. Section 9601,
      et. seq.) or otherwise designated as a contaminated site under applicable
      state or local law. The Company has not been named as a "potentially
      responsible party" under the CER, CLA 1980.

            (dd)  In the ordinary course of its business, the Company
      periodically reviews the effect of Environmental Laws on the business,
      operations and properties of the Company, in the course of which the
      Company identifies and evaluates associated costs and liabilities
      (including, without limitation, any capital or operating expenditures
      required for clean-up, closure of properties or compliance with
      Environmental Laws, or

                                       11


      any permit, license or approval, any related constraints on operating
      activities and any potential liabilities to third parties). On the basis
      of such review, the Company has reasonably concluded that such associated
      costs and liabilities would not, singly or in the aggregate, have a
      Material Adverse Effect.

            (ee)  The Company is not and, after giving effect to the offering
      and sale of the Shares and before or after the application of proceeds
      thereof as described in the Prospectus, will not be an "investment
      company" within the meaning of the Investment Company Act of 1940, as
      amended (the "Investment Company Act").

            (ff)  Neither the Company nor any other person associated with or
      acting on behalf of the Company including, without limitation, any
      director, officer, agent or employee of the Company, has, directly or
      indirectly, while acting on behalf of the Company (i) used any corporate
      funds for unlawful contributions, gifts, entertainment or other unlawful
      expenses relating to political activity; (ii) made any unlawful payment to
      foreign or domestic government officials or employees or to foreign or
      domestic political parties or campaigns from corporate funds; (iii)
      violated any provision of the Foreign Corrupt Practices Act of 1977, as
      amended; or (iv) made any other unlawful payment.

            (gg)  The operations of the Company are and have been conducted at
      all times in compliance with applicable financial recordkeeping and
      reporting requirements of the Currency and Foreign Transactions Reporting
      Act of 1970, as amended, the money laundering statutes of all
      jurisdictions, the rules and regulations thereunder and any related or
      similar rules, regulations or guidelines, issued, administered or enforced
      by any governmental agency (collectively, the "Money Laundering Laws") and
      no action, suit or proceeding by or before any court or governmental
      agency, authority or body or any arbitrator involving the Company with
      respect to the Money Laundering Laws is pending, or to the best knowledge
      of the Company, threatened.

            (hh)  Neither the Company nor, to the knowledge of the Company, any
      director, officer, agent, employee or affiliate of the Company is
      currently subject to any U.S. sanctions administered by the Office of
      Foreign Assets Control of the U.S. Treasury Department ("OFAC"); and the
      Company will not directly or indirectly use the proceeds of the offering,
      or lend, contribute or otherwise make available such proceeds to any
      subsidiary, joint venture partner or other person or entity, for the
      purpose of financing the activities of any person currently subject to any
      U.S. sanctions administered by OFAC.

            (ii)  [Neither the Company, the Selling Stockholders nor any other
      person associated with or acting on behalf of the Company or the Selling
      Stockholders, including, without limitation, any director, officer, agent
      or employee of the Company or the Selling Stockholders has offered or
      caused the Underwriters to offer any of the Shares to any person pursuant
      to the Friends and Family Program with the specific intent to unlawfully
      influence (i) a customer or supplier of the Company to alter the
      customer's or supplier's level or type of business with the Company or
      (ii) a trade journalist or publication to write or publish favorable
      information about the Company or its products.]

            (jj)  Except as described in the Prospectus, the Company has not
      offered, sold or issued any shares of Common Stock during the six-month
      period preceding the date of the Prospectus, including any sales pursuant
      to Rule 144A under, or Regulations D or S

                                       12



      of, the Securities Act, other than shares issued pursuant to employee
      benefit plans, qualified stock options plans or other employee
      compensation plans or pursuant to outstanding options, rights or warrants.

            (kk)  The Company has fulfilled its obligations, if any, under the
      minimum funding standards of Section 302 of the U.S. Employee Retirement
      Income Security Act of 1974 ("ERISA") and the regulations and published
      interpretations thereunder with respect to each "plan" as defined in
      Section 3(3) of ERISA and such regulations and published interpretations
      in which its employees are eligible to participate and each such plan is
      in compliance in all material respects with the presently applicable
      provisions of ERISA and such regulations and published interpretations. No
      "Reportable Event" (as defined in 12 ERISA) has occurred with respect to
      any "Pension Plan" (as defined in ERISA) for which the Company could have
      any liability.

            (ll)  Each of the Company, its directors and officers has not
      distributed and will not distribute prior to the later of (i) the Firm
      Shares Closing Date, or the Option Shares Closing Date, and (ii)
      completion of the distribution of the Shares, any offering material in
      connection with the offering and sale of the Shares other than any
      Prospectus, the Registration Statement and other materials, if any,
      permitted by the Securities Act.

            (mm)  No forward looking statement (within the meaning of Section
      27A of the Securities Act and Section 21E of the Exchange Act) contained
      in the Prospectus has been made or reaffirmed without a reasonable basis
      or has been disclosed other than in good faith.

            3.    Representations and Warranties of the Selling Stockholders.
Each of the Selling Stockholders hereby represents and warrants to each
Underwriter as of the date hereof, as of the Firm Shares Closing Date [and, if
the Selling Stockholders is selling Option Shares, as of each such Option Shares
Closing Date (if any),] as follows:

            (a)   Each Selling Stockholder has caused certificates for the
      number of Shares to be sold by such Selling Stockholder hereunder to be
      delivered to Citi Trends, Inc. (the "Custodian"), endorsed in blank or
      with blank stock powers duly executed, with a signature appropriately
      guaranteed, such certificates to be held in custody by the Custodian for
      delivery, pursuant to the provisions of this Agreement and an agreement
      dated ____________ among the Custodian and the Selling Stockholders
      substantially in the form attached hereto as Exhibit B (the "Custody
      Agreement").

            (b)   Each Selling Stockholder has granted an irrevocable power of
      attorney substantially in the form attached hereto as Exhibit C (the
      "Power of Attorney") to the person named therein, on behalf of each such
      Selling Stockholder, to execute and deliver this Agreement and any other
      document necessary or desirable in connection with the transactions
      contemplated hereby and to deliver the shares to be sold by each the
      Selling Stockholder pursuant hereto.

                                       13



            (c)   This Agreement, the Custody Agreement, the Power of Attorney
      and the Lock-Up Agreement have each been duly authorized, executed and
      delivered by or on behalf of each Selling Stockholder and, assuming due
      authorization, execution and delivery by the other parties thereto,
      constitutes the valid and legally binding agreement of each Selling
      Stockholder, enforceable against each such Selling Stockholder in
      accordance with its terms, except as such enforceability may be limited by
      applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
      moratorium and other similar laws affecting the enforcement of creditors'
      rights generally and by general equitable principles.

            (d)   The execution and delivery by each Selling Stockholder of this
      Agreement and the performance by each Selling Stockholder of its
      obligations under this Agreement, including the sale and delivery of the
      Shares to be sold by each such Selling Stockholder and the consummation of
      the transactions contemplated herein and compliance by each Selling
      Stockholder with its obligations hereunder, do not and will not, whether
      with our without the giving of notice or the passage of time or both, (i)
      violate or contravene any provision of the charter or bylaws or other
      organizational instrument of any Selling Stockholder, if applicable, or
      any applicable law, statute, regulation, or filing or any agreement or
      other instrument binding upon any Selling Stockholder or any judgment,
      order or decree of any governmental body, agency or court having
      jurisdiction over any Selling Stockholder, (ii) conflict with or
      constitute a breach of, or default under, or result in the creation or
      imposition of any tax, lien, charge or encumbrance upon the shares to be
      sold by any Selling Stockholder or any property or assets of any Selling
      Stockholder pursuant to the terms of any agreement or instrument to which
      any Selling Stockholder is a party or by which any Selling Stockholder may
      be bound or to which any of the property or assets of any Selling
      Stockholder is subject or (iii) require any consent, approval,
      authorization or order of or registration or filing with any court or
      governmental agency or body having jurisdiction over it, except such as
      may be required by the blue sky laws of the various states in connection
      with the offer and sale of the Shares which have been or will be effected
      in accordance with this Agreement.

            (e)   Each Selling Stockholder has, and on the Firm Shares Closing
      Date and the Option Share Closing Date, if applicable, will have, valid
      and marketable title to the Shares to be sold by such Selling Stockholder
      free and clear of any lien, claim, security interest or other encumbrance,
      including, without limitation, any restriction on transfer, except as
      otherwise described in the Registration Statement and Prospectus.

            (f)   Each Selling Stockholder has, and on the Firm Shares Closing
      Date and the Option Share Closing Date, if applicable, will have, full
      legal right, power and authority, and any approval required by law, to
      sell, assign, transfer and deliver the Shares to be sold by such Selling
      Stockholder in the manner provided by this Agreement.

            (g)   Upon delivery of and payment for the Shares to be sold by each
      Selling Stockholder pursuant to this Agreement, assuming each Underwriter
      has no notice of any adverse claim, the several Underwriters will receive
      valid and marketable title to such Shares free and clear of any lien,
      claim, mortgage, pledge, security interest or other encumbrance.

                                       14



            (h)   All information relating to each Selling Stockholder furnished
      in writing by such Selling Stockholder expressly for use in the
      Registration Statement and Prospectus is, and on each Closing Date will
      be, true, correct, and complete, and does not, and on each Closing Date
      will not, contain any untrue statement of a material fact or omit to state
      any material fact necessary to make such information not misleading.

            (i)   Each Selling Stockholder has reviewed the Registration
      Statement and Prospectus and, although such Selling Stockholder has not
      independently verified the accuracy or completeness of all the information
      contained therein, nothing has come to the attention of such Selling
      Stockholder that would lead such Selling Stockholder to believe that (i)
      on the Effective Date, the Registration Statement contained any untrue
      statement of a material fact or omitted to state any material fact
      required to be stated therein or necessary in order to make the statements
      made therein not misleading and (ii) on the Effective Date the Prospectus,
      any amendment thereof or supplement thereto contained and, on each Closing
      Date contains, any untrue statement of a material fact or omitted or omits
      to state any material fact necessary in order to make the statements
      therein, in the light of the circumstances under which they were made, not
      misleading.

            (j)   The sale of Shares by each Selling Stockholder pursuant to
      this Agreement is not prompted by such Selling Stockholder's knowledge of
      any material information concerning the Company which is not set forth in
      the Prospectus.

            (k)   No Selling Stockholder has taken, directly or indirectly, any
      action designed to or that might reasonably be expected to cause or result
      in stabilization or manipulation of the price of any security of the
      Company to facilitate the sale or resale of the Shares.

            (l)   No Selling Stockholder has knowledge that any representation
      or warranty of the Company set forth in Section 2 above is untrue or
      inaccurate in any material respect.

            (m)   The representations and warranties of each Selling Stockholder
      in the Custody Agreement are, and on each Closing Date will be, true and
      correct.

            4.    Conditions of the Underwriters' Obligations. The obligations
of the Underwriters under this Agreement are several and not joint. The
respective obligations of the Underwriters to purchase the Shares are subject to
each of the following terms and conditions:

            (a)   Notification that the Registration Statement has become
      effective shall have been received by the Representatives and the
      Prospectus shall have been timely filed with the Commission in accordance
      with Section 5(a) of this Agreement.

            (b)   No order preventing or suspending the use of any preliminary
      prospectus or the Prospectus shall have been or shall be in effect and no
      order suspending the effectiveness of the Registration Statement shall be
      in effect and no proceedings for such purpose shall be pending before or
      threatened by the Commission, and any requests for additional information
      on the part of the Commission (to be included in the Registration
      Statement or the Prospectus or otherwise) shall have been complied with to
      the

                                       15



      satisfaction of the Commission and the Representatives. If the Company has
      elected to rely upon Rule 430A, Rule 430A information previously omitted
      from the effective Registration Statement pursuant to Rule 430A shall have
      been transmitted to the Commission for filing pursuant to Rule 424(b)
      within the prescribed time period and the Company shall have provided
      evidence satisfactory to the Underwriters of such timely filing, or a
      post-effective amendment providing such information shall have been
      promptly filed and declared effective in accordance with the requirements
      of Rule 430A. If the Company has elected to rely upon Rule 434, a term
      sheet shall have been transmitted to the Commission for filing pursuant to
      Rule 424(b) within the prescribed time period.

            (c)   The representations and warranties of the Company and the
      Selling Stockholders contained in this Agreement and in the certificates
      delivered pursuant to Section 4(d) shall be true and correct when made and
      on and as of each Closing Date as if made on such date. The Company and
      the Selling Stockholders shall have performed all covenants and agreements
      and satisfied all the conditions contained in this Agreement required to
      be performed or satisfied by them at or before such Closing Date.

            (d)   The Representatives shall have received on each Closing Date a
      certificate, addressed to the Representatives and dated such Closing Date,
      of the chief executive or chief operating officer and the chief financial
      officer or chief accounting officer of the Company to the effect that: (i)
      the representations, warranties and agreements of the Company in this
      Agreement were true and correct when made and are true and correct as of
      such Closing Date; (ii) the Company has performed all covenants and
      agreements and satisfied all conditions contained herein; (iii) they have
      carefully examined the Registration Statement and the Prospectus and, in
      their opinion (A) as of the Effective Date, the Registration Statement and
      Prospectus did not include any untrue statement of a material fact and did
      not omit to state a material fact required to be stated therein or
      necessary to make the statements therein, in light of the circumstances
      under which they were made, not misleading, and (B) since the Effective
      Date no event has occurred which should have been set forth in a
      supplement or otherwise required an amendment to the Registration
      Statement or the Prospectus; and (iv) no stop order suspending the
      effectiveness of the Registration Statement has been issued and, to their
      knowledge, no proceedings for that purpose have been instituted or are
      pending under the Securities Act.

            (e)   The Representatives shall have received on each Closing Date a
      certificate addressed to the Representatives and dated such Closing Date,
      of each Selling Stockholder, to the effect that:(i) the representations,
      warranties and agreements of each Selling Stockholder in this Agreement
      were true and correct when made and are true and correct as of such
      Closing Date; (ii) each Selling Stockholder has performed all covenants
      and agreements and satisfied all conditions contained herein; and (iii)
      each Selling Stockholder has carefully examined the Registration Statement
      and the Prospectus and, in the opinion of such Selling Stockholder, (A)
      with respect to the information relating to such Selling Stockholder, as
      of the Effective Date, the Registration Statement and Prospectus did not
      include any untrue statement of a material fact and did not omit to state
      a material fact required to be stated therein or necessary to

                                       16



      make the statements therein, in light of the circumstances under which
      they were made, not misleading, and (B) since the Effective Date no event
      has occurred with respect to such Selling Stockholder which should have
      been set forth in a supplement or otherwise required an amendment to the
      Registration Statement or the Prospectus.

            (f)   The Representatives shall have received, at the time this
      Agreement is executed and on each Closing Date a signed letter from KPMG
      LLP addressed to the Representatives and dated, respectively, the date of
      this Agreement and each such Closing Date, in form and substance
      reasonably satisfactory to the Representatives containing statements and
      information of the type ordinarily included in accountants' "comfort
      letters" to underwriters with respect to the financial statements and
      certain financial information contained in the Registration Statement and
      the Prospectus.

            (g)   The Representatives shall have received on each Closing Date
      from Paul, Hastings, Janofsky & Walker LLP, counsel for the Company, an
      opinion, addressed to the Representatives and dated such Closing Date, and
      stating in effect that:

                  (i)   The Company has been duly organized and is validly
            existing as a corporation in good standing under the laws of the
            State of Delaware. The Company is duly qualified to transact
            business and is in good standing as a foreign corporation in each
            jurisdiction in which the character or location of its assets or
            properties or the nature of its business makes such qualification
            necessary, except where the failure to so qualify or to be in good
            standing, individually or in the aggregate, would not have a
            Material Adverse Effect.

                  (ii)  The Company has all requisite corporate power and
            authority to own, lease and operate its properties and to conduct
            its business as now being conducted and as described in the
            Registration Statement and the Prospectus and to enter into and
            perform its obligations under this Agreement and to issue and sell
            the Shares.

                  (iii) The authorized, issued and outstanding capital stock of
            the Company is as set forth in the Registration Statement and the
            Prospectus under the caption "Capitalization" as of the dates stated
            therein and, since such dates, there has been no change in the
            capital stock of the Company except for subsequent issuances, if
            any, pursuant to this Agreement or pursuant to reservations,
            agreements or employee benefit plans referred to in the Prospectus
            or pursuant to the exercise of convertible securities or options
            referred to in the Prospectus; all of the outstanding shares of
            capital stock of the Company have been duly and validly authorized
            and issued and are fully paid and nonassessable and none of them was
            issued in violation of any preemptive or other similar right. The
            Shares to be issued and sold by the Company pursuant to this
            Agreement have been duly authorized for issuance and sale to the
            Underwriters pursuant to this Agreement and, when issued and
            delivered by the Company pursuant to this Agreement against payment
            of the consideration set forth herein, will be validly issued, fully
            paid and nonassessable, and no holder of the Shares is or will be
            subject to personal liability by reason of being such a holder. The
            issuance and

                                       17



            sale of the Shares by the Company is not subject to any preemptive
            or other similar rights of any securityholder of the Company. To
            such counsel's knowledge, except as disclosed in the Registration
            Statement and the Prospectus, there are no preemptive or other
            rights to subscribe for or to purchase or any restriction upon the
            voting or transfer of any securities of the Company pursuant to the
            Charter or Bylaws or any agreements or other instruments to which
            the Company is a party or by which it is bound. The sale of the
            shares by the Selling Stockholders is not subject to any preemptive
            or other similar rights of any security holders of the company. To
            such counsel's knowledge, except as disclosed in the Registration
            Statement and the Prospectus, there is no outstanding option,
            warrant or other right calling for the issuance of, and no
            commitment, plan or arrangement to issue, any share of stock of the
            Company or any security convertible into, exercisable for, or
            exchangeable for stock of the Company. The Common Stock and the
            Shares conform in all material respects to the descriptions thereof
            contained in the Registration Statement and the Prospectus. The form
            of certificate used to evidence the Common Stock complies in all
            material respects with all applicable statutory requirements, with
            any applicable requirements of the Charter or Bylaws and the
            requirements of the Nasdaq National Market. To such counsel's
            knowledge, there are no persons with registration rights or other
            similar rights to have any securities registered pursuant to the
            Registration Statement or otherwise registered by the Company under
            the Securities Act.

                  (iv)  All necessary corporate action has been duly and validly
            taken by the Company and to authorize the execution, delivery and
            performance of this Agreement and the issuance and sale of the
            Shares. This Agreement has been duly and validly authorized,
            executed and delivered by the Company and this Agreement constitutes
            the legal, valid and binding obligation of the Company enforceable
            against the Company in accordance with its terms, except as such
            enforceability may be limited by applicable bankruptcy, insolvency,
            fraudulent conveyance, reorganization, moratorium and other similar
            laws affecting the enforcement of creditors' rights generally and by
            general equitable principles.

                  (v)   Neither the execution, delivery and performance of this
            Agreement by the Company nor the consummation of any of the
            transactions contemplated hereby (including, without limitation, the
            issuance and sale by the Company of the Shares) nor the execution,
            delivery or performance of any other agreement or instrument entered
            into or to be entered into by the Company in connection with the
            transactions contemplated by the Registration Statement and the
            Prospectus will give rise to a right to terminate or accelerate the
            due date of any payment due under, or conflict with or result in the
            breach of any term or provision of, or constitute a default (or any
            event which with notice or lapse of time, or both, would constitute
            a default) under, or require consent or waiver under, or result in
            the execution or imposition of any lien, charge, claim, security
            interest or encumbrance upon any properties or assets of the Company
            pursuant to the terms of, any indenture, mortgage, deed trust, note
            or other agreement or instrument of which such counsel is aware and
            to which the Company is a party or by which it or any of its assets
            or properties or businesses is bound, or any

                                       18



            franchise, license, permit, judgment, decree, order, statute, rule
            or regulation, domestic or foreign, of which such counsel is aware
            or violate any provision of the Charter or Bylaws.

                  (vi)  No consent, approval, authorization, license,
            registration, qualification or order of any court or governmental
            agency or regulatory body is required for the due authorization,
            execution, delivery or performance of this Agreement by the Company
            or the consummation of the transactions contemplated hereby or
            thereby, except such as have been obtained under the Securities Act
            and such as may be required under state securities or blue sky laws
            in connection with the purchase and distribution of the Shares by
            the several Underwriters.

                  (vii) To the best of such counsel's knowledge, there is no any
            action, suit, proceeding or other investigation, before any court or
            before or by any public body or board pending or threatened against,
            or involving the assets, properties or businesses of, the Company
            which is required to be disclosed in the Registration Statement and
            the Prospectus and is not so disclosed or which could reasonably be
            expected to have a Material Adverse Effect.

                  (viii) The statements in the Prospectus under the captions
            "Description of Capital Stock," "Business -- Litigation," and
            "Certain Transactions," and in the Registration Statement under Item
            15 of Part II, insofar as such statements constitute a summary of
            documents referred to therein or matters of law, are accurate in all
            material respects and accurately present the information with
            respect to such documents and matters. Accurate copies of all
            contracts and other documents required to be filed as exhibits to,
            or described in, the Registration Statement have been so filed with
            the Commission or are fairly described in the Registration
            Statement, as the case may be.

                  (ix)  (A) The Company is in compliance in all material
            respects with all applicable Environmental Laws; (B) the Company has
            not received any notice from any governmental authority or third
            party of an asserted claim under any Environmental Law; (C) the
            Company has received all permits, licenses or other approvals
            required of it under applicable Environmental Laws to conduct its
            business and is in compliance with all terms and conditions of any
            such permit, license or approval, except where such failure to
            receive required permits, licenses or other approvals or failure to
            comply with the terms and conditions of such permits, licenses or
            other approvals would not, singly or in the aggregate, have a
            Material Adverse Effect; and (D) no property which is or has been
            owned, leased or occupied by the Company has been designated as a
            Superfund site pursuant to the Comprehensive Environmental Response,
            Compensation of Liability Act of 1980, as amended (42 U.S.C. Section
            9601, et seq.), or otherwise designated as a contaminated site under
            applicable state or local law.

                  (x)   The Registration Statement, all Preliminary Prospectuses
            and the Prospectus and each amendment or supplement thereto (except
            for the

                                       19



            financial statements and schedules and other financial data included
            therein, as to which such counsel expresses no opinion) comply as to
            form in all material respects with the requirements of the
            Securities Act and the Rules, all Preliminary Prospectuses and the
            Prospectuses and any further amendment or supplement to any such
            incorporated document made by the Company (except for the financial
            statements and schedules and other financial data included therein,
            as to which such counsel expresses no opinion) when they became
            effective or were filed with the Commission, as the case may be,
            complied as to form in all material respects with the requirements
            of the Securities Act or the Exchange Act, as applicable, and the
            published rules and regulations of the Commission thereunder.

                  (xi)  The Registration Statement is effective under the
            Securities Act, and to such counsel's knowledge no stop order
            suspending the effectiveness of the Registration Statement has been
            issued and no proceedings for that purpose have been instituted or
            are threatened, pending or contemplated. Any required filing of the
            Prospectus and any supplement thereto pursuant to Rule 424(b) under
            the Securities Act has been made in the manner and within the time
            period required by such Rule 424(b).

                  (xii) The Shares have been approved for listing on the Nasdaq
            National Market.

                  (xiii) The capital stock of the Company conforms in all
            material respects to the description thereof contained in the
            Prospectus under the caption "Description of Capital Stock."

                  (xiv) The Company is not and, before and after giving effect
            to the offering and sale of the Shares and the application of
            proceeds thereof as described in the Prospectus, will not be an
            "investment company" within the meaning of the Investment Company
            Act.

            To the extent deemed advisable by such counsel, such counsel may
      rely as to matters of fact on certificates of responsible officers of the
      Company and public officials and on the opinions of other counsel
      satisfactory to the Representatives as to matters which are governed by
      laws other than the laws of the State of New York, the General Corporation
      Law of the State of Delaware and the federal laws of the United States;
      provided that such counsel shall state that in their opinion the
      Underwriters and they are justified in relying on such other opinions.
      Copies of such certificates and other opinions shall be furnished to the
      Representatives and counsel for the Underwriters.

            In addition, such counsel shall state that such counsel has
      participated in conferences with officers and other representatives of the
      Company, representatives of the Representatives and representatives of the
      independent certified public accountants of the Company, at which
      conferences the contents of the Registration Statement and the Prospectus
      and related matters were discussed and, although such counsel is not
      passing upon and does not assume any responsibility for the accuracy,
      completeness or fairness of the statements contained in the Registration
      Statement and the Prospectus (except as

                                       20



      specified in the foregoing opinion), on the basis of the foregoing, no
      facts have come to the attention of such counsel which lead such counsel
      to believe that the Registration Statement at the time it became effective
      (except with respect to the financial statements and notes and schedules
      thereto and other financial data, as to which such counsel need express no
      belief) contained any untrue statement of a material fact or omitted to
      state a material fact required to be stated therein or necessary to make
      the statements therein not misleading, or that the Prospectus as amended
      or supplemented (except with respect to the financial statements, notes
      and schedules thereto and other financial data, as to which such counsel
      need make no statement) on the date thereof contained any untrue statement
      of a material fact or omitted to state a material fact necessary in order
      to make the statements therein, in the light of the circumstances under
      which they were made, not misleading.

            (h)   The Representatives shall have received on the Firm Shares
      Closing Date from ________________________, counsel for the Selling
      Stockholders, an opinion, addressed to the Representatives and dated such
      Closing Date, and stating in effect that:

                  (i)   This Agreement has been duly authorized, executed and
            delivered by or on behalf of each Selling Stockholder.

                  (ii)  Each of the Custody Agreement, the Power of Attorney and
            the Lock-up Agreement has been duly authorized, executed and
            delivered by each Selling Stockholder.

                  (iii) This Agreement, the Custody Agreement, the Power of
            Attorney and the Lock-Up Agreement each constitute the legal, valid
            and binding obligation of each Selling Stockholder enforceable
            against each Selling Stockholder in accordance with its terms except
            as such enforceability may be limited by applicable bankruptcy,
            insolvency, reorganization, moratorium or other similar laws
            affecting the enforcement of creditors' rights generally and by
            general equitable principles.

                  (iv)  Each Selling Stockholder has the legal right, power and
            authority to enter into this Agreement and to sell, transfer and
            deliver in the manner provided in this Agreement, the Shares to be
            sold by such Selling Stockholder hereunder.

                  (v)   The execution, delivery and performance of this
            Agreement, the Power of Attorney, the Custody Agreement and the
            Lock-Up Agreement and the sale and delivery by each Selling
            Stockholder of the Shares to be sold by such Selling Stockholder as
            contemplated by this Agreement and the consummation of the
            transactions contemplated in this Agreement and in the Registration
            Statement and the Prospectus and compliance by such Selling
            Stockholder with its obligations hereunder do not and will not,
            whether with or without the giving of notice or passage of time or
            both, conflict with or constitute a breach of, or default under or
            result in the creation or imposition of any tax, lien, charge or
            encumbrance upon the Shares or any property or assets of such
            Selling

                                       21


      Stockholder pursuant to, any contract, indenture, mortgage, deed of trust,
      loan or credit agreement, note, license, lease or other instrument or
      agreement to which such Selling Stockholder is a party or by which such
      Selling Stockholder may be bound, or to which any of the property or
      assets of such Selling Stockholder may be subject nor will such action
      result in any violation of the provisions of the charter or by-laws of
      such Selling Stockholder, if applicable, or any law, administrative
      regulation, judgment or order of any governmental agency or body or any
      administrative or court decree having jurisdiction over such Selling
      Stockholder or any of its properties.

            (vi) To such counsel's knowledge, each Selling Stockholder has valid
      and marketable title to the Shares to be sold by such Selling Stockholder
      pursuant to this Agreement, free and clear of any pledge, lien, security
      interest, charge, claim, equity or encumbrance of any kind, and has full
      right, power and authority to sell, transfer and deliver such Shares
      pursuant to this Agreement. By delivery of a certificate or certificates
      therefor each Selling Stockholder will transfer to the Underwriters who
      have purchased such Shares pursuant to this Agreement (without notice of
      any defect in the title of each Selling Stockholder and who is otherwise a
      bona fide purchaser for purposes of the Uniform Commercial Code) valid and
      marketable title to such Shares, free and clear of any pledge, lien,
      security interest, charge, claim, equity or encumbrance of any kind.

            (vii) No filing with, consent, approval, authorization, license,
      certificate, permit or order of any court, governmental or regulatory
      agency, authority or body or financial institution is required in
      connection with the performance of this Agreement, the Custody Agreement,
      the Power of Attorney or the Lock-up Agreement by each Selling Stockholder
      or the consummation of the transactions contemplated hereby or thereby,
      including the delivery and sale of the Shares to be delivered and sold by
      each Selling Stockholder, except such as may be required under state
      securities or blue sky laws in connection with the purchase and
      distribution of the Shares by the several Underwriters.

      To the extent deemed advisable by such counsel, such counsel may rely as
to matters of fact on certificates of the Selling Stockholders and on the
opinions of other counsel satisfactory to the Representatives as to matters
which are governed by laws other than the laws of the States of New York and the
General Corporate Law of the State of Delaware or the federal laws of the United
States; provided that such counsel shall state that in their opinion the
Underwriters and they are justified in relying on such other opinions. Copies of
such certificates and other opinions shall be furnished to the Representatives
and counsel for the Underwriters.

      In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Representatives and representatives of the independent
public accountants of the Company, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed.
While such counsel has not undertaken to independently verify and does not
assume any responsibility for the accuracy,

                                       22



completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified in the foregoing opinion), on
the basis of the foregoing, no facts have come to the attention of such counsel
which lead such counsel to believe that the Registration Statement at the time
it became effective (except with respect to the financial statements, notes and
schedules thereto and other financial data, as to which such counsel need
express no belief) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as amended or
supplemented (except with respect to the financial statements, notes and
schedules thereto and other financial data, as to which such counsel need make
no statement) on the date thereof and the date of such opinion contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

      (i) The Representatives shall have received on each Closing Date from DLA
Piper Rudnick Gray Cary US LLP, counsel for the Representatives, an opinion,
addressed to the Representatives and dated such Closing Date, and stating in
effect that:

            (i) The issuance and sale of the Shares have been duly authorized by
      requisite corporate action on the part of the Company and when delivered
      to and paid for by the Underwriters in accordance with the terms of the
      Underwriting Agreement, will be validly issued, fully paid and
      non-assessable, and to our knowledge the issuance of such Shares will not
      be subject to any preemptive or similar rights: (A) contained in the
      Company's Charter and Bylaws or (B) under the Delaware General Corporate
      Law, except such as have been validly waived.

            (ii) The Underwriting Agreement has been duly authorized, executed
      and delivered by the Company.

            (iii) As of the date of the Prospectus, the statements in the
      Prospectus under the captions "Description of Capital Stock" and
      "Underwriters" insofar as such statements constituted summaries of the
      legal matters, documents or proceedings referred to therein, fairly
      presented the information called for with respect to such legal matters,
      documents and proceedings and fairly summarized the matters referred to
      therein.

            (iv) The Registration Statement, all Preliminary Prospectuses and
      the Prospectus and each amendment or supplement thereto (except for the
      financial statements and schedules and other financial data included
      therein, as to which such counsel expresses no opinion) comply as to form
      in all material respects with the requirements of the Securities Act and
      the Rules, all Preliminary Prospectuses and the Prospectuses and any
      further amendment or supplement to any such incorporated document made by
      the Company (except for the financial statements and schedules and other
      financial data included therein, as to which such counsel expresses no
      opinion) when they became effective or were filed with the Commission, as
      the case may be, complied as to form in all material respects

                                       23



      with the requirements of the Securities Act or the Exchange Act, as
      applicable, and the rules and regulations of the Commission thereunder.

            (v) The Registration Statement is effective under the Securities
      Act, and to such counsel's knowledge no stop order suspending the
      effectiveness of the Registration Statement has been issued and no
      proceedings for that purpose have been instituted or are threatened,
      pending or contemplated. Any required filing of the Prospectus and any
      supplement thereto pursuant to Rule 424(b) under the Securities Act has
      been made in the manner and within the time period required by such Rule
      424(b).

      To the extent deemed advisable by such counsel, such counsel may rely as
to matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware and
the federal laws of the United States; provided that such counsel shall state
that in their opinion the Underwriters and they are justified in relying on such
other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives.

      In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Representatives and representatives of the independent
certified public accountants of the Company, at which conferences the contents
of the Registration Statement and the Prospectus and related matters were
discussed and, although such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except as specified
in the foregoing opinion), on the basis of the foregoing, no facts have come to
the attention of such counsel which lead such counsel to believe that the
Registration Statement at the time it became effective (except with respect to
the financial statements, supporting schedules and other financial data, as to
which such counsel need express no belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as amended or supplemented (except with respect to the financial
statements, supporting schedules and other financial data, as to which such
counsel need express no belief) on the date thereof contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

      (j) The Representatives shall have received copies of the Lock-Up
Agreements executed by each entity or person listed on Schedule III hereto.

      (k) The Shares shall have been approved for quotation on the Nasdaq
National Market, subject only to official notice of issuance.

                                       24



      (l) The Company and each Selling Stockholder shall have furnished or
caused to be furnished to the Representatives such further certificates or
documents as the Representatives shall have reasonably requested.

      5. Covenants of the Company and the Selling Stockholders.

      (a) Each of the Company and the Selling Stockholders (to the extent set
forth in clause (ix) below) covenants and agrees as follows:

            (i) The Company will use its best efforts to cause the Registration
      Statement, if not effective at the time of execution of this Agreement,
      and any amendments thereto, to become effective as promptly as possible.
      The Company shall prepare the Prospectus in a form approved by the
      Representatives and file such Prospectus pursuant to Rule 424(b) under the
      Securities Act not later than the Commission's close of business on the
      second business day following the execution and delivery of this
      Agreement, or, if applicable, such earlier time as may be required by the
      Rules.

            (ii) The Company shall promptly advise the Representatives in
      writing (A) when any post-effective amendment to the Registration
      Statement shall have become effective or any supplement to the Prospectus
      shall have been filed, (B) of any request by the Commission for any
      amendment of the Registration Statement or the Prospectus or for any
      additional information, (C) of the issuance by the Commission of any stop
      order suspending the effectiveness of the Registration Statement or of any
      order preventing or suspending the use of any preliminary prospectus or
      the institution or threatening of any proceeding for that purpose and (D)
      of the receipt by the Company of any notification with respect to the
      suspension of the qualification of the Shares for sale in any jurisdiction
      or the initiation or threatening of any proceeding for such purpose. The
      Company shall not file any amendment of the Registration Statement or
      supplement to the Prospectus unless the Company has furnished the
      Representatives a copy for its review prior to filing and shall not file
      any such proposed amendment or supplement to which the Representatives
      reasonably object. The Company shall use its best efforts to prevent the
      issuance of any such stop order and, if issued, to obtain as soon as
      possible the withdrawal thereof.

            (iii) If, at any time when a prospectus relating to the Shares is
      required to be delivered under the Securities Act and the Rules, any event
      occurs as a result of which the Prospectus as then amended or supplemented
      would include any untrue statement of a material fact or omit to state any
      material fact necessary to make the statements therein in the light of the
      circumstances under which they were made not misleading, or if it shall be
      necessary to amend or supplement the Prospectus to comply with the
      Securities Act or the Rules, the Company promptly shall prepare and file
      with the Commission, subject to the second sentence of paragraph (ii) of
      this Section 5(a), an amendment or supplement which shall correct such
      statement or omission or an amendment which shall effect such compliance.

                                       25



            (iv) The Company shall make generally available to its security
      holders and to the Representatives as soon as practicable, but not later
      than 45 days after the end of the 12-month period beginning at the end of
      the fiscal quarter of the Company during which the Effective Date occurs
      (or 90 days if such 12-month period coincides with the Company's fiscal
      year), an earning statement (which need not be audited) of the Company,
      covering such 12-month period, which shall satisfy the provisions of
      Section 11(a) of the Securities Act or Rule 158 of the Rules.

            (v) The Company shall furnish to the Representatives and counsel for
      the Underwriters, without charge, signed copies of the Registration
      Statement (including all exhibits thereto and amendments thereof) and to
      each other Underwriter a copy of the Registration Statement (without
      exhibits thereto) and all amendments thereof and, so long as delivery of a
      prospectus by an Underwriter or dealer may be required by the Securities
      Act or the Rules, as many copies of any preliminary prospectus and the
      Prospectus and any amendments thereof and supplements thereto as the
      Representatives may reasonably request. If applicable, the copies of the
      Registration Statement and Prospectus and each amendment and supplement
      thereto furnished to the Underwriters will be identical to the
      electronically transmitted copies thereof filed with the Commission
      pursuant to EDGAR, except to the extent permitted by Regulation S-T.

            (vi) The Company shall cooperate with the Representatives and their
      counsel in endeavoring to qualify the Shares for offer and sale in
      connection with the offering under the laws of such jurisdictions as the
      Representatives may designate and shall maintain such qualifications in
      effect so long as required for the distribution of the Shares; provided,
      however, that the Company shall not be required in connection therewith,
      as a condition thereof, to qualify as a foreign corporation or to execute
      a general consent to service of process in any jurisdiction or subject
      itself to taxation as doing business in any jurisdiction.

            (vii) The Company, during the period when the Prospectus is required
      to be delivered under the Securities Act and the Rules or the Exchange
      Act, will file all reports and other documents required to be filed with
      the Commission pursuant to Section 13, 14 or 15 of the Exchange Act within
      the time periods required by the Exchange Act and the regulations
      promulgated thereunder.

            (viii) Without the prior written consent of CIBC World Markets
      Corp., for a period of 180 days after the date of this Agreement, the
      Company and each of its individual directors and executive officers shall
      not issue, sell or register with the Commission (other than on Form S-8 or
      on any successor form), or otherwise dispose of, directly or indirectly,
      any equity securities of the Company (or any securities convertible into,
      exercisable for or exchangeable for equity securities of the Company),
      except for the issuance of the Shares pursuant to the Registration
      Statement and the issuance of shares pursuant to the Company's existing
      stock option plan or bonus plan as described in the

                                       26



      Registration Statement and the Prospectus. In the event that during this
      period, (A) any shares are issued pursuant to the Company's existing stock
      option plan or bonus plan that are exercisable during such 180 day period
      or (B) any registration is effected on Form S-8 or on any successor form
      relating to shares that are exercisable during such 180 period, the
      Company shall obtain the written agreement of such grantee or purchaser or
      holder of such registered securities that, for a period of 180 days after
      the date of this Agreement, such person will not, without the prior
      written consent of CIBC World Markets Corp., offer for sale, sell,
      distribute, grant any option for the sale of, or otherwise dispose of,
      directly or indirectly, or exercise any registration rights with respect
      to, any shares of Common Stock (or any securities convertible into,
      exercisable for, or exchangeable for any shares of Common Stock) owned by
      such person.

            (ix) Neither the Company nor any Selling Stockholder shall take,
      directly or indirectly, any action designed to or which might reasonably
      be expected to cause or result in the stabilization or manipulation of the
      price of the Common Stock or any security of the Company to facilitate the
      sale or resale of any of the Shares.

            (x) On or before completion of this offering, the Company shall make
      all filings required under applicable securities laws and by the Nasdaq
      National Market (including any required registration under the Exchange
      Act).

            (xi) Prior to the Closing Date, the Company will issue no press
      release or other communications directly or indirectly and hold no press
      conference with respect to the Company, the condition, financial or
      otherwise, or the earnings, business affairs or business prospects of any
      of them, or the offering of the Shares without the prior written consent
      of the Representatives unless in the judgment of the Company and its
      counsel, and after notification to the Representatives, such press release
      or communication is required by law.

            (xii) [The Company will comply with all applicable securities laws
      and other applicable laws, rules and regulations in each foreign
      jurisdiction in which the Directed Shares are offered in connection with
      the Friends and Family Program.]

            (xiii) The Company will apply the net proceeds from the offering of
      the Shares in the manner set forth under "Use of Proceeds" in the
      Prospectus, and the Company will at all times prior to the application of
      the net proceeds from the offering operate its business so as not to
      become an "investment company" within the meaning of the Investment
      Company Act.

            (xiv) [The Company will ensure that the Directed Shares will be
      restricted, to the extent required by the NASD or the NASD rules, from
      sale, transfer, assignment, pledge or hypothecation for a period of three
      months following the date of the effectiveness of the Registration
      Statement. The Representatives will notify the Company as to which
      Participants will need to be

                                       27



      so restricted. The Company shall direct the transfer agent to place stop
      transfer restrictions upon such securities for such period of time.]

      (b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident to
the public offering of the Shares and the performance of the obligations of the
Company under this Agreement including those relating to: (i) the preparation,
printing, filing and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all amendments
and supplements to the Registration Statement and the Prospectus, and the
printing, filing and distribution of this Agreement; (ii) the preparation and
delivery of certificates for the Shares to the Underwriters; (iii) the
registration or qualification of the Shares for offer and sale under the
securities or blue sky laws of the various jurisdictions referred to in Section
5(a)(vi), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary blue sky memoranda, if any; (iv) the furnishing (including costs
of shipping and mailing) to the Representatives and to the Underwriters of
copies of each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by this
Section to be so furnished, as may be reasonably requested for use in connection
with the offering and sale of the Shares by the Underwriters or by dealers to
whom Shares may be sold; (v) the filing fees of the NASD in connection with its
review of the terms of the public offering and reasonable fees and disbursements
of counsel for the Underwriters in connection with such review; (vi) inclusion
of the Shares for quotation on the Nasdaq National Market; and (vii) all
transfer taxes, if any, with respect to the sale and delivery of the Shares by
the Company to the Underwriters [(viii) payments to counsel for costs incurred
by the Underwriters in connection with the Friends and Family Program and
payment of any stamp duties, similar taxes or duties or other taxes, if any,
incurred by the Underwriters in connection with the Friends and Family Program.]
Subject to the provisions of Section 8, the Underwriters agree to pay, whether
or not the transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the performance of the
obligations of the Underwriters under this Agreement not payable by the Company
pursuant to the preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.

      (c) The Selling Stockholders, jointly and severally, will pay all expenses
incident to the performance of their respective obligations under, and the
consummation of the transactions contemplated by, this Agreement, including (i)
any stamp duties, capital duties and stock transfer taxes, if any, payable upon
the sale of the Shares to the Underwriters, and their transfer between the
Underwriters pursuant to an agreement between such Underwriters, and (ii) the
fees and disbursements of their respective counsel and accountants.

                                       28



      6. Indemnification.

      (a) The Company and the Selling Stockholders, jointly and severally,
agrees to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto, or in any blue sky application or other information or other documents
executed by the Company filed in any state or other jurisdiction to qualify any
or all of the Shares under the securities laws thereof (any such application,
document or information being hereinafter referred to as a "Blue Sky
Application") or arise out of or are based upon any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that such
indemnity shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration Statement or
the Prospectus, or such amendment or supplement thereto, or in any Blue Sky
Application in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein. Notwithstanding the foregoing, the liability of
the Selling Stockholders pursuant to the provisions of this Section 6(a) shall
be limited to an amount equal to the aggregate net proceeds received by such
Selling Stockholders from the sale of the Shares sold by the Selling
Stockholders hereunder. This indemnity agreement will be in addition to any
liability which the Company and Selling Stockholders may otherwise have.

      [The Company agrees to indemnify and hold harmless the Representatives and
each person, if any, who controls any Representative within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
and all losses, claims, damages, expenses and liabilities (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted) (i) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any material prepared by or
with the consent of the Company for distribution to Participants in connection
with the Friends and Family Program or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii) arising
out of or based upon the failure of any Participant to pay for and accept
delivery of Directed Shares otherwise reserved for such Participant pursuant to
the Friends and Family Program, and (iii) related to, arising out of, or in
connection with the Friends and Family Program,

                                       29



other than losses, claims, damages or liabilities (or expenses relating thereto)
that are finally judicially determined to have resulted from the bad faith or
gross negligence of the Representatives.]

      (b) Each Underwriter agrees to indemnify and hold harmless the Company,
the Selling Stockholders and each person, if any, who controls the Company or
the Selling Stockholders within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, each director of the Company, and each
officer of the Company who signs the Registration Statement, against any losses,
claims, damages or liabilities to which such party may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any preliminary
prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through the Representative
expressly for use therein (it being understood that such information is limited
to the statements identified in Section 2(a) above); provided, however, that the
obligation of each Underwriter to indemnify the Company or the Selling
Stockholders (including any controlling person, director or officer thereof)
shall be limited to the net proceeds received by the Company from such
Underwriter.

      (c) Any party that proposes to assert the right to be indemnified under
this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 6(a) or 6(b) shall be available to any party who shall fail to give
notice as provided in this Section 6(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall 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 and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof.

                                       30



      The indemnified party shall have the right to employ its counsel in any
      such action, but the fees and expenses of such counsel shall be at the
      expense of such indemnified party unless (i) the employment of counsel by
      such indemnified party has been authorized in writing by the indemnifying
      parties, (ii) the indemnified party shall have been advised by counsel
      that there may be one or more legal defenses available to it which are
      different from or in addition to those available to the indemnifying party
      (in which case the indemnifying parties shall not have the right to direct
      the defense of such action on behalf of the indemnified party) or (iii)
      the indemnifying parties shall not have employed counsel to assume the
      defense of such action within a reasonable time after notice of the
      commencement thereof, in each of which cases the fees and expenses of
      counsel shall be at the expense of the indemnifying parties. An
      indemnifying party shall not be liable for any settlement of any action,
      suit, and proceeding or claim effected without its written consent, which
      consent shall not be unreasonably withheld or delayed.

            7. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 6(a) or 6(b) is due in accordance with its terms but for any reason is
unavailable to or insufficient to hold harmless an indemnified party in respect
to any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate losses,
liabilities, claims, damages and expenses (including any investigation, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claims asserted, but
after deducting any contribution received by any person entitled hereunder to
contribution from any person who may be liable for contribution) incurred by
such indemnified party, as incurred, in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other hand from the
offering of the Shares pursuant to this Agreement or, if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to above but also the relative fault of the
Company and the Selling Stockholders on the one hand and the Underwriters on the
other hand in connection with the statements or omissions [,or in connection
with any violation of the nature referred to in Section 6(a) hereof with respect
to Directed Shares,] which resulted in such losses, liabilities, claims, damages
or expenses, as well as any other relevant equitable considerations. The
Company, the Selling Stockholders and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission. Notwithstanding the provisions of this Section 7,
(i) no Underwriter (except as may be provided in the Agreement Among
Underwriters) shall be required to contribute any amount in excess of the amount
by which the total price at which the shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of damages which
such underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission; and (ii) no Selling
Stockholders shall be required to

                                       31



contribute any amount in excess of the aggregate net proceeds of the sale of
Shares received by the Selling Stockholders. 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 guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company or any Selling Stockholders within the meaning of the Section 15 of the
Securities Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company or any/the Selling Stockholders, as the case may be.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section 7, notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 7. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 7 are several in proportion to their respective
underwriting commitments and not joint.

            8. Termination.

            (a) This Agreement may be terminated with respect to the Shares to
      be purchased on a Closing Date by the Representatives by notifying the
      Company and the Selling Stockholders at any time at or before a Closing
      Date in the absolute discretion of the Representatives if: (i) there has
      occurred any material adverse change in the securities markets or any
      event, act or occurrence that has materially disrupted, or in the opinion
      of the Representatives, will in the future materially disrupt, the
      securities markets or there shall be such a material adverse change in
      general financial, political or economic conditions or the effect of
      international conditions on the financial markets in the United States is
      such as to make it, in the judgment of the Representatives, inadvisable or
      impracticable to market the Shares or enforce contracts for the sale of
      the Shares; (ii) there has occurred any outbreak or material escalation of
      hostilities or other calamity or crisis the effect of which on the
      financial markets of the United States is such as to make it, in the
      judgment of the Representatives, inadvisable or impracticable to market
      the Shares or enforce contracts for the sale of the Shares; (iii) trading
      in the Shares or any securities of the Company has been suspended or
      materially limited by the Commission or trading generally on the New York
      Stock Exchange, Inc., the American Stock Exchange, Inc. or the Nasdaq
      National Market has been suspended or materially limited, or minimum or
      maximum ranges for prices for securities shall have been fixed, or maximum
      ranges for prices for securities have been required, by any of said
      exchanges or by such system or by order of the Commission, the National
      Association of Securities Dealers, Inc., or any other governmental or
      regulatory authority; or (iv) a banking moratorium has been declared by
      any state or Federal authority; or (v) in the judgment of the
      Representatives, there has been, since the time of execution of this
      Agreement or

                                       32



      since the respective dates as of which information is given in the
      Prospectus, any material adverse change in the assets, properties,
      condition, financial or otherwise, or in the results of operations,
      business affairs or business prospects of the Company, whether or not
      arising in the ordinary course of business.

            (b) If this Agreement is terminated pursuant to any of its
      provisions, neither the Company nor the Selling Stockholders shall be
      under any liability to any Underwriter, and no Underwriter shall be under
      any liability to the Company or a Selling Stockholders, except that (y) if
      this Agreement is terminated by the Representatives or the Underwriters
      because of any failure, refusal or inability on the part of the Company or
      the Selling Stockholders to comply with the terms or to fulfill any of the
      conditions of this Agreement, the Company will reimburse the Underwriters
      for all out-of-pocket expenses (including the reasonable fees and
      disbursements of their counsel) incurred by them in connection with the
      proposed purchase and sale of the Shares or in contemplation of performing
      their obligations hereunder and (z) no Underwriter who shall have failed
      or refused to purchase the Shares agreed to be purchased by it under this
      Agreement, without some reason sufficient hereunder to justify
      cancellation or termination of its obligations under this Agreement, shall
      be relieved of liability to the Company, the Selling Stockholders or to
      the other Underwriters for damages occasioned by its failure or refusal.

            9. Substitution of Underwriters. If any Underwriter shall default in
its obligation to purchase on any Closing Date the Shares agreed to be purchased
hereunder on such Closing Date, the Representatives shall have the right, within
36 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase such Shares on the terms
contained herein. If, however, the Representatives shall not have completed such
arrangements within such 36-hour period, then the Company shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to the Underwriters to purchase such Shares on such
terms. If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Company as provided above, the aggregate number of Shares which remains
unpurchased on such Closing Date does not exceed one-eleventh of the aggregate
number of all the Shares that all the Underwriters are obligated to purchase on
such date, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such date and, in addition, to require each non-defaulting
Underwriter to purchase its pro rata share (based on the number of Shares which
such Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default. In any such case, either the Representatives or the Company and the
Selling Stockholders shall have the right to postpone the applicable Closing
Date for a period of not more than seven days in order to effect any necessary
changes and arrangements (including any necessary amendments or supplements to
the Registration Statement or Prospectus or any other documents), and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in the opinion of the Company and the Underwriters and
their counsel may thereby be made necessary.

                                       33



            If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by the Representatives and
the Company as provided above, the aggregate number of such Shares which remains
unpurchased exceeds 10% of the aggregate number of all the Shares to be
purchased at such date, then this Agreement, or, with respect to a Closing Date
which occurs after the First Closing Date, the obligations of the Underwriters
to purchase and of the Company or the Selling Stockholders, as the case may be,
to sell the Option Shares to be purchased and sold on such date, shall
terminate, without liability on the part of any non-defaulting Underwriter to
the Company or the Selling Stockholders, and without liability on the part of
the Company or the Selling Stockholders, except as provided in Sections 5(b), 6,
7 and 8. The provisions of this Section 9 shall not in any way affect the
liability of any defaulting Underwriter to the Company or the non-defaulting
Underwriters arising out of such default. The term "Underwriter" as used in this
Agreement shall include any person substituted under this Section 9 with like
effect as if such person had originally been a party to this Agreement with
respect to such Shares.

            10. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company, Selling
Stockholders and the several Underwriters, as set forth in this Agreement or
made by or on behalf of them pursuant to this Agreement, shall remain in full
force and effect, regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter or the Company or the
Selling Stockholders or any of their respective officers, directors or
controlling persons referred to in Sections 6 and 7 hereof, and shall survive
delivery of and payment for the Shares. In addition, the provisions of Sections
5(b), 6, 7, 8 and this Section 10 shall survive the termination or cancellation
of this Agreement.

            This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.

      All notices and communications hereunder shall be in writing and mailed or
delivered or by telephone or telegraph if subsequently confirmed in writing, (a)
if to the Representatives, c/o CIBC World Markets Corp., 300 Madison Avenue New
York, New York 10017 Attention: ________, with a copy to Richard C. Tilghman,
Esq., DLA Piper Rudnick Gray Cary US LLP, 6225 Smith Avenue, Baltimore, MD 21209
and (b) if to the Company, to its agent for service as such agent's address
appears on the cover page of the Registration Statement with a copy to William
F. Schwitter, Esq., Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street,
New York, NY 10022 and (c) if to the Selling Stockholders to __________ with a
copy to __________.

            THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.

                                       34



            This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

            Please confirm that the foregoing correctly sets forth the agreement
among us.

                                        Very truly yours,

                                        CITI TRENDS, INC.

                                        By: ____________________________________
                                            Name:
                                            Title:

                                        SELLING STOCKHOLDERS

                                        By: ____________________________________
                                            Name:
                                            Title: Custodian

                                       35



Confirmed:

CIBC WORLD MARKETS CORP.
WACHOVIA CAPITAL MARKETS, LLC
SG COWEN & CO., LLC
PIPER JAFFRAY & CO.
________________________________________

Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.

CIBC WORLD MARKETS CORP.

By _____________________________________
   Name:
   Title:

WACHOVIA CAPITAL MARKETS, LLC

By _____________________________________
   Name:
   Title:

SG COWEN & CO., LLC

By _____________________________________
   Name:
   Title:

PIPER JAFFRAY & CO.

By _____________________________________
   Name:
   Title:

                                       36



                                   SCHEDULE I



                                                                                                     Number of
                                                                                                    Firm Shares
                                                                                                        to
                                                                                                        Be
Name                                                                                                 Purchased
- ----                                                                                                -----------
                                                                                                 
CIBC World Markets Corp...............................................................
Wachovia Capital Markets, LLC.........................................................
SG Cowen & Co., LLC...................................................................
Piper Jaffray & Co....................................................................

                                                                                                    -----------

                                                                                 Total


                                    Sch I - 1



                                   SCHEDULE II



                                                                                                     Number of
                                                                                                    Firm Shares
                                                                                                        to
Name of Selling Stockholders                                                                          Be Sold
- ----------------------------                                                                        ---------
                                                                                                 

                                                                                 Total              ---------


                                   Sch II - 1



                                  SCHEDULE III

                               Lock-up Signatories

                                   Sch III - 1



                                                                       Exhibit A

                            FORM OF LOCK-UP AGREEMENT

                                                           _______________, 2005

CIBC World Markets Corp.
Wachovia Capital Markets, LLC
SG Cowen & Co., LLC
Piper Jaffray & Co.
   as Representatives of the several
   Underwriters named in Schedule I to
   the Underwriting Agreement
c/o CIBC World Markets Corp.
417 5th Avenue, 2nd Floor
New York, New York  10016

      Re:   Public Offering of Citi Trends, Inc.

Ladies and Gentlemen:

      The undersigned, a holder of common stock, par value $0.01 ("Common
Stock"), or rights to acquire Common Stock, of Citi Trends, Inc. (the "Company")
understands that you, as Representative of the several Underwriters, propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") with the
Company, providing for the public offering (the "Public Offering") by the
several Underwriters named in Schedule I to the Underwriting Agreement (the
"Underwriters"), of shares of Common Stock of the Company (the "Securities").
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Underwriting Agreement.

      In consideration of the Underwriters' agreement to enter into the
Underwriting Agreement and to proceed with the Public Offering of the
Securities, and for other good and valuable consideration receipt of which is
hereby acknowledged, the undersigned hereby agrees for the benefit of the
Company, you and the other Underwriters that, without the prior written consent
of CIBC World Markets Corp. on behalf of the Underwriters, the undersigned will
not, during the period ending 180 days (the "Lock-Up Period") after the date of
the prospectus relating to the Public Offering (the "Prospectus"), directly or
indirectly (1) offer, pledge, assign, encumber, announce the intention to sell,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock owned either of
record or beneficially (as defined in the Securities Exchange Act of 1934, as
amended) by the undersigned on the date hereof or hereafter acquired or (2)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences of ownership of the Common Stock, whether any

                                      A-1



such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, or
publicly announce an intention to do any of the foregoing. In addition, the
undersigned agrees that, without the prior written consent of CIBC World Markets
Corp. on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, make any demand for or exercise any right
with respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock. The foregoing
shall not apply to (x) Common Stock to be transferred as a gift or gifts
(provided that any donee thereof agrees in writing to be bound by the terms
hereof), (y) the sale of the Securities to be sold pursuant to the Prospectus
and (y) sales under any 10b-5 plan.

      Notwithstanding the foregoing, if (x) during the last 17 days of the
Lock-Up Period the Company issues an earnings release or material news or a
material event relating to the Company occurs; or (y) prior to the expiration of
the Lock-Up Period, the Company announces that it will release earnings results
during the 16-day period beginning on the last day of the 90-day period; the
restrictions imposed in this Letter Agreement shall continue to apply until the
expiration of the 18-day period beginning on the issuance of the earnings
release or the occurrence of the material news or material event; provided,
however, that this sentence shall not apply if the research published or
distributed on the Company is compliant under Rule 139 of the Securities Act and
the Company's securities are actively traded as defined in Rule 101(c)(1) of
Regulation M of the Exchange Act.

      In furtherance of the foregoing, the Company, and any duly appointed
transfer agent for the registration or transfer of the securities described
herein, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Letter Agreement.

      The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Letter Agreement. All authority
herein conferred or agreed to be conferred and any obligations of the
undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.

      The undersigned understands that, if the Underwriting Agreement does not
become effective, or if the Underwriting Agreement (other than the provisions
thereof which survive termination) shall terminate or be terminated prior to
payment for and delivery of the Common Stock to be sold thereunder, the
undersigned shall be released form all obligations under this Letter Agreement.

      The undersigned, whether or not participating in the Offering, understands
that the Underwriters are entering into the Underwriting Agreement and
proceeding with the Public Offering in reliance upon this Letter Agreement.

                                       A - 2



      This lock-up agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to the conflict of laws
principles thereof.

                                        Very truly yours,

                                        [STOCKHOLDER]

                                        By: ____________________________________
                                            Name:
                                            Title:


                                     A - 3


                                                                     Exhibit B

                            FORM OF CUSTODY AGREEMENT
                       for sale of shares of common stock,
                 par value $0.01 per share, of Citi Trends, Inc.

Citi Trends, Inc. (the "Custodian")
102 Fahm Street
Savannah, GA 31401

Attention: Mr. Thomas W. Stoltz

Ladies and Gentlemen:

      There are delivered to you herewith certificate(s) representing shares of
Common Stock, par value $0.01 per share ("Common Stock"), of Citi Trends, Inc.,
a Delaware corporation (the "Company") as set forth at the end of this letter on
the page entitled "CERTIFICATE(S) DEPOSITED." Each of the certificates so
delivered is accompanied by an executed assignment form duly endorsed for
transfer and is in negotiable form bearing the signature of the undersigned
guaranteed by a commercial bank or trust company having an office or a
correspondent in New York City, New York or by a member firm of the New York,
American or Pacific Stock Exchange. The certificate(s) are to be held by you as
Custodian for the account of the undersigned and are to be disposed of by you in
accordance with this Custody Agreement (this "Custody Agreement").

      If the undersigned is (i) acting as trustee or in any fiduciary or
representative capacity, the undersigned has also delivered duly certified
copies of each trust agreement, will, letters testamentary or other instrument
pursuant to which the undersigned is authorized to act as a Selling Stockholder
(as defined herein); (ii) a corporation, the undersigned has also delivered duly
certified resolutions of its board of directors authorizing it to enter into
this Custody Agreement, the Underwriting Agreement (as defined herein) and the
Power of Attorney (as defined herein) and duly certified copies of such
corporation's by-laws, certificate of incorporation or other organizational
documents; or (iii) a partnership, the undersigned has also delivered extracts
of any applicable provisions of its partnership agreement (and applicable
provisions of the organizational documents or partnership agreement(s) of the
general partner(s) of such partnership) authorizing such partnership to enter
into this Custody Agreement, the Underwriting Agreement and the Power of
Attorney.

      The undersigned agrees to deliver such additional documentation as you,
the Attorneys (as defined herein), the Company or the Representatives (as
defined herein) or any of their respective counsel may reasonably request to
effectuate or confirm compliance with any of the provisions hereof or of the
Power of Attorney or the Underwriting Agreement, all of the foregoing to be in
form and substance satisfactory in all respects to the party requesting such
documentation.

                                     B - 1



      Concurrently with the execution and delivery of this Custody Agreement,
the undersigned has executed a power of attorney (the "Power of Attorney")
irrevocably appointing R. Edward Anderson and Thomas W. Stoltz, each with full
power and authority to act alone in any matter thereunder and with full power of
substitution, the true and lawful attorneys-in-fact of the undersigned
(individually, an "Attorney," and collectively, the "Attorneys"), with full
power and authority in the name of, for and on behalf of, the undersigned with
respect to all matters arising in connection with the sale of the Common Stock
by the undersigned including, but not limited to entering into and performing an
underwriting agreement (the "Underwriting Agreement") among the Company, certain
stockholders of the Company including the undersigned (the "Selling
Stockholders"), CIBC World Markets Corp., Wachovia Capital Markets, LLC, SG
Cowen & Co., LLC and Piper Jaffray & Co., as representatives (the
"Representatives") of the several underwriters to be named in Schedule I to the
Underwriting Agreement (the "Underwriters"). The total number of shares of
Common Stock to be sold by the undersigned to the Underwriters and set forth
opposite the name of the undersigned in Schedule II to the Underwriting
Agreement is hereinafter referred to as the "Shares."

      You are authorized and directed to hold the certificate(s) deposited with
you hereunder in your custody and, subject to the instructions of the Attorneys,
(i) to take all necessary action to cause the Shares to be transferred on the
books of the Company into such names as the Representatives, on behalf of the
several Underwriters, shall have instructed, including surrendering the
certificate(s) representing the Shares to the transfer agent for the Common
Stock for cancellation, in exchange for new certificate(s) for shares of Common
Stock registered in such names and in such denominations as the Representatives
shall have instructed; (ii) to deliver such new certificate(s) to the
Representatives, for the accounts of the several Underwriters, against payment
for such Shares at the purchase price per Share specified in the Underwriting
Agreement and to give receipt for such payment; (iii) to deposit the same to
your account as Custodian and draw upon such account to pay such transfer taxes,
if any, payable in connection with the transfer of the Shares to the
Underwriters ("Transfer Taxes") as you may be instructed to pay by the
Attorneys; (iv) to transmit to the undersigned in the manner set forth under
"Manner of Payment" below, within 24 hours of receiving instructions from the
Attorneys to do so, the excess, if any (the "Net Proceeds"), of the amount
received by you as payment for the Shares over the Transfer Taxes, if any. The
amount of such Net Proceeds is to be paid in the manner requested by the
undersigned at the end of this Custody Agreement or in such manner as you, in
accordance with the terms hereof, shall deem appropriate. Upon receipt of
instructions from the Attorneys, you shall also return to the undersigned, new
certificate(s) representing the excess, if any, of the number of shares of
Common Stock represented by the certificate(s) deposited with you hereunder over
the number of Shares sold by the undersigned to the Underwriters.

      Under the terms of the Power of Attorney, the authority conferred thereby
is granted and conferred subject to and in consideration of the interests of the
Attorneys, the several Underwriters, the Company and the other Selling
Stockholders (as defined in the Underwriting Agreement) and is irrevocable and
not subject to withdrawal or termination by any act of the undersigned or by
operation of law, whether by the death or incapacity of the undersigned (or
either or any of the undersigned) or by the occurrence of any other event or
events (including, without limitation, the termination of any trust or estate
for which the undersigned is acting as

                                     B - 2



fiduciary or fiduciaries, the death or incapacity of one or more trustees,
guardians, executors or administrators under such trust or estate or the merger,
consolidation, dissolution or liquidation of any corporation or partnership)
(any of the foregoing being hereinafter referred to as an "Event"). Accordingly,
the certificate(s) deposited with you hereunder and this Custody Agreement and
your authority hereunder are subject to and in consideration of the interests of
the several Underwriters, the Company, the Attorneys and the other Selling
Stockholders, and this Custody Agreement and your authority hereunder, prior to
[outside date, 2005] are irrevocable and are not subject to withdrawal or
termination by the occurrence of any Event. If an Event shall occur after the
execution hereof but before the delivery of the Shares to the Underwriters, then
certificate(s) representing such Shares will be delivered by you to the
Underwriters on behalf of the undersigned in accordance with the terms and
conditions of the Underwriting Agreement and this Custody Agreement and any
actions taken by you pursuant to this Custody Agreement shall be as valid as if
such Event had not occurred, regardless of whether or not you, the Attorneys,
the Underwriters or any one of them, shall have received notice of such Event.

      Notwithstanding any of the foregoing provisions, if the Underwriting
Agreement shall not have been executed and delivered prior to [outside date,
2005], then, upon the written request of the undersigned to you (accompanied by
written notice of termination of the Power of Attorney addressed to each of the
Attorneys) on or after that date, you are to return to the undersigned, all
certificate(s), together with any stock powers, delivered herewith.

      Until payment of the purchase price for the Shares has been made to you by
or for the account of the several Underwriters, the undersigned shall remain the
owner of all shares of Common Stock represented by the certificate(s) deposited
with you hereunder and shall have the right to vote such shares and all other
securities, if any, represented by such certificate(s) and to receive all
dividends and distributions thereon, except the right to retain custody and
dispose of such shares, which is subject to the rights of the Custodian under
this Custody Agreement, the Attorneys under the Power of Attorney and the
Underwriters under the Underwriting Agreement. The Underwriters shall not
acquire the power or the right to direct the investment of the Shares by virtue
of this Custody Agreement until the consideration therefor is paid pursuant to
the Underwriting Agreement.

      You shall be entitled to act and rely upon any statement, request, notice
or instruction respecting this Custody Agreement given to you by the Attorneys,
or any one of them. Any Attorney has the authority to instruct you on
irregularities or discrepancies in the certificates representing shares of
Common Stock and any accompanying documents.

      In taking any action requested or directed by the Representatives under
the terms of this Custody Agreement, you will be entitled to rely upon a writing
signed by a Vice President, Senior Vice President, Managing Director, Counsel,
Assistant General Counsel or General Counsel of CIBC World Markets Corp.

      It is understood that you assume no responsibility or liability to any
person other than to deal with the certificate(s) deposited with you hereunder
and the proceeds from the sale of all or a portion of the securities represented
thereby in accordance with the provisions of this Custody Agreement. The
undersigned agrees to indemnify you for and to hold you free from and

                                     B - 3



harmless against any and all loss, claim, damage, liability or expense incurred
by you arising out of or in connection with acting as Custodian hereunder, as
well as the cost and expense of defending against any claim of liability
hereunder, which is not due to your own gross negligence or willful misconduct.

      The representations and warranties of the undersigned set forth in the
Underwriting Agreement are hereby incorporated by reference herein and the
undersigned represents and warrants that such representations and warranties are
true and correct on the date hereof as if made on the date hereof. The
representations, warranties and agreements contained herein, as well as those
contained in the Underwriting Agreement, are made for the benefit of, and may be
relied upon by, you, the other Selling Stockholders, the Attorneys, the Company,
[Company counsel], the Underwriters and DLA Piper Rudnick Gray Cary US LLP and
their representatives, agents and counsel. These representations, warranties and
agreements shall remain operative and in full force and effect, and shall
survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any of the persons listed in the preceding sentence, (ii) acceptance of the
Shares and payment for them under the Underwriting Agreement and (iii)
termination of this Custody Agreement.

      This Custody Agreement shall be binding upon the undersigned and the
heirs, legal representatives, distributees, successors and assigns of the
undersigned.

      This Custody Agreement may be signed in counterparts which together shall
constitute one and the same agreement.

      This Custody Agreement shall be governed by the laws of the State of New
York.

      Please acknowledge your acceptance hereof as Custodian, and receipt of the
certificate(s) deposited with you hereunder, by executing and returning the
enclosed copy hereof to the undersigned in care of R. Edward Anderson and Thomas
W. Stoltz.

Dated:______________, 2005

                                   Very truly yours,

                                   By:_________________________________________
                                        Name:
                                        Title:

                                     B - 4



Print Name(s) and Address of  Selling
Stockholder(s) and Name and Title of
any Person Signing as Agent or
Fiduciary:

___________________________________
___________________________________
___________________________________
___________________________________

Taxpayer I.D.: ____________________
Telephone:     ____________________

                                     B - 5



Instruction: If you are an individual and are married, your spouse is required
to complete this form:

                                 SPOUSAL CONSENT

      I am the spouse of ____________. On behalf of myself, my heirs and
legatees, I hereby join in and consent to the terms of the foregoing Custody
Agreement and agree to the sale of the shares of Common Stock of
_______________, registered in the name of my spouse or otherwise registered,
which my spouse proposes to sell pursuant to the Underwriting Agreement (as
defined therein).

 Dated_____________, 2005

                                    ___________________________________________
                                   (Signature of Spouse)

                                     B - 6



Instruction: Complete each column as to certificate(s) to be deposited with the
Custodian.

                            CERTIFICATE(S) DEPOSITED



           Stock                                 Maximum Number of Shares
           Certificate                           of Common Stock To Be Sold
           No.                                   from Certificate
                                              

TOTAL:                                           -------------------------

                                     B - 7



Instruction: Indicate how you wish to receive payment for the shares of Common
Stock sold to the Underwriters. Please note that if you are selling shares of
Common Stock registered in the name of a corporation or other association or a
trust, payment will be made only to the corporation or other association or
trust. A wire transfer can be made only to an account standing in exactly the
same name as the person or entity, including the corporation or other
association or trust, that is the registered owner of the Common Stock being
sold.

      MANNER OF PAYMENT

      I request that payment of the net proceeds from the sale of the shares of
Common Stock of the Company to be sold by me pursuant to the Underwriting
Agreement be made in the following manner (CHECK ONE):

[ ]   CHECK made payable to:
      to be sent to the following address:
__________________________________________
__________________________________________

      Phone: ( ) _________________________

      Please send by (check one):

      [ ] First class mail

      [ ] Federal Express
          Federal Express account number
          ________________________________

      [ ] or transfer to the following account:
      Account No.

      Bank _____________________________ See attached wire transfer instructions
                   (name)

      ____________________________________
                 (address)

      ABA No._____________________________

      Phone:( )___________________________

[ ]   Other (please specify)
__________________________________________

                                     B - 8



                     CUSTODIAN'S ACKNOWLEDGMENT AND RECEIPT

      Citi Trends, Inc., as Custodian, acknowledges acceptance of the duties of
the Custodian under the foregoing Custody Agreement and receipt of the
certificate(s) referred therein.

Dated: ______________, 2005

                                   CITI TRENDS, INC.

                                   By: _________________________________________
                                      Name:
                                      Title:

                      DO NOT DETACH FROM CUSTODY AGREEMENT

                                     B - 9



                                                                       Exhibit C

                              SELLING STOCKHOLDERS'
                          IRREVOCABLE POWER OF ATTORNEY
                       for sale of shares of common stock,
                 par value $0.01 per share, of Citi Trends, Inc.

R. Edward Anderson
Thomas W. Stoltz
c/o Citi Trends, Inc.
102 Fahm Street
Savannah, GA 31401

Ladies and Gentlemen:

            The undersigned stockholder and certain other holders of common
stock of Citi Trends, Inc. (the "Company") (such holders and the undersigned
being hereinafter sometimes collectively referred to as the "Selling
Stockholders"), propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with the Company, CIBC World Markets Corp., Wachovia
Capital Markets, LLC, SG Cowen & Co., LLC and Piper Jaffray & Co., as
representatives (the "Representatives") of the several underwriters to be named
in Schedule I to the Underwriting Agreement (the "Underwriters"). The Selling
Stockholders propose to sell to the Underwriters pursuant to the Underwriting
Agreement certain authorized and issued shares of the common stock, par value
$0.01 per share, of the Company (the "Common Stock") owned by them. It is
understood that at this time there is no commitment on the part of the
Underwriters to purchase any shares of Common Stock and no assurance that the
Underwriting Agreement will be entered into by the Company or the Underwriters.

            The undersigned hereby irrevocably constitutes and appoints R.
Edward Anderson and Thomas W. Stoltz each with full power and authority to act
alone in any matter hereunder and with full power of substitution, the true and
lawful attorneys-in-fact of the undersigned (individually an "Attorney," and
collectively the "Attorneys"), with full power and authority in the name of, for
and on behalf of, the undersigned with respect to all matters arising in
connection with the sale of Common Stock by the undersigned including, but not
limited to, the power and authority on behalf of the undersigned to take any and
all of the following actions:

            1. To sell, assign, transfer and deliver to the several
Underwritersup to the number of shares of Common Stock set forth on the
signature page hereof such shares of Common Stock to be represented by
certificate(s) deposited by the undersigned pursuant to the Custody Agreement
(the "Custody Agreement") between the undersigned and Citi Trends, Inc., as
Custodian (the "Custodian"), at a purchase price per share, after deducting
underwriting discounts and commissions, to be paid by the Underwriters, as the
Attorneys, in their sole discretion, shall determine, but at the same price per
share at which the Company and all other



Selling Stockholders (as defined in the Underwriting Agreement) sell Common
Stock to the Underwriters;

            2. To determine the number of shares of Common Stock to be sold by
the undersigned to the Underwriters, which numbers shall be no greater but may
be fewer than the corresponding numbers set forth on the signature page hereof
(such total number of shares of Common Stock as is finally determined by the
Attorneys and set forth opposite the name of the undersigned in Schedule II to
the Underwriting Agreement is hereinafter referred to as the "Shares");

            3. To execute, deliver and perform the Underwriting Agreement in
customary form with such customary representations, warranties and covenant as
the Attorneys, in their sole discretion, may deem appropriate, with full power
to make such amendments to the Underwriting Agreement as the Attorneys, in their
sole discretion, may deem advisable;

            4. On behalf of the undersigned, to make the representations and
warranties and enter into the agreements contained in the Underwriting Agreement
(including, without limitation, entering into the "lock-up" agreements);

            5. (a) To instruct the Custodian on all matters pertaining to the
sale of the Shares and the delivery of certificates therefor, including: (i) the
transfer of the Shares on the books of the Company in order to effect the sale
of the Shares (including designating the name or names in which new
certificate(s) for Shares are to be issued and the denominations thereof), (ii)
the delivery to or for the account of the Underwriters of the certificate(s) for
the Shares against receipt by the Custodian of the purchase price to be paid
therefor, (iii) the payment, out of the proceeds (net of underwriting discounts
and commissions) from the sale of the Shares by the undersigned to the
Underwriters, of any expense incurred in accordance with paragraph 6 which is
not payable by the Company and any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters ("Transfer Taxes") and (iv) the
transmission to the undersigned of the proceeds, if any, from the sale of the
Shares (after deducting all amounts payable by the undersigned pursuant to
clause (iii) above) and the return to the undersigned, of new certificate(s)
representing the excess, if any, of the number of shares of Common Stock
represented by certificate(s) deposited with the Custodian over the number of
Shares sold to the Underwriters; and (b) to amend the Custody Agreement and any
related documents in such manner as the Attorneys may determine to be not
materially adverse to the undersigned.

            6. To incur or authorize the incurrence of any necessary or
appropriate expense in connection with the sale of the Shares and to determine
the amount of any Transfer Taxes;

            7. To take any and all steps deemed necessary or desirable by the
Attorneys in connection with the registration of the Shares under the Securities
Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as
amended, and the securities or blue sky laws of various states and
jurisdictions, including, without limitation, the giving, making or filing of
such undertakings, consents to service of process and representations and
agreements and the taking of such other steps as the Attorneys may deem
necessary or desirable;



             8. To retain legal counsel to represent the undersigned in
connection with any and all matters referred to herein (which counsel may, but
need not be, counsel for the Company);

             9. To make, execute, acknowledge and deliver all such other
contracts, stock powers, orders, receipts, notices, instructions, certificates,
letters and other writings, including, without limitation, communications with
the Securities and Exchange Commission state securities commissions and the
National Association of Securities Dealers, Inc. ("NASD"), and in general to do
all things and to take all actions which the Attorneys, in their sole
discretion, may consider necessary or desirable in connection with the sale of
Shares to the Underwriters and the public offering thereof, as fully as could
the undersigned if personally present and acting;

            10. If necessary, to endorse (in blank or otherwise) on behalf of
the undersigned the certificate(s) representing the Shares, or a stock power or
powers attached to such certificate(s); and

            11. To sign such other certificates, documents and agreements and
take any and all other actions as the Attorneys may deem necessary or desirable
in connection with the consummation of the transactions contemplated by the
Underwriting Agreement, the Custody Agreement and this Power of Attorney.

            Each Attorney may act alone in exercising the rights and powers
conferred on the Attorneys in this Power of Attorney, and the act of any
Attorney shall be the act of the Attorneys. Each Attorney is hereby empowered to
determine in his or her sole discretion the time or times when, the purpose for
and the manner in which any power herein conferred upon him or her shall be
exercised, and the conditions, provisions or covenants of any instrument or
document which may be executed by him or her pursuant hereto.

            The undersigned acknowledges receipt of a copy of the Registration
Statement on Form S-1 (the "Registration Statement") relating to the offering of
the Shares and the other shares of Common Stock (together, the "Offered Shares")
to be sold by the Selling Stockholders and a copy of the draft form of the
Underwriting Agreement dated_________, 2005. The undersigned has reviewed the
Registration Statement and the form of the Underwriting Agreement and
understands the obligations and agreements of the undersigned set forth in the
Underwriting Agreement. All representations and warranties of the Selling
Stockholders in the Underwriting Agreement with respect to the undersigned will
be as of the date of the execution of the Underwriting Agreement, the Closing
Dates (as determined in accordance with the Underwriting Agreement), true and
correct. All such representations and warranties will, as provided in the
Underwriting Agreement, survive the termination of the Underwriting Agreement
and the delivery of and payment for the Shares.

            Upon the execution and delivery of the Underwriting Agreement by the
Attorneys on behalf of the Selling Stockholders, the undersigned agrees to be
bound by and to perform each and every covenant and agreement contained therein
of the undersigned as a Selling Stockholders.



            The undersigned agrees, if so requested, to provide an opinion of
counsel, addressed to Paul, Hastings, Janofsky & Walker LLP, which opinion shall
expressly permit reliance thereon by such counsel, setting forth such matters as
such counsel may reasonably request in rendering its opinion pursuant to the
Underwriting Agreement and such other documentation as the Attorneys, the
Company, the Representatives or any of their respective counsel may request to
effectuate any of the provisions hereof or of the Underwriting Agreement, all of
the foregoing to be in form and substance satisfactory in all respects to the
party requesting such documentation.

            This Power of Attorney and all authority conferred hereby are
granted and conferred subject to and in consideration of the interests of the
Attorneys, the several Underwriters, the Company and the other Selling
Stockholders who may become parties to the Underwriting Agreement, and for the
purposes of completing the transactions contemplated by the Underwriting
Agreement and this Power of Attorney.

            This Power of Attorney is an agency coupled with an interest and all
authority conferred hereby shall be irrevocable, and shall not be withdrawn or
terminated by any act of the undersigned or by operation of law, whether by the
death or incapacity of the undersigned (or either or any of the undersigned) or
by the occurrence of any other event or events (including, without limitation,
the termination of any trust or estate for which the undersigned is acting as a
fiduciary or fiduciaries, the death or incapacity of one or more trustees,
guardians, executors or administrators under such trust or estate or the merger,
consolidation, dissolution or liquidation of any corporation or partnership)
(any of the foregoing being hereinafter referred to as an "Event"). If an Event
shall occur after the execution hereof but before completion of the transactions
contemplated by the Underwriting Agreement or this Power of Attorney, then
certificate(s) representing the Shares will be delivered to the Underwriters by
or on behalf of the undersigned in accordance with the terms and conditions of
the Underwriting Agreement and the Custody Agreement and any actions taken
hereunder by the Attorneys shall be as valid as if such Event had not occurred
regardless of whether or not the Custodian, the Attorneys, the Underwriters, or
any one of them, shall have received notice of such Event.

            Notwithstanding any of the foregoing provisions, if the Underwriting
Agreement shall not have been executed and delivered prior to [outside date],
2005 then, upon the written notice of the undersigned on or after that date to
the Attorneys, this Power of Attorney shall terminate subject, however, to all
lawful action done or performed pursuant hereto prior to the receipt of actual
notice.

            It is understood that the Attorneys assume no responsibility or
liability to any person other than to deal with the certificate(s) for shares of
Common Stock deposited with the Custodian pursuant to the Custody Agreement and
the proceeds from the sale of the Shares in accordance with the provisions
hereof. The Attorneys make no representations with respect to and shall have no
responsibility for the Registration Statement or the Prospectus nor, except as
herein expressly provided, for any aspect of the offering of Common Stock, and
the Attorneys shall not be liable for any error of judgment or for any act done
or omitted or for any mistake of fact or law except for the Attorneys' own gross
negligence or willful misconduct. The



undersigned agrees to indemnify the Attorneys for and to hold the Attorneys,
jointly and severally, free from and harmless against any and all loss, claim,
damage, liability or expense incurred by or on behalf of the Attorneys, or any
of them, arising out of or in connection with acting as Attorneys under this
Power of Attorney, as well as the cost and expense of defending against any
claim of liability hereunder, which is not due to the Attorneys' own gross
negligence or willful misconduct. The undersigned agrees that the Attorneys may
consult with counsel of their choice (which may but need not be counsel for the
Company) and the Attorneys shall have full and complete authorization and
protection for any action taken or suffered by the Attorneys, or any of them
hereunder, in good faith and in accordance with the opinion of such counsel.

            It is understood that the purchase price per share of Common Stock
to be paid in connection with the offering contemplated by the Prospectus and
the Underwriting Agreement could be higher or lower than the price per share of
Common Stock as of the date hereof.

            It is understood that the Attorneys shall serve entirely without
compensation.

            This Power of Attorney shall be binding upon the undersigned and the
heirs, legal representatives, distributees, successors and assigns of the
undersigned.

            This Power of Attorney shall be governed by the laws of the State of
New York.



Witness the due execution of the foregoing Power of Attorney as of the date
written below.

Maximum Number of Shares of
Common Stock to be Sold by Selling
Stockholders(s):

___________________________________

                                   Very truly yours,

                                   By:_________________________________________
                                      Name:
                                      Title:

DATED:_____________, 2005
Print Name and Address of Selling
Stockholder(s) and Name and Title of any Person
Signing as Agent or Fiduciary:
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Telephone:( )______________________

Facsimile:( )______________________



      ACKNOWLEDGMENT

State of             )
                     )   ss.
County of            )

            On this the _____ day of ________ 2005 before me personally appeared
_____________________________ who acknowledged the signing of the foregoing
instrument and that the same is the free act and deed of such person (and if
such person is signing on behalf of a corporation, partnership or trust that the
same is the free act and deed of such corporation, partnership or trust and that
such person is duly authorized to sign the foregoing instrument).

            WITNESS my hand and official seal.

                               Notary's Signature

                                                                     Exhibit 3.1

                                     FORM OF

            SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                CITI TRENDS, INC.

      Citi Trends, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, as amended (the "GCL"), DOES HEREBY CERTIFY as follows:

      1. The name of the Corporation is Citi Trends, Inc. The Corporation was
originally incorporated under the name "Allied Fashion, Inc." and filed its
original Certificate of Incorporation with the Secretary of State of the State
of Delaware on March 3, 1999. The Corporation filed a restatement of its
Certificate of Incorporation with the Secretary of State of the State of
Delaware on April 12, 1999 and a Certificate of Amendment on June 26, 2001
changing its name from "Allied Fashion, Inc." to "Citi Trends, Inc."

      2. In the manner prescribed by Sections 242 and 245 of the GCL,
resolutions were duly adopted by the Board of Directors and the stockholders of
the Corporation, respectively, duly adopting this Second Amended and Restated
Certificate of Incorporation and amending and restating the Amended and Restated
Certificate of Incorporation of the Corporation as herein provided.

      3. The text of the Amended and Restated Certificate of Incorporation, as
amended and restated again herein, shall read in its entirety as follows:

      FIRST: The name of the Corporation is Citi Trends, Inc. (the
"Corporation").

      SECOND: The address of the Corporation's registered office in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street, in the City
of Wilmington, County of New Castle, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.

      THIRD: The nature or purpose of the business to be conducted or promoted
by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware, as amended (the "GCL").

      FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is [________________] shares, consisting of:

            (i) [__________________] shares of common stock, par value $0.01 per
share (the "Common Stock"); and

            (ii) [_________________] shares of preferred stock, par value $0.01
per share (the "Preferred Stock").

      A statement of the powers, designations, preferences, and relative
participating, optional or other special rights and the qualifications,
limitations and restrictions of the Common Stock and the Preferred Stock is as
follows.

      1. Common Stock.

            (a) Dividends. Dividends may be declared and paid on the Common
      Stock from funds lawfully available therefor as, if and when, determined
      by the Board of Directors and subject to any preferential dividend rights
      of any then outstanding shares of Preferred Stock.

            (b) Liquidation Rights. In the event of a voluntary or involuntary
      liquidation, dissolution or winding-up of the Corporation, the holders of
      shares of Common Stock shall be entitled, after payment or provision for
      payment of the debts and other liabilities of the Corporation, to share in
      the distribution of any remaining assets available for distribution to its
      stockholders ratably, subject to any preferential rights of any then
      outstanding Preferred Stock.

            (c) Voting Rights. The holders of Common Stock shall be entitled to
      one vote per share in voting or consenting to the election of directors
      and for all other matters presented to the stockholders of the Corporation
      for their action or consideration. Cumulative voting for the election of
      directors is not permissible. Except as otherwise required by law, the
      holders of the Common Stock shall vote together as a single class on all
      matters submitted to the stockholders of the Corporation.

      2. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law, to provide for the issuance of the Preferred
Stock in one or more series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof, as shall be stated in the
resolutions providing for the issuance of such series adopted by the Board of
Directors.

      The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:

            (a) the number of shares constituting that series and the
      distinctive designation of that series;

            (b) the rate of dividend, and whether (and if so, on what terms and
      conditions) dividends shall be cumulative (and if so, whether unpaid
      dividends shall compound or accrue interest) or shall be payable in
      preference or in any other relation to the dividends payable on any other
      class or classes of stock or any other series of the Preferred Stock;

            (c) whether that series shall have voting rights in addition to the
      voting rights provided by law and, if so, the terms and extent of such
      voting rights;


                                       2

            (d) whether the shares must or may be redeemed and, if so, the terms
      and conditions of such redemption (including, without limitation, the
      dates upon or after which they must or may be redeemed and the price or
      prices at which they must or may be redeemed, which price or prices may be
      different in different circumstances or at different redemption dates);

            (e) whether the shares shall be issued with the privilege of
      conversion or exchange and, if so, the terms and conditions of such
      conversion or exchange (including without limitation the price or prices
      or the rate or rates of conversion or exchange or any terms for adjustment
      thereof);

            (f) the amounts, if any, payable upon the shares in the event of
      voluntary liquidation, dissolution or winding up of the Corporation in
      preference of shares of any other class or series and whether the shares
      shall be entitled to participate generally in distributions on the Common
      Stock under such circumstances;

            (g) the amounts, if any, payable upon the shares thereof in the
      event of involuntary liquidation, dissolution or winding up of the
      Corporation in preference of shares of any other class or series and
      whether the shares shall be entitled to participate generally in
      distributions in the Common Stock under such circumstances;

            (h) sinking fund provisions, if any, for the redemption or purchase
      of the shares (the term "sinking fund" being understood to include any
      similar fund, however designated) and, if so, the terms and amount of such
      sinking fund; and

            (i) any other relative rights, preferences, limitations and powers
      of that series.

      3. No Preemptive Rights. Except as expressly set forth in this Certificate
of Incorporation, any certificate of designation, any resolution or resolutions
providing for the issuance of a series of stock adopted by the Board of
Directors, or any agreement between the Corporation and its stockholders, the
holders of Common Stock or any series of Preferred Stock shall have no
preemptive right to subscribe for any shares of any class of capital stock of
the Corporation whether now or hereafter authorized.

      FIFTH: The name and mailing address of the incorporator is as follows:

                               Francis A. Fuselier
                              Mayer, Brown & Platt
                            1675 Broadway, Suite 1900
                          New York, New York 10019-5820

      SIXTH:

      1. Limits on Director Liability. Directors of the Corporation shall have
no personal liability to the Corporation or its stockholders for monetary
damages for breach of a fiduciary duty as a director; provided that nothing
contained in this Article SIXTH shall eliminate or limit the liability of a
director (i) for any breach of a director's duty of loyalty to the Corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct


                                       3

or knowing violations of law, (iii) under Section 174 of the GCL or (iv) for any
transaction from which a director derived an improper personal benefit. If the
GCL is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then by virtue of this Article SIXTH the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the GCL, as so amended.

      2. Indemnification.

            (a) The Corporation shall indemnify and hold harmless, in accordance
      with the By-laws of the Corporation and to the fullest extent permitted
      from time to time by the GCL or any other applicable laws as presently or
      hereafter in effect, any person who was or is a party or is threatened to
      be made a party to any threatened, pending or completed action, suit or
      proceeding, whether civil, criminal, administrative or investigative,
      including, without limitation, an action by or in the right of the
      Corporation, by reason of his serving as a director or officer of the
      Corporation (and the Corporation, in the discretion of the Board of
      Directors, may so indemnify a person by reason of the fact that he is or
      was an employee or agent of the Corporation or is or was serving at the
      request of the Corporation in any other capacity for or on behalf of the
      Corporation) against any liability or expense actually and reasonably
      incurred by such person in respect thereof; provided, however, the
      Corporation shall be required to indemnify an officer or director in
      connection with an action, suit or proceeding (or part thereof) initiated
      by such person only if (i) such action, suit or proceeding (or part
      thereof) was authorized by the Board of Directors and (ii) the
      indemnification does not relate to any liability arising under Section
      16(b) of the Securities Exchange Act of 1934, as amended, or any rules or
      regulations promulgated thereunder. Such indemnification is not exclusive
      of any other right to indemnification provided by law or otherwise. The
      right to indemnification conferred by this Section 2 shall be deemed to be
      a contract between the Corporation and each person referred to herein.

            (b) If a claim under subdivision (a) of this Section 2 of this
      Article SIXTH is not paid in full by the Corporation, the claimant may at
      any time thereafter bring suit against the Corporation to recover the
      unpaid amount of the claim and, if successful in whole or in part, the
      claimant shall be entitled to be paid also the expense of prosecuting such
      claim. It shall be a defense to any such action (other than an action
      brought to enforce a claim for expenses incurred in defending any
      proceeding in advance of its final disposition where any undertaking
      required by subdivision (c) of this Section 2 of this Article SIXTH has
      been tendered to the Corporation) that the claimant has not met the
      standards of conduct which make it permissible under the GCL and
      subdivision (a) of this Section 2 of this Article SIXTH for the
      Corporation to indemnify the claimant for the amount claimed, but the
      burden of proving such defense shall be on the Corporation.

            (c) Indemnification shall include payment by the Corporation of
      expenses in defending an action or proceeding in advance of the final
      disposition of such action or proceeding upon receipt of an undertaking by
      the person indemnified to repay such payment if it is ultimately
      determined that such person is not entitled to indemnification under this
      Article SIXTH, which undertaking may be accepted without reference to the
      financial ability of such person to make such repayment.


                                       4

      3. Insurance. The Corporation shall have the power (but not the
obligation) to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss incurred by such person in any
such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
this Article SIXTH or the GCL.

      4. Other Rights. The rights and authority conferred in this Article SIXTH
shall not be deemed exclusive of any other right which any person may otherwise
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, contract, vote of stockholders or
disinterested directors or otherwise.

      5. Additional Indemnification. The Corporation may, by action of its Board
of Directors, provide additional indemnification to such of the directors,
officers, employees and agents of the Corporation to such extent and to such
effect as the Board of Directors shall determine to be appropriate and
authorized by the GCL.

      6. Effect of Amendments. Neither the amendment, change, alteration or
repeal of this Article SIXTH, nor the adoption of any provision of this
Certificate of Incorporation or the By-laws of the Corporation, nor, to the
fullest extent permitted by the GCL, any modification of law, shall eliminate or
reduce the effect of this Article SIXTH or the rights or any protection afforded
under this Article SIXTH in respect of any acts or omissions occurring prior to
such amendment, repeal, adoption or modification.

      SEVENTH: At all meetings of stockholders, each stockholder shall be
entitled to vote, in person or by proxy, the shares of voting stock owned by
such stockholders of record on the record date for the meeting. When a quorum is
present or represented at any meeting, the vote of the holders of a majority in
interest of the stockholders present in person or by proxy at such meeting and
entitled to vote thereon shall decide any question, matter or proposal brought
before such meeting unless the question is one upon which, by express provision
of law, this Certificate of Incorporation or the By-laws applicable thereto, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.

      EIGHTH:

      1. Number of Directors. The number of directors of the Corporation shall
be fixed from time to time by the vote of a majority of the entire Board of
Directors, but such number shall in no case be [less than five (5) nor more than
nine (9)]. Any such determination made by the Board of Directors shall continue
in effect unless and until changed by the Board of Directors, but no such
changes shall affect the term of any directors then in office.

      2. Classification of the Board of Directors. The Board of Directors shall
be divided into three classes, designated Classes I, II and III, which shall be
as nearly equal in number of directors per Class as possible.

      3. Term of Office; Vacancies.


                                       5

       (i)  Directors of Class I shall be elected to hold office for an initial
            term expiring at the first annual meeting of stockholders held after
            the date and time at which this Certificate of Incorporation of the
            Corporation shall become effective in accordance with Section 103(d)
            of the GCL (the "Effective Time").

      (ii)  Directors of Class II shall be elected to hold office for an initial
            term expiring at the second annual meeting of stockholders held
            after the Effective Time.

     (iii)  Directors of Class III shall be elected to hold office for an
            initial term expiring at the third annual meeting of stockholders
            held after the Effective Time.

      (iv)  At each annual meeting of stockholders, the respective successors of
            the directors whose terms are expiring shall be elected for terms
            expiring at the annual meeting of stockholders held in the third
            succeeding year.

       (v)  Vacancies in the Board of Directors and newly-created directorships
            resulting from any increase in the authorized number of directors
            may be filled as provided in the By-laws.

      4. Removal. Subject to the By-laws, a director may only be removed for
cause upon the affirmative vote of the holders of a majority of the votes which
could be cast by the holders of all outstanding shares of capital stock entitled
to vote for the election of directors, voting together as a class, given at a
duly called annual or special meeting of stockholders.

      5. Nominations. Advance notice of nominations by stockholders for the
election of directors, and of stockholder proposals regarding action to be taken
at any meeting of stockholders, shall be given in the manner and to the extent
provided in the By-laws of the Corporation.

      NINTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:

            (1) The business and affairs of the Corporation shall be managed by
      or under the direction of the Board of Directors.

            (2) The Board of Directors shall be authorized to adopt, amend and
      repeal the By-laws of the Corporation, without a stockholder vote, in any
      manner not inconsistent with the laws of the State of Delaware, this
      Certificate of Incorporation and the By-laws of the Corporation as from
      time to time in effect, subject to the power of the stockholders entitled
      to vote to adopt, amend, alter, change, add to or repeal By-laws made by
      the Board of Directors as provided below in Section 3 of this ARTICLE
      NINTH.

            (3) Notwithstanding anything contained in this Certificate of
      Incorporation to the contrary, the amendment, alteration or repeal of the
      provisions of ARTICLES


                                       6

      EIGHTH and TENTH and this ARTICLE NINTH shall require the affirmative vote
      of the holders of two-thirds (2/3) or more of the combined voting power of
      the outstanding shares of capital stock of the Corporation entitled to
      vote generally in the election of directors, voting together as a class.

            (4) In addition to the powers and authority hereinbefore or by
      statute expressly conferred upon them, the directors are hereby empowered
      to exercise all such powers and do all such acts and things as may be
      exercised or done by the Corporation, subject, nevertheless, to the
      provisions of the GCL, this Certificate of Incorporation, and any By-laws
      adopted by the stockholders; provided, however, that no By-laws hereafter
      adopted by the stockholders shall invalidate any prior act of the
      directors which would have been valid if such By-laws had not been
      adopted.

      TENTH:

      1. Stockholder Meetings; Keeping of Books and Records. Any action required
or permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of such holders and may not be
effected by any consent in writing by such holders. Meetings of stockholders may
be held within or outside the State of Delaware as the By-laws may provide. The
books of the Corporation may be kept (subject to any provision contained in the
GCL) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the By-laws of the
Corporation.

      2. Special Stockholders Meetings. Except as otherwise required by law,
special meetings of stockholders of the Corporation may be called only by:

      (i)   the Chairman of the Board of Directors of the Corporation;

      (ii)  the Board of Directors pursuant to a resolution approved by the
            Board of Directors; or

      (iii) the Board of Directors upon a request by holders of at least 50% in
            voting power of all outstanding shares entitled to vote at such
            meeting.

      3. No Written Ballot. Elections of directors need not be by written ballot
unless the By-laws of the Corporation shall so provide.

      4. Quorum at Stockholder Meetings. The holders of one-third in voting
power of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business, except that the
holders of a majority in voting power of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be required to constitute a quorum for:

      (i)   a vote for any director in a contested election;

      (ii)  the removal of a director; or


                                       7

      (iii) the filling of a vacancy on the Board of Directors by the
            stockholders of the Corporation.

      ELEVENTH: The Corporation reserves the right to repeal, alter, change or
amend any provision contained in this Certificate of Incorporation in the manner
now or hereafter prescribed by statute and all rights conferred upon
stockholders herein are granted subject to this reservation. No repeal,
alteration or amendment of this Certificate of Incorporation shall be made
unless the same is first approved by the Board of Directors of the Corporation
pursuant to a resolution adopted by the directors then in office in accordance
with the By-laws and applicable law and thereafter approved by the stockholders.

      TWELTH:  The Corporation is subject to Section 203 of the GCL.


                                       8

      IN WITNESS WHEREOF, the undersigned has executed this Second Amended and
Restated Certificate of Incorporation this ____ day of February, 2005, and
hereby acknowledges that this Second Amended and Restated Certificate of
Incorporation is the act and deed of the Corporation and that the facts stated
herein are true.

                                    CITI TRENDS, INC.



                                    By  ________________________________
                                         Name:
                                         Title:
ATTEST:

________________________


                                       9

                                                                     Exhibit 3.2






                                     FORM OF

                          AMENDED AND RESTATED BY-LAWS

                                       OF

                                CITI TRENDS, INC.

                                TABLE OF CONTENTS



                                                                                       PAGE
                                                                                    
I.       OFFICES.....................................................................    1

II.      STOCKHOLDERS................................................................    1

         Section 2.1       Annual Meetings...........................................    1

         Section 2.2       Time and Place of Special Meetings........................    1

         Section 2.3       Notice of Meetings........................................    2

         Section 2.4       Organization; Procedure...................................    3

         Section 2.5       Quorum....................................................    3

         Section 2.6       Record Date...............................................    4

         Section 2.7       Proxies...................................................    4

         Section 2.8       Voting....................................................    5

         Section 2.9       Voting by Ballot..........................................    5

         Section 2.10      Inspector of Elections....................................    5

         Section 2.11      No Stockholder Action by Written Consent..................    6

         Section 2.12      List of Stockholders Entitled to Vote.....................    6

         Section 2.13      Stock Ledger..............................................    6

         Section 2.14      Notice of Stockholder Business and Nominations............    6

         Section 2.15      Opening and Closing of Polls..............................    9

         Section 2.16      Confidential Voting.......................................    9

III.     DIRECTORS...................................................................   10

         Section 3.1       General Powers............................................   10

         Section 3.2       Number and Election of Directors..........................   10

         Section 3.3       Classified Board; Election of Directors...................   10

         Section 3.4       Additional Directorships..................................   10

         Section 3.5       Place of Meetings.........................................   11

         Section 3.6       Annual and Regular Meetings...............................   11

         Section 3.7       Special Meetings..........................................   11

         Section 3.8       Quorum....................................................   12

         Section 3.9       Adjournment...............................................   12

         Section 3.10      Action without Meeting....................................   12

         Section 3.11      Regulations; Manner of Acting.............................   12


                                      -i-

                                TABLE OF CONTENTS
                                   (continued)



                                                                                       PAGE
                                                                                    
         Section 3.12      Attendance by Telephone...................................   12

         Section 3.13      Removal...................................................   12

         Section 3.14      Compensation of Directors.................................   12

         Section 3.15      Reliance on Accounts and Reports, etc.....................   12

IV.      BOARD COMMITTEES............................................................   13

         Section 4.1       How Constituted...........................................   13

         Section 4.2       Powers....................................................   13

         Section 4.3       Proceedings...............................................   15

         Section 4.4       Quorum and Manner of Acting...............................   15

         Section 4.5       Action by Telephonic Communications.......................   16

         Section 4.6       Resignations..............................................   16

         Section 4.7       Removal...................................................   16

         Section 4.8       Vacancies.................................................   16

V.       OFFICERS....................................................................   16

         Section 5.1       Number....................................................   16

         Section 5.2       Election..................................................   16

         Section 5.3       Powers....................................................   17

         Section 5.4       Salaries..................................................   17

         Section 5.5       Removal and Resignation; Vacancies........................   17

         Section 5.6       Chairman of the Board.....................................   17

         Section 5.7       Chief Executive Officer...................................   17

         Section 5.8       Chief Financial Officer...................................   18

         Section 5.9       President.................................................   18

         Section 5.10      Absence or Disability of the Chief Executive Officer......   18

         Section 5.11      Vice President............................................   18

         Section 5.12      Secretary.................................................   18

         Section 5.13      Assistant Secretary.......................................   18

         Section 5.14      Treasurer.................................................   18

         Section 5.15      Assistant Treasurer.......................................   19

         Section 5.16      Other Officers............................................   19


                                      -ii-

                                TABLE OF CONTENTS
                                   (continued)



                                                                                       PAGE
                                                                                    
VI.      CERTIFICATES OF STOCK.......................................................   19

         Section 6.1       Certificates of Stock, Uncertificated Shares..............   19

         Section 6.2       Signatures; Facsimile.....................................   20

         Section 6.3       Transfer..................................................   20

         Section 6.4       Replacement...............................................   20

         Section 6.5       Beneficial Owners.........................................   20

VII.     INDEMNIFICATION OF DIRECTORS AND OFFICERS...................................   20

         Section 7.1       Nature of Indemnity.......................................   20

         Section 7.2       Advance Payment of Expenses...............................   21

         Section 7.3       Procedure for Indemnification.............................   22

         Section 7.4       Preservation of Other Rights..............................   22

         Section 7.5       Insurance.................................................   22

         Section 7.6       Employees and Agents......................................   22

         Section 7.7       Survival..................................................   23

VIII.    GENERAL PROVISIONS..........................................................   23

         Section 8.1       Fiscal Year...............................................   23

         Section 8.2       Corporate Seal............................................   23

         Section 8.3       Dividends.................................................   23

         Section 8.4       Reserves..................................................   23

         Section 8.5       Execution of Instruments..................................   23

         Section 8.6       Corporate Books...........................................   24

         Section 8.7       Corporate Indebtedness....................................   24

         Section 8.8       Deposits..................................................   24

         Section 8.9       Checks....................................................   24

         Section 8.10      Sale, Transfer, etc. of Securities........................   24

         Section 8.11      Voting as Stockholder.....................................   24

         Section 8.12      Transactions with Interested Parties......................   25

IX.      AMENDMENTS..................................................................   25

         Section 9.1       Amendment.................................................   25

X.       SUBJECT TO CERTIFICATE OF INCORPORATION.....................................   26


                                      -iii-

                          AMENDED AND RESTATED BY-LAWS

                                       OF

                                CITI TRENDS, INC.



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

                                    PREAMBLE

      These By-laws, as the same may be amended and restated from time to time,
are subject to, and governed by, the General Corporation Law of the State of
Delaware (the "GCL") and the second amended and restated certificate of
incorporation, as the same may be amended and restated from time to time, of
Citi Trends, Inc., a Delaware corporation (the "Corporation") then in effect
(the "Certificate"). In the event of a direct conflict between the provisions of
these By-laws and the mandatory provisions of the GCL or the provisions of the
Certificate, such provisions of the GCL or the Certificate, as the case may be,
will be controlling.

                                       I.

                                     OFFICES

      The registered office of the Corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware and the name and address of
its registered agent is c/o The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.

                                      II.

                                  STOCKHOLDERS

      Section 2.1. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other business as may properly be brought before such meeting shall be held
on such date, and at such time and place within or without the State of
Delaware, as may be designated from time to time by resolution of the Board of
Directors and set forth in the notice or waiver of notice of the meeting.

      Section 2.2. Time and Place of Special Meetings. Unless otherwise
prescribed by law or by the Certificate, special meetings of stockholders of the
Corporation may be called only by (a) the Chairman of the Corporation; (b) the
Board of Directors pursuant to a resolution approved by the Board of Directors;
or (c) the Board of Directors upon a request by the holders of at least fifty
percent (50%) in voting power of all outstanding shares of capital stock of the
Corporation entitled to vote at such meeting. Such request shall state the
purpose of the proposed meeting.

      All special meetings of the stockholders shall be held at such place,
within or without the State of Delaware, as shall be designated by the Board of
Directors. In the absence of any such designation by the Board of Directors,
each such meeting shall be held at the principal office of the Corporation.

      Section 2.3. Notice of Meetings. The Secretary or any Assistant Secretary
shall cause written notice of the place, if any, date and hour of each meeting
of the stockholders and the means of remote communications, if any, by which
stockholders and proxy holders may be deemed to be present in person and vote at
such meeting and, in the case of a special meeting, the purpose or purposes for
which such meeting is called, to be given in the manner set forth in the next
paragraph, not less than ten (10) nor more than sixty (60) calendar days prior
to the meeting, to each stockholder of record entitled to vote at such meeting.
If a stockholder meeting is to be held via electronic communications and
stockholders will take action at such meeting, the notice of such meeting must:
(a) specify the means of remote communications, if any, by which stockholders
and proxy holders may be deemed to be present and vote at such meeting; and (b)
provide the information required to access the stockholder list.

      Notices are deemed given (i) if by mail, when deposited in the United
States mail, postage prepaid, directed to the stockholder at his or her address
as it appears on the record of stockholders of the Corporation, or, if he or she
shall have filed with the Secretary of the Corporation a written request that
notices to him or her be mailed to some other address, then directed to him or
her at such other address; (ii) if by facsimile, when faxed to a number where
the stockholder has consented to receive notice; (iii) if by electronic mail,
when mailed electronically to an electronic mail address at which the
stockholder consented to receive such notice; (iv) if by posting on an
electronic network (such as a website or chatroom) together with a separate
notice to the stockholder of such specific posting, upon the later to occur of
(A) such posting or (B) the giving of the separate notice of such posting; or
(v) if by any other form of electronic communication, when directed to the
stockholder in the manner consented to by the stockholder.

      For notice given by electronic transmission to a stockholder to be
effective, such stockholder must consent to the Corporation's giving notice by
that particular form of electronic transmission. A stockholder may revoke
consent to receive notice by electronic transmission by written notice to the
Corporation. A stockholder's consent to notice by electronic transmission is
automatically revoked if the Corporation is unable to deliver two consecutive
electronic transmission notices and such inability becomes known to the
Secretary, Assistant Secretary, the transfer agent or other person responsible
for giving notice.

      A written waiver of any such notice signed by the person entitled thereto,
or a waiver by electronic transmission by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of an individual at a meeting in person or by proxy shall constitute
a waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice. Neither the business to be
transacted at, nor the purpose of, an annual or special meeting of stockholders
need be specified in any written waiver of notice.


                                       2

      Section 2.4. Organization; Procedure. The Chairman, or in the Chairman's
absence or at the Chairman's direction, any officer of the Corporation shall
call all meetings of the stockholders to order and shall act as chairman of such
meeting. The Secretary of the Corporation or, in such officer's absence, an
Assistant Secretary shall act as secretary of the meeting. If neither the
Secretary nor an Assistant Secretary is present, the chairman of the meeting
shall appoint a secretary of the meeting. The date and time of the opening and
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may adopt by resolution such rules and
regulations for the conduct of the meeting of stockholders as it shall deem
appropriate. Except to the extent inconsistent with such rules and regulations
as adopted by the Board of Directors, the person presiding over any meeting of
stockholders shall have the right and authority to convene and to adjourn the
meeting, to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such presiding person, are appropriate for the
proper conduct of the meeting. Such rules, regulations or procedures, whether
adopted by the Board of Directors or prescribed by the presiding person of the
meeting, may include, without limitation, the following: (a) the establishment
of an agenda or order of business for the meeting; (b) rules and procedures for
maintaining order at the meeting and the safety of those present; (c)
limitations on attendance at or participation in the meeting to stockholders of
record of the Corporation, their duly authorized and constituted proxies or such
other persons as the presiding person of the meeting shall determine; (d)
restrictions on entry to the meeting after the time fixed for the commencement
thereof; and (e) limitations on the time allotted to questions or comments by
participants. The presiding person at any meeting of stockholders, in addition
to making any other determinations that may be appropriate to the conduct of the
meeting, shall, if the facts warrant, determine and declare to the meeting that
a matter or business was not properly brought before the meeting and if such
presiding person should so determine, such presiding person shall so declare to
the meeting and any such matter or business not properly brought before the
meeting shall not be transacted or considered. Unless and to the extent
determined by the Board of Directors or the person presiding over the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.

      Section 2.5. Quorum. Except as otherwise provided by law, by the
Certificate or these By-laws, the holders of one-third (1/3) in voting power of
the capital stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business, except that the holders of a
majority in voting power of the capital stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall be
required to constitute a quorum for (a) a vote for any director in a contested
election; (b) the removal of a director; or (c) the filling of a vacancy on the
Board of Directors if the filling of such vacancy is submitted to a vote of the
stockholders. If a quorum is not present at any meeting of the stockholders, the
presiding officer shall have the power to adjourn any such meeting from time to
time until a quorum is present. Notice of any adjourned meeting of the
stockholders of the Corporation need not be given if the place, if any, date and
hour thereof, and the means of remote communications, if any, by which
stockholders and proxy holders may be deemed to be present in person and vote at
such meeting, are announced at the meeting at which the adjournment is taken;
provided, however, that if the adjournment is for more than thirty (30) calendar
days, or if after the adjournment a new record date for the adjourned meeting is
fixed pursuant to Section 2.6 of


                                       3

these By-laws, a notice of the adjourned meeting, conforming to the requirements
of Section 2.3 of these By-laws, shall be given to each stockholder of record
entitled to vote at such meeting. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted on the
original date of the meeting.

      Section 2.6. Record Date. In order that the Corporation may determine the
stockholders (a) entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof; (b) entitled to receive payment of any dividend or
other distribution or allotment of any rights; or (c) entitled to exercise any
rights in respect of any change, conversion or exchange of capital stock or for
the purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date (i) in the case of clause (a) above, shall, unless otherwise required by
law, not be more than sixty (60) nor less than ten (10) calendar days before the
date of such meeting; and (ii) in the case of clause (b) above, shall not be
more than sixty (60) calendar days prior to such action. If for any reason the
Board of Directors shall not have fixed a record date for any such purpose, the
record date for such purpose shall be determined as provided by law. A
determination of the stockholders of record entitled to notice of or to vote at
a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.

      Section 2.7. Proxies. At all meetings of stockholders, any stockholder
entitled to vote thereat shall be entitled to vote in person or by proxy, but no
proxy shall be voted or acted upon after three years from its date, unless such
proxy provides for a longer period. Without limiting the manner in which a
stockholder may authorize another person or persons to act for such stockholder
as proxy pursuant to the GCL, the following shall constitute a valid means by
which a stockholder may grant such authority: (a) a stockholder may execute a
written instrument authorizing another person or persons to act for such
stockholder as proxy, and execution of the written instrument may be
accomplished by the stockholder or the stockholder's authorized officer,
director, employee, trustee or agent signing such writing or causing his or her
signature to be affixed to such writing by any reasonable means including, but
not limited to, by facsimile signature; or (b) a stockholder may authorize
another person or persons to act for such stockholder as proxy by transmitting
or authorizing the transmission of a telegram, cablegram or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or electronic
transmission was authorized by the stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors, or if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.

      Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to the preceding paragraph of this
Section 2.7 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile


                                       4

telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.

      Proxies shall be filed with the Secretary of the meeting prior to or at
the commencement of the meeting to which they relate. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
Secretary.

      Section 2.8. Voting. Unless otherwise required by law, the Certificate or
these By-laws, any question brought before any meeting of stockholders shall be
decided by a majority of votes cast by holders of the Common Stock represented
and entitled to vote thereon, with each such holder having the number of votes
per share and voting as a member of such classes of stockholders as may be
provided in the Certificate, unless the question is one upon which, by express
provision of law or of the Certificate, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.

      Section 2.9. Voting by Ballot. No vote of the stockholders need be taken
by written ballot, or by a ballot submitted by electronic transmission, or
conducted by inspectors of elections unless otherwise required by law. Any vote
not required to be taken by ballot or by ballot submitted by electronic
transmission may be conducted in any manner approved by the presiding officer at
the meeting at which such vote is taken.

      Section 2.10 Inspector of Elections. The Corporation may, and shall if
required by law, in advance of any meeting of stockholders, appoint one or more
inspectors of election, who may be employees of the Corporation, to act at the
meeting or any adjournment thereof and to make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. In the event that no inspector so appointed or
designated is able to act at a meeting of stockholders, the person presiding at
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his or her duties, shall take
and sign an oath to execute faithfully the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspector or
inspectors so appointed or designated shall (a) ascertain the number of shares
of capital stock of the Corporation outstanding and the voting power of each
such share; (b) determine the shares of capital stock of the Corporation
represented at the meeting and the validity of proxies and ballots; (c) specify
the information relied upon to determine the validity of electronic
transmissions in accordance with Section 2.7 hereof; (d) count all votes and
ballots; (e) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
(f) certify their determination of the number of shares of capital stock of the
Corporation represented at the meeting and such inspectors' count of all votes
and ballots. Such certification and report shall specify such other information
as may be required by law. No person who is a candidate for an office at an
election may serve as an inspector at such election.

      When determining the shares of capital stock represented and the validity
of proxies and ballots, the inspector shall be limited to an examination of the
proxies, any envelopes submitted


                                       5

with those proxies, any information provided in accordance with Section 2.7 of
these By-laws, ballots and the regular books and records of the Corporation. The
inspector may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers or
their nominees or a similar person which represent more votes than the holder of
a proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the inspector considers other reliable
information as outlined in this section, the inspector, at the time of his or
her certification pursuant to provision (f) of this section shall specify the
precise information considered, the person or persons from whom the information
was obtained, when this information was obtained, the means by which the
information was obtained, and the basis for the inspector's belief that such
information is accurate and reliable.

      Section 2.11 No Stockholder Action by Written Consent. Any action required
or permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of the stockholders of the
Corporation, and the ability of the stockholders to consent in writing to the
taking of any action is specifically denied.

      Section 2.12 List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
and class of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.

      Section 2.13 Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 2.12 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.

      Section 2.14 Notice of Stockholder Business and Nominations.

      (a)   Annual Meetings of Stockholders.

            (i) Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders at an annual
meeting of stockholders may be made only (A) by or at the direction of the Board
of Directors or the Chief Executive Officer; (B) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, and the
notice procedures set forth in clause (ii) of this Section 2.14(a) and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation; or (C) pursuant to the Corporation's notice of meeting (or any
supplement thereto).


                                       6

            (ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder, pursuant to clause (B) of paragraph (a)(i)
of this Section 2.14, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and any such other business other
than nominations of persons for election to the Board of Directors must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered or mailed to the Secretary at the
principal executive offices of the Corporation and received not less than ninety
(90) calendar days, nor more than one hundred twenty (120) calendar days prior
to the first anniversary of the previous year's annual meeting; provided,
however, that in the event that no annual meeting was held in the previous year
or the date of the annual meeting was changed by more than thirty (30) calendar
days from the anniversary date of the previous year's annual meeting, notice by
the stockholder must be so received not less than ninety (90) calendar days nor
more than one hundred twenty (120) calendar days prior to such annual meeting or
ten (10) calendar days following the date on which public announcement of the
date of the meeting is first made by the Corporation or notice of such meeting
is given. In no event shall an adjournment or postponement of an annual meeting
(or the public announcement thereof) commence a new time period (or extend any
time period) for the giving of stockholder's notice as described above. Such
stockholder's notice shall set forth (A) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act, and Rule 14a-11 thereunder,
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (B) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting (including the text of
any resolutions proposed for consideration), the reasons for conducting such
business at the meeting and, in the event that such business includes a proposal
to amend either the Certificate or the By-laws of the Corporation, the language
of the proposed amendment; (C) any material interest in such business of such
stockholder and of any beneficial owner on whose behalf the proposal is made
and, in the case of nominations, a description of all arrangements or
understandings between the stockholder and each nominee and any other persons
(naming them) pursuant to which the nominations are to be made by the
stockholder; (D) a representation that the stockholder is a holder of record of
capital stock of the Corporation entitled to vote at such meeting and intends to
appear in person or by a qualified representative at the meeting to propose such
business; (E) a representation whether the stockholder or the beneficial owner,
if any, intends or is part of a group which intends (1) to deliver a proxy
statement and/or form of proxy to holders of at least the percentage of the
Corporation's outstanding capital stock required to approve or adopt the
proposal or elect the nominee and/or (2) otherwise to solicit proxies from
stockholders in support of such proposal or nomination; and (F) as to the
stockholder giving the notice and any beneficial owner on whose behalf the
nomination or proposal is made, (1) the name and address of such stockholder, as
it appears on the Corporation's books, and of such beneficial owner and (2) the
class and number of shares of capital stock of the Corporation which are owned
beneficially and of record by such stockholder and such beneficial owner. If
such stockholder does not appear or send a qualified representative to present
such proposal at such annual meeting, the Corporation need not present such
proposal for a vote at such meeting, notwithstanding that proxies in respect of
such vote may have been received by the Corporation. The presiding officer of
any arrival meeting of stockholders shall refuse to permit any business

                                       7


proposed by a stockholder to be brought before such annual meeting without
compliance with the foregoing procedures or if the stockholder solicits proxies
in support of such stockholder's proposal without such stockholder having made
the representation required by clause (E) above. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the stockholder has
notified the Corporation of his or her intention to present a proposal at an
annual meeting in compliance with Rule 14a-8 (or any successor thereof)
promulgated under the Exchange Act and such stockholder's proposal has been
included in a proxy statement that has been prepared by the Corporation to
solicit proxies for such annual meeting. The Corporation may require any
proposed nominee to furnish such other information as it may reasonably require
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation.

             (iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 2.14 to the contrary, in the event that the number of
directors to be elected to the Board of Directors at an annual meeting is
increased and there is no public announcement by the Corporation naming the
nominees for the additional directorships at least one hundred (100) calendar
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 2.14 shall also be considered
timely, but only with respect to nominees for the additional directorships, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the Corporation.

      (b)    Special Meetings of Stockholders.

             (i) Only such business as shall have been brought before the
special meeting of the stockholders pursuant to the Corporation's notice of
meeting pursuant to Section 2.2 of these By-laws shall be conducted at such
meeting.

             (ii) In the event that directors are to be elected at a special
meeting of stockholders pursuant to the Corporation's notice of meeting,
nominations of persons for election to the Board of Directors may be made at
such special meeting of stockholders (A) by or at the direction of the Board of
Directors; or (B) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this Section 2.14 and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation.
Nominations by stockholders of persons for election to the Board of Directors
may be made at such special meeting of stockholders if the stockholder's notice
as required by paragraph (a)(ii) of this Section 2.14 shall be delivered to the
Secretary at the principal executive offices of the Corporation not more than
one hundred twenty (120) calendar days prior to such special meeting and not
less than ninety (90) calendar days prior to such special meeting or ten (10)
calendar days following the date on which a public announcement of the date of
the special meeting and of the nominees to be elected at such meeting is first
made or notice of such meeting is given. In no event shall the adjournment or
postponement of a special meeting (or the public announcement thereof) commence
a new time period (or extend any time period) for the giving of a stockholder's
notice as described above.

      (c)    General.


                                       8

             (i) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.14 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 2.14. Except as otherwise provided by law, the
Certificate or these By-laws, the presiding officer of the meeting shall have
the power and duty to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed in accordance with the
procedures set forth in this Section 2.14 (including whether the stockholder or
beneficial owner, if any, on whose behalf the nomination or proposal is made
solicited (or is part of a group which solicited) or did not so solicit, as the
case may be, proxies in support of such stockholder's representation as required
by clause (a)(ii)(E) of this Section 2.14) and, if any proposed nomination or
business is not in compliance with this Section 2.14, to declare that such
defective proposal or nomination shall be disregarded. Notwithstanding the
foregoing provisions of this Section 2.14, if the stockholder (or a qualified
representative of the stockholder) does not appear at the annual or special
meeting of stockholders of the Corporation to present a nomination or business,
such nomination shall be disregarded and such proposed business shall not be
transacted, notwithstanding that proxies in respect of such vote may have been
received by the Corporation.

             (ii) For purposes of this Section 2.14, "public announcement" shall
include disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Sections 13, 14, or 15(d) of the Exchange Act.

             (iii) For purposes of this Section 2.14, no adjournment nor notice
of adjournment of any meeting shall be deemed to constitute a new notice of such
meeting for purposes of this Section 2.14 and in order for any notification
required to be delivered by a stockholder pursuant to this Section 2.14 to be
timely, such notification must be delivered within the periods set forth above
with respect to the originally scheduled meeting.

             (iv) Notwithstanding the foregoing provisions of this Section 2.14,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.14. Nothing in this Section 2.14 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.

      Section 2.15 Opening and Closing of Polls. The date and time for the
opening and the closing of the polls for the matters to be voted upon at a
stockholder meeting shall be announced at the meeting. The inspector of the
election shall be prohibited from accepting any ballots, proxies or votes or any
revocations thereof or changes thereto after the closing of the polls, unless
the Court of Chancery upon application by a stockholder shall determine
otherwise.

      Section 2.16 Confidential Voting.

      (a) Proxies and ballots that identify the votes of specific stockholders
shall be kept in confidence by the inspectors of election unless: (i) there is
an opposing solicitation with respect to the election or removal of directors;
(ii) disclosure is required by applicable law; (iii) a stockholder expressly
requests or otherwise authorizes disclosure in relation to such


                                       9

stockholder's vote; or (iv) the Corporation concludes in good faith that a bona
fide dispute exists as to the authenticity of one or more proxies, ballots or
votes, or as to the accuracy of any tabulation of such proxies, ballots or
votes.

      (b) The inspectors of election and any authorized agents or other persons
engaged in the receipt, count and tabulation of proxies and ballots shall be
advised of this Section 2.16 and instructed to comply herewith.

      (c) The inspectors of election shall certify, to the best of their
knowledge based on due inquiry, that proxies and ballots have been kept in
confidence as required by this Section 2.16.

                                      III.

                                    DIRECTORS

      Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors, which may
exercise all the powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate or by these By-laws directed or
required to be exercised or done by the stockholders.

      Section 3.2 Number and Election of Directors. The number of directors of
the Corporation shall be fixed from time to time by resolution of the Board of
Directors adopted by the vote of a majority of the entire Board of Directors,
but such number shall in no case be less than [five (5) nor more than nine (9)],
the majority of which will be "independent" under the rules of the Nasdaq
National Market. Except as provided in Section 3.3 of this Article, directors
shall be elected by a plurality of the votes cast at Annual Meetings of
Stockholders. Any director may resign at any time by submitting an electronic
transmission or by delivering a written notice of resignation, signed by such
director, to the Chairman or the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery. Directors need not be
stockholders.

      Section 3.3 Classified Board; Election of Directors. The Board of
Directors shall be divided into three classes, designated Classes I, II and III,
which shall be as nearly equal in number as possible. Directors of Class I shall
hold office for an initial term expiring at the first annual meeting of
stockholders to be held after the date hereof. Directors of Class II shall hold
office for an initial term expiring at the second annual meeting of stockholders
to be held after the date hereof. Directors of Class III shall hold office for
an initial term of office expiring at the third annual meeting of stockholders
to be held after the date hereof. Except as otherwise provided in Section 3.4 of
these By-laws, at each annual meeting of stockholders of the Corporation, the
respective successors of the directors whose terms are expiring shall be elected
for terms expiring at the annual meeting of stockholders held in the third
succeeding year.

      Section 3.4 Additional Directorships. Newly created directorships or
vacancies on the Board of Directors shall be filled by a majority of the
directors then in office, regardless of whether such directors fulfill quorum
requirements, or by a sole remaining director; and the newly created
directorships shall be distributed among the three classes of directors so that,
as


                                       10

nearly as possible, each class will consist of one-third (1/3) of the
Corporation's directors. Any director elected to fill any vacancy on the Board
of Directors not resulting from an increase in the number of directors shall be
of the same class as that of the director whose death, resignation, removal or
other event caused the vacancy and shall have the same remaining term as that of
his predecessor. A director elected to fill a vacancy or a newly created
directorship shall hold office until such director's successor has been elected
and qualified or until such director's earlier death, resignation or removal.
Any vacancy or newly created directorship may also be filled by the vote of the
holders of a majority in voting power of the capital stock issued and
outstanding and entitled to vote. Directors may be removed only for cause, and
only by the affirmative vote of at least a majority in voting power of all
outstanding capital stock of the Corporation entitled to vote generally in the
election of directors, voting as a single class.


      Section 3.5 Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.

      Section 3.6 Annual and Regular Meetings. The annual meeting of the Board
of Directors for the purpose of electing officers and for the transaction of
such other business as may come before the meeting shall be held as soon as
practicable following adjournment of the annual meeting of the stockholders.
Notice of such annual meeting of the Board of Directors need not be given. The
Board of Directors from time to time may by resolution provide for the holding
of regular meetings and fix the place (which may be within or without the State
of Delaware) and the date and hour of such meetings. Notice of regular meetings
need not be given; provided, however, that if the Board of Directors shall fix
or change the time or place of any regular meeting, notice of such action shall
be mailed promptly, or sent by telephone, including a voice messaging system or
other system or technology designed to record and communicate messages,
telegraph, facsimile, electronic mail or other electronic means, to each
director who shall not have been present at the meeting at which such action was
taken, addressed or transmitted to him or her at his or her usual place of
business, or shall be delivered or transmitted to him or her personally. Notice
of such action need not be given to any director who attends the first regular
meeting after such action is taken without protesting the lack of notice to him
or her, prior to or at the commencement of such meeting, or to any director who
submits a signed waiver of notice, whether before or after such meeting.

      Section 3.7 Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, any director or the Chief
Executive Officer (or, in the event of the Chief Executive Officer's absence or
disability, by any other officer) at such place (within or without the State of
Delaware), date and hour as may be specified in the respective notices or
waivers of notice of such meetings. Special meetings of the Board of Directors
may be called on twenty-four (24) hours' notice, if notice is given to each
director personally or by telephone, including a voice messaging system, or
other system or technology designed to record and communicate messages,
telegraph, facsimile, electronic mail or other electronic means, or on five (5)
calendar days' notice, if notice is mailed to each director, addressed or
transmitted to him or her at such director's usual place of business or other
designated location. Notice of any special meeting shall be deemed to have been
waived by any director who attends such meeting without protesting the lack of
notice to him or her, prior to or at the commencement of such meeting, or to any
director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat.


                                       11

      Section 3.8 Quorum. Except as may be otherwise specifically provided by
law, the Certificate or these By-laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors.

      Section 3.9 Adjournment. A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting of the Board of Directors to
another time or place. No notice need be given of any adjourned meeting unless
the time and place of the adjourned meeting are not announced at the time of
adjournment, in which case notice conforming to the requirements of Section 3.7
of these By-laws shall be given to each director.

      Section 3.10 Action without Meeting. Unless otherwise restricted by the
Certificate or these By-laws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board of Directors or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee.

      Section 3.11 Regulations; Manner of Acting. To the extent consistent with
applicable law, the Certificate and these By-laws, the Board of Directors may
adopt such rules and regulations for the conduct of meetings of the Board of
Directors and for the management of the property, affairs and business of the
Corporation as the Board of Directors may deem appropriate. The directors shall
act only as a Board, and the individual directors shall have no power as such.

      Section 3.12 Attendance by Telephone. Unless otherwise restricted by the
Certificate or these By-laws, members of the Board of Directors, or of any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.

      Section 3.13 Removal. Any director may be removed at any time, but only
for cause, upon the affirmative vote of the holders of a majority of the
combined voting power of the then outstanding capital stock of the Corporation
entitled to vote generally in the election of directors.

      Section 3.14 Compensation of Directors. The amount, if any, which each
director shall be entitled to receive as compensation for his or her services as
such shall be fixed from time to time by resolution of the Board of Directors.

      Section 3.15 Reliance on Accounts and Reports, etc. A director, or a
member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the records of the Corporation and upon information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's


                                       12

professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.

                                       IV.

                                BOARD COMMITTEES

      Section 4.1 How Constituted. The Board of Directors may designate one or
more Committees, including, but not limited to, an Audit Committee, a
Compensation Committee and a Corporate Governance Committee, each such Committee
to consist of such number of directors as from time to time may be fixed by the
Board of Directors. The Board of Directors may designate one or more directors
as alternate members of any such Committee, who may replace any absent or
disqualified member or members at any meeting of such Committee. Thereafter,
members of each such Committee may be designated from time to time by the Board
of Directors. Any such Committee may be abolished or re-designated from time to
time by the Board of Directors. Each member (and each alternate member) of any
such Committee (whether designated at an annual meeting of the Board of
Directors or to fill a vacancy or otherwise) shall hold office until his or her
successor shall have been designated or until he or she shall cease to be a
director, or until his or her earlier death, resignation or removal.

      Section 4.2   Powers.

      (a) Audit Committee. The Audit Committee, except as otherwise may be
provided in any resolution of the Board of Directors or as may be required by
applicable law, shall have and may exercise the authority of the Board of
Directors to, among other things:

             (i) have direct responsibility for the selection, compensation,
retention, replacement and oversight of the work of the Corporation's
independent auditors, including prescribing what services are allowable and
approve in advance all services provided by the auditors;

             (ii) set clear hiring policies for employees or former
employees of the independent auditors;

             (iii) review all proposed corporation hires formerly employed by
the independent auditors;

             (iv) have direct responsibility for ensuring its receipt from the
independent auditors at least annually of a formal written statement delineating
all relationships between the auditor and the Corporation, consistent with
Independence Standards Board Standard No. 1;

             (v) discuss with the independent directors any disclosed
relationships or services that may impact the objectivity and independence of
the auditor and for taking, or recommending that the full Board of Directors
take, appropriate action to oversee the independence of the independent auditor;


                                       13

             (vi) discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits including the
adequacy of staffing, compensation and resources;

             (vii) review, at least annually, the results and scope of the audit
and other services provided by the Corporation's independent auditors and
discuss any audit problems or difficulties and management's response;

             (viii) review the Corporation's annual audited financial statement
and quarterly financial statements and discuss the statements with management
and the independent auditors;

             (ix) review and discuss with management, the internal auditors and
the independent auditors the adequacy and effectiveness of the Corporation's
internal controls, including the Corporation's ability to monitor and manage
business risk, legal and ethical compliance programs and financial reporting;

             (x) review and discuss separately with the internal auditors and
the independent auditors, with and without management present, the results of
their examinations;

             (xi) review the Corporation's compliance with legal and
regulatory independence;

             (xii) review and discuss the Corporation's interim financial
statements and the earnings press releases prior to the filing of the
Corporation's report on Form 10-Q, as well as financial information and earnings
guidance provided to analysts and rating agencies;

             (xiii) review and discuss the Corporation's risk assessment and
risk management policies;

             (xiv) prepare an Audit Committee report required by the Securities
and Exchange Commission to be included in the Corporation's annual proxy
statement;

             (xv) engage independent counsel and other advisors to assist
the audit committee in carrying out its duties;

             (xvi) review and approve all related party transactions consistent
with the rules applied to companies listed on the Nasdaq National Market; and

             (xvii) establish procedures regarding complaints received by the
Corporation or the Corporation's employees regarding accounting, accounting
controls or accounting matters.

      (b) Compensation Committee. The Compensation Committee, except as
otherwise may be provided in any resolution of the Board of Directors or as may
be required by applicable law, shall have and may exercise all the authority of
the Board of Directors with respect to compensation, benefits and personnel
administration of the employees of the Corporation to, among other things:


                                       14

             (i) review and approve corporate goals and objectives relevant to
our Chief Executive Officer's and the other named executive officers' of the
Corporation compensation;

             (ii) evaluate the Chief Executive Officer's performance in
light of these corporate goals and objectives;

             (iii) either as a committee, or together with the other independent
directors, determine and approve the compensation of the Chief Executive
Officer;

             (iv) make recommendations to the Corporation's Board of Directors
regarding the salaries, incentive compensation plans and equity-based plans for
the employees of the Corporation; and

             (v) produce a compensation committee report on executive
compensation as required by the Securities and Exchange Commission to be
included in the Corporation's annual proxy statement or annual report on Form
10-K filed with the Securities and Exchange Commission.

      (c)    Corporate Governance Committee.  The Corporate Governance
Committee, except as otherwise may be provided in any resolution of the
Board of Directors or as required by applicable law, shall, among other
things:

             (i) identify candidates qualified to become board members,
consistent with criteria approved by the Board of Directors;

             (ii) recommend the candidates identified to be selected as nominees
for the next annual meeting of the stockholders;

             (iii) develop and recommend to the Board of Directors a set of
corporate governance principles applicable to the Corporation; and

             (iv) oversee the evaluation of the Board of Directors and
management.

      (d) Other Committees. Each other Committee, except as otherwise provided
in this section, shall have and may exercise such powers of the Board of
Directors as may be provided by resolution or resolutions of the Board of
Directors.

      Section 4.3 Proceedings. Each Committee may, subject to approval of the
Board of Directors, adopt a charter specifying its scope of responsibility and
may fix its own rules of procedure and may meet at such place (within or without
the State of Delaware), at such time and upon such notice, if any, as it shall
determine from time to time. Each Committee shall keep minutes of its
proceedings and shall report such proceedings to the Board of Directors at the
meeting of the Board of Directors next following any such proceedings.

      Section 4.4 Quorum and Manner of Acting. Except as may be otherwise
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total membership of such Committee shall constitute a quorum for the
transaction of business. The act of the majority of the members


                                       15

present at any meeting at which a quorum is present shall be the act of such
Committee. Any action required or permitted to be taken at any meeting of any
such Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing or by electronic transmission, and such
writing or writings or electronic transmission or transmissions are filed with
the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such.

      Section 4.5 Action by Telephonic Communications. Members of any Committee
designated by the Board of Directors may participate in a meeting of such
Committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this provision shall constitute
presence in person at such meeting.

      Section 4.6 Resignations. Any member of any Committee may resign at any
time by delivering a written notice of resignation, signed by such member, to
the Chairman or the Chief Executive Officer. Unless otherwise specified therein,
such resignation shall take effect upon delivery.

      Section 4.7 Removal. Any member (and any alternate member) of any
Committee may be removed from his or her position as a member of such Committee
at any time, either for or without cause, by resolution adopted by a majority of
the whole Board of Directors.

      Section 4.8 Vacancies. If any vacancy shall occur in any Committee, by
reason of death, resignation, removal or otherwise, the remaining members (and
alternate members) shall continue to act, and any such vacancy may be filled by
the Board of Directors.

                                       V.

                                    OFFICERS

      Section 5.1 Number. The officers of the Corporation shall be elected by
the Board of Directors and may include a Chairman, a Chief Executive Officer, a
President, one or more Vice Presidents, a Chief Financial Officer, a Secretary
and a Treasurer. The Board of Directors may appoint such other officers as it
may deem appropriate; provided that officers of the rank of Vice President and
below may be appointed by the Compensation Committee. Such other officers shall
exercise such powers and perform such duties as may be determined from time to
time by the Board of Directors, the Chief Executive Officer or the President.
Any number of offices may be held by the same person. No officer, other than the
Chairman, need be a director of the Corporation.

      Section 5.2 Election. Unless otherwise determined by the Board of
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such meeting,
officers may be elected at any regular or special meeting of the Board of
Directors. Officers of the rank of Vice President and below may be elected by
the Compensation Committee. Each officer shall


                                       16

hold office until such officer's successor has been elected and qualified, or
until such officer's earlier death, resignation or removal.

      Section 5.3 Powers. Each of the officers of the Corporation elected by the
Board of Directors or appointed by an officer in accordance with these By-laws
shall have the powers and duties prescribed by law, by these By-laws or by the
Board of Directors and, in the case of appointed officers, the powers and duties
prescribed by the appointing officer, and, unless otherwise prescribed by these
By-laws or by the Board of Directors or such appointing officer, shall have such
further powers and duties as ordinarily pertain to that office.

      Section 5.4 Salaries. Except as otherwise provided by Section 4.2 hereof,
the salaries of all executive officers (as determined by the Board of Directors)
of the Corporation shall be fixed by the Board of Directors. The Chief Executive
Officer shall fix the salaries of all non-executive officers.

      Section 5.5 Removal and Resignation; Vacancies. Any officer may be removed
for or without cause at any time by the Board of Directors. Any officer may
resign at any time by delivering notice of resignation, either in writing signed
by such officer or by electronic transmission, to the Board of Directors or the
Chief Executive Officer. Unless otherwise specified therein, such resignation
shall take effect upon delivery. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors.

      Section 5.6 Chairman of the Board. The Chairman, if any, when elected,
shall have general supervision, direction and control of the business and
affairs of the Corporation, subject to the control of the Board of Directors,
shall preside at meetings of stockholders and shall have such other functions,
authority and duties as customarily appertain to the Chairman of a business
corporation or as may be prescribed by the Board of Directors. During the
absence or disability of the Chief Executive Officer, the Chairman shall
exercise all the powers and discharge all the duties of the Chief Executive
Officer. The Chairman shall also perform such other duties and may exercise such
other powers as from time to time may be assigned to him by these By-laws.

      Section 5.7 Chief Executive Officer. The Chief Executive Officer shall
have general control and supervision of the policies and operations of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The Chief Executive Officer shall be a U.S.
citizen. He or she shall manage and administer the Corporation's business and
affairs and shall also perform all duties and exercise all powers usually
pertaining to the office of a chief executive officer of a corporation. He or
she shall have the authority to sign, in the name and on behalf of the
Corporation, checks, orders, contracts, leases, notes, drafts and other
documents and instruments in connection with the business of the Corporation and
together with the Secretary, or any Assistant Secretary, conveyances of real
estate and other documents and instruments to which the seal of the Corporation
is affixed. He or she shall have the authority to cause the employment or
appointment of such employees and agents of the Corporation as the conduct of
the business of the Corporation may require, to fix their compensation, and to
remove or suspend any employee or agent elected or appointed by the Chief
Executive Officer or the Board of Directors. The Chief Executive Officer shall
perform such other duties and have such other powers as the Board of Directors
or the Chairman may from time to time prescribe.


                                       17

      Section 5.8 Chief Financial Officer. The Chief Financial Officer shall be
the principal financial officer of the Corporation and shall have responsibility
for the financial affairs of the Corporation and shall keep or cause to be kept
correct records of the business and transactions of the Corporation. The Chief
Financial Officer shall perform such other duties and exercise such other powers
as are normally incident to the office of chief financial officer and as may be
prescribed by the Board of Directors or the Chief Executive Officer from time to
time.

      Section 5.9 President. The President shall perform such duties and have
such powers as the Board of Directors or the Chief Executive Officer may from
time to time prescribe.

      Section 5.10 Absence or Disability of the Chief Executive Officer. In the
event of the absence of the Chief Executive Officer or in the event of the Chief
Executive Officer's inability to act, the officer, if any, designated by
resolution of the Board of Directors (or in the event there is more than one
such designated officer, then in the order of designation) shall perform the
duties of the Chief Executive Officer, and when so acting, shall have all the
powers and be subject to all the restrictions of the Chief Executive Officer.
Any such officer or officers acting in the absence or inability to act of the
Chief Executive Officer shall be U.S. citizens.

      Section 5.11 Vice President. The Vice Presidents shall have such
designations and shall perform such duties and have such powers as the Board of
Directors or the Chief Executive Officer may from time to time prescribe.

      Section 5.12 Secretary. The Secretary shall keep or cause to be kept a
record of all the proceedings of the meetings of the stockholders and of the
Board of Directors, and shall cause all notices to be duly given in accordance
with the provisions of these By-laws and as required by law. The Secretary shall
be the custodian of the records and of the seal of the Corporation and cause
such seal (or a facsimile thereof) to be affixed to instruments when
appropriate. The Secretary shall perform, in general, all duties incident to the
office of secretary and such other duties as may be specified in these By-laws
or as may be assigned to him or her from time to time by the Board of Directors
or the Chief Executive Officer.

      Section 5.13 Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination. then in the order of their
election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as may from time to
time be prescribed by the Board of Directors, the Chairman, the Chief Executive
Officer, the President or the Secretary.

      Section 5.14 Treasurer. The Treasurer shall have charge and supervision
over and be responsible for the moneys, securities, receipts and disbursements
of the Corporation, and shall keep or cause to be kept full and accurate records
of all receipts of the Corporation, and shall cause the moneys and other
valuable effects of the Corporation to be deposited in the name and to the
credit of the Corporation. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chairman, the President and the
Board of Directors, at its regular meetings or when the Board of Directors so
requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation. The Treasurer shall perform such other duties as
may from time to


                                       18

time be prescribed by the Board of Directors, the Chairman, the Chief Executive
Officer or the Chief Financial Officer.

      Section 5.15 Assistant Treasurer. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as may from time to time be prescribed by the Board of Directors, the
Chairman, the Chief Executive Officer or the Chief Financial Officer.

      Section 5.16 Other Officers. The Chief Executive Officer or Board of
Directors may appoint other officers and agents for any Group, Division or
Department into which this Corporation may be divided by the Board of Directors,
with titles as the President or Board of Directors may from time to time deem
appropriate. All such officers and agents shall receive such compensation, have
such tenure and exercise such authority as the President or Board of Directors
may specify. All appointments made by the Chief Executive Officer hereunder and
all the terms and conditions thereof must be reported to the Board of Directors.

      In no case shall an officer or agent of any one Group, Division or
Department have authority to bind another Group, Division or Department of the
Company or to bind the Corporation except as to the business and affairs of the
Group, Division or Department of which he or she is an officer or agent.


                                       VI.

                              CERTIFICATES OF STOCK

      Section 6.1 Certificates of Stock, Uncertificated Shares. The shares of
capital stock of the Corporation may be either represented by certificates or
uncertificated shares; provided that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the capital stock of the Corporation shall be uncertificated shares. Any
resolution of the Board of Directors providing for uncertificated shares shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Subject to Section 6.4 below, notwithstanding
the adoption of such resolution by the Board of Directors, every holder of
capital stock represented by certificates and, upon request, every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of, the Corporation, (a) by the Chairman, the Chief Executive Officer,
the President or a Vice President; and (b) by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary, representing the number of
shares registered in certificate form. Such certificate shall be in such form as
the Board of Directors may determine, to the extent consistent with applicable
law, the Certificate and these By-laws.

      Section 6.2 Signatures; Facsimile. All signatures on the certificate
referred to in Section 6.1 of these By-laws may be in facsimile, engraved or
printed form, to the extent permitted by


                                       19

law. In case any officer, transfer agent or registrar who has signed, or whose
facsimile, engraved or printed signature has been placed upon a certificate
representing shares of capital stock of the Corporation shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.

      Section 6.3 Transfer. Except as otherwise established by rules or
regulations adopted by the Board of Directors, upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate of stock or uncertificated shares in place of any certificate
therefor issued by the Corporation to the person entitled thereto, cancel the
old certificate and record the transaction on its books.

      Section 6.4 Replacement. In case of the loss, destruction or theft of a
certificate for any stock of the Corporation, a new certificate of stock or
uncertificated shares in place of any certificate therefor issued by the
Corporation may be issued upon satisfactory proof of such loss, destruction or
theft and upon such terms as the Board of Directors may prescribe. The Board of
Directors may in its discretion require the owner of the lost, destroyed or
stolen certificate, or his legal representative, to give the Corporation a bond,
in such sum and in such form and with such surety or sureties as it may direct,
to indemnify the Corporation against any claim that may be made against it with
respect to a certificate alleged to have been lost, destroyed or stolen.

      Section 6.5 Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law. The Corporation shall not be required to register any transfer of shares
made in violation of any agreement among a stockholder or investor in the
Corporation and the Corporation, or recognize as a holder of any such shares any
transferee in such a violative transaction.

                                      VII.

                 INDEMNIFICATION OF DIRECTORS AND OFFICERS

      To the fullest extent permitted by the laws of the State of Delaware:

      Section 7.1 Nature of Indemnity. Each person who was or is made a party or
is threatened to be made a party to or is otherwise involved in any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director or an officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer or trustee of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an


                                       20

official capacity as a director, officer or trustee or in any other capacity
while serving as a director, officer or trustee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the GCL, as the
same exists or may hereafter be amended, against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in these By-laws with respect to proceedings to enforce rights to
indemnification and "advancement of expenses" (as defined below), the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors. Furthermore, the Corporation
may only indemnify such person if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding had no
reasonable cause to believe that his or her conduct was unlawful; except that in
the case of an action or suit by or in the name of the Corporation to procure a
judgment in its favor (a) such indemnification shall be limited to expenses
(including attorneys' fees) actually and reasonably incurred by such person in
the defense or settlement of such action or suit; and (b) no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper.

      The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.

      Section 7.2 Advance Payment of Expenses. In addition to the right to
indemnification conferred in this Article VII, an indemnitee shall also have the
right to be paid by the Corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the GCL
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Article VII or otherwise. Such
expenses (including attorneys' fees) incurred by former directors and officers
shall be so paid upon such terms and conditions, if any, as the Corporation
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such director or officer in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.


                                       21

      Section 7.3 Procedure for Indemnification. If, following final disposition
of a proceeding, a claim for indemnification under this Article VII is not paid
in full by the Corporation within sixty (60) calendar days after a written claim
has been received by the Corporation, or if, whether before or after final
disposition of a proceeding, a claim for an advancement of expenses under this
Article VII is not paid in full by the Corporation within twenty (20) calendar
days after a written claim has been received by the Corporation, the indemnitee
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in any such suit,
or in a suit brought by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the indemnitee shall be entitled to be
paid also the expense of prosecuting or defending such suit, including without
limitation reasonable attorneys' fees. In any suit brought by the indemnitee to
enforce a right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that the indemnitee has not met any applicable standard for
indemnification set forth in the GCL. In any suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the GCL. Neither the failure of the Corporation (including its
directors who are not parties to such action, a committee of such directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the GCL,
nor an actual determination by the Corporation (including its directors who are
not parties to such action, a committee of such directors, independent legal
counsel, or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article VII or otherwise shall be on the Corporation.

      Section 7.4 Preservation of Other Rights. The rights to indemnification
and to the advancement of expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Certificate, these By-laws, agreement, vote of
stockholders or directors or otherwise.

      Section 7.5 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the GCL.

      Section 7.6 Employees and Agents. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article VII with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.


                                       22

      Section 7.7 Survival. The rights conferred upon indemnitees in this
Article VII shall be contract rights and such rights shall continue as to an
indemnitee who has ceased to be a director, officer or trustee and shall inure
to the benefit of the indemnitee's heirs, executors and administrators. Any
amendment, alteration or repeal of this Article VII that adversely affects any
right of an indemnitee or its successors shall be prospective only and shall not
limit or eliminate any such right with respect to any proceeding involving any
occurrence or alleged occurrence of any action or omission to act that took
place prior to such amendment, alteration or repeal.

                                      VIII.

                               GENERAL PROVISIONS

      Section 8.1  Fiscal Year.  The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.

      Section 8.2 Corporate Seal. The corporate seal shall be in such form as
may be approved from time to time by the Board of Directors. The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.

      Section 8.3 Dividends. Subject to any applicable provisions of law and the
Certificate or any resolution or resolutions adopted by the Board of Directors
pursuant to authority expressly vested in it by the Certificate and Section 151
of the GCL, the Board of Directors may, at any regular or special meeting of the
Board of Directors, out of funds legally available therefore, declare dividends
upon the capital stock of the Corporation, and any such dividend may be paid in
cash, property, or shares of the Corporation's stock.

      A member of the Board of Directors, or a member of any committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.

      Section 8.4 Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, thinks proper as a reserve or
reserves to meet contingencies or for such other purpose as the Board of
Directors shall think conducive to the interests of the Corporation, and the
Board of Directors may similarly modify or abolish any such reserve.

      Section 8.5 Execution of Instruments. The Chief Executive Officer, the
President, the Chief Financial Officer, any Vice President, the Secretary or the
Treasurer may enter into any contract or execute and deliver any instrument in
the name and on behalf of the Corporation. The Board of Directors or the Chief
Executive Officer may authorize any other officer or agent to enter into any
contract or execute and deliver any instrument in the name and on behalf of the


                                       23

Corporation. Any such authorization may be general or limited to specific
contracts or instruments.

      Section 8.6 Corporate Books. The books of the Corporation may be kept
outside of the State of Delaware at such place or places as the Board of
Directors may from time to time determine.

      Section 8.7 Corporate Indebtedness. No loan shall be contracted on behalf
of the Corporation, and no evidence of indebtedness shall be issued in its name,
unless authorized by the Board of Directors, the Chief Executive Officer or the
Chief Financial Officer. Such authorization may be general or confined to
specific instances. Loans so authorized may be effected at any time for the
Corporation from any bank, trust company or other institution, or from any firm,
corporation or individual. All bonds, debentures, notes and other obligations or
evidences of indebtedness of the Corporation issued for such loans shall be
made, executed and delivered as the Board of Directors, the Chief Executive
Officer or the Chief Financial Officer shall authorize. When so authorized by
the Board of Directors, the Chief Executive Officer or the Chief Financial
Officer, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.

      Section 8.8 Deposits. Any funds of the Corporation may be deposited from
time to time in such banks, trust companies or other depositaries as may be
determined by the Board of Directors, the Chief Executive Officer, the Chief
Financial Officer or the Treasurer or by such officers or agents as may be
authorized by the Board of Directors or the Chief Executive Officer, the
Treasurer or the Chief Financial Officer or the Treasurer to make such
determination.

      Section 8.9 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such agent or agents
of the Corporation, and in such manner, as the Board of Directors or the Chief
Executive Officer from time to time may determine.

      Section 8.10 Sale, Transfer, etc. of Securities. To the extent authorized
by the Board of Directors or by the Chief Executive Officer, the President, the
Chief Financial Officer, any Vice President, the Secretary or the Treasurer or
any other officers designated by the Board of Directors or the Chief Executive
Officer may sell, transfer, endorse, and assign any shares of stock, bonds or
other securities owned by or held in the name of the Corporation, and may make,
execute and deliver in the name of the Corporation, under its corporate seal (if
required), any instruments that may be appropriate to effect any such sale,
transfer, endorsement or assignment.

      Section 8.11 Voting as Stockholder. Unless otherwise determined by
resolution of the Board of Directors, the Chief Executive Officer, the President
or any Vice President shall have full power and authority on behalf of the
Corporation to attend any meeting of stockholders of any corporation in which
the Corporation may hold stock, and to act, vote (or execute proxies to vote)
and exercise in person or by proxy all other rights, powers and privileges
incident to the


                                       24

ownership of such stock. Such officers acting on behalf of the Corporation shall
have full power and authority to execute any instrument expressing consent to or
dissent from any action of any such corporation without a meeting. The Board of
Directors may by resolution from time to time confer such power and authority
upon any other person or persons.

      Section 8.12 Transactions with Interested Parties. No contract or
transaction between the Corporation and one or more of the directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors, officers or employees, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board of
Directors or a committee of the Board of Directors which authorizes the contract
or transaction or solely because his or their votes are counted for such
purpose, if:

      (a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;

      (b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or

      (c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.

      Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.

                                       IX.

                                   AMENDMENTS

      Section 9.1 Amendment. Subject to the provisions of this Section 9.1 and
the Certificate, these By-laws (including this Article IX) may be amended,
altered or repealed:

      (a) by resolution adopted by a majority of the Board of Directors without
a stockholder vote at any special or regular meeting of the Board of Directors
if, in the case of such special meeting only, notice of such amendment,
alteration or repeal is contained in the notice or waiver of notice of such
meeting; provided, however, that the amendment, alteration or repeal of the
provisions of Sections 2.2, 2.11, 3.2, 3.3, or 3.13 hereof or this Section 9.1
shall require the affirmative vote of the holders of two-thirds (2/3) or more of
the combined voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors; or


                                       25

      (b) at any regular or special meeting of the stockholders upon the
affirmative vote of the holders of two-thirds (2/3) or more of the combined
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, if, in the case of such special meeting only, notice of such
amendment, alteration or repeal is contained in the notice or waiver of notice
of such meeting.

                                       X.

                  SUBJECT TO CERTIFICATE OF INCORPORATION

      These By-laws and the provisions hereof are subject to the terms and
conditions of the Certificate of the Corporation (including any certificates of
designations filed thereunder), and in the event of any conflict between these
By-laws and the Certificate, the Certificate shall control.

Adopted: ___________, 2005


                                       26

                                                                    EXHIBIT 10.1

                           HAMPSHIRE EQUITY PARTNERS

                                                              Tracey L. Rudd
                                                              Managing Partner

Mr. R. Edward Anderson
1920 Hunting Ridge Road
Raleigh, NC 27615

November 16, 2001

Dear Ed,

      I am pleased to offer you the position of Chief Executive Officer ("CEO")
of Citi Trends, Inc. ("Citi Trends" or the "Company"). 'this letter will outline
the terms of your employment:

POSITION:

Chief Executive Officer
Member of the Board of Directors

BASE SALARY:

$300,000 annually

START DATE:

December 10, 2001 (or sooner if practical)

PERFORMANCE BONUS:

Target is a bonus of 50% of base Salary ($150,000) contingent on achieving
budgeted EBIT, as approved by the Board of Directors. The percentage bonus
earned will be determined according to the following table:



       % Range                        % Range of                Bonus
       of Budget                     Target Bonus              Dollars
- ---------------------              ----------------      -------------------
                                                     
       80%         85%              20%        25%       $ 30,000   $ 37,500
       86%         90%              27%        37%       $ 40,500   $ 55,500
       91%         99%              40%        67%       $ 60,000   $100,500
      100%        110%             100%       120%       $150,000   $180,000
      110%        120%             120%       150%       $180,000   $225,000
      120%        130%             150%       200%       $225,000   $300,000
Above 130%                         200%                  $300,000


Note: EBIT budget would be adjusted to reflect any acquisition or capital
investment.

HIRING BONUS:

$75,000 paid January 1, 2002 (50%), and June 1, 2002 (50%).

BENEFITS:

Benefits consistent with the company's existing plans.

AUTOMOBILE:

Lease car - Lincoln Town Car or Buick Park Avenue.

RELOCATION:

Company will pay out of pocket moving expenses from Raleigh, NC to Savannah, GA
capped at $25,000. Company will pay for temporary lodging in Savannah for up to
90 days (Capped at $7,500).

                     520 Madison Avenue, New York, NY 10022
                       (212) 453-1706 - Fax (212) 750-2970
                             Email: trudd@hampep.com



PURCHASED EQUITY:

You will have the right until December 31, 2001 to purchase 3,500 common shares
at $10 per share as well as 35 shares of preferred stock at $1,000 per share. if
terminated, the purchased common and the purchased preferred will not be subject
to any par right by the holder or call right by the Company if terminated for
any reason but cause. If terminated for cause the Company will have the right to
purchase both the common and preferred for cost plus accrued dividends.

GRANTED OPTIONS:

You will be granted 16,800 (approximately 4% of the fully diluted ownership of
the Company) options that vest in equal amounts over four years on an annual
basis at an exercise price of $10.00 per share. However if the Company achieves
an EBITDA of $13 million or greater for any trailing twelve month period within
the next four years, 4,200 options of the remaining unvested options would
immediately vest at a strike price of $10.00 per share. Upon termination for a
reason besides cause, the vested options will be subject to the current
repurchase provisions which include a call at the Company's option at fair
market value (as determined by the Board of Directors). If you are terminated
for cause all vested options will be cancelled.

All unvested options will vest upon change of control but not an initial public
offering.

SEVERENCE:

Upon termination by the Company for a reason besides cause, you will receive
$150,000 to be paid over 6 months in arrears.

Would you please indicate your acceptance of this offer by November 19, 2001 by
returning a signed copy.

                           Sincerely,

                           /s/ Tracey L. Rudd
                           ---------------------------------
                           Tracey L. Rudd
                           Managing Partner, Hampshire Equity Partners
                           On behalf of Greg Flynn
                           Chairman of the Board of Directors, Citi Trends, Inc.
                           November 16, 2001

                           /s/ R. Edward Anderson
                           ----------------------------
                           As Agreed
                           R. Edward Anderson
                           November 16, 2001

                                                                    EXHIBIT 10.2

                    EMPLOYMENT AND NON-INTERFERENCE AGREEMENT

      This Employment and Non-Interference Agreement, dated as of April 13, 1999
(this "Agreement"), is by and between George Bellino (the "Executive") and
Allied Fashion, Inc., a Delaware corporation (the "Company").

                                   WITNESSETH:

      WHEREAS, the Company wishes to obtain the future services of the Executive
for the Company;

      WHEREAS, the Executive is willing, upon the terms and conditions herein
set forth, to provide services hereunder;

      WHEREAS, the Company wishes to secure the Executive's non-interference,
upon the terms and conditions herein set forth; and

      WHEREAS, defined terms not defined herein shall have the respective
meanings set forth on Schedule 1 attached hereto;

      NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

      1. Nature of Employment

      The Company hereby employs Executive, and Executive agrees to accept such
employment, as Chief Executive Officer and President of the Company.

      2. Extent of Employment

      The Executive shall perform his obligations hereunder faithfully and to
the best of his ability under the direction of the Board of Directors of the
Company (the "Board of Directors"). The Executive shall devote all of his
business time, energy and skill as may be reasonably necessary for the
performance of his duties, responsibilities and obligations hereunder,
consistent with past practices and norms in similar positions and shall abide by
the rules, customs and usages from time to time established by the Company.
Nothing contained herein shall require Executive to follow any directive or to
perform any act which would violate any laws, ordinances, regulations or rules
of any governmental, regulatory or administrative body, agent or authority, any
court or judicial authority, or any public, private or industry regulatory
authority (collectively, "Regulations").



      3. Compensation During the Term of Employment, the Company shall pay
compensation to Executive as follows:

      (a) As base compensation for his services hereunder, in [bi-monthly]
installments, an annual base salary of $190,000. The Board of Directors shall
annually, and in its sole discretion, determine whether the base salary should
be increased and, if so, the amount of such increase.

      (b) The Executive is eligible to participate in the Company's Cash
Incentive Plan, and to earn a bonus, subject to further deliberation by the
Board of Directors, as set forth on Exhibit A hereto, and to be paid at the time
of the first meeting of the Board of Directors following receipt of audited
annual financial statements of the Company. Payment of the bonus is conditioned
upon the Executive being employed by the Company during the relevant performance
period and on the date which the bonus is paid.

      (c) The Company shall provide the Executive with an appropriate Company
car in accordance with its current and future usual and customary policies and
practices. The Company shall lease the car under the same terms and conditions
currently in place, and bear all expenses associated with it, except any
associated personal income tax liability of the Executive, and the cost of fuel
for the Executive's personal use of the car. The Company shall maintain adequate
liability insurance coverage related to the use and operation of the vehicle and
the Executive shall be named as additional insured on such policy.

      4. Term of Employment

      The "Term of Employment" shall commence on the date hereof and shall
continue for a term of two years; provided that, (i) such term shall continue
for the twelve month period following such two year period, and for each twelve
month period thereafter, unless at least 90 days prior to the scheduled
expiration date, either the Executive or the Company notifies the other of its
decision not to continue such term and (ii) should the Executive's employment by
the Company be earlier terminated pursuant to Section 5, or by the Executive
pursuant to Section 5, the Term of Employment shall end on the date of such
earlier termination.

      5. Termination

      (a) Subject to the Company's obligations to make the payments contemplated
by Section 5(b)(i), the Term of Employment may be terminated at any time:

            (i)   upon the death of Executive ("Death");

            (ii)  in the event that because of physical or mental disability the
      Executive is unable to perform, and does not perform, as certified by a
      mutually agreeable

                                      - 2 -


      competent medical physician, his material duties hereunder for 180 days in
      any continuous 210 day period ("Disability");

            (iii) by the Company for Cause;

            (iv)  by the Company for any other reason or no reason ("No Reason")
      and the Company shall not be required to specify a reason for the
      termination, such that this Agreement shall be construed as terminable at
      will by the Company;

            (v)   by the Executive voluntarily or for any reason or no reason,
      in each case, after 90 days' prior written notice to the Company and the
      Board of Directors ("Resignation"); or

            (vi)  by the Executive for Reason

      Executive acknowledges that no representations or promises have been made
in connection with this Agreement or any other arrangement, plan or agreement
between the Executive and the Company concerning the grounds for termination or
the future operation of the Company's business, and that nothing contained
herein or otherwise stated by or on behalf of the Company modifies or amends the
right of the Company to terminate Executive at any time, with or without Cause.

      (b) If Executive's employment is terminated for any reason whatsoever,
then Executive shall be entitled to (1) accrued and unpaid base salary and
benefits (including sick pay, vacation pay and benefits under Section 7 with
respect to the period prior to termination, (2) reimbursement for expenses under
Section 6 with respect to such period, and (3) any other benefits (including
COBRA) required by law to be provided after termination of employment under the
circumstances. Except as may otherwise be expressly provided to the contrary in
this Agreement, nothing in this Agreement shall be construed as requiring the
Executive to be treated as employed by the Company for purposes of any employee
benefit plan following the date of the termination of the Term of Employment. In
the event Executive's employment is terminated:

            (i) for Death, Disability, by the Company for No Reason or by
      Executive for Reason, the Company will also pay to Executive (or his
      estate or representative) termination benefits equal to twelve (12) months
      of his base salary in effect immediately prior to the event that gave rise
      to such termination. Such payment shall be made over a period of twelve
      (12) months, provided, however, that to the extent the Executive shall
      receive compensation or benefits from any other employment during the
      twelve (12) months following such termination, the payments to be made by
      the Company under the provisions of this Section 5(b)(i) shall be
      correspondingly reduced; and

                                      - 3 -


            (ii) for Cause or Resignation, there will be no additional amounts
      owing by the Company to Executive under this Agreement from and after such
      termination.

      (c) In the Event of termination of employment by Executive, such
termination shall be for "Reason" if it is due to a failure by the Company to
satisfy any of its obligations under this Agreement, or due to a material
reduction in Executive's duties or change in Executive's Title by the Company
without Executive's consent, which shall not be unreasonably withheld. In no
event shall the foregoing provisions be deemed to restrict, limit or prevent the
Company from recruiting, retaining or employing any person to hold any executive
office of the Company or any other position with the Company.

      (d) Termination of the Term of Employment will not terminate any
provisions not associated specifically with the Term of Employment.

      (e) In the event of termination, the Company shall have no further
obligations to the Executive under any option plan, long-term incentive plan,
share subscription or similar plan or arrangement, except to the extent
specifically provided in the documentation governing such plan or arrangement;
provided, however, that for a period of twelve (12) months following the
termination of the Term of Employment for any of the reasons set forth in
Section 5(b)(i), the Executive may continue to participate in the Company's
retirement plan and other benefit plans in which the Executive was a participant
immediately prior to termination.

      6. Reimbursement of Expenses

      During the Term of Employment, the Company shall reimburse Executive for
reasonably documented travel, entertainment and other expenses reasonably
incurred by Executive in connection with the performance of his duties hereunder
and, in each case, in accordance with the rules, customs and usages promulgated
by the Company from time to time in effect. In addition, the Company shall
reimburse Executive for reasonable attorney's fees incurred by Executive in
connection with the negotiation and execution of this Agreement, and all other
documents contemplated hereby or in connection herewith up to a maximum of
$5,000.

      7. Benefits

      The Executive shall be entitled to participate in and be covered by any
insurance plan (including but not limited to medical, dental, health, accident,
hospitalization and disability), vacation policy, 401(k), plan and pension plan
of the Company, each as determined, from time to time, by the Board of
Directors. The Executive shall be entitled to four weeks paid vacation in each
twelve month period subject to the reasonable requirements of the Company as to
the timing of the taking of such vacation.

                                      - 4 -


      8. Confidential Information

      During and after the Term of Employment, Executive will not, directly or
indirectly in one or a series of transactions, disclose to any person, or use or
otherwise exploit for the Executive's own benefit or for the benefit of anyone
other than the Company, any Confidential Information, whether prepared by
Executive or not; provided, however, that any Confidential Information may be
disclosed (i) to officers, representatives, employees and agents of the Company
who need to know such Confidential Information in order to perform the services
or conduct the operations required or expected of them in the Business and (ii)
in good faith by the Executive in connection with the performance of his duties
hereunder. Executive shall use his best efforts to prevent the removal of any
Confidential Information from the premises of the Company, except as required in
the Executive's normal course of employment by the Company. Executive shall have
no obligation hereunder to keep confidential any Confidential Information if and
to the extent disclosure of any thereof is specifically required by law;
provided, however, that in the event disclosure is required by applicable law,
the Executive shall provide the Company with prompt notice of such requirement,
prior to making any disclosure, so that the Company may seek an appropriate
protective order. At the request of the Company, Executive agrees to deliver to
the Company, at any time during the Term of Employment, or thereafter, all
Confidential Information which he may possess or control. Executive agrees that
all Confidential Information of the Company (whether now or hereafter existing)
conceived, discovered or made by him during the Term of Employment exclusively
belongs to the Company (and not to Executive). Executive will promptly disclose
such Confidential Information to the Company and perform all actions reasonably
requested by the Company to establish and confirm such exclusive ownership.

      9. Non-interference

      Executive acknowledges that services to be provided give him the
opportunity to have special knowledge of the Company and its Confidential
Information and the capabilities of individuals employed by or affiliated with
the Company and that interference in these relationships would cause irreparable
injury to the Company. In consideration of this Agreement, Executive covenants
and agrees that during the Term of Employment and for a period of twelve (12)
months thereafter, Executive will not, without the express written approval of
the Board of Directors, anywhere in the Market, directly or indirectly, in one
or a series of transactions, or enter into any agreement to, own, manage,
operate, control, invest or acquire an interest in, or otherwise engage or
participate in, whether as a proprietor, partner, stockholder, lender, director,
officer, employee, joint venturer, investor, lessor, agent, representative or
other participant, in any business which competes with the Business in the
Market; provided, however, that Executive may, anywhere in the Market, in one or
a series of transactions, own, invest or acquire an interest in up to five
percent (5%) of the capital stock of a corporation whose capital stock is traded
publicly. The scope and term of this Section 9 would not preclude Executive from
earning a living with an entity that does not compete with the Business in the
Market. Notwithstanding the foregoing

                                      - 5 -


provisions, this Section 9 shall be of no force or effect in the event that
Executive's employment is terminated under Section 5(a)(iv) or Section 5(a)(vi).

      10. Non-Solicitation

      During the Term of Employment and for a period of twelve (12) months
thereafter, Executive will not, and will not cause another commercial or
business enterprise to, without the express prior written approval of the Board
of Directors, in one or a series of transactions, recruit, solicit or otherwise
induce or influence any proprietor, partner, stockholder, lender, director,
officer, employee, sales agent, joint venturer, investor, lessor, customer,
agent, representative or any other person which has a business relationship with
the Company Group or had a business relationship with the Company Group to
discontinue, reduce or modify such employment, agency or business relationship.

      11. Non-Disparagement

      During and after the Term of Employment, the Executive agrees that he
shall not make any false, defamatory or disparaging statements about the
Company, its subsidiaries and affiliates, or the officers or directors of the
Company and its subsidiaries and affiliates. During and after the Term of
Employment, neither the Company nor any of its subsidiaries or affiliates shall
make any false, defamatory or disparaging statements about the Executive.

      12. Defense of Claims

      The Executive agrees that, from the date hereof, and continuing for a
reasonable period after termination of the Term of Employment, the Executive
will cooperate with the Company in defense of any claims that may be made
against the Company provided same does not interfere with the Executive's then
current employment. The Company agrees to reimburse the Executive for all of the
Executive's reasonable out-of-pocket expenses associated with such cooperation,
including travel expenses and the fees and expenses of the Executive's legal
counsel.

      13. Definitions

      "Business" means any business conducted, or engaged in, by the Company
prior to the date hereof or at any time during the Term of Employment.

      "Cause" means any of the following:

            (i) Executive's conviction of, or plea of guilty or nolo contendere
      to, a serious felony or a crime involving embezzlement, conversion of
      property or moral turpitude;

                                      - 6 -


            (ii) Executive's commission of fraud, embezzlement or conversion of
      property, as reasonably determined by the Board of Directors based upon
      credible evidence;

            (iii) Executive's conviction of, or plea of guilty or nolo
      contendere to, or an administrative or judicial determination that the
      Executive committed a crime, fraud or any other material violation of law
      involving the acquisition, use or expenditure of federal, state or local
      government funds;

            (iv) a finding by majority of the Board of Directors of Executive's
      knowing breach of any of his fiduciary duties to the Company or the
      Company's stockholders or making of a misrepresentation or omission which
      breach, misrepresentation or omission would reasonably be expected to
      materially adversely affect the business, properties, assets, condition
      (financial or other) or prospects of the Company; provided, that the
      Executive has been given notice and 30 days from such notice fails to cure
      the breach, misrepresentation or omission;

            (v) Executive's willful and continual neglect or failure (other than
      by reason of death or Disability) to discharge his material duties,
      responsibilities or obligations prescribed by this Agreement or any other
      agreement between the Executive and any company in the Company Group;
      provided, that the Executive has been given notice and 30 days from such
      notice fails to cure the neglect or failure;

            (vi) Executive's alcohol or substance abuse, which materially
      interferes with Executive's ability to discharge his duties,
      responsibilities and obligations prescribed by this Agreement; provided,
      that Executive has been given notice and 30 days from such notice fails to
      cure such abuse;

            (vii) Executive's material violation, with the actual knowledge of
      Executive, of any non-competition, confidentiality or similar agreement
      with the Company, including without limitation, those set forth in
      Sections 8 through 12 of this Agreement, or any other similar agreements
      with the Company;

            (viii) any material violation, with the actual knowledge of
      Executive, of any obligations imposed upon Executive, personally, as
      opposed to upon the Company, whether as a stockholder or otherwise, under
      this Agreement, the Certificate of Incorporation of the Company provided,
      that Executive has been given notice and 30 days from such notice fails to
      cure such violation; or

            (ix) Executive's personal (as opposed to the Company's) material and
      knowing failure, to observe or comply with Regulations whether as an
      officer, stockholder or otherwise, in any material respect or in any
      manner which would reasonably be expected to have a material adverse
      effect in respect of the Company's ongoing business, operations,
      conditions, other business relationships or properties;

                                      - 7 -


      provided, that Executive has been given notice and 30 days from such
      notice fails to cure the failure.

      "Confidential Information" means any confidential information including,
without limitation, any study, data, calculations, software storage media or
other compilation of information, patent, patent application, copyright,
"know-how", trade secrets, customer lists, details of client or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans or any
portion or phase of any scientific or technical information, ideas, discoveries,
designs, inventions, creative works, computer programs (including source of
object codes), processes, procedures, formulae, improvements or other
proprietary or intellectual property of the Company Group, whether or not in
written or tangible form, and whether or not registered, and including all
files, records, manuals, books, catalogues, memoranda, notes, summaries, plans,
reports, records, documents and other evidence thereof. Notwithstanding the
foregoing, the term "Confidential Information" does not include, and there shall
be no obligation hereunder with respect to, information that is or becomes
generally available to the public other than as a result of a disclosure by the
Executive not permissible hereunder.

      "knowing" and "knowledge" means actual knowledge without any duty of
investigation.

      "Market" means any State where the Business was conducted by or engaged in
by the Company prior to the date hereof or is conducted or engaged in by the
Company at any time during the Term of Employment.

      14. Notice

      Any notice, request, demand or other communication required or permitted
to be given under this Agreement shall be given in writing and if delivered
personally, sent by certified or registered mail, return receipt requested, sent
by overnight courier or sent by facsimile transmission (with confirmation and a
copy sent by mail within one day) as follows (or to such other addressee or
address as shall be set forth in a notice given in the same manner):

      If to Executive:        George Bellino
                          __________________________
                          __________________________

      If to the Company:  __________________________
                          __________________________
                          __________________________
                          Attention:________________
                          Facsimile No.:____________

                                      - 8 -


      with a copy to:     Hampshire Equity Partners
                          520 Madison Avenue
                          New York, New York 10022
                          Attention: Olivier L. Trouveroy
                          Facsimile No.: (212) 750-2970

Any such notices shall be deemed to be given on the date personally delivered or
sent by facsimile transmission or such return receipt is issued or the day after
if sent by overnight courier.

      15. Executive's Representations

      Executive hereby warrants and represents to the Company that Executive has
carefully reviewed this Agreement and has consulted with such advisors as
Executive considers appropriate in connection with this Agreement, and is not
subject to any covenants, agreements or restrictions, including without
limitation any covenants, agreements or restrictions arising out of Executive's
prior employment which would be breached or violated by Executive's execution of
this Agreement or by Executive's performance of his duties hereunder.

      16. Company's Obligation: Taxes

      Executive agrees and acknowledges that the obligations owed to Executive
under this Agreement are solely the obligations of the Company, and that none of
the Company's members, stockholders, directors, officers or lenders will have
any obligations or liabilities in respect of this Agreement and the subject
matter hereof. Any amounts payable to the Executive pursuant to this Agreement
shall be subject to withholding and any other applicable taxes

      17. Severability

      Whenever possible, each provision of this Agreement will be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein. If any court determines that any
provision of this Agreement is unenforceable and therefore acts to reduce the
scope or duration of such provision, the provision in its reduced form, shall
then be enforceable.

                                      - 9 -


      18. Right to Withhold Payments

      Upon the determination of a majority of the Board of Directors that the
Executive has breached his obligations in any material respect under Sections 8
through 12, the Company, in addition to pursuing all available remedies under
this Agreement, at law or otherwise, and without limiting its right to pursue
the same, shall cease all payments to the Executive under this Agreement. In the
event a court of competent jurisdiction described in Section 21 shall ultimately
determine that the Executive did not in any material respect commit a breach of
any such sections, such withheld amounts shall thereupon be payable to
Executive.

      19. Breach: Waiver of Breach: Specific Performance

      If either party breaches its obligations in connection with this
Agreement, the non-breaching party shall be entitled to pursue all remedies
available at law or in equity for such breach. The waiver by the Company or
Executive of a breach of any provision of this Agreement by the other party
shall not operate or be construed as a waiver of any other breach of such other
party. Each of the parties (and third party beneficiaries) to this Agreement
will be entitled to enforce its rights under this breach of any provision of
this Agreement and to exercise all other rights existing in its favor. The
parties hereto agree and acknowledge that the Company would be irreparably
injured by a violation of Sections 8 through 12 of this Agreement, that the
provisions of such sections are reasonable and that the Company could not
adequately be compensated in monetary damages, in light of the sensitivity of
the non-public information of the Company to which the Executive will be exposed
and that the Company may apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief, including
temporary restraining orders, preliminary injunctions and permanent injunctions
in order to enforce or prevent any violations of the provisions of such sections
of this Agreement.

      20. Assignment: Third Parties

      Neither the Executive nor the Company may assign, transfer, pledge,
hypothecate, encumber or otherwise dispose of this Agreement or any of his or
its respective rights or obligations hereunder, without the prior written
consent of the other.

      21. Amendment: Entire Agreement

      This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. This Agreement constitutes the
entire agreement between the parties concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements, if any, between the parties
relating to employment, compensation, incentive payments, termination or
severance. The enforceability of this Agreement shall not cease or otherwise be
adversely affected by the termination of the Executive's employment with the
Company. The Executive and the Company agree that the

                                     - 10 -


language used in this Agreement is the language chosen by the parties to express
their mutual intent, and that no rule of strict construction is to be applied
against any party hereto.

      22. Choice of Law: Litigation

      THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF GEORGIA. IN THE EVENT ANY
PARTY TO THIS AGREEMENT COMMENCES ANY LITIGATION, PROCEEDING OR OTHER LEGAL
ACTION IN CONNECTION WITH OR RELATING TO THIS AGREEMENT, ANY RELATED AGREEMENT
OR ANY MATTERS DESCRIBED OR CONTEMPLATED HEREIN OR THEREIN, THE PARTIES TO THIS
AGREEMENT HEREBY (1) AGREE, AFTER CONSULTATION WITH COUNSEL, TO WAIVE ANY RIGHTS
TO A JURY TRIAL TO RESOLVE ANY DISPUTES OR CLAIMS RELATING TO THIS AGREEMENT;
AND (2) AGREE THAT NOTHING HEREIN SHALL AFFECT THE RIGHTS OF ANY PARTY TO EFFECT
SERVICE OF PROCESS IN ANY MANNER PERMITTED BY LAW.

      23. Headings

      The headings contained in this Agreement are for convenience only and
shall not affect in any way the meaning or interpretation of this Agreement.

      24. 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.

                                     - 11 -


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

                                       EXECUTIVE:

                                       /s/ George Bellino
                                       -----------------------
                                       Name: George Bellino

                                       ALLIED FASHION, INC.

                                       By: /s/ Olivier L. Trouveroy
                                           --------------------------
                                           Name: Olivier L. Trouveroy
                                           Title: Executive Vice President



PERFORMANCE MEASURES:

Annual bonus will be based on achieving the following two objectives:

- -     50% of the bonus will be based on achievement of threshold or higher
      levels of corporate financial performance, the measure of which will be
      EBITDA.

- -     50% of the bonus will be based on achievement of financial goals specific
      to the executive's area of responsibility plus certain non-financial goals
      to be defined by the CEO and the Compensation Committee. In the case of
      the CEO, the non-financial goals will include objectives such as sales per
      square foot, store remodels and new store openings and other objectives to
      be mutually agreed upon.

TARGET BONUS LEVELS:

                                          TARGET BONUS AS A PERCENT OF BASE
                                        ______________________________________

                    G. Bellino                           35%

The Board will consider increasing the target percentages above over time based
on performance.

FINANCIAL PERFORMANCE SCALE:



 PERFORMANCE              PERCENT FINANCIAL            FINANCIAL   PERCENT TARGET BONUS
    LEVEL                   GOAL ATTAINED                GOAL             EARNED
- ------------     -----------------------------------   ---------   --------------------
                                                          
Outstanding                     120%                      TBD              200%

Target                          100%                      TBD              100%

Threshold        Greater of 80% or prior year actual      TBD               50%

Below Threshold  Lesser of 80% or prior year actual       TBD                0%


- -     Bonus payouts for achievement between these results will be calculated by
      linear interpolation.

- -     For performance above 120% of plan, bonuses are capped at 200% of target.

- -     Bonuses will be paid upon receipt of annual audited financial statements.

INDIVIDUAL FUNCTIONAL GOALS

For each of the executives, individual functional goals will be developed, both
financial and non-financial. These goals must be objective and measurable, must
relate to company goals, must deal with strategic issues within a department or
division, and may be related to the accomplishment of milestones on a long-term
project.

                                     - 13 -

                                                                    EXHIBIT 10.3

                             AMENDMENT NUMBER ONE TO
                   EMPLOYMENT AND NON-INTERFERENCE AGREEMENT

      This AMENDMENT NUMBER ONE TO EMPLOYMENT AND NONINTERFERENCE AGREEMENT,
dated as of December __, 2001 (this "Amendment"), is by and between George
Bellino (the "Executive") and Citi Trends, Inc., f/k/a Allied Fashion, Inc., a
Delaware corporation (the "Company").

                                   WITNESSETH:

      WHEREAS, the Company and the Executive are parties to that certain
Employment and Non-Interference Agreement, dated April 13, 1999 (the "Original
Agreement" and, as amended by this Amendment, the "Agreement");

      WHEREAS, the Company and the Executive wish to amend certain terms of the
Original Agreement as set forth herein; and

      WHEREAS, capitalized terms not defined herein shall have the respective
meanings set forth in the Original Agreement;

      NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound hereby, the parties hereto
agree as follows:

      Section 1. Section 1 of the Original Agreement is hereby deleted in its
entirety and replaced with the following:

            "1. Nature of Employment

            The Company hereby employs Executive, and Executive agrees to accept
such employment, as President and Chief Merchandising Officer of the Company."

      Section 2. Section 3 of the Original Agreement is hereby amended by
deleting the figure "$190,000" and inserting in lieu thereof "215,000".

      Section 3. Section 4 of the Original Agreement is hereby amended by
deleting the words "on the date hereof" and inserting in lieu thereof the words
"on December_____________, 2001".

      Section 4. Section 14 of the Original Agreement is hereby amended

            (a) by inserting as the notice information for the Executive the
following;

                   "George Bellino
                    c/o Citi Trends, Inc.
                    102 FAHM ST,
                    SAVANNAH, GA  31401"

            (b) by inserting as the notice information for the Company the
following:



                         "Citi Trends, Inc.
                          c/o Hampshire Equity Partners
                          520 Madison Avenue, 33rd Floor
                          New York, NY 10022
                          Attention: Gregory P. Flynn
                          Facsimile No.: 212-750-2970"; and

            (c) by deleting the name "Olivier L. Trouveroy" and inserting in
lieu thereof "Gregory P. Flynn".

      Section 5. Exhibit A to the Original Agreement is hereby deleted and
replaced with Exhibit A attached hereto and all references to "Exhibit A" in the
Agreement shall hereafter be references to Exhibit A to this Amendment.

      Section 6. Acknowledgement and Waiver. Executive agrees and acknowledges
that his reassignment to the position of President and Chief Merchandising
Officer, as contemplated by this Amendment shall not constitute a Reason for
termination within the meaning of the Agreement and Executive hereby expressly
waives any right he may have to assert that such reassignment constitutes Reason
within the meaning of the Agreement.

      Section 7. Except as expressly provided herein, the Original Agreement
shall remain in full force and effect. On or after the effectiveness of this
Amendment, each reference in the Original Agreement to "this Agreement,"
"hereof," "hereunder," "herein" and words of similar import, and each reference
to the Original Agreement in any other agreements, documents or instruments
executed and delivered pursuant to the Original Agreement, shall mean and be a
reference to the Original Agreement, as amended by this Amendment.

      Section 8. Choice of Law. THIS AMENDMENT SHALL BE GOVERNED BY, CONSTRUED,
APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
GEORGIA.

      Section 9. Counterparts. This Amendment 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.

                                       2


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

                                    EXECUTIVE:

                                    /s/ George Bellino
                                    -----------------------------
                                    Name: George Bellino

                                    CITI TRENDS, INC.

                                    By: /s/ Gregory P. Flynn
                                        --------------------------
                                        Name: Gregory P. Flynn
                                        Title: CHAIRMAN

                                       3


                                                                       Exhibit A

Bonus Calculation for George Bellino

Executive's Target Bonus shall be 50% of his annual base salary, as set forth in
Section 3(a) of the Agreement,

Criteria for achievement of the Target Bonus shall be as follows, to be
calculated in accordance with the Performance Matrix set forth below; provided,
however, that for fiscal year 2001, 50% ($53,750) of the Executive's Target
Bonus shall be guaranteed and the remaining 50% shall be subject to the Criteria
and Performance Matrix set forth below, applied to the period from August 2001
to January 2002, versus the reforecast as of June 13, 2001.



Criteria                                               Percentage of Target Bonus
- --------                                               --------------------------
                                                    
Achievement of budgeted sales (including new stores)               30%

Achievement of budgeted gross profit dollars                       30%

Achievement of budgeted EBIT                                       20%

At the discretion of the Board of Directors                        20%


Performance Matrix;



      % Range of Budget        Multiple          % Range of Total Bonus
      -----------------        --------          ----------------------
                                                       
       80%           85%         1.00x            20%               25%
       86%           90%         2.00x            27%               37%
       91%           99%         3.00x            40%               67%
      100%          110%         2.00x           100%              120%
      110%          120%         3.00x           120%              150%
      120%          130%         5.00x           150%              200%
Above 130%                                       200%


                                       4

                                                                    EXHIBIT 10.4

                           LOAN AND SECURITY AGREEMENT

                                 by and between

                   CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
                                    as Lender

                                       and

                              ALLIED FASHION, INC.
                                  as Borrower

                              Dated: April 2, 1999


                               TABLE OF CONTENTS



                                                                                       Page
                                                                                    
SECTION 1. DEFINITIONS...............................................................   1

SECTION 2. CREDIT FACILITIES ........................................................   7

    2.1     Revolving Loans .........................................................   7

    2.2     Letter of Credit Accommodations..........................................   8

SECTION 3. INTEREST AND FEES.........................................................   11

    3.1     Interest.................................................................   11

    3.2     Closing Fee .............................................................   11

    3.3     Loan Servicing Fee ......................................................   12

    3.4     Compensation Adjustment..................................................   12

SECTION 4. CONDITIONS PRECEDENT .....................................................   13

    4.1     Conditions Precedent to Initial Loans and the Letter of Credit

            Accommodations ..........................................................   13

    4.2     Conditions Precedent to All Loans and Letter of Credit Accommodations....   16

SECTION 5. GRANT OF SECURITY INTEREST ...............................................   17

SECTION 6. COLLECTION AND ADMINISTRATION.............................................   17

    6.1     Borrower's Loan Account..................................................   17

    6.2     Statements ..............................................................   18

    6.3     Collection of Accounts...................................................   18

    6.4     Payments.................................................................   19

    6.5     Authorization to Make Loans..............................................   20

    6.6     Use of Proceeds..........................................................   20

SECTION 7. COLLATERAL REPORTING AND COVENANTS........................................   21

    7.1     Collateral Reporting ....................................................   21

    7.2     Accounts Covenants ......................................................   23

    7.3     Inventory Covenants .....................................................   24

    7.4     Equipment Covenants......................................................   25

    7.5     Power of Attorney........................................................   26

    7.6     Right to Cure............................................................   27

    7.7     Access to Premises ......................................................   28

SECTION 8. REPRESENTATIONS AND WARRANTIES ...........................................   28

    8.1     Corporate Existence, Power and Authority; Subsidiaries...................   28


                                    i

                               TABLE OF CONTENTS
                                  (continued)



                                                                                       Page
                                                                                    
    8.2      Financial Statements; No Material Adverse Change........................   28

    8.3      Chief Executive Office; Collateral Locations............................   29

    8.4      Priority of Liens; Title to Properties .................................   29

    8.5      Tax Returns ............................................................   29

    8.6      Litigation .............................................................   29

    8.7      Compliance with Other Agreements and Applicable Laws....................   29

    8.8      Acquisition of Purchased Assets.........................................   30

    8.9      Capitalization .........................................................   30

    8.10     Employee Benefits ......................................................   31

    8.11     Accuracy and Completeness of Information ...............................   31

    8.12     Survival of Warranties; Cumulative .....................................   32

SECTION 9.   AFFIRMATIVE AND NEGATIVE COVENANTS......................................   32

    9.1      Maintenance of Existence ...............................................   32

    9.2      New Collateral Locations................................................   32

    9.3      Compliance with Laws, Regulations, Etc..................................   32

    9.4      Payment of Taxes and Claims ............................................   32

    9.5      Insurance ..............................................................   33

    9.6      Financial Statements and Other Information..............................   33

    9.8      Encumbrances ...........................................................   35

    9.9      Indebtedness ...........................................................   35

   9.10      Loans, Investments, Guarantees, Etc ....................................   36

   9.11      Dividends and Redemptions...............................................   37

   9.12      Transactions with Affiliates ...........................................   37

   9.13      Compliance with ERISA ..................................................   37

   9.14      Year 2000 Matter .......................................................   38

   9.15      Adjusted Tangible Net Worth ............................................   38

   9.16      Costs and Expenses .....................................................   38

   9.17      Further Assurances .....................................................   39

SECTION 10. EVENTS OF DEFAULT AND REMEDIES...........................................   39

   10.1     Events of Default .......................................................   39


                                       ii


                                TABLE OF CONTENTS
                                   (continued)



                                                                                               Page
                                                                                            
    10.2    Remedies .......................................................................    41

SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND
            CONSENTS; GOVERNING LAW ........................................................    43

    11.1    Governing Law, Choice of Forum; Service of Process; Jury Trial Waiver ..........    43

    11.2    Waiver of Notices ..............................................................    44

    11.3    Amendments and Waivers .........................................................    44

    11.4    Indemnification ................................................................    44

SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS ...............................................    45

    12.1    Term ...........................................................................    45

    12.2    Notices ........................................................................    46

    12.3    Partial Invalidity .............................................................    46

    12.4    Successors .....................................................................    46

    12.5    Entire Agreement ...............................................................    47

    12.6    Confidentiality ................................................................    47

    12.7    Publicity ......................................................................    47


                                      iii




                                     
Exhibit A                               Information Certificate

Schedule 6.3                            Deposit Accounts

Schedule 7.3(i)                         Consignment Inventory

Schedule 8.3                            Chief Executive Office; Collateral Locations

Schedule 8.4                            Other Liens

Schedule 8.7                            Exceptions to Compliance with Laws, Regulations, etc.

Schedule 8.8                            Exceptions to Title to Purchased Assets




                           LOAN AND SECURITY AGREEMENT

      This Loan and Security Agreement dated April 2,1999 is entered into by and
between CONGRESS FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation
("Lender"), and ALLIED FASHION, INC., a Delaware corporation ("Borrower").

                                   WITNESSETH:

      WHEREAS, Borrower has requested that Lender enter into certain financing
arrangements with Borrower pursuant to which Lender may make loans and provide
other financial accommodations to Borrower, and

      WHEREAS, Lender is willing to make such loans and provide such financial
accommodations on the terms and conditions set forth herein;

      NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

SECTION 1. DEFINITIONS.

      All terms used herein which are defined in Article 1 or Article 9 of the
New York Uniform Commercial Code shall have the respective meanings given
therein unless otherwise defined in this Agreement. All references to the plural
herein shall also mean the singular and to the singular shall also mean the
plural. All references to Borrower and Lender pursuant to the definitions set
forth in the recitals hereto, or to any other person herein, shall include their
respective successors and assigns. The words "hereof", "herein", "hereunder",
"this Agreement" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 11.3. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meaning customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the following
terms shall have the respective meanings given to them below:

      1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.

      1.2 "Adjusted Tangible Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its subsidiaries (if any),
the amount equal to: (a) the difference between: (i) the aggregate net book
value of all assets of such Person and its subsidiaries, calculating the book
value of inventory for this purpose, as the lower of (A) cost as determined by
the retail method of accounting (which method of accounting includes the netting
of



markdowns from the Retail Sales Price or ticketed sales price under the
first-in-first-out method in accordance with GAAP) or (B) market value, and
after deducting from such book values all appropriate reserves in accordance
with GAAP (including all reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate amount of the indebtedness
and other liabilities of such Person and its subsidiaries (including tax and
other proper accruals and accounts payable), plus (b) indebtedness of such
Person and its subsidiaries which is subordinated in right of payment to the
full and final payment of all of the Obligations on terms and conditions
acceptable to Lender, and redeemable preferred stock and junior notes permitted
hereunder, minus (c) goodwill, patents, trademarks, copyrights, franchises,
formulas, leasehold interests, leasehold improvements, non-compete agreements,
engineering plans, organization costs, and any other assets of Borrower that
would be treated as intangible assets on Borrower's balance sheet prepared in
accordance with GAAP.

      1.3 "Appraised Inventory Value" shall mean, with respect to Eligible
Inventory, the appraised value of such Eligible Inventory, expressed as a
percentage of either the Value or the Retail Sales Price, as required by Lender,
determined as of any date on a "going out of business sale" basis, net of all
estimated liquidation expenses, shrinkage and markdowns, pursuant to an
appraisal conducted, at Borrower's expense, by an independent appraisal firm
acceptable to Lender in its sole and absolute discretion exercised in good faith
or such value as otherwise determined by Lender in its reasonable discretion; it
being understood by the parties hereto that such percentage shall be
seventy-three and one-half percent (73.5%) until such time that such percentage
shall be adjusted in accordance with this Section 1.3 hereof.

      1.4 "Availability Reserves" shall mean, as of any date of determination,
such amounts as Lender may from time to time reasonably establish and revise
reducing the amount of Revolving Loans and Letter of Credit Accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Lender in good faith, do or may affect either (i) the Collateral
or any other property which is security for the Obligations or its value, (ii)
the assets or business of Borrower or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect any state of
facts which Lender determines in good faith constitutes an Event of Default or
may, with notice or passage of time or both, constitute an Event of Default.
Without limiting the generality of the foregoing, Lender (i) shall establish on
the date hereof and maintain throughout the term of this Agreement and
throughout any renewal term an Availability Reserve for an amount equal to two
(2) months of Borrower's gross rent as lessee for each leased premises of
Borrower which is either a distribution center or warehouse location or is
located in a state where a landlord may be entitled to a priority lien on
Collateral to secure unpaid rent and with respect to each such property the
landlord has not executed a form of waiver and consent reasonably acceptable to
Lender, (ii) may establish an additional Availability Reserve on the date
hereof, and from time to time hereafter, and maintain such reserve throughout
the term of this Agreement and throughout any renewal term in an amount
determined by Lender in its reasonable discretion to be sufficient to cover the
anticipated moving expenses and other costs associated with the transfer of
Inventory from each of Borrower's retail locations to another location for which
the landlord thereof has not executed a

                                       2


form of waiver and consent reasonably acceptable to Lender, (iii) upon an Event
of Default or an event that, with notice or passage of time or both, would be an
Event of Default, may establish and maintain an additional Availability Reserve
from time to time in an amount equal to the Dollar value of cash-on-hand in
registers maintained by Borrower, and (iv) may establish and maintain an
additional Availability Reserve from time to time in an amount equal to any
increase in shrinking Inventory from the amount reflected in the most recent
appraisal conducted by an outside appraiser satisfactory to Lender.

      1.5   "Blocked Account" shall have the meaning set forth in Section 6.3
hereof.

      1.6   "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which First Union National Bank, or such other bank as Lender may from time to
time designate, and Lender are open for the transaction of business.

      1.7   "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.

      1.8   "Collateral" shall have the meaning set forth in Section 5 hereof.

      1.9   "Confidential Information" shall have the meaning set forth in
Section 12.6 hereof.

      1.10  "Credit Card Agreements" shall mean all agreements now or hereafter
entered into by Borrower with any Credit Card Issuer or Credit Card Processor as
the same may now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

      1.11  "Credit Card Issuer" shall mean any person who issues or whose
members issue credit cards used by customers of the Borrower to purchase goods,
including, without limitation, MasterCard or VISA bank credit or debit cards or
other bank credit or debit cards, and American Express, Discover, Diners Club,
Carte Blanche, and other non-bank credit or debit cards.

      1.12  "Credit Card Processor" shall mean any servicing or processing agent
or any factor or financial intermediary who facilities, services, processes or
manages the credit authorization, billing transfer and/or payment from a Credit
Card Issuer or Credit Card Processor and other procedures with respect to any
sales transactions of the Borrower involving credit card or debit card purchases
by customers using credit cards or debit cards issued by any Credit Card Issuer.

      1.13  "Credit Card Receivables" shall mean all Accounts consisting of the
present and future rights of Borrower to payment by Credit Card Issuers or
Credit Card Processors for merchandise sold and delivered to customers of
Borrower who have purchased such goods using a credit card or a debit card
issued by a Credit Card Issuer.

                                       3


      1.14  "Eligible Inventory" shall mean Inventory consisting of finished
merchandise held for sale in the ordinary course of the business of Borrower
which are located either at one of Borrower's retail stores, its distribution
center or are in transit from one store location or distribution center to
another store location and which are acceptable to Lender based on the criteria
set forth below except, that, any and all Inventory located at a distribution
center or retail store within the State of Florida shall not be deemed Eligible
Inventory unless Lender has received a waiver or consent reasonably acceptable
to Lender with respect to such distribution center or retail store and executed
by the lessor thereof. In general, Eligible Inventory shall not include (a) raw
materials, (b) work-in-process; (c) components which are not part of finished
goods; (d) spare parts for equipment; (e) packaging and shipping materials; (f)
supplies used or consumed in Borrower's business; (g)Inventory at premises not
owned or controlled by Borrower except Inventory at retail locations of Borrower
which are leased or sub-leased by Borrower and are not sub-leased to another
Person, (h) Inventory in transit other than Inventory in transit described in
the immediately preceding sentence; (i) Inventory subject to a security interest
or lien in favor of any person other than Lender except those permitted in this
Agreement; (j) Inventory which has been sold and not delivered to a customer,
provided, that, Layaway Inventory shall be deemed Eligible Inventory to the
extent that it meets all other criteria set forth in this Section 1.14; (k)
Inventory which is not subject to the first priority, valid and perfected
security interest of Lender; (l) damaged and/or defective Inventory; (m)
Inventory held for return to vendors; (n) Inventory returned by customers and
not held for resale or otherwise used by a customer; (o) Inventory consisting of
samples and not held for resale; (p) display Inventory; (q) that portion of the
Value of Inventory attributable to markdowns not posted to the Inventory retail
system due to month-end cut-off, or to unearned discounts; and (r) Inventory
purchased or sold on consignment. General criteria for Eligible Inventory may be
established and revised from time to time by Lender in its reasonable credit
judgment. Any Inventory which is not Eligible Inventory shall nevertheless be
part of the Collateral.

      1.15  "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.

      1.16  "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.

      1.17  "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its affiliates under Section 414(b) or 414(c) of the
Code or, for purposes of Section 412 of the Code, Sections 414(m) or 414(o) of
the Code.

      1.18  "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.

      1.19  "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to:

                                       4


            (a)   the lesser of (i) the amount of the Revolving Loans available
to Borrower as of such time (based on the applicable advance rate set forth in
Section 2.1 (a)(i) hereof multiplied by the Retail Sales Price or Appraised
Inventory Value of Eligible Inventory, as applicable, as determined by Lender),
subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder and (ii) the Maximum Credit, minus

            (b)   the sum of: (i) the amount of all then outstanding and unpaid
Obligations, (ii) the aggregate amount of all trade payables of Borrower which
are more than sixty (60) days past due as of such time, (iii) the aggregate
amount of Borrower's book overdrafts, and (iv) the aggregate amount of
Borrower's past due lease and notes payable.

      1.20  "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements and other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by Borrower
or any Obligor in connection with this Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

      1.21  "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.15 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.

      1.22  "Information Certificate" shall mean the Information Certificate of
Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.

      1.23  "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.

      1.24  "Inventory Advance Rate" shall mean the advance rate applicable to
Eligible Inventory as determined in accordance with Section 2.1(a)(i).

      1.25  "Layaway Inventory" shall mean Inventory of Borrower for which a
customer of Borrower has made a cash deposit towards the purchase of such
Inventory and Borrower has retained title and possession of such Inventory.

      1.26  "Letter of Credit Accommodations" shall mean the letters of credit,
merchandise purchase or other guaranties which are from time to time either (a)
issued, opened or provided by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer.

                                       5


      1.27  "Loans" shall mean the Revolving Loans.

      1.28  "Maximum Credit" shall mean, with reference to the Revolving Loans,
and the Letter of Credit Accommodations, the amount of Eight Million Dollars
($8,000,000).

      1.29   "Obligations" shall mean any and all Revolving Loans, the Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.

      1.30  "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.

      1.31  "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans, the Letter of Credit Accommodations or
other Obligations or any portion thereof.

      1.32  "Payment Account" shall have the meaning set forth in Section 6.3
hereof.

      1.33  "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as amended),
business trust, limited liability company, unincorporated association, joint
stock corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.

      1.34  "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.

      1.35  "Purchase Agreements" shall mean, individually and collectively, the
Asset Purchase Agreement of even date herewith between Borrower and Seller,
together with bills of sale, quitclaim deeds, assignment and assumption
agreements and such other instruments of transfer as are referred to therein and
all side letters with respect thereto, and all agreements, documents and
instruments executed and/or delivered in connection therewith, as all of the
foregoing now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced; provided, that, the term "Purchase
Agreements" as used herein shall not include any of the "Financing Agreements"
as such term is defined herein.

                                       6


      1.36  "Purchased Assets" shall mean all of the assets and properties
acquired by Borrower from Seller pursuant to the Purchase Agreements.

      1.37  "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).

      1.38  "Retail Sales Price" shall mean the retail sales price as reflected
in the Borrower's MIS System, net of markdowns from the original retail sales
price with respect thereto, for the types, categories and styles of inventory
included in the Eligible Inventory of Borrower.

      1.39  "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.

      1.40  "Seller" shall mean Variety Wholesalers, Inc., a North Carolina
corporation, and its successors and assigns.

      1.41  "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost as determined by the retail method
of accounting (which method of accounting includes the netting of markdowns from
the Retail Sales Price or ticketed sales price under the first-in-first-out
method, in accordance with GAAP) or (b) market value.

      1.42  "Year 2000 Problem" shall have the meaning set forth in Section 9.14
hereof.

SECTION 2. CREDIT FACILITIES.

      2.1   Revolving Loans.

            (a)   Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:

                  (i)   the least of:

                        (A)   sixty-five percent (65%) of the Value of the
Eligible Inventory;

                        (B)   thirty-five percent (35%) of the Retail Sales
Price of the Eligible Inventory;or

                                       7



                        (C)   eighty-five percent (85%) of the Appraised
Inventory Value of Eligible Inventory; minus

                  (ii)  the then undrawn amounts of outstanding Letter of Credit
Accommodations; multiplied by the applicable percentages as provided for in
Section 2.2(c)(i)(A) hereof; minus

                  (iii) any Availability Reserves.

            (b)   Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, reduce the lending formula(s)
with respect to Eligible Inventory to the extent that Lender determines in good
faith that: (A) the mix of such Inventory for any period has changed in any
materially adverse respect or (B) the Appraised Inventory Value of the Eligible
Inventory, or any category thereof, has decreased in any material respect;
provided, however, in the event that Lender reduces such lending formula(s)
based on a material decrease in the Appraised Inventory Value, pursuant to
clause (B) of this Section 2.1(b), Lender shall not further reduce such lending
formula(s) pursuant to clause (A) of this Section 2.1(b) based on the same
event, condition, contingency or risk that caused such material decrease in the
Appraised Inventory Value. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Inventory or in establishing
Availability Reserves.

            (c)   Except in Lender's discretion, the aggregate amount of the
Loans, the Letter of Credit Accommodations and other Obligations outstanding at
any time shall not exceed the Maximum Credit. In the event that the outstanding
amount of any component of the Loans and Letter of Credit Accommodations or the
aggregate amount of the outstanding Loans and Letter of Credit Accommodations
and other Obligations exceeds the amounts available under the lending formulas
set forth in Section 2.1 (a) hereof, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(d), or the Maximum Credit, as
applicable, such event shall not limit, waive or otherwise affect any rights of
Lender in that circumstance or on any future occasions and Borrower shall, upon
demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.

            (d)   To the extent Lender may revise the lending formula set forth
in Section 2.1 (a) hereof or establish new criteria or revise existing criteria
for Eligible Inventory so as to address any circumstance, condition, event or
contingency in a manner satisfactory to Lender, Lender shall not establish an
Availability Reserve for the same purpose. The amount of any Availability
Reserve established by Lender shall have a reasonable relationship to the event,
condition or other matter which is the basis for such reserve as reasonably
determined by Lender.

      2.2   Letter of Credit Accommodations.

            (a)   Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection

                                       8


with the Letter of Credit Accommodations shall constitute additional Revolving
Loans to Borrower pursuant to this Section 2.

            (b)   In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one and one
quarter percent (1.25%) per annum on the daily outstanding balance of the Letter
of Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month; provided,
however, that such letter of credit fee shall be increased, at Lender's option
without notice, to three and one quarter percent (3.25%) per annum for the
period on or after the date of termination or non-renewal of this Agreement, or
the date of the occurrence of an Event of Default. Such letter of credit fee
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed and the obligation of Borrower to pay such fee shall survive
the termination or non-renewal of this Agreement.

            (c)   No Letter of Credit Accommodations shall be available unless
on the date of the proposed issuance of any Letter of Credit Accommodations, the
Revolving Loans available to Borrower (subject to the Maximum Credit and any
Availability Reserves) are equal to or greater than:

                  (i)   if the proposed Letter of Credit Accommodation is for
the purpose of purchasing Eligible Inventory, the sum of:

                        (A)   the product of the Value of such Eligible
Inventory multiplied by one minus the Inventory Advance Rate under Sections 2.1
(a)(i)(A), (B) or (C) hereof, as applicable; plus

                        (B)   freight, taxes, duty and other amounts which
Lender estimates must be paid in connection with such Inventory upon arrival and
for delivery to one of Borrower's locations for Eligible Inventory within the
United States of America; and

                  (ii)  if the proposed Letter of Credit Accommodation is for
standby letters of credit guaranteeing the purchase of Eligible Inventory or for
any other purpose, an amount equal to one hundred percent (100%) of the face
amount thereof and all other commitments and obligations made or incurred by
Lender with respect thereto.

Effective on the issuance of each Letter of Credit Accommodation, the amount of
Revolving Loans which might otherwise be available to Borrower shall be reduced
by the applicable amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii).

            (d)   Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed Five
Hundred Thousand Dollars ($500,000). At any time an Event of Default exists or
has occurred and is continuing, upon Lender's request, Borrower will either
furnish cash collateral to secure the reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash collateral
to Lender for the Letter of Credit Accommodations, and in either case, the
Revolving Loans otherwise

                                       9


available to Borrower shall not be reduced as provided in Section 2.2(c) to the
extent of such cash collateral.

            (e)   Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise, unless caused by the
gross negligence or willful misconduct of Lender, with respect to or relating to
any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall
survive the payment of Obligations and the termination or non-renewal of this
Agreement.

            (f)   Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation reasonably made by Lender, or any
other issuer or correspondent under or in connection with any Letter of Credit
Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not at any time an Event of Default exists or
has occurred and is continuing, (i) approve or resolve any questions of
non-compliance of documents, (ii) give any instructions as to acceptance or
rejection of any documents or goods, (iii) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, (iv) grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents, or (v) agree to any amendments, renewals,
extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letter of Credit Accommodations, or
documents, drafts or acceptances thereunder or any letters of credit included in
the Collateral. Lender may take such actions either in its own name or in
Borrower's name.

            (g)   Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit

                                      10


Accommodation, shall be deemed to have been undertaken by Borrower to Lender and
to apply in all respects to Borrower.

SECTION 3. INTEREST AND FEES.

      3.1.  Interest.

            (a)   Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of three-quarters
of one percent (.75%) per annum in excess of the Prime Rate, except that
Borrower shall pay to Lender interest, at Lender's option, without notice, at
the rate of two and three quarters percent (2.75%) per annum in excess of the
Prime Rate:

                  (i)   on the non-contingent Obligations for the period from
and after the date of termination or non-renewal hereof, or the date of the
occurrence of an Event of Default, and for so long as such Event of Default is
continuing as determined by Lender and until such time as Lender has received
full and final payment of all such Obligations (notwithstanding entry of any
judgment against Borrower) and

                  (ii)  on the Revolving Loans at any time outstanding in excess
of the amounts available to Borrower under Section 2 (whether or not such
excess(es) arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default). All interest accruing
hereunder on and after the occurrence of any of the events referred to in
Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on demand.

            (b)   Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.

      3.2   Closing Fee. Borrower shall pay to Lender as a closing fee Eighty
Thousand Dollars ($80,000), which fee shall be fully earned as of and payable on
the date hereof. Lender and Borrower hereby acknowledge that Borrower has paid
to Lender Twenty-Five Thousand Dollars ($25,000) as a deposit against expenses
incurred by Lender. Such deposit shall be: (a) retained by Lender and credited
to the loan account of Borrower, less the cost of Lender's field examinations,
legal fees and other expenses directly related to the loan application and
credit review if the loans contemplated hereunder are funded or (b) retained by
Lender as a fee in addition to expenses payable by Borrower as set forth in
clause (a) hereof if the initial loans contemplated hereunder are not funded
prior to April 20,1999, whether as a result of Borrower's election not to do
business with Lender or a failure to fulfill any of the conditions of the
proposed financing as approved by Lender.

                                       11


      3.3   Loan Servicing Fee. In addition to any fees or expenses payable by
Borrower under Section 9.16 hereof, Borrower shall pay to Lender an annual loan
servicing fee in an amount equal to Ten Thousand Dollars ($10,000), in respect
of Lender's services for each year (or part thereof) while this Agreement
remains in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of the date hereof and on each
annual anniversary hereafter, such annual loan servicing fee to be payable on a
quarterly basis, in advance, with the first such quarterly payment payable on
the date hereof and on the first day of each quarter hereafter.

      3.4   Compensation Adjustment.

            (a)   If after the date of this Agreement the introduction of, or
any change in, any law or any governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law), or any interpretation
thereof, or compliance by Lender or any Participant therewith:

                  (i)   subjects Lender to any tax, duty, charge or withholding
on or from payments due from Borrower (excluding franchise taxes imposed upon,
and taxation of the overall net income of, Lender or any Participant), or
changes the basis of taxation of payments, in either case in respect of amounts
due it hereunder, or

                  (ii)  imposes or increases or deems applicable any reserve
requirement or other reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by Lender or any Participant, or

                  (iii) imposes any other condition the result of which is to
increase the cost to Lender or any Participant of making, funding or maintaining
the Loans or Letter of Credit Accommodations or reduces any amount receivable by
Lender or any Participant in connection with the Loans or Letter of Credit
Accommodations, or requires Lender or any Participant to make payment calculated
by references to the amount of loans held or interest received by it, by an
amount deemed material by Lender or any Participant, or

                  (iv)  imposes or increases any capital requirement or affects
the amount of capital required or expected to be maintained by Lender or any
Participant or any corporation controlling Lender or any Participant, and Lender
or any Participant reasonably determines that such imposition or increase in
capital requirements or increase in the amount of capital expected to be
maintained is based upon the existence of this Agreement or the Loans or Letter
of Credit Accommodations hereunder, all of which may be determined by Lender's
reasonable allocation of the aggregate of its impositions or increases in
capital required or expected to be maintained, and the result of any of the
foregoing is to increase the cost to Lender or any Participant of making,
renewing or maintaining the Loans or Letter of Credit Accommodations, or to
reduce the rate of return to Lender or any Participant on the Loans or Letter of
Credit Accommodations, then upon demand by Lender, Borrower shall pay to Lender,
and continue to make periodic payments to Lender or any Participant, such
additional amounts as may be necessary to compensate Lender or any Participant
for any such additional cost incurred or reduced rate of return realized.

                                       12


            (b)   A certificate of Lender claiming entitlement to compensation
as set forth above will create a rebuttable presumption that it is conclusive in
the absence of manifest error. Such certificate will set forth the nature of the
occurrence giving rise to such compensation, the additional amount or amounts to
be paid and the compensation and the method by which such amounts were
determined. In determining any additional amounts due from Borrower under this
Section 3.4, Lender shall act reasonably and in good faith and will, to the
extent that the increased costs, reductions, or amounts received or receivable
relate to the Lender's or a Participant's loans or commitments generally and are
not specifically attributable to the Loans and commitments hereunder, use
averaging and attribution methods which are reasonable and equitable and which
cover all loans and commitments under this Agreement by the Lender or such
Participant, as the case may be, whether or not the loan documentation for such
other loans and commitments permits the Lender or such Participant to receive
compensation costs of the type described in this Section 3.4.

SECTION 4. CONDITIONS PRECEDENT.

      4.1   Conditions Precedent to Initial Loans and the Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:

            (a)   Lender shall have received, in form and substance satisfactory
to Lender, evidence that the Purchase Agreements have been duly executed and
delivered by and to the appropriate parties thereto and the transactions
contemplated under the terms of the Purchase Agreements have been consummated
prior to or contemporaneously with the making of the initial Loans to Borrower
hereunder; it being understood by the parties hereto that if the transactions
contemplated under the terms of the Purchase Agreements are not consummated on
or before April 20, 1999, notwithstanding any provision to the contrary
contained in this Agreement or the other Financing Agreements (including, but
not limited to Section 12.1(b) hereof), neither Lender nor Borrower shall have
any obligations to the other party hereunder or under the other Financing
Agreements; provided, however, that in such event, Borrower hereby agrees to pay
and satisfy in full the obligations of ING Equity Partners II, L.P. and its
successors or assigns to pay Lender's costs and expenses under that certain
Proposal Letter Agreement dated as of February 25,1999 addressed to George
Bellino of The Bellino Group, and that this Agreement and the other Financing
Agreements shall terminate as of the date of such event;

            (b)   Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination of any interest in and to any
assets and properties of Borrower, duly authorized, executed and delivered by it
or each of them, including, but not limited to, UCC termination statements for
all UCC financing statements and Lender shall have satisfied itself that it has
valid, perfected and first priority security interests in and liens upon the
Collateral and any other property which is intended as security for the
Obligations or the liability of any Obligor in respect thereto, subject only to
the security interests and liens permitted herein or in the other Financing
Agreements;

                                       13


            (c)   all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;

            (d)   no material adverse change shall have occurred in the assets
or business prospects of Borrower or the Allied Fashion for Less division of
Seller since the date of Lender's latest field examination and no change or
event shall have occurred which would materially impair the ability of Borrower
or any Obligor to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize upon the Collateral;

            (e)   Lender shall have completed a field review of the Records and
of such other financial information, projections, budgets, business plans, cash
flows as Lender shall reasonably request from time to time, including, but not
limited to, current agings of receivables, current perpetual inventory records
and/or rollforwards of Accounts and Inventory through the date of closing
(including a physical count of the Inventory by a third party acceptable to
Lender), together with supporting documentation, including documentation with
respect to Inventory in-transit, goods in bonded warehouses or at other
third-party locations, that will enable Lender to accurately identify and verify
the Eligible Inventory at or before the date hereof in a manner reasonably
satisfactory to Lender, the results of which shall be reasonably satisfactory to
Lender;

            (f)   Borrower shall have used its best efforts to obtain, in form
and substance satisfactory to Lender, all consents, waivers, acknowledgments and
other agreements from lessors of all premises leased by Borrower, acknowledging
Lender's security interests in the Collateral, waivers by such persons of any
security interests, liens or other claims by such persons to the Collateral and
agreements permitting Lender access to, and the right to remain on, the premises
to exercise its rights and remedies and otherwise deal with the Collateral;

            (g)   all Credit Card Processors shall have been irrevocably
directed by the parties to Credit Card Agreements, and such Credit Card
Processors shall agree, that all proceeds of Credit Card Receivables shall be
remitted to the Blocked Account;

            (h)   Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;

            (i)   Lender shall have received, in form and substance satisfactory
to Lender, such opinion letters of counsel to Borrower with respect to the
Purchase Agreements, the Financing Agreements and the security interests and
liens of Lender with respect to the Collateral and such other matters as Lender
may reasonably request;

                                       14


            (j)   the Borrower shall have Excess Availability, as determined by
Lender as of the date hereof, in an amount not less than One Million Five
Hundred Thousand Dollars ($1,500,000) after giving effect to the initial Loans
made or to be made hereunder and the payment of all fees and expenses payable
upon the consummation of the initial transactions contemplated by this
Agreement, and provided that Borrower's accounts payable, notes and leases
payable and book overdrafts (including those acquired or to be acquired by
Borrower from Allied Fashion for Less) are acceptable to Lender in all respects;

            (k)   Crestar Bank, Lender and Borrower shall have entered into an
agreement, pursuant to which Crestar Bank has acknowledged Lender's security
interests in the funds deposited into Borrower's collection account with Crestar
Bank and has agreed to direct all such funds to the Blocked Account or as Lender
otherwise directs;

            (l)   Lender shall have received, in form and substance satisfactory
to Lender, an executed copy of a Blocked Account agreement, pursuant to Section
6.3(a)(ii) hereof, among Lender, Borrower and First Union National Bank;

            (m)   the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender;

            (n)   Lender shall have received, in form and substance satisfactory
to Lender, an estimated pro-forma balance sheet of Borrower reflecting the
initial transactions contemplated hereunder, including, but not limited to, (i)
the consummation of the acquisition of the Purchased Assets by Borrower from
Seller and the other transactions contemplated by the Purchase Agreements and
(ii) the Loans and Letter of Credit Accommodations provided by Lender to
Borrower on the date hereof and the use of the proceeds of the initial Loans as
provided herein, accompanied by a certificate, dated of even date herewith, of
the chief financial officer of Borrower stating that such pro-forma balance
sheet represents the reasonable, good faith opinion of such officer as to the
subject matter thereof as of the date of such certificate;

            (o)   Lender shall have received, in form and substance satisfactory
to Lender, evidence that Borrower has received net cash proceeds from a cash
equity capital contribution to Borrower of not less than Six Million Eight
Hundred Ninety-Five Thousand Dollars ($6,895,000) and such proceeds have been
applied to the purchase price of the Purchased Assets payable pursuant to the
Purchase Agreements;

            (p)   the conditions precedent set forth in this Section 4.1 shall
have been satisfied and the initial funding of the Loans contemplated hereunder
shall have occurred on or prior to April 20,1999;

            (q)   Lender shall have received the Information Certificate
executed by Borrower and a certificate, in form and substance satisfactory to
Lender, certifying that all representations and warranties contained herein and
in the other Financing Agreements, including, without limitation, the
information set forth in the Information Certificate and the Schedules hereto,
are true and correct in all material respects and any exceptions to such
certificate or changes to the Information Certificate or Schedules hereto (other
than changes to

                                       15


Schedule 8.7 deleting therefrom Borrower's violation of certain regulations of
the Occupational Safety and Hazard Act of 1970, as amended) shall be acceptable
to Lender in its sole discretion;

            (r)   receipt of physical inventory count results as conducted by an
independent third party reasonably acceptable to Lender;

            (s)   Lender shall have received evidence, in form and substance
reasonably satisfactory to Lender, that any funds released by the Escrow Agent
under the Purchase Price Escrow Agreement (as defined in the Purchase
Agreements) to Borrower shall be paid directly into the Payment Account; and

            (t)   if Borrower acquires any federally registered trademarks or
the rights to any applications therefor pending with the United States Patent
and Trademark Office from Seller pursuant to the Purchase Agreements, Borrower
shall have executed a Collateral Assignment of Trademarks, in form and substance
satisfactory to Lender, in favor of Lender with respect to such existing or
future trademarks.

      4.2   Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:

            (a)   all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on and as of the date of the making of each such Loan or providing each such
Letter of Credit Accommodation and after giving effect thereto; and

            (b)   no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.

      4.3   Condition Subsequent to Initial Loans and Letter of Credit
Accommodations.

            Within sixty (60) days of the date that the initial Loans
contemplated hereunder are made, each of the depository banks used by Borrower's
retail store locations for the deposit of receipts from the sale of merchandise
or for the deposit of other proceeds of Collateral and other property which is
security for the Obligations shall have been notified of Lender's security
interests therein and shall have been irrevocably authorized and directed to
send all funds on deposit with such banks only to the Blocked Account or as
Lender otherwise directs, and the failure to complete this condition to Lender's
satisfaction within the time frame set forth herein shall constitute an Event of
Default.

                                       16


SECTION 5. GRANT OF SECURITY INTEREST.

      To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):

      5.1   Accounts, Credit Card Receivables and other indebtedness owed to the
Borrower;

      5.2   all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, chooses
in action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
investment property, letters of credit, proceeds of letters of credit, bankers'
acceptances and guaranties;

      5.3   all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts, Credit Card Receivables, and other
Collateral, including, without limitation, (a) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (b) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts, Credit Card Receivables, or other Collateral,
including, without limitation, returned, repossessed and reclaimed goods, and
(d) deposits by and property of account debtors or other persons securing the
obligations of account debtors;

      5.4   Inventory;

      5.5   Equipment;

      5.6   Records; and

      5.7   all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.

SECTION 6. COLLECTION AND ADMINISTRATION.

      6.1   Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, all Letter of
Credit Accommodations and all other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and

                                       17


(c) all other appropriate debits and credits as provided in this Agreement,
including, without limitation, fees, charges, costs, expenses and interest. All
entries in the loan account(s) shall be made in accordance with Lender's
customary practices as in effect from time to time.

      6.2   Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.

      6.3   Collection of Accounts.

            (a)   Borrower shall establish and maintain, at its expense, deposit
account arrangements and merchant payment arrangements with the banks set forth
on Schedule 6.3 and after prior written notice to Lender, such other banks as
Borrower may hereafter select as are acceptable to Lender. The banks set forth
on Schedule 6.3 constitute all of the banks with whom Borrower has deposit
account arrangements and merchant payment arrangements as of the date hereof and
identifies each of the deposit accounts at such banks to a retail store location
of Borrower or otherwise describes the nature of the use of such deposit account
by Borrower.

                  (i)   Borrower shall deposit all proceeds from sales of
Inventory in every form (including, without limitation, cash, checks, credit
card sales drafts, credit card sales or charge slip or receipts and other forms
of daily store receipts) from each retail store location of Borrower, and all
other proceeds of Collateral, on each Business Day into the deposit accounts of
Borrower used solely for such purpose and identified to each retail store
location as set forth on Schedule 6.3. Borrower shall irrevocably authorize and
direct in writing, in form and substance satisfactory to Lender, each of the
banks into which proceeds from sales of Inventory from each retail store
location of Borrower and any and all other proceeds of Collateral are at any
time deposited as provided above to send by wire transfer on a daily basis all
funds deposited in such account, and shall irrevocably authorize and direct in
writing its account debtors, Credit Card Issuers and Credit Card Processors to
directly remit payments on its Accounts, Credit Card Receivables and all other
payments constituting proceeds of Inventory to the Blocked Accounts described in
Section 6.3(a)(ii) below. Such authorizations and directions shall not be
rescinded, revoked or modified without the prior written consent of Lender.

                  (ii)  Borrower shall establish and maintain, at its expense,
pursuant to an agreement described in the following sentence, a blocked account
with such bank or banks as are acceptable to Lender (each a "Blocked Account"
and collectively the "Blocked Accounts"). Each bank at which a Blocked Account
is established shall enter into an agreement, in form and substance satisfactory
to Lender, providing (unless otherwise agreed to by Lender) that all items
received or deposited in such Blocked Account are the Collateral of Lender, that
the depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for

                                       18


deposit therein, or the funds from time to time on deposit therein, and that the
depository bank will wire, or otherwise transfer, in immediately available
funds, on a daily basis, all funds received or deposited into such Blocked
Account to such bank account of Lender as Lender may from time to time designate
for such purpose (the "Payment Account"). Borrower agrees that all amounts
deposited in the Blocked Account[s] or other funds received and collected by
Lender, whether as proceeds of Inventory, the collection of Accounts or other
Collateral or otherwise shall be the Collateral of Lender.

            (b)   For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations on the Business Day following the date of receipt
of immediately available funds by Lender in the Payment Account, or on the
Business Day following the date of receipt of funds that are not immediately
available to Lender in the Payment Account, as applicable. For purposes of
calculating the amount of the Revolving Loans available to Borrower such
payments will be applied (conditional upon final collection) to the Obligations
on the Business Day of receipt by Lender in the Payment Account, if such
payments are received within sufficient time (in accordance with Lender's usual
and customary practices as in effect from time to time) to credit Borrower's
loan account on such day, and if not, then on the next Business Day. If no
monetary obligations by Borrower are outstanding on any day, Borrower shall pay
interest at the applicable rate set forth in Section 3.1(a) on the amount of
any payments or other funds that are received by Lender (irrespective of the
characterization whether receipts are owned by Lender or Borrower) for such day.

            (c)   Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, cash, checks, credit
card sales drafts, credit card sales or charge slips or receipts, notes, drafts
and all forms of daily store receipts or any other payment relating to and/or
proceeds from sales of Inventory or other Collateral which come into their
possession or under their control and immediately upon receipt thereof, shall
deposit or cause the same to be deposited in the Blocked Accounts, or remit the
same or cause the same to be remitted, in kind, to Lender. In no event shall any
such monies, checks, credit card sales drafts, credit card sales or charge slips
or receipts, notes, drafts or other payments be commingled with Borrower's own
funds. Borrower agrees to reimburse Lender on demand for any amounts owed or
paid to any bank at which a Blocked Account is established or any other bank or
person involved in the transfer of funds to or from the Blocked Accounts arising
out of Lender's payments to or indemnification of such bank or person, unless
such payment or indemnification obligation of Lender was a result of Lender's
gross negligence or willful misconduct. The obligation of Borrower to reimburse
Lender for such amounts pursuant to this Section 6.3 shall survive the
termination or non-renewal of this Agreement.

      6.4   Payments. All Obligations shall be payable to the Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged

                                       19


directly to the loan accounts of Borrower. Borrower shall make all payments to
Lender on the Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and docs hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.

      6.5   Authorization to Make Loans. Lender is authorized to make the Loans
and provide Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
1:45 p.m. (New York time) on any day shall be deemed to have been made as of the
opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.

      6.6   Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for the acquisition under the Purchase
Agreements and for general operating, working capital and other proper corporate
purposes of Borrower not otherwise prohibited by the terms hereof. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a "purpose credit" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended.

                                       20


SECTION 7. COLLATERAL REPORTING AND COVENANTS.

      7.1   Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender:

            (a)   on a monthly basis, on or before the tenth (10th) Business Day
after the closing date for the immediately preceding monthly period for such
period or more frequently Lender may reasonably request:

                  (i)   perpetual inventory reports;

                  (ii)  inventory reports by category;

                  (iii) summary agings of accounts payable, lease payables and
other payables;

                  (iv)  summary reports of sales for each category of Inventory;

                  (v)   summary reports on sales and use tax collections,
deposits and payments, including monthly sales and use tax accruals;

                  (vi)  reports on Accounts, Credit Card Receivables, and other
indebtedness owed to Borrower, including aggregate outstanding amounts by
category, payments, accruals and returns and other credits;

                  (vii) a certificate from an authorized officer of Borrower
representing that Borrower has made payment of sales and use taxes during such
month or, at Lender's request, other evidence of such payment; and

                  (viii) a schedule of the Inventory of Borrower by retail store
and warehouse location of Borrower, setting forth the aggregate cost and Retail
Sales Price of such Inventory located at each such retail store or warehouse
location;

            (b)   on the Monday of each week, as of the immediately preceding
Business Day, or more frequently as Lender may reasonably request, a schedule of
the Inventory of Borrower, setting forth the aggregate cost and Retail Sales
Price of such Inventory;

            (c)   on the Monday of each week for the immediately preceding week
ending on the close of business on the Friday of that week or more frequently as
Lender may reasonable request:

                  (i)   reports of deposits in each of Borrower's depository
accounts and in the Blocked Account and amounts retained by Borrower, together
with the separate amounts thereof arising from cash sales, Credit Card
Receivables;

                  (ii)  except as otherwise agreed in writing by Lender, reports
of the costs and other information as required by Lender of Inventory and
other goods which are either

                                       21


acquired by Borrower with Letter of Credit Accommodations which are the subject
of bills of lading and which have not been delivered to Borrower at the
permitted locations of Eligible Inventory in the United States;

                  (iii) summary reports of sales of Inventory, indicating gross
sales, returns, allowances and net sales; and

                  (iv)  summary reports of all Inventory purchases (including
all costs related thereto, such as freight, duty and taxes) and identifying
items of Inventory in transit to Borrower related to the applicable documentary
letter of credit and/or bill of lading number,

            (d)   on a quarterly basis, on or before the tenth (10th) Business
Day after the end of each of Borrower's fiscal quarters for the immediately
preceding fiscal quarter period, or more frequently as Lender may reasonably
request:

                  (i)   reports by retail store location of sales and operating
profits for each such retail store location; and

                  (ii)  agings of accounts receivable;

            (e)   upon Lender's reasonable request:

                  (i)   copies of customer statements and credit memos,
remittance advices and reports, and copies of deposit slips and bank statements;

                  (ii)  copies of shipping and delivery documents;

                  (iii) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by Borrower; and

                  (iv)  the results of periodic counts of Inventory performed by
an independent firm satisfactory to Lender,

            (f)   as soon as available, but in any event not later than ten (10)
days after receipt by Borrower, the monthly statements received by Borrower from
any Credit Card Issuers or Credit Card Processors, together with such additional
information with respect thereto as shall be sufficient to enable Lender to
monitor the transactions pursuant to the Credit Card Agreements; and

            (g)   such other reports as to the Collateral or other property
which is security for the Obligations, projections, budgets, business plans,
statements of cash flow and other information as Lender shall reasonably request
from time to time.

If any of Borrower's records or reports of the Collateral or other property
which is security for the Obligations are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's

                                       22


instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.

      7-2   Accounts Covenants.

            (a)   No credit, discount, allowance or extension or agreement for
any of the foregoing shall be granted to any Credit Card Issuer or Credit Card
Processor except in the ordinary course of Borrower's business in accordance
with its most recent past practices and policies. So long as no Event of Default
exists or has occurred and is continuing, Borrower may settle, adjust or
compromise any claim, offset, counterclaim or dispute with any Credit Card
Issuer or Credit Card Processor in the ordinary course of Borrower's business in
accordance with its most recent past practices and policies. At any time that an
Event of Default exists or has occurred and is continuing, Lender shall, at its
option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors, Credit Card Issuers or
Credit Card Processors or grant any credits, discounts or allowances.

            (b)   Borrower shall notify Lender promptly of:

                  (i)   any notice of a material default by Borrower under any
of the Credit Card Agreements or of any default which might result in the Credit
Card Issuer or Credit Card Processor ceasing to make payments or suspending
payments to Borrower,

                  (ii)  any notice from any Credit Card Issuer or Credit Card
Processor that such person is ceasing or suspending, or will cease or suspend,
any present or future payments due or to become due to Borrower from such
person, or that such person is terminating or will terminate any of the Credit
Card Agreements; and

                  (iii) the failure of Borrower to comply with any material
terms of the Credit Card Agreements or any terms thereof which might result in
the Credit Card Issuer or Credit Card Processor ceasing or suspending payments
to Borrower.

            (c)   With respect to each Account:

                  (i)   the amounts shown on any invoice delivered to Lender or
schedule thereof delivered to Lender shall be true and complete;

                  (ii)  no payments shall be made thereon except payments
delivered to Lender pursuant to the terms of this Agreement;

                  (iii) no credit, discount, allowance or extension or agreement
for any of the foregoing shall be granted to any Credit Card Issuer or Credit
Card Processor, except as reported to Lender in accordance with this Agreement
and except for credits, discounts, allowances or extensions made or given in the
ordinary course of Borrower's business in accordance with practices and policies
previously disclosed to Lender; and

                  (iv)  none of the transactions giving rise thereto will
violate any applicable State or Federal Laws or regulations, all documentation
relating thereto will be legally

                                       23


sufficient under such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms.

            (d)   Lender may, at any time or times that an Event of Default
exists or has occurred:

                  (i)   notify any or all account debtors, Credit Card Issuers
and Credit Card Processors that the Accounts have been assigned to Lender and
that Lender has a security interest therein and Lender may direct any or all
account debtors, Credit Card Issuers and Credit Card Processors to make payments
of Accounts directly to Lender,

                  (ii)  extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or otherwise, and upon any terms
or conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations;

                  (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof or for the
negligence of its agents or attorneys with respect thereto except, for, Lender's
failure to collect or enforce the foregoing due to Lender's gross negligence or
intentional misconduct; and

                  (iv)  take whatever other action Lender may deem reasonably
necessary or desirable for the protection of its interests.

At any time that an Event of Default exists or has occurred and is continuing,
at Lender's request, all invoices and statements sent to any account debtor,
Credit Card Issuer or Credit Card Processor shall state that the Accounts due
from such account debtor, Credit Card Issuer or Credit Card Processor and such
other obligations have been assigned to Lender and are payable directly and only
to Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.

      7.3   Inventory Covenants. With respect to the Inventory:

            (a)   Borrower shall at all times maintain inventory records
reasonably satisfactory to Lender, keeping correct and accurate records
itemizing and describing the kind, type, quality and quantity of Inventory,
Borrower's cost therefor, the Retail Sales Price thereof and daily withdrawals
therefrom and additions thereto;

            (b)   Borrower shall cause a third party firm reasonably acceptable
to Lender to conduct a complete physical count of the Inventory at a minimum of
once over every twelve (12) month period (whether by cycle count or otherwise),
except, that, (i) upon the occurrence of an Event of Default which results in an
acceleration of payment of all Obligations pursuant to Section 10.2(b) hereof,
such physical count shall be conducted at any time Lender may request and (ii)
upon the occurrence of an Event of Default which does not result in such
acceleration of payment of all Obligations, such physical count shall be
conducted at any time as Lender may

                                       24


request but no more than once in any three (3) month period, and promptly
following any such physical count, such firm shall supply Lender with a report
in the form and with such specificity as may be reasonably satisfactory to
Lender concerning such physical count;

            (c)   Borrower shall not remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of Lender, except
for sales of Inventory in the ordinary course of Borrower's business and except
to move Inventory directly from one location set forth or permitted herein to
another such location;

            (d)   upon Lender's request, Borrower shall, at its expense, no more
than one time in any twelve (12) month period, but at any time or times as
Lender may request upon the occurrence of an Event of Default, deliver or cause
to be delivered to Lender written reports or appraisals as to the Inventory in
form, scope and methodology acceptable to Lender by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to rely
(with the understanding that Lender may establish Availability Reserves as
Lender may deem advisable in its reasonable discretion based upon the results of
such updated appraisals in accordance with Section 1.4 and 2.1 hereof);

            (e)   Borrower shall produce, use, store and maintain the Inventory,
with all reasonable care and caution and in accordance with applicable standards
of any insurance and in conformity with applicable laws (including, but not
limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto);

            (f)   Borrower assumes all responsibility and liability arising from
or relating to the production, use, sale or other disposition of the Inventory;

            (g)   Borrower shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate
Borrower to repurchase such Inventory with the exception of Inventory sold in
the ordinary course of Borrower's business subject to Borrower's normal and
customary return policy;

            (h)   Borrower shall keep the Inventory in good and marketable
condition;

            (i)   Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval except as set forth
on Schedule 7.3(1) hereto; and

            (j)   upon the occurrence of an Event of Default, Borrower shall not
return any Inventory to its vendors without the prior consent of Lender.

      7.4   Equipment Covenants. With respect to the Equipment:

            (a)   upon Lender's request, Borrower shall, at its expense, at any
time or times as Lender may request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender;

                                       25


            (b)   Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear excepted);

            (c)   Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws;

            (d)   the Equipment is and shall be used in Borrower's business and
not for personal, family, household or farming use;

            (e)   Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower or to
move Equipment directly from one such location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business;

            (f)   the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and

            (g)   Borrower assumes all responsibility and liability arising from
the use of the Equipment

      7.5   Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to:

            (a)   at any time an Event of Default or event with notice or
passage of time or both would constitute an Event of Default exists or has
occurred and is continuing;

                  (i)   demand payment on Accounts or other proceeds of
Inventory or other Collateral;

                  (ii)  enforce payment of Accounts, Credit Card,Receivables or
other obligations included in the Collateral by legal proceedings or otherwise;

                  (iii) exercise all of Borrower's rights and remedies to
collect any Account, Credit Card Receivables or other proceeds of Inventory or
other Collateral;

                  (iv)  sell or assign any Account upon such terms, for such
amount and at such time or times as the Lender deems advisable;

                  (v)   settle, adjust, compromise, extend or renew an Account;

                  (vi)  discharge and release any Account, Credit Card
Receivables or other obligations included in the Collateral;

                  (vii) prepare, file and sign Borrower's name on any proof of
claim in bankruptcy or other similar document against an account debtor;

                                       26


                  (viii) notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by Lender, and
open and dispose of all mail addressed to Borrower; and

                  (ix)  do all acts and things which are necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement and the
other Financing Agreements; and

            (b)   at any time, subject to the terms of the agreement(s) relating
to the Blocked Account(s) to:

                  (i)   take control in any manner of any item of payment or
proceeds thereof;

                  (ii)  have access to any lockbox or postal box into which
Borrower's mail is deposited;

                  (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations;

                  (iv)  endorse Borrower's name upon any chattel paper,
document, instrument, invoice, or similar document or agreement relating to any
Account or Credit Card Receivables or any goods pertaining thereto or any other
Collateral;

                  (v)   sign Borrower's name on any verification of Accounts or
Credit Card Receivables and notices thereof to account debtors; and

                  (vi)  execute in Borrower's name and file any UCC financing
statements or amendments thereto.

Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.

      7.6   Right to Cure. Lender may, at its option: (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower; (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral; and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
7.6 shall be without prejudice to any right to assert an Event of Default
hereunder and to proceed accordingly.

                                       27


      7.7   Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrower:

            (a)   Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after reasonable notice to
Borrower, or at any time and without notice to Borrower if an Event of Default
exists or has occurred and is continuing, for the purposes of inspecting,
verifying and auditing the Collateral and all of Borrower's books and records,
including, without limitation, the Records;

            (b)   Borrower shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request; and

            (c)   use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and Credit Card Receivables and realization of
other Collateral.

SECTION 8. REPRESENTATIONS AND WARRANTIES.

      Borrower hereby represents and warrants to Lender as of the date of the
initial funding of the Loans, the following (which shall survive the execution
and delivery of this Agreement), the truth and accuracy of which are a
continuing condition of the making of Loans and the providing of Letter of
Credit Accommodations by Lender to Borrower:

      8.1   Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.

      8.2   Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been delivered by Borrower to Lender
have been prepared consistent with previous accounting policies and practices
(which were established to enable the inclusion of the financial statements of
the Allied Fashion for Less division with and into the consolidated financial
statements of Seller, which were prepared in accordance with GAAP) and fairly
present the financial condition and the results of operations of Borrower as of
the dates and for the periods set forth therein; it being understood by Lender
that the working capital of

                                       28


Borrower as set forth in such financial statements have been calculated by the
accounting firm of Deloitte and Touche. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent financial statements furnished by Borrower to Lender prior to
the date of this Agreement.

      8.3   Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in
Schedule 8.3 hereto, subject to the right of Borrower to establish new locations
in accordance with Section 9.2 below. Schedule 8.3 correctly identifies any of
such locations which are not owned by Borrower and sets forth the owners and/or
operators thereof.

      8.4   Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.

      8.5   Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.

      8.6   Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets or business of
Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.

      8.7   Compliance with Other Agreements and Applicable Laws. Except as
otherwise set forth on Schedule 8.7 hereto, Borrower is not in default in any
material respect under, or in violation in any material respect of any of the
terms of, any agreement, contract, instrument,

                                       29


lease or other commitment to which it is a party or by which it or any of its
assets are bound and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.

      8.8   Acquisition of Purchased Assets.

            (a) The Purchase Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including the
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Purchase Agreements and the assignments to
be executed and delivered by Seller (or any of its affiliates or subsidiaries)
thereunder, and, except as set forth on Schedule 8.8 hereto, Borrower acquired
and has good and marketable title to the Purchased Assets, free and clear of all
claims, liens, pledges and encumbrances of any kind, except as permitted
hereunder.

            (b)   All actions and proceedings, required by the Purchase
Agreements, applicable law or regulation (including, but not limited to,
compliance with the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as
amended) have been taken and the transactions required thereunder have been duly
and validly taken and consummated.

            (c)   No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Purchase Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.

            (d)   Borrower has delivered, or caused to be delivered, to Lender,
true, correct and complete copies of the Purchase Agreements.

      8.9   Capitalization.

            (a)   Ninety-seven percent (97%) of the primary issued and
outstanding shares of capital stock of Borrower are directly and beneficially
owned and held by Hampshire Equity Partners II, L.P. (as successor in interest
to ING Equity Partners II, L.P.). All issued and outstanding shares of capital
stock of Borrower have been duly authorized and are fully paid and
non-assessable, free and clear of all claims, liens, pledges and encumbrances of
any kind, except as disclosed in writing to Lender.

            (b)   Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their present fair salable value are, and will be, greater than
the Indebtedness of Borrower, and including subordinated and contingent
liabilities computed at the amount which,

                                       30


to the best of Borrower's knowledge, represents an amount which can reasonably
be expected to become an actual or matured liability.

            (c)   Hampshire Equity Partners II, L.P. (as successor in interest
to ING Equity Partners II, L.P.) has on or before the date that the initial
Loans are funded hereunder, made a cash equity capital contribution to Borrower
in an aggregate amount not less than Six Million Eight Hundred Ninety-Five
Thousand Dollars ($6,895,000) as consideration for shares of capital stock of
Borrower consisting of common stock and the proceeds of such cash equity capital
contribution have been applied, contemporaneously herewith, to the purchase
price for the Purchased Assets.

      8.10  Employee Benefits.

            (a)   Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates is subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code.

            (b)   No liability to the Pension Benefit Guaranty Corporation
(other than liability for premiums) has been or is expected by Borrower to be
incurred with respect to any employee pension benefit plan of Borrower or any of
its ERISA Affiliates. There has been no reportable event (within the meaning of
Section 4043(c) of ERISA) or any other event or condition with respect to any
employee pension benefit plan of Borrower or any of its ERISA Affiliates which
presents a material risk of termination of any such plan by the Pension Benefit
Guaranty Corporation.

            (c)   Full payment has been made of all amounts which Borrower or
any of its ERISA Affiliates is required under Section 302 of ERISA and Section
412 of the Code to have paid under the terms of each employee pension benefit
plan as contributions to such plan as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, exists with respect to any such employee pension benefit
plan.

            (d)   The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits. The terms "current value" and
"accrued benefit" have the meanings specified in ERISA.

            (e)   Neither Borrower nor any of its ERISA Affiliates is or has
ever been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.

      8.11  Accuracy and Completeness of Information. All information furnished
by or on behalf of Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material

                                       31


adverse affect on the business, assets or prospects of Borrower, which has not
been fully and accurately disclosed to Lender in writing.

      8.12  Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.

SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.

      9.1   Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, trade names, approvals, authorizations, leases
and contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender forty-five (45) days prior written notice
of any proposed change in its corporate name, which notice shall set forth the
new name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.

      9.2   New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender forty-five (45)
days prior written notice of the intended opening of any such new location, and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements and, if
Borrower leases such new location, uses its best efforts to provide a landlord
waiver or subordination in form and substance reasonably satisfactory to Lender,
or, in the alternative, Lender may apply an Availability Reserve, all in a
manner consistent with the Availability Reserve established to cover rent as
defined in Section 1.4 hereof.

      9.3   Compliance with Laws, Regulations, Etc. Except as provided on
Schedule 8.7 hereto, Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.

      9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge all
taxes, assessments, contributions and governmental charges upon or against it or
its properties or

                                       32


assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books. If, at any
time, Lender assigns, or sells participations in, all or any part of the Loans,
the Letter of Credit Accommodations or any other interest herein to a foreign
financial institution or other foreign Person, Borrower shall be liable for any
tax or penalties imposed on Lender as a result of the financing arrangements
provided for herein and Borrower agrees to indemnify and hold Lender harmless
with respect to the foregoing, and to repay to Lender on demand the amount
thereof, and until paid by Borrower such amount shall be added and deemed part
of the Loans, provided, that, nothing contained herein shall be construed to
require Borrower to pay any income or franchise taxes attributable to the income
of Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.

      9.5   Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance; provided, that, so long as no Event of
Default exists or has occurred and is continuing, Lender shall not amend such
insurance so as to reduce the amounts of coverage without the consent of
Borrower. Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.

      9.6   Financial Statements and Other Information.

            (a)   Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within thirty (30) days after the end of each fiscal month, monthly
unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), all in reasonable detail, fairly presenting
the financial position and the results of the operations of

                                       33


Borrower and its subsidiaries as of the end of and through such fiscal month;
(ii) within thirty (30) days after the end of each calendar month, a
store-by-store profitability report for each of Borrower's retail locations; and
(iii) within one hundred twenty (120) days after the end of each fiscal year,
audited consolidated financial statements and, if Borrower has any subsidiaries,
audited consolidating financial statements of Borrower and its subsidiaries
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together with the
opinion of independent certified public accountants, which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to
Lender, that such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial condition of
Borrower and its subsidiaries as of the end of and for the fiscal year then
ended.

            (b)   Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.

            (c)   Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all financial reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.

            (d)   Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information in respect of the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.

           (e)   Borrower shall deliver, or cause to be delivered, to Lender,
within ninety (90) days from the date hereof, an opening balance sheet of
Borrower after giving effect to the transactions contemplated by this Agreement
and the Purchase Agreements, together with the unqualified opinion of
independent certified public accountants, which accountants shall be an
independent accounting firm selected by Borrower and reasonably acceptable to
Lender, to the effect that such opening balance sheet has been prepared in
accordance with GAAP and presents fairly the financial condition of Borrower as
of such date.

                                       34


      9.7   Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person (except for (i) sales of Inventory in the ordinary course of business,
(ii) the sale or other disposition of Equipment in the event of a store closure,
and (iii) the disposition of Equipment so long as (A) if an Event of Default
exists or has occurred and is continuing, any proceeds are paid to Lender (B)
such sales do not involve Equipment having an aggregate fair market value in
excess of One Hundred Thousand Dollars ($ 100,000) for all such Equipment
disposed of in any fiscal year of Borrower and (C) Borrower reinvests the
proceeds from the sale of such Equipment (other than worn-out or obsolete
Equipment or Equipment no longer used in the business of Borrower) to benefit
the ordinary business purpose of Borrower), or (c) form or acquire any
subsidiaries, or (d) wind up, liquidate or dissolve or (e) agree to do any of
the foregoing.

      9.8   Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) the liens and security interests of
Lender, (b) liens securing the payment of taxes, either not yet overdue or the
validity of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books; (c) security deposits in the ordinary
course of business; (d) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of Borrower's
business to the extent: (i) such liens secure indebtedness which is not overdue
or (ii) such liens secure indebtedness relating to claims or liabilities which
arc fully insured and being defended at the sole cost and expense and at the
sole risk of the insurer (subject to applicable deductibles) or being contested
in good faith by appropriate proceedings diligently pursued and available to
Borrower, in each case prior to the commencement of foreclosure or other similar
proceedings and with respect to which adequate reserves have been set aside on
its books; (e) liens in favor of credit card processors with respect to Credit
Card Receivables processed by them; (f) zoning restrictions, easements,
licenses, covenants and other restrictions affecting the use of real property
which do not interfere in any material respect with the use of such real
property or ordinary conduct of the business of Borrower as presently conducted
thereon or materially impair the value of the real property which may be subject
thereto; (g) purchase money security interests in Equipment (including capital
leases) and purchase money mortgages on real estate or other security interests
in equipment or fixtures so long as such security interests and mortgages do not
apply to any property of Borrower other than the Equipment or real estate so
acquired, and the indebtedness secured thereby does not exceed the cost of the
Equipment or real estate so acquired, as the case may be; (h) deposits of cash
with the owner or lessor of premises leased by Borrower, and (i) the security
interests and liens set forth on Schedule 8.4 hereto.

      9.9   Indebtedness. Borrower shall not incur, create, assume, become or be
liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:

            (a)   the Obligations;

                                       35


            (b)   trade obligations and normal accruals in the ordinary course
of business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;

            (c)   purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;

            (d)   unsecured indebtedness to former employees of Borrower in an
aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000) at any
time, provided, that, (i) such indebtedness shall at all times be evidenced by a
promissory note, containing terms and conditions satisfactory to Lender,
including, without limitation, a provision subordinating the right of payment of
such indebtedness to the right of Lender to receive the prior final payment and
satisfaction in full of all of the Obligations, (ii) Borrower shall not,
directly or indirectly, make any payments in respect of such indebtedness,
including, but not limited to, any prepayments or other non-mandatory payments,
except that until an Event of Default, or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have occurred
and be continuing, Borrower may make regularly scheduled payments of principal
and interest in accordance with the terms of such agreement or instrument as in
effect on the date hereof, (ii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change any terms of such indebtedness or any agreement,
document or instrument related thereto, or (B) redeem, retire, defease, purchase
or otherwise acquire such indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose, and (iii) Borrower shall furnish to Lender all
notices, demands or other materials concerning such indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be; and

            (e)   obligations or indebtedness set forth on the Information
Certificate; provided, that, (i) Borrower may only make regularly scheduled
payments of principal and interest in respect of such indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) except as otherwise permitted under this Agreement, redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrower
shall furnish to Lender all notices or demands in connection with such
indebtedness either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be.

      9.10  Loans, Investments, Guarantees, Etc. Borrower shall not, directly or
indirectly, make any loans or advance money or property to any person, or invest
in (by capital contribution, dividend or otherwise) or purchase or repurchase
the stock or indebtedness or all or a substantial part of the assets or property
of any person, or guarantee, assume, endorse, or otherwise become responsible
for (directly or indirectly) the indebtedness, performance, obligations or
dividends of any Person or agree to do any of the foregoing, except: (a) the

                                       36


endorsement of instruments for collection or deposit in the ordinary course of
usiness; (b) investments in: (i) short-term direct obligations of the United
States Government, (ii) negotiable certificates of deposit issued by any bank
satisfactory to Lender, payable to the order of the Borrower or to bearer and
delivered to Lender, and (iii) commercial paper rated Al or P1; provided, that,
as to any of the foregoing, unless waived in writing by Lender, Borrower shall
take such actions as are deemed necessary by Lender to perfect the security
interest of Lender in such investments; (c) the loan to Ted Boswell and George
Bellino in an amount not to exceed Thirty-Five Thousand Dollars ($35,000) in the
aggregate as evidenced by a promissory note; and (d) the guarantees set forth in
the Information Certificate.

      9.11  Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except Borrower may redeem shares of
capital stock owned by the management employees of Borrower, provided, that, (a)
no Event of Default exists, or has occurred and is continuing (b) no more than
Five Hundred Thousand Dollars ($500,000) is paid by Borrower to its employees in
any twelve (12) month period to redeem such stock and (c) Excess Availability is
not less than One Million Dollars ($1,000,000) after giving effect to such
redemption.

      9.12  Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person, except so
long as an Event of Default does not exist or has occurred and is continuing,
Borrower may pay Hampshire Equity Partners II, L.P. a management fee not to
exceed One Hundred Twenty Thousand Dollars ($120,000) in any fiscal year of
Borrower.

      9.13  Compliance with ERISA. Borrower shall not with respect to any
"employee pension benefit plans" maintained by Borrower or any of its ERISA
Affiliates:

            (a)   (i) terminate any of such employee pension benefit plans so as
to incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA; (ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a material
tax or penalty or other liability on prohibited transactions imposed under
Section 4975 of the Code or ERISA; (iii) fail to pay to any such employee
pension benefit plan any contribution which it is obligated to pay under Section
302 of ERISA, Section 412 of the Code the terms of such plan; (iv) allow or
suffer to exist any accumulated funding deficiency, whether or not waived, with
respect to any such employee pension benefit plan; (v) allow or suffer to exist
any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee pension benefit plan that is a single employer
plan, which termination could result in any

                                       37


material liability to the Pension Benefit Guaranty Corporation; or (vi) incur
any withdrawal liability with respect to any multiemployer pension plan.

            (b)   As used in this Section 9.13, the term "employee pension
benefit plans," "employee benefit plans," "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.

      9.14  Year 2000 Matter. The Borrower has reviewed the areas within its
business and operations which could be adversely affected by, and have developed
or are developing a program to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications used by the Borrower may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 31, 1999). Based on
such review and program, the Borrower believes that the "Year 2000 Problem", to
the extent resulting from a deficiency in the hardware or software operated by
the Borrower, will not have a material adverse effect on the Borrower, and that
such program to address the "Year 2000 Problem" shall have been resolved in all
material respects by June 30, 1999. From time to time, at the request of the
Lender, the Borrower shall provide to the Lender such updated information of
documentation as is requested regarding the status of their efforts to address
the "Year 2000 Problem".

      9.15  Adjusted Tangible Net Worth. Borrower shall, at the end of each
fiscal quarter of Borrower, maintain Adjusted Tangible Net Worth of not less
than (i) Adjusted Tangible Net Worth as calculated by Deloitte & Touche in their
opening audited balance sheet, minus (ii) One Million Two Hundred Fifty Thousand
Dollars ($1,250,000). In no event shall Adjusted Tangible Net Worth be less than
One Million Dollars ($1,000,000).

      9.16  Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable);(b) costs and expenses and
fees for title insurance and other insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees; (c) costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto; (d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (e) costs and expenses of
preserving and protecting the Collateral; (f) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including,

                                       38


without limitation, preparations for and consultations concerning any such
matters); (g) all out-of-pocket expenses and costs incurred by Lender's
examiners in the conduct of their periodic field examinations of the Collateral
and Borrower's operations, plus a per diem charge at the rate of $650 per person
per day for Lender's examiners in the field and office; and (h) the reasonable
fees and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.

      9.17  Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing on behalf of Borrower that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined that such conditions are satisfied. Where permitted by
law, Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.

SECTION 10. EVENTS OF DEFAULT AND REMEDIES.

      10.1  Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default," and collectively as "Events of Default":

            (a)   Borrower fails to pay when due any of the Obligations;

            (b)   Borrower fails to perform any of the covenants contained in
Sections 9.1, 9.2, 9.3, 9.4, 9.6, 9.13, 9.14, 9.15 and 9.16 of this Agreement
and such failure shall continue for fifteen (15) days; provided, that, such
fifteen (15) day period shall not apply in the case of: (i) any failure to
observe any such covenant which is not capable of being cured at all or within
such fifteen (15) day period or which has previously been the subject of a
prior failure within the prior twelve (12) months period or (ii) an intentional
breach by Borrower of any such covenant;

            (c)   Borrower fails to perform any of the terms, covenants,
conditions or provisions contained in this Agreement or any of the other
Financing Agreements (other than the covenants set forth in Section 10.1(b)
above) and such failure shall continue for five (5) Business Days; provided;
that, such five (5) Business Day period shall not apply in the case of: (i) any
failure to observe any such term, covenant, condition or provision which is not
capable of being cured at all or within such five (5) Business Day period or
which has previously been the subject of a prior failure within the prior twelve
(12) month period or (ii) an intentional breach by Borrower of such term,
covenant, condition or provision;

                                       39


            (d)   any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;

            (e)   any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;

            (f)   any judgment for the payment of money is rendered against
Borrower in excess of Fifty Thousand Dollars ($50,000) in any one case or in
excess of Two Hundred Thousand Dollars ($200,000) in the aggregate and shall
remain undischarged or unvacated for a period in excess of thirty (30) days or
execution shall at any time not be effectively stayed, or any material judgment
other than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets;

            (g)   Borrower or any Obligor, which is a partnership, limited
liability company, or corporation, dissolves or suspends or discontinues doing
business;

            (h)   Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;

            (i)   a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;

            (j)   a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or for all or any Obligor or any part of its
property;

            (k)   any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of One Hundred Fifty Thousand Dollars ($150,000) which
default continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;

                                       40


            (l)   Hampshire Equity Partners II, L.P. shall own or otherwise
control less than 50.1% of all issued and outstanding voting stock of Borrower;

            (m)   the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or the commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which statute or proceedings the penalties or remedies sought or
available include forfeiture of any of the property of Borrower or such
Obligor;

            (n)   there shall be a material adverse change in the business or
assets of Borrower or any Obligor after the date hereof; or

            (o)   there shall be an event of default under any of the other
Financing Agreements.

      10.2  Remedies.

            (a)   At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.

            (b)   Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation:

                  (i)   accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(i) and 10.1(j), all Obligations
shall automatically become immediately due and payable);

                  (ii)  with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral;

                  (iii) require Borrower, at Borrower's expense, to assemble and
make available to Lender any part or ail of the Collateral at any place and time
designated by Lender;

                                       41


                  (iv)  collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral;

                  (v)   remove any or all of the Collateral from any premises on
or in which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose;

                  (vi)  sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto,public or private sales at any exchange, broker's
board, at any office of Lender or elsewhere) at such prices or terms as Lender
may deem reasonable, for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any part of the Collateral at
any such public sale, all of the foregoing being free from any right or equity
of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower, and/or

                  (vii) terminate this Agreement.

If any of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any other notice. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.

            (c)   Lender shall apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in such order as Lender may elect,
whether or not then due. Borrower shall remain liable to Lender for the payment
of any deficiency with interest at the highest rate provided for herein and all
costs and expenses of collection or enforcement, including reasonable attorneys'
fees and legal expenses.

            (d)   Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice: (i)
cease making Loans or arranging Letter of Credit Accommodations or reduce the
lending formulas or amounts of Loans and Letter of Credit Accommodations
available to Borrower, and/or (ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations to be made by
Lender to Borrower.

                                       42


SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.

      11.1  Governing Law; Choice of Forum; Service of Process; Jury Trial
            Waiver.

            (a)   The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law); provided, however,
with respect to perfecting Lender's security interest and lien on the deposit
accounts of Borrower, such acts shall be governed by the Uniform Commercial Code
of the State of California (without giving effect to principles of conflicts of
law.

            (b)   Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the state courts of the County of New York, State
of New York and of the United States District Court for the Southern District of
New York and waive any objection based on venue or forum non conveniens with
respect to any action instituted therein arising under this Agreement or any of
the other Financing Agreements or in any way connected with or related or
incidental to the dealings of the parties hereto in respect of this Agreement or
any of the other Financing Agreements or the transactions related hereto or
thereto, in each case whether now existing or hereafter arising, and whether in
contract, tort, equity or otherwise, and agree that any dispute with respect to
any such matters shall be heard only in the courts described above (except that
Lender shall have the right to bring any action or proceeding against Borrower
or its property in the courts of any other jurisdiction which Lender deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against Borrower or its property).

            (c)   Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited hi the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts.

            (d)   BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS

                                       43


AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

            (e)   Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.

      11.2  Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.

      11.3  Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

      11.4  Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
reasonable fees and expenses of counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 11.4 may be
unenforceable because it violates any law or public policy, Borrower shall pay
the maximum portion which it is permitted to pay under applicable law to Lender
in satisfaction of indemnified matters under this Section. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.

                                       44


SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.

      12.1  Term.

            (a)   This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date three (3) years from the
date hereof. Regardless of the timing of termination, this Agreement and all
other Financing Agreements must be terminated simultaneously. Upon me effective
date of termination of the Financing Agreements, Borrower shall pay to Lender,
in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender in such amounts as Lender determines are reasonably
necessary to secure Lender from loss, cost, damage or expense, including
reasonable attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment Such cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
Business Day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 3:00 p.m., New York time.

            (b)   No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.

            (c)   If for any reason this Agreement is terminated prior to the
end of the then current term or any agreed upon renewal term of this Agreement,
in view of the impracticality and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits as a result thereof, Borrower agrees to pay to Lender,
upon the effective date of such termination, an early termination fee in the
amount set forth below if such termination is effective in the period indicated:



                    Amount                                                 Period
           ------------------------                     ---------------------------------------------
                                                  
(i)        1% of the Maximum Credit                     from the date of this Agreement to and
                                                        including the first anniversary of this
                                                        Agreement

(ii)       1% of the Maximum Credit                     from the day after the first anniversary
                                                        of this Agreement to and including the second
                                                        anniversary of this Agreement


                                       45




                     Amount                                             Period
           ------------------------                     ---------------------------------------
                                                  
(iii)      0.5% of the Maximum Credit                   from the day after the second
                                                        anniversary of this Agreement to and
                                                        including the end of the term of this
                                                        Agreement.


Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. Lender shall
be entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.1(i) and 10.1(j) hereof, even if Lender does
not exercise its right to terminate this Agreement, but elects, at its option,
to provide financing to Borrower or permit the use of cash collateral under the
United States Bankruptcy Code; provided, however, if Lender waives such Event of
Default, does not exercise its rights to terminate this Agreement and continues
financing Borrower, such early termination fee shall not be due and payable by
Borrower at such time. The early termination fee provided for in this Section
12.1 shall be deemed included in the Obligations.

      Notwithstanding the foregoing, the early termination fee shall be waived
(a) after the first anniversary of this Agreement, if the termination is due to
the refinancing of the Obligations by First Union National Bank and if there is
no Event of Default or event or circumstance which, with notice or passage of
time or both, would become an Event of Default under this Agreement or (b) if
Borrower chooses to exercise the right to terminate this Agreement and the other
Financing Agreements upon any assignment by Lender of its rights or obligations
under or related to this Agreement or the other Financing Agreements to a
non-U.S. Lender, defined as any Lender that is not a "United States person,"
within the meaning of Section 7701(a)(30) of the Code.

      12.2  Notices. All notices, requests and demands hereunder shall be in
writing and: (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision; and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.

      12.3  Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.

      12.4  Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and

                                       46


any other document referred to herein or therein without the prior written
consent of Lender. Lender may, after notice to Borrower, assign its rights and
delegate its obligations under this Agreement and the other Financing Agreements
(a) to any of its present and future domestic subsidiaries or affiliates that
are in the business of making loans or otherwise have arrangements for the
making of loans or (b) to the extent of the interests of Participants as
provided herein, or (c) upon the merger, consolidation, sale, transfer, or other
disposition of all or any substantial portion of its business, loan portfolio or
other assets or (d) at any time an Event of Default shall exist or have occurred
and be continuing or (e) with the consent of Borrower, which shall not be
unreasonably withheld, delayed or conditioned. In addition, Lender may sell
participations in any part of the Loans, the Letter of Credit Accommodations or
any other interest herein to another financial institution or other Person.

      12.5  Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.

      12.6  Confidentiality. Lender hereby agrees that all written or oral
information disseminated by Borrower to Lender concerning Borrower, now or
hereafter is confidential (the "Confidential Information"). The Confidential
Information: (i) shall be kept confidential by Lender and will not be disclosed,
divulged or provided to any Person without Borrower's prior written consent;
provided, however, that the Confidential Information may be disclosed: (A) to
Lender's officers and employees or any of Lender's affiliated companies'
officers and employees, independent attorneys, accountants, loan participants
and appraisers who need to know such Confidential Information for the purpose of
evaluating the financing of Borrower hereunder; or (B) if such disclosure is
required by operation of law, and (ii) shall not be deemed to include
information which: (A) is public knowledge or becomes generally available to the
public; (B) becomes available to Lender, on a non-confidential basis, from
Borrower or its agents; or (c) is in Lender's possession prior to disclosure by
Borrower.

      12.7  Publicity. Lender may publish a tombstone or similar advertising
material relating to the financing transaction contemplated by this Agreement
with Borrower's consent, which shall not be unreasonably withheld.

                                       47


            IN WITNESS WHEREOF, Lender and Borrower have caused these presents
to be duly executed as of the day and year first above written.

LENDER                                         BORROWER

CONGRESS FINANCIAL CORPORATION                 ALLIED FASHION, INC.
(SOUTHWEST)

By:/s/ Frederick P. Kiehne                     By: /s/ Olivier C. Trouveroy
   -----------------------                         ------------------------
Name:Frederick P. Kiehne                       Name:Olivier C. Trouveroy
     --------------------                           -----------------------
Title:Vice President                           Title:Executive Vice President
      -------------------                            ------------------------

Address:                                       Chief Executive Office:

1201 Main Street, Suite 1625                   102 Fahm Street
Dallas, Texas 75202                            Savannah, Georgia 31401

                                       48


                             INFORMATION CERTIFICATE
                                       OF
                              ALLIED FASHION, INC.

                                                              Dated:_______199__
Congress Financial Corporation (Western)
225 South Lake Avenue Suite 1000
Pasadena, CA 91101

In order to assist you in the continuing evaluation of the financing you are
considering for Allied Fashion Inc. ("the Corporation"), and to expedite the
preparation of any documentation which may be required, and to induce you to
provide such financing to the Corporation, we represent and warrant to you the
following information about the Corporation, its organizational structure and
other manners of interest to you:

1.    The full and exact name of the Corporation as set forth in its Certificate
      of Incorporation is: Allied Fashion, Inc.

2.    The Corporation uses and owns the following trade name(s) in the operation
      of its business (i.e. billing, advertising, etc.): (Note, do not include
      names which are product names only):

      Allied Fashion for kids, Allied Department Store, Allied Kidswear,
      Kidswear, Sugar Grove, ALady fashions, APlus Fashions, Mad Mervin's

3.    The date of incorporation of the Corporation was March 3, 1999, under the
      laws of the State of Delaware, and the Corporation is in good standing
      under those laws.

      Check one: Correct [X] Incorrect[ ]. If incorrect, explain:
      __________________________________________________________________________
      __________________________________________________________________________

4.    The Corporation has never been involved in a bankruptcy or reorganization.
      Check one: Correct[X] Incorrect[ ]. If incorrect, explain:
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________

5.    The Corporation is duly qualified and authorized to transact business as a
      foreign corporation in the following states and is in good standing in
      such states:

      Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina, South
      Carolina

                                       1


6.    Since the date of incorporation, the corporate name of the Corporation has
      been changed as follows: Check, if appropriate: Not Applicable [X]

7.    Since the date of incorporation, the Corporation has made or entered into
      the following mergers or acquisitions: Check. if appropriate: None,
      Acquisition of the Allied Division of Variety Wholesalers, Inc., as of
      the date hereof.

8.    The chief executive office of the Corporation is located at:
      102 Fahm Street,    Savannah   6A

9:    The books and records of the Corporation pertaining to accounts, contract
      rights, inventory, etc. are located at (if other than the chief executive
      office referred to in Section 7 above):
      102 Fahm Street     Savannah   6A

10.   The Corporation has other places of business and/or maintains inventory or
      other assets at the following addresses (indicate whether locations are:
      owned, leased or operated by third parties and if leased or operated by
      third parties, their names and addresses): See Exhibit A attached here to.

                                       2


11.   Listed below is a complete list of real property owned by the Corporation
      with all respective trust deeds or mortgages against the properties.
      Check if appropriate: No real property owned [X].

12.   The places of business or other locations of any assets utilized by the
      Corporation during the last four (4) months other than those listed
      above are as follows: None

                              
Street Address    City      State      County
Street Address    City      State      County
Street Address    City      State      County


13.   The Corporation is affiliated with, or has ownership in, the following
      corporations (including subsidiaries): None



               Chief          Jurisdiction        Ownership       Fed Tax
Exact          Executive           of             Percentage or   ID
Name           Office         Incorporation       Relationship    Number
- ------         ---------      -------------       -------------   -------
                                                      
______         _________      _____________       _____________   _______
______         _________      _____________       _____________   _______
______         _________      _____________       _____________   _______


14.   The Federal Employer Identification Number of the Corporation is as
      follows 52-2150697

15.   There is no provision in the Certificate of Incorporation or By-laws of
      the Corporation, or in the laws of the State of its incorporation,
      requiring any vote or consent of shareholders to borrow or to authorize
      the mortgage or pledge of or creation of a security interest in any assets
      of the Corporation or any subsidiary. Such power is vested exclusively in
      its Board of Directors. Check one: Correct [X] Incorrect[ ]. If incorrect,
      explain:__________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________

                                       3


16.   The primary officers of the Corporation and their respective titles are as
      follows:

      Title                                     Name
      -----                                     ----
      President & CEO                           George Bellino
      Assistant Secretary, Executive VP         Olivier Trouveroy
      CFO, Secretary                            Ted Boswell

      The following will have signatory powers as to all of your transaction
      with the Corporation:
      Olivier Trouveroy, George Bellino, Ted Boswell

17.   With respect to the officers noted above, such officers are affiliated
      with or have ownership in the following corporations: If none, check here
      See Exhibit B attached here to.



 Officer's Name           Corporate Name       Type of Business   %
  Ownership
                                                         
______________            ______________       _______________    ______
______________            ______________       _______________    ______
______________            ______________       _______________    ______


18.   The members of the Board of Directors of the Corporation are:
      Olivier Trouveroy
      _________________
      _________________
      _________________
      _________________
      _________________
      _________________

19.   The name of the stockholders of the Corporation and their stock holdings
      are as follows (if stock is widely held indicate only stockholders owning
      10% or more of the voting stock):



Name                      No. of Shares             % Ownership
- ------------------        -------------             -----------
                                              
Hampshire Equity
Partners  II,.L.P.             339,500                     97.3%
                          _____________             ___________
George Bellino                   7,500                     1.93%
                          _____________             ___________
Ted Boswell                      3,000                     0.77%


                                       4


20.   There are no pending or threatened judgments and there is no pending or
      threatened litigation by or against the Corporation, its subsidiaries
      and/or affiliates or any of its officers/principals.
      Check one : Correct [X] Incorrect [ ]. If incorrect, explain
      exceptions :______________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________

21.   At the present time, there are no delinquent taxes due (including, but not
      limited to, all payroll taxes, personal property taxes).
      Check one: Correct [X] Incorrect [ ]. If incorrect, explain
      exceptions :______________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________

22.   The Corporation's assets are owned and held free and clear of any security
      interests, liens or attachments.
      Check one: Correct [ ] Incorrect [X]. If incorrect, list below:



   Lienholder                 Assets            Amount of Debt Secured
- ----------------        ------------------     ------------------------
                                         
Statutory Landlords Liens in the State where qualified to do business
________________        __________________     ________________________
________________        __________________     ________________________
________________        __________________     ________________________


23.   The Corporation has not guaranteed and is not otherwise liable for the
      obligations of others.
      Check one: Correct [X] Incorrect [ ]. If incorrect, explain:
      __________________________________________________________________________
      __________________________________________________________________________
      __________________________________________________________________________

24.   The Corporation does not own or license any trademarks, patents, copyright
      or other intellectual property.
      Check one: Correct [ ] Incorrect [X]. If incorrect, indicate the type of
      intellectual property and whether owned or licensed, registration number,
      date of registration, and if licensed, the name and address of the
      licensor:

      Trademark Applications for Allied Fashion for Less (751,512,682) and
      Allied Department Stores (751,512,681)

25.   The Corporation's fiscal year end is: December 31

                                       5


26.   With regard to any pension or profit sharing plan; N/A

      (a.)  A determination as to qualification has been issued: Yes [ ] No [ ].
      (b.)  Funding is on a current basis and in compliance with established
            requirements:Yes [ ] No [ ].

27.   The Certified Public Accounting firm for the Corporation is:

      Name of firm Deloitte & Touche LLP
      Address 191 Peachtree Street, St. 1500, Atlanta, GA 30303
      Patrner handling relationship Roger Herndon
      Phone Number 404-220-1864
      Were financial statements uncertified for any fiscal year Yes [ ] No [X].

28.   The law firm for the Corporation is:

      Name of firm Mayer, Brown & Platt
      Address 1675 Broadway, New York, NY 10019
      Partner handling relationship Kathleen A. Walsh
      Phone Number 212-506-2500

29.   The name of all insurers, who have issued policies of insurance to the
      Corporation, their address, the number of the policy and the nature of the
      insurance coverage provided are as follows:

      See Exhibit D attached hereto.



  Insurer         Address            Policy No.           Nature of Coverage
                                                 
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________


30.   The following are all banks or savings institutions at which the
      Corporation and its subsidiaries maintain deposit accounts:

      See Exhibit C attached hereto.



                                                                 Corporation or
Institution        Account Number        Branch Address            Subsidiary
- -----------        --------------        --------------          --------------
                                                        
____________       ______________        ______________          ______________
____________       ______________        ______________          ______________
____________       ______________        ______________          ______________


                                       6


31.   Prompt written notice will be given to you of any change or amendment with
      respect to any of the foregoing. Until such notice is received by you. you
      shall be entitled to rely upon the foregoing in all respects.

      CORPORATE SEAL TO BE                            Very Truly Yours.
      AFFIXED HEREIN BELOW
                                                      ALLIED FASHION, INC.

                                                      By: George Bellino
                                                      Title: President



                                                                       EXHIBIT A

      Collateral Locations



  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    02/                 203 N PARLER AVE.
    501                ST. GEORGE, SC 29477
                           843 563-3539

    07/                 215 S PALMETTO AVE.
    505                  DENMARK, SC 29042
                            803 793-3171

    11/                   323 COTTON AVE.
    508                  MILLEN, GA 30442
                          JENKINS COUNTY
                           912 982-1534

    12/                CARTER SHOPPING PLAZA
    509                   1922 BURR STREET
                        BARNWELL, SC 29812
                          BARNWELL COUNTY
                           803 259-3946

    13/               201-203 W BROUGHTON ST.
    510                 SAVANNAH, GA 31401
                           912 234-3342

    16/                  122 N MAIN STREET
    513                   BAXLEY,GA 31513
                           912 367-4464

    19/                WESTSIDE SHOPPING CTR
    649                      HIGHWAY 80
                        GARDEN CITY,GA 31408
                            912 966-5009

    20/                   16 RIGBY STREET
    515                  MANNING, SC 29102
                           803 435-8731

    21/                703-707 LIBERTY STREET
    516                WAYNESBORO, GA 30830
                           706 554-2348

    22/                  108 W. BROAD STREET
    517                 LOUISVILLE, GA 30434
                             912 625-7419

    23/                    107 W. BARNARD
    518                 GLENNVILLE, GA 30427
                            912 654-2220

    25/                  722 SPRING STREET
    520                  SPARTA, GA 31087
                           706 444-6941






  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    55/                    20 BROAD STREET
    542                   CAMILLA, GA 31730
                             912 336-7427

    56/                  12 WASHINGTON STREET
    543                    QUINCY, FL 32351
                             850 627-3254

    57/                   115 E. MAIN STREET
    544                  KINGSTREE, SC 29556
                             803 354-9756

    58/                  149 S. BROAD STREET
    545                     CARIO, GA 31728
                             912 377-8366

    63/                 100 W. JACKSON STREET
    547                    DUBLIN, GA 31021
                             912 275-2399

    65/                    315 MAIN STREET
    549                   MONCKS CORNER, SC
                                29461
                            843 761-8687

    67/                   120 S. MAIN STREET
    551                    BLAKELY,GA 31723
                             912 723-8715

    69/                NAPIER SQ. SHOPPING CTR
    552                   949 HILLCREST BLVD
                           MACON, GA 31204
                             912 742-3018

    70/                    SOUTH GATE PLAZA
    553                   1631 GORDON H-WAY
                          AUGUSTA, GA 30906
                             706 790-5982

    71/                4121-B W. BELTLINE BLVD
    554                      EDENS PLAZA
                          COLUMBIA,SC 29204
                             803 256-2719

    72/                 317-321 N. MAIN STREET
    555                    MARION, SC 29571
                             803 423-4036

    73/                 3 LEWIS SMITH SHOP/CTR
    556                  WHITEVILLE, NC 28472
                             910 642-2191

    76/                   112 S. MAIN STREET
    557                   TUSKEGEE, AL 36083
                             334 727-9455






  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    27/                   115 LEE AVENUE
    522                  HAMPTON, SC 29924
                          HAMPTON COUNTY
                           803 943-2644

    30/                104-108 W. BROAD STREET
    525                     P.O. BOX 387
                        HEMINGWAY, SC 29554
                            803 558-5019

    34/                    458 LEE STREET
    527                  JOHNSTON, SC 29832
                            803 275-2342

    35/                   8-20 OAK STREET
    528                  JACKSON, GA 30233
                           770 775-2333

    36/                   136 RUSSEL STREET
    529                 ORANGEBURG, SC 29115
                            803 534-0670

    40/                   135 MAIN STREET
    531                 FT. VALLEY, GA 31030
                            912 825-8162

    41/                   930 FRONT STREET
    532                 GEORGETOWN, SC 29440
                            803 546-5469

    42/                 112 W. MAIN STREET
    533                  DILLON, SC 29536
                           843 774-6331

    44/                   6 S. MAIN STREET
    535                  MOULTRIE, GA 31768
                            912 985-3310

    45/                 201 E. SCREVEN STREET
    536                   QUITMAN, GA 31643
                             912 263-7774

    47/                  146 MARKET STREET
    537                  CHERA W, SC 29520
                           843 537-2568

    49/                 205 WASHINGTON STREET
    538                 WALTERBORO, SC 29488
                            803 549-5813

    52/                  117 W. 11TH AVENUE
    540                   CORDELE.GA 31015
                            912 273-1014

    53/                 EDISTO VILLAGE H-WAY
    648                         301
                         ORANGEBURG.SC 29115
                            803 536-6548






  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    91/                   NORTHSIDE SHOPPING
    645                          CTR
                          3599 N. PATTERSON
                        AVE. WINSTON-SALEM, NC
                                27105
                             336 767-7688

    120/               FIVE POINT SHOPPING CTR
    574                    3144-A N. ASHLEY
                                STREET
                          VALDOSTA,GA 31602
                             912 244-8551

    121/                PERLIS PLAZA SHOPPING
    575                          CTR
                        1536 E. FORSYTH STREET
                          AMERICUS, GA 31709
                             912 928-3341

    123/               TRI-CITIES SHOPPING CTR
    577                  3206 E. MAIN STREET
                         EASTPOINT, GA 30344
                            FULTON COUNTY
                             404 762-6533

    128/                EASTGATE SHOPPING CTR
    608                     LA HIGHWAY 10
                        FRANKLINTON, LA 70438
                             504 839-5527

    130/                  810 US HWY 64 EAST
    606                   PLYMOUTH, NC 27962
                             252 793-3578

    132/                  601 W. MAIN STREET
    609                  WEST POINT, MS 39773
                             601 494-5436

    133/              112-114 N. CENTER STREET
    610                 GOLDSBORO, NC 27530
                            919 580-1179


                                      -5-




  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    77/                    NORTHWAY PLAZA
    558                  5112 FAIRFIELD ROAD
                         COLUMBIA, SC 29204
                            803 754-2451

    78/                   20 N. MAIN STREET
    559                    SUMTER, SC 29150
                            803 775-2986

    79/                 344-A NORTHEAST BLVD
    636                   CLINTON, NC 28328
                            910 590-3664

    81/                 150 N. DARGAN STREET
    561                  FLORENCE, SC 29501
                            843 667-4255

    83/                   GREENVILLE BUYERS
    639                        MARKET
                           MEMORIAL DRIVE
                        GREENVILLE, NC 27834
                            919 355-0945

    84/                225-227 E. NASH STREET
    562                   WILSON, NC 27893
                            252 291-8937

    86/                  SUMMIT SHOPPING CTR
    643                   940 SUMMIT AVENUE
                        GREENSBORO, NC 27405
                            336 691-9880

    87/                    502 13TH STREET
    564                     PHENIX PLAZA
                        PHENIX CITY, AL 36867
                             334 297-2542

    88/                  483-485 KING STREET
    565                 CHARLESTON, SC 29403
                            843 577-6786

    89/                  5451 NORWOOD AVENUE
    566                     NORWOOD PLAZA
                       JACKSONVILLE, FL 32208
                            904 768-6976

    90/                    SHIPWATCH PLAZA
    567                  3655 RIVERS AVENUE
                       N. CHARLESTON, SC 29405
                            803 554-9055


                                      -4-




  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    137/                    TRIANGLE MART
    583                       SHOP/CTR
                         4547 N. STATE STREET
                          JACKSON, MS 39206
                            601 982-2781

    139/                GATEWAY SHOPPING CTR
    585                 201 N. ALABAMA STREET
                         COLUMBUS, MS 39701
                           LOWNDES COUNTY
                            601 328-8259

    141/                 COPIAH TRADE CENTER
    647                  664 CALDWELL DRIVE
                        HAZLEHURST, MS 39083
                            601 894-2295

    142/                    MAGNOLIA MALL
    588                 261 DEVEREAUX DR/SUITE
                                  14
                          NATCHEZ, MS 39120
                             601 446-9543

    144/                  415 HOWARD STREET
    651                  GREENWOOD, MS 38930
                            601 455-5461

    145/                 421 COLUMBIA STREET
    653                  BOGALUSA, LA 70427
                           (504) 735-8181

    147/                 138 NORTH HARVEY ST
    655                   GOYER SHP CENTER
                        GREENVILLE, MS 38701
                            (601)332-4880

    148/                 PIKE CTR MART SHPNG
    591                          CTR
                          MCCOMB, MS 39648
                            601 684-4142

    150/                 DEEPSOUTH SHOPPING
    592                          CTR
                         1702 DENNY AVENUE
                        PASCAGOULA, MS 39567
                            228 762-6825

    154/                NICHOLS SHOPPING CTR
    595                509 SAINT MARYS STREET
                         THIBODAUX, LA 70301
                            504 446-5573






  STORE NO.                   LOCATION
- ------------          -------------------------
                   
    156/                 BAKER PLAZA SHPNG/CTR
    596                    2080 MAIN STREET
                           BAKER, LA 70714
                             225 778-1920

    157/                   RIVERVIEW PLAZA
    597                  25027 HIGHWAY 1 SOUTH
                         PLAQUEMINE, LA 70764
                           IBERVILLE PARISH
                             504 687-6436

    158/                    720 MAIN STREET
    591                   FRANKLIN, LA 70538
                             318 828-0495

    161/                 VISTA VILLAGE SHPING
    600                           CTR
                         688 E. CRESWELL LANE
                         OPELOUSAS, LA 70570
                           ST. LANDRY PARISH
                             318 942-4904

    162/                     PARKVIEW PLAZA
    601                          SQUARE
                            SHOPPING CENTER
                          623 W. LINCOLN ROAD
                         VILLE PLATTE, LA 70586
                              318 363-3868

    164/                  N. PARK SHOPPING CTR
    602                    1504 N. PARKERSON
                                 AVENUE
                            CROLEY, LA 70526
                             ACADIA PARISH
                              318 783-2045

    166/                    DELMONT VILLAGE
    652                        SHOPPING
                        CENTER 5151 PLANK ROAD
                               SUITE 1 F
                         BATON ROUGE, LA 70805
                             225 356-5950

    169/                  SOUTHGATE SHOPPING
    604                           CTR
                         311-A S. SLAPPY BLVD
                            ALBANY, GA 31707
                             912 439-0047

    172/                    100 MAIN STREET
    615                 BISHOPVILLE,  SC 29010
                              LEE COUNTY
                             803 484-4102





 STORE
  NO.                LOCATION
- -------    ----------------------------
        
176/          1323 E. MEMORIAL DRIVE
619                USA HWY 13
                 AHOSKIE, NC 27910
                   252 332-6557

180/            HWY 15/401 BYPASS
623           BENNETTSVILLE, SC 29512
                   843 479-3402

184/            210 SECOND STREET
627              COCHRAN, GA 31014
                  BECKLEY COUNTY
                   912 934-2174

185/             4122 MAIN STREET
628               LORIS, SC 29569
                   803 756-0256

186/            125 W. MAIN STREET
629            WILLIAMSTON, NC 27892
                   252 792-2101

187/           MART 51 SHOPPING CTR
630              1700 TERRY ROAD
                 JACKSON, MS 39204
                   601 352-7615

188/            206 S. MAIN STREET
635            ROCKY MOUNT, NC 27801
                   252 972-6802

189/           1221 W. BASE STREET
631              MADISON, FL 32340
                   850 973-3303



                                                                       EXHIBIT B

                                    Officer Affiliations

Olivier Trouveroy is a principal of Hampshire Equity Partners, which controls
several investment funds, including the sole shareholder of Allied Fashion, Inc.
Through its investment funds, Hampshire Equity Partners holds investments in
many corporations. In addition, Olivier Trouveroy is a director of two public
companies, Cost Plus, Inc. and E.Spire Communications, Inc.


                                DEPOSIT ACCOUNTS



Store     STORE NAME        Account #     Routing #          Name                 Phone
                                                                
  30   HEMINGWAY, SC          550121966   053207054  Anderson State Bank       843-558-2511
  41   GEORGETOWN, SC         120263819   053200019  Wachovia                  843-527-6200
  42   DILLION, SC             79002379   053202240  Carolina Community        843 8410444
  57   KINGSTREE, SC          620018366   053207685  Williamsburg First Nat    843-354-6101
  72   MARION, SC             530216423   053201720  Anchor Bank               843-431-1000
  73   WHITEVILLE, NC        5115058888   053101121  Branch Banking & Turst    910-914-9945
  79   CLINTON, NC         002412560394   053100300  1st Citizens Bank         910-590-5340
  81   FLORENCE, SC       2000006213488   053207766  First Union               843-664-2900
 133   GOLDSBORO, NC         1692428545   053100300  1st Citizens Bank         919-705-2260
 172   BISHOPVILLE, SC     270002849701   053906041  1st Citizens Bank         803-484-4257
 185   LORIS, SC             5121851271   053201607  Branch Banking & Turst    843-756-4091

   7   DENMARK. SC            070074695   053200983  First National Bank       803-793-3324
  12   BARNWELL, SC        240001187601   053906041  1st Citizens              803-259-356
  20   MANNING, SC         020214475301   053200666  NBSC                      803-435-5100
  36   ORANGEBURG, SC     2000006211891   053207766  First Union               803-533-4400
  53   ORANGEBURG, SC         213000768   053201924  Orangeburg National Bank  803-531-5566
  65   MONCKS CORNER, S       240063818   053200019  Wachovia                  843-761-8030
  71   COLUMBIA, SC          3521432401   053200666  NBSC                      803-256-6303
  77   COLUMBIA, SC         80047634301   053906041  1st Citizens              803-733-2079
  78   SUMTER, SC             760203547   053200019  Wachovia                  803-778-7718
  88   CHARLESTON, SC      079019396501   053906041  1st Citizens              843-722-5835
  90   N. CHARLESTON, SC   079019284301   053201487  1st Citizens              843-747-1180

   2   ST. GEORGE, SC      710000726401   053906041  1st Citizens              843-563-3011
  11   MILLEN, GA                150913   061103975  Ogeechee Valley           912-982-5700
  13   SAVANNAH, GA        200002704687   061200030  First Union               1-800-566-3862
  16   BAXLEY, GA            9800294648   061200878  Baxley Suntrust           912-367-8972
  19   GARDEN CITY, GA    2000006211943   061000227  First Union               1-800-566-3862
  21   WAYNESBORO, GA           0524440   061202245  First National            706-554-8100
  23   GLENNVILLE, GA             40741   061204683  Glennville Bank Trust     912-654-3471
  27   HAMPTON, SC           0069013538   053202596  Palmetto State Bank       803-943-2671
  49   WALTERBORO, SC         890025448  0653200983  First National            843-549-1553
  63   DUBLIN, GA                127118   061205938  Dublin Bank of Dudley     912-275-4980


                                      -1-




                                                            
184  COCHRAN, GA              0201582   061210237  Cochran Sale Bank       912-934-4501

 22  LOUISVILLE, GA            136882   061103975  1st National Bank       912-625-2000
 25  SPARTA, GA               0019144   061107146  Bank of Hancock         706-444-5781
 34  JOHNSTON, SC        470001234901   053201487  1st Citizens            803-275-2354
 35  JACKSON, GA         003251604320   061000052  National Bank           770-775-7178
 40  FT. VALLEY, GA    00000088641726  0261170070  1st Liberty Bank        912-825-7721
 69  MACON, GA          0003601134004   061100473  Suntrust Bank           912-751-5731
 70  AUGUSTA, GA            501138580   061100334  Suntrust Bank           706-821-2005
 76  TUSKEGEE , AL            5024374   062205665  Alabama Exchange        334-727-1730
 87  PHENIX CITY, AL        061100606      142298  CB&T Bank               334-291-3368
123  EASTPOINT, GA       003261259305   061000052  National Bank           404-765-1958

 44  MOULTRIE, GA          0170293901   061202025  Southwest Bank          912-985-1120
 45  QUITMAN, GA              0119115   061201851  Heritage Bank           912-263-7525
 52  CORDELE, GA              0183301  0621210965  Cordele Banking         912-276-2470
 55  CAMILLA, GA               045640   061202957  Planters Bank           912-336-5271
 56  QUINCY, FL             176318501   063100882  Qunicy State Bank       850-875-1000
 58  CARIO, GA             1626961301   061203338  Citizens Bank
 67  BLAKLEY, GA                45640   061212002  Bank of Early           912-723-3101
120  VALDOSTA, GA        003251835718     0610052  Nations Bank            912-249-5041
121  AMERICUS, GA             0049229   061202410  Sumter Bank & Trust
169  ALBANY, GA            6967021879   061101375  Regents Bank            912-432-8417
189  MADISON, FL         003063631439   063000047  Nations Bank            850-973-4126

142  NATCHEZ, MS           5200377240   065305436  Deposit Guaranty
150  PASCAGOULA, MS           1092855   065301362  Merchants Marine        228-762-3311
154  THIBODAUX, LA         9500008355   065404913  Union Planters Bank     504-446-8161
156  BAKER, LA              882105237   065000090  Hibernia Bank           225-381-2041
157  PLAQUEMINE, LA            618520   065403150  Citizens Bank & Trust   225-687-6897
158  FRANKLIN, LA           001135546   065400713  St Marys Bank           318-828-0560
161  OPELOUSAS, LA            0169811   065205031  American Bank           318-948-3056
162  VILLE PLATTE, LA       011875159   065204977  American Security Bank  318-363-5602
164  CROWLEY, LA             50905315   065200528  Bank Of Commerce        318-7884805



                                      -2-




                                                       
166  BATON ROUGE, LA     882105334    065000090  Hibernia Bank

128  FRANKLINTON, LA     011622129   0065400153  Hancock Bank         504-839-9821
132  WEST POINT, MS       60350436    084201278  Bank Of Mississippi  601-495-1000
137  JACKSON, NS        1007177678    065300279  Trustmark            601-354-5040
139  COLUMBUS, MS       8808306920    065300279  Trust mark           601-354-5040
141  HAZLEHURST, MS        6331656    065301744  Copiah Bank          601-894-3930
144  GREENWOOD, MS       394056-01  00842-00981  Bank of Commerce     601-453-4142
145  BOGALUSA, LA       8520005227     06500090  Hibernia Bank
147  GREENVILLE, MS     7006698484    065300279  Trustmark            601-334-8433
148  MCCOMB, MS         4502220481    065300279  Trust mark           601-249-1116
187  JACKSON, MS        5200396933    064000017  Deposit Guaranty     601-960-6462

 47  CHERAW, SC          700073547    053200019  Wachovia             843-921-6500
*83  GREENVILLE, NC     3602010281    053101529  Wachovia             252-758-8369
 84  WILSON, NC         5212711421    053101121  BB& T Bank
 86  GREENSBORO, NC     5112951190    053101121  BB&T                 336-733-0105
 91  WINSTON SALEM, NC  5112951204    053101121  BB&T                 336-733-0105
130  PLYMOUTH, NC       7210024084    053111852  Triangle Bank        252-793-9031
176  AHOSKIE, NC        0126001983    053100494  Wachovia Carolina    252-332-7250
I80  BENNETTSVILLE, SC  0701125819    053207216  Bank                 843-479-4141
186  WILLIAMSTON, NC    8540002886    053101529  Wachovia             252-809-4002
188  ROCKY MOUNT, NC    0450004754    053100850  Centura Bank         888-738-2455


                                      -3-


                                                                 DATE (MM/DD/YY)
ACORD CERTIFICATE OF LIABILITY INSURANCE                                 4/13/99

PRODUCER                                 THIS CERTIFICATE IS ISSUED AS MATTER OF
  Aon Risk Services Inc of NY            INFORMATION ONLY AND CONFERS NO RIGHTS
  Two World Trade Center                 UPON THE CERTIFIED HOLDER. THIS
  New York, NY 10048                     CERTIFICATE DOES NOT AMEND, EXTEND OF
                                         ALTER THE COVERAGE AFFORDED BY THE
                                         POLICIES BELOW

                                                COMPANIES AFFORDING COVERAGE

                                         COMPANY

  212-441-1000                              A        American Home Assurance Co.

INSURED                                  COMPANY
  Allied Fashion, Inc.                      B        CIGNA
  102 Fahm Street                        COMPANY
  Savannah, GA 31401                        C
                                         COMPANY
                                            D

COVERAGE

   THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN
   ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED.
   NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER
   DOCUMENT WITH RESPECT TO WHICH THE CERTIFICATE MAY BE ISSUED OR MAY PERTAIN,
   THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL
   THE TERM EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE
   BEEN REDUCED BY PAID CLAIMS.



CO                                                    POLICY EFFECTIVE  POLICY EXPIRATION
LTR          TYPE OF INSURANCE         POLICY NUMBER   DATE (MM/DD/YY)   DATE (MM/DD/YY)                     LIMITS
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                                 
     GENERAL LIABILITY                                                                     GENERAL AGGREGATE       $ 2,000,000
A    [X] COMMERCIAL GENERAL LIABILITY  6122694            4/15/99            4/15/00       PRODUCTS-COMP/OP AGG    $ 1,000,000
     [ ] [ ] CLAIMS MADE [X] OCCUR                                                         PERSONAL & ADV INJURY   $ 1,000,000
     [ ] OWNER'S & CONTRACTOR'S FROT                                                       EACH OCCURRENCE         $ 1,000,000
     [ ] ___________________________                                                       FIRE DAMAGE (Any one
                                                                                             fire)                 $   100,000
     [ ]                                                                                   MED EXP (Any one
                                                                                             person)               $    10,000

     AUTOMOBILE LIABILITY
A    [X] ANY AUTO                      3209890            4/15/99            4/15/00       COMBINED SINGLE LIMIT   $ 1,000,000
     [ ] ALL OWNED AUTOS                                                                   BODILY INJURY
                                                                                            (Per Person)           $
     [ ] SCHEDULED AUTOS                                                                   BODILY INJURY
                                                                                            (Per Accident)         $
     [ ] HIRED AUTOS
     [ ] NON-OWNED AUTOS
     [ ] ___________________________
     [ ]                                                                                   PROPERTY DAMAGE         $

     GARAGE LIABILITY                                                                      AUTO ONLY -EA
                                                                                            ACCIDENT               $
     [ ] ANY AUTO                                                                          OTHER THAN AUTO ONLY
     [ ] _____________________                                                                    EACH ACCIDENT    $
     [ ]                                                                                              AGGREGATE    $

     EXCESS LIABILITY                                                                      EACH OCCURRENCE         $10,000,000
B    [X] UMBRELLA FORM                                                                     AGGREGATE               $10,000,000
     [ ] OTHER THAN UMBRELLA FORM      TBD                4/15/99            4/15/00                               $

     WORKERS COMPENSATION AND                                                              [X] WC STATUTORY   OTHER
     EMPLOYER'S LIABILITY              3479346            4/15/99            4/15/00           LIMITS
A    THE PROPRIETOR      [ ] INCL                                                          EL EACH ACCIDENT        $ 1,000,000
     PARTNERS/EXECUTIVE  [ ] EXCL                                                          EL DISEASE - POLICY
                                                                                             LIMIT                 $ 1,000,000
     OFFICERS ARE:                                                                         EL DISEASE - EA
                                                                                             EMPLOYEE              $ 1,000,000

     OTHER


DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS

   Congress Financial Corporation (Southwest), as lender is named as an
   additional insured.

CERTIFICATE HOLDER                 CANCELLATION

   Congress Financial              SHOULD ANY OF THE ABOVE DESCRIBED POLICIES
   Corporation (Southwest)         BE CANCELLED BEFORE THE EXPIRATION DATE
   1201 Main Street, Suite 1625    THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO
   Dallas, TX 75202                MAIL 30 DAYS WRITTEN NOTICE TO THE
                                   CERTIFICATE HOLDER NAMED TO THE LEFT. BUT
                                   FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO
                                   OBLIGATION OR LIABILITY OF ANY KIND UPON THE
                                   COMPANY, ITS AGENTS OR REPRESENTATIVES.

                                   AUTHORIZED REPRESENTATIVE           337725000

                                   /s/ Deirdre Linky

ACORD 25,9



                                                                 DATE (MM/DD/YY)
ACORD. EVIDENCE OF PROPERTY INSURANCE                                   4/02/99

THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY.



PRODUCER            PHONE              COMPANY
                                    
                    (A/C NO. Ext.)
         Aon Risk Services Inc of NY       Security Insurance Company
         Two World Trade Center            of Hartford
         New York, NY 10048                TIG Insurance Company
                                           Zurich Insurance Company
CODE:                SUB CODE:
AGENCY
CUSTOMER ID:

INSURED  Allied Fashion, Inc.          LOAN NUMBER     POLICY NUMBER
         102 Fahm Street                                 COPG13583
         Savannah, GA 31401            EFFECTIVE DATE  EXPIRATION DATE       CONTINUED UNTIL
                                          4/13/99/        4/13/00        [ ] TERMINATED IF CHECKED

                                       THIS REPLACES PRIOR EVIDENCE DATED:


PROPERTY INFORMATION
LOCATION/DESCRIPTION

COVERAGE INFORMATION



COVERAGE/PERILS/FORMS                  AMOUNT OF INSURANCE             DEDUCTABLE
- ---------------------------------------------------------------------------------
                                                                 
All Risk Property                         10,000,000
subject to policy terms,
conditions & exclusions

Contingent Business
Interruption                                 100,000


REMARKS (Including Special Conditions)

   Congress Financial Corporation (Southwest), as lender, is hereby named as a
   loss payee and/or additional insured as its interests may appear.

CANCELLATION

   THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH
   POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE
   ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICE, AND WILL SEND
   NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN
   ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.

ADDITIONAL INTEREST

NAME AND ADDRESS                   [ ] MORTGAGEE        [X] ADDITIONAL INSURED
                                   [X] LOSS PAYEE       [ ]
   Congress Financial Corporation  LOAN'
   (Southwest)-Suite 1625          AUTHORIZED REPRESENTATIVE
   1201 Main Street                     /s/
   Dallas, TX 75202


                 Lender's Loss Payable Endorsement- Form 438 BFU

1     Loss or damage, if any, under this policy shall be paid to CONGRESS
      FINANCIAL CORPORATION (SOUTHWEST), 1201 MAIN STREET, SUITE 1625, DALLAS,
      TX 75202, its assigns, as agent, its successors and assigns, hereinafter
      referred to as "the Lender" in whatever form or capacity its interests may
      appear and whether said interest be vested in said Lender in its
      individual or in its disclosed or undisclosed fiduciary or representative
      capacity, or otherwise, or vested in a nominee or trustee of said Lender.

2     The insurance under this policy, or any rider or endorsement attached
      thereto, as to the interest only of the Lender, its successors and
      assigns, shall not be invalidated nor suspended: (a) by any error,
      omission, or change respecting the ownership, description, possession, or
      location of the subject of the insurance or interest therein, or the title
      thereto; (b) by the commencement of foreclosure proceedings or the giving
      of notice of sale of any of the property covered by this policy by virtue
      of any mortgage or trust deed; (c) by any breach of warranty, act,
      omission, neglect, or non-compliance with any of the provisions of this
      policy, including any and all riders now or hereafter attached thereto, by
      the named insured, the borrower, mortgagor, trustor, vendee, owner,
      tenant, warehouseman, custodian, occupant, or by the agents of either or
      any of them or by the happening of any event permitted by them or either
      of them, or their agents or which they failed to prevent whether occurring
      before or after the attachment of this endorsement, or whether before or
      after a loss, which under the provisions of this policy of insurance or of
      any rider or endorsement attached thereto would invalidate or suspend the
      insurance as to the named insured, excluding herefrom, however, any acts
      or omissions of the lender while exercising active control and management
      of the property.

3     In the event of failure of the insured to pay any premium or additional
      premium which shall be or become due under the terms of this policy or on
      account of any change in occupancy or increase in hazard not permitted by
      this policy, this Company agrees to give written notice to the Lender of
      such non-payment or premium after sixty (60) days from and within one
      hundred and twenty (120) days after due date of such premium and it is a
      condition of the continuance of the rights of the Lender hereunder that
      the Lender when so notified in writing by this Company of the failure of
      the insured to pay such premium shall pay or cause to be paid the premium
      due within ten (10) days following receipt of the Company's demand in
      writing therefor. If the Lender shall decline to pay said premium or
      additional premium, the rights of the Lender under this Lender's Loss
      Payable Endorsement shall not be terminated before ten (10) days after
      receipt of said written notice by the Lender.

4     Whenever this Company shall pay to the Lender any sum for loss or damage
      under this policy and shall claim that as to the insured no liability
      therefor exists, this Company, at its option, may pay to the Lender the
      whole principal sum and interest and other indebtedness due or to become
      due from the insured, whether secured or unsecured, (with refund of all
      interest not accrued), and this Company, to the extent of such payment,
      shall thereupon receive a full assignment and transfer, without recourse,
      of the debt and all rights and securities held as collateral thereto.



5     If there be any other insurance upon the within described property, this
      Company shall be liable under this policy as to the Lender for the
      proportion of such loss or damage that the sum hereby bears to the entire
      insurance of similar character on said property under policies held by,
      payable to and expressly consented to by the Lender. Any Contribution
      Clause included in any Fallen Building Clause Waiver or any Extended
      Coverage Endorsement attached to this contract of insurance is hereby
      nullified, and also any Contribution Clause in any other endorsement or
      rider attached to this contract of insurance is hereby nullified except
      Contribution Clauses for the compliance with which the insured has
      received reduction in the rate charged or has received extension of the
      coverage to include hazards other than fire and compliance with such
      Contribution Clause is made a part of the consideration for insuring such
      other hazards. The Lender upon the payment to it of the full amount of its
      claim, will subrogate this Company (pro rata with all other insurers
      contributing to said payment) to all of the Lender's rights of
      contribution under said other insurance.

6     This Company reserves the right to cancel this policy at any time, as
      provided by its terms, but in such case this policy shall continue in
      force for the benefit of the Lender for ten (10) days after written notice
      of such cancellation is received by the Lender and shall then cease.

7     This policy shall remain in full force and effect as to the interests of
      the Lender for a period of ten (10) days after its expiration unless an
      acceptable policy in renewal therefore with loss thereunder payment to the
      Lender in accordance with the terms of this Lender's Loss Payable
      Endorsement, shall have been issued by some insurance company and accepted
      by the Lender.

8     Should legal title to and beneficial ownership of any of the property
      covered under this policy become vested in the Lender or its agents,
      insurance under this policy shall continue for the term thereof for the
      benefit of the Lender but, in such event, any privileges granted by this
      Lender's Loss Payable Endorsement which are not also granted the insured
      under the terms and conditions of this policy and/or under riders or
      endorsements attached thereto shall not apply to the insurance hereunder
      as respects such property.

9     All notices herein provided to be given by the Company to the Lender in
      connection with this policy and this Lender's Loss Payable Endorsement
      shall be mailed to or be delivered to the Lender at its office or branch
      at 1201 Main Street, Suite 1625, Dallas, TX 75202.

 Insured to: Allied Fashion, Inc.

 Agency at: Aon Risk Services Inc. of NY. 2 WTC. New York. NY 10048

 Date:      April 13, 1999




                                  Schedule 6.3

                                DEPOSIT ACCOUNTS

                                  See Attached.


                                DEPOSIT ACCOUNTS



STORE         STORE NAME             ACCOUNT #         ROUTING #               NAME                       PHONE
- ------      ----------------       -------------       ----------      ------------------------      ---------------
                                                                                      
    30      HEMINGWAY, SC              550121966        053207054      Anderson State Bank           843-558-2511
    41      GEORGETOWN, SC             120263819        053200019      Wachovia                      843-527-6200
    42      DILLION, SC                 79002379        053202240      Carolina Community            843-8410444
    57      KINGSTREE, SC              620018366        053207685      Williamsburg First Nat        843-354-6101
    72      MARION, SC                 530216423        053201720      Anchor Bank                   843-431-1000
    73      WHITEVILLE, NC            5115058888        053101121      Branch Banking & Turst        910-914-9945
    79      CLINTON, NC             002412560394        053100300      1st Citizens Bank             910-590-5340
    81      FLORENCE, SC           2000006213488        053207766      First Union                   843-664-2900
   133      GOLDSBORO, NC             1692428545        053100300      1st Citizens Bank             919-705-2260
   172      BISHOPVILLE, SC         270002849701        053906041      1st Citizens Bank             803-484-4257
   185      LORIS, SC                 5121851271        053201607      Branch Banking & Turst        843-756-4091

     7      DENMARK, SC                070074695        053200983      First National Bank           803-793-3324
    12      BARNWELL, SC            240001187601        053906041      1st Citizens                  803-259-356
    20      MANNING, SC             020214475301        053200666      NBSC                          803-435-5100
    36      ORANGEBURG, SC         2000006211891        053207766      First Union                   803-533-4400
    53      ORANGEBURG, SC             213000768        053201924      Orangeburg National Bank      803-531-5566
    65      MONCKS CORNER, S           240063818        053200019      Wachovia                      843-761-8030
    71      COLUMBIA, SC              3521432401        053200666      NBSC                          803-256-6303
    77      COLUMBIA, SC             80047634301        053906041      1st Citizens                  803-733-2079
    78      SUMTER, SC                 760203547        053200019      Wachovia                      803-778-7718
    88      CHARLESTON, SC          079019396501        053906041      1st Citizens                  843-722-5835
    90      N CHARLESTON, SC        079019284301        053201487      1st Citizens                  843-747-1180

     2      ST. GEORGE, SC          710000726401        053906041      1st Citizens                  843-563-3011
    11      MILLEN, GA                    150913        061103975      Ogeechee Valley               912-982-5700
    13      SAVANNAH, GA            200002704687        061200030      First Union                   1-800-566-3862
    16      BAXLEY, GA                9800294648        061200878      Baxley Suntrust               912-367-8972
    19      GARDEN CITY, GA        2000006211943        061000227      First Union                   1-800-566-3862
    21      WAYNESBORO, GA               0524440        061202245      First National                706-554 8100
    23      GLENNVILLE, GA                 40741        061204683      Glennville Bank Trust         912-654-3471
    27      HAMPTON, SC               0069013538        053202596      Palmetto State Bank           803-943-2671
    49      WALTERBORO, SC             890025448       0653200983      First National                843-549-1553
    63      DUBLIN, GA                    127118        061205938      Dublin Bank of Dudley         912-275-4980


                                       -1-




                                                                                    
    89      JACKSONVILLE, FL           3751278573      0111000012      Nations Bank                704-388-6429
   184      COCHRAN, GA                   0201582       061210237      Cochran Sale Bank           912-934-4501

    22      LOUISVILLE, GA                 136822       061103975      1st National Bank           912-625-2000
    25      SPARTA, GA                    0019144       061107146      Bank of Hancock             706-444-5781
    34      JOHNSTON, SC             470001234901       053201487      1st Citizens                803-275-2354
    35      JACKSON, GA              003251604320       061000052      National Bank               770-775-7178
    40      FT. VALLEY, GA         00000088641726      0261170070      1st Liberty Bank            912-825-7721
    69      MACON, GA               0003601134004       061100473      Suntrust Bank               912-751-5731
    70      AUGUSTA, GA                 501138580       061100334      Suntrust Bank               706-821-2005
    76      TUSKEGEE , AL                 5024374       062205665      Alabama Exchange            334-727-1730
    87      PHENIX CITY, AL             061100606          142298      CB&T Bank                   334-291-3368
   123      EASTPOINT, GA            003261259305       061000052      National Bank               404-765-1958

    44      MOULTRIE, GA               0170293901       061202025      Southwest Bank              912-985-1120
    45      QUITMAN, GA                   0119115       061201851      Hertiage Bank               912-263-7525
    52      CORDELE, GA                   0183301      0621210965      Cordele Banking             912-276-2470
    55      CAMILLA, GA                    045640       061202957      Planters Bank               912-336-5271
    56      QUINCY, FL                  176318501       063100882      Qunicy State Bank           850-875-1000
    58      CARIO, GA                  1628961301       061203338      Citizens Bank
    67      BLAKLEY, GA                     45640       061212002      Bank of Early               912-723-3101
   120      VALDOSTA, GA             003251835718         0610052      Nations Bank                912-249-5041
   121      AMERICUS, GA                  0049229       061202410      Sumter Bank & Trust
   169      ALBANY, GA                 6967021879       061101375      Regents Bank                912-432-8417
   189      MADISON, FL              003063631439       063000047      Nations Bank                850-973-4126

   142      NATCHEZ, MS                5200377240       065305436      Deposit Guaranty
   150      PASCAGOULA, MS                1092855       065301362      Merchants Marine            228-762-3311
   154      THIBODAUX, LA              9500008355       065404913      Union Planters Bank         504-446-8161
   156      BAKER, LA                   882105237       065000090      Hibernia Bank               225-381-2041
   157      PLAQUEMINE , LA                618520       065403150      Citizens Bank & Trust       225-687-6897
   158      FRANKLIN, LA                001135546       065400713      St Marys Bank               318-828-0560
   161      OPELOUSAS, LA                 0169811       065205031      American Bank               318-948-3056
   162      VILLE PLATTE, LA            011875159       065204977      American Security Bank      318-363-5602
   164      CROWLEY, LA                  50905315       065200528      Bank Of Commerce            318-7884805





                                                                               
   166      BATON ROUGE, LA          882105334        065000090      Hibernia Bank

   128      FRANKLINTON, LA          011622129       0065400153      Hancock Bank             504-839-9821
   132      WEST POINT, MS            60350436        084201278      Bank Of Mississippi      601-495-1000
   137      JACKSON, NS             1007177678        065300279      Trustmark                601-354-5040
   139      COLUMBUS, MS            8808306920        065300279      Trust mark               601-354-5040
   141      HAZLEHURST, MS             6331656        065301744      Copiah Bank              601-894-3930
   144      GREENWOOD, MS            394056-01      00842-00981      Bank of Commerce         601-453-4142
   145      BOGALUSA, LA            8520005227         06500090      Hibernia Bank
   147      GREENVILLE, MS          7006698484        065300279      Trustmark                601-334-8433
   148      MCCOMB, MS              4502220481        065300279      Trust mark               601-249-1116
   187      JACKSON, MS             5200396933        064000017      Deposit Guaranty         601-960-6462

    47      CHERAW, SC               700073547        053200019      Wachovia                 843-921-6500
   *83      GREENVILLE, NC          3602010281        053101529      Wachovia                 252-758-8369
    84      WILSON, NC              5212711421        053101121      BB& T Bank
    86      GREENSBORO, NC          5112951190        053101121      BB&T                     336-733-0105
    91      WINSTON SALEM, NC       5112951204        053101121      BB&T                     336-733-0105
   130      PLYMOUTH, NC            7210024084        053111852      Triangle Bank            252-793-9031
   176      AHOSKIE, NC             0126001983        053100494      Wachovia                 252-332-7250
   I80      BENNETTSVILLE, SC       0701125819        053207216      Carolina Bank            843-479-4141
   186      WILLIAMSTON, NC         8540002886        053101529      Wachovia                 252-809-4002
   188      ROCKY MOUNT, NC         0450004754        053100850      Centura Bank             888-738-2455




                                 Schedule 7.3(i)

                              CONSIGNMENT INVENTORY

                                      None



                                  Schedule 8.3

                  CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS

Chief Executive Office:

102 Fahm Street
Savannah, GA 31401

Collateral Locations:

See Attached.




STORE
 NO.           LOCATION
     
 27/         115 LEE AVENUE
522        HAMPTON, SC 29924
            HAMPTON COUNTY
             803 943-2644
 30/    104-108 W. BROAD STREET
525          P.O. BOX 387
          HEMINGWAY, SC 29554
             803 558-5019
 34/        458 LEE STREET
527       JOHNSTON, SC 29832
             803 275-2342
 35/        8-20 OAK STREET
528        JACKSON, GA 30233
             770 775-2333
 36/       136 RUSSEL STREET
529       ORANGEBURG, SC 29115
             803 534-0670
 40/        135 MAIN STREET
531      FT. VALLEY, GA 31030
             912 825-8162
 4l/       930 FRONT STREET
532       GEORGETOWN, SC 29440
             803 546-5469
 42/       112 W. MAIN STREET
533        DILLON, SC 29536
             843 774-6331
  44/      6 S. MAIN STREET
 535       MOULTRIE, GA 31768
              912 985-3310
 45/     201 E. SCREVEN STREET
536        QUITMAN, GA 31643
             912 263-7774
 47/       146 MARKET STREET
537        CHERAW, SC 29520
             843 537-2568
 49/     205 WASHINGTON STREET
538      WALTERBORO, SC 29488
             803 549-5813
 52/      117 W. 11TH AVENUE
540        CORDELE, GA 31015
             912 273-1014
 53/     EDISTO VILLAGE H-WAY
648               301
         ORANGEBURG, SC 29115
             803 536-6548


                                      -2-


                      Collateral Locations (Schedule 8.3)



STORE
 NO.            LOCATION
      
  02/       203 N PARLER AVE.
 501      ST. GEORGE, SC 29477
              843 563-3539
  07/      215 S PALMETTO AVE.
 505        DENMARK, SC 29042
              803 793-3171
  ll/        323 COTTON AVE.
 508        MILLEN, GA 30442
             JENKINS COUNTY
               912982-1534
  12/     CARTER SHOPPING PLAZA
 509        1922 BURR STREET
            BARNWELL, SC 29812
             BARNWELL COUNTY
              803 259-3946
  13/    201-203 W BROUGHTON ST.
 510       SAVANNAH, GA 31401
              912 234-3342
  16/       122 N MAIN STREET
 513         BAXLEY, GA31513
              912 367-4464
  19/     WESTSIDE SHOPPING CTR
 649           HIGHWAY 80
          GARDEN CITY, GA 31408
              912 966-5009
 20/         16 RIGBY STREET
515         MANNING, SC 29102
              803 435-8731
 21/     703-707 LIBERTY STREET
516        WAYNESBORO, GA 30830
              706 554-2348
 22/       108 W. BROAD STREET
517       LOUISVILLE, GA 30434
              912 625-7419
 23/         107 W. BARNARD
518       GLENNVILLE, GA 30427
              912 654-2220
 25/        722 SPRING STREET
520         SPARTA, GA 31087
              706 444-6941






STORE         LOCATION
 NO.
    
 55/       20 BROAD STREET
542       CAMILLA, GA 31730
             912 336-7427
 56/     12 WASHINGTON STREET
543        QUINCY, FL 32351
             850 627-3254
 57/      115 E. MAIN STREET
544      KINGSTREE, SC 29556
             803 354-9756
 58/     149 S. BROAD STREET
545        CARIO, GA 31728
             912 377-8366
 63/    100 W. JACKSON STREET
547        DUBLIN, GA 31021
             912 275-2399
 65/       315 MAIN STREET
549       MONCKS CORNER, SC
                29461
             843 761-8687
 67/      120 S. MAIN STREET
551        BLAKELY, GA 31723
             912 723-8715
 69/   NAPIER SQ. SHOPPING CTR
552       949 HILLCREST BLVD
            MACON, GA 31204
             912 742-3018
 70/       SOUTH GATE PLAZA
553       1631 GORDON H- WAY
          AUGUSTA, GA 30906
             706 790-5982
 71/   4121-B W. BELTLINE BLVD
554          EDENS PLAZA
          COLUMBIA, SC 29204
             803 256-2719
 72/    317-321 N. MAIN STREET
555        MARION, SC 29571
             803 423-4036
 73/    3 LEWIS SMITH SHOP/CTR
556      WHITEVILLE NC 28472
             910 642-2191
 76/      112 S. MAIN STREET
557       TUSKEGEE, AL 36083
             334 727-9455






STORE         LOCATION
 NO.
    
 77/       NORTHWAY PLAZA
558      5112 FAIRFIELD ROAD
         COLUMBIA, SC 29204
            803 754-2451
 78/      20 N. MAIN STREET
559       SUMTER, SC 29150
            803 775-2986
 79/    344-A NORTHEAST BLVD.
636       CLINTON, NC 28328
            910 590-3664
 81/    150 N. DARGAN STREET
561      FLORENCE, SC 29501
            843 667-4255
 83/      GREENVILLE BUYERS
639            MARKET
           MEMORIAL DRIVE
         GREENVILLE, NC 27834
            919 355-0945
 84/   225-227 E. NASH STREET
562       WILSON, NC 27893
            252 291-8937
 86/     SUMMIT SHOPPING CTR
643       940 SUMMIT AVENUE
        GREENSBORO, NC 27405
            336 691-9880
 87/       502 13TH STREET
564         PHENIX PLAZA
        PHENIX CITY, AL 36867
            334 297-2542
 88/     483-485 KING STREET
565     CHARLESTON, SC 29403
            843 577-6786
 89/     5451 NORWOOD AVENUE
566         NORWOOD PLAZA
       JACKSONVILLE, FL 32208
            904 768-6976
 90/       SHIPWATCH PLAZA
567      3655 RIVERS AVENUE
       N. CHARLESTON, SC 29405
            803 554-9055


                                      -4-




STORE          LOCATION
 NO.
    
 91/      NORTHSIDE SHOPPING
645              CTR
        3599 N. PATTERSON AVE.
         WINSTON-SALEM, NC
               27105
            336 767-7688
120/   FIVE POINT SHOPPING CTR
574       3144-A N. ASHLEY
              STREET
         VALDOSTA, GA 31602
            912 244-8551
121/   PERLIS PLAZA SHOPPING
575              CTR
       1536 E. FORSYTH STREET
         AMERICUS, GA 31709
            912 928-3341
123/   TRI-CITIES SHOPPING CTR
577      3206 E. MAIN STREET
         EASTPOINT, GA 30344
           FULTON COUNTY
            404 762-6533
128/    EASTGATE SHOPPING CTR
608        LA HIGHWAY 10
        FRANKLINTON, LA 70438
            504 839-5527
130/     810 US HWY 64 EAST
606      PLYMOUTH, NC 27962
            252 793-3578
132/     601 W. MAIN STREET
609     WEST POINT, MS 39773
            601 494-5436
133/   112-114 N. CENTER STREET
610      GOLDSBORO, NC 27530
            919 580-1179


                                      -5-




 STORE
  NO.               LOCATION
  ---               --------
          
137/583           TRIANGLE MART
                    SHOP/CTR
               4547 N. STATE STREET
                JACKSON, MS 39206
                  601 982-2781

139/585       GATEWAY SHOPPING CTR
             201 N. ALABAMA STREET
               COLUMBUS, MS 39701
                LOWNDES COUNTY
                  601 328-8259

141/647       COPIAH TRADE CENTER
               664 CALDWELL DRIVE
              HAZLEHURST, MS 39083
                  601 894-2295

142/588         MAGNOLI A MALL
             261 DEVEREAUX DR/SUITE
                       14
             NATCHEZ, MS 39120 601
                    446-9543

144/651         415 HOWARD STREET
               GREENWOOD, MS 38930
                  601 455-5461

145/653       421 COLUMBIA STREET
               BOGALUSA, LA 70427
                 (504)735-8181

147/655        138 NORTH HARVEY ST
                 GOYER SHP CENTER
               GREENVILLE, MS 38701
                  (601)332-4880

148/591        PIKE CTR MART SHPNG
                       CTR
                 MCCOMB,MS 39648
                  601 684-4142

150/592         DEEPSOUTH SHOPPING
                       CTR
                1702 DENNY AVENUE
               PASCAGOULA,MS 39567
                  228 762-6825

154/595       NICHOLS SHOPPING CTR
             509 SAINT MARYS STREET
              THIBODAUX, LA 70301
                  504 446-5573


                                       -6-





 STORE
  NO.               LOCATION
  ---               --------
            
156/596        BAKER PLAZA SHPNG/CTR
                  2080 MAIN STREET
                  BAKER, LA 70714
                    225 778-1920

157/597           RIVERVIEW PLAZA
                25027 HIGHWAY SOUTH
                PLAQUEMINE, LA 70764
                  IBERVILLE PARISH
                    504 687-6436

158/598           720 MAIN STREET
                 FRANKLIN, LA 70538
                    318 828-0495

161/600         VISTA VILLAGE SHPING
                        CTR
                688 E. CRESWELL LANE
                OPELOUSAS, LA 705 70
                 ST. LANDRY PARISH
                    318 942-4904

162/601            PARKVIEW PLAZA
                       SQUARE
                  SHOPPING CENTER
                623 W. LINCOLN ROAD
               VILLE PLATTE, LA 70586
                    318 363-3868

164/602         N. PARK SHOPPING CTR
                 1504 N. PARKERSON
                       AVENUE
                  CROLEY, LA 70526
                   ACADIA PARISH
                    318 783-2045

166/652           DELMONT VILLAGE
                      SHOPPING
               CENTER 5151 PLANK ROAD
                     SUITE 1 F
               BATON ROUGE, LA 70805
                    225 356-5950

169/604          SOUTHGATE SHOPPING
                        CTR
                311-A S. SLAPPY BLVD
                 ALBANY, GA 3 1707
                    912 439-0047

172/615           100 MAIN STREET
               BISHOP VILLE, SC 29010
                     LEE COUNTY
                    803 484-4102


                                       -7-





 STORE
  NO.               LOCATION
  ---               --------
          
176/619      1323 E. MEMORIAL DRIVE
                   USA HWY 13
                AHOSKIE,NC 27910
                  252 332-6557

180/623         HWY 15/401 BYPASS
             BENNETTSVILLE, SC 29512
                  843 479-3402

184/627         210 SECOND STREET
                 COCHRAN,GA 31014
                 BECKLEY COUNTY
                  912 934-2174

185/628         4122 MAIN STREET
                 LORIS, SC 29569
                  803 756-0256

186/629        125 W. MAIN STREET
              WILLIAMSTON, NC 27892
                  252 792-2101

187/630       MART 51 SHOPPING CTR
                 1700 TERRY ROAD
                JACKSON, MS 39204
                  601 352-7615

188/635        206 S. MAIN STREET
              ROCKY MOUNT, NC 27801
                  252 972-6802

189/631        1221 W. BASE STREET
                MADISON, FL 32340
                  850 973-3303


                                       -8-



                                  Schedule 8.7

              COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS

                               See Attached Memo.


                                  Schedule 8.4

                                   OTHER LIENS

      Any UCC Financing Statements filed of record with respect to equipment
leased by Borrower. Borrower is not aware of any liens on any owned equipment.


[ENSR LOGO]

                                   MEMORANDUM

To:    Laurene Goff/ING Equity Partners   Date:  March 23,1999
From:  Jennifer Ledbetter. P.E.           File:  4507-061-100
RE:    Allied Fashion for Less            CC:    Halley Moriyama / ENSR
                                                 George Bellino / Allied Fashion
                                                 for Less

On Wednesday, March 17, 1999, I conducted a walk-through safety inspection of
Allied Fashion for Less (Allied) located at 102 Fahm Street in Savannah,
Georgia. During the Inspection, I met with Mr. George Bellino, Mr. Ted Boswell
and Ms. Terasa Reckner of Allied. This memo outlines the findings of my
inspection.

Emergency Action Plan (28 CFR 1910.38). The facility should prepare a
site-specific emergency action plan that covers required items such as
evacuation routes, procedures for accounting for employee during an emergency,
assignments of designated personnel during an emergency, and means of reporting
an emergency. Finding: The facility does not have a site-specific emergency
action plan. Estimated cost to mitigate: S2,000.

Means of Egress (29 CFR 1910.37). The facility should conduct a comprehensive
evaluation of exit doors, egress routes, signs, emergency lighting, alarm
systems, etc. Finding: Exit doors were locked; slide locks that could prevent
egress were observed on the exterior of office doors ; egress routes were
blocked with boxes or other items; combustible items were observed in an exit
hallway; exit signs were confusing. Estimated cost to mitigate: $2,000.

Fire Extinguishers (29 CFR 1910.157). The facility should routinely inspect and
maintain fire extinguishers. Finding: Fire Extinguishers had not inspected
within the last year, extinguishers are not being checked monthly: some
extinguishers were not mounted or were missing from designated locations; some
extinguishers were inaccessible due to items in front of extinguishers; some
extinguishers were not charged. Estimated cost to mitigate: $500.

Electrical Safety (29 CFR 1910.303 et al.). Damaged electrical receptacle boxes,
panel boxes, and extension cords should be replaced. Finding: An electrical
panel box cover behind the cardboard bailer had fallen off, outlet box covers
were missing; all outlets in the conference room had broken receptacles and one
showed signs of heat damage; a prong was broken inside of a receptacle located
on the wall with the elevator, wires were observed in the A/C unit drip pans;
extension cords used as permanent wiring were observed throughout the building;
damaged electrical cords on fans and the battery charging station were observed.
Estimated cost to mitigate: $2,000 to $5,000.

Hazard Communication (29 CFR 1910.1200). Most Allied personnel do not come into
contact with chemicals during their normal job function. Those employees (e.g.,
maintenance and janitorial staff) that do come into contact with chemicals
should be trained in hazard communication. Finding: The facility does not have a
written hazard communication plan; MSOSs are not being maintained; unlabelled
chemicals were observed. Estimated cost to mitigate:$1,000.

Bloodborne Pathogens ( 29CFR 1910.1030). The facility should implement a
Bloodborne Pathogen Program and train affected personnel. Finding: Allied
personnel are responsible for janitorial duties, and therefore could be exposed
to bloodborne pathogens. Estimated cost to mitigate: $1,000.

Record keeping of Occupational Injuries and Illnesses (29 CFR 1904). The
facility should maintain OSHA 200 logs and supplementary records. Finding: The
facility has not been maintaining OSHA 200 logs. Some injury reports are being
kept but the reports do not cover injuries for all employees at the facility.
Estimated cost to mitigate: $0.

Lock Out/Tag Out (29 CFR 1910.147). The facility should implement a lock out tag
out program (or ensure that their contractor maintains one) for any work
conducted on equipment (e.g., conveyors, automatic rollers, the



[ENSR LOGO]

cardboard bailer) that could become energized and cause injury. Finding: The
facility does not maintain or require contractors to have a lock out/tag out
program. Estimated cost to mitigate: $1,500.

Asbestos (29 CFR 1910.1001). An asbestos survey should be conducted before
disturbing any building materials. Finding: Suspect materials were observed
in the office areas and on piping on the third floor. No asbestos survey has
been conducted at the facility. Estimated cost to conduct survey; $1,500.

The following is a list of miscellaneous items that were noted during the
inspection:

- -     Compressed gas cylinders (Helium in the loading area, Oxygen in the
      mezzanine, and welding gases in the maintenance shop) were observed.
      According to facility personnel, compressed gases are not needed;
      therefore, these cylinders should be removed from the site or maintained
      (e.g., secured) properly.

- -     A guard covering the belt on the motor located underneath the loading area
      conveyor was missing.

- -     Chains at the top of the concretes stairs should be replaced w/ permanent
      railings. One of the chains was secured to an electrical conduit.

- -     The fork lift driver's training should be documented.

- -     Due to the addition of the mezzanine level,some space heaters are now
      floor level and should be protected so employees are not injured by the
      heaters.

- -     Kill switches and lines on automatic rollers should be routinely tested.
      The pull line on the third floor automatic rollers appeared to be loose.

- -     Distance between wheel and resting area of pedestal grinder in maintenance
      shop appeared to be greater than 1/8 inch.

- -     The cardboard bailer could be construed as a confined space. At a
      minimum, a warning sign indicating that employees are not to enter the
      bailer should be visible and employees should be instructed to never
      enter the bailer.

- -     The mezzanine level should be placarded to show that it is rated
      properly for loads placed upon it.

- -     A 55-gallon drum containing residual dry spot cleaner was
      observed on the third floor. According to facility personnel, this
      chemical is no longer used at the facility. The drum and residual chemical
      should be disposed of properly.

- -     Two wooden walkways across the rollers on the third floor should be
      replaced with manufactured walkways.

- -     The water fountain in reception area should be turned off or repaired so
      that water leaking from it does not create a slip hazard.

- -     On the mezzanine level, the metal platform (by the concrete stairs) that
      passes through the doorway should be moved or extended so there is no gap
      between the platform and gate.

Estimated cost to mitigate the above Items: $2,000 to $3,000

In addition. I visited the Allied Fashion retail store (#19-649) located at the
West Side Shopping Mall on Highway 50 in Garden City, Georgia. Items noted
during the walk through Included:

- -     The rear fire exit door was locked with a pad lock.

- -     The fire extinguisher in the storeroom was not mounted and is not being
      routinely inspected. Also, a fire extinguisher should be available in the
      store area.

- -     The panic bar alarm leading to the store room exit was not activated.

- -     Allied employees, who are responsible for janitorial duties and/or
      chemical use, should be trained in bloodborne pathogens and hazard
      communication.

                                     Page 2



                                  Schedule 8.8

                            TITLE TO PURCHASED ASSETS

      Any UCC Financing Statements filed of record with respect to equipment
leased by Borrower. Borrower is not aware of any liens on any owned equipment.

                                                                    Exhibit 10.5

                 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT

      THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of June 28th, 2000, is entered into between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and ALLIED FASHION,
INC., a Delaware corporation ("Borrower").

                                     RECITAL

      A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, (the "Loan Agreement"), pursuant to
which Lender has made certain loans and financial accommodations available to
Borrower. Terms used herein without definition shall have the meanings ascribed
to them in the Loan Agreement.

      B. Lender and Borrower wish to further amend the Loan Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

      1.    Amendments to Loan Agreement.

           (a) Section 1.28 of the Loan Agreement is hereby amended to read in
      its entirety as follows

            "Maximum Credit" shall mean, with reference to the Revolving Loans
            and the Letter of Credit Accommodations, the amount of Ten Million
            Dollars ($10,000,000).

      2. Amendment Fee. Borrower shall pay Lender an amendment fee in the amount
of Five Thousand Dollars ($5,000) for the processing and approval of this
Amendment, which fee will be fully earned on the date of this Amendment.

      3. Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is required to extend any credit to Borrower as
provided for by this Amendment.

            (a) Amendment. This Amendment fully executed in a sufficient number
      of counterparts for distribution to Lender and Borrower.

            (b) Representations and Warranties. The representations and
      warranties set forth herein and in the Loan Agreement must be true and
      correct.

            (c) Payment of Fee. Borrower shall have paid the Amendment Fee
      required by Section 3.

            (d) Other Required Documentation. All other documents and legal
      matters in connection with the transaction contemplated by this Amendment
      shall have been delivered or executed or recorded and shall be in form and
      substance satisfactory to Lender.

      4. Representations and Warranties. The Borrower represents and warrants as
follows:

            (a) Authority. The Borrower has the requisite corporate power and
      authority to execute and deliver this Amendment, and to perform its
      obligations hereunder and under the Financing Agreements (as amended or
      modified hereby) to which it is a party. The execution, delivery and
      performance by the Borrower of this Amendment have been duly approved by
      all necessary corporate action, have received all necessary governmental
      approval, if any, and do not contravene any law or any contractual
      restrictions binding on Borrower. No other corporate proceedings are
      necessary to consummate such transactions.

            (b) Enforceability. This Amendment has been duly executed and
      delivered by the Borrower. This Amendment and each Financing Agreement (as
      amended or modified hereby) is the legal, valid and binding obligation of
      Borrower, enforceable against Borrower in accordance with its terms, and
      is in full force and effect.

            (c) Representations and Warranties. The representations and
      warranties contained in each Financing Agreement (other than any such
      representations or warranties that, by their terms, are specifically made
      as of a date other than the date hereof) are correct on and as of the date
      hereof as though made on and as of the date hereof.

            (d) No Default. After giving effect to this Amendment, no event has
      occurred and is continuing that constitutes an Event of Default.


      5. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of New York governing contracts only to be performed in that
State.

      6 . Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.


                                       2

      7. Reference to and Effect on the Financing Agreements.

            (a) Upon and after the effectiveness of this Amendment, each
      reference in the Loan Agreement to "this Agreement", "hereunder", "hereof"
      or words of like import referring to the Loan Agreement, and each
      reference in the other Financing Agreements to "the Loan Agreement",
      "thereof" or words of like import referring to the Loan Agreement, shall
      mean and be a reference to the Loan Agreement as modified and amended
      hereby.

            (b) Except as specifically amended above, the Loan Agreement and all
      other Financing Agreements, are and shall continue to be in full force and
      effect and are hereby in all respects ratified and confirmed and shall
      constitute the legal, valid, binding and enforceable obligations of
      Borrower to Lender.

            (c) The execution, delivery and effectiveness of this Amendment
      shall not, except as expressly provided herein, operate as a waiver of any
      right, power or remedy of Lender under any of the Financing Agreements,
      nor constitute a waiver of any provision of any of the Financing
      Agreements.

            (d) To the extent that any terms and conditions in any of the
      Financing Agreements shall contradict or be in conflict with any terms or
      conditions of the Loan Agreement, after giving effect to this Amendment,
      such terms and conditions are hereby deemed modified or amended
      accordingly to reflect the terms and conditions of the Loan Agreement as
      modified or amended hereby.

      8. Ratification. Borrower hereby restates, ratifies and reaffirms each and
every term and condition set forth in the Loan Agreement, as amended hereby, and
the Financing Agreements effective as of the date hereof.

      9. Estoppel. To induce Lender to enter into this Amendment and to continue
to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.


                                       3

       IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.


                                           "BORROWER"

                                           ALLIED FASHION INC.,
                                           a Delaware corporation

                                           By:    /s/ Anthony M. Orofi
                                                -------------------------
                                           Title: VP Finance
                                                -------------------------


                                           "LENDER"

                                           CONGRESS FINANCIAL CORPORATION
                                           (SOUTHWEST), a Texas corporation


                                           By:    /s/ Joe T. Curdy
                                                -------------------------
                                           Title: AVP
                                                -------------------------


                                       4

                                                                    EXHIBIT 10.6

                 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

      THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of November 30, 2000, is entered into between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and ALLIED FASHION,
INC., a Delaware corporation ("Borrower").

                                     RECITAL

      A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, as amended in the First Amendment to
Loan and Security Agreement dated June 22, 2000 (collectively the "Loan
Agreement"), pursuant to which Lender has made certain loans and financial
accommodations available to Borrower. Terms used herein without definition shall
have the meanings ascribed to them in the Loan Agreement.

      B. Lender and Borrower wish to further amend the Loan Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this Amendment.

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

      1.    Amendments to Loan Agreement.

            (a) The following definitions are hereby added to Section 1 in
      respective alphabetical order:

            "Adjusted Eurodollar Rate shall mean, with respect to each Interest
            Period for any Eurodollar Rate Loan, the rate per annum (rounded
            upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
            percent) determined by dividing (a) the Eurodollar Rate for such
            Interest Period by (b) a percentage equal to: (i) one (1) minus (ii)
            the Reserve Percentage. For purposes hereof, "Reserve Percentage"
            shall mean the reserve percentage, expressed as a decimal,
            prescribed by any United States or foreign banking authority for
            determining the reserve requirement which is or would be applicable
            to deposits of United States dollars in a non-United States or an
            international banking office of Reference Bank used to fund a
            Eurodollar Rate Loan or any Eurodollar Rate Loan made with the
            proceeds of such deposit, whether or not the Reference Bank actually
            holds or has made any such deposits or loans. The Adjusted
            Eurodollar Rate shall be adjusted on and as of the effective day of
            any change in the Reserve Percentage."

            "Eurodollar Rate Loans shall mean any Loans or portion thereof on
            which interest is payable based on the Adjusted Eurodollar Rate in
            accordance with the terms hereof."

            "Eurodollar Rate shall mean with respect to the Interest Period for
            a Eurodollar Rate Loan, the interest rate per annum equal to the
            arithmetic average of the rates of interest per annum (rounded
            upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
            percent) at which Reference Bank is offered deposits of United
            States dollars in the London interbank market (or other Eurodollar
            Rate market selected by Borrower and approved by Lender) on or about
            9:00 a.m. (New York time) two (2) Business Days prior to the
            commencement of such Interest Period in amounts substantially equal
            to the principal amount of the Eurodollar Rate Loans requested by
            and available to Borrower in accordance with this Agreement, with a
            maturity of comparable duration to the Interest Period selected by
            Borrower."

            "Interest Period shall mean for any Eurodollar Rate Loan, a period
            of approximately one (l), two (2), or three (3) months duration as
            Borrower may elect, the exact duration to be determined in
            accordance with the customary practice in the applicable Eurodollar
            Rate market; provided, that, Borrower may not elect an Interest
            Period which will end after the last day of the then-current term of
            this Agreement."

            "Interest Rate shall mean, as to Prime Rate Loans, a rate of one
            quarter of one percent (.25%) per annum in excess of the Prime Rate
            and, as to Eurodollar Rate Loans, a rate of two and three-quarters
            of one percent (2.75%) per annum in excess of the Adjusted
            Eurodollar Rate (based on the Eurodollar Rate applicable for the
            Interest Period selected by Borrower as in effect three (3) Business
            Days after the date of receipt by Lender of the request of Borrower
            for such Eurodollar Rate Loans in accordance with the terms hereof,
            whether such rate is higher or lower than any rate previously quoted
            to Borrower); provided, that, the Interest Rate shall mean the rate
            of two and one quarter of one percent (2.25%) per annum in excess of
            the Prime Rate as to Prime Rate Loans and the rate of four and
            three-quarters of one percent (4.75%) per annum in excess of the
            Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's
            option, without notice, (a) for the period (i) from and after the
            date of termination or non-renewal hereof until Lender has received
            full and final payment of all obligations (notwithstanding entry of
            a judgment against Borrower) and (ii) from and after the date of the
            occurrence of an Event of Default for so long as such Event of
            Default is continuing as determined by Lender, and (b) on the
            Revolving Loans at any time outstanding in excess of the amounts
            available to Borrower under Section 2 (whether or not such


                                       2

            excess(es), arise or are made with or without Lender's knowledge or
            consent and whether made before or after an Event of Default)."

            "Prime Rate Loans shall mean any Loans or portion thereof on which
            interest is payable based on the Prime Rate in accordance with the
            terms thereof."

            "Reference Bank shall mean First Union National Bank, or such other
            bank as Lender may from time to time designate."

            (b) The definition of "Business Day" is hereby replaced in its
      entirety to read as follows:

            "Business Day shall mean any day other than a Saturday, Sunday, or
            other day on which commercial banks are authorized or required to
            close under the laws of the State of New York or the State of North
            Carolina, and a day on which the Reference Bank and Lender are open
            for the transaction of business, except that if a determination of a
            Business Day shall relate to any Eurodollar Rate Loans, the term
            Business Day shall also exclude any day on which banks are closed
            for dealings in dollar deposits in the London interbank market or
            other applicable Eurodollar Rate market."

            (c) Section 1.28 of the Loan Agreement is hereby amended in its
      entirety to read as follows:

            "Maximum Credit shall mean, with reference to the Revolving Loans
            and the Letter of Credit Accommodations, the amount of Fifteen
            Million Dollars ($15,000,000)."

            (d) Section 3.1 of the Loan Agreement is hereby replaced in its
      entirety to read as follows:

            "Interest.

                  a. Borrower shall pay to Lender interest on the outstanding
            principal amount of the non-contingent Obligations at the Interest
            Rate. All interest accruing hereunder on and after the date of any
            Event of Default or termination or non-renewal hereof shall be
            payable on demand.

                  b. Borrower may from time to time request that Prime Rate
            Loans be converted to Eurodollar Rate Loans or that any existing
            Eurodollar Rate Loans continue for an additional Interest Period.
            Such request from Borrower shall specify the amount of the Prime
            Rate Loans which will constitute Eurodollar Rate Loans (subject to
            the limits set forth below) and the Interest Period to be applicable
            to such Eurodollar Rate Loans. Subject to the terms and conditions
            contained herein, three (3) Business Days after receipt by Lender of
            such a request from Borrower, such Prime Rate Loans shall be
            converted to Eurodollar

                                       3

            Rate Loans or such Eurodollar Rate Loans shall continue, as the case
            may be, provided, that, (i) no Event of Default, or event which with
            notice or passage of time or both would constitute an Event of
            Default exists or has occurred and is continuing, (ii) no party
            hereto shall have sent any notice of termination or non-renewal of
            this Agreement, (iii) Borrower shall have complied with such
            customary procedures as are established by Lender and specified by
            Lender to Borrower from time to time for requests by Borrower for
            Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods
            may be in effect at any one time, (v) the aggregate amount of the
            Eurodollar Rate Loans must be in an amount not less than $5,000,000
            or an integral multiple of $1,000,000 in excess thereof, (vi) the
            maximum amount of the Eurodollar Rate Loans at any time requested by
            Borrower shall not exceed the amount equal to eighty (80%) percent
            of the lowest principal amount of the Loans which it is anticipated
            will be outstanding during the applicable Interest Period, in each
            case as determined by Lender (but with no obligation of Lender to
            make such Loans) and (vii) Lender shall have determined that the
            Interest Period or Adjusted Eurodollar Rate is available to Lender
            through the Reference Bank and can be readily determined as of the
            date of the request for such Eurodollar Rate Loan by Borrower. Any
            request by Borrower to convert Prime Rate Loans to Eurodollar Rate
            Loans or to continue any existing Eurodollar Rate Loans shall be
            irrevocable. Notwithstanding anything to the contrary contained
            herein, Lender and Reference Bank shall not be required to purchase
            United States Dollar deposits in the London interbank market or
            other applicable Eurodollar Rate market to fund any Eurodollar Rate
            Loans, but the provisions hereof shall be deemed to apply as if
            Lender and Reference Bank had purchased such deposits to fund the
            Eurodollar Rate Loans.

                  c. Any Eurodollar Rate Loans shall automatically convert to
            Prime Rate Loans upon the last day of the applicable Interest
            Period, unless Lender has received and approved a request to
            continue such Eurodollar Rate Loan at least three (3) Business Days
            prior to such last day in accordance with the terms hereof. Any
            Eurodollar Rate Loans shall, at Lender's option, upon notice by
            Lender to Borrower, convert to Prime Rate Loans in the event that
            (i) an Event of Default or event which, with the notice or passage
            of time, or both, would constitute an Event of Default, shall exist,
            (ii) this Agreement shall terminate or not be renewed, or (iii) the
            aggregate principal amount of the Prime Rate Loans which have
            previously been converted to Eurodollar Rate Loans or existing
            Eurodollar Rate Loans continued, as the case may be, at the
            beginning of an Interest Period shall at any time during such
            Interest Period exceed either (A) the aggregate principal amount of
            the Loans then outstanding, or (B) the Revolving Loans then
            available to Borrower under Section 2 hereof. Borrower shall pay to
            Lender, upon demand by Lender (or Lender may, at its option, charge
            any loan account of Borrower) any amounts required to compensate
            Lender, the Reference Bank or any participant with Lender for any
            loss (including loss of anticipated profits), cost or expense
            incurred by such person, as a result of the conversion of Eurodollar
            Rate Loans to Prime Rate Loans pursuant to any of the foregoing.


                                       4

                  d. Interest shall be payable by Borrower to Lender monthly in
            arrears not later than the first day of each calendar month and
            shall be calculated on the basis of a three hundred sixty (360) day
            year and actual days elapsed. The interest rate on non-contingent
            Obligations (other than Eurodollar Rate Loans) shall increase or
            decrease by an amount equal to each increase or decrease in the
            Prime Rate effective on the first day of the month after any change
            in such Prime Rate is announced based on the Prime Rate in effect on
            the last day of the month in which any such change occurs. In no
            event shall charges constituting interest payable by Borrower to
            Lender exceed the maximum amount or the rate permitted under any
            applicable law or regulation, and if any such part or provision of
            this Agreement is in contravention of any such law or regulation,
            such part or provision shall be deemed amended to conform thereto.

                  e. In the event Borrower's Tangible Net Worth as defined in
            Section 1.2 falls below seventy-five percent (75%) of the requisite
            level as set forth in Section 9.15, the Interest Rate shall increase
            by one-quarter of one percent (.25%)."

            (e) Section 3.3 of the Loan Agreement is hereby amended to read in
      its entirety as follows:

            "Loan Servicing Fee. In addition to any fees or expenses payable by
            Borrower under Section 9.16 hereof, Borrower shall pay to Lender an
            annual loan servicing fee in an amount equal to Five Thousand
            Dollars ($5,000),in respect of Lender's services for each year (or
            part thereof) while this Agreement remains in effect and for so long
            thereafter as any of the Obligations are outstanding, which fee
            shall be fully earned as of the date hereof and on each annual
            anniversary hereafter, such annual loan servicing fee to be payable
            on a quarterly basis, in advance, with the first such quarterly
            payment payable on the next scheduled quarterly payment and on the
            first day of each quarter thereafter."

            (f) Section 3.5 is hereby included in the Loan Agreement to read as
      follows:

            "Changes in Laws and Increased Costs of Loans.

                  a. Notwithstanding anything to the contrary contained herein,
            all Eurodollar Rate Loans shall, upon notice by Lender to Borrower,
            convert to Prime Rate Loans in the event that (i) any change in
            applicable law or regulation (or the interpretation or
            administration thereof) shall either (A) make it unlawful for
            Lender, Reference Bank or any participant to make or maintain
            Eurodollar Rate Loans or to comply with the terms hereof in
            connection with the Eurodollar Rate Loans, or (B) shall result in
            the increase in the costs to Lender, Reference Bank or any
            participant of making or maintaining any Eurodollar Rate Loans by an
            amount deemed by Lender to be material, or (C) reduce the amounts
            received or receivable by Lender in respect thereof, by an amount
            deemed by Lender to be


                                       5

            material or (ii) the cost to Lender, Reference Bank or any
            participant of making or maintaining any Eurodollar Rate Loans shall
            otherwise increase by an amount deemed by Lender to be material.
            Borrower shall pay to Lender, upon demand by Lender (or Lender may,
            at its option, charge any loan account of Borrower) any amounts
            required to compensate Lender, the Reference Bank or any participant
            with Lender for any loss (including loss of anticipated profits),
            cost or expense incurred by such person as a result of the
            foregoing, including, without limitation, any such loss, cost or
            expense incurred by reason of the liquidation or reemployment of
            deposits or other funds acquired by such person to make or maintain
            the Eurodollar Rate Loans or any portion thereof. A certificate of
            Lender setting forth the basis for the determination of such amount
            necessary to compensate Lender as aforesaid shall be delivered to
            Borrower and shall be conclusive, absent manifest error.

                  b. If any payments or prepayments in respect of the Eurodollar
            Rate Loans are received by Lender other than on the last day of the
            applicable Interest Period (whether pursuant to acceleration, upon
            maturity or otherwise), including any payments pursuant to the
            application of collections under Section 6.3 or any other payments
            made with the proceeds of Collateral, Borrower shall pay to Lender
            upon demand by Lender (or Lender may, at its option, charge any loan
            account of Borrower) any amounts required to compensate Lender, the
            Reference Bank or any participant with Lender for any additional
            loss (including loss of anticipated profits), cost or expense
            incurred by such person as a result of such prepayment or payment,
            including, without limitation, any loss, cost or expense incurred by
            reason of the liquidation or reemployment of deposits or other funds
            acquired by such person to make or maintain such Eurodollar Rate
            Loans or any portion thereof."

            (g) Section 12 of the Loan Agreement is replaced in its entirety to
      read as follows:

            "Term.

            (a) This Agreement and the other Financing Agreements shall become
            effective as of the date set forth on the first page hereof and
            shall continue in full force and effect for a term ending on April
            2, 2003. Regardless of the timing of termination, this Agreement and
            all other Financing Agreements must be terminated simultaneously.
            Upon the effective date of termination of the Financing Agreements,
            Borrower shall pay to Lender, in full, all outstanding and unpaid
            Obligations and shall furnish cash collateral to Lender in such
            amounts as Lender determines are reasonably necessary to secure
            Lender from loss, cost, damage or expense, including reasonable
            attorneys' fees and legal expenses, in connection with any
            contingent Obligations, including issued and outstanding Letter of
            Credit Accommodations and checks or other payments provisionally

                                       6

            credited to the Obligations and/or as to which Lender has not yet
            received final and indefeasible payment. Such cash collateral shall
            be remitted by wire transfer in Federal funds to such bank account
            of Lender, as Lender may, in its discretion, designate in writing to
            Borrower for such purpose. Interest shall be due until and including
            the next Business Day, if the amounts so paid by Borrower to the
            bank account designated by Lender are received in such bank account
            later than 3:00 p.m., New York time.

            (b) No termination of this Agreement or the other Financing
            Agreements shall relieve or discharge Borrower of its respective
            duties, obligations and covenants under this Agreement or the other
            Financing Agreements until all Obligations have been fully and
            finally discharged and paid, and Lender's continuing security
            interest in the Collateral and the rights and remedies of Lender
            hereunder, under the other Financing Agreements and applicable law,
            shall remain in effect until all such Obligations have been fully
            and finally discharged and paid.

            (c) If for any reason this Agreement is terminated prior to the end
            of the then current term or any agreed upon renewal term of this
            Agreement, in view of the impracticality and extreme difficulty of
            ascertaining actual damages and by mutual agreement of the parties
            as to a reasonable calculation of Lender's lost profits as a result
            thereof, Borrower agrees to pay to Lender, upon the effective date
            of such termination, an early termination fee in the amount set
            forth below if such termination is effective in the period
            indicated:



                       Amount                     Period
                                             
            (i)      1% of the Maximum Credit   from the date of this Agreement
                                                to April 2, 2002

            (ii)     .5% of the Maximum Credit  from April 3, 2002 to April 2,
                                                2003


Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. Lender shall
be entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.2(i) and 10.1(j) hereof, even if Lender does
not exercise its right to terminate this Agreement, but elects, at its option,
to provide financing to Borrower or permit the use of cash collateral under the
United States Bankruptcy Code; provided, however, if Lender waives such Event of
Default, does not exercise its rights to terminate this Agreement and continues
financing Borrower, such early termination fee shall not be due and payable by
Borrower at such time. The early termination fee provided for in this Section
12.1 shall be deemed included in the Obligations.

                                       7


                  Notwithstanding the foregoing, the early termination fee shall
            be waived (a) if the termination is due to the refinancing of the
            Obligations by First Union National Bank and if there is no Event of
            Default or event or circumstance which, with notice or passage of
            time or both, would become an Event of Default under this Agreement
            or (b) if Borrower chooses to exercise the right to terminate this
            Agreement and the other Financing Agreements upon any assignment by
            Lender of its rights or obligations under or related to this
            Agreement or the other Financing Agreements to a non-U.S. Lender,
            defined as any Lender that is not a "United States person," within
            the meaning of Section 7701(a)(30) of the Code.

      2. Amendment Fee. Borrower shall pay Lender an amendment fee in the amount
of Twenty Five Thousand Dollars ($25,000) for the processing and approval of
this Amendment, which fee will be fully earned on the date of this Amendment.

       3. Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is required to extend any credit to Borrower as
provided for by this Amendment.

            (a) Amendment. This Amendment fully executed in a sufficient number
      of counterparts for distribution to Lender and Borrower.

            (b) Representations and Warranties. The representations and
      warranties set forth herein and in the Loan Agreement must be true and
      correct.

            (c) Payment of Fee. Borrower shall pay the Amendment Fee required by
      Section 2.

            (d) Other Required Documentation. All other documents and legal
      matters in connection with the transaction contemplated by this Amendment
      shall have been delivered or executed or recorded and shall be in form and
      substance satisfactory to Lender.

      4. Representations and Warranties. The Borrower represents and warrants as
follows:

            (a) Authority. The Borrower has the requisite corporate power and
      authority to execute and deliver this Amendment, and to perform its
      obligations hereunder and under the Financing Agreements (as amended or
      modified hereby) to which it is a party. The execution, delivery and
      performance by the Borrower of this Amendment have been duly approved by
      all necessary corporate action, have received all necessary governmental
      approval, if any, and do not contravene any law or any contractual
      restrictions binding on Borrower. No other corporate proceedings are
      necessary to consummate such transactions.

            (b) Enforceability. This Amendment has been duly executed and
      delivered by the Borrower. This Amendment and each Financing Agreement (as
      amended or modified hereby) is the legal, valid and binding obligation of
      Borrower, enforceable against

                                       8

      Borrower in accordance with its terms, and is in full force and effect.

            (c) Representations and Warranties. The representations and
      warranties contained in each Financing Agreement (other than any such
      representations or warranties that, by their terms, are specifically made
      as of a date other than the date hereof) are correct on and as of the date
      hereof as though made on and as of the date hereof.

      5. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of New York governing contracts only to be performed in that
State.

       6 . Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.

      7. Reference to and Effect on the Financing Agreements.

            (a) Upon and after the effectiveness of this Amendment, each
      reference in the Loan Agreement to "this Agreement", "hereunder", "hereof"
      or words of like import referring to the Loan Agreement, and each
      reference in the other Financing Agreements to "the Loan Agreement",
      "thereof" or words of like import referring to the Loan Agreement, shall
      mean and be a reference to the Loan Agreement as modified and amended
      hereby.

            (b) Except as specifically amended above, the Loan Agreement and all
      other Financing Agreements, are and shall continue to be in full force and
      effect and are hereby in all respects ratified and confirmed and shall
      constitute the legal, valid, binding and enforceable obligations of
      Borrower to Lender.

            (c) The execution, delivery and effectiveness of this Amendment
      shall not, except as expressly provided herein, operate as a waiver of any
      right, power or remedy of Lender under any of the Financing Agreements,
      nor constitute a waiver of any provision of any of the Financing
      Agreements.

            (d) To the extent that any terms and conditions in any of the
      Financing Agreements shall contradict or be in conflict with any terms or
      conditions of the Loan Agreement, after giving effect to this Amendment,
      such terms and conditions are hereby deemed modified or amended
      accordingly to reflect the terms and conditions of the Loan Agreement as
      modified or amended hereby.

      8. Ratification. Borrower hereby restates, ratifies and reaffirms each and
every term and condition set forth in the Loan Agreement, as amended hereby, and
the Financing Agreements effective as of the date hereof.

                                       9

      9. Estoppel. To induce Lender to enter into this Amendment and to continue
to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.

                                       10

      IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.

                                     "BORROWER"

                                     ALLIED FASHION INC.,
                                     a Delaware corporation

                                     By:    /s/ G. BELLINO
                                            ------------------------------------
                                     Title: President
                                            ------------------------------------



                                     "LENDER"

                                     CONGRESS FINANCIAL CORPORATION
                                     (SOUTHWEST), a Texas corporation


                                     By:    /s/ JOE T. CURDY
                                            ------------------------------------
                                     Title: AVP
                                            ------------------------------------


                                       11

                                                                    EXHIBIT 10.7

                 THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT

      THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of January______, 2003, is entered into between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and CITI TRENDS, INC.,
a Delaware corporation ("Borrower").

                                    RECITALS

      A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, as amended by that certain First
Amendment to Loan and Security Agreement dated June 22, 2000, that certain
Second Amendment to Loan and Security Agreement dated November 30, 2000 and that
certain letter agreement dated August 1, 2001 regarding Borrower's name change
(as amended, the "Loan Agreement"), pursuant to which Lender has made certain
loans and financial accommodations available to Borrower. Terms used herein
without definition shall have the meanings ascribed to them in the Loan
Agreement.

      B. Lender and Borrower now wish to further amend the Loan Agreement on the
terms and conditions set forth herein.

      C. Borrower is entering into this Amendment with the understanding and
agreement that, except as specifically provided herein, none of Lender's rights
or remedies as set forth in the Loan Agreement is being waived or modified by
the terms of this Amendment.

                                    AMENDMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

      1.    Amendments to Loan Agreement.

            (a)   Section 1.28 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:

                  "1.28 "Maximum Credit" shall mean, with reference to the
                  Revolving Loans and the Letter of Credit Accommodations, the
                  amount of Fifteen Million Dollars ($15,000,000); provided,
                  however, from April 3, 2003 to and including April 2, 2004, it
                  shall mean the amount of Twenty Million Dollars ($20,000,000);
                  provided, further, on April 3, 2004 and thereafter, it shall
                  mean the amount of Twenty-Five Million Dollars ($25,000,000)."

            (b)   The definition of "Interest Rate" set forth in Section 1 of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:

                  " "Interest Rate shall mean:



                  (a)as to Prime Rate Loans, a rate of:

                        (i) the Prime Rate to the extent either (A) Borrower has
                  maintained Excess Availability of $5,000,000 or greater at all
                  times during the immediately preceding month or (B) both (1)
                  Borrower has maintained Excess Availability of $3,000,000 or
                  greater at all times during the immediately preceding month
                  and (2) Borrower's then year to date EBITDA, as determined by
                  Lender based upon its review of the financial statements
                  provided to Lender by Borrower for the relevant period, when
                  measured as of the last day of such period, was $5,000,000 or
                  greater;

                        (ii) one-quarter of one percent (0.25%) per annum in
                  excess of the Prime Rate to the extent either (A) Borrower has
                  maintained Excess Availability of between $2,500,000 and
                  $4,999,999 at all times during the immediately preceding month
                  or (B) Borrower's then year to date EBITDA, as determined by
                  Lender based upon its review of the financial statements
                  provided to Lender by Borrower for the relevant period, when
                  measured as of the last day of such period, was between
                  $3,000,000 and $4,999,999; or

                        (iii) one-half of one percent (0.50%) per annum in
                  excess of the Prime Rate to the extent either (A) Borrower has
                  maintained Excess Availability of $2,499,999 or less at all
                  times during the immediately preceding month or (B) Borrower's
                  then year to date EBITDA, as determined by Lender based upon
                  its review of the financial statements provided to Lender by
                  Borrower for the relevant period, when measured as of the last
                  day of such period, was $2,999,999 or less; and

                  (b) as to Eurodollar Rate Loans, a rate of:

                        (i) two and one-quarter percent (2.25%) per annum in
                  excess of the Adjusted Eurodollar Rate (based on the
                  Eurodollar Rate applicable for the Interest Period selected by
                  Borrower as in effect three (3) Business Days after the date
                  of receipt by Lender of the request of Borrower for such
                  Eurodollar Rate Loans in accordance with the terms hereof,
                  whether such rate is higher or lower than any rate previously
                  quoted to Borrower) to the extent either (A) Borrower has
                  maintained Excess Availability of $5,000,000 or greater at all
                  times during the immediately preceding month or (B) both (1)
                  Borrower has maintained Excess Availability of $3,000,000 or
                  greater at all times during the immediately preceding month
                  and (2) Borrower's then year to date EBITDA, as determined by
                  Lender based upon its review of the financial statements
                  provided to Lender by Borrower for the relevant period, when
                  measured as of the last day of such period, was $5,000,000 or
                  greater;

                                        2


                        (ii) two and one-half percent (2.50%) per annum in
                  excess of the Adjusted Eurodollar Rate (based on the
                  Eurodollar Rate applicable for the Interest Period selected by
                  Borrower as in effect three (3) Business Days after the date
                  of receipt by Lender of the request of Borrower for such
                  Eurodollar Rate Loans in accordance with the terms hereof,
                  whether such rate is higher or lower than any rate previously
                  quoted to Borrower) to the extent either (A) Borrower has
                  maintained Excess Availability of between $2,500,000 and
                  $4,999,999 at all times during the immediately preceding month
                  or (B) Borrower's then year to date EBITDA, as determined by
                  Lender based upon its review of the financial statements
                  provided to Lender by Borrower for the relevant period, when
                  measured as of the last day of such period, was between
                  $3,000,000 and $4,999,999; or

                        (iii) two and three-quarters percent (2.75%) per annum
                  in excess of the Adjusted Eurodollar Rate (based on the
                  Eurodollar Rate applicable for the Interest Period selected by
                  Borrower as in effect three (3) Business Days after the date
                  of receipt by Lender of the request of Borrower for such
                  Eurodollar Rate Loans in accordance with the terms hereof,
                  whether such rate is higher or lower than any rate previously
                  quoted to Borrower) to the extent either (A) Borrower has
                  maintained Excess Availability of $2,499,999 or less at all
                  times during the immediately preceding month (B) Borrower's
                  then year to date EBITDA, as determined by Lender based upon
                  its review of the financial statements provided to Lender by
                  Borrower for the relevant period, when measured as of the last
                  day of such period, was $2,999,999 or less;

                  provided, that, the Interest Rate shall mean a rate of two
                  percent in excess of the rate that would otherwise be applied
                  in accordance with the foregoing, at Lender's option, without
                  notice, (x) for the period (i) from and after the date of
                  termination or non-renewal hereof until Lender has received
                  full and final payment of all obligations (notwithstanding
                  entry of a judgment against Borrower) and (ii) from and after
                  the date of the occurrence of an Event of Default for so long
                  as such Event of Default is continuing as determined by
                  Lender, and (y) on the Revolving Loans at any time outstanding
                  in excess of the amounts available to Borrower under Section 2
                  (whether or not such excess(es), arise or are made with or
                  without Lender's knowledge or consent and whether made before
                  or after an Event of Default)."

      (c)   The following definitions are hereby added, in their proper
alphabetical order, to Section 1 of the Loan Agreement:

            " "Capital Lease" shall mean, as applied to any Person, any lease of
            (or any agreement conveying the right to use) any property (whether
            real,

                                        3


                  personal or mixed) by such Person as lessee that, in
                  accordance with GAAP, is required to be reflected as a
                  liability on the balance sheet of such Person.

                  "Capital Stock" shall mean, with respect to any Person, any
                  and all shares, interests, participations or other equivalents
                  (however designated) of such Person's capital stock,
                  partnership interests or limited liability company interests
                  at any time outstanding, and any and all rights, warrants or
                  options exchangeable for or convertible into such capital
                  stock or other interests (but excluding any debt security that
                  is exchangeable for or convertible into such capital stock).

                  "EBITDA" shall mean, as to any Person, with respect to any
                  period, an amount equal to: (a) the Net Income of such Person
                  and its Subsidiaries for such period on a consolidated basis
                  determined in accordance with GAAP, plus (b) depreciation,
                  amortization and other non-cash charges (including, but not
                  limited to, imputed interest and deferred compensation) of
                  such Person for such period (to the extent deducted in the
                  computation of Net Income), all in accordance with GAAP, plus
                  (c) Interest Expense of such Person for such period (to the
                  extent deducted in the computation of Net Income), plus (d)
                  charges for Federal, State, local and foreign income taxes for
                  such period (to the extent deducted in the computation of Net
                  Income), plus (e) all extraordinary losses and unusual losses
                  related to the restructuring of the business of such Person
                  and costs associated with the refinancing transaction
                  contemplated by this Agreement, minus (f) all income (and plus
                  all charges, up to the amount of such income) attributable to
                  any Subsidiary of such Person.

                  "Interest Expense" shall mean, for any period, as to any
                  Person and its Subsidiaries, all of the following as
                  determined in accordance with GAAP, total interest expense,
                  whether paid or accrued (including the interest component of
                  Capital Leases for such period), including, without
                  limitation, all bank fees, commissions, discounts and other
                  fees and charges owed with respect to letters of credit,
                  banker's acceptances or similar instruments, but excluding (a)
                  amortization of discount and amortization of deferred
                  financing fees and closing costs paid in cash in connection
                  with the transactions contemplated hereby, (b) interest paid
                  in property other than cash and (c) any other interest expense
                  not payable in cash.

                  "Net Income" shall mean, with respect to any Person, for any
                  period, the aggregate of the net income (loss) of such Person
                  and its Subsidiaries, on a consolidated basis, for such period
                  (excluding to the extent included therein any extraordinary or
                  one-time gains or losses) after deducting all charges which
                  should be deducted before arriving at the net income (loss)
                  for such period and after deducting the Provision for Taxes
                  for such period, all as determined in accordance with GAAP,
                  provided, that, (a) the net income of any Person that is not a
                  wholly-owned Subsidiary or that is accounted for by the equity
                  method of accounting shall be included only to

                                        4


                  the extent of the amount of dividends or distributions paid or
                  payable to such Person or a wholly-owned Subsidiary of such
                  Person; (b) the effect of any change in accounting principles
                  adopted by such Person or its Subsidiaries after the date
                  hereof shall be excluded; and (c) the net income (if positive)
                  of any wholly-owned Subsidiary to the extent that the
                  declaration or payment of dividends or similar distributions
                  by such wholly-owned Subsidiary to such Person or to any other
                  wholly-owned Subsidiary of such Person is not at the time
                  permitted by operation of the terms of its charter or any
                  agreement, instrument, judgment, decree, order, statute, rule
                  of government regulation applicable to such wholly-owned
                  Subsidiary shall be excluded. For the purpose of this
                  definition, net income excludes any gain or loss, together
                  with any related Provision for Taxes for such gain or loss
                  realized upon the sale or other disposition of any assets that
                  are not sold in the ordinary course of business (including,
                  without limitation, dispositions pursuant to sale and
                  leaseback transactions), or of any Capital Stock of such
                  Person or a Subsidiary of such Person and any net income
                  realized as a result of changes in accounting principles or
                  the application thereof to such Person.

                  "Provision for Taxes" shall mean, with respect to any Person,
                  for any period, an amount equal to all taxes imposed on or
                  measured by net income, whether Federal, State or local, and
                  whether foreign or domestic, that are paid or payable by such
                  Person and its Subsidiaries in respect of such period on a
                  consolidated basis in accordance with GAAP.

                  "Subsidiary" shall mean, with respect to any Person, any
                  corporation, limited or general partnership, limited liability
                  company, trust, association or other business entity of which
                  more than fifty percent (50%) of the voting stock or other
                  voting equity interests (in the case of a business entity
                  other than a corporation) is owned or controlled directly or
                  indirectly by such Person, or one or more Subsidiaries of such
                  Person, or a combination thereof."

            (d)   Section 2.1(a)(i) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:

                  "(i)  the lesser of:

                        (A)   sixty-five percent (65%) of the Value of the
                      Eligible Inventory; or

                        (B)   eighty-five percent (85%) of the Appraised
                      Inventory Value of Eligible Inventory; minus"

            (e)   The first sentence of Section 2.2(d) of the Loan Agreement is
hereby amended to read as follows:

                  "Except in Lender's discretion, the amount of all outstanding
                  Letter of Credit Accommodations and all other commitments and
                  obligations made

                                        5


                  or incurred by Lender in connection therewith shall not at any
                  time exceed Two Million Dollars ($2,000,000)."

            (f)   Section 3.1(b)(v) of the Loan Agreement is hereby amended to
read as follows:

                  "(v) the aggregate amount of the Eurodollar Rate Loans must be
                  in an amount not less than $1,000,000 or an integral multiple
                  of $500,000 in excess thereof,"

            (g)   A new Section 3.6 is hereby added to Section 3 of the Loan
Agreement which reads as follows:

                  "3.6 Unused Line Fee. Beginning April 3, 2003, Borrower shall
                  pay to Lender monthly an unused line fee at a rate equal to
                  one-quarter of one percent (0.25%) per annum calculated upon
                  the amount by which Ten Million Dollars ($10,000,000) exceeds
                  the average daily principal balance of the outstanding
                  Revolving Loans and Letter of Credit Accommodations during the
                  immediately preceding month (or part thereof) while this
                  Agreement is in effect and for so long thereafter as any of
                  the Obligations are outstanding, which fee shall be payable on
                  the first day of each month (beginning May 1, 2003) in
                  arrears."

            (h)   Section 6.3(a)(ii) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:

                  "(ii) Borrower shall establish and maintain, at its expense,
                  pursuant to an agreement described in the following sentence,
                  a blocked account with such bank or banks as are acceptable to
                  Lender (each a "Blocked Account" and collectively the "Blocked
                  Accounts"). Each bank at which a Blocked Account is
                  established shall enter into an agreement, in form and
                  substance satisfactory to Lender, providing (unless otherwise
                  agreed to by Lender) that all items received or deposited in
                  such Blocked Account are the Collateral of Lender, that the
                  depository bank has no lien upon, or right to setoff against,
                  the Blocked Accounts, the items received for deposit therein,
                  or the funds from time to time on deposit therein, and that,
                  upon notice from Lender (a "Control Notice"), the depository
                  bank will wire, or otherwise transfer, in immediately
                  available funds, on a daily basis, all funds received or
                  deposited into such Blocked Account to such bank account of
                  Lender as Lender may from time to time designate for such
                  purpose (the "Payment Account"); provided, that, Lender may
                  only issue a Control Notice upon the occurrence of an Event of
                  Default or in the event that Excess Availability is $4,999,999
                  or less at any time; and provided, further, that Lender shall
                  rescind such Control Notice if Borrower maintains Excess
                  Availability of $5,000,000 or more at all times during the
                  ninety (90) day period immediately following the issuance of
                  such Control Notice. Borrower agrees that all amounts
                  deposited in the Blocked Account(s) or other funds received
                  and collected by Lender,

                                        6


                  whether as proceeds of Inventory, the collection of Accounts
                  or other Collateral or otherwise shall be the Collateral of
                  Lender. Prior to the issuance of a Control Notice, Borrower
                  shall make all payments with respect to the Obligations to the
                  Payment Account, which payments shall automatically be made,
                  pursuant to the terms of this Section, after the issuance of a
                  Control Notice."

            (i)   A new Section 7.8 is hereby added to the Loan Agreement which
reads as follows:

                  "7.8 Interim Collateral Audits. Lender shall be entitled to
                  conduct interim audits of the Collateral a minimum of twice
                  over every twelve (12) month period, except, that, upon the
                  occurrence of an Event of Default or if Excess Availability is
                  $4,999,999 or less at any time, such audits shall be conducted
                  at any time as Lender may request."

            (j)   Section 9.16(g) of the Loan Agreement is hereby amended to
read as follows:

                  "(g) all out-of-pocket expenses and costs incurred by Lender's
                  examiners in the conduct of their periodic field examinations
                  of the Collateral and Borrower's operations, plus a per diem
                  charge at the rate of $750 per person per day for Lender's
                  examiners in the field and office; and"

            (k)   The first sentence of Section 12.1(a) of the Loan Agreement is
hereby amended to read as follows:

                  "This Agreement and the other Financing Agreements shall
                  become effective as of the date set forth on the first page
                  hereof and shall continue in full force and effect for a term
                  ending on April 2, 2005."

            (l)   Sections 12.1(c)(i) and (ii) of the Loan Agreement are hereby
amended to read as follows:



           Amount                              Period
           ------                              ------
                                 
(i)  1% of the Maximum Credit       from the date of this Agreement
                                    to and including April 2, 2004

(ii) .5% of the Maximum Credit      from April 3, 2004 to and
                                    including April 1, 2005


      2.    Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective, and before Lender is required to extend any credit to Borrower as
provided for by this Amendment.

            (a)   Amendment. This Amendment, fully executed in a sufficient
number of counterparts for distribution to all parties.

                                        7


            (b)   Extension Fee. An extension fee in the amount of Fifty
Thousand Dollars ($50,000), which fee is fully earned as of and due and payable
on the date hereof.

            (c)   Representations and Warranties. The representations and
warranties set forth herein and in the Loan Agreement must be true and correct.

            (d)   Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded and shall be in form and substance
satisfactory to Lender.

      3.    Representations and Warranties. Borrower represents and warrants as
follows:

            (a)   Authority. Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its obligations
hereunder and under the Financing Agreements (as amended or modified hereby) to
which it is a party. The execution, delivery and performance by Borrower of this
Amendment have been duly approved by all necessary corporate action and no other
corporate proceedings are necessary to consummate such transactions.

            (b)   Enforceability. This Amendment has been duly executed and
delivered by Borrower. This Amendment and each Financing Agreement (as amended
or modified hereby) is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, and is in full force
and effect.

            (c)   Representations and Warranties. The representations and
warranties contained in each Financing Agreement (other than any such
representations or warranties that, by their terms, are specifically made as of
a date other than the date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.

            (d)   Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.

            (e)   No Default. No event has occurred and is continuing that
constitutes an Event of Default.

            (f)   No Duress. This Amendment has been entered into without force
or duress, of the free will of Borrower. Borrower's decision to enter into this
Amendment is a fully informed decision and Borrower is aware of all legal and
other ramifications of such decision.

            (g)   Counsel. Borrower has read and understands this Amendment, has
consulted with and been represented by legal counsel in connection herewith, and
has been advised by its counsel of its rights and obligations hereunder and
thereunder.

      4.    Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and

                                        8


construed in accordance with the internal laws of the State of New York (without
giving effect to principals of conflicts of law).

      5.    Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.

      6.    Reference to and Effect on the Financing Agreements.

            (a)   Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof or
words of like import referring to the Loan Agreement, and each reference in the
other Financing Agreements to "the Loan Agreement", "thereof or words of like
import referring to the Loan Agreement, shall mean and be a reference to the
Loan Agreement as modified and amended hereby.

            (b)   Except as specifically amended above, the Loan Agreement and
all other Financing Agreements, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed and shall
constitute the legal, valid, binding and enforceable obligations of Borrower to
Lender.

            (c)   The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lender under any of the Financing Agreements, nor
constitute a waiver of any provision of any of the Financing Agreements.

            (d)   To the extent that any terms and conditions in any of the
Financing Agreements shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified or amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified or amended
hereby.

      7.    Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.

      8.    Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, as of the date hereof, there exists no Event of
Default and no right of offset, defense, counterclaim or objection in favor of
Borrower as against Lender with respect to the Obligations.

      9.    Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.

                                        9


      10.   Severability. In case any provision in this Amendment shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of this Amendment and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.

      IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.

                                         CITI TRENDS, INC.,
                                         a Delaware corporation

                                         By: /s/ TOM STOLTZ
                                             --------------------------
                                         Name: Tom Stoltz
                                         Title: CFO

                                         CONGRESS FINANCIAL CORPORATION
                                         (SOUTHWEST),
                                         a Texas corporation

                                         By: /s/ JOE T. CURDY
                                             --------------------------
                                         Name: Joe T. Curdy
                                         Title: AVP

                                       10

                                                                    EXHIBIT 10.8

          FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND CONSENT

      THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT AND CONSENT (this
"Amendment"), dated as of February 9, 2005, is entered into between CONGRESS
FINANCIAL CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and CITI
TRENDS, INC., a Delaware corporation ("Borrower").

                                    RECITALS

      A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, as amended by that certain First
Amendment to Loan and Security Agreement dated June 22,2000, that certain Second
Amendment to Loan and Security Agreement dated November 30,2000, that certain
letter agreement dated August ____, 2001 regarding Borrower's name change, and
that certain Third Amendment to Loan and Security Agreement dated January
___, 2003 (as amended, the "Loan Agreement"), pursuant to which Lender has made
certain loans and financial accommodations available to Borrower. Terms used
herein without definition shall have the meanings ascribed to them in the Loan
Agreement.

      B. Borrower desires to sell its common stock in an initial public offering
(the "IPO"). Borrower has requested that Lender consent to the IPO and amend the
Loan Agreement, and Lender is willing to provide such consent and to amend the
Loan Agreement, all upon the terms and conditions set forth below.

      C. Borrower is entering into this Amendment with the understanding and
agreement that, except as specifically provided herein, none of Lender's rights
or remedies as set forth in the Loan Agreement is being waived or modified by
the terms of this Amendment.

                                    AMENDMENT

      NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:

      1. Amendments to Loan Agreement.

            (a) Section 3.6 is hereby amended and restated in its entirety to
read as follows:

                  "3.6 Unused Line Fee. Borrower shall pay to Lender monthly an
                  unused line fee at a rate equal to three-eighths of one
                  percent (0.375%) per annum calculated upon the amount by which
                  Fifteen Million Dollars ($15,000,000) exceeds the average
                  daily principal balance of the outstanding Revolving Loans and
                  Letter of Credit Accommodations during the immediately
                  preceding month (or part thereof) while this Agreement is in
                  effect and for so long thereafter as any of the Obligations
                  are outstanding, which fee shall be payable on the first day
                  of each month in arrears."



            (b)   Section 9.15 of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:

                  "9.15 Adjusted Tangible Net Worth. Borrower shall maintain its
                  Adjusted Tangible Net Worth, measured as at the end of each
                  fiscal quarter, at an amount not less than the amount set
                  forth opposite such quarter:



                                 Minimum Adjusted Tangible
                                 -------------------------
 Fiscal Quarter Ending                   Net Worth
 ---------------------                  ------------
                              
        April 30, 2005                  $15,000,000
          July 31,2005                  $17,500,000
       October 31,2005                  $20,000,000
       January 31,2006                  $25,000,000
        April 30, 2006                  $28,000,000
          July 31,2006                  $28,000,000
       October 31,2006                  $28,000,000
       January 31,2007                  $34,000,000
        April 30, 2007                  $37,000,000


                  ; provided, however, if Borrower sells its common stock in an
                  initial public offering, Borrower and Lender will enter into
                  an amendment to this Agreement, in form and substance
                  satisfactory to Lender, to reset this minimum Adjusted
                  Tangible Net Worth covenant as of the last day of each fiscal
                  quarter of Borrower after December 31,2005 at levels as
                  reasonably determined by Lender based upon the Borrower's
                  projections for such time periods."

            (c)   The first sentence of Section 12.l (a) of the Loan Agreement
is hereby amended and restated in its entirety to read as follows:

                  "This Agreement and the other Financing Agreements shall
                  become effective as of the date set forth on the first page
                  hereof and shall continue in full force and effect for a term
                  ending on April 2, 2007."

            (d)   Sections 12.l (c)(i) and (ii) of the Loan Agreement are hereby
amended and restated in their entirely to read as follows:



             Amount                                   Period
           ----------                                --------
                                     
(i)      1% of the Maximum Credit       from the date of this Agreement
                                        to and including April 2, 2006

(ii)     5% of the Maximum Credit       from April 3, 2004 to and
                                        including April 1, 2007


            (c)   The last paragraph of Section 12.1(c) of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:

                                        2



                  "Notwithstanding the foregoing, the early termination fee
                  shall be waived (a) if the termination is due to the
                  refinancing of the Obligations by Wachovia Bank, National
                  Association and if at the time of such refinancing there is no
                  Event of Default or event or circumstance which, with notice
                  or passage of time or both, would become an Event of Default
                  under this Agreement, or (b) if Borrower chooses to exercise
                  the right to terminate this Agreement and the other Financing
                  Agreements upon any assignment by Lender of its rights or
                  obligations under or related to this Agreement or the other
                  Financing Agreements to a non-U.S. Lender, defined as any
                  Lender that is not a "United States person," within the
                  meaning of Section 7701(a)(30) of the Code."

      2. Consent. Lender hereby consents to the IPO and acknowledges and agrees
that consummation of the IPO shall not constitute an Event of Default under
Section 10.1(l) of the Loan Agreement.

      3. Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective, and before Lender is required to extend any credit to Borrower as
provided for by this Amendment.

            (a) Amendment. This Amendment, fully executed in a sufficient number
of counterparts for distribution to all parties.

            (b) Extension Fee. An amendment fee in the amount of Forty Thousand
Dollars ($40,000), which fee is fully earned as of and due and payable on the
date hereof.

            (c) Representations and Warranties. The representations and
warranties set forth herein and in the Loan Agreement must be true and correct.

            (d) Other Required Documentation. All other documents and legal
matters in connection with the transactions contemplated by this Amendment shall
have been delivered or executed or recorded and shall be in form and substance
satisfactory to Lender.

      4. Representations and Warranties. Borrower represents and warrants as
follows:

            (a) Authority. Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, and to perform its obligations
hereunder and under the Financing Agreements (as amended or modified hereby) to
which it is a party. The execution, delivery and performance by Borrower of this
Amendment have been duly approved by all necessary corporate action and no other
corporate proceedings are necessary to consummate such transactions.

            (b) Enforceability. This Amendment has been duly executed and
delivered by Borrower. This Amendment and each Financing Agreement (as amended
or modified hereby) is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, and is in full force
and effect.

            (c) Representations and Warranties. The representations and
warranties contained in each Financing Agreement (other than any such
representations or warranties that,

                                        3



by their terms, are specifically made as of a date other than the date hereof)
are correct on and as of the date hereof as though made on and as of the date
hereof.

            (d) Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.

            (e) No Default. No event has occurred and is continuing that
constitutes an Event of Default.

            (f) No Duress. This Amendment has been entered into without force or
duress, of the free will of Borrower. Borrower's decision to enter into this
Amendment is a fully informed decision and Borrower is aware of all legal and
other ramifications of such decision.

            (g) Counsel. Borrower has read and understands this Amendment, has
consulted with and been represented by legal counsel in connection herewith, and
has been advised by its counsel of its rights and obligations hereunder and
thereunder.

      5. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of New York (without giving effect to principals of conflicts
of law).

      6. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.

      7. Reference to and Effect on the Financing Agreements.

            (a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof or
words of like import referring to the Loan Agreement, and each reference in the
other Financing Agreements to "the Loan Agreement", "thereof" or words of like
import referring to the Loan Agreement, shall mean and be a reference to the
Loan Agreement as modified and amended hereby.

            (b) Except as specifically amended above, the Loan Agreement and all
other Financing Agreements, are and shall continue to be in full force and
effect and are hereby in all respects ratified and confirmed and shall
constitute the legal, valid, binding and enforceable obligations of Borrower to
Lender.

            (c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lender under any of the Financing Agreements, nor
constitute a waiver of any provision of any of the Financing Agreements.

                                        4



            (d) To the extent that any terms and conditions in any of the
Financing Agreements shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified or amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified or amended
hereby.

      8. Ratification. Borrower hereby restates, ratifies and reaffirms each and
every term and condition set forth in the Loan Agreement, as amended hereby, and
the Financing Agreements effective as of the date hereof.

      9. Estoppel. To induce Lender to enter into this Amendment and to continue
to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, as of the date hereof, there exists no Event of
Default and no right of offset, defense, counterclaim or objection in favor of
Borrower as against Lender with respect to the Obligations.

      10. Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.

      11. Severability. In case any provision in this Amendment shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of this Amendment and the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.

                  [Remainder of Page Left Intentionally Blank]

                                        5



      IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.

                                       CITI TRENDS, INC.,
                                       a Delaware corporation

                                       By: /s/ Tom Stoltz
                                           -------------------------------------
                                       Name: Tom Stoltz
                                             -----------------------------------
                                       Title: CFO
                                              ----------------------------------

                                       CONGRESS FINANCIAL CORPORATION
                                       (SOUTHWEST),
                                       a Texas corporation

                                       By: /s/ Joe T. Curdy
                                           -------------------------------------
                                       Name: Joe T. Curdy
                                             -----------------------------------
                                       Title: Vice President
                                              ----------------------------------

                                       6

                                                                    EXHIBIT 10.9

                                 LEASE AGREEMENT

                         MEYER WAREHOUSE, LLC, LANDLORD

                                       AND

                           CITI TRENDS, INC., TENANT

                                      INDEX

1.    Leased Premises
2.    Term of Lease and Rent
3.    Operating Expenses and Taxes
4.    Triple Net Lease
5.    Option to Renew
6.    General Agreement Between Landlord and Tenant
7.    Failure of Landlord to Maintain Premises
8.    Alterations and Additions
9.    Liens
10.   Insurance
11.   Waiver of Subrogation
12.   Hold Harmless
13.   Replacement of Building
14.   Condemnation of Premises
15.   Entry by Landlord
16.   Assignment and Subletting
17.   Holding Over
18.   Default
19.   Quiet Enjoyment
20.   As-is
21.   Estoppel Certificate
22.   Subordination
23.   Notices
24.   Authority of Parties
25.   Leasing Commission or Brokerage Fees
26.   Late Charges
27.   Interest on Past-Due Obligations
28.   Rules and Regulations
29.   Security Measures
30.   Tenant's Responsibility Regarding Hazardous Substances
31.   Easements and Covenants
32.   Landlord's Liability
33.   Fair Dealing; Consents; Assignment
34.   Purchase Option
35.   General Provisions

Exhibit A   Legal Description
Exhibit B   Site Plan
Exhibit C   Rules and Regulations
Exhibit D   Easements and Covenants
Exhibit E   Lien Waiver



                                 LEASE AGREEMENT

      THIS LEASE AGREEMENT ("Lease") is made and entered into this 30th day of
September 2004, by and between MEYER WAREHOUSE LLC, a Georgia limited liability
company (the "Landlord"), and Citi Trends, Inc., a Delaware corporation
("Tenant"). This Lease supersedes and replaces all negotiations and other
agreements between the parties. Tenant has submitted to Landlord a signed
financial statement demonstrating its net worth and showing an ability to
perform.

      1. LEASED PREMISES. In consideration of the payment of the rent and the
performance of the agreements of Tenant hereinafter set forth, Landlord does
hereby lease unto Tenant and Tenant does hereby lease from Landlord the real
property and improvements, situate in the County of Chatham, and State of
Georgia, described on Exhibit A (the "Premises"), including a building
encompassing approximately Seventy-One Thousand Eight Hundred Seventy-Five
(71,875) gross square feet (the "Building"), as shown on the drawing attached as
Exhibit B. The Building is numbered as 104 Coleman Boulevard, Savannah, Georgia
31408.

      Tenant is accepting the Premises "as-is." Tenant will return the trash
compactor to Southern Paper Recovery (or make arrangements to keep the compactor
and have it removed before the Premises are restored).

      2. TERM OF LEASE AND RENT.

            a. TERM. The initial term of this Lease shall be for two (2) years,
      commencing on October 1, 2004 (the "Commencement Date") and terminating on
      the last day of September, 2006.

            b. ANNUAL BASE RENT. The Annual Base Rent for each full year of the
      Term of this Lease shall be payable in lawful money of the United States
      and shall be the sum of Two Hundred Fifteen Thousand Dollars ($215,000)
      payable in advance in monthly installments of Seventeen Thousand Nine
      Hundred Sixteen and 67/100 Dollars ($17,916.67) per month. The Annual Base
      Rent is not calculated on a per-square-foot basis and shall not be
      adjusted regardless of the actual square footage of the Building or the
      Premises except as may elsewhere be provided for in this Lease.

            c. OPERATING EXPENSE RENT. This is a triple-net lease. Subject to
      the provision below concerning expenses on parking lots, roof and
      structure in excess of $10,000, in addition to the payment of Annual Base
      Rent, Tenant shall pay any and all property and maintenance costs and all
      operating expenses, taxes, and insurance attributable to the Premises
      ("Operating Expense Rent"), whether directly under Section 3 or under
      Section 4 or by reimbursing Landlord or some combination thereof.

            d. PAYMENT OF RENT. Any and all Annual Base Rent and the amount of
      the Operating Expense Rent, if any, paid directly to Landlord
      (collectively "Rent") shall be paid in advance on or before the first day
      of each calendar month during said term at the office of Landlord at 211
      East York Street, Savannah, Georgia 31401, or at such other place as
      Landlord may designate from time to time in writing. In the event rent due
      under this Lease shall commence (or end) on any day other than the first
      (or last) day of a calendar month, the rental payments for the partial
      month shall be prorated to reflect the actual number of days the Premises
      were under lease.



      3. OPERATING EXPENSES AND TAXES.

            a. The term "Operating Expenses and Taxes" means the sum of:

                  (1) All operating expenses of any kind or nature with respect
            to the Premises and shall include, but not be limited to, the
            following costs:

                        (a) building supplies;

                        (b) utility costs incurred in connection with all energy
                  sources for the Building, such as natural gas and electricity;

                        (c) water and sewer service;

                        (d) janitorial services required by the Lease;

                        (e) general maintenance of the Premises, including but
                  not limited to the interior, the exterior, the roof, and the
                  heating, electrical, and air conditioning systems of the
                  Building, but excluding repairs of the parking lot, roof and
                  structure beyond $10,000 per occurrence;

                        (f) landscaping and maintenance of the Premises;

                        (g) maintenance, repair, replacement, and striping of
                  all parking areas, subject to the limitation contained in (e);

                        (h) fire and extended coverage, public liability
                  insurance, "all risk" insurance, rental value insurance
                  covering a period of twelve (12) months, and all other
                  insurance required to be obtained by the Lease;

                        (i) labor costs incurred in the operation and
                  maintenance of the Premises, including wages and other
                  payments, costs to Landlord for workmen's compensation and
                  disability insurance, payroll taxes, and reasonable fringe
                  benefits;

                        (j) legal, accounting, inspection, and consultation fees
                  reasonably and necessarily incurred in connection with any
                  breach of this Lease if Landlord is the prevailing party;

                        (k) expenditures necessary to comply with ADA and any
                  other laws, rules, regulations, or orders of any governmental
                  authority having jurisdiction and expenditures solely of an
                  energy conservation, security, or handicapped access nature
                  required by any laws, rules, regulations, or orders of any
                  governmental authority having jurisdiction.

                  (2)   All taxes and assessments of any kind or nature against
            the Premises, including but not limited to:

                        (a) any form of assessment, special assessment, license
                  fee, license tax, business license fee, business license tax,
                  commercial rental tax, levy, charge, penalty, or other tax
                  imposed by any authority having the direct



                  power to tax, including any city, county, state, or federal
                  government, or any school, agricultural, lighting, water,
                  drainage, or other municipal, improvement, or special
                  district, against the Building, the Premises, or any legal or
                  equitable interest of Landlord therein but excluding
                  Landlord's income tax; and

                        (b) any assessment, tax, fee, levy or charge in
                  substitution, partially or totally, of or in addition to any
                  assessment, tax, fee, levy, or charge which may be imposed by
                  governmental agencies for such services as fire protection;
                  street, sidewalk, and road maintenance; refuse removal; and
                  for other governmental services.

                  (3) Operating Expenses and Taxes shall not include:

                        (a) depreciation and amortization of Landlord;

                        (b) interest and principal payments on mortgages and
                  other debt, financing and refinancing costs, if any, of
                  Landlord;

                        (c) any leasing or brokerage commission or compensation,
                  including any advertising or promotional expense (except in
                  the event of a breach);

                        (d) repair expenses of the parking lots, roof, or
                  structural that are in excess of $10,000 per occurrence. (For
                  parking lot repairs, the only expenses for which Landlord
                  shall be liable are expenses in excess of $10,000 for each
                  occurrence to repair the parking lot to the condition it is
                  now; Landlord shall not be responsible for any upgrades.)

                        (e) payments to any affiliate of Landlord for goods or
                  services in excess of "market" costs;

                        (f) Landlord's federal, state, or local income tax; and

                        (g) Landlord's executive salaries and bonuses.

                  (4) "Operating Cost Year" means the twelve- (12) month period
            beginning on the Commencement Date of this Lease and any twelve-
            (12) month period thereafter.

            b. Any Operating Expense Rent payable by Tenant shall be payable as
      follows, unless otherwise provided: During the term hereof, Tenant shall
      pay to Landlord monthly in advance and every month thereafter during the
      initial term one-twelfth (1/12th) of the estimated amount of such
      Operating Expense Rent as determined by Landlord (and, if possible, based
      on the actual expenses for the preceding twelve- (12) month period). Such
      initial budget may be adjusted at the end of each twelve- (12) month
      period by Landlord, based on actual and expected increases; and Tenant
      shall pay installments of Operating Expense Rent according to such
      estimate or any adjustment thereof. In the event such estimated Operating
      Expense Rent exceeds the actual Operating Expense, Landlord shall credit
      Tenant for any excess payment within thirty (30) days of the end of each
      twelve- (12) month period. In the event such estimated Operating Expense
      Rent is less than the actual Operating Expense, Tenant shall pay the
      difference to Landlord promptly within thirty (30) days of demand
      therefor.

                                      -3-



            c. Landlord shall maintain books of account, which shall be open
      during normal business hours to Tenant and its representatives for audit
      and inspection for one (1) year after billing for Operating Expense Rent
      so that Tenant can determine that such Operating Expense costs have, in
      fact, been paid or incurred and are within the definition of Operating
      Expenses. Tenant shall give Landlord at least thirty (30) days' notice of
      such inspection. Tenant shall pay the costs of such audit and any of
      Landlord's out-of-pocket expenses associated therewith.

            d. Even though the Lease has expired and Tenant has vacated the
      Premises, when the final determination is made of Tenant's share of actual
      Operating Expense for the previous twelve- (12) month period, Tenant
      shall, within thirty (30) days after receipt of written demand therefore
      together with reasonably detailed support for the charges, pay any
      increase due over the estimated amount previously paid and, conversely,
      any overpayment made shall be rebated by Landlord to Tenant within thirty
      (30) days after Landlord has determined the amount of Operating Expense
      has exceeded costs incurred. Failure of Landlord or Tenant to submit
      statements as called for herein shall not be deemed to be a waiver of
      Tenant's and/or Landlord's requirement to pay sums as herein provided,
      unless Landlord fails to submit a final invoice within one (1) year after
      the Lease terminates or Tenant fails to request a final invoice within one
      (1) year after the Lease terminates.

            e. Notwithstanding subsections (b), (c), and (d) above, Tenant shall
      arrange for and perform all maintenance and repairs and other items that
      would constitute operating expenses hereunder (except for payment of real
      estate taxes and Landlord's insurance). Notwithstanding the foregoing,
      Tenant shall pay in advance to Landlord monthly one-twelfth (1/12) of the
      taxes.

            f. Tenant shall pay upon execution hereof and yearly thereafter to
      Landlord an amount equal to one (1) year's payment of the insurance
      Landlord may maintain under Section 10 below or elsewhere.

      4. TRIPLE NET LEASE.

      It is the purpose and intent of Landlord and Tenant that this Lease be a
triple net Lease.

            a. Notwithstanding anything to the contrary anywhere hereunder,
      including in Sections 2, 3, 4, and 6, Tenant shall be responsible, at its
      sole cost and expense, for the entire and full maintenance, repair, and
      upkeep of the Premises and the Building and for the maintenance, repairs,
      replacements, and matters, including but not limited to those described in
      said sections and elsewhere; provided, however, Tenant shall not be
      responsible for repairs to parking lot, roof, or structure more than
      $10,000 per occurrence. (For parking lot repairs, the only expenses for
      which Landlord shall be liable are expenses in excess of $10,000 for each
      occurrence to repair the parking lot to the condition it is now. Landlord
      shall not be responsible for upgrades.) Tenant shall keep the Property,
      Premises, Building, grounds, and parking lot in good working order and
      repair and shall fix or replace all items which are broken. Tenant shall
      comply with all laws, rules, regulations, codes, and ordinances, at its
      expense. Landlord and its agents shall be entitled to periodically enter
      the Premises for the reason of inspection and to observe whether the
      Tenant is properly maintaining the Premises. Landlord shall be under no
      duty to inspect. If Landlord does inspect, such inspection shall not be a
      waiver of any right of Landlord or duty of Tenant. If after inspection of
      the Premises by Landlord, Landlord makes a good-faith determination that
      the maintenance is inadequate, Landlord shall notify Tenant in writing of
      such determination. In the event Tenant fails to correct such situation
      within thirty (30) days of receipt of such

                                      -4-


      notice or if the nature of the situation is such that it cannot reasonably
      be corrected within a period of thirty (30) days and work thereon has not
      been initiated and diligently pursued to completion, Landlord shall have
      the right to declare a default; and Landlord shall also have the right to
      elect to perform and assume the maintenance and repair of the Premises and
      to perform the obligations set forth in Sections 2,3,4, and 6 hereof, all
      at Tenant's expense. In either event, the provisions of Sections 2,3,4,
      and 6.b. relating to maintenance shall apply.

            b. Under Sections 3.e. and 4.a. above, Tenant shall be responsible
      for and shall provide all service, maintenance, repair, and replacement to
      the Premises except those repairs or replacements excluded in Section 3a,
      including but not limited to that required under the definition of
      Operating Expenses, including (without limitation) mechanical systems,
      lighting, roof, utilities, roads, parking, landscaping, and grounds. Such
      activities shall be at least consistent with the standard of service for
      similar buildings. If Tenant does not comply, Landlord, at its option
      thereafter, may provide all of such service, at Tenant's expense.

            c. In connection with any repair where Tenant asks for
      reimbursement, Tenant will notify Landlord at least twenty (20) days prior
      to initiating the repair and provide copies of the bids and detailed
      information on the repair at that time. Landlord shall only be liable for
      costs where the notices were timely given and only for reasonable and
      necessary expenses above the $10,000 per occurrence for parking lot, roof,
      and structure.

            d. Tenant shall provide telephone service, comprehensive general
      liability insurance, workman's compensation insurance (or its equivalent),
      and security services and insurance on Tenant's property, all at Tenant's
      sole cost.

            e. At Landlord's option, Landlord (if it is providing services at
      Tenant's expense) may delegate the responsibility of providing services
      under this Lease to one or more rental managers or, with Tenant's prior
      consent, to Tenant.

      5. OPTION TO RENEW. Tenant shall have the option to renew and extend this
Lease for one (1) additional term of one (1) year, as long as Tenant is not in
default of the lease beyond any applicable cure periods.

            a. Tenant is given the option to extend the term on all the
      provisions contained in this Lease, including Annual Base Rent, for a one-
      (1) year period ("First Extended Term") by giving written notice of
      exercise of the option ("First Option Notice") to Landlord at least six
      (6) months but not more than one (1) year before the expiration of the
      initial term.

            b. Tenant, if it exercises the option in a. above and is not in
      default beyond any applicable cure periods, is given the option to extend
      the terms for a two- (2) year period (the "Second Extended Term") by
      giving written notice of exercise of the option (the "Second Option
      Notice") to Landlord at least six (6) months prior to the end of the first
      extended term but not more than one (1) year prior to the end of the first
      extended term. If Tenant exercises this option, the following shall be
      applicable:

                  (1) The Annual Base Rent shall be the greater of (a) $236,500
            per year, payable in advance monthly or (b) an amount determined by
            the Consumer Price Index. The index used shall be the Consumer Price
            Index for Savannah, Georgia, if available, or the area selected by
            Landlord near Savannah, Georgia. The amount shall be the Annual Base
            Rent multiplied by a fraction, the denominator (top) of which is the
            Consumer Price Index for the month which is six (6) months prior to
            the beginning of the second extended term and the numerator (bottom)
            of which is the

                                      -5-



            same Consumer Price Index for the month which is six (6) months
            prior to the date of the initial term of this Lease.

                  (2) If Tenant exercises this second extended term, the figure
            of $10,000 found in Sections 3.a.(1)(e), 3.a.(3)(d), 4.a., and 4.c.
            shall be changed to $150,000.

            c. Tenant shall have no other right to extend the term beyond that
      provided above.

      6. GENERAL AGREEMENT BETWEEN LANDLORD AND TENANT:

            a. For and in consideration of leasing of the Premises aforesaid,
      Tenant does covenant and agree as follows:

                  (1) to pay the rent for the Premises hereinabove provided
            promptly when due and payable;

                  (2) to pay directly to the provider all charges for telephone
            services and utilities to the Premises promptly when due and
            payable;

                  (3) except as specifically permitted herein, to order no
            improvements or repairs and, at the expiration of this Lease, to
            surrender and deliver up the Premises in at least as good order and
            condition as when the same were entered upon, ordinary wear and tear
            excepted;

                  (4) to use the Premises for warehousing, distribution, office,
            and related business purposes and for no other purposes unless
            approved in advance by Landlord in writing, which approval will not
            be unreasonably withheld; to use the Premises for no purposes
            prohibited by the ordinances of the city or county in which the
            Premises are located or by the laws, rules, regulations, and codes
            of the United States or the State of Georgia, now in force or
            hereafter enacted; and for no unlawful purpose whatsoever; Tenant
            agrees not to request approval for any manufacturing activity or any
            activities involving storage of Hazardous Substances;

                  (5) to neither permit nor suffer any disorderly conduct, odor,
            noise, dust, or nuisance about the Premises having a tendency to
            unreasonably annoy or unreasonably disturb any persons occupying
            nearby properties;

                  (6) to commit no waste on the Premises;

                  (7) to not allow or permit heavy trucks on asphalt;

                  (8) to fully comply with all federal, state and local codes,
            statutes, laws, and ordinances ("Law"). Tenant shall be responsible
            to make and pay for any and all repairs and alterations to the
            components of the Premises (subject to the terms and provisions of
            this Lease) and to any appurtenances situated upon the Premises that
            may be required of the Landlord or Tenant as a result of any Law in
            effect at the time of execution of this Lease or which may be
            enacted during the term of this Lease.

                  (9) to neither permit nor suffer the Premises, or the walls,
            floors, doors, windows, roof, or ceiling thereof, to be endangered
            by overloading;

                                      -6-



                  (10) to permit Landlord to place a For Rent sign upon the
            Premises at any time one hundred eighty (180) days before the
            expiration of the term or any extended term of this Lease; and

                  (11) to surrender and deliver up the possession of the
            Premises promptly at the expiration of this Lease or in case of
            termination of this Lease on account of a breach of any one or more
            of the covenants or agreements hereof.

            b. For and in consideration of this Lease, Tenant does covenant and
      agree to pay all Operating Expenses and Taxes, including (without
      limitation) assessments for water and sewer charges levied against such
      Premises and all charges for heating, cooling, gas, power, light,
      telephone, and all other services and utilities applied to the Premises:

                  (1) to keep and maintain all exterior and interior
            improvements upon the Premises (including lighting, landscaping, and
            blacktop or its equivalent) clean and neat in appearance and in good
            order and repair and to repair and maintain the same as the need
            arises;

                  (2) to furnish building standard heating and ventilating and
            air conditioning for the office space as appropriate for the season;

                  (3) to furnish janitorial service for the Building.

      7. FAILURE OF LANDLORD TO MAINTAIN PREMISES. If Landlord refuses or
neglects to pay an amount required under Section 3.a. and under Section 4.c.
(which is only to pay for the reasonable costs for parking lot, roof, and
structure repair costs above $10,000 per occurrence and any other matters that
Landlord elects to do) and if Tenant has paid all amounts due hereunder and
performed hereunder and complied with Section 4.c., Tenant may deduct the amount
owed by Landlord from rent, with applicable interest. This shall be Tenant's
sole remedy, notwithstanding any other provision herein.

      8. ALTERATIONS AND ADDITIONS.

            a. Tenant shall not make or allow to be made any alterations,
      additions, or improvements to or of the Premises or any part thereof
      without the prior written consent of Landlord, which shall not be
      unreasonably withheld. Any alterations, additions, or improvements to or
      of the Premises (but excepting furniture and equipment) and fixtures shall
      become a part of the realty and belong to Landlord and shall be
      surrendered with the Premises at the expiration of this Lease, at
      Landlord's option. No consent shall be needed for any non-structural
      alterations, additions, or improvements to the Premises which (i) cannot
      reasonably be expected to decrease the value of the Premises and (ii) the
      cost of which does not exceed $40,000.

            b. In the event Landlord consents to the making of any alterations,
      additions, or improvements to the Premises by Tenant, the same may be made
      by Tenant at Tenant's sole cost and expense in accordance with all
      applicable codes, ordinances, and other governmental regulations or, by
      mutual agreement, by Landlord at Tenant's sole cost.

      9. LIENS. Tenant shall keep the Premises free of mechanics',
materialmen's, judgment, tax, and all other liens and encumbrances, including
but not limited to those arising out of any construction or other work done for,
or debts incurred by, Tenant. Not less than twenty-one (21) days prior to the
commencement of any construction, alteration, or addition to the Premises,
Tenant shall notify Landlord in writing of its intention to commence the same
and provide written evidence of its

                                      -7-



ability to pay for the work; and Landlord shall have the right to post and
maintain on the Premises such notices of non-responsibility as may be allowed
under applicable law.

      10. INSURANCE.

            a. Tenant agrees to provide comprehensive general liability
      insurance with combined single limits of not less than $2,000,000 per
      occurrence, written with a company authorized to do business in the State
      of Georgia and having a Best's Rating of at least A or its equivalent, and
      shall name Landlord, Landlord's mortgagees, or their assigns under said
      insurance policy as additional named insureds. The limit of said insurance
      shall not, however, limit any liability of Tenant here under. Tenant shall
      furnish to Landlord a certificate of insurance indicating that said policy
      is in full force and effect, that the premium is fully paid, that Landlord
      and Landlord's mortgagees have been named as additional insureds, and that
      said policy will not be canceled unless at least thirty (30) days' prior
      written notice of the proposed cancellation has been given to Landlord and
      Landlord's mortgagees.

            b. Landlord shall obtain and provide fire and extended coverage and
      property damage insurance in an amount equal to the fair market value of
      the Premises, written with a company authorized to do business in the
      State of Georgia and having a Best's Rating of at least A minus or its
      equivalent, and may, at Landlord's option, name Tenant under said
      insurance policy as an additional insured. Upon at least ten (10) days'
      prior written request, Landlord shall furnish Tenant a certificate of
      insurance indicating that said policy is in full force and effect, that
      the premium is fully paid, and that said policy will not be canceled
      unless at least thirty (30) days' prior written notice of the proposed
      cancellation has been given to Tenant. Said policy may contain rental
      interruption insurance, at Landlord's option. Tenant shall reimburse
      Landlord for the full and complete cost of said policy or, at Landlord's
      option, shall pay the bill for said policy within ten (10) days of
      presentment.

            c. Tenant shall purchase workmen's compensation insurance (or its
      equivalent) in compliance with all state, federal, and other governmental
      laws, rules, and regulations.

            d. Tenant shall fully insure any and all personal properly and trade
      fixtures owned by Tenant on the Premises.

            e. All insurance of Tenant under this Lease shall be written with an
      insurance company licensed to do business within the State of Georgia,
      with ratings of A and above, and not disapproved by Landlord (which
      disapproval shall not be unreasonable), with such policies to be
      non-assessable and fully paid and with thirty (30) days' prior notice to
      Landlord before cancellation.

            f. Notwithstanding anything herein to the contrary, Tenant shall
      maintain at least the amounts and coverages which are customarily
      maintained, including umbrella coverage. If it is customary to have more
      insurance or higher limits, Landlord may require Tenant to obtain such
      additional insurance.

            g. Upon request, Tenant will provide evidence of insurance. If
      Tenant fails to secure any policy, Landlord, at its option, may secure the
      policy, at Tenant's expense.

            h. Tenant shall cause Landlord and Richard Meyer III to be named
      insureds or additional insureds, as their interests may appear, under any
      policy which Tenant obtains.

      11.   WAIVER OF SUBROGATION. Landlord and Tenant agree to request in any
policy providing fire and extended coverage insurance and any other property
damage insurance as

                                      -8-



required hereunder a waiver of any right of subrogation any such insurer of
either party may acquire or claim against the other party by reason of the
payment of any loss under such insurance with respect to damage to the Premises.

      12. HOLD HARMLESS. Tenant agrees to and shall indemnify and hold harmless
(including reasonable attorney's fees) Landlord against and from any and all
claims arising from any negligent act or omission of Tenant and its officers,
agents, and employees or arising out of the Premises or for a breach hereunder.

      13. REPLACEMENT OF BUILDING.

            a. In the event of a casualty to the Premises, a portion thereof, or
      any portion of the Building which causes the Building to become
      untenantable or prevents Tenant from using the Premises and the Building
      for their intended purpose on account of damage by fire, act of God, or
      other casualty, Landlord shall be given the option, in Landlord's sole
      discretion, to correct the deficiency or condition which shall render the
      Premises untenantable or to terminate this Lease.

            b. Tenant shall immediately notify Landlord of any damage to the
      building. Within twenty (20) days after receipt of written notice from
      Tenant describing the damage to the Premises, Landlord shall notify Tenant
      in writing as to whether or not it elects to repair the same. If in the
      reasonable opinion of Landlord it is not feasible to repair or rebuild the
      same, Landlord may terminate this Lease. In the event Landlord elects to
      repair said Premises, Landlord shall have one hundred twenty (120) days
      from the date of its notice to Tenant to effect such repairs; and Landlord
      shall diligently pursue the repair or replacement of the Building and the
      Premises and shall use commercially reasonable efforts to cause the repair
      or restoration to be completed and to restore the Building and Premises to
      at least the condition existing on the date immediately preceding the date
      the damage occurred. Landlord will not be liable or responsible if the
      repairs take longer.

            c. During the period from the date of Landlord's receipt of notice
      from Tenant of damage to the Premises until the Premises are restored to
      their prior condition and possession thereof given to Tenant, the rent
      shall abate, but only to the extent loss of rents insurance is paid to
      Landlord. Insurance against loss of rents shall be carried on the Premises
      at the cost and expense of Tenant. In the event of a scheduled rent loss
      on said policy, the appropriate proceeds as a result of the same shall be
      paid to Landlord and shall be credited against rent due from Tenant on a
      monthly basis for the time the Premises are not tenantable. In the event
      said repairs have not been completed within the period above specified,
      Tenant, at its option (if the damage was not the result of Tenant's
      negligence or the wilful act of Tenant and/or its agents, employees, and
      subcontractors), which must be exercised in writing within ten (10) days
      from the expiration of the time period specified and prior to completion
      of construction, may terminate this Lease. If either Landlord or Tenant
      terminates this Lease as provided in this section, any monies due and
      owing to Landlord shall be paid by Tenant to the date of the casualty or
      the date Tenant vacates the Premises, whichever is later; and all future
      obligations on the part of both parties hereto shall cease and Landlord
      shall incur no further obligations to Tenant whatsoever from and after
      such termination of this Lease.

            d. Notwithstanding anything to the contrary contained in this
      section, Landlord, at its option, shall not have any obligation whatsoever
      to repair, reconstruct, or restore the Premises when the damage resulting
      from any casualty occurs during the last twelve (12) months of the term of
      this Lease or any extension thereof.

                                      -9-



            e. The parties hereto waive the provisions of any statute which
      relate to termination of leases when leased property is destroyed and
      agree that such event shall be governed by the terms of this Lease.

            f. Notwithstanding anything to the contrary contained in this
      section, Tenant, as long as Tenant is not in default, may, in the event
      Landlord elects to terminate the Lease pursuant to this section, at its
      option, within twenty (20) days of termination, elect to purchase the
      Premises in accordance with Section 34 of this Lease. In such event, all
      proceeds or payments from any Insurance required to be carried under the
      terms of this Lease shall be paid to Tenant at closing, other than rental
      interruption insurance.

      14. CONDEMNATION OF PREMISES.

            a. If the entire Premises, at any time during the term of this Lease
      or any extension thereof, shall be taken by the exercise of a power of
      eminent domain, this Lease shall then terminate as of the date of title
      vesting in such proceeding, all rentals shall be paid up to that date, and
      Tenant shall have no claim against Landlord or the condemning authority
      for the value of the unexpired term of this Lease.

            b. In the event of a taking of more than twenty-five (25%) percent
      of the Building or the Premises which renders the Premises or Building
      unfit for the normal and proper conduct of the business of Tenant, Tenant
      shall have the right to cancel and terminate this Lease effective upon the
      actual taking. Tenant must exercise such option to terminate no later than
      thirty (30) days after such partial taking. All rentals shall be paid up
      to that date, and Tenant shall have no claim against Landlord or the
      condemning authority for the value of any unexpired term of this Lease. If
      this Lease shall not be canceled as above provided, it shall continue in
      effect; and the rental after such partial taking shall be that part of the
      rental herein agreed to be paid which the value of the untaken part of the
      Premises, immediately after the taking, bears to the value of the entire
      Premises immediately before the taking. If Tenant's continued use of the
      Premises requires alterations and repairs by reason of a partial taking,
      Landlord may elect to terminate this Lease within thirty (30) days after
      the actual taking or, subject to Tenant's right of termination above
      provided, may elect to continue this Lease, in which event Landlord shall
      make all necessary alterations and repairs at its expense which are
      required because of such partial taking. Until such alterations and
      repairs are completed, an equitable abatement of rent shall be made to
      Tenant for any portion of the Premises unfit for occupancy and use in the
      conduct of Tenant's business or inaccessible for the period during which
      same is unfit for such occupancy and use or inaccessible.

            c. In the event of any condemnation or taking as aforesaid, whether
      whole or partial, Tenant shall not be entitled to any part of the award
      paid for such condemnation, Tenant hereby expressly waiving any right or
      claim to any part thereof. Although all such damages awarded in the event
      of any condemnation are to belong to Landlord, whether such damages are
      awarded as compensation for diminution in value of the leasehold or to the
      fee of the Premises, Tenant shall have the right to claim and recover from
      the condemning authority, but not from Landlord, such compensation as may
      be separately awarded or recoverable by Tenant in Tenant's own right on
      account of any and all damage to Tenant's business by reason of the
      condemnation and for or on account of any cost or loss to which Tenant
      might be put in removing Tenant's merchandise, furniture, fixtures,
      leasehold improvements, and equipment.

            d. Notwithstanding anything to the contrary contained in this
      section, Tenant may, in the event any full taking contemplated by this
      section occurs, at its option, elect to purchase the Premises in
      accordance with Section 34 of this Lease; and Tenant shall be

                                     -10-



      entitled to the whole of any award paid for such condemnation or taking up
      to the amount of the purchase price.

      15. ENTRY BY LANDLORD. Subject to Tenant's security and safety
requirements, Landlord reserves, and shall have, the right to enter the Premises
to inspect or to exhibit the Premises to prospective lenders, purchasers, or
tenants; to post notices of non-responsibility; to post signs; to make repairs
to the Premises or the Building that Landlord may reasonably deem necessary,
without abatement of rent, and may for that purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed, always providing that the entrances to the Premises, including all
loading docks, shall not be unreasonably blocked thereby and further providing
that the business of Tenant shall not be unreasonably impeded or disrupted. In
the event of an emergency, Landlord shall have the right to use any and all
reasonable means which Landlord may deem proper to open doors or gates in order
to obtain entry to the Premises or the Building without liability to Tenant.

      16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer,
mortgage, pledge, hypothecate, or encumber this Lease or any interest therein
and shall not sublet the Premises or any part thereof, or any right or privilege
appurtenant thereof, or allow any person (excepting the employees, agents,
servants, licensees, and invitees of Tenant) to occupy or use the Premises or
any portion thereof, or change the use of the Premises without the prior written
consent of the Landlord, which consent will not be unreasonably withheld. A
consent to one assignment, subletting, occupation, or use by another person
shall not be deemed to be a consent to any subsequent assignment, subletting,
occupation, or use by another person. Consent to any such assignment or
subletting shall not relieve Tenant of any liability under this Lease. Any such
assignment or subletting without Landlord's consent shall be void.

      Notwithstanding the foregoing, Tenant may assign this Lease or enter into
a sublease without the consent of Landlord if such assignment or sublease is to
a successor entity and part of the sale of all or a substantial portion of the
assets or controlling interest in the securities of the Tenant, the sale of the
pertinent operational division of the Tenant, merger or other corporate
reorganization, or transfer to an affiliated company, provided such assignment
or sublease is for the continued use of the Leased Premises for the purpose set
forth herein and Tenant shall not be released.

      17. HOLDING OVER. Should Tenant, or any of its successors in interest,
hold over the Premises, or any part thereof, after the expiration of the term of
this Lease and any renewals and extensions thereof, unless otherwise
specifically agreed in writing signed by both parties, such holding over shall
constitute and be construed as a tenancy from month to month only, subject to
all conditions and obligations required to be performed by the Landlord and
Tenant hereunder; provided, however, if Tenant holds over without the express
written consent of Landlord, all forms of Rent shall be payable at a monthly
rate equal to one and one-quarter times the Rent during the last month of the
term of this Lease.

      18. DEFAULT.

             a. DEFAULT OF TENANT AND REMEDIES OF LANDLORD:

                   (1) Tenant shall be in default of this Lease if any of the
              following events occur:

                   (a) The failure of Tenant to make payment of any rent or
               other sums required to be paid by Tenant under this Lease when
               and as the same shall become due and payable and such failure
               continues for five (5) days after Tenant's receipt of notice of
               such failure ;

                                     -11-



                        (b) The failure of Tenant to comply with any of the
                  covenants, agreements, terms or conditions contained in this
                  Lease other than those referred to in the foregoing Section
                  18.a.(1)(a), provided such default continues for a period of
                  twenty (20) days after written notice thereof from Landlord is
                  received by Tenant; provided further that Tenant's time to
                  cure such default shall be extended for such additional time
                  as shall be reasonably required for the purpose if Tenant
                  shall proceed with due diligence during such twenty- (20) day
                  period to cure such default and is unable by reason of the
                  nature of the work involved to cure the same within said
                  twenty (20) days;

                        (c) If (i) a petition is filed against Tenant seeking a
                  bankruptcy reorganization, arrangement, composition,
                  readjustment, liquidation, dissolution, or similar relief
                  under any present or future federal, state, or other statute,
                  law, or regulation and remains undismissed for an aggregate of
                  ninety (90) days; or (ii) any trustee, receiver, or liquidator
                  of Tenant or of all or any substantial part of Tenant's
                  properties or the Premises shall be appointed without the
                  consent or acquiescence of Tenant and such appointment remains
                  unvacated for an aggregate of ninety (90) days; or

                        (d) If Tenant vacates or abandons the Premises for a
                  period of thirty (30) consecutive days during the term hereof
                  without payment of rent.

                  (2) If Tenant is in default as provided in sub-paragraphs
            (1)(a), (b), (c), or (d) above or elsewhere, Landlord shall have the
            option, without further notice to Tenant or further demand for
            performance:

                        (a) to (i) institute suit against Tenant to collect each
                  installment of rent or other sum as it becomes due; or (ii)
                  accelerate the rental due for the balance of the term of this
                  Lease and sue for and collect the full amount of such future
                  rentals (discounted to date of judgment, with interest at
                  eight percent (8%)); and (iii) enforce any other obligation of
                  Tenant under this Lease;

                        (b) as a matter of right, to procure the appointment of
                  a receiver by any Court of competent jurisdiction upon
                  application and with notice to Tenant. All rents, issues, and
                  profits, income, and revenue from the Premises shall be
                  applied by such receiver to the payment of the rent, together
                  with any other obligations of Tenant under this Lease; or

                        (c) to re-enter and take possession of the Premises and
                  to remove Tenant and Tenant's agents and employees therefrom,
                  and either:

                              (i) Terminate this Lease and sue Tenant for
                        damages for breach of the obligations of Tenant under
                        this Lease; or

                              (ii) Without terminating this Lease, to relet,
                        assign, or sublet the Premises as the agent and for the
                        account of Tenant in the name of Landlord or otherwise,
                        upon the best terms and conditions Landlord may make
                        with the new tenant for such term or terms (which may be
                        greater or less than the period which would otherwise
                        have constituted the balance of the term of this Lease)
                        and on such conditions as Landlord, in its reasonable
                        discretion, may determine,

                                     -12-



                        and to collect the rent therefor; provided Landlord
                        shall in no way be responsible or liable for any failure
                        to relet the Premises or any part thereof or for any
                        failure to collect any rent due upon any such reletting.
                        In this event, the rents received on any such reletting
                        shall be applied first to the reasonable expenses of
                        reletting, including (without limitation) all
                        repossession costs, reasonable attorneys' fees, and any
                        real estate commission paid, reasonable alteration
                        costs, and reasonable expenses of preparing the Premises
                        for reletting, and thereafter toward payment of the
                        rental and of any other amounts payable by Tenant under
                        this Lease. If the sum realized shall not be sufficient
                        to pay such rent and other charges attributable to
                        Tenant under this Lease, within five (5) days after
                        demand, Tenant will pay to Landlord any such deficiency
                        as it accrues. Landlord may sue Tenant therefor as each
                        deficiency shall arise if Tenant shall fail to pay such
                        deficiency within said time allowed.

                  (3) In the event Landlord elects to re-enter or take
            possession of the Premises, Tenant shall quit and peaceably
            surrender the Premises to Landlord, and Landlord may enter upon and
            re-enter the Premises and possess and repossess itself thereof and
            may dispossess Tenant and remove Tenant and may have, hold, and
            enjoy the Premises and the right to receive all rental income of and
            from the same.

                  (4) No such re-entry or taking of possession by Landlord shall
            be construed as an election on Landlord's part to terminate or
            surrender this Lease or to prefer one form of action unless a
            written notice of such intention is served on Tenant.

                  (5) Notwithstanding any other provision, any amounts due from
            Tenant or to Landlord shall bear interest at one and one-half
            percent (1-1/2%) per month, compounded monthly.

                  (6) If either party shall at any time be adjudged in default
            hereunder, or if either party incurs any expense in connection with
            any action or proceeding instituted by either party reasonably
            necessary to protect, enforce or defend its rights under this Lease,
            and if the other party shall deem it necessary to engage attorneys
            to enforce its rights hereunder, then the prevailing party will be
            reimbursed by the other party for the reasonable expenses incurred
            thereby, including, but not limited to, courts costs and reasonable
            attorneys' fees. These fees and costs will be due if and when a
            final judgment or court order shall be obtained confirming or
            declaring that such party has committed an event or act of default
            under this Lease.

            b. DEFAULT OF LANDLORD AND REMEDIES OF TENANT:

                  (1) Landlord shall be in default of this Lease if any of the
            following events occur:

                        (a) The failure of Landlord to make payment of any sums
                  required to be paid by Landlord under this Lease when and as
                  the same shall become due and payable and such failure
                  continues for twenty (20) days after Landlord's receipt of
                  written notice of such failure.

                        (b) The failure of Landlord to comply with any of the
                  covenants, agreements, terms, or conditions contained in this
                  Lease other than those

                                     -13-



                  referred to in the foregoing Section 18.b.(1)(a), provided
                  such default continues for a period of twenty (20) days after
                  written notice thereof from Tenant is received by Landlord;
                  provided further that Landlord's time to cure such default
                  shall be extended for such additional time as shall be
                  reasonably required for the purpose if Landlord shall proceed
                  with due diligence during such twenty- (20) day period to cure
                  such default and is unable by reason of the nature of the work
                  involved to cure the same within said twenty (20) days.

                  (2) If Landlord is in material default after notice and right
            to cure as provided above, Tenant, at its election and after further
            written notice and if no cure is effected within ten (10) days
            thereafter, may terminate this Lease but waives the right to recover
            from Landlord damages, costs, and expenses, including reasonable
            attorneys' fees and court costs, arising from or caused by
            Landlord's default; or, Tenant may continue this Lease without
            termination and nonetheless recover from Landlord all such damages,
            costs, and expenses, including reasonable attorneys' fees and court
            costs, incurred as a result of such default (but not to exceed an
            amount equal to twelve (12) months' rent).

                  (3) Any amounts due from Landlord or to Tenant shall bear
            interest at one and one-half percent (1-1/2%) per month, compounded
            monthly.

      c. GENERAL PROVISIONS UPON DEFAULT:

                  (1) The enumeration of the foregoing remedies of Landlord does
            not exclude any other remedy of Landlord, but all remedies of
            Landlord are cumulative and shall be in addition to every other
            remedy now or hereafter existing at law or in equity.

                  (2) No failure by either party to insist upon the strict
            performance of any covenant, agreement, term, or condition of this
            Lease or to exercise any right or remedy consequent upon a breach
            thereof, and no acceptance of full or partial rent during the
            continuance of any such breach, shall constitute a waiver of any
            such breach or of such covenant, agreement, term, or condition. No
            covenant, agreement, term, or condition of this Lease to be
            performed or complied with by either party, and no breach thereof,
            shall be waived, altered, modified, or terminated except by written
            instrument executed by either party. No waiver of any breach shall
            affect or alter this Lease, but each and every covenant, agreement,
            term, and condition of this Lease shall continue in full force and
            effect with respect to any other then existing or subsequent breach
            thereof.

                  (3) No restriction, condition, or other form of limitation on
            or accompanying any check or other form of payment to Landlord shall
            limit (i) Landlord's right to insist upon the strict performance of
            every covenant, agreement, term, and condition of this Lease or (ii)
            Landlord's right to exercise every right and remedy consequent upon
            a breach hereof. Tenant agrees that Landlord may strike and
            disregard any such restriction, condition, or other form of
            limitation and retain such payment without being deemed to have
            agreed, explicitly or implicitly, to such restriction, condition, or
            other form of limitation and without being deemed to have been
            unjustly enriched, provided the amount of cash or its equivalent
            actually received by Landlord is applied toward any amounts payable
            by Tenant under this Lease.

                  (4) No restriction, condition, or other form of limitation on
            or accompanying any check or other form of payment to Tenant shall
            limit (i) Tenant's right to insist

                                     -14-



            upon the strict performance of every covenant, agreement, term, and
            condition of this Lease or (ii) Tenant's right to exercise every
            right and remedy consequent upon a breach hereof. Landlord agrees
            that Tenant may strike and disregard any such restriction,
            condition, or other form of limitation and retain such payment
            without being deemed to have agreed, explicitly or implicitly, to
            such restriction, condition, or other form of limitation and without
            being deemed to have been unjustly enriched, provided the amount of
            cash or its equivalent actually received by Tenant is applied toward
            any amounts payable by Landlord under this Lease.

      19. QUIET ENJOYMENT. Landlord represents and warrants that it has granted
no mortgage on the Premises and that Landlord is the owner of the Premises and
Building, free and clear of all liens and encumbrances, to the best of its
knowledge, and subject to all other matters of record, including those set forth
on Exhibit D. Landlord makes no other warranties, express or implied. Landlord
covenants that if, and so long as, Tenant pays all forms of Rent herein provided
and performs the covenants hereof, Landlord shall do nothing to affect Tenant's
right to peaceably and quietly have, hold, and enjoy the Premises for the term
herein mentioned, subject to the provisions of this Lease. Tenant accepts the
Premises in its existing condition, after thorough inspection, subject to all
zoning ordinances and regulations pertaining to the Premises, without
responsibility or warranty by Lessor; and further Tenant accepts the Premises
subject to easements, rights-of-way, restrictive covenants, and reservations of
record. The Premises have been inspected thoroughly by Tenant and Tenant's
independent inspectors prior to executing this Lease, and the Premises have been
found by Tenant to be satisfactory for Tenant's intended use. Tenant agrees to
accept the Premises in its as-is condition and rely on its own investigation.

      20. AS-IS. Tenant hereby acknowledges, certifies, warrants, represents,
and agrees, in connection with the lease of the Premises, that it has thoroughly
examined and studied the Premises and all aspects thereof and has performed
examinations and investigations of the Premises, including, specifically but
without limitation, examinations and investigations for the presence of
hazardous substances, materials, or wastes (as those terms may be defined by
applicable federal or state law, rule, or regulation) on the Premises. Tenant
warrants, represents, and agrees that it is sophisticated and knowledgeable and
that it has relied solely upon its own investigation. Notwithstanding anything
to the contrary herein, it is expressly understood and agreed that Tenant leases
(and if it buys, buys) the Premises "as-is" and "where-is" and with all faults
and problems. Except for the specific representations and warranties of Landlord
specifically set forth herein and in writing in this Lease Agreement, if any,
Landlord is making no representations or warranties, whether express or implied
or by operation of law or otherwise, with respect to the Premises or the
quality, physical condition, or value of the Premises, the income from or
expenses of the Premises, or the compliance of the Premises with applicable
building or fire codes or any local, state, or federal laws or regulations.
Without limiting the foregoing, it is understood and agreed that Landlord makes
no warranty of habitability, suitability, merchantability, or fitness for a
particular purpose. Tenant agrees that Landlord is not liable or bound by any
guarantees, promises, statements, representations, or information pertaining to
the Premises made or furnished by Landlord or by any real estate agent, broker,
employee, servant, or other person representing or purporting to represent
Landlord except as and to the extent as specifically set forth in this Lease
Agreement. Tenant hereby releases and discharges Landlord and all Landlord's
members, managers, and agents for any claims, including but not limited to those
based upon warranty or implied warranty. Tenant further acknowledges and agrees
that the compensation to be paid to Landlord is being given subject to the
foregoing disclaimers. This Lease Agreement supersedes and replaces all prior
agreements, warranties, and representations. Tenant also agrees to indemnify and
hold Landlord and all its members, managers, and agents harmless, including
reasonable attorney's fees and costs, in connection with any claims made or
asserted by Tenant or its successors or assigns inconsistent with this
paragraph.

                                     -15-



      21. ESTOPPEL CERTIFICATE.

            a. Tenant shall, without charge, at any time and from time to time
      hereafter, within twenty (20) days after receipt of a request therefor
      from Landlord, certify by written instrument duly executed and
      acknowledged to any mortgagee or prospective mortgagee of the Premises or
      to any purchaser or prospective purchaser of the Premises as to (i) the
      validity and force and effect of this Lease, in accordance with its tenor,
      as then constituted; (ii) the fact that this Lease is unmodified or, if
      there has been any modification thereof, as to the nature of the
      modification or modifications and the validity and force and effect of
      such modification; (iii) the existence of any default on the part of any
      party hereunder, as to the existence of any offsets, counterclaims, or
      defenses thereto; and (iv) any other matters which may be reasonably
      requested by Landlord. Any statement delivered pursuant to this section
      may be relied upon by any mortgagee or prospective mortgagee of the
      Premises or the fee interest herein or by any purchaser or prospective
      purchaser of the fee interest herein.

            b. Landlord shall, without charge, at any time and from time to time
      hereafter, within twenty (20) days after receipt of a request therefor
      from Tenant, certify by written instrument duly executed and acknowledged
      to any mortgagee or prospective mortgagee of the Premises or to any
      purchaser or prospective purchaser as to (i) the validity and force and
      effect of this Lease, in accordance with its tenor, as then constituted;
      (ii) the fact that this Lease is unmodified or, if there has been any
      modification thereof, as to the nature of the modification or
      modifications and the validity and force and effect of such modification;
      (iii) the existence of any default on the part of any party hereunder, as
      to the existence of any offsets, counterclaims, or defenses thereto; and
      (iv) any other matters which may be reasonably requested by Tenant. Any
      statement delivered pursuant to this section may be relied upon by any
      mortgagee or prospective mortgagee of the Premises or the fee interest
      herein or by any purchaser or prospective purchaser.

      22. SUBORDINATION. Tenant agrees that this Lease is and shall be, at all
times, subject and subordinate to the lien of any mortgage, deed of trust,
financing statement, or other security instrument (collectively "Mortgage")
which Landlord or its assigns shall make covering the Premises and to any and
all advances to be made thereunder and to the interest granted thereby;
provided, however, regardless of any default under any Mortgage or any
possession or sale of the Premises under such Mortgage, Tenant shall not be
relieved of its obligations under this Lease; and so long as Tenant performs all
covenants and conditions of this Lease and continues to pay rent to whomever may
be lawfully entitled to same, this Lease and Tenant's possession thereunder
shall not be disturbed by the holder of the Mortgage or anyone claiming under or
through them. Tenant agrees to execute any and all instruments in writing which
may be required by Landlord to subordinate Tenant's right to the lien of such
Mortgage, subject to the terms of this section.

      23. NOTICES. All notices, demands, requests, information, correspondence,
or other documents or instruments required in this Lease to be given by Tenant
to Landlord or Landlord to Tenant shall be in writing, hand delivered or sent by
prepaid certified or registered mail of the United States at the address listed
below or such other place as the parties may designate from time to time by
written notice.

                         Landlord: Meyer Warehouse LLC
                                   c/o Richard Meyer III
                                   211 East York Street
                                   Savannah, Georgia 31401

                                     -16-



            Copy to: Phillip C. Gans, Esq.
                     Phillip C. Gans, P.C.
                     2600 Colorado State Bank Building
                     1600 Broadway
                     Denver, Colorado 80202-4989

            and to: Attorney Dolly Chisholm
                    Inglesby, Falligant, Horn, Courington & Chisholm, P.C.
                    17 West McDonough Street
                    Savannah, Georgia 31401-3949

            Tenant: Citi Trends, Inc.
                    ATTN: REAL ESTATE DEPARTMENT
                    102 Fahm Street
                    Savannah, Georgia 31401

            Copy to:

      24. AUTHORITY OF PARTIES. Each individual executing this Lease on behalf
of its principal represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said party.

      25. LEASING COMMISSIONS OR BROKERAGE FEES. Landlord and Tenant warrant and
represent to one another that they have not engaged any real estate broker or
agent in connection with this Lease or its negotiation other than Clifford H.
Dales and John Neely of Neely/Dales, LLC and that all Leasing Commissions or
Brokerage Fees payable to Nelly/Dales, LLC will be paid by Landlord pursuant to
the written agreement dated February 9, 2004 (the "Exclusive Right to Lease").
Neeley/Dales, LLC represents the Landlord.

      26. LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder may cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's agent within five (5) days after such
amount shall be due, without any requirement for notice to Tenant, Tenant shall
pay to Landlord a late charge equal to ten percent (10%) of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder.
Notwithstanding the foregoing, the late fee shall not be charged for the first
late payment in any Lease term period as long as such payment is made within
fifteen (15) days after written notice) but shall be charged for all late
payments thereafter.

      27. INTEREST ON PAST-DUE OBLIGATIONS. Notwithstanding any other provision,
any amount due to Landlord or Tenant not paid when due shall bear interest at
the lower of the rate of one and one-half percent (1-1/2%) per month, compounded
monthly, or the highest rate allowed under Georgia law from the date due.
Payment of such interest shall not excuse or cure any default by

                                     -17-



Tenant under this Lease; provided, however, interest shall not be payable on
late charges incurred by Tenant nor on any amounts upon which late charges are
paid by Tenant.

      28. RULES AND REGULATIONS. Tenant agrees that it will abide by, keep, and
observe all reasonable rules and regulations which are attached hereto and
incorporated herein by reference as Exhibit C for the management, safety, care,
and cleanliness of the Building and grounds; the parking of vehicles; and the
preservation of good order therein. Any violations of such rules and regulations
shall be deemed a material breach of this Lease by Tenant.

      29. SECURITY MEASURES. Tenant hereby acknowledges that the rental payable
to Landlord hereunder does not include the cost of guard service or other
security measures and that Landlord shall have no obligation whatsoever to
provide the same. Tenant assumes all responsibility for the protection of Tenant
and its agents and invitees from acts of third parties.

      30. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES.

            a. HAZARDOUS SUBSTANCES. The term "Hazardous Substances," as used in
      this Lease, shall include, without limitation, flammables, explosives,
      radioactive materials, asbestos, polychlorinated biphenyls (PCBs),
      chemicals known to cause cancer or reproductive toxicity, pollutants,
      contaminants, hazardous wastes, toxic substances or related materials,
      petroleum and petroleum products (not to include propane or natural gas),
      and substances declared to be hazardous or toxic under the Comprehensive
      Environmental Response, Compensation and Liability Act of 1980, as
      amended, 42 USC Section 9601, et seq.; the Resource Conservation and
      Recovery Act, as amended, 42 USC Section 6901, et seq.; any state or local
      laws and any regulations adopted under those acts; or any law or
      regulation now or hereafter enacted or promulgated by any governmental
      authority.

            b. TENANT'S RESTRICTIONS. Tenant shall not cause or permit to occur:

                  (1) Any violation of any federal, state, or local law,
            ordinance, or regulation, now or hereafter enacted, related to
            environmental conditions on, under, or about the Premises or arising
            from Tenant's use or occupancy of the Premises, including but not
            limited to air, soil, and ground water conditions; or

                  (2) The use, generation, release, manufacture, refining,
            production, processing, storage, or disposal of any Hazardous
            Substance in excess of legal limits on, under, or about the Premises
            or the transportation to or from the Premises of any Hazardous
            Substance, except the use and storage of petroleum and petroleum
            products.

            c. ENVIRONMENTAL CLEAN-UP.

                  (1) Tenant shall, at Tenant's own expense, comply with all
            laws regulating the use, generation, storage, transportation, or
            disposal of Hazardous Substances ("Laws").

                  (2) Tenant shall, at Tenant's own expense, make all
            submissions to, provide all information required by, and comply with
            all requirements of all governmental authorities (the "Authorities")
            under the Laws.

                  (3) Should any Authority or any third party demand that a
            clean-up plan be prepared and that a clean-up be undertaken because
            of any deposit, spill, discharge, or other release of Hazardous
            Substances that occurs during the term of this Lease,

                                     -18-



            at or from the Premises, or which arises at any time from Tenant's
            use or occupancy of the Premises, Tenant shall, at Tenant's own
            expense, prepare and submit the required plans and all related bonds
            and other financial assurances; and Tenant shall carry out all such
            clean-up plans.

                  (4) Tenant shall promptly provide all information regarding
            the use, generation, storage, transportation, or disposal of
            Hazardous Substances that is requested by Landlord. If Tenant fails
            to fulfill any duty imposed under this section within a reasonable
            time, Landlord may do so; and in such case, Tenant shall cooperate
            with Landlord in order to prepare all documents Landlord deems
            necessary or appropriate to determine the applicability of the Laws
            to the Premises and Tenant's use thereof, and for compliance
            therewith; and Tenant shall execute all documents promptly upon
            Landlord's request. No such action by Landlord and no attempt made
            by Landlord to mitigate damages under any Law shall constitute a
            waiver of any of Tenant's obligations under this section.

                  (5) Landlord's and Tenant's obligations and liabilities under
            this section shall survive the expiration of this Lease.

            d. TENANT'S INDEMNITY.

                  (1) Tenant shall indemnify, defend, and hold harmless
            Landlord, any manager of the property, and their respective
            officers, directors, beneficiaries, shareholders, partners, agents,
            and employees from any and all fines, suits, proceedings, claims,
            and actions of every kind and all costs associated therewith
            (including, without limitation, attorneys' and consultants' fees)
            arising out of or in any way connected with any deposit, spill,
            discharge, or other release of Hazardous Substances that occurs
            during the term of this Lease, at or from the Premises, or which
            arises at any time from Tenant's use or occupancy of the Premises or
            from Tenant's failure to provide all information, make all
            submissions, and take all steps required by all Authorities under
            the Laws and all other environmental laws.

                  (2) Tenant's obligations and liabilities under this section
            shall survive the expiration or termination of this Lease.

      31. EASEMENTS AND COVENANTS. The Premises are subject to easements and
covenants of record, including but not limited to those contained in the
instruments described on the attached Exhibit D. Tenant shall not violate said
easements and covenants or take any action, or fail to take any action, that
causes or results in a violation of said easements and covenants.

      32. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean
only the owner or owners, at the time in question, of the fee title of the
Premises; and in the event of any transfer of such title or interest, Landlord
herein named (and in case of any subsequent transfers, then the grantor) shall
be relieved from and after the date of such transfer of all liability as
respects Landlord's obligations thereafter to be performed; provided, however,
any funds in the hands of Landlord or the then grantor at the time of such
transfer in which Tenant has an interest shall be delivered to the grantee. The
obligations contained in this Lease to be performed by Landlord shall, subject
as aforesaid, be binding on Landlord's successors and assigns, only during their
respective periods of ownership.

      33. FAIR DEALING; CONSENTS; ASSIGNMENT. In connection with the performance
of their respective obligations under this Lease, Landlord and Tenant shall act
in good faith and in a commercially reasonable manner.

                                     -19-



      34. PURCHASE OPTION. In consideration of this Lease, Tenant shall have the
option (the "Purchase Option") to purchase the Premises described on Exhibit A
attached hereto (collectively the "Demised Premises") for the sum of Two Million
Six Hundred Thousand Dollars ($2,600,000), payable in good funds (with no credit
for any rental amounts). Notwithstanding the foregoing, the option price of
$2,600,000 shall be increased by any amounts Landlord has had to pay or has paid
for maintenance or repairs under this Lease or otherwise from the time of Lease
signing (the "Price"). Tenant's rights to exercise this option after notice of
exercise shall cease if Tenant materially breaches this Lease. As long as Tenant
is not in default hereunder beyond any applicable cure periods and as long as
this Lease is in effect, such Purchase Option may be exercised in writing by
Tenant (the "Optionee"). This Purchase Option may be exercised at any time up to
ninety (90) days prior to the expiration of any terms or extensions (the "Option
Date"). It cannot be exercised after ninety (90) days prior to Lease expiration.
If the Purchase Option is exercised, Landlord shall convey by special warranty
deed, subject to all matters of record, Landlord's interest in the real estate,
to the extent owned by Landlord; and it shall be a condition of the sale that
title to the real estate shall, except as provided herein below, be free from
all tenancies (except Tenant) and occupants (except Tenant). The sale shall
occur within one hundred twenty (120) days of the Option Date. In the exercise
of such option, all monies shall be placed with a title company, as escrowee, of
Optionee's designation; and the settlement of the purchase price and the
conveyance to Optionee shall take place in escrow. At closing, Tenant will
secure and pay for its own owner's policy, issued by a title insurance company
licensed in the State of Georgia in its usual form, brought down to the date of
closing, insuring Optionee against loss or damage to the extent of the purchase
price by reason of defects in or liens upon Landlord's title. Taxes, utilities,
rents, and other current expenses shall be paid by Tenant. Tenant shall pay all
the costs of the transaction, including but not limited to the cost of the
policy, recording fees, escrow fees, documentary transfer taxes, and sales and
use taxes. The Demised Premises will be sold in its as-is condition, without any
representation or warranty of Landlord. Seller will be responsible for paying a
commission of $100,000 to Neely/Dales, LLC, payable only if the transaction
closes. Time is of the essence.

      Notwithstanding the foregoing, if Tenant purchases the Property pursuant
to this clause at any time after the first extended term, the Price shall
increase by the greater of (a) ten percent (10%) or (b) an amount based upon the
Consumer Price Index. The index used shall be the Consumer Price Index for
Savannah, Georgia, if available, or the area selected by Landlord near Savannah,
Georgia. The amount shall be the Annual Base Rent multiplied by a fraction, the
denominator (top) of which is the Consumer Price Index for the month which is
six (6) months prior to closing and the numerator (bottom) of which is the same
Consumer Price Index for the month which is six (6) months prior to the date of
the initial term of this Lease. The real estate commission shall not change.

      35. GENERAL PROVISIONS.

            a. LEGAL COSTS AND EXPENSES. Landlord shall recover from Tenant all
      costs and expenses, including reasonable attorneys' fees, in any court
      action brought to recover any rent or other sums due and unpaid under the
      terms hereof, or for the breach of any of the terms and conditions herein
      contained, or to recover possession of the Premises, whether or not such
      court action shall proceed to judgment if Landlord is the prevailing
      party.

            b. SEVERABILITY OF PROVISIONS. If any clause or provision of this
      Lease is illegal, invalid, or unenforceable under present or future laws
      effective during the term of this Lease, then and in that event, it is the
      intention of the parties hereto that the remainder of this Lease shall not
      be affected thereby; and it is also the intention of the parties to this
      Lease that if any clause or provision is illegal, invalid, or
      unenforceable, there be added as a part of this Lease

                                     -20-



      a clause or provision as similar in terms to such illegal, invalid, or
      unenforceable clause or provision as may be possible and be legal, valid,
      and enforceable.

            c. RIGHT-OF-WAY. Landlord reserves the right, with Tenant's prior
      written approval and consent, which approval and consent will not be
      unreasonably or untimely withheld, to grant or devise rights-of-way,
      easements, and rights of passage solely for utility and over, on, under,
      and to the Premises; provided, however, such grant shall not unreasonably
      interfere with Tenant's use and occupancy of the Premises. Tenant shall be
      given reasonable advance written notice prior to the start of any
      construction work in connection with such grant.

            d. ANIMALS. Tenant shall not be permitted to keep any animals in or
      about the Premises.

            e. AUCTIONS. Tenant shall not conduct or permit to be conducted any
      sale by auction in, upon, or from the Premises, whether said auction be
      voluntary or involuntary pursuant to any assignment for the benefit of
      credits or pursuant to any bankruptcy or insolvency proceedings.

            f. DEFINITION OF TERMS. Whenever the words "Landlord" and "Tenant"
      are used in this Lease, they are applied to persons, both men and women,
      companies, partnerships, and corporations; and in reading this Lease, the
      necessary grammatical changes of words required to make the provisions
      hereof mean and apply as aforesaid shall be made in the same manner as if
      written into this Lease.

            g. MARGINAL HEADINGS. The marginal headings and section titles to
      the sections of this Lease are not a part of this Lease and shall have no
      effect upon the construction or interpretation of any part hereof.

            h. PRIOR AGREEMENT AND AMENDMENTS. This Lease and a side letter
      dated September 29, 2004, contain all the agreements, warranties, and
      representations of the parties hereto with respect to any matter covered
      or mentioned in this Lease; and no prior agreements or understandings
      pertaining to any such matters shall be effective for any purpose. No
      warranties or representations of Landlord, verbal or in writing, not
      contained in an agreement shall be binding upon Landlord unless contained
      herein or in certain related agreements in writing. No provision of this
      Lease may be amended or added to except by an agreement in writing signed
      by the parties hereto or their respective successors in interest. This
      Lease shall not be effective or binding on any party until fully executed
      by both parties hereto.

            i. SUCCESSORS AND ASSIGNS. The obligations and rights under this
      Lease shall be binding upon and inure to the benefit of the heirs,
      administrators, executors, personal representatives, successors, and
      permitted assigns of the parties. Any assignment or subletting by Tenant
      in violation of the terms of this Lease shall not vest any rights
      whatsoever in the assignee or subtenant but will be a breach of this
      Lease.

            j. TIME. Time is of the essence of this Lease and each and all of
      its provisions in which performance is a factor.

            k. SHORT FORM LEASE. The parties agree, at the request of either of
      them, to execute a Short Form Lease for recording, containing the names of
      the parties, the legal description of the Premises, and the term of the
      Lease and the cost of recording will be paid

                                     -21-



      by the party requesting such recording. Landlord and Tenant agree to
      execute any releases requested by the other upon termination.

            l. LAW GOVERNING. This Lease shall be construed and enforced in
      accordance with the laws of the State of Georgia. The parties hereto
      mutually consent to waive any right to a trial by jury.

            m. EXPERIENCE. Tenant acknowledges that it is experienced in real
      estate matters; has had the opportunity to be represented by competent
      counsel, familiar with leasing transactions, in the negotiation,
      preparation, and review of this Lease; and that it has reviewed this Lease
      in its entirety before executing it. Landlord has recommended to Tenant to
      secure legal representation. This document has been prepared by Landlord's
      counsel but shall not be interpreted against Landlord.

            n. FURTHER INSTRUMENTS. Each party, at the expense of the other
      party, shall execute, acknowledge, and deliver to the other party such
      instruments and take such other action, in addition to the instruments and
      action provided for herein, as the other party may request in order to
      effectuate the purpose or provisions of this Lease or any transaction
      contemplated herein or to protect or confirm any right created or
      transferred hereunder or pursuant to any such transaction.

            o. RETURN OF THE PREMISES. At the end of the term of this Lease of
      when Tenant departs or upon any Tenant default, Tenant shall return the
      Premises to Landlord in a clean, well-kept order and in good condition,
      normal wear and tear excepted and subject to any events of casualty dealt
      with above.

            p. COUNTERPARTS. This Lease may be executed in any number of
      counterparts, each of which shall constitute an original and all of which,
      when taken together, shall constitute one Lease.

                       [See signatures on following page]

                                     -22-



      IN WITNESS WHEREOF, this Lease is hereby executed the day and year first
above written, in three (3) counterparts, each of which shall be deemed an
original document.

      LANDLORD:
                                      MEYER WAREHOUSE LLC, a Georgia in
                                      limited liability company:

                                      BY:  /s/ Richard Meyer III
                                           -------------------------------------
                                      Its: MANAGER

      TENANT:
                                      CITI TRENDS, INC., a Delaware corporation:

                                      BY:  /s/ R. Edward Anderson
                                           -------------------------------------
                                      Its: CEO

                                     -23-



                                   EXHIBIT A

                               LEGAL DESCRIPTION

TRACT ONE: All that certain tract, parcel of land situate, lying and being in
the 8th G.M. District, Chatham County, Georgia, and being known and designated
on a plat as Lot 11, Phase 1, S.P.A. Industrial Park Subdivision as prepared by
Hussey, Gay & Bell, dated November 1977 and recorded in Subdivision Map Book Q,
folio 3, of the Chatham County records. Said lot as a whole being bounded as
follows: On the North by Lot 12, said subdivision and phase; on the East by a 60
foot drainage right-of-way; on the South by Artley Road; and on the West by
Coleman Boulevard. Express reference is hereby made to the above-mentioned plat
for better determining the metes, bounds, and dimensions thereof.

TRACT TWO: All of that certain lot, tract, or parcel of land situate, lying, and
being in the 8th G.M. District, County of Chatham, and State of Georgia, being
known and designated as Lot Twelve (12), Savannah Port Authority Industrial Park
Subdivision, Phase One (1), being a Subdivision of a portion of lands of the
Savannah Port Authority, as shown on a map or plat prepared by Hussey, Gay &
Bell, Consulting Engineers, for Savannah Port Authority recorded in the Office
of the Clerk of the Superior Court of Chatham County, Georgia, in Subdivision
Map Book "Q," Page 3. Express reference is hereby made to said Subdivision Map
for better determining the metes, bounds, and dimensions of the property herein
conveyed.



                                   EXHIBIT B

                                   SITE PLAN

[SITE PLAN FIGURE]



                                    EXHIBIT C

                             RULES AND REGULATIONS

      1. Tenant shall not obstruct or interfere with persons performing services
for the Landlord or having business on the Premises and shall not injure or
annoy such persons.

      2. Canvassing, soliciting, and peddling on the Premises are prohibited;
and Tenant shall cooperate to prevent such activities.

      3. Tenant shall not cook or prepare food commercially or place or use any
flammable, combustible, explosive, or hazardous fluid, chemical, device,
substance or material (excepting only propane and natural gas) on the Premises
without the prior written consent of Landlord. Tenant shall comply with the
statutes, ordinances, rules, orders, regulations, and requirements imposed by
governmental or quasi-governmental authorities in connection with fire and panic
safety and fire prevention.

      4. Tenant shall not move or install personal properly or fixtures on the
Premises in such a fashion as to unreasonably increase the risk of injury or
cost of insurance; and all such moving shall be at the sole expense, risk, and
responsibility of Tenant.

      5. Tenant shall not place within the Building any objects which exceed the
floor weight specifications of the Building without the express prior written
consent of Landlord. The placement and positioning of all such objects within
the Building shall be prescribed by Landlord; and such objects shall, in all
cases, be placed upon plates or footings of such size as shall be prescribed by
Landlord.

      6. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind on the Premises except in the refuse containers provided
therefore. Tenant shall exercise its best efforts to keep the sidewalks,
entrances, passages, courts, lobby areas, garages or parking areas, stairways,
and vestibules on the Premises clean and free from rubbish.

      7. Tenant shall permit no loitering by any persons on the Premises.

      8. Tenant shall not use the washrooms, restrooms, and plumbing fixtures of
the Building and appurtenances thereto for any other purpose than the purposes
for which they were constructed; and Tenant shall not deposit any sweepings,
rubbish, rags, or other improper substances therein. Tenant shall not waste
water by interfering or tampering with the faucets or otherwise.

      9. No signs, awning, showcases, advertising devices, or other projections
or obstructions shall be attached to the outside walls of the Building without
the express prior written consent of Landlord, which shall not unreasonably be
withheld. In the event of the violation without any liability and Tenant shall
reimburse Landlord for the expense incurred in such removal upon demand as
additional Rent under the Lease.

      10. Tenant shall not obstruct or in anyway impair the efficient operation
of the Building's heating, ventilating, air conditioning, electrical, fire,
safety, water, sewer, or lighting systems.



      11. Access may be had by Tenant to the Premises at any time of the day or
night, seven (7) days a week.

      12. For purposes hereof, the terms "Landlord," "Tenant," "Building," and
"Premises" are defined as those terms are defined in the Lease to which these
Rules and Regulations are attached. Wherever Tenant is obligated under these
Rules and Regulations to do or refrain from doing an act or thing, such
obligation shall include the exercise by Tenant of its best efforts to secure
compliance with such obligation by the servants, employees, contractors,
jobbers, agents, invitees, licensees, guests, and visitors of Tenant.


                                    EXHIBIT D

                            EASEMENTS AND COVENANTS

1.    County ad valorem taxes and assessments for 2004 and subsequent years.

2.    Any action by a municipal or governmental agency for the purpose of
      regulating the use, occupancy or zoning of the Property, or any building
      or structure thereon.

3.    Unrecorded lien rights, mis-indexed documents, and other matters not
      disclosed by an examination of the public records of Chatham County,
      Georgia.

4.    Easements for public utility services and facilities that serve the
      Properly or the improvements located thereon or are located along or
      within the boundaries of the Property.

5.    Encroachments, overlaps, boundary line disputes, and any other matters
      which would be disclosed by an accurate survey and inspection of the
      premises.

6.    Rights or claims of parties in possession not shown by the public records.

7.    Easements, or claims of easements, not shown by the public records.

8.    Any lien, or right to a lien, for services, labor, or material heretofore
      or hereafter furnished, imposed by law and not shown by the public
      records.

9.    Taxes or special assessments which are not shown as existing liens by the
      public records.

10.   Such state of facts as shown on subdivision plat recorded in Subdivision
      Map Book Q, Page 3, Chatham County Records.

11.   Easement to Savannah Electric and Power Company dated December 22, 1930,
      and recorded in Deed Book 27-K, page 10, of aforesaid records.

12.   Easement from Savannah Port Authority to Chatham County dated August
      20,1976, and recorded in Deed Book 107-H, page 103, Chatham County
      records.

13.   Easement from Savannah Port Authority to Savannah Electric and Power
      Company dated November 29, 1977, and recorded in Deed Book 109-S, page
      534, Chatham County records.

14.   Easement from Savannah Port Authority to Savannah Electric and Power
      Company dated November 23, 1977, and recorded in Deed Book 109-S, page
      535, Chatham County records.

15.   Declaration of Covenants, Conditions, and Restrictions for Phase I,
      Savannah Port Authority Industrial Park Subdivision, dated July 24, 1978
      and recorded in Deed Book 111-C, page 114, Chatham County records; as
      amended by that certain Declaration of Amended Covenants, Conditions, and
      Restrictions for Phase I, Savannah Port Authority Industrial Park
      Subdivision, dated February 27, 1980, and recorded in Deed Book 114-M,
      page 295, aforesaid records; as extended by that certain Extension of
      Declaration of Covenants, Conditions and Restrictions for Phase I,
      Savannah Port Authority Industrial Park



      Subdivision, dated June 1, 1998, and recorded in Deed Book 193-T, page
      272, aforesaid records.

16.   Rights of First Refusal of Savannah Port Authority contained in that
      certain Warranty Deed from Savannah Port Authority dated November 21,1985,
      and recorded in Deed Book 128- R, page 342, aforesaid records. (Release of
      Rights recorded on October_______, 2004.)

17.   Easement from Frances and Richard Meyer to Savannah Electric and Power
      Company dated June 26, 1986, and recorded in Deed Book 131-X, page 179,
      Chatham County records.



                                    EXHIBIT E

                           LANDLORD/MORTGAGEE WAIVER

WHEREAS, CONGRESS FINANCIAL CORPORATION (SOUTHWEST) ("Congress") has, or is
about to enter into, certain financing agreements with Citi Trends, Inc.
("Debtor") pursuant to which Congress has been, or may be, granted a security
interest in any or all of Debtor's personal property including, but not limited
to, inventory, equipment, and signage (hereinafter "Personal Property"), but
excluding fixtures; and,

WHEREAS, the Personal Property has or may become located on, wholly or in part,
the certain real estate located at 104 Coleman Boulevard, Savannah, Georgia
31408, the legal description of which is (include metes and bounds, lot and
block, range and section):

      104 Coleman Boulevard, City of Savannah, County of Chatham, State of
Georgia (hereinafter "Premises") and,

WHEREAS, the undersigned has an interest in the Premises as owner, mortgagee or
lessor,

NOW, THEREFORE, in consideration of any financial accommodation extended by
Congress to Debtor, at any time, and other good and valuable considerations,
the undersigned agrees as follows:

      (a) That it waives and relinquishes any landlord's lien, all rights of
levy, security interest or other interest the undersigned may now or hereafter
have in any of the Personal Property whether for rent or otherwise;

      (b) That the Personal Property may be located on the Premises and is not
and shall not be attached or be deemed a fixture or part of the real estate but
shall at all times be considered personal property;

      (c) That it disclaims any interest in the Personal Property (but not
fixtures) and agrees to assert no claim to the Personal Property while Debtor is
indebted to Congress;

      (d) That as long as the Lease on the Premises is in effect and Tenant has
occupancy rights, Congress or its representatives may enter upon the Premises to
inspect or remove the Personal Property in the event that Debtor has not cured a
default beyond any applicable cure period;

      (e) That as long as the Lease on the Premises is in effect and Tenant has
occupancy rights, Congress, at its option, may enter the Premises upon Debtor's
default for the purpose of repossessing, removing, or selling said Personal
Property, and such license shall be irrevocable and shall continue from the date
Congress enters the Premises for as long as Congress deems necessary but not to
exceed a period of sixty (60) days; provided that Congress timely pays rent at
the then current rate stipulated in the lease, which rent shall be pro-rated
for the period of such occupancy.

      (f) That the undersigned does hereby consent to the acquisition by
Congress, at Congress' option, of the absolute ownership of Debtor's interest in
said Lease and does hereby agree that if Congress elects to acquire said
leasehold estate, it will thereupon be recognized as the



Lessee under said Lease. If Congress shall become such Lessee, it may sublease
or assign said Lease with Landlord's prior written consent, such consent shall
not be unreasonably withheld, for the purpose outlined in the use clause of this
lease, and the assignment of said Lease shall not release and relieve Congress
of any obligations thereunder.

      (g) The undersigned agrees to give notice in writing by certified or
registered mail of any default (beyond any applicable cure period) by Debtor of
any of the provisions of said Lease or the mortgage upon the premises held by
the undersigned, as the case may be, to:

                              CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
                              5001 LBJ Freeway, Suite 1050
                              Dallas, Texas 75244

Upon receipt of said notice, Congress shall thereupon have the right, but not
the obligation, to cure said default within ten (10) days thereafter provided
timely notice has been given to Congress by the undersigned. Any payment made or
act done by Congress to cure any such default shall not constitute an assumption
of the Lease or any obligations of Debtor.

This waiver may not be changed or terminated orally and is binding upon the
undersigned and their heirs, personal representatives, successors and assigns of
the undersigned and inures to the benefit of Congress and the successors and
assigns of Congress.

      Dated this 30th day of September 2004.

Witnessed By:                               MEYER WAREHOUSE, LLC
                                                ("LANDLORD")

/s/ Clifford H. [illegible]                 By: /s/ Richard Meyer, III
- ---------------------------                     --------------------------------
                                                Landlord-Mortgagee (signature)

                                                Richard Meyer, III, Manager
___________________________                     --------------------------------
                                                (printed name)

                                                                   Exhibit 10.10

                                 PROMISSORY NOTE

================================================================================
BORROWER:  Citi Trends, Inc.                LENDER:   Bank of America, N.A.
           102 Fahm Street                            CCS-Commercial Banking
           Savannah, GA 31401                         FL9-100-03-15
                                                      600 Peachtree St. NE
                                                      Atlanta, GA 30308
================================================================================

PRINCIPAL AMOUNT: $3,000,000.00                       DATE OF NOTE: JUNE 21,2004

PROMISE TO PAY. Citi Trends, Inc. ("Borrower") promises to pay to Bank of
America, N.A. ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Three Million & 00/100 Dollars ($3,000,000.00)
or so much as may be outstanding, together with interest on the unpaid
outstanding principal balance of each advance. Interest shall be calculated from
the date of each advance until repayment of each advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 30, 2005. In addition, Borrower will
pay regular monthly payments of all accrued unpaid interest due as of each
payment date, beginning July 26,2004, with all subsequent interest payments to
be due on the same day of each month after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to any accrued unpaid
interest; then to principal; then to any late charges; and then to any unpaid
collection costs. The annual interest rate for this Note is computed on a
365/360 basis; that is, by applying the ratio of the annual interest rate over a
year of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender may
designate in writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the "LIBOR Daily
Floating Rate" which is the fluctuating rate of interest (rounded upwards, if
necessary to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any
successor page) as the 1 month London interbank offered rate for deposits in
United States Dollars at approximately 11:00 a.m. (London time) on the second
preceding business day, as adjusted from time to time in Lender's sole
discretion for then-applicable reserve requirements, deposit insurance
assessment rates and other regulatory costs; if for any reason such rate is not
available, the term "LIBOR Daily Floating Rate" shall mean the fluctuating rate
of interest equal to the rate of interest (rounded upwards, if necessary to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the 1 month London
interbank offered rate for deposits in United States Dollars at approximately
11:00 a.m. (London time) on the second preceding day, as adjusted from time to
time in Lender's sole discretion for then-applicable reserve requirements,
deposit insurance assessment rates and other regulatory costs; provided,
however, if more than one rate is specified on Reuters Screen LIBO page, the
applicable rate shall be the arithmetic mean of all such rates (the "Index").
The Index is not necessarily the lowest rate charged by Lender on its loans. If
the Index becomes unavailable during the term of this loan, Lender may designate
a substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. The interest rate change will not
occur more often than each date of such change in the Index. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate to be applied to the unpaid principal balance of this Note will be
at a rate of 2.000 percentage points over the Index. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked "paid in full",
"without recourse", or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender's rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other conditions or limitations or
as full satisfaction of a disputed amount must be mailed or delivered to: Bank
of America, N.A.; CCS-Commercial Banking; FL9-100-03-15; 600 Peachtree St. NE;
Atlanta, GA 30308.

LATE CHARGE. If a payment is 15 days or more late, Borrower will be charged
4.000% of the unpaid portion of the regularly scheduled payment, regardless of
any partial payments Lender has received.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 8.000 percentage points over
the Index. The interest rate will not exceed the maximum rate permitted by
applicable law.

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

      PAYMENT DEFAULT. Borrower fails to make any payment when due under this
      Note.

      OTHER DEFAULTS. Borrower fails to comply with or to perform any other
      term, obligation, covenant or condition contained in this Note or in any
      of the related documents or to comply with or to perform any term,
      obligation, covenant or condition contained in any other agreement between
      Lender and Borrower.

      DEFAULT IN FAVOR OF THIRD PARTIES. Borrower or any Grantor defaults under
      any loan, extension of credit, security agreement, purchase or sales
      agreement, or any other agreement, in favor of any other creditor or
      person that may materially affect any of Borrower's property or Borrower's
      ability to repay this Note or perform Borrower's obligations under this
      Note or any of the related documents.

      FALSE STATEMENTS. Any warranty, representation or statement made or
      furnished to Lender by Borrower or on Borrower's behalf under this Note or
      the related documents is false or misleading in any material respect,
      either now or at the time made or furnished or becomes false or misleading
      at any time thereafter.

      INSOLVENCY. The dissolution or termination of Borrower's existence as a
      going business, the insolvency of Borrower, the appointment of a receiver
      for any part of Borrower's property, any assignment for the benefit of
      creditors, any type of creditor workout, or the commencement of any
      proceeding under any bankruptcy or insolvency laws by or against Borrower.

      CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
      forfeiture proceedings, whether by judicial proceeding, self-help,
      repossession or any other method, by any creditor of Borrower or by any
      governmental agency against any collateral securing the loan. This
      includes a garnishment of any of Borrower's accounts, including deposit
      accounts, with Lender. However, this Event of Default shall not apply if
      there is a good faith dispute by Borrower as to the validity or
      reasonableness of the claim which is the basis of the creditor or
      forfeiture proceeding and if Borrower gives Lender written notice of the
      creditor or forfeiture proceeding and deposits with Lender monies or a
      surety bond for the creditor or forfeiture proceeding, in an amount
      determined by Lender, in its sole discretion, as being an adequate reserve
      or bond for the dispute.


                                 PROMISSORY NOTE
                                   (Continued)                            Page 2
================================================================================

      EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
      respect to any guarantor, endorser, surety, or accommodation party of any
      of the indebtedness or any guarantor, endorser, surety, or accommodation
      party dies or becomes incompetent, or revokes or disputes the validity of,
      or liability under, any guaranty of the indebtedness evidenced by this
      Note.

      CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
      or more of the common stock of Borrower.

      ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
      condition, or Lender believes the prospect of payment or performance of
      this Note is impaired.

      INSECURITY. Lender in good faith believes itself insecure.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's costs of
collection, including court costs and fifteen percent (15%) of the principal
plus accrued interest as attorneys' fees, if any sums owing under this Note are
collected by or through an attorney at law, whether or not there is a lawsuit,
and legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), and appeals. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all other
sums provided by law.

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Georgia. This Note has
been accepted by Lender in the State of Georgia.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of any County, State of Georgia.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (A) advanced in accordance
with the instructions of an authorized person or (B) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this Note
at any time may be evidenced by endorsements on this Note or by Lender's
internal records, including daily computer print-outs. Lender will have no
obligation to advance funds under this Note if: (A) Borrower or any guarantor is
in default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (B) Borrower or any guarantor ceases doing business or is
insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note in any other loan with
Lender; (D) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender; or (E) Lender in good faith
believes itself insecure.

ARBITRATION. (a) This paragraph concerns the resolution of any controversies or
claims between the parties, whether arising in contract, tort or by statute,
including but not limited to controversies or claims that arise out of or relate
to: (i) this agreement (including any renewals. extensions or modifications); or
(ii) any document related to this agreement (collectively a "Claim"). For the
purposes of this arbitration provision only, the term "parties" shall include
any parent corporation, subsidiary or affiliate of the Bank involved in the
servicing, management or administration of any obligation described or evidenced
by this agreement.

(b) At the request of any party to this agreement, any Claim shall be resolved
by binding arbitration in accordance with the Federal Arbitration Act (Title 9,
U. S. Code) (the "Act"). The Act will apply even though this agreement provides
that it is governed by the law of a specified state.

(c) Arbitration proceedings will be determined in accordance with the Act, the
applicable rules and procedures for the arbitration of disputes of JAMS or any
successor thereof ("JAMS"), and the terms of this paragraph. In the event of any
inconsistency, the terms of this paragraph shall control.

(d) The arbitration shall be administered by JAMS and conducted, unless
otherwise required by law, in any U. S. state where real or tangible personal
property collateral for this credit is located or if there is no such
collateral, in the state specified in the governing law section of this
agreement. All Claims shall be determined by one arbitrator; however, if Claims
exceed $5,000,000, upon the request of any party, the Claims shall be decided by
three arbitrators. All arbitration hearings shall commence within 90 days of the
demand for arbitration and close within 90 days of commencement and the award of
the arbitrator(s) shall be issued within 30 days of the close of the hearing.
However, the arbitrator(s), upon a showing of good cause, may extend the
commencement of the hearing for up to an additional 60 days. The arbitrator(s)
shall provide a concise written statement of reasons for the award. The
arbitration award may be submitted to any court having jurisdiction to be
confirmed and enforced.

(e) The arbitrator(s) will have the authority to decide whether any Claim is
barred by the statute of limitations and, if so, to dismiss the arbitration on
that basis. For purposes of the application of the statute of limitations, the
service on JAMS under applicable JAMS rules of a notice of Claim is the
equivalent of the filing of a lawsuit. Any dispute concerning this arbitration
provision or whether a Claim is arbitratable shall be determined by the
arbitrator(s). The arbitrator(s) shall have the power to award legal fees
pursuant to the terms of this agreement.

(f) This paragraph does not limit the right of any party to: (i) exercise
self-help remedies, such as but not limited to, setoff; (ii) initiate judicial
or nonjudicial foreclosure against any real or personal property collateral;
(iii) exercise any judicial or power of sale rights, or (iv) act in a court of
law to obtain an interim remedy, such as but not limited to, injunctive relief,
writ of possession or appointment of a receiver, or additional or supplementary
remedies.

(g) The filing of a court action is not intended to constitute a waiver of the
right of any party, including the suing party, thereafter to require submittal
of the Claim to arbitration.

ADDITIONAL DEFAULTS.

Each of the following shall constitute an additional event of default ("Event of
Default") under this Note:

EVENT OF DEFAULT UNDER RELATED DOCUMENTS. A default or additional event of
default occurs under the terms of any promissory note, guaranty, pledge
agreement, security agreement or other agreement or instrument executed by
Borrower or any guarantor, pledgor, accommodation party or other obligor in
connection with or relating to this Note.

JUDGMENT. The entry of a judgment against any Borrower or guarantor, pledgor,
accommodation party or other obligor which Lender deems to be of a material
nature, in Lender's sole discretion.

RESIGNATION/WITHDRAWAL. The resignation or withdrawal of any partner or a
material owner of Borrower or any guarantor, pledgor, accommodation

                                 PROMISSORY NOTE
                                   (Continued)                            Page 3
================================================================================

party or other obligor [or any substantial change in the present executive or
management personnel of Borrower, any guarantor, pledgor, accommodation party or
other obligor], as determined by Lender in its sole discretion.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any assets of Borrower and/or any guarantor, pledgor, accommodation party or
other obligor. This includes a garnishment of: (1) any of Borrower's accounts,
including deposit accounts, with Lender and/or (2) any account, including
deposit accounts, with Lender of any guarantor, pledgor, accommodation party or
other obligor. However, this Event of Default shall not apply if there is a good
faith dispute by such Borrower and/or guarantor, pledgor, accommodation party or
other obligor as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding and if such Borrower and/or
guarantor, pledgor, accommodation party or other obligor gives Lender written
notice of the creditor of forfeiture proceeding and deposits with Lender monies
or a surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve or
bond for the dispute.

ASSIGNMENT. Lender may sell or offer to sell this Note, together with any and
all documents guaranteeing, securing or executed in connection with this Note,
to one or more assignees without notice to or consent of Borrower. Lender is
hereby authorized to share any information it has pertaining to the loan
evidenced by this Note, including without limitation credit information on the
undersigned, any of its principals, or any guarantors of this Note, to any such
assignee or prospective assignee.

COUNTERPARTS. This Note may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

PRE BILLING. If the Borrower and Lender elect to use pre-billing calculation,
for each payment date (the "Due Date") the amount of each payment debit will be
determined as follows: On the "Billing Date" Lender will prepare and mail to
Borrower an invoice of the amounts that will be due on that Due Date ("Billed
Amount"). (The "Billing Date" will be a date that is a specified number of
calendar days prior to the Due Date, which number of days will be mutually
agreed from time to time by Lender and Borrower.) The calculation of the Billed
Amount will be made on the assumption that no new extensions of credit or
payments will be made between the Billing Date and the Due Date, and that there
will be no changes in the applicable interest rate. On the Due Date Lender will
debit the Designated Account for the Billed Amount, regardless of the actual
amount due on that date ("Accrued Amount"). If the Due Date does not fall on a
Business Day, Lender shall debit the Designated Account on the first Business
Day following the Due Date. For purposes of this Agreement, "Business Day" means
a day other than Saturday, Sunday or other day on which commercial banks are
authorized to close or are in fact closed in the state where the Lender's
lending office is located. If the Billed Amount debited to the Designated Amount
differs from the Accrued Amount, the difference will be treated as follows: If
the Billed Amount is less than the Accrued Amount, the Billed Amount for the
following Due Date will be increased by the amount of the underpayment. Borrower
will not be in default by reason of any such underpayment. If the Billed Amount
is more than the Accrued Amount, the Billed Amount for the following Due Date
will be decreased by the amount of the overpayment. Regardless of any such
difference, interest will continue to accrue based on the actual amount of
principal outstanding without compounding. Lender will not pay interest on any
overpayment.

AUTOMATIC PAYMENTS. Borrower hereby authorizes Lender automatically to deduct
from Borrower's account numbered 003257772600 the amount of any loan payment. If
the funds in the account are insufficient to cover any payment, Lender shall not
be obligated to advance funds to cover the payment. At any time and for any
reason, Borrower or Lender may voluntarily terminate Automatic Payments.

TERMINATION OF AUTOMATIC PAYMENTS. In the event that Borrower terminates the
Automatic Payment arrangement with Lender, Borrower agrees that the interest
rate under the Note will increase, at the discretion of the Lender, by one-half
percentage point (0.50%) per annum over the rate of interest stated in the Note,
and the amount of each interest installment will be increased accordingly. The
effective rate of interest under the Note shall not in any event exceed the
maximum rate permitted by law.

ADVANCES UNDER THE LINE OF CREDIT. Except as otherwise provided in this Note,
advances under the line of credit provided under this Note will be available
until the earlier of any event of default under this Note, or June 30, 2005 (the
"Expiration Date"). Borrower may borrow, repay and re-borrow under this Note at
any time until the Expiration Date. The total principal amount outstanding under
this Note at any one time must not exceed the principal amount of this Note,
provided that the amount advanced hereunder does not exceed any borrowing base
or other limitation on borrowings by Borrower.

FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT:
(A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY
COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS
RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET
OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE
CONTRARY, (C) THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS
DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

UNUSED COMMITMENT FEE. Borrower agrees to pay a fee on any difference between
the maximum principal amount available under this Note and the amount of credit
it actually uses, determined by the weighted average credit outstanding during
the specified period. The fee will be calculated at .125% per year. This fee is
due on September 26, 2004, and on the 26th day of each following quarter until
the expiration of the availability of advances under this Note.

ADDRESS FOR NOTICES. Any notice required to be given under this Note shall be
given in writing, and shall be effective when actually delivered, when actually
received by telefacsimile (unless otherwise required by law), when deposited
with a nationally recognized overnight courier, or, if mailed, when deposited in
the United States mail, as first class, certified or registered mail postage
prepaid, directed if to Borrower at the address shown near the beginning of this
Note and if to Lender at the address set forth below. Any party may change its
address for notices under this Note by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. For notice purposes, Borrower agrees to keep Lender informed at all
times of Borrower's current address. Unless otherwise provided or required by
law, if there is more than one Borrower, any notice given by Lender to any
Borrower is deemed to be notice given to all Borrowers. Notwithstanding anything
to the contrary herein, all notices and communications to the Lender shall be
directed to the following address:

        Bank of America, N.A
        Jacksonville CCS - Attn: Notice Address
        9000 Southside Blvd., Bldg. 100, 3rd Floor
        Jacksonville, FL 32256.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties waive any right to
require Lender to take action against

                                 PROMISSORY NOTE
                                   (Continued)                           Page 4.
================================================================================

any other party who signs this Note as provided in O.C.G.A. Section 10-7-24 and
agree that Lender may renew or extend (repeatedly and for any length of time)
this loan or release any party or guarantor or collateral; or impair, fail to
realize upon or perfect Lender's security interest in the collateral; and take
any other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made. The obligations under this Note are joint and several.

THE NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THE NOTE IS AND SHALL
CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

BORROWER:



CITI TRENDS, INC.


 By:  /s/  Tom Stoltz                            (Seal)
     --------------------------------------------
     Tom Stoltz,
     Chief Financial Officer of Citi Trends, Inc.

                                                                   Exhibit 10.11

                                   CITI TRENDS

                          2005 LONG-TERM INCENTIVE PLAN

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

                                TABLE OF CONTENTS

1.      Establishment, Purpose and Effective Date.

        (a)    Establishment

        (b)    Purpose

        (c)    Effective Date

2.      Definitions.

3.      Scope of the Plan.

        (a)    Number of Shares Available Under the Plan

        (b)    Reduction in the Available Shares in Connection with Award Grants

        (c)    Effect of the Expiration, Termination, Cancellation or
               Settlement of Awards

4.      Administration.

        (a)    Committee Administration

        (b)    Board Reservation and Delegation

        (c)    Committee Authority

        (d)    Committee Determinations Final

5.      Eligibility.

6.      Conditions to Grants.

        (a)    General Conditions.

        (b)    Grant of Options and Exercise Price

        (c)    Grant of Incentive Stock Options

        (d)    Grant of Shares of Restricted Stock

        (e)    Grant of Performance Units and Performance Shares

        (f)    Grant of Stock Appreciation Rights




        (g)    Tandem Awards

7.      Non-transferability.

8.      Exercise.

        (a)    Exercise of Options and Stock Appreciation Rights

        (b)    Exercise of Performance Units

        (c)    Payment of Performance Shares

        (d)    Exercise, Cancellation, Expiration or Forfeiture of Tandem Awards


9.      Effect of Certain Transactions.

10.     Mandatory Withholding Taxes.

11.     Termination of Employment.

12.     Securities Law Matters.

13.     No Funding Required.

14.     No Employment Rights.

15.     Rights as a Stockholder.

16.     Nature of Payments.

17.     Non-Uniform Determinations.

18.     Adjustments.

19.     Amendment of the Plan.

20.     Termination of the Plan.

21.     No Illegal Transactions.

22.     Governing Law.

23.     Severability.

24.     Translations.




        1. Establishment, Purpose and Effective Date.

                (a) Establishment. The Company hereby establishes the Citi
        Trends 2005 Long-Term Incentive Plan (as set forth herein and from time
        to time amended, the "Plan").

                (b) Purpose. The primary purpose of the Plan is to provide a
        means by which key employees and directors of the Company can acquire
        and maintain stock ownership, thereby strengthening their commitment to
        the success of the Company and their desire to remain employed by the
        Company, focusing their attention on managing the Company as an equity
        owner, and aligning their interests with those of the Company's
        stockholders. The Plan also is intended to attract and retain key
        employees and to provide such employees with additional incentive and
        reward opportunities designed to encourage them to enhance the
        profitable growth of the Company.

                (c) Effective Date. The Plan shall become effective upon its
        adoption by the Board.

        2. Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions and the terms set forth below shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

                (a) "Award" means Options, shares of restricted Stock,
        performance units, performance shares, Stock Appreciation Rights or
        Director's Shares granted under the Plan.

                (b) "Award Agreement" means the written agreement by which an
        Award is evidenced.

                (c) "Beneficial Owner," "Beneficially Owned" and "Beneficially
        Owning" shall have the meanings applicable under Rule 13d-3 promulgated
        under the 1934 Act.

                (d) "Board" means the board of directors of the Company.

                (e) "Change in Capitalization" means any increase or reduction
        in the number of shares of Stock, or any change in the shares of Stock
        or exchange of shares of Stock for a different number or kind of shares
        or other securities by reason of a stock dividend, extraordinary
        dividend, stock split, reverse stock split, share combination,
        reclassification, recapitalization, merger, consolidation, spin-off,
        split-up, reorganization, issuance of warrants or rights, liquidation,
        exchange of shares, repurchase of shares, change in corporate structure,
        or similar event, of or by the Company.

                (f) "Change of Control" means any of the following:

                        (i) the acquisition by any Person of Beneficial
                Ownership of Voting Securities which, when added to the Voting
                Securities then Beneficially Owned by such Person, would result
                in such Person Beneficially Owning 33% or more of the combined
                Voting Power of the Company's then outstanding Voting
                Securities; provided, however, that for purposes of this
                paragraph (i), a Person shall not be deemed to have made an
                acquisition of Voting Securities if such Person: (1) acquires
                Voting Securities as a result of a stock split, stock dividend
                or other corporate restructuring in which all stockholders of
                the class of such Voting Securities are treated on a pro rata
                basis; (2) acquires the Voting Securities directly from the
                Company; (3) becomes the Beneficial Owner of 33% or more of the
                combined Voting Power of the Company's then outstanding Voting
                Securities solely as a result of the acquisition of Voting
                Securities by the Company or any Subsidiary which, by reducing
                the number of Voting Securities outstanding, increases the
                proportional number of shares Beneficially Owned by such Person,
                provided that if (x) a Person would own at least such percentage
                as a result of the acquisition by the Company or any Subsidiary
                and (y) after such acquisition by the Company or any Subsidiary,
                such Person acquires Voting Securities, then an acquisition of
                Voting Securities shall have occurred; (4) is the Company or any
                corporation or other Person of which a majority of its voting
                power or its equity securities or equity interest is owned
                directly or indirectly




                by the Company (a "Controlled Entity"); or (5) acquires Voting
                Securities in connection with a "Non-Control Transaction" (as
                defined in paragraph (iii) below); or

                        (ii) the individuals who, as of the Effective Date, are
                members of the Board (the "Incumbent Board") cease for any
                reason to constitute at least two-thirds of the Board; provided,
                however, that if either the election of any new director or the
                nomination for election of any new director by the Company's
                stockholders was approved by a vote of at least two-thirds of
                the Incumbent Board prior to such election or nomination, such
                new director shall be considered as a member of the Incumbent
                Board; provided further, however, that no individual shall be
                considered a member of the Incumbent Board if such individual
                initially assumed office as a result of either an actual or
                threatened "Election Contest" (as described in Rule 14a-11
                promulgated under the 1934 Act) or other actual or threatened
                solicitation of proxies or consents by or on behalf of a Person
                other than the Board (a "Proxy Contest") including by reason of
                any agreement intended to avoid or settle any Election Contest
                or Proxy Contest; or

                        (iii) consummation of:

                                (A) a merger, consolidation or reorganization
                        involving the Company (a "Business Combination"), unless

                                        (1) the stockholders of the Company,
                                immediately before the Business Combination,
                                own, directly or indirectly immediately
                                following the Business Combination, at least a
                                majority of the combined voting power of the
                                outstanding voting securities of the corporation
                                resulting from the Business Combination (the
                                "Surviving Corporation") in substantially the
                                same proportion as their ownership of the Voting
                                Securities immediately before the Business
                                Combination, and

                                        (2) the individuals who were members of
                                the Incumbent Board immediately prior to the
                                execution of the agreement providing for the
                                Business Combination constitute at least a
                                majority of the members of the Board of
                                Directors of the Surviving Corporation, and

                                        (3) no Person (other than the Company or
                                any Controlled Entity, a trustee or other
                                fiduciary holding securities under one or more
                                employee benefit plans or arrangements (or any
                                trust forming a part thereof) maintained by the
                                Company, the Surviving Corporation or any
                                Controlled Entity, or any Person who,
                                immediately prior to the Business Combination,
                                had Beneficial Ownership of 33% or more of the
                                then outstanding Voting Securities) has
                                Beneficial Ownership of 33% or more of the
                                combined voting power of the Surviving
                                Corporation's then outstanding voting securities
                                (a Business Combination satisfying the
                                conditions of clauses (1), (2) and (3) of this
                                subparagraph (A) shall be referred to as a
                                "Non-Control Transaction");

                                (B) a complete liquidation or dissolution of the
                        Company; or

                                (C) the sale or other disposition of all or
                        substantially all of the assets of the Company (other
                        than a transfer to a Controlled Entity).

        Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because 33% or more of the then outstanding Voting Securities is
Beneficially Owned by (x) a trustee or other fiduciary




holding securities under one or more employee benefit plans or arrangements (or
any trust forming a part thereof) maintained by the Company or any Controlled
Entity or (y) any corporation which, immediately prior to its acquisition of
such interest, is owned directly or indirectly by the stockholders of the
Company in the same proportion as their ownership of stock in the Company
immediately prior to such acquisition.

                (g) "Committee" means the committee of the Board appointed
                pursuant to Article 4.
                (h) "Company" means Citi Trends, a Georgia corporation.
                (i) "Disability" means a mental or physical condition which, in
                the opinion of the Committee, renders a Grantee unable or
                incompetent to carry out the job responsibilities which such
                Grantee held or the duties to which such Grantee was assigned at
                the time the disability was incurred, and which is expected to
                be permanent or for an indefinite duration.
                (j) "Effective Date" means the date that the Plan is adopted by
                the Board.
                (k) "Fair Market Value" of any security of the Company or any
                other issuer means, as of any applicable date:

                        (i) if the security is listed for trading on the New
                York Stock Exchange, the closing price at the close of the
                primary trading session of the security on such date on the New
                York Stock Exchange, or if there has been no such closing price
                of the security on such date, on the next preceding date on
                which there was such a closing price, or

                        (ii) if the security is not so listed, but is listed on
                another national securities exchange, the closing price at the
                close of the primary trading session of the security on such
                date on such exchange, or if there has been no such closing
                price of the security on such date, on the next preceding date
                on which there was such a closing price, or

                        (iii) if the security is not listed for trading on the
                New York Stock Exchange or on another national securities
                exchange, the last sale price at the end of normal market hours
                of the security on such date as quoted on the National
                Association of Securities Dealers Automated Quotation System
                ("NASDAQ") or, if no such price shall have been so quoted for
                such date, on the next preceding date for which such price was
                so quoted, or

                        (iv) if the security is not listed for trading on a
                national securities exchange or is not authorized for quotation
                on NASDAQ, the fair market value of the security as determined
                in good faith by the Committee, and in the case of Incentive
                Stock Options, in accordance with Section 422 of the Internal
                Revenue Code.

                (l) "Grant Date" means the date of grant of an Award determined
                in accordance with Article 6.
                (m) "Grantee" means an individual who has been granted an Award.
                (n) "Incentive Stock Option" means an Option satisfying the
                requirements of Section 422 of the Internal Revenue Code and
                designated by the Committee as an Incentive Stock Option.
                (o) "Internal Revenue Code" means the Internal Revenue Code of
                1986, as amended, and regulations and rulings thereunder.
                References to a particular Section of the Internal Revenue Code
                shall include references to successor provisions.
                (p) "Measuring Period" has the meaning specified in Article
                6(e)(ii)(A).
                (q) "Minimum Consideration" means the $.01 par value per share
                of Stock or such larger amount determined pursuant to resolution
                of the Board to be capital within the meaning of Section 154 of
                the Delaware General Corporation Law.
                (r) "1934 Act" means the Securities Exchange Act of 1934, as
                amended.
                (s) "Nonqualified Stock Option" means an Option which is not an
                Incentive Stock Option or other type of statutory stock option
                under the Internal Revenue Code.
                (t) "Option" means an option to purchase Stock granted or issued
                under the Plan.




                (u) "Exercise Price" means the per share purchase price of (i)
                Stock subject to an Option, (ii) Stock subject to a Stock
                Appreciation Right, or (iii) restricted Stock subject to an
                Option.
                (v) "Performance-Based Compensation" means any Option or Award
                that is intended to constitute "performance based compensation"
                within the meaning of Section 162(m)(4)(C) of the Internal
                Revenue Code and the regulations promulgated thereunder.
                (w) "Performance Percentage" has the meaning specified in
                Article 6(e)(ii)(C).
                (x) "Person" means a person within the meaning of Sections 13(d)
                and 14(d) of the 1934 Act.
                (y) "Plan" has the meaning set forth in Article 1(a).
                (z) "SEC" means the Securities and Exchange Commission.
                (aa) "Section 16 Grantee" means a person subject to potential
                liability with respect to equity securities of the Company under
                Section 16(b) of the 1934 Act.
                (bb) "Stock" means common stock, par value $.01 per share, of
                the Company.
                (cc) "Stock Appreciation Right" means a right that permits the
                individual to receive a payment equal to the excess of the
                stock's value at exercise over the Exercise Price.
                (dd) "Subsidiary" means (i) except as provided in subsection
                (ii) below, any corporation which is a subsidiary corporation
                within the meaning of Section 424(f) of the Internal Revenue
                Code with respect to the Company, and (ii) in relation to the
                eligibility to receive Options or Awards other than Incentive
                Stock Options, any entity, whether or not incorporated, in which
                the Company directly or indirectly owns either (A) Voting
                Securities possessing at least 50% of the Voting Power of such
                entity, or (B) if such entity does not issue Voting Securities,
                at least 50% of the ownership interests in such entity.
                (ee) "10% Owner" means a person who owns stock (including stock
                treated as owned under Section 424(d) of the Internal Revenue
                Code) possessing more than 10% of the Voting Power of the
                Company.
                (ff) "Termination of Employment" occurs the first day on which
                an individual is for any reason no longer employed by, or
                providing services to, the Company or any of its Subsidiaries,
                or with respect to an individual who is an employee of a
                Subsidiary, the first day on which the Company no longer owns
                Voting Securities possessing at least 50% of the Voting Power of
                such Subsidiary.
                (gg) "Voting Power" means the combined voting power of the then
                outstanding Voting Securities.
                (hh) "Voting Securities" means, with respect to the Company or
                any Subsidiary, any securities issued by the Company or such
                Subsidiary, respectively, which generally entitle the holder
                thereof to vote for the election of directors of the Company.

        3. Scope of the Plan.

                (a) Number of Shares Available Under the Plan. The maximum
        number of shares of Stock that may be made the subject of Awards granted
        under the Plan is 35,000 (or the number and kind of shares of Stock or
        other securities to which such shares of Stock are adjusted upon a
        Change in Capitalization pursuant to Article 18); provided, however,
        that in the aggregate, not more than 50% of total shares of Stock may be
        made the subject of Awards other than Options. The maximum number of
        shares of Stock that may be the subject of Options and Awards granted to
        any individual pursuant to the Plan in any calendar year period may not
        exceed 5% of total number of reserved shares. The maximum dollar amount
        of cash or the Fair Market Value of Stock that any individual may
        receive in any calendar year in respect of performance units denominated
        in dollars may not exceed $2,500,000. The Company shall reserve for the
        purpose of the Plan, out of its authorized but unissued shares of Stock
        or out of shares held in the Company's treasury, or partly out of each,
        such number of shares as shall be determined by the Board. The Board
        shall have the authority to cause the Company to purchase from time to
        time shares of Stock to be held as treasury shares and used for or in
        connection with Awards.




                (b) Reduction in the Available Shares in Connection with Award
        Grants. Upon the grant of an Award, the number of shares of Stock
        available under Article 3(a) for the granting of further Awards shall be
        reduced as follows:

                        (i) Generally. In connection with the granting of each
                Award, other than a performance unit denominated in dollars, the
                number of shares of Stock available under Article 3(a) for the
                granting of further Awards shall be reduced by a number of
                shares equal to the number of shares of Stock in respect of
                which the Award is granted or denominated; provided, however,
                that if any Award is exercised by tendering shares of Stock,
                either actually or by attestation, to the Company as full or
                partial payment of the exercise price, the maximum number of
                shares of Stock available under Article 3(a) shall be increased
                by the number of shares of Stock so tendered.

                        (ii) Performance Units Denominated in Dollars. In
                connection with the granting of a performance unit denominated
                in dollars, there shall be no reduction in the number of shares
                of Stock available under Article 3(a) for the granting of
                further Awards. If a performance unit denominated in dollars is
                settled in Stock, the number of shares of Stock available under
                Article 3(a) for the granting of further Awards shall be reduced
                at the time of settlement by the number of shares of Stock
                issued in connection with the settlement of the performance
                unit.

                        (iii) Cash Settlement; Shares Subject to Multiple
                Awards. Notwithstanding anything contained herein to the
                contrary, (A) if an Award is granted that cannot be settled in
                shares of Stock, there shall be no reduction in the number of
                shares of Stock available under Article 3(a) for the granting of
                further Awards, and (B) where two or more Awards are granted
                with respect to the same shares of Stock, such shares shall be
                taken into account only once for purposes of this Article 3(b).

                (c) Effect of the Expiration, Termination, Cancellation or
        Settlement of Awards. If and to the extent an Option or Award expires,
        terminates or is canceled, settled in cash (including the settlement of
        tax withholding obligations using shares of Stock) or forfeited for any
        reason without having been exercised in full (including, without
        limitation, a cancellation of an Option pursuant to Article 4(c)(vi)),
        the shares of Stock associated with the expired, terminated, canceled,
        settled or forfeited portion of the Award (to the extent the number of
        shares available for the granting of Awards was reduced pursuant to
        Article 3(b)) shall again become available for Awards under the Plan.

        4. Administration.

                (a) Committee Administration. The Plan shall be administered by
        the Committee, which shall consist of not less than two "non-employee
        directors" within the meaning of Rule 16b-3, and to the extent necessary
        for any Award intended to qualify as Performance-Based Compensation to
        so qualify, each member of the Committee shall be an "outside director"
        within the meaning of Section 162(m) of the Internal Revenue Code. For
        purposes of the preceding sentence, if one or more members of the
        Committee is not a "non-employee director" within the meaning of Rule
        16b-3 and an "outside director" within the meaning of Section 162(m) of
        the Internal Revenue Code but recuses himself or herself or abstains
        from voting with respect to a particular action taken by the Committee,
        then the Committee, with respect to that action, shall be deemed to
        consist only of the members of the Committee who have not recused
        themselves or abstained from voting.

                (b) Board Reservation and Delegation. Except to the extent
        necessary for any Award intended to qualify as Performance-Based
        Compensation to so qualify, the Board may, in its discretion, reserve to
        itself or exercise any or all of the authority and responsibility of the




        Committee hereunder and may also delegate to another committee of the
        Board any or all of the authority and responsibility of the Committee
        with respect to Awards to Grantees who are not Section 16 Grantees at
        the time any such delegated authority or responsibility is exercised.
        Such other committee may consist of one or more directors who may, but
        need not be, officers or employees of the Company or of any of its
        Subsidiaries. To the extent that the Board has reserved to itself, or
        exercised the authority and responsibility of the Committee, or
        delegated the authority and responsibility of the Committee to such
        other committee, all references to the Committee in the Plan shall be to
        the Board or to such other committee.

                (c) Committee Authority. The Committee shall have full and final
        authority, in its discretion, but subject to the express provisions of
        the Plan, as follows:

                        (i) to grant Awards,

                        (ii) to determine (A) when Awards may be granted, and
                (B) whether or not specific Awards shall be identified with
                other specific Awards, and if so, whether they shall be
                exercisable cumulatively with, or alternatively to, such other
                specific Awards,

                        (iii) to interpret the Plan and to make all
                determinations necessary or advisable for the administration of
                the Plan,

                        (iv) to prescribe, amend, and rescind rules and
                regulations relating to the Plan, including, without limitation,
                rules with respect to the exercisability and nonforfeitability
                of Awards upon the Termination of Employment of a Grantee,

                        (v) to determine the terms and provisions of the Award
                Agreements, which need not be identical and, with the consent of
                the Grantee, to modify any such Award Agreement at any time,

                        (vi) to cancel, with the consent of the Grantee,
                outstanding Awards,

                        (vii) except with respect to Awards made to nonemployee
                directors, to accelerate the exercisability of, and to
                accelerate or waive any or all of the restrictions and
                conditions applicable to, any Award,

                        (viii) to authorize any action of or make any
                determination by the Company as the Committee shall deem
                necessary or advisable for carrying out the purposes of the
                Plan, and

                        (ix) to impose such additional conditions, restrictions,
                and limitations upon the grant, exercise or retention of Awards
                as the Committee may, before or concurrently with the grant
                thereof, deem appropriate, including, without limitation,
                requiring simultaneous exercise of related identified Awards,
                and limiting the percentage of Awards which may from time to
                time be exercised by a Grantee.

        Notwithstanding anything herein to the contrary, the exercise price of
outstanding Options may not be decreased (except pursuant to Article 18 of the
Plan) and Options may not be cancelled or forfeited and re-granted to effect the
same result. Notwithstanding anything herein to the contrary, with respect to
Grantees working outside the United States, the Committee may determine the
terms and provisions of the Award Agreements and make such adjustments or
modifications to Awards as are necessary and advisable to fulfill the purposes
of the Plan.




                (d) Committee Determinations Final. The determination of the
        Committee on all matters relating to the Plan or any Award Agreement
        shall be conclusive and final. No member of the Committee shall be
        liable for any action or determination made in good faith with respect
        to the Plan or any Award.

        5. Eligibility.

        Awards may be granted to any employee of the Company, and to any
nonemployee director of the Company. In selecting the individuals to whom Awards
may be granted, as well as in determining the number of shares of Stock subject
to, and the other terms and conditions applicable to, each Award, the Committee
shall take into consideration such factors as it deems relevant in promoting the
purposes of the Plan.

        6. Conditions to Grants.

                (a) General Conditions.

                        (i) The Grant Date of an Award shall be the date on
                which the Committee grants the Award or such later date as
                specified in advance by the Committee.

                        (ii) The term of each Award (subject to Article 6(c)
                with respect to Incentive Stock Options) shall be a period of
                not more than ten years from the Grant Date and shall be subject
                to earlier termination as provided herein or in the applicable
                Award Agreement; provided, however, that the Committee may
                provide that an Option (other than an Incentive Stock Option)
                may, upon the death of the Grantee, be exercised for up to one
                year following the date of the Grantee's death even if such
                period extends beyond ten years from the date the Option is
                granted.

                        (iii) A Grantee may, if otherwise eligible, be granted
                additional Awards in any combination.

                        (iv) The Committee may grant Awards with terms and
                conditions which differ among the Grantees thereof. To the
                extent not set forth in the Plan, the terms and conditions of
                each Award shall be set forth in an Award Agreement.

                (b) Grant of Options and Exercise Price. The Committee may, in
        its discretion, shall grant Options as follows:

                        (i) Employee Options. Options to acquire unrestricted
                Stock or restricted Stock may be granted to any employee
                eligible under Article 5 to receive Awards. No later than the
                Grant Date of any Option, the Committee shall determine the
                Exercise Price.

                        (ii) Nonemployee Director Options.

                                (A). Discretionary Grants. Nonqualified Stock
                        Options to acquire unrestricted or restricted stock may
                        be granted to nonemployee directors of the Company from
                        time to time.

                                (B). Terms Applicable to all Nonemployee
                        Director Options. Each Nonqualified Stock Option granted
                        to a nonemployee director will be granted with an
                        Exercise Price of not less than 100% of the Fair Market
                        Value of the Stock on the Grant Date, will become
                        exercisable with respect to one-third of the underlying
                        shares on each of the first, second and third
                        anniversaries of the




                        Grant Date, and will have a term of not more than ten
                        years. If a nonemployee director ceases to serve as a
                        director of the Company for any reason, any Nonqualified
                        Stock Option granted to such nonemployee director shall
                        be exercisable during its remaining term, to the extent
                        that such Nonqualified Stock Option was exercisable on
                        the date such nonemployee director ceased to be a
                        director.

                (c) Grant of Incentive Stock Options. At the time of the grant
        of any Option to an employee of the Company, the Committee may designate
        that such Option shall be an Incentive Stock Option. Any Option
        designated as an Incentive Stock Option:

                        (i) shall have an Exercise Price of (A) not less than
                100% of the Fair Market Value of the Stock on the Grant Date or
                (B) in the case of a 10% Owner, not less than 110% of the Fair
                Market Value of the Stock on the Grant Date;

                        (ii) shall have a term of not more than ten years (five
                years, in the case of a 10% Owner) from the Grant Date, and
                shall be subject to earlier termination as provided herein or in
                the applicable Award Agreement;

                        (iii) shall, if, with respect to any grant, the
                aggregate Fair Market Value of Stock (determined on the Grant
                Date) of all Incentive Stock Options granted under the Plan and
                "incentive stock options" (within the meaning of Section 422 of
                the Internal Revenue Code) granted under any other stock option
                plan of the Grantee's employer or any parent or subsidiary
                thereof (in either case determined without regard to this
                Article 6(c)) are exercisable for the first time during any
                calendar year exceeds $100,000, be treated as Nonqualified Stock
                Options. For purposes of the foregoing sentence, Incentive Stock
                Options shall be treated as Nonqualified Stock Options according
                to the order in which they were granted such that the most
                recently granted Incentive Stock Options are first treated as
                Nonqualified Stock Options;

                        (iv) shall be granted within ten years from the earlier
                of the date the Plan is adopted by the Board or the date the
                Plan is approved by the stockholders of the Company; and

                        (v) shall require the Grantee to notify the Committee of
                any disposition of any Stock issued pursuant to the exercise of
                the Incentive Stock Option under the circumstances described in
                Section 421(b) of the Internal Revenue Code (relating to certain
                disqualifying dispositions), within ten days of such
                disposition.

                (d) Grant of Shares of Restricted Stock.

                        (i) The Committee may, in its discretion, grant shares
                of restricted Stock to any individual eligible under Article 5
                to receive Awards.

                        (ii) Before the grant of any shares of restricted Stock,
                the Committee shall determine, in its discretion:

                                (A) whether the certificates for such shares
                        shall be delivered to the Grantee or held (together with
                        a stock power executed in blank by the Grantee) in
                        escrow by the Secretary of the Company until such shares
                        become nonforfeitable or are forfeited;

                                (B) the per share purchase price of such shares,
                        which may be zero; provided, however, that the per share
                        purchase price of all such shares (other




                        than treasury shares) shall not be less than the Minimum
                        Consideration for each such share;

                                (C) the restrictions applicable to such grant
                        and the time or times upon which any applicable
                        restrictions on the restricted Stock shall lapse;
                        provided, however, that except in the case of shares of
                        restricted Stock issued to nonemployee directors or the
                        case of restricted stock issued in full or partial
                        settlement of another Award or other earned
                        compensation, or in the event of the Grantee's
                        Termination of Employment, as determined by the
                        Committee and set forth in an Award Agreement, such
                        restrictions shall not lapse prior to the first
                        anniversary of the Grant Date of the restricted Stock;
                        and

                                (D) whether the payment to the Grantee of
                        dividends, or a specified portion thereof, declared or
                        paid on such shares by the Company shall be deferred
                        until the lapsing of the restrictions imposed upon such
                        shares and shall be held by the Company for the account
                        of the Grantee, whether such dividends shall be
                        reinvested in additional shares of restricted Stock (to
                        the extent shares are available under Article 3) subject
                        to the same restrictions and other terms as apply to the
                        shares with respect to which such dividends are issued
                        or otherwise reinvested in Stock or held in escrow,
                        whether interest will be credited to the account of the
                        Grantee with respect to any dividends which are not
                        reinvested in restricted or unrestricted Stock, and
                        whether any Stock dividends issued with respect to the
                        restricted Stock to be granted shall be treated as
                        additional shares of restricted Stock.

                        (iii) Payment of the purchase price (if greater than
                zero) for shares of restricted Stock shall be made in full by
                the Grantee before the delivery of such shares and, in any
                event, no later than ten days after the Grant Date for such
                shares. Such payment may be made, as determined by the Committee
                in its discretion, in any one or any combination of the
                following:

                                (A) cash; or

                                (B) with the prior approval of the Committee,
                        shares of restricted or unrestricted Stock owned by the
                        Grantee prior to such grant and valued at its Fair
                        Market Value on the business day immediately preceding
                        the date of payment;

                provided, however, that, in the case of payment in shares of
                restricted or unrestricted Stock, if the purchase price for
                restricted Stock ("New Restricted Stock") is paid with shares of
                restricted Stock ("Old Restricted Stock"), the restrictions
                applicable to the New Restricted Stock shall be the same as if
                the Grantee had paid for the New Restricted Stock in cash
                unless, in the judgment of the Committee, the Old Restricted
                Stock was subject to a greater risk of forfeiture, in which case
                a number of shares of New Restricted Stock equal to the number
                of shares of Old Restricted Stock tendered in payment for New
                Restricted Stock shall be subject to the same restrictions as
                the Old Restricted Stock, determined immediately before such
                payment.

                        (iv) The Committee may, but need not, provide that all
                or any portion of a Grantee's Award of restricted Stock shall be
                forfeited:

                                (A) except as otherwise specified in the Award
                        Agreement, upon the Grantee's Termination of Employment
                        within a specified time period after the Grant Date; or




                                (B) if the Company or the Grantee does not
                        achieve specified performance goals within a specified
                        time period after the Grant Date and before the
                        Grantee's Termination of Employment; or

                                (C) upon failure to satisfy such other
                        restrictions as the Committee may specify in the Award
                        Agreement.

                        (v) If a share of restricted Stock is forfeited, then:

                                (A) the Grantee shall be deemed to have resold
                        such share of restricted Stock to the Company at the
                        lesser of (1) the purchase price paid by the Grantee
                        (such purchase price shall be deemed to be zero dollars
                        ($0) if no purchase price was paid) or (2) the Fair
                        Market Value of a share of Stock on the date of such
                        forfeiture;

                                (B) the Company shall pay to the Grantee the
                        amount determined under clause (A) of this sentence, if
                        not zero, as soon as is administratively practicable,
                        but in any case within 90 days after forfeiture; and

                                (C) such share of restricted Stock shall cease
                        to be outstanding, and shall no longer confer on the
                        Grantee thereof any rights as a stockholder of the
                        Company, from and after the date of the Company's tender
                        of the payment specified in clause (B) of this sentence,
                        whether or not such tender is accepted by the Grantee,
                        or the date the restricted Stock is forfeited if no
                        purchase price was paid for the restricted Stock.

                        (vi) Any share of restricted Stock shall bear an
                appropriate legend specifying that such share is
                non-transferable and subject to the restrictions set forth in
                the Plan and the Award Agreement. If any shares of restricted
                Stock become nonforfeitable, the Company shall cause
                certificates for such shares to be issued or reissued without
                such legend and delivered to the Grantee or, at the request of
                the Grantee, shall cause such shares to be credited to a
                brokerage account specified by the Grantee.

                (e) Grant of Performance Units and Performance Shares.

                        (i) The Committee may, in its discretion, grant
                performance units or performance shares to any employee of the
                Company eligible under Article 5 to receive Awards.

                        (ii) Before the grant of any performance unit or
                performance share, the Committee shall:

                                (A) designate a period, of not less than one
                        year nor more than five years, for the measurement of
                        the extent to which performance goals are attained (the
                        "Measuring Period");

                                (B) determine performance goals applicable to
                        such grant; provided, however, that the performance
                        goals with respect to a Measuring Period shall be
                        established in writing by the Committee by the earlier
                        of (x) the date on which a quarter of the Measuring
                        Period has elapsed or (y) the date which is ninety (90)
                        days after the commencement of the Measuring Period, and
                        in any event while the performance relating to the
                        performance goals remain substantially uncertain; and




                                (C) assign a "Performance Percentage" to each
                        level of attainment of performance goals during the
                        Measuring Period, with the percentage applicable to
                        minimum attainment being zero percent (0%) and the
                        percentage applicable to optimum attainment to be
                        determined by the Committee from time to time.

                        (iii) The performance goals applicable to performance
                units or performance shares shall, in the discretion of the
                Committee, be based on stock price, earnings per share,
                operating income, return on equity or assets, cash flow, EBITDA,
                revenues, overall revenue or sales growth, expense reduction or
                management, market position, total shareholder return, return on
                investment, earnings before interest and taxes (EBIT), net
                income, return on net assets, economic value added, shareholder
                value added, cash flow return on investment, net operating
                profit, net operating profit after tax, return on capital, and
                return on invested capital, or any combination of the foregoing.
                Such performance goals may be absolute or relative (to prior
                performance or to the performance of one or more other entities
                or external indices) and may be expressed in terms of a
                progression within a specified range. At the time of the
                granting of performance units or performance shares, or at any
                time thereafter, in either case to the extent permitted under
                Section 162(m) of the Internal Revenue Code and the regulations
                thereunder without adversely affecting the treatment of the
                performance unit or performance share as Performance-Based
                Compensation, the Committee may provide for the manner in which
                performance will be measured against the performance goals (or
                may adjust the performance goals) to reflect the impact of
                specified corporate transactions, special charges, foreign
                currency effects, accounting or tax law changes and other
                extraordinary or nonrecurring events.

                        (iv) Prior to the vesting, payment, settlement or
                lapsing of any restrictions with respect to any performance unit
                or performance share that is intended to constitute
                Performance-Based Compensation made to a Grantee who is subject
                to Section 162(m) of the Internal Revenue Code, the Committee
                shall certify in writing that the applicable performance goals
                have been satisfied.

                        (v) Unless otherwise expressly stated in the relevant
                Award Agreement, each performance unit and performance share
                granted under the Plan is intended to be Performance-Based
                Compensation and the Committee shall interpret and administer
                the applicable provisions of the Plan in a manner consistent
                therewith. Any provisions inconsistent with such treatment shall
                be inoperative and shall not adversely affect the treatment of
                performance units or performance shares granted hereunder as
                Performance-Based Compensation. The Committee shall not be
                entitled to exercise any discretion otherwise authorized
                hereunder with respect to such performance unit or performance
                share if the ability to exercise such discretion or the exercise
                of such discretion itself would cause the compensation
                attributable to such performance unit or performance share to
                fail to qualify as Performance-Based Compensation.

                (f) Grant of Stock Appreciation Rights. The Committee may, in
        its discretion, grant Stock Appreciation Rights to any employee who is
        eligible under Article 5 to receive Awards as follows:

                        (i) Employee Stock Appreciation Rights. Stock
                Appreciation Rights may be granted to any employee eligible
                under Article 5 to receive Awards. No later than the Grant Date
                of any Stock Appreciation Right, the Committee shall determine
                the Exercise Price.

                        (ii) Nonemployee Director Stock Appreciation Rights.




                                (A). Discretionary Grants. Stock Appreciation
                        Rights may be granted to nonemployee directors of the
                        Company from time to time.

                                (B). Terms Applicable to all Nonemployee
                        Director Stock Appreciation Rights. Each Stock
                        Appreciation Right granted to a nonemployee director
                        will be granted with an Exercise Price not less than
                        100% of the Fair Market Value of the Stock on the Grant
                        Date, will become exercisable with respect to one-third
                        of the underlying shares on each of the first, second
                        and third anniversaries of the Grant Date, and will have
                        a term of not more than ten years. If a nonemployee
                        director ceases to serve as a director of the Company
                        for any reason, any Stock Appreciation Rights granted to
                        such nonemployee director shall be exercisable during
                        its remaining term, to the extent that such Stock
                        Appreciation Right was exercisable on the date such
                        nonemployee director ceased to be a director.

                (g) Tandem Awards. The Committee may grant and identify any
        Award with any other Award granted under the Plan ("Tandem Award"), on
        terms and conditions determined by the Committee.

        7. Non-transferability.

        Unless set forth in the applicable Award Agreement with respect to
Awards other than Incentive Stock Options, no Award (other than an Award of
restricted Stock) granted hereunder shall by its terms be assignable or
transferable except by will or the laws of descent and distribution or, in the
case of an Option other than an Incentive Stock Option, pursuant to a domestic
relations order (within the meaning of Rule 16a-12 promulgated under the
Exchange Act). An Option may be exercised during the lifetime of a Grantee only
by the Grantee or his or her guardian or legal representatives or, except as
would cause an Incentive Stock Option to lose its status as such, by a
bankruptcy trustee. Notwithstanding the foregoing, the Committee may set forth
in the Award Agreement evidencing an Award (other than an Incentive Stock
Option) at the time of grant or thereafter, that the Award may be transferred to
members of the Grantee's immediate family, to trusts solely for the benefit of
such immediate family members and to partnerships in which such family members
and/or trusts are the only partners, and for purposes of this Plan, a transferee
of an Award shall be deemed to be the Grantee. For this purpose, immediate
family means the Grantee's spouse, parents, children, stepchildren and
grandchildren and the spouses of such parents, children, stepchildren and
grandchildren. The terms of an Award shall be final, binding and conclusive upon
the beneficiaries, executors, administrators, heirs and successors of the
Grantee. Each share of restricted Stock shall be non-transferable until such
share becomes nonforfeitable.

        8. Exercise.

                (a) Exercise of Options and Stock Appreciation Rights. Subject
        to such terms and conditions as the Committee may impose, each Option or
        Stock Appreciation Right shall be exercisable in one or more
        installments commencing not earlier than the first anniversary of the
        Grant Date of such Option or Stock Appreciation Right; provided,
        however, that all Options or Stock Appreciation Rights held by each
        Grantee shall become fully (100%) vested and exercisable upon the
        occurrence of a Change of Control regardless of whether the acceleration
        of the exercisability of such Options or Stock Appreciation Rights would
        cause such Options to lose their eligibility for treatment as Incentive
        Stock Options. Each Option or Stock Appreciation Right shall be
        exercised by delivery to the Company of written notice of intent to
        purchase a specific number of shares of Stock subject to the Option. The
        Exercise Price of any shares of Stock as to which an Option or Stock
        Appreciation Right shall be exercised shall be paid in full at the time
        of the exercise. Payment may be made, as determined by the Committee in
        its discretion with respect to Options or Stock Appreciation Rights
        granted to eligible employees and in all cases with respect to Options
        or Stock Appreciation Rights granted to nonemployee directors, in any
        one or any combination of the following:




                        (i) cash,

                        (ii) shares of unrestricted Stock held by the Grantee
                for at least six months (or such lesser period as may be
                permitted by the Committee) prior to the exercise of the Option
                or Stock Appreciation Right, and valued at its Fair Market Value
                on the last business day immediately preceding the date of
                exercise, or

                        (iii) through simultaneous sale through a broker of
                shares of unrestricted Stock acquired on exercise, as permitted
                under Regulation T of the Federal Reserve Board.

        Shares of unrestricted Stock acquired by a Grantee on exercise of an
Option shall be delivered to the Grantee or, at the request of the Grantee,
shall be credited directly to a brokerage account specified by the Grantee.

                (b) Exercise of Performance Units.


                        (i) Subject to such terms and conditions as the
                Committee may impose, and unless otherwise provided in the
                applicable Award Agreement, if, with respect to any performance
                unit, the Committee has determined that the minimum performance
                goals have been achieved during the applicable Measuring Period,
                then such performance unit shall be deemed exercised on the date
                on which it first becomes exercisable.

                        (ii) The benefit for each performance unit exercised
                shall be an amount equal to the product of

                                (A) the Unit Value (as defined below),
                        multiplied by

                                (B) the Performance Percentage attained during
                        the Measuring Period for such performance unit.

                        (iii) The Unit Value shall be, as specified by the
                Committee,

                                (A) a dollar amount,

                                (B) an amount equal to the Fair Market Value of
                        a share of Stock on the Grant Date,

                                (C) an amount equal to the Fair Market Value of
                        a share of Stock on the exercise date of the performance
                        unit, plus, if so provided in the Award Agreement, an
                        amount ("Dividend Equivalent Amount") equal to the Fair
                        Market Value of the number of shares of Stock that would
                        have been purchased if each dividend paid on a share of
                        Stock on or after the Grant Date and on or before the
                        exercise date were invested in shares of Stock at a
                        purchase price equal to its Fair Market Value on the
                        respective dividend payment date, or

                                (D) an amount equal to the Fair Market Value of
                        a share of Stock on the exercise date of the performance
                        unit (plus, if so specified in the Award Agreement, a
                        Dividend Equivalent Amount), reduced by the Fair Market
                        Value of a share of Stock on the Grant Date of the
                        performance unit.

                        (iv) The benefit upon the exercise of a performance unit
                shall be payable as soon as is administratively practicable (but
                in any event within 90 days) after the later of (A) the date the
                Grantee is deemed to exercise such performance unit, or (B) the
                date (or dates in




                the event of installment payments) as provided in the applicable
                Award Agreement. Such benefit shall be payable in cash or
                restricted Stock, except that the Committee, with respect to any
                particular exercise, may, in its discretion, pay benefits wholly
                or partly in Stock delivered to the Grantee or credited to a
                brokerage account specified by the Grantee. The number of shares
                of Stock payable in lieu of cash shall be determined by valuing
                the Stock at its Fair Market Value on the business day next
                preceding the date such benefit is to be paid.

                (c) Payment of Performance Shares. Subject to such terms and
        conditions as the Committee may impose, and unless otherwise provided in
        the applicable Award Agreement, if the Committee has determined in
        accordance with Article 6(e)(iv) that the minimum performance goals with
        respect to an Award of performance shares have been achieved during the
        applicable Measuring Period, then the Company shall pay to the Grantee
        of such Award (or, at the request of the Grantee, deliver to a brokerage
        account specified by the Grantee) shares of restricted Stock or Stock
        equal in number to the product of the number of performance shares
        specified in the applicable Award Agreement multiplied by the
        Performance Percentage achieved during such Measuring Period, except to
        the extent that the Committee in its discretion determines that cash be
        paid in lieu of some or all of such shares of Stock. The amount of cash
        payable in lieu of a share of Stock shall be determined by valuing such
        share at its Fair Market Value on the business day next preceding the
        date such cash is to be paid. Payments pursuant to this Article 8(d)
        shall be made as soon as administratively practicable (but in any event
        within 90 days) after the end of the applicable Measuring Period. Any
        performance shares with respect to which the performance goals have not
        been achieved by the end of the applicable Measuring Period shall
        expire.

                (d) Exercise, Cancellation, Expiration or Forfeiture of Tandem
        Awards. Upon the exercise, cancellation, expiration, forfeiture or
        payment in respect of any Award which is identified with any Tandem
        Award pursuant to Article 6(g), the Tandem Award shall automatically
        terminate to the extent of the number of shares in respect of which the
        Award is so exercised, cancelled, expired, forfeited or paid, unless
        otherwise provided by the Committee at the time of grant of the Tandem
        Award or thereafter.

        9. Effect of Certain Transactions.

        With respect to any Award which relates to Stock, in the event of (i)
the liquidation or dissolution of the Company or (ii) a merger or consolidation
of the Company (a "Transaction"), the Plan and the Awards issued hereunder shall
continue in effect in accordance with their respective terms, except that
following a Transaction either (i) each outstanding Award shall be treated as
provided for in the agreement entered into in connection with the Transaction
(the "Transaction Agreement") or (ii) if not so provided in the Transaction
Agreement, each Grantee shall be entitled to receive in respect of each share of
Stock subject to any outstanding Awards, upon the vesting, payment or exercise
of the Award (as the case may be), the same number and kind of stock,
securities, cash, property, or other consideration that each holder of a share
of Stock was entitled to receive in the Transaction in respect of a share of
Stock.

        10. Mandatory Withholding Taxes.

        The Company shall have the right to deduct from any distribution of cash
to any Grantee an amount equal to the federal, state and local income taxes and
other amounts as may be required by law to be withheld (the "Withholding Taxes")
with respect to any Award. If a Grantee is to experience a taxable event in
connection with (i) the receipt of an Award, (ii) the receipt of shares pursuant
to an Option exercise, (iii) the vesting or payment of another type of Award or
(iv) any other event in connection with the Plan (a "Taxable Event"), the
Grantee shall pay the Withholding Taxes to the Company prior to the issuance, or
release from escrow, of such Award or shares or vesting or payment of such Award
or occurrence of such event, as applicable. Payment of the applicable
Withholding Taxes may be made, as determined by the Committee in its discretion,
in any one or any combination of (i) cash, (ii) shares of restricted or
unrestricted Stock owned by the Grantee prior to the Taxable Event and valued at
its Fair




Market Value on the business day immediately preceding the date of exercise, or
(iii) by making a Tax Election (as described below). For purposes of this
Article 11, the Committee may provide in the Award Agreement at the time of
grant, or at any time thereafter, that the Grantee, in satisfaction of the
obligation to pay Withholding Taxes to the Company, may elect to have withheld a
portion of the shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.

        11. Termination of Employment.

        The Award Agreement pertaining to each Award shall set forth the terms
and conditions applicable to such Award upon a Termination of Employment of the
Grantee by the Company, a Subsidiary or an operating division or unit, which,
except for Awards granted to nonemployee directors, shall be as the Committee
may, in its discretion, determine at the time the Award is granted or
thereafter.

        12. Securities Law Matters.

                (a) If the Committee deems it necessary to comply with the
        Securities Act of 1933, the Committee may require a written investment
        intent representation by the Grantee and may require that a restrictive
        legend be affixed to certificates for shares of Stock.

                (b) If, based upon the opinion of counsel for the Company, the
        Committee determines that the exercise or nonforfeitability of, or
        delivery of benefits pursuant to, any Award would violate any applicable
        provision of (i) federal or state securities law, (ii) the listing
        requirements of any national securities exchange on which are listed any
        of the Company's equity securities or (iii) any other law or regulation,
        then the Committee may postpone any such exercise, nonforfeitability or
        delivery, as the case may be, but the Company shall use its best
        efforts, if applicable, to cause such exercise, nonforfeitability or
        delivery to comply with all such provisions at the earliest practicable
        date.

                (c) Notwithstanding any provision of the Plan or any Award
        Agreement to the contrary, no shares of Stock shall be issued to any
        Grantee in respect of any Award prior to the time a registration
        statement under the Securities Act of 1933 is effective with respect to
        such shares.

        13. No Funding Required.

        Benefits payable under the Plan to any person shall be paid directly by
the Company. The Company shall not be required to fund, or otherwise segregate
assets to be used for payment of, benefits under the Plan.

        14. No Employment Rights.


        Neither the establishment of the Plan, nor the granting of any Award
shall be construed to (a) give any Grantee the right to remain employed by the
Company or to any benefits not specifically provided by the Plan or (b) in any
manner modify the right of the Company or any of its Subsidiaries to modify,
amend, or terminate any of its employee benefit plans.

        15. Rights as a Stockholder.

        A Grantee shall not, by reason of any Award (other than restricted
Stock), have any right as a stockholder of the Company with respect to the
shares of Stock which may be deliverable upon exercise or payment of such Award
until such shares have been delivered to him. Shares of restricted Stock held by
a Grantee or held in escrow by the Secretary of the Company shall confer on the
Grantee all rights of a stockholder of the Company, except as otherwise provided
in the Plan.




        16. Nature of Payments.

        Any and all grants, payments of cash, or deliveries of shares of Stock
hereunder shall constitute special incentive payments to the Grantee and shall
not be taken into account in computing the amount of salary or compensation of
the Grantee for the purposes of determining any pension, retirement, death or
other benefits under (a) any pension, retirement, profit-sharing, bonus, life
insurance or other employee benefit plan of the Company or any of its
Subsidiaries or (b) any agreement between the Company, on the one hand, and the
Grantee, on the other hand, except as such plan or agreement shall otherwise
expressly provide.

        17. Non-Uniform Determinations.

        Neither the Committee's nor the Board's determinations under the Plan
need be uniform and may be made by the Committee or the Board selectively among
persons who receive, or are eligible to receive, Awards (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, to enter into non-uniform and
selective Award Agreements as to (a) the identity of the Grantees, (b) the terms
and provisions of Awards, and (c) the treatment of Terminations of Employment.

        18. Adjustments.

        In the event of Change in Capitalization, the Committee shall, in its
sole discretion, make equitable adjustment of

                (a) the aggregate number and class of shares of Stock or other
                stock or securities available under Article 3,
                (b) the number and class of shares of Stock or other stock or
                securities covered by an Award and to be covered by Options or
                Stock Appreciation Rights,
                (c) the Exercise Price applicable to outstanding Options,
                (d) the terms of performance unit and performance share grants
                (to the extent permitted under Section 162(m)) of the Internal
                Revenue Code and the regulations thereunder without adversely
                affecting the treatment of the performance unit or performance
                share as Performance-Based Compensation,
                (e) the Fair Market Value of Stock to be used to determine the
                amount of the benefit payable upon exercise of performance units
                and performance shares,
                (f) the maximum number and class of shares of Stock or other
                securities with respect to which Awards may be granted to any
                individual in any calendar year period.

        19. Amendment of the Plan.

        The Board may from time to time in its discretion amend or modify the
Plan without the approval of the stockholders of the Company, except as such
stockholder approval may be required (a) to retain Incentive Stock Option
treatment under Section 422 of the Internal Revenue Code, (b) to permit
transactions in Stock pursuant to the Plan to be exempt from potential liability
under Section 16(b) of the 1934 Act or (c) under the listing requirements of any
securities exchange on which any of the Company's equity securities are listed.

        20. Termination of the Plan.

        The Plan shall terminate on the tenth (10th) anniversary of the
Effective Date or at such earlier time as the Board may determine. Any
termination, whether in whole or in part, shall not affect any Award then
outstanding under the Plan.




        21. No Illegal Transactions.

        The Plan and all Awards granted pursuant to it are subject to all laws
and regulations of any governmental authority which may be applicable thereto;
and notwithstanding any provision of the Plan or any Award, Grantees shall not
be entitled to exercise Awards or receive the benefits thereof and the Company
shall not be obligated to deliver any Stock or pay any benefits to a Grantee if
such exercise, delivery, receipt or payment of benefits would constitute a
violation by the Grantee or the Company of any provision of any such law or
regulation or applicable court order.

        22. Governing Law.

        Except where preempted by federal law, the law of the State of Georgia
shall be controlling in all matters relating to the Plan, without giving effect
to the conflicts of law principles thereof.

        23. Severability.

        If all or any part of the Plan is declared by any court or governmental
authority to be unlawful or invalid, such unlawfulness or invalidity shall not
serve to invalidate any portion of the Plan not declared to be unlawful or
invalid. Any Article or part of an Article so declared to be unlawful or invalid
shall, if possible, be construed in a manner which will give effect to the terms
of such Article or part of an Article to the fullest extent possible while
remaining lawful and valid.

        24. Translations.

        Any inconsistency between the terms of the Plan or any Award Agreement
and the corresponding translation thereof into a language other than English
shall be resolved by reference, solely, to the English language document.

                                                                    Exhibit 23.1

            Consent of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Citi Trends, Inc.:

We consent to the use of our report dated April 15, 2004, with respect to the
balance sheets of Citi Trends, Inc. as of January 31, 2004 and February 1, 2003,
and the related statements of income, stockholders' equity, and cash flows for
the years then ended, incorporated herein by reference and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to
the adoption of Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity".


KPMG LLP



Jacksonville, FL
February 25, 2005