Page 19

Exhibit 10.1               

      STATE OF NORTH CAROLINA           COUNTY OF MECKLENBURG   AGREEMENT

     THIS AGREEMENT (the “Agreement”), is made and entered into as of the 29th
day of August, 2003 (the “Effective Date”) by and between The Cato Corporation,
a Delaware corporation (the “Company”), and Wayland H. Cato, Jr. (“Wayland
Cato”).

W I T N E S S E T H:

     WHEREAS, Wayland Cato is an employee, director and non-executive Chairman
of the Board of the Company; and

     WHEREAS, the Company and Wayland Cato have negotiated and agreed on the
terms of this Agreement providing for his resignation as an employee and
director of the Company and for the ongoing obligation of the parties following
the effective date of this Agreement and his retirement from the Company.

     NOW, THEREFORE, the parties, intending legally to be bound, hereby agree to
the mutual terms and conditions set forth below:

     1.     Continued Services and Retirement. Wayland Cato shall continue to
serve as an employee, a director and as non-executive Chairman of the Board of
the Company to January 31, 2004 (the “Retirement Date”) at which time his
resignation as an employee, director and the non-executive chairman of the Board
of Directors of the Company shall be effective and he shall retire and
relinquish all positions and responsibilities with the Company and its
subsidiaries and affiliates (the “Cato Group”) except as specifically set forth
herein. Provided, that Wayland Cato shall be entitled, at his option, to resign
as a director and/or as the non-executive Chairman of the Board prior to
January 31, 2004 without affecting the obligations of the Company set forth
herein.

     2.     Continuing Obligations of Wayland Cato. In consideration of the
benefits to Wayland Cato set forth in paragraph 3 hereof, Wayland Cato shall
comply with the following obligations to the Cato Group following the Retirement
Date:

          A. Confidentiality of Company Information. Wayland Cato acknowledges
the confidential and proprietary nature of the Confidential Information of the
Cato Group and agrees that he will not, without the prior, express written
consent of the Chief Executive Officer of the Company, directly or indirectly:

  (i)   use or disclose any Confidential Information outside the Cato Group
except as required by law,     (ii)   publish any article with respect thereto,

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Exhibit 10.1             

  (iii)   except in the performance of services to the Cato Group, remove from
the premises of the Company, or aid in such removal, any such Confidential
Information or any property or material related thereto (except as authorized
under subparagraph E. below), or     (iv)   sell, exchange or give away or
otherwise dispose of any such Confidential Information now or hereafter owned by
the Company.

     For purposes of this Agreement, “Confidential Information” means and
includes any and all of the following (whether or not documented):

  (i)   vendor information, including but not limited to names of vendors,
vendor transaction information, and billing, purchasing or credit history
information about vendors;     (ii)   financial information, including but not
limited to, financial statements, balance sheets, profit and loss statements,
earnings, commissions, benefits and salaries paid to employees, sales data and
projections, sales and income forecasts, cost analyses, pricing information,
business goals and projections, equipment and inventory data, profit margins,
and similar information;     (iii)   all sources and methods of supply,
including but not limited to supplier lists, business arrangements, buying and
inventory techniques, supply terms, supply and manufacturing contracts,
purchasing discounts, distribution agreements, and similar information;     (iv)
  all plans and projections for business opportunities for new or developing
business, including but not limited to, marketing concepts, business plans,
merchandising and marketing techniques, store leases, store site selection and
location plans and processes, real estate activities, real estate/expansion
information, advertising strategies, product lines, store development, and sales
plans;     (v)   all information relating to costs, research and development
activities, service performance, quality control measures or strategies, loss
prevention measures, operating results, pricing strategies, employee lists and
other confidential or proprietary information, software, designs, patents,
ideas, machinery, plans, know-how and trade secrets;     (vi)   all other
confidential or trade secret information that is used, or is designed to be used
in the business of the Cato Group or results from its research or development
activities.

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Exhibit 10.1             

Confidential Information shall not include information that is generally known
or available to the public or the industry other than as a result of disclosure
by Wayland Cato.

          B. Non-solicitation of Cato Group Employees. Wayland Cato agrees that
he will not, during the period of time through January 31, 2007, (i) solicit for
employment, offer employment to, engage as an employee, independent contractor
or in any manner induce or seek to induce any person who is a managerial or
administrative employee of the Cato Group to become employed by or engaged as an
independent contractor with someone other than the Cato Group, (ii) solicit or
encourage any such employee to terminate his or her employment with the Cato
Group, or (iii) otherwise interfere with any such employee’s relationship with
the Cato Group. Provided, that the foregoing prohibition shall not apply to the
employees currently assigned to the non-executive Chairman’s office (namely,
Theresa Gebhardt, Sylvia Remeta and Debra Jones) all of whom are anticipated to
remain employees of the Company only through December 31, 2003.

          C. Non-Competition. Wayland Cato agrees that for the period of time
through January 31, 2007 (the “Restricted Period”) he will not, directly or
indirectly, in the Restricted Area (as defined below), Compete (as defined
below) with the Cato Group.

          For purposes of this Agreement, the “Restricted Area” means the area
within a twenty-five (25) mile radius of any retail store under development,
operation or ownership by any member of the Cato Group during the Restricted
Period.

          For purposes of this Agreement, “Compete” means to engage in any
business activity whatsoever related in any manner or fashion to the operation
of retail stores that sell or offer to sell value-priced women’s apparel or
accessories. Without limiting the generality of the foregoing, Wayland Cato will
not, directly or indirectly (whether for compensation or otherwise), alone or as
an agent, principal, partner, officer, employee, trustee, director, shareholder
or in any other capacity, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or furnish any capital to,
or be connected in any manner with, or provide any services as a consultant for,
any business which Competes with the Cato Group in the Restricted Area;
provided, however, that notwithstanding the foregoing, nothing contained in this
letter shall be deemed (i) to preclude Wayland Cato from owning not more than 5%
of the publicly traded securities of any entity which Competes with the Cato
Group or (ii) to preclude Wayland Cato from owning or having an ownership
interest in shopping centers or buildings which may lease property to businesses
that Compete with the Cato Group.

          D. Consulting Services. During the period following the Retirement
Date through January 31, 2007, Wayland Cato will be available on reasonable
notice and at reasonable times, either in person or by telephone, to furnish to
the Cato Group such advisory or consulting services regarding senior management
issues as the Company may reasonably call upon Wayland Cato to furnish, provided
that Wayland Cato will not be required to devote more than eighty (80) hours of
service during any 12 month period to the Cato Group. The Company will reimburse
Wayland Cato for any reasonable expenses he incurs in connection with rendering
consulting services requested by the Company.

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Exhibit 10.1             

          E. Office Relocation. No later than the Retirement Date, Wayland Cato
will relocate his office from the Company premises. Wayland Cato shall be
entitled to remove all or any part of the property listed on Schedule 1 from the
Company premises without reimbursement or payment to the Company.

     3.     Obligations of the Company. In consideration of the obligations of
Wayland Cato to the Cato Group set forth in paragraph 2 of the Agreement, the
Company shall comply with the following obligations to Wayland Cato:

          A. Salary and Benefits. The Company will continue Wayland Cato’s
current salary and benefits through January 31, 2004. In the event of Wayland
Cato’s death prior to January 31, 2004, the Company will continue to pay his
salary to his estate to January 31, 2004.

          B. Continuing Payments. The Company will pay Wayland Cato the sum of
$500,000 per year during the three-year period commencing February 1, 2004 in
equal monthly installments. In the event of Wayland Cato’s death subsequent to
the Effective Date, the Company will pay Wayland Cato’s estate a lump sum amount
equal to the then aggregate present value (determined using a discount rate
equal to the applicable federal short-term rate in effect under Section 1274(d)
of the Internal Revenue Code for the month of his death) of the payments payable
pursuant to this subparagraph which remain unpaid to January 31, 2007. Such
payment to be made as soon as administratively feasible after his death.

          C. Group Term Life Insurance. For the three year period commencing on
the Retirement Date, the Company will continue to provide group term life
insurance to Wayland Cato comparable to that provided to him on January 31,
2004.

          D. Split Dollar Life Insurance. The Split-Dollar Life Insurance
Agreement dated September 17, 1998 and the Supplemental Compensation Agreement
dated September 17, 1998 shall each continue in effect in accordance with their
respective terms.

          E. Healthcare. Following the Retirement Date and for the remainder of
Wayland Cato’s life, the Company will provide Wayland Cato and his wife, Marion
Cato, with the same or comparable group healthcare coverage on the same economic
terms and conditions as it provides such coverage to its senior executives. In
the event Wayland Cato predeceases Marion Cato, the Company will provide such
coverage to her for her life (if she is married to Wayland Cato at the time of
his death).

          F. Transition Expenses. As soon as is administratively feasible after
the Effective Date, the Company will pay Wayland Cato the sum of $100,000 to
assist with the cost of the relocation of his office.

          The Company shall have no obligations to Wayland Cato following the
Effective Date except as is specifically set forth in the Agreement; provided
Wayland Cato shall continue

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Exhibit 10.1             

to be entitled to any benefits due to him under the benefit plans listed on
Schedule 2 attached hereto.

     4.     Tax. Wayland Cato acknowledges that income may be imputed to him in
connection with the receipt of the benefits provided under the Agreement and
that Wayland Cato will be responsible for the payment of all federal or state
tax liabilities, penalties, interest, tax payments or tax judgments that could
arise as a result of these benefits; provided, that this shall not affect the
obligations of the Company under the Supplemental Compensation Agreement
referred to in subparagraph 3.D. above. The Company may withhold from any
amounts or benefits payable or provided under this Agreement such federal, state
and local taxes as are required to be withheld pursuant to any applicable law or
regulation.

     5.     Acknowledgements. Wayland Cato acknowledges that he has carefully
read this Agreement, that he knows and understands the contents of this
Agreement, that he has consulted with a lawyer regarding this Agreement, and
that he executes this Agreement of his own free will. Wayland Cato and the
Company agree that the mutual consideration to the parties hereto is fair and
reasonable.

     6.     Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.

     7.     Notices. Any notice or other communications to be given hereunder
shall be deemed to have been given or delivered when delivered by hand to the
individuals named below or when deposited in the United States mail, registered
or certified, with proper postage and registration or certification fees
prepaid, addressed to the parties as follows (or to such other address as one
party shall give the other in the manner provided herein):

      The Cato Corporation
8100 Denmark Road
P. O. Box 34216
Charlotte, NC 28234
Attention: Chief Executive Officer         Mr. Wayland H. Cato, Jr.
782 Soldier Creek Road
Sheridan, WY 82801

     8.     Entire Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter contained herein and
supersedes any and all prior and contemporaneous agreements, representations,
promises, inducements and understandings of the parties. This written Agreement
cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous oral or written agreements. Moreover, this written Agreement may
not be later modified except by a further writing signed by a duly authorized
officer of the Company and Wayland Cato.

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Exhibit 10.1             

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

             

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    Wayland H. Cato, Jr.               THE CATO CORPORATION               By:  

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    Its:  

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Exhibit 10.1             

Schedule 1

Office furniture and filing cabinets currently located in the Chairman’s office
complex

1999 Ford Taurus

Oil portrait of Wayland H. Cato, Sr. which is currently in storage

Portraits of individual directors and directors as a group currently located in
the Board Room at such time as the Company decides not to display such portraits

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Exhibit 10.1             

Schedule 2

1.     The Cato Corporation 401(k) Profit Sharing Plan

2.     The Cato Corporation Life and AD&D Plan – Option to convert within
31 days following retirement