**Exhibit 10.1****SEPARATIONAND CONFIDENTIALITY AGREEMENT AND GENERAL RELEASE**THIS SEPARATION AND CONFIDENTIALITY AGREEMENT AND GENERAL RELEASE(“Agreement”), dated April 18, 2007, is made between The Cato Corporation (“Cato”) andReynolds C. Faulkner, his heirs, executors, administrators,successors, and assigns (“Faulkner”).(Cato and Faulkner are referred to as “Parties”). This Agreement shall be effective on the dateFaulkner and Cato sign, subject to the revocation rights set forth below.     WHEREAS, Faulkner previously was employed by Cato as its Executive Vice-Presidentand Chief Financial Officer under a letter agreement dated March 6, 2006 (“EmploymentAgreement”);     WHEREAS, upon being told by Cato that he would be terminated without cause andgiven the option to do so, Faulkner resigned rather than be terminated without cause, with suchresignation effective October 30, 2006;     WHEREAS, the Parties wish to settle and resolve all possible controversies betweenthem amicably and expeditiously;     NOW THEREFORE, in consideration of the mutual promises set forth herein and othergood and valuable consideration, the receipt and sufficiency of which is hereby acknowledged byFaulkner, the Parties agree as follows:     1. **LastDay of Employment.**Faulkner’s last day of active employment with Catowas October 30, 2006. Faulkner is not eligible to participate in Cato’s 401(k) Retirement andSavings Plan or any other Cato-sponsored employee benefit plan after October 30, 2006, exceptas set forth below.     2. **Consideration.**In consideration for signing this Agreement, Cato will do thefollowing: (a) Pay to Faulkner on the next business day after the Revocation Period described inParagraph 15, in a lump sum, $750,000, less (i) $29,196.12 already paid inNovember 2006, or $720,803.88, and (ii) less $3,357.86 as described in Section2(b) below. Of the $720,803.88 lump sum amount, $583,303.88 shall be deemedto be compensation in settlement of any wage, bonus, stock, severance, oremployment claims and will be subject to withholding for Federal and NorthCarolina income tax purposes and for which Faulkner will be issued a Form W-2for the year 2007 at the time provided for under existing governmentalregulations. For the balance of the lump sum amount, or $137,500 paid insettlement of other claims, including in tort or any other basis, that Faulknerreleases herein, Faulkner will be issued a Form 1099 for the year 2007 withrespect thereto at the time provided for under existing governmental regulations.  (b) Continue Faulkner’s health insurance coverage (on the same basis and at the samelevel it is provided to current Cato associates) from October 31, 2006 through October 31, 2007 or until Faulkner becomes eligible for another employer’s group
 

 
   health insurance benefits, whichever occurs first. Faulkner’s share of the healthinsurance premiums will be $3,357.86. Faulkner agrees that this $3,357.86amount will be withheld by Cato from the $720,803.88 lump sum payment above.From the $3,357.86 amount, Cato will deduct any amounts needed to pay priormonths of coverage, and going forward, Cato will deduct $306.07 each month forFaulkner’s share of the health insurance premiums. In the event Faulknerbecomes eligible for another employer’s group health insurance benefits beforeOctober 31, 2007, Faulkner will notify Cato and Cato will pay to Faulkner anyamount of the $3,357.86 that has not already been applied to Faulkner’s monthlyshare of the health insurance premiums.  (c) Faulkner may convert the existing group life insurance coverage to an individualplan upon request to Cato’s Director of Benefits and Cato will provide thenecessary paperwork and information upon Faulkner’s request.  (d) As of November 1, 2007, Faulkner will be eligible to continue group health andmajor medical coverage pursuant to the Consolidated Omnibus and Reform Act(COBRA), at the applicable COBRA rate for his coverage (excluding LifeInsurance, Short Term Disability and Long Term Disability coverage), providedthat Faulkner pays his monthly COBRA charges on or before the first day of eachmonth of continuing coverage. Faulkner will be responsible for premiumincreases should any occur. Unless Faulkner informs Cato that he has becomeeligible for another employer’s group health insurance benefits before October 31,2007, Cato’s Human Resources Department will send information to Faulkner forsuch continuation election prior to October 31, 2007.     3. **General Release of All Claims.**In consideration of the provisions of thisAgreement running to Faulkner’s benefit, Faulkner knowingly and voluntarily releases andforever discharges Cato, its affiliates, subsidiaries, divisions, predecessors, insurers, benefitplans, successors, and assigns as well as their current and former employees, attorneys, officers,directors, and agents thereof, both individually and in their official capacities (collectively,the “Cato Affiliates”), of and from any and all claims, known and unknown, asserted or unasserted,which Faulkner has or may have against Cato or the Cato Affiliates as of the effective date ofthis Agreement, including, but not limited to, any alleged violation of: **•** Title VII of the Civil Rights Act of 1964;  **•** Sections 1981 through 1988 of Title 42 of the United States Code;  **•** The Employee Retirement Income Security Act of 1974 (except for any vestedbenefits under any tax qualified benefit plan);  **•** The Immigration Reform and Control Act;  **•** The Americans with Disabilities Act of 1990;  **•** The Age Discrimination in Employment Act of 1967;
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 **•** The Workers Adjustment and Retraining Notification Act;  **•** The Fair Credit Reporting Act;  **•** The Sarbanes-Oxley Act of 2002;  **•** All North Carolina statutes, laws, and regulations;  **•** Any other federal, state, or local law, rule, regulation, or ordinance;  **•** Any public policy, contract, tort, or common law; or  **•** Any basis for recovering costs, fees, or other expenses including attorneys’ feesincurred in any such matters.     4. **CovenantNot to Sue.**Faulkner agrees that he will never institute aclaim released above in Paragraph 3 against Cato or the CatoAffiliates. If Faulkner violates thisagreement by suing Cato or any of the Cato Affiliates for any claims released herein, Faulkneragrees that he will pay all costs and expenses of defending any such suit incurred by Cato or anyof the Cato Affiliates, including reasonable attorneys’ fees.     5. **Affirmations.**Faulkner makes the following affirmations: (a) He has not filed, nor caused to be filed, nor is he presently a party to, any claimagainst Cato or any Cato Affiliate that (i) is not being released by this instrument,and (ii) if filed, has not been withdrawn or dismissed.  (b) He has been paid for and/orhas received all leaves (paid or unpaid),compensation, wages, bonuses, stock awards, commissions, and/or benefits towhich he may be entitled other than those provided to be paid under the terms ofthis Agreement.  (c) He has no known workplace injuries or occupational diseases.  (d) He will not apply in the future for employment, or accept employment, with Catoor any of its subsidiaries.     6. **Confidentialityand Return of Property.**(a) Faulkner agrees not to discloseany information regarding the existence or substance of this Agreement, except to his immediatefamily, tax and financial advisor, and/or an attorney with whom Faulkner chooses to consultregarding his consideration of this Agreement. Furthermore, to the extent Faulkner is permittedto disclose and does disclose such information, Faulkner agrees to require, and he warrants, thatthe person receiving such information will maintain its confidentiality. Faulkner warrants andrepresents that from March 2, 2007 through his execution of this Agreement, he has not breachedthe confidentiality provisions of this Agreement. (b) Faulkner acknowledges the highly competitive nature of Cato’s business andaffirms that he has not divulged, and will not divulge, to anyone outside of Cato
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   any proprietary or confidential information of Cato. “Confidential Information”means any information (i) which is, or is designed to be or may be used in Cato’sbusiness, (ii) which is private or confidential in that it is not generally known oravailable to the public, and (iii) which gives or may give Cato an opportunity toobtain an advantage over competitors or possible competitors, or which, ifobtained by a competitor or possible competitor, would give or may give thatcompetitor or possible competitor an advantage over Cato that a competitor maynot otherwise have. Faulkner further acknowledges and affirms that he has notdivulged, and will not divulge, to anyone outside of Cato any non-publicinformation about Cato’s company performance, future plans, or performance ofCato Affiliates, whether “Confidential Information” or not, that Faulkner learnedin the course of and because of his employment with Cato. Faulkner alsoacknowledges that he will not divulge to anyone outside of Cato any non-publicinformation about Cato’s internal business practices, whether “ConfidentialInformation” or not, that Faulkner learned in the course of and because of hisemployment with Cato. Provided, however, that Faulkner shall be entitled,subject to Paragraph 7 below, to respond to questions by a prospective employerwith respect to his business relationship as Chief Financial Officer with John Catoas Chief Executive Officer that led to Faulkner’s resignation from the company.  (c) At Cato’s reasonable advance request, and at mutually convenient times, Faulknerwill make himself available to answer factual questions or provide factualinformation on subjects related to business matters of Cato of which he hasknowledge arising from his former employment with Cato. In any legalproceeding to which he is not a party, his sworn testimony, including testimony indiscovery, shall, however, be procured by subpoena.  (d) The Parties agree that nothing in this Paragraph is intended to limit or prohibit, orshall be construed as limiting or prohibiting, either Party from providinginformation in response to a lawfully issued subpoena or otherwise complyingwith any legal requirement, or from participating in any investigation if requestedto do so by a federal, state or local agency. The Parties further agree that theexistence and substance of this Agreement may be disclosed in order to enforceits terms.  (e) Faulkner affirms that he hasreturned all of Cato’s property, documents, and/orany confidential information in whatever form, and any duplicates thereof, in hispossession or control. Faulkner also affirms that he is in possession of all of hisproperty and that Cato is not in possession of any of his property.     7. **Non-Disparagement.**Faulkner and Cato agree that Faulkner and Cato’s SeniorExecutives (President, Executive Vice Presidents, Senior Vice Presidents, and Assistant to thePresident) will refrain from making negative, disparaging, defamatory or slanderous comments,references, criticism or characterizations concerning Faulkner, Cato, or the Cato Affiliates, eitherverbally, in writing, or in any other manner, to any third party for any purpose whatsoever,unless a legal duty to do so is imposed. Faulkner further agrees not to make any other statement,written or oral (including but not limited to any media source or to any other party), that would
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disrupt, impair or affect adversely the reputation, business interests, or profitability of Cato orany of the Cato Affiliates, unless a legal duty to do so is imposed.     8. **Neutral Reference.**In the event that any outside entities seek input from Catofor purposes of hiring Faulkner, Cato will provide a neutral reference limited to his dates ofemployment, position, and annual salary.     9. **No Solicitation.**Faulkner agrees that for a period of one year from theeffective date of his resignation, he will not solicit any Cato employee to leave Cato’s employment,initiate such a solicitation by a third party, allow himself to be listed as a reference by a Catoemployee, or hire or recommend for hire by any entity by whom he is employed anyoneemployed by Cato.     10. **Governing Law and Interpretation.**This Agreement shall be governed andconformed in accordance with the laws of the State of North Carolina without regard to itsconflict of laws provisions. In the event of a breach of any provision of this Agreement, eitherParty may institute an action specifically to enforce any term or terms of this Agreement and/orseek any damages for breach. Should any provision of this Agreement be declared illegal orunenforceable by any court of competent jurisdiction, and should such provision be unable to bemodified to be enforceable, excluding the general release language, such provision shallimmediately become null and void, leaving the remainder of this Agreement in full force andeffect.     11. **No Wrongdoing.**The Parties agree that neither this Agreement nor thefurnishing of the consideration for this Agreement shall be deemed or construed at any time forany purpose as an admission by Cato of wrongdoing or evidence of any liability or unlawfulconduct of any kind.     12. **Amendment.**This Agreement may not be modified, altered, or changed exceptin writing and signed by both Parties.     13. **Notices.**Any delivery of funds or notices required under this Agreement shall beserved upon the Parties via hand delivery, certified mail, or overnight priority mail through acommercial third-party carrier (such as UPS or FedEx) as follows:   Notices to Cato: Robert C. Brummer