EX-4.1



 





Exhibit 4.1




THE CATO CORPORATION

2004 INCENTIVE COMPENSATION PLAN




April 8, 2004




ARTICLE 1. PURPOSE AND EFFECTIVE DATE




     1.1 PURPOSES OF THE PLAN. The Cato Corporation (“Cato”) has established
The Cato Corporation 2004 Incentive Compensation Plan (the “Plan”) to promote
the interests of Cato and its stockholders. The purposes of the Plan are to
provide key employees of Cato and its Subsidiaries (collectively, the
“Company”) with incentives to contribute to the Company’s performance and
growth, to offer such persons stock ownership in Cato or other compensation
that aligns their interests with those of Cato’s stockholders and to enhance
the Company’s ability to attract, reward and retain such persons upon whose
efforts the Company’s success and future growth depends.



     1.2 EFFECTIVE DATE. The Plan was adopted by the Board of Directors on
April 8, 2004 and shall be effective as of such date, subject to the requisite
approval of Cato’s stockholders at the 2004 Annual Meeting of Stockholders.
Awards may be granted prior to stockholder approval of the Plan, provided that
all such Awards must be subject to stockholder approval of the Plan. This
means that no Option or SAR may be exercised prior to such approval, and all
Awards must be subject to forfeiture if such approval is not obtained.



ARTICLE 2. DEFINITIONS




     2.1 DEFINITIONS. The following terms, when capitalized in this Plan,
shall have the meanings set forth below:



          (a) “Award” means, individually or collectively, an Incentive Stock
Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, Stock Award, or Incentive Bonus Award granted under this
Plan.



          (b) “Award Agreement” means an agreement entered into by a Participant and
Cato, setting forth the terms and conditions applicable to an Award granted to
the Participant under this Plan.



          (c) “Board” or “Board of Directors” means the Board of Directors of Cato.



          (d) “Cause” means (i) the commission by the Participant of a crime or
other act or practice that involves dishonesty or moral turpitude and either
has an adverse effect on Cato and/or one or more Subsidiaries or the reputation
thereof or is intended to result in the personal enrichment of the Participant
at the expense of Cato or a Subsidiary (whether or not resulting in criminal
prosecution or conviction); (ii) the Participant’s gross negligence or willful
misconduct in respect of the Participant’s service with the Company; (iii) the
Participant’s material violation of Company policies, including but not limited
to policies regarding substance abuse, sexual harassment, and the disclosure of
confidential information; or (iv) the continuous and willful failure by the
Participant to follow the reasonable directives of the Participant’s superiors
or the Board of Directors. Notwithstanding the foregoing, if the Participant
has entered into an employment agreement that is binding as of the date of the
Participant’s Termination of Employment and includes a definition of “Cause,”
then the definition of “Cause” in such agreement shall supplement the foregoing
definition of “Cause” and shall also apply to the Participant. Following a
Participant’s Termination of Employment, if it is determined that the
Participant’s



 









 







employment could have been terminated for Cause, such Participant’s
employment shall be deemed to have been terminated for Cause. In any event,
the existence of “Cause” shall be determined by the Committee in its
discretion.



          (e) “Change in Control” means any of the following events:



               (i) the acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing more than 50% of the combined voting power of Cato’s
then outstanding securities; provided, however, that the following transactions
shall not constitute a Change in Control: (1) any acquisition directly from the
Company, (2) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any entity controlled by the Company,
or (3) any acquisition that constitutes a Corporate Transaction (as defined in
subparagraph (ii) below) which would not constitute a Change in Control under
subparagraph (ii) below; or



               (ii) a merger, reorganization or consolidation or a sale or other
disposition of all or substantially all of the stock or assets of Cato (each, a
“Corporate Transaction”) other than a Corporate Transaction in which the
shareholders of Cato, as a group, will beneficially own, directly or
indirectly, shares of stock with 50% or more of the combined voting power of
the entity resulting from such Corporate Transaction (including, without
limitation, a corporation or other Person which as a result of such transaction
owns Cato or all or substantially all of Cato’s assets either directly or
through one or more subsidiaries);



               (iii) the complete liquidation or dissolution of Cato;



               (iv) a change in the composition of the Board during any two-year period
such that the individuals who, as of the beginning of such two-year period,
constitute the Board (such Board shall be hereinafter referred to as the
“Incumbent Board”) cease for any reason to constitute at least a majority of
the Board; provided, however, that for this purpose, any individual who becomes
a member of the Board subsequent to the beginning of the two-year period whose
election, or nomination for election by Cato’s stockholders, was approved by a
vote of at least a majority of those individuals who are members of the Board
and who were also members of the Incumbent Board (or deemed to be such pursuant
to this proviso) shall be considered as though such individual were a member of
the Incumbent Board; but provided further, that any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, including any successor to such Rule), or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board, shall not be so considered as a member of the
Incumbent Board.



               Notwithstanding the foregoing, a transaction in which a Participant is
materially affiliated with the acquiring Person or entity effecting a
transaction that otherwise constitutes a Change in Control shall not constitute
a Change in Control with respect to such Participant.



          (f) “Code” means the Internal Revenue Code of 1986, as amended from time
to time, or any successor act thereto.



          (g) “Committee” means (i) the committee appointed by the Board to
administer the Plan or (ii) in the absence of such appointment, the Board
itself. Notwithstanding the foregoing, to the extent required for Awards to be
exempt from Section 16 of the Exchange Act pursuant to Rule 16b-3, the
Committee shall consist of two or more Directors who are “non-employee
directors” within the meaning of such Rule 16b-3, and to the extent required
for Awards to satisfy the requirements for “performance-



 









 







based compensation” within the meaning of Section 162(m) of the Code and
the regulations thereunder, the Committee shall consist of two or more
Directors who are “outside directors” within the meaning of Section 162(m) of
the Code. The Compensation Committee of the Board of Directors shall
constitute the Committee until otherwise determined by the Board of Directors.



          (h) “Common Stock” means the Class A common stock of Cato, par value
$0.031⁄3 per share.



          (i) “Company” means The Cato Corporation, a Delaware corporation, or any
successor thereto.



          (j) “Covered Employee” means a Participant who is a “covered employee”
within the meaning of Section 162(m) of the Code or who is anticipated to be
such a “covered employee” at the time Performance Compensation becomes payable.



          (k) “Director” means any individual who is a member of the Board of
Directors of Cato.



          (l) “Disability” means a permanent and total disability as described in
Section 22(e)(3) of the Code and determined by the Committee.



          (m) “Employee” means an employee of the Company.



          (n) “Exchange Act” means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.



          (o) “Fair Market Value” means, as of a particular date, with respect to
the Common Stock:



               (i) the average of the high and low sale prices of the Common Stock, as
reported on the New York Stock Exchange (or, if applicable, on such other
principal securities exchange or on the Nasdaq National Market System
(“Nasdaq”) on which the Common Stock is then traded) or, if there is no such
sale on the relevant date, then on the last previous day on which a sale was
reported;



               (ii) if the Common Stock is not listed on any securities exchange or
traded on Nasdaq, but nevertheless is publicly traded and reported on Nasdaq
without closing sale prices for the Common Stock being customarily quoted, Fair
Market Value shall be determined on the basis of the average of the closing
high bid and low asked quotations in such other over-the-counter market as
reported by Nasdaq; but, if there are no bid and asked quotations in the
over-the-counter market as reported by Nasdaq on that date, then the average of
the closing bid and asked quotations in the over-the-counter market as reported
by Nasdaq on the immediately preceding day such bid and asked prices were
quoted; or



               (iii) if the Common Stock is not listed on any securities exchange or
traded on Nasdaq, Fair Market Value shall be determined by the Committee in
good faith.



          (p) “Family Members” means the Participant’s child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships, or any person sharing the
Participant’s household (other than a tenant or employee).



 









 





          (q) “Incentive Bonus” means the amount payable under an Incentive Bonus
Award.



          (r) “Incentive Bonus Award” means a bonus opportunity awarded under
Section 10 hereof.



          (s) “Incentive Stock Option” or “ISO” means an option to purchase shares
of Common Stock granted under Article 6 which is designated as an Incentive
Stock Option and is intended to meet the requirements of Section 422 of the
Code.



          (t) “Nonqualified Stock Option” or “NSO” means an option to purchase
shares of Common Stock granted under Article 6, and which is not intended or
otherwise fails to meet the requirements of Section 422 of the Code.



          (u) “Option” means an Incentive Stock Option or a Nonqualified Stock
Option.



          (v) “Option Price” means the price at which a share of Common Stock may be
purchased by a Participant pursuant to an Option, as determined by the
Committee in accordance with Article 6.



          (w) “Participant” means an Employee who has been granted an Award under
the Plan which is outstanding.



          (x) “Performance Compensation” means an Incentive Bonus, Restricted Stock,
Restricted Stock Units or a Stock Award intended to qualify as
“performance-based compensation” under Section 162(m) of the Code.



          (y) “Performance Goals” means the criteria and objectives designated by
the Committee that must be met during the Performance Period as a condition of
the Participant’s receipt of Performance Compensation, as described in Section
11.2 hereof.



          (z) “Performance Period” means the period designated by the Committee
during which Performance Goals will be measured.



          (aa) “Person” shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a “group” as defined in Section 13(d) thereof.



          (bb) “Plan” means The Cato Corporation 2004 Incentive Compensation Plan,
as amended from time to time.



          (cc) “Restricted Period” means the period beginning on the grant date of
an Award of Restricted Stock or Restricted Stock Units and ending on the date
the shares of Common Stock subject to such Award are no longer restricted and
subject to forfeiture.



          (dd) “Restricted Stock” means a share of Common Stock granted in
accordance with the terms of Article 8, which Common Stock is subject to a
substantial risk of forfeiture and such other restrictions as determined by the
Committee.



          (ee) “Restricted Stock Unit” means the right to receive a share of Common
Stock (or the value of a share of Common Stock) in the future granted in
accordance with the terms of Article 8,



 









 







which right is subject to a substantial risk of forfeiture and such other
restrictions as determined by the Committee.



          (ff) “Retirement” means (i) a Termination of Employment on or after
reaching age sixty-five or (ii) a Termination of Employment after reaching age
sixty that is specifically approved by the Committee, in its discretion, as
“Retirement” for purposes of the Plan.



          (gg) “SAR” means a stock appreciation right granted pursuant to Article 7.



          (hh) “Stock Award” means an equity-based award granted pursuant to Article 9.



          (ii) “Subsidiary” means a corporation, partnership, limited liability
company, joint venture or other entity in which Cato directly or indirectly
controls more than 50% of the voting power or equity or profits interests;
provided, that for purposes of Incentive Stock Options, Subsidiary means a
“subsidiary corporation” within the meaning of Section 424(f) of the Code.



          (jj) “Ten Percent Stockholder” means a Participant who owns (directly or
by attribution within the meaning of Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of Cato, any Subsidiary or a parent of Cato.



          (kk) “Termination of Employment” means the termination of a Participant’s
employment with the Company as an Employee for any reason other than a change
in the capacity in which the Participant renders service to the Company or a
transfer between or among Cato and its Subsidiaries. Unless otherwise
determined by the Committee, an Employee shall be considered to have incurred a
Termination of Employment if his or her employer ceases to be a Subsidiary.
All determinations relating to whether a Participant has incurred a Termination
of Employment and the effect thereof shall be made by the Committee in its
discretion, including whether a leave of absence shall constitute a Termination
of Employment, subject to applicable law.



ARTICLE 3. ADMINISTRATION




     3.1 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have full and exclusive power to select the individuals to
whom Awards may from time to time be granted under the Plan; determine the size
and types of Awards; determine the terms, restrictions and conditions of Awards
in a manner consistent with the Plan (including, but not limited to, the number
of shares of Common Stock subject to an Award, vesting or other exercise
conditions applicable to an Award, the duration of an Award, whether an Award
is intended to qualify as Performance Compensation and restrictions on
transferability of an Award and any shares of Common Stock issued thereunder);
determine the impact of a Participant’s leave of absence on outstanding Awards;
construe and interpret the Plan and any agreement or instrument entered into
under the Plan; establish, amend or waive rules and regulations for the Plan’s
administration; delegate administrative responsibilities under the Plan and
(subject to the provisions of Article 13) amend the terms and conditions of any
outstanding Award to the extent such terms and conditions are within the
discretion of the Committee, including accelerating the time any Option or SAR
may be exercised, waiving restrictions and conditions on Awards and
establishing different terms and conditions relating to the effect of a
Termination of Employment. The Committee also shall have the absolute
discretion to make all other determinations which may be necessary or advisable
in the Committee’s opinion for the administration of the Plan.



     3.2 DECISIONS BINDING. All determinations, decisions and interpretations
made by the Committee pursuant to the provisions of the Plan and all related
resolutions of the Board shall be final,



 









 







conclusive and binding on all persons, including the Company, Cato’s
stockholders, and Participants and their estates and beneficiaries.



     3.3 INDEMNIFICATION. No member of the Committee shall be liable for any
action taken, or decision made, in good faith relating to the Plan or any Award
hereunder.



ARTICLE 4. STOCK SUBJECT TO THE PLAN




     4.1 STOCK AVAILABLE UNDER THE PLAN. Subject to adjustments as provided in
Section 4.3, the aggregate number of shares of Common Stock that may be issued
pursuant to Awards under the Plan is 900,000 shares. Shares of Common Stock
issued under the Plan may be shares of original issuance, shares held in the
treasury of Cato or shares purchased in the open market or otherwise. Shares
of Common Stock covered by Awards which expire or are forfeited or canceled for
any reason or which are settled in cash shall be available for further Awards
under the Plan.



     4.2 AWARD LIMITS. Notwithstanding any provision in the Plan to the
contrary, the following limitations shall apply:



          (a) INDIVIDUAL OPTION AND SAR LIMIT. No Participant shall be granted,
during any one calendar year, Options and/or SARs (whether such SARs may be
settled in shares of Common Stock, cash or a combination thereof) covering in
the aggregate more than 200,000 shares of Common Stock.



          (b) INDIVIDUAL LIMIT ON OTHER AWARDS. With respect to any Awards other
than Options and SARs, no Participant shall be granted, during any one calendar
year, such Awards (whether such Awards may be settled in shares of Common
Stock, cash or a combination thereof) consisting of, covering or relating to in
the aggregate more than 200,000 shares of Common Stock.



     4.3 ADJUSTMENTS. In the event of any change in the number of outstanding
shares of Common Stock due to a stock split, stock dividend or similar event,
corresponding adjustments shall be made to the maximum number of shares of
Common Stock which may be issued under the Plan set forth in Section 4.1, in
the number and price of shares of Common Stock subject to outstanding Awards
granted under the Plan and, to the extent the Committee so determines, in the
number of shares of Common Stock subject to the Award limits set forth in
Section 4.2. In the event of a change in corporate capitalization due to a
reorganization, recapitalization, merger, consolidation or similar transaction
affecting the Common Stock, the Committee shall make adjustments to the number
and kind of shares which may be issued under the Plan and to outstanding Awards
as it determines, in its discretion, to be appropriate. In addition, the
Committee, in its discretion, shall make such similar adjustments it deems
appropriate and equitable in the event of any corporate transaction to which
Section 424(a) of the Code applies or such other event which in the judgment of
the Committee necessitates such adjustments. Notwithstanding the foregoing,
the number of shares of Common Stock subject to any Award shall always be a
whole number and the Committee, in its discretion, shall make such adjustments
as are necessary to eliminate fractional shares that may result from any
adjustments made pursuant hereto. Except as expressly provided herein, the
issuance by Cato of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an outstanding Award. Notwithstanding the foregoing,
in no event shall any adjustment be made if such adjustment would cause an
Award intended to qualify as “performance-based compensation” under Section
162(m) of the Code to fail to so qualify.



 









 





ARTICLE 5. ELIGIBILITY AND PARTICIPATION




     Awards under the Plan may be granted to key Employees of the Company who
occupy responsible managerial or professional positions and who have the
capability of making a substantial contribution to the success of the Company
as determined by the Committee. In determining the individuals to whom such an
Award shall be granted and the terms and conditions of such Award, the
Committee may take into account any factors it deems relevant, including the
duties of the individual, the Committee’s assessment of the individual’s
present and potential contributions to the success of the Company and such
other factors as the Committee shall deem appropriate in connection with
accomplishing the purposes of the Plan. Subject to the Award limits set forth
in Section 4.2, a Participant may be granted more than one Award under the
Plan.



ARTICLE 6. STOCK OPTIONS




     6.1 STOCK OPTIONS. Subject to the provisions of the Plan, the Committee
may grant Options upon the following terms and conditions:



          (a) AWARD AGREEMENT. Each grant of an Option shall be evidenced by an
Award Agreement in such form as the Committee may from time to time approve.
The Award Agreement shall specify the number of shares of Common Stock to which
the Option pertains, whether the Option is an ISO or a NSO, the Option Price,
the term of the Option, the conditions upon which the Option shall become
vested and exercisable, and such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine.

ISOs may be granted only to Employees of Cato or a Subsidiary.



          (b) OPTION PRICE. The Option Price per share of Common Stock shall be
determined by the Committee, but shall not be less than the Fair Market Value
per share of Common Stock on the date of grant of the Option. In the case of
an ISO granted to a Ten Percent Stockholder, the Option Price per share of
Common Stock shall not be less than 110% of the Fair Market Value per share of
Common Stock on the date of grant of the Option. Notwithstanding the
foregoing, an Option may be granted with an Option Price per share of Common
Stock less than that set forth above if such Option is granted pursuant to an
assumption of, or substitution for, another option in a manner satisfying the
provisions of Section 424(a) of the Code.



          (c) EXERCISE OF OPTIONS. An Option shall be exercisable in whole or in
part (including periodic installments) at such time or times, and subject to
such restrictions and conditions, as the Committee shall determine. Except as
otherwise provided in the Award Agreement, the right to purchase shares of
Common Stock under the Option that become exercisable in periodic installments
shall be cumulative so that such shares of Common Stock (or any part thereof)
may be purchased at any time thereafter until the expiration or termination of
the Option.



          (d) OPTION TERM. The term of an Option shall be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
from the date of its grant or in the case of any ISO granted to a Ten Percent
Stockholder, more than five years from the date of its grant.



          (e) TERMINATION OF EMPLOYMENT. Except to the extent an Option remains
exercisable as provided below or as otherwise set forth in the Award Agreement,
an Option shall immediately terminate upon the Participant’s Termination of
Employment with the Company for any reason.



 









 





               (i) DEATH, DISABILITY OR RETIREMENT. In the event that a Participant
incurs a Termination of Employment as a result of the Participant’s death,
Disability or Retirement, then an outstanding Option granted to the Participant
may be exercised by the Participant (or, in the case of the Participant’s
death, the person(s) to whom the Participant’s rights to exercise the Option
passed by will or the laws of descent and distribution, or the executor or
administrator of the Participant’s estate, as applicable), to the same extent
the Option was exercisable as of such Termination of Employment, for up to one
year from such Termination of Employment, but in no event after the expiration
of the term of the Option as set forth in the Award Agreement.



               (ii) OTHER TERMINATIONS WITHOUT CAUSE. In the event that a Participant
incurs a Termination of Employment for any reason other than Cause or his
death, Disability or Retirement, then an outstanding Option granted to the
Participant may be exercised by the Participant (or, in the case of the
Participant’s death, the person(s) to whom the Participant’s rights to exercise
the Option passed by will or the laws of descent and distribution, or the
executor or administrator of the Participant’s estate, as applicable), to the
same extent the Option was exercisable as of such Termination of Employment,
for up to 90 days following such Termination of Employment, but in no event
after the expiration of the term of the Option as set forth in the Award
Agreement.



          (f) ISO LIMITATION. To the extent that the aggregate Fair Market Value
(determined as of the date of grant) of the shares of Common Stock with respect
to which ISOs are exercisable for the first time during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000 or such
other applicable limitation set forth in Section 422 of the Code or any
regulations thereunder, such ISOs shall be treated as NSOs. The determination
of which ISOs shall be treated as NSOs generally shall be based on the order in
which such ISOs were granted and shall be determined by the Committee in
accordance with applicable rules and regulations.



          (g) PAYMENT. Options shall be exercised by the delivery of a written
notice of exercise to Cato (or its delegate), specifying the number of shares
of Common Stock with respect to which the Option is to be exercised,
accompanied by the aggregate Option Price for the shares of Common Stock. The
aggregate Option Price shall be payable to Cato in full in cash or cash
equivalent acceptable to Cato, or if approved by the Committee, by tendering
previously acquired shares of Common Stock (or delivering a certification of
ownership of such shares) having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the shares of Common
Stock either were purchased on the open market or have been held by the
Participant for a period of at least six months (unless such six-month period
is waived by the Committee)), a combination of the foregoing, or by any other
means which the Company determines to be consistent with the Plan’s purpose and
applicable law (including the tendering of Awards having an aggregate Fair
Market Value at the time of exercise equal to the total Option Price, as
determined by the Committee).



          (h) TRANSFER RESTRICTIONS. Options generally may not be sold,
transferred, pledged, assigned, alienated, hypothecated or disposed of in any
manner other than by will or the laws of descent and distribution, and Options
generally shall be exercisable during the Participant’s lifetime only by the
Participant (or, to the extent permitted by applicable law, the Participant’s
guardian or legal representative in the event of the Participant’s legal
incapacity). Notwithstanding the foregoing, the Committee, in its absolute
discretion, may permit a Participant to transfer NSOs, in whole or in part, for
no consideration to (i) one or more Family Members; (ii) a trust in which
Family Members have more than 50% of the beneficial interest; (iii) a
foundation in which Family Members (or the Participant) control the management
of assets; or (iv) any other entity in which Family Members (or the
Participant) own more than 50% of the voting interests; or may permit a
transfer of NSOs under such other circumstances as the Committee shall
determine; provided that in all cases, such transfer is permitted under
applicable tax laws and Rule 16b-3 of the Exchange Act as in effect from time
to time. In all cases,



 









 







the Committee must be notified in advance in writing of the terms of any
proposed transfer to a permitted transferee and such transfers may occur only
with the consent of and subject to the rules and conditions imposed by the
Committee. The transferred NSOs shall continue to be subject to the same terms
and conditions in the hands of the transferee as were applicable immediately
prior to the transfer (including the provisions of the Plan and Award Agreement
relating to the expiration or termination of the NSOs). The NSOs shall be
exercisable by the permitted transferee only to the extent and for the periods
specified herein and in any applicable Award Agreement.



          (i) NO STOCKHOLDER RIGHTS. No Participant shall have any rights as a
stockholder with respect to shares of Common Stock subject to the Participant’s
Option until the issuance of such shares to the Participant pursuant to the
exercise of such Option.



ARTICLE 7. STOCK APPRECIATION RIGHTS




     7.1 GRANTS OF SARS. Subject to the provisions of the Plan, the Committee
may grant SARs upon the following terms and conditions:



          (a) AWARD AGREEMENT. Each grant of a SAR shall be evidenced by an Award
Agreement in such form as the Committee may from time to time approve. The
Award Agreement shall specify the number of shares of Common Stock to which the
SAR pertains, the term of the SAR, the conditions upon which the SAR shall
become vested and exercisable, and such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee shall determine.
The Committee may grant SARs in tandem with or independently from Options.



          (b) INITIAL VALUE OF SARS. The Committee shall assign an initial value to
each SAR, provided that the initial value may not be less than the aggregate
Fair Market Value on the date of grant of the shares of Common Stock to which
the SAR pertains.



          (c) EXERCISE OF SARS. A SAR shall be exercisable in whole or in part
(including periodic installments) at such time or times, and subject to such
restrictions and conditions, as the Committee shall determine. Notwithstanding
the foregoing, in the case of a SAR that is granted in tandem with an Option,
the SAR may be exercised only with respect to the shares of Common Stock for
which its related Option is then exercisable. The exercise of either an Option
or a SAR that are granted in tandem shall result in the termination of the
other to the extent of the number of shares of Common Stock with respect to
which such Option or SAR is exercised.



          (d) TERM OF SARS. The term of a SAR granted independently from an Option
shall be determined by the Committee, but in no event shall such a SAR be
exercisable more than ten years from the date of its grant. A SAR granted in
tandem with an Option shall have the same term as the Option to which it
relates.



          (e) TERMINATION OF EMPLOYMENT. In the event that a Participant incurs a
Termination of Employment, the Participant’s SARs shall terminate in accordance
with the provisions specified in Article 6 with respect to Options.



          (f) PAYMENT OF SAR VALUE. Upon the exercise of a SAR, a Participant shall
be entitled to receive (i) the excess of the Fair Market Value on the date of
exercise of the shares of Common Stock with respect to which the SAR is being
exercised, over (ii) the initial value of the SAR on the date of grant, as
determined in accordance with Section 7.1(b) above. Notwithstanding the
foregoing, the Committee may specify in an Award Agreement that the amount
payable upon the exercise of a SAR shall not exceed a designated amount. At
the Committee’s discretion, the amount payable as a result of



 









 







the exercise of a SAR may be settled in cash, shares of Common Stock of
equivalent value, or a combination of cash and Common Stock. A fractional
share of Common Stock shall not be deliverable upon the exercise of a SAR, but
a cash payment shall be made in lieu thereof.



          (g) NONTRANSFERABILITY. Except as otherwise provided by the Committee,
SARs granted under the Plan may not be sold, transferred, pledged, assigned,
alienated, hypothecated or disposed of in any manner other than by will or the
laws of descent and distribution, and SARs shall be exercisable during the
Participant’s lifetime only by the Participant (or, to the extent permitted by
applicable law, the Participant’s guardian or legal representative in the event
of the Participant’s legal incapacity).



          (h) NO STOCKHOLDER RIGHTS. No Participant shall have any rights as a
stockholder of Cato with respect to shares of Common Stock subject to a SAR
until the issuance of shares (if any) to the Participant pursuant to the
exercise of such SAR.



ARTICLE 8. RESTRICTED STOCK AND RESTRICTED STOCK UNITS




     8.1 GRANTS OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Subject to the
provisions of the Plan, the Committee may grant Restricted Stock and/or
Restricted Stock Units upon the following terms and conditions:



          (a) AWARD AGREEMENT. Each grant of Restricted Stock or Restricted Stock
Units shall be evidenced by an Award Agreement in such form as the Committee
may from time to time approve. The Award Agreement shall specify the number of
shares with respect to which the Restricted Stock or Restricted Stock Units are
granted, the Restricted Period, the conditions upon or the time at which the
Restricted Period shall lapse, whether the Award is intended to be Performance
Compensation and such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Committee shall determine.



          (b) PURCHASE PRICE. The Committee shall determine the purchase price, if
any, to be paid for each share of Restricted Stock or each Restricted Stock
Unit, subject to such minimum consideration as may be required by applicable
law.



          (c) NONTRANSFERABILITY. Except as otherwise set forth in the Award
Agreement, shares of Restricted Stock and Restricted Stock Units may not be
sold, transferred, pledged, assigned, alienated, hypothecated or disposed of in
any manner until the end of the Restricted Period applicable to such shares and
the satisfaction of any and all other conditions prescribed by the Committee.



          (d) OTHER RESTRICTIONS. The Committee may impose such conditions and
restrictions on the grant, vesting or retention of Restricted Stock and
Restricted Stock Units as it determines, including but not limited to
restrictions based upon the occurrence of a specific event, continued service
for a period of time or other time-based restrictions, or the achievement of
financial or other business objectives (including the Performance Goals
described in Section 11.2). The Committee may provide that such restrictions
may lapse separately or in combination at such time or times and with respect
to all shares of Restricted Stock and Restricted Stock Units or in installments
or otherwise as the Committee may deem appropriate.



          (e) SETTLEMENT OF RESTRICTED STOCK UNITS. After the expiration of the
Restricted Period and all conditions and restrictions applicable to Restricted
Stock Units have been satisfied or lapsed, the Participant shall be entitled to
receive the then Fair Market Value of the shares of



 









 







Common Stock with respect to which the Restricted Stock Units were
granted. Such amount shall be paid in cash, shares of Common Stock or a
combination thereof as determined by the Committee.



          (f) SECTION 83(B) ELECTION. If a Participant makes an election pursuant
to Section 83(b) of the Code with respect to Restricted Stock, the Participant
shall be required to promptly file a copy of such election with the Company as
required under Section 83(b) of the Code.



          (g) TERMINATION OF EMPLOYMENT. Notwithstanding anything herein to the
contrary and except as otherwise determined by the Committee, in the event of
the Participant’s Termination of Employment prior to the expiration of the
Restricted Period, all shares of Restricted Stock and Restricted Stock Units
with respect to which the applicable restrictions have not yet lapsed shall be
forfeited.



          (h) STOCKHOLDER RIGHTS.



               (i) RESTRICTED STOCK. Except to the extent otherwise provided by the
Committee, a Participant that has been granted Restricted Stock shall have the
rights and privileges of a stockholder as to such Restricted Stock, including
the right to vote such Restricted Stock and the right to receive dividends, if
and when declared by the Board of Directors, provided, that the Committee may
require that any cash dividends shall be automatically reinvested in additional
shares of Restricted Stock.



               (ii) RESTRICTED STOCK UNITS. A Participant shall have no voting or other
stockholder rights or ownership interest in shares of Common Stock with respect
to which Restricted Stock Units are granted. Notwithstanding the foregoing, if
the Board of Directors declares a dividend with respect to the Common Stock,
the Committee may, in its discretion, determine that Participants receive
dividend equivalents with respect to their Restricted Stock Units. The
Committee may determine the form of such dividend equivalents, which may
include cash or Restricted Stock Units.



               (iii) ADJUSTMENTS AND DIVIDENDS SUBJECT TO PLAN. With respect to any
shares of Restricted Stock or Restricted Stock Units received as a result of
adjustments under Section 4.3 hereof and also any shares of Common Stock,
Restricted Stock or Restricted Stock Units that result from dividends declared
on the Common Stock, the Participant shall have the same rights and privileges,
and be subject to the same restrictions, as are set forth in this Article 8
except to the extent the Committee otherwise determines.



          (i) ISSUANCE OF RESTRICTED STOCK. A grant of Restricted Stock may be
evidenced in such manner as the Committee shall deem appropriate, including
without limitation, book-entry registration or the issuance of a stock
certificate (or certificates) representing the number of shares of Restricted
Stock granted to the Participant, containing such legends as the Committee
deems appropriate and held in custody by Cato or on its behalf, in which case
the grant of Restricted Stock shall be accompanied by appropriate stop-transfer
instructions to the transfer agent for the Common Stock, until (1) the
expiration or termination of the Restricted Period for such shares of
Restricted Stock and the satisfaction of any and all other conditions
prescribed by the Committee or (2) the forfeiture of such shares of Restricted
Stock. The Committee may require a Participant to deliver to Cato a stock
power, endorsed in blank, relating to the shares of Restricted Stock to be held
in custody by or for Cato.



ARTICLE 9. STOCK AWARDS




     The Committee may grant other types of Stock Awards that involve the
issuance of shares of Common Stock or that are valued by reference to shares of
Common Stock, including but not limited to the grant of shares of Common Stock
or the right to acquire or purchase shares of Common Stock. Stock



 









 







Awards shall be evidenced by an Award Agreement in such form as the
Committee may from time to time approve. The Award Agreement shall specify the
number of shares of Common Stock to which the Stock Award pertains, the form in
which the Stock Award shall be paid, whether the grant, vesting or payment with
respect to the Stock Award is intended to be Performance Compensation, and such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine.



ARTICLE 10. INCENTIVE BONUS AWARDS




     10.1 INCENTIVE BONUS AWARDS. The Committee may grant an Incentive Bonus
Award upon the following terms and conditions:



          (a) GENERAL. The Committee shall establish the parameters for the
Incentive Bonus Award, including, as it deems appropriate, target and maximum
amounts that may be payable; the Performance Goals and other criteria that must
be met and the Performance Period during which such Performance Goals and other
criteria will be measured; the formula or basis by which the actual amount of
the Incentive Bonus shall be determined; the timing of payment of any Incentive
Bonus; whether such amount shall be paid in lump sum or installments; any
forfeiture events that may apply; whether the Incentive Bonus Award is intended
to be Performance Compensation; and such other terms and conditions that the
Committee deems appropriate, and, in the case of an Incentive Bonus Award
intended to be Performance Compensation, all of the foregoing shall be subject
to Article 11 below and compliance with Section 162(m) of the Code and
regulations thereunder.



          (b) COVERED EMPLOYEES. Unless otherwise determined by the Committee, all
Incentive Bonuses granted to Covered Employees are intended to qualify as
Performance Compensation.



          (c) TIMING AND FORM OF PAYMENT. The Committee shall determine the timing
of payment of any Incentive Bonus. Subject to such terms and conditions as the
Committee shall determine, the Committee may provide for or permit a
Participant to elect the payment of an Incentive Bonus to be deferred.
Incentive Bonuses shall be paid in cash to the Participant (or, in the event of
the Participant’s death, to the Participant’s estate).



          (d) TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY OR RETIREMENT. In
the event that the Participant incurs a Termination of Employment prior to the
end of an applicable bonus period designated by the Committee due to the
Participant’s death, Disability or Retirement, the Participant shall be
eligible to receive the prorated amount of the Incentive Bonus (if any) for
which the Participant otherwise would have eligible at the end of the
Performance Period in the absence of such Termination of Employment. Such
prorated amount shall be determined by multiplying the Incentive Bonus the
Participant otherwise would have been paid by a fraction, the numerator of
which is the number of full months during the Performance Period prior to the
Participant’s Termination of Employment and the denominator of which is the
number of months in the Performance Period. For this purpose, a partial month
shall be counted as a full month only if the Participant’s Termination of
Employment occurred on or after the 15th day of such month.



          (e) CONDITIONS ON PAYMENT. Except as otherwise provided in Section
10.1(d) above or as otherwise provided by the Committee, payment of an
Incentive Bonus will be made to a Participant only if the Participant has not
incurred a Termination of Employment prior to the time of payment. If an
Incentive Bonus is intended to be Performance Compensation, the payment of such
Incentive Bonus shall also be subject to written certification of the Committee
pursuant to Section 11.3 below. In all events, the Committee may, in its
discretion, reduce or eliminate the amount payable to any Participant in each
case based upon such factors as the Committee may deem relevant.



 









 





          (f) MAXIMUM PAYMENT. Notwithstanding anything herein to the contrary, the
maximum amount that may paid per calendar year to a Participant pursuant to an
Incentive Bonus Award shall be $2,000,000.



ARTICLE 11. PERFORMANCE COMPENSATION




     11.1 PERFORMANCE COMPENSATION. Awards that the Committee intends to be
Performance Compensation shall be granted and administered in a manner that
will enable such Awards to qualify for the performance-based exemption from the
deductibility limitation imposed by Section 162(m) of the Code. Such
Performance Compensation shall be subject to the following additional terms and
conditions and the provisions of this Article 11 shall control to the extent
inconsistent with Articles 8, 9 and 10.



     11.2 PERFORMANCE GOALS. With respect to Performance Compensation, the
Committee must establish in writing one or more Performance Goals for the
Participant that are objectively determinable (i.e., such that a third party
with knowledge of the relevant facts could determine whether the goals have
been met). Such Performance Goals must be established in writing by the
Committee within 90 days after the beginning of the Performance Period (or, if
earlier, by the date on which 25% of the Performance Period has elapsed) or
within such other time period prescribed by Section 162(m) of the Code and the
regulations thereunder; provided, that achievement of the Performance Goals
must be substantially uncertain at the time they are established. The
Performance Goals shall be based on one or more of the following, as determined
in the sole discretion of the Committee: stock price; earnings per share; net
earnings; operating or other earnings; net profits after taxes; revenues; net
cash flow; financial return ratios; stockholder return; return on equity;
return on investment; return on net assets; debt rating; sales; expense
reduction levels; growth in assets, sales, or market share; or strategic
business objectives based on meeting specified revenue goals, market
penetration goals, customer satisfaction goals, geographic business expansion
goals, cost targets, or goals relating to acquisitions or divestitures.
Performance Goals may be based on the performance of Cato, based on the
Participant’s division, business unit or employing Subsidiary, based on the
performance of one or more divisions, business units or Subsidiaries, based on
the performance of the Company as a whole, or based on any combination of the
foregoing. Performance Goals may be either absolute in their terms or
relative. Performance Goals may provide for the inclusion or exclusion of
items such as the effect of unusual charges or income items or other events,
including acquisitions or dispositions of businesses or assets, restructurings,
reductions in force, or changes in accounting principles or tax laws. The
Committee also may establish subjective Performance Goals for Participants,
provided that subjective Performance Goals may be used only to reduce, and not
increase, the Performance Compensation otherwise payable under the Plan.



     11.3 PAYMENT. Prior to the vesting, payment or delivery, as the case may
be, of Performance Compensation, the Committee shall certify in writing the
extent to which the applicable Performance Goals and any other material terms
of the Performance Compensation have been achieved or exceeded for the
applicable Performance Period. In no event may the Committee waive achievement
of the Performance Goal requirements for a Covered Employee except as provided
in Section 11.4 below or as otherwise provided in Article 12 with respect to a
Change in Control. The Committee may, in its discretion, reduce or eliminate
the Performance Compensation of any Covered Employee based upon such factors as
the Committee may deem relevant, but shall not increase the amount payable to
any Covered Employee.



     11.4 WAIVER. The Committee may provide with respect to an Award intended
to be Performance Compensation that if, prior to the end of the Performance
Period, the Participant incurs a Termination of Employment due to his Death or
Disability, or certain other circumstances specified by the Committee occur, a
Participant shall be eligible to still receive such Performance Compensation in



 









 







whole or in part, but the Committee may so provide only if such Award will
still qualify as Performance Compensation in the absence of the Participant’s
death or Disability or such other specified circumstance prior to the end of
the Performance Period.



     11.5 CODE SECTION 162(M). The Committee shall have the power to impose
such other restrictions on Performance Compensation as it may deem necessary or
appropriate to ensure that such Performance Compensation satisfy all
requirements for “performance-based compensation” within the meaning of Section
162(m) of the Code and the regulations thereunder.



ARTICLE 12. CHANGE IN CONTROL




     12.1 TREATMENT OF OPTIONS AND SARS. Notwithstanding any other provision
of the Plan, all outstanding Options and SARs shall become fully vested and
exercisable immediately upon a Change in Control. In addition, the Committee
may (i) require Participants to surrender their outstanding Options and SARs in
exchange for a cash payment from the Company equal to the excess of the Change
in Control Price (as defined below) for each share of Common Stock subject to
such outstanding Options and SARs over the Option Price or Initial Value (in
the case of a SAR); (ii) offer Participants an opportunity to exercise their
outstanding Options and SARs and then provide that any or all unexercised
Options and SARs shall terminate at such time as the Committee deems
appropriate; or (iii) in the event of a Change in Control where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), provide that all outstanding Options and SARs that are not
exercised shall be assumed, or replaced with comparable Options or SARs, as the
case may be, by the surviving corporation (or a parent or subsidiary thereof).
For purposes of this Section, “Change in Control Price” means the higher of (i)
the highest reported sales price, regular way, of a share of Common Stock
reported on the New York Stock Exchange Composite Index (or other principal
securities exchange on which the Common Stock is listed or on Nasdaq, if
applicable) during the 60-day period ending on the date of the Change in
Control; or (ii) if the Change in Control is the result of a tender or exchange
offer or a Corporate Transaction, the highest price paid per share of Common
Stock in such transaction, provided that to the extent the consideration paid
in any such transaction consists of anything other than cash, the fair value of
such non-cash consideration shall be determined in the sole discretion of the
Board. Notwithstanding the foregoing, in the case of ISOs or SARs that relate
to ISOs, the Change in Control Price shall be in all cases the Fair Market
Value of the Common Stock on the date such ISO or SAR is deemed exercised as
the result of its surrender (but in no event more than the amount that will
enable such ISO to continue to qualify as an ISO).



     12.2 TREATMENT OF RESTRICTED STOCK, RESTRICTED STOCK UNITS AND STOCK
AWARDS. Notwithstanding any other provision of the Plan, all Restricted Stock,
Restricted Stock Units and Stock Awards (other than those that have been
designated as Performance Compensation) shall be deemed vested, all
restrictions shall be deemed lapsed, all terms and conditions shall be deemed
satisfied and the Restricted Period with respect thereto shall be deemed to
have ended upon a Change in Control.



     12.3 TREATMENT OF INCENTIVE BONUSES AND PERFORMANCE COMPENSATION. All
Incentive Bonuses and Performance Compensation earned but still outstanding as
of the date of the Change in Control shall be payable in full immediately upon
a Change in Control. Any remaining Incentive Bonuses and Performance
Compensation shall be accelerated and immediately vested, paid or delivered, as
the case may be, on a pro rata basis upon a Change in Control based upon
assumed achievement of all target Performance Goals and the length of time
within the Performance Period that has elapsed prior to the Change in Control.



 









 





     12.4 LIMITATION ON ACCELERATION. In the event that the acceleration,
vesting, payment or delivery of Awards an amount payable, vesting or shares,
when added to all other amounts payable to a Participant, would constitute an
“excess parachute payment” within the meaning of Sections 280G and 4999 of the
Code, the Compensation Committee may, in its discretion, adjust, reduce or
prohibit acceleration of such Awards in any manner it deems appropriate to
lessen or avoid the excise tax that otherwise may be payable under Section 4999
of the Code.



ARTICLE 13. AMENDMENT, SUSPENSION AND TERMINATION




     13.1 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN. The Board may at any
time, and from time to time, amend, suspend or terminate the Plan in whole or
in part; provided, that no amendment, suspension or termination shall be
effective unless approved by Cato’s stockholders (a) to the extent stockholder
approval is necessary to satisfy the applicable requirements of the Code
(including, but not limited to, Sections 162(m) and 422 thereof), the Exchange
Act or Rule 16b-3 thereunder, any New York Stock Exchange, Nasdaq or other
securities exchange listing requirements or any other law or regulation; (b) if
such amendment is intended to allow the Option Price of outstanding Options to
be reduced by repricing or replacing such Options; or (c) to the extent the
Board determines, in its discretion, that stockholder approval is desirable
even if such stockholder approval is not expressly required by the Plan or
applicable law or regulation. Unless sooner terminated by the Board, the Plan
shall terminate ten years from the date the Plan is adopted by the Board. No
further Awards may be granted after the termination of the Plan, but the Plan
shall remain effective with respect to any outstanding Awards previously
granted. No amendment, suspension or termination of the Plan shall adversely
affect in any material way the rights of a Participant under any outstanding
Award without the Participant’s consent.



     13.2 AMENDMENT OF AWARDS. Subject to Section 13.1 above, the Committee
may at any time amend the terms of an Award previously granted to a
Participant, but no such amendment shall adversely affect in any material way
the rights of the Participant without the Participant’s consent except as
otherwise provided in the Plan.



ARTICLE 14. WITHHOLDING




     14.1 TAX WITHHOLDING IN GENERAL. The Company shall have the power and the
right to deduct or withhold from cash payments or other property to be paid to
the Participant, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local taxes (including the
Participant’s FICA obligation) required by law to be withheld with respect to
any taxable event arising in connection with an Award under this Plan. The
Company shall not be required to issue any shares of Common Stock or settle any
Awards payable hereunder until such withholding requirements have been
satisfied.



     14.2 SHARE WITHHOLDING AND REMITTANCE. With respect to withholding
required upon the exercise of Options, or upon any other taxable event arising
as a result of Awards granted hereunder which are to be paid in the form of
shares of Common Stock, the Company may withhold from an Award, or the
Participant may remit, subject to applicable law (including Rule 16b-3 under
the Exchange Act), shares of Common Stock having a Fair Market Value on the
date the tax is to be determined of no more than the minimum statutory total
tax which could be imposed on the transaction. All such elections shall be
made in accordance with procedures established by the Committee and/or the
Company. Notwithstanding the foregoing, the Committee and/or the Company shall
have the right to restrict a Participant’s ability to satisfy tax obligations
through share withholding as they may deem necessary or appropriate.



 









 





ARTICLE 15. GENERAL PROVISIONS




     15.1 FORFEITURE EVENTS. The Committee may provide in an Award Agreement
that a Participant’s rights, payments and benefits with respect to an Award
(including but not limited to gains recognized upon the exercise of an Option
or SAR) shall be subject to reduction, forfeiture or recoupment by the Company
upon the occurrence of certain events, including but not limited to Termination
of Employment for Cause, breach of confidentiality or other restrictive
covenants that apply to the Participant, engaging in competition against the
Company or other conduct or activity by the Participant that is detrimental to
the business or reputation of the Company.



     15.2 RESTRICTIONS ON STOCK OWNERSHIP/LEGENDS. The Committee, in its
discretion, may establish guidelines applicable to the ownership of any shares
of Common Stock acquired pursuant to the exercise of an Option or SAR or in
connection with any other Award under this Plan as it may deem desirable or
advisable, including, but not limited to, time-based or other restrictions on
transferability regardless of whether or not the Participant is otherwise
vested in such Common Stock. All stock certificates representing shares of
Common Stock issued pursuant to this Plan shall be subject to such stock
transfer orders and other restrictions as the Committee may deem advisable and
the Committee may cause any such certificates to have legends affixed thereto
to make appropriate references to any applicable restrictions.



     15.3 NO EMPLOYMENT RIGHTS. Nothing in the Plan or any Award Agreement
shall confer upon any Participant any right to continue in the employ or
service of the Company nor interfere with or limit in any way the right of the
Company to terminate any Participant’s employment by, or performance of
services for, the Company at any time for any reason.



     15.4 NO PARTICIPATION RIGHTS. No person shall have the right to be
selected to receive an Award under this Plan and there is no requirement for
uniformity of treatment among Participants.



     15.5 UNFUNDED PLAN. To the extent that any person acquires a right to
receive Common Stock or cash payments under the Plan, such right shall be only
contractual in nature unsecured by any assets of the Company. The Company
shall not be required to segregate any specific funds, assets or other property
with respect to any Awards under this Plan.



     15.6 RESTRICTIONS ON TRANSFERABILITY. Except as otherwise provided herein
or in an Award Agreement, no Award or any shares of Common Stock subject to an
Award which have not been issued, or as to which any applicable restrictions
have not lapsed, may be sold, transferred, pledged, assigned, alienated,
hypothecated or disposed of in any manner. Any attempt to transfer an Award or
such shares of Common Stock in violation of the Plan or an Award Agreement
shall relieve the Company from any obligations to the Participant thereunder.



     15.7 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
shares of Common Stock under the Plan shall be subject to all applicable laws,
rules and regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required. With respect to Participants
who are subject to Section 16 of the Exchange Act, this Plan is intended to
comply with all provisions of Rule 16b-3 or any successor rule under the
Exchange Act, unless determined otherwise by the Committee, and the Committee
may, in its discretion, impose additional terms and restrictions upon Awards to
ensure compliance with the foregoing.



     15.8 APPROVALS AND LISTING. The Company shall not be required to grant,
issue or settle any Awards or issue any certificate or certificates for shares
of Common Stock under the Plan prior to (a) obtaining any required approval
from the stockholders of the Company; (b) obtaining any approval



 









 







from any governmental agency which Cato shall, in its discretion,
determine to be necessary or advisable; (c) the admission of such shares of
Common Stock to listing on any national securities exchange on which the Common
Stock may be listed; and (d) the completion of any registration or other
qualification of such shares of Common Stock under any state or federal law or
ruling or regulation of any governmental body which Cato shall, in its sole
discretion, determine to be necessary or advisable. Cato may require that any
recipient of an Award make such representations and agreements and furnish such
information as it deems appropriate to assure compliance with the foregoing or
any other applicable legal requirement. Notwithstanding the foregoing, Cato
shall not be obligated at any time to file or maintain a registration statement
under the Securities Act of 1933, as amended, or to effect similar compliance
under any applicable state laws with respect to the Common Stock that may be
issued pursuant to this Plan.



     15.9 COMPLIANCE WITH CODE SECTION 162(M). It is intended that the Plan
comply fully with and meet all of the requirements of Section 162(m) of the
Code with respect to Options and SARs granted hereunder. At all times when the
Committee determines that compliance with the performance-based compensation
exception under Section 162(m) of the Code is required or desired, all
Performance Compensation granted under this Plan also shall comply with the
requirements of Section 162(m) of the Code, and the Plan must be resubmitted to
the stockholders of Cato as necessary to enable Performance Compensation to
qualify as performance-based compensation thereunder (which rules currently
require that the stockholders reapprove the Plan no later than the first
stockholders meeting that occurs in the fifth year following the year in which
the stockholders previously approved the Plan). In addition, in the event that
changes are made to Section 162(m) of the Code to permit greater flexibility
with respect to any Award or Awards under the Plan, the Committee may make any
adjustments it deems appropriate. The Committee may, in its discretion,
determine that it is advisable to grant Awards that shall not qualify as
“performance-based compensation” and may grant Awards without satisfying the
requirements of Section 162(m) of the Code.



     15.10 OTHER CORPORATE ACTIONS. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate
rights and powers, including, but not by way of limitation, the right of the
Company to adopt other compensation or bonus arrangements or the right of Cato
to authorize any adjustment, reclassification, reorganization, or other change
in its capital or business structure, any merger or consolidation of Cato, the
dissolution or liquidation of Cato, or any sale or transfer of all or any part
of its business or assets.



     15.11 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein shall also include the feminine, and the plural
shall include the singular and the singular shall include the plural.



     15.12 SEVERABILITY. The invalidity or unenforceability of any particular
provision of this Plan or an Award hereunder shall not affect the other
provisions thereof, and the Committee may elect in its discretion to construe
such invalid or unenforceable provision in a manner which conforms to
applicable law or as if such provision was omitted.



     15.13 GOVERNING LAW. To the extent not preempted by federal law, the
Plan, and all Award Agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of North Carolina (excluding the
principles of conflict of law thereof).