W I T N E S S E T H:

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Exhibit 10.2             

     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 Edgar T. Cato (“Edgar Cato”).

W I T N E S S E T H:

     WHEREAS, Edgar Cato is an employee and director of the Company; and

     WHEREAS, the Company and Edgar 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. Edgar Cato shall continue to serve as an employee and as a director of the Company to January 31, 2004 (the “Retirement Date”) at which time his resignation as an employee and director 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 Edgar Cato shall be entitled, at his option, to resign as a director prior to January 31, 2004 without affecting the obligations of the Company set forth herein.

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

          A. Confidentiality of Company Information. Edgar 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:

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Exhibit 10.2             

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

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 Edgar Cato.

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Exhibit 10.2             

          B. Non-solicitation of Cato Group Employees. Edgar 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. Edgar 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, Edgar 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 to (i) preclude Edgar 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 Edgar 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. Office Relocation. No later than the Retirement Date, Edgar Cato will relocate his office from the Company premises. Edgar 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 Edgar Cato to the Cato Group set forth in paragraph 2 of the Agreement, the Company shall comply with the following obligations to Edgar Cato:

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

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Exhibit 10.2               

          B. Continuing Payments. The Company will pay Edgar Cato the sum of $50,000 per year during the three-year period commencing February 1, 2004 in equal monthly installments. In the event of Edgar Cato’s death subsequent to the Effective Date, the Company will pay Edgar 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 Edgar Cato comparable to that provided to him on January 31, 2004.

          D. Healthcare. Following the Retirement Date and for the remainder of Edgar Cato’s life, the Company will provide Edgar Cato and his wife, Judith B. 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 Edgar Cato predeceases Judith B. Cato, the Company will provide such coverage to her for her life (if she is married to Edgar Cato at the time of his death).

          E. Life Insurance Option. By giving notice to the Company prior to the Retirement Date, Edgar Cato shall have the option to purchase the following life insurance policies at their respective cash value:

          The Company shall have no obligations to Edgar Cato following the Effective Date except as is specifically set forth in the Agreement; provided Edgar Cato shall continue to be entitled to any benefits due to him under the benefit plans listed on Schedule 2 attached hereto.

     4.     Tax. Edgar Cato acknowledges that income may be imputed to him in connection with the receipt of the benefits provided under the Agreement and that Edgar 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. 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. Edgar 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. Edgar Cato and the Company agree that the mutual consideration to the parties hereto is fair and reasonable.

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Exhibit 10.2             

     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):

     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 Edgar Cato.

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

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Exhibit 10.2             

Schedule 1

Office furniture currently located in Edgar Cato’s office

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Exhibit 10.2             

Schedule 2