10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 1-1445

HAVERTY FURNITURE COMPANIES, INC.

Maryland
(State of Incorporation) 58-0281900
(IRS Employer Identification Number)

780 Johnson Ferry Road, Suite 800
Atlanta, Georgia
(Address of principal executive offices) 30342
(Zip Code)

(404) 443-2900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class
Common Stock ($1.00 Par Value) Class A Common Stock ($1.00 Par Value) Name of each exchange on which registered
New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: None.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o           Accelerated filer þ           Non-accelerated filer o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12B-2 of the Exchange Act). Yes o No þ

     As of June 30, 2005, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $273,788,857 (based on the closing sale prices of the registrant’s two classes of common stock as reported by the New York Stock Exchange).

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of February 28, 2006
Common Stock, $1 par value per share	18,160,355 shares
Class A Common Stock, $1 par value per share	4,281,821 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of	Part III
Stockholders to be held May 16, 2006

HAVERTYS FURNITURE COMPANIES, INC.

Annual Report on Form 10-K for the Year Ended December 31, 2005

		Page
	PART I
Item 1	Business		1
	Executive Officers		8
Item 1A	Risk Factors		9
Item 1B	Unresolved Staff Comments		12
Item 2.	Properties		12
Item 3.	Legal Proceedings		13
Item 4.	Submission of Matters to a Vote of Security Holders		13
	PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		13
Item 6.	Selected Financial Data		14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 8.	Financial Statements and Supplementary Data		31
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		32
Item 9A.	Controls and Procedures		32
Item 9B.	Other Information		35
	PART III
Item 10.	Directors and Executive Officers of the Registrant		35
Item 11.	Executive Compensation		35
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		35
Item 13.	Certain Relationships and Related Transactions		36
Item 14.	Principal Accounting Fees and Services		36
	PART IV
Item 15.	Exhibits and Financial Statement Schedules		36
EX-10.3 THRIFT PLAN RESTATED JANUARY 1, 2005
EX-10.3.1 AMENDMENT NO. 1 TO THE THRIFT PLAN
EX-10.19 BASE SALARIES OF NAMED EXECUTIVE OFFICERS
EX-21 SUBSIDIARIES OF HAVERTY FURNITURE COMPANIES, INC.
EX-23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO

PART I

ITEM 1. BUSINESS

     Unless the context indicates otherwise, references to “Havertys,” “the Company,” “we,” “us,” and “our” refer to the consolidated operations of Haverty Furniture Companies, Inc. and its subsidiaries.

General

     Havertys is a specialty retailer of residential furniture and accessories. We provide our customers with a wide selection of products and styles primarily in the middle to upper-middle price ranges. As an added convenience to our customers, we offer financing through an internal revolving charge credit plan as well as a third party finance company.

     Havertys originated as a family business in 1885 in Atlanta, Georgia with one store and made deliveries using horse-drawn wagons. The Company grew to 18 stores and accessed additional capital for growth through its initial public offering in October 1929. Havertys has grown to 118 stores in 17 states in the southern and Midwest regions. All of our stores are operated using the Havertys name and we do not franchise our stores. Based on 2004 revenues and as reported by Furniture Today, we were one of the top 10 largest specialty retailers of furniture in the country, and we believe that we are an effective and significant competitor in our markets.

     We serve a target customer in the middle to upper-middle income ranges. Havertys has attracted this discriminating and demanding consumer by focusing on what we believe are the key elements of furniture retailing:

• convenient and appealing stores;

• targeted and complimentary advertising;

• knowledgeable and helpful sales associates;

• merchandise value and selection;

• timely delivery of purchases to our customers’ homes; and

• availability of flexible and competitive financing.

     At Havertys, the essential ingredient in all of the above is an overriding focus on customer service. We believe that these combine to generate substantial brand loyalty and repeat customer business.

Industry

     The demand for furniture has historically been tied to the sales of new or existing homes. Housing activity has been very strong in recent years and the size of new homes has been increasing since the late 1990’s. Additionally, the baby boom generation, consisting of over 76 million people between the ages of 42 and 60 are in their peak earning years. This large and wealthy cohort has driven sales in many sectors including stimulating a rise in the ownership of vacation or second homes.

     The retail furniture industry does not have a dominant national retailer. Personal consumption expenditures on residential furniture, which includes mattresses, totaled $75.5 billion in 2004, yet the 25 largest furniture retailers account for only 28% of the sales. Individual local market retailers, larger multiple market operators, department stores, manufacturers’ stores, “lifestyle” retailers and wholesale clubs are all competing for the consumers’ business.

     The industry is undergoing numerous fundamental changes resulting from increased availability of high quality,

1

lower cost imports and the bankruptcy of several key retailers. These factors have caused larger domestic manufacturers to increase foreign sourcing, reduce capacity and pursue their own dedicated retail channel. The dramatic rise in quality imported product has created opportunities for struggling retailers to “price-down” their merchandise and attempt to stimulate top-line growth by reducing their margins. However, financing the increased level of imports has created pressure on a number of retailers. The increased levels of imports has also challenged the back-end of the retailing business as lead-times from the factories are significantly longer and shipment quantities are larger.

     Most of the retail industry is subject to swings in the economic cycle. The retail furniture industry is particularly sensitive, given that home furnishings are a large and postponable purchase. Management believes sustained weakness in consumer confidence, personal disposable income or housing and rising interest rates, could negatively impact sales.

Strategy

     Our operating strategy is to offer quality merchandise selected and priced to appeal to our target customer, displayed attractively in well located stores. Our merchandise is primarily proprietary products branded Havertys supplemented by a select number of other key brands generally in the bedding category. Our sales associates are enabled by our store systems to provide our customers with a single source for service from product selection, credit approval and the setting of the delivery date. We believe that the quality of the merchandise we offer and our knowledgeable sales associates, coupled with the ability to deliver purchases within a short time-frame, are very important to our ability to maintain customer satisfaction.

     We have made significant investments in our distribution infrastructure and believe that we can effectively flow products, particularly the increasing amount of imported goods, to our customer. We intend to leverage our investments in distribution facilities and store support infrastructure and maintain a steady pace of new store openings. The store support infrastructure includes our proprietary management information systems, training processes, merchandising capabilities and customer credit processes. Our expansion strategy is to move into new markets which have dense and favorable demographics matching our target customers.

Revenues

     The following table sets forth the approximate percentage contributions by product or service to our gross revenues for the past three years:

	Year ended December 31,
	2005			2004			2003
Merchandise:
Living Room Furniture		48.3	%		48.7	%		48.3	%
Bedroom Furniture		21.6			21.8			22.2
Dining Room Furniture		13.4			13.1			13.5
Bedding		9.3			9.4			9.0
Accessories and Other (1)		7.0			6.4			6.2
Credit Service Charges		0.4			0.6			0.8
		100.0	%		100.0	%		100.0	%

(1) Including delivery charges and product protection.

2

Merchandising

     A majority of the merchandise we carry bears the Havertys brands (Havertys Collections^® and Havertys Premium Collections^®). We also offer nationally well-known bedding product lines of Sealy, Serta and Tempur-Pedic. We have avoided utilizing lower cost, promotional price-driven merchandise favored by many national chains, which we believe gives Havertys a unique position for a large retailer.

     We tailor our merchandise presentation to the needs and tastes of the local markets we serve. All five regional managers are included in our buying team, and their input allows each store to present a product mix that is roughly 12 to 16 percent regionalized. This varietal mix allows us to offer more “coastal” or “western” or “urban” looks to the appropriate markets. We believe that this ability to tailor our merchandise and related advertising by markets is a significant competitive advantage.

     Many retailers have been advertising aggressive sales promotions to stimulate business and increase their volume. We believe that this approach would negatively impact our “everyday low pricing” integrity with our customers over the longer term. Instead, we have used some promotional pricing during traditional sales events. Supplementing the pricing promotions, we also offer free-interest and deferred payment financing promotions.

     The Havertys brand products were first introduced in 2000 to leverage our overall brand awareness with our customers. These items were developed initially with manufacturers whose names do not carry the same level of customer recognition as Havertys. These products are sold exclusively by us and are not promotionally priced but are a part of our complete merchandise mix. During 2004, our development of Havertys brand product grew to include items for each of our merchandise categories. We introduced a Havertys Premium Collections^® line to add additional offerings at the higher-end of our assortment. The number and breadth of products we offer in the Havertys Collections^® and Havertys Premium Collections^® was expanded during 2005. We will continue to examine our merchandise mix and supplement or replace items with our proprietary branded products as appropriate.

     The level of imported merchandise that we offer has increased during the past few years as the quality and consistency of the products have improved. Our current merchandise line selection is approximately 70% imported, with wood products or “case goods” representing 88% of these items, and upholstered goods comprising the remaining 12% of the total imports. Case goods are generally manufactured in Asia, and imported upholstery products are mainly leather sofas imported primarily from Mexico and Asia. During 2003, we purchased our entire imported product mix through domestic manufacturers or agents and required many of these vendors to maintain a certain level of back-up inventory domestically. We tested and refined our supply chain systems as we transitioned in 2004 to receiving more goods that were not inventoried domestically, but still purchased through U.S. manufacturers or agents. The level of imported goods grew and the number of our container loads received increased from approximately 3,300 in 2003, to 5,000 in 2004 to 6,500 in 2005. We are currently working with select Asian manufacturers to increase the level of our “direct” import purchases in 2006. Although we do not expect to become a direct importer on all of our non-domestic goods, we believe that there are significant cost savings which we can obtain on certain products.

     Although we have only an estimated 1% national market share of the highly fragmented furniture retail market, we are an important customer to the largest furniture manufacturers due to our financial strength, consistent track record of profitable and controlled growth and our reputable customer service. Our regional distribution infrastructure and growth potential provide opportunities to enhance our purchasing power with our suppliers. We purchased approximately 45% of our merchandise from 10 vendors in 2005. There are, however, numerous additional merchandise sources available to Havertys.

3

Distribution

     We completed the implementation of our new distribution system in the second quarter of 2005. This system uses a combination of three distribution centers, three home delivery centers and approximately 15 local market cross-docks. This is in sharp contrast to the facilities in use at the beginning of 2002 of five regional warehouses and 46 local market warehouses. The distribution centers (DCs) are designed to shuttle prepped merchandise up to 250 miles for next day home deliveries, and serve cross-docks and home delivery centers within a 500-mile radius. The home delivery centers in turn provide service to markets within an additional 200 miles. Local market cross-docks process inventory in the same manner as a home delivery center but only serve a single outlying market.

     The first phase of the transition included the consolidation of two regional warehouses into the Eastern DC in Braselton, Georgia during the third quarter of 2002, the opening of a home delivery center in northern Virginia and the closing of 22 local market warehouses over the subsequent nine months. During 2004, we closed our regional warehouse in Mississippi that had served the mid-south states and transferred service responsibility for this area to the Western DC in Dallas, Texas. We opened our new Florida DC in Lakeland, Florida in January 2005 and closed our regional warehouse in Florida.

     The advantages of the new system include lower inventory levels and less warehouse space, assuming a comparable mix of imported and domestic products. This structure also enables us to enter new markets without adding local market warehouses. We also believe, that in the long term, fewer warehouse workers will be needed overall to operate under the new system. Along with these changes, customer service has been consolidated from the local markets to two call centers, where new phone and computer systems allow for easier access to delivery scheduling and follow up information.

     We use technology to assist in maintaining an efficient supply chain. A forecasting system provides guidance on the ordering of merchandise, identifies products that have sales volumes that differ from expectations and provides recommended purchase order changes. A warehousing management system using radio frequency scanners tracks each piece of inventory in real time and allows for efficient scheduling and changing of the workflow. These systems assist us in maintaining close control of our inventory and meeting the delivery expectations of our customers. We believe that our distribution system is one of the best in the retail furniture industry and provides us with certain competitive advantages.

Stores

     As of December 31, 2005, we operated 118 stores serving 78 cities in 17 states. We have executed a program of remodeling and expanding showrooms and replacing older smaller stores in growth markets with new larger stores, closing certain locations and moving into new markets. Accordingly, the number of retail locations has increased by only 24 since the end of 1995, but total square footage has increased approximately 50%.

     We entered two new markets and a new state during 2005. Our new store in Columbus, Ohio and a remodeled “big-box” store in Indianapolis, Indiana both opened in the fourth quarter. We also added an additional store in the Metro-DC market and replaced two older stores with a single store in Shreveport, Louisiana. During 2005, we expanded and renovated three stores and closed one location in Austin, Texas, which will be replaced in 2006. Our square footage added in 2005 from new stores and expansions was approximately 170,000 square feet or a 4.2% increase. The stores we closed during 2005 contained approximately 94,000 square feet or a 2.3% reduction. Net selling space in 2005 increased by 1.9% or approximately 76,000 square feet.

4

     The Florida markets are important to us and we plan to open a new store in Ft. Lauderdale and Port Charlotte in 2006. We also plan to open a new store in each of the Atlanta and Dallas markets. Our plans for 2006 include the opening of one or two additional stores and the closing of two or three older stores. We will also be investing during 2006 in several expansions and new stores that will open in 2007. Net selling space in 2006 should increase by approximately 2.3% or 100,000 square feet assuming the new stores open as planned.

Credit Operations

     As a service to our customers, we offer a revolving charge credit plan with credit limits determined through our on-line credit approval system and an additional credit program outsourced to a third party finance company. The combined amount financed under our credit programs and the third party finance company, as a percent of net sales, moved lower to 39% from 42% as customers increased their usage of third party national credit cards and cash. We believe that our credit offerings are a reasonable response to similar or more aggressive promotions advertised by competitors.

     Havertys Credit Services, Inc. (“Havertys Credit”), a wholly-owned subsidiary of the Company, handles the credit approval, collections and credit customer relationship functions. Havertys Credit currently maintains a receivables portfolio of approximately $93.5 million, before deducting reserves. Our credit programs typically require a 15% to 20% down payment and offer financing over 12 to 48 months, with an average term of 15 months. The standard (non-promotional) credit service charge rate currently ranges from 18% to 21% per annum (except for a lower rate in Arkansas). We routinely offer various interest-free periods (typically six to 24 months) as part of promotional campaigns but do not offer payment deferrals beyond six months. The Havertys credit financing program chosen most frequently by our customers during 2005 was a no interest offer requiring 13 to 24 equal monthly payments. Amounts financed under our programs represented approximately 21% of 2005 sales.

     We also make available to our customers additional programs provided by a third party finance company, which offers longer payment deferrals than we choose to provide. Discounts on the outsourced credit sales approved by the third party finance company are charged to SG&A as are national credit card fees. Sales financed by the third party provider are not Havertys’ receivables and accordingly, we do not have any credit risk or servicing responsibility for these accounts, and they are not included in our financial statements. Further, the third party finance company has no credit or collection recourse to Havertys, and we generally receive payment from them within two to three business days from the delivery of the merchandise to the customer.

     Over the last four years, credit service charge revenue has declined due to the outsourcing and as we have offered longer free interest periods in our financing promotions. As a result, fewer customers have had to pay credit service charges and “free interest” receivables have risen. These combined factors resulted in an average interest yield of approximately 4.1% for 2005.

Competition

     The retail sale of home furnishings is a highly fragmented and competitive business. We believe that the primary elements of competition in our industry are merchandise (quality, style, selection, price and display), customer service, image and product-oriented advertising, consumer credit offers, and store location and design. The degree and source of competition vary by geographic area. We compete with numerous individual retail furniture stores as well as chains and the better department stores. Department stores benefit competitively from more established name recognition in specific markets, a larger customer base due to their non-furnishings product lines and proprietary credit cards. Furniture manufacturers have also accelerated the opening of their own dedicated retail stores in an effort to control and protect the distribution prospects of their branded merchandise.

5

     We believe Havertys is uniquely positioned in the marketplace, with a targeted mix of merchandise that appeals to customers who are somewhat more affluent than those of most other competitive furniture store chains. We believe that this customer segment responds more cautiously to typical discount promotions and focuses on the product quality and customer service offered by a retailer. We consider our experienced sales personnel and customer service as important factors in Havertys’ competitive success. Significant additional competitive advantages we believe are also provided by Havertys’ abilities to make prompt delivery of orders through maintenance of inventory and to tailor merchandise to customers’ desires on a local market basis.

Employees

     As of December 31, 2005, we had approximately 4,400 employees: 2,600 in individual retail store operations, 180 in our corporate offices, 40 in our credit operations and 1,580 in our warehouses and delivery points. No employee of Havertys is a party to any union contract and we consider our employee relations to be good. To attract and retain qualified personnel, we seek to maintain competitive salary and wage levels in each market area.

     We have developed training programs, including product knowledge, selling and management skills classes. Because we primarily promote or relocate current associates to serve as managers and assistant managers for new stores and markets, training and assessment of our associates is essential to our growth. Our regional managers and market managers meet with senior management to discuss the development of assistant managers and certain department heads and consider possible candidates for promotion. We also maintain a list of qualified outside applicants that can be reviewed when positions become available. We have programs in our stores, distribution and corporate offices to ensure that we hire and promote the most qualified associates in a nondiscriminatory way.

Trademarks

     We have registered our various logos, “Havertys Collections^®” and “Havertys Premium Collection^®” trademarks with the Unites States Patent and Trademark Office. We believe that our trademark position is adequately protected in all markets in which we do business. We believe that our trade names are recognized by consumers and are associated with a high level of quality and value.

Governmental Regulation

     Our operations are required to meet federal, state and local regulatory standards in the areas of safety, health and environmental pollution controls. Historically, compliance with these standards has not had a material adverse effect on our operations. We believe that our facilities are in compliance, in all material respects, with applicable federal, state and local laws and regulations concerned with safety, health and environmental protection.

     The extension of credit to consumers is a highly regulated area of our business. Numerous federal and state laws impose disclosure and other requirements on the origination, servicing and enforcement of credit accounts. These laws include, but are not limited to, the Federal Truth and Lending Act, Equal Credit Opportunity Act and Federal Trade Commission Act. State laws impose limitations on the maximum amount of finance charges that we can charge and also impose other restrictions on consumer creditors, such as us, including restrictions on collection and enforcement. We routinely review our contracts and procedures to ensure compliance with applicable consumer credit laws. Failure on our part to comply with applicable laws could expose us to substantial penalties and claims for damages and, in certain circumstances, may require us to refund finance charges already paid and to forego finance charges not yet paid under non-complying contracts. We believe that we are in substantial compliance with all applicable federal and state consumer credit and collection laws.

6

For More Information about Us

Filings with the SEC

     As a public company, we regularly file reports and proxy statements with the Securities and Exchange Commission. These reports are required by the Securities Exchange Act of 1934 and include:

• annual reports and Form 10-K (such as this report);

• quarterly reports on Form 10-Q;

• current reports on Form 8-K; and

• proxy statements on Schedule 14A.

     The SEC maintains an internet site that contains our reports, proxy and information statements, and our other SEC filings; the address of that site is http://www.sec.gov.

     Also, we make our SEC filings available on our own internet site as soon as reasonably practicable after we have filed with the SEC. Our internet address is http://havertys.com.

     The information on our website is not incorporated by reference into this annual report on Form 10-K.

Corporate Governance

     We have a Code of Business Conduct for our employees and members of our Board of Directors. A copy of the code is posted on our website. If we amend or grant any waivers of the code that are applicable to our directors or our executive officers — which we do not anticipate doing — we have committed that we will post these amendments or waivers on our website under “Corporate Governance.’’

     Our website also contains additional information about our corporate governance policies. Click on the “Corporate Governance” button to find, among other things:

• Board of Director Significant Corporate Governance Principles

• Charter of the Audit Committee

• Charter of the Executive Compensation Committee

• Charter of the Governance and Nominating Committee

     Any of these items are available in print free of charge to any stockholder who requests them. Requests should be sent to Corporate Secretary, Haverty Furniture Companies, Inc., 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia 30342.

7

EXECUTIVE OFFICERS

     The following table sets forth certain information as of March 1, 2006 regarding the executive officers of Havertys.

Name	Age		Position with the Company and Other Information
Clarence H. Ridley		63	Chairman of the Board since January 2001. Vice Chairman from 1996 to 2000; Partner of King & Spalding, Attorneys, from 1977 to 2000. Director of the Company since 1979.
Clarence H. Smith		55	Chief Executive Officer since January 2003 and President since May 2002. Chief Operating Officer from May 2000 to 2002; Senior Vice President and General Manager, Stores, from 1996 to 2000. He has served in other capacities at both the operational and corporate levels since joining the Company in 1973. Director of the Company since 1989.
Steven G. Burdette		44	Senior Vice President, Operations, since 2003. Vice President, Operations, from 2002 to 2003; Vice President, Merchandising, from 1994 to 2002; Assistant Vice President, Merchandising, from 1993 to 1994. His experience includes local store operations since joining the Company in 1983.
J. Edward Clary		45	Chief Information Officer since 2000. Vice President, Management Information Services, from 1994 to 2000. He joined the Company in 1990.
Thomas P. Curran		53	Senior Vice President, Marketing since 2005. Vice President, Advertising and Internet Strategies, from 2000 to 2005. Vice President, Advertising, from 1987 to 2000. His focus has been almost exclusively on advertising since joining the Company in 1982.
Allan J. DeNiro		52	Chief People Officer since 2005. Vice President, Human Resources, from October 2004 until May 2005. President and Chief Executive Officer of New Century Partners, a management consultancy firm specializing in human capital development from 2002 to 2004; various positions with subsidiaries owned by KJ Jacobs AG, from 1997 to 2002 including President and CEO of The Resource Forum Inc., and as Vice Chairman of the Board, Brach’s Confections, Inc.
Dennis L. Fink		54	Executive Vice President since 1996 and Chief Financial Officer since 1993. Senior Vice President from 1993 to 1996. Senior Vice President, Treasurer and Chief Financial Officer and a director of Horizon Industries, Inc., a publicly held carpet manufacturer, from 1985 to 1992.
Rawson Haverty, Jr.		49	Senior Vice President, Real Estate and Development, since 1998. Vice President. Real Estate and Insurance Divisions, from 1992 to 1998; Assistant Vice President from 1987 to 1992; joined the Company in 1984. Director of the Company since 1992.

8

Name	Age		Position with the Company and Other Information
Jenny Hill Parker		47	Treasurer since 1998 and Corporate Secretary since 1997. Vice President, Finance, since 1996; Financial officer since joining the Company in 1994. Senior Manager at KPMG Peat Marwick LLP from 1988 to 1994.
Justin P. Seamonds		35	Vice President, Controller, upon joining the Company in May 2003. Chief Financial Officer of TowerCom Management LLC, a cellular tower developer and operator from 2001 to 2003; Senior Vice President, Controller of Meridian Beverage Company, Inc., a manufacturer and marketer of fruit-flavored and premium spring water, from 1996 to 2001.
Janet E. Taylor		44	Vice President, Law, upon joining the Company in September 2005. Partner of King & Spalding, Attorneys, from 2000 to 2005. Her experience includes a broad range of transactions and advisory work for several large public companies.
M. Tony Wilkerson		60	Executive Vice President, Merchandising since 2005. Senior Vice President, Marketing from 1994 to 2005. He has focused primarily on merchandising since joining the Company in 1976. Director of the Company from 1999 to May 2003.

     Our officers are elected annually by the Board of Directors for terms of one year or until their successors are elected and qualified, subject to removal by the Board at any time. Rawson Haverty Jr., Clarence H. Ridley and Clarence H. Smith are first cousins.

ITEM 1A. RISK FACTORS

     Set forth below are some of the risks and uncertainties that, if they were to occur, could materially and adversely affect our business, or that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and the other public statements we make.

     Forward-looking statements include, but are not limited to:

• Projections of revenues, costs, earnings per share, capital expenditures, dividends or other financial measures;

• Descriptions of anticipated plans or objectives of our management for operations or products;

• Forecasts of performance; and

• Assumptions regarding any of the foregoing.

     Forward-looking statements involve matters which are not historical facts. Because these statements involve anticipated events or conditions, forward-looking statements often include words such as “anticipate,” believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions. Do not unduly rely on forward-looking statements. They represent our expectations about the future and are not guarantees. Forward-looking statements are only as of the date they are made and they might not be updated to reflect changes as they occur after the forward-looking statements are made.

9

     For example, forward-looking statements include expectations regarding:

• sales or comparable store sales;

• gross profit;

• SG&A expenses;

• capital expenditures; and

• developments in accounting standards.

A downturn in the economy may affect consumer purchases of discretionary items, which could reduce our net sales.

     A large portion of our sales represent discretionary spending by our customers. Many factors affect discretionary spending, including world events, war, conditions in financial markets, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, unemployment trends and other matters that influence consumer confidence and spending. Our customers’ purchases of discretionary items, including our products, could decline during periods when disposable income is lower or periods of actual or perceived unfavorable economic conditions. If this occurs, our net sales and profitability could decline.

We face significant competition from national, regional and local retailers of home furnishings.

     The retail market for home furnishings is highly fragmented and intensely competitive. We currently compete against a diverse group of retailers, including national department stores, regional or independent specialty stores, and dedicated franchises of furniture manufacturers. National mass merchants such as Wal-Mart, Sam’s Club and Costco also have limited product offerings. We also compete with retailers that market products through store catalogs and the Internet. In addition, there are few barriers to entry into our current and contemplated markets, and new competitors may enter our current or future markets at any time.

We may not be able to compete successfully against existing and future competitors. Some of our competitors have financial resources that are substantially greater than ours and may be able to purchase inventory at lower costs and better sustain economic downturns. Our competitors may respond more quickly to new or emerging technologies and may have greater resources to devote to promotion and sale of products.

     Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including:

• aggressive advertising, pricing and marketing;

• extension of credit to customers on terms more favorable than we offer;

• larger store size, which may result in greater operational efficiencies, or innovative store formats;

• adoption of improved retail sales methods; and

• expansion by our existing competitors or entry by new competitors into markets where we currently operate.

     Competition from any of these sources could cause us to lose market share, revenues and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our results of operations.

If new products are not introduced or consumers do not accept new products, our sales may decline.

     Our ability to maintain and increase revenues depends to a large extent on the periodic introduction and availability of new products. We believe that the introduction and consumer acceptance of our proprietary Havertys

10

brand will have a significant impact on our ability to increase revenues. These products are subject to fashion changes and pricing limitations which could affect the success of these and other new products.

If we fail to anticipate changes in consumer preferences, our sales may decline.

     Our products must appeal to our target consumers whose preferences cannot be predicted with certainty and are subject to change. Our success depends upon our ability to anticipate and respond in a timely manner to fashion trends relating to home furnishings. If we fail to identify and respond to these changes, our sales of these products may decline. In addition, we often make commitments to purchase products from our vendors in advance of proposed delivery dates. Significant deviation from the projected demand for products that we sell may have a material adverse effect on our results of operations and financial condition, either from lost sales or lower margins due to the need to reduce prices to dispose of excess inventory.

The Company imports a substantial portion of its merchandise from foreign sources. Changes in exchange rates could impact the price the Company pays for these goods, resulting in potentially higher retail prices and/or lower gross profit on these goods.

     During fiscal 2005 and 2004, approximately 70% and 60%, respectively of the Company’s purchases were for goods not produced domestically. All of these purchases were denominated in U.S. dollars. As exchange rates between the U.S. dollar and certain other currencies have become unfavorable, the likelihood of price increases from our vendors has increased. Such price increases, if they occur, could have one or more of the following impacts:

• We could be forced to raise retail prices so high that we are unable to sell the products at current unit volumes;

• If we are unable to raise retail prices commensurately with the costs increases, gross profit could be negatively impacted; or

• We may be forced to find alternative sources of comparable product, which may be more expensive than the current product, of lower quality, or the vendor may be unable to meet our requirements for quality quantities, delivery schedules or other key terms.

Our revenue could be adversely affected by a disruption in our supply chain.

     Disruptions to our supply chain could result in late arrivals of product. This could negatively affect sales due to increased levels of out-of-stock merchandise and loss of confidence by customers in our ability to deliver goods as promised.

The continuing rise of oil and gasoline prices could affect our profitability.

     A continuing significant increase in oil and gasoline prices could adversely affect our profitability. Our distribution system which utilizes three distribution centers and multiple home delivery centers to reach our markets across 17 southern and Mid Western states is very transportation dependent. Additionally, we deliver substantially all of our customers’ purchases to their homes.

     If the transportation costs exceed those amounts that we are able to effectively pass on to the consumer, either by higher prices and/or higher delivery charges, then our profitability would suffer.

11

Our information technology infrastructure is vulnerable to damage that could harm our business.

     Our ability to operate our business from day to day, in particular our ability to manage our point-of-sale, credit operations and distribution system, largely depends on the efficient operation of our computer hardware and software systems. We use management information systems to communicate customer information, real-time inventory information, manage our credit portfolio and to handle all facets of our distribution system from receiving of goods in the DCs to delivery to our customers’ homes. These systems and our operations are vulnerable to damage or interruption from:

• power loss, computer systems failures and Internet, telecommunications or data network failures;

• operator negligence or improper operation by, or supervision of, employees;

• physical and electronic loss of data or security breaches, misappropriation and similar events;

• computer viruses;

• intentional acts of vandalism and similar events; and

• hurricanes, fires, floods and other natural disasters.

     Any failure due to any of these causes, if it is not supported by our disaster recovery plan and redundant systems, could cause an interruption in our operations and result in reduced net sales and profitability.

Because of our limited number of distribution centers, should one become damaged, our operating results could suffer.

     We utilize three large distribution centers to flow our merchandise from the vendor to the consumer. This system is very efficient for reducing inventory requirements, but makes us operationally vulnerable should one of these facilities become damaged.

Use of Estimates

     Our Consolidated Financial Statements and accompanying Notes include estimates and assumptions made by Management that affect reported amounts. Actual results could differ materially from those estimates.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2. PROPERTIES

     Our executive and administrative offices are located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia. These leased facilities contain approximately 45,000 square feet of office space on two floors of a mid-rise office building. Havertys Credit leases 11,000 square feet of office space in Chattanooga, Tennessee.

12

     The following table sets forth information concerning our operating facilities as of December 31, 2005.

			Local		Regional
	Retail		Market Area		Distribution
	Locations		Cross-docks (c)		Facilities
Owned(a)		45		1		3
Leased(b)		73		14		3
Total		118		15		6

(a)	Includes capital leases on three retail stores built on sites under land leases and includes the four retail stores and a distribution center consolidated under FIN 46.
(b)	The leases have various termination dates through 2025 plus renewal options.
(c)	Of the local market area cross-docks, 10 are attached to retail locations.

	2005			2004			2003
Retail square footage at December 31 (in thousands)		4,144			4,068			3,919
% Change in retail square footage		1.9	%		3.8	%		2.9	%
Annual net sales per weighted average square foot	$	202		$	199		$	194

     For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report under Item 7 of Part II.

ITEM 3. LEGAL PROCEEDINGS

     There are no material pending legal proceedings, other than routine litigation incidental to our business, to which we are a party or of which any of our properties is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of security holders during the fourth quarter of fiscal 2005.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     (a) The Company’s common stock and Class A common stock are traded on the New York Stock Exchange under the trading symbols “HVT” and “HVTA”. Information regarding the high and low sales prices per share of both classes of common stock in 2005 and 2004 is included in Note 16, “Market Prices and Dividend Information (Unaudited),” to the Company’s Consolidated Financial Statements.

13

     (b) Based on the number of individual participants represented by security position listings, there are approximately 3,000 holders of the Company’s common stock and 200 holders of the Class A common stock at March 10, 2006.

     (c) The payment of dividends and the amount thereof are determined by the Board of Directors and depend upon, among other factors, the Company’s earnings, operations, financial condition, capital requirements and general business outlook at the time such dividend is considered. The Company has paid a quarterly cash dividend since 1935 and has increased the cash dividend paid to stockholders in each of the past 30 years. Information regarding the Company’s payment of dividends for 2005 and 2004 is included in Note 16, “Market Prices and Dividend Information (Unaudited),” to the Company’s consolidated financial statements. A quarterly dividend of $.0675 per common share and $.0625 per Class A common share has been declared by the directors, to be payable March 21, 2006, to holders of record on March 6, 2006.

     (d) Information concerning the Company’s equity compensation plans is set forth in Item 12 of Part III of this Annual Report on Form 10-K.

Stock Repurchases

     The following table presents information with respect to our repurchases of Havertys’ common stock during the fourth quarter of 2005:

					(c)		(d)
					Total number		Maximum
					of Shares		Number that
	(a)		(b)		Purchased as		May Yet Be
	Total		Average		Part of Publicly		Purchased
	Number of		Price		Announced		Under the
	Shares		Paid Per		Plans or		Plans or
	Purchased		Share		Programs		Programs
Oct. 1 - Oct. 31, 2005		21,700	$	11.78		21,700		1,853,846
Nov. 1 - Nov. 30, 2005		58		12.57		—		1,853,846
Dec. 1 - Dec. 31, 2005		974		12.89		—		1,853,846
		22,732	$	11.83		21,700		1,853,846

(1)	The Board of Directors has authorized management, at its discretion, to purchase and retire our common stock and Class A common stock under the Stock Repurchase Program. This program was initially approved by the Board of Directors on November 3, 1986 with subsequent authorizations made as to the number of shares to be purchased.
(2)	Those shares reported as repurchased that are not part of the Stock Repurchase Program are attributable to shares surrendered to us by employees in payment of tax obligations related to the vesting of restricted shares from our 2004 Long-Term Incentive Plan.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data have been derived from our Consolidated Financial Statements. The information shown below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 below and the Consolidated Financial Statements and Notes thereto included in Item 8 below.

14

	Years ended December 31,
(dollars in thousands, except per share data)	2005			2004			2003			2002			2001
Net sales	$	827,658		$	784,162		$	744,635		$	703,959		$	678,112
Gross profit(1)		395,567			378,597			349,423			326,957			313,101
Percent of net sales		47.8	%		48.3	%		46.9	%		46.4	%		46.2	%
Gross profit, on a comparable basis(2)		395,567			378,597			362,511			339,862			324,068
Percent of net sales		47.8	%		48.3	%		48.7	%		48.3	%		47.8	%
Selling, general and administrative expenses (1)		377,435			348,523			314,130			291,576			273,593
Percent of net sales		45.6	%		44.5	%		42.2	%		41.4	%		40.3	%
Selling, general and administrative expenses, on a comparable basis(2):		377,435			348,523			327,218			304,481			284,560
Percent of net sales		45.6	%		44.5	%		43.9	%		43.3	%		42.0	%
Income before cumulative effect of accounting change (3)(4)		15,054			22,636			23,821			24,293			22,671
Basic earnings per share before accounting change(3)(4)
Common	$	0.67		$	1.01		$	1.10		$	1.14		$	1.09
Class A	$	0.63		$	0.96		$	1.03		$	1.08		$	1.04
Diluted earnings per share before accounting change (3)(4)
Common	$	0.66		$	0.98		$	1.06		$	1.10		$	1.05
Class A	$	0.63		$	0.94		$	1.02		$	1.06		$	1.02
Cash dividends:
Amount	$	5,678		$	5,550		$	5,076		$	4,684		$	4,365
Per Share:
Common Stock		0.255			0.250			0.2350			0.2200			0.2100
Class A Common Stock		0.235			0.230			0.2150			0.2050			0.2000
Accounts receivable, net	$	91,110		$	90,528		$	105,800		$	133,812		$	193,963
Credit service charges		3,506			4,502			6,392			9,051			11,066
Provision for doubtful accounts		1,011			558			1,979			3,180			4,061
Inventories	$	107,631		$	110,812		$	106,264		$	113,328		$	103,662
Capital expenditures	$	35,007		$	45,264		$	21,203		$	45,455		$	19,034
Depreciation/amortization expense		21,035			19,145			17,199			15,903			16,239
Property and equipment, net		217,391			205,037			171,546			134,203			146,399
Total assets	$	463,052		$	471,581		$	452,692		$	417,121		$	472,030
Long-term debt, including current portion(4)	$	44,161		$	64,498		$	78,930		$	82,498		$	142,969
Total debt		48,461			64,498			78,930			82,498			167,969
Interest, net		1,362			3,483			3,872			6,561			10,581
Accounts receivable, net to debt		188.0	%		140.4	%		134.0	%		162.2	%		115.5	%
Debt to total capital		14.8	%		19.2	%		23.9	%		26.9	%		45.6	%
Stockholders’ equity	$	279,270		$	272,258		$	251,156		$	223,761		$	200,300
Retail Sq. Ft. (in thousands)		4,144			4,068			3,919			3,808			3,521
Number of Retail Locations		118			117			113			111			103
Employees		4,400			4,300			4,180			4,037			3,720

15

(1)	Gross profit and Selling, general and administrative expenses prior to 2005 have been adjusted for the reclassification of handling and transportation costs into cost of goods sold (see Note 1 to our 2005 Consolidated Financial Statements).
(2)	Gross profit, on a comparable basis, prior to 2004 has been adjusted for the amounts related to vendor rebates and advertising allowances so that they are comparable to the treatment in 2004 and 2005. The amount by which gross profit, as reported has been increased is as follows (in thousands): 2003 — $13,088; 2002 — $12,905; and 2001 — $10,967. This is a non-GAAP presentation but is included to facilitate the comparability among the periods presented due to the implementation of EITF 02-16 “Accounting by a Customer for Cash Consideration Received from a Vendor.’’
(3)	During the second quarter of 2004, we adopted EITF 03-6 “Participating Securities and the Two-Class Method under SFAS 128.” This interpretation requires us to report earnings per share using the two-class method. As a result, the prior years’ per share presentation has been expanded to include the additional information. Prior to EITF 03-6, the Company’s diluted earnings per share was equivalent to the common stock diluted earnings per share under the two-class method.
(4)	Effective December 31, 2003, the Company adopted FASB interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The required consolidation of the entity increased property and equipment by $22.1 million and long-term debt by $19.5 million. The cumulative effect of the change was an addition to income of $1.0 million, net of tax expense of $0.6 million, and $0.05 per diluted share.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     We focus on several key metrics in managing and evaluating our operating performance and financial condition including the following: comparable-store sales, sales by merchandise categories, gross profit, operating costs as a percentage of sales, cash flow, total debt to total capital, and earnings per share.

     Our sales are generated by customer purchases of home furnishings in our retail stores and recorded as revenue when delivered to the customer. There is typically a two-week lag between the time when a customer’s order is placed in one of our stores and the time when the customer is able to arrange their schedule for delivery. Comparable-store or “comp-store” sales are comparisons of sales results of stores that have been open at least one year. As a retailer this performance measure is an indicator of relative customer spending period over period.

     Havertys’ cost of sales includes only the costs associated with the sourcing of our products. Our gross profit is primarily dependent upon merchandising capabilities, vendor pricing and the mix of products sold. The success of our Havertys brands has continued since their introduction at the end of 2000 and these products have been expanded as a percentage of our overall sales mix. The introduction of Havertys Premium Collections^® during 2004 was an important step in establishing the Havertys brand in all product categories. We view the sourcing of the values associated with imported product offerings and the mix of our merchandise as important opportunities for improving our performance.

     Our operational focus during the past few years has been our warehouse and delivery effectiveness as we completely revamped our distribution methodology and consolidated certain customer service functions. This created redundant operations and increased inventory markdowns during the transition periods in the affected markets. We completed the transformation and consolidation of our distribution systems in the second quarter of 2005.

16

     The growing percentage of imported products from Asia and the increased Havertys brands merchandise are significant changes in our industry and our business within a very short time frame. The longer lead times required for delivery from the factories and the production of merchandise exclusively for Havertys have been analyzed by our supply chain team. We are expanding the storage capacity of our Eastern DC to store imported goods for our Eastern growth and move into the Midwest. Additionally it will help us supplement the product flow from key domestic upholstery suppliers for the Florida region.

     We are continuing our direct importing program initiative, with a focus on China and Asia. Our main strategy is to work with a select number of experienced manufacturers and to become important customers to these suppliers. We realize that there are increased risks in direct importing and therefore we are moving at a deliberate and measured pace.

     Cash flows continued to be strong during 2005, providing funding for $35.0 million in new property and equipment expenditures, and the reduction of debt by $16.0 million. Our cash flow accelerated during 2003, in part due to the outsourcing of certain credit promotions to a third party finance company, and those programs have now reached a fairly level state. The increased cash enabled us to repay all of our fixed rate debt that did not have significant pre-payment penalties. We have continued to improve our financial leverage and our total debt to total capital decreased from 23.9% at December 31, 2003 to 14.8% at December 31, 2005.

Critical Accounting Estimates and Assumptions

     Our discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an on-going basis, we evaluate our estimates, including those related to accounts receivable and the allowance for doubtful accounts, long-lived assets and facility closing costs, pension and retirement benefits and self insurance. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements.

     We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:

     Accounts Receivable. We are required to estimate the collectibility of our accounts receivable. We provide an allowance for doubtful accounts using a method that considers the balances in problem and delinquent categories, historical write-offs and judgment. Delinquent accounts are generally written off automatically after the passage of nine months without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of a discharged bankruptcy or other circumstances that make further collections unlikely. We assess the adequacy of the allowance at the end of each quarter.

     For the years ended December 31, 2005, 2004, and 2003, we recorded provisions for bad debts of $1.0 million. $0.6 million and $2.0 million, respectively. As of December 31, 2005, and 2004, our gross receivables of $93.5 million in each year, had reserves of $2.4 million and $3.0 million, respectively. Our allowance for doubtful accounts

17

as a percentage of the receivables pool is lower in 2005 due to improvements in the delinquency and problem category percentages from 2004 and 2003. While our customer base is large and geographically dispersed, a general economic downturn affecting our target customers could result in higher than expected defaults, and therefore the need to revise estimates for bad debts. We believe that the allowance for doubtful accounts as of December 31, 2005 and 2004 is reasonable in light of portfolio balance, portfolio quality, historical charge-offs and reasonable charge-off forecasts.

     We make available to customers interest free credit programs, which range from 3 to 24 months. In connection with these programs which are greater than 12 months, we are required to discount payments to be received over the life of the interest free credit program. On the basis of the credit worthiness of the customers and our low delinquency rates under these programs, we discount the receivables utilizing the prime rate of interest at the date of sale. The discount is recorded as a contra receivable and is amortized to net interest expense over the life of the receivable. The discount on the receivables is adjusted for prepayment at the time of prepayment. There is no assumption for prepayment recorded at inception. If delinquency rates under these interest free programs deteriorate, we may adjust the rate at which we discount such receivables in the future. The unamortized discounts were $1,646,000 and $889,000 at December 31, 2005 and 2004, respectively.

     Impairment of Long-Lived Assets and Facility Closing Costs. We evaluate the recoverability of long-lived assets, annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We group and evaluate long-lived assets for impairment at the market area level, which is the lowest level at which individual cash flows can be identified. When evaluating these assets for potential impairment, we first compare the carrying amount of the asset to the market area’s estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are less than the carrying amount of the asset, an impairment loss calculation is prepared. The impairment loss calculation compares the carrying amount of the asset to the market area’s assets estimated fair value, which is determined on the basis of future cash flows (discounted and with interest charges), or market value. If required, an impairment loss is recorded for the portion of the asset’s carrying value that exceeds the asset’s estimated fair value.

     We account for closed store and warehouse lease termination costs in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” As such, in the period we close a store or warehouse, we record as an obligation the present value of estimated costs that will not be recovered. These costs include any estimated loss on the sale of the land and buildings, the book value of any abandoned leasehold improvements and amounts for future lease payments, less any estimated sublease income. At December 31, 2005 and 2004, our reserve for impairment of long-lived assets and facility closing costs totaled $1,172,000 and $883,000, respectively. In the future, these costs could increase or decrease based upon general economic conditions, economic conditions in specific markets including the impact of new competition, the fair market value of owned properties, our ability to sublease facilities and the accuracy of our related estimates.

     Pension and Retirement Benefits. Pension and other retirement plans’ costs require the use of assumptions for discount rates, investment returns, projected salary increases and mortality rates. The actuarial assumptions used in the Company’s pension and retirement benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for the Company’s future pension and retirement benefit obligations. While we believe that the assumptions used are appropriate, differences between assumed and actual experience may affect the Company’s operating results. A one-percentage-point decrease in the discount rate would have increased 2005 expense for the defined benefit pension plan by approximately $1.4 million, a 60% change and a one-percentage-point increase would have decreased expense by $0.5 million, a 22% change. A one-percentage-point change in the expected return on plan assets would impact 2005 expense for the defined benefit pension plan by approximately $0.5 million, a 23% change. In addition, see Note 10 of the Notes to Consolidated Financial Statements for a discussion of these assumptions and the effects on the financial statements.

18

     Self Insurance. We are self-insured for certain losses related to worker’s compensation, general liability and vehicle claims. Our reserve is developed based on historical claims data and contains an actuarially developed incurred but not reported component. The resulting estimate is discounted and recorded as a liability. Our actuarial assumptions and discount rates are reviewed periodically and compared with actual claims experience and external benchmarks to ensure that our methodology and assumptions are appropriate. A one-percentage-point change in the actuarial assumption for the discount rate would impact 2005 expense for insurance by approximately $56,000, a 1.3% change.

Operating Results

     The following table sets forth for the periods indicated (i) selected statement of income data, expressed as a percentage of net sales and (ii) the percentage change in dollar amounts from the prior year in selected statement of income data:

												Percentage Change
												in Dollars
				Percentage of Net Sales								From Prior Year
	2005			2004			2003			2005			2004
Net sales		100.0	%		100.0	%		100.0	%		5.5	%		5.3	%
Cost of sales(1)		52.2			51.7			53.1			6.5			2.6
Gross profit(1)		47.8			48.3			46.9			4.5			8.3
Credit service charge revenue		0.4			0.6			0.9			(22.1	)		(29.6	)
Provision for doubtful accounts		0.1			0.1			0.3			81.1			(71.8	)
Selling, general and administrative expenses		45.6			44.5			42.2			8.3			10.9
Income before income taxes(2)		2.9			4.6			5.1			(34.4	)		(6.6	)
Net income(2)		1.8			2.9			3.2			(33.5	)		(6.3	)
Comparable basis
Cost of sales, on a comparable basis(3)		52.2			51.7			51.3			6.5			6.1
Gross profit, on a comparable basis(3)		47.8			48.3			48.7			4.5			4.4
Selling, general and administrative expenses, on a comparable basis(3)		45.6			44.5			43.9			8.3			6.5

(1)	Cost of sales, Gross profit and SG&A expenses prior to 2005 have been adjusted for the reclassification of handling and transportation costs into cost of goods sold (see Note 1 to our 2005 Consolidated Financial Statements).
(2)	Excluding the cumulative effect of a change in accounting principle for the year ended December 31, 2003.
(3)	Cost of sales, Gross profit and SG&A expenses in 2003 have been adjusted from the amounts reported in our financial statements. The amount for 2003 has been adjusted by $13.1 million for the treatment of vendor rebates and advertising allowances so that they are comparable to the treatment in 2005 and 2004. We believe this non-GAAP presentation is meaningful because without presenting 2003 on a comparable basis to other years presented, our gross profit would appear to have increased significantly. Conversely, SG&A costs would appear to have increased significantly. However, on a GAAP basis these changes are primarily due to the required classification of vendor rebates and allowances as a reduction of inventory costs and a resulting reduction in cost of sales, whereas in 2003 and prior years such amounts were included as a reduction of SG&A costs.

19

Net Sales

     Total sales increased $43.5 million or 5.5% in 2005 and $39.5 million or 5.3% in 2004, respectively. Comparable store sales rose 1.8% or $13.6 million in 2005 and 2.1% or $15.3 million in 2004. The remaining $29.9 million and $24.2 million of the increases in 2005 and 2004, respectively, were from new and otherwise non-comparable stores, partially offset by the loss of sales from stores closed. Stores are considered non-comparable if open for less than 12 full calendar months or if the selling square footage has been changed significantly during the past 12 full calendar months. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales, as are periods when stores are closed or being remodeled.

     The following outlines our sales and comp-store sales increases for the periods indicated (dollars in millions):

	Year Ended December 31,
	2005								2004								2003
						Comp-Store								Comp-Store								Comp-Store
	Net Sales					Sales					Net Sales			Sales			Net Sales					Sales
			% Increase			% Increase					% Increase			% Increase					% Increase			% Increase
			(decrease)			(decrease)					(decrease)			(decrease)					(decrease)			(decrease)
Period	Dollars		over prior			over prior			Dollars		over prior			over prior			Dollars		over prior			over prior
Ended	(000)s		period			period			(000)s		period			period			(000)s		period			period
Ql	$	207.6		9.1	%		4.7	%	$	190.3		8.5	%		4.0	%	$	175.4		0.2	%		(6.6	)%
Q2		192.4		7.1			2.3			179.6		6.5			2.6			168.6		2.3			(2.2	)
Q3		202.0		2.3			(1.0	)		197.4		1.1			(1.0	)		195.4		11.2			6.1
Q4		225.6		4.1			1.2			216.8		5.6			3.0			205.3		8.9			5.7
Year	$	827.7		5.5	%		1.8	%	$	784.2		5.3	%		2.1	%	$	744.6		5.8	%		1.0	%

     Retail sales of big-ticket home goods were weak from mid-2002 to mid-2003, which was widely reported to be due to consumer anxiety about employment uncertainty, threats of war, war and geopolitical unrest. There was also a lingering negative effect from lower stock market values. Beginning in June 2003 we had positive comp-store monthly sales results that continued throughout the remainder of 2003 and through April 2004 (excluding November 2003, which was 0.4% negative). Sales in our Florida and Southeast markets during August and September of 2004 were negatively impacted by record-breaking severe weather from four hurricanes in a six-week period. These lost sales were particularly significant because our Florida stores normally produce approximately 23% of our total sales. During October 2004, we experienced some delays in receiving product from Asia and began building a backlog of undelivered orders faster than our historical rates. The backlog remained higher than the prior year’s level at the end of 2004 as strong sales activity during November and December kept the order rate ahead of our deliveries.

     Sales in the first half of 2005 improved but still reflected some reluctance by consumers to make big-ticket purchases. We believe that sales for big-ticket furniture items during the third quarter of 2005 were hampered by a number of factors including: rising fuel costs, continued negative impressions concerning the economy, and heavy promotional activity by the automobile industry. We did not experience a significant direct impact from Hurricane Katrina but the fourth quarter of 2005 was affected as general consumer morale was battered by gas price spikes above $3 per gallon, higher home heating bills and rising interest rates.

     Our sales during 2005 increased across all major categories of furnishings, with sleeper sofas and dining categories performing better than the average. Our average sales transaction and price per item both remained modestly higher over the prior year periods.

     We believe that continued strong housing sales and demographic trends are a positive factor for the industry, but consumer confidence and further indications of a strengthening economy are key to increased spending for big ticket

20

furniture items. Many retailers have been advertising aggressive sales promotions to stimulate business and increase their sales volume. We believe that this approach would negatively impact our “everyday low pricing” integrity with our customers over the longer term. We have instead used some promotional pricing during traditional sales events. Supplementing the pricing promotions, we also offer free interest and deferred payment financing promotions. We expect to continue this approach of providing a selection of specially priced merchandise and financing promotions to increase traffic in our stores. During 2006, we will offer financing promotions with longer deferred interest periods. We will also draw from the positive results of our first 80-page catalog mailed in October 2005, with improved versions and varied target mailing techniques.

Gross Profit

     Cost of sales consists primarily of the purchase price of the merchandise together with certain handling and transportation costs. Our gross profit is largely dependent upon merchandising and warehousing capabilities, vendor pricing, transportation costs and the mix of products sold. We have developed strong relationships with our suppliers and believe that we receive excellent pricing and service from our key vendors due to the volume and reliability of our purchase commitments. The continued improvements related to the products imported from Asia and pricing pressure on domestic suppliers have also generated good values for us. Many retailers have used the decreased costs to support their heavy promotional pricing. Our approach has been to offer products with greater value at our established middle to upper-middle price points.

     Gross profit for 2005 decreased 50 basis points to 47.8% from 48.3% in 2004. Our gross profit was negatively impacted by increased transportation costs included in cost of goods sold. Transportation costs increased $3.7 million in 2005 over 2004 or 38 basis points of net sales. This expense varies with sales volume, and demonstrates the comparative increase in expense related to moving goods through a more centralized distribution infrastructure and the additional miles which must be driven given the reduction in warehouses in our current model. Handling costs increased $1.8 million in 2005 over 2004 or 16 basis points of net sales as more merchandise flowed through our DCs. During the fourth quarter of 2005, we experienced fluctuations in our product flow and capacity issues in our distribution centers. To create additional warehouse capacity, we reduced selling prices on certain merchandise in 2005. Our LIFO reserve increased during 2005 and negatively impacted gross profit by approximately 14 basis points.

     Gross profit for 2004 decreased 40 basis points to 48.3% from 48.7% in 2003, on a comparable basis. Our gross profit was negatively impacted by a 21 basis points increase in transportation and handling costs and an additional 10 basis points negative impact from an increase in the LIFO reserve. Inventory close-outs were higher during 2004 as compared to 2003 as we closed and consolidated warehouses. Additionally, during the fourth quarter of 2004, as some of our competitors struggled and aggressively offered heavy discounts, we were compelled to match prices on identical or similar products in several of our markets.

     Our core furniture merchandise comprises approximately 85% of the furniture items, excluding bedding and accessories, which we carry in all of our stores. Additional products that are more regionally focused and items needed to merchandise our larger retail stores supplement the core furniture merchandise assortment. Imported products comprised approximately 37% of our core merchandise groups at December 31, 2003, and increased to approximately 70% by the end of 2005 as new products were received and displayed in our showrooms. Wood products, or “case goods,” are generally imported, with only 20% of our selected case goods at December 31, 2005, produced domestically. Upholstered items are not as heavily imported, with the exception of our leather products, of which almost 100% were imported during 2005. The Havertys branded lines are approximately 75% imported with virtually all case goods and leather items being imported. We believe for the selected imported items we purchase, we achieve substantial savings as compared to similar domestically made products.

21

     Our proprietary Havertys branded merchandise produced modestly higher gross margins compared to the other products we offered and Havertys brands’ margins continued to increase on a year over year basis. During 2005, we began purchasing a small level of products working directly with foreign manufacturers. We believe that, although there are savings in the “direct import” approach to sourcing our goods, there are also associated risks with quality and customer acceptance. Our merchandising team has selected an experienced quality control firm that is dedicated to inspecting product produced for Havertys. We are also using design firms to complement our merchandising team’s skills to develop our proprietary Havertys products. Similar to our careful introduction of the first Havertys branded products, we will continue to move judiciously on a direct import program.

     The selected vendors that provide us with their branded goods remain important suppliers to us. Their products have wide customer acceptance and we are also working with several of these manufacturers developing product that carries their brand but will be exclusive to Havertys. We believe that the combination of these types of arrangements and our proprietary Havertys branded products will provide our customers with an excellent selection of merchandise at attractive prices and yield improving margins for Havertys.

Selling, General and Administrative Expenses

     Selling, general and administrative (“SG&A”) expenses are comprised of five categories: selling; occupancy; delivery; certain warehouse costs; advertising and administrative. Selling expenses primarily are comprised of compensation of sales associates and sales support staff, and fees paid to credit card and third party finance companies. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expenses and utility costs. Delivery costs include personnel, fuel costs, and depreciation and rental charges for rolling stock. Warehouse costs include demurrage, supplies, depreciation and rental charges for equipment. Advertising expenses are primarily media production and space, direct mail costs, market research expenses and employee compensation. Administrative expenses are comprised of compensation costs for store management, information systems, executive, finance, merchandising, supply chain, real estate and human resource departments.

     Our SG&A costs were negatively impacted by several factors in 2005. Total SG&A costs, as a percentage of net sales were 45.6% for 2005 as compared to 44.5% and 43.9%, on a comparable basis, in 2004 and 2003, respectively.

     Selling expenses generally vary with sales volume. We experienced additional increases in 2004 over 2003 mainly due to our customers increased use of credit cards when purchasing and accordingly our bank card fees rose. This increased usage continued during 2005 but at less than half the rate of increase as in 2004.

     Occupancy expenses increased $7.0 million in 2005 over 2004 or 40 basis points of sales. Our utility costs increased 24 basis points and depreciation expense was up 10 basis points on a year over year basis. We also had higher local property tax rates in certain jurisdictions and repairs to certain sites from hurricane damage in the Gulf Coast area. Occupancy expenses increased $2.7 million in 2004 over 2003 and were relatively flat as a percentage of sales.

     We developed our distribution system to accommodate store expansion and sales growth. The shift from local market warehouses to our more centralized system caused us to change how we classified our warehousing and transportation costs. We have historically capitalized certain expenses related to handling and transportation of merchandise to the local markets into inventory which flows through the distribution centers or in prior years, the regional warehouses. In prior periods, expenditures capitalized into inventory were recognized through SG&A rather than cost of goods sold. Our current distribution model flows a majority of inventory through the DCs. Accordingly, we now include those costs capitalized into inventory for handling and transportation in cost of goods

22

sold and have reclassified the prior periods for comparability. These costs which are now included in cost of goods sold were $24.3 million, $18.8 million and $16.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. This is a change only in the classification of these expenses in our Consolidated Statements of Income and has no impact on earnings, valuation of inventory or cash flows.

     Warehouse expenses increased $4.7 million in 2005 over 2004, or 40 basis points of net sales. Demurrage fees, which were virtually zero in 2004, were $2.5 million in 2005 because of supply chain difficulties. The ocean and inter-modal carriers charge demurrage fees when containers carrying imported merchandise are not unloaded and returned to the port within the carriers’ prescribed time periods. Warehouse compensation and benefits increased as we absorbed duplicate costs during the conversion from the Florida regional warehouse and local market warehouses to the Florida DC, incurred separation expenses for local warehouse employees and increased compensation expense at our larger DCs for anticipated sales volume increases. Warehouse operating expenses increased $1.0 million due to higher requirements of demountable shipping supplies (wrap, pads, ties, blankets, etc) to ship a higher proportion of goods in a prepped mode.

     Warehouse expenses increased only moderately in 2004 over 2003, predominately occurring in the fourth quarter of 2004 due to facility closings and startup costs associated with the distribution transition.

     Our imports have increased considerably in the past few years and our distribution centers were not large enough to accommodate the product flow for the breadth of our line up. A significant expansion of our Eastern DC is underway. The first phase is complete and we began using that space during January 2006 and the second phase will be completed in April. This expansion should enable us to better handle the normal fluctuations in business and increase our peak throughput capacity. We are also improving our supply chain techniques, systems, and controls surrounding our freight service provider and vendor deliveries. Our expansive product line is being pared down to better fit our migration to higher levels of imports. These changes are expected to eliminate demurrage costs and to allow for more prompt and accurately scheduled deliveries to our customers.

     Delivery costs increased $6.3 million in 2005 over 2004 or 54 basis points of net sales. Delivery compensation increased $3.4 million over the 2004 period, largely related to increases in delivery personnel to service new markets as well as reassignment of personnel from shuttered warehouses to delivery roles. Delivery fuel costs have also risen due to higher fuel prices and more delivered sale volume. Delivery costs increased in 2004 relative to 2003 by approximately 17 basis points as a percentage of net sales primarily due to increases in delivery personnel to service new markets.

     We increased our advertising dollars during 2005 by $2.0 million as we continued to build our Havertys brand image with our target customers. We printed and distributed our first 80-page catalog to target customers and we are building on its success. We reduced our newspaper and direct mail costs slightly and shifted advertising dollars to television and our more targeted advertising programs such as the catalog and tabloids. Our costs associated with television advertising increased over 25% from 2003 to 2004 as we used this media form in our larger and new markets. Total advertising costs as a percentage of sales were 7.2%, 7.4% and 7.1% for 2005, 2004 and 2003, respectively.

     Our administrative costs declined modestly as a percentage of sales for 2005 as compared to 2004. Administrative expenses increased in 2004 due to the following: additional costs associated with compliance with the Sarbanes-Oxley Act, installation and conversion to our new accounting software package and costs associated with the research and analysis of prospective new real estate markets and locations.

23

Credit Service Charge Revenue and Allowance for Doubtful Accounts

     Our credit service charge revenue has continued to decline as customers choose credit promotions with no interest features.

     The standard outsourced programs offer deferred payment for 360 days, or for larger purchases, for 15 to 18 months, with an interest accrual that is waived if the entire balance is paid in full by the end of the deferral period. The 15 to 18 months deferred payment promotions were the most popular of all the credit programs offered through the third party finance company and were also used more than any program offered by Havertys Credit during 2004. “No Interest” programs requiring equal monthly payments from 13 to 28 months became the most frequently used in 2005.

     The following highlights the impact these changes have had on our credit service charge revenue and related accounts receivable and allowance for doubtful accounts (dollars in thousands):

	Year Ended December 31,
	2005			2004			2003
Credit Service Charge Revenue	$	3,506		$	4,502		$	6,392
Amount Financed as a % of Sales:
Havertys		20.7	%		21.1	%		25.1	%
Third Party		18.5			20.8			21.0
		39.2	%		41.8	%		46.1	%
% Financed by Havertys:
No Interest for 12 Months		27.8	%		42.9	%		55.7	%
No Interest for > 12 Months		47.0			29.7			17.3
No Interest for < 12 Months		11.7			14.3			14.7
Other		13.5			13.1			12.3
		100.0	%		100.0	%		100.0	%

	Year Ended December 31,
	2005			2004			2003
Accounts receivable	$	93,510		$	93,478		$	110,300
Allowance for doubtful accounts	$	2,400		$	2,950		$	4,500
Allowance as a % of accounts receivable		2.6	%		3.2	%		4.1	%

     Our allowance for doubtful accounts has declined during the three year period as lower levels of in-house receivables were generated. Our allowance for doubtful accounts as a percentage of the receivables pool is lower at the end of 2005 due to improvements in the delinquency and problem category percentages versus 2004 and 2003.

24

Interest expense, net

     Interest expense, net is primarily comprised of interest expense on the Company’s debt and the amortization of the discount on the Company’s receivables which have deferred or no interest payment terms. The following table summarizes the components of interest expense, net (in thousands):

	Year Ended December 31,
	2005			2004			2003
Interest expense on debt	$	4,072		$	5,429		$	4,449
Amortization of discount on accounts receivable		(2,340	)		(1,170	)		(432	)
Other, including capitalized interest and interest income		(370	)		(776	)		(145	)
	$	1,362		$	3,483		$	3,872

     Interest expense on debt decreased in 2005 as average debt decreased and the effective interest rate was relatively unchanged. Average debt decreased 32% in 2004 but this was offset by an increase in our effective interest rate of 79 basis points as we utilized the revolving credit facilities less in 2004.

     We make available to customers interest free credit programs, which range from 3 to 24 months. In connection with these programs which are greater than 12 months, we are required to discount the payments to be received over the life of the interest free credit program. On the basis of the credit worthiness of the customers and our low delinquency rates under these programs, we discount the receivables utilizing the prime rate of interest at the date of sale. The discount is recorded as a contra receivable and is amortized to net interest expense over the life of the receivable. The discount on the receivables is adjusted for prepayments at the time of prepayment. There is no assumption for prepayment recorded at inception.

     The amount of amortization has increased each year as the level of receivables generated under longer term, free interest financing promotions has increased. We will continue to offer similar financing programs in 2006.

Other (income) expense, net

     Other (income) expense, net is primarily related to gains or losses on the sales of real estate. We have had dispositions of warehouses as we transitioned our distribution methodology to various markets. During 2005, we had gains from the sale of our Florida regional warehouse and other properties of $3.7 million. We sold the regional warehouse which served the Mid-South region and other properties during 2004 generating gains of $4.5 million. During 2003, we had gains of $0.3 million from the sale of two local market warehouses and other retail properties and $0.9 million from the early termination of a lease by the landlord.

Provision for Income Taxes

     The effective tax rate was 36.1% for 2005, 37.0% for 2004, and 37.3% for 2003. The effective tax rate differs from the statutory rate primarily due to state income taxes, net of the Federal tax benefit.

Recent Accounting Pronouncements

     Stock-Based Compensation. On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (Statement 123(R)), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (Statement 123). Statement 123(R) supersedes

25

APB Opinion No. 25, “Accounting for Stock Issued to Employees”, (Opinion 25) and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. We will adopt Statement 123(R) on January 1, 2006.

     As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25 ’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. The Company began a transition in 2004 to the use of restricted stock grants in lieu of stock options in its long-term incentive compensation strategy.

     On August 18, 2005, the directors, upon the recommendation of the Board’s Executive Compensation and Employee Benefits Committee, approved the acceleration of vesting of all “out-of-the-money”, unvested stock options held by current employees, including executive officers and certain employee directors. The decision to initiate the acceleration was made primarily to reduce compensation expense that would be expected to be recorded in future periods following the Company’s adoption of Statement 123(R). As a result of the acceleration, the Company reduced this expected compensation expense, net of tax, by a total of approximately $3.7 million (approximately $2.0 million in 2006, $1.1 million in 2007, and $0.6 million in 2008). These amounts are based on fair value calculations using the Black-Scholes methodology.

     Statement 123 (R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend upon, among other things, when employees exercise stock options), the amounts of operating cash flows recognized in prior periods for such excess tax deductions were $40,000, $434,000, and $1,143,000 in 2005, 2004, and 2003, respectively.

     Earnings Per Share. Effective for the quarter ended June 30, 2004, the Company began reporting its earnings per share using the two class method as required by the Emerging Issues Task Force (EITF). The EITF reached final consensus on Issue No. 03 -6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings Per Share (SFAS 128),” at their March 17, 2004 meeting. EITF 03-6 requires the income per share for each class of common stock to be calculated assuming 100% of the Company’s earnings are distributed as dividends to each class of common stock based on their contractual rights.

     The effective result of EITF 03-6 is that the basic earnings per share for the common stock is approximately 105% of the basic earnings per share of the Class A common stock. Additionally, given the Company’s current capital structure, diluted earnings per share for common stock under EITF 03-6 is the same as was previously reported for diluted earnings per share using the if-converted method.

     Cash Consideration Received from Vendor. In November 2002, the EITF issued EITF 02-16, “Accounting by a Customer for Cash Consideration Received from a Vendor.” This EITF places certain restrictions on the treatment of advertising allowances and generally requires vendor consideration to be treated as a reduction of inventory costs for agreements entered into or significantly modified after November 30, 2002, with certain limited exceptions. The adoption of EITF 02-16 did not have a material impact on the Company’s 2003 financial statements as most contracts were in place prior to the effective date or allowances were tracked and identified with specific incremental advertising costs. The Company reclassified approximately $1,150,000 of allowances and rebates out of advertising

26

and into cost of sales during 2003. Based on the administrative costs to track and match allowances to vendor specific advertising costs, all vendor consideration received during 2004 was recorded as a reduction in inventory costs. The adoption of this EITF, although not materially impacting our financial performance, makes the key metrics of gross profit and SG&A not on a comparable basis for the periods prior to 2004.

     Variable Interest Entities. In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The Interpretation requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Previously, entities were generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity.

     During 2003, we concluded that we were the primary beneficiary of a variable interest entity (VIE) that is the lessor under an operating lease of our Dallas distribution center and its attached retail space and three retail locations. Effective December 31, 2003, the Company consolidated the VIE and recorded a cumulative effect of an accounting change of $1.0 million (net of income tax expense of $0.6 million), or $0.05 per diluted common share. Consolidation of the VIE increased property and equipment by $26.0 million, accumulated depreciation by $3.8 million, long-term borrowings by $19.5 million and created a minority interest of $1.0 million.

Liquidity and Cash Flow Review

Liquidity and Capital Resources

     Our sources of capital include, but are not limited to, cash flows from operations, the issuance of public or private placement debt, bank borrowings and the issuance of equity securities. We believe that available short-term and long-term capital resources are sufficient to fund our capital expenditures, working capital requirements, scheduled debt payments, dividends to our stockholders, and stock repurchases.

Summary of Cash Activities
2005

     Our principal sources of cash consisted of those derived from operations of $31.7 million, proceeds from a net increase in borrowings under revolving credit facilities of $4.3 million, proceeds from the sale of auction rate securities of $5.0 million and proceeds from the disposal of capital assets totaling $8.9 million. Our primary uses of cash were for capital asset investments of $35.0 million, debt payments of $20.3 million, stock repurchases of $4.1 million and dividend payments totaling $5.7 million.

2004

     Our principal sources of cash consisted of those derived from operations of $53.3 million and proceeds from the disposal of capital assets totaling $6.8 million. Our primary uses of cash were for capital asset investments of $58.0 million, net investments in auction rate securities of $5.0 million, debt payments of $14.4 million and dividend payments totaling $5.6 million.

Operating Activities
2005

     Our net cash derived from operating activities decreased $21.6 million in 2005 to $31.7 million. This decrease was driven by a small increase in accounts receivable in 2005 as compared to a $14.7 million decrease in 2004 and by a decrease in our net income. For additional information about the changes in our assets and liabilities, refer to our Financial Position discussion below.

27

2004

     Our net cash derived from operating activities decreased $29.3 million in 2004 to $53.3 million from $82.6 million in 2003. This decrease was the result of a smaller decrease in accounts receivable for 2004 and lower net income. For additional information about the changes in our assets and liabilities, refer to our Financial Position discussion below.

Investing Activities
2005

     Our capital asset investments decreased $23.0 million in 2005 to $35.0 million and represented the principal use of cash for investing activities. Our 2005 capital asset investments are discussed below in “Store Expansion and Capital Expenditures”. Our proceeds from the disposal of capital assets totaled $8.9 million in 2005 as compared to $6.8 million in 2004.

2004

     Our capital asset investments increased $30.1 million in 2004 to $58.0 million and represented the principal use of cash for investing activities. Our 2004 capital asset investments are discussed below in “Store Expansion and Capital Expenditures”. Our proceeds from the disposal of capital assets totaled $6.8 million in 2004 as compared to $2.9 million in 2003.

Financing Activities
2005

     Our net cash used in financing activities increased $7.8 million in 2005 to $25.1 million from $17.2 million in 2004. The principal use of cash for investing activities was for payments on debt which net of borrowings totaled $16.0 million in 2005 compared to $14.4 million in 2004.

     During 2005, we purchased $4.1 million of Company stock under a stock repurchase program approved by our Board of Directors.

2004

     Our net cash used in financing activities decreased $11.9 million in 2004 to $17.2 million from $29.2 million in 2003. The principal use of cash for investing activities was for payments on debt which totaled $14.4 million in 2004 compared to $30.1 million in 2003.

     The principal source of cash from investing activities were proceeds from the exercise of stock options which totaled $2.8 million in 2004 compared to $6.1 million in 2003.

Financial Position

Assets

2005

     Prepaid expenses increased $5.1 million, or 76%, to $11.7 million at December 31, 2005. This increase was primarily the result of payments to taxing authorities in excess of current liabilities. Other current assets decreased $6.8 million, or 47%, to $7.6 million at December 31, 2005. This decrease is primarily the result of collections of receivables related to properties sold during 2004 as part of a tax deferral transaction or “1031 Exchange”.

2004

     Trade accounts receivable decreased $16.8 million, or 15%, to $93.5 million at December 31, 2004 from $110.3 million at December 31, 2003. This decrease was primarily the result of the reduced usage of our in-house credit programs as our customers chose to use either bank cards or the longer deferred payment programs of our third-party credit provider. This was partially offset by a related decrease in the allowance of $1.5 million to $3.0 million at December 31, 2004 from $4.5 million at December 31, 2003.

28

Liabilities and Stockholders’ Equity

2005

     Accounts payable and accrued liabilities decreased $4.8 million to $85.8 million at December 31, 2005 from $90.7 million at December 31, 2004. During 2005, we imported more merchandise which offers less favorable payment terms versus domestic supply and we had $1.6 million less in accrued group insurance related to the 2004 terminal liability of a self-insured plan.

     Our total debt decreased $16.0 million to $48.5 million at December 31, 2005 from $64.5 million at December 31, 2004. This decrease was the result of cash repayments on debt of $20.3 million offset by a net increase in outstanding borrowings under our revolving credit facilities of $4.3 million.

2004

     Accounts payable and accrued liabilities increased $6.4 million to $90.7 million at December 31, 2004 from $84.3 million at December 31, 2003. This change can be attributed to increases of $1.6 million in accrued group insurance related to the 2004 terminal liability of a self-insured plan, $3.3 million for advertising, offset by a reduction in the reserve for cancelled sales and allowances.

     Our total debt decreased $30.1 million to $64.5 million at December 31, 2004 from $78.9 million at December 31, 2003. This decrease was the result of cash repayments as we had little usage of our revolving credit facilities during 2004 and all amounts borrowed were repaid.

Financings

     We have revolving lines of credit available for general corporate purposes and as interim financing for capital expenditures. These credit facilities are syndicated with five commercial banks and are comprised of two revolving lines totaling $80.0 million that terminate in August 2010. Borrowings under these facilities are unsecured and accrue interest at LIBOR plus a spread that is based on a fixed-charge coverage ratio. We owed $4.3 million under these facilities at December 31, 2005. We also had letters of credit in the amount of $5.4 million outstanding at December 31, 2005, and these amounts are considered part of the facilities usage. Our unused capacity was $70.3 million at December 31, 2005.

     We reviewed all of our fixed-rate long-term debt in 2003 and repaid those facilities that did not include significant prepayment penalties or other issues that would make accelerating the payments problematic.

     We pursue a diversified approach to our financing requirements and generally balance our fixed-rate and capped-rate debt as determined by the interest rate environment. Our overall debt capital structure at December 31, 2005, was approximately 63% unsecured and 83% with fixed rates of interest. Our debt reduction has caused variable rate debt levels to move below typical levels. The average effective interest rate on all borrowings was 7.3% at December 31, 2005. Our long-term debt-to-total capital ratio was 14.8% at December 31, 2005.

Off-Balance Sheet Arrangements

     We do not generally enter into off-balance sheet arrangements. We did not have any relationships with unconsolidated entities or financial partnerships which would have been established for the purposes of facilitating off-balance sheet financial arrangements at December 31, 2005. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

29

Contractual Obligations

     The following summarizes our contractual obligations and commercial commitments as of December 31, 2005 (in thousands):

	Payments Due by Period
			Less than		1-3		4-5		After 5
	Total		1 Year		Years		Years		Years
Long-term debt	$	44,161	$	13,139	$	18,185	$	12,837	$	—
Operating leases		295,364		28,824		55,536		46,512		164,492
Scheduled interest on long-term debt		6,952		2,963		3,625		364		—
Other liabilities		4,300		4,300		—		—		—
Purchase obligations		70,179		70,179		—		—		—
Total contractual obligations	$	420,956	$	119,405	$	77,346	$	59,713	$	164,492

Store Expansion and Capital Expenditures

     We have entered several new markets and made continued improvements and relocations of our store base. Our total selling square footage has increased an average of approximately 4% annually over the past 10 years. The following outlines the changes in our selling square footage for the three years ended December 31, 2005 (square footage in thousands):

	2005				2004					2003
	# of		Square		# of		Square			# of		Square
	Stores		Footage		Stores		Footage			Stores		Footage
Stores opened		4		148		4		155			4		163
Stores closed		3		94		—		—			2		50
Stores remodeled		3		22		3		(6	)		3		(2	)
Year end balances		118		4,144		117		4,068			113		3,919

     We are expecting to add approximately 2.3% retail square footage during 2006 as we open a new store in the new markets of Ft. Lauderdale and Port Charlotte, Florida. We also plan to add a new store in Atlanta, Georgia and replacement stores in Dallas and Austin, Texas. Our plans for 2006 include the opening of one or two additional stores and the closing of three older stores.

     We are currently planning to open approximately six stores in 2007. Our strategy is to pursue opportunities in denser markets which we can serve using our existing distribution.

30

     Our investing activities in stores and operations in 2004 and 2005 and planned outlays for 2006 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the stores open. We have made purchases of properties that were previously recorded as operating leases and have shown those amounts in this table.

	Proposed
(approximate in thousands)	2006		2005		2004
Stores:
New stores	$	20,100	$	17,800	$	16,100
Remodels/Expansions		4,600		3,400		6,100
Maintenance		2,500		2,500		2,000
Total stores		27,200		23,700		24,200
Distribution:		3,700		7,900		17,900
Information Technology:		1,800		3,400		3,200
Total capital expenditures for new property and equipment		32,700		35,000		45,300
Purchases of assets in operations
previously under lease		—		—		12,700
Total	$	32,700	$	35,000	$	58,000

     We will be disposing of warehouses and land during 2006 and proceeds from these sales are estimated to be approximately $4.0 million. Cash balances, funds from operations, proceeds from sales of properties and bank lines of credit are expected to be adequate to finance our 2006 capital expenditures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.

     In the ordinary course of business, we are exposed to various market risks, including fluctuations in interest rates. To manage the exposure related to this risk, we may use various derivative transactions. As a matter of policy, we do not engage in derivatives trading or other speculative activities. Moreover, we enter into financial instruments transactions with either major financial institutions or high credit-rated counter parties, thereby limiting exposure to credit and performance-related risks.

     We have exposure to floating interest rates through certain of our borrowings. Therefore, interest expense will fluctuate with changes in LIBOR and other benchmark rates. We do not believe a 100 basis point change in interest rates would have a significant adverse impact on our operating results or financial position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The report of independent registered public accounting firm, the consolidated financial statements of Havertys and the notes to consolidated financial statements, and the supplementary financial information called for by this Item 8, are set forth on pages F-l to F-26 of this report. Specific financial statements and supplementary data can be found at the pages listed in the following index:

31

Index	Page
Financial Statements
Report of Independent Registered Public Accounting Firm on the Financial Statements		F-l
Consolidated Balance Sheets		F-2
Consolidated Statements of Income		F-3
Consolidated Statements of Stockholders’ Equity		F-4
Consolidated Statements of Cash Flows		F-5
Notes to Consolidated Financial Statements		F-6
Schedule II — Valuation and Qualifying Accounts		F-26

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     Our management has evaluated, with the participation of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13(a)-15(e)) under the Securities Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Securities Exchange Act. During the fourth quarter of 2005, there were no changes in our internal control over financial reporting that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Report of Management

Management’s Responsibility for the Financial Statements

     Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have been prepared in accordance with U.S. generally accepted accounting principles and reflect management’s judgments and estimates concerning effects of events and transactions that are accounted for or disclosed.

Internal Control Over Financial Reporting

     Management is also responsible for establishing and maintaining effective internal controls over financial reporting. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material

32

effect on the financial statements. Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

     In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2005. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as issued as of December 31, 2005. Ernst & Young, LLP, the Company’s independent registered public accounting firm, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting as of December 31, 2005.

Audit Committee’s Responsibility

     The Board of Directors, acting through its Audit Committee, is responsible for the oversight of the Company’s accounting policies, financial reporting and internal control. The Audit Committee of the Board of Directors is comprised entirely of outside directors who are independent of management. The Audit Committee is responsible for the appointment and compensation of our independent registered public accounting firm and approves decisions regarding the appointment or removal of our Vice President, Internal Audit. It meets periodically with management, the independent registered public accounting firm and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is also responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of the Company in addition to reviewing the Company’s financial reports. Our independent registered public accounting firm and our internal auditors have full and unlimited access to the Audit Committee, with or without management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Audit Committee.

/s/ CLARENCE H. SMITH

President and CEO

/s/ DENNIS L. FINK

Executive Vice President and CFO

/s/ JENNY HILL PARKER

Vice President, Secretary and Treasurer

/s/ JUSTIN P SEAMONDS

Vice President and Controller

Atlanta, Georgia
March 16, 2006

33

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

To the Board of Directors and Shareholders of Haverty Furniture Companies, Inc.

     We have audited management’s assessment, included in the Internal Control over Financial Reporting Section of the accompanying Report of Management that Haverty Furniture Companies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Haverty Furniture Companies, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     In our opinion, management’s assessment that Haverty Furniture Companies, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, Haverty Furniture Companies, Inc. has maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO control criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Haverty Furniture Companies, Inc. and its subsidiaries as of

34

December 31, 2005 and 2004, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005, and our report dated March 15, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Atlanta, Georgia
March 15, 2006

ITEM 9B. OTHER INFORMATION

     Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     We incorporate the information required by this item by reference to the sections captioned “Nominees for Election By Holders of Common Stock” and “Nominees for Election By Holders of Class A Common Stock” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2006 annual proxy statement. Information relating to executive officers of the Company is included in this report under Item 1 of Part I.

     The Company has adopted a code of business conduct and ethics applicable to the Company’s Directors, officers (including the Company’s principal executive officer, principal financial officer and controller) and employees, known as the Code of Business Conduct and Ethics (the “Code”). The Code is available on the Company’s website at www. Havertys.com. In the event we amend or waive any provisions of the Code applicable to our principal executive officer, principal financial officer or controller, we intend to disclose the same on the Company’s website. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file or furnish to the SEC.

     On June 15, 2005, we filed with the New York Stock Exchange (“NYSE”) the Annual CEO Certification regarding the Company’s compliance with the NYSE’s Corporate Governance listing standards as required by Section 303A-12(a) of the NYSE Listed Company Manual. In addition, the Company has filed as exhibits to this annual report on Form 10-K for the year ended December 31, 2005, the applicable certifications of its Chief Executive Officer and its Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002, regarding the quality of the Company’s public disclosures.

ITEM 11. EXECUTIVE COMPENSATION

     The information contained in our 2006 annual proxy statement with respect to director and executive compensation, is incorporated herein by reference in response to this Item.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED     STOCKHOLDER MATTERS

     The information contained in our 2006 annual proxy statement with respect to the ownership of common stock and Class A common stock by certain beneficial owners and management, and with respect to the Company’s

35

compensation plans under which our equity securities are authorized for issuance, is incorporated herein by reference to this Item.

     For purposes of determining the aggregate market value of the Company’s common stock and Class A common stock held by non-affiliates, shares held by all directors and executive officers of the Company have been excluded. The exclusion of such shares is not intended to, and shall not, constitute a determination as to which persons or entities may be “affiliates” of the Company as defined under the Securities Exchange Act of 1934.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information contained in our 2006 annual proxy statement with respect to related party transactions, is incorporated herein by reference in response to this Item.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The information set forth under the heading “Audit Committee Matters” in our 2006 annual proxy is incorporated herein by reference in response to this Item.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements:

     The following financial statements and notes thereto of Haverty Furniture Companies, Inc., and the related Report of Independent Registered Public Accounting Firm are included in this Report:

Report of Independent Registered Public Accounting Firm on the Financial Statements

Consolidated Balance Sheets — December 31, 2005 and 2004

Consolidated Statements of Income — Years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Stockholders’ Equity — Years ended December 31, 2005, 2004 and 2003

Consolidated Statements of Cash Flows — Years ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

(a) 2. Financial Statement Schedule:

     The following financial statement schedule of Haverty Furniture Companies, Inc. and related Report of Independent Registered Public Accounting Firm on the Financial Statements is filed as part of this Report and should be read in conjunction with the consolidated financial statements.

     Schedule II — Valuation and Qualifying Accounts

     All other schedules have been omitted because they are inapplicable or the required information is included in the consolidated financial statements or notes thereto.

36

(a) 3. Exhibits:

     Reference is made to Item 15(b) of this Report.

(b) Each exhibit identified below is filed as part of this report. Exhibits not incorporated by reference to a prior filing are designated by an “*”; all exhibits not so designated are incorporated herein by reference to a prior filing as indicated. Exhibits designated with a “ +” constitute a management contract or compensatory plan or arrangement. Our SEC File Number is 1-14445 for all exhibits filed with Securities Exchange Act reports.

3.1	Articles of Incorporation of Haverty Furniture Companies, Inc., as amended and restated on March 6, 1973, and as amended April 24, 1979, and as amended April 24, 1985 (Exhibit 3.1 to our 1985 Second Quarter Form 10-Q); Amendment to the Articles of Incorporation dated April 25, 1986 (Exhibit 3.1.1 to our 1986 First Quarter Form 10-Q); Amendment to the Articles of Incorporation dated April 28, 1989 (Exhibit 3.1.2 to our 1989 Form 10-Q); Amendment to the Articles of Incorporation dated April 28, 1995 (Exhibit 3.1.3 to our 1996 Form 10-K).
3.2	Amended and Restated By-Laws of Haverty Furniture Companies, Inc. as amended on February 26, 2004 (Exhibit 3.2 to our 2003 Form 10-K).
4.1	Note Agreement between Haverty Furniture Companies, Inc. and The Prudential Purchasers (The Prudential Insurance Company of America) dated December 29, 1993 (Exhibit 4.1 to our 1993 Form 10-K); First Amendment to the Note Agreement effective March 31, 1994, between Haverty Furniture Companies, Inc. The Prudential Insurance Company of America (Exhibit 4.1.1 to our 1994 Form 10-K); Second Amendment to Note Agreement dated July 19, 1996, between Haverty Furniture Companies, Inc. and The Prudential Insurance Company of America, as previously amended (Exhibit 4.1.2 to our 1996 Form 10-K).
10.1	Revolving Credit Agreement dated as of August 26, 2005 among Haverty Furniture Companies, Inc., as Borrower, the Lenders from time to time Party hereto, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Wachovia Bank, National Association, as Syndication Agent and SunTrust Bank, as Administrative Agent (Exhibit 10.1 to our 2005 Third Quarter Form 10-Q).
10.2	Revolving Credit Agreement dated as of August 26, 2005 among Haverty Credit Services, Inc., as Borrower, the Lenders from time to time Parry hereto, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Wachovia Bank, National Association, as Syndication Agent and SunTrust Bank, as Administrative Agent (Exhibit 10.2 to our 2005 Third Quarter Form 10-Q).
* +10.3	Thrift Plan restated January 1, 2005.
* + 10.3.1	Amendment No. 1 to the Thrift Plan dated December 1, 2005. Amendment of the Plan for EGTRRA and Revenue Procedure 2002-29.
+10.4	1993 Non-Qualified Stock Option Plan effective as of April 29,1994 (Exhibit 5.1 to our Registration Statement on Form S-8, File No. 33-53607).

37

+ 10.5	1998 Stock Option Plan, effective as of December 18, 1997 (Exhibit 10.1) to our Registration Statement on Form S-8, File No. 333-53215); Amendment No. 1 to our 1998 Stock Option Plan effective as of July 27, 2001 (Exhibit 10.2 to our Registration Statement on Form S-8, File No. 333-66012).
+ 10.6	2004 Long-Term Incentive Compensation Plan effective as of May 10, 2004 (Exhibit 5.1 to our Registration Statement on Form S-8, File No. 333-120352):
+ 10.7	Employee Stock Purchase Plan, as amended and restated as of October 29, 1999 (Exhibit 10.7 to our 2000 Form 10-K); Amendment No. 1 to the Employee Stock Purchase Plan (Exhibit 10.2 to our Registration Statement on Form S-8; File No, 333-66010), Amendment to the Employee Stock Purchase Plan effective as of July 1, 2005 (Exhibit 10.5.1 to our 2005 2nd
+ 10.8	Directors’ Compensation Plan, amended and restated effective as of January 1, 2005 (Exhibit 10.7 to our 2005 Second Quarter Form 10-Q).
+ 10.9	Supplemental Executive Retirement Plan, effective January 1, 1983 (Exhibit 10.3 to our 1984 Form 10-K).
+ 10.10	Supplemental Executive Retirement Plan, effective January 1, 1996 (Exhibit 10.10 to our 1995 Form 10-K).
+ 10.11	Deferred Compensation Agreement between Haverty Furniture Companies, Inc. and Rawson Haverty Sr. dated December 21, 1992 (Exhibit 10.9 to our 1993 Form 10-K).
+ 10.12	Form of Agreement dated January 1, 1997 Regarding Change in Control with the following Named Executive Officers; Clarence H. Ridley, Dennis L. Fink, Clarence H. Smith and M. Tony Wilkerson (Exhibit 10.12 to our 1996 Form 10-K).
+ 10.13	Form of Agreement dated January 1, 1997, Regarding Change in Control with the following employee directors: Rawson Haverty, Jr. (a named Executive Officer) (Exhibit 10.13 to our 1996 Form 10-K).
+ 10.14	Top Hat Mutual Fund Option Plan, effective as of January 15, 1999 (Exhibit 10.15 to our 1999 Form 10-K).
10.15	Lease Agreement dated July 26, 2001; Amendment No. 1 dated November, 2001 and Amendment No. 2 dated July 29, 2002 between Haverty Furniture Companies, Inc. as Tenant and John W Rooker, LLC as Landlord (Exhibit 10.1 to our 2002 Third Quarter Form 10-Q).
10.16	Contract of Sale dated August 6, 2002, between Haverty Furniture Companies, Inc. as Seller and HAVERTACQll LLC, as Landlord (Exhibit 10.2 to our 2002 Third Quarter Form 10-Q).
10.17	Lease Agreement dated August 6, 2002, between Haverty Furniture Companies, Inc. as Tenant and HAVERTACQll LLC, as Landlord (Exhibit 10.3 to our 2002 Third Quarter Form 10-Q).

38

10.18	Form of Restricted Stock Award Agreement in connection with the 2004 Long-Term Incentive Compensation Plan (Exhibit 10.1 to our Current Report on Form 8-K dated December 22, 2004).
* +10.19	Base Salaries of Named Executive Officers of Haverty Furniture Companies, Inc.
*21	Subsidiaries of Haverty Furniture Companies, Inc. (Exhibit 21 to our 2005 Form 10-K).
*23.1	Consent of Independent Registered Public Accounting Firm.
*31.1	Certification of Chief Executive Officer pursuant to sec. 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. sec. 7241).
*31.2	Certification of Chief Financial Officer pursuant to sec. 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. sec. 7241).
*32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. sec. 1350).

39

SIGNATURES

     Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

		HAVERTY FURNITURE COMPANIES, INC.
Date: March 16, 2006	By:	/s/ JENNY HILL PARKER
		Jenny Hill Parker
		Vice President, Corporate Secretary
		and Treasurer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ CLARENCE H. RIDLEY	Chairman of the Board	March 16, 2006
Clarence H. Ridley
/s/ CLARENCE H. SMITH	President, Chief Executive Officer and Director	March 16, 2006
Clarence H. Smith
/s/ DENNIS L. FINK	Executive Vice President and Chief Financial Officer	March 16, 2006
Dennis L. Fink
/s/ RAWSON HAVERTY, JR. Raws on Haverty, Jr.	Senior Vice President and Director	March 16, 2006
/s/ JENNY HILL PARKER Jenny Hill Parker	Vice President, Corporate Secretary and Treasurer	March 16, 2006
/s/ JUSTIN P. SEAMONDS Justin P. Seamonds	Vice President and Controller	March 16, 2006
/s/ JOHN T. GLOVER John T. Glover	Director	March 16, 2006
/s/ L. PHILLIP HUMANN L. Phillip Humann	Director	March 16, 2006
/s/ MYLLE H. MANGUM Mylle H. Mangum	Director	March 16, 2006
/s/ FRANK S. MCGAUGHEY, III Frank S. McGaughey III	Director	March 16, 2006
/s/ TERENCE F. MCGUIRK Terence F. McGuirk	Director	March 16, 2006
/s/ VICKI R. PALMER Vicki R. Palmer	Director	March 16, 2006
/s/ FRED L SCHUERMANN Fred L. Schuermann	Director	March 16, 2006
/s/ AL TRUJILLO Al Trujillo	Director	March 16, 2006

40

Report of Independent Registered Public Accounting Firm on the Financial Statements

Board of Directors
Haverty Furniture Companies, Inc.

We have audited the accompanying consolidated balance sheets of Haverty Furniture Companies, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Haverty Furniture Companies, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company adopted Interpretation No. 46, “Consolidated of Variable Interest Entities.”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Haverty Furniture Companies, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2006, expressed an unqualified opinion on management’s assessment and opinion on the effectiveness of internal control over financial reporting.

Atlanta, Georgia
March 15, 2006

F-1

Consolidated Balance Sheets

	December 31,
(In thousands, except per share data)	2005			2004
ASSETS
Current assets
Cash and cash equivalents	$	11,121		$	24,137
Auction rate securities		—			5,000
Accounts receivable (Note 2)		80,716			81,132
Inventories (Note 3)		107,631			110,812
Prepaid expenses		11,713			6,654
Deferred income taxes (Note 7)		2,375			2,249
Other current assets		7,615			14,453
Total current assets		221,171			244,437
Accounts receivable, long-term (Note 2)		10,394			9,396
Property and equipment (Notes 4 and 8)		217,391			205,037
Other assets		14,096			12,711
	$	463,052		$	471,581
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable to banks (Note 5)	$	4,300		$	—
Accounts payable		42,203			45,217
Customer deposits		27,517			24,040
Accrued liabilities (Note 6)		43,643			45,460
Current portion of long-term debt and capital lease obligations (Note 8)		13,139			20,270
Total current liabilities		130,802			134,987
Long-term debt and capital lease obligations, less current portion (Note 8)		31,022			44,228
Other liabilities		21,958			20,108
Total liabilities		183,782			199,323
Commitments (Note 13)
Stockholders’ equity (Notes 9 and 12)
Capital Stock, par value $1 per share Preferred Stock Authorized - 1,000 shares; Issued: None
Common Stock, Authorized - 50,000 shares: Issued: 2005 - 24,387; 2004 - 24,293 shares		24,387			24,293
Convertible Class A Common Stock, Authorized - 15,000 shares; Issued: 2005 - 4,828; 2004 - 4,840 shares		4,828			4,840
Additional paid-in capital		55,766			55,108
Long-term incentive plan deferred compensation		(2,044	)		(2,971	)
Retained earnings		259,887			250,511
Accumulated other comprehensive loss		(1,306	)		(1,295	)
Less treasury stock at cost — Common Stock (2005 - 6,254; 2004 - 5,937 shares) and Convertible Class A Common Stock (2005 and 2004 - 522 shares)		(62,248	)		(58,228	)
Total stockholders’ equity		279,270			272,258
	$	463,052		$	471,581

The accompanying notes are an integral part of these consolidated financial statements.

F-2

Consolidated Statements of Income

	Year Ended December 31,
(In thousands, except per share data)	2005			2004			2003
Net sales	$	827,658		$	784,162		$	744,635
Cost of goods sold		432,091			405,566			395,212
Gross profit		395,567			378,596			349,423
Credit service charges		3,506			4,502			6,392
Gross profit and other revenue		399,073			383,098			355,815
Expenses:
Selling, general and administrative		377,435			348,523			314,130
Interest, net		1,362			3,483			3,872
Provision for doubtful accounts		1,011			558			1,979
Other (income) expense, net		(4,289	)		(5,398	)		(2,155	)
Total expenses		375,519			347,166			317,826
Income before income taxes and cumulative effect of a change in accounting principle		23,554			35,932			37,989
Income taxes (Note 7)		8,500			13,296			14,168
Income before cumulative effect of a change in accounting principle		15,054			22,636			23,821
Cumulative effect of a change in accounting principle (Note 1)		—			—			1,050
Net income	$	15,054		$	22,636		$	24,871
Basic earnings per share, net income (Notes 1 and 12):
Common Stock	$	0.67		$	1.01		$	1.15
Class A Common Stock	$	0.63		$	0.96		$	1.08
Diluted earnings per share, net income (Notes 1 and 12):
Common Stock	$	0.66		$	0.98		$	1.11
Class A Common Stock	$	0.63		$	0.94		$	1.06
Weighted average common shares — basic:
Common Stock		18,301			18,227			17,505
Class A Common Stock		4,310			4,343			4,487
Weighted average — assuming dilution:
Common Stock		22,767			23,083			22,437
Class A Common Stock		4,310			4,343			4,487

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Consolidated Statements Of Stockholders’ Equity

	Year Ended December 31,
	2005						2004						2003
(In thousands except per share data)	Shares			Dollars			Shares			Dollars			Shares			Dollars
Common Stock
Beginning balance		24,293,643		$	24,293			23,957,629		$	23,958			23,233,475		$	23,233
Conversion of Class A Common Stock		12,299			12			75,816			76			132,240			132
Stock option transactions, net		80,843			82			260,198			259			591,914			593
Ending balance		24,386,785			24,387			24,293,643			24,293			23,957,629			23,958
Class A Common Stock:
Beginning balance		4,840,230			4,840			4,916,046			4,916			5,048,286			5,048
Conversion to Common Stock		(12,299	)		(12	)		(75,816	)		(76	)		(132,240	)		(132	)
Ending balance		4,827,931			4,828			4,840,230			4,840			4,916,046			4,916
Treasury Stock
Beginning balance (includes 522,410 Class A shares for each of the years presented; remainder are Common shares)		6,459,558			(58,228	)		6,465,198			(58,281	)		6,449,345			(58,126	)
Directors’ Plan		(4,904	)		47			(5,640	)		53			(9,147	)		90
Purchases		321,700			(4,067	)		—			—			25,000			(245	)
Ending balance		6,776,354			(62,248	)		6,459,558			(58,228	)		6,465,198			(58,281	)
Additional Paid-in Capital
Beginning balance					55,108						49,019						42,365
Stock option issuances					464						2,492						5,487
Tax benefit from employees’ stock options					40						434						1,143
Directors’ Plan					53						79						24
Restricted stock grants					101						3,084						—
Ending balance					55,766						55,108						49,019
Long-term Incentive Plan
Deferred Compensation:
Beginning balance					(2,971	)					—						—
Restricted stock grants					(101	)					(3,084	)					—
Amortization of unearned compensation					1,028						113						—
Ending balance					(2,044	)					(2,971	)					—
Retained Earnings:
Beginning balance					250,511						233,425						213,630
Net income					15,054						22,636						24,871
Cash dividends (Common stocks 2005 -$0.255, 2004 - -$0.250, 2003 - $0.235 per share, Class A Common Stock: 2005 - $0.235, 2004 -$0.230, 2003 -$0.215 per share)					(5,678	)					(5,550	)					(5,076	)
Ending balance					259,887						250,511						233,425
Accumulated Other Comprehensive Loss:
Beginning balance					(1,295	)					(1,881	)					(2,389	)
Change in derivatives, net of taxes (liability in 2005 - $281 ; 2004 -$348; 2003 -$192					467						586						508
Minimum pension liability					(478	)					—						—
Ending balance					(1,306	)					(1,295	)					(1,881	)
Total Stockholders’ Equity				$	279,270					$	272,258					$	251,156
Net income				$	15,054					$	22,636					$	24,871
Other comprehensive income (loss), net of tax					(11	)					586						508
Total Comprehensive Income				$	15,043					$	23,222					$	25,379

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Consolidated Statements of Cash Flows

	Year ended December 31,
(In thousands)	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	15,054		$	22,636		$	24,871
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of a change in accounting principle		—			—			(1,050	)
Depreciation and amortization		21,035			19,145			17,199
Provision for doubtful accounts		1,011			558			1,979
Tax benefit from stock option exercises		40			434			1,143
Deferred income taxes		(708	)		686			575
Net (gain) loss on sale of land, property and equipment		(3,659	)		(3,831	)		(316	)
Other		969			93			—
Changes in operating assets and liabilities:
Accounts receivable		(1,593	)		14,713			26,033
Inventories		3,181			(4,548	)		7,064
Customer deposits		3,477			5,624			2,111
Other assets and liabilities		(2,262	)		(8,528	)		2,671
Accounts payable and accrued liabilities		(4,832	)		6,302			323
NET CASH PROVIDED BY OPERATING ACTIVITIES		31,713			53,284			82,603
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(35,007	)		(45,264	)		(21,203	)
Purchases of properties previously under leases		—			(12,766	)		(6,688	)
Purchases of auction rate securities		—			(20,000	)		—
Proceeds from sale of land, property and equipment		8,878			6,840			2,895
Proceeds from sale of auction rate securities		5,000			15,000			—
Other investing activities		1,476			2,598			(14	)
NET CASH USED IN INVESTING ACTIVITIES		(19,653	)		(53,592	)		(25,010	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under revolving credit facilities		566,060			5,600			208,400
Payments of borrowings under revolving credit facilities		(561,760	)		(5,600	)		(224,300	)
Net increase (decrease) in borrowings under revolving credit facilities		4,300			—			(15,900	)
Payments on long-term debt and capital lease obligations		(20,337	)		(14,432	)		(14,217	)
Treasury stock acquired		(4,067	)		—			(155	)
Proceeds from exercise of stock options		706			2,751			6,080
Dividends paid		(5,678	)		(5,550	)		(5,076	)
Other financing activities		—			—			112
NET CASH USED IN FINANCING ACTIVITIES		(25,076	)		(17,231	)		(29,156	)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(13,016	)		(17,539	)		28,437
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		24,137			41,676			13,239
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	11,121		$	24,137		$	41,676

F-5

Notes To Consolidated Financial Statements

Note 1,

Summary Of SignificantAccounting Policies:

Organization:

Haverty Furniture Companies, Inc. (“Havertys,” “the Company,” “we,” “our,” or “us”) is a full-service home furnishings retailer with 118 showrooms in 17 states. Havertys sells a broad line of residential furniture in the middle to upper-middle price ranges selected to appeal to our predominant target market. As an added convenience to our customers, we offer financing through an internal revolving charge credit plan as well as a third party finance company.

Basis of Presentation:

The consolidated financial statements include the accounts of Havertys and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The implications of the Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” on our consolidation policy are discussed later in this Note.

Reclassifications:

Cash and cash equivalents and accounts payable: Prior to December 31, 2005, cash on hand in depository bank accounts and checks outstanding for disbursing bank accounts were both classified as cash and cash equivalents in our Consolidated Balance Sheets and Consolidated Statements of Cash Flow. At December 31, 2005 and all prior periods, checks outstanding for disbursing bank accounts have been reclassified to accounts payable. The amount of checks outstanding for disbursing bank accounts reclassified from cash and cash equivalents to accounts payable in our Consolidated Balance Sheets and Consolidated Statements of Cash Flow totaled approximately $14,000,000 at December 31, 2004, $10,100,000 at December 31, 2003 and $9,475,000 at December 31, 2002.

Handling and Transportation Costs: We capitalize certain expenses related to handling and transportation into inventory which flows through our distribution centers. All warehouse, transportation and distribution costs were included in the line item Selling, General and Administrative (SG&A). Prior to June 30, 2005, expenditures capitalized into inventory were recognized through SG&A rather than cost of goods sold. We completed our transition to a distribution model that has increased the level of inventory flowing through the distribution centers. Accordingly, we now include those costs capitalized into inventory for handling and transportation in cost of goods sold and have reclassified the prior periods for comparability. The amount reclassified from SG&A to cost of goods sold in our Consolidated Statements of Income totaled $18,800,000 and $16,200 000 for the years ended December 31, 2004 and 2003, respectively.

Certain other prior year amounts have also been reclassified to conform to the 2005 financial statement presentation.

Use of Estimates:

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents:

Cash and cash equivalents includes all liquid investments with a maturity of three months or less. Cash equivalents are stated at cost, which approximates fair market value.

Auction Rate Securities:

Auction rate securities which we may hold from time to time are considered available-for-sale. The securities are generally tax advantaged municipal bonds in which we have invested excess cash. The securities are auctioned and their interest rates reset every 30 days at which time we evaluate any continued investment. Interest earned on these securities is included in interest income. Any unrealized gains or losses are not material.

Inventories:

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method.

F-6

Property and Equipment:

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. Investments in property under capital leases are amortized over the related lease term.

Estimated useful lives for financial reporting purposes are as follows:

Buildings	25 - 33 years
Improvements	5 - 15 years
Furniture and Fixtures	3 - 15 years
Equipment	3 - 15 years
Capital leases	20 - 25 years

Customer Deposits:

Customer deposits consist of customer advance payments and deposits on credit sales for undelivered merchandise and cash collections on sales of undelivered merchandise.

Revenue Recognition:

Havertys recognizes revenue from merchandise sales and related service fees upon delivery to the customer. A reserve for merchandise returns and customer allowances is estimated based on our historical returns and allowance experience and current sales levels.

We typically offer our customers an opportunity for Havertys to deliver their purchases. Delivery fees of $16,895,000, $14,122,000 and $12,394,000 were charged to customers in 2005, 2004 and 2003, respectively and are included in net sales. The costs associated with deliveries are included in selling, general and administrative expenses and were $39,199,000, $32,919,000 and $29,809,000 in 2005, 2004 and 2003, respectively.

Credit service charges, which are presented on a gross basis, are recognized as revenue as assessed to customers according to contract terms. The costs associated with credit approval, account servicing and collections are included in “selling, general and administrative” expenses.

Cost of Goods Sold:

The Company’s “cost of goods sold” includes the direct costs of products sold, warehouse handling and transportation costs.

Selling, General and Administrative Expenses:

The Company’s “selling, general and administrative” expenses are comprised of advertising, selling, occupancy, certain warehouse expenses, delivery and administrative costs. The costs associated with our purchasing, warehousing, delivery and other distribution costs included in “selling, general and administrative expense” were approximately $73,001,000, $61,697,000 and $61,560,000 for the years ended December 31, 2005, 2004 and 2003, respectively.

Advertising Expense:

Advertising costs, which include television, radio, newspaper and other media advertising, are expensed upon first showing. The total amount of advertising costs included in other current assets was approximately $2,400,000 and $1,300,000 at December 31, 2005 and 2004. The Company incurred approximately $59,700,000, $57,700,000 and $52,600,000 in advertising expense during 2005, 2004 and 2003, respectively.

Deferred Escalating Minimum Rent:

Certain of Havertys’ operating leases contain predetermined fixed escalations of the minimum rentals during the term of the lease. For these leases, we recognize the related rental expense on a straight-line basis over the life of the lease, beginning with the point at which we obtain control and possession of the leased properties, and record the difference between the amounts charged to operations and amounts paid as deferred escalating minimum rent. Any lease incentives received by Havertys are deferred and subsequently amortized over a straight-line basis over the life of the lease as a reduction of rent expense. The liability for deferred escalating minimum rent is included as a component of other long-term liabilities and totaled $9,289,000 and $7,895,000 at December 31, 2005 and 2004, respectively.

Interest expense, net:

Interest expense is comprised of amounts incurred related to the debt obligations of the Company, net of the amortization

F-7

Notes To Consolidated Financial Statements

of the discount for interest free credit programs discussed in Note 2 and minor amounts of interest income. Amortization of the discount on receivables was approximately $2,340,000, $1,170,000 and $432,000 during the years ended December 31, 2005, 2004 and 2003, respectively. Interest income of approximately $224,000 and $327,000 is included in the amounts for 2005 and 2004, respectively. We capitalized approximately $400,000 in interest costs during 2005 and 2004 and an immaterial amount in 2003.

We do not have any derivative financial instruments at December 31, 2005.

Other (income) expenses, net:

Other (income) expense, net includes any gains or losses on sales of land, property and equipment and miscellaneous income or expense items which are non-recurring in nature. The following are the significant gains or losses that have been included in “other (income) expense, net.” Gains from the sales of land, property and equipment were approximately $3,773,000, $4,500,000 and $316,000 for the years ended December 31, 2005, 2004 and 2003, respectively. During 2003, Havertys also had gains of approximately $900,000 from the early termination of a lease by its landlord.

Self Insurance:

We are self-insured for certain losses related to general liability, workers’ compensation and vehicle claims. The expected ultimate cost for claims incurred as of the balance sheet date is discounted and is recognized as a liability. The expected ultimate cost of claims is estimated based upon analysis of historical data and actuarial estimates. The reserve for self insurance is included in accrued liabilities and totaled $4,400,000 and $3,700,000 at December 31, 2005 and 2004, respectively.

Fair Values of Financial Instruments:

Our financial instruments consist of cash, auction rate securities, accounts receivable, accounts payable and long- term debt. The fair values of cash, auction rate securities, accounts receivable and accounts payable approximate their carrying values. The fair value of long-term debt, which was $45,450,000 at December 31, 2005, was determined using quoted market prices for debt of the same remaining maturity with similar characteristics.

Impairment of Long-Lived Assets:

We periodically review long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. An impairment charge is recognized to the extent the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the carrying value. Such charge includes any estimated loss on the sale of land and buildings, the book value of abandoned leasehold improvements and a provision for future lease obligations, less estimated sublease income. Prior to January 1, 2003, when we committed to relocate or close a store or warehouse within the next twelve months, the estimated unrecoverable costs were charged to expense. We adopted FASB No. 146 effective January 1, 2003, and accordingly, expense is now recognized when leased facilities are exited. Impairment losses and changes in previously previously estimated losses are included in occupancy expense within SG&A in the Consolidated Statements of Income.

Earnings Per Share:

Effective for the quarter ended June 30, 2004, we began reporting our earnings per share using the two class method as required by the Emerging Issues Task Force (EITF). The EITF reached final consensus on Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings Per Share (SFAS 128),” at their March 17, 2004 meeting. EITF 03-6 requires the income per share for each class of common stock to be calculated assuming 100% of our earnings are distributed as dividends to each class of common stock based on their contractual rights. See Note 9 for further discussion.

The effective result of EITF 03-6 is that the basic earnings per share for the Common Stock is approximately 105% of the basic earnings per share of the Class A Common Stock, Additionally, given our current capital structure, diluted earnings per share for Common Stock under EITF 03-6 will be the same as was previously reported using the if-converted method.

The amount of earnings used in calculating diluted earnings per share of Common Stock is equal to net income since the Class A shares are assumed to be converted. Diluted earnings per share of Class A Common Stock includes the effect of

F-8

dilutive common stock options which reduces the amount of undistributed earnings allocated to the Class A Common Stock. See Note 12 for the computational components of basic and diluted earnings per share.

Stock-Based Compensation:

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), “Share-Based Payment” (Statement 123(R)), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation” (Statement 123). Statement 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (Opinion 25), and amends FASB Statement No. 95, “Statement of Cash Flows.” Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

We will adopt Statement 123(R) on January 1, 2006.

As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share below. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $40,000, $434,000 and $1,143,000 in 2005, 2004 and 2003, respectively.

At December 31, 2005, we have two stock-based employee compensation plans, which are described more fully in Note 11. We account for those plans under the recognition and measurement principle of Opinion 25 and related Interpretations. No stock- based employee compensation cost for any options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Restricted stock compensation is charged to expense over the vesting periods of the grants.

On August 18, 2005, the Board of Directors of Havertys, upon the recommendation of the Board’s Executive Compensation and Employee Benefits Committee (the “Executive Compensation Committee” approved the acceleration of vesting of all “out-of-the-money”, unvested stock options held by current employees, including executive officers and certain employee directors, An option was considered out-of-the-money if the stated option exercise price was greater than $12.57, the closing price of Havertys’ common stock on August 18, 2005. Options to purchase approximately 482,650 shares of common stock, which otherwise would have vested on a yearly basis through 2008 became immediately exercisable. The weighted average exercise price of the accelerated options is $17.49. The decision to initiate the acceleration was made primarily to reduce compensation expense that would be expected to be recorded in future periods following our adoption on January 1, 2006 of Statement 123R. As a result of the acceleration, we reduced this expected compensation expense, net of tax, by a total of approximately $3,700,000 (approximately $2,000,000 in 2006, $1,100,000 in 2007, and $600,000 in 2008). These amounts are based on fair value calculations using the Black-Scholes methodology.

The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement 123 to stock- based employee compensation (in thousands, except per share amounts).

F-9

Notes To Consolidated Financial Statements

	2005			2004			2003
Net income, as reported	$	15,054		$	22,636		$	24,871
Reported stock-based compensation expense, net of tax		630			70			—
Pro forma stock-based employee compensation expense, net of tax		(6,394	)		(2,837	)		(2,927	)
Pro forma net income	$	9,290		$	19,869		$	21,944
Earnings per share:
As reported:
Basic:
Common	$	0.67		$	1.01		$	1.15
Class A	$	0.63		$	0.96		$	1.08
Diluted:
Common	$	0.66		$	0.98		$	1.11
Class A	$	0.63		$	0.94		$	1.06
Pro Forma:
Basic:
Common	$	0.42		$	0.89		$	1.01
Class A	$	0.39		$	0.84		$	0.95
Diluted:
Common	$	0.41		$	0.87		$	1.00
Class A	$	0.39		$	0.84		$	0.95

Accounting and Disclosure Changes:

In November 2002, the EITF issued EITF Issue No. 02-16, “Accounting by a Customer for Cash Consideration Received from a Vendor” (EITF 02-16). This EITF places certain restrictions on the treatment of advertising allowances and requires vendor rebates to be treated as a reduction of inventory costs for agreements entered into or significantly modified after November 30, 2002. The adoption of EITF 02-16 did not have a material impact on our 2003 financial statements as most contracts were in place prior to the effective date or allowances were tracked and identified with specific incremental advertising costs. We reclassified approximately $1,150,000 of allowances and rebates out of advertising and into cost of sales during 2003. All vendor allowances and rebates received during 2004 were recorded as a reduction in inventory costs.

In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (Statement 146). Statement 146 generally requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. We adopted Statement 146 on December 31, 2002. There was no material effect on our financial statements upon adoption of this Statement.

In January 2003, the FASB issued and subsequently revised Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both (primary beneficiary). Previously, entities were generally consolidated by a company that had a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 is effective for companies that have interests in structures that are commonly referred to as special purpose entities for periods ending after December 15, 2003. During 2003, we concluded that we were the primary beneficiary of a variable interest entity that is the

F-10

lessor of a distribution center and four retail locations we use. We adopted the provisions of FIN 46 as of December 31, 2003, and recorded a cumulative effect of an accounting change of $1,050,000 (net of income tax expense of $600,000). Consolidation of this entity increased property and equipment by $22,100,000, long-term debt by $19,500,000 and created a minority interest of $1,000,000. Previously, this entity was not consolidated and the distribution center and retail locations were accounted for as an operating lease. The effect of consolidation of this entity in prior years would have increased net income before the cumulative effect of an accounting change by approximately $300,000 in 2003.

Note 2,

Accounts Receivable:

Amounts financed under our credit programs were, as a percent of net sales, approximately 21% in 2005 and 2004 and 25% in 2003. Accounts receivable are shown net of the allowance for doubtful accounts of $2,400,000 and $2,950,000 at December 31, 2005 and 2004, respectively. Accounts receivable terms vary as to payment terms (30 days to five years) and interest rates (0% to 21%) and are generally collateralized by the merchandise sold. Interest assessments are continued on past-due accounts but not “interest on interest”.

Accounts receivable balances resulting from certain credit promotions have scheduled payment amounts which extend beyond one year. These receivable balances have been historically collected at a rate faster than the scheduled rate. The portion of accounts receivable classified as long-term in the accompanying Consolidated Balance Sheets are determined based on our historical collection rate for those credit promotions which are generally repaid earlier than the scheduled date. The amounts due per the scheduled payment rates are as follows: $74,922,000 in 2006; $12,662,000 in 2007; $4,731,000 in 2008 and $1,195,000 in 2009 for receivables outstanding at December 31, 2005.

We provide an allowance for doubtful accounts utilizing a methodology which considers the balances in problem and delinquent categories of accounts, historical write-offs and management judgment. Delinquent accounts are generally written off automatically after the passage of nine months without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of a discharged bankruptcy or other circumstances that make further collections unlikely. We assess the adequacy of the allowance account at the end of each quarter.

We make available to customers interest free credit programs, which range from 3 to 24 months. In connection with these programs which are greater than 12 months, we are required to discount payments to be received over the life of the interest free credit program. On the basis of the credit worthiness of the customers and our low delinquency rates under these programs, we discount the receivables utilizing the prime rate of interest at the date of sale. The discount is recorded as a contra receivable and is amortized to net interest expense over the life of the receivable. The discount on the receivables is adjusted for prepayment at the time of prepayment. There is no assumption for prepayment recorded at inception. If delinquency rates under these interest free programs deteriorate, we may adjust the rate at which we discount such receivables in the future. The unamortized discounts were $1,646,000 and $889,000 at December 31, 2005 and 2004, respectively.

We believe that the carrying value of existing customer receivables is the best estimate of fair value because of their short average maturity and estimated bad debt losses have been reserved. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising our account base and their dispersion across 17 states.

Note 3,

Inventories:

Inventories are measured using the last-in, first-out (LIFO) method of inventory valuation because it results in a better matching of current costs and revenues. The excess of current cost over such carrying value of inventories was approximately $18,093,000 and $16,936,000 at December 31, 2005 and 2004, respectively. Use of the LIFO valuation method as compared to the FIFO method had the effect of decreasing diluted earnings per common share by $0.03 in 2005 and

F-11

Notes To Consolidated Financial Statements

$0.02 in 2004; and increasing it by $0.01 in 2003, assuming our effective tax rates were applied to the resulting changes in income caused by the change in the LIFO reserve and no other changes were made.

Note 4,

Property And Equipment:

Property and equipment are summarized as follows:

(in thousands)	2005			2004
Land and improvements	$	47,338		$	43,186
Buildings and improvements		195,382			166,278
Furniture and fixtures		70,307			74,069
Equipment		30,014			25,267
Buildings and equipment under capital leases		—			7,533
Construction in progress		11,299			21,762
		354,340			338,095
Less accumulated depreciation		(136,949	)		(132,348	)
Less accumulated capital lease amortization		—			(710	)
Property and equipment, net	$	217,391		$	205,037

Note 5,

Credit Arrangements:

At December 31, 2005, Havertys had $80,000,000 of bank revolving credit facilities with a group of banks comprised of two agreements terminating in August 2010. Havertys owed $4,300,000 under these facilities which was all classified as short-term debt at December 31, 2005. Amounts available are reduced by outstanding letters of credit which were $5,403,000 at December 31, 2005. The facilities also have provisions for commitment fees.

The weighted average stated interest rate for these outstanding borrowings at December 31, 2005 was 5.12%.

Note 6,

Accrued Liabilities:

Accrued liabilities consist of the following:

(In thousands)	2005		2004
Employee compensation, related taxes and benefits	$	15,168	$	16,714
Taxes other than income and withholding		9,876		9,315
Other		18,599		19,431
	$	43,643	$	45,460

F-12

Note 7,

Income Taxes:

Income tax expense (benefit) (allocated to income before the cumulative effect of a change in accounting principle in 2003) consists of the following:

(In thousands)	2005			2004		2003
Current
Federal	$	8,419		$	11,476	$	12,886
State		789			1,134		707
		9,208			12,610		13,593
Deferred
Federal		(604	)		624		545
State		(104	)		62		30
		(708	)		686		575
	$	8,500		$	13,296	$	14,168

The differences between income tax expense in the accompanying Consolidated Financial Statements and the amount computed by applying the statutory Federal income tax rate is as follows:

(In thousands)	2005			2004			2003
Statutory rates applied to income before income taxes	$	8,244		$	12,576		$	13,296
State income taxes, net of Federal tax benefit		445			777			479
Other		(189	)		(57	)		393
	$	8,500		$	13,296		$	14,168

Deferred tax assets and liabilities as of December 31, 2005 and 2004 were as follows:

(In thousands)	2005		2004
Deferred tax assets:
Accrued liabilities	$	1,054	$	2,716
Net property and equipment		1,888		508
Leases		3,416		2,655
Other comprehensive income		509		790
Total deferred tax assets		6,867		6,669
Deferred tax liabilities:
Accounts receivable related		607		391
Inventory related		1,243		3,030
Other		818		1,077
Total deferred tax liabilities		2,668		4,498
Net deferred tax assets	$	4,199	$	2,171

F-13

Notes To Consolidated Financial Statements

The amounts per the table above are grouped based on broad categories of items that generate the deferred tax assets and liabilities. Deferred tax assets and deferred tax liabilities which are current are netted against each other as are non-current deferred tax assets and non-current deferred liabilities as they relate to each tax-paying component in accordance with SFAS No. 109, “Accounting for Income Taxes” for presentation on the balance sheets. These are detailed in the table below:

(In thousands)	2005			2004
Current assets (liabilities) :
Current deferred assets	$	4,181		$	4,032
Current deferred liabilities		(1,806	)		(1,783	)
		2,375			2,249
Non-current assets (liabilities):
Non-current deferred assets		5,809			5,111
Non-current deferred liabilities		(3,985	)		(5,189	)
		1,824			(78	)
Net deferred tax assets	$	4,199		$	2,171

Note 8,

Long-term Debt And Capital Lease Obligations:

Long-term debt and capital lease obligations are summarized as follows:

(In thousands)	2005		2004
Revolving credit notes (a)	$	—	$	—
Unsecured term note (b)		4,000		8,000
7.95% unsecured term note (c)		9,000		10,000
7.44% unsecured term note (d)		7,500		10,000
7.16% unsecured term note (e)		6,429		10,714
7.78% secured debt (f)		17,232		18,281
Secured debt		—		411
Capital lease obligations (g)		—		7,092
		44,161		64,498
Less portion classified as current		13,139		20,270
	$	31,022	$	44,228

F-14

(a)	The Company has revolving credit facilities as described in Note 5. Borrowings under these facilities have a floating rate of interest of LIBOR plus a spread which is based on a fixed charge coverage ratio and mature in 2010.
(b)	The term note is payable in quarterly installments of $1,000,000 plus interest and matures in November 2006. The note has a floating rate of interest of LIBOR plus 0.7%.
(c)	The note is payable in semi-annual installments of $500,000, increasing to $2,000,000 commencing in February 2007. The note matures in August 2008 and interest is payable quarterly.
(d)	The note is payable in semi-annual installments of $1,250,000 plus interest payable quarterly and matures in October 2008.
(e)	The note is payable in semi-annual installments of $2,143,000 plus interest payable quarterly and matures in April 2007.
(f)	This debt is recorded in accordance with the consolidation requirements of FIN 46. The debt is a mortgage note with semi-annual payments of interest and principal of $1,332,000 and matures in April 2009 with a balloon payment of $12,000,000. Property with a net book value at December 31, 2005 of $21,039,000 is pledged as collateral on this debt.
(g)	The capital lease obligation is for a home delivery center with a net book value of $6,843,000 at December 31, 2004. Havertys purchased the property from the lessor in March 2005, and, therefore, the entire obligation was classified as current in the Consolidated Balance Sheets at December 31, 2004.

     Our debt agreements require, among other things, that we: (a) meet certain working capital requirements; (b) limit the type and amount of indebtedness incurred; (c) limit operating lease rentals; and (d) grant certain lenders identical security for any liens placed upon our assets, other than those liens specifically permitted in the loan agreements. The debt agreements also contain cross-default provisions. Covenants under the revolving credit notes include tests for minimum fixed charge coverage and asset coverage and maximum levels of adjusted debt to total adjusted capital. We are in compliance with the covenants of the debt agreements and revolving notes at December 31, 2005.

The aggregate maturities of long-term debt and capital lease obligations during the years subsequent to December 31, 2005 are as follows: 2006 — $13,139,000; 2007 — $10,105,000; 2008 — $8,080,000; and 2009 — $12,837,000.

Cash payments for interest were $4,242,000, $5,595,000 and $4,224,000 in 2005, 2004 and 2003, respectively.

Note 9,

Stockholders’ Equity:

Common Stock has a preferential dividend rate of at least 105% of the dividend paid on Class A Common Stock. Class A Common Stock has greater voting rights which include: voting as a separate class for the election of 75% of the total number of directors of the Company and on all other matters subject to shareholder vote, each share of Class A Common Stock has ten votes and votes with the Common Stock as a single class. Class A Common Stock is convertible at the holder’s option at any time into Common Stock on a 1 -for-1 basis; Common Stock is not convertible into Class A Common Stock. There is no present plan for issuance of Preferred Stock.

Note 10,

Benefit Plans:

We have a defined benefit pension plan covering substantially all employees as of December 31, 2005. The benefits are based on years of service and the employee’s final average compensation. Our funding policy is to contribute annually an amount which is within the range of the minimum required contribution and the maximum amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. As of December 31, 2005, the plan was closed to any employees hired after that date.

F-15

Notes To Consolidated Financial Statements

The following table sets forth the plan’s funded status and amounts recognized in the Company’s Consolidated Balance Sheets at December 31:

(In thousand)	2005			2004
Change in benefit obligation:
Benefit obligation at beginning of year	$	57,536		$	51,187
Service cost		3,030			2,529
Interest cost		3,343			3,138
Actuarial losses		3,846			3,196
Benefits paid		(2,658	)		(2,514	)
Benefit obligation at end of year		65,097			57,536
Change in plan assets:
Fair value of plan assets at beginning of year		56,110			53,331
Employer contribution		6,000			2,000
Actual return on plan assets		842			3,293
Benefits paid		(2,658	)		(2,514	)
Fair value of plan assets at end of year		60,294			56,110
Funded status at end of year		(4,803	)		(1,426	)
Unrecognized actuarial loss		11,405			4,297
Unrecognized prior service cost		331			473
Prepaid pension expense included in the Consolidated Balance Sheets	$	6,933		$	3,344

The accumulated benefit obligation for the defined benefit pension plan was $55,688,000 and $51,575,000 at December 31, 2005 and 2004, respectively.

Net pension cost included the following components:

(In Thousands)	2005			2004			2003
Service cost-benefits earned during the period	$	3,030		$	2,529		$	2,210
Interest cost on projected benefit obligation		3,343			3,138			3,029
Expected return on plan assets		(4,119	)		(3,915	)		(3,276	)
Amortization of prior service cost		142			133			133
Amortization of actuarial gain		16			—			—
Net pension cost	$	2,412		$	1,885		$	2,096

Assumptions

The Company uses a measurement date of December 31 for its pension and other benefit plans. Weighted-average assumptions used to determine benefit obligations at December 31:

	2005			2004
Discount rate		5.75	%		5.75	%
Rate of compensation increase		3.50	%		2.75	%

F-16

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:

	2005			2004
Discount rate		5.75	%		6.25	%
Expected long-term return on plan assets		7.50	%		7.50	%
Rate of compensation increase		2.75	%		3.25	%

To develop the expected long-term rate of return on assets assumption, the historical returns and the future expectations for returns for each asset class was considered, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 7.50% long-term rate of return on assets assumption.

Plan Assets

The pension plan weighted-average asset allocations at December 31, 2005, and 2004, by asset category are as follows:

Asset Category	2005			2004
Equity securities		60	%		61	%
Debt securities		38	%		32	%
Cash		2	%		7	%
Total		100	%		100	%

Investment Objectives and Asset Strategy

The Executive Compensation Committee is responsible for administering Havertys’ pension plan. The primary investment objective of the plan is to ensure, over its long term life, an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. An important secondary objective of the plan is to be able to improve the plan’s funded status therefore reducing employer contributions and, ultimately, allowing for the maintaining or improving of overall benefit levels. In meeting these objectives, the Executive Compensation Committee seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk.

The assets of the plan are being invested according to the following asset allocation guidelines, established to reflect the growth expectations and risk tolerance of the Executive Compensation Committee.

Security Class	Strategic Target			Tactical Range
Equity:
Domestic Equity — Diversified Portfolio		50	%		40.0% - 60.0	%
Haverty Common Stock		10	%		5.0% - 15.0	%
Total Equity		60	%		50.0% - 70.0	%
U.S. Fixed Income		40	%		30.0% - 50.0	%
Cash		0	%		0.0% - 10.0	%
Total Fund		100	%

F-17

Notes To Consolidated Financial Statements

Equity securities include 203,500 shares of Havertys’ Class A Common Stock with an aggregate fair value of $2,597,000 (4.3% of total plan assets) at December 31, 2005. The plan received $48,000 in dividends from these shares in 2005.

We expect to contribute $6,000,000 to our pension plan in 2006.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

Year(s)	Pension Benefits
2006	$	2,500
2007		2,700
2008		2,800
2009		3,000
2010		3,100
2011-2015		19,200

Other Plans

Havertys has a non-qualified, non-contributory supplemental executive retirement plan (SERP) which covers two retired executive officers. The SERP provides annual supplemental retirement benefits to the executives amounting to 55% of final average earnings less benefits payable from our defined benefit pension plan and Social Security benefits. We also have a non-qualified, non-contributory SERP for employees whose retirement benefits are reduced due to their annual compensation levels. The total amount of annual retirement benefits that may be paid to an eligible participant in the SERP from all sources (Retirement Plan, Social Security and the SERP) may not exceed $125,000. Under the plans, which are not funded, we pay benefits directly to covered participants beginning at their retirement. At December 31, 2005, the projected benefit obligation for these plans totaled $2,884,000 of which $2,858,000 is included in the accompanying Consolidated Balance Sheets. Pension expense recorded under the SERPs amounted to approximately $245,000, $206,000 and $367,000 for 2005, 2004 and 2003, respectively.

Havertys has an employee savings/retirement (401k) plan to which substantially all employees may contribute. We match employee contributions to the extent of 50% of the first 2% of eligible pay and 25% of the next 4% contributed by participants. We expensed approximately $1,306,000 in 2005, $1,416,000 in 2004 and $1,347,000 in 2003 in matching employer contributions under this plan.

Havertys offers no post-retirement benefits other than pensions and no significant post-employment benefits.

Note 11,

Stock Based Compensation Plans:

The Executive Compensation Committee serves as Administrator for Havertys’ stock based compensation plans. Our stockholders approved the 2004 Long Term Incentive Plan (the “2004 LTIP Plan”) which provides greater flexibility and a wider array of equity compensation vehicles than the 1998 Stock Option Plan (the “1998 Plan”). Awards and options are granted by the Executive Compensation Committee to officers and non-officer employees. As of December 31, 2005, the maximum number of option shares which may be granted under the 1998 Plan was 88,500 and 922,600 shares were available for awards and options under the 2004 LTIP Plan.

F-18

The table below summarizes options activity for the past three years under the Company’s 1998 Plan.

				Weighted
	Option Shares			Average Price
Outstanding at December 31, 2002		2,869,700		$	12.88
Granted		511,000			20.22
Exercised		(599,500	)		11.65
Canceled		(89,700	)		13.64
Outstanding at December 31, 2003		2,691,500			14.53
Granted		91,700			17.22
Exercised		(285,200	)		12.04
Canceled		(41,500	)		15.65
Outstanding at December 31, 2004		2,456,500			14.90
Granted		7,500			14.36
Exercised		(41,000	)		10.79
Canceled		(78,200	)		16.22
Outstanding at December 31, 2005		2,344,700		$	14.92
Exercisable at December 31, 2005		2,344,700		$	14.92
Exercisable at December 31, 2004		1,438,200		$	13.47
Exercisable at December 31, 2003		1,236,200		$	13.02

All of the options outstanding at December 31, 2005 were for Common Stock. Exercise prices for options outstanding as of December 31, 2005 ranged from $6.94 to $20.75.

The following table summarizes information about the stock options outstanding as of December 31, 2005:

Options Outstanding and Exercisable
				Weighted
				Average Remaining		Weighted
Range of		Number		Contractual Life		Average
Exercise Prices		Outstanding		(Years)		Exercise Price
$	6.94 - 10.13		158,100		2.8	$	9.44
	10.81 - 15.94		1,632,900		5.6		13.78
	17.01 -20.75		553,700		5.3		19.84
$	6.94 -20.75		2,344,700		5.3	$	14.92

F-19

Notes To Consolidated Financial Statements

As discussed in Note 1 under the heading “Stock-Based Compensation,” the vesting of all of the “out-of-the-money” unvested stock options on August 18, 2005 were accelerated. All of the outstanding stock options at December 31, 2005 are vested and exercisable. Options granted before December 1, 2003 have maximum terms of 10 years and grants after that date have maximum terms of 7 years.

We are transitioning from the use of options to restricted stock awards in our long-term incentive compensation strategy and accordingly, many participants received a mix of stock options and restricted stock awards in 2004.

Grants of restricted common stock are made to certain officers, key employees and members of the board of directors under the 2004 LTIP Plan. The forfeiture provisions on the awards generally expire annually, over periods not exceeding four years. Vesting may accelerate if we reach certain financial goals set by the Executive Compensation Committee. During 2004, 177,750 shares were awarded and all were subject to forfeiture provisions as of December 31, 2004. During 2005, 8,150 shares were granted under the plan, 6,950 shares were forfeited, and 20,650 shares vested. As of December 31, 2005, 158,300 shares remained subject to forfeiture provisions. The remaining shares subject to forfeiture provisions have been recorded as unearned compensation and are included as a separate component of stockholders’ equity. The unearned compensation is being charged to selling, general and administrative expense over the respective shares vesting period and was $1,028,000 and $113,000 in 2005 and 2004, respectively. Subsequent to December 31, 2005, 125,250 shares were granted under the plan with forfeiture and vesting provisions similar to those granted in 2004.

Pro forma information regarding net income and earnings per share required by Statement 123 is provided in Note 1. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

The weighted-average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

	2005			2004			2003
Risk-free interest rate		3.60	%		3.50	%		3.50	%
Expected life in years		5.00			5.00			5.20
Expected volatility		45.60	%		45.60	%		45.30	%
Expected dividend yield		1.40	%		1.40	%		1.04	%
Estimated fair value of options granted per share	$	5.66		$	6.77		$	8.04

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not provide a reliable single measure of the fair value Havertys’ employee stock options.

F-20

Note 12,

Earnings Per Share:

We adopted the provisions of FIN 46 as of December 31, 2003, and recorded a cumulative effect of an accounting change of $1,050,000. The computational components of basic and diluted earnings per share for our two classes of stock are as follows:

(In thousands except per share amounts)	2005		2004		2003
Income before cumulative effect of a change in accounting principle	$	15,054	$	22,636	$	23,821
Cumulative effect of a change in accounting principle		—		—		1,050
Net income	$	15,054	$	22,636	$	24,871

The following is a reconciliation of the number of shares used in calculating the diluted earnings per share for Common Stock under SFAS 128 and EITF 03-6 (shares in thousands):

	2005		2004		2003
Common:
Weighted average shares outstanding		18,301		18,227		17,505
Assumed conversion of Class A Common shares		4,310		4,343		4,487
Dilutive options		156		513		445
Total weighted-average diluted Common shares		22,767		23,083		22,437

F-21

Notes To Consolidated Financial Statements

	2005		2004		2003
Basic earnings per share:
Common Stock
Income before cumulative effect of a change in accounting principle	$	0.67	$	1.01	$	1.10
Cumulative effect of a change in accounting principle		—		—		0.05
Net income	$	0.67	$	1.01	$	1.15
Class A Common Stock:
Income before cumulative effect of a change in accounting principle	$	0.63	$	0.96	$	1.03
Cumulative effect of a change in accounting principle		—		—		0.05
Net income	$	0.63	$	0.96	$	1.08
Diluted earnings per share:
Common Stock:
Income before cumulative effect of a change in accounting principle	$	0.66	$	0.98	$	1.06
Cumulative effect of a change in accounting principle		—		—		0.05
Net income	$	0.66	$	0.98	$	1.11
Class A Common Stock:
Income before cumulative effect of a change in accounting principle	$	0.63	$	0.94	$	1.02
Cumulative effect of a change in accounting principle		—		—		0.04
Net income	$	0.63	$	0.94	$	1.06

During 2005, options outstanding for 572,700 shares and their related exercise prices of $17.01 to $20.75 and 177,900 restricted share awards at $17.01 and $20.80 were not included in the computation of diluted earnings per common share because their exercise or grant price was greater than the average market price of the shares and, therefore, the effect would be antidilutive.

F-22

Note 13,

Commitments:

We lease certain property and equipment. Initial lease terms range from 5 years to 30 years and certain leases contain renewal options ranging from 1 to 25 years or provide for options to purchase the related property at fair market value or at predetermined purchase prices. The leases generally require Havertys to pay all maintenance, property taxes and insurance costs.

(In thousands)	Operating Leases
2006	$	28,824
2007		28,312
2008		27,224
2009		24,989
2010		21,523
Subsequent to 2010		164,492
Total minimum payments		295,364
Less total minimum sublease rentals		(2,757	)
Net minimum lease payments	$	292,607

Step rent and escalation clauses and other lease concessions (free rent periods) are taken into account in computing lease expense on a straight-line basis. Lease concessions for capital improvements have not been significant, but are recorded as a reduction of expense over the term of the lease. Net rental expense applicable to operating leases consisted of the following:

(In thousands)	2005			2004			2003
Property
Minimum	$	26,139		$	25,800		$	27,889
Additional rentals based on sales		600			847			603
Sublease income		(1,681	)		(2,172	)		(2,200	)
		25,058			24,475			26,292
Equipment		3,292			3,101			2,867
	$	28,350		$	27,576		$	29,159

Note 14,

SUPPLEMENTAL CASH FLOW INFORMATION:

Income Taxes Paid

We paid state and federal income taxes of $14,479,000, $11,164,000, and $9,912,000 for 2005, 2004 and 2003, respectively. We also received income tax refunds of $84,000, $175,000 and $4,851,000 in 2005, 2004 and 2003, respectively.

Non-Cash Transactions

We recorded the tax benefit from the exercise of non-qualified stock options and disqualifying dispositions of stock options as a reduction of our income tax liability and as additional paid-in capital in the amount of $40,000, $434,000 and $1,143,000 for 2005, 2004 and 2003, respectively.

F-23

Notes To Consolidated Financial Statements

Note 15,

Selected Quarterly Financial Data (Unaudited) :

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2005 and 2004 (in thousands, except per share data):

	2005 Quarter Ended
	March 31 (a)		June 30(a)		Sept. 30		Dec. 31
Net sales	$	207,634	$	192,394	$	202,044	$	225,587
Gross profit		98,683		91,546		96,097		109,241
Credit service charges		989		875		837		805
Net income		3,174		1,309		3,816		6,755
Basic earnings per share:
Common		0.14		0.06		0.17		0.30
Class A Common		0.13		0.05		0.16		0.29
Diluted earnings per share:
Common		0.14		0.06		0.17		0.30
Class A Common		0.13		0.05		0.16		0.29

	2004 Quarter Ended
	March 31 (a)(b)		June 30(a)		Sept. 30(a)(c)		Dec. 31(a)(d)
Net sales	$	190,301	$	179,614	$	197,445	$	216,803
Gross profit		93,685		86,622		94,580		103,711
Credit service charges		1,304		1,163		992		1,042
Net income		6,047		3,646		4,237		8,706
Basic earnings per share:
Common		0.27		0.16		0.19		0.39
Class A Common		0.26		0.15		0.18		0.37
Diluted earnings per share:
Common		0.26		0.16		0.18		0.38
Class A Common		0.25		0.15		0.18		0.36

Because of the method used in calculating per share data, the quarterly per share data will not necessarily add to the per share data as computed for the year.

(a) During the third quarter of 2005, we completed our transition to a new distribution model (see Note 1). As a result, we have reclassified costs for handling and transportation into cost of goods sold for comparability purposes.

(b) During the second quarter of 2004, we adopted EITF 03-6 which requires us to report our earnings per share using the two-class method (see Notes 1 and 12). As a result, the presentation of per share amounts for the first quarter of 2004 differs from previous presentations reported in our Form 10-Q filed for that respective period except that diluted earnings per share for Common Stock did not change as compared to previously reported diluted earnings per share.

(c) During the third quarter of 2004, we determined that the warranties provided by a third party which we sell to customers were being undercosted in the financial statements. As we reported in our Form 10-Q for that period we made an adjustment of $ 1.2 million to increase

F-24

cost of goods sold. The amounts for the individual prior periods related to this adjustment were not material.

(d)

We changed our group medical insurance carrier as of January 1, 2005. During the evaluation process, prior to this change, we determined that approximately $1.1 million in expense should have been recorded in prior periods based on the terms of our policy. This amount was charged to SG&A in the fourth quarter. In the fourth quarter of 2004, we recorded approximately $800,000 in vendor rebates and allowances as a reduction of inventory costs related to purchases and agreements that were in place since January 1, 2004 and earned during the first three quarters of 2004.

Note 16,

Market Prices and Dividend Information (Unaudited):

Our two classes of common stock trade on The New York Stock Exchange (“NYSE”). The trading symbol for the Common Stock is HVT and for Class A Common Stock is HVT.A The table below sets forth the high and low sales prices per share as reported on the NYSE and the dividends paid for the last two years:

		2005
		Common Stock						Class A Common Stock
						Dividend						Dividend
Quarter Ended		High		Low		Declared		High		Low		Declared
March	31	$	18.60	$	15.05	$	0.0625	$	18.00	$	15.10	$	0.0575
June	30		16.89		13.00		0.0625		16.80		13.37		0.0575
September	30		14.94		11.95		0.0625		13.87		12.10		0.0575
December	31		14.23		11.53		0.0675		13.77		11.92		0.0625

		2004
		Common Stock						Class A Common Stock
						Dividend						Dividend
Quarter Ended		High		Low		Declared		High		Low		Declared
March	31	$	23.98	$	19.35	$	0.0625	$	23.80	$	19.59	$	0.0575
June	30		21.62		16.32		0.0625		21.55		16.60		0.0575
September	30		18.76		16.00		0.0625		18.52		15.75		0.0575
December	31		21.09		16.50		0.0625		20.35		17.00		0.0575

Based on the number of individual participants represented by security position listings, there are approximately 3,000 holders of the Common Stock and 200 holders of the Class A Common Stock.

F-25

Notes To Consolidated Financial Statements

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

Column A	Column B		Column C		Column D		Column E
			Additions
	Balance at		charged				Balance at
	beginning of		to costs and		Deductions-		end of
(in thousands)	period		expenses		describe (1)(2)		period
Year ended December 31, 2005:
Allowance for doubtful accounts	$	2,950	$	1,011	$	1,561	$	2,400
Reserve for cancelled sales and allowances	$	1,500	$	14,850	$	14,775	$	1,575
Year ended December 31, 2004:
Allowance for doubtful accounts	$	4,500	$	558	$	2,108	$	2,950
Reserve for cancelled sales and allowances	$	1,800	$	13,330	$	13,630	$	1,500
Year ended December 31, 2003:
Allowance for doubtful accounts	$	5,800	$	1,979	$	3,279	$	4,500
Reserve for cancelled sales and allowances	$	1,800	$	12,626	$	12,626	$	1,800

(1) Allowance for doubtful accounts: uncollectible accounts written off, net of recoveries and the disposal value of repossessions.

(2) Reserve for cancelled sales and allowances: impact of sales cancelled after delivery plus amount of allowance given to customers.

F-26

EX-10.3

                                                                    EXHIBIT 10.3

                  HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN
                            RESTATED JANUARY 1, 2005


                                                                               .
                                                                               .
                                                                               .

                                TABLE OF CONTENTS

                                                                           
                                    ARTICLE I
                                   DEFINITIONS

                                   ARTICLE II
                                 ADMINISTRATION

2.1  POWERS AND RESPONSIBILITIES OF THE EMPLOYER...........................   13
2.2  DESIGNATION OF ADMINISTRATIVE AUTHORITY...............................   13
2.3  POWERS AND DUTIES OF THE ADMINISTRATOR................................   14
2.4  RECORDS AND REPORTS...................................................   15
2.5  APPOINTMENT OF ADVISERS...............................................   15
2.6  PAYMENT OF EXPENSES...................................................   15
2.7  CLAIMS PROCEDURE......................................................   16
2.8  CLAIMS REVIEW PROCEDURE...............................................   16

                                   ARTICLE III
                                   ELIGIBILITY

3.1  CONDITIONS OF ELIGIBILITY.............................................   17
3.2  EFFECTIVE DATE OF PARTICIPATION.......................................   17
3.3  DETERMINATION OF ELIGIBILITY..........................................   17
3.4  TERMINATION OF ELIGIBILITY............................................   17
3.5  OMISSION OF ELIGIBLE EMPLOYEE.........................................   18
3.6  INCLUSION OF INELIGIBLE EMPLOYEE......................................   18
3.7  REHIRED EMPLOYEES AND BREAKS IN SERVICE...............................   18
3.8  ELECTION NOT TO PARTICIPATE...........................................   19

                                   ARTICLE IV
                           CONTRIBUTION AND ALLOCATION

4.1  FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION.........................   19
4.2  PARTICIPANT'S SALARY REDUCTION ELECTION...............................   20
4.3  TIME OF PAYMENT OF EMPLOYER CONTRIBUTION..............................   24
4.4  ALLOCATION OF CONTRIBUTION AND EARNINGS...............................   24
4.5  ACTUAL DEFERRAL PERCENTAGE TESTS......................................   28
4.6  ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS........................   30
4.7  ACTUAL CONTRIBUTION PERCENTAGE TESTS..................................   33





                                                                           
4.8  ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS....................   36
4.9  MAXIMUM ANNUAL ADDITIONS..............................................   38
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS.............................   40
4.11 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS.............   42
4.12 DIRECTED INVESTMENT ACCOUNT...........................................   43
4.13 QUALIFIED MILITARY SERVICE............................................   45

                                    ARTICLE V
                                   VALUATIONS

5.1  VALUATION OF THE TRUST FUND...........................................   45
5.2  METHOD OF VALUATION...................................................   46

                                   ARTICLE VI
                   DETERMINATION AND DISTRIBUTION OF BENEFITS

6.1  DETERMINATION OF BENEFITS UPON RETIREMENT.............................   46
6.2  DETERMINATION OF BENEFITS UPON DEATH..................................   46
6.3  DETERMINATION OF BENEFITS IN EVENT OF DISABILITY......................   48
6.4  DETERMINATION OF BENEFITS UPON TERMINATION............................   48
6.5  DISTRIBUTION OF BENEFITS..............................................   49
6.6  DISTRIBUTION OF BENEFITS UPON DEATH...................................   51
6.7  TIME OF SEGREGATION OR DISTRIBUTION...................................   52
6.8  DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY.....................   52
6.9  LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN........................   53
6.10 PRE-RETIREMENT DISTRIBUTION...........................................   53
6.11 ADVANCE DISTRIBUTION FOR HARDSHIP.....................................   53
6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION.......................   55
6.13 DIRECT ROLLOVER.......................................................   55

                                   ARTICLE VII
                       AMENDMENT, TERMINATION AND MERGERS

7.1  AMENDMENT.............................................................   56
7.2  TERMINATION...........................................................   57
7.3  MERGER, CONSOLIDATION OR TRANSFER OF ASSETS...........................   58





                                                                           
                                  ARTICLE VIII
                                    TOP HEAVY

8.1  TOP HEAVY PLAN REQUIREMENTS...........................................   58
8.2  DETERMINATION OF TOP HEAVY STATUS.....................................   58

                                   ARTICLE IX
                                  MISCELLANEOUS

9.1  PARTICIPANT'S RIGHTS..................................................   61
9.2  ALIENATION............................................................   61
9.3  CONSTRUCTION OF PLAN..................................................   62
9.4  GENDER AND NUMBER.....................................................   62
9.5  LEGAL ACTION..........................................................   62
9.6  PROHIBITION AGAINST DIVERSION OF FUNDS................................   62
9.7  EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE............................   63
9.8  INSURER'S PROTECTIVE CLAUSE...........................................   63
9.9  RECEIPT AND RELEASE FOR PAYMENTS......................................   63
9.10 ACTION BY THE EMPLOYER................................................   64
9.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY....................   64
9.12 HEADINGS..............................................................   64
9.13 APPROVAL BY INTERNAL REVENUE SERVICE..................................   64
9.14 UNIFORMITY............................................................   65

                                    ARTICLE X
                             PARTICIPATING EMPLOYERS

10.1 ADOPTION BY OTHER EMPLOYERS...........................................   65
10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS...............................   65
10.3 DESIGNATION OF AGENT..................................................   65
10.4 EMPLOYEE TRANSFERS....................................................   65
10.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES...................   66
10.6 AMENDMENT.............................................................   66
10.7 DISCONTINUANCE OF PARTICIPATION.......................................   66
10.8 ADMINISTRATOR'S AUTHORITY.............................................   66





                  HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN
                            RESTATED JANUARY 1, 2005

          THIS PLAN, hereby adopted this 1st day of December,2005
by HAVERTY FURNITURE COMPANIES, INC. (herein referred to as the "Employer").


                                   WITNESSETH:

          WHEREAS, the Employer heretofore established a Profit Sharing Plan
effective January 1, 1985, (hereinafter called the "Effective Date") known as
HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN Restated January 1, 2005 (herein
referred to as the "Plan") in recognition of the contribution made to its
successful operation by its employees and for the exclusive benefit of its
eligible employees; and

          WHEREAS, under the terms of the Plan, the Employer has the ability to
amend the Plan, provided the Trustee joins in such amendment if the provisions
of the Plan affecting the Trustee are amended;

          NOW, THEREFORE, effective January 1, 2005, except as otherwise
provided, the Employer in accordance with the provisions of the Plan pertaining
to amendments thereof, hereby amends the Plan in its entirety and restates the
Plan to provide as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.

     1.2 "Administrator" means the Employer unless another person or entity has
been designated by the Employer pursuant to Section 2.2 to administer the Plan
on behalf of the Employer.

     1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).

     1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 8.2.

     1.5 "Anniversary Date" means the last day of the Plan Year.

     1.6 "Beneficiary" means the person (or entity) to whom the share of a
deceased Participant's total account is payable, subject to the restrictions of
Sections 6.2 and 6.6.


                                        1



     1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.

     1.8 "Compensation" with respect to any Participant means such Participant's
wages for the Plan Year within the meaning of Code Section 3401(a) (for the
purposes of income tax withholding at the source) but determined without regard
to any rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the exception
for agricultural labor in Code Section 3401(a)(2)).

          For purposes of this Section, the determination of Compensation shall
be made by:

               (a) excluding (even if includible in gross income) reimbursements
          or other expense allowances, fringe benefits (cash or noncash), moving
          expenses, deferred compensation, and welfare benefits.

               (b) including amounts which are contributed by the Employer
          pursuant to a salary reduction agreement and which are not includible
          in the gross income of the Participant under Code Sections 125,
          132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee
          contributions described in Code Section 414(h)(2) that are treated as
          Employer contributions.

          For a Participant's initial year of participation, Compensation shall
be recognized as of such Employee's effective date of participation pursuant to
Section 3.2.

          Compensation in excess of $150,000 (or such other amount provided in
the Code) shall be disregarded for all purposes other than for purposes of
salary deferral elections pursuant to Section 4.2. Such amount shall be adjusted
for increases in the cost of living in accordance with Code Section
401(a)(17)(B), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year. For any short Plan Year the Compensation limit shall be an amount
equal to the Compensation limit for the calendar year in which the Plan Year
begins multiplied by the ratio obtained by dividing the number of full months in
the short Plan Year by twelve (12).

          If any class of Employees is excluded from the Plan, then Compensation
for any Employee who becomes eligible or ceases to be eligible to participate
during a Plan Year shall only include Compensation while the Employee is an
Eligible Employee.

          For purposes of this Section, if the Plan is a plan described in Code
Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.

     1.9 "Contract" or "Policy" means any life insurance policy, retirement
income policy or annuity contract (group or individual) issued pursuant to the
terms of the Plan. In the event of any conflict between the terms of this Plan
and the terms of any contract purchased hereunder, the Plan provisions shall
control.

     1.10 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the


                                        2



Participant's deferral election pursuant to Section 4.2 excluding any such
amounts distributed as excess "annual additions" pursuant to Section 4.10(a).

     1.11 "Designated Investment Alternative" means a specific investment
identified by name by the Employer (or such other Fiduciary who has been given
the authority to select investment options) as an available investment under the
Plan to which Plan assets may be invested by the Trustee pursuant to the
investment direction of a Participant.

     The Employer may designate as a Designated Investment Alternative
"qualifying Employer securities" as defined in Section 407 of the Act, in which
case the Trustee shall be empowered to acquire and hold up to 100% of the fair
market value of all the assets in the Trust Fund in 'qualifying Employer
securities.' The Trust Fund may hold 'qualifying Employer securities' in the
form of a stock fund established and maintained as agreed to by the Employer and
the Trustee. Any reference in this Section to "qualifying Employer securities"
also includes a stock fund.

     The Trustee shall vote, tender and otherwise act with respect to qualifying
Employer securities held in the Trust Fund as directed in writing (which may be
a continuing direction) by the Employer.

     1.12 "Directed Investment Option" means one or more of the following:

               (a) a Designated Investment Alternative.

               (b) any other investment permitted by the Plan and the
          Participant Direction Procedures to which Plan assets may be invested
          by the Trustee pursuant to the investment direction of a Participant.

     1.13 "Early Retirement Date." This Plan does not provide for a retirement
date prior to Normal Retirement Date.

     1.14 "Elective Contribution" means the Employer contributions to the Plan
of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section
4.6(b) which is used to satisfy the "Actual Deferral Percentage" tests shall be
considered an Elective Contribution for purposes of the Plan. Any contributions
deemed to be Elective Contributions (whether or not used to satisfy the "Actual
Deferral Percentage" tests or the "Actual Contribution Percentage" tests) shall
be subject to the requirements of Sections 4.2(b) and 4.2(c) and shall further
be required to satisfy the nondiscrimination requirements of Regulation
1.401(k)-1(b)(5) and Regulation 1.401(m)-1(b)(5), the provisions of which are
specifically incorporated herein by reference.

     1.15 "Eligible Employee" means any Employee.

          Employees who are Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall not be eligible to participate in this Plan.

          Employees whose employment is governed by the terms of a collective
bargaining agreement between Employee representatives (within the meaning of
Code Section 7701(a)(46)) and the Employer under which retirement benefits were
the subject of good


                                        3



faith bargaining between the parties will not be eligible to participate in this
Plan unless such agreement expressly provides for coverage in this Plan.

          Employees of Affiliated Employers shall not be eligible to participate
in this Plan unless such Affiliated Employers have specifically adopted this
Plan in writing.

          Employees classified by the Employer as independent contractors who
are subsequently determined by the Internal Revenue Service to be Employees
shall not be Eligible Employees.

     1.16 "Employee" means any person who is employed by the Employer or
Affiliated Employer, and excludes any person who is employed as an independent
contractor. Employee shall include Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a
plan described in Code Section 414(n)(5) and such Leased Employees do not
constitute more than 20% of the recipient's non-highly compensated work force.

     1.17 "Employer" means HAVERTY FURNITURE COMPANIES, INC. and any successor
which shall maintain this Plan; and any predecessor which has maintained this
Plan. The Employer is a corporation, with principal offices in the State of
Georgia. In addition, where appropriate, the term Employer shall include any
Participating Employer (as defined in Section 10.1) which shall adopt this Plan.

     1.18 "Excess Aggregate Contributions" means, with respect to any Plan Year,
the excess of the aggregate amount of the Employer matching contributions made
pursuant to Section 4.1(b) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c) on behalf of
Highly Compensated Participants for such Plan Year, over the maximum amount of
such contributions permitted under the limitations of Section 4.7(a) (determined
by hypothetically reducing contributions made on behalf of Highly Compensated
Participants in order of the actual contribution ratios beginning with the
highest of such ratios). Such determination shall be made after first taking
into account corrections of any Excess Deferred Compensation pursuant to Section
4.2 and taking into account any adjustments of any Excess Contributions pursuant
to Section 4.6.

     1.19 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions used to satisfy the "Actual Deferral Percentage" tests
made on behalf of Highly Compensated Participants for the Plan Year over the
maximum amount of such contributions permitted under Section 4.5(a) (determined
by hypothetically reducing contributions made on behalf of Highly Compensated
Participants in order of the actual deferral ratios beginning with the highest
of such ratios). Excess Contributions shall be treated as an "annual addition"
pursuant to Section 4.9(b).

     1.20 "Excess Deferred Compensation" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 8.2 and 4.4(f), Excess Deferred


                                        4



Compensation shall continue to be treated as Employer contributions even if
distributed pursuant to Section 4.2(f). However, Excess Deferred Compensation of
Non-Highly Compensated Participants is not taken into account for purposes of
Section 4.5(a) to the extent such Excess Deferred Compensation occurs pursuant
to Section 4.2(d).

     1.21 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan.

     1.22 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1 of each year and ending the following December 31.

     1.23 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:

               (a) the distribution of the entire Vested portion of the
          Participant's Account of a Former Participant who has severed
          employment with the Employer. For purposes of this provision, if the
          Former Participant has a Vested benefit of zero, then such Former
          Participant shall be deemed to have received a distribution of such
          Vested benefit as of the year in which the severance of employment
          occurs, or

               (b) the last day of the Plan Year in which a Former Participant
          who has severed employment with the Employer incurs five (5)
          consecutive 1-Year Breaks in Service.

          Regardless of the preceding provisions, if a Former Participant is
eligible to share in the allocation of Employer contributions or Forfeitures in
the year in which the Forfeiture would otherwise occur, then the Forfeiture will
not occur until the end of the first Plan Year for which the Former Participant
is not eligible to share in the allocation of Employer contributions or
Forfeitures. Furthermore, the term "Forfeiture" shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.

     1.24 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.

     1.25 "415 Compensation" with respect to any Participant means such
Participant's wages for the Plan Year within the meaning of Code Section 3401(a)
(for the purposes of income tax withholding at the source) but determined
without regard to any rules that limit the remuneration included in wages based
on the nature or location of the employment or the services performed (such as
the exception for agricultural labor in Code Section 3401(a)(2)).

          For purposes of this Section, the determination of "415 Compensation"
shall include any elective deferral (as defined in Code Section 402(g)(3)), and
any amount which is contributed or deferred by the Employer at the election of
the Participant and which is not includible in the gross income of the
Participant by reason of Code Sections 125, 132(f)(4) or 457.


                                        5



     1.26 "414(s) Compensation" means any definition of compensation that
satisfies the nondiscrimination requirements of Code Section 414(s) and the
Regulations thereunder. The period for determining 414(s) Compensation must be
either the Plan Year or the calendar year ending with or within the Plan Year.
An Employer may further limit the period taken into account to that part of the
Plan Year or calendar year in which an Employee was a Participant in the
component of the Plan being tested. The period used to determine 414(s)
Compensation must be applied uniformly to all Participants for the Plan Year.

     1.27 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means any Employee
who:

               (a) was a "five percent owner" as defined in Section 1.32(c) at
          any time during the "determination year" or the "look-back year"; or

               (b) for the "look-back year" had "415 Compensation" from the
          Employer in excess of $80,000 and was in the Top-Paid Group for the
          "look-back year." The $80,000 amount is adjusted at the same time and
          in the same manner as under Code Section 415(d), except that the base
          period is the calendar quarter ending September 30, 1996.

          The "determination year" means the Plan Year for which testing is
being performed, and the "look-back year" means the immediately preceding twelve
(12) month period.

          A highly compensated former Employee is based on the rules applicable
to determining Highly Compensated Employee status as in effect for the
"determination year," in accordance with Regulation 1.414(q)-1T, A-4 and IRS
Notice 97-45 (or any superseding guidance).

          In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans. Highly Compensated Former
Employees shall be treated as Highly Compensated Employees without regard to
whether they performed services during the "determination year."

     1.28 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the component of the Plan being tested.

     1.29 "Hour of Service" means, for purposes of eligibility for participation
and vesting, (1) each hour for which an Employee is directly or indirectly
compensated or entitled to compensation by the Employer for the performance of
duties (these hours will be credited to the Employee for the computation period
in which the duties are performed); (2) each hour for


                                        6



which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period (these hours will
be calculated and credited pursuant to Department of Labor regulation
2530.200b-2 which is incorporated herein by reference); (3) each hour for which
back pay is awarded or agreed to by the Employer without regard to mitigation of
damages (these hours will be credited to the Employee for the computation period
or periods to which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made). The same Hours of
Service shall not be credited both under (1) or (2), as the case may be, and
under (3).

          Notwithstanding (2) above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.

          For purposes of (2) above, a payment shall be deemed to be made by or
due from the Employer regardless of whether such payment is made by or due from
the Employer directly, or indirectly through, among others, a trust fund, or
insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.

          For purposes of this Section, Hours of Service will be credited for
employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.

     1.30 "Income" means the income or losses allocable to Excess Deferred
Compensation, Excess Contributions or Excess Aggregate Contributions which
amount shall be allocated in the same manner as income or losses are allocated
pursuant to Section 4.4(e).

     1.31 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.

     1.32 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as well
as each of the Employee's or former Employee's Beneficiaries) is considered a
Key Employee if the Employee, at any time during the Plan Year that contains the
"Determination Date" or any of the preceding four (4) Plan Years, has been
included in one of the following categories:

               (a) an officer of the Employer (as that term is defined within
          the meaning of the Regulations under Code Section 416) having annual
          "415


                                        7



          Compensation" greater than 50 percent of the amount in effect under
          Code Section 415(b)(1)(A) for any such Plan Year.

               (b) one of the ten employees having annual "415 Compensation"
          from the Employer for a Plan Year greater than the dollar limitation
          in effect under Code Section 415(c)(1)(A) for the calendar year in
          which such Plan Year ends and owning (or considered as owning within
          the meaning of Code Section 318) both more than one-half percent
          interest and the largest interests in the Employer.

               (c) a "five percent owner" of the Employer. "Five percent owner"
          means any person who owns (or is considered as owning within the
          meaning of Code Section 318) more than five percent (5%) of the
          outstanding stock of the Employer or stock possessing more than five
          percent (5%) of the total combined voting power of all stock of the
          Employer or, in the case of an unincorporated business, any person who
          owns more than five percent (5%) of the capital or profits interest in
          the Employer. In determining percentage ownership hereunder, employers
          that would otherwise be aggregated under Code Sections 414(b), (c),
          (m) and (o) shall be treated as separate employers.

               (d) a "one percent owner" of the Employer having an annual "415
          Compensation" from the Employer of more than $150,000. "One percent
          owner" means any person who owns (or is considered as owning within
          the meaning of Code Section 318) more than one percent (1%) of the
          outstanding stock of the Employer or stock possessing more than one
          percent (1%) of the total combined voting power of all stock of the
          Employer or, in the case of an unincorporated business, any person who
          owns more than one percent (1%) of the capital or profits interest in
          the Employer. In determining percentage ownership hereunder, employers
          that would otherwise be aggregated under Code Sections 414(b), (c),
          (m) and (o) shall be treated as separate employers. However, in
          determining whether an individual has "415 Compensation" of more than
          $150,000, "415 Compensation" from each employer required to be
          aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken
          into account.

          For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.

     1.33 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached Normal Retirement Date.

     1.34 "Leased Employee" means any person (other than an Employee of the
recipient Employer) who pursuant to an agreement between the recipient Employer
and any other person or entity ("leasing organization") has performed services
for the recipient (or for the recipient and related persons determined in
accordance with Code Section 414(n)(6)) on a substantially full time basis for a
period of at least one year, and such services are performed under primary
direction or control by the recipient Employer. Contributions or benefits
provided a Leased Employee by the leasing organization which are attributable to
services performed for the recipient Employer shall be treated as provided by
the recipient Employer. Furthermore,


                                        8



Compensation for a Leased Employee shall only include Compensation from the
leasing organization that is attributable to services performed for the
recipient Employer. A Leased Employee shall not be considered an Employee of the
recipient Employer:

               (a) if such employee is covered by a money purchase pension plan
          providing:

               (1) a nonintegrated employer contribution rate of at least 10% of
               compensation, as defined in Code Section 415(c)(3);

               (2) immediate participation;

               (3) full and immediate vesting; and

               (b) if Leased Employees do not constitute more than 20% of the
          recipient Employer's nonhighly compensated work force.

     1.35 "Non-Elective Contribution" means the Employer contributions to the
Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution used in the "Actual Deferral Percentage" tests.

     1.36 "Non-Highly Compensated Participant" means any Participant who is not
a Highly Compensated Employee. However, for purposes of Section 4.5(a) and
Section 4.6, if the prior year testing method is used, a Non-Highly Compensated
Participant shall be determined using the definition of Highly Compensated
Employee in effect for the preceding Plan Year.

     1.37 "Non-Key Employee" means any Employee or former Employee (and such
Employee's or former Employee's Beneficiaries) who is not, and has never been a
Key Employee.

     1.38 "Normal Retirement Age" means the Participant's 65th birthday, or the
Participant's fifth anniversary of joining the Plan, if later. A Participant
shall become fully Vested in the Participant's Account upon attaining Normal
Retirement Age.

     1.39 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.

     1.40 "1-Year Break in Service" means, for purposes of eligibility for
participation and vesting, the applicable computation period during which an
Employee has not completed more than 500 Hours of Service with the Employer.
Further, solely for the purpose of determining whether a Participant has
incurred a 1-Year Break in Service, Hours of Service shall be recognized for
"authorized leaves of absence" and "maternity and paternity leaves of absence."
Years of Service and 1-Year Breaks in Service shall be measured on the same
computation period.

          "Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.


                                        9



          A "maternity or paternity leave of absence" means an absence from work
for any period by reason of the Employee's pregnancy, birth of the Employee's
child, placement of a child with the Employee in connection with the adoption of
such child, or any absence for the purpose of caring for such child for a period
immediately following such birth or placement. For this purpose, Hours of
Service shall be credited for the computation period in which the absence from
work begins, only if credit therefore is necessary to prevent the Employee from
incurring a 1-Year Break in Service, or, in any other case, in the immediately
following computation period. The Hours of Service credited for a "maternity or
paternity leave of absence" shall be those which would normally have been
credited but for such absence, or, in any case in which the Administrator is
unable to determine such hours normally credited, eight (8) Hours of Service per
day. The total Hours of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed the number of Hours of Service
needed to prevent the Employee from incurring a 1-Year Break in Service.

     1.41 "Participant" means any Eligible Employee who participates in the Plan
and has not for any reason become ineligible to participate further in the Plan.

     1.42 "Participant Direction Procedures" means such instructions, guidelines
or policies, the terms of which are incorporated herein, as shall be established
pursuant to Section 4.12 and observed by the Administrator and applied and
provided to Participants who have Participant Directed Accounts.

     1.43 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to such Participant's
total interest in the Plan and Trust resulting from the Employer Non-Elective
Contributions.

     1.44 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.

     1.45 "Participant's Directed Account" means that portion of a Participant's
interest in the Plan with respect to which the Participant has directed the
investment in accordance with the Participant Direction Procedure.

     1.46 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to the
Participant's total interest in the Plan and Trust resulting from the Employer
Elective Contributions used to satisfy the "Actual Deferral Percentage" tests. A
separate accounting shall be maintained with respect to that portion of the
Participant's Elective Account attributable to such Elective Contributions
pursuant to Section 4.2 and any Employer Qualified Non-Elective Contributions.

     1.47 "Participant's Transfer/Rollover Account" means the account
established and maintained by the Administrator for each Participant with
respect to the Participant's total interest in the Plan resulting from amounts
transferred to this Plan from a direct plan-to-plan transfer and/or with respect
to such Participant's interest in the Plan resulting from amounts transferred
from another qualified plan or "conduit" Individual Retirement Account in
accordance with Section 4.11.

          A separate accounting shall be maintained with respect to that portion
of the Participant's Transfer/Rollover Account attributable to transfers (within
the meaning of Code Section 414(l)) and "rollovers."


                                       10



     1.48 "Plan" means this instrument, including all amendments thereto.

     1.49 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1 of each year and ending the following December 31.

     1.50 "Qualified Non-Elective Contribution" means any Employer contributions
made pursuant to Section 4.1(c) and Section 4.6(b) and Section 4.8(f). Such
contributions shall be considered an Elective Contribution for the purposes of
the Plan and may be used to satisfy the "Actual Deferral Percentage" tests or
the "Actual Contribution Percentage" tests.

     1.51 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or a delegate of the Secretary of the Treasury, and as
amended from time to time.

     1.52 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.

     1.53 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).

     1.54 "Super Top Heavy Plan" means a plan described in Section 8.2(b).
However, effective as of the first "limitation year" beginning after December
31, 1999, no Plan shall be considered a Super Top Heavy Plan.

     1.55 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.

     1.56 "Top Heavy Plan" means a plan described in Section 8.2(a).

     1.57 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top
Heavy Plan.

     1.58 "Top-Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" received from the Employer during such year. All
Affiliated Employers shall be taken into account as a single employer, and
Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2)
shall be considered Employees unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and are not covered in any qualified plan
maintained by the Employer. Employees who are non-resident aliens who received
no earned income (within the meaning of Code Section 911(d)(2)) from the
Employer constituting United States source income within the meaning of Code
Section 861(a)(3) shall not be treated as Employees. Furthermore, for the
purpose of determining the number of active Employees in any year, the following
additional Employees shall also be excluded, however, such Employees shall still
be considered for the purpose of identifying the particular Employees in the
Top-Paid Group:

               (a) Employees with less than six (6) months of service;


                                       11



               (b) Employees who normally work less than 17 1/2 hours per week;

               (c) Employees who normally work less than six (6) months during a
          year; and

               (d) Employees who have not yet attained age twenty-one (21).

          In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top-Paid Group.

          The foregoing exclusions set forth in this Section shall be applied on
a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.

     1.59 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder which
renders such Participant incapable of continuing any gainful occupation and
which condition constitutes total disability under the federal Social Security
Acts.

     1.60 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.

     1.61 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.

     1.62 "Valuation Date" means the Anniversary Date and may include any other
date or dates deemed necessary or appropriate by the Administrator for the
valuation of the Participants' accounts during the Plan Year, which may include
any day that the Trustee, any transfer agent appointed by the Trustee or the
Employer or any stock exchange used by such agent, are open for business.

     1.63 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.

     1.64 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.

          For vesting purposes, the computation periods shall be the Plan Year,
including periods prior to the Effective Date of the Plan.

          The computation period shall be the Plan Year if not otherwise set
forth herein.

          Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c).


                                       12



          Years of Service with any Affiliated Employer shall be recognized.

                                   ARTICLE II
                                 ADMINISTRATION

2.1  POWERS AND RESPONSIBILITIES OF THE EMPLOYER

               (a) In addition to the general powers and responsibilities
          otherwise provided for in this Plan, the Employer shall be empowered
          to appoint and remove the Trustee and the Administrator from time to
          time as it deems necessary for the proper administration of the Plan
          to ensure that the Plan is being operated for the exclusive benefit of
          the Participants and their Beneficiaries in accordance with the terms
          of the Plan, the Code, and the Act. The Employer may appoint counsel,
          specialists, advisers, agents (including any nonfiduciary agent) and
          other persons as the Employer deems necessary or desirable in
          connection with the exercise of its fiduciary duties under this Plan.
          The Employer may compensate such agents or advisers from the assets of
          the Plan as fiduciary expenses (but not including any business
          (settlor) expenses of the Employer), to the extent not paid by the
          Employer.

               (b) The Employer may, by written agreement or designation,
          appoint at its option an Investment Manager (qualified under the
          Investment Company Act of 1940 as amended), investment adviser, or
          other agent to provide direction to the Trustee with respect to any or
          all of the Plan assets. Such appointment shall be given by the
          Employer in writing in a form acceptable to the Trustee and shall
          specifically identify the Plan assets with respect to which the
          Investment Manager or other agent shall have authority to direct the
          investment.

               (c) The Employer shall establish a "funding policy and method,"
          i.e., it shall determine whether the Plan has a short run need for
          liquidity (e.g., to pay benefits) or whether liquidity is a long run
          goal and investment growth (and stability of same) is a more current
          need, or shall appoint a qualified person to do so. The Employer or
          its delegate shall communicate such needs and goals to the Trustee,
          who shall coordinate such Plan needs with its investment policy. The
          communication of such a "funding policy and method" shall not,
          however, constitute a directive to the Trustee as to the investment of
          the Trust Funds. Such "funding policy and method" shall be consistent
          with the objectives of this Plan and with the requirements of Title I
          of the Act.

               (d) The Employer shall periodically review the performance of any
          Fiduciary or other person to whom duties have been delegated or
          allocated by it under the provisions of this Plan or pursuant to
          procedures established hereunder. This requirement may be satisfied by
          formal periodic review by the Employer or by a qualified person
          specifically designated by the Employer, through day-to-day conduct
          and evaluation, or through other appropriate ways.

2.2  DESIGNATION OF ADMINISTRATIVE AUTHORITY

          The Employer shall be the Administrator. The Employer may appoint any
person, including, but not limited to, the Employees of the Employer, to perform
the duties of the


                                       13



Administrator. Any person so appointed shall signify acceptance by filing
written acceptance with the Employer. Upon the resignation or removal of any
individual performing the duties of the Administrator, the Employer may
designate a successor.

2.3  POWERS AND DUTIES OF THE ADMINISTRATOR

          The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish the Administrator's duties under the
Plan.

          The Administrator shall be charged with the duties of the general
administration of the Plan as set forth under the terms of the Plan, including,
but not limited to, the following:

               (a) the discretion to determine all questions relating to the
          eligibility of Employees to participate or remain a Participant
          hereunder and to receive benefits under the Plan;

               (b) to compute, certify, and direct the Trustee with respect to
          the amount and the kind of benefits to which any Participant shall be
          entitled hereunder;

               (c) to authorize and direct the Trustee with respect to all
          discretionary or otherwise directed disbursements from the Trust;

               (d) to maintain all necessary records for the administration of
          the Plan;

               (e) to interpret the provisions of the Plan and to make and
          publish such rules for regulation of the Plan as are consistent with
          the terms hereof;

               (f) to determine the size and type of any Contract to be
          purchased from any insurer, and to designate the insurer from which
          such Contract shall be purchased;

               (g) to compute and certify to the Employer and to the Trustee
          from time to time the sums of money necessary or desirable to be
          contributed to the Plan;


                                       14



               (h) to consult with the Employer and the Trustee regarding the
          short and long-term liquidity needs of the Plan in order that the
          Trustee can exercise any investment discretion in a manner designed to
          accomplish specific objectives;

               (i) to prepare and implement a procedure to notify Eligible
          Employees that they may elect to have a portion of their Compensation
          deferred or paid to them in cash;

               (j) to act as the named Fiduciary responsible for communications
          with Participants as needed to maintain Plan compliance with Act
          Section 404(c), including, but not limited to, the receipt and
          transmitting of Participant's directions as to the investment of their
          account(s) under the Plan and the formulation of policies, rules, and
          procedures pursuant to which Participants may give investment
          instructions with respect to the investment of their accounts;

               (k) to determine the validity of, and take appropriate action
          with respect to, any qualified domestic relations order received by
          it; and

               (l) to assist any Participant regarding the Participant's rights,
          benefits, or elections available under the Plan.

2.4  RECORDS AND REPORTS

          The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, policies, and other data that may be
necessary for proper administration of the Plan and shall be responsible for
supplying all information and reports to the Internal Revenue Service,
Department of Labor, Participants, Beneficiaries and others as required by law.

2.5  APPOINTMENT OF ADVISERS

          The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, agents (including
nonfiduciary agents) and other persons as the Administrator or the Trustee deems
necessary or desirable in connection with the administration of this Plan,
including but not limited to agents and advisers to assist with the
administration and management of the Plan, and thereby to provide, among such
other duties as the Administrator may appoint, assistance with maintaining Plan
records and the providing of investment information to the Plan's investment
fiduciaries and to Plan Participants.

2.6  PAYMENT OF EXPENSES

          Except as otherwise provided in this section, all expenses of
administration may be paid out of the Trust Fund unless paid by the Employer.
Such expenses shall include any expenses incident to the functioning of the
Administrator, or any person or persons retained or appointed by any named
Fiduciary incident to the exercise of their duties under the Plan, including,
but not limited to, fees of accountants, counsel, Investment Managers, agents
(including nonfiduciary agents) appointed for the purpose of assisting the
Administrator or the Trustee in carrying out the instructions of Participants as
to the directed investment of their accounts and other specialists and their
agents, the costs of any bonds required pursuant to Act Section 412, and other
costs of administering the Plan. The accounts of terminated participants


                                       15



may in the sole discretion of the Administrator be charged their pro rata share
of the Plan's administration expenses, regardless of whether the Employer
otherwise pays some of those expenses for current Employees who participate in
the Plan. Until paid, the expenses shall constitute a liability of the Trust
Fund. The Plan may in the sole discretion of the Administrator assess to an
individual Participant's account certain expenses incurred by or attributable to
such individual Participant. Such per capita expenses may include without
limitation the Plan's reasonable expenses in processing a hardship distribution
including the preparation of required notices, elections and a distribution
check, and the Plan's reasonable fees and expenses in reviewing and processing a
qualified domestic relations order including notices to the parties and the
Plan's actual legal expenses and costs if the Plan consults with legal counsel
regarding the qualified status of the order.

2.7  CLAIMS PROCEDURE

          Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within ninety (90) days after the application is filed, or such
period as is required by applicable law or Department of Labor regulation. In
the event the claim is denied, the reasons for the denial shall be specifically
set forth in the notice in language calculated to be understood by the claimant,
pertinent provisions of the Plan shall be cited, and, where appropriate, an
explanation as to how the claimant can perfect the claim will be provided. In
addition, the claimant shall be furnished with an explanation of the Plan's
claims review procedure.

2.8  CLAIMS REVIEW PROCEDURE

          Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.7
shall be entitled to request the Administrator to give further consideration to
a claim by filing with the Administrator a written request for a hearing. Such
request, together with a written statement of the reasons why the claimant
believes the claim should be allowed, shall be filed with the Administrator no
later than sixty (60) days after receipt of the written notification provided
for in Section 2.7. The Administrator shall then conduct a hearing within the
next sixty (60) days, at which the claimant may be represented by an attorney or
any other representative of such claimant's choosing and expense and at which
the claimant shall have an opportunity to submit written and oral evidence and
arguments in support of the claim. At the hearing (or prior thereto upon five
(5) business days written notice to the Administrator) the claimant or the
claimant's representative shall have an opportunity to review all documents in
the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within sixty (60) days of receipt of the appeal
(unless there has been an extension of sixty (60) days due to special
circumstances, provided the delay and the special circumstances occasioning it
are communicated to the claimant within the sixty (60) day period). Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.


                                       16



                                   ARTICLE III
                                   ELIGIBILITY

3.1  CONDITIONS OF ELIGIBILITY

          Any Eligible Employee who has completed 60 days of continuous service
and has attained age 21 shall be eligible to participate hereunder as of the
date such Employee has satisfied such requirements. However, any Employee who
was a Participant in the Plan prior to the effective date of this amendment and
restatement shall continue to participate in the Plan.

          For purposes of this Section, an Eligible Employee will be deemed to
have completed the required number of days of service if such Employee is in the
employ of the Employer at any time after such days after the Employee's
employment commencement date. Employment commencement date shall be the first
day that the Employee is entitled to be credited with an Hour of Service for the
performance of duty.

3.2  EFFECTIVE DATE OF PARTICIPATION

          An Eligible Employee shall become a Participant effective as of the
first day of the month coinciding with or next following the date on which such
Employee met the eligibility requirements of Section 3.1, provided said Employee
was still employed as of such date (or if not employed on such date, as of the
date of rehire or, if later, the date that the Employee would have otherwise
entered the Plan had the Employee not terminated employment).

          If an Employee, who has satisfied the Plan's eligibility requirements
and would otherwise have become a Participant, shall go from a classification of
a noneligible Employee to an Eligible Employee, such Employee shall become a
Participant on the date such Employee becomes an Eligible Employee or, if later,
the date that the Employee would have otherwise entered the Plan had the
Employee always been an Eligible Employee.

          If an Employee, who has satisfied the Plan's eligibility requirements
and would otherwise become a Participant, shall go from a classification of an
Eligible Employee to a noneligible class of Employees, such Employee shall
become a Participant in the Plan on the date such Employee again becomes an
Eligible Employee, or, if later, the date that the Employee would have otherwise
entered the Plan had the Employee always been an Eligible Employee.

3.3  DETERMINATION OF ELIGIBILITY

          The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review pursuant to Section 2.8.

3.4  TERMINATION OF ELIGIBILITY

          In the event a Participant shall go from a classification of an
Eligible Employee to an ineligible Employee, such Former Participant shall
continue to vest in the Plan for each Year of Service completed while a
noneligible Employee, until such time as the Participant's Account is forfeited
or distributed pursuant to the terms of the Plan. Additionally, the Former
Participant's interest in the Plan shall continue to share in the earnings of
the Trust Fund.


                                       17



3.5  OMISSION OF ELIGIBLE EMPLOYEE

          If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by the Employer for the year has been made
and allocated, then the Employer shall make a subsequent contribution, if
necessary after the application of Section 4.4(c), so that the omitted Employee
receives a total amount which the Employee would have received (including both
Employer contributions and earnings thereon) had the Employee not been omitted.
Such contribution shall be made regardless of whether it is deductible in whole
or in part in any taxable year under applicable provisions of the Code.

3.6  INCLUSION OF INELIGIBLE EMPLOYEE

          If, in any Plan Year, any person who should not have been included as
a Participant in the Plan is erroneously included and discovery of such
inclusion is not made until after a contribution for the year has been made and
allocated, the Employer shall be entitled to recover the contribution made with
respect to the ineligible person provided the error is discovered within twelve
(12) months of the date on which it was made. Otherwise, the amount contributed
with respect to the ineligible person shall constitute a Forfeiture for the Plan
Year in which the discovery is made. Notwithstanding the foregoing, any Deferred
Compensation made by an ineligible person shall be distributed to the person
(along with any earnings attributable to such Deferred Compensation).

3.7  REHIRED EMPLOYEES AND BREAKS IN SERVICE

               (a) A Former Participant shall participate in the Plan as of the
          date of reemployment.

               (b) After a Former Participant who has severed employment with
          the Employer incurs five (5) consecutive 1-Year Breaks in Service, the
          Vested portion of said Former Participant's Account attributable to
          pre-break service shall not be increased as a result of post-break
          service. In such case, separate accounts will be maintained as
          follows:

               (1) one account for nonforfeitable benefits attributable to
               pre-break service; and

               (2) one account representing the Participant's Employer derived
               account balance in the Plan attributable to post-break service.

               (c) If any Participant becomes a Former Participant due to
          severance of employment with the Employer and is reemployed by the
          Employer before five (5) consecutive 1-Year Breaks in Service, and
          such Former Participant had received a distribution of the entire
          Vested interest prior to reemployment, then the forfeited account
          shall be reinstated only if the Former Participant repays the full
          amount which had been distributed. Such repayment must be made before
          the earlier of five (5) years after the first date on which the
          Participant is subsequently reemployed by the Employer or the close of
          the first period of five (5) consecutive 1-Year Breaks in Service
          commencing after the distribution. If a distribution


                                       18



          occurs for any reason other than a severance of employment, the time
          for repayment may not end earlier than five (5) years after the date
          of distribution. In the event the Former Participant does repay the
          full amount distributed, the undistributed forfeited portion of the
          Participant's Account must be restored in full, unadjusted by any
          gains or losses occurring subsequent to the Valuation Date preceding
          the distribution. The source for such reinstatement may be Forfeitures
          occurring during the Plan Year. If such source is insufficient, then
          the Employer will contribute an amount which is sufficient to restore
          any such forfeited Accounts.

                    If a non-Vested Former Participant was deemed to have
          received a distribution and such Former Participant is reemployed by
          the Employer before five (5) consecutive 1-Year Breaks in Service,
          then such Participant will be deemed to have repaid the deemed
          distribution as of the date of reemployment.

3.8  ELECTION NOT TO PARTICIPATE

          An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be irrevocable and communicated to the Employer, in writing, within a reasonable
period of time before the beginning of the first Plan Year.

                                   ARTICLE IV
                           CONTRIBUTION AND ALLOCATION

4.1  FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION

          For each Plan Year, the Employer shall contribute to the Plan:

               (a) The amount of the total salary reduction elections of all
          Participants made pursuant to Section 4.2(a), which amount shall be
          deemed an Employer Elective Contribution.

               (b) On behalf of each Participant who is eligible to share in
          matching contributions for the Plan Year, a matching contribution
          equal to 50% of a Participant's Deferred Compensation up to and
          including 2% of such Participant's Compensation, plus 25% of a
          Participant's Deferred Compensation between more than 2% and 6% of
          such Participant's Compensation, plus a uniform discretionary
          percentage of each such Participant's Deferred Compensation, the exact
          percentage, if any, to be determined each year by the Employer, which
          amount, if any, shall be deemed an Employer Non-Elective Contribution.
          In addition, the Employer may in its sole discretion make a
          discretionary matching contribution equal to a uniform percentage of
          each Participant's Deferred Compensation, the exact percentage, if
          any, to be determined each year by the Employer.

               (c) On behalf of each Non-Highly Compensated Participant who is
          eligible to share in the Qualified Non-Elective Contribution for the
          Plan Year, a discretionary Qualified Non-Elective Contribution equal
          to a uniform percentage of each eligible individual's Compensation,
          the exact percentage, if any, to be determined each year by the
          Employer. Any Employer Qualified Non-Elective Contribution shall be
          deemed an Employer Elective Contribution.


                                       19



               (d) Additionally, to the extent necessary, the Employer shall
          contribute to the Plan the amount necessary to provide the top heavy
          minimum contribution. All contributions by the Employer shall be made
          in cash or in such property as is acceptable to the Trustee.

               (e) Notwithstanding any contrary provisions of the Plan, the
          Administrator may in its discretion suspend or limit contributions,
          including contributions made pursuant to Participant deferral
          elections under Section 4.2, on behalf of any or all Highly
          Compensated Employees if the Administrator reasonably believes that
          such contributions will cause the Plan to discriminate in favor of
          highly compensated employees.

4.2  PARTICIPANT'S SALARY REDUCTION ELECTION

               (a) Effective January 1, 1985, each Participant may elect to
          defer a portion of Compensation which would have been received in the
          Plan Year (except for the deferral election) by up to the maximum
          amount which will not cause the Plan to violate the provisions of
          Sections 4.5(a) and 4.9. A deferral election (or modification of an
          earlier election) may not be made with respect to Compensation which
          is currently available on or before the date the Participant executed
          such election. For purposes of this Section, Compensation shall be
          determined prior to any reductions made pursuant to Code Sections 125,
          132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee
          contributions described in Code Section 414(h)(2) that are treated as
          Employer contributions.

                    Notwithstanding the above, effective April 1, 2001, a
          Participant's Compensation shall automatically be reduced by 2%, which
          amount shall be deemed to be the Participant's salary reduction
          election if the Participant does not elect to defer a portion of
          Compensation or elect to receive cash in lieu of making a salary
          deferral election. An Eligible Employee has an effective opportunity
          to elect to receive an amount in cash if the Eligible Employee
          receives notice of availability of the election and the Eligible
          Employee has a reasonable period to make the election before the date
          on which the cash is currently available. However, the automatic
          election may, in accordance with procedures established by the
          Administrator, be applied to all Participants or to Eligible Employees
          who become Participants after a certain date on a nondiscriminatory
          basis.

                    The amount by which Compensation is reduced shall be that
          Participant's Deferred Compensation and be treated as an Employer
          Elective Contribution and allocated to that Participant's Elective
          Account.

               (b) The balance in each Participant's Elective Account shall be
          fully Vested at all times and, except as otherwise provided herein,
          shall not be subject to Forfeiture for any reason.

               (c) Notwithstanding anything in the Plan to the contrary, amounts
          held in the Participant's Elective Account may not be distributable
          earlier than:


                                       20



               (1) a Participant's separation from service, Total and Permanent
               Disability, or death;

               (2) a Participant's attainment of age 59 1/2;

               (3) the termination of the Plan without the existence at the time
               of Plan termination of another defined contribution plan or the
               establishment of a successor defined contribution plan by the
               Employer or an Affiliated Employer within the period ending
               twelve months after distribution of all assets from the Plan
               maintained by the Employer. For this purpose, a defined
               contribution plan does not include an employee stock ownership
               plan (as defined in Code Section 4975(e)(7) or 409), a simplified
               employee pension plan (as defined in Code Section 408(k)), or a
               simple individual retirement account plan (as defined in Code
               Section 408(p));

               (4) the date of disposition by the Employer to an entity that is
               not an Affiliated Employer of substantially all of the assets
               (within the meaning of Code Section 409(d)(2)) used in a trade or
               business of such corporation if such corporation continues to
               maintain this Plan after the disposition with respect to a
               Participant who continues employment with the corporation
               acquiring such assets;

               (5) the date of disposition by the Employer or an Affiliated
               Employer who maintains the Plan of its interest in a subsidiary
               (within the meaning of Code Section 409(d)(3)) to an entity which
               is not an Affiliated Employer but only with respect to a
               Participant who continues employment with such subsidiary; or

               (6) the proven financial hardship of a Participant, subject to
               the limitations of Section 6.11.

               (d) For each Plan Year, a Participant's Deferred Compensation
          made under this Plan and all other plans, contracts or arrangements of
          the Employer maintaining this Plan shall not exceed, during any
          taxable year of the Participant, the limitation imposed by Code
          Section 402(g), as in effect at the beginning of such taxable year. If
          such dollar limitation is exceeded, a Participant will be deemed to
          have notified the Administrator of such excess amount which shall be
          distributed in a manner consistent with Section 4.2(f). The dollar
          limitation shall be adjusted annually pursuant to the method provided
          in Code Section 415(d) in accordance with Regulations.

               (e) In the event a Participant has received a hardship
          distribution from the Participant's Elective Account pursuant to
          Section 6.11(b) or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from
          any other plan maintained by the Employer, then such Participant shall
          not be permitted to elect to have Deferred Compensation contributed to
          the Plan for a period of twelve (12) months following the receipt of
          the distribution. Furthermore, the dollar limitation under Code
          Section 402(g) shall be reduced, with respect to the Participant's
          taxable year following the taxable year in which the hardship
          distribution was made, by the amount of such Participant's Deferred
          Compensation, if any, pursuant to this


                                       21



          Plan (and any other plan maintained by the Employer) for the taxable
          year of the hardship distribution.

               (f) If a Participant's Deferred Compensation under this Plan
          together with any elective deferrals (as defined in Regulation
          1.402(g)-1(b)) under another qualified cash or deferred arrangement
          (as described in Code Section 401(k)), a simplified employee pension
          (as described in Code Section 408(k)(6)), a simple individual
          retirement account plan (as described in Code Section 408(p)), a
          salary reduction arrangement (within the meaning of Code Section
          3121(a)(5)(D)), a deferred compensation plan under Code Section
          457(b), or a trust described in Code Section 501(c)(18) cumulatively
          exceed the limitation imposed by Code Section 402(g) (as adjusted
          annually in accordance with the method provided in Code Section 415(d)
          pursuant to Regulations) for such Participant's taxable year, the
          Participant may, not later than March 1 following the close of the
          Participant's taxable year, notify the Administrator in writing of
          such excess and request that the Participant's Deferred Compensation
          under this Plan be reduced by an amount specified by the Participant.
          In such event, the Administrator may direct the Trustee to distribute
          such excess amount (and any Income allocable to such excess amount) to
          the Participant not later than the first April 15th following the
          close of the Participant's taxable year. Any distribution of less than
          the entire amount of Excess Deferred Compensation and Income shall be
          treated as a pro rata distribution of Excess Deferred Compensation and
          Income. The amount distributed shall not exceed the Participant's
          Deferred Compensation under the Plan for the taxable year (and any
          Income allocable to such excess amount). Any distribution on or before
          the last day of the Participant's taxable year must satisfy each of
          the following conditions:

               (1) the distribution must be made after the date on which the
               Plan received the Excess Deferred Compensation;

               (2) the Participant shall designate the distribution as Excess
               Deferred Compensation; and

               (3) the Plan must designate the distribution as a distribution of
               Excess Deferred Compensation.

                    Any distribution made pursuant to this Section 4.2(f) shall
          be made first from unmatched Deferred Compensation and, thereafter,
          from Deferred Compensation which is matched. Matching contributions
          which relate to such Deferred Compensation shall be forfeited.

               (g) Notwithstanding Section 4.2(f) above, a Participant's Excess
          Deferred Compensation shall be reduced, but not below zero, by any
          distribution of Excess Contributions pursuant to Section 4.6(a) for
          the Plan Year beginning with or within the taxable year of the
          Participant.

               (h) At Normal Retirement Date, or such other date when the
          Participant shall be entitled to receive benefits, the fair market
          value of the Participant's Elective Account shall be used to provide
          additional benefits to the Participant or the Participant's
          Beneficiary.


                                       22



               (i) Employer Elective Contributions made pursuant to this Section
          may be segregated into a separate account for each Participant in a
          federally insured savings account, certificate of deposit in a bank or
          savings and loan association, money market certificate, or other
          short-term debt security acceptable to the Trustee until such time as
          the allocations pursuant to Section 4.4 have been made.

               (j) The Employer and the Administrator shall implement the salary
          reduction elections provided for herein in accordance with the
          following:

               (1) A Participant must make an initial salary deferral election,
               or effective April 1, 2001, an election to receive cash in lieu
               of a salary deferral election, within a reasonable time, not to
               exceed thirty (30) days, after entering the Plan pursuant to
               Section 3.2. If the Participant fails to make an initial salary
               deferral election, or effective April 1, 2001, an election to
               receive cash in lieu of a salary deferral election, within such
               time, then such Participant may thereafter make an election in
               accordance with the rules governing modifications. The
               Participant shall make such an election by entering into a
               written salary reduction agreement with the Employer and filing
               such agreement with the Administrator. Such election shall
               initially be effective beginning with the pay period following
               the acceptance of the salary reduction agreement by the
               Administrator, shall not have retroactive effect and shall remain
               in force until revoked. However, with respect to a Participant's
               initial election to receive cash in lieu of a salary reduction,
               such election shall be effective beginning with the first day of
               the Participant's pay period coinciding with or next following
               entry into the Plan pursuant to Section 3.2 if such election is
               filed with the Administrator before the Participant's
               Compensation for such pay period is currently available.

               (2) A Participant may modify a prior election at any time during
               the Plan Year and concurrently make a new election by filing a
               written notice with the Administrator within a reasonable time
               before the pay period for which such modification is to be
               effective. Any modification shall not have retroactive effect and
               shall remain in force until revoked.

               (3) A Participant may elect to prospectively revoke the
               Participant's salary reduction agreement in its entirety at any
               time during the Plan Year by providing the Administrator with
               thirty (30) days written notice of such revocation (or upon such
               shorter notice period as may be acceptable to the Administrator).
               Such revocation shall become effective as of the beginning of the
               first pay period coincident with or next following the expiration
               of the notice period. Furthermore, the termination of the
               Participant's employment, or the cessation of participation for
               any reason, shall be deemed to revoke any salary reduction
               agreement then in effect, effective immediately following the
               close of the pay period within which such termination or
               cessation occurs.


                                       23



4.3  TIME OF PAYMENT OF EMPLOYER CONTRIBUTION

          The Employer may make its contribution to the Plan for a particular
Plan Year at such time as the Employer, in its sole discretion, determines. If
the Employer makes a contribution for a particular Plan Year after the close of
that Plan Year, the Employer will designate to the Trustee the Plan Year for
which the Employer is making its contribution.

4.4  ALLOCATION OF CONTRIBUTION AND EARNINGS

               (a) The Administrator shall establish and maintain an account in
          the name of each Participant to which the Administrator shall credit
          as of each Anniversary Date, or other Valuation Date, all amounts
          allocated to each such Participant as set forth herein.

               (b) The Employer shall provide the Administrator with all
          information required by the Administrator to make a proper allocation
          of the Employer contributions for each Plan Year. Within a reasonable
          period of time after the date of receipt by the Administrator of such
          information, the Administrator shall allocate such contribution as
          follows:

               (1) With respect to the Employer Elective Contribution made
               pursuant to Section 4.1(a), to each Participant's Elective
               Account in an amount equal to each such Participant's Deferred
               Compensation for the year.

               (2) With respect to the Employer fixed matching contribution made
               pursuant to Section 4.1(b) and with respect to the Employer
               Non-Elective Contribution made pursuant to Section 4.1(b), to
               each Participant's Account in accordance with Section 4.1(b).

               Any Participant actively employed during the Plan Year shall be
               eligible to share in the Employer fixed matching contributions
               for the Plan Year.

               Any Participant actively employed on the last day of the Plan
               Year shall be eligible to share in the Employer discretionary
               matching contribution (Employer Non-Elective Contribution), if
               any, for the Plan Year.

               (3) With respect to the Employer Qualified Non-Elective
               Contribution made pursuant to Section 4.1(c), to each
               Participant's Elective Account when used to satisfy the "Actual
               Deferral Percentage" tests or Participant's Account in accordance
               with Section 4.1(c).

               Any Non-Highly Compensated Participant actively employed during
               the Plan Year shall be eligible to share in the Qualified
               Non-Elective Contribution for the Plan Year.

               (c) On or before each Anniversary Date any amounts which became
          Forfeitures since the last Anniversary Date may be made available to
          reinstate previously forfeited account balances of Former
          Participants, if any, in accordance with Section 3.7(d), be used to
          satisfy any contribution that may be required pursuant to Section 3.5
          and/or 6.9, or be used to pay any administrative


                                       24



          expenses of the Plan. The remaining Forfeitures, if any, shall be used
          to reduce the contribution of the Employer hereunder for the Plan Year
          in which such Forfeitures occur.

               (d) For any Top Heavy Plan Year, Non-Key Employees not otherwise
          eligible to share in the allocation of contributions as provided
          above, shall receive the minimum allocation provided for in Section
          4.4(f) if eligible pursuant to the provisions of Section 4.4(h).

               (e) As of each Valuation Date, before the current valuation
          period allocation of Employer contributions, any earnings or losses
          (net appreciation or net depreciation) of the Trust Fund shall be
          allocated in the same proportion that each Participant's and Former
          Participant's nonsegregated accounts bear to the total of all
          Participants' and Former Participants' nonsegregated accounts as of
          such date. Earnings or losses with respect to a Participant's Directed
          Account shall be allocated in accordance with Section 4.12.

                    Participants' transfers from other qualified plans deposited
          in the general Trust Fund shall share in any earnings and losses (net
          appreciation or net depreciation) of the Trust Fund in the same manner
          provided above. Each segregated account maintained on behalf of a
          Participant shall be credited or charged with its separate earnings
          and losses.

               (f) Minimum Allocations Required for Top Heavy Plan Years:
          Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
          the Employer contributions allocated to the Participant's Combined
          Account of each Non-Key Employee shall be equal to at least three
          percent (3%) of such Non-Key Employee's "415 Compensation" (reduced by
          contributions and forfeitures, if any, allocated to each Non-Key
          Employee in any defined contribution plan included with this Plan in a
          Required Aggregation Group). However, if (1) the sum of the Employer
          contributions allocated to the Participant's Combined Account of each
          Key Employee for such Top Heavy Plan Year is less than three percent
          (3%) of each Key Employee's "415 Compensation" and (2) this Plan is
          not required to be included in an Aggregation Group to enable a
          defined benefit plan to meet the requirements of Code Section
          401(a)(4) or 410, the sum of the Employer contributions allocated to
          the Participant's Combined Account of each Non-Key Employee shall be
          equal to the largest percentage allocated to the Participant's
          Combined Account of any Key Employee. However, in determining whether
          a Non-Key Employee has received the required minimum allocation, such
          Non-Key Employee's Deferred Compensation and matching contributions
          needed to satisfy the "Actual Contribution Percentage" tests pursuant
          to Section 4.7(a) shall not be taken into account.

                    However, no such minimum allocation shall be required in
          this Plan for any Non-Key Employee who participates in another defined
          contribution plan subject to Code Section 412 included with this Plan
          in a Required Aggregation Group.

               (g) For purposes of the minimum allocations set forth above, the
          percentage allocated to the Participant's Combined Account of any Key
          Employee


                                       25



          shall be equal to the ratio of the sum of the Employer contributions
          allocated on behalf of such Key Employee divided by the "415
          Compensation" for such Key Employee.

               (h) For any Top Heavy Plan Year, the minimum allocations set
          forth above shall be allocated to the Participant's Combined Account
          of all Non-Key Employees who are Participants and who are employed by
          the Employer on the last day of the Plan Year, including Non-Key
          Employees who have (1) failed to complete a Year of Service; and (2)
          declined to make mandatory contributions (if required) or, in the case
          of a cash or deferred arrangement, elective contributions to the
          Plan.

               (i) In lieu of the above, if a Non-Key Employee participates in
          this Plan and a defined benefit pension plan included in a Required
          Aggregation Group which is top heavy, a minimum allocation of five
          percent (5%) of "415 Compensation" shall be provided under this Plan.

               (j) If a Non-Key Employee participates in this Plan and a defined
          benefit plan included in a Required Aggregation Group which is top
          heavy, a minimum monthly accrued benefit equal to the product of (1)
          one-twelfth (1/12th) of "415 Compensation" averaged over the five (5)
          consecutive "limitation years" (or actual "limitation years," if less)
          which produce the highest average and (2) the lesser of (i) two
          percent (2%) multiplied by years of service when the plan is top heavy
          or (ii) twenty percent (20%) shall be provided to such Non-Key
          Employee under the defined benefit plan.

               (k) Notwithstanding the foregoing, for Plan Years beginning prior
          to January 1, 2000, the minimum benefit requirement for a Top Heavy
          Plan shall be determined in the following manner:

               (1) Each Non-Key Employee who is a Participant during a Top Heavy
               Plan Year shall be provided the minimum allocation pursuant to
               Section 4.4(f).

               In lieu of the above, if a Non-Key Employee participates in this
               Plan and a defined benefit pension plan included in a Required
               Aggregation Group which is top heavy, a minimum allocation of
               five percent (5%) of "415 Compensation" shall be provided under
               this Plan.

               (2) If a Non-Key Employee participates in this Plan and a defined
               benefit plan included in a Required Aggregation Group which is
               top heavy, a minimum monthly accrued benefit equal to the product
               of (i) one-twelfth (1/12th) of "415 Compensation" averaged over
               the five (5) consecutive "limitation years" (or actual
               "limitation years," if less) which produce the highest average
               and (ii) the lesser of (A) two percent (2%) multiplied by years
               of service when the plan is top heavy or (B) twenty percent (20%)
               shall be provided to such Non-Key Employee under the defined
               benefit plan.


                                       26



               (l) For the purposes of this Section, "415 Compensation" in
          excess of $150,000 (or such other amount provided in the Code) shall
          be disregarded. Such amount shall be adjusted for increases in the
          cost of living in accordance with Code Section 401(a)(17)(B), except
          that the dollar increase in effect on January 1 of any calendar year
          shall be effective for the Plan Year beginning with or within such
          calendar year. If "415 Compensation" for any prior determination
          period is taken into account in determining a Participant's minimum
          benefit for the current Plan Year, the "415 Compensation" for such
          determination period is subject to the applicable annual "415
          Compensation" limit in effect for that prior period. For this purpose,
          in determining the minimum benefit in Plan Years beginning on or after
          January 1, 1989, the annual "415 Compensation" limit in effect for
          determination periods beginning before that date is $200,000 (or such
          other amount as adjusted for increases in the cost of living in
          accordance with Code Section 415(d) for determination periods
          beginning on or after January 1, 1989, and in accordance with Code
          Section 401(a)(17)(B) for determination periods beginning on or after
          January 1, 1994). For determination periods beginning prior to January
          1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years
          and shall not be adjusted. For any short Plan Year the "415
          Compensation" limit shall be an amount equal to the "415 Compensation"
          limit for the calendar year in which the Plan Year begins multiplied
          by the ratio obtained by dividing the number of full months in the
          short Plan Year by twelve (12).

               (m) Notwithstanding anything herein to the contrary, Participants
          who terminated employment for any reason during the Plan Year shall
          share in the salary reduction contributions made by the Employer for
          the year of termination without regard to the Hours of Service
          credited.

               (n) Notwithstanding anything in this Section to the contrary, all
          information necessary to properly reflect a given transaction may not
          be available until after the date specified herein for processing such
          transaction, in which case the transaction will be reflected when such
          information is received and processed. Subject to express limits that
          may be imposed under the Code, the processing of any contribution,
          distribution or other transaction may be delayed for any legitimate
          business reason (including, but not limited to, failure of systems or
          computer programs, failure of the means of the transmission of data,
          force majeure, the failure of a service provider to timely receive
          values or prices, and the correction for errors or omissions or the
          errors or omissions of any service provider). The processing date of a
          transaction will be binding for all purposes of the Plan.

               (o) Notwithstanding anything to the contrary, if this is a Plan
          that would otherwise fail to meet the requirements of Code Section
          410(b)(1)(B) and the Regulations thereunder because Employer
          contributions would not be allocated to a sufficient number or
          percentage of Participants for a Plan Year, then the following rules
          shall apply:

               (1) The group of Participants eligible to share in the Employer's
               contribution for the Plan Year shall be expanded to include the
               minimum number of Participants who would not otherwise be
               eligible as are necessary to satisfy the applicable test
               specified above. The specific


                                       27



               Participants who shall become eligible under the terms of this
               paragraph shall be those who have not separated from service
               prior to the last day of the Plan Year and have completed the
               greatest number of Hours of Service in the Plan Year.

               (2) If after application of paragraph (1) above, the applicable
               test is still not satisfied, then the group of Participants
               eligible to share in the Employer's contribution for the Plan
               Year shall be further expanded to include the minimum number of
               Participants who have separated from service prior to the last
               day of the Plan Year as are necessary to satisfy the applicable
               test. The specific Participants who shall become eligible to
               share shall be those Participants who have completed the greatest
               number of Hours of Service in the Plan Year before terminating
               employment.

               (3) Nothing in this Section shall permit the reduction of a
               Participant's accrued benefit. Therefore any amounts that have
               previously been allocated to Participants may not be reallocated
               to satisfy these requirements. In such event, the Employer shall
               make an additional contribution equal to the amount such affected
               Participants would have received had they been included in the
               allocations, even if it exceeds the amount which would be
               deductible under Code Section 404. Any adjustment to the
               allocations pursuant to this paragraph shall be considered a
               retroactive amendment adopted by the last day of the Plan Year.

4.5  ACTUAL DEFERRAL PERCENTAGE TESTS

               (a) Maximum Annual Allocation: For each Plan Year, the annual
          allocation derived from Employer Elective Contributions to a Highly
          Compensated Participant's Elective Account shall satisfy one of the
          following tests:

               (1) The "Actual Deferral Percentage" for the Highly Compensated
               Participant group shall not be more than the "Actual Deferral
               Percentage" of the Non-Highly Compensated Participant group (for
               the preceding Plan Year if the prior year testing method is used
               to calculate the "Actual Deferral Percentage" for the Non-Highly
               Compensated Participant group) multiplied by 1.25, or

               (2) The excess of the "Actual Deferral Percentage" for the Highly
               Compensated Participant group over the "Actual Deferral
               Percentage" for the Non-Highly Compensated Participant group (for
               the preceding Plan Year if the prior year testing method is used
               to calculate the "Actual Deferral Percentage" for the Non-Highly
               Compensated Participant group) shall not be more than two
               percentage points. Additionally, the "Actual Deferral Percentage"
               for the Highly Compensated Participant group shall not exceed the
               "Actual Deferral Percentage" for the Non-Highly Compensated
               Participant group (for the preceding Plan Year if the prior year
               testing method is used to calculate the "Actual Deferral
               Percentage" for the Non-Highly Compensated Participant group)
               multiplied by 2. The


                                       28



               provisions of Code Section 401(k)(3) and Regulation 1.401(k)-1(b)
               are incorporated herein by reference.

               However, in order to prevent the multiple use of the alternative
               method described in (2) above and in Code Section 401(m)(9)(A),
               any Highly Compensated Participant eligible to make elective
               deferrals pursuant to Section 4.2 and to make Employee
               contributions or to receive matching contributions under this
               Plan or under any other plan maintained by the Employer or an
               Affiliated Employer shall have a combination of such
               Participant's Elective Contributions and Employer matching
               contributions reduced pursuant to Section 4.6(a) and Regulation
               1.401(m)-2, the provisions of which are incorporated herein by
               reference.

               (b) For the purposes of this Section "Actual Deferral Percentage"
          means, with respect to the Highly Compensated Participant group and
          Non-Highly Compensated Participant group for a Plan Year, the average
          of the ratios, calculated separately for each Participant in such
          group, of the amount of Employer Elective Contributions allocated to
          each Participant's Elective Account for such Plan Year, to such
          Participant's "414(s) Compensation" for such Plan Year. The actual
          deferral ratio for each Participant and the "Actual Deferral
          Percentage" for each group shall be calculated to the nearest
          one-hundredth of one percent. Employer Elective Contributions
          allocated to each Non-Highly Compensated Participant's Elective
          Account shall be reduced by Excess Deferred Compensation to the extent
          such excess amounts are made under this Plan or any other plan
          maintained by the Employer.

                    Notwithstanding the above, if the prior year test method is
          used to calculate the "Actual Deferral Percentage" for the Non-Highly
          Compensated Participant group for the first Plan Year of this
          amendment and restatement, the "Actual Deferral Percentage" for the
          Non-Highly Compensated Participant group for the preceding Plan Year
          shall be calculated pursuant to the provisions of the Plan then in
          effect.

               (c) For the purposes of Sections 4.5(a) and 4.6, a Highly
          Compensated Participant and a Non-Highly Compensated Participant shall
          include any Employee eligible to make a deferral election pursuant to
          Section 4.2, whether or not such deferral election was made or
          suspended pursuant to Section 4.2.

                    Notwithstanding the above, if the prior year testing method
          is used to calculate the "Actual Deferral Percentage" for the
          Non-Highly Compensated Participant group for the first Plan Year of
          this amendment and restatement, for purposes of Section 4.5(a) and
          4.6, a Non-Highly Compensated Participant shall include any such
          Employee eligible to make a deferral election, whether or not such
          deferral election was made or suspended, pursuant to the provisions of
          the Plan in effect for the preceding Plan Year.

               (d) For the purposes of this Section and Code Sections 401(a)(4),
          410(b) and 401(k), if two or more plans which include cash or deferred
          arrangements are considered one plan for the purposes of Code Section
          401(a)(4) or 410(b) (other than Code Section 410(b)(2)(A)(ii)), the
          cash or deferred


                                       29



          arrangements included in such plans shall be treated as one
          arrangement. In addition, two or more cash or deferred arrangements
          may be considered as a single arrangement for purposes of determining
          whether or not such arrangements satisfy Code Sections 401(a)(4),
          410(b) and 401(k). In such a case, the cash or deferred arrangements
          included in such plans and the plans including such arrangements shall
          be treated as one arrangement and as one plan for purposes of this
          Section and Code Sections 401(a)(4), 410(b) and 401(k). Any adjustment
          to the Non-Highly Compensated Participant actual deferral ratio for
          the prior year shall be made in accordance with Internal Revenue
          Service Notice 98-1 and any superseding guidance. Plans may be
          aggregated under this paragraph (d) only if they have the same plan
          year. Notwithstanding the above, if two or more plans which include
          cash or deferred arrangements are permissively aggregated under
          Regulation 1.410(b)-7(d), all plans permissively aggregated must use
          either the current year testing method or the prior year testing
          method for the testing year.

                    Notwithstanding the above, an employee stock ownership plan
          described in Code Section 4975(e)(7) or 409 may not be combined with
          this Plan for purposes of determining whether the employee stock
          ownership plan or this Plan satisfies this Section and Code Sections
          401(a)(4), 410(b) and 401(k).

               (e) For the purposes of this Section, if a Highly Compensated
          Participant is a Participant under two or more cash or deferred
          arrangements (other than a cash or deferred arrangement which is part
          of an employee stock ownership plan as defined in Code Section
          4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such
          cash or deferred arrangements shall be treated as one cash or deferred
          arrangement for the purpose of determining the actual deferral ratio
          with respect to such Highly Compensated Participant. However, if the
          cash or deferred arrangements have different plan years, this
          paragraph shall be applied by treating all cash or deferred
          arrangements ending with or within the same calendar year as a single
          arrangement.

               (f) For the purpose of this Section, when calculating the "Actual
          Deferral Percentage" for the Non-Highly Compensated Participant group,
          the current year testing method shall be used. Any change from the
          current year testing method to the prior year testing method shall be
          made pursuant to Internal Revenue Service Notice 98-1, Section VII (or
          superseding guidance), the provisions of which are incorporated herein
          by reference.

               (g) Notwithstanding anything in this Section to the contrary, the
          provisions of this Section and Section 4.6 may be applied separately
          (or will be applied separately to the extent required by Regulations)
          to each plan within the meaning of Regulation 1.401(k)-1(g)(11).
          Furthermore, the provisions of Code Section 401(k)(3)(F) may be used
          to exclude from consideration all Non-Highly Compensated Employees who
          have not satisfied the minimum age and service requirements of Code
          Section 410(a)(1)(A).

4.6  ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS

          In the event (or if it is anticipated) that the initial allocations of
the Employer Elective Contributions made pursuant to Section 4.4 do (or might)
not satisfy one of the tests set


                                       30



forth in Section 4.5(a), the Administrator shall adjust Excess Contributions
pursuant to the options set forth below:

               (a) On or before the fifteenth day of the third month following
          the end of each Plan Year, but in no event later than the close of the
          following Plan Year, the Highly Compensated Participant having the
          largest dollar amount of Elective Contributions shall have a portion
          of such Participant's Elective Contributions distributed until the
          total amount of Excess Contributions has been distributed, or until
          the amount of such Participant's Elective Contributions equals the
          Elective Contributions of the Highly Compensated Participant having
          the second largest dollar amount of Elective Contributions. This
          process shall continue until the total amount of Excess Contributions
          has been distributed. In determining the amount of Excess
          Contributions to be distributed with respect to an affected Highly
          Compensated Participant as determined herein, such amount shall be
          reduced pursuant to Section 4.2(f) by any Excess Deferred Compensation
          previously distributed to such affected Highly Compensated Participant
          for such Participant's taxable year ending with or within such Plan
          Year.

               (1) With respect to the distribution of Excess Contributions
               pursuant to (a) above, such distribution:

                    (i) may be postponed but not later than the close of the
                    Plan Year following the Plan Year to which they are
                    allocable;

                    (ii) shall be adjusted for Income; and

                    (iii) shall be designated by the Employer as a distribution
                    of Excess Contributions (and Income).

               (2) Any distribution of less than the entire amount of Excess
               Contributions shall be treated as a pro rata distribution of
               Excess Contributions and Income.

               (3) Matching contributions which relate to Excess Contributions
               shall be forfeited unless the related matching contribution is
               distributed as an Excess Aggregate Contribution pursuant to
               Section 4.8.

               (b) Notwithstanding the above, within twelve (12) months after
          the end of the Plan Year, the Employer may make a special Qualified
          Non-Elective Contribution in accordance with one of the following
          provisions which contribution shall be allocated to the Participant's
          Elective Account of each Non-Highly Compensated Participant eligible
          to share in the allocation in accordance with such provision. The
          Employer shall provide the Administrator with written notification of
          the amount of the contribution being made and for which provision it
          is being made pursuant to:

               (1) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.5(a). Such contribution
               shall be allocated in the same proportion


                                       31



               that each Non-Highly Compensated Participant's 414(s)
               Compensation for the year (or prior year if the prior year
               testing method is being used) bears to the total 414(s)
               Compensation of all Non-Highly Compensated Participants for such
               year.

               (2) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.5(a). Such contribution
               shall be allocated in the same proportion that each Non-Highly
               Compensated Participant electing salary reductions pursuant to
               Section 4.2 in the same proportion that each such Non-Highly
               Compensated Participant's Deferred Compensation for the year (or
               at the end of the prior Plan Year if the prior year testing
               method is being used) bears to the total Deferred Compensation of
               all such Non-Highly Compensated Participants for such year.

               (3) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.5(a). Such contribution
               shall be allocated in equal amounts (per capita).

               (4) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants electing salary
               reductions pursuant to Section 4.2 in an amount sufficient to
               satisfy (or to prevent an anticipated failure of) one of the
               tests set forth in Section 4.5(a). Such contribution shall be
               allocated for the year (or at the end of the prior Plan Year if
               the prior year testing method is used) to each Non-Highly
               Compensated Participant electing salary reductions pursuant to
               Section 4.2 in equal amounts (per capita).

               (5) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.5(a). Such contribution
               shall be allocated to the Non-Highly Compensated Participant
               having the lowest 414(s) Compensation, until one of the tests set
               forth in Section 4.5(a) is satisfied (or is anticipated to be
               satisfied), or until such Non-Highly Compensated Participant has
               received the maximum "annual addition" pursuant to Section 4.9.
               This process shall continue until one of the tests set forth in
               Section 4.5(a) is satisfied (or is anticipated to be satisfied).

                    Notwithstanding the above, at the Employer's discretion,
          Non-Highly Compensated Participants who are not employed at the end of
          the Plan Year (or at the end of the prior Plan Year if the prior year
          testing method is being used) shall not be eligible to receive a
          special Qualified Non-Elective Contribution and shall be disregarded.

                    Notwithstanding the above, if the testing method changes
          from the current year testing method to the prior year testing method,
          then for purposes of


                                       32



          preventing the double counting of Qualified Non-Elective Contributions
          for the first testing year for which the change is effective, any
          special Qualified Non-Elective Contribution on behalf of Non-Highly
          Compensated Participants used to satisfy the "Actual Deferral
          Percentage" or "Actual Contribution Percentage" test under the current
          year testing method for the prior year testing year shall be
          disregarded.

               (c) If during a Plan Year, it is projected that the aggregate
          amount of Elective Contributions to be allocated to all Highly
          Compensated Participants under this Plan would cause the Plan to fail
          the tests set forth in Section 4.5(a), then the Administrator may
          automatically reduce the deferral amount of affected Highly
          Compensated Participants, beginning with the Highly Compensated
          Participant who has the highest deferral ratio until it is anticipated
          the Plan will pass the tests or until the actual deferral ratio equals
          the actual deferral ratio of the Highly Compensated Participant having
          the next highest actual deferral ratio. This process may continue
          until it is anticipated that the Plan will satisfy one of the tests
          set forth in Section 4.5(a). Alternatively, the Employer may specify a
          maximum percentage of Compensation that may be deferred.

               (d) Any Excess Contributions (and Income) which are distributed
          on or after 2 1/2 months after the end of the Plan Year shall be
          subject to the ten percent (10%) Employer excise tax imposed by Code
          Section 4979.

4.7  ACTUAL CONTRIBUTION PERCENTAGE TESTS

               (a) The "Actual Contribution Percentage" for the Highly
          Compensated Participant group shall not exceed the greater of:

               (1) 125 percent of such percentage for the Non-Highly Compensated
               Participant group (for the preceding Plan Year if the prior year
               testing method is used to calculate the "Actual Contribution
               Percentage" for the Non-Highly Compensated Participant group); or

               (2) the lesser of 200 percent of such percentage for the
               Non-Highly Compensated Participant group (for the preceding Plan
               Year if the prior year testing method is used to calculate the
               "Actual Contribution Percentage" for the Non-Highly Compensated
               Participant group), or such percentage for the Non-Highly
               Compensated Participant group (for the preceding Plan Year if the
               prior year testing method is used to calculate the "Actual
               Contribution Percentage" for the Non-Highly Compensated
               Participant group) plus 2 percentage points. However, to prevent
               the multiple use of the alternative method described in this
               paragraph and Code Section 401(m)(9)(A), any Highly Compensated
               Participant eligible to make elective deferrals pursuant to
               Section 4.2 or any other cash or deferred arrangement maintained
               by the Employer or an Affiliated Employer and to make Employee
               contributions or to receive matching contributions under this
               Plan or under any plan maintained by the Employer or an
               Affiliated Employer shall have a combination of Elective
               Contributions and Employer matching contributions reduced
               pursuant to Regulation 1.401(m)-2 and Section 4.8(a). The
               provisions of Code


                                       33



               Section 401(m) and Regulations 1.401(m)-1(b) and 1.401(m)-2 are
               incorporated herein by reference.

               (b) For the purposes of this Section and Section 4.8, "Actual
          Contribution Percentage" for a Plan Year means, with respect to the
          Highly Compensated Participant group and Non-Highly Compensated
          Participant group (for the preceding Plan Year if the prior year
          testing method is used to calculate the "Actual Contribution
          Percentage" for the Non-Highly Compensated Participant group), the
          average of the ratios (calculated separately for each Participant in
          each group and rounded to the nearest one-hundredth of one percent)
          of:

               (1) the sum of Employer matching contributions made pursuant to
               Section 4.1(b) on behalf of each such Participant for such Plan
               Year; to

               (2) the Participant's "414(s) Compensation" for such Plan Year.

                    Notwithstanding the above, if the prior year testing method
          is used to calculate the "Actual Contribution Percentage" for the
          Non-Highly Compensated Participant group for the first Plan Year of
          this amendment and restatement, for purposes of Section 4.7(a), the
          "Actual Contribution Percentage" for the Non-Highly Compensated
          Participant group for the preceding Plan Year shall be determined
          pursuant to the provisions of the Plan then in effect.

               (c) For purposes of determining the "Actual Contribution
          Percentage," only Employer matching contributions contributed to the
          Plan prior to the end of the succeeding Plan Year shall be considered.
          In addition, the Administrator may elect to take into account, with
          respect to Employees eligible to have Employer matching contributions
          pursuant to Section 4.1(b) allocated to their accounts, elective
          deferrals (as defined in Regulation 1.402(g)-1(b)) and qualified
          non-elective contributions (as defined in Code Section 401(m)(4)(C))
          contributed to any plan maintained by the Employer. Such elective
          deferrals and qualified non-elective contributions shall be treated as
          Employer matching contributions subject to Regulation 1.401(m)-1(b)(5)
          which is incorporated herein by reference. However, the Plan Year must
          be the same as the plan year of the plan to which the elective
          deferrals and the qualified non-elective contributions are made.

               (d) For purposes of this Section and Code Sections 401(a)(4),
          410(b) and 401(m), if two or more plans of the Employer to which
          matching contributions, Employee contributions, or both, are made are
          treated as one plan for purposes of Code Sections 401(a)(4) or 410(b)
          (other than the average benefits test under Code Section
          410(b)(2)(A)(ii)), such plans shall be treated as one plan. In
          addition, two or more plans of the Employer to which matching
          contributions, Employee contributions, or both, are made may be
          considered as a single plan for purposes of determining whether or not
          such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m). In such
          a case, the aggregated plans must satisfy this Section and Code
          Sections 401(a)(4), 410(b) and 401(m) as though such aggregated plans
          were a single plan. Any adjustment to the Non-Highly Compensated
          Participant actual contribution ratio for the prior year shall be made
          in accordance with Internal Revenue Service Notice 98-1 and any
          superseding


                                       34



          guidance. Plans may be aggregated under this paragraph (d) only if
          they have the same plan year. Notwithstanding the above, if two or
          more plans which include cash or deferred arrangements are
          permissively aggregated under Regulation 1.410(b)-7(d), all plans
          permissively aggregated must use either the current year testing
          method or the prior year testing method for the testing year.

                    Notwithstanding the above, an employee stock ownership plan
          described in Code Section 4975(e)(7) or 409 may not be aggregated with
          this Plan for purposes of determining whether the employee stock
          ownership plan or this Plan satisfies this Section and Code Sections
          401(a)(4), 410(b) and 401(m).

               (e) If a Highly Compensated Participant is a Participant under
          two or more plans (other than an employee stock ownership plan as
          defined in Code Section 4975(e)(7) or 409) which are maintained by the
          Employer or an Affiliated Employer to which matching contributions,
          Employee contributions, or both, are made, all such contributions on
          behalf of such Highly Compensated Participant shall be aggregated for
          purposes of determining such Highly Compensated Participant's actual
          contribution ratio. However, if the plans have different plan years,
          this paragraph shall be applied by treating all plans ending with or
          within the same calendar year as a single plan.

               (f) For purposes of Sections 4.7(a) and 4.8, a Highly Compensated
          Participant and Non-Highly Compensated Participant shall include any
          Employee eligible to have Employer matching contributions (whether or
          not a deferral election was made or suspended) allocated to the
          Participant's account for the Plan Year.

                    Notwithstanding the above, if the prior year testing method
          is used to calculate the "Actual Contribution Percentage" for the
          Non-Highly Compensated Participant group for the first Plan Year of
          this amendment and restatement, for the purposes of Section 4.7(a), a
          Non-Highly Compensated Participant shall include any such Employee
          eligible to have Employer matching contributions (whether or not a
          deferral election was made or suspended) allocated to the
          Participant's account for the preceding Plan Year pursuant to the
          provisions of the Plan then in effect.

               (g) For the purpose of this Section, when calculating the "Actual
          Contribution Percentage" for the Non-Highly Compensated Participant
          group, the current year testing method shall be used. Any change from
          the current year testing method to the prior year testing method shall
          be made pursuant to Internal Revenue Service Notice 98-1, Section VII
          (or superseding guidance), the provisions of which are incorporated
          herein by reference.

               (h) Notwithstanding anything in this Section to the contrary, the
          provisions of this Section and Section 4.8 may be applied separately
          (or will be applied separately to the extent required by Regulations)
          to each plan within the meaning of Regulation 1.401(k)-1(g)(11).
          Furthermore, the provisions of Code Section 401(k)(3)(F) may be used
          to exclude from consideration all Non-Highly Compensated Employees who
          have not satisfied the minimum age and service requirements of Code
          Section 410(a)(1)(A).


                                       35



4.8  ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS

               (a) In the event (or if it is anticipated) that the "Actual
          Contribution Percentage" for the Highly Compensated Participant group
          exceeds (or might exceed) the "Actual Contribution Percentage" for the
          Non-Highly Compensated Participant group pursuant to Section 4.7(a),
          the Administrator (on or before the fifteenth day of the third month
          following the end of the Plan Year, but in no event later than the
          close of the following Plan Year) shall direct the Trustee to
          distribute to the Highly Compensated Participant having the largest
          dollar amount of contributions determined pursuant to Section
          4.7(b)(1), the Vested portion of such contributions (and Income
          allocable to such contributions) and, if forfeitable, forfeit such
          non-Vested contributions attributable to Employer matching
          contributions (and Income allocable to such forfeitures) until the
          total amount of Excess Aggregate Contributions has been distributed,
          or until the Participant's remaining amount equals the amount of
          contributions determined pursuant to Section 4.7(b)(1) of the Highly
          Compensated Participant having the second largest dollar amount of
          contributions. This process shall continue until the total amount of
          Excess Aggregate Contributions has been distributed.

                    If the correction of Excess Aggregate Contributions
          attributable to Employer matching contributions is not in proportion
          to the Vested and non-Vested portion of such contributions, then the
          Vested portion of the Participant's Account attributable to Employer
          matching contributions after the correction shall be subject to
          Section 6.5(g).

               (b) Any distribution and/or forfeiture of less than the entire
          amount of Excess Aggregate Contributions (and Income) shall be treated
          as a pro rata distribution and/or forfeiture of Excess Aggregate
          Contributions and Income. Distribution of Excess Aggregate
          Contributions shall be designated by the Employer as a distribution of
          Excess Aggregate Contributions (and Income). Forfeitures of Excess
          Aggregate Contributions shall be treated in accordance with Section
          4.4.

               (c) Excess Aggregate Contributions, including forfeited matching
          contributions, shall be treated as Employer contributions for purposes
          of Code Sections 404 and 415 even if distributed from the Plan.

                    Forfeited matching contributions that are reallocated to
          Participants' Accounts for the Plan Year in which the forfeiture
          occurs shall be treated as an "annual addition" pursuant to Section
          4.9(b) for the Participants to whose Accounts they are reallocated and
          for the Participants from whose Accounts they are forfeited.

               (d) The determination of the amount of Excess Aggregate
          Contributions with respect to any Plan Year shall be made after first
          determining the Excess Contributions, if any, to be treated as
          after-tax voluntary Employee contributions due to recharacterization
          for the plan year of any other qualified cash or deferred arrangement
          (as defined in Code Section 401(k)) maintained by the Employer that
          ends with or within the Plan Year or which are treated as


                                       36



          after-tax voluntary Employee contributions due to recharacterization
          pursuant to Section 4.6(a).

               (e) If during a Plan Year the projected aggregate amount of
          Employer matching contributions to be allocated to all Highly
          Compensated Participants under this Plan would, by virtue of the tests
          set forth in Section 4.7(a), cause the Plan to fail such tests, then
          the Administrator may automatically reduce proportionately or in the
          order provided in Section 4.8(a) each affected Highly Compensated
          Participant's projected share of such contributions by an amount
          necessary to satisfy one of the tests set forth in Section 4.7(a).

               (f) Notwithstanding the above, within twelve (12) months after
          the end of the Plan Year, the Employer may make a special Qualified
          Non-Elective Contribution in accordance with one of the following
          provisions which contribution shall be allocated to the Participant's
          Account of each Non-Highly Compensated eligible to share in the
          allocation in accordance with such provision. The Employer shall
          provide the Administrator with written notification of the amount of
          the contribution being made and for which provision it is being made
          pursuant to:

               (1) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.7. Such contribution
               shall be allocated in the same proportion that each Non-Highly
               Compensated Participant's 414(s) Compensation for the year (or
               prior year if the prior year testing method is being used) bears
               to the total 414(s) Compensation of all Non-Highly Compensated
               Participants for such year.

               (2) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.7. Such contribution
               shall be allocated in the same proportion that each Non-Highly
               Compensated Participant electing salary reductions pursuant to
               Section 4.2 in the same proportion that each such Non-Highly
               Compensated Participant's Deferred Compensation for the year (or
               at the end of the prior Plan Year if the prior year testing
               method is being used) bears to the total Deferred Compensation of
               all such Non-Highly Compensated Participants for such year.

               (3) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.7. Such contribution
               shall be allocated in equal amounts (per capita).

               (4) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants electing salary
               reductions pursuant to Section 4.2 in an amount sufficient to
               satisfy (or to prevent an anticipated failure of) one of the
               tests set forth in Section 4.7. Such


                                       37



               contribution shall be allocated for the year (or at the end of
               the prior Plan Year if the prior year testing method is used) to
               each Non-Highly Compensated Participant electing salary
               reductions pursuant to Section 4.2 in equal amounts (per capita).

               (5) A special Qualified Non-Elective Contribution may be made on
               behalf of Non-Highly Compensated Participants in an amount
               sufficient to satisfy (or to prevent an anticipated failure of)
               one of the tests set forth in Section 4.7. Such contribution
               shall be allocated to the Non-Highly Compensated Participant
               having the lowest 414(s) Compensation, until one of the tests set
               forth in Section 4.7 is satisfied (or is anticipated to be
               satisfied), or until such Non-Highly Compensated Participant has
               received the maximum "annual addition" pursuant to Section 4.9.
               This process shall continue until one of the tests set forth in
               Section 4.7 is satisfied (or is anticipated to be satisfied).

                    Notwithstanding the above, at the Employer's discretion,
          Non-Highly Compensated Participants who are not employed at the end of
          the Plan Year (or at the end of the prior Plan Year if the prior year
          testing method is being used) shall not be eligible to receive a
          special Qualified Non-Elective Contribution and shall be disregarded.

                    Notwithstanding the above, if the testing method changes
          from the current year testing method to the prior year testing method,
          then for purposes of preventing the double counting of Qualified
          Non-Elective Contributions for the first testing year for which the
          change is effective, any special Qualified Non-Elective Contribution
          on behalf of Non-Highly Compensated Participants used to satisfy the
          "Actual Deferral Percentage" or "Actual Contribution Percentage" test
          under the current year testing method for the prior year testing year
          shall be disregarded.

               (g) Any Excess Aggregate Contributions (and Income) which are
          distributed on or after 2 1/2 months after the end of the Plan Year
          shall be subject to the ten percent (10%) Employer excise tax imposed
          by Code Section 4979.

4.9  MAXIMUM ANNUAL ADDITIONS

               (a) Notwithstanding the foregoing, the maximum "annual additions"
          credited to a Participant's accounts for any "limitation year" shall
          equal the lesser of: (1) $30,000 adjusted annually as provided in Code
          Section 415(d) pursuant to the Regulations, or (2) twenty-five percent
          (25%) of the Participant's "415 Compensation" for such "limitation
          year." If the Employer contribution that would otherwise be
          contributed or allocated to the Participant's accounts would cause the
          "annual additions" for the "limitation year" to exceed the maximum
          "annual additions," the amount contributed or allocated will be
          reduced so that the "annual additions" for the "limitation year" will
          equal the maximum "annual additions," and any amount in excess of the
          maximum "annual additions," which would have been allocated to such
          Participant may be allocated to other Participants. For any short
          "limitation year," the dollar limitation in (1) above


                                       38



          shall be reduced by a fraction, the numerator of which is the number
          of full months in the short "limitation year" and the denominator of
          which is twelve (12).

               (b) For purposes of applying the limitations of Code Section 415,
          "annual additions" means the sum credited to a Participant's accounts
          for any "limitation year" of (1) Employer contributions, (2) Employee
          contributions, (3) forfeitures, (4) amounts allocated, after March 31,
          1984, to an individual medical account, as defined in Code Section
          415(l)(2) which is part of a pension or annuity plan maintained by the
          Employer and (5) amounts derived from contributions paid or accrued
          after December 31, 1985, in taxable years ending after such date,
          which are attributable to post-retirement medical benefits allocated
          to the separate account of a key employee (as defined in Code Section
          419A(d)(3)) under a welfare benefit plan (as defined in Code Section
          419(e)) maintained by the Employer. Except, however, the "415
          Compensation" percentage limitation referred to in paragraph (a)(2)
          above shall not apply to: (1) any contribution for medical benefits
          (within the meaning of Code Section 419A(f)(2)) after separation from
          service which is otherwise treated as an "annual addition," or (2) any
          amount otherwise treated as an "annual addition" under Code Section
          415(l)(1).

               (c) For purposes of applying the limitations of Code Section 415,
          the transfer of funds from one qualified plan to another is not an
          "annual addition." In addition, the following are not Employee
          contributions for the purposes of Section 4.9(b)(2): (1) rollover
          contributions (as defined in Code Sections 402(e)(6), 403(a)(4),
          403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
          Participant from the Plan; (3) repayments of distributions received by
          an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4)
          repayments of distributions received by an Employee pursuant to Code
          Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
          contributions to a simplified employee pension excludable from gross
          income under Code Section 408(k)(6).

               (d) For purposes of applying the limitations of Code Section 415,
          the "limitation year" shall be the Plan Year.

               (e) For the purpose of this Section, all qualified defined
          benefit plans (whether terminated or not) ever maintained by the
          Employer shall be treated as one defined benefit plan, and all
          qualified defined contribution plans (whether terminated or not) ever
          maintained by the Employer shall be treated as one defined
          contribution plan.

               (f) For the purpose of this Section, if the Employer is a member
          of a controlled group of corporations, trades or businesses under
          common control (as defined by Code Section 1563(a) or Code Section
          414(b) and (c) as modified by Code Section 415(h)), is a member of an
          affiliated service group (as defined by Code Section 414(m)), or is a
          member of a group of entities required to be aggregated pursuant to
          Regulations under Code Section 414(o), all Employees of such Employers
          shall be considered to be employed by a single Employer.

               (g) If this is a plan described in Code Section 413(c) (other
          than a plan described in Code Section 413(f)), then all of the
          benefits or contributions


                                       39



          attributable to a Participant from all of the Employers maintaining
          this Plan shall be taken into account in applying the limits of this
          Section with respect to such Participant. Furthermore, in applying the
          limitations of this Section with respect to such a Participant, the
          total "415 Compensation" received by the Participant from all of the
          Employers maintaining the Plan shall be taken into account.

               (h)(1) If a Participant participates in more than one defined
          contribution plan maintained by the Employer which have different
          Anniversary Dates, the maximum "annual additions" under this Plan
          shall equal the maximum "annual additions" for the "limitation year"
          minus any "annual additions" previously credited to such Participant's
          accounts during the "limitation year."

               (2) If a Participant participates in both a defined contribution
               plan subject to Code Section 412 and a defined contribution plan
               not subject to Code Section 412 maintained by the Employer which
               have the same Anniversary Date, "annual additions" will be
               credited to the Participant's accounts under the defined
               contribution plan subject to Code Section 412 prior to crediting
               "annual additions" to the Participant's accounts under the
               defined contribution plan not subject to Code Section 412.

               (3) If a Participant participates in more than one defined
               contribution plan not subject to Code Section 412 maintained by
               the Employer which have the same Anniversary Date, the maximum
               "annual additions" under this Plan shall equal the product of (A)
               the maximum "annual additions" for the "limitation year" minus
               any "annual additions" previously credited under subparagraphs
               (1) or (2) above, multiplied by (B) a fraction (i) the numerator
               of which is the "annual additions" which would be credited to
               such Participant's accounts under this Plan without regard to the
               limitations of Code Section 415 and (ii) the denominator of which
               is such "annual additions" for all plans described in this
               subparagraph.

               (i) If the sum of the defined benefit plan fraction and the
          defined contribution plan fraction shall exceed 1.0 in any "limitation
          year" for any Participant in this Plan, the Administrator shall adjust
          the numerator of the defined benefit plan fraction so that the sum of
          both fractions shall not exceed 1.0 in any "limitation year" for such
          Participant.

               (j) Notwithstanding anything contained in this Section to the
          contrary, the limitations, adjustments and other requirements
          prescribed in this Section shall at all times comply with the
          provisions of Code Section 415 and the Regulations thereunder.
          Effective as of the first day of the first "limitation year" beginning
          on or after January 1, 2000 (the "effective date"), and
          notwithstanding any other provision of the Plan, the accrued benefit
          for any Participant shall be determined without applying the
          limitations of Code Section 415(e) as in effect on the day immediately
          prior to the "effective date."

4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS

               (a) If, as a result of a reasonable error in estimating a
          Participant's Compensation, a reasonable error in determining the
          amount of elective deferrals


                                       40



          (within the meaning of Code Section 402(g)(3)) that may be made with
          respect to any Participant under the limits of Section 4.9 or other
          facts and circumstances to which Regulation 1.415-6(b)(6) shall be
          applicable, the "annual additions" under this Plan would cause the
          maximum "annual additions" to be exceeded for any Participant, the
          "excess amount" will be disposed of in one of the following manners,
          as uniformly determined by the Administrator for all Participants
          similarly situated.

               (1) Any unmatched Deferred Compensation and, thereafter,
               proportionately from Deferred Compensation which is matched and
               matching contributions which relate to such Deferred
               Compensation, will be reduced to the extent they would reduce the
               "excess amount." The Deferred Compensation (and any gains
               attributable to such Deferred Compensation) will be distributed
               to the Participant and the Employer matching contributions (and
               any gains attributable to such matching contributions) will be
               used to reduce the Employer contribution in the next "limitation
               year";

               (2) If, after the application of subparagraph (1) above, an
               "excess amount" still exists, and the Participant is covered by
               the Plan at the end of the "limitation year," the "excess amount"
               will be used to reduce the Employer contribution for such
               Participant in the next "limitation year," and each succeeding
               "limitation year" if necessary;

               (3) If, after the application of subparagraphs (1) and (2) above,
               an "excess amount" still exists, and the Participant is not
               covered by the Plan at the end of the "limitation year," the
               "excess amount" will be held unallocated in a "Section 415
               suspense account." The "Section 415 suspense account" will be
               applied to reduce future Employer contributions for all remaining
               Participants in the next "limitation year," and each succeeding
               "limitation year" if necessary;

               (4) If a "Section 415 suspense account" is in existence at any
               time during the "limitation year" pursuant to this Section, it
               will not participate in the allocation of investment gains and
               losses of the Trust Fund. If a "Section 415 suspense account" is
               in existence at any time during a particular "limitation year,"
               all amounts in the "Section 415 suspense account" must be
               allocated and reallocated to Participants' accounts before any
               Employer contributions or any Employee contributions may be made
               to the Plan for that "limitation year." Except as provided in (1)
               above, "excess amounts" may not be distributed to Participants or
               Former Participants.

               (b) For purposes of this Article, "excess amount" for any
          Participant for a "limitation year" shall mean the excess, if any, of
          (1) the "annual additions" which would be credited to the
          Participant's account under the terms of the Plan without regard to
          the limitations of Code Section 415 over (2) the maximum "annual
          additions" determined pursuant to Section 4.9.


                                       41



               (c) For purposes of this Section, "Section 415 suspense account"
          shall mean an unallocated account equal to the sum of "excess amounts"
          for all Participants in the Plan during the "limitation year."

4.11 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS

               (a) With the consent of the Administrator, amounts may be
          transferred (within the meaning of Code Section 414(l)) to this Plan
          from other tax qualified plans under Code Section 401(a) by
          Participants, provided the trust from which such funds are transferred
          permits the transfer to be made and the transfer will not jeopardize
          the tax exempt status of the Plan or Trust or create adverse tax
          consequences for the Employer. Prior to accepting any transfers to
          which this Section applies, the Administrator may require an opinion
          of counsel that the amounts to be transferred meet the requirements of
          this Section. The amounts transferred shall be set up in a separate
          account herein referred to as a Participant's Transfer/Rollover
          Account. Furthermore, for vesting purposes, the Participant's portion
          of the Participant's Transfer/Rollover Account attributable to any
          transfer shall be subject to Section 6.4(b).

                    Except as permitted by Regulations (including Regulation
          1.411(d)-4), amounts attributable to elective contributions (as
          defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as
          elective contributions, which are transferred from another qualified
          plan in a plan-to-plan transfer (other than a direct rollover) shall
          be subject to the distribution limitations provided for in Regulation
          1.401(k)-1(d).

               (b) With the consent of the Administrator, the Plan may accept a
          "rollover" by Participants, provided the "rollover" will not
          jeopardize the tax exempt status of the Plan or create adverse tax
          consequences for the Employer. Prior to accepting any "rollovers" to
          which this Section applies, the Administrator may require the Employee
          to establish (by providing opinion of counsel or otherwise) that the
          amounts to be rolled over to this Plan meet the requirements of this
          Section. The amounts rolled over shall be set up in a separate account
          herein referred to as a "Participant's Transfer/Rollover Account."
          Such account shall be fully Vested at all times and shall not be
          subject to Forfeiture for any reason.

                    For purposes of this Section, the term "qualified plan"
          shall mean any tax qualified plan under Code Section 401(a), or, any
          other plans from which distributions are eligible to be rolled over
          into this Plan pursuant to the Code. The term "rollover" means: (i)
          amounts transferred to this Plan directly from another qualified plan;
          (ii) distributions received by an Employee from other "qualified
          plans" which are eligible for tax-free rollover to a "qualified plan"
          and which are transferred by the Employee to this Plan within sixty
          (60) days following receipt thereof; (iii) amounts transferred to this
          Plan from a conduit individual retirement account provided that the
          conduit individual retirement account has no assets other than assets
          which (A) were previously distributed to the Employee by another
          "qualified plan," (B) were eligible for tax-free rollover to a
          "qualified plan" and (C) were deposited in such conduit individual
          retirement account within sixty (60) days of receipt thereof; (iv)
          amounts distributed to the Employee from a conduit individual
          retirement account meeting the requirements of clause


                                       42



          (iii) above, and transferred by the Employee to this Plan within sixty
          (60) days of receipt thereof from such conduit individual retirement
          account; and (v) any other amounts which are eligible to be rolled
          over to this Plan pursuant to the Code.

               (c) Amounts in a Participant's Transfer/Rollover Account shall be
          held by the Trustee pursuant to the provisions of this Plan and may
          not be withdrawn by, or distributed to the Participant, in whole or in
          part, except as provided in Section 6.10 and Section 6.11 and
          paragraph (d) of this Section. The Trustee shall have no duty or
          responsibility to inquire as to the propriety of the amount, value or
          type of assets transferred, nor to conduct any due diligence with
          respect to such assets; provided, however, that such assets are
          otherwise eligible to be held by the Trustee under the terms of this
          Plan.

               (d) At such date when the Participant or the Participant's
          Beneficiary shall be entitled to receive benefits, the Participant's
          Transfer/Rollover Account shall be used to provide additional benefits
          to the Participant or the Participant's Beneficiary. Any distributions
          of amounts held in a Participant's Transfer/Rollover Account shall be
          made in a manner which is consistent with and satisfies the provisions
          of Section 6.5, including, but not limited to, all notice and consent
          requirements of Code Section 411(a)(11) and the Regulations
          thereunder. Furthermore, such amounts shall be considered as part of a
          Participant's benefit in determining whether an involuntary cash-out
          of benefits may be made without Participant consent.

               (e) The Administrator may direct that Employee transfers and
          rollovers made after a Valuation Date be segregated into a separate
          account for each Participant until such time as the allocations
          pursuant to this Plan have been made, at which time they may remain
          segregated or be invested as part of the general Trust Fund or be
          directed by the Participant pursuant to Section 4.12.

               (f) This Plan shall not accept any direct or indirect transfers
          (as that term is defined and interpreted under Code Section 401(a)(11)
          and the Regulations thereunder) from a defined benefit plan, money
          purchase plan (including a target benefit plan), stock bonus or profit
          sharing plan which would otherwise have provided for a life annuity
          form of payment to the Participant.

               (g) Notwithstanding anything herein to the contrary, a transfer
          directly to this Plan from another qualified plan (or a transaction
          having the effect of such a transfer) shall only be permitted if it
          will not result in the elimination or reduction of any "Section
          411(d)(6) protected benefit" as described in Section 7.1.

4.12 DIRECTED INVESTMENT ACCOUNT

               (a) Participants may, subject to a procedure established by the
          Administrator (the Participant Direction Procedures) and applied in a
          uniform nondiscriminatory manner, direct the Trustee, in writing (or
          in such other form which is acceptable to the Trustee), to invest all
          of their accounts in specific assets, specific funds or other
          investments permitted under the Plan and the Participant Direction
          Procedures. That portion of the interest of any Participant so
          directing will thereupon be considered a Participant's Directed
          Account.


                                       43



               (b) As of each Valuation Date, all Participant Directed Accounts
          shall be charged or credited with the net earnings, gains, losses and
          expenses as well as any appreciation or depreciation in the market
          value using publicly listed fair market values when available or
          appropriate as follows:

               (1) to the extent that the assets in a Participant's Directed
               Account are accounted for as pooled assets or investments, the
               allocation of earnings, gains and losses of each Participant's
               Directed Account shall be based upon the total amount of funds so
               invested in a manner proportionate to the Participant's share of
               such pooled investment; and

               (2) to the extent that the assets in the Participant's Directed
               Account are accounted for as segregated assets, the allocation of
               earnings, gains and losses from such assets shall be made on a
               separate and distinct basis.

               (c) Investment directions will be processed as soon as
          administratively practicable after proper investment directions are
          received from the Participant. No guarantee is made by the Plan,
          Employer, Administrator or Trustee that investment directions will be
          processed on a daily basis, and no guarantee is made in any respect
          regarding the processing time of an investment direction.
          Notwithstanding any other provision of the Plan, the Employer,
          Administrator or Trustee reserves the right to not value an investment
          option on any given Valuation Date for any reason deemed appropriate
          by the Employer, Administrator or Trustee. Furthermore, the processing
          of any investment transaction may be delayed for any legitimate
          business reason (including, but not limited to, failure of systems or
          computer programs, failure of the means of the transmission of data,
          force majeure, the failure of a service provider to timely receive
          values or prices, and correction for errors or omissions or the errors
          or omissions of any service provider). The processing date of a
          transaction will be binding for all purposes of the Plan and
          considered the applicable Valuation Date for an investment
          transaction.

               (d) The Participant Direction Procedures shall provide an
          explanation of the circumstances under which Participants and their
          Beneficiaries may give investment instructions, including, but need
          not be limited to, the following:

               (1) the conveyance of instructions by the Participants and their
               Beneficiaries to invest Participant Directed Accounts in Directed
               Investment Options;

               (2) the name, address and phone number of the Fiduciary (and, if
               applicable, the person or persons designated by the Fiduciary to
               act on its behalf) responsible for providing information to the
               Participant or a Beneficiary upon request relating to the
               Directed Investment Options;

               (3) applicable restrictions on transfers to and from any
               Designated Investment Alternative;


                                       44



               (4) any restrictions on the exercise of voting, tender and
               similar rights related to a Directed Investment Option by the
               Participants or their Beneficiaries;

               (5) a description of any transaction fees and expenses which
               affect the balances in Participant Directed Accounts in
               connection with the purchase or sale of Directed Investment
               Options; and

               (6) general procedures for the dissemination of investment and
               other information relating to the Designated Investment
               Alternatives as deemed necessary or appropriate, including but
               not limited to a description of the following:

                    (i) the investment vehicles available under the Plan,
                    including specific information regarding any Designated
                    Investment Alternative;

                    (ii) any designated Investment Managers; and

                    (iii) a description of the additional information which may
                    be obtained upon request from the Fiduciary designated to
                    provide such information.

               (e) Any information regarding investments available under the
          Plan, to the extent not required to be described in the Participant
          Direction Procedures, may be provided to the Participant in one or
          more written documents (or in any other form including, but not
          limited to, electronic media) which are separate from the Participant
          Direction Procedures and are not thereby incorporated by reference
          into this Plan.

               (f) The Administrator may, in its discretion, include in or
          exclude by amendment or other action from the Participant Direction
          Procedures such instructions, guidelines or policies as it deems
          necessary or appropriate to ensure proper administration of the Plan,
          and may interpret the same accordingly.

4.13 QUALIFIED MILITARY SERVICE

          Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service will be provided in accordance with Code
Section 414(u).

                                    ARTICLE V
                                   VALUATIONS

5.1  VALUATION OF THE TRUST FUND

          The Administrator shall direct the Trustee, as of each Valuation Date,
to determine the net worth of the assets comprising the Trust Fund as it exists
on the Valuation Date. In determining such net worth, the Trustee shall value
the assets comprising the Trust Fund at their fair market value (or their
contractual value in the case of a Contract or Policy) as of the Valuation Date
and shall deduct all expenses for which the Trustee has not yet obtained


                                       45



reimbursement from the Employer or the Trust Fund. The Trustee may update the
value of any shares held in the Participant Directed Account by reference to the
number of shares held by that Participant, priced at the market value as of the
Valuation Date.

5.2  METHOD OF VALUATION

          In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the Valuation Date. If such
securities were not traded on the Valuation Date, or if the exchange on which
they are traded was not open for business on the Valuation Date, then the
securities shall be valued at the prices at which they were last traded prior to
the Valuation Date. Any unlisted security held in the Trust Fund shall be valued
at its bid price next preceding the close of business on the Valuation Date,
which bid price shall be obtained from a registered broker or an investment
banker. In determining the fair market value of assets other than securities for
which trading or bid prices can be obtained, the Trustee may appraise such
assets itself, or in its discretion, employ one or more appraisers for that
purpose and rely on the values established by such appraiser or appraisers.

                                   ARTICLE VI
                   DETERMINATION AND DISTRIBUTION OF BENEFITS

6.1  DETERMINATION OF BENEFITS UPON RETIREMENT

          Every Participant may terminate employment with the Employer and
retire for the purposes hereof on the Participant's Normal Retirement Date.
However, a Participant may postpone the termination of employment with the
Employer to a later date, in which event the participation of such Participant
in the Plan, including the right to receive allocations pursuant to Section 4.4,
shall continue until such Participant's Late Retirement Date. Upon a
Participant's Retirement Date, or as soon thereafter as is practicable, the
Trustee shall distribute, at the election of the Participant, all amounts
credited to such Participant's Combined Account in accordance with Section 6.5.

6.2  DETERMINATION OF BENEFITS UPON DEATH

               (a) Upon the death of a Participant before the Participant's
          Retirement Date or other termination of employment, all amounts
          credited to such Participant's Combined Account shall become fully
          Vested. The Administrator shall direct the Trustee, in accordance with
          the provisions of Sections 6.6 and 6.7, to distribute the value of the
          deceased Participant's accounts to the Participant's Beneficiary.

               (b) Upon the death of a Former Participant, the Administrator
          shall direct the Trustee, in accordance with the provisions of
          Sections 6.6 and 6.7, to distribute any remaining Vested amounts
          credited to the accounts of a deceased Former Participant to such
          Former Participant's Beneficiary.

               (c) The Administrator may require such proper proof of death and
          such evidence of the right of any person to receive payment of the
          value of the account of a deceased Participant or Former Participant
          as the Administrator may


                                       46



          deem desirable. The Administrator's determination of death and of the
          right of any person to receive payment shall be conclusive.

               (d) The Beneficiary of the death benefit payable pursuant to this
          Section shall be the Participant's spouse. Except, however, the
          Participant may designate a Beneficiary other than the spouse if:

               (1) the spouse has waived the right to be the Participant's
               Beneficiary, or

               (2) the Participant is legally separated or has been abandoned
               (within the meaning of local law) and the Participant has a court
               order to such effect (and there is no "qualified domestic
               relations order" as defined in Code Section 414(p) which provides
               otherwise), or

               (3) the Participant has no spouse, or

               (4) the spouse cannot be located.

                    In such event, the designation of a Beneficiary shall be
          made on a form satisfactory to the Administrator. A Participant may at
          any time revoke a designation of a Beneficiary or change a Beneficiary
          by filing written (or in such other form as permitted by the Internal
          Revenue Service) notice of such revocation or change with the
          Administrator. However, the Participant's spouse must again consent in
          writing (or in such other form as permitted by the Internal Revenue
          Service) to any change in Beneficiary unless the original consent
          acknowledged that the spouse had the right to limit consent only to a
          specific Beneficiary and that the spouse voluntarily elected to
          relinquish such right.

               (e) In the event no valid designation of Beneficiary exists, or
          if the Beneficiary is not alive at the time of the Participant's
          death, the death benefit will be paid in the following order of
          priority to:

               (1) the Participant's surviving spouse;

               (2) the Participant's children and grandchildren per stirpes;

               (3) the Participant's surviving parents, in equal shares;

               (4) the Participant's surviving siblings, in equal shares; or

               (5) the Participant's estate.

                    If the Beneficiary does not predecease the Participant, but
          dies prior to distribution of the death benefit, the death benefit
          will be paid to the Beneficiary's estate.

               (f) Notwithstanding anything in this Section to the contrary, if
          a Participant has designated the spouse as a Beneficiary, then a
          divorce decree or a legal separation that relates to such spouse shall
          revoke the Participant's


                                       47



          designation of the spouse as a Beneficiary unless the decree or a
          qualified domestic relations order (within the meaning of Code Section
          414(p)) provides otherwise.

               (g) Any consent by the Participant's spouse to waive any rights
          to the death benefit must be in writing (or in such other form as
          permitted by the Internal Revenue Service), must acknowledge the
          effect of such waiver, and be witnessed by a Plan representative or a
          notary public. Further, the spouse's consent must be irrevocable and
          must acknowledge the specific nonspouse Beneficiary.

6.3  DETERMINATION OF BENEFITS IN EVENT OF DISABILITY

          In the event of a Participant's Total and Permanent Disability prior
to the Participant's Retirement Date or other termination of employment, all
amounts credited to such Participant's Combined Account shall become fully
Vested. In the event of a Participant's Total and Permanent Disability, the
Administrator, in accordance with the provisions of Sections 6.5 and 6.7, shall
direct the distribution to such Participant of all Vested amounts credited to
such Participant's Combined Account.

6.4  DETERMINATION OF BENEFITS UPON TERMINATION

               (a) If a Participant's employment with the Employer is terminated
          for any reason other than death, Total and Permanent Disability or
          retirement, then such Participant shall be entitled to such benefits
          as are provided hereinafter pursuant to this Section 6.4.

                    Distribution of the funds due to a Terminated Participant
          shall be made on the occurrence of an event which would result in the
          distribution had the Terminated Participant remained in the employ of
          the Employer (upon the Participant's death, Total and Permanent
          Disability or Normal Retirement). However, at the election of the
          Participant, the Administrator shall direct the Trustee that the
          entire Vested portion of the Terminated Participant's Combined Account
          be payable to such Terminated Participant. Any distribution under this
          paragraph shall be made in a manner which is consistent with and
          satisfies the provisions of Section 6.5, including, but not limited
          to, all notice and consent requirements of Code Section 411(a)(11) and
          the Regulations thereunder.

                    If the value of a Terminated Participant's Vested benefit
          derived from Employer and Employee contributions does not exceed
          $5,000 ($1,000 for distributions on or after March 28, 2005), then the
          Administrator shall direct the Trustee to cause the entire Vested
          benefit to be paid to such Participant in a single lump sum.

                    For purposes of this Section 6.4, if the value of a
          Terminated Participant's Vested benefit is zero, the Terminated
          Participant shall be deemed to have received a distribution of such
          Vested benefit.

               (b) The Vested portion of any Participant's Account shall be a
          percentage of the total amount credited to the Participant's Account
          determined on


                                       48



          the basis of the Participant's number of Years of Service according to
          the following schedule:



       Vesting Schedule
- -----------------------------
Years of Service   Percentage
- ----------------   ----------
                
   Less than 2          0 %
        2              40 %
        3              60 %
        4              80 %
        5             100 %


               (c) Notwithstanding the vesting schedule above, the Vested
          percentage of a Participant's Account shall not be less than the
          Vested percentage attained as of the later of the effective date or
          adoption date of this amendment and restatement.

               (d) Notwithstanding the vesting schedule above, upon the complete
          discontinuance of the Employer contributions to the Plan or upon any
          full or partial termination of the Plan, all amounts then credited to
          the account of any affected Participant shall become 100% Vested and
          shall not thereafter be subject to Forfeiture.

               (e) The computation of a Participant's nonforfeitable percentage
          of such Participant's interest in the Plan shall not be reduced as the
          result of any direct or indirect amendment to this Plan. In the event
          that the Plan is amended to change or modify any vesting schedule, or
          if the Plan is amended in any way that directly or indirectly affects
          the computation of the Participant's nonforfeitable percentage, or if
          the Plan is deemed amended by an automatic change to a top heavy
          vesting schedule, then each Participant with at least three (3) Years
          of Service as of the expiration date of the election period may elect
          to have such Participant's nonforfeitable percentage computed under
          the Plan without regard to such amendment or change. If a Participant
          fails to make such election, then such Participant shall be subject to
          the new vesting schedule. The Participant's election period shall
          commence on the adoption date of the amendment and shall end sixty
          (60) days after the latest of:

               (1) the adoption date of the amendment,

               (2) the effective date of the amendment, or

               (3) the date the Participant receives written notice of the
               amendment from the Employer or Administrator.

6.5  DISTRIBUTION OF BENEFITS

               (a) The Administrator, pursuant to the election of the
          Participant, shall direct the Trustee to distribute to a Participant
          or such Participant's Beneficiary


                                       49



          any amount to which the Participant is entitled under the Plan in one
          lump-sum payment in cash.

               (b) Any distribution to a Participant who has a benefit which
          exceeds $5,000 ($1,000 for distributions on or after March 28, 2005),
          shall require such Participant's written (or in such other form as
          permitted by the Internal Revenue Service) consent if such
          distribution occurs prior to the time the benefit is "immediately
          distributable." A benefit is "immediately distributable" if any part
          of the benefit could be distributed to the Participant (or surviving
          spouse) before the Participant attains (or would have attained if not
          deceased) the later of the Participant's Normal Retirement Age or age
          62.

               (c) The following rules will apply to the consent requirements
          set forth in subsection (b):

               (1) The Participant must be informed of the right to defer
               receipt of the distribution. If a Participant fails to consent,
               it shall be deemed an election to defer the distribution of any
               benefit. However, any election to defer the receipt of benefits
               shall not apply with respect to distributions which are required
               under Section 6.5(d).

               (2) Notice of the rights specified under this paragraph shall be
               provided no less than thirty (30) days and no more than ninety
               (90) days before the date the distribution commences.

               (3) Written (or such other form as permitted by the Internal
               Revenue Service) consent of the Participant to the distribution
               must not be made before the Participant receives the notice and
               must not be made more than ninety (90) days before the date the
               distribution commences.

               (4) No consent shall be valid if a significant detriment is
               imposed under the Plan on any Participant who does not consent to
               the distribution.

                    Any such distribution may commence less than thirty (30)
          days after the notice required under Regulation 1.411(a)-11(c) is
          given, provided that: (1) the Administrator clearly informs the
          Participant that the Participant has a right to a period of at least
          thirty (30) days after receiving the notice to consider the decision
          of whether or not to elect a distribution (and, if applicable, a
          particular distribution option), and (2) the Participant, after
          receiving the notice, affirmatively elects a distribution.

               (d) Notwithstanding any provision in the Plan to the contrary,
          the distribution of a Participant's benefits shall be made in
          accordance with the following requirements and shall otherwise comply
          with Code Section 401(a)(9) and the Regulations thereunder (including
          Regulation 1.401(a)(9)-2), the provisions of which are incorporated
          herein by reference:

               (1) A Participant's benefits shall be distributed or must begin
               to be distributed not later than the April 1st of the calendar
               year following the


                                       50



               calendar year in which the Participant attains age 70 1/2. Such
               distribution shall be equal to or greater than any required
               distribution.

               (2) Distributions to a Participant and the Participant's
               Beneficiaries shall only be made in accordance with the
               incidental death benefit requirements of Code Section
               401(a)(9)(G) and the Regulations thereunder.

                    With respect to distributions under the Plan made for
          calendar years beginning on or after January 1, 2002, the Plan will
          apply the minimum distribution requirements of Code Section 401(a)(9)
          in accordance with the Regulations under Code Section 401(a)(9) that
          were proposed on January 17, 2001, notwithstanding any provision of
          the Plan to the contrary. This amendment shall continue in effect
          until the end of the last calendar year beginning before the effective
          date of final Regulations under Code Section 401(a)(9) or such other
          date specified in guidance published by the Internal Revenue Service.

               (e) For purposes of this Section, the life expectancy of a
          Participant and a Participant's spouse shall not be redetermined in
          accordance with Code Section 401(a)(9)(D). Life expectancy and joint
          and last survivor expectancy shall be computed using the return
          multiples in Tables V and VI of Regulation 1.72-9.

               (f) All annuity Contracts under this Plan shall be
          non-transferable when distributed. Furthermore, the terms of any
          annuity Contract purchased and distributed to a Participant or spouse
          shall comply with all of the requirements of the Plan.

               (g) If a distribution is made to a Participant who has not
          severed employment and who is not fully Vested in the Participant's
          Account and the Participant may increase the Vested percentage in such
          account, then, at any relevant time the Participant's Vested portion
          of the account will be equal to an amount ("X") determined by the
          formula:

                            X equals P(AB plus D) - D

                    For purposes of applying the formula: P is the Vested
          percentage at the relevant time, AB is the account balance at the
          relevant time, and D is the amount of distribution.

6.6  DISTRIBUTION OF BENEFITS UPON DEATH

               (a) The death benefit payable pursuant to Section 6.2 shall be
          paid to the Participant's Beneficiary in one lump-sum payment in cash
          subject to the rules of Section 6.6(b).

               (b) Notwithstanding any provision in the Plan to the contrary,
          distributions upon the death of a Participant shall be made in
          accordance with the following requirements and shall otherwise comply
          with Code Section 401(a)(9) and the Regulations thereunder. If it is
          determined, pursuant to Regulations, that the distribution of a
          Participant's interest has begun and the Participant dies before the
          entire interest has been distributed, the remaining portion of such
          interest shall


                                       51



          be distributed at least as rapidly as under the method of distribution
          selected pursuant to Section 6.5 as of the date of death. If a
          Participant dies before receiving any distributions of the interest in
          the Plan or before distributions are deemed to have begun pursuant to
          Regulations, then the death benefit shall be distributed to the
          Participant's Beneficiaries by December 31st of the calendar year in
          which the fifth anniversary of the Participant's date of death
          occurs.

                    However, in the event that the Participant's spouse
          (determined as of the date of the Participant's death) is the
          designated Beneficiary, then in lieu of the preceding rules,
          distributions must be made over a period not extending beyond the life
          expectancy of the spouse and must commence on or before the later of:
          (1) December 31st of the calendar year immediately following the
          calendar year in which the Participant died; or (2) December 31st of
          the calendar year in which the Participant would have attained age 70
          1/2. If the surviving spouse dies before distributions to such spouse
          begin, then the 5-year distribution requirement of this Section shall
          apply as if the spouse was the Participant.

               (c) For purposes of this Section, any amount paid to a child of
          the Participant will be treated as if it had been paid to the
          surviving spouse if the amount becomes payable to the surviving spouse
          when the child reaches the age of majority.

6.7  TIME OF SEGREGATION OR DISTRIBUTION

          Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to
make a distribution the distribution may be made on such date or as soon
thereafter as is practicable. However, unless a Former Participant elects in
writing to defer the receipt of benefits (such election may not result in a
death benefit that is more than incidental), the payment of benefits shall occur
not later than the sixtieth (60th) day after the close of the Plan Year in which
the latest of the following events occurs: (a) the date on which the Participant
attains the earlier of age 65 or the Normal Retirement Age specified herein; (b)
the tenth (10th) anniversary of the year in which the Participant commenced
participation in the Plan; or (c) the date the Participant terminates service
with the Employer.

          Notwithstanding the foregoing, the failure of a Participant to consent
to a distribution that is "immediately distributable" (within the meaning of
Section 6.5), shall be deemed to be an election to defer the commencement of
payment of any benefit sufficient to satisfy this Section.

6.8  DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY

          In the event a distribution is to be made to a minor or incompetent
Beneficiary, then the Administrator may direct that such distribution be paid to
the legal guardian, or if none in the case of a minor Beneficiary, to a parent
of such Beneficiary or a responsible adult with whom the Beneficiary maintains
residence, or to the custodian for such Beneficiary under the Uniform Gift to
Minors Act or Gift to Minors Act, if such is permitted by the laws of the state
in which said Beneficiary resides. Such a payment to the legal guardian,
custodian or parent of a minor Beneficiary shall fully discharge the Trustee,
Employer, and Plan from further liability on account thereof.


                                       52



6.9  LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN

          In the event that all, or any portion, of the distribution payable to
a Participant or Beneficiary hereunder shall, at the later of the Participant's
attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason of
the inability of the Administrator, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent effort,
to ascertain the whereabouts of such Participant or Beneficiary, the amount so
distributable shall be treated as a Forfeiture pursuant to the Plan.
Notwithstanding the foregoing, if the value of a Participant's Vested benefit
derived from Employer and Employee contributions does not exceed $5,000 ($1,000
for distributions on or after March 28, 2005), then the amount distributable
may, in the sole discretion of the Administrator, either be treated as a
Forfeiture, or be paid directly to an individual retirement account described in
Code Section 408(a) or an individual retirement annuity described in Code
Section 408(b) at the time it is determined that the whereabouts of the
Participant or the Participant's Beneficiary cannot be ascertained. In the event
a Participant or Beneficiary is located subsequent to the Forfeiture, such
benefit shall be restored, first from Forfeitures, if any, and then from an
additional Employer contribution if necessary. However, regardless of the
preceding, a benefit which is lost by reason of escheat under applicable state
law is not treated as a Forfeiture for purposes of this Section nor as an
impermissible forfeiture under the Code.

6.10 PRE-RETIREMENT DISTRIBUTION

          At such time as a Participant shall have attained the age of 70 1/2
years, the Administrator, at the election of the Participant who has not severed
employment with the Employer, shall direct the Trustee to distribute all or a
portion of the amount then credited to the accounts maintained on behalf of the
Participant. However, no distribution from the Participant's Account shall occur
prior to 100% vesting. In the event that the Administrator makes such a
distribution, the Participant shall continue to be eligible to participate in
the Plan on the same basis as any other Employee. Any distribution made pursuant
to this Section shall be made in a manner consistent with Section 6.5,
including, but not limited to, all notice and consent requirements of Code
Section 411(a)(11) and the Regulations thereunder.

          Notwithstanding the above, pre-retirement distributions from a
Participant's Elective Account shall not be permitted prior to the Participant
attaining age 59 1/2 except as otherwise permitted under the terms of the Plan.

6.11 ADVANCE DISTRIBUTION FOR HARDSHIP

               (a) The Administrator, at the election of the Participant, shall
          direct the Trustee to distribute to any Participant in any one Plan
          Year up to the lesser of 100% of the Vested Participant's Elective
          Account and Participant's Account and Participant's Transfer/Rollover
          Account valued as of the last Valuation Date or the amount necessary
          to satisfy the immediate and heavy financial need of the Participant.
          Any distribution made pursuant to this Section shall be deemed to be
          made as of the first day of the Plan Year or, if later, the Valuation
          Date immediately preceding the date of distribution, and the
          Participant's Elective Account and Participant's Account and
          Participant's Transfer/Rollover Account shall be reduced accordingly.
          Withdrawal under this Section is deemed to be on account of an
          immediate and heavy financial need of the Participant only if the
          withdrawal is for:


                                       53



               (1) Medical expenses described in Code Section 213(d) incurred by
               the Participant, the Participant's spouse, or any of the
               Participant's dependents (as defined in Code Section 152) or
               necessary for these persons to obtain medical care as described
               in Code Section 213(d);

               (2) The costs directly related to the purchase (excluding
               mortgage payments) of a principal residence for the Participant;

               (3) Payment of tuition, related educational fees, and room and
               board expenses for the next twelve (12) months of post-secondary
               education for the Participant and the Participant's spouse,
               children, or dependents;

               (4) Payments necessary to prevent the eviction of the Participant
               from the Participant's principal residence or foreclosure on the
               mortgage on that residence;

               (5) On and after January 1, 2006, payments for burial or funeral
               expenses for the Participant's deceased parent, spouse, child or
               dependent; or

               (6) On and after January 1, 2006, expenses for the repair of
               damage to the employee's principal residence that would qualify
               as a casualty deduction (but determined without regard to whether
               the expenses exceed 10% of the employee's adjusted gross income).

               (b) No distribution shall be made pursuant to this Section unless
          the Administrator, based upon the Participant's representation and
          such other facts as are known to the Administrator, determines that
          all of the following conditions are satisfied:

               (1) The distribution is not in excess of the amount of the
               immediate and heavy financial need of the Participant. The amount
               of the immediate and heavy financial need may include any amounts
               necessary to pay any federal, state, or local income taxes or
               penalties reasonably anticipated to result from the distribution;

               (2) The Participant has obtained all distributions, other than
               hardship distributions, and all nontaxable (at the time of the
               loan) loans currently available under all plans maintained by the
               Employer;

               (3) The Plan, and all other plans maintained by the Employer,
               provide that the Participant's elective deferrals and after-tax
               voluntary Employee contributions will be suspended for at least
               twelve (12) months after receipt of the hardship distribution or,
               the Participant, pursuant to a legally enforceable agreement,
               will suspend elective deferrals and after-tax voluntary Employee
               contributions to the Plan and all other plans maintained by the
               Employer for at least twelve (12) months after receipt of the
               hardship distribution; and


                                       54



               (4) The Plan, and all other plans maintained by the Employer,
               provide that the Participant may not make elective deferrals for
               the Participant's taxable year immediately following the taxable
               year of the hardship distribution in excess of the applicable
               limit under Code Section 402(g) for such next taxable year less
               the amount of such Participant's elective deferrals for the
               taxable year of the hardship distribution.

               (c) Notwithstanding the above, distributions from the
          Participant's Elective Account pursuant to this Section shall be
          limited, as of the date of distribution, to the Participant's Elective
          Account as of the end of the last Plan Year ending before July 1,
          1989, plus the total Participant's Deferred Compensation after such
          date, reduced by the amount of any previous distributions pursuant to
          this Section and Section 6.10.

               (d) Any distribution made pursuant to this Section shall be made
          in a manner which is consistent with and satisfies the provisions of
          Section 6.5, including, but not limited to, all notice and consent
          requirements of Code Section 411(a)(11) and the Regulations
          thereunder.

6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION

          All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).

6.13 DIRECT ROLLOVER

               (a) Notwithstanding any provision of the Plan to the contrary
          that would otherwise limit a "distributee's" election under this
          Section, a "distributee" may elect, at the time and in the manner
          prescribed by the Administrator, to have any portion of an "eligible
          rollover distribution" that is more than $1,000 (which shall include
          any rollover contribution and earnings thereon within the meaning of
          Code Sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and
          457(e)(16)) paid directly to an "eligible retirement plan" specified
          by the "distributee" in a "direct rollover."

               (b) For purposes of this Section the following definitions shall
          apply:

               (1) An "eligible rollover distribution" is any distribution of
               all or any portion of the balance to the credit of the
               "distributee," except that an "eligible rollover distribution"
               does not include: any distribution that is one of a series of
               substantially equal periodic payments (not less frequently than
               annually) made for the life (or life expectancy) of the
               "distributee" or the joint lives (or joint life expectancies) of
               the "distributee" and the "distributee's" designated beneficiary,
               or for a specified period of ten years or more; any distribution
               to the extent such


                                       55



               distribution is required under Code Section 401(a)(9); the
               portion of any other distribution that is not includible in gross
               income (determined without regard to the exclusion for net
               unrealized appreciation with respect to employer securities); any
               hardship distribution described in Code Section
               401(k)(2)(B)(i)(IV); and any other distribution that is
               reasonably expected to total less than $200 during a year.

               (2) An "eligible retirement plan" is an individual retirement
               account described in Code Section 408(a), an individual
               retirement annuity described in Code Section 408(b), an annuity
               plan described in Code Section 403(a), or a qualified trust
               described in Code Section 401(a), that accepts the
               "distributee's" "eligible rollover distribution." However, in the
               case of an "eligible rollover distribution" to the surviving
               spouse, an "eligible retirement plan" is an individual retirement
               account or individual retirement annuity.

               (3) A "distributee" includes an Employee or former Employee. In
               addition, the Employee's or former Employee's surviving spouse
               and the Employee's or former Employee's spouse or former spouse
               who is the alternate payee under a qualified domestic relations
               order, as defined in Code Section 414(p), are "distributees" with
               regard to the interest of the spouse or former spouse.

               (4) A "direct rollover" is a payment by the Plan to the "eligible
               retirement plan" specified by the "distributee."

                                   ARTICLE VII
                       AMENDMENT, TERMINATION AND MERGERS

7.1  AMENDMENT

               (a) The Employer shall have the right at any time to amend this
          Plan, subject to the limitations of this Section. The Board of
          Directors of the Employer must authorize or ratify any amendment that
          materially increases the cost of the Plan or materially changes Plan
          benefits. The materiality of a cost increase or a change in benefit
          shall be determined by the Executive Compensation and Employee
          Benefits Committee of the Employer. However, any amendment which
          affects the rights, duties or responsibilities of the Trustee or
          Administrator may only be made with the Trustee's or Administrator's
          written consent. Any such amendment shall become effective as provided
          therein upon its execution. The Trustee shall not be required to
          execute any such amendment unless the amendment affects the duties of
          the Trustee hereunder.

               (b) No amendment to the Plan shall be effective if it authorizes
          or permits any part of the Trust Fund (other than such part as is
          required to pay taxes and administration expenses) to be used for or
          diverted to any purpose other than for the exclusive benefit of the
          Participants or their Beneficiaries or estates; or causes any
          reduction in the amount credited to the account of any Participant; or
          causes or permits any portion of the Trust Fund to revert to or become
          property of the Employer.


                                       56



               (c) Except as permitted by Regulations (including Regulation
          1.411(d)-4) or other IRS guidance, no Plan amendment or transaction
          having the effect of a Plan amendment (such as a merger, plan transfer
          or similar transaction) shall be effective if it eliminates or reduces
          any "Section 411(d)(6) protected benefit" or adds or modifies
          conditions relating to "Section 411(d)(6) protected benefits" which
          results in a further restriction on such benefits unless such "Section
          411(d)(6) protected benefits" are preserved with respect to benefits
          accrued as of the later of the adoption date or effective date of the
          amendment. "Section 411(d)(6) protected benefits" are benefits
          described in Code Section 411(d)(6)(A), early retirement benefits and
          retirement-type subsidies, and optional forms of benefit. A Plan
          amendment that eliminates or restricts the ability of a Participant to
          receive payment of the Participant's interest in the Plan under a
          particular optional form of benefit will be permissible if the
          amendment satisfies the conditions in (1) and (2) below:

               (1) The amendment provides a single-sum distribution form that is
               otherwise identical to the optional form of benefit eliminated or
               restricted. For purposes of this condition (1), a single-sum
               distribution form is otherwise identical only if it is identical
               in all respects to the eliminated or restricted optional form of
               benefit (or would be identical except that it provides greater
               rights to the Participant) except with respect to the timing of
               payments after commencement.

               (2) The amendment is not effective unless the amendment provides
               that the amendment shall not apply to any distribution with an
               annuity starting date earlier than the earlier of: (i) the
               ninetieth (90th) day after the date the Participant receiving the
               distribution has been furnished a summary that reflects the
               amendment and that satisfies the Act requirements at 29 CFR
               2520.104b-3 (relating to a summary of material modifications) or
               (ii) the first day of the second Plan Year following the Plan
               Year in which the amendment is adopted.

7.2  TERMINATION

               (a) The Employer with the approval of its Board of Directors
          shall have the right at any time to terminate the Plan by delivering
          to the Trustee and Administrator written notice of such termination.
          Upon any full or partial termination, all amounts credited to the
          affected Participants' Combined Accounts shall become 100% Vested as
          provided in Section 6.4 and shall not thereafter be subject to
          forfeiture, and all unallocated amounts, including Forfeitures, shall
          be allocated to the accounts of all Participants in accordance with
          the provisions hereof.

               (b) Upon the full termination of the Plan, the Employer shall
          direct the distribution of the assets of the Trust Fund to
          Participants in a manner which is consistent with and satisfies the
          provisions of Section 6.5. Distributions to a Participant shall be
          made in cash or through the purchase of irrevocable nontransferable
          deferred commitments from an insurer. Except as permitted by


                                       57



          Regulations, the termination of the Plan shall not result in the
          reduction of "Section 411(d)(6) protected benefits" in accordance with
          Section 7.1(c).

7.3  MERGER, CONSOLIDATION OR TRANSFER OF ASSETS

          This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan and trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the Plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 7.1(c).

                                  ARTICLE VIII
                                    TOP HEAVY

8.1  TOP HEAVY PLAN REQUIREMENTS

          For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.

8.2  DETERMINATION OF TOP HEAVY STATUS

               (a) This Plan shall be a Top Heavy Plan for any Plan Year in
          which, as of the Determination Date, (1) the Present Value of Accrued
          Benefits of Key Employees and (2) the sum of the Aggregate Accounts of
          Key Employees under this Plan and all plans of an Aggregation Group,
          exceeds sixty percent (60%) of the Present Value of Accrued Benefits
          and the Aggregate Accounts of all Key and Non-Key Employees under this
          Plan and all plans of an Aggregation Group.

                    If any Participant is a Non-Key Employee for any Plan Year,
          but such Participant was a Key Employee for any prior Plan Year, such
          Participant's Present Value of Accrued Benefit and/or Aggregate
          Account balance shall not be taken into account for purposes of
          determining whether this Plan is a Top Heavy or Super Top Heavy Plan
          (or whether any Aggregation Group which includes this Plan is a Top
          Heavy Group). In addition, if a Participant or Former Participant has
          not performed any services for any Employer maintaining the Plan at
          any time during the five year period ending on the Determination Date,
          any accrued benefit for such Participant or Former Participant shall
          not be taken into account for the purposes of determining whether this
          Plan is a Top Heavy or Super Top Heavy Plan.

               (b) This Plan shall be a Super Top Heavy Plan for any Plan Year
          in which, as of the Determination Date, (1) the Present Value of
          Accrued Benefits of Key Employees and (2) the sum of the Aggregate
          Accounts of Key Employees under this Plan and all plans of an
          Aggregation Group, exceeds ninety percent (90%) of the Present Value
          of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
          Employees under this Plan and all plans of an Aggregation Group.


                                       58



               (c) Aggregate Account: A Participant's Aggregate Account as of
          the Determination Date is the sum of:

               (1) the Participant's Combined Account balance as of the most
               recent valuation occurring within a twelve (12) month period
               ending on the Determination Date.

               (2) an adjustment for any contributions due as of the
               Determination Date. Such adjustment shall be the amount of any
               contributions actually made after the Valuation Date but due on
               or before the Determination Date, except for the first Plan Year
               when such adjustment shall also reflect the amount of any
               contributions made after the Determination Date that are
               allocated as of a date in that first Plan Year.

               (3) any Plan distributions made within the Plan Year that
               includes the Determination Date or within the four (4) preceding
               Plan Years. However, in the case of distributions made after the
               Valuation Date and prior to the Determination Date, such
               distributions are not included as distributions for top heavy
               purposes to the extent that such distributions are already
               included in the Participant's Aggregate Account balance as of the
               Valuation Date. Notwithstanding anything herein to the contrary,
               all distributions, including distributions under a terminated
               plan which if it had not been terminated would have been required
               to be included in an Aggregation Group, will be counted. Further,
               distributions from the Plan (including the cash value of life
               insurance policies) of a Participant's account balance because of
               death shall be treated as a distribution for the purposes of this
               paragraph.

               (4) any Employee contributions, whether voluntary or mandatory.
               However, amounts attributable to tax deductible qualified
               voluntary employee contributions shall not be considered to be a
               part of the Participant's Aggregate Account balance.

               (5) with respect to unrelated rollovers and plan-to-plan
               transfers (ones which are both initiated by the Employee and made
               from a plan maintained by one employer to a plan maintained by
               another employer), if this Plan provides the rollovers or
               plan-to-plan transfers, it shall always consider such rollovers
               or plan-to-plan transfers as a distribution for the purposes of
               this Section. If this Plan is the plan accepting such rollovers
               or plan-to-plan transfers, it shall not consider such rollovers
               or plan-to-plan transfers as part of the Participant's Aggregate
               Account balance.

               (6) with respect to related rollovers and plan-to-plan transfers
               (ones either not initiated by the Employee or made to a plan
               maintained by the same employer), if this Plan provides the
               rollover or plan-to-plan transfer, it shall not be counted as a
               distribution for purposes of this Section. If this Plan is the
               plan accepting such rollover or plan-to-plan transfer, it shall
               consider such rollover or plan-to-plan transfer as part of the
               Participant's


                                       59



               Aggregate Account balance, irrespective of the date on which such
               rollover or plan-to-plan transfer is accepted.

               (7) For the purposes of determining whether two employers are to
               be treated as the same employer in (5) and (6) above, all
               employers aggregated under Code Section 414(b), (c), (m) and (o)
               are treated as the same employer.

               (d) "Aggregation Group" means either a Required Aggregation Group
          or a Permissive Aggregation Group as hereinafter determined.

               (1) Required Aggregation Group: In determining a Required
               Aggregation Group hereunder, each plan of the Employer in which a
               Key Employee is a participant in the Plan Year containing the
               Determination Date or any of the four preceding Plan Years, and
               each other plan of the Employer which enables any plan in which a
               Key Employee participates to meet the requirements of Code
               Sections 401(a)(4) or 410, will be required to be aggregated.
               Such group shall be known as a Required Aggregation Group.

               In the case of a Required Aggregation Group, each plan in the
               group will be considered a Top Heavy Plan if the Required
               Aggregation Group is a Top Heavy Group. No plan in the Required
               Aggregation Group will be considered a Top Heavy Plan if the
               Required Aggregation Group is not a Top Heavy Group.

               (2) Permissive Aggregation Group: The Employer may also include
               any other plan not required to be included in the Required
               Aggregation Group, provided the resulting group, taken as a
               whole, would continue to satisfy the provisions of Code Sections
               401(a)(4) and 410. Such group shall be known as a Permissive
               Aggregation Group.

               In the case of a Permissive Aggregation Group, only a plan that
               is part of the Required Aggregation Group will be considered a
               Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy
               Group. No plan in the Permissive Aggregation Group will be
               considered a Top Heavy Plan if the Permissive Aggregation Group
               is not a Top Heavy Group.

               (3) Only those plans of the Employer in which the Determination
               Dates fall within the same calendar year shall be aggregated in
               order to determine whether such plans are Top Heavy Plans.

               (4) An Aggregation Group shall include any terminated plan of the
               Employer if it was maintained within the last five (5) years
               ending on the Determination Date.

               (e) "Determination Date" means (a) the last day of the preceding
          Plan Year, or (b) in the case of the first Plan Year, the last day of
          such Plan Year.


                                       60



               (f) Present Value of Accrued Benefit: In the case of a defined
          benefit plan, the Present Value of Accrued Benefit for a Participant
          other than a Key Employee, shall be as determined using the single
          accrual method used for all plans of the Employer and Affiliated
          Employers, or if no such single method exists, using a method which
          results in benefits accruing not more rapidly than the slowest accrual
          rate permitted under Code Section 411(b)(1)(C). The determination of
          the Present Value of Accrued Benefit shall be determined as of the
          most recent Valuation Date that falls within or ends with the 12-month
          period ending on the Determination Date except as provided in Code
          Section 416 and the Regulations thereunder for the first and second
          plan years of a defined benefit plan.

               (g) "Top Heavy Group" means an Aggregation Group in which, as of
          the Determination Date, the sum of:

               (1) the Present Value of Accrued Benefits of Key Employees under
               all defined benefit plans included in the group, and

               (2) the Aggregate Accounts of Key Employees under all defined
               contribution plans included in the group, exceeds sixty percent
               (60%) of a similar sum determined for all Participants.

                                   ARTICLE IX
                                  MISCELLANEOUS

9.1  PARTICIPANT'S RIGHTS

          This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon the Employee as a Participant of this Plan.

9.2  ALIENATION

               (a) Subject to the exceptions provided below, and as otherwise
          permitted by the Code and the Act, no benefit which shall be payable
          out of the Trust Fund to any person (including a Participant or the
          Participant's Beneficiary) shall be subject in any manner to
          anticipation, alienation, sale, transfer, assignment, pledge,
          encumbrance, or charge, and any attempt to anticipate, alienate, sell,
          transfer, assign, pledge, encumber, or charge the same shall be void;
          and no such benefit shall in any manner be liable for, or subject to,
          the debts, contracts, liabilities, engagements, or torts of any such
          person, nor shall it be subject to attachment or legal process for or
          against such person, and the same shall not be recognized by the
          Trustee, except to such extent as may be required by law.


                                       61



               (b) Subsection (a) shall not apply to a "qualified domestic
          relations order" defined in Code Section 414(p), and those other
          domestic relations orders permitted to be so treated by the
          Administrator under the provisions of the Retirement Equity Act of
          1984. The Administrator shall establish a written procedure to
          determine the qualified status of domestic relations orders and to
          administer distributions under such qualified orders. Further, to the
          extent provided under a "qualified domestic relations order," a former
          spouse of a Participant shall be treated as the spouse or surviving
          spouse for all purposes under the Plan.

               (c) Subsection (a) shall not apply to an offset to a
          Participant's accrued benefit against an amount that the Participant
          is ordered or required to pay the Plan with respect to a judgment,
          order, or decree issued, or a settlement entered into, on or after
          August 5, 1997, in accordance with Code Sections 401(a)(13)(C) and
          (D).

9.3  CONSTRUCTION OF PLAN

          This Plan shall be construed and enforced according to the Code, the
Act and the laws of the State of Georgia, other than its laws respecting choice
of law, to the extent not pre-empted by the Act.

9.4  GENDER AND NUMBER

          Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.

9.5  LEGAL ACTION

          In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee, the Employer or
the Administrator may be a party, and such claim, suit, or proceeding is
resolved in favor of the Trustee, the Employer or the Administrator, they shall
be entitled to be reimbursed from the Trust Fund for any and all costs,
attorney's fees, and other expenses pertaining thereto incurred by them for
which they shall have become liable.

9.6  PROHIBITION AGAINST DIVERSION OF FUNDS

               (a) Except as provided below and otherwise specifically permitted
          by law, it shall be impossible by operation of the Plan or of the
          Trust, by termination of either, by power of revocation or amendment,
          by the happening of any contingency, by collateral arrangement or by
          any other means, for any part of the corpus or income of any Trust
          Fund maintained pursuant to the Plan or any funds contributed thereto
          to be used for, or diverted to, purposes other than the exclusive
          benefit of Participants, Former Participants, or their Beneficiaries.


                                       62



               (b) In the event the Employer shall make an excessive
          contribution under a mistake of fact pursuant to Act Section
          403(c)(2)(A), the Employer may demand repayment of such excessive
          contribution at any time within one (1) year following the time of
          payment and the Trustees shall return such amount to the Employer
          within the one (1) year period. Earnings of the Plan attributable to
          the contributions may not be returned to the Employer but any losses
          attributable thereto must reduce the amount so returned.

               (c) Except for Sections 3.5, 3.6, and 4.1(d), any contribution by
          the Employer to the Trust Fund is conditioned upon the deductibility
          of the contribution by the Employer under the Code and, to the extent
          any such deduction is disallowed, the Employer may, within one (1)
          year following the final determination of the disallowance, whether by
          agreement with the Internal Revenue Service or by final decision of a
          competent jurisdiction, demand repayment of such disallowed
          contribution and the Trustee shall return such contribution within one
          (1) year following the disallowance. Earnings of the Plan attributable
          to the contribution may not be returned to the Employer, but any
          losses attributable thereto must reduce the amount so returned.

9.7  EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE

          The Employer, Administrator and Trustee, and their successors, shall
not be responsible for the validity of any Contract issued hereunder or for the
failure on the part of the insurer to make payments provided by any such
Contract, or for the action of any person which may delay payment or render a
Contract null and void or unenforceable in whole or in part.

9.8  INSURER'S PROTECTIVE CLAUSE

          Except as otherwise agreed upon in writing between the Employer and
the insurer, an insurer which issues any Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.

9.9  RECEIPT AND RELEASE FOR PAYMENTS

          Any payment to any Participant, the Participant's legal
representative, Beneficiary, or to any guardian or committee appointed for such
Participant or Beneficiary in accordance with the provisions of the Plan, shall,
to the extent thereof, be in full satisfaction of all claims hereunder against
the Trustee and the Employer, either of whom may require such Participant, legal
representative, Beneficiary, guardian or committee, as a condition precedent to
such payment, to execute a receipt and release thereof in such form as shall be
determined by the Trustee or Employer.


                                       63



9.10 ACTION BY THE EMPLOYER

          Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.

9.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY

          The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator, (3) the Executive Compensation and Employee Benefits Committee of
the Employer, (4) the Trustee and (5) any Investment Manager appointed
hereunder. The named Fiduciaries shall have only those specific powers, duties,
responsibilities, and obligations as are specifically given them under the Plan
including, but not limited to, any agreement allocating or delegating their
responsibilities, the terms of which are incorporated herein by reference. In
general, the Employer shall have the sole responsibility for making the
contributions provided for under Section 4.1; and shall have the authority to
appoint and remove the Trustee and the Administrator; to formulate the Plan's
"funding policy and method"; and to amend or terminate, in whole or in part, the
Plan. The Administrator shall have the sole responsibility for the
administration of the Plan, including, but not limited to, the items specified
in Article II of the Plan, as the same may be allocated or delegated thereunder.
The Administrator shall act as the named Fiduciary responsible for communicating
with the Participant according to the Participant Direction Procedures. The
Trustee shall have the sole responsibility of management of the assets held
under the Trust, except to the extent directed pursuant to Article II or with
respect to those assets, the management of which has been assigned to an
Investment Manager, who shall be solely responsible for the management of the
assets assigned to it, all as specifically provided in the Plan. Each named
Fiduciary warrants that any directions given, information furnished, or action
taken by it shall be in accordance with the provisions of the Plan, authorizing
or providing for such direction, information or action. Furthermore, each named
Fiduciary may rely upon any such direction, information or action of another
named Fiduciary as being proper under the Plan, and is not required under the
Plan to inquire into the propriety of any such direction, information or action.
It is intended under the Plan that each named Fiduciary shall be responsible for
the proper exercise of its own powers, duties, responsibilities and obligations
under the Plan as specified or allocated herein. No named Fiduciary shall
guarantee the Trust Fund in any manner against investment loss or depreciation
in asset value. Any person or group may serve in more than one Fiduciary
capacity.

9.12 HEADINGS

          The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.

9.13 APPROVAL BY INTERNAL REVENUE SERVICE

          Notwithstanding anything herein to the contrary, if, pursuant to an
application for qualification filed by or on behalf of the Plan by the time
prescribed by law for filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date that the Secretary of the Treasury may
prescribe, the Commissioner of Internal Revenue Service or the Commissioner's
delegate should determine that the Plan does not initially qualify as a
tax-exempt plan under Code Sections 401 and 501, and such determination is not
contested, or if contested, is finally upheld, then if the Plan is a new plan,
it shall be void ab initio and all amounts


                                       64



contributed to the Plan by the Employer, less expenses paid, shall be returned
within one (1) year and the Plan shall terminate, and the Trustee shall be
discharged from all further obligations. If the disqualification relates to an
amended plan, then the Plan shall operate as if it had not been amended.

9.14 UNIFORMITY

          All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.

                                    ARTICLE X
                             PARTICIPATING EMPLOYERS

10.1 ADOPTION BY OTHER EMPLOYERS

          Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity, whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.

10.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS

               (a) Each such Participating Employer shall be required to use the
          same Trustee as provided in this Plan.

               (b) The Trustee may, but shall not be required to, commingle,
          hold and invest as one Trust Fund all contributions made by
          Participating Employers, as well as all increments thereof.

               (c) Any expenses of the Plan which are to be paid by the Employer
          or borne by the Trust Fund shall be paid by each Participating
          Employer in the same proportion that the total amount standing to the
          credit of all Participants employed by such Employer bears to the
          total standing to the credit of all Participants.

10.3 DESIGNATION OF AGENT

          Each Participating Employer shall be deemed to be a party to this
Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.

10.4 EMPLOYEE TRANSFERS

          In the event an Employee is transferred between Participating
Employers, accumulated service and eligibility shall be carried with the
Employee involved. No such transfer shall effect a termination of employment
hereunder, and the Participating Employer to which the


                                       65



Employee is transferred shall thereupon become obligated hereunder with respect
to such Employee in the same manner as was the Participating Employer from whom
the Employee was transferred.

10.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES

          Any contribution or Forfeiture subject to allocation during each Plan
Year shall be allocated only among those Participants of the Employer or
Participating Employers making the contribution or by which the forfeiting
Participant was employed. However, if the contribution is made, or the
forfeiting Participant was employed, by an Affiliated Employer, in which event
such contribution or Forfeiture shall be allocated among all Participants of all
Participating Employers who are Affiliated Employers in accordance with the
provisions of this Plan. On the basis of the information furnished by the
Administrator, the Trustee may keep separate books and records concerning the
affairs of each Participating Employer hereunder and as to the accounts and
credits of the Employees of each Participating Employer. The Trustee may, but
need not, register Contracts so as to evidence that a particular Participating
Employer is the interested Employer hereunder, but in the event of an Employee
transfer from one Participating Employer to another, the employing Participating
Employer shall immediately notify the Trustee thereof.

10.6 AMENDMENT

          Amendment of this Plan by the Employer at any time when there shall be
a Participating Employer hereunder shall only be by the written action of each
and every Participating Employer and with the consent of the Trustee where such
consent is necessary in accordance with the terms of this Plan.

10.7 DISCONTINUANCE OF PARTICIPATION

          Any Participating Employer shall be permitted to discontinue or revoke
its participation in the Plan at any time. At the time of any such
discontinuance or revocation, satisfactory evidence thereof and of any
applicable conditions imposed shall be delivered to the Trustee. The Trustee
shall thereafter transfer, deliver and assign Contracts and other Trust Fund
assets allocable to the Participants of such Participating Employer to such new
trustee as shall have been designated by such Participating Employer, in the
event that it has established a separate qualified retirement plan for its
employees provided, however, that no such transfer shall be made if the result
is the elimination or reduction of any "Section 411(d)(6) protected benefits" as
described in Section 7.1(c). If no successor is designated, the Trustee shall
retain such assets for the Employees of said Participating Employer pursuant to
the provisions of the Trust. In no such event shall any part of the corpus or
income of the Trust Fund as it relates to such Participating Employer be used
for or diverted for purposes other than for the exclusive benefit of the
Employees of such Participating Employer.

10.8 ADMINISTRATOR'S AUTHORITY

          The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.


                                       66



          IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.

                                        Employer
                                        HAVERTY FURNITURE COMPANIES, INC.


Attested by: Jenny H. Parker            By: Allan J. DeNiro
             ------------------------       ------------------------------------
Title: Vice President, Secretary and    Title: Chief People Officer
       Treasurer


                                       67

EX-10.3.1

                                                                  EXHIBIT 10.3.1

                        AMENDMENT OF THE PLAN FOR EGTRRA
                                       AND
                            REVENUE PROCEDURE 2002-29

                             AMENDMENT NUMBER ONE TO
                  HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN
                            RESTATED JANUARY 1, 2005



                        AMENDMENT OF THE PLAN FOR EGTRRA
                                       AND
                            REVENUE PROCEDURE 2002-29

                             AMENDMENT NUMBER ONE TO
                  HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN
                            RESTATED JANUARY 1, 2005

     BY THIS AGREEMENT, HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN Restated
January 1, 2005 (herein referred to as the Plan) is hereby amended as follows:

                                    ARTICLE I
                                    PREAMBLE

1.1 Adoption and effective date of amendment. This amendment of the Plan is
adopted to reflect certain provisions of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA) and the model amendment of Revenue Procedure
2002-29. This amendment is intended as good faith compliance with the
requirements of EGTRRA and the model amendment of Revenue Procedure 2002-29 and
is to be construed in accordance with EGTRRA and the model amendment of Revenue
Procedure 2002-29 and guidance issued thereunder. Except as otherwise provided,
this amendment shall be effective as of the first day of the first Plan Year
beginning after December 31, 2001.

1.2 Supersession of inconsistent provisions. This amendment shall supersede the
provisions of the Plan to the extent those provisions are inconsistent with the
provisions of this amendment.

                                   ARTICLE II
                          LIMITATIONS ON CONTRIBUTIONS

2.1 Effective date. This Article shall be effective for "limitation years"
beginning after December 31, 2001.

2.2 Maximum annual addition. Except to the extent permitted under Article VIII
of this amendment and Code Section 414(v), the "annual addition" that may be
contributed or allocated to a Participant's account under the Plan for any
"limitation year" shall not exceed the lesser of:

          (a) $40,000, as adjusted for increases in the cost-of-living under
     Code Section 415(d), or

          (b) one-hundred percent (100%) of the Participant's "415 Compensation"
     for the "limitation year."

     The "415 Compensation" limit referred to in (b) shall not apply to any
contribution for medical benefits after separation from service (within the
meaning of Code Section 401(h) or Code Section 419A(f)(2)) which is otherwise
treated as an "annual addition."


                                        1



                                   ARTICLE III
                         INCREASE IN COMPENSATION LIMIT

     The annual Compensation of each Participant taken into account in
determining allocations for any Plan Year beginning after December 31, 2001,
shall not exceed $200,000, as adjusted for cost-of-living increases in
accordance with Code Section 401(a)(17)(B).

                                   ARTICLE IV
                     MODIFICATION OF TOP-HEAVY RULESIV

4.1 Effective date. This Article shall apply for purposes of determining whether
the Plan is a top-heavy plan under Code Section 416(g) for Plan Years beginning
after December 31, 2001, and whether the Plan satisfies the minimum benefits
requirements of Code Section 416(c) for such years. This Article amends Article
VIII of the Plan.

4.2 Determination of top-heavy status.

          (a) Key employee. Key employee means any Employee or former Employee
     (including any deceased Employee) who at any time during the Plan Year that
     includes the determination date was an officer of the Employer having "415
     Compensation" greater than $130,000 (as adjusted under Code Section
     416(i)(1) for Plan Years beginning after December 31, 2002), a 5-percent
     owner of the Employer, or a 1-percent owner of the Employer having "415
     Compensation" of more than $150,000. The determination of who is a key
     employee will be made in accordance with Code Section 416(i)(1) and the
     applicable regulations and other guidance of general applicability issued
     thereunder.

          (b) Determination of present values and amounts. This section (b)
     shall apply for purposes of determining the present values of accrued
     benefits and the amounts of account balances of Employees as of the
     determination date.

          (1) Distributions during year ending on the determination date. The
          present values of accrued benefits and the amounts of account balances
          of an Employee as of the determination date shall be increased by the
          distributions made with respect to the Employee under the Plan and any
          plan aggregated with the Plan under Code Section 416(g)(2) during the
          1-year period ending on the determination date. The preceding sentence
          shall also apply to distributions under a terminated plan which, had
          it not been terminated, would have been aggregated with the Plan under
          Code Section 416(g)(2)(A)(i). In the case of a distribution made for a
          reason other than separation from service, death, or disability, this
          provision shall be applied by substituting "5-year period" for "1-year
          period."

          (2) Employees not performing services during year ending on the
          determination date. The accrued benefits and accounts of any
          individual who has not performed services for the Employer during the
          1-year period ending on the determination date shall not be taken into
          account.

4.3 Minimum benefits. Employer matching contributions shall be taken into
account for purposes of satisfying the minimum contribution requirements of Code
Section 416(c)(2) and the Plan. The preceding sentence shall apply with respect
to matching contributions under the Plan


                                        2



or, if the Plan provides that the minimum contribution requirement shall be met
in another plan, such other plan. Employer matching contributions that are used
to satisfy the minimum contribution requirements shall be treated as matching
contributions for purposes of the actual contribution percentage test and other
requirements of Code Section 401(m).

                                    ARTICLE V
                     DIRECT ROLLOVERS OF PLAN DISTRIBUTIONS

5.1 Effective date. This Article shall apply to distributions made after
December 31, 2001.

5.2 Modification of definition of eligible retirement plan. For purposes of the
direct rollover provisions in Section 6.13 p.56 of the Plan, an eligible
retirement plan shall also mean an annuity contract described in Code Section
403(b) and an eligible plan under Code Section 457(b) which is maintained by a
state, political subdivision of a state, or any agency or instrumentality of a
state or political subdivision of a state and which agrees to separately account
for amounts transferred into such plan from this Plan. The definition of
eligible retirement plan shall also apply in the case of a distribution to a
surviving spouse, or to a spouse or former spouse who is the alternate payee
under a qualified domestic relation order, as defined in Code Section 414(p).

5.3 Modification of definition of eligible rollover distribution to exclude
hardship distributions. For purposes of the direct rollover provisions in
Section 6.13 p.56 of the Plan, any amount that is distributed on account of
hardship shall not be an eligible rollover distribution and the distributee may
not elect to have any portion of such a distribution paid directly to an
eligible retirement plan.

                                   ARTICLE VI
                           ROLLOVERS FROM OTHER PLANS

     The Administrator, operationally and on a nondiscriminatory basis, may
limit the source of rollover contributions that may be accepted by this Plan.

                                   ARTICLE VII
                           REPEAL OF MULTIPLE USE TEST

     The multiple use test described in Treasury Regulation Section 1.401(m)-2
and Section 4.7(a)(2) p.34 of the Plan shall not apply for Plan Years beginning
after December 31, 2001.

                                  ARTICLE VIII
                             CATCH-UP CONTRIBUTIONS

8.1 Effective date. This Article shall apply to catch-up contributions made on
and after January 1, 2002.

8.2 Applicability. All Employees who are eligible to make salary reductions
under this Plan and who are projected to attain age 50 before the end of a
calendar year shall be eligible to make catch-up contributions as of the January
1st of that calendar year in accordance with, and subject to the limitations of,
Code Section 414(v). Such catch-up contributions shall not be taken into account
for purposes of the provisions of the Plan implementing the required limitations
of Code Sections 402(g) and 415. The Plan shall not be treated as failing to
satisfy the provisions of the


                                        3



Plan implementing the requirements of Code Section 401(k)(3), 401(k)(11),
401(k)(12), 410(b), or 416, as applicable, by reason of the making of such
catch-up contributions.

8.3 Matching contributions. Notwithstanding anything in the Plan to the
contrary, catch-up contributions shall not be matched.

                                   ARTICLE IX
                SUSPENSION PERIOD FOLLOWING HARDSHIP DISTRIBUTION

     A Participant who, after December 31, 2001, receives a hardship
distribution pursuant to Regulation 1.401(k)-1(d)(2)(iv) of elective deferrals,
shall be prohibited from making elective deferrals and after-tax Employee
contributions under this Plan and all other plans maintained by the Employer for
six (6) months after receipt of the hardship distribution. A Participant who
receives such a hardship distribution in calendar year 2001 shall be prohibited
from making elective deferrals and after-tax Employee contributions under this
Plan and all other plans maintained by the Employer for the period specified in
the provisions of the Plan relating to suspension of elective deferrals and
after-tax Employee contributions that were in effect prior to this amendment.

                                    ARTICLE X
                   DISTRIBUTION UPON SEVERANCE FROM EMPLOYMENT

10.1. Effective date. This Article shall apply for distributions occurring on
and after January 1, 2002 for severance from employment occurring on or after
January 1, 2002.

10.2. New distributable event. A Participant's Elective Contributions and
earnings attributable to these contributions shall be distributed on account of
the Participant's severance from employment. However, such a distribution shall
be subject to the other provisions of the Plan regarding distributions, other
than provisions that require a separation from service before such amounts may
be distributed.

                                   ARTICLE XI
                 MODEL AMENDMENT UNDER REVENUE PROCEDURE 2002-29
                        MINIMUM DISTRIBUTION REQUIREMENTS

11.1 General Rules.

          (a) Effective Date. The provisions of this Article will apply for
     purposes of determining required minimum distributions for calendar years
     beginning with the 2003 calendar year, as well as required minimum
     distributions for the 2002 distribution calendar year that are made on or
     after January 1, 2002.

          (b) Coordination with Minimum Distribution Requirements Previously in
     Effect. If the total amount of 2002 required minimum distributions under
     the Plan made to the distributee prior to the effective date of this
     Article equals or exceeds the required minimum distributions determined
     under this Article, then no additional distributions will be required to be
     made for 2002 on or after such date to the distributee. If the total amount
     of 2002 required minimum distributions under the Plan made to the
     distributee prior to the effective date of this Article is less than the
     amount determined under this Article, then required minimum distributions
     for 2002 on and after such date will be


                                        4



     determined so that the total amount of required minimum distributions for
     2002 made to the distributee will be the amount determined under this
     Article.

          (c) Precedence. The requirements of this Article will take precedence
     over any inconsistent provisions of the Plan.

          (d) Requirements of Treasury Regulations Incorporated. All
     distributions required under this Article will be determined and made in
     accordance with the Treasury regulations under Code Section
     401(a)(9).

11.2 Time and Manner of Distribution.

          (a) Required Beginning Date. The Participant's entire interest will be
     distributed, or begin to be distributed, to the Participant no later than
     the Participant's required beginning date.

          (b) Death of Participant Before Distributions Begin. If the
     Participant dies before distributions begin, the Participant's entire
     interest will be distributed, or begin to be distributed, no later than as
     follows:

          (1) If the Participant's surviving spouse is the Participant's sole
          designated Beneficiary, then distributions to the surviving spouse
          will begin by December 31st of the calendar year immediately following
          the calendar year in which the Participant died, or by December 31st
          of the calendar year in which the Participant would have attained age
          70 1/2, if later.

          (2) If the Participant's surviving spouse is not the Participant's
          sole designated Beneficiary, then, except as provided in Section
          11.2(b)(3), distributions to the designated Beneficiary will begin by
          December 31st of the calendar year immediately following the calendar
          year in which the Participant died.

          (3) If the Participant dies before distributions begin and there is a
          designated Beneficiary (other than the Participant's surviving
          spouse), distribution to the designated Beneficiary is not required to
          begin by the date specified in Section 11.2(b)(2), but the
          Participant's entire interest will be distributed to the designated
          Beneficiary by December 31st of the calendar year containing the fifth
          anniversary of the Participant's death.

          (4) If there is no designated Beneficiary as of September 30th of the
          year following the year of the Participant's death, the Participant's
          entire interest will be distributed by December 31st of the calendar
          year containing the fifth anniversary of the Participant's death.

          (5) If the Participant's surviving spouse is the Participant's sole
          designated Beneficiary and the surviving spouse dies after the
          Participant but before distributions to the surviving spouse begin,
          this Section 11.2(b), other than Section 11.2(b)(1), will apply as if
          the surviving spouse were the Participant.

               For purposes of this Section 11.2(b) and Section 11.4, unless
     Section 11.2(b)(5) applies, distributions are considered to begin on the
     Participant's


                                        5



     required beginning date. If Section 11.2(b)(5) applies, distributions are
     considered to begin on the date distributions are required to begin to the
     surviving spouse under Section 11.2(b)(1).

          (c) Form of Distribution. Unless the Participant's interest is
     distributed in a single sum on or before the required beginning date, as of
     the first distribution calendar year distributions will be made in
     accordance with Sections 11.3 and 11.4 of this Article.

11.3 Required Minimum Distributions During Participant's Lifetime.

          (a) Amount of Required Minimum Distribution For Each Distribution
     Calendar Year. During the Participant's lifetime, the minimum amount that
     will be distributed for each distribution calendar year is the lesser of:

          (1) the quotient obtained by dividing the Participant's account
          balance by the distribution period in the Uniform Lifetime Table set
          forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the
          Participant's age as of the Participant's birthday in the distribution
          calendar year; or

          (2) if the Participant's sole designated Beneficiary for the
          distribution calendar year is the Participant's spouse, the quotient
          obtained by dividing the Participant's account balance by the number
          in the Joint and Last Survivor Table set forth in Section
          1.401(a)(9)-9 of the Treasury regulations, using the Participant's and
          spouse's attained ages as of the Participant's and spouse's birthdays
          in the distribution calendar year.

          (b) Lifetime Required Minimum Distributions Continue Through Year of
     Participant's Death. Required minimum distributions will be determined
     under this Section 11.3 beginning with the first distribution calendar year
     and up to and including the distribution calendar year that includes the
     Participant's date of death.

11.4 Required Minimum Distributions After Participant's Death.

          (a) Death On or After Date Distributions Begin.

          (1) Participant Survived by Designated Beneficiary. If the Participant
          dies on or after the date distributions begin and there is a
          designated Beneficiary, the minimum amount that will be distributed
          for each distribution calendar year after the year of the
          Participant's death is the quotient obtained by dividing the
          Participant's account balance by the longer of the remaining life
          expectancy of the Participant or the remaining life expectancy of the
          Participant's designated Beneficiary, determined as follows:

               (i) The Participant's remaining life expectancy is calculated
               using the age of the Participant in the year of death, reduced by
               one for each subsequent year.

               (ii) If the Participant's surviving spouse is the Participant's
               sole designated Beneficiary, the remaining life expectancy of the
               surviving spouse is calculated for each distribution calendar
               year after the year of the


                                        6



               Participant's death using the surviving spouse's age as of the
               spouse's birthday in that year. For distribution calendar years
               after the year of the surviving spouse's death, the remaining
               life expectancy of the surviving spouse is calculated using the
               age of the surviving spouse as of the spouse's birthday in the
               calendar year of the spouse's death, reduced by one for each
               subsequent calendar year.

               (iii) If the Participant's surviving spouse is not the
               Participant's sole designated Beneficiary, the designated
               Beneficiary's remaining life expectancy is calculated using the
               age of the beneficiary in the year following the year of the
               Participant's death, reduced by one for each subsequent year.

          (2) No Designated Beneficiary. If the Participant dies on or after the
          date distributions begin and there is no designated Beneficiary as of
          September 30th of the year after the year of the Participant's death,
          the minimum amount that will be distributed for each distribution
          calendar year after the year of the Participant's death is the
          quotient obtained by dividing the Participant's account balance by the
          Participant's remaining life expectancy calculated using the age of
          the Participant in the year of death, reduced by one for each
          subsequent year.

          (b) Death Before Date Distributions Begin.

          (1) Participant Survived by Designated Beneficiary. Except as provided
          in Section 11.4(b)(2), if the Participant dies before the date
          distributions begin and there is a designated Beneficiary, the minimum
          amount that will be distributed for each distribution calendar year
          after the year of the Participant's death is the quotient obtained by
          dividing the Participant's account balance by the remaining life
          expectancy of the Participant's designated Beneficiary, determined as
          provided in Section 11.4(a).

          (2) If the Participant dies before distributions begin and there is a
          designated Beneficiary (other than the Participant's surviving
          spouse), distribution to the designated Beneficiary is not required to
          begin by the date specified in Section 11.2(b)(2), but the
          Participant's entire interest will be distributed to the designated
          Beneficiary by December 31st of the calendar year containing the fifth
          anniversary of the Participant's death.

          (3) No Designated Beneficiary. If the Participant dies before the date
          distributions begin and there is no designated Beneficiary as of
          September 30th of the year following the year of the Participant's
          death, distribution of the Participant's entire interest will be
          completed by December 31st of the calendar year containing the fifth
          anniversary of the Participant's death.

          (4) Death of Surviving Spouse Before Distributions to Surviving Spouse
          Are Required to Begin. If the Participant dies before the date
          distributions begin, the Participant's surviving spouse is the
          Participant's sole designated Beneficiary, and the surviving spouse
          dies before distributions are required to begin to the surviving
          spouse under Section 11.2(b)(1), this Section 11.4(b) will apply as if
          the surviving spouse were the Participant.


                                        7



11.5 Definitions.

          (a) Designated Beneficiary. The individual who is designated as the
     Beneficiary under Section 2.6 p.1 of the Plan and is the designated
     Beneficiary under Code Section 401(a)(9) and section 1.401(a)(9)-1, Q&A-4,
     of the Treasury regulations.

          (b) Distribution calendar year. A calendar year for which a minimum
     distribution is required. For distributions beginning before the
     Participant's death, the first distribution calendar year is the calendar
     year immediately preceding the calendar year which contains the
     Participant's required beginning date. For distributions beginning after
     the Participant's death, the first distribution calendar year is the
     calendar year in which distributions are required to begin under Section
     11.2(b). The required minimum distribution for the Participant's first
     distribution calendar year will be made on or before the Participant's
     required beginning date. The required minimum distribution for other
     distribution calendar years, including the required minimum distribution
     for the distribution calendar year in which the Participant's required
     beginning date occurs, will be made on or before December 31st of that
     distribution calendar year.

          (c) Life expectancy. Life expectancy as computed by use of the Single
     Life Table in section 1.401(a)(9)-9 of the Treasury regulations.

          (d) Participant's account balance. The account balance as of the last
     valuation date in the calendar year immediately preceding the distribution
     calendar year (valuation calendar year) increased by the amount of any
     contributions made and allocated or forfeitures allocated to the account
     balance as of dates in the valuation calendar year after the valuation date
     and decreased by distributions made in the valuation calendar year after
     the valuation date. The account balance for the valuation calendar year
     includes any amounts rolled over or transferred to the plan either in the
     valuation calendar year or in the distribution calendar year if distributed
     or transferred in the valuation calendar year.

          (e) Required beginning date. The date specified in Sections 6.5(d)
     p.51 and 6.6(b) p.53 of the Plan.


                                        8



     IN WITNESS WHEREOF, this Amendment has been executed this 1st day of
December, 2005.

                                        Employer
                                        HAVERTY FURNITURE COMPANIES, INC.


Attested by: Jenny H. Parker            By: Allan J. DeNiro
             ------------------------       ------------------------------------
Title: Vice President, Secretary        Title: Chief People Officer
       and Treasurer


                                        9

EX-10.19

                                                                   EXHIBIT 10.19


 BASE SALARIES OF NAMED EXECUTIVE OFFICERS OF HAVERTY FURNITURE COMPANIES, INC.


The following table sets forth the 2006 annual base salary levels of those
individuals that are the named executive officers (as defined in Item 402(a)(3)
of Regulation S-K) in the 2006 proxy statement of Haverty Furniture Companies,
Inc.:




NAME                          POSITION                                                     BASE SALARY

                                                                                      
Clarence H. Ridley            Chairman                                                      $ 410,000
Clarence H. Smith             President and Chief Executive Officer                         $ 420,000
Dennis L. Fink                Executive Vice President, Chief Financial Officer             $ 320,000
M. Tony Wilkerson             Executive Vice President, Marketing                           $ 270,000
Rawson Haverty, Jr.           Senior Vice President, Real Estate                            $ 215,000
Steve G. Burdette             Senior Vice President, Operations                             $ 215,000

EX-21

                                                                               .
                                                                               .
                                                                               .

                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT



             NAME                STATE OF INCORPORATION
             ----                ----------------------
                              
    Havertys Capital, Inc.               Nevada
Havertys Credit Services, Inc.         Tennessee
  Havertys Enterprises, Inc.             Nevada

EX-23.1

                                                                    EXHIBIT 23.1

            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Haverty Furniture Companies, Inc. of our report dated March 15, 2006, with
respect to the consolidated financial statements of Haverty Furniture Companies,
Inc., included in the 2005 Annual Report to Stockholders of Haverty Furniture
Companies, Inc.

Our audits also included the financial statement schedule of Haverty Furniture
Companies, Inc. listed in Item 15(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, as to which the date is March 15, 2006, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

We consent to the incorporation by reference in the following Registration
Statements:

     (1)  Registration Statements (Form S-8 Nos. 333-53215 and 333-66012)
          pertaining to the 1998 Stock Option Plan of Haverty Furniture
          Companies, Inc.

     (2)  Registration Statements (Form S-8 Nos. 33-45724 and 333-66010)
          pertaining to the Employee Stock Purchase Plan of Haverty Furniture
          Companies, Inc.

     (3)  Registration Statement (Form S-8 No. 33-44285) pertaining to the
          Thrift Plan and Trust of Haverty Furniture Companies, Inc.

     (4)  Registration Statement (Form S-8 No. 333-120352) pertaining to the
          2004 Long-Term Incentive Plan of Haverty Furniture Companies, Inc.

of our report dated March 15, 2006, with respect to the consolidated financial
statements of Haverty Furniture Companies, Inc. incorporated herein by
reference, our report dated March 15, 2006, with respect to Haverty Furniture
Companies, Inc. management's assessment of the effectiveness of internal control
over financial reporting and the effectiveness of internal control over
financial reporting of Haverty Furniture Companies, Inc., included herein, and
our report included in the preceding paragraph with respect to the financial
statement schedule of Haverty Furniture Companies, Inc. included in this Annual
Report (Form 10-K) of Haverty Furniture Companies, Inc.

                                               /s/ Ernst & Young LLP

Atlanta, Georgia
March 15, 2006

EX-31.1

                                                                    EXHIBIT 31.1

I, Clarence H. Smith, President and Chief Executive Officer of Haverty Furniture
Companies, Inc., certify that:

1.   I have reviewed this annual report on Form 10-K for the fiscal year ended
     December 31, 2005 of Haverty Furniture Companies, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and we have:

     (a)  designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the end of the period covered by this report based on
          such evaluation; and

     (d)  disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth quarter in the
          case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  all significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.


Date: March 16, 2006                    /s/ Clarence H. Smith
                                        ----------------------------------------
                                        Clarence H. Smith,
                                        President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

I, Dennis L. Fink, Executive Vice President and Chief Financial Officer of
Haverty Furniture Companies, Inc., certify that:

1.   I have reviewed this annual report on Form 10-K for the fiscal year ended
     December 31, 2005 of Haverty Furniture Companies, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) 15d-15(e)) and internal control over
     financial reporting (as defined in Exchange Act Rules 13a-15(f) and
     15d-15(f)) for the registrant and we have:

     (a)  designed such disclosure controls and procedures, or caused such
          disclosure controls and procedures to be designed under our
          supervision, to ensure that material information relating to the
          registrant, including its consolidated subsidiaries, is made known to
          us by others within those entities, particularly during the period in
          which this report is being prepared;

     (b)  designed such internal control over financial reporting, or caused
          such internal control over financial reporting to be designed under
          our supervision, to provide reasonable assurance regarding the
          reliability of financial reporting and the preparation of financial
          statements for external purposes in accordance with generally accepted
          accounting principles;

     (c)  evaluated the effectiveness of the registrant's disclosure controls
          and procedures and presented in this report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the end of the period covered by this report based on
          such evaluation; and

     (d)  disclosed in this report any change in the registrant's internal
          control over financial reporting that occurred during the registrant's
          most recent fiscal quarter (the registrant's fourth quarter in the
          case of an annual report) that has materially affected, or is
          reasonably likely to materially affect, the registrant's internal
          control over financial reporting; and

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     (a)  all significant deficiencies and material weaknesses in the design or
          operation of internal control over financial reporting which are
          reasonably likely to adversely affect the registrant's ability to
          record, process, summarize and report financial information; and

     (b)  any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          control over financial reporting.


Date: March 16, 2006                    /s/ Dennis L. Fink
                                        ----------------------------------------
                                        Dennis L. Fink,
                                        Executive Vice President and
                                        Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Haverty Furniture Companies, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2005 (the "Report"),
I, Clarence H. Smith, President and Chief Executive Officer of the Company, and
I, Dennis L. Fink, Executive Vice President and Chief Financial Officer of the
Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that

     (1)  to my knowledge, the Report fully complies with the requirements of
          Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  the information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company.


Date: March 16, 2006                    /s/ Clarence H. Smith
                                        ----------------------------------------
                                        Clarence H. Smith
                                        President and Chief Executive Officer


                                        /s/ Dennis L. Fink
                                        ----------------------------------------
                                        Dennis L. Fink
                                        Executive Vice President and
                                        Chief Financial Officer