10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2005

¨ 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 1-7120

HARTE-HANKS, INC.

(Exact name of registrant as specified in its charter)

Delaware	74-1677284
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

200 Concord Plaza Drive, San Antonio, Texas	78216
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number including area code — 210/829-9000

Indicate by checkmark 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  x    No  ¨

Indicate by checkmark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: $1 par value per share, 84,288,113 shares as of July 31, 2005.

HARTE-HANKS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

FORM 10-Q REPORT

June 30, 2005

				Page
Part I. Financial Information
	Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited)
			Condensed Consolidated Balance Sheets - June 30, 2005 and December 31, 2004	3
			Consolidated Statements of Operations - Three months ended June 30, 2005 and 2004	4
			Consolidated Statements of Operations - Six months ended June 30, 2005 and 2004	5
			Consolidated Statements of Cash Flows - Six months ended June 30, 2005 and 2004	6
			Consolidated Statements of Stockholders’ Equity and Comprehensive Income - Six months ended June 30, 2005 and twelve months ended December 31, 2004	7
			Notes to Unaudited Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		20
	Item 4.	Controls and Procedures		21
Part II. Other Information
	Item 2.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		21
	Item 4.	Submission of Matters to a Vote of Security Holders		22
	Item 5.	Other Information		22
	Item 6.	Exhibits and Reports on Form 8-K		22
	(a)	Exhibits
	(b)	Reports on Form 8-K

2

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)

Harte-Hanks, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (in thousands, except share amounts)

	(Unaudited) June 30, 2005			December 31, 2004
Assets
Current assets
Cash and cash equivalents	$	25,474		$	38,807
Accounts receivable, net		170,625			168,755
Inventory		6,893			6,086
Prepaid expenses		15,066			16,664
Current deferred income tax asset		15,665			13,812
Other current assets		7,021			6,373
Total current assets		240,744			250,497
Property, plant and equipment, net		117,808			113,770
Goodwill, net		501,012			458,171
Other intangible assets, net		17,571			2,067
Other assets		3,441			3,848
Total assets	$	880,576		$	828,353
Liabilities and Stockholders’ Equity
Current liabilities
Current maturities of long-term debt	$	43,000		$	10,000
Accounts payable		56,896			55,632
Accrued payroll and related expenses		28,107			36,539
Customer deposits and unearned revenue		55,525			53,707
Income taxes payable		14,505			17,239
Other current liabilities		9,357			9,075
Total current liabilities		207,390			182,192
Other long-term liabilities		79,129			74,362
Total liabilities		286,519			256,554
Stockholders’ equity
Common stock, $1 par value per share, 250,000,000 shares authorized. 115,036,457 and 114,505,329 shares issued at June 30, 2005 and December 31, 2004 respectively		115,036			114,505
Additional paid-in capital		263,007			253,515
Retained earnings		928,522			882,750
Less treasury stock: 30,700,557 and 29,524,064 shares at cost at June 30, 2005 and December 31, 2004, respectively		(696,052	)		(663,779	)
Accumulated other comprehensive loss		(16,456	)		(15,192	)
Total stockholders’ equity		594,057			571,799
Total liabilities and stockholders’ equity	$	880,576		$	828,353

See Notes to Unaudited Condensed Consolidated Financial Statements.

3

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

(Unaudited)

	Three Months Ended June 30,
	2005			2004
Operating revenues	$	284,010		$	254,152
Operating expenses
Labor		105,375			97,309
Production and distribution		98,793			86,569
Advertising, selling, general and administrative		24,191			20,096
Depreciation and amortization		7,455			7,130
Intangible amortization		376			150
Total operating expenses		236,190			211,254
Operating income		47,820			42,898
Other expenses (income)
Interest expense		505			260
Interest income		(37	)		(73	)
Other, net		282			196
		750			383
Income before income taxes		47,070			42,515
Income tax expense		17,943			16,969
Net income	$	29,127		$	25,546
Basic earnings per common share	$	0.34		$	0.30
Weighted-average common shares outstanding		84,466			86,335
Diluted earnings per common share	$	0.34		$	0.29
Weighted-average common and common equivalent shares outstanding		86,337			87,963

See Notes to Unaudited Condensed Consolidated Financial Statements.

4

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Operations (in thousands, except per share amounts)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
Operating revenues	$	552,303		$	490,404
Operating expenses
Labor		209,677			191,449
Production and distribution		192,381			169,921
Advertising, selling, general and administrative		44,803			40,084
Depreciation and amortization		14,777			14,194
Intangible amortization		526			300
Total operating expenses		462,164			415,948
Operating income		90,139			74,456
Other expenses (income)
Interest expense		708			432
Interest income		(115	)		(291	)
Other, net		771			685
		1,364			826
Income before income taxes		88,775			73,630
Income tax expense		34,575			29,295
Net income	$	54,200		$	44,335
Basic earnings per common share	$	0.64		$	0.51
Weighted-average common shares outstanding		84,598			86,894
Diluted earnings per common share	$	0.63		$	0.50
Weighted-average common and common equivalent shares outstanding		86,381			88,497

See Notes to Unaudited Condensed Consolidated Financial Statements.

5

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (in thousands)

(Unaudited)

	Six Months Ended June 30,
	2005			2004
Cash Flows from Operating Activities
Net income	$	54,200		$	44,335
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		14,777			14,194
Intangible amortization		526			300
Amortization of option-related compensation		128			50
Deferred income taxes		988			4,898
Other, net		308			161
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable, net		(338	)		1,996
(Increase) decrease in inventory		(29	)		248
Decrease (increase) in prepaid expenses and other current assets		1,243			(1,896	)
Increase in accounts payable		89			1,157
(Decrease) increase in other accrued expenses and other current liabilities		(7,182	)		2,232
Other, net		1,870			1,448
Net cash provided by operating activities		66,580			69,123
Cash Flows from Investing Activities
Acquisitions, net of cash acquired		(63,274	)		(16,937	)
Purchases of property, plant and equipment		(16,893	)		(16,281	)
Proceeds from sale of property, plant and equipment		2			63
Net cash used in investing activities		(80,165	)		(33,155	)
Cash Flows from Financing Activities
Long-term borrowings		48,000			25,000
Repayment of long-term borrowings		(15,000	)		(15,000	)
Issuance of common stock		7,036			7,245
Purchase of treasury stock		(31,443	)		(48,783	)
Issuance of treasury stock		87			76
Dividends paid		(8,428	)		(6,960	)
Net cash provided by (used in) financing activities		252			(38,422	)
Net decrease in cash and cash equivalents		(13,333	)		(2,454	)
Cash and cash equivalents at beginning of year		38,807			32,151
Cash and cash equivalents at end of period	$	25,474		$	29,697

See Notes to Unaudited Condensed Consolidated Financial Statements.

6

Harte-Hanks, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity and Comprehensive Income (in thousands)

(2005 Unaudited)

	Common Stock		Additional Paid-In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at January 1, 2004	$	113,281	$	235,996	$	798,974		$	(573,863	)	$	(18,790	)	$	555,598
Common stock issued-employee benefit plans		175		3,347		—			—			—			3,522
Exercise of stock options for cash and by surrender of shares		1,049		10,345		—			(4,334	)		—			7,060
Tax benefit of options exercised		—		3,818		—			—			—			3,818
Dividends paid ($0.16 per share)		—		—		(13,792	)		—			—			(13,792	)
Treasury stock repurchased		—		—		—			(85,738	)		—			(85,738	)
Treasury stock issued		—		9		—			156			—			165
Comprehensive income, net of tax:
Net income		—		—		97,568			—			—			97,568
Adjustment for minimum pension liability (net of tax of $1,519)		—		—		—			—			2,322			2,322
Foreign currency translation adjustment		—		—		—			—			1,276			1,276
Total comprehensive income															101,166
Balance at December 31, 2004		114,505		253,515		882,750			(663,779	)		(15,192	)		571,799
Common stock issued-employee benefit plans		82		1,831		—			—			—			1,913
Exercise of stock options for cash and by surrender of shares		449		5,020		—			(903	)		—			4,566
Tax benefit of options exercised		—		2,627		—			—			—			2,627
Dividends paid ($0.10 per share)		—		—		(8,428	)		—			—			(8,428	)
Treasury stock repurchased		—		—		—			(31,443	)		—			(31,443	)
Treasury stock issued		—		14		—			73			—			87
Comprehensive income, net of tax:
Net income		—		—		54,200			—			—			54,200
Foreign currency translation adjustment		—		—		—			—			(1,264	)		(1,264	)
Total comprehensive income															52,936
Balance at June 30, 2005	$	115,036	$	263,007	$	928,522		$	(696,052	)	$	(16,456	)	$	594,057

See Notes to Unaudited Condensed Consolidated Financial Statements.

7

Harte-Hanks, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note A - Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Harte-Hanks, Inc. and its subsidiaries (the “Company”).

The statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the year ended December 31, 2004.

Certain prior period amounts have been reclassified for comparative purposes.

Note B - Recent Accounting Pronouncements

In April 2005, the Securities Exchange Commission delayed the date by which we must adopt Financial Accounting Standards Board SFAS No. 123, as revised, “Accounting for Stock-Based Compensation”, (Statement 123R) to the first annual period beginning after June 15, 2005, which for Harte-Hanks, Inc. is January 1, 2006. Statement 123R focuses primarily on accounting for transactions in which an entity obtains employee services in exchange for share-based payment transactions. Statement 123R requires public entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is then recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period (typically the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments. Statement 123R supercedes APB Opinion No. 25 “Accounting for Stock Issued to Employees,” and eliminates the alternative to use the intrinsic value method of accounting prescribed by APB No. 25. Under APB No. 25, issuing stock options to employees with an exercise price equal to the market price on the date of grant generally resulted in recognition of no compensation cost. We currently follow the disclosure-only provisions of Statement 123 as originally issued, and accordingly no compensation expense has been recognized in the financial statements for options granted where the exercise price is equal to the market price of the underlying stock at the date of grant. The adoption of Statement 123R in our first fiscal quarter of 2006 will have an impact on our financial position and results of operations, but at this time we have not determined that impact.

In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards 154, “Accounting Changes and Error Corrections” (Statement 154). Statement 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions.

8

This Statement requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement will be effective for any accounting changes and corrections of errors made by us starting January 1, 2006. We do not believe the adoption of Statement 154 will have a material impact on our financial position or results of operations.

Note C - Income Taxes

Our second quarter income tax provision of $17.9 million was calculated using an effective income tax rate of approximately 38.1%. Our six month income tax provision of $34.6 million, was calculated using an effective income tax rate of approximately 38.9%. The effective rates for both periods were impacted by the favorable resolution of a tax issue in the second quarter of 2005. Excluding this favorable resolution, our effective tax rates for the second quarter and first half of 2005 were 40.3% and 40.2%, respectively. Our effective income tax rate is derived by estimating pretax income and income tax expense for the year ending December 31, 2005. The effective income tax rate calculated is higher than the federal statutory rate of 35% due to the addition of state taxes and to certain expenses recorded for financial reporting purposes that are not deductible for federal income tax purposes.

Note D - Earnings Per Share

A reconciliation of basic and diluted earnings per share (EPS) is as follows:

	Three Months Ended June 30,
In thousands, except per share amounts	2005		2004
BASIC EPS
Net Income	$	29,127	$	25,546
Weighted-average common shares outstanding used in earnings per share computations		84,466		86,335
Earnings per common share	$	0.34	$	0.30
DILUTED EPS
Net Income	$	29,127	$	25,546
Shares used in diluted earnings per share computations		86,337		87,963
Earnings per common share	$	0.34	$	0.29
Computation of shares used in earnings per share computations:
Weighted-average outstanding common shares		84,466		86,335
Weighted average common equivalent shares - dilutive effect of option shares		1,871		1,628
Shares used in diluted earnings per share computations		86,337		87,963

For the purpose of calculating the shares used in the diluted EPS calculation for the three months ending June 30, 2005 and 2004, 23,000 and 116,000 anti-dilutive market price options have been excluded from the EPS calculations, respectively.

9

	Six Months Ended June 30,
In thousands, except per share amounts	2005		2004
BASIC EPS
Net Income	$	54,200	$	44,335
Weighted-average common shares outstanding used in earnings per share computations		84,598		86,894
Earnings per common share	$	0.64	$	0.51
DILUTED EPS
Net Income	$	54,200	$	44,335
Shares used in diluted earnings per share computations		86,381		88,497
Earnings per common share	$	0.63	$	0.50
Computation of shares used in earnings per share computations:
Weighted-average outstanding common shares		84,598		86,894
Weighted-average common equivalent shares - dilutive effect of option shares		1,783		1,603
Shares used diluted in earnings per share computations		86,381		88,497

For the purpose of calculating the shares used in the diluted EPS calculation for the six months ending June 30, 2005 and 2004, 12,000 and 58,000 anti-dilutive market price options have been excluded from the EPS calculations, respectively.

Note E - Business Segments

Harte-Hanks is a highly focused targeted media company with operations in two segments - Direct Marketing and Shoppers.

Information about the operations of Harte-Hanks in our two different business segments follows:

	Three Months Ended June 30,
In thousands	2005			2004
Operating revenues
Direct Marketing	$	168,388		$	154,566
Shoppers		115,622			99,586
Total operating revenues	$	284,010		$	254,152
Operating Income
Direct Marketing	$	24,975		$	22,154
Shoppers		26,505			23,442
Corporate Activities		(3,660	)		(2,698	)
Total operating income	$	47,820		$	42,898
Income before income taxes
Operating income	$	47,820		$	42,898
Interest expense		(505	)		(260	)
Interest income		37			73
Other, net		(282	)		(196	)
Total income before income taxes	$	47,070		$	42,515

10

	Six Months Ended June 30,
In thousands	2005			2004
Operating revenues
Direct Marketing	$	338,407		$	299,394
Shoppers		213,896			191,010
Total operating revenues	$	552,303		$	490,404
Operating Income
Direct Marketing	$	49,495		$	37,709
Shoppers		47,373			41,788
Corporate Activities		(6,729	)		(5,041	)
Total operating income	$	90,139		$	74,456
Income before income taxes
Operating income	$	90,139		$	74,456
Interest expense		(708	)		(432	)
Interest income		115			291
Other, net		(771	)		(685	)
Total income before income taxes	$	88,775		$	73,630

Note F - Stock-Based Compensation

We have adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation expense has been recognized for options granted where the exercise price is equal to the market price of the underlying stock at the date of grant. For options issued with an exercise price below the market price of the underlying stock on the date of grant, we recognize compensation expense under the provisions of APB No. 25, as permitted under SFAS No. 123.

Had compensation expense for our options been determined based on the fair value at the grant date for awards since January 1, 1995, consistent with the provisions of SFAS No. 123, our net income and diluted earnings per share would have been reduced to the pro forma amounts indicated below:

	Three Months Ended June 30,
In thousands, except per share amounts	2005			2004
Net income – as reported	$	29,127		$	25,546
Stock-based employee compensation expense, included in reported net income, net of related tax effects		63			30
Stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(1,110	)		(1,115	)
Net income – pro forma	$	28,080		$	24,461
Basic earnings per share – as reported	$	0.34		$	0.30
Basic earnings per share – pro forma	$	0.33		$	0.28
Diluted earnings per share – as reported	$	0.34		$	0.29
Diluted earnings per share – pro forma	$	0.33		$	0.28

11

	Six Months Ended June 30,
In thousands, except per share amounts	2005			2004
Net income – as reported	$	54,200		$	44,335
Stock-based employee compensation expense, included in reported net income, net of related tax effects		79			30
Stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects		(2,219	)		(1,713	)
Net income – pro forma	$	52,060		$	42,652
Basic earnings per share – as reported	$	0.64		$	0.51
Basic earnings per share – pro forma	$	0.62		$	0.49
Diluted earnings per share – as reported	$	0.63		$	0.50
Diluted earnings per share – pro forma	$	0.60		$	0.48

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the six months ended June 30, 2005 and 2004:

	Six Months Ended June 30, 2005		Six Months Ended June 30, 2004
Expected dividend yield.	0.75	%	0.71	%
Expected stock price volatility	25.7	%	26.4	%
Risk free interest rate	4.0	%	3.7	%
Expected Life of options	3-10 years		3-10 years

Note G - Components of Net Periodic Pension Benefit Cost

Prior to January 1, 1999, we maintained a defined benefit pension plan for which most of our employees were eligible. In conjunction with significant enhancements to our 401(k) plan, we elected to freeze benefits under this defined benefit pension plan as of December 31, 1998.

In 1994, we adopted a non-qualified, supplemental pension plan covering certain employees, which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from our principal pension plan if it were not for limitations imposed by income tax regulation. The benefits under this supplemental pension plan will continue to accrue as if the principal pension plan had not been frozen.

Net pension cost for both plans included the following components:

	Three Months Ended June 30,
In thousands, except per share amounts	2005			2004
Service Cost	$	215		$	140
Interest Cost		1,843			1,642
Expected return on plan assets		(1,977	)		(1,849	)
Amortization of prior service cost		15			16
Transition obligation		24			24
Recognized actuarial loss		742			491
Net periodic benefit cost	$	862		$	464

12

	Six Months Ended June 30,
In thousands, except per share amounts	2005			2004
Service Cost	$	369		$	280
Interest Cost		3,512			3,284
Expected return on plan assets		(3,958	)		(3,698	)
Amortization of prior service cost		30			32
Transition obligation		48			48
Recognized actuarial loss		1,189			982
Net periodic benefit cost	$	1,190		$	928

We are not required to make and do not intend to make a contribution to either pension plan in 2005 other than to the extent needed to cover benefit payments related to the unfunded plan.

Note H - Acquisition

In April 2005, we acquired substantially all of the assets of Flyer Printing Company, Inc. related to The Tampa Flyer. The Tampa Flyer is a weekly shopper publication delivered by mail with circulation in excess of 900,000 in the Tampa, Florida metropolitan area. The combination of the Tampa Flyer with our existing shopper operations increased total shopper circulation to approximately 12 million weekly. The total cost of the transaction was approximately $61.7 million and was paid in cash. The total amount of goodwill recognized in this transaction was $41.6 million. Intangible assets recognized in this transaction which are subject to amortization, relating to customer relationships and non-compete agreements, totaled $8.3 million. Intangible assets recognized in this transaction which are not subject to amortization, relating to trademarks and trade names, totaled $7.6 million. All goodwill and intangibles recognized as part of this acquisition were assigned to the Shoppers segment. The operating results of the acquired assets have been included in the accompanying Consolidated Financial Statements from the date of acquisition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Harte-Hanks is a worldwide, direct and targeted marketing company that provides direct marketing services and shopper advertising opportunities to a wide range of local, regional, national and international consumer and business-to-business marketers. We manage our operations through two operating segments: Direct Marketing and Shoppers.

Harte-Hanks Direct Marketing improves the return on its clients’ marketing investment with a range of services and products organized around five solution points: Construct and update the database - Access the data - Analyze the data - Apply the knowledge - Execute the programs. The services and products offered by Direct Marketing are tailored to specific industries or markets. Revenues from the Direct Marketing segment represented approximately 59% and 61% of our total revenue for the three months and six months ended June 30, 2005, respectively.

Harte-Hanks Shoppers is North America’s largest owner, operator and distributor of shopper publications, based on weekly circulation and revenues. Shoppers are weekly advertising publications delivered free by Standard Mail to households and businesses in a particular geographic area. As of June 30, 2005, the Shoppers are zoned into 1,025 separate editions with circulation of approximately 12 million in California and Florida each week. Revenues from the Shoppers segment represented 41% and 39% of our total revenue for the three months and six months ended June 30, 2005, respectively.

13

Harte-Hanks derives its revenues from the sale of direct marketing services and software related products and shopper advertising services. As a worldwide business, Direct Marketing is affected by various market factors, including the demand for its services by its clients or its prospective clients, the financial condition or budgets available to its clients, the business conditions of the industries of each of the verticals it serves and general national and international economic trends. Shoppers operate in local markets and are largely affected by the strength of the various competitive factors in the local markets it serves, the financial condition of its clients, the local economies in which it provides services. Our principal expense items are payroll, postage and transportation.

Critical Accounting Policies

There have been no changes to the critical accounting policies described in our annual report on form 10-K for the year ended December 31, 2004.

Results of Operations

Operating results were as follows:

	Three months ended						Six months ended
In thousands	June 30, 2005		June 30, 2004		Change		June 30, 2005		June 30, 2004		Change
Revenues	$	284,010	$	254,152	11.7	%	$	552,303	$	490,404	12.6	%
Operating expenses		236,190		211,254	11.8	%		462,164		415,948	11.1	%
Operating income	$	47,820	$	42,898	11.5	%	$	90,139	$	74,456	21.1	%
Net income	$	29,127	$	25,546	14.0	%	$	54,200	$	44,335	22.3	%
Diluted earnings per share	$	0.34	$	0.29	17.2	%	$	0.63	$	0.50	26.0	%

Consolidated revenues increased 11.7% to $284.0 million and operating income increased 11.5% to $47.8 million in the second quarter of 2005 when compared to the second quarter of 2004. The increase in consolidated revenues was a result of increased revenues from both the Shoppers and Direct Marketing segments. Overall operating expenses increased 11.8% to $236.2 million in the second quarter of 2005 when compared to the second quarter of 2004. The increase in consolidated operating expenses was a result of increased operating expenses from both the Shoppers and Direct Marketing segments, as well as general corporate expense.

Net income increased 14.0% to $29.1 million and diluted earnings per share grew 17.2% to 34 cents per share in the second quarter of 2005 when compared to the second quarter of 2004. The increase in net income was a result of increased operating income combined with a lower tax rate, due to a favorable resolution of a state tax matter, in the second quarter of 2005 when compared to the second quarter of 2004.

Direct Marketing

Direct Marketing operating results were as follows:

	Three months ended						Six months ended
In thousands	June 30, 2005		June 30, 2004		Change		June 30, 2005		June 30, 2004		Change
Revenues	$	168,388	$	154,566	8.9	%	$	338,407	$	299,394	13.0	%
Operating expenses		143,413		132,412	8.3	%		288,912		261,685	10.4	%
Operating income	$	24,975	$	22,154	12.7	%	$	49,495	$	37,709	31.3	%

2^nd Quarter 2005 vs. 2^nd Quarter 2004

Direct Marketing revenues increased $13.8 million, or 8.9%, in the second quarter of 2005 compared to 2004. These results reflect year-over-year revenue growth in all of Direct Marketing’s vertical markets. The financial services and select

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vertical markets group produced double-digit revenue growth. Revenues from the retail, high-tech/telecom and pharmaceutical/healthcare vertical markets were all up in the mid single-digits. The acquisitions of Postfuture, Inc. in December 2004 and Communiqué Direct in February 2005 also affected the revenues for the first half of 2005. Revenues from our vertical markets are impacted by the economic fundamentals of each industry as well as the financial condition of specific customers. In addition, revenues for Direct Marketing are affected by various market factors, including the demand for its services by its clients or its prospective clients, the financial condition of or budgets available to its clients, and general national and international economic trends.

From a service offering perspective, Direct Marketing experienced increased revenues from logistics, data processing, telesales, personalized mail and agency-related work. Partially offsetting these increases were declines in revenues from customer care and fulfillment.

Operating expenses increased $11.0 million, or 8.3%, in the second quarter of 2005 compared to the second quarter of 2004 as a result of increased labor costs, production and distribution costs and general and administrative expenses. Labor costs increased $3.7 million, or 5.3%, in the second quarter of 2005 compared to 2004 as a result of higher payroll costs due to higher volumes in certain offerings and salary increases, and higher healthcare costs. Production and distribution costs increased $6.1 million, or 13.1%, due primarily to higher outsourcing cost, higher logistics related transportation costs, including increased fuel prices, and increased expense related to job printing materials. General and administrative expense increased $1.0 million, or 8.8%, due to increased employee expenses, professional services, facilities services and business services. Depreciation and amortization expense increased $0.2 million, or 4.1%, due to capital expenditures to support revenue growth. The acquisitions of Postfuture, Inc. in December 2004 and Communiqué Direct in February 2005 also affected the operating expenses for the first half of 2005.

Direct Marketing’s largest cost components are labor, outsourced costs, and transportation. Each of these costs are variable and tend to fluctuate with revenues and the demand for our direct marketing services.

First Half 2005 vs. First Half 2004

Direct Marketing revenues increased $39.0 million, or 13.0%, in the first half of 2005 compared to the first half of 2004. These results reflect double-digit year-over-year revenue growth from the high-tech/telecom, retail and select vertical markets group. Revenues from the financial services vertical were up in the high single-digits, and revenues from the pharmaceutical/healthcare vertical market were flat in the first half of 2005 compared to the first half of 2004. Direct Marketing revenues benefited from a large, complex, world-wide project that was launched and substantially completed in the first quarter of 2005. Excluding revenues from this project, revenues in the first half of 2005 were up low double-digits compared to the first half of 2005. In addition, the acquisitions of Avellino Technologies Ltd. at the end of February 2004, Postfuture, Inc. in December 2004 and Communiqué Direct in February 2005 also affected the revenues and operating expenses for the first half of 2005.

From a service offering perspective, Direct Marketing experienced increased revenues from logistics, data processing, telesales, personalized mail, database processing and agency-related work. Partially offsetting these increases were declines in revenues from customer care.

Operating expenses increased $27.2 million, or 10.4%, in the first half of 2005 compared to the first half of 2004 as a result of increased labor costs, production and distribution costs and general and administrative expenses. Labor costs increased $11.8 million, or 8.8%, in the first half of 2005 compared to 2004 as a result of higher payroll costs due to higher volumes in certain offerings and salary increases, increased incentive compensation due to Direct Marketing’s financial performance, and higher healthcare costs. Production and

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distribution costs increased $12.8 million, or 13.7% primarily due to higher outsourcing costs, higher logistics-related transportation costs, including increased fuel prices, higher production services and increased expense related to job printing materials. General and administrative expense increased $2.3 million, or 10.1%, due to increased employee expense, bad debt expense and facilities services, partially offset by decreased insurance expense. Depreciation and amortization expense increased $0.5 million, or 4.0%, due to capital expenditures to support revenue growth. The acquisitions of Avellino Technologies Ltd. at the end of February 2004, Postfuture, Inc. in December 2004 and Communiqué Direct in February 2005 also affected the operating expenses for the first half of 2005.

Shoppers

Shopper operating results were as follows:

	Three months ended						Six months ended
In thousands	June 30, 2005		June 30, 2004		Change		June 30, 2005		June 30, 2004		Change
Revenues	$	115,622	$	99,586	16.1	%	$	213,896	$	191,010	12.0	%
Operating expenses		89,117		76,144	17.0	%		166,523		149,222	11.6	%
Operating income	$	26,505	$	23,442	13.1	%	$	47,373	$	41,788	13.4	%

2^nd Quarter 2005 vs. 2^nd Quarter 2004

Shoppers revenues increased $16.0 million, or 16.1%, in the second quarter of 2005 compared to the second quarter of 2004. The acquisition of The Tampa Flyer in April 2005 contributed $7.3 million of this revenue growth. The remaining revenue increases primarily were the result of improved sales in established markets and to a lesser extent new year-over-year geographic expansions and household growth in California and Florida. Total Shoppers circulation increased by a little more than one million during the second quarter of 2005, including the circulation in Tampa of approximately 955,000. At the end of the quarter Shopper circulation reached approximately 12.0 million (including 239,000 in South Orange County, California where Shoppers publish two editions each week). We believe that geographic expansions provide increased revenue opportunities and plans to cover an additional circulation of greater than 1.0 million over the next three years in California and Florida. Newer areas initially contribute less from a revenue-per-thousand perspective than existing areas, and in fact are typically expected to be less profitable or even unprofitable until the publications in those areas mature.

From a product-line perspective, Shoppers had growth from run-of-press (ROP, or in-book) advertising, primarily core sales, employment and real estate-related advertising, and to a lesser extent from its distribution products.

Operating expenses increased $13.0 million, or 17.0%, in the second quarter of 2005 compared to the second quarter of 2004 as a result of increased labor costs, productions and costs and general and administrative costs, as well as the acquisition of The Tampa Flyer. Total labor costs increased $4.2 million, or 15.4%. Excluding the Tampa acquisition, labor costs increased $1.7 million or 6.3%, due to higher payroll costs as a result of higher circulation volumes and expansions, and higher healthcare costs and pension expense. Total production costs increased $6.1 million, or 15.4%. Excluding the Tampa acquisition, production costs increased $2.8 million or 7.0% including increased offload printing expense due to increased print-and-deliver volumes and increased paper costs due to increased newsprint prices. Postage expense was up slightly as an increase in regular postage was offset by a decrease in overweight postage. Total general and administrative costs increased $2.4 million, or 30.5%. Excluding the Tampa acquisition, general and administrative costs increased $1.9 million or 24.7%, primarily due to increased bad debt expense and promotion costs. Total depreciation expense was up $0.1 million or 6.1%, with substantially all of the increase attributable to the Tampa acquisition. Intangible amortization related to the Tampa acquisition was $0.2 million during the second quarter of 2005.

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First Half 2005 vs. First Half 2004

Shopper revenues increased $22.9 million, or 12.0%, in the first six months of 2005 compared to the first six months of 2004. The acquisition of The Tampa Flyer in April 2005 contributed $7.3 million of this revenue growth. The remaining revenue increases primarily were the result of improved sales in established markets as well as new year-over-year geographic expansions and household growth in California and Florida. Total Shoppers circulation increased by a little more than one million during the first half of 2005, including the circulation in Tampa of approximately 955,000.

From a product-line perspective, Shoppers had growth from run-of-press (ROP, or in-book) advertising, primarily core sales, employment and real estate-related advertising, and to a lesser extent from its distribution products.

Operating expenses increased $17.3 million, or 11.6%, in the first half of 2005 compared to the first half of 2004 as a result of increased labor costs, productions and costs and general and administrative costs, as well as the acquisition of The Tampa Flyer. Total labor costs increased $6.0 million, or 11.0%. Excluding the Tampa acquisition, labor costs increased $3.5 million or 6.4%, due to higher payroll costs as a result of higher circulation volumes and expansions, and higher healthcare costs. Total production costs increased $9.7 million, or 12.7%. Excluding the Tampa acquisition, production costs increased $6.4 million or 8.4% including increased postage due to increased volumes, increased offload printing expense due to increased print-and-deliver volumes and increased paper costs due to increased rates. Total general and administrative costs increased $1.3 million, or 8.2%. Excluding the Tampa acquisition, general and administrative costs increased $0.9 million or 5.4%, primarily due to increased bad debt expense and promotion costs, partially offset by decrease insurance costs. Total depreciation expense was up $0.1 million or 4.2%, with substantially all of the increase attributable to the Tampa acquisition. Intangible amortization related to the Tampa acquisition was $0.2 million during the first half of 2005.

Shoppers labor costs are variable and tend to fluctuate with the number of zones, circulation volumes and revenues. Standard postage rates have been unchanged since the beginning of the third quarter of 2002 and it is anticipated that the next increase in postage rates will occur in the first quarter of 2006. Increased postage rates would impact Shoppers total production costs. Newsprint prices increased throughout 2004 and the first half of 2005 and are expected to continue to increase through 2005. This increase impacted Shoppers first half production costs and rising newsprint prices are expected to impact Shoppers production costs for the remainder of 2005 and into 2006.

General Corporate Expense

General corporate expense increased $1.0 million, or 35.7%, during the second quarter of 2005 compared to the second quarter of 2004. General corporate expense increased $1.7 million, or 33.5%, during the first half of 2005 compared to the first half of 2004. The increase in general corporate expense in both the second quarter and the first half of 2004 was primarily a result of increased professional services, primarily consulting related to a state tax refund and Sarbanes-Oxley related costs and increased labor, primarily payroll due to higher headcount and higher salaries and pension expense.

Other Income and Expense

Other net expense for the second quarter and first half of 2005 primarily consists of stockholder expenses and balance-based bank charges.

Interest Expense/Interest Income

Interest expense was up $0.2 million in the second quarter and $0.3 million in

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the first half of 2005 compared to the same periods in 2004. These increases were due to higher outstanding debt levels, primarily due to the acquisition of substantially all of the assets of The Tampa Flyer in April 2005, and higher interest rates under our revolving credit facility in 2005 than in 2004.

Interest income was down slightly in the second quarter of 2005 compared to the second quarter of 2004. Interest income was down $0.2 million in the first half of 2005 compared to the first half of 2004. The reduction in each period was primarily due to interest related to a tax refund we received in the first quarter of 2004.

Income Taxes

Our income tax expense increased $1.0 million in the second quarter and $5.3 million in the first half of 2005 compared to the same periods in 2004. These changes were primarily due to the changes in pre-tax income levels. Tax expense was also positively impacted by a favorable resolution to a state tax matter, resulting in a lower effective tax rate. The effective tax rate was 38.1% for the second quarter of 2005 and 39.9% for the second quarter of 2004. The effective tax rate was 38.9% for the first half of 2005 and 39.8% for the first half of 2004.

Liquidity and Capital Resources

Cash provided by operating activities for the six months ended June 30, 2005 was $66.6 million, compared to $69.1 million for the first six months of 2004. Net cash outflows from investing activities were $80.2 million for the first half of 2005, compared to $33.2 million for the first half of 2004. The difference between net cash outflows from investing activities in 2005 and 2004 is primarily the result of the acquisition of The Tampa Flyer in April 2005. Net cash inflows from financing activities were $0.3 million in 2005 compared to net cash outflows of $38.4 million in 2004. The difference between net cash flows from financing activities in 2005 and 2004 is attributable primarily to $23.0 million more net borrowings on our credit facility and $17.3 million less spent for the repurchase of our common stock in the first half of 2005 compared to the first half of 2004. Partially offsetting the difference in cash flows from financing activities in 2005 compared to 2004 were higher dividend payments in 2005.

Capital resources are also available from and provided through our unsecured credit facility. This credit facility, a three-year $125 million variable-rate, revolving loan commitment, was put in place on October 18, 2002. All borrowings under this credit agreement are to be repaid by October 17, 2005. As of June 30, 2005, we had $82.0 million of unused borrowing capacity under this credit facility. Management believes that our credit facility, together with cash provided from operating activities, will be sufficient to fund operations and anticipated acquisitions, capital expenditures, stock repurchases and dividend payments for the foreseeable future. We are in the final stages of replacing the existing facility with a new five-year $125 million variable-rate, revolving loan commitment. We expect this new facility to be in place in the third quarter of 2005.

Factors That May Affect Future Results and Financial Condition

From time to time, in both written reports and oral statements by senior management, we may express our expectations regarding our future performance. These “forward-looking statements” are inherently uncertain, and investors should realize that events could turn out to be other than what senior management expected. Set forth below are some key factors that could affect our future performance, including our revenues, operating income, net income and earnings per share; however, the risks described below are not the only ones we face. Additional risks and uncertainties that are not presently known, or that we currently consider immaterial, could also impair our business operations.

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Legislation, Judicial Interpretations, Consumer Environment

There could be a material adverse impact on the our business due to the enactment of legislation or industry regulations, the issuance of judicial interpretations, or simply a change in customs, arising from public concern over consumer privacy issues. Restrictions could be placed upon the collection, management, aggregation and use of information that is legally available, which could result in a material increase in the cost of collecting some kinds of data. It is also possible that we could be prohibited from collecting or disseminating certain types of data, which could in turn materially adversely affect our ability to meet and serve our clients’ requirements.

Data Suppliers

There could be a material adverse impact on our Direct Marketing business if owners of the data we use were to withdraw the data. Data providers could withdraw their data if there is a competitive reason to do so or if additional legislation is passed restricting the use of the data. We could also be adversely impacted if the data suppliers we use were unable to obtain the same amount or type of data due to prospective privacy legislation.

Acquisitions

We continue to pursue acquisition opportunities. Acquisition activities, even if not consummated, require substantial amounts of management time and can distract from normal operations. In addition, there can be no assurance that the synergies and other objectives sought in acquisitions would be achieved. We believe that it will be able to successfully integrate recently acquired businesses into existing operations, but there is no certainty that future acquisitions will be consummated on acceptable terms or that any acquired assets, data or businesses will be successfully integrated into our operations. The failure to identify appropriate candidates, to negotiate favorable terms, or to successfully integrate future acquisitions into existing operations could result in decreased revenues, net income and earnings per share.

Competition

Direct marketing is a rapidly evolving business, subject to periodic technological advancements, high turnover of customer personnel who make buying decisions, and changing customer needs and preferences. Consequently, our Direct Marketing business faces competition in all of its offerings and within each of its vertical markets. Our Shoppers business competes for advertising, as well as for readers, with other print and electronic media. Competition comes from local and regional newspapers, magazines, radio, broadcast and cable television, shoppers, shared mail, other communications media and other advertising printers that operate in our markets. The extent and nature of such competition are, in large part, determined by the location and demographics of the markets targeted by a particular advertiser, and the number of media alternatives in those markets. Failure to continually improve our current processes and to develop new products and services could result in the loss of our customers to current or future competitors. In addition, failure to gain market acceptance of new products and services could adversely affect our growth.

Qualified Personnel

We believe that our future prospects will depend in large part upon our ability to attract, train and retain highly skilled technical, client services and administrative personnel. While dependent on employment levels and general economic conditions, qualified personnel historically have been in great demand and from time to time and in the foreseeable future will likely remain a limited resource.

Postal Rates

Our Shoppers and Direct Marketing services depend on the United States Postal Service to deliver products. Our shoppers are delivered by Standard Mail, and postage is the second largest expense, behind payroll, in our Shoppers business. Standard postage rates have been unchanged since the beginning of the third

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quarter of 2002, and it is anticipated the next increase in postage rates will occur in the first quarter of 2006. Overall Shoppers postage costs are expected to grow as a result of anticipated increases in circulation. Postal rates also influence the demand for our Direct Marketing services even though the cost of mailings is borne by our customers and is not directly reflected in our revenues or expenses.

Paper Prices

Paper represents a substantial expense in our Shoppers operations. In recent years newsprint prices have fluctuated widely, and such fluctuations can materially affect the results of our operations.

Economic Conditions

Changes in national economic conditions can affect levels of advertising expenditures generally, and such changes can affect each of our businesses. In addition, revenues from our Shoppers business are dependent to a large extent on local advertising expenditures in the markets in which they operate. Such expenditures are substantially affected by the strength of the local economies in those markets. Direct Marketing revenues are dependent on national and international economies.

Interest Rates

Interest rate movements in Europe and the United States can affect the amount of interest we pay related to our debt and the amount it earns on cash equivalents. Our primary interest rate exposure is to interest rate fluctuations in Europe, specifically EUROLIBOR rates due to their impact on interest related to our $125 million credit facility. We also have exposure to interest rate fluctuations in the United States, specifically money market, commercial paper and overnight time deposit rates as these affect our earnings on excess cash.

International Operations

Harte-Hanks Direct Marketing conducts business outside of the United States. Approximately 10.0% and 9.9% of Harte-Hanks Direct Marketing’s revenues were derived from business outside the United States during the second quarter and first half of 2005, respectively. Accordingly, our future operating results could be negatively affected by a variety of factors, some of which are beyond our control. In addition, exchange rate movements may have an impact on our future costs or on future cash flows from foreign investments. We have not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. Additional risks inherent in our non-U.S. business activities generally include, among others, potentially longer accounts receivable payment cycles, the costs and difficulties of managing international operations, potentially adverse tax consequences, and greater difficulty enforcing intellectual property rights. The various risks that are inherent in doing business in the United States are also generally applicable to doing business outside of the United States, and may be exaggerated by the difficulty of doing business in numerous sovereign jurisdictions due to differences in culture, laws and regulations.

War

War and/or terrorism or the threat of war and/or terrorism involving the United States could have a significant impact on our operations, and could substantially affect the levels of advertising expenditures by clients in each of our businesses. In addition, each of our businesses could be affected by operation disruptions and a shortage of supplies and labor related to such a war and/or terrorism or threat of war and/or terrorism.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our earnings are affected by changes in short-term interest rates as a result of our revolving credit agreement, which bears interest at variable rates based on EUROLIBOR (effective rate of 3.76% at June 30, 2005) and has a maturity date of

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October 17, 2005. At June 30, 2005, we had $43 million of debt outstanding under our revolving line of credit. Our earnings are also affected by changes in short-term interest rates as a result of our deferred compensation agreement, which bears interest at variable rates based on Prime (effective rate of 6.25% at June 30, 2005) and has a balance of $7.0 million at June 30, 2005. Assuming the current level of borrowing and deferred compensation balance and assuming a one percentage point change in the quarter’s and first six months’ annual interest rates, it is estimated that our net income for the second quarter and first six months of 2005 would have been approximately $44,000 and $62,000 lower, respectively. Due to the our debt level and deferred compensation balance at June 30, 2005, anticipated cash flows from operations, and the various financial alternatives available to management, should there be an adverse change in interest rates, we do not believe that we have significant exposure to market risks associated with changing interest rates as of June 30, 2005. We do not use derivative financial instruments in our operations.

Our earnings are also affected by fluctuations in foreign exchange rates as a result of our operations in foreign countries. Due to the level of operations in foreign countries, the impact of fluctuations in foreign exchange rates is not significant to our overall earnings.

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in our periodic SEC filings. During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table contains information about our purchases of equity securities during the second quarter of 2005:

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan	Maximum Number of Shares that May Yet Be Purchased Under the Plan
April 1 – 30, 2005(2)	192,121	$	28.45	192,121	4,787,728
May 1 – 31, 2005	178,600	$	28.82	178,600	4,609,128
June 1 – 30, 2005	126,200	$	29.29	126,200	4,482,928
Total	469,921	$	28.79	469,921

(1) During the second quarter of 2005, 469,921 shares were purchased through our stock repurchase program that was publicly announced in January 1997. Under this program, from which shares can be purchased in the open market or through privately negotiated transactions, our Board of Directors authorized the repurchase of up to 44,900,000 shares of our outstanding common stock. As of June 30, 2005 we had repurchased a total of 40,417,072 shares at an average price of $16.69 per share under this program.

(2) On April 29, 2005, we purchased 100,000 shares of our common stock for $28.44 per share (the closing price per share of our common stock on April 28, 2005) from Mr. Houston H. Harte. Mr. Harte is a member of our Board of Directors.

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Item 4. Submission of Matters to a Vote of Security Holders

We held our annual meeting of stockholders on May 17, 2005. At the meeting the stockholders were requested to vote on the following:

(a) To elect Houston H. Harte, Richard M. Hochhauser and Judy C. Odom as Class III directors for a three-year term. The result of the vote was as follows:

	For	Withheld
Houston H. Harte	77,507,142	891,535
Richard M. Hochhauser	77,505,034	893,643
Judy C. Odom	78,089,095	309,582

The names of each director whose term of office continued are: David L. Copeland, William F. Farley, Larry Franklin, William K. Gayden and Christopher M. Harte.

(b) To adopt and approve the Harte-Hanks 2005 Omnibus Incentive Plan. The result of the vote was as follows

For	Against	Abstain	Broker Non-Votes
68,302,207	4,404,479	40,835	5,651,156

Item 5. Other Information

On May 17, 2005, we announced in a press release and reported in a Current Report on Form 8-K that effective May 17, 2005, Dr. Peter T. Flawn had retired from our Board of Directors. In connection with his retirement, our Board of Directors approved on that date that the terms of certain stock options previously granted to and held by Dr. Flawn for the purchase of shares of our common stock be amended in order to extend the period during which Dr. Flawn can exercise such options until their respective expiration dates, which is ten years from the date of grant, and to accelerate the vesting of such options to make them immediately exercisable upon his retirement.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits. See index to Exhibits on Page 26.

We furnished a report on Form 8-K dated April 26, 2005. The report incorporated our earnings release for the period ended March 31, 2005. Under the report, we furnished (not filed) pursuant to Item 7.01 and Item 9.01, the press release entitled “Harte-Hanks Reports First Quarter EPS Growth of 38% on Revenue Growth of 13.6%” relating to the results of the first fiscal quarter ended March 31, 2005, as well as filed GAAP financial statements under Item 7.

We filed a Form 8-K, dated June 13, 2005, reporting in Item 1.01 that we entered into a material definitive agreement with Sloane Levy, SVP, General Counsel and Secretary, which agreement provides for severance arrangements under certain circumstances and was filed under Item 9.01 as an exhibit. In addition in this Form 8-K, we reported in Items 7.01 and 9.01 that we issued a press release announcing Ms. Levy’s appointment.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HARTE-HANKS, INC.
August 9, 2005         Date	/s/ Richard M. Hochhauser
	Richard M. Hochhauser
	President and Chief Executive Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HARTE-HANKS, INC.
August 9, 2005         Date	/s/ Dean H. Blythe
	Dean H. Blythe
	Senior Vice President and Chief Financial Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HARTE-HANKS, INC.
August 9, 2005         Date	/s/ Jessica M. Huff
	Jessica M. Huff
	Vice President, Finance and Chief Accounting Officer

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Exhibit No.	Description of Exhibit
*10(j)	Harte-Hanks, Inc. 2005 Omnibus Incentive Plan.+
*10(k)	Harte-Hanks, Inc. 2005 Form of Stock Option.+
*21	Subsidiaries of the Company.
*31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith

+ Indicates management contract or compensatory plan, contract or arrangement.

The agreements set forth above describe the contents of certain exhibits thereunto which are not included. However, such exhibits will be furnished to the Commission upon request.

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EX-10.(J)

Exhibit 10(j)

HARTE-HANKS, INC.

2005 OMNIBUS INCENTIVE PLAN

ARTICLE I

INTRODUCTION

1.1 Establishment. Harte-Hanks, Inc. (the “Company”) has adopted the 2005 Omnibus Incentive Plan (the “Plan”), effective as provided in Section 21.1. The Plan permits the granting of stock options, restricted stock, performance awards, dividend equivalents, restricted stock units, common stock equivalents, stock appreciation rights, and other stock-based awards.

1.2 Purpose. The purpose of the Plan is to provide employees, directors and consultants selected for participation in the Plan with added incentives to continue in the service of the Company and its affiliates and to create in such employees, directors and consultants a more direct interest in the future success of the operations of the Company and its affiliated corporations by relating incentive compensation to the achievement of long-term corporate economic objectives. The Plan is also designed to attract employees, directors and consultants and to retain and motivate participating employees, directors and consultants by providing an opportunity for equity investment in the Company.

1.3 No Effect on Other Options. The provisions of the Plan shall have no effect on options or awards granted pursuant to any other plans of the Company, which shall continue to be governed by the terms and provisions of the agreements and the plans governing such grants, as applicable.

ARTICLE II

DEFINITIONS

2.1 Definitions. The following terms shall have the meanings set forth below:

(a) “Affiliated Corporation” means any corporation that is either a parent corporation with respect to the Company or a subsidiary corporation with respect to the Company (within the meaning of Sections 424(e) and (f), respectively, of the Internal Revenue Code).

(b) “Award” means any award under this Plan of any Stock Option, Restricted Stock Award, Performance Award, Dividend Equivalent, Restricted Stock Unit, Stock Award, Stock Appreciation Right, or any other award established pursuant to the Plan that may be awarded or granted under the Plan (collectively, “Awards”).

(c) “Award Agreement” means a written agreement executed by an authorized officer of the Company (and, if required, by the Participant) which shall contain such terms and conditions with respect to an Award as the Committee shall determine, consistent with the Plan.

(d) “Board” means the Board of Directors of the Company.

(e) “Bonus Payment” means a payment to a Participant pursuant to a Bonus Plan of the Company.

(f) “Bonus Plan” means a performance-based bonus plan of the Company (including, without limitation, any Management By Objective Plan of the Company), as established by the Board or the Committee from time to time, pursuant to which Bonus Payments are made from time to time in the manner and under the conditions established by the Board or the Committee.

(g) “Cause” means deficiencies in performance or conduct, as determined in the sole discretion of the Company or Affiliated Corporation, resulting in termination of employment.

(h) “Change of Control” means the first day that any one or more of the following conditions shall have been satisfied:

(i) the acquisition of any outstanding voting securities by any person, after which such person (as the term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) has

beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the then outstanding voting securities of the Company; provided, however, that, for purposes of this definition, the following acquisitions shall not constitute a Change of Control: (I) any acquisition directly from the Company, (II) any acquisition by the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any company controlled by, controlling or under common control with the Company or (IV) any acquisition by any corporation pursuant to a transaction that complies with Sections (iii)(A) and (iii)(B) of this definition;

(ii) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof, whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board;

(iii) consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Company or any of its subsidiaries, a sale or other disposition of all or substantially all of the assets of the Company, or the acquisition of assets or stock of another entity by the Company or any of its subsidiaries (each, a “Business Combination”), in each case unless, (A) the shareholders of the Company immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the outstanding voting securities of the entity resulting from such Business Combination (including, without limitation, an entity that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), and (B) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination; or

(iv) approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.

(i) “Committee” means a committee designated by the Board to administer the Plan, which committee shall be comprised of two or more persons each of whom is both a “non-employee director” as defined by Rule 16b-3 and an “outside director” for purposes of Section 162(m) of the Internal Revenue Code. Committee members shall also be appointed in such a manner as to satisfy applicable laws and stock exchange requirements.

(j) “Common Stock” means the Company’s $1.00 par value per share voting common stock.

(k) “Consultant” means any person who is not an Employee or Director and who is a consultant or adviser to the Company, any Affiliated Corporation, or any division thereof, if (i) the consultant or adviser renders bona fide services to the Company; (ii) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and (iii) the consultant or adviser is a natural person who has contracted directly with the Company to render such services.

(l) “Director” means (i) a member of the Board.

(m) “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Section 12.2 of the Plan.

(n) “Effective Date” means the effective date of the Plan, as set forth in Section 21.1 hereof.

(o) “Eligible Employees” means those Employees designated as eligible to participate in the Plan by the Committee.

(p) “Employee” means a natural person who is deemed an employee (including, without limitation, an officer or director who is also an employee, or a person who would be deemed an employee if such person were subject to U.S. income taxes) of the Company, or any Affiliated Corporation, in accordance with the rules contained in Section 3401(c) of the Internal Revenue Code and the regulations thereunder.

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(q) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(r) “Fair Market Value” means with respect to Common Stock, as of any date, the closing price of a share of Common Stock on the New York Stock Exchange for the last trading day prior to hat date. If no such prices are reported, then Fair Market Value shall mean the average of the high and low sale prices for the Common Stock (or if no sale prices are reported, the average of the high and low bid prices) as reported by the principal regional stock exchange, or if not so reported, as reported by Nasdaq or a quotation system of general circulation to brokers and dealers; provided, however, that with respect to same day sales occurring under Section 6.1(c)(ii)(B) of the Plan, Fair Market Value shall mean the per share price actually paid for shares of Common Stock in connection with such sale.

(s) “Incentive Stock Option” means the right to purchase Common Stock granted to an Employee pursuant to Section 6.2, which constitutes an incentive stock option within the meaning of Section 422 of the Internal Revenue Code.

(t) “Internal Revenue Code” means the Internal Revenue Code of 1986 and the regulations thereunder, each as in effect from time to time.

(u) “Non-Employee Director” means a Director who is not an Employee.

(v) “Non-Qualified Option” means a right to purchase Common Stock granted to a Participant pursuant to Section 6.3, which does not qualify as an Incentive Stock Option or which is designated as a Non-Qualified Option.

(w) “Participant” means an Eligible Employee, Non-Employee Director or Consultant designated by the Committee from time to time during the term of the Plan to receive one or more Awards provided under the Plan.

(x) “Performance Award” shall mean a bonus that is paid in cash, Common Stock, in the form of an Award provided for under the Plan or any combination thereof that is awarded under Article XI of the Plan.

(y) “Performance Criteria” means any measurable criteria using an approach, such as balanced score card, which is tied to the Company’s success that the Committee may determine, including but not limited to, net order dollars, net profit dollars, net profit growth, net revenue dollars, revenue growth, total stockholder return, cash flow, earnings or earnings per share, growth in earnings or earnings per share, return on equity or average stockholders’ equity, stock price, total stockholder return, return on capital, return on assets or net assets, return on investment, revenue, income or net income, operating income or net operating income, operating profit or net operating profit, operating margin, return on operating revenue, market share, overhead or other expense reduction, credit rating, strategic plan development and implementation, succession plan development and implementation, customer satisfaction indicators, and/or employee metrics. These criteria may be measured on an absolute basis or relative to a peer group or index and can be measured at the corporate or business unit level. The Committee is authorized to make adjustments in the method of calculating attainment of Performance Criteria in recognition of: (i) extraordinary or non-recurring items, (ii) changes in tax laws, (iii) changes in generally accepted accounting principles or changes in accounting policies, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, non-recurring gain or loss that is separately identified and quantified in the Company’s financial statements.

(z) “Restricted Stock Award” means an award of shares of Common Stock granted to a Participant pursuant to Section 8.1 that is subject to certain restrictions imposed in accordance with the provisions of such Section.

(aa) “Restricted Stock Unit” means an award denominated in shares of Common Stock that represents the right to receive payment for the value of such shares pursuant to Section 8.2.

(bb) “Rule 16” and subsections thereof mean Rule 16b and the relevant subsections promulgated under the Exchange Act, as such Rule may be amended from time to time.

(cc) “Section 162(m) Participant” means an Employee who is determined by the Committee to be, or likely to be, a “covered employee” within the meaning of Section 162(m) of the Internal Revenue Code.

(dd) “Stock Appreciation Right” means a right granted to a Participant pursuant to Article VII to receive payment from the Company equal to the difference between the Fair Market Value of one or more shares of Common Stock and the exercise price of such shares under the terms of such Stock Appreciation Right.

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(ee) “Stock Option” means an Incentive Stock Option or a Non-Qualified Option.

(ff) “Stock Award” means an award that represents the right to receive shares of Common Stock pursuant to Article X.

2.2 Gender and Number. Except when otherwise indicated by the context, the masculine gender shall also include the feminine gender, and the definition of any term herein in the singular shall also include the plural.

ARTICLE III

PLAN ADMINISTRATION

3.1 Administration Generally. The Plan shall be administered by the Committee. In accordance with the provisions of the Plan, the Committee shall have the authority, in its sole discretion, to:

(a) select the Participants from Eligible Employees, Non-Employee Directors and Consultants;

(b) determine the number of shares of Common Stock to be subject to Awards granted pursuant to the Plan;

(c) determine the number of shares of Common Stock to be issued as Bonus Payments;

(d) determine the time at which such Awards and payments are to be granted;

(e) fix the exercise price, period and the manner in which a Stock Option becomes exercisable;

(f) establish the duration and nature of Award restrictions;

(g) determine the Fair Market Value of the Common Stock, in accordance with Section 2.1(s) of the Plan;

(h) determine whether and under what circumstances, if any, an Award may be settled in cash or instead of Common Stock;

(i) modify or amend the terms and conditions of any Award, subject to Article XIX of the Plan;

(j) authorize any person to execute on behalf of the Company any Award Agreement or other instrument required to effect the grant of an Award to be granted or previously granted by the Committee; and

(k) establish such other terms and requirements of the various compensation incentives under the Plan as the Committee may deem necessary or desirable and consistent with the terms of the Plan.

The Committee shall determine the form or forms of the Award Agreements, which shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Participants with respect to Awards granted pursuant to the Plan, which provisions need not be identical except as may be provided herein. The Committee may from time to time adopt such rules and regulations for carrying out the purposes of the Plan as it may deem proper and in the best interests of the Company. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any agreement entered into hereunder in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. No member of the Committee shall be liable for any action or determination made in good faith. The determinations, interpretations and other actions of the Committee pursuant to the provisions of the Plan shall be binding and conclusive for all purposes and on all persons, subject only to the review of, and consultation with, the Board on all Plan matters except selection of Participants. Notwithstanding any provisions of this Plan to the contrary, the Committee may not take any actions that individually or together would constitute a repricing of existing Stock Options.

3.2 Majority Rule; Unanimous Written Consent. The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee.

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3.3 Compensation; Professional Assistance; Good Faith Actions. Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Awards, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation.

3.4 Delegation of Authority to Grant Awards. The Committee may, but need not, delegate from time to time some or all of its authority to grant Awards under the Plan to a committee consisting of one or more members of the Committee, one or more members of the Board who are not members of the Committee or of one or more officers of the Company; provided, however, that the Committee may not delegate its authority to grant Awards to individuals (a) who are subject on the date of the grant to the reporting rules under Section 16(a) of the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are officers of the Company who are delegated authority by the Committee hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Committee. At all times, any committee appointed under this Section 3.4 shall serve in such capacity at the pleasure of the Committee.

3.5 Committee Composition. Once a Committee has been appointed pursuant to this Article III, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefore, fill vacancies (however caused) or remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by applicable laws and to the extent permitted by (a) Rule 16b-3 as it applies to transactions intended to qualify thereunder as exempt transactions and (b) Section 162(m) of the Internal Revenue Code to preserve the Company’s deductibility of compensation realized by Participants as a result of Awards granted to persons who are Section 162(m) Participants.

3.6 Grants to Non-Employee Directors. Notwithstanding any provision of the Plan to the contrary, with respect to Awards made to Non-Employee Directors, the Plan shall be administered by the Board, which shall have all powers the Committee would otherwise have with respect to such Awards.

ARTICLE IV

STOCK SUBJECT TO THE PLAN

4.1 Number of Shares. The aggregate number of shares of Common Stock that may be issued under this Plan shall be 4,570,000 (subject to adjustment in connection with changes in capital structure in accordance with Article XVII). The authorization may be increased with the approval of the Board and the stockholders of the Company.

4.2 Accounting for Awards. If an Award entitles the holder thereof to receive or purchase shares of Common Stock, the number of shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of shares available for issuance under the Plan. If an Award terminates or is forfeited or cancelled without the issuance of any shares of Common Stock, or if any shares of Common Stock covered by an Award or to which an Award relates are not issued for any other reason, then the number of shares counted against the aggregate number of shares available under the Plan with respect to such Award, to the extent of any such termination, forfeiture, cancellation or other event, shall again be available for issuance under the Plan. Shares of Common Stock which are delivered by the Participant or withheld by the Company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, shall again be available for granting Awards under the Plan, subject to the limitations of Section 4.1. If any shares of Restricted Stock are surrendered by the Participant or repurchased by the Company, or if any Restricted Stock Units are surrendered by the Participant, then the number of shares counted against the aggregate number of shares available under the Plan with respect to such Award of Restricted Stock, to the extent of any such surrender or repurchase by the Company, shall again be available for issuance under the Plan. Notwithstanding the provisions of this

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Section 4.2, no shares of Common Stock may again be optioned, granted or awarded (i) if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Internal Revenue Code, or (ii) if prohibited by applicable laws, regulations or exchange rules.

ARTICLE V

PARTICIPATION

5.1 Eligibility and Participation; Award Agreements.

(a) Participants in the Plan shall be those Eligible Employees, Non-Employee Directors and Consultants designated by the Committee from time to time during the term of the Plan to receive one or more Awards provided under the Plan, which Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award. Participants who are Employees may be granted from time to time one or more Incentive Stock Options, and Participants (whether or not they are Employees) may be granted one or more Awards that are not Incentive Stock Options; provided, however, that the grant of each such Award shall be separately approved by the Committee, and receipt of one Award shall not result in automatic receipt of, or entitlement to, any other Award. Upon determination by the Committee that an Award is to be granted to a Participant, written notice shall be given to such person, specifying the terms, conditions, rights and duties related thereto.

(b) Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Awards intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Internal Revenue Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Internal Revenue Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Internal Revenue Code. Awards shall be deemed to be granted as of the date specified in the grant resolution of the Committee, which date shall be the date of any related Award Agreement with the Participant. In the event of any inconsistency between the provisions of the Plan and any Award Agreement entered into hereunder, the provisions of the Plan shall govern.

5.2 Limitations.

(a) No Participant shall be granted, in any fiscal year of the Company, an Award covering more than One Million Five Hundred Thousand (1,500,000) shares of Common Stock.

(b) The following limitations shall apply to grants of Stock Options and Stock Appreciation Rights to Participants:

(i) If a Stock Option or Stock Appreciation Right is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Article XVII), the canceled Stock Option or Stock Appreciation Right shall be counted against the limit set forth in Section 5.2(a).

(ii) Incentive Stock Options may not be granted to Non-Employee Directors or to Consultants.

5.3 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Awards granted to Participants who are subject to Section 16 of the Exchange Act, must comply with the applicable provisions of Rule 16b-3 and shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule (whether or not set forth in an Award Agreement). To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

5.4 Provisions Applicable to Section 162(m) Participants.

(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Internal Revenue Code.

(b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m) Participant, including Restricted Stock, the restrictions of which lapse upon the attainment of performance goals that are related to one or more of the Performance Criteria.

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(c) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Internal Revenue Code, with respect to any Award granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Internal Revenue Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants, (ii) select the Performance Criteria applicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, as applicable, which may be earned for such fiscal year or other designated fiscal period or period of service, and (iv) specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards, as applicable, to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period or period of service. Following the completion of each fiscal year or other designated fiscal period or period of service, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period or period of service. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period or period of service.

(d) Notwithstanding any other provision of the Plan or any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Internal Revenue Code shall be subject to any additional limitations set forth in Section 162(m) of the Internal Revenue Code (including any amendment to Section 162(m) of the Internal Revenue Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Internal Revenue Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

ARTICLE VI

STOCK OPTIONS

6.1 General Provisions.

(a) Grant of Stock Options. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Stock Options. The Committee in its sole discretion may designate whether a Stock Option granted to an Employee is to be considered an Incentive Stock Option or a Non-Qualified Option. The Committee may grant both an Incentive Stock Option and a Non-Qualified Option to the same Employee at the same time or at different times. Incentive Stock Options and Non-Qualified Options, whether granted at the same or different times, shall be deemed to have been awarded in separate grants, shall be clearly identified, and in no event will the exercise of one Stock Option affect the right to exercise any other Stock Option or affect the number of shares of Common Stock for which any other Stock Option may be exercised. All Stock Options granted to Participants who are not Employees shall be Non-Qualified Options. A Stock Option shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement

(b) Manner of Stock Option Exercise. A Stock Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained herein, (i) by delivery of written notice of exercise to the persons specified by the Company from time to time, in person or through mail, facsimile, electronic mail or other electronic transmission, or by delivery of notice of exercise in such other method as has been approved by the Committee, and (ii) by paying in full, with the written notice of exercise or at such other time as the Committee may establish, the total exercise price under the Stock Option for the shares being purchased. Such notice shall be in a form satisfactory to the Committee and shall specify the particular Stock Option (or portion thereof) that is being exercised and the number of shares with respect to which the Stock Option is being exercised. The exercise of the Stock Option shall be deemed effective upon receipt of such notice and payment to the Company. As soon as practicable after the effective exercise of the Stock Option, and upon satisfaction of all applicable withholding requirements pursuant to Article XIII of the Plan, the Participant, or the Participant’s nominee, shall be recorded on the stock transfer books of the Company as the owner of the shares purchased. The Company may, but is not required to, deliver to the Participant one or more duly issued and executed stock certificates evidencing such ownership.

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(c) Payment of Stock Option Exercise Price. At the time of the exercise of a Stock Option, payment of the total Stock Option exercise price for the shares to be purchased shall be made in the manner specified in the Award Agreement relating to such Stock Option, which may include any or all of the following methods of payment:

(i) at the Participant’s election, either:

(A) in cash or by check; or

(B) by transfer from the Participant to the Company of shares of Common Stock (other than shares of Common Stock that the Committee determines by rule may not be used to exercise Stock Options) that the Participant has held for more than six (6) months with a then current aggregate Fair Market Value equal to the total Stock Option exercise price;

(ii) at the Company’s election:

(A) by the Company retaining a number of shares of Common Stock deliverable upon exercise of a Stock Option whose aggregate Fair Market Value is equal to the exercise price to be paid in connection with such exercise; or

(B) to, the extent permissible under applicable law, delivery to the Company of: (I) a properly executed exercise notice, (II) irrevocable instructions to a broker to sell a sufficient number of the shares being exercised to cover the exercise price and to promptly deliver to the Company (on the same day that the shares of Common Stock issuable upon exercise are delivered) the amount of sale proceeds required to pay the exercise price and any required tax withholding relating to the exercise, and (III) such other documentation as the Committee and the broker shall require to effect a same-day exercise and sale.

(d) Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Common Stock covered by a Stock Option until the Participant or its nominee becomes the holder of record of such Common Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Participant or its nominee becomes the holder of record of such Common Stock.

6.2 Incentive Stock Options.

(a) Incentive Stock Option Exercise Price. The per share price to be paid by a Participant at the time an Incentive Stock Option is exercised shall be determined by the Committee at the time an Incentive Stock Option is granted (or deemed to have been granted under applicable tax rules), but in no event shall such exercise price be less than:

(i) one hundred (100) percent of the Fair Market Value, on the date the Incentive Stock Option is granted (or deemed to have been granted under applicable tax rules), of one share of the stock to which such Stock Option relates; or

(ii) one hundred and ten (110) percent of the Fair Market Value, on the date the Incentive Stock Option is granted (or deemed to have been granted under applicable tax rules), of one share of the stock to which such Stock Option relates if, at the time the Incentive Stock Option is granted, the Participant owns, directly or indirectly (as determined pursuant to Section 424(d) of the Internal Revenue Code), ten percent or more of the total combined voting power of all classes of stock of the Company or of any Affiliated Corporation (such a Participant is referred to as a “10% Holder”).

(b) Number of Option Shares. The number of shares of Common Stock subject to an Incentive Stock Option shall be designated by the Committee at the time the Committee decides to grant an Incentive Stock Option.

(c) Aggregate Limitation of Stock Exercisable Under Options. To the extent the aggregate Fair Market Value, determined as of the time an Incentive Stock Option is granted, of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant in any calendar year under the Plan or otherwise, granted by the Company and Affiliated Corporations, exceeds $100,000, such excess shall be treated as a Non-Qualified Option.

(d) Duration of Incentive Stock Options. The period during which an Incentive Stock Option may be exercised shall be fixed by the Committee, but in no event shall such period be more than ten years from the date the Stock Option is granted, or, in the case of Participants who are 10% Holders as described in Section 6.2(a)(ii), five years from the date the Stock Option is granted. Upon the expiration of such exercise period, the Incentive Stock Option, to the extent not then exercised, shall terminate. Except as otherwise provided in Article XIV, all Incentive Stock Options granted to a Participant hereunder shall terminate and may no longer be exercised if the Participant ceases to be an Employee.

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(e) Restrictions on Exercise of Incentive Stock Options. Incentive Stock Options may be granted subject to such restrictions as to the timing of exercise of all or various portions thereof as the Committee may determine at the time it grants Incentive Stock Options to Participants.

(f) Disposition of Stock Acquired Pursuant to the Exercise of Incentive Stock Options. In the event that a Participant makes a disposition (as defined in Section 422(c) of the Internal Revenue Code) of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to the expiration of two years from the date on which the Incentive Stock Option was granted or prior to the expiration of one year from the date on which the Stock Option was exercised, the Participant shall send written notice to the Company at its principal office in San Antonio, Texas (Attention: Corporate Secretary) of the date of such disposition, the number of shares disposed of, the amount of proceeds received from such disposition and any other information relating to such disposition as the Company may reasonably request. The Participant shall, in the event of such a disposition, make appropriate arrangements with the Company to provide for the amount of any additional withholding required by federal, state and local income and other tax laws.

6.3 Non-Qualified Stock Options.

(a) Option Exercise Price. The per share price to be paid by the Participant at the time a Non-Qualified Option is exercised shall be determined by the Committee at the time the Stock Option is granted or amended, but in no event shall such exercise price per share be less than one hundred (100) percent of the Fair Market Value of one share of Common Stock on the date the Stock Option is granted or amended.

(b) Number of Option Shares. The number of shares of Common Stock subject to a Non-Qualified Option shall be designated by the Committee at the time the Committee decides to grant a Non-Qualified Option.

(c) Duration of Non-Qualified Options; Restrictions on Exercise. The period during which a Non-Qualified Option may be exercised, and the installment restrictions on option exercise during such period, if any, shall be fixed by the Committee, but in no event shall such period be more than ten years from the date the Stock Option is granted. Upon the expiration of such exercise period, the Non-Qualified Option, to the extent not then exercised, shall terminate. Except as otherwise provided in Article XIV, all Non-Qualified Options granted to a Participant hereunder shall terminate and may no longer be exercised if the Participant ceases to be an Employee, Non-Employee Director or Consultant.

ARTICLE VII

STOCK APPRECIATION RIGHTS

7.1 Grant of Rights. A Stock Appreciation Right may be granted to any Participant selected by the Committee. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Committee shall impose and shall be evidenced by an Award Agreement.

7.2 Stock Appreciation Rights. Stock Appreciation Rights shall be exercisable in such installments as the Committee may determine. A Stock Appreciation Right shall cover such number of shares of Common Stock as the Committee may determine. The exercise price per share of Common Stock subject to each Stock Appreciation Right shall be set by the Committee, but shall not be less than the Fair Market Value of a share of Common Stock on the date on which the Stock Appreciation Right is granted. Upon exercise of a Stock Appreciation Right, the Participant shall be entitled to receive the economic value of such Stock Appreciation Right determined in the manner prescribed in Section 7.4.

7.3 Exercise of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions consistent with other provisions of the Plan as may be determined from time to time by the Committee and shall include the following:

(a) Manner of Exercise. A Stock Appreciation Right shall be exercised by the giving of notice in the same manner in which a Stock Option may be exercised.

(b) Payment Upon Exercise. Upon the exercise of a Stock Appreciation Right, a Participant shall be entitled to receive the

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economic value thereof, which shall be equal to (i) the excess of the then Fair Market Value of one share of Common Stock on the date of exercise over the exercise price per share specified in the Stock Appreciation Right, multiplied by (ii) the number of shares in respect of which the Stock Appreciation Right is being exercised (the “SAR Value”).

(c) Form of Payment. A Participant shall receive the SAR Value in shares of Common Stock.

7.4 Stockholder Privileges. No Participant shall have any rights as a stockholder with respect to any shares of Common Stock covered by a Stock Appreciation Right until the Participant becomes the holder of record of such Common Stock, and no adjustments shall be made for dividends or other distributions or other rights as to which there is a record date preceding the date such Participant becomes the holder of record of such Common Stock.

ARTICLE VIII

RESTRICTED AWARDS

8.1 Restricted Stock Awards

(a) Awards Granted by Committee. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Restricted Stock Awards consisting of shares of Common Stock. The number of shares granted as a Restricted Stock Award shall be determined by the Committee. To the extent required by applicable law, a Participant shall be required to pay to the Company an amount equal to the par value of the Common Stock subject to the Restricted Stock Award as a condition precedent to the issuance of Common Stock to the Participant.

(b) Restrictions. A Participant’s right to retain a Restricted Stock Award granted to him or her under Section 8.1(a) shall be subject to restrictions on disposition by the Participant an obligation to forfeit and surrender shares to the Company under certain circumstances set forth in the Award Agreement, including but not limited to the Participant’s continuous status as an Employee, Non-Employee Director or Consultant for a restriction period specified by the Committee, or the attainment of any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee with respect to such Award. The Committee may in its sole discretion require different periods of employment, director service or consulting service or different performance criteria with respect to different Participants, to different Restricted Stock Awards or to separate, designated portions of the Common Stock shares constituting a Restricted Stock Award. Subject to the provisions of Articles XVI and XIX, if a Participant’s continuous status as an Employee, Non-Employee Director or Consultant terminates prior to the end of such restriction period or the attainment of such performance criteria as may be specified by the Committee, the Restricted Stock Award shall be forfeited and all shares of Common Stock related thereto shall be immediately returned to the Company.

(c) Privileges of a Stockholder; Transferability. A Participant shall have all voting, dividend, liquidation and other rights with respect to Common Stock in accordance with its terms received by him or her as a Restricted Stock Award under this Article VIII upon becoming the holder of record of such Common Stock; provided however, that the Participant’s right to sell, encumber, or otherwise transfer such Common Stock (and any other securities issued in respect of such shares of Common Stock as a stock dividend, stock split or the like) shall be subject to the limitations of Section 16.3 hereof.

(d) Enforcement of Restrictions. In the event a Participant receives a stock certificate evidencing the grant of Restricted Stock, the Committee may in its sole discretion require one or more of the following methods of enforcing the restrictions referred to in Sections 8.1(b) and 8.1(c):

(i) Placing a legend on the stock certificates referring to the restrictions;

(ii) Requiring the Participant to keep the stock certificates, duly endorsed, in the custody of the Company while the restrictions remain in effect; or

(iii) Requiring that the stock certificates, duly endorsed, be held in the custody of a third party while the restrictions remain in effect.

8.2 Restricted Stock Units. Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Restricted Stock Units. The number of shares of Restricted Stock Units shall be determined by the

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Committee on the date of grant of such Award and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Unless otherwise specified (a) in the Award Agreement relating to the Restricted Stock Unit or (b) in writing by the Committee, a Participant shall receive the payment for the Restricted Stock Unit in shares of Common Stock. Payment for a Restricted Stock Unit will not be made until the Award has vested, pursuant to a vesting schedule established by the Committee and set forth in the Award Agreement. To the extent such Restricted Stock Unit is a deferral of compensation subject to the requirements of Section 409A of the Internal Revenue Code, the vesting or payment schedule set forth in the Award Agreement shall comply with the requirements of Section 409A(a)(2) and (3) of the Internal Revenue Code. In the event payment for an Award of Restricted Stock Units is made in a form other than in shares of Common Stock pursuant to the terms of this Section 8.2, such payment shall be in an amount equal to the product of (i) Fair Market Value of a share of Common Stock with respect to the relevant vesting date, multiplied by (ii) the number of Restricted Stock Units vesting on such date. Holders of Restricted Stock Units shall have no rights as Company stockholders with respect to such Award. No Dividend Equivalents awards shall be granted in connection with Restricted Stock Units.

ARTICLE IX

NON-EMPLOYEE DIRECTOR STOCK

9.1 Non-Employee Director Stock. Each Non-Employee Director may receive all or a portion equal to 25%, 50%, or 75% of his or her annual retainer and any meeting fees (which shall include any additional annual retainer or fees paid to a committee chair) in shares of Common Stock if elected by the Non-Employee Director. An election pursuant to this Section 9.1 must be made in writing on or before the first day of the fiscal year to which the election relates and shall entitle the Non-Employee Director to a number of shares of Common Stock determined by dividing (a) the dollar amount of the portion of the retainer for a given quarterly fiscal period that is to be paid in shares of Common Stock by (b) the Fair Market Value of one share of Common Stock as of the last day of such fiscal period, rounded up to the next full number of shares. In the event any person becomes a Non-Employee Director other than at the beginning of an annual retainer period, such person may elect, within thirty (30) days of the date on which such person becomes a Non-Employee Director, to receive his or her retainer and any meeting fees in shares of Common Stock as described above for the balance of such annual retainer period in accordance with the formula set forth in the preceding sentence.

9.2 Elections. The Committee shall determine the form of Non-Employee Director’s elections pursuant to this Article IX, which form shall evidence the particular provisions, terms, conditions, rights and duties of the Company and the Non-Employee Director with respect to Common Stock paid with respect to the Non-Employee Director’s annual retainer and any meeting fees.

ARTICLE X

STOCK AWARDS

Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Stock Awards in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be, but are not required to be, based upon the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. To the extent required by applicable law, a Participant shall be required to pay to the Company an amount equal to the par value of the Common Stock subject to the Stock Award as a condition precedent to the issuance of Common Stock to the Participant.

ARTICLE XI

PERFORMANCE AWARDS

11.1 Performance Awards.

(a) Coincident with or following designation for participation in the Plan, a Participant may be granted one or more Performance Awards. The value of such Performance Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee.

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(b) Without limiting Section 11.1(a), the Committee may grant Performance Awards to any 162(m) Participant in the form of a cash bonus payable upon the attainment of objective performance goals which are established by the Committee and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such bonuses paid to 162(m) Participants shall be based upon objectively determinable bonus formulas. The maximum amount of any Performance Award payable to a 162(m) Participant under this Section 11.1(b) shall not exceed $2,500,000 or 200% of the Participant’s annual base salary with respect to any fiscal year of the Company calendar year. Unless otherwise specified by the Committee at the time of grant, the Performance Criteria with respect to a Performance Award payable to a 162(m) Participant shall be determined on the basis of generally accepted accounting principles.

(c) The form of payment to a Participant in respect of a Performance Award may be cash, shares of Common Stock, any type of other Award under the Plan, or any combination of the foregoing, as determined by the Committee in it sole discretion.

ARTICLE XII

OTHER AWARDS

12.1 Awards in Lieu of Bonus.

(a) Participant Election As to Bonus Payment. At such time as the Committee determines that a Participant has or may become eligible for a Bonus Payment pursuant to a Bonus Plan, the Committee may notify the Participant as to whether or not the Participant will be required by the Committee to, or will be given the right to elect to, accept all or a part of such Bonus Payment in the form of a Stock Award. If the Committee grants the Participant the right to elect whether to accept the Bonus Payment in Common Stock as a Stock Award, then the Participant shall have ten (10) business days after the receipt of such notice (or such longer period as may be stated in the notice) from the Committee to make such election. The Participant shall notify the Committee with respect to his or her election on such form as may be provided for this purpose by the Committee, setting forth thereon the dollar value of the portion of the Bonus Payment which he or she desires to receive in shares of Common Stock. If a Participant fails to make an election pursuant to this Section 12.1(a) with respect to the mode of payment of a Bonus Payment, the entire Bonus Payment shall be made in cash.

(b) Determination of Number of Shares. The number of shares of Common Stock or other forms of Awards that shall be issued or credited as a Bonus Payment shall be determined by using a reasonable valuation method specified by the Committee in its sole discretion. No fractional shares of Common Stock or other forms of Awards shall be issued or credited as a part of a Bonus Payment and the value of any such fractional share that would otherwise be issued pursuant to the Participant’s election shall be paid in cash.

(c) Decision of Committee. The Committee shall have the sole discretion to either accept the Participant’s election with respect to the payment of a Bonus Payment, in whole or in part, in shares of Common Stock under a Stock Award or to determine that a lesser portion, or none, of the Bonus Payment will be made in shares of Common Stock, and the Committee’s determination in this regard shall be final and binding on the Participant.

12.2 Dividend Equivalents.

(a) Coincident with or following designation for participation in the Plan, a Participant may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date any Award denominated in shares of Common Stock is granted, and the date such Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. To the extent a Dividend Equivalent is a deferral of compensation subject to the requirements of Section 409A of the Internal Revenue Code, the payment of cash or shares of Common Stock under such award shall comply with the requirements of Sections 409A(a)(2) and (3) of the Internal Revenue Code.

(b) Dividend Equivalents granted with respect to Stock Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code shall be payable, with respect to pre-exercise periods, regardless of whether such Option is subsequently exercised.

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12.3 Other Forms of Award. From time to time during the duration of the Plan, the Committee may, in its sole discretion, adopt one or more other forms of awards for Eligible Employees, Non-Employee Directors or Consultants pursuant to which such Eligible Employees, Non-Employee Directors or Consultants may acquire shares of Common Stock or the economic equivalent thereof, whether by purchase, outright grant or otherwise. Any such arrangements shall be subject to the general provisions of the Plan and, to the extent required under applicable exchange rules, shareholder approval.

ARTICLE XIII

WITHHOLDING

13.1 Withholding Requirement. The Company’s obligations to deliver shares of Common Stock upon the exercise or receipt of any Award shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and other tax withholding requirements.

13.2 Withholding With Common Stock. The Company may, in its sole discretion, allow or require Participants to pay all or any portion of any tax withholding obligation that results from Awards by the Company withholding from shares otherwise issuable to the Participant, shares of Common Stock having a value equal to the amount required to be withheld or such lesser amount. Any such withholding of shares of Common Stock shall be subject to such terms and conditions as the Company may, from time to time, establish; provided, that, in the case of a Participant who is an officer or director of the Company within the meaning of Section 16 of the Exchange Act, then the approval by the Committee of the grant of the award shall be deemed to include approval by the Committee of this withholding provision, unless otherwise specified in the Award Agreement.

ARTICLE XIV

EFFECT OF TERMINATION OF SERVICE ON AWARDS

Except as otherwise provided in a written agreement between the Company and a Participant, the provisions of this Article XIV will apply as follows:

14.1 Effect of Termination of Service on Stock Options and Stock Appreciation Rights. No Stock Option or Stock Appreciation Right may be exercised unless, at the time of such exercise, the Participant is an Employee, Non-Employee Director or Consultant, except as follows:

(a) Subject to Section 14.1(c), if such termination is due to the death of the Participant, or the Participant dies within three (3) months after such termination, or if such termination occurs after the Participant becomes disabled (within the meaning of Section 22(e)(3) of the Internal Revenue Code), the Stock Option or Stock Appreciation Right may be exercised, to the extent vested at the time of the Participant’s termination of employment, by the Participant (or, in the case of death, by the person to whom it is transferred by will of the laws of descent and distribution) within a period of one year after the date of death (but in no event longer than the term of the Stock Option or Stock Appreciation Right).

(b) Subject to Section 14.1(c), if the Participant’s employment is terminated for any reason other than those reasons covered by Section 14.1(a), then the Stock Option or Stock Appreciation Right shall be exercisable, to the extent vested at the time of such termination, for a period of ninety (90) days after the date of such termination.

(c) Notwithstanding the provisions of Sections 14.1(a) and (b) above, with respect to all grants of Stock Options or Stock Appreciation Rights, no such grants shall be exercisable after the date of termination of employment if either the termination was for Cause, or if the former Employee, Consultant or Non-Employee Director is then, in the sole judgment of the Company, in material breach of any contractual, statutory, fiduciary or other legal obligation to the Company.

ARTICLE XV

NON-U.S. PARTICIPANTS

The Committee may grant awards to Employees, Consultants and Non-Employee Directors whose relationship with the Company or an Affiliated Corporation is subject to the laws of a foreign jurisdiction (a “Non-U.S. Participant”). However, no Award shall be granted that, as a result of the operation of the laws of a foreign jurisdiction, shall limit the authority, rights and powers of the Company, the Board or the Committee under the Plan, including without limitation, the authority of the

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Committee to determine whether Awards will be granted and under what circumstances Awards become exercisable, nonforfeitable or payable, unless such limitation is explicitly acknowledged by the Company in the relevant Award Agreement. Any grant of an Award that results in the imposition of any of the foregoing limitations shall be null and void ab initio. Subject to the limitations of this Article XV, the Committee may impose whatever requirements and provisions it deems necessary in its sole discretion to permit an Award to be made to a Non-U.S. Participant. The Committee shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or an Affiliated Corporation may operate to assure the viability of the benefits of Awards made to Participants employed in the such countries and to meet the intent of the Plan.

ARTICLE XVI

RIGHTS OF PARTICIPANTS

16.1 Employment, Directorship or Consulting Relationship. Nothing contained in the Plan or in any Award granted under the Plan shall confer upon any Participant any right with respect to the continuation of his or her employment, service as a director or consulting relationship with the Company or any Affiliated Corporation, or interfere in any way with the right of the Company or any Affiliated Corporation at any time to terminate such service or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award. Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of service shall be determined by the Committee or its designee.

16.2 Meaning of Continuous Status. For all purposes of the Plan and unless otherwise specified in the Award Agreement, so long as a Participant is either an Employee or a Non-Employee Director or a Consultant, without a break in between any change in status, he or she shall be considered to be in continuous status as an Employee, Non-Employee Director or Consultant, even if the person is serving in one capacity when the award is granted and subsequently changes to service in a different capacity, such as terminating employment but continuing to serve as a Consultant.

16.3 Nontransferability. Except as otherwise (a) approved by the Committee and set forth in the Award Agreement between the Company and the Participant or (b) required pursuant to a qualified domestic relations order, no right or interest of any Participant in an Award prior to the completion of the restriction period applicable thereto shall be assignable or transferable during the lifetime of the Participant, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law, or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. If permitted by applicable law (including Rule 16b-3, as amended from time to time), the Committee may (but need not) permit the transfer of Awards either generally, to a limited class of persons or on a case-by-case basis. In the event of a Participant’s death, a Participant’s rights and interest in any Awards shall be transferable by testamentary will or the laws of descent and distribution, and payment of any amounts due under the Plan shall be made to, and exercise of any Stock Options or Stock Appreciation Rights may be made by, the Participant’s legal representatives, heirs or legatees. If in the opinion of the Committee a person entitled to payments or to exercise rights with respect to the Plan is disabled from caring for his or her affairs because of mental condition, physical condition, or age, payment due such person may be made to, and such rights shall be exercised by, such person’s guardian, conservator or other legal personal representative upon furnishing the Committee or its designee with evidence satisfactory to the Committee or its designee of such status.

16.4 Other Benefits. The amount of any compensation deemed to be received by an Employee, Non-Employee Director or Consultant as a result of the receipt, vesting, exercise of an Award will not constitute “earnings” with respect to which any other benefits provided by the Company or an Affiliated Corporation to such person are determined, including without limitation benefits under any pension, profit sharing, life insurance or salary continuation plan.

16.5 Unfunded Plan. The Company’s obligation under this Plan shall not be funded or secured in any manner or at any time (including in connection with the change of the Company’s financial health), and the Company shall not be required or permitted to establish any special or separate fund or to make any other segregation of funds or assets to insure the payment of any Awards as to the claims of general creditors. The Company may not set aside assets for the payment of any Awards in a trust or other arrangement that is located outside the United States.

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ARTICLE XVII

CHANGE IN CAPITAL STRUCTURE; CHANGE OF CONTROL

17.1 Change in Capital Structure. Subject to Section 17.4, in the event that the Board determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event including a Change of Control or Potential Change of Control, in the Board’s sole discretion, affects the Common Stock such that an adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Board may direct the Committee to, in such manner as it may deem equitable, adjust any or all of:

(a) The number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted or awarded (including, but not limited to, adjustments of the limitations in Article IV);

(b) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and

(c) The grant or exercise price with respect to any Award; provided that no such adjustment shall be effected if it results in a repricing of a Stock Option or Stock Appreciation Right.

17.2 Extraordinary Events. Subject to Section 17.4, in the event of any transaction(s) or event(s) described in Section 17.1 or any unusual or nonrecurring transaction(s) or event(s) affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles occurs, including any Change of Control or Potential Change of Control, the Board, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Participant’s request, is hereby authorized to direct the Committee to take any one or more of the following actions whenever the Board determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

(a) To provide for the cancellation of the Award in exchange for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable or fully vested (including an amount equal to zero for Awards with respect to which no cash could have been so attained or realized);

(b) To provide that the Award cannot vest, be exercised or become payable after such event;

(c) To provide that such Award shall be vested, exercisable and nonforfeitable as to all shares covered thereby and that all restrictions with respect thereto shall lapse, notwithstanding anything to the contrary in the Plan or an Award Agreement;

(d) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and

(e) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Restricted Stock Units and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future; provided that no such adjustment shall be effected if it results in a repricing of a Stock Option or Stock Appreciation Right.

(f) Notwithstanding any other provision of the Plan, in no event shall the acceleration of any option hereunder upon a Change of Control occur to the extent an “excess parachute payment” (as defined in Internal Revenue Code Section 280G) would result. If the Board or the Committee determines that such an excess parachute payment would result if any full acceleration under this Section 17.2 occurred (when added to any other payments or benefits contingent on a Change of Control under any

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other agreements, arrangements or plans) then the extent to which rights are accelerated shall be reduced so that total parachute payments do not exceed 299% of the Participant’s “base amount,” as defined in Internal Revenue Code Section 280G(b)(3).

17.3 162(m); Rule 16(b)-3; Section 280G. With respect to Awards which are granted to Section 162(m) Participants and are intended to qualify as performance-based compensation under Section 162(m)(4)(C), other than in the event of a Change of Control or a Potential Change of Control, no adjustment or action described in this Article XVII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify under Section 162(m)(4)(C), or any successor provisions thereto, or cause and “excess parachute payment” to occur under Internal Revenue Code Section 280G. No adjustment or action described in this Article XVII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Internal Revenue Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Committee determines that the Award is not to comply with such exemptive conditions. Furthermore, no adjustment or action described in this Article XVII or in any other provision of the Plan shall be authorized to the extent such adjustment would cause an Award that constitutes a deferral of compensation under Section 409A of the Internal Revenue Code to fail to satisfy the requirements of such Section 409A.

17.4 No Limitation on Company or Stockholders. The existence of the Plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

17.5 Potential Change of Control. For purposes of this Article XVII, a Potential Change of Control shall be deemed to have occurred if: (i) a person or persons and/or an entity or entities commence a tender offer for at least fifty percent (50%) of the outstanding Common Stock of the Company, (ii) approval of any transaction or series of transactions that would involve a Change of Control is requested of the Company’s stockholders, (iii) proxies for the election of Directors of the Company are solicited by anyone other than the Company, or (iv) any other event occurs which is deemed to be a Potential Change of Control by the Board.

ARTICLE XVIII

GENERAL RESTRICTIONS

18.1 Investment Representations. The Company may require any person to whom an Award is granted, as a condition of exercising or receiving such Award, to give written assurances in substance and form satisfactory to the Company and its counsel to the effect that such person is acquiring the Common Stock subject to the Award for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws.

18.2 Compliance with Securities Laws. Each Award shall be subject to the requirement that, if at any time counsel to the Company shall determine that the listing, registration or qualification of the shares subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary as a condition of, or in connection with, the issuance or purchase of shares thereunder, such Award may not be delivered, accepted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Committee. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification.

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ARTICLE XIX

PLAN AMENDMENT, MODIFICATION AND TERMINATION

19.1 Amendment or Termination. The Board, upon recommendation of the Committee or at its own initiative, at any time may terminate the Plan. The Committee, at any time and from time to time and in any respect, may amend or modify the Plan. No such amendment shall be effective unless, the Company shall obtain stockholder approval of any amendment to the extent necessary to comply with the requirements relating to the Plan under U.S. state corporate laws, U.S. federal and state securities laws, the Internal Revenue Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

19.2 Effect of Amendment.

(a) With regard to any Award that has been granted to a Participant, the terms and conditions of the Plan in effect on the date of such grant was made shall govern, notwithstanding subsequent amendments, unless otherwise agreed upon by the Participant; provided, however, that this sentence shall not impair the right of the Committee to take whatever action it deems appropriate under Section 18.3, Article XV or Article XVII.

(b) Except as set forth in Section 19.2 (a) hereof, the termination or any modification or amendment of the Plan shall not, without the consent of a Participant, affect his or her rights under an Award previously granted to him or her without the Participant’s consent. With the consent of the Participant affected, the Committee may amend outstanding Award Agreements in a manner not inconsistent with the Plan.

19.3 Preservation of Incentive Stock Options. The Board or the Committee shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding Incentive Stock Options granted under the Plan to the extent necessary to qualify any or all such Stock Options for such favorable treatment as may be afforded Incentive Stock Options under Section 422 of the Internal Revenue Code.

ARTICLE XX

REQUIREMENTS OF LAW

20.1 Requirements of Law. The issuance of stock and the payment of cash pursuant to the Plan shall be subject to all applicable laws, rules and regulations.

20.2 Governing Law. The Plan and all Award Agreements hereunder shall be construed in accordance with and governed by the laws of the State of Delaware.

ARTICLE XXI

EFFECTIVE DATE OF THE PLAN

21.1 Effective Date. The Plan shall be effective as of the date it is approved by the Stockholders of the Company.

21.2 Duration of the Plan. The Plan shall terminate at midnight on the date that is the day before the tenth anniversary of the Effective Date, and may be terminated prior thereto by Board action; and no Award shall be granted after such termination. Awards outstanding at the time of the Plan termination may continue to be exercised, or become free of restrictions or payable, in accordance with their terms.

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EX-10.(K)

Exhibit 10(k)

Harte-Hanks, Inc.

2005 Omnibus Incentive Plan

Non-Qualified Stock Option Agreement

Option	Number of Shares of Stock	Option Price
No.	Subject to this Option:	Per Share: $

THIS AGREEMENT, effective as of the      day of             , 20     (the “Award Date”), is between Harte-Hanks, Inc., a Delaware corporation (hereinafter referred to as the “Corporation”), and                                                               (hereinafter referred to as the “Holder”). Capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning set forth in the Plan (as defined below).

WITNESSETH:

WHEREAS, the Corporation has adopted the Harte-Hanks, Inc. 2005 Omnibus Incentive Plan (the “Plan”), which provides for the granting of Non-Qualified Options to Participants of the Corporation and its Affiliated Corporations as selected by the Compensation Committee (the “Committee”) of the Corporation’s Board of Directors (the “Board”) to purchase shares of common stock of the Corporation, par value one dollar ($1.00) per share (the “Common Stock”); and

WHEREAS, the Holder has been selected by the Committee to participate in the Plan, in accordance with the provisions thereof.

WHEREAS, the Committee awarded to the Holder a Non-Qualified Option on the Award Date.

WHEREAS, the parties hereto desire to evidence in writing the terms and conditions of the option.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements herein contained and as an inducement to the Holder to be a [employee, director, consultant] of the Corporation or an Affiliated Corporation, the parties hereto hereby agree as follows:

1. On the Award Date, the Corporation awarded to the Holder this Non-Qualified Option to purchase from the Corporation, on the terms and conditions herein set forth and in the Plan, all or any part of the number of shares of Common Stock at the option price per share as set forth above. The grant of this option was effective on the Award Date. Except as otherwise provided in Section 3 below, this option may not be exercised unless the Holder, at the time he or she exercises this option, is, and has been at all times since the date of grant of this option, a Participant under the Plan (an “Eligible Participant”).

2. This option cannot be exercised in whole or in part prior             . Thereafter, this option may be exercised to the extent shown below (rounded downward, if necessary, to the nearest full share), and to the extent not previously exercised, on or after the following             :

Notwithstanding the foregoing, in no event can this option be exercised in whole or in part on or after the date on which this option lapses pursuant to Section 3. The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all shares for which it is vested until the earlier of the Final Exercise Date (as defined below) or the termination of this option under Section 3 hereof or the Plan.

3. This option shall expire on                      (the “Final Exercise Date”) unless terminated prior to the Final Exercise Date pursuant to the terms of this option or the Plan. This option shall expire

(a)              after the date of the death or disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code) of the Holder; provided, however, that in such event this option may only be exercised to the extent it is vested at the time of the Holder’s death or disability;

(b)              after the Termination Date (as defined below) if the Holder is then still living and if such termination is for a reason other than for Cause or as a result of a Material Breach (as defined below); provided, however, that in such event this option may only be exercised to the extent it is vested at the time of the Termination Date; and provided, further, however, that in the event that the Holder dies during the              period immediately after the Termination Date (and the Holder has not been terminated for Cause or as a result of a Material Breach), then this option shall terminate              after the date of the Holder’s death; or

(c) on the Termination Date, if such termination was for Cause or as a result of a Material Breach.

For purposes of this Agreement, “Material Breach” shall mean the material breach of any contractual, statutory, fiduciary or other legal obligation of the Holder to the Corporation, as determined in the sole judgment of the Corporation, and “Termination Date” shall mean the date on which the Holder is no longer a Participant under the Plan.

4. This option and the rights and privileges conferred therewith shall not be sold, transferred, encumbered, hypothecated or otherwise conveyed by the Holder otherwise than by will or by the laws of descent and distribution. This

2

option is not liable for or subject to, in whole or in part, the debts, contracts, liabilities, or torts by the Holder nor shall it be subject to garnishment, attachment, execution, levy or other legal or equitable process. This option shall be exercisable during the lifetime of the Holder only by the Holder. To the extent exercisable after the Holder’s death, this option shall be exercised only by the person or persons entitled to receive this option under the Holder’s will, duly probated, or if the Holder shall fail to make a testamentary disposition of this option, by the executor or administrator of the Holder’s estate.

5. This option may be exercised by the Holder, in whole or in part, at anytime by the Holder’s delivering written notice to the Corporation’s Secretary along with full payment of the exercise price under this option for the shares being purchased. The notice must specify that this option (or a portion thereof) is being exercised and the number of shares with respect to which this option is being exercised. This option may only be exercised as provided in this option and in accordance with such rules and regulations as may, from time to time, be adopted by the Board or the Committee under the Plan. The exercise of this option shall be deemed effective upon receipt by the Corporation of the notice and payment described in this Section 5. If the Holder exercises this option in full, it shall be surrendered to the Corporation for cancellation. If the Holder only partially exercises this option, it shall be delivered to the Corporation for the purpose of making appropriate notation thereon, or otherwise reflecting, in such manner as the Corporation shall determine, the result of such partial exercise of the option. As soon as practicable after the effective exercise of this option, and upon satisfaction of all applicable withholding requirements pursuant to the Plan, the Holder or the Holder’s nominee, shall be recorded on the Corporation’s stock transfer books as the owner of the shares purchased. The Corporation may, but is not required to, deliver to the Holder one or more duly issued and executed stock certificates evidencing such ownership.

6. At the time this option is exercised, payment of the total exercise price for the shares to be purchased shall be made to the Corporation (i) in cash (including check, bank draft or money order), (ii) by transfer from the Holder to the Corporation of shares of the Corporation’s Common Stock (other than shares of Common Stock that the Committee determines by rule may not be used to exercise this option) that the Holder has held for more than six (6) months with a then current aggregate Fair Market Value equal to the total exercise price for the portion of this option being exercised, (iii) by the Corporation’s retaining a number of shares of the Common Stock deliverable upon exercise of this option whose aggregate Fair Market Value is equal to the exercise price to be paid in connection with such exercise; or (iv) to the extent permissible under applicable law, delivery to the Corporation of: (A) a properly executed exercise notice, (B) irrevocable instructions to a broker to sell a sufficient number of the shares being exercised to cover the exercise price and to promptly deliver to the Corporation (on the same day that the shares of Common Stock issuable upon exercise are delivered) the amount of sale proceeds required to pay the exercise price and any required tax withholding relating to the exercise, and (C) such other documentation as the Committee and the broker shall require to effect a same-day exercise and sale.

7. If at any time the Board shall determine, based on opinion of counsel to the Corporation, that listing, registration or qualification of the shares covered by this option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of the exercise of this option, this option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to counsel for the Corporation.

3

8. Any notice to be given under the terms of this option or any delivery of this option to the Corporation shall be made by personal delivery, through the mail, or by facsimile, electronic mail or other electronic transmission to the Corporation’s Secretary, Harte-Hanks, Inc., P. O. Box 269, San Antonio, Texas 78291, Fax: (210) 829 9139. Any notice to be given to the Holder shall be addressed to the Holder at the address set forth beneath his or her signature hereto, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be deemed to have been duly given if mailed, postage prepaid, addressed as aforesaid.

9. The granting of this option shall impose no obligation upon the Holder to exercise it or any part thereof. The Holder acknowledges and agrees that the vesting of shares pursuant to the vesting schedule hereof is earned only by such Holder’s remaining an Eligible Participant (not through the act of being hired, being granted this option or acquiring shares hereunder). The Holder further acknowledges and agrees that this option, the transactions contemplated hereunder and the vesting schedule set forth herein do not constitute an express or implied promise of continued engagement as an employee, director or consultant of the Corporation or an Affiliated Corporation for the vesting period for any period, or at all, and shall not interfere in any way with the Holder’s right or the right of the Corporation or any Affiliated Corporation to terminate the Holder’s relationship as an employee, director or consultant at any time with or without Cause. The Holder acknowledges that the option is not granted by the Corporation as a matter of right, but is granted (and the amount of the award is granted) at the sole discretion of the Committee and is not part of his or her contractual compensation and does not create and enforceable right to further options in future years or in similar amounts. This discretion of the Committee relates to the award of the options and the amount of the award. The Holder waives any and all acquired rights claims in connection with past or future employment or service as a consultant or director with the Corporation or any Affiliated Corporation.

10. Subject to the limitations of the transferability of this option, this Agreement shall be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto.

11. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware.

12. Any provision of this Agreement to the contrary notwithstanding, the Corporation may take such steps as it may deem necessary or desirable for the withholding of any taxes which it is required by law or regulation of any governmental authority, federal, state or local, domestic or foreign, to withhold in connection with any of the shares subject hereto. Subject to limitations established by the Committee and/or the Board from time to time, any withholding taxes may be paid by delivery to the Corporation of previously owned shares of Common Stock or by reducing the number of shares issuable upon exercise of this option.

4

13. It is intended that the option evidenced by this Agreement shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”).

14. Holder accepts this option subject to all the provisions of the Plan including the provisions that authorize the Committee to administer and interpret the Plan and that provide the Committee’s and the Board’s decisions, determinations and interpretations with respect to the Plan and options granted thereunder are final and conclusive on all persons affected thereby. The terms and conditions included in the Plan are incorporated by reference herein, and to the extent that any conflict may exist between any term or provision of this option and any term or provision of the Plan, the term or provision of the Plan shall control.

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

Holder:
	NEW Address Only:
	HARTE-HANKS, INC.
	By:

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EX-21

Exhibit 21

SUBSIDIARIES OF HARTE-HANKS, INC.

As of June 30, 2005

Name of Entity	Jurisdiction of Organization	% Owned
Avellino Technologies, Inc.	Delaware	100	%(8)
The Flyer Publishing Corporation	Florida	100	%
Harte-Hanks CRM Services Belgium NV	Belgium	100	%(2)
Harte-Hanks Data Services LLC	Maryland	100	%
Harte-Hanks Data Technologies, Inc.	Delaware	100	%
Harte-Hanks Direct, Inc.	New York	100	%
Harte-Hanks Direct Marketing/Baltimore, Inc.	Maryland	100	%
Harte-Hanks Direct Marketing/Cincinnati, Inc.	Ohio	100	%
Harte-Hanks Direct Marketing/Dallas, L.P.	Delaware	100	%(6)
Harte-Hanks Direct Marketing/Fullerton, Inc.	California	100	%
Harte-Hanks Direct Marketing/Jacksonville, LLC	Delaware	100	%(9)
Harte-Hanks Direct Marketing/Kansas City, LLC	Delaware	100	%(1)
Harte-Hanks do Brazil Consultoria e Servicos Ltda.	Brazil	100	%(5)
Harte-Hanks Market Intelligence, Inc.	California	100	%
Harte-Hanks Market Intelligence Espana LLC	Colorado	100	%
Harte-Hanks Market Intelligence Europe B.V.	Netherlands	100	%
Harte-Hanks Market Intelligence GmbH	Germany	100	%(4)
Harte-Hanks Market Intelligence Limited	Ireland	100	%(4)
Harte-Hanks Market Intelligence SAS	France	100	%(4)
Harte-Hanks Market Research, Inc.	New Jersey	100	%
Harte-Hanks Print, Inc.	New Jersey	100	%
Harte-Hanks Pty. Limited	Australia	100	%(3)
Harte-Hanks Response Management/Austin L.P.	Delaware	100	%(6)
Harte-Hanks Response Management/Boston, Inc.	Massachusetts	100	%
Harte-Hanks Shoppers, Inc.	California	100	%
Harte-Hanks Stock Plan, Inc.	Delaware	100	%
Harte-Hanks Tampa Flyer, Inc.	Delaware	100	%
Harte-Hanks Teleservices, LLC	Delaware	100	%(11)
Harte-Hanks Trillium UK Limited	United Kingdom	100	%(10)
Harte-Hanks UK Limited	United Kingdom	100	%
HH Postfuture, Inc.	Delaware	100	%
HTS, Inc.	Connecticut	100	%
Information for Marketing Limited (shell corporation)	England	100	%(7)
NSO, Inc.	Ohio	100	%
Sales Support Services, Inc.	New Jersey	100	%
Southern Comprint Co.	California	100	%

⁽¹⁾ Owned by Sales Support Services, Inc.

⁽²⁾ 99.84% Owned by Harte-Hanks, Inc.

    0.16% Owned by Harte-Hanks Direct, Inc.

⁽³⁾ Owned by Harte-Hanks Data Technologies, Inc.

⁽⁴⁾ Owned by Harte-Hanks Market Intelligence Europe B.V.

⁽⁵⁾ 99.998% Owned by Harte-Hanks Data Technologies, Inc.

    .002% Owned by Harte-Hanks Stock Plan, Inc.

⁽⁶⁾ 99% Owned by Harte-Hanks Stock Plan, Inc.

    1% Owned by Harte-Hanks Direct, Inc.

⁽⁷⁾ Owned by Harte-Hanks Limited

⁽⁸⁾ Owned by Harte-Hanks Trillium UK Limited

⁽⁹⁾ Owned by Harte-Hanks Direct Marketing/Cincinnati, Inc.

⁽¹⁰⁾ Owned by Harte-Hanks UK Limited

⁽¹¹⁾ Owned by Harte-Hanks Direct, Inc.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard M. Hochhauser, President and Chief Executive Officer of Harte-Hanks, Inc. (the “Company”), hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

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) and 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 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 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 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 function):

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 controls over financial reporting.

August 9, 2005         Date	/s/ Richard M. Hochhauser
	Richard M. Hochhauser
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dean H. Blythe, Senior Vice President and Chief Financial Officer of Harte-Hanks, Inc. (the “Company”), hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of the Company;

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) and 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 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 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 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 function):

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 controls over financial reporting.

August 9, 2005         Date	/s/ Dean H. Blythe
	Dean H. Blythe
	Senior 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

I, Richard M. Hochhauser, President and Chief Executive Officer of Harte-Hanks, Inc. (the “Company”) hereby certify that the accompanying report on Form 10-Q for the quarter ended June 30, 2005 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of those sections.

I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 9, 2005         Date	/s/ Richard M. Hochhauser
	Richard M. Hochhauser
	President and Chief Executive Officer

Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Dean H. Blythe, Senior Vice President and Chief Financial Officer of Harte-Hanks, Inc. (the “Company”) hereby certify that the accompanying report on Form 10-Q for the quarter ended June 30, 2005 and filed with the Securities and Exchange Commission on the date hereof pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (the “Report”) by the Company fully complies with the requirements of those sections.

I further certify that, based on my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 9, 2005         Date	/s/ Dean H. Blythe
	Dean H. Blythe
	Senior Vice President and Chief Financial Officer

Note: This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.