INFORMATION TO BE INCLUDED IN REPORT

SECTION 5 – CORPORATE GOVERNANCE AND MANAGEMENT

On November 13, 2007, Ethan Allen Interiors Inc. (the “Company”) entered into a new employment agreement (the “Employment Agreement”) with M. Farooq Kathwari, the Company’s current and continuing Chairman, President and Principal Executive Officer. The Employment Agreement replaces the 2002 employment agreement between the Company and Mr. Kathwari.

Pursuant to the Employment Agreement, Mr. Kathwari will continue to serve as Chairman, President and Principal Executive Officer of the Company and of Ethan Allen Global, Inc., our wholly-owned subsidiary, through July 1, 2012, with two automatic one-year renewals unless notice of non-renewal is given by either Mr. Kathwari or the Company not later than nine months prior to the relevant expiration date. Mr. Kathwari will continue to receive an annual base salary of $1,127,500, subject to an annual increase each year based on the Company’s operating margin (as defined in the Employment Agreement) for the prior fiscal year. Mr. Kathwari will be entitled to an annual incentive bonus each year based on the Company’s prior fiscal year operating income. The provision providing for treating such bonus as a performance incentive payment was subject to the approval of our stockholders and was submitted to a vote of stockholders and approved at the annual meeting of stockholders held on November 13, 2007.

On October 10, 2007 Mr. Kathwari received options to purchase 150,000 shares of common stock at an exercise price of $34.03 per share which vest at a rate of 50,000 shares on June 30 of each of 2008, 2009, and 2010 so long as Mr. Kathwari is employed by the Company on the relevant vesting date. Pursuant to the Employment Agreement, Mr. Kathwari will receive (i) on July 1, 2008 a grant of options to purchase 90,000 shares of common stock at an exercise price based on the closing price of the common stock on the New York Stock Exchange on such date, which options will vest at a rate of 45,000 shares on June 30 of each of 2009 and 2010 so long as Mr. Kathwari is employed by the Company on the relevant vesting date, and (ii) on July 1, 2009 a grant of options to purchase 60,000 shares of common stock at an exercise price based on the closing price of the common stock on the New York Stock Exchange on such date, which options will vest on June 30, 2010 so long as Mr. Kathwari is employed by the Company on such vesting date. Pursuant to the Employment Agreement, on November 13, 2007 Mr. Kathwari received (i) a grant of 15,000 restricted shares which will vest at a rate of 3,000 shares per year over the initial five-year term of the Employment Agreement, and (ii) a grant of 20,000 restricted shares with an additional grant of 20,000 restricted shares to be made on July 1 of each of 2008 and 2009 so long as Mr. Kathwari is employed by the Company on the relevant grant date. The grants of 20,000 restricted shares will each vest on June 30 of each of 2010, 2011 and 2012, respectively, upon the attainment of certain performance targets so long as Mr. Kathwari is employed by the Company on the relevant vesting date. Any options or restricted shares which do not vest on the relevant date will be forfeited. If any dividends on the Company's common stock are declared and paid on or after a grant date for any restricted shares and prior to the relevant vesting date, an account established by the Company for the benefit of Mr. Kathwari will be credited with the amount of dividends which would otherwise have been paid with respect to such shares. Such amounts, together with interest thereon at 5% per annum, will be vested to Mr. Kathwari regardless of the subsequent vesting or forfeiture of the underlying shares, and will be paid to Mr. Kathwari as soon as practicable after the termination of his employment. All of the options and restricted shares will vest upon a change in control