6.              Transactions with Hill-Rom

We entered into a number of agreements with Hill-Rom to accomplish the separation of our businesses and to govern the relationship between us subsequent to the Distribution in 2008.  These agreements included a Distribution Agreement, a Judgment Sharing Agreement, and a Tax Sharing Agreement, each filed as exhibits to the Company’s Current Report on Form 8-K filed with the SEC on March 18, 2008.  We also entered into Shared Services and Transitional Services Agreements.

Distribution Agreement — The Distribution Agreement sets forth the agreements between Hill-Rom and us with respect to the principal corporate transactions that were required to effect the separation and the distribution of our shares to Hill-Rom shareholders, the allocation of certain corporate assets and liabilities, and other agreements governing the relationship between Hill-Rom and us.

Additionally, in order to preserve the credit capacity of the Company and Hill-Rom to perform our respective obligations under the Judgment Sharing Agreement, the Distribution Agreement imposes certain restrictive covenants on Hill-Rom and us.  Specifically, the Distribution Agreement provides that, until the occurrence of an Agreed Termination Event (described below), we and our subsidiaries will not:

·                  incur indebtedness to finance the payment of any extraordinary cash dividend on our outstanding capital stock or the repurchase of any outstanding shares of our capital stock (the parties have agreed that either of them can apply available cash to reduce indebtedness outstanding at the time of the Distribution or generated by its ongoing operations after the Distribution, and subsequently incur a comparable amount of indebtedness for the purpose of paying an extraordinary cash dividend or repurchasing shares of capital stock without contravening the prohibitions set forth in this covenant);

·                  declare and pay regular quarterly cash dividends on our shares of common stock in excess of $0.1825 per share (increased by amendments of the Distribution Agreement to $0.185, $0.1875, $0.19, and $0.1925 per share per quarter in fiscal 2009, 2010, 2011, and 2012);

·                  make any acquisition outside our core area of business, defined to mean the manufacture or sale of funeral service products, or any of our existing business lines, or any other basic manufacturing or distribution business where it is reasonable to assume that our core competencies could add enterprise value;

·                  incur indebtedness in excess of $100 to finance any acquisition in our core area of business without the receipt of an opinion from a qualified investment banker that the transaction is fair to our shareholders from a financial point of view; or

·                  incur indebtedness to make an acquisition in our core area of business that either (i) causes our ratio, calculated as provided in the Distribution Agreement, of Pro Forma Consolidated Total Debt to Consolidated EBITDA (each as defined in the Distribution Agreement) to exceed 1.8x or (ii) causes our credit rating by either Standard & Poor’s Ratings Services or Moody’s Investor Services to fall more than one category below its initial rating after giving effect to the Distribution.

We received a covenant modification to the Distribution Agreement in May 2011 that allowed us to pay down our revolving credit facility with the proceeds from the collection of the Forethought Note without impacting our ability in the future to redraw these funds to finance acquisitions.

“Agreed Termination Event” means the first to occur of (i) the complete satisfaction of a trial court judgment in the last pending antitrust litigation matter described in Note 12 (including any other matter that is consolidated with this litigation) or the suspension of the execution of such judgment by the posting of a supersedes bond or (ii) the settlement or voluntary dismissal of this last pending matter as to us and Hill-Rom.  These restrictive covenants will terminate in the event that either Hill-Rom’s or our funding obligations under the Judgment Sharing Agreement terminate in accordance with the terms of that agreement.  The Distribution Agreement imposes similar restrictions on Hill-Rom and its subsidiaries, except that the definition of core business is appropriate for Hill-Rom.

Judgment Sharing Agreement (JSA) — Because we, Hill-Rom, and the other co-defendants in the antitrust litigation matters described in Note 12 are jointly and severally liable for any damages that may be assessed at trial with no statutory contribution rights among the defendants, we and Hill-Rom entered into a JSA to allocate any potential liability under these cases and any other case that is consolidated with the litigation.  We believe that we have committed no wrongdoing as alleged by the plaintiffs and that we have meritorious defenses to class certification and to plaintiffs’ underlying allegations and damage theories.

Under the JSA, the aggregate amount that we and Hill-Rom will be required to pay or post in cash will be funded pursuant to a formula which requires Hillenbrand to bear the majority of the burden.  The JSA provides that we are responsible for bearing all fees and costs incurred in the defense of the antitrust litigation matters on behalf of ourselves and Hill-Rom.