10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

OR

[  ]  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    0-3279

KIMBALL INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)
 

Indiana	35-0514506
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
1600 Royal Street, Jasper, Indiana	47549-1001
(Address of principal executive offices)	(Zip Code)

(812) 482-1600

Registrant's telephone number, including area code

Not Applicable

Former name, former address and former fiscal year, if changed since last report

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer  __                                 Accelerated filer   X                                Non-accelerated filer  __

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

The number of shares outstanding of the Registrant's common stock as of April 19, 2006 were:

Class A Common Stock - 13,060,935 shares

Class B Common Stock - 25,147,811 shares

1

KIMBALL INTERNATIONAL, INC.
FORM 10-Q
INDEX

		Page No.
PART I    FINANCIAL INFORMATION
	Item 1. Financial Statements
	Condensed Consolidated Balance Sheets         - March 31, 2006 (Unaudited) and June 30, 2005	3
	Condensed Consolidated Statements of Income (Unaudited)         - Three and Nine Months Ended March 31, 2006 and 2005	4
	Condensed Consolidated Statements of Cash Flows (Unaudited)         - Nine Months Ended March 31, 2006 and 2005	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6-19
	Item 2. Management's Discussion and Analysis of Financial     Condition and Results of Operations	20-29
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
	Item 4. Controls and Procedures	30
PART II    OTHER INFORMATION
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
	Item 5  Other Information	31
	Item 6. Exhibits	32
SIGNATURES		33
EXHIBIT INDEX		34

2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Share Data)

	(Unaudited) March 31,  2006	June 30,    2005
Assets
Current Assets:
Cash and cash equivalents	$  106,705	$  57,253
Short-term investments	65,543	60,270
Receivables, less allowances of $1,809 and $2,142, respectively	122,804	125,178
Inventories	77,426	87,531
Assets held for sale	9,461	-0-
Other	20,346	21,808
Total current assets	402,285	352,040
Property and Equipment - net of accumulated depreciation of $322,650 and     $356,639, respectively	145,168	176,054
Capitalized Software - net of accumulated amortization of $49,573 and     $43,415, respectively	27,901	37,273
Other Assets	31,190	35,173
Total Assets	$606,544	$600,540
Liabilities and Share Owners' Equity
Current Liabilities:
Current maturities of long-term debt	$         13	$         49
Accounts payable	95,451	87,049
Borrowings under credit facility	10,111	2,154
Dividends payable	6,456	6,420
Accrued expenses	61,485	52,700
Total current liabilities	173,516	148,372
Other Liabilities:
Long-term debt, less current maturities	339	350
Deferred income taxes and other	15,641	23,592
Total other liabilities	15,980	23,942
Share Owners' Equity:
Common stock-par value $0.05 per share:
Class A - 49,826,000 shares authorized                        14,368,000 shares issued	718	718
Class B - 100,000,000 shares authorized                         28,657,000 shares issued	1,433	1,433
Additional paid-in capital	5,407	4,625
Retained earnings	482,354	495,557
Accumulated other comprehensive income	769	901
Deferred stock-based compensation	-0-	(7,812)
Less: Treasury stock, at cost
Class A - 1,304,000 and 377,000 shares, respectively	(18,737)	(5,610)
Class B - 3,512,000 and 3,881,000 shares, respectively	(54,896)	(61,586)
Total Share Owners' Equity	417,048	428,226
Total Liabilities and Share Owners' Equity	$606,544	$600,540
See Notes to Condensed Consolidated Financial Statements
3

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Per Share Data)

	(Unaudited)		(Unaudited)
	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2006	2005	2006	2005
Net Sales	$268,048	$258,469	$809,386	$790,114
Cost of Sales	206,488	205,012	631,003	619,294
Gross Profit	61,560	53,457	178,383	170,820
Selling, General and Administrative Expenses	54,318	51,920	160,678	157,186
Restructuring Expense	1,077	-0-	8,475	321
Operating Income	6,165	1,537	9,230	13,313
Other Income (Expense):
Interest income	1,319	512	3,133	1,405
Interest expense	(37)	(69)	(111)	(142)
Non-operating income	1,832	1,239	4,100	6,620
Non-operating expense	(329)	(439)	(852)	(1,363)
Other income, net	2,785	1,243	6,270	6,520
Income from Continuing Operations Before Taxes on Income	8,950	2,780	15,500	19,833
Provision (Benefit) for Income Taxes	2,315	(317)	3,895	3,266
Income from Continuing Operations	6,635	3,097	11,605	16,567
Gain (Loss) from Discontinued Operations, Net of Tax	654	(1,778)	(6,944)	(4,117)
Income Before Cumulative Effect of Change in Accounting Principle	7,289	1,319	4,661	12,450
Cumulative Effect of Change in Accounting Principle, Net of Tax	-0-	-0-	299	-0-
Net Income	$    7,289	$   1,319	$   4,960	$  12,450
Earnings Per Share of Common Stock:
Basic Earnings Per Share from Continuing Operations:
Class A	$0.17	$0.08	$0.29	$0.43
Class B	$0.18	$0.08	$0.31	$0.44
Diluted Earnings Per Share from Continuing Operations:
Class A	$0.17	$0.08	$0.29	$0.42
Class B	$0.17	$0.08	$0.31	$0.43
Basic Earnings Per Share:
Class A	$0.19	$0.03	$0.12	$0.32
Class B	$0.19	$0.03	$0.13	$0.33
Diluted Earnings Per Share:
Class A	$0.19	$0.03	$0.12	$0.31
Class B	$0.19	$0.04	$0.13	$0.33
Dividends Per Share of Common Stock:
Class A	$0.155	$0.155	$0.465	$0.465
Class B	$0.160	$0.160	$0.480	$0.480
Average Total Number of Shares Outstanding  Class A and B Common Stock:
Basic	38,209	38,152	38,192	38,137
Diluted	38,440	38,721	38,332	38,586
See Notes to Condensed Consolidated Financial Statements            4

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	(Unaudited) Nine Months Ended March 31,
(Amounts in Thousands)
	2006	2005
Cash Flows From Operating Activities:
Net income	$ 4,960	$ 12,450
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of a change in accounting principle	(497)	-0-
Depreciation and amortization	28,248	31,026
Gain on sales of assets	(1,449)	(702)
Loss (gain) on disposal of discontinued operations	11,495	(520)
Restructuring	5,422	116
Deferred income tax and other deferred charges	(7,747)	(1,834)
Stock-based compensation	2,461	1,764
Change in current assets and liabilities:
Receivables	(3,413)	2,635
Inventories	(2,219)	2,607
Other current assets	2,534	221
Accounts payable	8,756	4,634
Accrued expenses	7,009	3,020
Net cash provided by operating activities	55,560	55,417
Cash Flows From Investing Activities:
Capital expenditures	(19,614)	(20,719)
Proceeds from sales of assets	3,531	140
Proceeds from sales of facilities/subsidiaries	1,912	17,520
Proceeds from disposal of discontinued operations	25,231	2,300
Purchase of capitalized software and other assets	(1,710)	(4,647)
Purchases of available-for-sale securities	(25,483)	(33,875)
Sales and maturities of available-for-sale securities	19,970	21,238
Other, net	395	-0-
Net cash provided by (used for) investing activities	4,232	(18,043)
Cash Flows From Financing Activities:
Proceeds from short-term debt	9,835	2,293
Payments on short-term debt	(1,878)	(1,212)
Payments on long-term debt	(47)	(420)
Dividends paid to share owners	(18,127)	(18,100)
Other, net	(35)	(449)
Net cash used for financing activities	(10,252)	(17,888)
Effect of Exchange Rate Change on Cash and Cash Equivalents	(88)	458
Net Increase in Cash and Cash Equivalents	49,452	19,944
Cash and Cash Equivalents at Beginning of Period	57,253	39,991
Cash and Cash Equivalents at End of Period	$ 106,705	$ 59,935
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes	$       1,030	$       219
Interest	$          164	$       177
Total Cash, Cash Equivalents and Short-Term Investments:
Cash and cash equivalents	$  106,705	$  59,935
Short-term investments	65,543	57,816
Totals	$  172,248	$117,751
See Notes to Condensed Consolidated Financial Statements
5

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Kimball International, Inc. (the "Company") have been prepared in accordance with the instructions to Form 10-Q.  As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. All significant intercompany transactions and balances have been eliminated. Management believes the financial statements include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly the financial statements for the interim periods. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K.

The Company has classified several operations as discontinued.  During the quarter ended March 31, 2006, the Company completed the sale of an operation that manufactures polyurethane and polyester molded components for use in the recreational vehicle, signage and residential furniture industries.  During the quarter ended December 31, 2005, the Company completed the sale of a fixed-wall furniture systems operation and a forest products hardwood lumber operation.  In fiscal year 2005, the Company exited the residential furniture market which was part of the branded furniture product line and also discontinued its veneer slicing operations.  All of this activity is applicable to the Furniture and Cabinets segment.  In accordance with Financial Accounting Standards Board (FASB) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the accompanying Condensed Consolidated Financial Statements and notes have been restated to reflect the results of these operations as discontinued operations.  See Note 8-Discontinued Operations of Notes to Condensed Consolidated Financial Statements for further discussion of these discontinued operations.

The Company changed its classification of gains and losses on sales of property and equipment, previously shown in non-operating income, to selling, general and administrative expense for each of the periods presented in the accompanying Condensed Consolidated Statements of Income. Amounts reclassified in the three and nine-month periods ended March 31, 2005 were gains of, in millions, $0.2 and $0.7 respectively.  In the three and nine months ended March 31, 2006, the Company recognized, in millions, $0.1 and $1.2, respectively, of gains on the sale of property and equipment as selling, general and administrative expense.

Stock-Based Compensation

As described in Note 7-Stock Compensation Plans of Notes to Condensed Consolidated Financial Statements, the Company maintains stock-based employee compensation plans which allow for the issuance of restricted stock, restricted share units, unrestricted share grants, incentive stock options, nonqualified stock options, performance shares, performance units and stock appreciation rights for grant to officers and other key employees of the Company, and to members of the Board of Directors who are not employees.  Prior to fiscal year 2006, the Company accounted for the plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (APB 25). Accordingly, because all stock options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant, no expense related to employee stock options was recognized. However, expense related to other share-based awards such as restricted share units and performance shares had been recognized in the income statement under APB 25.  Effective July 1, 2005, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)).  Under the modified prospective method of adoption selected by the Company, compensation expense related to stock options is recognized beginning in fiscal year 2006, but compensation cost in fiscal year 2005 related to stock options continues to be disclosed on a pro forma basis only.  Additionally, as of the effective date, the Company eliminated its balance of Deferred Stock-Based Compensation, which represented unrecognized compensation cost for restricted share unit awards, and reclassified it to Treasury Stock and Additional Paid-In Capital, in accordance with the modified prospective transition method.  Financial statements for prior periods have not been restated.

6

FAS 123(R) requires that forfeitures be estimated over the vesting period of an award, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs.  FAS 123(R) also requires that liability awards be revalued to fair value, which, upon the adoption of FAS 123(R), had the effect of a reduction of a liability for outstanding stock appreciation rights.  The impact of the revaluation of stock appreciation rights and the use of the estimated forfeiture method for prior periods have been presented on the Condensed Consolidated Statements of Income as a Cumulative Effect of Change in Accounting Principle, as required by FAS 123(R).  The cumulative effect recorded in the first quarter of fiscal year 2006 totaled $0.3 million of income, net of taxes.  The earnings per share impact can be found in Exhibit 11- Computation of Earnings per Share.

The Company's stock-based compensation plans allow early vesting when an employee reaches retirement age and ceases continuous service.  Under FAS 123(R), awards granted after June 30, 2005 require acceleration of compensation expense through an employee's retirement age, whether or not the employee is expected to cease continuous service on that date.  For awards granted on or before June 30, 2005, the Company accelerates compensation expense only in cases where a retirement eligible employee is expected to cease continuous service prior to an award's vesting date.  If the new provisions of FAS 123(R) had been in effect for awards prior to June 30, 2005, compensation expense including the pro forma effect of stock options, net of tax, would have been $0.0 million and $0.2 million higher during the three months ended March 31, 2006 and 2005, respectively, and $0.2 million and $0.3 million higher during the nine months ended March 31, 2006 and 2005, respectively. 

The following table illustrates the effect on income from continuing operations and earnings per share from continuing operations if the Company had applied the fair value recognition provisions to stock-based employee compensation in fiscal year 2005.

	Three Months Ended March 31, 2005	Nine Months Ended March 31, 2005
(Amounts in Thousands, Except for Per Share Data)
Income from Continuing Operations, as reported	$ 3,097	$16,567
Add: Stock-based employee compensation expense included in reported income, net of related tax effects	234	956
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	492	1,460
Pro Forma Income from Continuing Operations	$ 2,839	$16,063
Earnings Per Share:
As reported:
Basic Earnings Per Share from Continuing Operations:
Class A	$0.08	$0.43
Class B	$0.08	$0.44
Diluted Earnings Per Share from Continuing Operations:
Class A	$0.08	$0.42
Class B	$0.08	$0.43
Pro Forma:
Basic Earnings Per Share from Continuing Operations:
Class A	$0.07	$0.42
Class B	$0.07	$0.42
Diluted Earnings Per Share from Continuing Operations:
Class A	$0.07	$0.41
Class B	$0.07	$0.42

7

Tooling

The Company capitalizes the cost of tooling which it owns or which it has a noncancelable right to use during a supply arrangement.  As of March 31, 2006 and June 30, 2005, respectively, the Company had $2.9 million and $3.0 million of Company-owned tooling costs capitalized, and $0.4 million and $0.8 million of customer-owned tooling costs capitalized.

Effective Tax Rate

In determining our quarterly provision for income taxes, we use an estimated annual effective tax rate which is based on our expected annual income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate.  Unusual or infrequently occurring items are separately recognized in the quarter in which they occur. 

New Accounting Standards

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments (FAS 155). FAS 155 permits the Company to elect to measure any hybrid financial instrument at fair value (with changes in fair value recognized in earnings) if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS 133, Accounting for Derivative Instruments and Hedging Activities. FAS 155 will be effective for all instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of the Company's fiscal year 2008, with earlier adoption permitted as of the beginning of fiscal year 2007. The adoption of FAS 155 is not expected to have a material impact on the Company's financial position, results of operations or cash flows.

In February 2006, the FASB issued a FASB Staff Position (FSP), Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event (FSP FAS 123(R)-4). FSP FAS 123(R)-4 amends SFAS No. 123(R) and addresses the classification of stock options and similar instruments issued as employee compensation. Instruments having contingent cash settlement features are properly classified as equity if the cash settlement feature can be exercised only upon the occurrence of a contingent event that is outside the employee's control, and it is not probable that the event will occur. If the contingent event becomes probable, the instrument shall be accounted for as a liability. The Company's stock compensation instruments contain a cash settlement option in the event of a change in control, but the event and execution of the cash settlement is outside of the employee's control, and is not probable of occurring at this time. The Company classifies these instruments as equity. The FSP will be effective for the Company in the fourth quarter of fiscal year 2006.  The adoption of FSP FAS 123(R)-4 is not expected to have a material impact on the Company's condensed consolidated financial statements.

In December 2005, the FASB issued FSP Statement of Position (SOP) 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit Risk.  This FSP provides guidance on terms of loans that may give rise to a concentration of credit risk, and disclosures and other accounting considerations required for concentration of credit risks.  The FSP was effective for the Company in the second quarter of fiscal year 2006.  The Company has provided disclosures related to concentration of credit risks.  The adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

8

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.  This FSP provides guidance on determining if an investment is considered to be impaired, if the impairment is other-than-temporary, and the measurement of impairment losses.  It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.  The FSP was effective for the Company beginning in the third quarter of fiscal year 2006.  The Company was accounting for investments in accordance with this guidance, and therefore, the adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

In October 2005, the FASB issued FSP FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), which provides clarification of the concept of mutual understanding between employer and employee with respect to the grant date of a share-based payment award.  This FSP provides that a mutual understanding of the key terms and conditions of an award shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements if the recipient does not have the ability to negotiate the key terms and conditions of the award and those key terms and conditions will be communicated to the individual recipient within a relatively short time period from the date of approval.  This guidance became effective for the Company in the second quarter of fiscal year 2006.  The adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

In September 2005, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty (EITF 04-13).  EITF 04-13 generally requires exchanges of inventory within the same line of business to be recognized at the carrying value of the inventory transferred, except in cases where finished goods inventory is exchanged for raw material or work-in-process inventory.  EITF 04-13 is effective for the Company beginning in the fourth quarter of fiscal year 2006. The Company does not believe that the adoption of EITF 04-13 will have a material effect on its financial position, results of operations or cash flows.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47).  FIN 47 provides guidance relating to the identification and recognition of legal obligations to perform an asset retirement activity.  The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated.  Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  The provisions of FIN 47 are effective as of the fourth quarter of fiscal year 2006.  The Company is evaluating the impact of adopting FIN 47 on the Company's financial position, results of operations or cash flows.

Note 2. Inventories

Inventory components of the Company are as follows:

	March 31,	June 30,
	2006	2005
(Amounts in Thousands)
Finished Products	$25,248	$30,525
Work-in-Process	6,783	13,969
Raw Materials	45,395	43,037
Total Inventory	$77,426	$87,531

For interim reporting, LIFO inventories are computed based on year-to-date quantities and interim changes in price levels. Changes in quantities and price levels are reflected in the interim financial statements in the period in which they occur.

9

Note 3. Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by, and distributions to, Share Owners. Comprehensive income (loss), shown net of tax if applicable, for the three and nine-month periods ended March 31, 2006 and 2005 is as follows:

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2006	2005	2006	2005
(Amounts in Thousands)
Net Income	$  7,289	$ 1,319	$ 4,960	$12,450
Change in Unrealized Gains/Losses on Securities [1]	(18)	(189)	(134)	(187)
Change in Gains/Losses on Derivatives [2]	(133)	(1,380)	124	(39)
Foreign Currency Translation Adjustment	(126)	(7)	(122)	8
Comprehensive Income (Loss)	$  7,012	($ 257)	$  4,828	$12,232

[1] Net of tax expense/(benefit), in thousands, of ($11) and ($125) for the three months ended March 31, 2006 and 2005, respectively, and ($88) and ($125) for the nine months ended March 31, 2006 and 2005, respectively.

[2] Net of tax expense/(benefit), in thousands, of ($28) and ($323) for three months ended March 31, 2006 and 2005, respectively, and $37 and ($5) for the nine months ended March 31, 2006 and 2005, respectively.  The Company's use of derivatives is generally limited to forward purchases of foreign currency designated as cash flow hedges to protect against foreign currency exchange rate risks inherent in forecasted transactions denominated in a foreign currency.

Note 4. Segment Information

Management organizes the Company into segments based upon differences in products and services offered in each segment. The Furniture and Cabinets segment provides furniture for the office and hospitality industries, sold under the Company's family of brand names. The Furniture and Cabinets segment also provides engineering and manufacturing services which utilize common production and support capabilities on a contract basis to customers primarily in the residential furniture and cabinets industry. The Electronic Contract Assemblies segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally. The Company's focus is on electronic assemblies that have high durability requirements and are sold on a contract basis and produced to customers' specifications. The Company currently sells primarily to customers in the automotive, industrial controls and medical industries. Intersegment sales are insignificant.

10

Unallocated corporate assets include cash and cash equivalents, short-term investments and other assets not allocated to segments. Unallocated corporate income from continuing operations consists of income not allocated to segments for purposes of evaluating segment performance and includes income from corporate investments and other non-operational items. The basis of segmentation and accounting policies of the segments are consistent with those as disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2005.

	At or For the
	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2006		2005		2006		2005
(Amounts in Thousands)
Net Sales:
Furniture and Cabinets	$156,900		$146,853		$485,462		$457,737
Electronic Contract Assemblies	111,148		111,260		323,670		331,724
Unallocated Corporate and Eliminations	--		356		254		653
Consolidated	$268,048		$258,469		$809,386		$790,114
Income from Continuing Operations:
Furniture and Cabinets	$    4,779		$       487		$     5,772		$   4,381
Electronic Contract Assemblies	892		1,579		2,852		9,099
Unallocated Corporate and Eliminations	964		1,031		2,981		3,087
Consolidated	$     6,635	[1]	$    3,097	[2]	$    11,605	[1]	$   16,567	[2]
Total Assets:
Furniture and Cabinets	$237,142		$289,617
Electronic Contract Assemblies	218,169		221,372
Unallocated Corporate and Eliminations	151,233		104,809
Consolidated	$606,544	[3]	$615,798

[1] Income from Continuing Operations includes after-tax restructuring charges, in thousands, of $658 and $5,260 in the three and nine months ended March 31, 2006, respectively.  The Furniture and Cabinets segment recorded, in the three and nine months ended March 31, 2006, in thousands, $454 and $5,056, respectively, of after-tax restructuring charges.  The Electronic Contract Assemblies segment recorded, in each of the three and nine-month periods ended March 31, 2006, in thousands, $204 of after-tax restructuring charges.  See Note 5 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements for further discussion.

[2] Income from Continuing Operations includes after-tax restructuring charges, in thousands, of $0 and $193 in the three and nine months ended March 31, 2005, respectively.  On a segment basis, in the three and nine months ended March 31, 2005, the Furniture and Cabinets segment recorded, in thousands, $0 and $179 of after-tax restructuring charges, and Unallocated Corporate recorded, in thousands, $0 and $14 of after-tax restructuring charges, respectively.  See Note 5 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements for further discussion.

[3] Significant reductions in Furniture and Cabinets segment assets were the result of sales of a forest products hardwood lumber business, a fixed-wall furniture systems business and a business that manufactures polyurethane and polyester molded components, and the exit of a manufacturing facility located in Mexicali, Mexico.  Unallocated corporate assets increased primarily as a result of cash proceeds from the sale of non-core business units.

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Sales by Product Line

The Furniture and Cabinets segment produces and sells a variety of similar products and services. Net sales to external customers by product line within the Furniture and Cabinets segment were as follows:

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2006	2005	2006	2005
(Amounts in Thousands)
Net Sales:
Furniture and Cabinets
Branded Furniture	$140,946	$122,991	$425,345	$380,654
Contract Private Label Products	15,954	23,862	60,117	77,083
Total	$156,900	$146,853	$485,462	$457,737

Note 5. Restructuring Expense

As a result of excess capacity in North America, in February 2006 the Company approved a restructuring plan within the Electronic Contract Assemblies segment to exit a manufacturing facility located in Northern Indiana.  As part of this restructuring plan, the production for select programs will be transferred to other locations within this segment.  Operations at this facility are scheduled to cease in the Company's first quarter of fiscal year 2007.  The Company estimates total pre-tax restructuring charges related to this plan will be approximately $1.6 million, consisting of $0.7 million of employee severance cost, asset impairment of $0.1 million, acceleration of software amortization of $0.4 million, and other restructuring costs of $0.4 million. 

During the first quarter of fiscal year 2006, the Company announced a plan to sharpen its focus on primary markets within the Furniture and Cabinets segment.  Actions under the plan include consolidation of administrative, marketing and business development functions to better serve the segment's primary markets.  To simplify and standardize business processes, a portion of the Company's Enterprise Resource Planning (ERP) software is being redesigned during approximately the next three years, and accelerated amortization, employee severance and other consolidation costs will be recognized during this period.  During the first quarter of fiscal year 2006, capitalized software costs related to the ERP software that was not yet placed in service were abandoned and recognized as impaired.  Restructuring charges related to ERP software impairment, accelerated amortization and employee severance are recorded on the Restructuring Expense line item of the Company's Condensed Consolidated Statements of Income.  The plan also included the sale of a forest products hardwood lumber business and a business unit which produced fixed-wall furniture systems.  Losses on the sale of these business units are presented on the Discontinued Operations line item on the Company's Condensed Consolidated Statements of Income.  See Note 8-Discontinued Operations of Notes to Condensed Consolidated Financial Statements for further discussion of these discontinued operations.  The Company estimates total pre-tax charges under the plan to be approximately $17.8 million, including a loss on the sale of business operations of $10.3 million which was recorded as discontinued operations, and restructuring charges for software impairment of $3.5 million, acceleration of software amortization of $2.3 million, employee severance costs of $1.2 million, and fixed asset impairment and other restructuring costs of $0.5 million.

During the fourth quarter of fiscal year 2005, the Company announced a plan to consolidate its Mexican contract furniture and cabinets operations into one facility located in Juarez, Mexico, resulting in the closure of its manufacturing facility in Mexicali, Mexico.  The plan includes lease charges, severance and other employee costs, equipment relocation costs, asset impairment and other miscellaneous consolidation costs.  The Company's total pre-tax restructuring charges under the plan are expected to approximate $4.4 million.  Activities outlined in this restructuring plan which began in the fourth quarter of fiscal year 2005 are substantially complete and will be finalized during the fourth quarter of this fiscal year.

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During the second quarter of fiscal year 2003, the Company announced incremental cost scaling actions to more closely align its operating capacities and capabilities with reduced demand levels related to the prolonged nature of the global economic slowdown in many of the Company's markets and the resulting continuation of underutilized manufacturing capacity. The actions included the consolidation of capabilities and operations, selling and/or exiting redundant facilities, aligning personnel costs and adjusting associated assets to their current fair values.  Activities outlined in this restructuring plan began in the second quarter of fiscal year 2003 and were completed in the first quarter of fiscal year 2005. 

The Company accounts for restructuring costs in accordance with Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  The Company utilizes available market prices and management estimates to determine the fair value of impaired fixed assets.  Restructuring charges are included in the Restructuring Expense line item on the Company's Condensed Consolidated Statements of Income.

Fiscal Year 2006 Charges

As a result of the fiscal year 2005 and 2006 restructuring plans, the Company recognized consolidated pre-tax restructuring expense of $1.1 million and $8.5 million in the three and nine months ended March 31, 2006, respectively.  Within the Furniture and Cabinets segment, the Company recognized pre-tax restructuring expense of $0.7 million and $8.1 million in the three and nine months ended March 31, 2006, respectively.  Included in the restructuring charge for the three and nine months ended March 31, 2006, respectively, was $0.1 million and $1.1 million for employee transition costs, $0.2 million and $5.2 million for asset impairment and $0.4 million and $1.8 million for plant closures and other costs.  Within the Electronic Contract Assemblies segment, the Company recognized pre-tax restructuring expense of $0.4 million for both the three and nine-month periods ended March 31, 2006, each of which included restructuring charges of $0.1 million for asset impairment, $0.1 million for accelerated software amortization and $0.2 million for employee transition costs. 

Fiscal Year 2005 Charges

As a result of the fiscal year 2003 restructuring plan, the Company recognized consolidated pre-tax restructuring expense of $0.0 and $0.3 million in the three and nine months ended March 31, 2005, respectively, primarily within the Furniture and Cabinets segment. Included in the restructuring charge was $0.1 million for asset impairment and $0.2 million for plant closure and other exit costs.

Reserves

At March 31, 2006, a total of $0.3 million of restructuring liabilities related to the fiscal year 2005 and 2006 restructuring plans remained on the Condensed Consolidated Balance Sheet as shown below.  The restructuring charge, utilization and cash paid, and ending reserve balances at March 31, 2006 were as follows:

	Transition and Other Employee Costs	Asset Impairment	Plant Closure and Other Exit Costs	Total
(Amounts in Thousands)
Accrued Restructuring at June 30, 2005	$     53	$     --	$    --	$     53
Amounts Charged - Cash	1,266	--	1,786	3,052
Amounts Charged - Non-Cash	--	5,423	--	5,423
Subtotal	1,266	5,423	1,786	8,475
Amounts Utilized / Cash Paid	(1,143)	(5,423)	(1,682)	(8,248)
Amounts Adjusted	--	--	--	--
Accrued Restructuring at March 31, 2006	$   176	$     --	$  104	$  280

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In total, the Company has recognized pre-tax restructuring charges of $4.6 million and pre-tax losses on sales of discontinued operations of $10.3 million related to the restructuring plans announced in fiscal year 2006 and pre-tax charges of $4.0 million related to the restructuring plan announced in fiscal year 2005.  The $4.6 million charge in fiscal year 2006 included $4.2 million within the Furniture and Cabinet segment, and $0.4 million within the Electronic Contract Assemblies segment.

Note 6. Guarantees and Product Warranties

As of March 31, 2006, the Company had guarantees issued which are contingent on the future performance of another entity. The guarantees include customer lease financing with recourse whereby the Company may become liable to a third party leasing company if the customer defaults on its lease, guarantees of third party dealer facility leases and bank loans whereby the Company may become liable if the dealer defaults on a lease or bank loan, and guarantees associated with subleases whereby the Company may be responsible for lease commitments if the sublessee defaults. At the inception of a guarantee, the Company recognizes a liability for obligations the Company may incur if specified triggering events or conditions occur. The liability is recorded at fair value which is estimated based on various factors including risk that the Company may have to perform under a guarantee, and ability to recover against payments made on a guarantee. The maximum potential liability and carrying amount recorded for these guarantees is immaterial to the Company's financial position.

The Company estimates product warranty liability at the time of sale based on historical repair cost trends in conjunction with the length of the warranty offered. Management may refine the warranty liability in cases where specific warranty issues become known.

Changes in the product warranty accrual for the nine months ended March 31, 2006 and 2005 were as follows:

	Nine Months Ended March 31,
(Amounts in Thousands)	2006	2005
Product Warranty Liability at the beginning of the period	$ 3,653	$ 3,578
Accrual for warranties issued	562	1,246
Accruals (reductions) related to pre-existing warranties (including changes in estimates)	(598)	567
Settlements made (in cash or in kind)	(1,322)	(1,050)
Product Warranty Liability at the end of the period	$ 2,295	$ 4,341

Note 7. Stock Compensation Plans

On August 19, 2003, the Board of Directors adopted the 2003 Stock Option and Incentive Plan (the "2003 Plan"), which was approved by the Company's Share Owners on October 21, 2003.  Under the 2003 Plan, 2,500,000 shares of Common Stock were reserved for restricted stock, restricted share units, unrestricted share grants, incentive stock options, nonqualified stock options, performance shares, performance units and stock appreciation rights for grant to officers and other key employees of the Company, and to members of the Board of Directors who are not employees.  The 2003 Plan is a 10 year plan.  The Company also has stock options outstanding under two former stock incentive plans, which are described below.  The pre-tax compensation cost that was charged against income for all of the plans was $0.8 million and $2.5 million for the three and nine months ended March 31, 2006, respectively.  The total income tax benefit recognized in the income statement for stock compensation arrangements was $0.3 million and $1.0 million for the three and nine months ended March 31, 2006, respectively.  These compensation expense and tax benefit amounts exclude the impact of the Cumulative Effect of a Change in Accounting Principle, as described in Note 1-Summany of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements.  The Company generally uses treasury shares to satisfy option exercises and share unit conversions.

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Performance Shares

The Company awards performance shares to officers and other key employees under the 2003 Plan.  Under these awards, a number of shares will be granted to each participant based upon the attainment of the applicable bonus percentage calculated under the Company's profit sharing incentive bonus plan as applied to a total potential share award made and approved by the Compensation Committee. Performance shares vest at the end of the fiscal year in which the performance measurement period is complete and are issued as Class A and Class B common shares shortly after vesting.  Certain outstanding performance shares are applicable to performance measurement periods in future fiscal years.  The contractual life of performance shares ranges from one to five years.  If a participant is not employed by the Company on the date of issuance, the performance share award is forfeited, except in the case of death, retirement at age 62 or older, total permanent disability, or, effective May 1, 2006, certain other circumstances described in the Company's employment policy.  A portion of a participant's performance shares may be forfeited due to a change in eligibility. 

A summary of performance share activity under the 2003 Plan during the nine months ended March 31, 2006 is presented below:

	Number of Shares	Weighted Average Grant Date Fair Value
Performance shares outstanding at July 1, 2005	--	$      --
Granted	509,184	12.22
Vested	--	--
Forfeited	(35,615)	12.24
Performance shares outstanding at March 31, 2006	473,569	$12.22

As of March 31, 2006, there was approximately $3.6 million of unrecognized compensation cost related to performance shares, based on the latest estimated attainment of performance goals.  That cost is expected to be recognized over a weighted-average period of 3.9 years.  No performance shares vested during the three and nine months ended March 31, 2006.  The fair value of performance shares is based on the stock price at the date of award, reduced by the present value of dividends normally paid over the vesting period which are not payable on outstanding performance share awards.

Restricted Share Units

Nonvested Restricted Share Units (RSU) awarded to officers and other key employees are currently outstanding under the 2003 Plan. RSUs vest five years after the date of award.  Upon vesting, the outstanding number of RSUs and the value of dividends accumulated over the vesting period are converted to shares of Class A and Class B common stock.  If the employment of a holder of an RSU terminates before the RSU has vested for any reason other than death, retirement at age 62 or older, total permanent disability, or, effective May 1, 2006, certain other circumstances described in the Company's employment policy, the RSU will be forfeited. If employment terminates due to one of those reasons, the RSU will become fully vested and payable.

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A summary of RSU activity under the 2003 Plan during the nine months ended March 31, 2006 is presented below:

	Number of Share Units	Weighted Average Grant Date Fair Value
Restricted Share Units outstanding at July 1, 2005	614,375	$15.77
Granted	--	--
Vested	--	--
Forfeited	(64,300)	15.85
Restricted Share Units outstanding at March 31, 2006	550,075	$15.76

As of March 31, 2006, there was approximately $4.0 million of unrecognized compensation cost related to nonvested RSU compensation arrangements awarded under the 2003 Plan.  That cost is expected to be recognized over a weighted-average period of 3.3 years.  No RSUs vested during the three and nine months ended March 31, 2006.  The fair value of RSU awards is based on the stock price at the date of award.

Unrestricted Share Grants

Under the 2003 Plan, unrestricted shares may be granted to participants as consideration for service to the Company.  Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale or other restrictions.  The fair value of unrestricted shares is based on the stock price at the date of the award.  During both the three and nine months ended March 31, 2006, the Company granted a total of 18,501 unrestricted shares of Class B common stock at an average grant date fair value of $11.22.  These shares were issued to members of the Board of Directors as compensation for director's fees, as a result of directors' elections to receive unrestricted shares in lieu of cash payment.

Stock Options

The Company has stock options outstanding under two former stock incentive plans.  The 1996 Stock Incentive Program, which was approved by the Company's Share Owners on October 22, 1996, allowed the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, and performance share awards to officers and other key employees of the Company, and to members of the Board of Directors who are not employees.  The 1996 Stock Incentive Program will continue to have options outstanding through fiscal year 2013.  The 1996 Directors' Stock Compensation and Option Plan, available to all members of the Board of Directors, was approved by the Company's Share Owners on October 22, 1996.  Under terms of that plan, Directors electing to receive all, or a portion, of their fees in the form of Company stock were also granted a number of stock options equal to 50% of the number of shares received for compensation of fees. The Directors' Stock Compensation and Option Plan will continue to have options outstanding through fiscal year 2009.  No shares remain available for new grants under the Company's prior stock option plans.

There were no stock option grants awarded or exercised during the three and nine months ended March 31, 2006.  The fair value of each outstanding option award was estimated on the date of grant using a Black Scholes valuation model.  Assumptions used in the model for the prior year grants are described in the Company's Annual Report on Form 10-K for the year ended June 30, 2005.  Options granted under the plans generally are exercisable from six months to five years after the date of grant and expire five to ten years after the date of grant.  Stock options are forfeited when employment terminates, except in the case of retirement at age 62 or older, death, permanent disability, or, effective May 1, 2006, certain other circumstances described in the Company's employment policy.

The Company also has an immaterial number of stock appreciation rights outstanding under the former 1996 Stock Incentive Program.  As valued by the Black Scholes valuation model, these awards had no value as of March 31, 2006.

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A summary of stock option activity under the two former plans during the nine months ended March 31, 2006 is presented below:

	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value  (in thousands)
Options outstanding at July 1, 2005	2,317,400	$15.84
Granted	--	--
Exercised	--	--
Forfeited	(246,852)	15.74
Expired	(256,573)	16.37
Options outstanding at March 31, 2006	1,813,975	$15.79	5.2 years	$32
Options exercisable at March 31, 2006	1,206,731	$16.14	4.5 years	$32

Note 8. Discontinued Operations

On September 15, 2005, in conjunction with its restructuring plan to sharpen its focus on primary markets within the Furniture and Cabinets segment, the Company approved plans to sell the operations of a forest products hardwood lumber business and a business which produced and sold fixed-wall furniture systems and will no longer have continuing involvement in these businesses.  Additionally on November 8, 2005, the Company approved a plan to exit a non-core business that manufactures polyurethane and polyester molded components for use in the recreational vehicle, signage and residential furniture industries. 

On October 14, 2005, the Company completed the sale of the fixed-wall furniture systems business, which included primarily the sale of property and equipment, inventory, accounts receivable and product rights.  The purchase price totaled $1.2 million, of which $0.3 million was received at closing and $0.9 million was a note receivable.  The note receivable has been collected, with the exception of a small escrow not yet due.  The sale resulted in a net loss of $1.4 million, which was recorded as a $1.3 million estimated impairment loss in discontinued operations during the first quarter ended September 30, 2005, and was subsequently increased by $0.1 million when the sale was completed.  The loss on disposal of the fixed-wall furniture business included an after-tax goodwill impairment loss, in thousands, of $261 recognized in the Furniture and Cabinet segment during the quarter ended September 30, 2005.  The goodwill impairment loss was based upon the cessation of cash flows related to the fixed-wall furniture systems business.  The Company's balance of goodwill related to continuing operations, in thousands, as of March 31, 2006 was $1,733 compared to $2,166 as of June 30, 2005.  The Company will not have significant continuing cash flows or continuing involvement with this business.

On November 30, 2005, the Company completed the sale of the forest products hardwood lumber business to Indiana Hardwoods, Inc., which included primarily the sale of property and equipment, inventory, accounts receivable and timber assets.  The president and owner of Indiana Hardwoods, Inc. is Barry L. Cook, who was formerly employed by the Company as a Vice President of Kimball International, Inc. and had responsibility for this hardwoods lumber operation.  The transaction prices were negotiated between the Company and Indiana Hardwoods, Inc.  The Company also considered offers from other interested outside parties, but ultimately determined that it was in the Company's best interest financially to sell this operation to Indiana Hardwoods, Inc.  The purchase price totaled $25.5 million, of which $23.5 million was received at closing and $2.0 million is a note receivable.  The terms of the note receivable require monthly payments of interest for a three-year period, with the principal coming due after the three-year period.  The note is subordinate to the purchaser's bank loan.  If the purchaser is not in compliance with bank loan covenants or does not maintain sufficient cash flows, the principal payment on the note receivable may be delayed beyond three years.  The note may represent a concentration of credit risk.  The Company maintains a provision for potential credit losses based on expected collectibility of the note, which the Company believes is adequate.  The sale resulted in a net loss of $4.8 million, which was recorded as a $5.1 million estimated impairment loss in discontinued operations during the first quarter ended September 30, 2005, and was reduced by $0.3 million during the second quarter ended December 31, 2005 when the sale was completed.  The Company has no ongoing commitments resulting from the sales agreement.

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On January 20, 2006, the Company completed the sale of a non-core business that manufactures polyurethane and polyester molded components for use in the recreational vehicle, signage and residential furniture industries, which included primarily the sale of inventories and machinery and equipment.  The purchase price totaled $0.6 million.  The sale resulted in a net loss of $0.7 million, which was recorded as a $1.1 million estimated impairment loss in discontinued operations during the second quarter ended December 31, 2005, and was decreased by $0.4 million during the third quarter ended March 31, 2006 when the sale was completed.  The Company will not have significant continuing cash flows or continuing involvement with this business.

On January 17, 2005, the Company announced its decision to exit the branded residential furniture business, which was part of the branded furniture product line within the Furniture and Cabinets segment.  The exit plan included discontinuing procurement of branded residential furniture, ending marketing and dealer activities, and selling remaining inventories.  The branded residential furniture operation had no long-lived assets, and all branded residential furniture inventory has been sold.

On October 12, 2004, the Company announced a plan to exit its veneer slicing operation, which was part of the forest products product line within the Furniture and Cabinets segment.  The plan included the sale of veneer slicing machinery, equipment and remaining veneer inventories.  During the quarter ended December 31, 2004, veneer slicing and warehousing operations ceased and all inventory and assets were sold in fiscal year 2005.

In accordance with FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, these businesses have been classified as discontinued operations, and their operating results and gains (losses) on disposal are presented on the Gain (Loss) from Discontinued Operations, Net of Tax line of the Condensed Consolidated Statements of Income. 

Operating results and gains (losses) on sales of discontinued operations were as follows:

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
(Amounts in Thousands)	2006	2005	2006	2005
Net Sales of Discontinued Operations	$        459	$   21,772	$     29,078	$   75,394
Operating Income (Loss) of Discontinued Operations	$        361	$   (2,952)	$       (101)	$   (7,381)
Benefit (Provision) for Income Taxes	(144)	1,174	68	2,951
Income (Loss) from Operations of Discontinued Operations, Net of Tax	$        217	$   (1,778)	$         (33)	$  (4,430)
Gain (Loss) on Disposal of Discontinued Operations	$        726	$           0	$  (11,495)	$       520
Benefit (Provision) for Income Taxes	(289)	0	4,584	(207)
Gain (Loss) on Disposal of Discontinued Operations, Net of Tax	$        437	$           0	$    (6,911)	$       313
Gain (Loss) from Discontinued Operations, Net of Tax	$        654	$  (1,778)	$    (6,944)	$    (4,117)

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Note 9.  Assets Held for Sale

At March 31, 2006, two assets totaling $9,461, in thousands, were classified as held for sale. The assets held for sale consist of property and equipment held as corporate assets, including an idle manufacturing facility and an aircraft. 

Note 10. Subsequent Event

On April 3, 2006, the Company entered into an asset purchase agreement for the acquisition of the Bridgend, Wales, UK manufacturing operations of Bayer Diagnostics Manufacturing Limited ("BDML") and its parent company, Bayer Healthcare, LLC, a member of the worldwide group of companies headed by Bayer AG. The closing of the purchase was effective April 3, 2006. The operating results of BDML will be included in the Company's consolidated financial statements beginning on the acquisition date.

The acquisition will be included in the Company's Electronic Contract Assemblies segment and will enable the Company to capitalize on growth opportunities in the medical market within this segment. The BDML workforce and their capabilities will add to the Company's package of value that is offered to its medical customers and is a step in the Company's strategy to diversify its markets.

The Company agreed to pay BDML a sum of $25.2 million (14.4 million GBP). The purchase price will be adjusted, in the period not to exceed 120 days, by the difference in aggregate net book value of the machinery, equipment and inventory on March 31, 2006 and $25.2 million (14.4 million GBP).  Preliminarily the purchase price adjustment is estimated to be an additional $6 million to $8 million.  Direct costs of the acquisition totaled $0.3 million as of March 31, 2006.

The following table summarizes the assets acquired at the date of the BDML acquisition. The building and land were not part of the assets acquired. The Company will lease a portion of the facility from a third party. Liabilities prior to April 3, 2006 were excluded from the acquisition. While not part of the liabilities of BDML, certain liabilities that meet the criteria for recognition under EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination, will be recognized and included in the allocation of the purchase price. The purchase price allocation will not be final until additional information is obtained and therefore the table below includes only the initial amount agreed to and the direct acquisition costs.

(Amounts in millions)	April 3, 2006
Inventory	$22.4
Property and equipment	2.5
Goodwill	2.2
Total assets acquired	27.1
Current liabilities	1.6
Net assets acquired	$25.5

For tax purposes, the initial amount of goodwill that will be recognized will be approximately $0.3 million and will be fully deductible. The difference between book and tax goodwill is due to the liabilities recognized for book purposes under EITF 95-3 mentioned above and acquisition costs that are not part of the purchase price allocation for tax purposes. The entire amount of goodwill will be allocated to the Electronic Contract Assemblies segment of the Company.

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

BUSINESS OVERVIEW

Kimball International, Inc. provides a variety of products from its two business segments: the Furniture and Cabinets segment and the Electronic Contract Assemblies segment. The Furniture and Cabinets segment provides furniture for the office and hospitality industries, sold under the Company's family of brand names. The Furniture and Cabinets segment also provides engineering and manufacturing services which utilize common production and support capabilities on a contract basis to customers primarily in the residential furniture and cabinets industry. The Electronic Contract Assemblies segment provides engineering and manufacturing services which utilize common production and support capabilities to a variety of industries globally.

Management currently considers the following events, trends and uncertainties to be most important to understanding its financial condition and operating performance:

• Globalization continues to reshape not only the industries in which the Company operates but also its key customers.

• Competitive pricing continues to put pressure on the Company's operating margins, especially for suppliers of electronic contract assemblies to customers in the automotive industry. Within the Furniture and Cabinets segment, pricing remains competitive on select projects.

• While the Company has seen recent improvement in its gross margin, results continue to be hindered by manufacturing inefficiencies at select operations.

• Growth in the office furniture industry continues according to the Business and Institutional Furniture Manufacturer's Association (BIFMA International).

• The nature of the contract electronics manufacturing industry is such that the start-up of new programs to replace departing customers or expiring programs occurs frequently and the new programs often carry lower margins. The success of the Company's Electronic Contract Assemblies segment is dependent on the successful replacement of such customers or programs. Such changes usually occur gradually over time as old programs phase out of production while newer programs ramp up.

• Some of the electronic component parts produced by the Company are used in completed assemblies in vehicles produced by U.S. automotive manufacturers. Some of these U.S. automotive companies have recently announced restructuring activities.

• The Company's net cash position from an aggregate of cash, cash equivalents, and short-term investments, less short-term borrowings totaled $162 million at March 31, 2006, and the Company continued to generate positive operating cash flow in the first nine months of fiscal year 2006.

• The increasingly competitive marketplace mandates that the Company continually re-evaluate its business models.

• The regulatory and business environment for U.S. public companies requires that the Company continually evaluate and enhance its practices in the areas of corporate governance and management practices.

• The Company's employees throughout its business operations are an integral part of the Company's ability to compete successfully, and the stability of its management team is critical to long-term share owner value.

To address these and other trends and events, the Company has taken, or continues to consider and take, the following actions or issues:

• As end markets dictate, the Company is continually assessing excess capacity and developing plans to better utilize manufacturing operations, including shifting manufacturing capacity to lower cost venues as necessary.

• As part of its previously announced plan to sharpen the focus of the Furniture and Cabinets segment to its primary markets, during the second quarter of fiscal year 2006, the Company sold a forest products hardwood lumber business unit and a business unit which produced and sold fixed-wall furniture systems. The Company also sold during the third quarter of fiscal year 2006 an operation that manufactures polyurethane and polyester molded components for use in the recreational vehicle, signage and residential furniture industries.

• As part of a restructuring plan announced in September 2005, the business processes within the Furniture and Cabinets segment are being simplified and standardized and business functions are being consolidated. The Company expects to make additional capital expenditures and incur incremental consolidation costs before fully realizing the additional benefits.

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• The Company continues to evaluate the most effective uses of the excess cash that its operations continue to generate, including acquisition opportunities and other uses.

• The Company has taken a number of steps to conform its corporate governance to evolving national and industry-wide best practices among U.S. public companies, not only to comply with new legal requirements, but also to enhance the decision-making process of the Board of Directors.

• The Company continues to evaluate means to preserve the value of its experienced employees and management team and further align their interests with those of the shareholders.

• As part of the Company's diversification plan for the Electronic Contract Assemblies segment, subsequent to the current quarter on April 3, 2006 the Company acquired the Bridgend, Wales, UK manufacturing operation of Bayer Diagnostics Manufacturing Limited. The Company expects the acquisition to enable the Electronics Contract Assemblies segment to capitalize on growth opportunities in the medical market. See Note 10 - Subsequent Event of Notes to Condensed Consolidated Financial Statements for more information.

The preceding statements could be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties including, but not limited to, a significant change in economic conditions, loss of key customers or suppliers, or similar unforeseen events.

Restructuring

During the current year third quarter, the Company approved a restructuring plan within the Electronic Contract Assemblies segment to exit a manufacturing facility located in Northern Indiana.  As part of this restructuring plan, the production for select programs will be transferred to other locations within this segment.  Operations at this facility are scheduled to cease in the Company's first quarter of fiscal year 2007. The plan includes employee transition costs, asset impairment costs, accelerated software amortization costs and other exit costs.  The decision to exit this facility was a result of excess capacity in North America.

During the first quarter of fiscal year 2006, the Company announced a restructuring plan to sharpen its focus on primary markets within the Furniture and Cabinets segment. Administrative, marketing and business development functions are being consolidated to better serve the segment's primary markets. To simplify and standardize business processes, a portion of the Company's Enterprise Resource Planning (ERP) software is being redesigned during approximately the next three years, and anticipated expenses include accelerated amortization, employee severance and other consolidation costs.

During the fourth quarter of fiscal year 2005, the Company announced a restructuring plan to consolidate its Mexican furniture and cabinets operations into one facility located in Juarez, Mexico resulting in the closure of its manufacturing facility in Mexicali, Mexico. The plan includes lease charges, severance and other employee costs, equipment relocation costs, asset impairment and other miscellaneous consolidation costs. The decision to consolidate the operations was a result of excess capacity. The consolidation and exit activities are substantially complete and final facility clean up costs will wrap up in the fourth quarter of this fiscal year.

During the second quarter of fiscal year 2003, the Company's Board of Directors approved a restructuring plan comprised of incremental cost scaling actions to more closely align the Company's operating capacities and capabilities with reduced demand levels related to the prolonged nature of the global economic slowdown in many of the Company's markets and the resulting continuation of underutilized manufacturing capacity within both of the Company's segments. The Company has successfully executed these restructuring activities, and the final restructuring expenses pursuant to this plan were recorded in the first quarter of fiscal year 2005.

The restructuring plans and associated costs are discussed in further detail in Note 5 - Restructuring Expense of Notes to Condensed Consolidated Financial Statements.

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Discontinued Operations

During the first quarter of fiscal year 2006, the Company committed to plans to sell a forest products hardwood lumber business unit and a business unit which produced and sold fixed-wall furniture systems. Both business units were part of the Furniture and Cabinets segment, and both sales were completed during the current fiscal year second quarter. During the second quarter of fiscal year 2006, the Company also committed to a plan to sell an operation that manufactures polyurethane and polyester molded components for use in the recreational vehicle, signage and residential furniture industries. This business unit was part of the Furniture and Cabinets segment, and the sale was completed during the current fiscal year third quarter. During fiscal year 2005, the Company exited the branded residential furniture business which was part of the branded furniture product line within the Furniture and Cabinets segment. Also during fiscal year 2005, the Company exited a veneer slicing operation. The cessation of these non-core operations does not impact any of the remaining operations of the Company. The results of the above mentioned operations are reported as discontinued operations in the Company's Condensed Consolidated Financial Statements and all prior periods have been restated.

(See Note 8 - Discontinued Operations of Notes to Condensed Consolidated Financial Statements for more information on the discontinued operations.)

Financial results of the discontinued operations were as follows:

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
(Amounts in Thousands, Except for Per Share Data)	2006	2005	2006	2005
Net Sales of Discontinued Operations	$        459	$    21,772	$   29,078	$   75,394
Operating Income (Loss) of Discontinued Operations, Net of Tax	$        217	$    (1,778)	$        (33)	$   (4,430)
Gain (Loss) on Disposal of Discontinued Operations, Net of Tax	437	--	(6,911)	313
Gain (Loss) from Discontinued Operations, Net of Tax	$       654	$    (1,778)	$   (6,944)	$   (4,117)
Earnings (Loss) from Discontinued Operations per Class B Diluted Share	$ 0.02	$ (0.04)	$ (0.19)	$ (0.10)

Related Party Disclosure

During the second quarter of this fiscal year, the Company's forest products hardwood lumber operation which has been accounted for as a discontinued operation was sold to Indiana Hardwoods, Inc. Barry L. Cook, President of Indiana Hardwoods, Inc. was formerly employed by the Company as a Vice President of Kimball International, Inc. and had responsibility for this hardwoods lumber operation. The transaction prices were negotiated between the Company and Indiana Hardwoods, Inc. The Company also considered offers from other interested outside parties, but determined that it was in the Company's best interest financially to sell this operation to Indiana Hardwoods, Inc. The purchase price totaled $25.5 million, of which $23.5 million was collected at closing and $2.0 million is a note receivable. The Company has no ongoing commitments resulting from the sales agreement.

Adoption of FASB Statement No. 123(R), Share-Based Payment

The Company maintains a stock-based employee compensation plan. Prior to fiscal year 2006, the Company accounted for the plan under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations (APB 25). Accordingly, because all stock options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant, no expense related to employee stock options was recognized in income. However, expense related to other share-based awards such as restricted share units (RSUs) and performance shares had been recognized in the income statement under APB 25. Effective July 1, 2005, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (FAS 123(R)). Under the modified prospective method of adoption selected by the Company, compensation expense related to stock options is recognized beginning in fiscal year 2006, but compensation cost in fiscal year 2005 related to stock options continues to be disclosed on a pro forma basis only in Note 1-Summary of Significant Accounting Policies of Notes to Condensed Consolidated Financial Statements. Results for prior years have not been restated.

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After-tax stock option expense recognized during the three and nine-month periods ended March 31, 2006 totaled, in thousands, $11 and $136, respectively. The Company estimates after-tax expense for previously issued stock options will be, in thousands, approximately $100 for the remainder of fiscal year 2006, $300 for fiscal year 2007, and $100 for fiscal year 2008, assuming a constant estimated forfeiture rate.

As of March 31, 2006, there was approximately $3.6 million of unrecognized compensation cost related to performance shares, based on the latest estimated attainment of performance goals. That cost is expected to be recognized over a weighted-average period of 3.9 years. As of March 31, 2006, there was approximately $4.0 million of unrecognized compensation cost related to nonvested RSU compensation arrangements awarded under the Plan. That cost is expected to be recognized over a weighted-average period of 3.3 years.

FAS 123(R) requires that forfeitures be estimated over the vesting period of an award, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs. FAS 123(R) also requires that liability awards be revalued to fair value, which, upon the adoption of FAS 123(R), had the effect of a reduction of a liability for outstanding stock appreciation rights. The impact of the revaluation of the stock appreciation rights and the use of the estimated forfeiture method for prior periods has been presented on the Condensed Consolidated Statements of Income as a Cumulative Effect of a Change in Accounting Principle, as required by FAS 123(R). The cumulative effect totaled $0.3 million of income, net of taxes, and was recognized in the first quarter of the current fiscal year.

During the current fiscal year, the Company shifted from issuing RSUs, which vest based solely on the passage of time, as a management retention vehicle, to awards of performance shares. The Company has not awarded stock options since fiscal year 2004.

(See Note 7 - Stock Compensation Plans of Notes to Condensed Consolidated Financial Statements for more information.)

The following discussions are based on income from continuing operations and therefore exclude all income statement activity of the discontinued operations and the cumulative effect of the accounting change.

Financial Overview - Consolidated

Third quarter fiscal year 2006 net sales of $268.0 million increased 4% from fiscal year 2005 third quarter net sales of $258.5 million due to a net sales increase within the Furniture and Cabinets segment as net sales within the Electronic Contract Assemblies segment approximated fiscal year 2005 third quarter net sales. Third quarter fiscal year 2006 consolidated income from continuing operations was $6.6 million, or $0.17 per Class B diluted share, and includes $0.7 million, or $0.02 per Class B diluted share, of after-tax restructuring costs. Restructuring charges were recorded in both segments and included facility consolidation costs, accelerated ERP software amortization costs and employee transition costs. The prior fiscal year third quarter consolidated income from continuing operations was $3.1 million, or $0.08 per Class B diluted share.

Net sales for the nine-month period ended March 31, 2006 of $809.4 million were up 2% from the same period of the prior year as a net sales increase in the Furniture and Cabinets segment was greater than the net sales decrease in the Electronic Contract Assemblies segment. Current fiscal year-to-date income from continuing operations for the period ended March 31, 2006 totaled $11.6 million, or $0.31 per Class B diluted share, inclusive of $5.3 million, or $0.14 per Class B diluted share, of after-tax restructuring costs. These restructuring charges were mostly within the Furniture and Cabinets segment and primarily relate to exit costs to consolidate two Mexican furniture manufacturing operations into one location as well as impairment and accelerated amortization of integrated ERP software related to consolidation of various business functions. Income from continuing operations for the year-to-date period ended March 31, 2005 totaled $16.6 million, or $0.43 per Class B diluted share, inclusive of $0.2 million, or $0.01 per Class B diluted share, of after-tax restructuring costs.

The Company experienced an improvement in consolidated gross margin as a percent of sales for the third quarter and year-to-date period of fiscal year 2006 when compared to the prior fiscal year same periods. When compared to the prior fiscal year third quarter, gross margin improvements within the Furniture and Cabinets segment were only partially offset by a decline within the Electronic Contract Assemblies segment. Consolidated Selling, General and Administrative (SG&A) expenses increased in both absolute dollars and as a percent of net sales from the prior fiscal year third quarter as lower selling and administrative costs were offset by higher incentive compensation costs. SG&A expenses increased in absolute dollars but remained flat as a percent of net sales from the prior fiscal year-to-date period. Third quarter fiscal year 2006 consolidated other income of $2.8 million was higher than the prior year third quarter other income of $1.2 million primarily due to higher investment and interest income.  Current fiscal year-to-date other income of $6.3 million was lower than the prior fiscal year-to-date other income of $6.5 million. 

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The effective income tax rate for the three and nine-month periods ended March 31, 2006 increased from the same periods of the prior fiscal year primarily due to a greater portion of current year consolidated income generated by domestic operations which have a higher effective tax rate than the Company's foreign facilities. In addition, the prior year quarter effective income tax rate was lower as the Company recorded an overall income tax benefit as a result of various tax benefits coupled with the Company's lower profit before income tax base.

The Company changed its classification of gains and losses on sales of property and equipment, previously shown in non-operating income, to selling, general and administrative expense for each of the periods presented in the accompanying Condensed Consolidated Statements of Income. Amounts reclassified in the three and nine-month periods ended March 31, 2005 were gains of, in millions, $0.2 and $0.7, respectively. In the three and nine months ended March 31, 2006, the Company recognized, in millions, $0.1 and $1.2, respectively, of gains on the sale of property and equipment as selling, general and administrative expense.

Comparing the balances as of March 31, 2006 to June 30, 2005, the decline in the Company's property and equipment net of accumulated depreciation was primarily related to the sale of discontinued operations and the reclassification of other property and equipment to assets held for sale. The decline in capitalized software net of accumulated amortization was affected by the impairment of integrated ERP software in the first quarter and normal amortization. The decline in the deferred income taxes and other line on the Condensed Consolidated Balance Sheets was primarily due to changes in deferred taxes related to the reclassification of certain property and equipment to assets held for sale, the accelerated depreciation and asset impairment related to the discontinued operation and restructuring activities, and the impact of temporary differences between the financial statement carrying amount and tax base of other fixed assets.

Results of Operations by Segment - Three and Nine Months Ended March 31, 2006 Compared to Three and Nine Months Ended March 31, 2005

Furniture and Cabinets Segment

The Furniture and Cabinets segment provides furniture for a variety of industries, sold under the Company's family of brand names and on a contract basis. The Company's production flexibility allows it to utilize portions of the available production capacity created by lower volumes within these product lines to support and balance increased production schedules of other product lines within this segment.

Third quarter fiscal year 2006 net sales of $156.9 million in the Furniture and Cabinets segment increased 7% when compared to fiscal year 2005 third quarter net sales of $146.9 million due to higher net sales in the branded furniture product line which more than offset decreased sales of contract private label products. Nine-month net sales for fiscal year 2006 increased 6% when compared to nine-month net sales for fiscal year 2005 as net sales increases in the branded furniture product line more than offset the net sales decrease in the contract private label products. At March 31, 2006, open orders for the Furniture and Cabinets segment increased 3% from open orders at March 31, 2005.

Third quarter fiscal year 2006 net sales of the Company's branded furniture products, which include office and hospitality furniture, totaled $140.9 million as compared to net sales of $123.0 million for the third quarter last fiscal year as sales of both hospitality and office furniture increased. The office furniture net sales increase was driven by both volume and price increases on select office furniture products. The hospitality furniture increase was driven by volume increases of the standard product offerings. Fiscal 2006 year-to-date net sales of branded furniture products increased 12% when compared to nine-month net sales for fiscal year 2005 as sales of both hospitality and office furniture increased. Branded furniture products open orders at March 31, 2006 were 6% higher than March 31, 2005 as both office furniture open orders and hospitality furniture open orders increased.

Net sales of contract private label products decreased 33% and 22%, respectively, in the third quarter and the year-to-date period of fiscal year 2006, compared to the prior year same periods primarily due to lower sales of large-screen projection television cabinets as the market shifts from wood-based rear projection televisions to microdisplay technology. At March 31, 2006, open orders for contract private label products were 18% lower than open orders at March 31, 2005.

Third quarter fiscal year 2006 income from continuing operations in the Furniture and Cabinets segment improved to $4.8 million, which included $0.5 million of after-tax restructuring charges, compared to income from continuing operations of $0.5 million in the third quarter of fiscal year 2005. The current quarter after-tax restructuring charges of $0.5 million related to the consolidation of two Mexican furniture manufacturing operations into one location and accelerated ERP software amortization costs along with employee transition costs resulting from the consolidation of various business functions within this segment. Gross margin as a percent of sales in this segment improved over the prior fiscal year third quarter primarily due to price increases on select branded furniture products, leverage from the higher sales volumes and improved labor efficiencies. Gross margin was somewhat hindered by inefficiencies associated with the facility consolidation activities in Mexico and higher employee benefit costs. Partially offsetting the improvement in margins, SG&A costs increased in absolute dollars but decreased as a percent of sales in the current quarter when compared to last year as incentive compensation costs increased.

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For the nine-month period ended March 31, 2006, the Furniture and Cabinets segment recorded income from continuing operations of $5.8 million, inclusive of after-tax restructuring charges of $5.1 million, an increase from the prior year same period income from continuing operations of $4.4 million, inclusive of after-tax restructuring charges of $0.2 million. The current year-to-date restructuring charges were primarily related to exit costs to consolidate two Mexican furniture manufacturing operations into one location as well as impairment and accelerated amortization of integrated ERP software and employee transition costs related to the consolidation of various business functions.

Risk factors within this segment include, but are not limited to, general economic and market conditions, successful execution of restructuring plans, increased global competition, supply chain cost pressures and relationships with strategic customers and product distributors. Additional risk factors that could have an effect on the Company's performance are contained in the Company's Form 10-K filing for the period ended June 30, 2005.

Electronic Contract Assemblies Segment

Electronic Contract Assemblies segment net sales of $111.1 million for the third quarter of fiscal year 2006 approximated net sales of $111.3 million for the prior fiscal year third quarter. Current fiscal year third quarter electronic contract assembly sales to customers in the automotive and medical industries were lower than the prior fiscal year third quarter, while sales to customers in the industrial controls industry were higher. Net sales for the nine-month period ended March 31, 2006 of $323.7 million decreased 2% from the prior year as higher sales to customers in the industrial controls and medical industries were more than offset by a decline in overall sales to customers in the automotive industry. Within the automotive industry, increased sales to certain customers were more than offset by decreased sales to other customers as certain programs are nearing end of life.

Electronic Contract Assemblies segment third quarter fiscal year 2006 income from continuing operations of $0.9 million, inclusive of after-tax restructuring charges of $0.2 million, declined from the prior fiscal year third quarter income from continuing operations of $1.6 million. Restructuring charges were for the exit of a North American manufacturing facility. Electronic Contract Assemblies segment gross margin as a percent of sales decreased in the third quarter of fiscal year 2006 compared to the prior fiscal year third quarter in part due to a sales mix shift among various products to those with lower margins, manufacturing inefficiencies at one location, costs associated with a supplier component issue and higher employee benefit costs. Lower new product introduction costs in the current quarter partially offset the gross margin decline. The current quarter earnings comparison was positively impacted by lower SG&A costs and a lower effective tax rate as a greater portion of income was generated during the quarter by foreign operations which have a lower effective tax rate than the Company's domestic facilities.

For the nine-month period ended March 31, 2006, this segment recorded income from continuing operations of $2.9 million, which included $0.2 million in after-tax restructuring charges, compared to income from continuing operations of $9.1 million for the nine-month period ended March 31, 2005.

Included in this segment are sales to TRW Automotive, Inc., a full-service automotive supplier, which accounted for the following portions of consolidated net sales and Electronic Contract Assemblies segment net sales:

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2006	2005	2006	2005
As a % of Consolidated Net Sales from Continuing Operations	12%	12%	13%	12%
As a % of Electronic Contract Assemblies Segment Net Sales from Continuing Operations	29%	28%	32%	28%

The year-to-date increased percentages of segment net sales were a result of increased sales to TRW Automotive, Inc. coupled with lower total Electronics segment net sales. The increased TRW Automotive, Inc. sales of certain braking products and electronic power steering products were partially offset by other TRW Automotive, Inc. braking products reaching end of life. TRW Automotive, Inc. sells complete braking assemblies, in part manufactured by the Company, to several major automotive companies, most with multiple braking assembly programs that span multiple vehicle platforms, which partially mitigates the Company's exposure to this customer. The Company also continues to focus on diversification of the Electronic Contract Assemblies segment customer base.

The nature of the contract electronics manufacturing industry is such that the start-up of new customers and new programs to replace expiring programs occurs frequently. New customer and program start-ups generally cause losses early in the life of a program, which are generally recovered as the program matures and becomes established. This segment continues to experience margin pressures related to an overall excess capacity position in the electronics subcontracting services market. New business awards for projects in the automotive industry are extremely competitive.

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Risk factors within this segment include, but are not limited to, general economic and market conditions, increased globalization, competitive pricing, foreign currency exchange rate fluctuations, rapid technological changes, component availability, the contract nature of this industry, and the importance of sales to large customers. The continuing success of this segment is dependent upon its ability to replace expiring customers/programs with new customers/programs. Additional risk factors that could have an effect on the Company's performance are contained in the Company's Form 10-K filing for the period ended June 30, 2005.

Liquidity and Capital Resources

The Company's net cash position from an aggregate of cash, cash equivalents, and short-term investments less short-term borrowings increased from $115 million at June 30, 2005 to $162 million at March 31, 2006.

Working capital at March 31, 2006 was $229 million compared to working capital of $204 million at June 30, 2005. The March 31, 2006 current assets included $9 million of assets held for sale which were previously included in long-term assets. The current ratio was 2.3 at March 31, 2006 and 2.4 at June 30, 2005.

The Company's internal measure of Accounts Receivable performance, also referred to as Days Sales Outstanding (DSO) for fiscal year-to-date 2006 improved to 42.3 from 45.8 for the same period of fiscal year 2005. The Company defines DSO as the average of monthly accounts and short-term notes receivable divided by one day's net sales. The Company's Production Days Supply on Hand (PDSOH) of inventory measure for fiscal year-to-date 2006 decreased to 45.1 from 55.4 for the same period of fiscal year 2005 primarily due to reduced inventory levels associated with the discontinued operations. The Company defines PDSOH as the average of the monthly gross inventory divided by one day's cost of sales.

The Company does not disclose discontinued operations separately from continuing operations in the Condensed Consolidated Statements of Cash Flows. However, for clarity purposes, the Company does separately disclose the adjustment to net income for the gain or loss on disposal of discontinued operations in cash flows from operating activities and the proceeds from disposal of discontinued operations in cash flows from investing activities.

Operating activities generated $56 million of cash flow in the first nine months of fiscal year 2006 which was a slight increase over the same period of fiscal year 2005 of $55 million. The Company is currently building an electronics manufacturing facility in Nanjing, China and expects construction to be complete during the Company's first quarter of fiscal year 2007. The Company reinvested $21 million into capital investments for the future, comprised primarily of manufacturing equipment and expenditures for the China facility. Fiscal year 2006 investing cash flow activities included $25 million in proceeds received from the sale of discontinued operations. Fiscal year 2006 financing cash flow activities included $18 million in dividend payments, which remained flat with the prior year nine months ended March 31, 2005.

The Company's $75 million revolving credit facility allows for both issuances of letters of credit and cash borrowings. At March 31, 2006, the Company had $9.7 million of cash borrowings outstanding under the revolving credit facility related to a portion of the purchase price for the April 3, 2006 acquisition of the Bridgend, Wales, UK manufacturing operation of Bayer Diagnostics Manufacturing Limited as discussed in Note 10 - Subsequent Event of Notes to Condensed Consolidated Financial Statements. The Company utilized a Euro currency borrowing on the revolving credit facility rather than using available cash on hand in order to provide a natural currency hedge against Euro denominated intercompany notes between the US parent and the acquired Euro functional currency subsidiary. Also at March 31, 2006, the Company had $0.4 million of short-term borrowings outstanding under a separate foreign credit facility which is backed by the $75 million revolving credit facility. The Company issued an additional $13.9 million in letters of credit against the revolving credit facility, which reduces total availability to borrow to $51.0 million at March 31, 2006. At June 30, 2005, the Company had $2.2 million of short-term borrowings outstanding.

The $75 million revolving credit facility also provides an option to increase the amount available for borrowing to $125 million at the Company's request, subject to participating banks' consent. The credit facility requires the Company to comply with certain debt covenants including debt-to-total capitalization, interest coverage ratio, minimum net worth, and other terms and conditions. The Company was in compliance with these covenants at March 31, 2006.

The Company believes its principal sources of liquidity from available funds on hand, cash generated from operations and the availability of borrowing under the Company's revolving credit facility will be sufficient in fiscal year 2006 for working capital needs and for funding investments in the Company's future, including potential acquisitions. The Company's primary source of funds is its ability to generate cash from operations to meet its liquidity obligations, which could be affected by factors such as a decline in demand for the Company's products, loss of key contract customers, the ability of the Company to generate profits, and other unforeseen circumstances. The Company's secondary source of funds is its revolving credit facility, which is contingent on complying with certain debt covenants. The Company does not expect the covenants to limit or restrict its ability to borrow on the facility in fiscal year 2006. The Company anticipates maintaining a strong liquidity position for the next 12 months. The Company does not expect the absence of cash flows from discontinued operations to have a material effect on future liquidity and capital resources.

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The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995 where factors could cause actual results to differ materially from forward-looking statements.

Contractual Obligations

Compared to the contractual obligations disclosure in the Company's Form 10-K filing for the period ended June 30, 2005, there have been no material changes to the aggregate contractual obligations of the Company outside the ordinary course of business.

Off-Balance Sheet Arrangements

Other than operating leases entered into in the normal course of business, the Company's off-balance sheet arrangements are limited to guarantees which are contingent on the future performance of another entity. However, these arrangements do not have a material current effect and are not reasonably likely to have a material future effect on the Company's financial condition, results of operations, liquidity, capital expenditures or capital resources. See Note 6 - - Guarantees and Product Warranties of Notes to Condensed Consolidated Financial Statements for more information on guarantees. The Company does not have material exposures to trading activities of non-exchange traded contracts. The preceding statements are forward-looking statements under the Private Securities Litigation Reform Act of 1995, where factors could cause actual results to differ materially from forward-looking statements.

Critical Accounting Policies

The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the use of estimates and assumptions that affect amounts reported and disclosed in the consolidated financial statements and related notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in the assumptions used to value these estimates, which are based on current facts and circumstances, prior experience, and other assumptions that are believed to be reasonable. The Company's management overlays a fundamental philosophy of valuing its assets and liabilities in an appropriately conservative manner. Management believes the following critical accounting policies reflect the more significant judgments and estimates used in preparation of the Company's consolidated financial statements and are the policies that are most critical in the portrayal of the Company's financial position and results of operations. Management has discussed these critical accounting policies and estimates with the Audit Committee of the Company's Board of Directors and with the Company's independent registered public accounting firm.

Revenue recognition - The Company recognizes revenue when title and risk transfer to the customer, which under the terms and conditions of the sale may occur either at the time of shipment or when the product is delivered to the customer. Service revenue is recognized as services are rendered. Shipping and handling fees billed to customers are recorded as sales while the related shipping and handling costs are included in cost of goods sold. Guidelines regarding revenue recognition are strictly adhered to and volatility resulting from estimates or judgment is minimal.

• Allowance for sales returns - At the time revenue is recognized certain provisions may also be recorded, including returns and allowances, which involve estimates based on current discussions with applicable customers, historical experience with a particular customer and/or product, and other relevant factors. As such, these factors may change over time causing the provisions to be adjusted accordingly. At March 31, 2006 and June 30, 2005, the reserve for returns and allowances was $2.5 million and $2.2 million, respectively. Over the past two years, the returns and allowances reserve has been approximately 2% of gross trade receivables.

• Allowance for doubtful accounts - Allowance for doubtful accounts is generally based on a percentage of aged accounts receivable, where the percentage increases as the accounts receivable become older. However, management judgment is utilized in the final determination of the allowance based on several factors including specific analysis of a customer's credit worthiness, changes in a customer's payment history, historical bad debt experience, and general economic and market trends. The allowance for doubtful accounts at March 31, 2006 and June 30, 2005 was $1.4 million and $1.9 million, respectively, and over the past two years, this reserve has trended between approximately 1% and 3% of gross trade accounts receivable.

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Excess and obsolete inventory - Inventories were valued using the lower of last-in, first-out (LIFO) cost or market value for approximately 34% and 50% of consolidated inventories at March 31, 2006 and June 30, 2005, respectively, including approximately 82% and 86% of the Furniture and Cabinets segment inventories at March 31, 2006 and June 30, 2005, respectively. The remaining inventories are valued at lower of first-in, first-out (FIFO) cost or market value. The decline in inventories valued under the LIFO method as a percentage of total inventories was primarily caused by the sale of discontinued operations during the current fiscal year, which predominately used the LIFO method for valuing inventories. Inventories recorded on the Company's balance sheet are adjusted for excess and obsolete inventory. In general, the Company purchases materials and finished goods for contract-based business from customer orders and projections, primarily in the case of long lead time items, and has a general philosophy to only purchase materials to the extent covered by a written commitment from its customers. However, there are times when inventory is purchased beyond customer commitments due to minimum lot sizes and inventory lead time requirements, or where component allocation or other procurement issues may exist. Evaluation of excess inventory includes such factors as anticipated usage, inventory turnover, inventory levels, and product demand levels. Factors considered when evaluating inventory obsolescence include the age of on-hand inventory and reduction in value due to damage, use as showroom samples, design changes or cessation of product lines.

Self-insurance reserves - The Company is self-insured up to certain limits for auto and general liability, workers' compensation and certain employee health benefits including medical, short-term disability and dental with the related liabilities included in the accompanying financial statements. The Company's policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims and actuarial analyses, which are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as increased medical costs and changes in actual experience could cause these estimates to change and reserve levels to be adjusted accordingly. At March 31, 2006 and June 30, 2005, the Company's accrued liabilities for self-insurance exposure were $7.9 million and $8.0 million, respectively, excluding immaterial amounts held in a voluntary employees' beneficiary association (VEBA) trust.

Income taxes - Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse. The Company evaluates the recoverability of its deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize its deferred tax assets. If recovery is not likely, the Company provides a valuation allowance based on its best estimate of future taxable income in the various taxing jurisdictions and the amount of deferred taxes ultimately realizable. Future events could change management's assessment. In addition, the Company operates within multiple taxing jurisdictions and is subject to tax audits in these jurisdictions. These audits can involve complex issues, which may require an extended period of time to resolve. However, the Company believes it has made adequate provision for income taxes for all years that are subject to audit. As tax periods are closed, the provision is adjusted accordingly.

New Accounting Standards

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid Financial Instruments (FAS 155). FAS 155 permits the Company to elect to measure any hybrid financial instrument at fair value (with changes in fair value recognized in earnings) if the hybrid instrument contains an embedded derivative that would otherwise be required to be bifurcated and accounted for separately under FAS 133, Accounting for Derivative Instruments and Hedging Activities. FAS 155 will be effective for all instruments acquired, issued, or subject to a remeasurement event occurring after the beginning of the Company's fiscal year 2008, with earlier adoption permitted as of the beginning of fiscal year 2007. The adoption of FAS 155 is not expected to have a material impact on the Company's financial position, results of operations or cash flows.

In February 2006, the FASB issued a FASB Staff Position (FSP), Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event (FSP FAS 123(R)-4). FSP FAS 123(R)-4 amends SFAS No. 123(R) and addresses the classification of stock options and similar instruments issued as employee compensation. Instruments having contingent cash settlement features are properly classified as equity if the cash settlement feature can be exercised only upon the occurrence of a contingent event that is outside the employee's control, and it is not probable that the event will occur. If the contingent event becomes probable, the instrument shall be accounted for as a liability. The Company's stock compensation instruments contain a cash settlement option in the event of a change in control, but the event and execution of the cash settlement is outside of the employee's control, and is not probable of occurring at this time. The Company classifies these instruments as equity.  The FSP will be effective for the Company in the fourth quarter of fiscal year 2006.  The adoption of FSP FAS 123(R)-4 is not expected to have a material impact on the Company's condensed consolidated financial statements.

In December 2005, the FASB issued FSP Statement of Position (SOP) 94-6-1, Terms of Loan Products That May Give Rise to a Concentration of Credit Risk. This FSP provides guidance on terms of loans that may give rise to a concentration of credit risk, and disclosures and other accounting considerations required for concentration of credit risks. The FSP was effective for the Company in the second quarter of fiscal year 2006. The Company has provided disclosures related to concentration of credit risks. The adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

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In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP provides guidance on determining if an investment is considered to be impaired, if the impairment is other-than-temporary, and the measurement of impairment losses. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The FSP was effective for the Company beginning in the third quarter of fiscal year 2006. The Company was accounting for investments in accordance with this guidance, and therefore, the adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

In October 2005, the FASB issued FSP FAS 123(R)-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), which provides clarification of the concept of mutual understanding between employer and employee with respect to the grant date of a share-based payment award. This FSP provides that a mutual understanding of the key terms and conditions of an award shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements if the recipient does not have the ability to negotiate the key terms and conditions of the award and those key terms and conditions will be communicated to the individual recipient within a relatively short time period from the date of approval. This guidance became effective for the Company in the second quarter of fiscal year 2006. The adoption of this FSP did not have a material impact on the Company's financial position, results of operations or cash flows.

In September 2005, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty (EITF 04-13). EITF 04-13 generally requires exchanges of inventory within the same line of business to be recognized at the carrying value of the inventory transferred, except in cases where finished goods inventory is exchanged for raw material or work-in-process inventory. EITF 04-13 is effective for the Company beginning in the fourth quarter of fiscal year 2006. The Company does not believe that the adoption of EITF 04-13 will have a material effect on its financial position, results of operations or cash flows.

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47).  FIN 47 provides guidance relating to the identification and recognition of legal obligations to perform an asset retirement activity.  The Interpretation requires recognition of a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated.  Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation.  The provisions of FIN 47 are effective as of the fourth quarter of fiscal year 2006.  The Company is evaluating the impact of adopting FIN 47 on the Company's financial position, results of operations or cash flows.

Subsequent Event

On April 3, 2006, the Company entered into an asset purchase agreement for the acquisition of the Bridgend, Wales, UK manufacturing operations of Bayer Diagnostics Manufacturing Limited ("BDML") and its parent company, Bayer Healthcare, LLC, a member of the worldwide group of companies headed by Bayer AG. The closing of the purchase was effective April 3, 2006. The operating results of BDML will be included in the Company's consolidated financial statements beginning on the acquisition date.

The acquisition will be included in the Company's Electronic Contract Assemblies segment and will enable the Company to capitalize on growth opportunities in the medical market within this segment. The BDML workforce and their capabilities will add to the Company's package of value that is offered to its medical customers and is a step in the Company's strategy to diversify its markets.

The Company agreed to pay BDML a sum of $25.2 million (14.4 million GBP). The purchase price will be adjusted, in the period not to exceed 120 days, by the difference in aggregate net book value of the machinery, equipment and inventory on March 31, 2006 and $25.2 million (14.4 million GBP). Direct costs of the acquisition totaled $0.3 million as of March 31, 2006.  See Note 10 - Subsequent Event of Notes to Condensed Consolidated Financial Statements for more information on this acquisition.

Forward-Looking Statements

Certain statements contained within this document are considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of words such as "believes", "estimates", "projects", "expects", "anticipates" and similar expressions. These forward-looking statements are subject to risks and uncertainties including, but not limited to, general economic conditions, significant volume reductions from key contract customers, loss of key customers or suppliers within specific industries, availability or cost of raw materials, increased competitive pricing pressures reflecting excess industry capacities, foreign currency exchange rate fluctuations or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the Company are contained in the Company's Form 10-K filing for the period ended June 30, 2005.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks from the information disclosed in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the year ended June 30, 2005.

Item 4.  Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed as of March 31, 2006, the Chief Executive Officer and Chief Financial Officer of the Company concluded, based upon their best judgment, that the Company's disclosure controls and procedures were effective.

(b) Changes in internal control over financial reporting.

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2006 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents a summary of share repurchases made by the Company:

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
Month #1 (January 1-January 31, 2006)	--	--	--	2,000,000
Month #2 (February 1-February 28, 2006)	--	--	--	2,000,000
Month #3 (March 1-March 31, 2006)	--	--	--	2,000,000
Total	--	--	--

The share repurchase program previously authorized by the Board of Directors was announced on August 5, 2004.  The program allows for the repurchase of up to 2 million of any combination of Class A or Class B shares and will remain in effect until all shares authorized have been repurchased.

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Item 5.  Other Information

(a)  In lieu of filing a Form 8-K under Item 1.01, "Entry into a Material Definitive Agreement," the Company is providing the following disclosure in this Form 10-Q as the Form 10-Q is being filed within the four business day reporting requirement for the event.

The Compensation Committee ("Committee") of the Board of Directors of the Company approved an operating policy of severance payments for all employees in the event of separation under specific circumstances.  This formalizes a previously informal process handled on a case-by-case basis.  The Committee also approved the acceleration of vesting of stock options, performance shares and restricted stock units for certain employee holders in the event of separation under specific circumstances.  As a result of these changes, on May 1, 2006, the Company updated and replaced previously existing employment agreements with new employment agreements ("Agreements") for certain key executive officers, including Douglas A. Habig, Chairman; James C. Thyen, Chief Executive Officer; Robert F. Schneider, Executive Vice President, Chief Financial Officer; Donald D. Charron, Executive Vice President, President-Kimball Electronics Group; P. Daniel Miller, Executive Vice President, President-Furniture; Randall L. Catt, Executive Vice President, Human Resources; John H. Kahle, Executive Vice President, General Counsel, Secretary; and Gary W. Schwartz, Executive Vice President, Chief Information Officer. The Agreements impose non-compete, non-disclosure and non-solicitation obligations on the executive officers similar to the previously existing employment agreements and additionally provide for compensation and acceleration of rights and payment in the event of separation of employment under certain circumstances and the acceleration of rights and payment upon a change in control.  This summary is not intended to be complete and is qualified in its entirety by reference to the Employment Agreement attached to this Form 10-Q as Exhibit 10(c) and incorporated herein by reference.

These Agreements were approved by the Committee with the purpose of bringing the Company more in-line with competitive practices within the industries in which it operates as well as to enhance the retention of executives in the interests of shareowners.

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Item 6.  Exhibits

    Exhibits (numbered in accordance with Item 601 of Regulation S-K)

(2)  Asset Purchase Agreement, dated as of April 3, 2006, providing for the purchase of certain assets of Bayer Diagnostics Manufacturing Limited by Kimball Electronics (Wales) Limited

(3(a))  Amended and restated Articles of Incorporation of the Company (Incorporated by reference to the Company's Form 10-K for the year ended June 30, 2002)

(3(b))  Restated By-laws of the Company (Incorporated by reference to the Company's Form 10-Q for the period ended December 31, 2005)

(10(a))  Supplemental Employee Retirement Plan (2006 Revision)

(10(b))  Summary of Director and Named Executive Officer Compensation

(10(c))  Form of Employment Agreement dated May 1, 2006 between the Company and each of James C. Thyen, Douglas A. Habig, Robert F. Schneider, Donald D. Charron, P. Daniel Miller, Randall L. Catt, John H. Kahle and Gary W. Schwartz

(11)  Computation of Earnings Per Share

(31.1)  Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(31.2)  Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(32.1)  Certification furnished by the 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 furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	KIMBALL INTERNATIONAL, INC.
By:	/s/ James C. Thyen
	JAMES C. THYEN President, Chief Executive Officer
	May 4, 2006
By:	/s/ Robert F. Schneider
	ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer
	May 4, 2006

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Kimball International, Inc.
Exhibit Index

Exhibit No.	Description
2	Asset Purchase Agreement, dated as of April 3, 2006, providing for the purchase of certain assets of Bayer Diagnostics Manufacturing Limited by Kimball Electronics (Wales) Limited
3(a)	Amended and restated Articles of Incorporation of the Company (Incorporated by reference to the Company's Form 10-K for the year ended June 30, 2002)
3(b)	Restated By-laws of the Company (Incorporated by reference to the Company's Form 10-Q for the period ended December 31, 2005)
10(a)	Supplemental Employee Retirement Plan (2006 Revision)
10(b)	Summary of Director and Named Executive Officer Compensation
10(c)	Form of Employment Agreement dated May 1, 2006 between the Company and each of James C. Thyen, Douglas A. Habig, Robert F. Schneider, Donald D. Charron, P. Daniel Miller, Randall L. Catt, John H. Kahle and Gary W. Schwartz
11	Computation of Earnings Per Share
31.1	Certification filed by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification filed by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification furnished by the 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 furnished by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-2

Exhibit 2

ASSET PURCHASE AGREEMENT

providing for the purchase of certain assets of

BAYER DIAGNOSTICS MANUFACTURING LIMITED

(Seller)

by

KIMBALL ELECTRONICS (WALES) LIMITED

(Buyer)

CONTENTS

1.	GENERAL AND LEGAL EFFECT	2
2.	SALE AND PURCHASE	2
3.	EXCLUDED ASSETS, EXCLUDED LIABILITIES AND ASSUMED LIABILITIES	4
4.	PRICE	6
5.	NET BOOK VALUE ADJUSTMENTS AND APPORTIONMENTS	7
6.	MERGER CONTROL FILINGS	9
7.	COMPLETION; DELIVERIES AT COMPLETION	9
8.	REPRESENTATIONS AND WARRANTIES OF BHC AND BDML	10
9.	LIMITATIONS ON CLAIMS	19
10.	REPRESENTATIONS AND WARRANTIES OF KIMBALL AND KIMBALL WALES	22
11.	GENERAL COVENANTS	23
12.	EMPLOYEES	25
13.	PENSIONS	27
14.	VALUE ADDED TAX	27
15.	INDEMNIFICATION	29
16.	MISCELLANEOUS	34

 

The following schedules have been omitted from this filing and will be supplementally furnished to the Securities and Exchange Commission upon request.
Schedule 1:	Apportionment of initial purchase price
Schedule 2:	Adjustment - description of the process to value stock (inventory)
Schedule 3:	Listing of employees with knowledge regarding representations and warranties
Schedule 4:	Transfer
Schedule 5:	Material Transferring Contracts
Schedule 6:	Licenses vested in BDML
Schedule 7:	Employees of BDML on the Completion Date
Schedule 8:	Intentionally left blank
Schedule 9:	Disclosure - general disclosures
Schedule 10:	Product forecast schedule
Schedule 11:	Compromise Agreements

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ASSET PURCHASE AGREEMENT

1.    GENERAL AND LEGAL EFFECT

This Asset Purchase Agreement (Agreement), dated as of the 3rd day of April, 2006, sets forth the terms and conditions on which (i) Bayer HealthCare LLC (BHC), a Delaware limited liability company, a member of the worldwide group of companies headed by Bayer AG (Bayer Group), desires to cause its wholly-owned subsidiary Bayer Diagnostics Manufacturing Limited, a company incorporated in England and Wales with number 403450, (BDML) to sell to Kimball Electronics (Wales) Limited, a company incorporated in England and Wales with number 5675516 (Kimball Wales), a wholly owned United Kingdom subsidiary of Kimball Electronics Manufacturing, Inc., a company incorporated in the State of Indiana in the United States (Kimball), the manufacturing operation owned and operated by BDML at Bridgend, Wales, United Kingdom (the Operation) and accompanying assets and assign to Kimball Wales certain contracts as more fully described below, and Kimball desires to cause Kimball Wales to purchase the Operation and accept such assignment; and (ii) BHC and Kimball are willing, subject to the completion of the purchase and sale of the Operation, to enter into a contract manufacturing agreement, between BHC and Kimball Wales (Contract Manufacturing Agreement) and, in the case of Kimball to cause Kimball Wales to enter into such Contract Manufacturing Agreement, under which BHC will contract with Kimball and Kimball Wales for manufacture and/or packaging of the products currently manufactured and/or packaged at the Land and Buildings (the Products) for distribution by the Diagnostics Division and Diabetes Care Division of BHC or other companies in the Bayer Group (the Transaction).

All of the representations, warranties, undertakings and obligations of BDML and BHC contained in this Agreement are joint and several. All of the representations, warranties, undertakings and obligations of Kimball Wales and Kimball contained in this Agreement are joint and several.

2.    SALE AND PURCHASE

BDML shall or shall procure to sell, assign, transfer, and deliver to Kimball Wales the following assets used in the Operation as of the Completion Date (defined below) (the Transferring Assets):

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(a)     all plant, machinery and equipment, including spare parts, owned by BDML at Completion (as defined below) and situated either at the Land and Buildings or at the locations specified in the Disclosure Schedule (excluding all fixtures and equipment that are transferred pursuant to the Transfer) (the Transferring Equipment);

(b)     all good and usable inventory and stocks of raw materials, work-in-progress, finished goods, and consumables owned by BDML and held at the Land and Buildings or locations specified in the Disclosure Schedule or in transit to BDML from suppliers at the Completion Date and that are commensurate with needs for forecasted Product volumes for the purposes of manufacturing and/or packaging the Products (the Stock);

(c)     all of BDML's right, title, interest and benefit subject to the burden of contracts of BDML relating to the conduct of the Operation and production of the Products, including all operating and finance leases and all agreements for purchase by BDML of services and supplies for the Operation (including, without limitation, any security or similar deposits relating to such contracts but excluding any contracts of employment or insurance except the Bayer UK Group Long Term Disability Policy (number G10246) which Assicurazioni Generali S.p.A in relation to two Employees and the Group Income Continuance Plan (number 702886) with Friends Provident in relation to two Employees (collectively, the Transferring Contracts, of which the Material Transferring Contracts are listed in the attached Schedule 5;

(d)     to the extent permitted by their terms or applicable law, all licenses, permits, authorizations and registrations which are vested in BDML necessary to conduct the Operation (excluding any licenses, permits, authorizations and registrations relating to the marketing of the Products) as listed in Schedule 6 (the Licences);

(e)     all records (excluding, unless otherwise provided for in this Agreement, any tax records), manuals, maintenance procedures, equipment lists, reports, data, correspondence, equipment literature, files, and other documents relating solely to the Transferring Assets and the Employees;

(f)     to the extent BDML is able to assign the benefit of the same, and subject to the burden, all product and service warranties of manufacturers (other than BDML or BHC) relating to the Transferring Assets or to the Products manufactured at the Land and Buildings on or after the Completion Date (the Manufacturer Warranties); and

3

(g)     subject to clause 2(f), all claims, causes, or rights of action under the Manufacturer Warranties, except to the extent relating to items incorporated in Products sold by BDML prior to the Completion Date.

In addition, BDML will provide Kimball Wales with copies of all records relating to Product manufacturing, quality warranty and US Food and Drug Administration (FDA) matters (but specifically excluding any Product design and marketing documentation) and the right to use the same in connection with the Contract Manufacturing Agreement.

3.     EXCLUDED ASSETS, EXCLUDED LIABILITIES AND ASSUMED LIABILITIES

3.1     Excluded Assets. Subject to the Transferring Assets described in clause 2 hereof, the following assets shall be excluded from the sale that is the subject matter of this Agreement:

(a)     the Land and Buildings which shall be transferred pursuant to the Transfer to Robert Hitchins Limited (the Developer);

(b)     all intellectual property rights, including those relating to the Products and the processes for production thereof, which, together with any improvements thereto, are and shall remain the sole property of BDML or BHC (as appropriate) and the parties acknowledge and agree that all matters concerning intellectual property are addressed exclusively in the Contract Manufacturing Agreement except that certain licences to intellectual property rights granted by third parties pursuant to the Material Transferring Contracts listed in the attached Schedule 5 shall be included in the Transferring Assets and except that BHC and BDML give the warranty set forth in clause 8.20 hereof;

(c)     all contractual arrangements (which for the avoidance of doubt shall include all contractual arrangements for the sale or distribution of Products) other than the Transferring Contracts;

(d)     all accounts receivable owing to BDML, whether due or existing before, at or after the Completion Date;

(e)     all cash in hand and at bank at the Completion Date; and

(f)     all other assets not specifically included in clause 2 above.

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3.2     Excluded Liabilities. Except for the Assumed Liabilities, Kimball Wales shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of BHC or BDML of any kind, description, or character, whether accrued, absolute, contingent, or otherwise, or whether or not disclosed to Kimball and/or Kimball Wales in this Agreement, the Disclosure Schedule (defined below) or otherwise, which is outstanding on, accrued or referable to the period up to the Completion Date in relation to the Operation, (collectively, the "Excluded Liabilities"). Without limiting the generality of the foregoing, and subject to anything to the contrary contained in this Agreement, and the Assumed Liabilities, Kimball Wales shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of BDML or BHC, and BDML or BHC, as applicable, shall remain unconditionally liable for, the following:

(a)     any liability related to income, payroll, withholding, sales or any other tax related to the Transferring Assets or the conduct of the Operation relating to the period up to the Completion Date, including, but not limited to, any interest or penalties related thereto (other than bonus payments payable to the Employees for the period 01 January 2006 to 31 December 2006);

(b)     any liability relating to indebtedness of BDML or the Operation or to the Employees (who by way of example and without limitation, may manufacture, service, market, sell, handle, ship, clean, maintain, administer, manage or otherwise perform activities relating to the Transferring Assets) relating to the period up to the Completion Date (other than bonus payments payable to the Employees for the period 01 January 2006 to 31 December 2006);

(c)     any liability relating to any disease, illness, or injury (whether occurring before or after the Completion Date) that arises out of or results from any act, omission or occurrence related to the conduct of the Operation prior to the Completion Date, including any liability for products liability claims (whether arising before or after the Completion Date) for goods or services sold and/or delivered before the Completion Date, except to the extent that such liability arises out of, or results from, or is increased by any act or omission of Kimball and/or Kimball Wales after the Completion Date;

(d)     any liability (including, but not limited to, any liability arising from any implied warranty or breach thereof) caused by BDML and relating to the Transferring Assets or the conduct of the Operation arising prior to the Completion Date, including,

5

without limitation, for services performed or, goods manufactured directly or indirectly, sold, or distributed by the BDML prior to the Completion Date; and

(e)     any liability related to any violation of any law, statute, rule or regulation that arises out of or results from any act, omission or occurrence related to any part of the conduct of the Operation and/or the Transferring Assets prior to the Completion Date, including, but not limited to, any claims arising from or in connection with any employment relationship, such as claims for wrongful dismissal, breach of employment contracts, sexual harassment or racial or gender discrimination, defamation or libel, personal injury claims, and any claims arising under any governing law or regulation relevant to the employment relationship, except any such liability that arises out of, or results from, or is increased by any act or omission of Kimball and/or Kimball Wales after the Completion Date or with respect to which Kimball Wales is obliged to indemnify BDML pursuant to clause 15.2.2 of this Agreement; and

3.3     Assumed Liabilities. At the Completion, Kimball Wales shall assume and agree to pay, perform, and discharge, when due, the liabilities and obligations of BDML arising on or after the Completion Date under the Transferring Contractsand, for the avoidance of doubt, all liabilities and obligations arising out of carrying on the Operation and/or the Transferring Assets on or after the Completion Date and all taxes and national insurance contributions and all other liabilities and obligations due to and in respect of the Employees on account of their employment by Kimball Wales on or after the Completion Date (collectively, the "Assumed Liabilities").

3.4     Nothing in this Agreement shall grant to Kimball and/or Kimball Wales any right, title or interest in the Land and Buildings (which is to be transferred to a third party on the date of this Agreement under the terms of the Transfer). For the avoidance of doubt, none of the representations, warranties (apart from warranty 8.21) or indemnities given by BDML and/or BHC under this Agreement are given, made or apply to the Land and Buildings or to BDML's and/or BHC's ownership, use or occupation of the Land and Buildings whether in respect of matters relating to the environment or otherwise.

4.       PRICE

4.1     The price for the Transferring Assets and BDML's and BHC's other covenants in this Agreement, subject to adjustment as described in paragraph 5 below, will be GBP 14.4

6

million (the Price) which shall be apportioned as set out in Schedule 1 and will be payable as follows: GBP 11.4 million (the "Completion Amount").in cash on Completion and GBP 3.0 million in respect of the Japanese Stock (the "Japanese Amount") in accordance with clause 4.2.

The Price is exclusive of value added tax if any is chargeable. In the event value added tax on any of the Transferring Assets is chargeable, Kimball and/or Kimball Wales shall, pursuant to clause 14, pay such tax.

4.2     The Japanese Amount will be payable by Kimball Wales to BDML in cash on a shipment by shipment basis within one hundred five (105) days of shipment in the case of ocean shipments or within seventy-five (75) days of shipment in the case of air shipments.

4.3     In the event that there is any adjustment to the Price under clause 5 of this Agreement, the apportionment for the Transferring Equipment and for the Stock shall instead equal their respective values on the Completion Statement or the Final Completion Statement (if applicable).

4.4     Any payment made by BDML in respect of a breach of any of the Warranties or any other payment made by BDML pursuant to this Agreement shall (and shall be deemed to) reduce the Price paid for the Transferring Assets under this Agreement by the same amount. The reduction will be allocated as nearly as possible to the Transferring Assets to which such breach or payment related or (if that is not possible) as BDML shall decide.

5.       NET BOOK VALUE ADJUSTMENTS AND APPORTIONMENTS

5.1     The Price shall be adjusted within a reasonable period (not to exceed 120 days) following Completion as follows:

(a) if the aggregate net book value of the Land and Buildings, Transferring Equipment and Stock exceeds GBP 19.7 million, by adding the excess;

(b) if the aggregate net book value of the Land and Buildings, Transferring Equipment and Stock is less than GBP 19.7 million, by deducting the shortfall;

as shown in a completion statement as at 31 March 2006 (the Completion Statement) to be prepared by BDML (using the same accounting policies as those employed in BDML's latest audited accounts, and following a stock-take carried out in accordance with the provisions of Schedule 2 by BDML) and which Completion Statement is to be delivered by BDML to

7

Kimball Wales within 60 days of the Completion Date. Kimball Wales shall review such Completion Statement within 30 days of receipt by Kimball Wales of such Completion Statement.

If Kimball Wales notifies BDML in writing pursuant to clause 16.4 of its objections to the Completion Statement proposed by BDML within 30 days of receipt by Kimball Wales of the Completion Statement and the parties have not reached agreement within fifteen (15) days after BDML's receipt of that notice from Kimball Wales, a further Completion Statement will be prepared by an internationally recognized accounting firm selected by Kimball Wales and satisfactory to BDML (acting reasonably) (the "Final Completion Statement"). Such accounting firm shall be independent of both Kimball Wales and BDML. The determination by the Final Completion Statement independent accounting firm shall (save in the case of manifest error) be final and binding on the parties. The independent accounting firm will determine which party will bear the fees and expenses incurred in preparing the Final Completion Statement, including whether such fees and expenses are to be shared by the parties and, if so, in what proportions.

5.2     Within fifteen (15) Business Days of the Completion Statement being agreed or finally determined in accordance with clause 5.1:

(a)     if there is an excess Kimball Wales shall pay the amount of such excess to such bank account as BDML shall notify Kimball Wales; and

(b)     if there is a shortfall BDML shall pay the amount of such shortfall to such bank account as Kimball Wales shall notify BDML.

5.3     Notwithstanding the provisions of clauses 3 or 15, all items of receipt and expenditure, prepayments and accruals, periodical charges and outgoings will be apportioned based on the financial statements of BDML as at 31 March 2006 (except those relating to Excluded Liabilities incurred after 31 March 2006 but prior to Completion that are unusual or unanticipated by Kimball Wales or relating to Excluded Assets) and will be paid to or by BDML or BHC as appropriate within 90 days of Completion. Expected expenses to be so apportioned include, but are not limited to, depreciation, payroll and benefits, utilities and service contracts.

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6.       MERGER CONTROL FILINGS

6.1     Notwithstanding any other provisions of this Agreement the parties acknowledge and agree that no representations and/or Warranties are given in relation to Merger Control Filings.

7.       COMPLETION; DELIVERIES AT COMPLETION

7.1     Place and Date of Completion. The completion of the purchase and sale contemplated by this Agreement (the Completion) shall take place immediately following execution of this Agreement at the Land and Buildings on or before 3 April, 2006, or at such other place or date as the parties may mutually agree (the Completion Date) provided that all the obligations of the parties set out in this clause 7 have been discharged.

7.2     Deliveries at Completion.

7.2.1     Kimball Wales's Deliveries. At the Completion, Kimball Wales shall sign and/or deliver, or cause to be signed and/or delivered: (a) the Completion Amount; (b) written instruments or agreements, reasonably acceptable to BDML, that provide for Kimball Wales's assumption of the Assumed Liabilities; (c) this Agreement and the Transaction Agreements duly executed by Kimball Wales and Kimball (as appropriate); (d) a copy of the Licence relating to the Land and Buildings duly executed by Kimball Wales and the Developer; (e) a copy of the Transfer duly executed by the Developer, (f) the purchase price payable to BDML under the Transfer; (g) any and all other agreements, certificates, instruments, and other documents required of Kimball Wales and Kimball under this Agreement (duly executed by Kimball Wales and Kimball (as appropriate); (h) evidence of the approval of the Transaction, entry into this Agreement and entry into the Transaction Agreements by the boards of Kimball and Kimball Wales.

7.2.2     BDML's Deliveries. At the Completion, BDML shall sign and/or deliver, or cause to be signed and/or delivered: (a) assignments, and other instruments of conveyance that shall be sufficient to transfer title to the Transferring Assets to Kimball Wales free and clear of all Security Interests (defined in clause 8.7 hereof); (b) a copy of the Transfer duly executed by BDML; (c) all such third party consents as identified in section 8.4 of the Disclosure Schedule hereto as being obtained prior to Completion; (d) duly executed agreements in the agreed form for the assignment or novation of Transferring Contracts; (e) this Agreement and the Transaction Agreements duly

9

executed by BDML ,BHC, Bayer Plc and Bayer Diagnostics Europe Limited as appropriate; (f) certified copies of resolutions of BDML's and BHC's directors, authorizing the consummation of the transactions contemplated by this Agreement; (g) all records and other documents included in the Transferring Assets; (h) copies of all records relating to Product manufacturing, quality warranty and FDA matters (but specifically excluding any Product design and marketing documentation); (i) evidence that each Security Interest (if any) encumbering any of the Assets has been released and terminated; and (j) any and all other agreements, certificates, instruments, and other documents required of BDML and BHC under this Agreement.

8.       REPRESENTATIONS AND WARRANTIES OF BHC AND BDML

8.1     BHC and BDML represent and warrant to Kimball Wales that each warranty set out in clauses 8.3 to 8.21 inclusive (each a Warranty and together the Warranties) is true and accurate in all material respects at the date of this Agreement. In this Agreement any references to the knowledge or awareness of BDML is deemed to include the actual knowledge only of the individuals specified in Schedule 3having made all reasonable enquiries.

8.2     Disclosure Schedule. BDML shall deliver to Kimball Wales, on the date of this Agreement, individually numbered schedules (collectively, the "Disclosure Schedule") corresponding to the sections and subsections of this clause. The Disclosure Schedule shall contain exceptions to the specifically identified section and subsection contained in this clause, which shall modify such section or subsection, and shall set forth each exception in reasonable detail, with attached documentation as necessary to reasonably explain the exception. BDML shall provide Kimball Wales, on or before the Agreement Date, with copies of all documents attached to, or referred to in, the Disclosure Schedule. The Warranties are qualified by the facts and circumstances fairly disclosed in the Disclosure Schedule. All of the disclosures set out in the Disclosure Schedule shall have effect in relation to each of the Warranties and Kimball Wales shall not be able to claim that any fact or matter has not been disclosed to it by reason of the relevant disclosure not being related to any one or more of the Warranties provided such disclosures fairly and reasonably describe such fact or matter.

8.3     BDML's Organization and Good Standing. BDML is a limited company duly organized and validly existing under the laws of the jurisdiction of BDML's formation. BDML has all requisite corporate power and authority to own the Transferring Assets and to carry on the Operation as conducted at the date of this Agreement. So far as BDML is aware, no action is

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being taken by the Registrar of Companies in England and Wales to strike BDML off the register of companies maintained by the Registrar of Companies in England and Wales. No receiver, administrative receiver, judicially appointed manager or administrator has been appointed, nor any notice given, petition presented or order made for the appointment of any such person, over the whole or any part of the assets or undertaking of BDML. No petition has been presented, no order has been made and no resolution has been passed for the winding up of BDML or for the appointment of a liquidator or provisional liquidator of BDML. No voluntary arrangement has been proposed or is in force under Section 1 of the Insolvency Act 1986 in respect of BDML. No unsatisfied judgment is outstanding against BDML and no demand has been served on BDML under Section 123(1)(a) of the Insolvency Act 1986. BDML conducts the operation in offices or places of business, and the Transferring Assets are located, only at the locations listed in the Disclosure Schedule, except in the case of Stock in transit to BDML from the suppliers thereof.

8.4     Enforceability. Each of BDML and BHC has full corporate power and authority to execute and deliver this Agreement and the Transaction Agreements, and to perform its respective obligations hereunder and thereunder, and each of such agreements constitutes the legally enforceable obligation of BDML and/or BHC, as the case may be. As far as BDML is aware, neither BDML nor BHC is required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency or third party in order for the transactions contemplated by this Agreement or the other Transaction Agreements to be consummated except as disclosed at section 8.4 of the Disclosure Schedule, and, except as so disclosed, all such notices, filings, authorizations, consents and approvals have been given, made or obtained, as applicable, before the Completion Date.

8.5     No Conflict with Other Instruments or Proceedings. The signing and delivery of this Agreement and the Transaction Agreements and the consummation of the transactions contemplated hereby and thereby will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, BDML's memorandum and articles of association or BHC's corporate charter or bylaws or any contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license, or other instrument or obligation to which BDML or BHC is a party or by which BDML or BHC may be bound or any of the Transferring Assets may be materially and adversely affected; (b) as far as BDML is aware (following all reasonable inquiries), violate any law, rule, or regulation of any administrative agency or governmental body in England and Wales or the European Union or, as far as BDML is aware, violate any order, writ, injunction, or decree of any court, administrative

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agency, or governmental body in England and Wales or the European Union; (c) result in the imposition of any lien or encumbrance on any of the Transferring Assets; or (d) give rise to any right of first refusal or similar right to any third party with respect to any interest in any of the Transferring Assets.

8.6     Compliance with Laws and Other Regulations.

(i)     For the three (3) years prior to the date of this Agreement as far as BDML is aware with respect to the Operation, the Employees, and the Transferring Assets BDML has, in all material respects, complied with all requirements of local law, rule and regulation (including those relating to taxes) and all requirements of any governmental body or agency of England and Wales with respect to the conduct of the Operation, or the Employees, or the Transferring Assets; and

(ii)     there is no actual and, as far as BDML is aware, no written pending or written threatened action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against BDML or any of the Transferring Assets or relating to the Operation alleging any failure to so comply.

8.7     Title; Encumbrances. The Transferring Assets are free and clear of all claims, liens, mortgages, security interests, pledges, encumbrances, charges, obligations, and other restrictions, except for restrictions solely arising from and relating to the Assumed Liabilities (collectively, the Security Interests). BDML has good and marketable title to all of the Transferring Assets. There is no actual nor, so far as BDML is aware, any pending or threatened dispute or claim made by any other person or entity concerning any such title to or ownership of any of the Transferring Assets or, except as disclosed in section 8.7 of the Disclosure Schedule, any Security Interest in any of the Transferring Assets. Except as disclosed in Section 8.7 of the Disclosure Schedule, the Transferring Assets together with the fixtures deemed to be part of the Land and Buildings that are transferred pursuant to the Transfer, equipment owned by Bayer PLC to be used by Bayer PLC to provide services under the Transitional Services Agreement or to be made available to Kimball Wales under the Parts Distribution Agreement include all the machinery and tooling necessary for the conduct of the Operation in all material respects in the same manner as the Operation is being conducted as at Completion.

8.8     Absence of Certain Changes or Events. Since the Last Accounting Date, as defined in clause 16.14 hereof, there has been no material adverse change in the condition of the Transferring

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Assets, the Operation or the conduct of the Operation as of the Completion Date, financial or otherwise, except as set forth in section 8.8 of the Disclosure Schedule. So far as BDML is aware, since the last forecast (attached hereto as Schedule 10) for purchase of Products, no event has taken place that BDML reasonably expects will cause the forecast to change in any material respect.

8.9     Suppliers. Since the Last Accounting Date, and except as set forth in section 8.9 of the Disclosure Schedule, there has not been any adverse change in the terms on which BDML contracts with BDML's 20 largest suppliers and BDML's 10 largest service providers (in terms of BDML's annual spend in connection with the Operation), whose names are listed in section 8.9 of the Disclosure Schedule. None of the suppliers or service providers listed in section 8.9 of the Disclosure Schedule has indicated to BDML that it wishes to make a material adverse change to the terms on which it contracts with BDML or, as far as BDML is aware, no such supplier or service provider has filed or intends to pursue a claim in excess of GBP 10,000 for nonpayment or nonperformance by BDML.

8.10     Stock. All Stock is of a good and merchantable quality, or is suitable and usable for the manufacture of Products. None of the Stock is obsolete or in excess of the necessary requirements of the conduct of the Operation commensurate with needs for BDML's forecasted Product volumes. None of the Stock related to urine strip Products shall decay or degrade or become less merchantable, by virtue of normal and customary storage as is currently in place at the Operation prior to such time as such materials could reasonably be expected to be used in accordance with BDML's forecasted Product volumes.

8.11     Location and Condition of Machinery and Equipment. Except as set forth in the Disclosure Schedule all plant, machinery and equipment (including spare parts) comprised in the Transferring Assets will be located at the Land and Buildings on the Completion Date. The plant, machinery and equipment comprised in the Transferring Assets are in good operating condition and good maintenance and repair (ordinary wear and tear excepted and consistent with their age), for the purposes for which they are presently being used.

8.12     Transferring Contracts. The Material Transferring Contracts are listed in Schedule 5. BDML has provided Kimball Wales with a copy of each Material Transferring Contract. Except for rights to use of the assets to be transferred to the Developer pursuant to the Transfer, the Transitional Services Agreement, the Contract Manufacturing Agreement and the Parts Distribution Agreement, the Transferring Contracts are all the contracts, arrangements, and agreements, of whatsoever nature, necessary to enable Kimball Wales to

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conduct the Operation in all material respects in the same manner as the Operation is being conducted as at Completion. The Transferring Contracts are valid and enforceable in accordance with their terms, and, BDML and, so far as BDML is aware, all other parties to each of those Transferring Contracts have performed all obligations required to be performed in connection with these Transferring Contracts to date. Neither BDML nor, so far as BDML is aware, any other party is in default or in arrears under the terms of these Transferring Contracts, and no condition exists or event has occurred which, with the giving of notice or the lapse of time or both, would constitute a default under any of them. No Material Transferring Contract is out of the ordinary and usual course of business. BDML has not given any power of attorney to any person, firm, or corporation for any purpose whatsoever relating to the Transferring Assets.

8.13     Litigation. There is no actual and, as far as BDML is aware, no threatened or pending suit, action, proceeding (legal, administrative, or otherwise), claim, investigation, or inquiry (by an administrative agency - including the FDA, governmental body, or otherwise) by, against, or otherwise affecting BDML with respect to the conduct of the Operation or any of the Transferring Assets. There is no outstanding judgment, order, writ, injunction, or decree of any court, administrative agency, governmental body, or arbitration tribunal against or affecting BDML in relation to the conduct of the Operation or any of the Transferring Assets.

8.14     Product Liabilities. Within the last 5 years, BDML's costs with respect to product liability or warranty claims associated with the conduct of the Operation have not exceeded, on a per annum basis, GBP 20,000 during such period.

8.15     Permits and Licenses. Save for any licence, permit or authorization held by or vested in a contractor who provides services to BDML in connection with the operation of the Transferring Assets or the conduct of the Operation, all permits, licenses, orders, and approvals necessary to own or operate the Transferring Assets in connection with the conduct of the Operation are identified in Section 8.15 of the Disclosure Schedule, are assignable to Kimball Wales and are in full force and effect. The Licences have been complied with by BDML in all material respects. All fees and charges incident to the Licences have been fully paid and are current, and, so far as BDML is aware, no suspension has been threatened or could reasonably be expected to result by reason of the transactions contemplated by this Agreement.

8.16     Brokers. BDML has not retained or employed, and is not and will not be liable to pay, any broker, finder, investment banker, or other person, or taken any action, or entered into any

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agreement or understanding that would give any broker, finder, investment banker, or other person any valid claim against Kimball Wales or BDML for a commission, brokerage fee, or other compensation.

8.17     Intercompany Arrangements. BDML has not entered into any material contracts, agreements, or commitments with any of BDML's Affiliates with respect to the Transferring Assets or the BDML's operations being carried on at the Operation, except as listed on section 8.17 of the Disclosure Schedule.

8.18     Accuracy of Statements. BDML's financial statements dated as of 31 August 2005 and 31 December 2005 (such financial statements being attached to section 8.18 of the Disclosure Schedule) have been prepared from the books and records of BDML and fairly present the financial position of BDML as of their respective dates and its results of operations for the periods ended on such dates. The financial statements of 31 December are prepared in accordance with generally accepted accounting principles in the United Kingdom. The financial statements of 31 August are prepared in accordance with IAS, the only departure from generally accepted accounting principles of the United Kingdom being the Pension Provision and related Deferred Tax impact.

8.19     Employment. The only representations and Warranties given in respect of matters relating to Employees are in clause 8.6 and this clause 8.19. Except as otherwise disclosed in the Disclosure Schedule:

(i)     [Note: Intentionally left blank];

(ii)     since September 19, 2005, no changes have been made to the terms of employment, benefits or conditions of service of any Employee or to the terms of any agreement or arrangement with any trade union, employee representative or body of employees or their representatives which may affect the Employees;

(iii)     BHC and/or BDML have disclosed in writing to Kimball and/or Kimball Wales the following, all of which are true, accurate and complete in all material respects as of the Completion Date:

(a)     copies of all service contracts and contracts for services, handbooks, policies and other relevant documents which apply to the Employees;

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(b)     full particulars of the current terms of employment or engagement and benefits of all Employees including, without limitation, remuneration, benefits and any other contractual agreements, whether or not recorded in writing, or implied by custom or practice or otherwise provided that, where a policy has been disclosed, BHC and BDML shall have no responsibility or liability with respect of the status of such policy or practice as contractual or non-contractual;

(c)     all information required by law to be included in particulars of terms of employment for the Employees, including date of birth, date of commencement of continuous employment, job title, current remuneration, bonuses, commission, pension schemes or pension rights and benefits;

(d)     copies of all agreements with any trade union, employee representative or body of employees or their representatives and details of any such unwritten agreements which may affect the Employees.

(iv)     in respect of each of the Employees, BDML has:

(a)     as far as it is aware, in the period of three (3) years prior to the Completion Date, performed all legal obligations and duties required to be performed by it (and has settled any outstanding Demand whether arising under contract, statute, at common law or in equity or under any treaties including the Treaty of Rome, the laws of the European Union or otherwise);

(b)     in the period of three years prior to the Completion Date, fully complied with its obligations under regulation 10 of TUPE (subject to compliance by Kimball Wales with regulation 10(3) of TUPE) and section 188 of TULR(C)A to inform and consult with trade union or other employee representatives on any matter concerning or arising from this agreement or affecting the Employees and it has provided to Kimball and/or Kimball Wales such information as Kimball and/or Kimball Wales has reasonably requested in writing in order to verify such compliance with regulation 10 of TUPE;

(c)     in the period of three years prior to the Completion Date, abided by the terms of any agreement or arrangement with any trade union, employee

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representative or body of employees or their representatives which may affect the Employees;

(d)     in the period of five years prior to the Completion Date, maintained adequate, suitable and up-to-date records relating to the Employees; and

(e)     in the period of three years prior to the Completion Date, paid to HM Revenue and Customs and any other appropriate authority all taxes, national insurance contributions and other levies that have fallen due in respect of the Employees on account of their employment by BDML up to and including the Completion Date.

(v)     BDML has not made any offer of employment or engagement to any person to work at the Operation that has not yet been accepted or that has been accepted but the employment or engagement has not yet started (except to any of the Employees);

(vi)     all contracts of service or for services with any of the Employees or agents of BDML are terminable by BDML at any time on three months' notice or less without compensation (other than for unfair dismissal or a statutory redundancy payment). BDML has no liability other than for salary, wages, benefits, commission or pension to or for the benefit of any person who is an Employee or agent of the Operation;

(vii)     BDML has not offered, promised or agreed to any future variation in any contract of employment of any one of the Employees;

(viii)     so far as BDML and/or BHC is aware, there are no enquiries or investigations existing, pending or threatened affecting BDML or the Operation by the Equal Opportunities Commission, the Commission for Racial Equality, the Disability Rights Commission, the Health and Safety Executive or other similar bodies, nor as far as BDML is aware are there any facts which create a reasonable possibility of giving rise to the same.

(ix)     none of the Employees are working out their notice period;

(x)     except in relation to any voluntary redundancies which may be effected by Kimball Wales on or after Completion, none of the Employees has an agreement with BDML entitling such Employee to terminate his employment as a result of the transaction contemplated by this Agreement;

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(xi)     no Employee is on secondment, maternity leave, or has been absent for a period of 28 days or more in any 6 month period within the 12 months ending on the date of this Agreement on grounds of disability, ill-health or other leave of absence;

(xii)     none of the Employees are subject to disciplinary proceedings or grievance procedures.

(xiii)     BDML has paid all sums due in relation to the Employees up to and including the Completion Date (whether arising under common law, statute, equity or otherwise) including all salaries, wages, bonus or commission, expenses, national insurance and pension contributions, liability to taxation and other sums payable in respect of any period up to the Completion Date;

(xiv)     there are no sums owing to or from any Employee other than reimbursement of expenses, salaries and wages for the current salary period, bonuses for the 2006 calendar year and holiday pay for the current holiday year;

(xv)     BDML has not transferred any of the Employees from working within the Operation, it has not induced any Employee to resign their employment in the Operation, and it has not agreed to transfer any Employee from the Operation (without the prior written consent of Kimball Wales;

(xvi)     BDML has not transferred any person who is not an Employee to work in the Operation without the prior written consent of Kimball Wales.

8.20     Intellectual Property. Except as set forth in section 8.20 of the Disclosure Schedule no third party has notified BDML of any complaint, objection or claim for infringements or alleged infringements of intellectual property rights of such third party in relation to any Product (including the processes for production thereof) the sales of which account for more than 5% of the total sales of Product by BDML.

8.21     Works to Land and Buildings

(i)     In response to certain findings made in a report prepared by ENSR International dated October 2005 (the "Report") on behalf of Kimball , BDML has undertaken or procured the carrying on of the following works ("Works") to the Land and Buildings:

(a)     Cleaning of the walls and floor of the previous Hematek area by power washing and acid. The walls and floor were then sealed with special paint;

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(b)     Asbestos treatment in accordance with the summary set forth in Section 8.21 of the Disclosure Schedule

(c)     Collection of oil spilt in the former boiler room using Spilsov Absorbent Pellets which were subsequently disposed of as contaminated waste.

(ii)     The Works have been carried out in a good and workmanlike manner and to the best of BDML's knowledge, information and belief were an appropriate means of dealing with the relevant findings of the Report.

(iii)     In the case of asbestos treatment, an appropriately licensed contractor, selected by BDML after undertaking an appropriate assessment of the contractor's capability, undertook the work and no claims have subsequently been made against the contractor in relation to the work undertaken by it.

(iv)    To the best of BDML's knowledge, information and belief there has been no further discharge of oil from the former boiler room and any residual staining of the floor of the boiler room relates to a previous leakage

9.     LIMITATIONS ON CLAIMS

9.1     This clause limits the liability of BDML and BHC in relation to any claim in respect of any breach of Warranty (a "Claim").

9.2     The liability of BDML and BHC for all Claims when taken together shall not exceed GBP 8,800,000.

9.3     Neither BHC nor BDML shall be liable for a Claim unless:

(a) the amount of the Claim exceeds GBP 25,000; and

(b) the amount of all Claims that are not excluded under 9.3(a) when taken together exceed GBP 100,000, in which event the entire amount of the Claim is recoverable.

9.4     Neither BHC nor BDML shall be liable for a Claim unless Kimball Wales has given BDML notice of the Claim, specifying (in reasonable detail) the nature of the Claim and the amount claimed within the period of three (3) years beginning with the Completion Date and the liability of BDML and/or BHC for the Claim specified in such written notice shall absolutely determine and cease (unless the amount payable in respect of such Claim has been agreed in

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writing by Kimball Wales and BDML within six months of the date of such written notice) or, if legal proceedings have not been instituted in respect of such Claim, by the due service of process on BDML within six months of such written notice.

9.5     Kimball Wales shall, and shall procure that each of its Affiliates shall, take all reasonable steps to avoid or mitigate any loss or liability which may give rise to a Claim or other breach of this Agreement.

9.6     No Claim shall be admissible, and neither BDML nor BHC shall be liable in respect of a Claim to the extent that:

(a)     the liability arises or is increased as a result of, at the request of or is otherwise attributable wholly or partly to any voluntary act, transaction or omission of Kimball and/or Kimball Wales or its respective directors, employees, Affiliates or agents on or after Completion; or

(b)     the liability arises wholly or partly out of or as a result any act, omission carried out by Kimball Wales or any Affiliate of Kimball Wales; or

(c)     it relates to any liability which is contingent only and unless such contingent liability becomes an actual liability and is due and payable, provided that such a claim shall not be barred by operation of clause 9.4 of this Agreement if Kimball gives written notice specifying (in reasonable detail) the facts giving rise to such contingency within the period specified in clause 9.4 and the contingency becomes an actual liability within 6 months of receipt of that written notice; or

(d)     there is a corresponding net saving or benefit to Kimball Wales or any of its Affiliates derived therefrom; or

(e)     to the extent that liability in respect of such Claim arises or is increased wholly or partly as a result of any legislation not in force at the date of this agreement which takes effect retrospectively.

9.7     If Kimball Wales recovers any amount under a policy of insurance or from a Third Party, the amount of the Claim shall then be reduced by the amount recovered (less all reasonable costs, charges and expenses incurred by Kimball Wales in recovering that sum under the policy of insurance or from such Third Party) or be extinguished if the amount recovered exceeds the amount of the Claim, or if the Claim has already been paid to Kimball by BDML and/or

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BHC, then Kimball shall repay to BDML and /or BHC as soon as possible so much of the amount paid to Kimball Wales as does not exceed the sum recovered under the insurance policy or from such Third Party (less all reasonable costs, charges and expenses incurred by Kimball Wales in recovering the sum under the insurance policy or from such Third Party) . Kimball shall not be required to seek recovery against any policy of insurance in respect of any Claim but shall take such reasonable steps as BDML may request to enforce its rights against Third Parties in relation to any Claim, provided that BDML shall reimburse Kimball's reasonable costs and expenses in connection therewith.

9.8     Conduct of Claims Involving Third Parties. Where Kimball Wales has notified BDML of a matter which might give rise to a Claim pursuant to clause 9.4 above and that matter involves a Third Party making a claim against Kimball Wales BDML shall then have the option to elect in accordance with the provisions of clauses 9.9 and 9.10 below to take any action or defend any proceedings against that Third Party ("Third Party Proceedings") in connection with the matter at the sole expense of BDML.

9.9     Proceedings Involving Third Parties. On the written request of BDML received by Kimball Wales within thirty (30) Business Days of the receipt of notice from Kimball Wales pursuant to clause 9.8 above, BDML may elect to take action in connection with any such Third Party Proceedings. Kimball Wales shall have the right to employ its own counsel and participate in the Third Party Proceedings, but the fees and expenses of Kimball Wales' counsel shall be at the expense of Kimball Wales, unless the employment of Kimball Wales' counsel at the expense of BDML shall have been authorized in writing by BDML in connection with the Third Party Proceedings. Under no circumstance may Kimball Wales compromise or settle Third Party Proceedings without the prior written consent of BDML.

9.10     Conduct of the Third Party Proceedings. BDML shall (a) keep Kimball Wales fully informed of the action, suit, proceeding at all stages of the matter whether or not represented; (b) promptly submit to Kimball Wales copies of all pleadings, responsive pleadings, motions and other similar legal documents and papers received in connection with the action, suit or proceeding; (c) permit Kimball Wales and its counsel, to the extent practicable to confer on the conduct of the defense of the action, suit, or proceeding; and (d) to the extent practicable, permit Kimball Wales and its counsel an opportunity to review all legal papers to be submitted before the submission. Subject to an appropriate confidentiality agreement, the parties shall make available to each other and each other's counsel and accountants all of the books and records relating to the action, suit or proceeding and each party shall render to the

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other any assistance as may reasonably be required to ensure the proper and adequate defense of the action, suit or proceeding.

10.       REPRESENTATIONS AND WARRANTIES OF KIMBALL AND KIMBALL WALES

Kimball and Kimball Wales represent and warrant to BDML as follows:

10.1     Kimball Wales's Organization and Good Standing. Kimball and Kimball Wales are limited companies duly organized and validly existing under the laws of the jurisdiction of their formation.

10.2     Enforceability. Kimball and Kimball Wales have full corporate power and authority, and have taken all action necessary to execute and deliver this Agreement and the Transaction Agreements, to enter into this Agreement and to perform their obligations hereunder and thereunder and each such agreement constitutes the legally enforceable obligation of Kimball and Kimball Wales.

10.3     No Conflict with Other Instruments or Proceedings. The signing and delivery of this Agreement and the Transaction Agreements and the consummation of the transactions contemplated hereby and thereby will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, Kimball Wales's memorandum and articles of association or Kimball's corporate charter or by-laws; (b) as far as Kimball is aware, violate any federal, state, or local law, rule, or regulation of any administrative agency or governmental body in the jurisdictions of formation of Kimball and Kimball Wales or any order, writ, injunction, or decree of any court, administrative agency, or governmental body. All consents, approvals, or authorizations of, or declarations, filings, or registrations with, any third parties or governmental or regulatory authorities required of Kimball and Kimball Wales in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been obtained or made, as applicable, by Kimball and Kimball Wales before the Completion Date.

10.4    Brokers. Kimball and Kimball Wales have not retained or employed, and are not and will not be liable to pay, any broker, finder, investment banker, or other person, or taken any action, or entered into any agreement or understanding that would give any broker, finder, investment banker, or other person any valid claim against Kimball or Kimball Wales for a commission, brokerage fee, or other compensation.

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10.5     Kimball Wales has complied and shall comply in all respects with its obligations under Regulation 10(3) of TUPE and it has provided and shall provide BDML with such information as BDML shall reasonably request in writing to verify such compliance.

11.       GENERAL COVENANTS

11.1     Consents and Estoppels. Prior to the Completion, BDML will, where necessary, use reasonable endeavours to obtain consent to the transfer of the Licences and the assignment of the Material Transferring Contracts, except as otherwise specified in section 8.4 of the Disclosure Schedule.

11.2     Confidentiality. Except as otherwise described in this paragraph, and in order to comply with the parties' obligations to inform and consult their employees in accordance with Regulation 10 of TUPE, section 188 of TULR(C)A, any terms of any trade union agreements and good industrial practice, no announcement or other disclosure will be made concerning the contents of this Agreement, the Transaction or any constituent asset or liability or the negotiation of the Transaction Agreements, except as required by law or any regulatory or tax authority or with the joint written approval of BHC and Kimball. Notwithstanding the foregoing, either party may discuss the Transaction with business and/or real estate brokerage firms, as well as prospective purchasers or tenants of portions of the Land and Buildings; provided that such third parties have executed a confidentiality agreement in favour of both Kimball and BHC that is at least as restrictive as this paragraph. In connection with any filing made by Kimball or a Kimball Affiliate with the United States Securities and Exchange Commission (the "SEC") relating to or describing the Transaction, Kimball shall afford BDML and its Affiliates reasonable opportunity to review and request changes in such filing to protect BDML and its Affiliates' information of a competitive or confidential nature and shall use all reasonable efforts to obtain confidential treatment from the SEC of any such information (including provisions of the Transaction Documents) which is required to be included in such filing.

11.3     Following Completion, Kimball Wales agrees to forward to BDML any communication received by Kimball Wales that pertains to Excluded Assets or Excluded Liabilities and to provide, upon reasonable advance notice, all reasonable assistance requested by Bayer (including, for the avoidance of doubt, access to relevant personnel, books and records) (i) to enable BDML to respond to any such communication, (ii) to enable BDML to prepare its accounts and tax returns (including corporation tax, employee taxes and VAT) for the

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financial year during which Completion takes place, and (iii) to enable an audit of those accounts and, if applicable, tax authority audit of those tax returns, to take place.

11.4     Following Completion, Kimball Wales and its Affiliates and BDML and its Affiliates will provide each other with all necessary assistance (including, where appropriate, access to relevant premises) to ensure that upon termination of the Transition Services Agreement the following servers are transferred from their present location to the Operation: One (1) Compaq ProLiant ML530 w/2GB RAM server computer running MS Windows 2000/SP-4 supporting the SAGE production system (BU1166), one (1) Compaq ProLiant ML370 server computer running MS Windows 2000/SP-4 w 2GB RAM supporting the SAGE reporting systems (BU1167), and one (1) Compaq/Hewlett Packard ProLiant DL380 G3 w/3GB RAM server computer running MS-Windows 2003 supporting the LIMS application (BGBNBYSAP01).

11.5     Further Assurances. Kimball, Kimball Wales, BDML and BHC shall execute all documents and take all further actions as may be reasonably required or desirable on or after the Completion to carry out the provisions of this Agreement and the transactions contemplated by this Agreement after the Completion to evidence the consummation of the transactions contemplated pursuant to this Agreement. Upon the terms and subject to the conditions of this Agreement, Kimball Wales and BDML shall take all reasonable actions and do, or cause to be done, all other reasonable things necessary, proper, or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and obtain in a timely manner all necessary waivers, consents, and approvals, and to effect all necessary registrations and filings.

11.6     Broker's Fees. Kimball Wales shall reimburse BDML for any and all broker's fees, finder's fees, agent's commissions, financial adviser's fees, and other similar fees (collectively, "Broker's Fees") imposed on BDML as a result of any actions of Kimball Wales in connection with the performance of this Agreement or the consummation of the transactions contemplated by this Agreement. Likewise, BDML shall reimburse Kimball Wales for any and all Broker's Fees imposed on Kimball Wales as a result of any actions of BDML in connection with the performance of this Agreement or the consummation of the transactions contemplated by this Agreement.

11.7     Packaging and Labelling. Kimball Wales agrees to and undertakes to procure that its Affiliates will not use any packaging or labelling materials bearing the name of BDML except

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to package or label products sold to BHC or Affiliates of BHC pursuant to the Contract Manufacturing Agreement.

12.       EMPLOYEES

12.1     BDML and Kimball Wales acknowledge and agree that the sale and purchase pursuant to this Agreement will constitute a relevant transfer for the purposes of TUPE and, accordingly, that such transfer will not operate so as to terminate the contracts of employment of any of the Employees. Such contracts shall be transferred to Kimball Wales with effect from the Completion Date.

12.2     Consultations. BDML will consult with Employees, up to and including the Completion Date, as required under regulation 10 of TUPE, and any trade union agreements, with respect to the sale of the Operation (the Consultations). It is understood and agreed that BDML and Kimball Wales shall cooperate and consult with each other to the extent reasonable in connection with all efforts and plans that are developed and implemented in respect of the Consultations.

12.3     Redundancy Information. BDML will use commercially reasonable efforts to facilitate the transfer on behalf of Kimball Wales of information regarding a proposed voluntary redundancy program to be implemented by Kimball Wales on or after the Completion Date. Any such information shall concern voluntary redundancies of no more than 19 Employees. For the avoidance of doubt, BDML's obligations in this clause 12.3 shall be limited to the provision of reasonable and relevant information on behalf of Kimball Wales for the purposes of applications for voluntary redundancy on or after the Completion Date and shall not in any circumstances concern the implementation of any such redundancies. Subject to clauses 15.1. (b) and 15.2.2, all payments to be made to any Employees in connection with any redundancies effected on or after the Completion Date (including but not limited to statutory, ex gratia and contractual redundancy payments) shall be made by Kimball Wales directly to the relevant Employees.

12.4     BDML, Kimball and Kimball Wales shall at all times cooperate and consult with each other to the extent reasonable in connection with all efforts and plans that are developed in connection with the proposed voluntary redundancies. Such efforts shall be carried out by BDML in cooperation with Kimball and/or Kimball Wales to the extent reasonable and in accordance with the reasonable recommendations and requests of Kimball and/or Kimball Wales and within the scope of clauses 12.3 and 12.4. For the avoidance of doubt, BDML

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shall have no obligation under clauses 12.3 and 12.4 to implement any voluntary or compulsory redundancies, or assist Kimball and/or Kimball Wales to implement any voluntary or compulsory redundancies.

12.5     Compromise Agreements. Kimball Wales and BDML shall enter into a tripartite compromise agreement with each Employee who is formally accepted for voluntary redundancy either on or after Completion (the "Accepted Employees") in the form agreed and attached hereto as Schedule 11 (the "Compromise Agreements"), subject to the refusal of an Accepted Employee to enter into a Compromise Agreement with either party. Kimball Wales shall conduct any necessary negotiation with the Accepted Employees on the terms of the Compromise Agreements. Any changes made to the form of the Compromise Agreements as contained in Schedule 11 must be agreed in writing with BDML prior to final confirmation of the terms of each Compromise Agreement with the relevant Accepted Employee, such consent not to be unreasonably withheld or delayed. Kimball Wales shall be wholly liable for all costs incurred by Kimball Wales in the drafting and negotiation of any Compromise Agreement and to any Accepted Employee for any contribution that Kimball Wales agrees to make towards the legal fees that any Accepted Employee may incur in obtaining independent legal advice on the terms of the Compromise Agreement and shall indemnify and keep indemnified BDML for any Demand arising from or in connection with such costs or fees.

12.6     [Intentionally omitted]

12.7     [Intentionally omitted]

12.8     Without prejudice to the other provisions of this clause 12, each party shall, at its own expense, give the other party such assistance as that party may reasonably require to contest any Demand by any person employed or engaged in the Operation at or prior to the Completion Date, or their representatives resulting from or in connection with this agreement, subject always to the parties' obligations under the Data Protection Act 1988 (DPA 1998).

12.9     BDML shall, upon request by Kimball Wales and at BDML's expense, provide to Kimball Wales such information or documents as Kimball Wales may reasonably require relating to the terms of employment, pension and life assurance arrangements, health benefits, welfare or any other matter concerning any of the Employees or any trade union, employee representative or body of employees or their representatives or relating to collective agreements or individual grievances in the period prior to Completion.

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12.10     Bonus Payments.

It is acknowledged and agreed that BDML has paid all bonus payments payable to Employees for the bonus period 1 January to 31 December 2005 and BDML shall have no liability whatsoever for any payments relating to or arising from bonus payments payable to Employees for the bonus period 1 January to 31 December 2006.

13.     PENSIONS

On Completion the Employees will no longer be able to participate in any Bayer Group-related pension plans (collectively referred to as the Bayer Pension Plan) as active members and will cease to accrue any future service benefits in the Bayer Pension Plan. BDML shall remain solely responsible for any and all pension-related obligations, benefits and commitments of Employees relating to the period before the Completion Date. Kimball and/or Kimball Wales will put in place pensions arrangements in respect of the Employees with effect following the Completion Date in compliance with the new requirements of the Pensions Act 2004 in relation to what a purchaser must provide to transferring employees on a business acquisition. The benefits which the Employees have accrued up to the Completion Date in the Bayer Pension Plan will remain in the Bayer Pension Plan.

14.     VALUE ADDED TAX

14.1     BDML and Kimball Wales intend that article 5 of the Value Added Tax (Special Provisions) Order 1995 shall apply to the sale of the Operation and the Transferring Assets under this Agreement and agree to use all reasonable endeavours to secure that the sale is treated as neither a supply of goods nor a supply of services under that article.

14.2     If, nevertheless, any VAT is payable on the sale of the Operation and the Transferring Assets under this Agreement and HM Revenue and Customs have so confirmed in writing after full disclosure of all material facts, Kimball Wales shall pay to BDML the amount of that VAT immediately on payment of the VAT by BDML or, if later, promptly after delivery by BDML to Kimball Wales of a proper VAT invoice in respect of it, together with a copy of the confirmation from HM Revenue and Customs that VAT is payable and of the document disclosing all material facts as described in clause 14.3.

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14.3     For the purposes of clause 14.2, VAT shall only be treated as payable if HM Revenue and Customs have so confirmed in writing after full disclosure of all material facts.

14.4     Before sending any relevant letter to HM Revenue and Customs, BDML shall give Kimball Wales a reasonable opportunity to comment on it and shall make such amendments as Kimball Wales reasonably requires.

14.5     If Kimball Wales pays BDML an amount in respect of VAT under clause 14.2 and HM Revenue and Customs note that all or part of it was not properly chargeable, BDML shall repay the amount or relevant part of it to Kimball Wales. BDML shall make the repayment promptly after the ruling, unless it has already accounted to HM Revenue and Customs for the VAT. In that case, BDML shall apply for a refund of the VAT (plus any interest payable by HM Revenue and Customs), use reasonable endeavours to obtain it as speedily as practicable, and pay to Kimball Wales the amount of the refund and any interest when and to the extent received from HM Revenue and Customs.

14.6     BDML and Kimball Wales intend that BDML should retain the records referred to in section 49 of VATA 1994 (VAT Records) and accordingly:

(a)     BDML shall immediately make a request to HM Revenue and Customs for a direction that the VAT Records be preserved by BDML;

(b)     BDML shall promptly notify Kimball Wales of the result of that request and, if HM Revenue and Customs do not grant it, shall deliver the VAT Records to Kimball Wales as soon as reasonably practicable; and

(c)     BDML shall:

(i) preserve the VAT Records in the United Kingdom for such period as may be required by law;

(ii) so long as it preserves the VAT Records, permit Kimball Wales reasonable access to them to inspect or make copies of them;

(iii) not at any time cease to preserve the VAT Records without giving Kimball Wales a reasonable opportunity to inspect and remove such of them as Kimball Wales wishes; and

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(iv) if all the VAT Records are to be delivered to Kimball Wales under clause 14.6 (b), clause 14.6 (c) shall apply as if references to BDML were references to Kimball Wales and vice versa.

15.       INDEMNIFICATION

15.1     Indemnity by BDML Subject to clauses 15.1(b) and 15.3, BDML and/or BHC shall defend, indemnify, keep indemnified and hold harmless Kimball Wales against any and all loss, cost, damage, assessment, administrative fine or penalty, liability, obligation, Demands, claim, or expense (including reasonable attorneys' and other professional fees and similar expenses) (collectively, the "Indemnified Losses") from, resulting by reason of, or arising in connection with:

(a)     any of the following employment-related matters:

(i)     any Demand (including reasonable legal and other professional fees and expenses) by or on behalf of any of the Employees arising from or in connection with their employment or its termination prior to the Completion Date except any such Demand arising from or in connection with any act or omission of Kimball and/or Kimball Wales on or prior to Completion, including but not limited to provision of information in accordance with Kimball and/or Kimball Wales's obligations under Regulation 10(3) of TUPE; or

(ii)     any Demand (including reasonable legal and other professional fees and expenses) by any Employee, trade union, employee representative or body of employees or their representatives in respect of any of the Employees, arising from or connected with any failure by BDML prior to the Completion Date to comply with its legal obligations under clause 12.2 of this Agreement except any such Demand arising from or in connection with the failure by Kimball and/or Kimball Wales to provide information in accordance with its obligations under Regulation 10(3) of TUPE; or

(iii)     any act or omission of BDML prior to Completion which, by virtue of TUPE, is deemed to be an act or omission of Kimball and/ or Kimball Wales.

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(b)     In respect of the indemnities provided by BDML and/or BHC in clause 15.1.1(a), BDML and/or BHC shall only indemnify Kimball Wales for fifty per cent (50%) of such liabilities which arise out of any Demand related to (i) failure to consult in relation to the proposed voluntary redundancies of up to 19 Employees as described in clauses 12.3 and 12.4 or (ii) any unfair or constructive dismissal in respect of any termination of employment directly or indirectly as a result of voluntary redundancies of up to 19 Employees as described in clauses 12.3 and 12.4.

(c)     any ownership of the Transferring Assets or any matter relating to the conduct of the Operation by BDML before the Completion Date including without limitation, any Bayer Pension Plan-related obligations, any Bayer Group-, BHC- and/or BDML-related health care plan obligations, the purchase and/or sale of all goods and services, except the Assumed Liabilities.

15.2    Indemnity by Kimball Wales.

15.2.1     Subject to clauses 15.2.2 and 15.3, Kimball and/or Kimball Wales shall defend, indemnify, keep indemnified and hold harmless BDML against and with respect to any and all Indemnified Losses from, resulting by reason of, or arising in connection with:

(a)     any ownership of the Transferring Assets, or any matter relating to the conduct of the Operation by Kimball Wales, the Assumed Liabilities and the purchase and/or sale of all goods and services on or after the Completion Date, save and except with respect to any claim made by BDML or BHC under the Contract Manufacturing Agreement;

(b)     any Demand (including reasonable legal and other professional fees and expenses) by or on behalf of any Employee or any payments (including but not limited to statutory, ex gratia and contractual redundancy payments) arising from or in connection with the redundancy of any Employee (whether voluntary or compulsory) which is effected on or after the Completion Date (including any liability which relates to an Employee's continuous period of service);

(c)     any Demand (including reasonable legal and other professional fees and expenses) by or on behalf of any of the Employees arising from or in

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connection with their employment or its termination (whether by voluntary or compulsory redundancy or otherwise) by Kimball Wales on or after the Completion Date or any act or omission of Kimball and/or Kimball Wales on or after the Completion Date except any such Demand arising from or in connection with any misrepresentation by BDML of the information provided by Kimball and/or Kimball Wales in accordance with Regulation 10(3) of TUPE of which Kimball and/or Kimball Wales was not aware prior to or on Completion;

(d)     any Demand (including reasonable legal and other professional fees and expenses) by or on behalf of any of the Employees arising from or in connection with the wrongful, constructive or unfair dismissal claim of any Employee where such claim arises from or in connection with any information provided by Kimball and/or Kimball Wales (either directly or indirectly) to any or all of the Employees except any such Demand arising from or in connection with any misrepresentation by BDML of the information provided by Kimball and/or Kimball Wales in accordance with Regulation 10(3) of TUPE of which Kimball and/or Kimball Wales was not aware prior to or on Completion;

(e)     any Demand (including reasonable legal and other professional fees and expenses) by any employee, trade union, employee representative or body of employees or their representatives in respect of any of the Employees, arising from or connected with any failure by Kimball Wales to comply with its obligations under clause 10.5 of this Agreement and any failure by Kimball and/or Kimball Wales to inform and consult any Employee in connection with redundancy (whether voluntary or compulsory) made on or after Completion;

and in all relevant cases including any liability which relates to an Employee's continuous period of service.

15.2.2     Notwithstanding the indemnities provided by Kimball Wales in clause 15.2.1, Kimball Wales shall only indemnify BDML for fifty per cent (50%) of such liabilities which arise out of any Demand related to (i) failure to consult in relation to the proposed voluntary redundancies of up to 19 Employees as described in clauses 12.3 and 12.4or (ii) any unfair or constructive dismissal in respect of any termination of

31

employment directly or indirectly as a result of the voluntary redundancies of up to 19 Employees as described in clauses 12.3 and 12.4. Such limitation of liability is strictly limited to (i) and (ii) above only.

15.2.3     In respect of those liabilities for which each party has agreed to indemnify the other party for fifty per cent (50%) of such liabilities, neither party shall settle any Demand without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed.

15.3     BDML and/or BHC shall not be liable in respect of any claim under the indemnity in clause 15.1, and Kimball Wales and/or Kimball shall not be liable in respect of any claim under the indemnity in clause 15.2, to the extent that the liability occurs or is increased directly or indirectly as a result of any legislation not in force on or prior to the date of this Agreement or as a withdrawal of any extra- statutory concession or other agreement or arrangement currently granted by or made with any governmental or tax authority or as a result of any change after the date of this Agreement of any generally accepted interpretation of application of any legislation or in the enforcement policy or practice of the relevant authorities.

15.4     Survival. An indemnified party's right to seek indemnification under this clause shall survive the Completion indefinitely. For purposes of the preceding sentence, a claim shall be deemed made upon the commencement of an independent judicial proceeding with respect to the matter underlying the claim or receipt by the indemnifying party of a written notice of claim setting forth the amount of the claim (if known by the indemnified party) and a general description of the facts underlying the claim.

15.5     Third-Party Claims.

15.5.1     Notice of Third-Party Claims. If any action, suit, or proceeding (including claims by federal, state, local, or foreign tax authorities) shall be threatened or commenced against an indemnified party by a third party (a "Third Party Claim") in respect of which the indemnified party may demand indemnification from the indemnifying party under this Agreement, the indemnified party shall notify the indemnifying party to that effect with reasonable promptness after receiving written notice of the action, suit, or proceeding in accordance with clause 15.6 of this Agreement, and, provided that the Third Party Claim does not involve to a significant extent matters beyond the scope of the indemnity provided for in this Agreement, the indemnifying party shall have the option to elect in accordance with the provisions of clause 15.5.2 below

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(provided the indemnifying party shall have acknowledged in writing that the indemnifying party is obligated under the terms of this Agreement to indemnify the indemnified party) to defend against the action, suit, or proceeding, at the indemnifying party's sole expense, subject to the limitations set forth below.

15.5.2     Defense of Claims. On the written request of the indemnifying party received by the indemnified party within thirty (30) Business Days of the receipt of notice of the action from the indemnified party the indemnifying party may elect to defend against an action, suit, or proceeding relating to a Third Party Claim. The indemnified party shall have the right to employ the indemnified party's own counsel and participate in the defense of the case, but the fees and expenses of the indemnified party's counsel shall be at the expense of the indemnified party, unless the employment of the indemnified party's counsel at the expense of the indemnifying party shall have been authorized in writing by the indemnifying party in connection with the defense of the action, suit, or proceeding . Under no circumstances may the indemnified party compromise or settle a claim that is subject to indemnification by the indemnifying party without the written consent of the indemnifying party, which consent shall not be unreasonably withheld. Under no circumstances may the indemnifying party compromise or settle a claim that is subject to indemnification by it without the written consent of the indemnified party, which consent shall not be unreasonably withheld and provided that the indemnifying party shall have no liability arising therefrom in excess of the figure at which they could have settled or compromised the Third Party Claim.

15.5.3     Conduct of Defense. Any party granted the right to direct the defense of a claim pursuant to this Article shall: (a) keep the other party to this Agreement fully informed of the action, suit, or proceeding at all stages of the matter, whether or not represented; (b) promptly submit to the other party copies of all pleadings, responsive pleadings, motions, and other similar legal documents and papers received in connection with the action, suit, or proceeding; (c) permit the other party to this Agreement and its counsel, to the extent practicable, to confer on the conduct of the defense of the action, suit, or proceeding; and (d) to the extent practicable, permit the other party to this Agreement and its counsel an opportunity to review all legal papers to be submitted before the submission. Subject to an appropriate confidentiality agreement, the parties shall make available to each other and each other's counsel and accountants all of the books and records relating to the action, suit, or proceeding, and

33

each party shall render to the other any assistance as may be reasonably required to ensure the proper and adequate defense of the action, suit, or proceeding.

15.6     Claims by the Indemnified Party. The indemnified party shall notify the indemnifying party in writing with reasonable promptness after the discovery of any claim upon which the indemnified party will demand indemnification from the indemnifying party under this Agreement. To the extent possible, the notice shall describe in reasonable detail the basis for the claim, include an itemized accounting of the claim, and provide a good faith estimate of the amount of the Indemnified Loss. Within 60 days after receipt of the notice, the indemnifying party shall either reimburse the indemnified party for the amount of the claim (or acknowledge the indemnified party's right of offset) or notify the indemnified party of the indemnifying party's intent to dispute the claim. The foregoing notwithstanding, if the indemnified party would otherwise be entitled to indemnification under this Agreement but for the indemnified party's failure timely to deliver a notice, the indemnified party shall nevertheless be entitled to be indemnified under this clause unless the indemnifying party can establish that the indemnifying party has been prejudiced by any time elapsed or by any intervening payment, settlement, or other disposition of the claim.

15.7     Remedies Cumulative. The remedies provided in this clause are cumulative and shall not prevent the assertion by the indemnified party of any other rights or the seeking of any other remedies against the indemnifying party.

16.       MISCELLANEOUS

16.1     Ordinary and Usual Course. As used in this Agreement, the phrases "ordinary and usual course," "ordinary and usual course of business," "ordinary course of business," and similar phrases mean activity that is performed in accordance with BDML's historical and customary practices with respect to the activity.

16.2     Risk of Loss. The risk of loss or destruction of, or damage to, the Transferring Assets (a "Loss") shall be on BDML at all times prior to the Completion Date. All insurance proceeds received by BDML with respect to any Loss shall be applied to replacement, restoration, or repair, or if not so applied before the Completion Date, shall be remitted to Kimball Wales promptly after receipt. Any obligation of BDML to repair, replace, and restore the Transferring Assets shall terminate on the Completion Date. Notwithstanding any other provision of this clause BDML shall be entitled to retain any insurance proceeds to the extent

34

BDML previously has expended amounts to repair, replace, or restore a Loss to the Transferring Assets before the Completion Date.

16.3     Assignment and Benefits. No party to this Agreement may assign or transfer this Agreement, either directly or indirectly, by merger, liquidation, consolidation, sale of stock, change of control, operation of law, or other means, without the prior written consent of each party to this Agreement, except that either party may assign all or part of its respective interest in this Agreement to its respective successors, or one or more persons or entities controlling, controlled by, or under common control with either respective party. Any assignment of the obligations of this Agreement shall not release the assignor or any guarantor from the duty to perform that person's obligations under this Agreement. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective successors and permitted assigns of each party to this Agreement.

16.4     Notices. All notices, requests, demands, and other communications under this Agreement shall be delivered, sent by telecopy, or sent by express delivery service with charges prepaid and receipt requested, or, if those services are not reasonably available, mailed (postage prepaid) by certified mail with return receipt requested and shall be deemed to have been duly given when received:

To Kimball Wales at:                           With a copy to:
_____________________                   Kimball International, Inc.
1600 Royal Street                                1600 Royal Street
Jasper, Indiana 47549                          Jasper, Indiana 47549
Attn: Donald D. Charron, President     Attn: Legal Department
Fax No.: 812-482-8060                       Fax No.: 812-482-8832

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To BDML at:                                         With a copy to BHC at:
Bayer House                                          511 Benedict Avenue
Strawberry Hill                                      Tarrytown
Newbury                                                New York
Berkshire                                               10591
RG14 1JA                                              USA
UK
Attn: Company Secretary                        Attn: Law & Patents
Fax No.: 01635 563066                         Fax No.: 914-524-3594

Any party may change that party's address by prior written notice to the other parties.

16.5     Expenses. Each party to this Agreement shall pay that party's respective expenses, costs, and fees (including professional fees) incurred in connection with the negotiation, preparation, execution, and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement.

16.6     Entire Agreement. This Agreement, and the exhibits and schedules (which are incorporated in this Agreement by reference), and the Transaction Agreements and any other supplemental agreements delivered at Completion in connection herewith, contain the entire agreement and understanding of the parties and supersede all prior agreements, negotiations, arrangements, and understandings relating to the subject matter of this Agreement.

16.7     Amendments and Waivers. This Agreement may be amended, modified, superseded, or canceled, and any of the terms, covenants, representations, warranties, or conditions of this Agreement may be waived, only by a written instrument signed by each party to this Agreement or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision in this Agreement shall not affect the right of that party at a later time to enforce that or any other provision. No waiver by any party of any condition, or of any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be a further or continuing waiver of any condition or of any breach of any other term, covenant, representation, or warranty.

16.8     No Third-Party Beneficiaries. A person who is not party to this Agreement has no right under the Contracts (Rights of Third Parties Act) 1999 to enforce any term of this Agreement

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but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

16.9     No Double Recovery. Neither Kimball nor Kimball Wales is entitled to recover more than once in respect of any matter giving rise to a Claim, a claim under the indemnities or breach of this Agreement. Furthermore Kimball and Kimball Wales are not both entitled to recover in respect of the same matter giving rise to a Claim, a claim under the indemnities or breach of this Agreement

16.10     Severability. Except as otherwise specifically provided in this Agreement, this Agreement shall be interpreted in all respects as if any invalid or unenforceable provision were omitted from this Agreement. All provisions of this Agreement shall be enforced to the full extent permitted by law.

16.11     Headings. The headings of the sections and subsections of this Agreement have been inserted for convenience of reference only and shall not restrict or modify any of the terms or provisions of this Agreement.

16.12     Governing Law and Jurisdiction. This Agreement shall be governed by and will be construed in accordance with English law. The courts of England have exclusive jurisdiction to settle any dispute arising from or in connection with this Agreement.

16.13     Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Unless otherwise expressly provided, the words "include" and "including" (and variations of those words) whenever used in this Agreement shall not limit the preceding words or terms.

16.14     Definitions

"Affiliate" means in relation to a company its holding company and all companies and undertakings which are now or in the future become Subsidiaries or subsidiary undertakings of that company or any such holding company;

"Business Day" means a day other than Saturday or Sunday or a public holiday in England and Wales;

"Demand" means any action, award, claim or other legal recourse, complaint, cost, demand, expense, liability, loss, outgoing, penalty or proceeding;

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"Employees" means the persons wholly or mainly employed or engaged by BDML at the Operation on the Completion Date and who are listed in Schedule 7);

"Japanese Stock" means the Stock which, as of March 31. 2006, is in transit from Japan to the Land and Buildings;

"Land and Buildings" means the premises at Western Avenue, Bridgend, Wales and including all fixtures and equipment that are transferred to the Developer pursuant to the Transfer;

"Last Accounting Date" means August 31, 2005;

"Licence relating to the Land and Buildings" means the licence in respect of part of the Land and Buildings in the agreed form between Kimball Wales and the Developer and to be entered into on the same date as this Agreement;

"Material Transferring Contracts" means all written contracts or agreements for the purchase or supply of any single commodity, material or piece of equipment, or provision of services involving expenditure of more than GBP 20,000 and which by their terms do not or may not be terminated without penalty on no more than 90 days' notice;

"Merger Control Filings" means filings, notifications, submissions, or requests for authorization in relation to concentrations between undertakings of the type envisaged by Regulation 139/2004 EC and comparable legislation in other jurisdictions;

"Parts Distribution Agreement" means the agreement in the agreed form between Bayer Diagnostics Europe Limited and Kimball Wales to be entered into on the same day as this Agreement;

"Subsidiary" means in relation to a company wherever incorporated (a holding company) means a subsidiary as defined in section 736 of the Companies Act 1985 and any other company which is itself a subsidiary (as so defined) of a company which is itself a subsidiary of such holding company. Unless the context otherwise requires, the application of this definition to any company at any time will apply to the company as it was at that time, and a subsidiary undertaking shall be construed in accordance with section 258 of that Act;

"Transaction Agreements" means the Contract Manufacturing Agreement, the Transitional Services Agreement, and the Parts Distribution Agreement;

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"Transfer" means the agreed form transfer in relation to the Land and Buildings attached as Schedule 4;

"Transitional Services Agreement" means the agreement in the agreed form pursuant to which certain agreed services are provided by Bayer PLC to Kimball Wales to be entered into on the same day as this Agreement;

"TULR(C)A" means the Trade Union and Labour Relations (Consolidation) Act 1992 (as amended from time to time);

"TUPE" means the Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended from time to time) or any other applicable legislation governing the transfer of business from time to time in force.

16.15     Counterparts. This Agreement may be signed in original or by fax in counterparts, each of which shall be deemed to be an original, and the counterparts shall together constitute one complete document.

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SIGNED on behalf of BAYER HEALTHCARE LLC
SIGNATURE:	/s/ Anthony P. Bihl, III
NAME:	ANTHONY P. BIHL, III
POSITION:	President, Diagnostics Division

SIGNED on behalf of BAYER DIAGNOSTICS MANUFACTURING LIMITED
SIGNATURE:	/s/ Lambert Courth
NAME:	LAMBERT COURTH
POSITION:	Director

SIGNED on behalf of KIMBALL ELECTRONICS MANUFACTURING, INC. AND
SIGNATURE:	/s/ R. Gregory Kincer
NAME:	R. GREGORY KINCER
POSITION:	Vice President

SIGNED on behalf of KIMBALL ELECTRONICS (WALES) LIMITED
SIGNATURE:	/s/ Donald D. Charron
NAME:	DONALD D. CHARRON
POSITION:	Director

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EX-10

Exhibit 10(a)

 

KIMBALL INTERNATIONAL, INC.



SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
(SERP)
(2006 Revision)


 

TABLE OF CONTENTS

 

Article 1 -- Name and Purpose of Plan..................................................................	1
Article 2 -- Effective Date of Plan; Plan Year; Fiscal Year...................................	1
Article 3 -- Participants..........................................................................................	1
Article 4 -- Deferral Election.................................................................................	2
Article 5 -- Deferred Compensation Accounts.....................................................	2
Article 6 -- Distribution of Deferred Compensation Accounts...............................	3
Article 7 -- Retirement Plan "Makeups"................................................................	3
Article 8 -- Participant's Rights..............................................................................	4
Article 9 -- Nonalienability and Nontransferability................................................	4
Article 10 -- Administration of Plan.......................................................................	5
Article 11 -- Amendment and Termination of Plan................................................	5
Article 12 -- Rabbi Trust........................................................................................	5
Article 13 -- General Provisions.............................................................................	5

KIMBALL INTERNATIONAL, INC.

SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
(SERP)
(2006 Revision)
 

Article 1 -- Name and Purpose of Plan

The name of this Plan is the Kimball International, Inc. Supplemental Employee Retirement Plan (the "Plan" or the "SERP" ), formerly called the Supplemental Executive Retirement Plan. Its purpose is to provide a select group of United States officers and senior managers employed by Kimball International, Inc. (the Company) with the opportunity to defer cash compensation otherwise payable to them as employees of the Company. The Plan shall be administered by the SERP Committee as provided in Article 10.


Article 2 -- Effective Date of Plan; Plan Year; Fiscal Year

The Plan shall be effective as of July 1,1994--the first day of the Company's 1994-95 fiscal year. Beginning January 1, 1996 and prior to 2005 the Plan Year was the calendar year. Beginning in 2005 the Plan effectively will be administered on a July 1 through June 30 fiscal year basis.


Article 3 -- Participants

Each person who is a United States officer of the Company on or after the Effective Date and the following senior managers (unless and until such senior manager is declared ineligible by the Chief Executive Officer of the Company) : Julie Dutchess; Terry Flick; Dennis Gerber; Tom Heeke; John Kaufmann; Joan Lubbers; Lonnie Nicholson; Sandy Smith; Chris Thyen; Kurt Vonderheide; Keith Beatty; Sherril Lueken; and Wendell Sloan (each such officer and named senior manager being an "Eligible Employee") shall be eligible to participate in the Plan, but only during the period of time that he is and remains a United States officer or senior manager as designated above ; provided, however that such person is one of the highest 4% paid employees of the Company. Any Eligible Employee who elects to participate in the Plan shall hereinafter be called a "Participant." The Company shall establish for each Participant a deferred compensation account, as specified in Article 5.

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Article 4 -- Deferral Election

Each Participant shall be entitled to make an advance written irrevocable election to defer receipt of up to 50% of the cash compensation otherwise payable by the Company to him for the 1994-95 fiscal year of the Company, and up to 25% (10% before January 1, 2002) of the cash compensation otherwise payable by the Company to him for any later year. Such election may be expressed in terms of a percentage or percentages of compensation, or if permitted by the SERP Committee, a specified dollar amount. This written election shall include elections as to the period of deferral, the form of payment, and a beneficiary. The written irrevocable election must be received by the Company by May 31, 1994 for the 1994-95 fiscal year, by December 31, 1994 for the period from July 1, 1995 through December 31, 1995, by December 31 of the years 1995 through 2003 for the following calendar year, by December 31, 2004 for the 18-month period starting January 1, 2005 and ending June 30, 2006, which includes the last six months of the Company's 2004-2005 fiscal year and the entire 12 months of the Company's 2005-2006 fiscal year, and by the December 31 six months preceding the beginning of any later fiscal year of the Company.

A Participant may elect:

a.   Before the December 31 specified above, to change the amount of cash compensation to be deferred for the following period, and, subject to the provisions of Article 6, the period of deferral and/or the form of payment thereof; and/or

b.   At any time, to change his beneficiary designation.

Article 5 -- Deferred Compensation Accounts

A separate account within the financial records of the Company shall be established and maintained for each Participant. This account shall reflect the cash compensation deferred by the Participant, and any investment earnings or losses credited thereto from time to time.

The cash compensation deferred hereunder by a Participant and any Retirement Plan make-ups made pursuant to Article 7 shall be credited with deemed investment earnings or losses in accordance with procedures established from time to time by the SERP Committee. In particular, the SERP Committee may treat all or a portion of a Participant's account as though it were invested in the same manner as the Participant's account in the Company's Retirement Plan. The Participant shall receive a statement of account at least annually.

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Article 6 -- Distribution of Deferred Compensation Accounts

Form of Payment; Separation from Company Service. Subject to the following provisions of this Article 6 and to the provisions of Article 7, a Participant's deferred compensation account shall be payable in accordance with the Participant's elections made under Article 4 -- in a lump sum or in installment payments over a period of either 5 or 10 years. No distribution of a Participant's deferred compensation account shall be made except as provided in this Article 6 or in Article 7. Whenever a payment is to be made under this Plan the SERP Committee shall cause it to be paid as soon as administratively practical following the event causing such payment to be due, but to insure full compliance with the American Jobs Creation Act of 2004, after 2004 no payment under this Plan (except as provided in the following two paragraphs) shall be made sooner than six months and a day following the Participant's separation from Company service as determined in accordance with Internal Revenue Code Section 409A and the U.S. Treas. Regulations and applicable Internal Revenue Service guidance issued thereunder.

Death. If the Participant dies before receiving all amounts credited to his deferred compensation account, then the unpaid amounts in the Participant's account shall be paid to the Participant's designated beneficiary in a single lump sum following the Participant's death. If the Participant has no surviving or existing designated beneficiary, then the amounts shall be paid to the Participant's estate.

Unforeseeable Emergency. Notwithstanding the deferral election made by a Participant pursuant to Article 4, a Participant may request an earlier distribution for an unforeseeable emergency as determined in accordance with Internal Revenue Code Section 409A and the U.S. Treas. Regulations and applicable Internal Revenue Service guidance issued thereunder. The SERP Committee, in its sole discretion (after consulting with Company legal counsel, to the extent it deems necessary), shall make the determination of whether a severe financial hardship to a Participant resulting from illness, accident or other casualty beyond the control of the Participant constitutes such an unforeseeable emergency; and the amount of any such distribution shall not exceed the amount necessary to meet the emergency, after taking into consideration the extent to which other sources may be used to relieve the financial impact of it.


Article 7 -- Retirement Plan "Makeups"

A Participant's compensation that is deferred under this Plan, as well as a Participant's compensation in excess of the Internal Revenue Code Section 401(a)(17) limits, will not be eligible compensation for purposes of calculating the amount of the Participant's allocations under the Company's Retirement Plan. In addition, Internal Revenue Code Section 415 may further limit the amount of Company contributions that can be allocated to the account of a Participant under the Retirement Plan.

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Pursuant to rules and procedures established by the SERP Committee, any loss of Company contributions under the Company's Retirement Plan for a Company fiscal year due to the deferral of compensation under this Plan or to the application of Internal Revenue Code Section 401(a)(17) and/or Section 415 may be compensated for by the Company through a deposit by the Company to the Participant's deferred compensation account in an amount equal to the lost Company contribution that would otherwise have been allocated to the Participant's account under that Plan for that fiscal year if there had been no deferral of compensation made under this Plan and if the limitations of Internal Revenue Code Sections 401(a)(17) and 415 did not exist. Such deposit shall be subject to the applicable vesting provisions of the Retirement Plan.

The portion of a Participant's deferred compensation account attributable to a Company deposit made under this Article 7 for a Company fiscal year shall be distributed in exactly the same manner as the elective deferred compensation of the Participant for the period in which that fiscal year ends is distributed under Article 6; provided that if no deferral election was made by the Participant under Article 4 for such period, then distribution of the Company deposit portion of the Participant's account for that fiscal year shall be made as though the Participant had elected a lump sum form of payment therefor.


Article 8 -- Participant's Rights

The establishment of this Plan shall not be construed as giving any Participant the right to be retained in the Company's service or employ, or the right to receive any benefits not specifically provided by the Plan. A Participant shall have an immediate 100% vested interest in the portion of his deferred compensation account attributable to his deferrals elected pursuant to Article 4 (including investment earnings or losses credited under Article 5); and a Participant shall have the same percentage vested interest in the Company contributions made to his account under Article 7 (including investment earnings or losses credited under Article 5) that he has in the Company contributed portion of his account under the Company's Retirement Plan.


Article 9 -- Nonalienability and Nontransferability

The rights of a Participant to the distribution of his deferred compensation account shall not be assignable or transferable, or be subject in any manner to alienation, anticipation, pledge, encumbrance or charge. No Participant may borrow against his account. No account shall be subject in any manner to garnishment, execution, or levy of any kind, whether voluntary or involuntary, including but not limited to any liability that is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of a Participant, except to the extent lawfully ordered by a domestic relations court, provided that no such order may require payment of benefits under this Plan in any form, or at any time, not otherwise permitted under Article 6 or Article 11 of the Plan.

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Article 10 -- Administration of Plan

This Plan shall be administered by the SERP Committee appointed by the Board of Directors of the Company. That Committee shall have authority to adopt rules and regulations for administering the Plan, to interpret, construe, and implement the provisions hereof, and in particular, to insure full compliance with the American Jobs Creation Act of 2004. Any decision or interpretation of any provision of the Plan adopted by that Committee shall be final and conclusive. A Participant who is a member of that Committee shall not participate in any decision involving a request made by him or relating specifically to his rights, duties, and obligations as a Participant.


Article 11 -- Amendment and Termination of Plan

The Plan may, at any time and from time to time, be amended, modified, or terminated by the SERP Committee; provided, however, that in no event may an amendment, modification, or termination of the Plan adversely affect any Participant's rights with respect to amounts then-accrued in his deferred compensation account or result in any payment or distribution under the Plan to a Participant at a time earlier than that provided under Article 6 or Article 7. Unless this Plan is subsequently amended (consistent with the provisions of Internal Revenue Code Section 409A and governmental guidance issued thereunder), the restrictions on distribution contained in Article 6 and Article 7 shall continue to apply even in the case of a change-in-control event.


Article 12 -- Rabbi Trust

Any and all compensation deferred by a Participant may be held, in the discretion of the Company, under a grantor trust (i.e., a "rabbi trust") established for this Plan and located solely within the United States of America, as required by Internal Revenue Code Section 409A. Plan Participants and beneficiaries shall have no interest in the assets of the trust or in any specific assets of the Company relative to rights and/or benefits under this Plan; and the rights to deferred amounts in the trust shall be subject to the nonalienability and nontransferability restrictions set forth in Article 9. Participants shall have rights under this Plan no greater than the rights of a general, unsecured creditor of the Company.


Article 13 -- General Provisions

a.   Controlling Law. Except to the extent superseded by federal law, the laws of the State of Indiana shall be controlling in all matters relating the Plan, including construction and performance hereof.

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b.   Captions. The captions of articles and paragraphs of this Plan are for convenience of reference only. They shall not control or affect the meaning or construction of any of the Plan's provisions.

c.   Facility of Payment. Any amounts payable hereunder to any person who is under legal disability or who, in the judgment of the SERP Committee, is unable to manage his financial affairs, may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner that the SERP Committee may select. Any such payment shall be deemed to be payment for such person's account, and shall be a complete discharge of all liability of the Company with respect to the amount so paid.

d.   Withholding Payroll Taxes. To the extent required by the laws in effect at the time when compensation is deferred, and at the time amounts are distributed from a Participant's deferred compensation account, the Company shall withhold from compensation, or from payments made hereunder, any taxes required to be withheld under federal, state, or local law.

e.   Administrative Expenses. All out-of-pocket expenses of administering the Plan shall be borne by the Company, and no part thereof shall be charged against any Participant's account or any amounts distributable hereunder.

f.   Survival of Nonprohibited Provisions. Any provision of this Plan prohibited by the law of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof.

g.   Protection of SERP Committee, Etc. Except as otherwise expressly provided by law, no member of the Company's Board of Directors or SERP Committee, and no officer, employee, or agent of the Company, shall have any liability to any person, firm, or corporation based on or arising out of the Plan except in the case of gross negligence or fraud.

* * * * *

IN WITNESS WHEREOF, Kimball International, Inc. has caused this 2006 Revision of the Plan to be signed this 1st day of January, 2006.


KIMBALL INTERNATIONAL, INC.


By:    /s/ John H. Kahle                        

John H. Kahle
Executive Vice President

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EX-10

Exhibit 10(b)

SUMMARY OF DIRECTOR AND NAMED EXECUTIVE OFFICER COMPENSATION

This summary sets forth the compensation of the Directors of Kimball International, Inc. (the "Company"). The summary also includes compensation of the Chief Executive Officer and four most highly compensated executive officers (the "Named Executive Officers") of the Company as identified in the Company's Proxy Statement. 

Director Compensation

All Outside (non-employee) Directors receive annual compensation of $24,000 for the year for service as Directors, and an additional $2,000 for each Board meeting attended. The Chairperson of the Audit Committee of the Board of Directors receives $3,500 per committee meeting, and other Audit Committee members receive $2,500 per committee meeting. Members of the Compensation Committee and the Governance and Nominating Committee receive $1,000 per committee meeting.  Members of the Executive Committee receive no additional compensation for their service on the committee.   

The Directors can elect to receive all or part of their annual retainer and meeting fees in shares of Class B Common Stock under the Company's 2003 Stock Option and Incentive Plan.   Directors are also reimbursed for travel expenses incurred in connection with Board and Committee meeting attendance.

An Outside Director is a director who is not an employee of the Company or one of its subsidiaries.  James C. Thyen, President and Chief Executive Officer, and Douglas A. Habig, Chairman of the Board, are Directors of the Company but do not receive compensation for their services as Directors.

Named Executive Officers

Base Pay

Periodically, the Compensation Committee of the Board of Directors reviews and approves the salaries that are paid to the Company's executive officers. The following are the current annualized base salaries for the Company's Named Executive Officers identified in the last proxy statement:

James C. Thyen, President and Chief Executive Officer	$776,360
Douglas A. Habig, Chairman of the Board	$638,300
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group	$449,800
P. Daniel Miller, Executive Vice President, President-Furniture	$446,160
Robert F. Schneider, Executive Vice President, Chief Financial Officer	$377,000

Cash Bonus Plan

Each of the Named Executive Officers is able to participate in the Company's 2005 Profit Share Incentive Bonus Plan (the "Plan"), which was adopted by the Compensation Committee and approved at the 2005 Annual Meeting of Share Owners. The profit sharing framework of this Plan has been in place since prior to the Company becoming publicly traded in 1976. The Plan includes profit determinations at three levels within the Company: (1) Worldwide for Company-wide performance ("Worldwide"); (2) at a Group level for certain combinations of Business Units ("Group"); and (3) at a Business Unit level for the performance of designated operations within the Company ("Business Unit").

Goal. The goal of the Plan is to link an employee's compensation with the long-term financial success of the Company. The intent is to encourage participants to think, act and be rewarded like owners, and to seek out and undertake initiatives that continuously improve the long-term performance of the Company.

Eligibility. Executive officers and full-time salaried employees of the Company, except those covered under commission compensation programs, are eligible to participate in the Plan ("Participants").

Bonus Criteria. The Plan measures profitability in terms of "economic profit", generally equal to net income less the cost of capital. New capital expenditures are not included in computing the cost of capital for twelve months. The Compensation Committee must approve the profitability goals ("Targets") within the first 25% of the period of service to which the Targets relate, but not later than 90 days after the commencement of that period ("Relevant Time Period"). The Compensation Committee, within the Relevant Time Period, may make adjustments for non-operating income and loss and other profit-computation elements as it deems appropriate to provide optimal incentives for eligible employees. If other adjustments are necessary beyond the Relevant Time Period, the Named Executive Officers will not be eligible to receive any bonus resulting from such adjustments.

Bonus Amounts. The Plan establishes potential bonus amounts as a range of percentages of the Participant's salary, with the bonus percentage increasing with higher levels of profitability. The Plan also establishes different bonus percentage ranges across several Participant categories, setting higher bonus-percentage ranges for Participants who, by virtue of their responsibilities, are expected to have a greater effect on the Company's profitability.

The Named Executive Officers may earn bonuses anywhere from zero up to 100 percent of base salary. The Plan is designed so that Participants will achieve maximum bonuses only if the Company achieves Targets comparable to those of leading public companies and/or its competitors.

A Participant's total bonus under the Plan may not exceed $1,000,000 for any fiscal year.

Administration. For a particular fiscal year, the Compensation Committee must approve the Targets, profit-computation adjustments, and any other conditions at the Worldwide and Group profitability levels within the Relevant Time Period. Company management will determine the comparable features for each Business Unit profitability level.

At the end of each fiscal year, but before Plan bonuses may be paid, the Compensation Committee must certify in writing that Targets and other conditions have been satisfied. The Compensation Committee does not have the discretion to increase the amount of any bonus for the Named Executive Officers.

Because no single incentive plan is perfect and special situations occur where individual achievement may not be adequately recognized by the 2005 Profit Sharing Incentive Bonus Plan, there is a Supplemental Bonus Plan reviewed and approved on an annual basis by your Board of Directors where a maximum of 1.5%, on an after-tax basis, of the Company's overall annual net income (before bonuses paid pursuant to the Company's 2005 Profit Sharing Incentive Bonus Plan) may be designated as supplemental bonuses to those eligible employees, including all Named Executive Officers, at the discretion of the Chairman of the Board and President, Chief Executive Officer. Payments of any supplemental bonus are made under the same terms and conditions as the 2005 Profit Sharing Incentive Bonus Plan.  No bonuses were granted to any of the Named Executive Officers under this Supplemental Bonus Plan for fiscal year 2005.

Bonus Payments. Under the Company's bonus plans, bonuses are accrued annually and paid in five installments over the succeeding fiscal year. Except for provisions relating to retirement, death, permanent disability, and certain other circumstances described in a participant's employment agreement, participants must be actively employed on each payment date to be eligible to receive any unpaid bonus installment. The total amount of bonus accrued and authorized to be paid to the Named Executive Officers based on the Company's fiscal year 2005 results is listed below. The Named Executive Officers received an installment of 50% of the payment in August 2005, 12.5% was paid in each September 2005, January 2006 and April 2006 and the remaining portion will be paid in June 2006.

James C. Thyen, President and Chief Executive Officer	$190,687
Douglas A. Habig, Chairman of the Board	$165,958
Donald D. Charron, Executive Vice President, President-Kimball Electronics Group	$173,978
P. Daniel Miller, Executive Vice President, President-Furniture	$168,400
Robert F. Schneider, Executive Vice President, Chief Financial Officer	$89,284

Retirement Plans

The Named Executive Officers participate in a defined contribution, participant-directed retirement plan with a 401(k) provision that all domestic employees are eligible to participate in (the "Retirement Plan"). The Retirement Plan provides for voluntary employee contributions as well as a discretionary annual Company contribution as determined by the Board of Directors based on income of the Company as defined in the Retirement Plan. Each eligible employee's Company contribution is defined as a percent of eligible compensation, the percent being identical for all eligible employees, including Named Executive Officers. Participant contributions are fully vested immediately and Company contributions are fully vested after five years of participation. All Named Executive Officers were fully vested at March 31, 2006. The Retirement Plan is fully funded. For those eligible employees who, under the 1986 Tax Reform Act, are deemed to be highly compensated, their individual Company contribution under the Retirement Plan is reduced. For employees who are eligible, including all Named Executive Officers, there is a nonqualified, Supplemental Employee Retirement Plan (SERP) in which the Company contributes to the account of each individual an amount equal to the reduction in the contribution under the Retirement Plan arising from the provisions of the 1986 Tax Reform Act.

Other

The Named Executive Officers are eligible to receive grants under the Company's 2003 Stock Option and Incentive Plan. The Named Executive Officers also receive nominal benefits such as executive financial services programs, supplemental group medical, automotive allowances, and other miscellaneous items.  The exact amounts received from these benefits are not predetermined and are disclosed annually in the Company's Proxy Statement. 

EX-10

Exhibit 10(c)

EMPLOYMENT AGREEMENT

            THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into between Kimball International, Inc., an Indiana corporation, and the undersigned executive employee ("Executive").

Recitals

                    A. Executive is a key executive employee of Kimball.

                    B. Kimball recognizes that Executive's contribution to the growth and success of Kimball has been substantial and that it is in the best interests of Kimball to assure Executive's continued services for the benefit of Kimball.

                    C. Kimball will suffer great loss and irreparable harm if Executive were to participate, directly or indirectly, as an owner, consultant, employee, manager, officer, director or in any other capacity in any business or venture in competition with Kimball or if he were to disclose Kimball's Trade Secrets and Confidential Information.

                    D. To induce Executive to remain in its employ, Kimball is willing to provide to Executive the compensation and benefits set forth in this Agreement.

                    E. To receive the benefits of Kimball employment for an indefinite period and the Change in Control benefits provided under this Agreement, Executive is willing to enter into the restrictive covenants and to undertake the other obligations contained in this Agreement.

Agreement

                    In consideration of the premises and the following mutual terms and conditions, Kimball and Executive agree as follows:

                    1. Employment At Will. Executive is employed by Kimball as an employee at will. Except as provided in Section 8, Executive may terminate his employment voluntarily at any time, with or without Good Reason, and Kimball may terminate Executive's employment at any time, with or without Cause, by providing the other party a Notice of Termination.

                    2. Acceleration of Rights and Payment upon Change in Control.

         (a) Incentive Plan Rights. As of the effective date of a Change in Control, (i) Executive's Options and related Stock Appreciation Rights awarded under the 1996 Director Stock Compensation and Option Plan, the 1996 Stock Incentive Program and the 2003 Stock Plan will become fully vested and exercisable; (ii) the Restricted Period will end for Executive's Restricted Shares awarded under the 2003 Stock Plan; (iii) Executive's Deferred Share Units awarded under the 2003 Stock Plan will become fully vested and payable; (iv) Executive will become entitled to payment for all Performance Shares or Performance Units awarded under the 2003 Stock Plan; and (v) Executive will become entitled, under the 2005 Profit Sharing Incentive Bonus Plan, to receive any bonus payments due for the fiscal year immediately preceding the Change in Control and a prorated share of bonus payments for the fiscal year in which the Change in Control occurs. As soon as practicable following the Change in Control, Kimball will make a single payment to Executive, equal to the aggregate Value of all benefits under the plans identified in this subsection (a), in the form of cash, Shares, or a combination of cash and Shares, as determined by the Compensation Committee of the Board of Directors, in its sole discretion. That single payment will constitute payment in full and complete satisfaction of Executive's rights and benefits under all of Executive's award agreements and the applicable plans.

        (b) SERP Rights. As of the effective date of a Change in Control, Executive will become fully vested in the Makeup Contributions Account in the Supplemental Employee Retirement Plan and, without regard to Executive's payment elections previously made under that plan, will receive all benefit amounts under that plan in a single, lump-sum cash payment as soon as practicable following the Change in Control.

        (c) Acceleration Limitation. If a Change in Control occurs before January 1, 2007, no payment that is accelerated pursuant to this Section shall be paid before January 1, 2007.

        (d) Amendment of Award Agreements. To the extent that the provisions of this Section are inconsistent with the provisions of Executive's Award Agreements, Executive and Kimball hereby amend those Award Agreements to include the provisions of this Section, which supersede any inconsistent provisions of the Award Agreements.

                    3. Retention Bonus. As an incentive for Executive to remain available to assist with transition matters following a Change in Control, Kimball will offer Executive a retention bonus equal to [fifty percent (50%) for James C. Thyen][forty percent (40%) for all other Executives] of Executive's annual salary in effect immediately before the Change in Control, payable in two equal installments.

        (a) Initial Retention Period. If Executive remains an employee of Kimball or its successor throughout the initial retention period of three months following the Change in Control, Kimball or its successor will pay to Executive one-half of the retention bonus as soon as practicable following the end of the initial retention period.

        (b) Additional Retention Period. If Executive remains an employee of Kimball or its successor throughout an additional retention period of three months following the end of the initial retention period, Kimball or its successor will pay to Executive the remaining one-half of the retention bonus as soon as practicable following the end of the additional retention period.

        (c) Termination. If Executive's employment is terminated, during the initial or additional retention period, by Kimball or its successor without Cause or by Executive for Good Reason, Kimball or its successor will pay to Executive any previously unpaid retention bonus in the same amounts and at the same times as if he had remained an employee of Kimball or its successor through the end of the additional retention period.

        (d) Death or Disability. If Executive dies or incurs a Disability at any time during the initial or additional retention period, Kimball or its successor will pay to Executive, or to his estate in the event of death, a prorated portion of the retention bonus. The prorated retention bonus payment will be paid in an amount equal to the product of (i) the full retention bonus and (ii) a fraction, the numerator of which is the number of days from the first day of the initial retention period to the Termination Date, and the denominator of which is the aggregate number of days in both the initial and additional retention periods. Any prorated retention bonus amount unpaid as of the date of death or Disability will be paid at the end of the retention period in which the death or Disability occurs.

                    4. Compensation Upon Termination By Kimball Without Cause Or By Executive With Good Reason. If Executive's employment is terminated by Kimball without Cause or by Executive for Good Reason, Kimball will provide compensation and benefits to Executive on the following terms:

        (a) Base Salary. As soon as practicable following the Termination Date, Kimball will pay Executive's full base salary through the Termination Date at the rate in effect on the date Notice of Termination is given.

        (b) Bonus. As soon as practicable following the Termination Date, Kimball will pay Executive any deferred and unpaid bonus amounts due for the fiscal year immediately preceding his last day of employment and a prorated amount of the target bonus for the bonus period in which his last day of employment occurs. The prorated bonus payment will be in an amount equal to the product of (i) the bonus otherwise payable for the bonus period and (ii) a fraction, the numerator of which is the number of days from the first day of the bonus period to the last day of employment, and the denominator of which is the number of days in the bonus period.

        (c) Enhanced Severance Pay. As soon as practicable following the Termination Date, Kimball will pay Executive, in lieu of benefits otherwise described in the Kimball Severance Benefits Plan, severance pay in the following amount:

        (1) If Executive's last day of employment occurs outside a Control Termination Period, the severance pay amount will be equal to the sum of (i) Executive's annual base salary at the highest rate in effect during the three (3) years immediately preceding the last day of employment and (ii) the higher of either Executive's target bonus for the period in which the last day of employment occurs or Executive's average annual bonus award for the three annual bonus periods immediately preceding the last day of employment.

        (2) If Executive's last day of employment occurs during a Control Termination Period, the severance pay amount will be equal to [three (3) for James C. Thyen] [two (2) for all other Executives] times the amount determined under (c)(1) above.

        (d) Welfare and Fringe Benefits. As soon as practicable following the Termination Date, Kimball will pay Executive, in lieu of coverage for Executive and his dependents under Kimball's welfare and fringe benefit plans, the following reimbursement amount:

        (1) If Executive's last day of employment occurs outside a Control Termination Period, the reimbursement amount will be equal to the product of (i) fifty thousand dollars ($50,000) and (ii) a fraction, the numerator of which is the Employment Cost Index, as published by the U.S. Bureau of Labor Statistics, for the completed calendar quarter immediately preceding Executive's Termination Date, and the denominator of which is the Employment Cost Index for the first calendar quarter of 2006.

        (2) If Executive's last day of employment occurs during a Control Termination Period, the reimbursement amount will be equal to [three (3) for James C. Thyen] [two (2) for all other Executives] times the amount determined under (d)(1) above.

        (e) Outplacement Assistance. To assist Executive in obtaining replacement employment, Kimball will reimburse Executive for up to [$75,000 for James C. Thyen][$25,000 for all other Executives] of the costs of outplacement services during the first twelve months following the Termination Date.

        (f) Acceleration of Rights and Payment.

        (1) Incentive Plan Rights. As of the Termination Date, (i) Executive's Options and related Stock Appreciation Rights awarded under the 1996 Director Stock Compensation and Option Plan, the 1996 Stock Incentive Program, and the 2003 Stock Plan will become fully vested and exercisable; (ii) the Restricted Period will end for Executive's Restricted Shares awarded under the 2003 Stock Plan; (iii) Executive's Deferred Share Units awarded under the 2003 Stock Plan will become fully vested and payable; (iv) Executive will become entitled to payment for all Performance Shares or Performance Units awarded under the 2003 Stock Plan; and (v) Executive will become entitled, under the 2005 Profit Sharing Incentive Bonus Plan, to receive any bonus payments due for the fiscal year immediately preceding the Termination Date and a prorated share of bonus payments for the fiscal year in which the Termination Date occurs. As soon as practicable following the Termination Date, Kimball will make a single payment to Executive, equal to the aggregate Value of all benefits under the plans identified in this subsection (1), in the form of cash, Shares, or a combination of cash and Shares, as determined by the Compensation Committee of the Board of Directors, in its sole discretion. That single payment will constitute payment in full and complete satisfaction of Executive's rights and benefits under all of Executive's award agreements and the applicable plans.

        (2) SERP Rights. As of the Termination Date, Executive will become fully vested in the Makeup Contributions Account in the Supplemental Employee Retirement Plan and, without regard to Executive's payment elections previously made under that plan, will receive all benefit amounts under that plan in a single, lump-sum cash payment as soon as practicable following the Termination Date.

        (3) Acceleration Limitation. If a Termination Date occurs before January 1, 2007, no payment that is accelerated pursuant to this subsection shall be paid before January 1, 2007.

        (4) Amendment of Award Agreements. To the extent that the provisions of this subsection are inconsistent with the provisions of Executive's Award Agreements, Executive and Kimball hereby amend those Award Agreements to include the provisions of this subsection, which supersede any inconsistent provisions of the Award Agreements.

                    5. Compensation Upon Other Termination of Employment. If Executive's employment is terminated by Kimball for Cause, by Executive without Good Reason, or because of death or Disability, Kimball will provide compensation and benefits to Executive, or to Executive's estate in the event of death, on the following terms:

        (a) Termination by Kimball for Cause or by Executive without Good Reason. If Kimball terminates Executive's employment for Cause, or if Executive terminates his employment without Good Reason, Kimball will pay Executive's full base salary through his last day of employment at the rate in effect at the date that Notice of Termination is given.

        (b) Death or Disability. In the event of Executive's death or Disability, Kimball will pay Executive's full base salary through the date of death or Disability.

        (c) Other Benefit Programs. Executive shall also be entitled to: (i) benefits under Kimball's generally applicable welfare and retirement plans, in accordance with the respective terms of such plans; and (ii) Executive's rights under the 2005 Profit Sharing Bonus Plan, the Supplemental Employee Retirement Plan, the 1996 Director Stock Compensation and Option Plan, the 1996 Stock Incentive Program, the 2003 Stock Plan, and any other equity or incentive plan, in accordance with the respective terms of those plans.

                    6. Code Section 409A. Despite any other provisions of the Agreement to the contrary, any Deferred Compensation payments otherwise due under this Agreement will be paid in accordance with this Section.

        (a) Post-Termination Payment Suspension. If as of the date his employment terminates, Executive is a "key employee" within the meaning of Code Section 416(i), without regard to paragraph 416(i)(5), and Kimball has stock that is publicly traded on an established securities market or otherwise, any Deferred Compensation payments otherwise payable because of employment termination will be suspended until the first day of the seventh month following the month in which the Executive's last day of employment occurs, and the Deferred Compensation payments in the seventh month will include all previously suspended amounts.

        (b) Interpretation. This Agreement shall be interpreted and applied in a manner consistent with the standards for nonqualified deferred compensation plans established by Code Section 409A and its interpretive regulations and other regulatory guidance. To the extent that any terms of the Agreement would subject Executive to gross income inclusion, interest, or additional tax pursuant to Code Section 409A, those terms are to that extent superseded by, and shall be adjusted to the minimum extent necessary to satisfy, the applicable Code Section 409A standards.

        (c) Supplemental Payment. If Executive incurs gross income inclusion, interest, or additional tax on Deferred Compensation payments pursuant to Code Section 409A, Kimball will make a supplemental payment to Executive in an amount sufficient to pay the income tax liability on the sum of those Deferred Compensation payments and the supplemental payment.

                    7. Parachute Payments. In the event that any Compensation Payment would be subject to the Excise Tax, Executive's benefits under this Agreement will be adjusted as provided in this Section.

        (a) Additional Payment. Unless the Compensation Committee of the Board of Directors determines to the contrary, as provided under subsection (b), Executive will be entitled to receive an additional payment (a "Reimbursement Payment") in an amount equal to the Excise Tax imposed upon the Compensation Payments.

        (1) The Professional Services Firm, at Kimball's expense, will make an initial determination as to whether a Reimbursement Payment is required and the amount of such Reimbursement Payment. The Professional Services Firm shall provide its determination, together with detailed supporting calculations and documentation to Kimball and Executive within thirty (30) days of the Termination Date. If the Professional Services Firm determines that no Excise Tax will be payable by Executive with respect to the Compensation Payments, it shall furnish Executive with an opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. The determination shall be binding, final and conclusive upon Kimball and Executive, subject to the application of paragraph (3) of this subsection.

        (2) Kimball shall pay any Reimbursement Payment to Executive within five days of the receipt of the Professional Services Firm's determination.

        (3) If a Reimbursement Payment is paid that should not have been paid (an "Excess Payment"), or if a Reimbursement Payment is not paid that should have been paid (an "Underpayment"), the Excess Payment or Underpayment shall be corrected as provided in this paragraph (3). An Underpayment shall be deemed to have occurred (i) upon notice to Executive from any governmental taxing authority that Executive's tax liability for any taxable year may be increased by imposition of the Excise Tax on a Compensation Payment with respect to which Kimball has failed to make a sufficient Reimbursement Payment; (ii) upon a determination by a court; (iii) by reason of determination by Kimball (which shall include the position taken by Kimball, together with its consolidated group, on its federal income tax return); or (iv) upon the resolution of a dispute to Executive's satisfaction. If an Underpayment occurs, Executive shall promptly notify Kimball, and Kimball shall pay to Executive promptly, at least five days prior to due date of the requested tax payment, an additional Reimbursement Payment equal to the amount of the Underpayment plus any interest, penalties, additional taxes or similar items imposed on the Underpayment. An Excess Payment shall be deemed to have occurred when Executive has received from the applicable government taxing authority a refund of taxes or other reduction in Executive's tax liability by reason of the Excise Payment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority that finally and conclusively binds Executive and such taxing authority, or in the event that a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to Executive's applicable tax return has expired. In that event, Executive shall pay to Kimball the amount of the Excess Payment (together with any interest paid or credited thereon after taxes applicable thereto).

        (4) In the event that, according to the Professional Services Firm's determination, an Excise Tax will be imposed on any Compensation Payment, Kimball shall pay to the applicable government taxing authorities, as Excise Tax withholding, the amount of the Excise Tax that Kimball has actually withheld from the Compensation Payments.

        (b) Reduction of Payments. If the Compensation Committee of the Board of Directors determines that the sum of all Compensation Payments to Executive and other Kimball employees with respect to a particular Change in Control are reasonably expected to represent, in the aggregate, more than five percent (5%) of the net proceeds received, with respect to that Change in Control, by Kimball and its shareholders, the Compensation Committee, in its sole and absolute discretion, may determine (i) that the Reimbursement Payment otherwise payable to Executive pursuant to subsection (a) shall be reduced by any amount or eliminated entirely or (ii) that no Compensation Payment will be made that would constitute a Parachute Payment.

        (1) In either event, Kimball shall give Executive written notice, at least thirty (30) days in advance of the Change in Control, of the Compensation Committee's determination under this subsection (b).

        (2) If the Compensation Committee determines that no Compensation Payment shall be made that would constitute a Parachute Payment, Kimball will provide to Executive, within thirty (30) days after Executive's Termination Date, an opinion of the Professional Services Firm that Executive will be considered to have received Parachute Payments if Executive were to receive the full amount of Compensation Payments prescribed by this Agreement or otherwise and setting forth with particularity the smallest amount by which all Compensation Payments would have to be reduced to avoid imposition of the Excise Tax. The Compensation Payments shall be adjusted, in the order of priority designated by Executive in written instructions, to the minimum extent necessary so that none of the Compensation Payments, in the opinion of the Professional Services Firm, would constitute a Parachute Payment. Any determination by the Professional Services Firm under this paragraph (2) shall be binding upon Kimball and Executive.

                    8. Obligation To Remain an Executive. In the event any other corporation, person or group of persons acting in concert begins a tender or exchange offer, circulates a proxy to shareholders or takes other steps known to Executive to effect a Change in Control, Executive agrees to remain an employee of Kimball and to devote his best efforts to render full-time services to Kimball commensurate with Executive's position, until the earliest of the following: (a) such other corporation, person or group has abandoned or terminated efforts to effect a Change in Control; (b) a Change in Control has occurred; or (c) this Agreement has been terminated.

                    9. Restrictive Covenants. As a condition of his employment with Kimball, Executive shall comply with the obligations provided in this Section.

        (a) Non-Competition During Employment by Kimball. During his employment by Kimball, Executive shall not directly or indirectly have any ownership interest in, work for, advise, or have any business connection or business relationship with any person or entity that competes with or that is planning to compete with Kimball, without the prior written approval of an executive officer of Kimball.

        (b) Non-Competition Following Employment Termination. For a period of twelve (12) months after his last day of employment (without regard to the reason for termination) or for the length of his employment, whichever is less (but in no event less than six (6) months), Executive shall not directly or indirectly

        (1) Have an ownership interest in any entity or person that competes with Kimball;

        (2) Work for, act as an agent or, act in an administrative or financial capacity for, act as a sales or marketing representative for, advise, consult with or manage any entity or person that competes with Kimball; or

        (3) Compete with Kimball for customers of Kimball.

For purposes of this Section, the term "compete" or "competes" or "competition" means the actual or planned business activities of an entity or person whereby the entity or person sells, solicits, or markets products or services similar or analogous to those which Executive sold, worked on, or provided services on for Kimball during the twelve (12) month period immediately prior to his separation from Kimball. To the extent that, during the 12-month period immediately preceding his last day of employment, Executive was assigned only to one Kimball division or Affiliate, his obligations under this subsection (b) apply only with respect to that division or Affiliate.

        (c) Other Non-Competition Provisions.

        (1) Nothing in subsections (a) or (b) prohibits Executive from purchasing, for investment purposes only, any stock or corporate security traded or quoted on a national securities exchange or a national market system, so long as such ownership does not violate Kimball 's ethical business conduct policies.

        (2) The parties expressly agree that the terms of the non-competition provisions in subsections (a) and (b) are reasonable and necessary to protect Kimball 's interests, and are valid and enforceable. In the unlikely event, however, that a court were to determine that any portion of the non-competition provisions in subsections (a) or (b) is unenforceable, then the remainder of the non-competition provisions shall remain valid and enforceable to the maximum extent possible.

        (d) Other Limited Prohibitions. During his employment by Kimball and for twelve (12) months post-termination, for any reason, or the length of his employment, whichever is less (but in no event less than six (6) months), Executive shall not:

        (1) Request or advise any customer or client of Kimball with whom Executive had personal contact in the course of his employment by Kimball, or any person or entity having business dealings with Kimball with whom Executive had personal contact in the course of his employment by Kimball, to withdraw, curtail, alter, or cease such business with Kimball.

        (2) Disclose to any person or entity the identities of any customers, clients, or any persons having business dealings with the division(s)/subsidiary(s) of Kimball to which Executive was assigned at the time of termination from Kimball and for the preceding 12 months.

        (3) Directly or indirectly solicit, influence, or attempt to influence any other employee of Kimball to separate from Kimball.

        (e) Trade Secrets and Confidential Information. Executive shall not disclose any Trade Secrets and Confidential Information, directly or indirectly, nor use them in any way, either during the term of his employment or at any time thereafter, except as required in the course of his employment with Kimball. All files, records, documents, computer data (including passwords, access codes, electronic and voice mail, etc.), drawings, specifications, equipment, and similar items relating to the business of Kimball, whether prepared by Executive or otherwise coming into his possession, shall remain the exclusive property of Kimball, and shall not be removed from the premises of Kimball except as required in the course of your employment with Kimball. Upon termination of employment, Executive shall return to Kimball any Trade Secrets and Confidential Information in your possession or control, including, without limitation, all lists of customers, samples, price lists, literature, documents, data, computer and financial records and any other property belonging to Kimball or relating to the business of Kimball or in any way referring or relating to any Trade Secrets and Confidential Information.

        (f) Conflict of Interest. Executive shall take no action or obtain any direct or indirect interests in or relationships with any organization that might affect the objectivity and independence of his judgment or conduct in carrying out duties and responsibilities to Kimball under this Agreement. Any such actions or interests which may even create the appearance of a conflict of interest shall be promptly brought to the attention of Kimball.

        (g) Notification of Prospective or Subsequent Employers. Executive shall notify any prospective employer of the existence and obligations of this Section, prior to acceptance of employment. Kimball may inform any person or entity subsequently employing Executive, or evidencing an intention to employ Executive, of the nature of the information Kimball asserts to be Trade Secrets and Confidential Information, and may inform that person or entity of the existence and obligations of this Section and provide to that person or entity a copy of this Section of the Agreement.

        (h) Inventions and Patents. Executive will promptly, from time to time, fully inform and disclose to Kimball all inventions, designs, improvements, and discoveries which Executive now has or may discover during the term of employment which pertain or relate to the business of Kimball or to any experimental work carried on by Kimball, whether conceived by Executive alone or with others and whether or not conceived during regular working hours. All such inventions, designs, improvements, and discoveries shall be the exclusive property of Kimball. Executive shall assist Kimball at Kimball's sole expense, to obtain patents on all such inventions, designs, improvements, and discoveries deemed patentable by Kimball, and shall execute all documents and do all things necessary to obtain patents, vest Kimball with full and exclusive title thereto, and protect the same against infringement by others. Executive shall be entitled to no additional compensation for any and all inventions or designs made during the course of this Agreement. "Exhibit A" to this Agreement is a complete list and brief description of all inventions, patented or unpatented, which Executive made or conceived prior to the date of this Agreement. The inventions described on Exhibit A are excluded from the provisions of this Section.

        (i) Return of Property. All documents or other tangible materials (whether originals, copies or abstracts and including, without limitation, financial records, contracts, patents, manufacturing technology, marketing and strategic plans, price lists, quotation guides, outstanding quotations, books, records, manuals, files, sales literature, training materials, calling or business cards, credit cards, customer records, correspondence, computer printout documents, orders, messages, phone and address lists, memoranda, notes, agreements, invoices, and receipts) which in any way relate to Kimball 's business, whether furnished to Executive by Kimball or prepared, compiled, used, or acquired by Executive while employed by Kimball, shall not be copied, lent, or duplicated at any time, nor used in any manner other than in the course of his employment by Kimball and shall be returned to Kimball on request or upon the termination of his employment relationship, whichever occurs first.

        (j) Security of Property. All keys, combinations, and access codes to Kimball's premises, facilities, and equipment (including, without limitation, to offices, desks, storage cabinets, safes, data processing systems, and communications equipment), whether furnished to Executive by Kimball or prepared, used, or acquired by Executive while employed by Kimball shall be and remain the exclusive property of Kimball and shall not be copied, lent, or communicated to any other person or entity at any time nor used in any manner other than in the course of his employment by Kimball, except as authorized by Kimball, and shall be returned to Kimball on request or upon termination of his employment relationship, whichever occurs first.

        (k) Injunctive Relief. Executive agrees that Kimball will be irreparably harmed and money damages alone are inadequate as a remedy to Kimball for any failure by Executive to abide by the terms of this Agreement. Therefore, Kimball shall be entitled to institute and maintain any appropriate legal proceedings to enforce Executive's obligations under this Section, including an action for specific performance and/or injunctive relief.

        (l) Interpretation of Agreement. It is the intention of Executive and Kimball to make the promises contained in this Agreement reasonable and binding only to the extent that it may be lawfully done under existing applicable laws. In the event any part of this Agreement is determined by a court to be overly broad or otherwise unenforceable, it is the desire of Kimball and Executive that the court shall substitute a reasonable judicially enforceable limitation in place of the unenforceable portion of the Agreement. This Agreement constitutes the entire and exclusive agreement between Executive and Kimball, and it supersedes all prior agreements, whether written or oral, concerning the subject matter of this Agreement.

                    10. Notices. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered personally, mailed by United States certified mail, return receipt requested, postage prepaid, or sent by prepaid express mail, addressed as follows:

If to Kimball:

Kimball International, Inc.
1600 Royal Street
Jasper, Indiana 47549
Attn.: Corporate Secretary

If to Executive:

To the address set forth on the last page of this Agreement.

Either party may change the address to which notices are to be sent by written notice to the other party. Notice of change in notice address shall be effective only upon receipt by the other party.

        11. Successors; Binding Agreement.

        (a) Kimball will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Kimball expressly to assume and agree to perform this Agreement in the same manner and to the same extent that Kimball would be required to perform it if no such succession had taken place. Failure of Kimball to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from Kimball in the same amount and on the same terms as Executive would be entitled under this Agreement if such succession had not occurred, except that for the purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Termination Date.

        (b) This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

        12. Legal Actions.

         (a) This Agreement shall be governed by the laws of the State of Indiana excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this agreement to the substantive law of another jurisdiction.

        (b) Any legal action seeking to enforce the terms of this Agreement, or based on any right arising out of this Agreement must be brought in the appropriate court located in Dubois County, Indiana, or if jurisdiction will so permit, in the Federal District Court for the Southern District of Indiana. Kimball and Executive hereby consent to the jurisdiction over each of them by such courts and waive all objections based on venue or inconvenient forum.

        (c) In the event any legal action is brought to resolve a dispute under or in connection with this Agreement, Kimball shall reimburse Executive, on a current basis, for all legal fees and expenses, if any, incurred by Executive in connection with such action. Kimball shall make those reimbursement payments to Executive within thirty (30) days after receiving Executive's statement for such fees and expenses, along with reasonable supporting documentation. In the event, however, that Kimball is the prevailing party in the action under circumstances that permit the court to award attorney's fees to Kimball pursuant to Indiana Code 34-52-1-1, Executive shall reimburse Kimball for all sums advanced to Executive pursuant to this Section.

        13. Miscellaneous.

        (a) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

        (b) No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions at the same or at any subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not set forth expressly in this Agreement.

        (c) In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

                    14. Amendment and Termination.

        (a) This Agreement becomes effective as of the Effective Date and shall continue in effect until the earlier of the following: (i) it is terminated by Kimball as provided in subsection (b) of this Section or (ii) the Executive's Termination Date prior to a Change in Control.

        (b) Prior to a Change in Control, this Agreement may be terminated or amended in writing by Kimball at any time, effective upon written notice of the amendment or termination to Executive. No amendment or termination will be effective, however, with respect to a Change in Control that occurs within one year following the date of the amendment or termination.

                    15. Definitions. The following definitions shall be applicable to and govern the interpretation of this Agreement:

        (a) "2003 Stock Plan" means the Kimball International, Inc. 2003 Stock Option and Incentive Plan.

        (b) "Affiliate" means any entity that is a member, along with Kimball International, Inc., of a controlled group of corporations or a group of other trades or businesses under common control, within the meaning of Code Section 414(b) or (c).

        (c) "Award Agreement" means any agreement or other instrument evidencing a grant or award of Options, Stock Appreciation Rights, Restricted Shares, Deferred Share Units, Performance Shares, Performance Units, or any other rights awarded under the 1996 Director Stock Compensation and Option Plan, the 1996 Stock Incentive Program, or the 2003 Stock Plan.

        (d) "Board of Directors" means the Board of Directors of Kimball.

        (e) "Cause" means, with respect to termination of Executive's employment by Kimball, one or more of the following occurrences, as determined by the Board of Directors: (i) Executive's willful and continued failure to perform substantially the duties of Executive's position or to follow lawful instructions of a senior executive or the Board of Directors, if such failure continues for a period of five days after Kimball delivers to Executive a written notice identifying such failure; (ii) Executive's conviction of a felony or of another crime that reflects adversely on Kimball; (iii) Executive's engaging in fraudulent or dishonest conduct, gross misconduct that is injurious to Kimball, or any misconduct that involves moral turpitude; or (iv) Executive's material breach of his obligations under this Agreement. For any of the stated occurrences to constitute "Cause" under this Agreement, the Board of Directors must find that the stated act or omission occurred, by a resolution duly adopted by the affirmative vote of at least three-quarters of the entire membership of the Board of Directors, after giving reasonable notice to Executive and an opportunity for Executive, together with Executive's counsel, to be heard before the Board of Directors.

        (f) "Change in Control" means the consummation of any of the following that is not an Excluded Transaction: (i) the acquisition, by any one person or more than one person acting as a Group, of Majority Ownership of a Relevant Company through merger, consolidation, or stock transfer; (ii) the acquisition during any 12-month period, by any one person or more than one person acting as a Group, of ownership interests in a Relevant Company possessing 35 percent or more of the total voting power of all ownership interests in the Relevant Company; (iii) the acquisition of ownership during any 12-month period, by any one person or more than one person acting as a Group, of 40 percent or more of the total gross fair market value of the assets of a Relevant Company; or (iv) the replacement of a majority of members of the Board of Directors during any 12-month period, by members whose appointment or election is not endorsed by a majority of the members of the Board of Directors prior to the date of the appointment or election. For purposes of this definition: "Relevant Company" means, with respect to Executive, Kimball International, Inc., any Affiliate that employs Executive; any entity that has Majority Ownership of either Kimball International, Inc. or that Affiliate, or any entity in an uninterrupted chain of Majority Ownership culminating in the ownership of Kimball International, Inc. or that Affiliate; "Excluded Transaction" means any occurrence that does not constitute a change in the ownership or effective control, or in the ownership of a substantial portion of the assets of, a Relevant Entity within the meaning of Code Section 409A(a)(2)(A)(v) and its interpretive regulations; "Majority Ownership" of an entity means ownership interests representing more than fifty percent (50%) of the total fair market value or of the total voting power of all ownership interests in the entity; "Group" has the meaning provided in Code Section 409A and its interpretive regulations with respect to changes in ownership, effective control, and ownership of assets; and an individual who owns a vested option to purchase either stock or another ownership interest is deemed to own that stock or other ownership interest.

        (g) "Code" means the Internal Revenue Code of 1986, as amended.

        (h) "Compensation Payment" means a payment by Kimball to or for the benefit of Executive in the nature of compensation, whether paid or payable pursuant to this Agreement or otherwise.

        (i) "Control Termination Period" means the time period beginning one year before a Change in Control and ending on the earlier of (i) two years following that Change in Control or (ii) Executive's death.

        (j) "Customer" means any person or entity who, in the twelve (12) month period immediately preceding Executive's termination from Kimball, purchased or arranged for the purchase or initiated an order for the purchase of Kimball products or services, including, but not limited to, brokers, distributors, and retailers.

        (k) "Deferred Compensation" means compensation provided under a nonqualified deferred compensation plan as defined in, and subject to, Code Section 409A.

        (l) "Disability" means, with respect to Executive, a physical or mental impairment that would entitle Executive to benefits under Kimball's long-term disability plan.

        (m) "Effective Date" means May 1, 2006.

        (n) "Excise Tax" means the excise tax imposed by Section 4999 of the Code or any interest, penalties, additional tax or similar items are incurred by Executive with respect to such excise tax.

        (o) "Good Reason" means, with respect to the termination of employment by Executive, one or more of the following occurrences: (i) a material adverse change in the nature or scope of Executive's responsibilities; (ii) a reduction in Executive's salary rate or target bonus; (iii) a reduction of 5 percent or more in the aggregate benefits provided to Executive and his dependents under Kimball's employee benefit plans; (iv) a significant diminution in Executive's position, authority, duties, or responsibilities; (iv) a relocation of Executive's principal site of employment to a location more than fifty (50) miles from the principal employment site; or (v) failure by Kimball to obtain the assumption agreement from any successor as contemplated in Section 11(a).

        (p) "Kimball" means Kimball International, Inc., an Affiliate, and any successor to the business or assets of Kimball International, Inc. that executes and delivers the agreement provided for in Section 11(a) of this Agreement or which otherwise becomes bound by all of the terms and provisions of this Agreement by the operation of law.

        (q) "Notice of Termination" means a written notice, from the party initiating Executive's employment termination to the other party, specifying whether the termination is covered by the provisions of Section 4 or Section 5 and the facts and circumstances claimed to provide the basis for termination.

        (r) "Parachute Payment" means a "parachute payment" as defined in Code Section 280G(b)(2).

        (s) "Professional Services Firm" means a nationally recognized certified public accounting firm or compensation consulting firm mutually selected by Kimball and Executive.

        (t) "Shares" means unrestricted shares of Class B common stock of Kimball, awarded pursuant to the 2003 Stock Plan.

        (u) "Termination Date" means (i) the date on which Executive's employment with Kimball is terminated pursuant to Executive's Notice of Termination to Kimball, Kimball's Notice of Termination to Executive, or by reason of Executive's death or Disability; or (ii) the date of a Change in Control, if Executive's employment is terminated within one year before a Change in Control.

        (v) "Trade Secrets and Confidential Information" means (i) Kimball's formulas, patterns, designs, compilations, programs, devices, methods, techniques, processes or general know-how, with respect to products utilized in the manufacture, distribution and sale of electronics, office and hospitality furniture, and other manufacturing industries, that derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; (ii) Kimball's valuable information, including information about customers, dealers and suppliers, and their technical problems and needs, purchasing habits, and procedures; and (iii) Kimball's financial records, contracts, patents, manufacturing technology, marketing and strategic plans, and other valuable information.

        (w) "Value" means, with respect to Executive and a determination date, the following amounts, computed without regard to any termination of rights that would otherwise occur under the applicable plan because of Executive's cessation of continuous service as of that determination date: (i) for Executive's Options and related Stock Appreciation Rights awarded under the 1996 Director Stock Compensation and Option Plan, the 1996 Stock Incentive Program, and the 2003 Stock Plan, the excess, if any, of (A) the market price as of the determination date of all Shares subject to Executive's option awards over (B) the aggregate exercise price for those Shares under those option awards; (ii) for Executive's Restricted Shares awarded under the 2003 Stock Plan, the market price of those Shares as of the determination date; (iii) for Executive's Deferred Share Units awarded under the 2003 Stock Plan, the product of (A) the number of Executive's Deferred Share Units and (B) the sum of the market value of a Share as of the determination date and all dividends credited on a Share as of that date under the applicable award agreement; (iv) for Executive's Performance Shares awarded under the 2003 Stock Plan, the market value of the Shares as of the determination date; (v) for Executive's Performance Units awarded under the 2003 Stock Plan, the product of (A) Executive's Performance Units and (B) the market value of Share as of the determination date; and (vi) for Executive's benefits under the 2005 Profit Sharing Incentive Bonus Plan, the cash value of those benefits. For purposes of this definition, the term "market price" has the same meaning as the term "Market Price" as defined in the 2003 Stock Plan.

                    Kimball, by its duly authorized officers, and Executive have caused to be executed, respectively, this Agreement as of the Effective Date.

 

KIMBALL INTERNATIONAL, INC.		EXECUTIVE
By:	/s/ Jack R. Wentworth
	Jack R. Wentworth, Chairman	[printed name]
	Compensation Committee of Kimball
	International, Inc. Board of Directors
		[address]

EX-11

Exhibit 11

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE

EARNINGS PER SHARE	(Unaudited)			(Unaudited)
FROM CONTINUING OPERATIONS	Three Months Ended			Three Months Ended
	March 31, 2006			March 31, 2005
(Amounts in Thousands, Except for per Share Data)	Class A	Class B	Total	Class A	Class B	Total
Basic Earnings Per Share from Continuing Operations:
Dividends Declared	$ 2,030	$ 3,996	$ 6,026	$ 2,176	$ 3,954	$ 6,130
Undistributed Earnings (Loss)	209	400	609	(1,078)	(1,955)	(3,033)
Income from Continuing Operations	$ 2,239	$ 4,396	$ 6,635	$ 1,098	$ 1,999	$ 3,097
Average Basic Shares Outstanding	13,111	25,098	38,209	13,562	24,590	38,152
Basic Earnings Per Share from Continuing       Operations	$0.17	$0.18		$0.08	$0.08
Diluted Earnings Per Share from Continuing Operations:
Dividends Declared and Assumed        Dividends on Dilutive Shares	$ 2,052	$ 3,998	$ 6,050	$ 2,176	$ 3,961	$ 6,137
Undistributed Earnings (Loss)	203	382	585	(1,096)	(1,944)	(3,040)
Income from Continuing Operations	$ 2,255	$ 4,380	$ 6,635	$ 1,080	$ 2,017	$ 3,097
Average Diluted Shares Outstanding	13,310	25,130	38,440	13,956	24,765	38,721
Diluted Earnings Per Share from        Continuing Operations	$0.17	$0.17		$0.08	$0.08
Reconciliation of Basic and Diluted EPS from Continuing Operations Calculations:
Income from Continuing Operations       Used for Basic EPS Calculation	$ 2,239	$ 4,396	$ 6,635	$ 1,098	$ 1,999	$ 3,097
Assumed Dividends Payable on Dilutive Shares:
Stock options	--	--	--	--	--	--
Performance share awards	22	2	24	--	7	7
(Reduction) Increase of Undistributed      Earnings - allocated based on Class A      and Class B shares	(6)	(18)	(24)	(18)	11	(7)
Income from Continuing Operations       Used for Diluted EPS Calculation	$ 2,255	$ 4,380	$ 6,635	$ 1,080	$ 2,017	$ 3,097
Average Shares Outstanding for Basic       EPS Calculation	13,111	25,098	38,209	13,562	24,590	38,152
Dilutive Effect of Average Outstanding:
Stock options	--	--	--	--	--	--
Performance share awards	138	11	149	--	49	49
Restricted share units	61	21	82	394	126	520
Average Shares Outstanding for Diluted       EPS Calculation	13,310	25,130	38,440	13,956	24,765	38,721

Included in dividends declared for the basic and diluted earnings per share computation are dividends computed and accrued on unvested Class A and Class B restricted share units, which will be paid by a conversion to the equivalent value of common shares after a vesting period.

For the current year period, all 1,860,000 average stock options outstanding were antidilutive and were excluded from the dilutive calculation. For the prior year period, all 2,395,000 average stock options outstanding were antidilutive and were excluded from the dilutive calculation.

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE

EARNINGS PER SHARE	(Unaudited)			(Unaudited)
FROM CONTINUING OPERATIONS	Nine Months Ended			Nine Months Ended
	March 31, 2006			March 31, 2005
(Amounts in Thousands, Except for per Share Data)	Class A	Class B	Total	Class A	Class B	Total
Basic Earnings Per Share from Continuing Operations:
Dividends Declared	$  6,209	$  11,954	$18,163	$ 6,460	$ 11,838	$18,298
Undistributed Loss	(2,286)	(4,272)	(6,558)	(617)	(1,114)	(1,731)
Income from Continuing Operations	$  3,923	$  7,682	$  11,605	$ 5,843	$ 10,724	$16,567
Average Basic Shares Outstanding	13,315	24,877	38,192	13,591	24,546	38,137
Basic Earnings Per Share from Continuing       Operations	$0.29	$0.31		$0.43	$0.44
Diluted Earnings Per Share from Continuing Operations:
Dividends Declared and Assumed        Dividends on Dilutive Shares	$  6,266	$  11,959	$18,225	$ 6,460	$ 11,867	$18,327
Undistributed Loss	(2,322)	(4,298)	(6,620)	(633)	(1,127)	(1,760)
Income from Continuing Operations	$  3,944	$  7,661	$  11,605	$ 5,827	$ 10,740	$16,567
Average Diluted Shares Outstanding	13,443	24,889	38,332	13,871	24,715	38,586
Diluted Earnings Per Share from        Continuing Operations	$0.29	$0.31		$0.42	$0.43
Reconciliation of Basic and Diluted EPS from Continuing Operations Calculations:
Income from Continuing Operations       Used for Basic EPS Calculation	$  3,923	$ 7,682	$ 11,605	$ 5,843	$ 10,724	$16,567
Assumed Dividends Payable on Dilutive Shares:
Stock options	--	--	--	--	--	--
Performance share awards	57	5	62	--	29	29
Reduction of Undistributed      Earnings - allocated based on Class A      and Class B shares	(36)	(26)	(62)	(16)	(13)	(29)
Income from Continuing Operations       Used for Diluted EPS Calculation	$  3,944	$ 7,661	$  11,605	$ 5,827	$ 10,740	$16,567
Average Shares Outstanding for Basic       EPS Calculation	13,315	24,877	38,192	13,591	24,546	38,137
Dilutive Effect of Average Outstanding:
Stock options	--	--	--	--	--	--
Performance share awards	124	10	134	--	61	61
Restricted share units	4	2	6	280	108	388
Average Shares Outstanding for Diluted       EPS Calculation	13,443	24,889	38,332	13,871	24,715	38,586

Included in dividends declared for the basic and diluted earnings per share computation are dividends computed and accrued on unvested Class A and Class B restricted share units, which will be paid by a conversion to the equivalent value of common shares after a vesting period.

For the current year period, all 2,001,000 average stock options outstanding were antidilutive and were excluded from the dilutive calculation. For the prior year period, all 2,464,000 average stock options outstanding were antidilutive and were excluded from the dilutive calculation.

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
 

EARNINGS (LOSS) PER SHARE	(Unaudited)	(Unaudited)
FROM DISCONTINUED OPERATIONS	Three Months Ended	Three Months Ended
	March 31, 2006	March 31, 2005
Basic:
Class A	$0.02	$(0.05)
Class B	$0.01	$(0.05)
Diluted:
Class A	$0.02	$(0.05)
Class B	$0.02	$(0.04)
EARNINGS (LOSS) PER SHARE	(Unaudited)	(Unaudited)
FROM DISCONTINUED OPERATIONS	Nine Months Ended	Nine Months Ended
	March 31, 2006	March 31, 2005
Basic:
Class A	$(0.18)	$(0.11)
Class B	$(0.19)	$(0.11)
Diluted:
Class A	$(0.18)	$(0.11)
Class B	$(0.19)	$(0.10)

EARNINGS PER SHARE	(Unaudited)	(Unaudited)
FROM CUMULATIVE EFFECT OF CHANGE	Three Months Ended	Three Months Ended
IN ACCOUNTING PRINCIPLE	March 31, 2006	March 31, 2005
Basic:
Class A	$0.00	$0.00
Class B	$0.00	$0.00
Diluted:
Class A	$0.00	$0.00
Class B	$0.00	$0.00
EARNINGS PER SHARE	(Unaudited)	(Unaudited)
FROM CUMULATIVE EFFECT OF CHANGE	Nine Months Ended	Nine Months Ended
IN ACCOUNTING PRINCIPLE	March 31, 2006	March 31, 2005
Basic:p; Basic:
Class A	$0.01	$0.00
Class B	$0.01	$0.00
Diluted:
Class A	$0.01	$0.00
Class B	$0.01	$0.00

KIMBALL INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
 

EARNINGS PER SHARE	(Unaudited)			(Unaudited)
(INCLUDING DISCONTINUED OPERATIONS	Three Months Ended			Three Months Ended
AND CUMULATIVE EFFECT OF CHANGE IN	March 31, 2006			March 31, 2005
ACCOUNTING PRINCIPLE)
(Amounts in Thousands, Except for per Share Data)	Class A	Class B	Total	Class A	Class B	Total
Basic Earnings Per Share:
Dividends Declared	$ 2,030	$ 3,996	$ 6,026	$ 2,176	$ 3,954	$ 6,130
Undistributed Earnings (Loss)	433	830	1,263	(1,710)	(3,101)	(4,811)
Net Income	$ 2,463	$ 4,826	$ 7,289	$   466	$   853	$ 1,319
Average Basic Shares Outstanding	13,111	25,098	38,209	13,562	24,590	38,152
Basic Earnings Per Share	$0.19	$0.19		$0.03	$0.03
Diluted Earnings Per Share:
Dividends Declared and Assumed        Dividends on Dilutive Shares	$ 2,052	$ 3,998	$ 6,050	$ 2,176	$ 3,961	$ 6,137
Undistributed Earnings (Loss)	429	810	1,239	(1,737)	(3,081)	(4,818)
Net Income	$ 2,481	$ 4,808	$ 7,289	$   439	$   880	$ 1,319
Average Diluted Shares Outstanding	13,310	25,130	38,440	13,956	24,765	38,721
Diluted Earnings Per Share	$0.19	$0.19		$0.03	$0.04
EARNINGS PER SHARE	(Unaudited)			(Unaudited)
(INCLUDING DISCONTINUED OPERATIONS	Nine Months Ended			Nine Months Ended
AND CUMULATIVE EFFECT OF CHANGE IN	March 31, 2006			March 31, 2005
ACCOUNTING PRINCIPLE)
(Amounts in Thousands, Except for per Share Data)	Class A	Class B	Total	Class A	Class B	Total
Basic Earnings Per Share:
Dividends Declared	$ 6,209	$ 11,954	$18,163	$ 6,460	$11,838	$18,298
Undistributed Earnings (Loss)	(4,603)	(8,600)	(13,203)	(2,084)	(3,764)	(5,848)
Net Income	$   1,606	$ 3,354	$ 4,960	$ 4,376	$ 8,074	$12,450
Average Basic Shares Outstanding	13,315	24,877	38,192	13,591	24,546	38,137
Basic Earnings Per Share	$0.12	$0.13		$0.32	$0.33
Diluted Earnings Per Share:
Dividends Declared and Assumed        Dividends on Dilutive Shares	$ 6,266	$ 11,959	$ 18,225	$ 6,460	$11,867	$18,327
Undistributed Earnings (Loss)	(4,652)	(8,613)	(13,265)	(2,113)	(3,764)	(5,877)
Net Income	$  1,614	$ 3,346	$ 4,960	$ 4,347	$ 8,103	$12,450
Average Diluted Shares Outstanding	13,443	24,889	38,332	13,871	24,715	38,586
Diluted Earnings Per Share	$0.12	$0.13		$0.31	$0.33

EX-31

Exhibit 31.1

CERTIFICATIONS PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James C. Thyen, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Kimball International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2006
	/s/ James C. Thyen
	JAMES C. THYEN President, Chief Executive Officer

EX-31

Exhibit 31.2

CERTIFICATIONS PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert F. Schneider, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Kimball International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) 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 (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
	(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
	(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 4, 2006
	/s/ Robert F. Schneider
	ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Kimball International, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James C. Thyen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 4, 2006
	/s/ James C. Thyen
	JAMES C. THYEN President, Chief Executive Officer

EX-32

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

In connection with the quarterly report of Kimball International, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert F. Schneider, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 4, 2006
	/s/ Robert F. Schneider
	ROBERT F. SCHNEIDER Executive Vice President, Chief Financial Officer