EXHIBIT 10.9

 

(CHASE LOGO) [a001.jpg]

Note Modification Agreement   

This agreement is dated as of May 19, 2006 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A., as successor by merger to Bank One, NA, with its main office in Chicago,
Illinois (the “Bank”). The provisions of this agreement are effective on the
date that this agreement has been executed by all of the signers and delivered
to the Bank (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 10, 2005 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

2. MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the provisions in the Note
captioned “Due”, “Promise to Pay” and “Principal Payments” are hereby amended by
deleting the date of June 29, 2006 contained therein and replacing it with the
date of June 29, 2007.

          2.2 Each of the Related Documents is modified to provide that it shall
be a default or an event of default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower herein or by any guarantor in any Related Documents
is materially incomplete, incorrect, or misleading as of the date hereof. As
used in this agreement, the “Related Documents” shall include the Note and all
loan agreements, credit agreements, reimbursement agreements, security
agreements, mortgages, deeds of trust, pledge agreements, assignments,
guaranties, or any other instrument or document executed in connection with the
Note or in connection with any other obligations of the Borrower to the Bank.

          2.3 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that each of the following representations and warranties made in
the Note and Related Documents are true and will remain true until maturity of
the Note, termination of the other Related Documents and payment and performance
in full of all liabilities, obligations and debt evidenced by the Note and other
Related Documents:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the business, assets,
affairs, prospects or financial condition of the Borrower or any Guarantor or
any subsidiary of the Borrower.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof.

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms:

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          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the
performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the loan
evidenced by the Note and the Related Documents, or of the actions or omissions
of the Bank in any manner related to the loan evidenced by the Note or the
Related Documents and (ii) arising from events occurring prior to the date of
this agreement.

          5.3 The Borrower shall pay to the Bank:

                    5.3.1 All the internal and external costs and expenses
incurred (or charged by internal allocation) by the Bank in connection with this
agreement (including, without limitation, inside and outside attorneys,
appraisal, appraisal review, processing, title, filing, and recording costs,
expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Note or the Related
Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the party against whom it is
being enforced.

8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in
accordance with the laws of the State of Indiana (without giving effect to its
laws of conflicts). The Borrower agrees that any legal action or proceeding with
respect to any of its obligations under the Note or this agreement may be
brought by the Bank in any state or federal court located in the State of
Indiana, as the Bank in its sole discretion may elect. By the execution and
delivery of this agreement, the Borrower submits to and accepts, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of those courts. The Borrower waives any claim that the State of
Indiana is not a convenient forum or the proper venue for any such suit, action
or proceeding. This agreement binds the Borrower and its successors, and
benefits the Bank, its successors and assigns. The Borrower shall not, however,
have the right to assign the Borrower’s rights under this agreement or any
interest therein, without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

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10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

Borrower:

 

 

Address:  

3400 Jackson St.

 

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

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Timothy E. Hall, VP & CFO

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Printed Name Title  

Date Signed:

May 26, 2006

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BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

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John C. Otteson, VP

 

 

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Printed Name

Title

 

 

Date Signed:

May 30, 2006

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(CHASE LOGO) [a001.jpg]

Note Modification Agreement   

This agreement is dated as of May 19, 2006 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A., as successor by merger to Bank One, NA, with its main office in Chicago,
Illinois (the “Bank”). The provisions of this agreement are effective on the
date that this agreement has been executed by all of the signers and delivered
to the Bank (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

2. MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the provisions in the Note
captioned “Due”, “Promise to Pay” and “Principal Payments” are hereby amended by
deleting the date of September 30, 2007 contained therein and replacing it with
the date of October 31, 2010.

          2.2 Each of the Related Documents is modified to provide that it shall
be a default or an event of default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower herein or by any guarantor in any Related Documents
is materially incomplete, incorrect, or misleading as of the date hereof. As
used in this agreement, the “Related Documents” shall include the Note and all
loan agreements, credit agreements, reimbursement agreements, security
agreements, mortgages, deeds of trust, pledge agreements, assignments,
guaranties, or any other instrument or document executed in connection with the
Note or in connection with any other obligations of the Borrower to the Bank.

          2.3 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that each of the following representations and warranties made in
the Note and Related Documents are true and will remain true until maturity of
the Note, termination of the other Related Documents and payment and performance
in full of all liabilities, obligations and debt evidenced by the Note and other
Related Documents:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the business, assets,
affairs, prospects or financial condition of the Borrower or any Guarantor or
any subsidiary of the Borrower.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof.

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.

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          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the
performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the loan
evidenced by the Note and the Related Documents, or of the actions or omissions
of the Bank in any manner related to the loan evidenced by the Note or the
Related Documents and (ii) arising from events occurring prior to the date of
this agreement.

          5.3 The Borrower shall pay to the Bank:

                    5.3.1 All the internal and external costs and expenses
incurred (or charged by internal allocation) by the Bank in connection with this
agreement (including, without limitation, inside and outside attorneys,
appraisal, appraisal review, processing, title, filing, and recording costs,
expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Note or the Related
Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the party against whom it is
being enforced.

8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in
accordance with the laws of the State of Indiana (without giving effect to its
laws of conflicts). The Borrower agrees that any legal action or proceeding with
respect to any of its obligations under the Note or this agreement may be
brought by the Bank in any state or federal court located in the State of
Indiana, as the Bank in its sole discretion may elect. By the execution and
delivery of this agreement, the Borrower submits to and accepts, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of those courts. The Borrower waives any claim that the State of
Indiana is not a convenient forum or the proper venue for any such suit, action
or proceeding. This agreement binds the Borrower and its successors, and
benefits the Bank, its successors and assigns. The Borrower shall not, however,
have the right to assign the Borrower’s rights under this agreement or any
interest therein, without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

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10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

May 26, 2006

--------------------------------------------------------------------------------

 

 

 

BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson, VP

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

May 30, 2006

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(CHASE LOGO) [a001.jpg]

Amendment to Credit Agreement   

This agreement is dated as of May 19, 2006, by and between Flexsteel Industries,
Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by merger to
Bank One, NA, with its main office in Chicago, Illinois (the “Bank”), and its
successors and assigns. The provisions of this agreement are effective on the
date that this agreement has been executed by all of the signers and delivered
to the Bank (the “Effective Date”).

WHEREAS, the Borrower and the Bank entered into a credit agreement dated June
30, 2004, as amended (if applicable) (the “Credit Agreement”); and

WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit
Agreement as set forth below;

NOW, THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

 

1.

DEFINED TERMS. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.

 

 

2.

MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:

 

 

 

2.1

From and after the Effective Date, Section 1.4 of the Credit Agreement captioned
“Letters of Credit” is hereby amended by deleting the date of “September 30,
2007” contained therein and replacing it with the date of “October 31, 2010”.

 

 

3.

RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the
Credit Agreement shall remain in full force and effect as modified herein.

 

 

4.

BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date of this agreement,
(b) no condition, act or event which could constitute an event of default under
the Credit Agreement or any promissory note or credit facility executed in
reference to the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement or any
promissory note or credit facility executed in reference to the Credit
Agreement.

 

 

5.

FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this agreement, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this agreement.

 

 

6.

EXECUTION AND DELIVERY. This agreement shall become effective only after it is
fully executed by the Borrower and the Bank.

 

 

7.

ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of
this agreement it has no offsets with respect to all amounts owed by the
Borrower to the Bank arising under or related to the Credit Agreement on or
prior to the date of this agreement. The Borrower fully, finally and forever
releases and discharges the Bank and its successors, assigns, directors,
officers, employees, agents and representatives from any and all claims, causes
of action, debts and liabilities, of whatever kind or nature, in law or in
equity, of the Borrower, whether now known or unknown to the Borrower, which may
have arisen in connection with the Credit Agreement or the actions or omissions
of the Bank related to the Credit Agreement on or prior to the date hereof. The
Borrower acknowledges and agrees that this agreement is limited to the terms
outlined above, and shall not be construed as an agreement to change any other
terms or provisions of the Credit Agreement. This agreement shall not establish
a course of dealing or be construed as evidence of any willingness on the Bank’s
part to grant other or future agreements, should any be requested.

 

 

8.

NOT A NOVATION. This agreement is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Credit Agreement, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Credit Agreement and made a part thereof. This
agreement shall not release or affect the liability of any guarantor of any
promissory note or credit facility executed

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in reference to the Credit Agreement or release any owner of collateral granted
as security for the Credit Agreement. The validity, priority and enforceability
of the Credit Agreement shall not be impaired hereby. To the extent that any
provision of this agreement conflicts with any term or condition set forth in
the Credit Agreement, or any document executed in conjunction therewith, the
provisions of this agreement shall supersede and control. The Bank expressly
reserves all rights against all parties to the Credit Agreement.

 

 

 

  

 

Borrower:

 

 

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

May 26, 2006

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson, VP

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

May 30, 2006

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(CHASE LOGO) [a001.jpg]

Note Modification Agreement   

This agreement is dated as of January 3, 2006 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A. as successor by merger to Bank One, NA (the “Bank”). The provisions of this
agreement are effective on the date that this agreement has been executed by all
of the signers and delivered to the Bank (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

2. MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the amount of the Note, and the
maximum principal amount that may at any time be outstanding thereunder, is
hereby increased to Twenty Million and 00/100 Dollars ($20,000,000.00).

          2.2 Each of the Related Documents is modified to provide that it shall
be a default or an event of default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower herein or by any guarantor in any Related Documents
is materially incomplete, incorrect, or misleading as of the date hereof. As
used in this agreement, the “Related Documents” shall include the Note and all
loan agreements, credit agreements, reimbursement agreements, security
agreements, mortgages, deeds of trust, pledge agreements, assignments,
guaranties, or any other instrument or document executed in connection with the
Note or in connection with any other obligations of the Borrower to the Bank.

          2.3 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that each of the following representations and warranties made in
the Note and Related Documents are true and will remain true until maturity of
the Note, termination of the other Related Documents and payment and performance
in full of all liabilities, obligations and debt evidenced by the Note and other
Related Documents:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the business, assets,
affairs, prospects or financial condition of the Borrower or any Guarantor or
any subsidiary of the Borrower.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof.

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.

--------------------------------------------------------------------------------

          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the
performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the loan
evidenced by the Note and the Related Documents, or of the actions or omissions
of the Bank in any manner related to the loan evidenced by the Note or the
Related Documents and (ii) arising from events occurring prior to the date of
this agreement.

          5.3 The Borrower shall pay to the Bank:

                    5.3.1 All the internal and external costs and expenses
incurred (or charged by internal allocation) by the Bank in connection with this
agreement (including, without limitation, inside and outside attorneys,
appraisal, appraisal review, processing, title, filing, and recording costs,
expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Note or the Related
Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the party against whom it is
being enforced.

8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in
accordance with the laws of the State of Indiana (without giving effect to its
laws of conflicts). The Borrower agrees that any legal action or proceeding with
respect to any of its obligations under the Note or this agreement may be
brought by the Bank in any state or federal court located in the State of
Indiana, as the Bank in its sole discretion may elect. By the execution and
delivery of this agreement, the Borrower submits to and accepts, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of those courts. The Borrower waives any claim that the State of
Indiana is not a convenient forum or the proper venue for any such suit, action
or proceeding. This agreement binds the Borrower and its successors, and
benefits the Bank, its successors and assigns. The Borrower shall not, however,
have the right to assign the Borrower’s rights under this agreement or any
interest therein, without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

January 4, 2006

--------------------------------------------------------------------------------

 

 

 

BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson, VP

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

January 5, 2006

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(CHASE LOGO) [a001.jpg]

Amendment to Credit Agreement    

This agreement is dated as of January 3, 2006, by and between Flexsteel
Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by
merger to Bank One, NA (the “Bank”), and its successors and assigns. The
provisions of this agreement are effective on the date that this agreement has
been executed by all of the signers and delivered to the Bank (the “Effective
Date”).

WHEREAS, the Borrower and the Bank entered into a credit agreement dated June
30, 2004, as amended (if applicable) (the “Credit Agreement”); and

WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit
Agreement as set forth below;

NOW, THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

 

1.

DEFINED TERMS. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.

 

 

 

2.

MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:

 

 

 

 

2.1

From and after the Effective Date, the following provision in the Credit
Agreement under Section 1.2 captioned “Facility A. (Line of Credit)” is hereby
amended as follows: The language now reading “The Bank has approved a credit
facility to the Borrower in the principal sum not to exceed $13,000,000.00 in
the aggregate at any one time outstanding (Facility A)”, is replaced with the
following:

 

 

 

 

 

The Bank has approved a credit facility to the Borrower in the principal sum not
to exceed $20,000,000.00 in the aggregate at any one time outstanding (‘Facility
A”).

 

 

 

3.

RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the
Credit Agreement shall remain in full force and effect as modified herein.

 

 

 

4.

BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date of this agreement,
(b) no condition, act or event which could constitute an event of default under
the Credit Agreement or any promissory note or credit facility executed in
reference to the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement or any
promissory note or credit facility executed in reference to the Credit
Agreement.

 

 

 

5.

FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this agreement, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this agreement.

 

 

 

6.

EXECUTION AND DELIVERY. This agreement shall become effective only after it is
fully executed by the Borrower and the Bank, and the Bank shall have received
from the Borrower the following documents: Note Modification Agreement.

 

 

 

7.

ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of
this agreement it has no offsets with respect to all amounts owed by the
Borrower to the Bank arising under or related to the Credit Agreement on or
prior to the date of this agreement. The Borrower fully, finally and forever
releases and discharges the Bank and its successors, assigns, directors,
officers, employees, agents and representatives from any and all claims, causes
of action, debts and liabilities, of whatever kind or nature, in law or in
equity, of the Borrower, whether now known or unknown to the Borrower, which may
have arisen in connection with the Credit Agreement or the actions or omissions
of the Bank related to the Credit Agreement on or prior to the date hereof. The
Borrower acknowledges and agrees that this agreement is limited to the terms
outlined above, and shall not be construed as an agreement to change any other
terms or provisions of the Credit Agreement. This agreement shall not establish
a course of dealing or be construed as evidence of any willingness on the Bank’s
part to grant other or future agreements, should any be requested.

 

 

 

8.

NOT A NOVATION. This agreement is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Credit Agreement, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Credit

--------------------------------------------------------------------------------

 

 

 

Agreement and made a part thereof. This agreement shall not release or affect
the liability of any guarantor of any promissory note or credit facility
executed in reference to the Credit Agreement or release any owner of collateral
granted as security for the Credit Agreement. The validity, priority and
enforceability of the Credit Agreement shall not be impaired hereby. To the
extent that any provision of this agreement conflicts with any term or condition
set forth in the Credit Agreement, or any document executed in conjunction
therewith, the provisions of this agreement shall supersede and control. The
Bank expressly reserves all rights against all parties to the Credit Agreement.

 

 

 

Borrower:

 

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

January 4, 2006

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson, VP

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

January 5, 2006

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(CHASE LOGO) [a001.jpg]

Note Modification Agreement   

This agreement is dated as of December 23, 2005 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A., as successor by merger to Bank One, NA, (the “Bank”). The provisions of
this agreement are effective on December 9, 2005 (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

 

 

2. MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the pricing grid in the
provision in the Note captioned “Applicable Margin” is herby amended and
restated to read as follows:

 

 

 

 

 

 

 

 

 

 

Applicable Margin

 

 

 

--------------------------------------------------------------------------------

 

Leverage Ratio

 

Prime Rate Advance

 

Eurodollar Advance

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

Greater than or equal to 3.00 to 1.00

 

1.00

%

 

1.50

%

 

Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00

 

1.00

%

 

1.25

%

 

Less than 2.50 to 1.00 but greater than or equal to 2.00 to L00

 

1.00

%

 

1.00

%

 

Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00

 

1.00

%

 

0.75

%

 

Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00

 

1.00

%

 

0.75

%

 

Less than or equal to 1.00 to 1.00

 

1.00

%

 

0.75

%

 

          2.2 From and after the Effective Date, the provisions in the Note
captioned “Interest Rates” and “Default Rate of Interest” is hereby amended and
restated to read as follows:

 

 

 

Interest Rates. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the greater of (a) the
Prime Rate minus the Applicable Margin, or (b) 0.00% per annum, and each
Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the
basis of the actual number of days elapsed in a year of 360 days. In no event
shall the interest rate applicable to any Advance exceed the maximum rate
allowed by law. Any interest payment which would for any reason be deemed
unlawful under applicable law shall be applied to principal.

 

 

 

Default Rate of Interest. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
three percent (3.00%) from the date the Bank elects to impose such rate.
Imposition of this rate shall not affect any limitations contained in this Note
on the Borrower’s right to repay principal on any Eurodollar Advance before the
expiration of the Interest Period for that Advance.

          2.3 Each of the Related Documents is modified to provide that it shall
be a default or an event of. default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower herein or by any guarantor in any Related Documents
is materially incomplete, incorrect, or misleading as of the date hereof. As
used

--------------------------------------------------------------------------------

in this agreement, the “Related Documents” shall include the Note and all loan
agreements, credit agreements, reimbursement agreements, security agreements,
mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any
other instrument or document executed in connection with the Note or in
connection with any other obligations of the Borrower to the Bank.

          2.4 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that each of the following representations and warranties made in
the Note and Related Documents are true and will remain true until maturity of
the Note, termination of the other Related Documents and payment and performance
in full of all liabilities, obligations and debt evidenced by the Note and other
Related Documents:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the business, assets,
affairs, prospects or financial condition of the Borrower or any Guarantor or
any subsidiary of the Borrower.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof.

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.

          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the
performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the
loan-evidenced by the Note and the Related Documents, or of the actions or
omissions of the Bank in any manner related to the loan evidenced by the Note or
the Related Documents and (ii) arising from events occurring prior to the date
of this agreement.

          5.3 The Borrower shall pay to the Bank:

               5.3.1 All the internal and external costs and expenses incurred
(or charged by internal allocation) by the Bank in connection with this
agreement (including, without limitation, inside and outside attorneys,
appraisal, appraisal review, processing, title, filing, and recording costs,
expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision

--------------------------------------------------------------------------------

of the Note or the Related Documents as modified herein may be changed,
discharged, supplemented, terminated, or waived except in a writing signed by
the party against whom it is being enforced.

8. GOVERNING. LAW AND VENUE. This agreement shall be governed by and construed
in accordance with the laws of the State of Indiana (without giving effect to
its laws of conflicts). The Borrower agrees that any legal action or proceeding
with respect to any of its obligations under the Note or this agreement may be
brought by the Bank in any state or federal court located in the State of
Indiana, as the Bank in its sole discretion may elect. By the execution and
delivery of this agreement, the Borrower submits to and accepts, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of those courts. The Borrower waives any claim that the State of
Indiana is not a convenient forum or the proper venue for any such suit, action
or proceeding. This agreement binds the Borrower and its successors, and
benefits the Bank, its successors and assigns. The Borrower shall not, however,
have the right to assign the Borrower’s rights under this agreement or any
interest therein, without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

December 29, 2005

--------------------------------------------------------------------------------

 

 

 

BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   Robert E. McElwain

 

 

--------------------------------------------------------------------------------

 

 

 

Robert E. McElwain, SVP

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

Date Signed:

December 31, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

 

Note Modification Agreement   

(CHASE LOGO) [a001.jpg]

 

This agreement is dated as of December 23, 2005 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A., as successor by merger to Bank One, NA, (the “Bank”). The provisions of
this agreement are effective on December 9, 2005 (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 10, 2005 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

1.

ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

 

 

2.

MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the pricing grid in the
provision in the Note captioned “Applicable Margin” is hereby amended and
restated to read as follows:

 

 

 

 

 

 

 

 

 

 

Applicable Margin

 

 

 

--------------------------------------------------------------------------------

 

Leverage Ratio

 

Prime Rate Advance

 

Eurodollar Advance

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

Greater than or equal to 3.00 to 1.00

 

1.00

%

 

1.25

%

 

Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00

 

1.00

%

 

1.00

%

 

Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00

 

1.00

%

 

0.875

%

 

Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00

 

1.00

%

 

0.75

%

 

Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00

 

1.00

%

 

0.625

%

 

Less than or equal to 1.00 to 1.00

 

1.00

%

 

0.50

%

 

          2.2 From and after the Effective Date, the provisions in the Note
captioned “Interest Rates” and “Default Rate of Interest” is hereby amended and
restated to read as follows:

 

 

 

Interest Rates. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the greater of (a) the
Prime Rate minus the Applicable Margin, or (b) 0.00% per annum, and each
Eurodollar Advance at the Eurodollar Rate. Interest shall be calculated on the
basis of the actual number of days elapsed in a year of 360 days. In no event
shall the interest rate applicable to any Advance exceed the maximum rate
allowed by law. Any interest payment which would for any reason be deemed
unlawful under applicable law shall be applied to principal.

 

 

 

Default Rate of Interest. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
three percent (3.00%) from the date the Bank elects to impose such rate.
Imposition of this rate shall not affect any limitations contained in this Note
on the Borrower’s right to repay principal on any Eurodollar Advance before the
expiration of the Interest Period for that Advance.

          2.3 Each of the Related Documents is modified to provide that it shall
be a default or an event of default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower herein or by any guarantor in any Related Documents
is materially incomplete, incorrect, or misleading as of the date hereof. As
used

--------------------------------------------------------------------------------

in this agreement, the “Related Documents” shall include the Note and all loan
agreements, credit agreements, reimbursement agreements, security agreements,
mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any
other instrument or document executed in connection with the Note or in
connection with any other obligations of the Borrower to the Bank.

          2.4 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that each of the following representations and warranties made in
the Note and Related Documents are true and will remain true until maturity of
the Note, termination of the other Related Documents and payment and performance
in full of all liabilities, obligations and debt evidenced by the Note and other
Related Documents:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor’ any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the business, assets,
affairs, prospects or financial condition of the Borrower or any Guarantor or
any subsidiary of the Borrower.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof,

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.

          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the
performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the loan
evidenced by the Note and the Related Documents, or of the actions or omissions
of the Bank in any manner related to the loan evidenced by the Note or the
Related Documents and (ii) arising from events occurring prior to the date of
this agreement.

          5.3 The Borrower shall pay to the Bank:

               5.3.1 All the internal and external costs and expenses incurred
(or charged by internal allocation) by the Bank in connection with this
agreement (including, without limitation, inside and outside attorneys,
appraisal, appraisal review, processing, title, filing, and recording costs,
expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision

--------------------------------------------------------------------------------

of the Note or the Related Documents as modified herein may be changed,
discharged, supplemented, terminated, or waived except in a writing signed by
the party against whom it is being enforced.

8. GOVERNING LAW AND VENUE. This agreement shall be governed by and construed in
accordance with the laws of the State of Indiana (without giving effect to its
laws of conflicts). The Borrower agrees that any legal action or proceeding with
respect to any of its obligations under the Note or this agreement may be
brought by the Bank in any state or federal court located in the State of
Indiana, as the Bank in its sole discretion may elect. By the execution and
delivery of this agreement, the Borrower submits to and accepts, for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of those courts. The Borrower waives any claim that the State of
Indiana is not a convenient forum or the proper venue for any such suit, action
or proceeding. This agreement binds the Borrower and its successors, and
benefits the Bank, its successors and assigns. The Borrower shall not, however,
have the right to assign the Borrower’s rights under this agreement or any
interest therein, without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, VP & CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

December 29, 2005

--------------------------------------------------------------------------------

 

 

 

BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   Robert E. McElwain

 

 

--------------------------------------------------------------------------------

 

 

 

Robert E. McElwain, SVP

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

Date Signed:

December 31, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

 

(CHASE LOGO) [a001.jpg]

Amendment to Credit Agreement   

This agreement is dated as of December 23, 2005, by and between Flexsteel
Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by
merger to Bank One, NA, (the “Bank”), and its successors and assigns. . The
provisions of this agreement are effective on December 9, 2005 (the “Effective
Date”).

WHEREAS, the Borrower and the Bank entered into a credit agreement dated June
30, 2004, as amended (if applicable) (the “Credit Agreement”); and

WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit
Agreement as set forth below;

NOW, THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

 

1.

DEFINED TERMS. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.

 

 

2.

MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:

 

 

 

2.1

From and after the Effective Date, the pricing grid in Section 1.2 and Section
1.4 of the Credit Agreement under the Sections captioned “Non Usage Fee” are
hereby amended and restated to read as follows:

 

 

Funded Debt to EBITDA Ratio

Non-usage Fee

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 3.00 to 1.00

20 bp

Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00

20 bp

Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00

10 bp

Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00

l0 bp

Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00

10 bp

Less than or equal to 1.00 to 1.00

l0 bp

 

 

 

 

2.2

From and after the Effective Date, the pricing grid in Section 1.4 of the Credit
Agreement under the Section captioned “Letters of Credit” is hereby amended and
restated to read as follows:

 

 

Funded Debt to EBITDA Ratio

Letter of
Credit Fee

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 3.00 to 1.00

l .50%

Less than 3.00 to 1.00 but greater than or equal to 2.50 to 1.00

1.25%

Less than 2.50 to 1.00 but greater than or equal to 2.00 to 1.00

1.00%

Less than 2.00 to 1.00 but greater than or equal to 1.50 to 1.00

0.75%

Less than 1.50 to 1.00 but greater than or equal to 1.00 to 1.00

0.75%

Less than or equal to 1.00 to 1.00

0.75%

 

 

 

 

 

2.3

From and after the Effective Date, Section 4.2 of the Credit Agreement captioned
“J. EBITDA/Interest Ratio” and “K. Funded Debt to EBITDA Ratio” are hereby
amended and restated to read as follows:

 

 

 

 

 

 

J.

EBITDA/Interest Ratio. Permit as of any fiscal quarter end, its ratio determined
on a consolidated basis for Borrower and its Subsidiaries, of (i) net income,
plus amortization, depreciation, interest expense, income taxes, and the
aggregate amount of all expenses related to options, (employee stock option
plans or employee stock purchase plans which reduce net income), all computed
for the twelve month period then ending, to (ii) interest expense, computed for
the same such period, to be less than 3.00 to 1.00.

--------------------------------------------------------------------------------

 

 

 

 

 

 

K.

Funded Debt to EBITDA Ratio. Permit as of any fiscal quarter end, its “Funded
Debt to EBITDA Ratio” to be greater than 3.50 to 1.00. As used herein, “Funded
Debt to EBITDA Ratio” means the ratio, determined on a consolidated basis for
Borrower and its Subsidiaries, of (i) total liabilities excluding (a) accounts
arising from the purchase of goods and services in the ordinary course of
business, (b) accrued expenses or losses, and (c) deferred revenues or gains,
all computed as of the end of the fiscal quarter for which this ratio is being
determined, to (ii) net income, plus amortization, depreciation, interest
expense, income taxes, and the aggregate amount of all expenses related to
options, (employee stock option plans or employee stock purchase plans which
reduce net income), all computed for the twelve month period then ending with
such fiscal quarter end.

 

 

3.

RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the
Credit Agreement shall remain in full force and effect as modified herein.

 

 

4.

BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date of this agreement,
(b) no condition, act or event which could constitute an event of default under
the Credit Agreement or any promissory note or credit facility executed in
reference to the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement or any
promissory note or credit facility executed in reference to the Credit
Agreement.

 

 

5.

FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this agreement, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this agreement.

 

 

6.

EXECUTION AND DELIVERY. This agreement shall become effective only after it is
fully executed by the Borrower and the Bank.

 

 

7.

ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of
this agreement it has no offsets with respect to all amounts owed by the
Borrower to the Bank arising under or related to the Credit Agreement on or
prior to the date of this agreement. The Borrower fully, finally and forever
releases and discharges the Bank and its successors, assigns, directors,
officers, employees, agents and representatives from any and all claims, causes
of action, debts and liabilities, of whatever kind or nature, in law or in
equity, of the Borrower, whether now known or unknown to the Borrower, which may
have arisen in connection with the Credit Agreement or the actions or omissions
of the Bank related to the Credit Agreement on or prior to the date hereof. The
Borrower acknowledges and agrees that this agreement is limited to the terms
outlined above, and shall not be construed as an agreement to change any other
terms or provisions of the Credit Agreement. This agreement shall not establish
a course of dealing or be construed as evidence of any willingness on the Bank’s
part to grant other or future agreements, should any be requested.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

 

 

8.

NOT A NOVATION. This agreement is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Credit Agreement, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Credit Agreement and made a part thereof. This
agreement shall not release or affect the liability of any guarantor of any
promissory note or credit facility executed in reference to the Credit Agreement
or release any owner of collateral granted as security for the Credit Agreement.
The validity, priority and enforceability of the Credit Agreement shall not be
impaired hereby. To the extent that any provision of this agreement conflicts
with any term or condition set forth in the Credit Agreement, or any document
executed in conjunction therewith, the provisions of this agreement shall
supersede and control. The Bank expressly reserves all rights against all
parties to the Credit Agreement.

 

 

 

Borrower:

 

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, CFO

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

December 29, 2005

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   Robert E. McElwain

 

 

--------------------------------------------------------------------------------

 

 

 

Robert E. McElwain, SVP

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

Date Signed:

December 30, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Amendment to Credit Agreement

This agreement is dated as of August 19, 2005, by and between Flexsteel
Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A., as successor by
merger to Bank One, NA, (the “Bank”), and its successors and assigns. The
provisions of this agreement are effective on the date that this agreement has
been executed by all of the signers and delivered to the Bank (the “Effective
Date”).

WHEREAS, the Borrower and the Bank entered into a credit agreement dated June
30, 2004, as amended (if applicable) (the “Credit Agreement”); and.

WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit
Agreement as set forth below;

NOW, THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

 

1.

DEFINED TERMS. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.

 

 

 

2.

MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:

 

 

 

 

2.1

From and after the Effective Date, the provision in the Credit Agreement under
Section 1.4 captioned “Facility C. (Letters of Credit)” is hereby amended as
follows: The language now reading “The Bank has approved a credit facility for
letters of credit to the Borrower and/or DMI in the principal sum not to exceed
$5,000,000.00 in the aggregate at any one time outstanding (“Facility C”).” is
replaced with the following:

 

 

 

 

 

The Bank has approved a credit facility for letters of credit to the Borrower
and/or DMI in the principal sum not to exceed $8,000,000.00 in the aggregate at
any one time outstanding (“Facility C”).

 

 

 

 

2.2

From and after the Effective Date, the following provision in the Credit
Agreement under Section 1.4 captioned “Facility C (Letters of Credit)”
Subsection (a) is hereby amended and restated to read as follows:

 

 

 

 

 

(a) the aggregate maximum available amount which is drawn and unreimbursed or
may be drawn under all letters of credit which are outstanding at any time,
including without limitation all letters of credit issued for the account of the
Borrower and/or DMI which are outstanding on the date of this agreement, shall
not exceed $8,000,000.00.

 

 

 

3.

RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the
Credit Agreement shall remain in full force and effect as modified herein.

 

 

 

4.

BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date of this agreement,
(b) no condition, act or event which could constitute an event of default under
the Credit Agreement or any promissory note or credit facility executed in
reference to the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement or any
promissory note or credit facility executed in reference to the Credit
Agreement.

 

 

 

5.

FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this agreement, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this agreement.

 

 

 

6.

EXECUTION AND DELIVERY. This agreement shall become effective only after it is
fully executed by the Borrower and the Bank.

 

 

 

7.

ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of
this agreement it has no offsets with respect to all amounts owed by the
Borrower to the Bank arising under or related to the Credit Agreement on or
prior to the date of this agreement. The Borrower fully, finally and forever
releases and discharges the Bank and its successors, assigns, directors,
officers, employees, agents and representatives from any and all claims, causes
of action, debts and liabilities, of whatever kind or nature, in law or in
equity, of the Borrower, whether now known or unknown to the Borrower, which may
have arisen in connection with the Credit Agreement or the actions or omissions
of the Bank related to the Credit Agreement on or prior to the date hereof. The
Borrower acknowledges and agrees that this agreement is limited to the terms
outlined above, and shall not be construed as an agreement to change any other
terms or provisions of the Credit

--------------------------------------------------------------------------------

 

 

 

 

Agreement. This agreement shall not establish a course of dealing or be
construed as evidence of any willingness on the Bank’s part to grant other or
future agreements, should any be requested.

 

 

 

8.

NOT A NOVATION. This agreement is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Credit Agreement, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Credit Agreement and made a part thereof. This
agreement shall not release or affect the liability of any guarantor of any
promissory note or credit facility executed in reference to the Credit Agreement
or release any owner of collateral granted as security for the Credit Agreement.
The validity, priority and enforceability of the Credit Agreement shall not be
impaired hereby. To the extent that any provision of this agreement conflicts
with any term or condition set forth in the Credit Agreement, or any document
executed in conjunction therewith, the provisions of this agreement shall
supersede and control. The Bank expressly reserves all rights against all
parties to the Credit Agreement.

 

 

 

  

Borrower:

 

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   Timothy E. Hall

 

 

--------------------------------------------------------------------------------

 

 

Timothy E. Hall, Chief Financial Officer

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

August 23, 2005

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

John C. Otteson, First Vice President

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

August 25, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Line of Credit Note

 

 

 

$20,000,000.00

Due: June 29, 2006

Date: June 10, 2005

Promise to Pay. On or before June 29, 2006, for value received, Flexsteel
Industries, Inc. (the “Borrower”) promises to pay to JPMorgan Chase Bank, N.A.
as successor by merger to Bank One, NA whose address is 1 East Ohio Street,
Indianapolis, IN 46277 (the “Bank”) or order, in lawful money of the United
States of America, the sum of Twenty Million and 00/100 Dollars ($20,000,000.00)
or such lesser sum as is indicated on Bank records, plus interest as provided
below.

Definitions. As used in this Note, the following terms have the following
respective meanings:

“Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances”
means all Eurodollar Advances and all Prime Rate Advances under this Note.

“Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar
Advance, as the case may be, the rate per annum set forth below opposite the
applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined
in the Credit Agreement.

 

 

 

 

Applicable Margin

 

--------------------------------------------------------------------------------

Funded Debt to EBITDA Ratio

Prime Rate Advance

Eurodollar Advance

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

0.00%

1.00%

Less than 2.00 to 1.00 but greater than or equal
to 1.00 to 1.00

0.00%

0.75%

Less than 1.00 to 1.00

0.00%

0.50%

The Applicable Margin shall, in each case, be determined and adjusted quarterly
on the first day of the month after the date of delivery of the quarterly and
annual financial statements required by the Credit Agreement, provided, however,
that if such financial statements are not delivered within two Business Days
after the required date (each, an “Interest Determination Date”), the Applicable
Margin shall increase to the maximum percentage amount set forth in the table
above from the date such financial statements were required to be delivered to
the Bank until received by the Bank. The Applicable Margin shall be effective
from an Interest Determination Date until the next Interest Determination Date.
Such determinations by the Bank shall be conclusive absent manifest error. The
initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar
Advances is 0.50%.

“Credit Agreement” means a certain Credit Agreement, dated June 30, 2004,
between the Borrower and the Bank.

“Business Day” means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Indiana and/or New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day other than a Saturday, Sunday or any other day on
which national banking associations are authorized to be closed.

“Eurodollar Base Rate” means, with respect to the relevant Interest Period, the
applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars
as reported by any generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if no such British Bankers’ Association LIBOR rate is available to the
Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the rate determined by the Bank to be the rate at which JPMorgan
Chase & Co. or one of its affiliate banks offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of the principal amount outstanding
on such date and having a maturity equal to such Interest Period.

“Eurodollar Advance” means any borrowing under this Note when and to the extent
that its interest rate is determined by reference to the Eurodollar Rate.

“Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant
Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of
(a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b)
one minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period.

--------------------------------------------------------------------------------

“Interest Period” means, with respect to a Eurodollar Advance, a period of one
(1), two (2), three (3) or six (6) month(s) commencing on a Business Day
selected by the Borrower pursuant to this Note. Such Interest Period shall end
on the day which corresponds numerically to such date one (1), two (2), three
(3) or six (6) month(s) thereafter, as applicable, provided, however, that if
there is no such numerically corresponding day in such first, second, third or
sixth succeeding month(s), as applicable, such Interest Period shall end on the
last Business Day of such first, second, third or sixth succeeding month(s), as
applicable. If an Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Interest Period shall end on the immediately preceding
Business Day.

“Prime Rate” means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

“Prime Rate Advance” means any Advance under this Note when and to the extent
that its interest rate is determined by reference to the Prime Rate.

“Principal Payment Date” is defined in the paragraph entitled “Principal
Payments” below.

“Regulation D” means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.

“Reserve Requirement” means, with respect to an Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D.

Interest Rates. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the
Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest
shall be calculated on the basis of the actual number of days elapsed in a year
of 360 days. In no event shall the interest rate applicable to any Advance
exceed the maximum rate allowed by law. Any interest payment which would for any
reason be deemed unlawful under applicable law shall be applied to principal.

Bank Records. The Bank shall, in the ordinary course of business, make notations
in its records of the date, amount, interest rate and Interest Period of each
Advance hereunder, the amount of each payment on the Advances, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to this Note.

Notice and Manner of Electing Interest Rates on Advances. The Borrower shall
give the Bank written notice (effective upon receipt) of the Borrower’s intent
to draw down an Advance under this Note no later than 11:00 a.m. Eastern time,
one (1) Business Day before disbursement, if the full amount of the drawn
Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days
before disbursement, if any part of such Advance is to be disbursed as a
Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement
date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate
Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the
duration of the applicable Interest Period; provided, however, that the Borrower
may not elect an Interest Period ending after the maturity date of this Note.
Each Eurodollar Advance shall be in a minimum amount of One Million and 00/100
Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By
the Bank’s close of business on the disbursement date and upon fulfillment of
the conditions set forth herein and in any other of the Related Documents, the
Bank shall disburse the requested Advances in immediately available funds by
crediting the amount of such Advances to the Borrower’s account with the Bank.

Conversion and Renewals. The Borrower may elect from time to time to convert one
type of Advance into another or to renew any Advance by giving the Bank written
notice no later than 11:00 a.m. Eastern time, one (1) Business Day before
conversion into a Prime Rate Advance and three (3) Business Days before
conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal
or conversion date, (b) the amount of the Advance to be converted or renewed,
(c) in the case of conversion, the type of Advance to be converted into (Prime
Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or
conversion into a Eurodollar Advance, the applicable Interest Period, provided
that (i) the minimum principal amount of each Eurodollar Advance outstanding
after a renewal or conversion shall be One Million and 00/100 Dollars
($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day
of the Interest Period for the Advance; and (iii) the Borrower may not elect an
Interest Period ending after the maturity date of this Note. All notices given
under this paragraph are irrevocable. If the Borrower fails to give the Bank the
notice specified above for the renewal or conversion of a Eurodollar Advance by
11:00 a.m. Eastern time three (3) Business Days before the end of the Interest
Period for that Advance, the Advance shall automatically be converted to a Prime
Rate Advance on the last day of the Interest Period for the Advance.

--------------------------------------------------------------------------------

Interest Payments. Interest on the Advances shall be paid as follows:

A.      For each Prime Rate Advance, on the twenty-ninth day of each month
beginning with the first month following disbursement of the Advance or
following conversion of an Advance into a Prime Rate Advance, and at the
maturity or conversion of the Advance into a Eurodollar Advance;

B.      For each Eurodollar Advance, on the last day of the Interest Period for
the Advance and, if the Interest Period is longer than three months, at
three-month intervals beginning with the day three months from the date the
Advance is disbursed.

Principal Payments. All outstanding principal and interest is due and payable in
full on June 29, 2006, which is defined herein as the “Principal Payment Date”.

Default Rate of Interest. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from
the date the Bank elects to impose such rate. Imposition of this rate shall not
affect any limitations contained in this Note on the Borrower’s right to repay
principal on any Eurodollar Advance before the expiration of the Interest Period
for that Advance.

Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at
any time without premium or penalty. The Borrower may prepay any Eurodollar
Advance only at the end of an Interest Period.

Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay
the Bank amounts sufficient (in the Bank’s reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:

A.      Any payment of a Eurodollar Advance on a date other than the last day of
the Interest Period for the Advance, including, without limitation, acceleration
of the Advances by the Bank pursuant to this Note or the Related Documents; or

B.      Any failure by the Borrower to borrow or renew a Eurodollar Advance on
the date specified in the relevant notice from the Borrower to the Bank.

Additional Costs. If any applicable domestic or foreign law; treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this Note or
the Related Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (b) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) impose any other condition with respect to this Note or the
Related Documents and the result of any of the foregoing is to increase the cost
to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any
sum receivable by the Bank on such an Advance, or (d) affect the amount of
capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank’s obligations under this
Note or the Related Documents and the increase has the effect of reducing the
rate of return on the Bank’s (or its controlling corporation’s) capital as a
consequence of the obligations under this Note or the Related Documents to a
level below that which the Bank (or its controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon request by the
Bank, additional amounts sufficient to compensate the Bank for the increased
cost or reduced sum receivable. Whenever the Bank shall learn of circumstances
described in this section which are likely to result in additional costs to the
Borrower, the Bank shall give prompt written notice to the Borrower of the basis
for and the estimated amount of any such anticipated additional costs. A
statement as to the amount of the increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.

Illegality. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the
force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Advances, together with accrued
interest and any other amounts payable to the Bank under this Note or the
Related Documents on account of the Eurodollar Advances shall be repaid (a)
immediately upon the Bank’s demand if such change or compliance with such
requests, in the Bank’s judgment, requires immediate repayment, or (b) at the
expiration of the last Interest Period to expire before the effective date of
any such change or request provided, however, that subject to the terms and
conditions of this Note and the Related Documents the Borrower shall be entitled
to

--------------------------------------------------------------------------------

simultaneously replace the entire outstanding balance of any Eurodollar Advance
repaid in accordance with this section with a Prime Rate Advance in the same
amount.

Inability to Determine Interest Rate. If the Bank determines that (a) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Advance as provided in this Note, or (b) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Advances, then the Bank
shall forthwith give notice of such circumstances to the Borrower, whereupon (i)
the obligation of the Bank to make Eurodollar Advances shall be suspended until
the Bank notifies the Borrower that the circumstances giving rise to the
suspension no longer exists, and (ii) the Borrower shall repay in full the then
outstanding principal amount of each Eurodollar Advance, together with accrued
interest, on the last day of the then current Interest Period applicable to the
Advance, provided, however, that, subject to the terms and conditions of this
Note and the Related Documents, the Borrower shall be entitled to simultaneously
replace the entire outstanding balance of any Eurodollar Advance repaid in
accordance with this section with a Prime Rate Advance in the same amount.

Obligations Due on Non-Business Day. Whenever any payment under this Note
becomes due and payable on a day that is not a Business Day, if no default then
exists under this Note, the maturity of the payment shall be extended to the
next succeeding Business Day, except, in the case of a Eurodollar Advance, if
the result of the extension would be to extend the payment into another calendar
month, the payment must be made on the immediately preceding Business Day.

Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address
shown above or at such other place as the Bank may designate. Payments shall be
allocated among principal, interest and fees at the discretion of the Bank
unless otherwise agreed or required by applicable law. Acceptance by the Bank of
any payment which is less than the payment due at the time shall not constitute
a waiver of the Bank’s right to receive payment in full at that time or any
other time.

Authorization for Direct Payments (ACH Debits). To effectuate any payment due
under this Note, the Borrower hereby authorizes the Bank to initiate debit
entries to Account Number __________________ at the Bank and to debit the same
to such account. This authorization to initiate debit entries shall remain in
full force and effect until the Bank has received written notification of its
termination in such time and in such manner as to afford the Bank a reasonable
opportunity to act on it. The Borrower represents that the Borrower is and will
be the owner of all funds in such account. The Borrower acknowledges (1) that
such debit entries may cause an overdraft of such account which may result in
the Bank’s refusal to honor items drawn on such account until adequate deposits
are made to such account; (2) that the Bank is under no duty or obligation to
initiate any debit entry for any purpose; and (3) that if a debit is not made
because the above-referenced account does not have a sufficient available
balance, or otherwise, the payment may be late or past due.

Credit Facility. The Bank has approved a credit facility to the Borrower in a
principal amount not to exceed the face amount of this Note. The credit facility
is in the form of advances made from time to time by the Bank to the Borrower.
This Note evidences the Borrower’s obligation to repay those advances. The
aggregate principal amount of debt evidenced by this Note is the amount
reflected from time to time in the records of the Bank. Until the earliest of
maturity, the occurrence of any default, or the occurrence of any event that
would constitute a default but for the giving of notice or the lapse of time or
both until the end of any grace or cure period, the Borrower may borrow, pay
down and reborrow under this Note subject to the terms of the Related Documents.

Renewal and Extension. This Note is given in replacement, renewal and/or
extension of, but not extinguishing the indebtedness evidenced by, that Line of
Credit Note dated June 30, 2004 executed by the Borrower in the original
principal amount of Twenty Million and 00/100 Dollars ($20,000,000.00),
including previous renewals or modifications thereof, if any (the “Prior Note”),
and is not a novation thereof. All interest evidenced by the Prior Note shall
continue to be due and payable until paid. If applicable, all Collateral
continues to secure the payment of this Note and the Liabilities. The provisions
of this Note are effective on the date that this Note has been executed by all
of the signers and delivered to the Bank.

THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

Miscellaneous. This Note binds the Borrower and its successors, and benefits the
Bank, its successors and assigns. Any reference to the Bank includes any holder
of this Note. This Note is issued pursuant and entitled to the benefits of that
certain Credit Agreement by and between the Borrower and the Bank, dated June
30, 2004, and all replacements thereof (the “Credit Agreement”) to which
reference is hereby made for a more complete statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid.
The terms and provisions of the Credit Agreement are hereby incorporated and
made a part hereof by this reference thereto with the same force and effect as
if set forth at length herein. No reference to the Credit Agreement and no
provisions of this Note or the Credit Agreement shall alter or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on this Note as herein prescribed. Capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   R. J. Klosterman

 

 

--------------------------------------------------------------------------------

 

 

R. J. Klosterman, Exec. V.P., C.F.O., Secretary

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

June 15, 2005

--------------------------------------------------------------------------------

 

 

 

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(BANK ONE LOGO) [a011.jpg]

Note Modification Agreement

This agreement is dated as of June 10, 2005 (the “Agreement Date”), by and
between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank,
N.A. as successor by merger to Bank One, NA (the “Bank”). The provisions of this
agreement are effective on the date that this agreement has been executed by all
of the signers and delivered to the Bank (the “Effective Date”).

WHEREAS, the Borrower executed a Line of Credit Note as evidence of indebtedness
in the original face amount of Twenty Million and 00/100 Dollars
($20,000,000.00), dated June 30, 2004 owing by the Borrower to the Bank, as same
may have been amended or modified from time to time (the “Note”), which Note has
at all times been, and is now, continuously and without interruption outstanding
in favor of the Bank; and,

WHEREAS, the Borrower has requested and the Bank has agreed that the Note be
modified to the limited extent as hereinafter set forth;

NOW THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

1. ACCURACY OF RECITALS. The Borrower acknowledges the accuracy of the Recitals
stated above.

2. MODIFICATION OF NOTE.

          2.1 From and after the Effective Date, the amount of the Note, and the
maximum principal amount that may at any time be outstanding thereunder, is
hereby decreased to Thirteen Million and 00/100 Dollars ($13,000,000.00).

          2.2 Each of the Related Documents is modified to provide that it shall
be a default or an event of default thereunder if the Borrower shall fail to
comply with any of the covenants of the Borrower herein or if any representation
or warranty by the Borrower or by any guarantor herein is materially incomplete,
incorrect, or misleading as of the date hereof. As used in this agreement, the
“Related Documents” shall include the Note and all loan agreements, credit
agreements, reimbursement agreements, security agreements, mortgages, deeds of
trust, pledge agreements, assignments, guaranties, or any other instrument or
document executed in connection with the Note or in connection with any other
obligations of the Borrower to the Bank.

          2.3 Each reference in the Related Documents to any of the Related
Documents shall be a reference to such document as modified herein.

3. RATIFICATION OF RELATED DOCUMENTS AND COLLATERAL. The Related Documents are
ratified and reaffirmed by the Borrower and shall remain in full force and
effect as they may be modified herein. All real or personal property described
as security in the Related Documents shall remain as security for the Note and
the obligations of the Borrower in the Related Documents.

4. BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank:

          4.1 No default or event of default under any of the Related Documents
as modified hereby, nor any event, that, with the giving of notice or the
passage of time or both, would be a default or an event of default under the
Related Documents as modified herein has occurred and is continuing.

          4.2 There has been no material adverse change in the financial
conditions of the Borrower or any other person whose financial statement has
been delivered to the Bank in connection with the Note from the most recent
financial statement received by the Bank.

          4.3 Each and all representations and warranties of the Borrower in the
Related Documents are accurate on the date hereof.

          4.4 The Borrower has no claims, counterclaims, defenses, or setoffs
with respect to the loan evidenced by the Note or with respect to the Related
Documents as modified herein.

          4.5 The Note and the Related Documents as modified herein are the
legal, valid, and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.

          4.6 The Borrower, other than any Borrower who is a natural person, is
validly existing under the laws of the State of its formation or organization.
The Borrower has the requisite power and authority to execute and deliver this
agreement and to perform the obligations described in the Related Documents as
modified herein. The execution and delivery of this agreement and the

--------------------------------------------------------------------------------

performance of the obligations described in the Related Documents as modified
herein have been duly authorized by all requisite action by or on behalf of the
Borrower. This agreement has been duly executed and delivered by or on behalf of
the Borrower.

5. BORROWER COVENANTS. The Borrower covenants with the Bank:

          5.1 The Borrower shall execute, deliver, and provide to the Bank such
additional agreements, documents, and instruments as. reasonably required by the
Bank to effectuate the intent of this agreement.

          5.2 The Borrower fully, finally, and forever releases and discharges
the Bank and its successors, assigns, directors, officers, employees, agents,
and representatives from any and all causes of action, claims, debts, demands,
and liabilities, of whatever kind or nature, in law or equity, of the Borrower,
whether now known or unknown to the Borrower, (i) in respect of the loan
evidenced by the Note and the Related Documents, or of the actions or omissions
of the Bank in any manner related to the loan evidenced by the Note or the
Related Documents and (ii) arising from events occurring prior to the date of
this agreement.

          5.3 The Borrower shall pay to the Bank:

                    5.3.1 All the internal and external costs and expenses
incurred by the Bank in connection with this agreement (including, without
limitation, inside and outside attorneys, appraisal, appraisal review,
processing, title, filing, and recording costs, expenses, and fees).

6. EXECUTION AND DELIVERY OF AGREEMENT BY THE BANK. The Bank shall not be bound
by this agreement until (i) the Bank has executed this agreement and (ii) the
Borrower performed all of the obligations of the Borrower under this agreement
to be performed contemporaneously with the execution and delivery of this
agreement.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Note and the Related Documents as modified herein contain the complete
understanding and agreement of the Borrower and the Bank in respect of the loan
and supersede all prior representations, warranties, agreements, arrangements,
understandings, and negotiations. No provision of the Note or the Related
Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the party against whom it is
being enforced.

8. GOVERNING LAW AND VENUE. This agreement is delivered in the State of Indiana
and governed by Indiana law (without giving effect to its laws of conflicts).
The Borrower agrees that any legal action or proceeding with respect to any of
its obligations under the Note or this agreement may be brought by the Bank in
any state or federal court located in the State of Indiana, as the Bank in its
sole discretion may elect. By the execution and delivery of this agreement, the
Borrower submits to and accepts, for itself and in respect of its property,
generally and unconditionally, the non-exclusive jurisdiction of those courts.
The Borrower waives any claim that the State of Indiana is not a convenient
forum or the proper venue for any such suit, action or proceeding. This
agreement binds the Borrower and its successors, and benefits the Bank, its
successors and assigns. The Borrower shall not, however, have the right to
assign the Borrower’s rights under this agreement or any interest therein,
without the prior written consent of the Bank.

9. COUNTERPART EXECUTION. This agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts, taken together, shall constitute one and the same
agreement.

THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

10. NOT A NOVATION. This agreement is a modification only and not a novation. In
addition to all amounts hereafter due under the Note and the Related Documents
as they may be modified herein, all accrued interest evidenced by the Note being
modified by this agreement and all accrued amounts due and payable under the
Related Documents shall continue to be due and payable until paid. Except for
the above-quoted modification(s), the Note, any Related Documents, and all the
terms and conditions thereof, shall be and remain in full force and effect with
the changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Note and made a part thereof. This agreement shall
not release or affect the liability of any guarantor, surety or endorser of the
Note or release any owner of collateral securing the Note. The validity,
priority and enforceability of the Note shall not be impaired hereby. References
to the Related Documents and to other agreements shall not affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on the Note when due. The Bank reserves all rights against all parties
to the Note.

 

 

 

Address:  

3400 Jackson St.

Borrower:

 

Dubuque, IA 52001

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   R.J. Klosterman

 

 

--------------------------------------------------------------------------------

 

 

R.J. Klosterman, Exec. V.P., C.F.O., Secretary

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

June 15, 2005

--------------------------------------------------------------------------------

 

 

 

BANK’S ACCEPTANCE

 

 

 

 

 

The foregoing agreement is hereby agreed to and acknowledged.

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson,

First Vice President

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

June 20, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Amendment to Credit Agreement

This agreement is dated as of June 10, 2005, by and between Flexsteel
Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. as successor by
merger to Bank One, NA (the “Bank”), and its successors and assigns. The
provisions of this agreement are effective on the date that this agreement has
been executed by all of the signers and delivered to the Bank (the “Effective
Date”).

WHEREAS, the Borrower and the Bank entered into a credit agreement dated June
30, 2004, as amended (if applicable) (the “Credit Agreement”); and

WHEREAS, the Borrower has requested and the Bank has agreed to amend the Credit
Agreement as set forth below;

NOW, THEREFORE, in mutual consideration of the agreements contained herein and
for other good and valuable consideration, the parties agree as follows:

 

 

 

1.

DEFINED TERMS. Capitalized terms not defined herein shall have the meaning
ascribed in the Credit Agreement.

 

 

 

2.

MODIFICATION OF CREDIT AGREEMENT. The Credit Agreement is hereby amended as
follows:

 

 

 

 

2.1

From and after the Effective Date, the following provision in the Credit
Agreement under Section 1.2 captioned “Facility A. (Line Of Credit)” is hereby
amended as follows: The language now reading “The Bank has approved a credit
facility to the Borrower in the principal sum not to exceed $20,000,000.00 in
the aggregate at any one time outstanding (Facility A)”, is replaced with the
following:

 

 

 

 

 

The Bank has approved a credit facility to the Borrower in the principal sum not
to exceed $13,000,000.00 in the aggregate at any one time outstanding (“Facility
A”).

 

 

 

 

2.2

From and after the Effective Date, the following provision in the Credit
Agreement under Section 1.4 subsection (a) captioned “Facility C. (Letter of
Credit)” is hereby amended and restated as follows:

 

 

 

 

 

(a) the aggregate maximum available amount which is drawn and unreimbursed or
may be drawn under all letters of credit which are outstanding at any time,
including without limitation all letters of credit issued for the account of the
Borrower and/or DMI which are outstanding on the date of this agreement, shall
not exceed $5,000,000.00.

 

 

 

3.

RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the
Credit Agreement shall remain in full force and effect as modified herein.

 

 

 

4.

BORROWER REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
that (a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects as of the date of this agreement,
(b) no condition, act or event which could constitute an event of default under
the Credit Agreement or any promissory note or credit facility executed in
reference to the Credit Agreement exists, and (c) no condition, event, act or
omission has occurred, which, with the giving of notice or passage of time,
would constitute an event of default under the Credit Agreement or any
promissory note or credit facility executed in reference to the Credit
Agreement.

 

 

 

5.

FEES AND EXPENSES. The Borrower agrees to pay all fees and out-of-pocket
disbursements incurred by the Bank in connection with this agreement, including
legal fees incurred by the Bank in the preparation, consummation, administration
and enforcement of this agreement.

 

 

 

6.

EXECUTION AND DELIVERY. This agreement shall become effective only after it is
fully executed by the Borrower and the Bank, and the Bank shall have received
from the Borrower the following documents: Line of Credit Notes for
$20,000,000.00 and $13,000,000.00.

 

 

 

7.

ACKNOWLEDGEMENTS OF BORROWER. The Borrower acknowledges that as of the date of
this agreement it has no offsets with respect to all amounts owed by the
Borrower to the Bank arising under or related to the Credit Agreement on or
prior to the date of this agreement. The Borrower fully, finally and forever
releases and discharges the Bank and its successors, assigns, directors,
officers, employees, agents and representatives from any and all claims, causes
of action, debts and liabilities, of whatever kind or nature, in law or in
equity, of the Borrower, whether now known or unknown to the Borrower, which may
have arisen in connection with the Credit Agreement or the actions or omissions
of the Bank related to the Credit Agreement on or prior to the date hereof. The
Borrower acknowledges and agrees that this agreement is limited to

--------------------------------------------------------------------------------

 

 

 

the terms outlined above, and shall not be construed as an agreement to change
any other terms or provisions of the Credit Agreement. This agreement shall not
establish a course of dealing or be construed as evidence of any willingness on
the Bank’s part to grant other or future agreements, should any be requested.

 

 

8.

NOT A NOVATION. This agreement is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any loan agreements,
credit agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, instruments or
documents executed in connection with the Credit Agreement, and all the terms
and conditions thereof, shall be and remain in full force and effect with the
changes herein deemed to be incorporated therein. This agreement is to be
considered attached to the Credit Agreement and made a part thereof. This
agreement shall not release or affect the liability of any guarantor of any
promissory note or credit facility executed in reference to the Credit Agreement
or release any owner of collateral granted as security for the Credit Agreement.
The validity, priority and enforceability of the Credit Agreement shall not be
impaired hereby. To the extent that any provision of this agreement conflicts
with any term or condition set forth in the Credit Agreement, or any document
executed in conjunction therewith, the provisions of this agreement shall
supersede and control. The Bank expressly reserves all rights against all
parties to the Credit Agreement.

 

 

 

  

Borrower:

 

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   R.J. Klosterman

 

 

--------------------------------------------------------------------------------

 

 

R.J. Klosterman, Exec. V.P., C.F.O., Secretary

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

June 15, 2005

--------------------------------------------------------------------------------

 

 

 

 

 

 

 

Bank:

 

 

 

JPMorgan Chase Bank, N.A.

 

 

 

 

By:

/s/   John C. Otteson

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

John C. Otteson,

First Vice President

 

 

--------------------------------------------------------------------------------

 

 

Printed Name

Title

 

 

Date Signed:

June 20, 2005

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Line of Credit Note

 

 

 

$20,000,000.00

Due: September 30, 2007

Date: June 30, 2004

Promise to Pay. On or before September 30, 2007, for value received, Flexsteel
Industries, Inc. (the “Borrower”) promises to pay to Bank One, NA, with its main
office in Chicago, IL, whose address is 111 Monument Circle, Indianapolis, IN
46277 (the “Bank”) or order, in lawful money of the United States of America,
the sum of Twenty Million and 00/100 Dollars ($20,000,000.00) or such lesser sum
as is indicated on Bank records, plus interest as provided below.

Definitions. As used in this Note, the following terms have the following
respective meanings:

“Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances”
means all Eurodollar Advances and all Prime Rate Advances under this Note.

“Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar
Advance, as the case may be, the rate per annum set forth below opposite the
applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined
in the Credit Agreement.

 

 

 

 

 

 

 

 

 

 

 

Applicable Margin

 

 

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Funded Debt to EBITDA Ratio

 

 

Prime Rate Advance

 

 

Eurodollar Advance

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

 

 

0.00%

 

 

1.25%

 

Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00

 

 

0.00%

 

 

0.75%

 

Less than 1.00 to 1.00

 

 

0.00%

 

 

0.75%

 

The Applicable Margin shall, in each case, be determined and adjusted quarterly
on the first day of the month after the date of delivery of the quarterly and
annual financial statements required by the Credit Agreement, provided, however,
that if such financial statements are not delivered within two Business Days
after the required date (each, an “Interest Determination Date”), the Applicable
Margin shall increase to the maximum percentage amount set forth in the table
above from the date such financial statements were required to be delivered to
the Bank until received by the Bank. The Applicable Margin shall be effective
from an Interest Determination Date until the next Interest Determination Date.
Such determinations by the Bank shall be conclusive absent manifest error. The
initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar
Advances is 0.75%.

“Credit Agreement” means a certain Credit Agreement, dated June 30, 2004,
between the Borrower and the Bank.

“Business Day” means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Indiana and/or New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day other than a Saturday, Sunday or any other day on
which national banking associations are authorized to be closed.

“Eurodollar Base Rate” means, with respect to the relevant Interest Period, the
applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars
as reported by any generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if no such British Bankers’ Association LIBOR rate is available to the
Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the rate determined by the Bank to be the rate at which BANK ONE
CORPORATION or one of its affiliate banks offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of the principal amount outstanding
on such date and having a maturity equal to such Interest Period.

“Eurodollar Advance” means any borrowing under this Note when and to the extent
that its interest rate is determined by reference to the Eurodollar Rate.

“Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant
interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of
(a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b)
one minus the Reserve Requirement (expressed as a decimal) applicable to such
interest Period.

--------------------------------------------------------------------------------

“Interest Period” means, with respect to a Eurodollar Advance, a period of one
(1), two (2), three (3) or six (6) month(s) commencing on a Business Day
selected by the Borrower pursuant to this Note. Such Interest Period shall end
on the day which corresponds numerically to such date one (1), two (2), three
(3) or six (6) month(s) thereafter, as applicable, provided, however, that if
there is no such numerically corresponding day in such first, second, third or
sixth succeeding month(s), as applicable, such Interest Period shall end on the
last Business Day of such first, second, third or sixth succeeding month(s), as
applicable. If an Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Interest Period shall end on the immediately preceding
Business Day.

“Prime Rate” means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

“Prime Rate Advance” means any Advance under this Note when and to the extent
that its interest rate is determined by reference to the Prime Rate.

“Principal Payment Date” is defined in the paragraph entitled “Principal
Payments” below.

“Regulation D” means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.

“Reserve Requirement” means, with respect to an Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D.

Interest Rates. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the
Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest
shall be calculated on the basis of the actual number of days elapsed in a year
of 360 days. In no event shall the interest rate applicable to any Advance
exceed the maximum rate allowed by law. Any interest payment which would for any
reason be deemed unlawful under applicable law shall be applied to principal.

Bank Records. The Bank shall, in the ordinary course of business, make notations
in its records of the date, amount, interest rate and Interest Period of each
Advance hereunder, the amount of each payment on the Advances, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to this Note.

Notice and Manner of Electing Interest Rates on Advances. The Borrower shall
give the Bank written notice (effective upon receipt) of the Borrower’s intent
to draw down an Advance under this Note no later than 11:00 a.m. Eastern time,
one (1) Business Day before disbursement, if the full amount of the drawn
Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days
before disbursement, if any part of such Advance is to be disbursed as a
Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement
date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate
Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the
duration of the applicable Interest Period; provided, however, that the Borrower
may not elect an Interest Period ending after the maturity date of this Note.
Each Eurodollar Advance shall be in a minimum amount of One Million and 00/100
Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By
the Bank’s close of business on the disbursement date and upon fulfillment of
the conditions set forth herein and in any other of the Related Documents, the
Bank shall disburse the requested Advances in immediately available funds by
crediting the amount of such Advances to the Borrower’s account with the Bank.

Conversion and Renewals. The Borrower may elect from time to time to convert one
type of Advance into another or to renew any Advance by giving the Bank written
notice no later than 11:00 a.m. Eastern time, one (1) Business Day before
conversion into a Prime Rate Advance and three (3) Business Days before
conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal
or conversion date, (b) the amount of the Advance to be converted or renewed,
(c) in the case of conversion, the type of Advance to be converted into (Prime
Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or
conversion into a Eurodollar Advance, the applicable Interest Period, provided
that (i) the minimum principal amount of each Eurodollar Advance outstanding
after a renewal or conversion shall be One Million and 00/100 Dollars
($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day
of the Interest Period for the Advance; and (iii) the Borrower may not elect an
Interest Period ending after the maturity date of this Note. All notices given
under this paragraph are irrevocable. If the Borrower fails to give the Bank the
notice specified above for the renewal or conversion of a Eurodollar Advance by
11:00 a.m. Eastern time three (3) Business Days before the end of the Interest
Period for that Advance, the Advance shall automatically be converted to a Prime
Rate Advance on the last day of the Interest Period for the Advance.

--------------------------------------------------------------------------------

The Borrower may permanently reduce the Line of Credit commitment, in integral
multiples of $1,000,000.00, by providing at least five Business Days’ written
notice to the Bank and shall be irrevocable, which notice shall specify the
amount of any such reduction, provided, however, that the amount of the
aggregate commitment may not be reduced below the aggregate outstanding
principal balance outstanding under this Note.

Interest Payments. Interest on the Advances shall be paid as follows:

A.       For each Prime Rate Advance, on the last day of each month beginning
with the first month following disbursement of the Advance or following
conversion of an Advance into a Prime Rate Advance, and at the maturity or
conversion of the Advance into a Eurodollar Advance;

B.       For each Eurodollar Advance, on the last day of the Interest Period for
the Advance and, if the Interest Period is longer than three months, at
three-month intervals beginning with the day three months from the date the
Advance is disbursed.

Principal Payments. All outstanding principal and interest is due and payable in
full on September 30, 2007, which is defined herein as the “Principal Payment
Date”.

Default Rate of Interest. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from
the date the Bank elects to impose such rate. Imposition of this rate shall not
affect any limitations contained in this Note on the Borrower’s right to repay
principal on any Eurodollar Advance before the expiration of the Interest Period
for that Advance.

Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at
any time without premium or penalty. The Borrower may prepay any Eurodollar
Advance only at the end of an Interest Period.

Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay
the Bank amounts sufficient in the Bank’s reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:

A.       Any payment of a Eurodollar Advance on a date other than the last day
of the Interest Period for the Advance, including, without limitation,
acceleration of the Advances by the Bank pursuant to this Note or the Related
Documents; or

B.       Any failure by the Borrower to borrow or renew a Eurodollar Advance on
the date specified in the relevant notice from the Borrower to the Bank.

Additional Costs. If any applicable domestic or foreign law, treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this Note or
the Related Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (b) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) impose any other condition with respect to this Note or the
Related Documents and the result of any of the foregoing is to increase the cost
to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any
sum receivable by the Bank on such an Advance, or (d) affect the amount of
capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank’s obligations under this
Note or the Related Documents and the increase has the effect of reducing the
rate of return on the Bank’s (or its controlling corporation’s) capital as a
consequence of the obligations under this Note or the Related Documents to a
level below that which the Bank (or its controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon request by the
Bank, additional amounts sufficient to compensate the Bank for the increased
cost or reduced sum receivable. Whenever the Bank shall learn of circumstances
described in this section which are likely to result in additional costs to the
Borrower, the Bank shall give prompt written notice to the Borrower of the basis
for and the estimated amount of any such anticipated additional costs. A
statement as to the amount of the increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.

Illegality. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the

--------------------------------------------------------------------------------

force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Advances, together with accrued
interest and any other amounts payable to the Bank under this Note or the
Related Documents on account of the Eurodollar Advances shall be repaid (a)
immediately upon the Bank’s demand if such change or compliance with such
requests, in the Bank’s judgment, requires immediate repayment, or (b) at the
expiration of the last Interest Period to expire before the effective date of
any such change or request provided, however, that subject to the terms and
conditions of this Note and the Related Documents the Borrower shall be entitled
to simultaneously replace the entire outstanding balance of any Eurodollar
Advance repaid in accordance with this section with a Prime Rate Advance in the
same amount.

Inability to Determine Interest Rate. If the Bank determines that (a) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Advance as provided in this Note, or (b) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Advances, then the Bank
shall forthwith give notice of such circumstances to the Borrower, whereupon (i)
the obligation of the Bank to make Eurodollar Advances shall be suspended until
the Bank notifies the Borrower that the circumstances giving rise to the
suspension no longer exists, and (ii) the Borrower shall repay in full the then
outstanding principal amount of each Eurodollar Advance, together with accrued
interest, on the last day of the then current Interest Period applicable to the
Advance, provided, however, that, subject to the terms and conditions of this
Note and the Related Documents, the Borrower shall be entitled to simultaneously
replace the entire outstanding balance of any Eurodollar Advance repaid in
accordance with this section with a Prime Rate Advance in the same amount.

Obligations Due on Non-Business Day. Whenever any payment under this Note
becomes due and payable on a day that is not a Business Day, if no default then
exists under this Note, the maturity of the payment shall be extended to the
next succeeding Business Day, except, in the case of a Eurodollar Advance, if
the result of the extension would be to extend the payment into another calendar
month, the payment must be made on the immediately preceding Business Day.

Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address
shown above or at such other place as the Bank may designate. Payments shall be
allocated among principal, interest and fees at the discretion of the Bank
unless otherwise agreed or required by applicable law. Acceptance by the Bank of
any payment which is less than the payment due at the time shall not constitute
a waiver of the Bank’s right to receive payment in full at that time or any
other time.

Authorization for Direct Payments (ACH Debits). To effectuate any payment due
under this Note, the Borrower hereby authorizes the Bank to initiate debit
entries to Account Number _____________________ at the Bank and to debit the
same to such account. This authorization to initiate debit entries shall remain
in full force and effect until the Bank has received written notification of its
termination in such time and in such manner as to afford the Bank a reasonable
opportunity to act on it. The Borrower represents that the Borrower is and will
be the owner of all funds in such account. The Borrower acknowledges (1) that
such debit entries may cause an overdraft of such account which may result in
the Bank’s refusal to honor items drawn on such account until adequate deposits
are made to such account; (2) that the Bank is under no duty or obligation to
initiate any debit entry for any purpose; and (3) that if a debit is not made
because the above-referenced account does not have a sufficient available
balance, or otherwise, the payment may be late or past due.

Credit Facility. The Bank has approved a credit facility to the Borrower in a
principal amount not to exceed the face amount of this Note. The credit facility
is in the form of advances made from time to time by the Bank to the Borrower.
This Note evidences the Borrower’s obligation to repay those advances. The
aggregate principal amount of debt evidenced by this Note is the amount
reflected from time to time in the records of the Bank. Until the earliest of
maturity, the occurrence of any default, or the occurrence of any event that
would constitute a default but for the giving of notice or the lapse of time or
both until the end of any grace or cure period, the Borrower may borrow, pay
down and reborrow under this Note subject to the terms of the Related Documents.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

Miscellaneous. This Note binds the Borrower and its successors, and benefits the
Bank, its successors and assigns. Any reference to the Bank includes any holder
of this Note. This Note is issued pursuant and entitled to the benefits of that
certain Credit Agreement by and between the Borrower and the Bank, dated June
30, 2004, and all replacements thereof (the “Credit Agreement”) to which
reference is hereby made for a more complete statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid.
The terms and provisions of the Credit Agreement are hereby incorporated and
made a part hereof by this reference thereto with the same force and effect as
if set forth at length herein. No reference to the Credit Agreement and no
provisions of this Note or the Credit Agreement shall alter or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on this Note as herein prescribed. Capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.

 

 

 

Address:  

P. O. Box 877

Borrower:

 

Dubuque, IA 52004-0877

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   R.J. Klosterman

 

 

--------------------------------------------------------------------------------

 

 

R.J. Klosterman, Exec. V.P., C.F.O., Secretary

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

June 29, 2004

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Credit Agreement

This agreement dated as of June 30, 2004 between Bank One, NA, with its main
office in Chicago, IL, and its successors and assigns, (the “Bank”), whose
address is 111 Monument Circle, Indianapolis, IN 46277, and Flexsteel
Industries, Inc. (the “Borrower”), whose address is P. O. Box 877, Dubuque, IA
52004-0877.

 

 

1.

Credit Facilities.

 

 

 

 

1.1

Scope. This agreement governs Facility A, Facility B, and Facility C, and,
unless otherwise agreed to in writing by the Bank and the Borrower or prohibited
by applicable law, governs the Credit Facilities.

 

 

 

 

1.2

Facility A (Line of Credit). The Bank has approved a credit facility to the
Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at
any one time outstanding (“Facility A”). Credit under Facility A shall be
repayable as set forth in a Line of Credit Note executed concurrently with this
agreement to evidence Facility A, and any renewals, modifications or extensions
thereof. The proceeds of Facility A shall be used to refinance existing debt
with the Bank in the name of DMI and to provide funds to finance additional
working capital. The Borrower may elect from time to time to permanently reduce
the amount of the Bank’s commitment with respect to facility A as provided in
the Line of Credit Note evidencing Facility A.

 

 

 

 

 

Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average
daily unused portion of Facility A at a rate per annum set forth below opposite
the applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar
quarter within ten (10) days of billing by the Bank. Funded Debt to EBITDA Ratio
is defined in Section 4.2 K of the Credit Agreement.

 

 

Funded Debt to EBITDA Ratio

Non-usage Fee

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

20 bp

Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00

10 bp

Less than 1.00 to 1.00

10 bp

 

 

 

 

 

The Bank’s determination of the non-usage fee on Facility A shall be conclusive,
absent manifest error.

 

 

 

 

1.3

Facility B (Line of Credit). The Bank has approved a credit facility to the
Borrower in the principal sum not to exceed $20,000,000.00 in the aggregate at
any one time outstanding (“Facility B”). Credit under Facility B shall be
repayable as set forth in a Line of Credit Note executed concurrently with this
agreement to evidence Facility B, and any renewals, modifications or extensions
thereof. The proceeds of Facility B shall be to refinance existing debt with the
Bank in the name of DMI. and to provide funds to finance additional working
capital. The Borrower may elect from time to time to permanently reduce the
amount of the Bank’s commitment with respect to facility B as provided in the
Line of Credit Note evidencing Facility B.

 

 

 

 

1.4

Facility C (Letters of Credit). The Bank has approved a credit facility for
letters of credit to the Borrower and/ or DMI in the principal sum not to exceed
$7,000,000.00 in the aggregate at any one time outstanding (“Facility C”). The
proceeds of Facility C shall be used to support letters of credit issued for the
account of Borrower and / or DMI.

 

 

 

 

 

Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average
daily unused portion of Facility C at a rate per annum set forth below opposite
the applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar
quarter within ten (10) days of billing by the Bank.

 

 

Funded Debt to EBITDA Ratio

Non-usage Fee

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

20 bp

Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00

10 bp

Less than 1.00 to 1.00

10 bp

 

 

 

 

 

The Bank’s determination of the non-usage fee on Facility C shall be conclusive,
absent manifest error.

--------------------------------------------------------------------------------

 

 

 

Letters of Credit. At any time that no default has occurred and is continuing or
would result, and no event has occurred and is continuing or would result which,
with the giving of notice or the lapse of time or both would be a default, the
Bank agrees to issue letters of credit for the account of the Borrower and/ or
DMI until September 30, 2007, provided that (a) the aggregate maximum available
amount which is drawn and unreimbursed or may be drawn under all letters of
credit which are outstanding at any time, including without limitation all
letters of credit issued for the account of the Borrower and/ or DMI which are
outstanding on the date of this agreement, shall not exceed $7,000,000.00, (b)
the issuance of any letter of credit with an expiration date beyond September
30, 2007, shall be entirely at the discretion of the Bank, (c) any letter of
credit shall be a commercial letter of credit and the form of the requested
letter of credit shall be satisfactory to the Bank, in the Bank’s sole
discretion, and (d) the Borrower and DMI shall have executed an application and
reimbursement agreement for any letter of credit in the Bank’s standard form.
The Borrower shall pay the Bank a fee (the “L/C Fee”) for each commercial letter
of credit that is issued, at a rate per annum set forth below opposite the
applicable Funded Debt to EBITDA Ratio, payable in arrears for each calendar
quarter within ten (10) days of billing by the Bank. Funded Debt to EBITDA Ratio
is defined in Section 4.2L of the Credit Agreement. No credit shall be given for
fees paid due to early termination of any letter of credit. The Borrower shall
also pay the Bank’s standard transaction fees with respect to any transactions
occurring on an account of any letter of credit. Each fee shall be payable when
the related letter of credit is issued, and transaction fees shall be payable
upon completion of the transaction as to which they are charged. All fees may be
debited by the Bank to any deposit account of the Borrower carried with the Bank
without further authority and, in any event, shall be paid by the Borrower
within ten (10) days following billing.

 

 

Funded Debt to EBITDA Ratio

L/C Fee

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

125 bp

Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00

75 bp

Less than 1.00 to 1.00

75 bp

 

 

 

 

 

The Bank’s determination of the L/C Fee shall be conclusive, absent manifest
error.

 

 

 

2.

Definitions. As used in this agreement, the following terms have the following
respective meanings:

 

 

 

2.1

“Credit Facilities” means all extensions of credit from the Bank to the
Borrower, whether now existing or hereafter arising, including but not limited
to those described in Section 1.

 

 

 

 

2.2

“Capital Expenditures” means any expenditure or the incurrence of any obligation
or liability by the Borrower for any asset which is classified as a capital
asset.

 

 

 

 

2.3

“Distributions” means all dividends and other distributions made by the Borrower
to its shareholders, partners, owners or members, as the case may be, other than
salary, bonuses, and other compensation for services expended in the current
accounting period.

 

 

 

 

2.4

“DMI” means DMI Furniture, Inc.

 

 

 

 

2.5

“Funded Debt to EBITDA Ratio” is used as that term is defined in Section 4.2 K.

 

 

 

 

2.6

“Liabilities” means all obligations, indebtedness and liabilities of the
Borrower to any one or more of the Bank, BANK ONE CORPORATION, and any of their
subsidiaries, affiliates or successors, now existing or later arising,
including, without limitation, all loans, advances, interest, costs, overdraft
indebtedness, credit card indebtedness, lease obligations, or obligations
relating to any Rate Management Transaction, all monetary obligations incurred
or accrued during the pendency of any bankruptcy, insolvency, receivership or
other similar proceedings, regardless of whether allowed or allowable in such
proceeding, and all renewals, extensions, modifications, consolidations or
substitutions of any of the foregoing, whether the Borrower may be liable
jointly with others or individually liable as a debtor, maker, co-maker, drawer,
endorser, guarantor, surety or otherwise, and whether voluntarily or
involuntarily incurred, due or not due, absolute or contingent, direct or
indirect, liquidated or unliquidated. The term “Rate Management Transaction” in
this agreement means any transaction (including an agreement with respect
thereto) now existing or hereafter entered into among the Borrower, the Bank or
BANK ONE CORPORATION, or any of its subsidiaries or affiliates or their
successors, which is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or equity
index option, bond option, interest rate option, foreign exchange transaction,
cap transaction, floor transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction

--------------------------------------------------------------------------------

 

 

 

 

 

(including any option with respect to any of these transactions) or any
combination thereof, whether linked to one or more interest rates, foreign
currencies, commodity prices, equity prices or other financial measures.

 

 

 

 

2.7

“Notes” means the Line of Credit Note(s) described in Section 1, and all
promissory notes, instruments and/or contracts evidencing the terms and
conditions of the Liabilities.

 

 

 

 

2.8

“Related Documents” means all loan agreements, credit agreements, reimbursement
agreements, security agreements, mortgages, deeds of trust, pledge agreements,
assignments, guaranties, or any other instrument or document executed in
connection with this agreement or in connection with any of the Liabilities.

 

 

 

 

2.9

“Subordinated Debt” means debt subordinated to the Bank in manner and by
agreement satisfactory to the Bank.

 

 

 

 

2.10

“Subsidiary” of a person or entity means (i) any corporation more than 50% of
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such person or entity or
by one or more of its Subsidiaries or by such person or entity and one or more
of its Subsidiaries, or (ii) any partnership, limited liability company,
association, joint venture or similar business organization more than 50% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled. Unless otherwise expressly provided, all references
herein to a “Subsidiary” shall mean a Subsidiary of the Borrower, and include,
without limitation, DMI.

 

 

 

3.

Affirmative Covenants. The Borrower shall, and shall cause each Subsidiary to::

 

 

 

 

3.1

Insurance. Maintain insurance with financially sound and reputable insurers
covering its properties and business against those casualties and contingencies
and in the types and amounts as are in accordance with sound business and
industry practices, and furnish to the Bank, upon request of the Bank, reports
on each existing insurance policy showing such information as the Bank may
reasonably request.

 

 

 

 

3.2

Existence. Maintain its existence and business operations as presently in effect
in accordance with all applicable laws and regulations, pay its debts and
obligations when due under normal terms, and pay on or before their due date,
all taxes, assessments, fees and other governmental monetary obligations, except
as they may be contested in good faith if they have been properly reflected on
its books and, at the Bank’s request, adequate funds or security has been
pledged to insure payment.

 

 

 

 

3.3

Financial Records. Maintain proper books and records of account, in accordance
with generally accepted accounting principles, and consistent with financial
statements previously submitted to the Bank.

 

 

 

 

3.4

Inspection. Permit the Bank, its assigns or agents, at such times and at such
intervals as the Bank may reasonably require: (1) to inspect, examine, audit and
copy its business records, and to discuss the its business, operations, and
financial condition with its officers and accountants; and (2) to inspect the
its business operations and sites.

 

 

 

 

3.5

Financial Reports. Furnish to the Bank whatever information, books and records
the Bank may from time to time reasonably request, including at a minimum:

 

 

 

 

 

A.          Via either the EDGAR System or its Home Page, within ten (10) days
after the filing of its Quarterly Report on Form 10-Q for the fiscal quarter
then ended with the Securities and Exchange Commission, but no event later than
forty-five (45) days after the end of such fiscal quarter, copies of the
financial statements for such fiscal quarter as contained in such Quarterly
Report on Form 10-Q, and, as soon as it shall become available, a quarterly
report to shareholders of the Borrower for the fiscal quarter then ended.

 

 

 

 

 

              Via either the EDGAR System or its Home Page, promptly after the
same become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any subsidiary with the
Securities and Exchange Commission or any governmental authority succeeding to
any or all of the functions of said Commission.

 

 

 

 

 

If for any reason the EDGAR System and/or its Home Page are not available to the
Borrower as is required for making available the financial statements or reports
referred to above, the Borrower shall then furnish a copy of such financial
statements or reports to the Bank.

 

 

 

 

 

For the purposes of this section, “EDGAR System” means the Electronic Data
Gathering Analysis and Retrieval System owned and operated by the United States
Securities and Exchange Commission or any replacement system,

--------------------------------------------------------------------------------

 

 

 

 

 

and “Home Page” means the Borrower’s corporate home page on the World Wide Web
accessible through the Internet via the universal resource locator (URL)
identified as “www.flexsteel.com” or such other universal resource locator that
the Borrower shall designate in writing to the Bank as its corporate home page
on the World Wide Web.

 

 

 

 

 

B.          Within one hundred (100) days after and as of the end of each of its
fiscal years, a detailed financial statement including a balance sheet and
statements of income, cash flow and retained earnings, such financial statement,
to be audited by an independent certified public accountant of recognized
standing acceptable to the Bank in the Bank’s sole discretion.

 

 

 

3.6

Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in
writing of (1) all existing and all threatened litigation, claims,
investigations, administrative proceedings and similar actions affecting the
Borrower or any Subsidiary, which could materially affect the financial
condition of the Borrower or any Subsidiary; (2) the occurrence of any event
which gives rise to the Bank’s option to terminate the Credit Facilities; (3)
the institution of steps by the Borrower or any Subsidiary to withdraw from, or
the institution of any steps to terminate, any employee benefit plan as to which
the Borrower and any Subsidiary may have liability; (4) any additions to or
changes in the locations of the Borrower’s or any Subsidiary’s businesses; and
(5) any alleged breach of any provision of this agreement or of any other
agreement related to the Credit Facilities by the Bank.

 

 

 

3.7

Other Agreements. Comply with all terms and conditions of all other agreements,
whether now or hereafter existing, between the Borrower and any Subsidiary and
any other party.

 

 

 

 

3.8

Title to Assets and Property. Maintain good and marketable title to all of the
Borrower’s and each Subsidiary’s assets and properties, and defend such assets
and properties against all claims and demands of all persons at any time
claiming any interest in them.

 

 

 

 

3.9

Additional Assurances. Make, execute and deliver to the Bank such other
agreements as the Bank may reasonably request to evidence the Credit Facilities
and to perfect any security interests.

 

 

 

 

3.10

Employee Benefit Plans. Maintain each employee benefit plan as to which the
Borrower may have any liability, in compliance with all applicable requirements
of law and regulations.

 

 

 

3.11

Banking Relationship. Cause DMI to maintain its primary banking depository and
disbursement relationship with the Bank and establish such accounts and maintain
balances therein with the Bank sufficient to cover the cost of all the Bank’s
services provided; provided, however, that nothing herein shall require DMI to
keep and maintain a specific minimum balance in such accounts.

 

 

 

 

 

Compliance Certificates. Provide the Bank, within forty-five (45) days after the
end of each fiscal quarter, (excluding the 4th fiscal quarter) and within one
hundred (100) days after the end of each fiscal year, with a certificate
executed by the Borrower's chief financial officer, or other officer or a person
acceptable to the Bank, certifying that, as of the date of the certificate, no
default exists under any provision of this agreement.

 

 

 

4. Negative Covenants.  

 

4.1

Unless otherwise noted, the financial requirements set forth in this section
will be computed in accordance with generally accepted accounting principles
applied on a basis consistent with financial statements previously submitted by
the Borrower to the Bank.

 

 

 

 

4.2

Without the written consent of the Bank, the Borrower will not, and will not
allow or permit any Subsidiary to:

 

 

 

 

A.          Debt. Incur, contract for, assume, or permit to remain outstanding,
indebtedness for borrowed money, installment obligations, or obligations under
capital leases or operating leases, other than (1) unsecured trade debt incurred
in the ordinary course of business, (2) indebtedness owing to the Bank, (3)
indebtedness reflected in the latest financial statement of the Borrower and the
Subsidiaries furnished to the Bank prior to execution of this agreement and that
is not to be paid with proceeds of borrowings under the Credit Facilities, and
(4) other unsecured indebtedness and purchase money indebtedness in an aggregate
amount not to exceed $10,000,000.00 at any time outstanding for the Borrower and
the Subsidiaries.

 

 

 

 

 

B.          Guaranties. Guarantee or otherwise become or remain secondarily
liable on the undertaking of another, except for endorsement of drafts for
deposit and collection in the ordinary course of business, and unsecured
guaranties by the Borrower and the Subsidiaries in an aggregate amount not at
any time exceeding $3,000,000.00 of guaranteed debt.

--------------------------------------------------------------------------------

 

 

 

 

 

C.          Liens. Create or permit to exist any lien on any of its property,
real or personal, except: existing liens known to the Bank; liens to the Bank;
liens incurred in the ordinary course of business securing current
non-delinquent liabilities for taxes, worker’s compensation, unemployment
insurance, social security and pension liabilities, and purchase money security
interests which secure any purchase money indebtedness permitted under this
agreement.

 

 

 

 

 

D.          Use of Proceeds. Use, or permit any proceeds of the Credit
Facilities to be used, directly or indirectly, for: (1) any personal, family or
household purpose; or (2) the purpose of “purchasing or carrying any margin
stock” within the meaning of Federal Reserve Board Regulation U. At the Bank’s
request, the Borrower will furnish a completed Federal Reserve Board Form U-1.

 

 

 

 

 

E.          Continuity of Operations. (1) Engage in any business activities
substantially different from those in which it is presently engaged; (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve, or sell any assets out of the ordinary course
of business; (3) enter into any arrangement with any person providing for the
leasing by the Borrower or any subsidiary of real or personal property which has
been sold or transferred by the Borrower or subsidiary to such person; or (4)
change its business organization, the jurisdiction. under which its business
organization is formed or organized, or its chief executive office, or any
places of its businesses.

 

 

 

 

 

F.          Limitation on Negative Pledge Clauses. Enter into any agreement with
any person other than the Bank which prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create or permit to exist any lien on any
of its property, assets or revenues, whether now owned or hereafter acquired.

 

 

 

 

 

G.          Conflicting Agreements. Enter into any agreement containing any
provision which would be violated or breached by the performance of the
Borrower’s obligations under this agreement.

 

 

 

 

 

H.          Investments, and Acquisitions. Permit to exist any investments
(including without limitation, loans and advances to, and other investments in,
Subsidiaries), or commitments therefor, or to create any subsidiary or to become
or remain a partner in any partnership or joint venture, or make any acquisition
of any person, except:

 

 

 

 

 

 

 

 

(i)

Cash equivalent investments;

 

 

 

(ii)

Extensions of credit or credit accommodations to customers or vendors made by
Borrower or a Subsidiary-in the ordinary course of business;

 

 

 

(iii)

Reasonable salary advances to non-executive employees, and other advances to
agents and employees for anticipated expenses to be incurred on behalf of
Borrower or any Subsidiary in the course of discharging their assigned duties;

 

 

 

(iv)

Existing investments in Subsidiaries and other investments in existence prior to
the agreement date; or

 

 

 

(v)

Acquisitions made after the Agreement date, provided that, (a) the aggregate
purchase prices paid or payable in all such acquisitions consummated during any
period of twelve consecutive calendar months is not in excess of $25,000,000.00
for the Borrower and the Subsidiaries, and no default has occurred and is
continuing or would result and no event has occurred and is continuing or would
result that, with the giving of notice or the lapse of time or both, would be a
default.

 

 

 

 

 

 

I.

Asset Sales. Lease, sell or otherwise dispose of its property to any other
person, except:

 

 

 

 

 

 

 

 

(i)

sale of inventory in the ordinary course of business; or

 

 

 

(ii)

leases, sales or other dispositions of property with persons and entities who
are unaffiliated with the Borrower or any Subsidiary, provided that the fair
market value of such property when aggregated with the fair market value of all
other property of Borrower and its Subsidiaries previously leased, sold or
disposed of (other than inventory in the ordinary course of business) as
permitted by this Section during the twelve-month period ending with the month
in which any such lease, sale or other disposition occurs, does not exceed
$5,000,000.00.

 

 

 

 

 

J.          EBITDA/ Interest Ratio. Permit as of any fiscal quarter end, its
ratio determined on a consolidated basis for Borrower and its Subsidiaries, of
(i) net income, plus amortization, depreciation, interest expense and income
taxes, all computed for the twelve month period then ending, to (ii) interest
expense, computed for the same such period, to be less than 3.00 to 1.00.

 

 

 

 

 

K.          Funded Debt to EBITDA Ratio. Permit as of any fiscal quarter end,
its “Funded Debt to EBITDA Ratio” to be greater than 3.50 to 1.00. As used
herein, “Funded Debt to EBITDA Ratio” means the ratio, determined on a
consolidated basis for Borrower and its Subsidiaries, of (i) total liabilities
excluding (a) accounts arising from the purchase of goods and services in the
ordinary course of business, (b) accrued expenses or losses, and (c) deferred

--------------------------------------------------------------------------------

 

 

 

revenues or gains, all computed as of the end of the fiscal quarter for which
this ratio is being determined, to (ii) net income, plus amortization,
depreciation, interest expense and income taxes, all computed for the twelve
month period ending with such fiscal quarter end.

 

 

 

L.          Government Regulation. (1) Be or become subject at any time to any
law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Bank from making any advance or extension of credit to Borrower an any
Subsidiary or from otherwise conducting business with Borrower or any
Subsidiary, or (2) fail to provide documentary and other evidence of Borrower’s
or any Subsidiary’s identity as may be requested by Bank at any time to enable
Bank to verify Borrower’s or any Subsidiary’s identity or to comply with any
applicable law or regulation, including, without limitation, Section 326 of the
USA Patriot Act of 2001, 31 U.S.C. Section 5318.

 

 

5.

Representations.

 

 

 

 

5.1

Representations by the Borrower. The Borrower represents and warrants to the
Bank that: (a) its principal residence or chief executive office is at the
address shown above, (b) its name as it appears in this agreement is its exact
name as it appears in its organizational documents, as amended, including any
trust documents, (c) the execution and delivery of this agreement and the Notes,
and the performance of the obligations they impose, do not violate any law,
conflict with any agreement by which it is bound, or require the consent or
approval of any governmental authority or other third party, (d) this agreement
and the Notes are valid and binding agreements, enforceable according to their
terms, (e) all balance sheets, profit and loss statements, and other financial
statements and other information furnished to the Bank in connection with the
Liabilities are accurate and fairly reflect the financial condition of the
organizations and persons to which they apply on their effective dates,
including contingent liabilities of every type, which financial condition has
not changed materially and adversely since those dates, (f) no litigation,
claim, investigation, administrative proceeding or similar action (including
those for unpaid taxes) against the Borrower or any Subsidiary is pending or
threatened, and no other event has occurred which may. in any one case or in the
aggregate materially adversely affect the Borrower’s consolidated financial
condition or any of the Borrower’s or any Subsidiary’s properties, other than
litigation, claims, or other events, if any, that have been disclosed to and
acknowledged by the Bank in writing, (g) all of the Borrower’s tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except those
presently being contested by the Borrower in good faith and for which adequate
reserves have been provided, (h) the Borrower is not an “investment company” or
a company “controlled” by an “investment company”, within the meaning of the
Investment Company Act of 1940, as amended, (i) the Borrower is not a “holding
company”, or a “subsidiary company” of a “holding company” or an “affiliate” of
a “holding company” or of a “subsidiary company” of a “holding company” within
the meaning of the Public Utility Holding Company Act of 1935, as amended, 0)
there are no defenses or counterclaims, offsets or adverse claims, demands or
actions of any kind, personal or otherwise, that the Borrower could assert with
respect to this agreement or the Credit Facilities, (k) the Borrower owns, or is
licensed to use, all trademarks, trade names, copyrights, technology, know-how
and processes necessary for the conduct of its business as currently conducted,
and (1) the execution and delivery of this agreement and the Notes and the
performance of the obligations they impose, if the Borrower is other than a
natural person (i) are within its powers, (ii) have been duly authorized by all
necessary action of its governing body, and (iii) do not contravene the terms of
its articles of incorporation or organization, its by-laws, or any partnership,
operating or other agreement governing its affairs.

 

 

 

 

5.2

Continuing Representations. Each request for an advance or conversion or
continuation of an advance under any of the Credit Facilities shall constitute a
representation and warranty by the Borrower that all of the representations and
warranties set forth in this agreement shall be true and correct on and as of
such date with the same effect as though such representations and warranties had
been made on such date, except to the extent that such representations and
warranties are stated to expressly relate solely to an earlier date.

 

 

6.

Default/Remedies.

 

 

 

 

6.1

Events of Default/Acceleration. If any of the following events occurs the Notes
shall become due immediately, without notice, at the Bank’s option:

 

 

 

 

 

A.          The Borrower, any Subsidiary, or any guarantor of the Notes (the
“Guarantor”) fails to pay when due any amount payable under the Notes, under any
of the Liabilities, or under any agreement or instrument evidencing debt to any
creditor.

 

 

 

 

 

B.          The Borrower, any Subsidiary, or any Guarantor (1) fails to observe
or perform any other term of the Notes; (2) makes any materially incorrect or
misleading representation, warranty, or certificate to the Bank; (3)

--------------------------------------------------------------------------------

 

 

 

 

 

makes any materially incorrect or misleading representation in any financial
statement or other information delivered to the Bank; or (4) defaults under the
terms of any agreement or instrument relating to any debt for borrowed money
(other than the debt evidenced by the Notes) and the effect of such default will
allow the creditor to declare the debt due before its maturity.

 

 

 

 

 

C.          In the event (1) there is a default under the terms of any Related
Document, (2) any guaranty of the loan evidenced by the Notes is terminated or
becomes unenforceable in whole or in part, (3) any Guarantor fails to promptly
perform under its guaranty, or (4) the Borrower, any Subsidiary, or any
Guarantor fail to comply with, or pay, or perform under any agreement, now or
hereafter in effect, with BANK ONE CORPORATION, or any of its subsidiaries or
affiliates or their successors or assigns.

 

 

 

 

 

D.          There is any loss, theft, damage, or destruction of any collateral
securing the Credit Facilities not covered by insurance.

 

 

 

 

 

E.           A “reportable event” (as defined in the Employee Retirement Income
Security Act of 1974 as amended) occurs that would permit the Pension Benefit
Guaranty Corporation to terminate any employee benefit plan of the Borrower, any
Subsidiary, or any affiliate of the Borrower.

 

 

 

 

 

F.           The Borrower, any Subsidiary, or any Guarantor becomes insolvent or
unable to pay its debts as they become due.

 

 

 

 

 

G.          The Borrower, any Subsidiary, or any Guarantor (1) makes an
assignment for the benefit of creditors; (2) consents to the appointment of a
custodian, receiver, or trustee for itself or for a substantial part of its
assets; or (3) commences any proceeding under any bankruptcy, reorganization,
liquidation, insolvency or similar laws of any jurisdiction.

 

 

 

 

 

H.          A custodian, receiver, or trustee is appointed for the Borrower; any
Subsidiary, or.any Guarantor or for a substantial part of its assets without its
consent.

 

 

 

 

 

I.           Proceedings are commenced against the Borrower, any Subsidiary, or
any Guarantor under any bankruptcy, reorganization, liquidation, or similar laws
of any jurisdiction, and they remain undismissed. for thirty (30) days after
commencement; or the Borrower, any Subsidiary, or the Guarantor consents to the
commencement of those proceedings.

 

 

 

 

 

J.          Any judgment is entered against the Borrower, any Subsidiary, or any
Guarantor, or any attachment, levy, or garnishment is issued against any
property of the Borrower, any Subsidiary, or any Guarantor.

 

 

 

 

 

K.          The Borrower, any Subsidiary, or any Guarantor dies, or a guardian
or conservator is appointed for the Borrower, any Subsidiary, or any Guarantor
or all or any portion of the Borrower’s assets, any Subsidiary’s assets, any
Guarantor’s assets, or the Collateral.

 

 

 

 

 

L.          The Borrower, any Subsidiary, or any Guarantor, without the Bank’s
written consent (1) is dissolved, (2) merges or consolidates with any third
party, (3) leases, sells or otherwise conveys a material part of its assets or
business outside the ordinary course of its business, (4) leases, purchases, or
otherwise acquires a material part of the assets of any other business entity,
except in the ordinary course of its business, or (5) agrees to do any of the
foregoing (notwithstanding the foregoing, any subsidiary may merge or
consolidate with any other subsidiary, or with the Borrower, so long as the
Borrower is the survivor).

 

 

 

 

6.2

Remedies.

 

 

 

 

 

A.          Generally. If any of the Liabilities are not paid at maturity,
whether by acceleration or otherwise, or if a default by anyone occurs under the
terms of any agreement related to any of the Liabilities, then the Bank shall
have the rights and remedies provided by law or this agreement: The Borrower is
liable to the Bank for all reasonable costs and expenses of every kind incurred
in the collection of the Notes, or in connection with the enforcement or
preservation of rights under this agreement, or any amendment, supplement, or
modification thereto, including without limitation reasonable attorneys’ fees
(including the fees of in-house counsel) and court costs. These costs and
expenses include without limitation any costs or expenses incurred by the Bank
in any bankruptcy, reorganization, insolvency or other similar proceeding. All
amounts payable under the terms of the Notes shall be paid without relief from
valuation and appraisement laws.

--------------------------------------------------------------------------------

 

 

 

 

 

B.          Bank’s Right of Setoff. The Borrower, for itself and as agent on
behalf of each of its Subsidiaries, grants to the Bank a security interest in,
and the Bank is authorized, if a default or an “unmatured default” (hereinafter
defined) has occurred and is continuing or would result, to setoff and apply,
all Deposits, Securities and Other Property, and Bank Debt against any and all
Liabilities of the Borrower to the Bank and against any and all indebtedness,
liabilities, and obligations or any Subsidiary to the Bank. This right of setoff
may be exercised, if a default or an unmatured default has occurred and is
continuing or would result, at any time and from time to time, and without prior
notice to the Borrower or any Subsidiary. This security interest and right of
setoff may be enforced or exercised by the Bank regardless of whether or not the
Bank has made any demand under this paragraph or whether the Liabilities are
contingent, matured, or unmatured. Any delay, neglect or conduct by the Bank in
exercising its rights under this paragraph will not be a waiver of the right to
exercise this right of setoff or enforce this security interest. The rights of
the Bank under this paragraph are in addition to other rights the Bank may have
in the Related Documents or by law. In this paragraph: (a) the term “Deposits”
means any and all accounts and deposits of the Borrower or any Subsidiary
(whether general, special, time, demand, provisional or final) at any time held
by the Bank (including all Deposits held jointly with another, but excluding any
IRA or Keogh Deposits, or any trust Deposits in which a security interest would
be prohibited by law); (b) the term “Securities and Other Property” means any
and all securities and other property of the Borrower or any Subsidiary in the
custody, possession or control of the Bank (other than property held by the Bank
in a fiduciary capacity); (c) the term “Bank Debt” means all indebtedness at any
time owing by the Bank, to or for the credit or account of the Borrower or any
Subsidiary; and (d) the term “unmatured default” means an event which, with the
giving of notice or the lapse of time or both, would be a default under this
agreement or any of the Related Documents.

 

 

 

7.

Miscellaneous.

 

 

 

7.1

Notice. Any notices and demands under or related to this document shall be in
writing and delivered to the intended party at its address stated herein, and if
to the Bank, at its main office if no other address of the Bank is specified
herein, by one of the following means: (a) by hand, (b) by a nationally
recognized overnight courier service, or (c) by certified mail, postage prepaid,
with return receipt requested. Notice shall be deemed given: (a) upon receipt if
delivered by hand, (b) on the Delivery Day after the day of deposit with a
nationally recognized courier service, or (c) on the third Delivery Day after
the notice is deposited in the mail. “Delivery Day” means a day other than a
Saturday, a Sunday or any other day on which national banking associations are
authorized to be closed. Any party may change its address for purposes of the
receipt of notices and demands by giving notice of such change in the manner
provided in this provision.

 

 

 

 

7.2

No Waiver. No delay on the part of the Bank in the exercise of any right or
remedy waives that right or remedy. No single or partial exercise by the Bank of
any right or remedy precludes any other future exercise of it or the exercise of
any other right or remedy. No waiver or indulgence by the Bank of any default is
effective unless it is in writing and signed by the Bank, nor shall a waiver on
one occasion bar or waive that right on any future occasion.

 

 

 

 

7.3

Integration. This agreement, the Notes, and any agreement related to the Credit
Facilities embody the entire agreement and understanding between the Borrower
and the Bank and supersede all prior agreements and understandings relating to
their subject matter. If any one or more of the obligations of the Borrower
under this agreement or the Notes is invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Borrower shall not in any way be affected or impaired, and
the invalidity, illegality or unenforceability in one jurisdiction shall not
affect the validity, legality or enforceability of the obligations of the
Borrower under this agreement or the Notes in any other jurisdiction.

 

 

 

 

7.4

Governing Law and Venue. This agreement is delivered in the State of Indiana and
governed by Indiana law (without giving effect to its laws of conflicts). The
Borrower agrees that any legal action or proceeding with respect to any of its
obligations under this agreement may be brought by the Bank in any state or
federal court located in the State of Indiana, as the Bank in its sole
discretion may elect. By the execution and delivery of this agreement, the
Borrower submits to and accepts, for itself and in respect of its property,
generally and unconditionally, the non­exclusive jurisdiction of those courts.
The Borrower waives any claim that the State of Indiana is not a convenient
forum or the proper venue for any such suit, action or proceeding.

 

 

 

 

7.5

Captions. Section headings are for convenience of reference only and do not
affect the interpretation of this agreement.

 

 

 

 

7.6

Survival of Representations and Warranties. The Borrower understands and agrees
that in extending the Credit Facilities, the Bank is relying on all
representations, warranties, and covenants made by the Borrower in this
agreement or in any certificate or other instrument delivered by the Borrower to
the Bank under this agreement. The Borrower further agrees that regardless of
any investigation made by the Bank, all such representations, warranties and
covenants

--------------------------------------------------------------------------------

 

 

 

 

 

will survive the making of the Credit Facilities and delivery to the Bank of
this agreement, shall be continuing in nature, and shall remain in full force
and effect until such time as the Borrower’s indebtedness to the Bank shall be
paid in full.

 

 

 

 

7.7

Non-Liability of the Bank. The relationship between the Borrower on one hand and
the Bank on the other hand shall be solely that of borrower and lender. The Bank
shall have no fiduciary responsibilities to the Borrower. The Bank undertakes no
responsibility to the Borrower to review or inform the Borrower of any matter.
in connection with any phase of the Borrower’s business or operations.

 

 

 

 

7.8

Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold
the Bank and BANK ONE CORPORATION, or any of its subsidiaries or affiliates or
their successors, and each of their respective shareholders, directors,
officers, employees and agents (collectively, the “Indemnified Persons”)
harmless from any and all obligations, claims, liabilities, losses, damages,
penalties, fines, forfeitures, actions, judgments, suits, costs, expenses and
disbursements of any kind or nature (including, without limitation, any
Indemnified Person’s attorneys’ fees) (collectively, the “Claims”) which may be
imposed upon, incurred by or assessed against any Indemnified Person (whether or
not caused by any Indemnified Person’s sole, concurrent, or contributory
negligence) arising out of or relating to this agreement; the exercise of the
rights and remedies granted under this agreement (including, without limitation,
the enforcement of this agreement and the defense of any Indemnified Person’s
action or inaction in connection with this agreement); and in connection with
the Borrower’s failure to perform all of the Borrower’s obligations under this
agreement, except to the limited extent that the Claims against any such
Indemnified Person are proximately caused by such Indemnified Person’s gross
negligence or willful misconduct. The indemnification provided for in this
section shall survive the termination of this agreement and shall extend to and
continue to benefit each individual or entity who is or has at any time been an
Indemnified Person.

 

 

 

 

 

The Borrower’s indemnity obligations under this section shall not in any way be
affected by the presence or absence of covering insurance, or by the amount of
such insurance or by the failure or refusal of any insurance carrier to perform
any obligation on its part under any insurance policy or policies affecting the
Borrower’s assets or the Borrower’s business activities. Should any Claim be
made or brought against any Indemnified Person by reason of any event as to
which the Borrower’s indemnification obligations apply, then, upon any
Indemnified Person’s demand, the Borrower, at its sole cost and expense, shall
defend such Claim in the Borrower’s name, if necessary, by the attorneys for the
Borrower’s insurance carrier (if such Claim is covered by insurance), or
otherwise by such attorneys as any Indemnified Person shall approve. Any
Indemnified Person may also engage its own attorneys at its reasonable
discretion to defend the Indemnified Person and to assist in its defense and the
Borrower agrees to pay the fees and disbursements of such attorneys.

 

 

 

 

7.9

Counterparts. This agreement may be executed in multiple counterparts, each of
which, when so executed, shall be deemed an original, but all such counterparts,
taken together, shall constitute one and the same agreement.

 

 

 

 

7.10

Advice of Counsel. The Borrower acknowledges that it has been advised by
counsel, or had the opportunity to be advised by counsel, in the negotiation,
execution and delivery of this agreement and any documents executed and
delivered in connection with the Credit Facilities.

 

 

 

 

7.11

Conflicting Terms. If this agreement is inconsistent with any provision in any
agreement related to the Credit Facilities, the Bank shall determine, in the
Bank’s sole and absolute discretion, which of the provisions shall control any
such inconsistency.

 

 

 

 

7.12

Expenses. The Borrower agrees to pay or reimburse the Bank for all its
out-of-pocket costs and expenses and reasonable attorneys’ fees (including the
fees of in-house counsel) incurred in connection with the preparation and
execution of this agreement, any amendment, supplement, or modification thereto,
and any other documents prepared in connection herewith or therewith.

 

 

 

 

7.13

Reinstatement. All parties liable on the Notes agree that to the extent any
payment is received by the Bank in connection with the Liabilities, and all or
any part of such payment is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid by the Bank or paid over to
a trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a “Preferential
Payment”), then the Notes shall continue to be effective or shall be reinstated,
as the case may be, and whether or not the Bank is in possession of the Notes,
and, to the extent of such payment or repayment by the Bank, the Liabilities or
part thereof intended to be satisfied by such Preferential Payment shall be
revived and continued in full force and effect as if said Preferential Payment
had not been made.

 

 

 

 

7.14

Severability. If any provision of this agreement cannot be enforced, the
remaining portions of this agreement shall continue in effect.

--------------------------------------------------------------------------------

 

 

 

 

7.15

Assignments. The Borrower agrees that the Bank may provide any information or
knowledge the Bank may have about the Borrower or about any matter relating to
the Notes or the Related Documents to BANK ONE CORPORATION, or any of its
subsidiaries or affiliates or their successors, or to any one or more purchasers
or potential purchasers of the Notes or the Related Documents. The Borrower
agrees that the Bank may at any time sell, assign or transfer one or more
interests or participations in all or any part of its rights and obligations in
the Notes to one or more purchasers whether or not related to the Bank.

 

 

 

 

7.16

Waivers. Any party liable on the Notes waives (a) any right to receive notice of
the following matters before the Bank enforces any of its rights: (i) (i) any
demand, diligence, presentment, dishonor and protest, or (ii) any action that
the Bank takes regarding anyone else, any collateral, or any of the Liabilities,
that it might be entitled to by law or under any other agreement; (b) any right
to require the Bank to proceed against any other obligor or guarantor of the
Liabilities, or any collateral, or pursue any remedy in the Bank’s power to
pursue; (c) any defense based on any claim that any endorser or other parties’
obligations exceed or are more burdensome than those of the Borrower; (d) the
benefit of any statute of limitations affecting liability of any endorser or
other party liable hereunder or the enforcement hereof; (e) any defense arising
by reason of any disability or other defense of the Borrower or by reason of the
cessation from any cause whatsoever (other than payment in full) of the
obligation of the Borrower for the Liabilities; and (f) any defense based on or
arising out of any defense that the Borrower may have to the payment or
performance of the Liabilities or any portion thereof. Any party liable on the
Notes consents to any extension or postponement of time of its payment without
limit as to the number or period, to any substitution, exchange or release of
all or any part of any collateral, to the addition of any other party; and to
the release or discharge of, or suspension of any rights and remedies against,
any person who may be liable for the payment of the Notes. The Bank may waive or
delay enforcing any of its rights without losing them. Any waiver affects only
the specific terms and time period stated in the waiver. No modification or
waiver of any provision of the Notes is effective unless it is in writing and
signed by the party against whom it is being enforced.

 

 

8.

USA PATRIOT ACT NOTIFICATION. The following notification is provided to Borrower
pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:

 

 

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person or entity that opens an account,
including any deposit account, treasury management account, loan, other
extension of credit, or other financial services product. What this means for
Borrower: When Borrower opens an account, if Borrower is an individual Bank will
ask for Borrower’s name, taxpayer identification number, residential address,
date of birth, and other information that will allow Bank to identify Borrower,
and if Borrower is not an individual Bank will ask for Borrower’s name, taxpayer
identification number, business address, and other information that will allow
Bank to identify Borrower. Bank may also ask, if Borrower is an individual to
see Borrower’s driver’s license or other identifying documents, and if Borrower
is not an individual to see Borrower’s legal organizational documents or other
identifying documents.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

 

 

9.

WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM
THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.

 

 

10.

JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN
THE BORROWER AND THE BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT.
THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING
DESCRIBED HEREIN.

Address(es) for Notices:

Borrower:

 

 

P.O. Box 877

Flexsteel Industries, Inc.

 

Dubuque, IA 52004-0877

 

 

 

 

Attn: 

Chief Financial Officer

By:

/s/   R. J. Klosterman

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

R. J. Klosterman, Exec. V.P., C.F.O., Secretary

 

--------------------------------------------------------------------------------

 

Printed Name

Title

 

 

 

 

Date Signed:

June 29, 2004

 

--------------------------------------------------------------------------------

 

 

 

Address for Notices:

Bank:

 

 

 

111 Monument Circle

Bank One, NA, with its main office in Chicago, IL

Indianapolis, IN 46277

 

 

 

 

 

 

 

Attn:

By:

/s/ Brian Smith

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

Brian Smith,
Vice President

 

--------------------------------------------------------------------------------

 

Printed Name

Title

 

 

 

 

Date Signed:

June 30, 2004

 

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

 

 

(BANK ONE LOGO) [a011.jpg]

Line of Credit Note

 

 

 

$20,000,000.00

Due: June 29, 2005

Date: June 30, 2004

Promise to Pay. On or before June 29, 2005, for value received, Flexsteel
Industries, Inc. (the “Borrower”) promises to pay to Bank One, NA, with its main
office in Chicago, IL, whose address is 111 Monument Circle, Indianapolis, IN
46277 (the “Bank”) or order, in lawful money of the United States of America,
the sum of Twenty Million and 00/100 Dollars ($20,000,000.00) or such lesser sum
as is indicated on Bank records, plus interest as provided below.

Definitions. As used in this Note, the following terms have the following
respective meanings:

“Advance” means a Eurodollar Advance or a Prime Rate Advance and “Advances”
means all Eurodollar Advances and all Prime Rate Advances under this Note.

“Applicable Margin” means with respect to any Prime Rate Advance or Eurodollar
Advance, as the case may be, the rate per annum set forth below opposite the
applicable Funded Debt to EBITDA Ratio. Funded Debt to EBITDA Ratio is defined
in the Credit Agreement.

 

 

 

 

 

 

 

Applicable Margin

 

 

--------------------------------------------------------------------------------

Funded Debt to EBITDA Ratio

 

Prime Rate Advance

 

Eurodollar Advance

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

Greater than or equal to 2.00 to 1.00

 

0.00%

 

1.00%

Less than 2.00 to 1.00 but greater than or equal to 1.00 to 1.00

 

0.00%

 

0.75%

Less 1.00 to 1.00

 

0.00%

 

0.50%

The Applicable Margin shall, in each case, be determined and adjusted quarterly
on the first day of the month after the date of delivery of the quarterly and
annual financial statements required by the Credit Agreement, provided, however,
that if such financial statements are not delivered within two Business Days
after the required date (each, an “Interest Determination Date”), the Applicable
Margin shall increase to the maximum percentage amount set forth in the table
above from the date such financial statements were required to be delivered to
the Bank until received by the Bank. The Applicable Margin shall be effective
from an Interest Determination Date until the next Interest Determination Date.
Such determinations by the Bank shall be conclusive absent manifest error. The
initial Applicable Margin for Prime Rate Advances is 0.00% and for Eurodollar
Advances is 0.50%.

“Credit Agreement” means a certain Credit Agreement, dated June 30, 2004,
between the Borrower and the Bank.

“Business Day” means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Indiana and/or New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day other than a Saturday, Sunday or any other day on
which national banking associations are authorized to be closed.

“Eurodollar Base Rate” means, with respect to the relevant Interest Period, the
applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars
as reported by any generally recognized financial information service as of
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, and having a maturity equal to such Interest Period, provided
that, if no such British Bankers’ Association LIBOR rate is available to the
Bank, the applicable Eurodollar Base Rate for the relevant Interest Period shall
instead be the rate determined by the Bank to be the rate at which BANK ONE
CORPORATION or one of its affiliate banks offers to place deposits in U.S.
dollars with first-class banks in the London interbank market at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period, in the approximate amount of the principal amount outstanding
on such date and having a maturity equal to such Interest Period.

“Eurodollar Advance” means any borrowing under this Note when and to the extent
that its interest rate is determined by reference to the Eurodollar Rate.

“Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant
Interest Period, the sum of (i) the Applicable Margin plus (ii) the quotient of
(a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b)
one minus the Reserve Requirement (expressed as a decimal) applicable to such
Interest Period.

--------------------------------------------------------------------------------

“Interest Period” means, with respect to a Eurodollar Advance, a period of one
(1), two (2), three (3) or six (6) month(s) commencing on a Business Day
selected by the Borrower pursuant to this Note. Such Interest Period shall end
on the day which corresponds numerically to such date one (I), two (2), three
(3) or six (6) month(s) thereafter, as applicable, provided, however, that if
there is no such numerically corresponding day in such first, second, third or
sixth succeeding month(s), as applicable, such Interest Period shall end on the
last Business Day of such first, second, third or sixth succeeding month(s), as
applicable. If an Interest Period would otherwise end on a day which is not a
Business Day, such Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business Day falls in a new
calendar month, such Interest Period shall end on the immediately preceding
Business Day.

“Prime Rate” means a rate per annum equal to the prime rate of interest
announced from time to time by the Bank or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.

“Prime Rate Advance” means any Advance under this Note when and to the extent
that its interest rate is determined by reference to the Prime Rate.

“Principal Payment Date” is defined in the paragraph entitled “Principal
Payments” below.

“Regulation D” means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or other
regulation or official interpretation of said Board of Governors relating to
reserve requirements applicable to member banks of the Federal Reserve System.

“Reserve Requirement” means, with respect to an Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D.

Interest Rates. The Advance(s) evidenced by this Note may be drawn down and
remain outstanding as up to five (5) Eurodollar Advances and/or a Prime Rate
Advance. The Borrower shall pay interest to the Bank on the outstanding and
unpaid principal amount of each Prime Rate Advance at the Prime Rate plus the
Applicable Margin and each Eurodollar Advance at the Eurodollar Rate. Interest
shall be calculated on the basis of the actual number of days elapsed in a year
of 360 days. In no event shall the interest rate applicable to any Advance
exceed the maximum rate allowed by law. Any interest payment which would for any
reason be deemed unlawful under applicable law shall be applied to principal.

Bank Records. The Bank shall, in the ordinary course of business, make notations
in its records of the-date, amount, interest rate and Interest Period of each
Advance hereunder, the amount of each payment on the Advances, and other
information. Such records shall, in the absence of manifest error, be conclusive
as to the outstanding principal balance of and interest rate or rates applicable
to this Note.

Notice and Manner of Electing Interest Rates on Advances. The Borrower shall
give the Bank written notice (effective upon receipt) of the Borrower’s intent
to draw down an Advance under this Note no later than 11:00 a.m. Eastern time,
one (1) Business Day before disbursement, if the full amount of the drawn
Advance is to be disbursed as a Prime Rate Advance and three (3) Business Days
before disbursement, if any part of such Advance is to be disbursed as a
Eurodollar Advance. The Borrower’s notice must specify: (a) the disbursement
date, (b) the amount of each Advance, (c) the type of each Advance (Prime Rate
Advance or Eurodollar Advance), and (d) for each Eurodollar Advance, the
duration of the applicable Interest Period; provided, however, that the Borrower
may not elect an Interest Period ending after the maturity date of this Note.
Each Eurodollar Advance shall be-in a minimum amount of One Million and 00/100
Dollars ($1,000,000.00). All notices under this paragraph are irrevocable. By
the Bank’s close of business on the disbursement date and upon fulfillment of
the conditions set forth herein and in any other of the Related Documents, the
Bank shall disburse the requested Advances in immediately available funds by
crediting the amount of such Advances to the Borrower’s account with the Bank.

Conversion and Renewals. The Borrower may elect from time to time to convert one
type of Advance into another or to renew any Advance by giving the Bank written
notice no later than 11:00 a.m. Eastern time, one (1) Business Day before
conversion into a Prime Rate Advance and three (3) Business Days before
conversion into or renewal of a Eurodollar Advance, specifying: (a) the renewal
or conversion date, (b) the amount of the Advance to be converted or renewed,
(c) in the case of conversion, the type of Advance to be converted into (Prime
Rate Advance or Eurodollar Advance), and (d) in the case of renewals of or
conversion into a Eurodollar Advance, the applicable Interest Period, provided
that (i) the minimum principal amount of each Eurodollar Advance outstanding
after a renewal or conversion shall be One Million and 00/100 Dollars
($1,000,000.00); (ii) a Eurodollar Advance can only be converted on the last day
of the Interest Period for the Advance; and (iii) the Borrower may not elect an
Interest Period ending after the maturity date of this Note. All notices given
under this paragraph are irrevocable. If the Borrower fails to give the Bank the
notice specified above for the renewal or conversion of a Eurodollar Advance by
11:00 a.m. Eastern time three (3) Business Days before the end of the Interest
Period for that Advance, the Advance shall automatically be converted to a Prime
Rate Advance on the last day of the Interest Period for the Advance.

--------------------------------------------------------------------------------

The Borrower may permanently reduce the Line of Credit commitment, in integral
multiples of $1,000,000.00, by providing at least five Business Days’ written
notice to the Bank and shall be irrevocable, which notice shall specify the
amount of any such reduction, provided, however, that the amount of the
aggregate commitment may not be reduced below the aggregate outstanding
principal balance outstanding under this Note.

Interest Payments. Interest on the Advances shall be paid as follows:

A.       For each Prime Rate Advance, on the last day of each month beginning
with the first month following disbursement of the Advance or following
conversion of an Advance into aPrime Rate Advance, and at the maturity or
conversion of the Advance into a Eurodollar Advance;

B.       For each Eurodollar Advance, on the last day of the Interest Period for
the Advance and, if the Interest Period is longer than three months, at
three-month intervals beginning with the day three months from the date the
Advance is disbursed.

Principal Payments. All outstanding principal and interest is due and payable in
full on June 29, 2005, which is defined herein as the “Principal Payment Date”.

Default Rate of Interest. After a default has occurred under this Note, whether
or not the Bank elects to accelerate the maturity of this Note because of such
default, all Advances outstanding under this Note, including all Eurodollar
Advances, shall bear interest at a per annum rate equal to the Prime Rate, plus
the Applicable Margin for a Prime Rate Advance, plus three percent (3.00%) from
the date the Bank elects to impose such rate. Imposition of this rate shall not
affect any limitations contained in this Note on the Borrower’s right to repay
principal on any Eurodollar Advance before the expiration of the Interest Period
for that Advance.

Prepayment. The Borrower may prepay all or any part of any Prime Rate Advance at
any time without premium or penalty. The Borrower may prepay any Eurodollar
Advance only at the end of an Interest Period.

Funding Loss Indemnification. Upon the Bank’s request, the Borrower shall pay
the Bank amounts sufficient (in the Bank’s reasonable opinion) to compensate it
for any loss, cost, or expense incurred as a result of:

A.       Any payment of a Eurodollar Advance on a date other than the last day
of the Interest Period for the Advance, including, without limitation,
acceleration of the Advances by the Bank pursuant to this Note or the Related
Documents; or

B.       Any failure by the Borrower to borrow or renew a Eurodollar Advance on
the date specified in the relevant notice from the Borrower to the Bank.

Additional Costs. If any applicable domestic or foreign law, treaty, government
rule or regulation now or later in effect (whether or not it now applies to the
Bank) or the interpretation or administration thereof by a governmental
authority charged with such interpretation or administration, or compliance by
the Bank with any guideline, request or directive of such an authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to the Bank of any amounts payable by the Borrower under this Note or
the Related Documents (other than taxes imposed on the overall net income of the
Bank by the jurisdiction or by any political subdivision or taxing authority of
the jurisdiction in which the Bank has its principal office), or (b) impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
the Bank, or (c) impose any other condition with respect to this Note or the
Related Documents and the result of any of the foregoing is to increase the cost
to the Bank of maintaining any Eurodollar Advance or to reduce the amount of any
sum receivable by the Bank on such an Advance, or (d) affect the amount of
capital required or expected to be maintained by the Bank (or any corporation
controlling the Bank) and the Bank determines that the amount of such capital is
increased by or based upon the existence of the Bank’s obligations under this
Note or the Related Documents and the increase has the effect of reducing the
rate of return on the Bank’s (or its controlling corporation’s) capital as a
consequence of the obligations under this Note or the Related Documents to a
level below that which the Bank (or its controlling corporation) could have
achieved but for such circumstances (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by the Bank to be material,
then the Borrower shall pay to the Bank, from time to time, upon request by the
Bank, additional amounts sufficient to compensate the Bank for the increased
cost or reduced sum receivable. Whenever the Bank shall learn of circumstances
described in this section which are likely to result in additional costs to the
Borrower, the Bank shall give prompt written notice to the Borrower of the basis
for and the estimated amount of any such anticipated additional costs. A
statement as to the amount of the increased cost or reduced sum receivable,
prepared in good faith and in reasonable detail by the Bank and submitted by the
Bank to the Borrower, shall be conclusive and binding for all purposes absent
manifest error in computation.

Illegality. If any applicable domestic or foreign law, treaty, rule or
regulation now or later in effect (whether or not it now applies to the Bank) or
the interpretation or administration thereof by a governmental authority charged
with such interpretation or administration, or compliance by the Bank with any
guideline, request or directive of such an authority (whether or not having the

--------------------------------------------------------------------------------

force of law), shall make it unlawful or impossible for the Bank to maintain or
fund the Eurodollar Advances, then, upon notice to the Borrower by the Bank, the
outstanding principal amount of the Eurodollar Advances, together with accrued
interest and any other amounts payable to the Bank under this Note or the
Related Documents on account of the Eurodollar Advances shall be repaid (a)
immediately upon the Bank’s demand if such change or compliance with such
requests, in the Bank’s judgment, requires immediate repayment, or (b) at the
expiration of the last Interest Period to expire before the effective date of
any such change or request provided, however, that subject to the terms and
conditions of this Note and the Related Documents the Borrower shall be entitled
to simultaneously replace the entire outstanding balance of any Eurodollar
Advance repaid in accordance with this section with a Prime Rate Advance in the
same amount.

Inability to Determine Interest Rate. If the Bank determines that (a) quotations
of interest rates for the relevant deposits referred to in the definition of
Eurodollar Rate are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining the interest rate on a
Eurodollar Advance as provided in this Note, or (b) the relevant interest rates
referred to in the definition of Eurodollar Rate do not accurately cover the
cost to the Bank of making or maintaining Eurodollar Advances, then the Bank
shall forthwith give notice of such circumstances to the Borrower, whereupon (i)
the obligation of the Bank to make Eurodollar Advances shall be suspended until
the Bank notifies the Borrower that the circumstances giving rise to the
suspension no longer exists, and (ii) the Borrower shall repay in full the then
outstanding principal amount of each Eurodollar Advance, together with accrued
interest, on the last day of the then current Interest Period applicable to the
Advance, provided, however, that, subject to the terms and conditions of this
Note and the Related Documents, the Borrower shall be entitled to simultaneously
replace the entire outstanding balance of any Eurodollar Advance repaid in
accordance with this section with a Prime Rate Advance in the same amount.

Obligations Due on Non-Business Day. Whenever any payment under this Note
becomes due and payable on a day that is not a Business Day, if no default then
exists under this Note, the maturity of the payment shall be extended to the
next succeeding Business Day, except, in the case of a Eurodollar Advance, if
the result of the extension would be to extend the payment into another calendar
month, the payment must be made on the immediately preceding Business Day.

Matters Regarding Payment. The Borrower will pay the Bank at the Bank’s address
shown above or at such other place as the Bank may designate. Payments shall be
allocated among principal, interest and fees at the discretion of the Bank
unless otherwise agreed or required by applicable law. Acceptance by the Bank of
any payment which is less than the payment due at the time shall not constitute
a waiver of the Bank’s right to receive payment in full at that time or any
other time.

Authorization for Direct Payments (ACH Debits). To effectuate any payment due
under this Note, the Borrower hereby authorizes the Bank to initiate debit
entries to Account Number ____________________________ at the Bank and to debit
the same to such account. This authorization to initiate debit entries shall
remain in full force and effect until the Bank has received written notification
of its termination in such time and in such manner as to afford the Bank a
reasonable opportunity to act on it. The Borrower represents that the Borrower
is and will be the owner of all funds in such account. The Borrower acknowledges
(1) that such debit entries may cause an overdraft of such account which may
result in the Bank’s refusal to honor items drawn on such account until adequate
deposits are made to such account; (2) that the Bank is under no duty or
obligation to initiate any debit entry for any purpose; and (3) that if a debit
is not made because the above-referenced account does not have a sufficient
available balance, or otherwise, the payment may be late or past due.

Credit Facility. The Bank has approved a credit facility to the Borrower in a
principal amount not to exceed the face amount of this Note. The credit facility
is in the form of advances made from time to time by the Bank to the Borrower.
This Note evidences the Borrower’s obligation to repay those advances. The
aggregate principal amount of debt evidenced by this Note is the amount
reflected from time to time in the records of the Bank. Until the earliest of
maturity, the occurrence of any default, or the occurrence of any event that
would constitute a default but for the giving of notice or the lapse of time or
both until the end of any grace or cure period, the Borrower may borrow, pay
down and reborrow under this Note subject to the terms of the Related Documents.

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

--------------------------------------------------------------------------------

Miscellaneous. This Note binds the Borrower and its successors, and benefits the
Bank, its successors and assigns. Any reference to the Bank includes any holder
of this Note. This Note is issued pursuant and entitled to the benefits of that
certain Credit Agreement by and between the Borrower and the Bank, dated June
30, 2004, and all replacements thereof (the “Credit Agreement”) to which
reference is hereby made for a more complete statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid.
The terms and provisions of the Credit Agreement are hereby incorporated and
made a part hereof by this reference thereto with the same force and effect as
if set forth at length herein. No reference to the Credit Agreement and no
provisions of this Note or the Credit Agreement shall alter or impair the
absolute and unconditional obligation of the Borrower to pay the principal and
interest on this Note as herein prescribed. Capitalized terms not otherwise
defined herein shall have the meanings assigned to such terms in the Credit
Agreement.

 

 

 

Address:  

P.O. Box 877

Borrower:

 

Dubuque, IA 52004-0877

 

 

 

Flexsteel Industries, Inc.

 

 

 

 

By:

/s/   R.J. Klosterman

 

 

--------------------------------------------------------------------------------

 

 

R.J. Klosterman, Exec. V.P., C.F.O., Secretary

--------------------------------------------------------------------------------

Printed Name Title  

Date Signed:

June 29, 2004

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

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(BANK ONE LOGO) [a011.jpg]          

--------------------------------------------------------------------------------

Master Agreement
For Irrevocable
Letters of Credit

This Agreement is between

Flexsteel Industries, Inc.
and

Bank One, NA and its
subsidiaries and affiliates

--------------------------------------------------------------------------------

MASTER AGREEMENT FOR IRREVOCABLE LETTERS OF CREDIT

The undersigned (“Applicant”) will, from time to time, request that one or more
of Bank One, NA (Main Office Chicago) and/or any domestic or foreign Bank One
Affiliate (as defined below) (each of such entities the “Issuer” with respect to
each Credit and all of such entities collectively the “Issuers”) issue for its
account or for the account of the account party named in the Application,
irrevocable commercial and/or standby letters of credit or other independent
undertakings within the scope of applicable law (each such letter of credit or
undertaking a “Credit”). Such requests will be made by submitting to the Issuer
a completed Application (the “Application”) substantially in the form(s)
attached to this Master Agreement for Irrevocable Letters of Credit (the
“Agreement”) or such other form(s) as approved by the Issuer. Applicant agrees
with Issuer that each Credit which may be issued by Issuer in its sole
discretion, at the request of Applicant, shall be governed by the following
terms and conditions, unless they are expressly changed in any Credit or the
Application for any Credit, as approved in writing by Issuer, and, with regard
to the provisions of Section 6 and 7 herein, regardless of whether such Credit
or the Application provide otherwise:

 

 

 

 

1.

REIMBURSEMENTS.   Applicant agrees to pay on demand, in U.S. dollars, to Issuer
at such place as Issuer may specify, the amount of each draft drawn under or
purporting to be drawn under a Credit. Demand may be made in advance of payment
at the request of Issuer. If a Credit provides for presentation of drafts in a
currency other than U.S. dollars, Applicant shall, at Issuer’s sole option, make
payments to Issuer with respect to such drafts either (a) in such other currency
at such place as Issuer may direct, or (b) in U.S. dollars at the rate of
exchange determined by the Issuer to be the rate in effect in Chicago, Illinois
or in such other place where the Issuer is located, at the time of payment of
the draft or, if the Issuer determines that there is no such rate of exchange,
Applicant shall pay Issuer an amount which in the sole judgment of Issuer shall
be sufficient to meet Issuer’s obligations hereunder.

 

 

 

 

 

2.

FEES AND INTEREST.   Applicant agrees to pay Issuer:

 

 

 

 

 

(a)

On demand, Issuer’s customary commissions and fees in effect from time to time
and all costs and expenses, including reasonable attorneys’ fees, including fees
of attorneys who may be Issuer’s employees, paid or incurred by Issuer in
connection with the administration or enforcement of this Agreement or any
Credit, and any adviser, confirming institution or entity or other nominated
person’s fees and costs that are chargeable to or paid by Issuer;

 

 

 

 

(b)

Interest on all sums advanced by Issuer without reimbursement by Applicant at
the per annum rate equal to the lesser of:

 

 

 

 

 

(i)

the rate customarily charged by Issuer; or

 

 

 

 

 

 

(ii)

the Prime Rate on the date of advance by the Issuer, provided that such rate of
interest shall not exceed the maximum rate of interest, which may be charged
under applicable law. The “Prime Rate” shall mean the rate of interest announced
by the Issuer or its parent from time to time as its prime rate for interest
rate determinations (which may or may not be the lowest interest rate charged by
such bank), to be computed for actual days unpaid on a 360-day year basis; and

 

 

 

 

 

(c)

In the event any change in any law or regulation, or in any interpretation by a
court or administrative or governmental authority charged with the
administration thereof shall either:

 

 

 

 

 

(i)

impose, modify or make applicable any reserve, special deposit, or similar
requirement against letters of credit issued by the Issuer; or impose on Issuer
any other condition regarding this Agreement or any Credit;

 

 

 

 

 

 

(ii)

and the result of any event referred to above shall be to increase the cost to
Issuer of issuing or maintaining a Credit, then upon demand by Issuer, Applicant
shall immediately pay to Issuer, such additional amounts as shall, in the
judgment of Issuer, be sufficient to compensate Issuer for such increased cost,
together with interest on each such amount from the date demanded until payment
in full at the rate provided in subsection (b) above.

 

 

 

 

 

 

Issuer may assess fees even if incurred after the Credit expires at such rate as
may be reasonably determined by Issuer.

 

 

 

3.

PAYMENTS.

 

 

 

 

(a)

Payments due from Applicant hereunder shall be made without withholding,
deduction or set-off and shall be made free and clear of any taxes other than
taxes directly imposed on Issuer.

 

 

 

 

(b)

To effect any payment due hereunder, Applicant authorizes Issuer to debit any
account that Applicant may have with Issuer or any direct or indirect subsidiary
and/or affiliate of Bank One Corporation, or any successor holding company (each
such subsidiary and/or affiliate referred herein as a “Bank One Affiliate”).

 

 

 

 

4  

REPRESENTATIONS AND WARRANTIES.   In order to induce Issuer to issue each
Credit, Applicant:

 

 

 

(a)

Represents and warrants to Issuer that each financial statement of Applicant
furnished to Issuer was correct and complete and truly presented the financial
condition of Applicant as of the date thereof and, since the date of the last
such financial statement, there has been no material adverse change in the
financial condition of Applicant, and

 

 

 

 

(b)

Makes to Issuer the following representations and warranties:

 

 

 

 

 

(i)

Applicant is a corporation organized under the laws of Minnesota.

 

 

 

 

 

 

(ii)

Applicant has the power and is duly authorized to execute and deliver this
Agreement and is and will be duly authorized to execute and deliver each
Application for a Credit. This Agreement, and each Application for a Credit,
when executed and delivered, will constitute the valid and binding obligations
of Applicant, enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or similar laws of general application affecting the
enforcement of creditors’ rights generally and except to the extent that general
principles of equity might affect the specific enforcement of this Agreement.

 

 

 

 

 

 

(iii)

There is no litigation or administrative proceeding pending or threatened
against Applicant, which might, if adversely determined, materially affect
Applicant’s ability to perform its obligations under this Agreement.

 

 

 

 

 

 

(iv)

No default exists, nor has any event, act or omission occurred which, with the
giving of notice or the passage of time, would constitute a default under any
instrument or agreement evidencing or securing any indebtedness or liability of
Applicant to any person.

 

 

 

 

 

 

(v)

Applicant has no indebtedness for borrowed money, nor any obligation contingent
or otherwise, directly or indirectly guaranteeing or in any manner providing for
the payment of the indebtedness of another, except those disclosed on the most
recent financial statements of Applicant furnished to Issuer and except for
endorsements for collection or deposit in the ordinary course of business.

 

 

 

 

 

 

(vi)

This Agreement and the underlying transaction do not and shall not conflict with
any law, regulation, order, or governmental consent requirement (including,
without limitation, any that regulate exports or imports, foreign assets,
foreign exchange investments, margin stock, investment companies, securities
offering, infringement, boycotts, or money laundering) applicable to the
Applicant or the Issuer.

 

 

 

 

5.

COVENANTS.   Applicant agrees that so long as any drawing is available under any
Credit, and until Issuer has been reimbursed for all drafts honored by it under
any Credit, Applicant will comply in a timely manner with:

 

Its Obligations (as defined in Section 12); and

 

(a)      The following covenants:

 

 

 

 

 

 

(i)

Applicant shall furnish to Issuer such financial information regarding Applicant
as Issuer may from time to time reasonably request and shall permit
representatives of Issuer to visit and inspect the properties and books and
records of Applicant at any reasonable time and as often as may reasonably be
desired.

 

 

 

 

 

 

(ii)

Applicant shall pay all lawful taxes, assessments and governmental charges upon
it or against its properties prior to the date on which penalties attach, unless
and to the extent only that the same shall be contested in good faith and by
appropriate proceedings.

 

 

 

 

 

 

 

 

 

 

(iii)

Applicant shall not sell, lease, transfer or otherwise dispose of all or
substantially all of its assets (other than sales made in the ordinary course of
business).

 

 

 

 

 

 

(iv)

if Applicant is a corporation, Applicant shall maintain its corporate existence
and not merge or consolidate with or into any other corporation.

--------------------------------------------------------------------------------

 

 

 

 

 

 

(v)

If Applicant is a limited liability company or partnership, Applicant shall
maintain its existence as a limited liability company or partnership and not
merge or consolidate with or into any other limited liability company,
partnership or corporation.

 

 

 

 

 

 

(vi)

If Applicant is a partnership, Applicant shall not liquidate, terminate or
dissolve.

 

 

 

 

6.

RESPONSIBILITY OF ISSUER.

 

 

 

 

 

(a)

Delivery to Issuer or any of its Correspondents (“Correspondents”) shall mean a
bank or other financial institution or entity with which the Issuer usually
maintains an account relationship) of any documents purporting to comply with
the requirements of a Credit shall be sufficient evidence of the validity,
genuineness and sufficiency thereof and of the good faith and proper performance
of drawers and users of a Credit; their agents and assignees, and Issuer and its
Correspondents may rely thereon without liability or responsibility with respect
thereto, even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged.

 

 

 

 

 

(b)

Issuer is expressly authorized and directed to honor any request for payment
which is made under and in compliance with the terms and conditions of a Credit
without regard to, and without any duty on Issuer’s part to inquire into, the
existence of any disputes or controversies between Applicant, any beneficiary of
a Credit or any other person, firm or corporation or the rights, duties or
liabilities of any of them.

 

 

 

 

 

(c)

Neither Issuer nor any Bank One Affiliate shall be liable to Applicant or any
third party for:

 

 

 

 

 

 

(i)

The use which may be made of any Credit or for any act or omission of any
beneficiary thereof,

 

 

 

 

 

 

(ii)

Any delay in giving or failing to give any notice,

 

 

 

 

 

 

(iii)

Any error, neglect or default of any of its Correspondents,

 

 

 

 

 

 

(iv)

The validity, sufficiency or genuineness of any document assigning or purporting
to assign a Credit or any benefits thereunder or any act in reliance thereon,

 

 

 

 

 

 

(v)

Errors in translation or in the interpretation of any of the terms and
conditions of a Credit, or

 

 

 

 

 

 

(vi)

Errors, delays, misdeliveries or losses in the transmission of notices and
communications by means of SWIFT, electronic mail, telex, telecopy, telefax,
courier, mail or computer generated telecommunications or documents or items
forwarded in connection with a Credit or any relevant draft.

 

 

 

 

 

(d)

Any action taken or omitted by Issuer or its Correspondents or any Bank One
Affiliate in connection with a Credit, any instructions of Applicant or any
drafts, documents or merchandise relative thereto shall, if in good faith, be
conclusively deemed authorized by Applicant, whether expressly so or not.

 

 

 

 

 

(e)

If Applicant shall have requested a Credit for the accommodation of a third
party, any instruction, consent, approval and other action or inaction of such
third party with respect to a Credit or transactions thereunder shall be deemed
to be the act or omission of Applicant for all purposes hereof, and Issuer shall
be entitled to rely thereon.

 

 

 

 

7.

LIMITATION ON LIABILITY.   Specifically, but without limitation, Issuer shall
not be responsible to Applicant for, and Issuer’s rights and remedies against
Applicant shall not be impaired by:

 

(a)      Action or inaction required or permitted under:

 

 

 

 

 

 

(i)

the Uniform Commercial Code, the Uniform Customs and Practices for Documentary
Credits (UCP 500), the International Standby Practices (ISP98) or the United
Nations Convention on Independent Guarantees and Standby Letters of Credit, as
chosen in, as applicable and/or in effect where and when the Credit is issued,
from time to time;

 

 

 

 

 

 

(ii)

the law or published practice rules to which the Credit is subject;

 

 

 

 

 

 

(iii)

an applicable standard practice of banks that regularly issue letters of credit;

 

 

 

 

 

 

(iv)

an applicable order, ruling or regulation of any court, arbitrator or government
agency;

 

 

 

 

 

 

(v)

a published statement or interpretation on a matter of applicable standard bank
practice;

 

 

 

 

 

 

(vi)

the laws, customs or regulations in effect in countries other than the country
of the Issuer; or

 

 

 

 

 

 

(vii)

an opinion received from Issuer’s legal counsel on a matter of law or from an
expert engaged by Issuer on a matter of practice;

 

 

 

 

(b)

Honor of any presentation that substantially or reasonably complies with the
terms and conditions of the Credit, even if the Credit requires strict or
literal compliance by the beneficiary;

 

 

 

 

(c)

Honor of a non-negotiable or informal or unmarked demand or of a demand by the
beneficiary presented electronically, even if the Credit requires that the
beneficiary’s demand be in the form of a draft and states that it is drawn under
the Credit;

 

 

 

 

(d)

Honor of documents signed or presented by or on behalf of, or requesting payment
to, the beneficiary’s purported successor by operation of law;

 

 

 

 

(e)

Honor of a presentation without regard to any non-documentary condition(s) in
the Credit;

 

 

 

 

(f)

Honor or other recognition of a presentation or other demand that later is
determined to have included invalid, forged or fraudulent documents or that was
otherwise affected by the fraudulent, bad faith or illegal conduct of the
beneficiary or other person (excluding Issuer’s employees), including payment to
a person who later is determined to have forged the signature of a beneficiary,
nominated bank or assignee of letter of credit proceeds;

 

 

 

 

(g)

Honor of a presentation up to the amount available under the Credit against a
draft or other documents claiming amount(s) in excess of the amount available;

 

 

 

 

(h)

Reimbursement of a nominated bank that does not give value or that misrepresents
the basis on which it claims reimbursement;

 

 

 

 

(i)

Dishonor of any presentation that does not strictly comply or that is
fraudulent, forged or otherwise not entitled to honor;

 

 

 

 

(j)

The use which may be made of the Credit or any acts or omissions of the users of
the Credit;

 

 

 

 

(k)

Honor of any presentation without regard to particular conditions stipulated in
the documents or superimposed thereon;

 

 

 

 

(l)

Any breach of contract between the beneficiary and Applicant or any of the
parties to any underlying transaction;

 

 

 

 

(m)

The failure of any instrument to bear any reference or adequate reference to the
Credit, or the failure of any draft to be endorsed by the payee or accompanied
by documents at negotiation, or the failure of any negotiating bank to endorse
any draft or other instrument in connection with the Credit or the failure of
any person to note the amount of any draft on the reverse of the Credit or to
surrender or take up the Credit or to send forward documents apart from drafts
as required by the terms and conditions of the Credit (each of which provisions,
if contained in the Credit itself, it is agreed may be waived by Issuer);

 

 

 

 

(n)

Any error, omission, interruption or delay in transmission or delivery of any
message or advice in connection with the Credit whether transmitted by courier,
mail, telex, SWIFT, electronic mail or any other telecommunication or otherwise
and despite any cipher or code which may be employed.

  The happening of any one or more of the contingencies referred to in the
preceding paragraph shall not affect, impair or prevent the vesting of any of
Issuer’s rights or powers hereunder or Applicant’s obligation to make
reimbursement. In furtherance and extension thereof and not in limitation of the
specific provisions herein above set forth, Applicant agrees that any action,
inaction or omission by issuer or any of issuer’s branches, affiliates (which
shall also include Bank One Affiliates for all purposes of this section) and/or
Correspondents under or in connection with the Credit or the related drafts,
documents or property, if taken in good faith, shall be binding on Applicant and
shall not put issuer or any of Issuer’s branches, affiliates or Correspondents
under any resulting liability to Applicant. Issuer shall not be responsible for
any act, error, neglect, default, omission, insolvency or failure in the
business of any of Issuer’s branches, affiliates or Correspondents or for any
refusal by Issuer or any of issuer’s branches. affiliates or Correspondents to
pay or honor drafts drawn under the Credit because of any United States or
foreign laws or regulations now or hereafter in force or for any other matter
beyond Issuer’s control.

  Applicant shall indemnify issuer and hold Issuer harmless from any cost. loss
or expense which may be incurred by issuer if. at Applicant’s request. the law
of a foreign country governs the Credit.

--------------------------------------------------------------------------------

 

 

 

 

8.

SECURITY INTEREST.   This Section Intentionally Deleted.

 

 

 

9.

CASH COLLATERAL.   Applicant agrees that upon and during the continuance of any
(i) Event of Default, (ii) material adverse change in the business or financial
condition of the Applicant, (iii) Applicant injunction action, beneficiary
wrongful dishonor action, or other event that threatens to extend or increase
the Issuer’s contingent liability beyond the time, amount, or other limit
provided in the Credit or this Agreement, or (iv) other event or condition that
causes the Issuer in good faith to deem itself insecure, the Applicant must
deposit with the Issuer, on demand, cash amount(s) in the aggregate amount of
the Obligations.

 

 

 

10.

COMPLIANCE WITH LAWS.   Applicant agrees to comply with and represents that the
underlying transaction complies with all applicable foreign and domestic laws
and regulations with respect to the transaction covered by a Credit.

 

 

 

 

USA PATRIOT ACT NOTIFICATION.   The following notification is provided to
Applicant pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318:

 

 

 

 

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.   To help the
government fight the funding of terrorism and money laundering activities,
Federal law requires all financial institutions to obtain, verify, and record
information that identifies each person or entity that opens an account,
including any deposit account, treasury management account, loan, other
extension of credit, or other financial services product. What this means for
Applicant: When Applicant opens an account, Bank will ask for Applicant’s name,
employer identification number, business address, and other information that
will allow Bank to identify Applicant. Bank may also ask to see Applicant’s
legal organizational documents or other identifying documents.

 

 

 

11.

POWER OF ATTORNEY.   Applicant irrevocably appoints Issuer its attomey in fact
to execute, file, register or record in the name of Applicant, any document or
instrument of any kind or description including, without limitation thereto,
assignments and endorsements which come into the possession of Issuer under a
Credit or upon instructions of Applicant, and to perform such acts as Applicant
may be required to perform hereunder, upon failure of Applicant to so act.

 

 

 

12.

EVENTS OF DEFAULT.   If any one or more of the following Events of Default shall
occur:

 

 

 

 

(a)

Applicant fails to comply with any of the provisions of this Agreement; or

 

 

 

 

(b)

Applicant or any Guarantor dies, ceases to exist, becomes insolvent or is the
subject of bankruptcy or insolvency proceedings; or

 

 

 

 

(c)

Any representation by Applicant or any Guarantor in this Agreement or otherwise,
made to induce Issuer to issue a Credit, is incorrect in any material respect
when made; or

 

 

 

 

(d)

Applicant or any Guarantor defaults in any other agreement goveming indebtedness
of such Applicant or Guarantor;

 

then, all of the obligations and liabilities of Applicant to Issuer and all
Issuer’s claims against Applicant, whether arising or incurred under this
Agreement or otherwise, whether now existing or hereafter incurred, and whether
now or hereafter owing to or acquired in any manner by Issuer (“Obligations”)
shall, at Issuer’s option and without notice or demand, mature and become
immediately due and payable, with interest at the per annum rate which is three
percentage points in excess of the Prime Rate as herein defined (provided such
interest rate does not exceed the maximum rate of interest which may be charged
under applicable law), and Issuer shall have all rights and remedies for default
provided under applicable law. In addition to the foregoing, and not by way of
limitation, upon the occurrence of an Event of Default, Issuer may require
Applicant to deposit funds in an account held at any Bank One Affiliate in an
amount equal to the undrawn amount of a Credit, such funds to be held as cash
collateral by Issuer against future draws under any Credit.

 

 

 

13.

INDEMNITY.   Applicant hereby agrees to indemnify Issuer and each Bank One
Affiliate for any loss, cost, damage, expense (including any reasonable charges
for legal services) and/or liability whatsoever which they, or any of them, may
sustain or incur on account of issuance of a Credit, payment or acceptance of
any draft relative thereto, refusal or failure to pay or accept any such draft,
any action or inaction respecting a Credit, instructions of Applicant or an
accommodated party, drafts, documents or merchandise relative to a Credit or any
action or inaction in reliance on the provisions hereof, except that Applicant
shall have a claim against Issuer, and Issuer shall be liable to Applicant, to
the extent, but only to the extent of any direct, as opposed to consequential,
damages suffered by Applicant which Applicant proves were caused by:

 

 

 

(a)

Issuer’s willful misconduct or gross negligence in determining whether documents
presented under a Credit comply with the terms of a Credit,

 

 

 

 

 

or

 

 

 

 

(b)

Issuer’s willful and unlawful failure to pay under a Credit after the
presentation to it by the beneficiary of a Credit of a draft and documentation
strictly complying with the terms and conditions of a Credit.

 

 

 

 

Additionally, Applicant agrees to indemnify the Issuer against all claims,
obligations, and responsibilities (including attomey’s fees) arising out of:

 

 

 

 

 

 

(i)

The imposition of law or practice other than that chosen in the Credit or
applicable at the place of issuance;

 

 

 

 

 

 

(ii)

The fraud, forgery or illegal action of others; or

 

 

 

 

 

 

(iii)

The Issuer’s performance of the obligations of a confirming institution or
entity that wrongfully dishonors a confirmation.

 

 

 

 

 

Further, if any award, judgment or order is given or made for the payment of any
amount due under this Agreement and such award, judgment or order is expressed
in a currency other than the currency required under this Agreement, Applicant
shall indemnify Issuer against and hold Issuer harmless from all loss and damage
incurred by Issuer as a result of any variation in rates of exchange between the
date of such award, judgment or order and the date of payment (or, in the case
of partial payments, the date of each partial payment thereof) in the required
currency.

 

 

 

 

14.

WAIVER.   TO THE EXTENT THE PREVIOUS SECTION DOES NOT RESTRICT A PARTY’S ABILITY
TO EMPLOY JUDICIAL REMEDIES, ISSUER, APPLICANT, CORRESPONDENT AND EACH
GUARANTOR, IF ANY, VOLUNTARILY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO A CREDIT, THIS APPLICATION AND/OR ANY
DOCUMENT EVIDENCING AND/OR SECURING A CREDIT OR THIS AGREEMENT. THIS PROVISION
IS A MATERIAL INDUCEMENT TO ISSUER AGREEING TO ENTER INTO THIS AGREEMENT AND
ISSUE CREDITS HEREUNDER.

 

 

15.

LIMITATION OF INTEREST AND OTHER CHARGES.   Applicant and Issuer intend to
conform strictly to the applicable usury laws now or hereafter in force with
respect to this Agreement. To such end:

 

 

 

(a)

the aggregate of all interest and other charges constituting interest under such
applicable usury laws and contracted for, chargeable or receivable under this
Agreement shall never exceed the maximum amount of interest, nor produce a rate
in excess of the maximum contract rate of interest, that Issuer is authorized to
charge Applicant under such applicable usury laws;

 

 

 

 

(b)

if any excess interest is provided for, it shall be deemed a mistake, and the
excess shall, at the option of Issuer, either be refunded to Applicant or
credited on the unpaid principal balance of Issuer’s reimbursement obligation,
and this Agreement shall be automatically reformed to permit only the collection
of the maximum legal contract rate and the maximum amount of interest; and

 

 

 

 

(c)

in determining the maximum amount of interest that Issuer may charge to
Applicant. all interest shall be amortized, prorated, allocated and spread over
the entire term of Applicant’s reimbursement obligation (as extended, if
applicable) to the full extent permitted by applicable usury laws. Reference
herein to usury laws shall also include any applicable federal or state usury
statutes or laws from time to time in effect to the extent the same may govern
and control transactions covered hereunder.

 

 

 

16.

GUARANTORS.   This Section Intentionally Deleted.

--------------------------------------------------------------------------------

 

 

 

 

17.

CORRESPONDENTS.   This Section Intentionally Deleted.

 

 

18.

NONWAIVER.   Issuer shall have no duty to exercise any rights hereunder or
otherwise with respect to any documents or instruments relative to a Credit and
shall not be liable for any failure or delay in doing so. Issuer shall not be
deemed to have waived any of its rights hereunder unless issuer shall have
signed such waiver in writing.

 

 

19.

NOTICES AND COMMUNICATIONS.   Any notice or demand to either party given by the
other party shall be deemed to have been delivered when deposited in the mail or
transmitted by a telegraph, telex or facsimile to the last address of such
party, which has previously been fumished to such other party. Applicant
acknowledges and agrees that, at the discretion of Issuer, Issuer may accept
and/or transmit notices and communications under the Application and this
Agreement (including issuance of a Credit) by means of SWIFT, electronic mail,
telex, telecopy, telefax, courier, mail or computer generated
telecommunications.

 

 

20.

MISCELLANEOUS.

 

 

 

(a)

If this Agreement is signed by more than one party, “Applicant” shall be deemed
to refer to all of the undersigned, all Obligations of Applicant hereunder shall
be joint and several and the liabilities of each shall be absolute and
unconditional, regardless of the liability of any other party hereto.

 

 

 

 

(b)

Any direct or indirect subsidiary and/or affiliate of Bank One Corporation or
any successor holding company shall be referred to herein as a “Bank One
Affiliate”.

 

 

 

 

(c)

Any reference in this Agreement to drafts shall also mean and include deferred
payment undertakings.

 

 

 

 

(d)

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF ILLINOIS. Except as otherwise expressly provided herein or in a
Credit, Issuer may rely for interpretation of a Credit or instructions or
documents related thereto or issued under or in purported compliance with the
above, on the Uniform Customs and Practice for Documentary Credits, ICC
Publication No. 500 or the International Standby Practices 1998, whichever is
stated as the governing rules in the Credit.

 

 

 

 

(e)

The invalidity or unenforceability of any provision or portion of this Agreement
or any instrument, document or agreement executed or made pursuant to or by
virtue of this Agreement, shall not affect the validity or enforceability of any
other provision or portion.

 

 

 

 

(f)

This Agreement may only be amended upon the written consent of all the parties
hereto, except that it may be amended by any Issuer in the event of a change of
such Issuer’s name, credit number, place of notice, presentation or drawing or
other similar change at such Issuer’s reasonable discretion.

 

 

 

 

(g)

Except as otherwise specifically set forth herein, this Agreement confers no
right or benefit upon any person other than the parties to this Agreement and
their respective successors and assigns.

 

 

 

 

(h)

Applicant agrees that in the event of any extension of the maturity or time for
presentation of drafts, acceptances or documents, or any other modification of
the terms of a Credit, (including without limitation, by mutual agreement
between Applicant and Issuer; or in accordance with the Credit; or in accordance
with rules, law, or practice goveming the Credit), or in the event of any
increase in the amount of a Credit, this Agreement shall be binding upon
Applicant with regard to a Credit so increased, extended or otherwise modified,
to drafts, documents and property covered thereby, and to any action taken by
Issuer or any of its Correspondents in accordance with such extension, increase
or other modification.

 

 

 

 

(i)

Any and all payments made to Issuer shall be made free and clear of and without
deduction for any present or future taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto, excluding income or
franchise taxes imposed by the United States and any subdivisions thereof (such
non excluded taxes herein called “Taxes”). If Applicant shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum
payable shall be increased so that after making all required deductions, Issuer
shall receive an amount equal to the sum Issuer would have received had no such
deductions been made, (ii) Applicant shall make such deductions, and (iii)
Applicant shall pay the full amount deducted to the relevant authority in
accordance with applicable law, (iv) Applicant shall furnish Issuer with an
original or certified copy of receipt of payment and remittance from the
appropriate tax authority within thirty days of such payment. Applicant will
indemnify Issuer for the full amount of Taxes (including without limitation any
Taxes imposed by any jurisdiction on any amounts payable under this Section 20
(i)) paid by Issuer and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally asserted. This indemnification shall be made within 30
days from the date Issuer makes written demand therefore.

 

 

 

21.

SURETYSHIP WAIVERS.   In the event this Agreement is signed by more than one
party, each of the undersigned waives (a) to the extent permitted by law, all
rights and benefits under any laws or statutes regarding sureties, as maybe
amended; (b) any right to receive notice of the following matters before the
Issuer enforces any of its rights: (i) the Issuer’s acceptance of this
Agreement; (ii) any credit that the Issuer extends to the Applicant; (iii)
Applicant’s default; (iv) any demand, diligence, presentment, dishonor and
protest; (v) any action that the Issuer takes regarding the Applicant,
beneficiary, anyone else, any Collateral, or any of the Obligations, that it
might be entitled to by law or under any other agreement; (c) any right to
require the Issuer to proceed against the Applicant, any other obligor or
guarantor of the Obligations, or any Collateral, or pursue any remedy in the
Issuer’s power to pursue; (d) any defense based on any claim that any endorser
or other parties’ obligations exceed or are more burdensome than those of the
Applicant; (e) the benefit of any statute of limitations affecting liability of
any endorser or other party liable hereunder or the enforcement hereof; (f) any
defense arising by reason of any disability or other. defense of the Applicant
or by reason of the cessation from any cause whatsoever (other than payment in
full) of the obligation of the Applicant for the Obligations; (g) any defense
based on or arising out of any defense that the Applicant may have to the
payment or performance of the Obligations or any portion thereof, (h) all
rights, remedies, defenses and claims and/or rights of counterclaim, recoupment,
offset or setoff, including, but not limited to, all offsets, setoffs, rights,
remedies or defenses that may be afforded the endorser and any other party
liable on this Agreement as any of such statutes may be amended from time to
time; and (i) any defenses given to such endorser by any failure, neglect or
omission by the Issuer to perfect in any manner the collection of the
Obligations or the security given therefor, including the failure or omission to
seek a deficiency judgment against the Applicant. Any party liable on this
Agreement consents to any extension or postponement of time of its payment
without limit as to the number or period, to any substitution, exchange or
release of all or any part of the Collateral, to the addition of any other
party, and to the release or discharge of, or suspension of any rights and
remedies against, any person who may be liable for the payment of this
Agreement. The Issuer may waive or delay enforcing any of its rights without
losing them. Any waiver affects only the specific terms and time period stated
in the waiver. No modification or waiver of any provision of this Agreement is
effective unless it is in writing and signed by the party against whom it is
being enforced.

 

 

22.

DURATION AND EFFECT OF AGREEMENT.   This Agreement shall remain in full force
and effect until such time as Applicant has discharged in full its Obligations
hereunder. Notwithstanding the foregoing sentence, if a Credit is issued in
favor of a sovereign or commercial entity, which is to issue a guarantee or
undertaking on Applicant’s behalf in connection therewith, or is issued as
support for such a guarantee, the Applicant shall remain liable on a Credit
until Issuer is fully released in writing by such entity. This Agreement shall
be binding upon Applicant. its personal representatives, successors and assigns
and shall inure to the benefit of each Issuer, its successors and assigns.
issuer may grant participations in this Agreement and a Credit issued hereunder
to one or more financial institutions. Applicant and/or Guarantor information
may be transmitted to the participant.

 

 

23.

APPLICATIONS.   Applicant is authorized to present Applications for individual
credits under this Agreement in writing or by means of SWIFT, electronic mail,
telex, telecopy; telefax, courier, mail or computer generated
telecommunications. If the Application is transmitted electronically, the terms
and conditions of such Application shall be presented to the issuer in a format
acceptable to the issuer, and Applicant shall follow such authentication
procedures as reasonably established by Issuer, which may include the use of an
encoded digital signature to be agreed upon in

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advance with Issuer. Any Application presented to the Issuer by electronic means
(which may or may not include a digital signature) will have the same legal
effect as an Application in writing and will be binding upon and enforceable
against the Applicant.

 

 

24.

EFFECT OF OTHER AGREEMENT.   Applicant is a party to a Credit Agreement dated as
of June 30, 2004 between Flexsteel Industries, Inc. and Bank One, NA in the
amount of $47,000,000.00 (the “Credit Agreement”), and such credit agreement
provides for the issuance of commercial and/or standby letters of credit on
behalf of Applicant. The provisions of that credit agreement as they relate to
letters of credit shall prevail over any inconsistent provisions of this
Agreement.

 

 

25.

ELECTRONIC TRANSMISSIONS.   In the absence of written instructions to the
contrary, Issuer is authorized to accept and process the Application and any
amendments, transfers, assignments of proceeds and all documents relating to the
Credit or the Application which are sent to Issuer by electronic transmission.
Issuer may, but shall not be obligated to, require authentication of such
electronic transmission or that Issuer receives original documents prior to
acting on such electronic transmission. If it is a condition of the Credit that
payment may be made upon receipt by Issuer of an electronic transmission
advising negotiation, Applicant hereby agrees to reimburse Issuer on demand for
the amount indicated in such electronic transmission advice, and further agrees
to hold. Issuer harmless if the documents fail to arrive, or if, upon the
arrival of the documents, Issuer should determine that the documents do not
comply with the terms and conditions of the Credit.

 

 

26.

TRANSFERS.   If, at Applicant’s special request, the Credit is issued in
transferable form, it is understood and agreed that issuer is under no duty to
determine the proper identity of anyone appearing in the transfer request or in
the draft or documents as transferee, nor shall Issuer be charged with
responsibility of any nature or character for the validity or correctness of any
transfer or successive transfers; and payment by Issuer to any purported
transferee(s) as determined by Issuer is hereby authorized and approved.
Applicant further agrees to hold Issuer harmless and indemnified against any
liability or claim in connection with or arising out of the foregoing.

 

 

27.

WAIVER OF DISCREPANCIES AND BINDING TERMS ON ISSUER’S DECISIONS.   Applicant
agrees that Issuer’s decision, in accordance with standard banking practice,
whether the documents presented appear on their face to comply with the terms
and conditions of the Credit shall be conclusive and binding on Applicant. If
Issuer determines that any draft or document does not appear to comply with the
terms and conditions of the Credit, Issuer using its sole judgement may approach
Applicant for a waiver of the discrepancy(ies), but shall not be obligated to do
so. If Issuer determines that a presentation appears to comply with the terms
and conditions of the Credit, Issuer is authorized to pay the amount thereof
regardless of receipt of notice from Applicant or another person that any
required document is forged or materially fraudulent.

 

 

28.

AGREEMENT.   EXCEPT AS PROVIDED FOR HEREIN, THIS WRITTEN AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO ITS SUBJECT MATTER AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.

 

 

 

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

 

 

IF THIS AGREEMENT IS SIGNED BY TWO OR MORE PARTIES, IT SHALL CONSTITUTE THE
JOINT AND SEVERAL AGREEMENT OF SUCH PARTIES.

 

 

29.

IN THE EVENT COMMERCIAL CREDIT(S) ARE ISSUED UNDER THIS AGREEMENT, THE FOLLOWING
TERMS AND PROVISIONS SHALL APPLY:

 

 

 

REIMBURSEMENT.   In the event that any drafts are drawn by Applicant on Issuer
in order to refinance any obligation set forth herein, and such drafts, at
Issuer’s option, are accepted by Issuer, Applicant agrees to pay Issuer on
demand, but in any event not later than the maturity date, the amount of each
such acceptance.

 

 

 

ABSENCE OF WRITTEN INSTRUCTIONS.   In the absence of written instructions to the
contrary, the Applicant agrees that (a) if the Credit authorizes drawings and/or
shipments in installments and any installment is not drawn and/or shipped within
the period allowed for that installment but the Applicant waives such
discrepancy, the Issuer is authorized to honor any subsequent installments so
long as documents for such installments are presented within the period allowed
for such installments; and (b) each negotiation Credit shall expire at the
counters of the nominated person even if notice of the presentation or any
documents contained in the presentation is not received by the Issuer until
after the expiry date of the Credit or any installment thereof.

 

 

 

RELEASE OF DOCUMENTS.   In the event that the Issuer delivers to the Applicant
or to a customs broker or any other person designated by the Applicant at the
Applicant’s request any of the documents of title pledged hereunder prior to
having received payment in full of all the Applicant’s liabilities to the
Issuer, the Applicant agrees to obtain possession of any goods represented by
such documents within twenty-one days after the date of delivery of such
documents, and if the Applicant should fail to do so, the Applicant agrees to
retum such documents or to have them returned by the customs broker or such
other person to the Issuer prior to the expiration of the twenty-one day period.
The Applicant further agrees to execute and deliver to the Issuer receipts for
such documents and the goods represented thereby identifying and describing such
documents. and goods, which receipts shall constitute a part of this Agreement.
The Applicant hereby authorizes the Issuer, in the event that the Issuer becomes
aware that the Applicant has claimed from the carrier any goods identified in
the shipping documents required under the Credit and that such goods have been
released to the Applicant or to a customs broker or agent acting on the
Applicant’s behalf, to immediately, and without further inquiry and
consideration, charge the amount of the Credit represented by such goods to any
available funds then held by the Issuer.

 

 

 

MISCELLANEOUS - OTHER.   The Applicant agrees to procure promptly any necessary
import, export or other licenses for the import, export or shipping of the
property, and to comply with all United States and foreign governmental
regulations in regard to the shipment of the property or the financing thereof,
and to furnish such certificates in that respect as the Issuer may at any time
require. The Applicant also agrees to keep the property adequately covered by
insurance acceptable to the Issuer, to assign the policies or certificates of
insurance to the Issuer or, at the Issuer’s option, to make any loss or
adjustment payable to the Issuer, and upon the Issuer’s request, to furnish the
Issuer with evidence of acceptance of any such assignment by the insurers.

 

 

30.

IN THE EVENT STANDBY CREDIT(S) ARE ISSUED UNDER THIS AGREEMENT, THE FOLLOWING
TERMS AND PROVISIONS SHALL APPLY:

 

 

 

IF THE CREDIT IS ISSUED SUBJECT TO UCP 500, UNLESS OTHERWISE AGREED: (A) IN THE
EVENT THAT ANY INSTALLMENT OF THE CREDIT IS NOT DRAWN WITHIN THE PERIOD ALLOWED
FOR THAT INSTALLMENT, THE CREDIT WILL CONTINUE TO BE AVAILABLE FOR ANY
SUBSEQUENT INSTALLMENTS NOTWITHSTANDING UCP ARTICLE 41; AND (B) ISSUER MAY
PROCESS AND ACCEPT ANY TRANSPORT DOCUMENT NOTWITHSTANDING THE REQUIREMENTS OF
UCP ARTICLE 43.

 

 

 

IF THE CREDIT PROVIDES FOR AUTOMATIC EXTENSION WITHOUT AMENDMENT, APPLICANT
AGREES THAT IT WILL NOTIFY ISSUER IN WRITING AT LEAST SIXTY (60) DAYS PRIOR TO
THE LAST DAY SPECIFIED IN THE CREDIT BY WHICH ISSUER MUST GIVE NOTICE OF NON
EXTENSION AS TO WHETHER OR NOT 1T WISHES THE CREDIT TO BE EXTENDED. ANY DECISION
TO EXTEND OR NOT EXTEND THE CREDIT SHALL BE IN ISSUER’S SOLE DISCRETION AND
JUDGMENT. APPLICANT HEREBY ACKNOWLEDGES THAT IN THE EVENT ISSUER NOTIFIES THE
BENEFICIARY OF THE CREDIT THAT IT HAS ELECTED NOT TO EXTEND THE CREDIT AND THE
BENEFICIARY DRAWS ON THE CREDIT AFTER RECEIVING THE NOTICE OF NON-EXTENSION; THE
APPLICANT ACKNOWLEDGES AND AGREES THAT APPLICANT SHALL HAVE NO CLAIM OR CAUSE OF
ACTION AGAINST ISSUER OR DEFENSE AGAINST PAYMENT UNDER THE AGREEMENT FOR
ISSUER’S DISCRETIONARY DECISION TO EXTEND OR NOT EXTEND THE CREDIT.

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IF A CREDIT’S TERMS AND CONDITIONS PROVIDES THAT ISSUER GIVE BENEFICIARY A
NOTICE OF PENDING EXPIRATION. APPLICANT AGREES THAT IT WILL NOTIFY ISSUER IN
WRITING AT LEAST SIXTY (60) DAYS PRIOR TO THE LAST DAY SPECIFIED IN THE CREDIT
BY WHICH ISSUER MUST GIVE SUCH NOTICE OF THE PENDING EXPIRATION DATE. IN THE
EVENT APPLICANT FAILS TO SO NOTIFY ISSUER AND THE CREDIT IS EXTENDED, APPLICANTS
OBLIGATIONS UNDER THIS AGREEMENT SHALL CONTINUE IN EFFECT AND BE BINDING ON
APPLICANT WITH REGARD TO THE CREDIT AS SO EXTENDED.

APPLICANT:

FLEXSTEEL INDUSTRIES, INC.

By:    /s/   R. J. Klosterman   Name:    R. J. Klosterman   Its:    Exec. V.P.,
C.F.O., Secretary   Dated:    June 29, 2004  

DMI FURNITURE, INC.

By:        Name:        Its:        Dated:       

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Appendix A to the Master Agreement For Irrevocable Letters of Credit

(To be completed by Account Party/Applicant/Correspondent Bank)

A)   In the event you issue or amend a commercial or a standby letter of credit
(“Credit”), any One of the following individual(s) shall be authorized to sign
behalf of

 

Flexsteel Industries, Inc.

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Applicant Name/Correspondent Bank

 

 

 

 

 

 

 

K. B. Lauritsen

 

President, C.E.O.

 

/s/   K. B. Lauritsen

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

 

 

 

 

 

 

 

R. J. Klosterman

 

Exec. V.P., C.F.O.

 

/s/   R. J. Klosterman

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

 

 

 

 

 

 

 

Timothy E. Hall

 

Treasurer

 

/s/   Timothy E. Hall

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

B)   In regards to commercial Letters of Credit (“Credit”), Bank One N.A. may
accept and rely on instructions including without limitation, (a) waiving of
discrepancies, (b) mailings/returning shipping documents, (c) changing Credit
terms and conditions prior to issuance, and amendments to Credits which do not
extend, increase or change the tenor of the draft(s) transmitted by the
following authorized representatives of:

 

Flexsteel Industries, Inc.

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Applicant Name/Correspondent Bank

 

 

 

 

 

 

 

K. B. Lauritsen

 

President, C.E.O.

 

/s/   K. B. Lauritsen

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

 

 

 

 

 

 

 

 

R. J. Klosterman

 

Exec. V.P., C.F.O.

 

/s/   R. J. Klosterman

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

 

 

 

 

 

 

 

Timothy E. Hall

 

Treasurer

 

/s/   Timothy E. Hall

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

 

 

 

 

 

 

 

 

Phillip J. Keller

 

C.F.O.
DMI Furniture, Inc.

 

/s/   Phillip J. Keller

 

June 29, 2004

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Printed Name

 

Title

 

Signature

 

Date

C)   Signature Verification (Banker to complete this portion):

The above individual(s) is/are authorized to execute and sign applications,
amendments and instructions on behalf of the Applicant.

 

 

 

 

 

 

 

 

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Printed Name

 

Title

 

Signature

 

Date

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