Exhibit 10.1


 


 


CREDIT AGREEMENT


 


THIS CREDIT AGREEMENT (this "Agreement") is entered
into as of June 30, 2016, by and between FLEXSTEEL INDUSTRIES, INC., a Minnesota corporation ("Borrower"), and WELLS
FARGO BANK, NATIONAL ASSOCIATION ("Bank").


 


RECITALS


 


Borrower has requested that Bank extend or continue credit to Borrower as described
below, and Bank has agreed to provide such credit to Borrower on the terms and conditions contained herein.


 


NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank and Borrower hereby agree as follows:


 


ARTICLE I


CREDIT TERMS


 


SECTION 1.1.        LINE OF CREDIT.


 


(a)        Line
of Credit. Subject to the terms and conditions of this Agreement, Bank hereby agrees to make advances to Borrower from time
to time up to and including June 30, 2017, not to exceed at any time the aggregate principal amount of Ten Million Dollars ($10,000,000.00)
("Line of Credit"), the proceeds of which shall be used to finance Borrower’s working capital requirements. Borrower's
obligation to repay advances under the Line of Credit shall be evidenced by a promissory note dated as of June 30, 2016, as modified
from time to time ("Line of Credit Note"), all terms of which are incorporated herein by this reference.


 


(b)        Borrowing
and Repayment. Borrower may from time to time during the term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Line of Credit Note;
provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal
amount available thereunder, as set forth herein.


 


(c)        Letter
of Credit Subfeature. As a subfeature under the Line of Credit, Bank agrees from time to time during the term thereof to issue
or cause an affiliate to issue standby letters of credit for the account of Borrower (each, a “Letter of Credit” and
collectively, “Letters of Credit”); provided however, that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed Four Million Dollars ($4,000,000.00). The form and substance of each Letter of Credit shall
be subject to approval by Bank, in its sole discretion. No Letter of Credit shall have an expiration date more than three hundred
sixty-five (365) days beyond the maturity date of the Line of Credit. The undrawn amount of all Letters of Credit shall be reserved
under the Line of Credit and shall not be available for borrowings thereunder. Each Letter of Credit shall be subject to the additional
terms and conditions of the Letter of Credit agreements, applications and any related documents required by Bank in connection
with the issuance thereof. Each drawing paid under a Letter of Credit shall be deemed an advance under the Line of Credit and shall
be repaid by Borrower in accordance with the terms and conditions of this Agreement applicable to such advances; provided however,
that if advances under the Line of Credit are not available, for any reason, at the time any drawing is paid, then Borrower shall
immediately pay to Bank the full amount drawn, together with interest thereon from the date such drawing is paid to the date such
amount is fully repaid by Borrower, at the rate of interest


 




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applicable to advances under the Line of Credit. In such event Borrower agrees
that Bank, in its sole discretion, may debit any account maintained by Borrower with Bank for the amount of any such drawing.


 


SECTION 1.2.        INTEREST/FEES.


 


(a)        Interest.
The outstanding principal balance of each credit subject hereto shall bear interest at the rate of interest set forth in each promissory
note or other instrument or document executed in connection therewith.


 


(b)        Computation
and Payment. Interest shall be computed on the basis set forth in each promissory note or other instrument or document required
hereby. Interest shall be payable at the times and place set forth in each promissory note or other instrument or document required
hereby.


 


(c)        Unused
Commitment Fee. Borrower shall pay to Bank a fee equal to one hundredth eighty-five thousandths percent (0.185%) per annum
(computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Line of Credit, which fee shall
be calculated on a quarterly basis by Bank and shall be due and payable by Borrower in arrears on the last day of each quarter,
commencing on September 30, 2016.


 


(d)        Letter
of Credit Fees. Borrower shall pay to Bank (i) fees upon the issuance of each Letter of Credit equal to one percent (1.00%)
per annum (computed on the basis of a 360-day year, actual days elapsed) of the face amount thereof, and (ii) fees upon the payment
or negotiation of each drawing under any Letter of Credit and fees upon the occurrence of any other activity with respect to any
Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such activity.


 


SECTION 1.3.        GUARANTIES.
The payment and performance of all indebtedness and other obligations of Borrower to Bank shall be guaranteed jointly and severally
by DMI FURNITURE, INC., as evidenced by and subject to the terms of guaranties in form and substance satisfactory to Bank.


 


ARTICLE II


REPRESENTATIONS AND WARRANTIES


 


Borrower makes the following representations and warranties
to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and
effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this
Agreement.


 


SECTION 2.1.        LEGAL
STATUS. Borrower is: (a) a corporation, duly organized and existing and in good standing under the laws of Minnesota, and is qualified
or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse
effect on Borrower; and (b) not the target of any trade or economic sanctions promulgated by the United Nations or the governments
of the United States, the United Kingdom, the European Union, or any other jurisdiction in which the Borrower is located or operates
(collectively, “Sanctions”).


 






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SECTION 2.2.        AUTHORIZATION
AND VALIDITY. This Agreement and each promissory note, contract, instrument and other document required hereby or at any time hereafter
delivered to Bank in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations
of Borrower or the party which executes the same, enforceable in accordance with their respective terms.


 


SECTION 2.3.        NO
VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the organizational and governing documents of Borrower, or result in any breach
of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may
be bound.


 


SECTION 2.4.        LITIGATION.
There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings
by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect
on the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date
hereof.


 


SECTION 2.5.        CORRECTNESS
OF FINANCIAL STATEMENT. The annual financial statement of Borrower dated June 30, 2015, and all interim financial statements delivered
to Bank since said date, true copies of which have been delivered by Borrower to Bank prior to the date hereof, (a) are complete
and correct and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrower that are required
to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) have been prepared in accordance with generally accepted accounting principles consistently applied. Since
the dates of such financial statements there has been no material adverse change in the financial condition of Borrower, nor has
Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor
of Bank or as otherwise permitted by Bank in writing.


 


SECTION 2.6.        INCOME
TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any
year in excess of $500,000.00.


 


SECTION 2.7.        NO
SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other
obligation of Borrower.


 


SECTION 2.8.        PERMITS,
FRANCHISES. Borrower possesses, and will hereafter possess, all permits, consents, approvals, franchises and licenses required
and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business
in which it is now engaged in compliance with applicable law.


 


SECTION 2.9.        ERISA.
Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined
employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum
funding requirements


 






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under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they
come due in accordance with the Plan documents and under generally accepted accounting principles.


 


SECTION 2.10.        OTHER
OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material
lease, commitment, contract, instrument or obligation.


 


SECTION 2.11.        ENVIRONMENTAL
MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations
adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund Amendments and Reauthorization
Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of
the same may be amended, modified or supplemented from time to time. None of the operations of Borrower is the subject of any federal
or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release
of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the environment.


 


ARTICLE III


CONDITIONS


 


SECTION 3.1.        CONDITIONS
OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to extend any credit contemplated by this Agreement is subject to the fulfillment
to Bank's satisfaction of all of the following conditions:


 


(a)        Approval
of Bank Counsel. All legal matters incidental to the extension of credit by Bank shall be satisfactory to Bank's counsel.


 


(b)        Documentation.
Bank shall have received, in form and substance satisfactory to Bank, each of the following, duly executed:


 





		(i)	This Agreement and each promissory note or other instrument or document required hereby.



		(ii)	Certificate of Incumbency (2).



		(iii)	Corporate Resolution: Borrowing.



		(iv)	Corporate Resolution: Continuing Guaranty.



		(v)	Continuing Guaranty.



		(vi)	Such other documents as Bank may require under any other Section of this Agreement.



 


(c)        Financial
Condition. There shall have been no material adverse change, as determined by Bank, in the financial condition or business
of Borrower or any Third Party Obligor hereunder, if any, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any such Third Party Obligor,
if any.


 






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SECTION 3.2.        CONDITIONS
OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:


 


(a)        Compliance.
The representations and warranties contained herein and in each of the other Loan Documents shall be true on and as of the date
of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though
such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined
herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.


 


(b)        Documentation.
Bank shall have received all additional documents which may be required in connection with such extension of credit.


 


(c)        Letter
of Credit Documentation. Prior to the issuance of any Letter of Credit, Bank shall have received a Letter of Credit Agreement
and any other letter of credit documentation required by Bank, in each case completed and duly executed by Borrower.


 


ARTICLE IV


AFFIRMATIVE COVENANTS


 


Borrower covenants that so long as Bank remains committed
to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject
hereto, Borrower shall, unless Bank otherwise consents in writing:


 


SECTION 4.1.        PUNCTUAL
PAYMENTS. Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance
of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.


 


SECTION 4.2.        ACCOUNTING
RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies
of the same, and to inspect the properties of Borrower.


 


SECTION 4.3.        FINANCIAL
STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank:


 


(a)        not later
than 120 days after and as of the end of each fiscal year, an audited financial statement of Borrower prepared by a certified public
accountant acceptable to Bank, to include a balance sheet, income statement and statement of cash flows; and


 


(b)        not later
than 60 days after and as of the end of each fiscal quarter, a financial statement of Borrower, prepared by Borrower, to include
balance sheet, income statement and statement of cash flows; and


 






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(c)        contemporaneously
with each annual and quarterly financial statement of Borrower required hereby, a certificate of the president or chief financial
officer of Borrower, as applicable, that said financial statements are accurate, that Borrower is in compliance with all financial
covenants in this Agreement (as evidenced by detailed calculations attached to such certificate), and that there exists no Event
of Default nor any condition, act or event which with the giving of notice or the passage of time or both would constitute an Event
of Default; and


 


(d)        from time
to time such other information as Bank may reasonably request, including without limitation, copies of rent rolls and other information
with respect to any real property collateral required hereby.


 


SECTION 4.4.        COMPLIANCE.
Preserve and maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct
of its business; comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's
continued existence; comply with the requirements of all laws, rules, regulations and orders of any jurisdiction in which the Borrower
is located or doing business, or otherwise is applicable to Borrower, including, without limitation, (a) all Sanctions, (b) all
laws and regulations that relate to money laundering, any predicate crime to money laundering, or any financial record keeping
and reporting requirements related thereto, (c) the U.S. Foreign Corrupt Practices Act of 1977, as amended, (d) the U.K. Bribery
Act of 2010, as amended, and (e) any other applicable anti-bribery or anti-corruption laws and regulations.


 


SECTION 4.5.        INSURANCE.
Maintain and keep in force, for each business in which Borrower is engaged, insurance of the types and in amounts customarily carried
in similar lines of business, including but not limited to fire, extended coverage, public liability, flood, and, if required,
hurricane, windstorm, seismic property damage and workers' compensation, with all such insurance carried in amounts satisfactory
to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. Such insurance
may be obtained from an insurer or through an insurance agent of Borrower’s choice, provided that any insurer chosen by Borrower
is acceptable to Bank on such reasonable grounds as may be permitted under applicable law.


 


SECTION 4.6.        FACILITIES.
Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.


 


SECTION 4.7.        TAXES
AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such
as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision,
to Bank's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.


 


SECTION 4.8.        LITIGATION.
Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower with claims in excess of an aggregate
of $500,000.00 for all pending or threatened litigation.


 


SECTION 4.9.        FINANCIAL
CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied
and used consistently with prior practices (except to the extent modified by the definitions herein):


 






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(a)        Working
Capital not less than $60,000,000.00 at each fiscal quarter end, with “Working Capital” defined as total current assets
minus total current liabilities.


 


(b)        Interest
Coverage Ratio not less than 3.0 to 1.0 as of each fiscal quarter end, determined on a rolling 4-quarter basis, with “Interest
Coverage Ratio” defined as net profit after taxes plus interest expense (net of capitalized interest expense) and stock based
compensation less dividends/distributions, divided by interest expense.


 


SECTION 4.10.        NOTICE
TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving
of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational
structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in
ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy
which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through
fire, theft or any other cause affecting Borrower's property.


 


ARTICLE V


NEGATIVE COVENANTS


 


Borrower further covenants that so long as Bank remains committed
to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject
hereto, Borrower will not without Bank's prior written consent:


 


SECTION 5.1.        USE
OF FUNDS. Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof, or directly
or indirectly use any such proceeds for the purpose of (a) providing financing or otherwise funding any targets of Sanctions; or
(b) providing financing or otherwise funding any transaction which would be prohibited by Sanctions or would otherwise cause Bank
or any of Bank’s affiliates to be in breach of any Sanction.


 


SECTION 5.2.        CAPITAL
EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $40,000,000.00.


 


SECTION 5.3.        OTHER
INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of
Borrower to Bank, and (b) any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof
and (c) any obligations to American Trust and Savings Bank not to exceed $10,000,000.00.


 


SECTION 5.4.        MERGER,
CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor
sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets (a) except in the ordinary
course of its business, (b) except


 






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acquisitions that in the aggregate do not exceed $25,000,000.00 each fiscal year, and (c) except
for the sale of assets that do not in the aggregate exceed $5,000,000.00 each fiscal year.


 


SECTION 5.5.        GUARANTIES.
Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection
in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower
as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank, and
except additional guaranties in amounts not to exceed an aggregate of $1,000,000.00 outstanding at any time.


 


SECTION 5.6.        LOANS,
ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity, except any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and additional investments in amounts not to exceed an aggregate of $100,000.00
at any time outstanding.


 


SECTION 5.7.        PLEDGE
OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of Borrower's assets
now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is existing as of, and disclosed to Bank
in writing prior to, the date hereof and except purchase money liens to the extent they secure purchase money debt permitted under
this Agreement.


 


ARTICLE VI


EVENTS OF DEFAULT


 


SECTION 6.1.        The
occurrence of any of the following shall constitute an "Event of Default" under this Agreement:


 


(a)        Borrower
shall fail to pay when due any principal, interest, fees or other amounts payable under any of the Loan Documents.


 


(b)        Any financial
statement or certificate furnished to Bank in connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect
when furnished or made.


 


(c)        Any default
in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document
(other than those specifically described as an “Event of Default” in this section 6.1), and with respect to any such
default that by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence.


 


(d)        Any default
in the payment or performance of any obligation, or any defined event of default, under the terms of any contract, instrument or
document (other than any of the Loan Documents) pursuant to which Borrower, any guarantor hereunder or any general partner or joint
venturer in Borrower if a partnership or joint venture (with each such guarantor, general partner and/or joint venturer referred
to herein as a "Third Party Obligor") has incurred any debt or other liability to any person or entity, including Bank.


 






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(e)        Borrower
or any Third Party Obligor shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall
make a general assignment for the benefit of creditors; Borrower or any Third Party Obligor shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under
the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"),
or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or Borrower or any Third Party
Obligor shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition;
or Borrower or any Third Party Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower
or any Third Party Obligor by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.


 


(f)        The filing
of a notice of judgment lien against Borrower or any Third Party Obligor; or the recording of any abstract or transcript of judgment
against Borrower or any Third Party Obligor in any county or recording district in which Borrower or such Third Party Obligor has
an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process,
against the assets of Borrower or any Third Party Obligor; or the entry of a judgment against Borrower or any Third Party Obligor;
or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower or any Third Party Obligor.


 


(g)        There
shall exist or occur any event or condition that Bank in good faith believes impairs, or is substantially likely to impair, the
prospect of payment or performance by Borrower, any Third Party Obligor, or the general partner of either if such entity is a partnership,
of its obligations under any of the Loan Documents.


 


(h)        The death
or incapacity of Borrower or any Third Party Obligor if an individual. The withdrawal, resignation or expulsion of any one or more
of the general partners in Borrower or any Third Party Obligor if a partnership. The dissolution or liquidation of Borrower or
any Third Party Obligor if a corporation, partnership, joint venture or other type of entity; or Borrower or any such Third Party
Obligor, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of
Borrower or such Third Party Obligor.


 


(i)        The withdrawal,
resignation or expulsion of any one or more of the general partners in Borrower or any change in control of Borrower or any entity
or combination of entities that directly or indirectly control Borrower, with “control” defined as ownership of an
aggregate of twenty-five percent (25%) or more of the common stock, members' equity or other ownership interest (other than a limited
partnership interest).


 


(j)        The sale,
transfer, hypothecation, assignment or encumbrance, whether voluntary, involuntary or by operation of law, without Bank's prior
written consent, of all or any part of or interest in any real property collateral required hereby.


 


SECTION 6.2.        REMEDIES.
Upon the occurrence of any Event of Default: (a) all principal, unpaid interest outstanding and other indebtedness of Borrower
under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Bank's option and without notice (except
as expressly provided in any mortgage or deed of trust pursuant to which Borrower has provided Bank a lien on any real property
collateral) become immediately due and payable without presentment, demand, protest or any notices of any kind, including without


 






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limitation, notice of nonperformance, notice of protest, notice of dishonor, notice of intention to accelerate or notice of acceleration,
all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any further credit under
any of the Loan Documents shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for
any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers and remedies of Bank may be exercised at any time by Bank and from time to time after the occurrence of an Event
of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law
or equity.


 


ARTICLE VII


MISCELLANEOUS


 


SECTION 7.1.         NO
WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power
or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or
remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such writing.


 


SECTION 7.2.        NOTICES.
All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:


 


	BORROWER:	FLEXSTEEL INDUSTRIES, INC.

Attn: Tim Hall

385 Bell Street

Dubuque, Iowa 52001





 



	BANK:	WELLS FARGO BANK, NATIONAL ASSOCIATION

MAC N8200-026

666 Walnut Street

2nd Floor

Des Moines, Iowa 50309



 


or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery,
upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid; and (c) if sent by telecopy, upon receipt.


 


SECTION 7.3.        COSTS,
EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including, to the extent permitted by applicable law, reasonable attorneys' fees (to include outside counsel
fees and all allocated costs of Bank's in-house counsel to the extent permissible), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Bank's continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights and/or
the collection of any amounts which become due to


 






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Bank under any of the Loan Documents, whether or not suit is brought, and (c) the
prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action
for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including
any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to Borrower or any other person or entity. Notwithstanding
anything in this Agreement to the contrary, reasonable attorneys' fees shall not exceed the amount permitted by law. Whenever in
this Agreement and the other Loan Documents Borrower is obligated to pay for the attorneys' fees of Bank, or the phrase "reasonable
attorneys' fees" or a similar phrase is used, it shall be Borrower's obligation to pay the attorneys' fees actually incurred
or allocated, at standard hourly rates, without regard to any statutory interpretation, which shall not apply, Borrower hereby
waiving the application of any such statute.


 


SECTION 7.4.        SUCCESSORS,
ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interests or rights hereunder
without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter acquire relating to any credit subject hereto, Borrower
or its business, any guarantor hereunder or the business of such guarantor, if any, or any collateral required hereunder.


 


SECTION 7.5.        ENTIRE
AGREEMENT; AMENDMENT. To the full extent permitted by law, this Agreement and the other Loan Documents constitute the entire agreement
between Borrower and Bank with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions
and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.


 


SECTION 7.6.        NO
THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which
it is not a party.


 


SECTION 7.7.        TIME.
Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.


 


SECTION 7.8.        SEVERABILITY
OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.


 


SECTION 7.9.        COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same Agreement.


 






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SECTION 7.10.        GOVERNING
LAW. This Agreement shall be governed by and construed in accordance with the laws of Iowa (such State, Commonwealth or District
is referred to herein as the “State”), but giving effect to federal laws applicable to national banks, without reference
to the conflicts of law or choice of law principles thereof.


 


SECTION 7.11.        BUSINESS
PURPOSE. Borrower represents and warrants that each credit subject hereto is made for (a) a business, commercial, investment, agricultural
or other similar purpose, (b) the purpose of acquiring or carrying on a business, professional or commercial activity, or (c) the
purpose of acquiring any real or personal property as an investment and not primarily for a personal, family or household use.


 


SECTION 7.12.        RIGHT
OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence of an Event of Default, (a) Borrower hereby authorizes Bank, at any
time and from time to time, without notice, which is hereby expressly waived by Borrower, and whether or not Bank shall have declared
any credit subject hereto to be due and payable in accordance with the terms hereof, to set off against, and to appropriate and
apply to the payment of, Borrower's obligations and liabilities under the Loan Documents (whether matured or unmatured, fixed or
contingent, liquidated or unliquidated), any and all amounts owing by Bank to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits, whether general or special (except trust and escrow
accounts), time or demand and however evidenced), and (b) pending any such action, to the extent necessary, to hold such amounts
as collateral to secure such obligations and liabilities and to return as unpaid for insufficient funds any and all checks and
other items drawn against any deposits so held as Bank, in its sole discretion, may elect. Bank may exercise this remedy regardless
of the adequacy of any collateral for the obligations of Borrower to Bank and whether or not the Bank is otherwise fully secured.
Borrower hereby grants to Bank a security interest in all deposits and accounts maintained with Bank to secure the payment of all
obligations and liabilities of Borrower to Bank under the Loan Documents.


 


SECTION 7.13.        ARBITRATION.


 


(a)        Arbitration.
The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between
or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or
otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation,
execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement,
default or termination; or (ii) requests for additional credit. In the event of a court ordered arbitration, the party requesting
arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate filing fee within 30 days
of the abatement order or the time specified by the court. Failure to timely file the demand for arbitration as ordered by the
court will result in that party’s right to demand arbitration being automatically terminated.


 


(b)        Governing
Rules. Any arbitration proceeding will (i) proceed in a location in the State selected by the American Arbitration Association
(“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting
choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator
as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the
claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration
shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable,
as


 






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the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set
forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall
bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall
be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar
applicable state law.


 


(c)        No
Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party
to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds
of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief,
attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion
does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder,
including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.


 


(d)        Arbitrator
Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided
by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute
in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State or a neutral retired judge of the state or federal judiciary of the State, in either case with a
minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator
will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim.
In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The
arbitrator shall resolve all disputes in accordance with the substantive law of the State and may grant any remedy or relief that
a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective
any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such
other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure,
the corresponding rules of civil practice and procedure applicable in the State or other applicable law. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.


 


(e)        Discovery.
In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date.
Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the
arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means
for obtaining information is available.


 






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(f)        Class
Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in any
arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative
or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.


 


(g)        Payment
Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.


 


(h)        Miscellaneous.
To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding
may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary
course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of
the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.


 


(i)        Small
Claims Court. Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court
any dispute within that court’s jurisdiction. Further, this arbitration provision shall apply only to disputes in which either
party seeks to recover an amount of money (excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of
the Small Claims Court.


 


IMPORTANT:  READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD
BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN
CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE ALSO
APPLIES TO ANY OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN YOU AND THIS LENDER.


 


IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Agreement to be executed as of the day and year first written above.


 


	FLEXSTEEL INDUSTRIES, INC.	 	WELLS FARGO BANK,

  NATIONAL ASSOCIATION
	 	 	 
	By:  	/s/Timothy E. Hall	 	By:  	/s/ James J. Hilgenberg
	 	TIMOTHY E. HALL, SR. VP FINANCE,	 	 	JAMES J. HILGENBERG,
	 	CFO, SECRETARY, TREASURER	 	 	VICE PRESIDENT


 








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