Document:

Exhibit 10.1

 

	

 
 	
Amendment to Credit Agreement
 

 

This agreement is dated as of March 27, 2009, by and between Flexsteel Industries, Inc. (the “Borrower”) and JPMorgan Chase Bank, N.A. (together with its successors and assigns 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 and the Bank entered into a credit agreement dated June 25, 2007, 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 in this agreement;

 

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 used in this agreement shall have the same meanings as in the Credit Agreement, unless otherwise defined in this 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 captioned “1.2 Facility A (Line of Credit).” is hereby amended and restated to read as follows:
 

 

1.2                  Facility A (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $15,000,000.00 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, and any renewals, modifications, extensions, rearrangements, restatements thereof and replacements or substitutions therefor.

 

Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee calculated on the average daily unused portion of Facility A at a rate of 0.125% per annum, payable in arrears within thirty (30) days of the end of each calendar quarter for which the fee is owing. The Bank may begin to accrue the foregoing fee on the date the Borrower signs or otherwise authenticates this agreement.

 

Letters of Credit.  At any time the Borrower is entitled to an advance under Facility A,  the Bank agrees to issue letters of credit for the amount of the Borrower and/or DMI until the maturity date of Facility A, 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 $100,000.00, (b) the issuance of any letter of credit with an expiration date beyond the maturity date of Facility A, 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.  While any Letter of Credit is outstanding, the maximum amount of advances that may be outstanding under the Line of Credit Note shall be automatically reduced by the L/C Obligations. The Borrower shall pay the Bank a fee (the “L/C Fee”) for each commercial letter of credit that is issued, equal to 1.50% of the original maximum available amount of such commercial Letter of Credit, payable in arrears for each calendar quarter within ten (10) days of billing by the Bank.  No credit shall be given for the feed 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. The Bank is authorized, but not obligated to 

 

 

make an advance under the Line of Credit Note without notice to the Borrower, to make payment on a drawing under any Letter of Credit. The aggregate principal amount of advances outstanding at any one time under the Line of Credit Note (and any and all renewals, modifications, extensions, rearrangements, restatements thereof and replacements or substitutions therefor) evidencing Facility A plus the aggregate amount of L/C Obligations outstanding at any time (the “Aggregate Outstanding Amount”) shall not exceed the maximum amount of Facility A. If the Aggregate Outstanding Amount still exceeds the maximum amount of Facility A after the Line of Credit Note balance is reduced to zero (that is, L/C Obligations exceed the maximum amount of Facility A), the Borrower shall
provide cash collateral to the Bank for the L/C Obligations in an amount sufficient to eliminate the excess. References in this agreement to the principal amount outstanding under the Credit Facility A (including, without limitation, the reference in Section 1.5 to “the aggregate principal amount of advances outstanding under Facility A”) shall be deemed to include L/C Obligations.

 

	
 
 	
2.2
 	
From and after the Effective Date, the provision in the Credit Agreement captioned “1.3 Facility B (Line of Credit).” is hereby amended and restated to read as follows:
 

 

1.3                   Facility B (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $10,000,000.00 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, and any renewals, modifications, extensions, rearrangements, restatements thereof and replacements or substitutions therefor.

 

Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee calculated on the average daily unused portion of Facility B at a rate of 0.25% per annum, payable in arrears within thirty (30) days of the end of each calendar quarter for which the fee is owing. The Bank may begin to accrue the foregoing fee on the date the Borrower signs or otherwise authenticates this agreement.

 

	
 
 	
2.3
 	
From and after the Effective Date, the following provision is hereby added to Section 1 of the Credit Agreement:
 

 

1.5                   Borrowing Base. The aggregate principal amount of advances outstanding at any one time under the Line of Credit Note (and any and all renewals, modifications, extensions, rearrangements, restatements thereof and replacements or substitutions therefor) evidencing Facility A and Facility B (the “Aggregate Outstanding Amount”) shall not exceed the Borrowing Base or the maximum principal amount then available under Facility A and Facility B, whichever is less (the “Maximum Available Amount”). If at any time the Aggregate Outstanding Amount exceeds the Maximum Available Amount, the Borrower shall
immediately pay the Bank an amount equal to such excess. “Borrowing Base” means the aggregate of:

80% of the book value of all Eligible Accounts; plus

 

50% of cost (determined using the first-in, first-out method of inventory accounting), of all Eligible Inventory; provided, however, that if the Bank elects to obtain an appraisal at any time for any Inventory, the amount included in the Borrowing Base due to Eligible Inventory shall be reduced (but not in any event increased) to an amount equal to 50% of the appraised value of such Inventory as determined by such appraisal.

 

	
 
 	
2.4
 	
From and after the Effective Date the following definitions are hereby added to Section 2 of the Credit Agreement:
 

 

2.14      “Account” means a trade account, account receivable, other receivable, or other right to payment for goods sold or leased or services rendered.

 

	
 
 	
2.15
 	
“Account Debtor” means the Person obligated on an Account.
 

 

2.16      “Eligible Accounts” means, at any time, all of the Borrower’s Accounts in which the Bank has a first priority continuing perfected Lien and which are earned and invoiced within thirty (30) days of being earned and which contain selling terms and conditions satisfactory to the Bank, are payable on ordinary trade terms, and are not evidenced by a promissory note, other instrument or chattel paper. The net amount of any Eligible Account against which the Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature, and all reserves established in accordance with GAAP, consistently applied. Unless otherwise agreed to by the Bank in 

 

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writing, Eligible Accounts do not include Accounts: (1) which are not owned by the Borrower free and clear of all Liens, constructive trust, statutory priorities not in favor of the Bank, and claims of Persons other than the Bank; (2) with respect to which the Account Debtor is an Affiliate of the Borrower or otherwise affiliated with or related to the Borrower, including without limitation, any employee, officer, director, Equity Owner or agent of the Borrower; (3) with respect to which goods are placed on consignment, guaranteed sale, bill-and-hold, sale-and-return, sale on approval, cash-on-delivery or other terms by reason of which the payment by the Account Debtor may be conditional; (4) with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are otherwise Eligible Accounts and are supported by insurance, bonds or other
assurances satisfactory to the Bank; (5) subject to the U.S. Office of Foreign Asset Control Special Designated Nationals and Blocked Person’s List, or with respect to which the Account Debtor is otherwise a Person with whom the Borrower or the Bank is prohibited from doing business by any applicable Legal Requirement; (6) which are not payable in U.S. Dollars; (7) with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Borrower; (8) which are subject to dispute, counterclaim, deduction, withholding, defense, or setoff; (9) with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor, or which otherwise constitute pre-billed Accounts; (10) which constitute retainage, or are bonded Accounts;; (11) of any Account Debtor who is the subject of any state or federal bankruptcy, insolvency, or debtor-in-relief acts, or who has had
appointed a trustee, custodian, or receiver for the assets of such Account Debtor, or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due; (12) with respect to which the Account Debtor is the United States government or any department or agency of the United States; (13) otherwise determined to be ineligible by the Bank and (14) which have not been paid in full within sixty (60) days from the due date. 

 

2.17      “Eligible Inventory” means, at any time, all of the Borrower’s Inventory in which the Bank has a first priority continuing perfected Lien except Inventory which is: (1) not owned by it free and clear of all Liens except in favor of the Bank, and claims of Persons other than the Bank; (2) slow moving, obsolete, unsalable, damaged, defective, perishable, or unfit for further processing; (3) work in process; (4) subject to consignment or otherwise in the possession of another Person, unless otherwise agreed to by the Bank in writing; (5) in transit or located outside of the United States; (6) identified to be purchased under a contract under which it has received, or is entitled to receive, an advance payment; (7) ineligible due to licensing, intellectual property,
or any Legal Requirements that would make it difficult to sell, lease or use
such Inventory; (8)comprised of samples, returns, rejected items, re-work items,
non-standard items, odd-lots, or repossessed goods; (9) produced in violation of
applicable Legal Requirements, including the Fair Labor Standards Act and the
regulations and orders of the Department of Labor.

 

2.18      “Inventory” means raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and goods held for sale or lease or furnished under contracts of service and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing.

 

	
 
 	
2.5
 	
From and after the Effective Date, the following provisions are hereby added to Section 4.5 of the Credit Agreement:
 

 

E.         Within forty-five (45) days after and as of the end of each calendar quarter, except the calendar quarter ending on any June 30th, and for any calendar quarter ending on June 30th, within ninety (90) days after and as of the end of that calendar quarter, a borrowing base certificate, in form and detail satisfactory to the Bank, along with such supporting documentation as the Bank may request.

 

F.         Within forty-five (45) days after and as of the end of each calendar month, except the calendar month ending on any June 30th, and for any calendar month ending on June 30th, within ninety (90) days after and as of the end of that calendar month, a Monthly and Year to Date Shipment and Profit Analysis Report, in form and detail satisfactory to the Bank, along with such supporting documentation as the Bank may request.

 

	
 
 	
2.6
 	
From and after the Effective Date, the provision in the Credit Agreement captioned “5.2.J. is hereby amended and restated to read as follows:
 

 

	
 
 	
J.
 	
EBITDA/Interest Ratio.  Permit as of any Test Period, 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 
 

 

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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 Test Period then ending, to (ii) interest expense, computed for the same such Test Period, to be less than the ratio specified below for any such Test Period:  for the Test Period ending on June 30, 2009,  2.00 to 1.00; for the Test Period ending on September 30, 2009, 2.25 to 1.00; for the Test Period ending on December 31, 2009, 2.50 to 1.00; for the Test Period ending on March 31, 2010, 2.75 to 1.00; and for the Test Period ending on June 30, 2010, and for each Test  Period ending thereafter, 3.00 to1.00.  As used in this subsection, the term “Test Period” means a period of four
consecutive fiscal quarters.

 

	
 
 	
2.7
 	
From and after the Effective date, the provision in the Credit Agreement captioned “5.2.K. Funded Debt to EBITDA Ratio.” is hereby deleted.
 

 

	
3.
 	
RATIFICATION. The Borrower ratifies and reaffirms the Credit Agreement and the Credit Agreement shall remain in full force and effect as modified by this agreement.
 

 

	
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, event, act or omission which could constitute a default or an event of default under the Credit Agreement, as modified by this agreement, or any other Related Document exists, and (c) no condition, event, act or omission has occurred and is continuing that with the giving of notice, or the passage of time or
both, would constitute a default or an event of default under the Credit Agreement, as modified by this agreement, or any other Related Document.
 

 

	
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 / RELEASE. 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, as modified by this agreement, or any other Related Document on or prior to the date of this agreement. The Borrower fully, finally and forever releases and discharges the Bank, its successors and assigns and their respective directors, officers, employees, agents and representatives (each a “Bank
Party”) from any and all claims, causes of action, debts, demands 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 any Bank Party 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.
 	
INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The Credit Agreement, as modified by this agreement, and the other Related Documents contain the complete understanding and agreement of the Borrower and the Bank in respect of the Credit Facilities and supersede all prior understandings and negotiations. No provision of the Credit Agreement, as modified by this agreement, or the other Related Documents, may be changed, discharged, supplemented, terminated, or waived except in a writing signed by the party against whom it is being
enforced.
 

 

	
9.
 	
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 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. 
 

 

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10.
 	
NOT A NOVATION. This agreement is a modification only and not a novation. Except as expressly modified by this agreement, the Credit Agreement, any other 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 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 other Related Documents, the provisions of this agreement shall supersede and control. The Bank expressly reserves all rights against all parties to the Credit Agreement and the other Related Documents.
 

 

 

	
 
 	
Borrower:
 
	
 
 	
 
 	
Flexsteel Industries, Inc.
 
	
 
 	
 
 	
By:
 	
/s/ Timothy E. Hall
 
	
 
 	
 
 	
 
 	
Timothy E. Hall
 	
C.F.O.
 
	
 
 	
 
 	
 
 	
Printed Name
 	
Title
 
	
 
 	
 
 	
Date Signed:
 	
March 27, 2009
 
						

 

	
 
 	
 
 	
Bank:
 
	
 
 	
 
 	
JPMorgan Chase Bank, N.A.
 
	
 
 	
 
 	
By:
 	
/s/ Kyle S. Middleton
 
	
 
 	
 
 	
 
 	
Kyle S. Middleton
 	
Vice President
 
	
 
 	
 
 	
 
 	
Printed Name
 	
Title
 
	
 
 	
 
 	
Date Signed:
 	
March 27, 2009
 
						

 

 

 

5Exhibit 10.2

 

 

	

 
 	
 

 

Continuing Security Agreement
 

 

Dated as of March 27, 2009

 

Grant of Security Interest. Flexsteel Industries, Inc. (whether one or more, the “Borrower”, individually and collectively if more than one) grants to JPMorgan Chase Bank, N.A., whose address is 1 East Ohio Street, Indianapolis, IN 46277 (together with its successors and assigns, the “Bank”) a continuing security interest in, pledges and assigns to the Bank all of the Collateral (as hereinafter defined) owned by the Borrower, all of the collateral in which the Borrower has rights or power to transfer rights and all Collateral in which the Borrower later acquires ownership, other rights or rights or power to transfer rights to secure the payment and performance of the Liabilities.

 

“Liabilities” means all obligations, indebtedness and liabilities of the Borrower whether individual, joint and several, absolute or contingent, direct or indirect, liquidated or unliquidated, now or hereafter existing in favor of the Bank, including without limitation, all liabilities, all interest, costs and fees arising under or from any note, open account, overdraft, letter of credit application, endorsement, surety agreement, guaranty, credit card, lease, Rate Management Transaction, acceptance, foreign exchange contract or depository service contract, whether payable to the Bank or to a third party and subsequently acquired by the Bank, any monetary obligations (including interest) 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, rearrangements, restatements, replacements or substitutions of any of the foregoing. “Rate Management Transaction” means any transaction (including an agreement with respect thereto) that 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, derivative transaction 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. The Borrower and the Bank specifically contemplate that Liabilities include indebtedness hereafter incurred by the
Borrower to the Bank.

 

The term “Collateral” means all of the Borrower’s “accounts”; “chattel paper”; “general intangibles” and any right to a refund of taxes paid at any time to any governmental entity; “instruments”; “inventory”, including any documents and certificates of title issued with respect to any of the inventory; all as defined in the UCC, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located. In addition, the term “Collateral” includes all “proceeds”, “products” and “supporting obligations” (as such terms are defined in the UCC) of the Collateral, including but not limited to all stock rights, subscription rights, dividends, stock dividends, stock splits, or liquidating dividends, and all cash, accounts, chattel paper, “instruments,” “investment
property,” “financial assets,” and “general intangibles” (as such terms are defined in the UCC) arising from the sale, rent, lease, casualty loss or other disposition of the Collateral, and any Collateral returned to, repossessed by or stopped in transit by the Borrower, and all insurance claims relating to any of the Collateral. The term “Collateral” further includes all of the Borrower’s right, title and interest in and to all books, records and data relating to the Collateral, regardless of the form of media containing such information or data, and all software necessary or desirable to use any of the Collateral or to access, retrieve, or process any of such information or data. Where the Collateral is in the possession of the Bank or the Bank’s agent, the Borrower agrees to deliver to the Bank any property that represents an increase in the Collateral or profits or proceeds of the Collateral.

 

The term “UCC” means the Uniform Commercial Code of Indiana, as in effect from time to time.

 

Representations, Warranties and Covenants. The Borrower represents, warrants, and covenants to the Bank that each of the following is true and will remain true until termination of this agreement and payment in full of all Liabilities and agrees with the Bank that:

	
1.
 	
At its own expense, it shall maintain comprehensive casualty insurance on the Collateral against such risks, in such amounts, with such deductibles and with such companies as may be satisfactory to the Bank. Each insurance policy on the Collateral shall contain a lender’s loss payable endorsement satisfactory to the Bank and a prohibition against cancellation or amendment of the policy or removal of the Bank as loss payee without at least thirty (30) days’ prior written notice to the Bank. In all events, the amounts of such insurance coverages on the Collateral shall be in such
minimum amounts that the Borrower will not be deemed a co-insurer. The policies on the Collateral, or certificates evidencing them, shall, if the Bank so requests, be deposited with the Bank.
 

	
2.
 	
It shall permit the Bank, at the Borrower’s expense, to inspect and examine the Collateral and to check and test the same as to quality, quantity, value, and condition.
 

	
3.
 	
It shall maintain the Collateral in good repair; use the Collateral in accordance with law and in compliance with any policy of insurance thereon; and exhibit the Collateral to the Bank on demand.
 

	
4.
 	
Until the Bank gives notice to the Borrower to the contrary or until the Borrower is in default, it may use the funds collected in its business. Upon notice from the Bank or upon default, the Borrower agrees that all sums of money it receives on account of or in payment or settlement of the accounts, chattel paper, certificated securities, negotiable certificates of deposit, documents, general 
 

intangibles and instruments shall be held by it as trustee for the Bank without commingling with any of the Borrower’s other funds, and shall immediately be delivered to the Bank with endorsement to the Bank’s order of any check or similar instrument. It is agreed that, at any time the Bank so elects, the Bank shall be entitled, in its own name or in the name of the Borrower or otherwise, but at the expense and cost of the Borrower, to collect, demand, receive, sue for or compromise any and all accounts, chattel paper, certificated securities, negotiable certificates of deposit, documents, general intangibles, and instruments, and to give good and sufficient releases, to endorse any checks, drafts or other orders for the payment of money payable to the Borrower and, in the Bank’s discretion, to file any claims or take any action or proceeding which the Bank may deem necessary or advisable. It
is expressly understood and agreed, however, that the Bank shall not be required or obligated in any manner to make any demand or to make any inquiry as to the nature or sufficiency of any payment received by it or to present or file any claim or take any other action to collect or enforce the payment of any amounts which may have been assigned to the Bank or to which the Bank may be entitled at any time or times. All notices required in this paragraph will be immediately effective when sent. Such notices need not be given prior to the Bank’s taking action. The Borrower irrevocably appoints the Bank or the Bank’s designee as the Borrower’s attorney-in-fact to do all things with reference to the Collateral as provided for in this agreement including without limitation (1) to sign the Borrower’s name on any invoice or bill of lading relating to any Collateral, on assignments and verifications of account and on notices to the Borrower’s customers, and (2) to do
all things necessary to carry out this agreement or to perform any of the Borrower’s obligations under this agreement, (3) to notify the post office authorities to change the Borrower’s mailing address to one designated by the Bank, and (4) to receive, open and dispose of mail addressed to the Borrower. The Borrower ratifies and approves all acts of the Bank as attorney-in-fact. This power of attorney appointment is irrevocable, coupled with an interest, and shall survive the death or disability of Borrower. The Bank shall not be liable for any act or omission, nor any error of judgment or mistake of fact or law, but only for its gross negligence or willful misconduct. This power being coupled with an interest is irrevocable until all of the Liabilities have been fully satisfied. Immediately upon its receipt of any Collateral evidenced by an agreement, “instrument,” “chattel paper,” certificated “security” or “document” (as such terms
are defined in the UCC) (collectively, “Special Collateral”), it shall mark the Special Collateral to show that it is subject to the Bank’s security interest, pledge and assignment and shall deliver the original to the Bank together with appropriate endorsements and other specific evidence of assignment or transfer in form and substance satisfactory to the Bank.

	
5.
 	
It will not, sell, lease, license or offer to sell, lease, license, grant as security to anyone other than the Bank, or otherwise transfer the Collateral or any rights in or to the Collateral, without the written consent of the Bank, except in the ordinary course of business; or change the location of the Collateral from the locations of the Collateral disclosed to the Bank, without providing at least ten (10) days’ prior written notice to the Bank.
 

	
6.
 	
No financing statement or similar record covering all or any part of the Collateral or any proceeds is on file in any public office, unless the Bank has approved that filing.
 

	
7.
 	
When the Collateral is located at, used in or attached to a facility leased by the Borrower, the Borrower will, at the request of the Bank, obtain from the lessor a consent to the granting of this security interest and a release or subordination of the lessor’s interest in any of the Collateral, in form and substance satisfactory to the Bank.
 

 

Remedies Regarding Collateral. The Bank shall have the right to require the Borrower to assemble the Collateral and make it available to the Bank at a place to be designated by the Bank which is reasonably convenient to both parties, the right to take possession of the Collateral with or without demand and with or without process of law, and the right to sell and dispose of it and distribute the proceeds according to law. The Borrower agrees that upon default the Bank may dispose of any of the Collateral in its then present condition, that the Bank has no duty to repair or clean the Collateral prior to sale, and that the disposal of the Collateral in its present condition or without repair or clean-up shall not affect the commercial reasonableness of such sale or disposition. The Bank’s compliance with any applicable state or federal law requirements in connection with the
disposition of the Collateral will not adversely affect the commercial reasonableness of any sale of the Collateral. The Bank may disclaim warranties of title, possession, quiet enjoyment, and the like, and the Borrower agrees that any such action shall not affect the commercial reasonableness of the sale. In connection with the right of the Bank to take possession of the Collateral, the Bank may take possession of any other items of property in or on the Collateral at the time of taking possession, and hold them for the Borrower without liability on the part of the Bank. The Borrower expressly agrees that the Bank may enter upon the premises where the Collateral is believed to be located without any obligation of payment to the Borrower, and that the Bank may, without cost, use any and all of the Borrower’s “equipment” (as defined in the UCC) in the manufacturing or processing of any “inventory” (as defined in the UCC) or in growing, raising, cultivating,
caring for, harvesting, loading and transporting of any of the Collateral that constitutes “farm products” (as defined in the UCC). If there is any statutory requirement for notice, that requirement shall be met if the Bank sends notice to the Borrower at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice, and such notice shall be deemed commercially reasonable. Without limiting any other remedy, the Borrower is liable for any deficiency remaining after disposition of the Collateral. The Bank is authorized to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other person or business entity, with or without designating the capacity of that nominee. At its option the Bank may, but shall be under no duty or obligation to, discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral, pay for insurance on the
Collateral, and pay for the maintenance and preservation of the Collateral, and the Borrower agrees to reimburse the Bank on demand for any such payment made or expense incurred by the Bank with interest at the highest rate at which interest may accrue under any of the instruments evidencing the Liabilities. The Borrower authorizes the Bank to endorse on the Borrower’s behalf and to negotiate drafts reflecting proceeds of insurance of the Collateral, provided that the Bank shall remit to the Borrower such surplus, if any, as remains after the proceeds have been applied, at the Bank’s option, to the satisfaction of all of the Liabilities (in such order of application as the Bank may elect) or to the establishment of a cash collateral account for the Liabilities. 

 

The Bank shall have the right now, and at any time in the future in its sole and absolute discretion, without notice to the Borrower to (a) prepare, file and sign the Borrower’s name on any proof of claim in bankruptcy or similar document against any owner of the Collateral and (b) prepare, file and sign the Borrower’s name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Collateral.

 

Miscellaneous. A carbon, photographic or other reproduction of this agreement is sufficient as, and can be filed as, a financing statement or similar record. The Borrower authorizes the Bank to file one or more financing statements or similar records covering the Collateral or such lesser amount of assets as the Bank may determine, or the Bank may, at its option, file financing statements or similar records containing any collateral description which reasonably describes the Collateral, and the Borrower will pay the cost of filing them in all public offices where filing is deemed by the Bank to be necessary or desirable. In addition, the Borrower shall execute and deliver, or cause to be executed and delivered, such other documents as the Bank may from time to time request to perfect or to further evidence the pledge, security interest and assignment created in the Collateral by
this agreement. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shall continue in effect.

 

 

 

 

	
 
 	
 
 	
 
 	
Borrower: 
 
	
 
 	
 
 	
 
 	
 
 
	
 
 	
 
 	
 
 	
Flexsteel Industries, Inc.
 
	
 
 	
 
 	
 
 	
By:
 	
/s/ Timothy E. Hall
 
	
 
 	
 
 	
Timothy E. Hall
 	
C.F.O.
 
	
 
 	
 
 	
Printed Name
 	
Title
 
	
 
 	
Date Signed:
 	
March 27, 2009

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