Document:

Exhibit
10.1

 

EXECUTIVE
EMPLOYMENT AGREEMENT

 

THIS
EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between Flexsteel Industries, Inc.
(the “Company”), and Jerald K. Dittmer (“Executive”) (the Company and Executive, collectively,
the “Parties” and each, a “Party”) as of the date of Executive’s signature below and
is effective as of the Executive’s start date with the Company, which is anticipated to be December 28, 2018, 12:01 a.m.
(the “Effective Date”).

 

WHEREAS,
Executive wishes to be employed by the Company and the Company desires to employ Executive as its President and Chief Executive
Officer (“CEO”) on the terms and conditions set forth in this Agreement;

 

WHEREAS
the Company desires to employ Executive as its CEO according to the terms and conditions of this Agreement and the Company’s
Board of Directors (the “Board”) has authorized such offer of employment;

 

WHEREAS
the Company’s offer of employment made to Executive, and the Company’s offer of this Agreement and the consideration
and benefits provided herein, are contingent on Executive signing and accepting that certain Confidentiality and Noncompetition
Agreement between Executive and the Company (the “Confidentiality Agreement”), a copy of which is attached
hereto as Exhibit A; and

 

WHEREAS,
Executive has executed, agreed to fulfill, and has delivered to the Company such executed, Confidentiality Agreement.

 

NOW,
THEREFORE, in consideration of and reliance on these recitals and premises, which are hereby incorporated, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and intending to be legally bound, the
Parties agree as follows:

 

1.
      Employment; Employment Term. Upon the terms and conditions hereinafter set forth,
the Company hereby agrees to retain the services of Executive and Executive hereby accepts such employment and agrees to faithfully
and diligently serve as directed by the Board, and in accordance with this Agreement, commencing on the Effective Date and continuing
until terminated pursuant to Section 5 of this Agreement (the “Employment Term”).

 

2.       Duties.

 

(a)       Services.
During the Employment Term, Executive agrees to serve as CEO of the Company and shall render Executive’s duties as CEO
in a manner that is consistent with Executive’s position within the Company and as assigned by the Board, and/or at the
option of the Board. Additionally, as soon as practicable after the Effective Date, the Board will elect Executive to the Board
of Directors and Executive will thereafter stand for reelection to the Board as provided for in the Bylaws. Executive also agrees
to serve as any elected/appointed director or officer of any subsidiary of the Company that the Company may, in its sole discretion,
deem fit and Executive shall serve in such capacity or capacities without additional compensation during the Employment Term.
Executive shall spend substantially all of Executive’s business time and attention at the Company’s headquarters in
Dubuque, Iowa, however Executive’s employment under this Agreement will require travel and stay outside Dubuque, Iowa and
the United States in order to fulfill Executive’s duties hereunder.

 

    1

     

    

 

(b)       Certain
Obligations. During the Employment Term, Executive (i) shall devote 100% of Executive’s business time and attention
to achieve, in accordance with the policies and directives of the Board, and/or, at the option of the Board, the CEO, established
from time to time in its/their/Executive’s discretion, the objectives of the Company, (ii) shall be subject to, and comply
with, the rules, practices and policies applicable to executive employees whether reflected in an employee handbook, code of conduct,
compliance policy or otherwise, as the same may exist and be amended from time to time, of the Company; and (iii) shall not engage
in any business activities other than the performance of Executive’s duties under this Agreement. Notwithstanding the foregoing,
provided that Employee does not violate the Confidentiality Agreement, Executive may participate in civic, religious and charitable
activities, may make passive personal investments in other entities, and may serve as a director for the entities and in the capacities
set forth on Exhibit B hereto, or as otherwise approved by the Board in writing.

 

3.       Compensation.
For the services rendered herein by Executive, and the promises and covenants made by Executive herein, during the Employment
Term the Company shall pay compensation to Executive as follows.

 

(a)       Base
Salary. In exchange for Executive’s services, the Company shall pay to Executive the sum of SEVEN HUNDRED THOUSAND DOLLARS
($700,000) as an annual salary (the “Base Salary”), payable in accordance with the normal payroll practices
of the Company. The Board may review Executive’s Base Salary and may, in its sole discretion, adjust Executive’s Base
Salary upon such review.

 

(b)       Signing
Bonus. In Exchange for Executive’s acceptance of the Company’s offer of employment and the terms and conditions
of this Agreement, the Company will provide Executive a signing bonus (the “Signing Bonus”) on the Effective
Date in the form of (i) an option to purchase 30,000 shares of common stock under the Omnibus Stock Plan and (ii) an option to
purchase 55,000 shares of common stock outside of any Company stock plan as an inducement grant under Nasdaq rules and under substantially
similar terms to the Omnibus Stock Plan grant. The exercise price of these options will be the Company’s closing stock price
on the Effective Date. One third of these options will vest on each of July 1, 2019, July 1, 2020 and July 1, 2021. Notwithstanding
the foregoing, Executive will not receive the Signing Bonus unless and until the conditions and obligations set forth in Section
7 below are met and fulfilled.

 

(c)       Annual
Incentive. Executive will be eligible to participate in the Company’s Cash Incentive Plan (“CIP”).
Executive’s participation in the CIP is initially set at 115% of his base salary at a target award. Executive’s participation
for fiscal year 2019 will be prorated for days employed and the prorated amount of the award will be guaranteed at the target
level and subject to increase if the target level is exceeded. The Compensation Committee of the Board of Directors establishes
the goals for executive officers under the CIP annually with input from the CEO.

 

     2

     

    

 

(d)       Long-Term
Incentive. Executive will be eligible to participate in the Company’s Long-Term Incentive Plan (“LTIP”)
beginning with the July 1, 2019 through June 30, 2022 performance period. Executive’s participation in the LTIP is set at
85% of his base salary at a target award. The Compensation Committee of the Board of Directors will establish the goals for the
execute officers for the future three-year performance periods with input from the CEO.

 

(e)       Special
Hiring Award. In lieu of an award under the LTIP for performance periods beginning before July 1, 2019, Executive will
be granted on the Effective Date a special hiring award of $750,000 in the form of a combination of Restricted Stock Units and
Restricted Stock in an aggregate number based upon the average closing price for the ten trading days prior to the Effective Date
will be granted on the Effective Date and will vest as follows: 

 

	Grant
    Date Value	Vesting
    Date
	$125,000	July
    1, 2019
	$250,000	July
    1, 2020
	$250,000	July
    1, 2021
	$125,000	July
    1, 2022

  

(f)       No
Additional Compensation. Except for compensation set forth in this Agreement, Executive shall not receive additional compensation
in connection with providing services to or holding executive or directorial office(s) in the Company or any of its subsidiaries
unless otherwise agreed to by Executive and the Company in the Company’s sole discretion.

 

4.       Benefits.
During Executive’s employment with the Company, Executive shall be entitled to participate in all retirement plans,
health plans, paid time off benefits and other employee benefits and policies (including expense reimbursement policies) made
available by the Company to its officers and/or executive employees generally, as they may change from time to time. Executive
shall also be eligible to participate in the Company’s supplemental health insurance plan and furniture program. Further,
the Company shall reimburse Executive for annual membership fees to a Dubuque, Iowa area country club and for Executive’s
annual personal income tax preparation and filing fees. Executive acknowledges and agrees that except as specifically set forth
in this Agreement, the Company is under no obligation to Executive to establish or maintain any specific employee benefits in
which Executive may participate, and that Executive’s eligibility for employee benefits shall be governed by the terms and
provisions of the Company benefit plans or policies, all of which are subject to change by the Company, subject to applicable
law. Upon the termination of Executive’s employment, Executive shall be entitled to continue those benefits as may be required
by state or federal law. In addition, Executive is expected to relocate he and his family to Dubuque, Iowa. Executive will be
paid $150,000 to cover all relocation related expenses and is not entitled to any other reimbursement for such expenses. This
$150,000 amount will be fully grossed up for federal and state income taxes and for Medicare taxes. Executive agrees that if he
voluntarily terminates his employment with the Company within 2 years of the Effective Date, the $150,000 relocation expense payment
(prorated for length of service within the 2 years) will be immediately repaid to the Company.

 

     3

     

    

 

5.       Termination;
Severance Opportunity.

 

(a)       At-Will
Employment. Executive and the Company agree that Executive’s employment with the Company is at-will and either Executive
or the Company, by and through the Board, may terminate Executive’s employment, at any time, with or without any cause,
with no prior notice.

 

(b)       Payments
Upon Separation. When Executive’s employment with the Company ends, for any reason, the Company shall pay to Executive:
(i) any earned but unpaid Base Salary through the Employee’s last day of employment with the Company (such date, the “Separation
Date”); and (ii) any unreimbursed but validly reimbursable business expenses incurred by Executive on or before the
Separation Date. Upon the termination of Executive’s employment for any reason, Executive shall be entitled to continue
those benefits as may be required by state or federal law at Executive’s own cost and expense.

 

(c)       Participation
in Severance Plan. Executive shall have the opportunity to participate in the Company’s Severance Plan for Management
Employees dated October 25, 2018, and as amended (the “Severance Plan”) according to its terms and conditions.
Executive’s eligibility to receive any severance payments shall be exclusively governed by the terms and conditions of the
Severance Plan.

 

(d)       Resignation
From Board. When Executive’s employment with the Company ends, for any reason, Executive agrees to resign from the Company’s
Board.

 

6.       Representations.
Executive represents and warrants that:

 

(a)       Executive’s
performance of all the terms and duties set forth in this Agreement will not breach any agreement to keep in confidence proprietary
information acquired by Executive in confidence or in trust prior to or outside of Executive’s employment by the Company.
Executive hereby represents and warrants that Executive has not entered into, and will not enter into, any oral or written agreement
in conflict herewith. The Company acknowledges Executive’s letter of agreement with HNI Corporation dated February 16, 2018.
The Company represents, warrants, and covenants that it will not encourage or require executive to engagement in activities in
violation of such agreement.

 

(b)       Executive
is not subject to any other agreement that Executive will violate by working with the Company or in the position for which the
Company has hired Executive. Further, Executive represents that no conflict of interest or a breach of Executive’s fiduciary
duties will result by working with and performing duties for the Company.

 

(c)       Executive
has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences
and binding effect of this Agreement and fully understands it and that Executive has been provided an opportunity to seek the
advice of legal counsel of Executive’s choice before signing this Agreement.

 

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(d)       During
the period in which Executive receives any severance benefits under the Severance Plan that Executive will provide a prompt response
to Company in the event Company requests information connected to Executive’s employment with the Company or regarding non-confidential
information regarding Executive’s subsequent employment after ceasing to be an employee of the Company.

 

(e)       Executive
is not currently involved, directly or indirectly, in any litigation as a defendant or as a party subject to any counterclaims,
nor is any such litigation threatened against Executive, directly or indirectly.

 

7.       Drug
Screening/Form I-9. Executive understands and agrees that he must complete pre-employment drug screening determined by,
and to the satisfaction of, the Company. In addition, Executive must complete the employee portion of a federal Form I-9 and provide
any documentation required by such form within three days after the Effective Date. In the event any pre-employment drug screening
is not successful to the satisfaction of the Company or that Executive does not fulfill his obligations related to the Form I-9
demonstrating his authorization to work in the United States, this Agreement will be null and void.

 

8.       Miscellaneous.

 

(a)       Notices.
All notices, requests, consents and other communications hereunder (i) shall be in writing, (ii) shall be effective upon receipt,
and (iii) shall be sufficient if delivered personally, electronically with receipt confirmation, or by mail, in each case addressed
as follows:

 

If
to the Company:

 

Flexsteel
Industries, Inc.

Chair
of the Compensation Committee

385
Bell Street

Dubuque,
Iowa 52001

 

With
a copy to:

 

Gray
Plant Mooty

500
IDS Center

80
South Eighth Street 

Minneapolis,
MN USA 55402 

Attn:
JC Anderson 

Email:
JC.Anderson@gpmlaw.com

 

     5

     

    

 

If
to Executive:

 

To
Executive’s most recent residential address or otherwise known by the Company or any other address Executive may provide
to the Company in writing.

 

(b)       Entire
Agreement. This Agreement (including its Exhibits), the Confidentiality Agreement, the Severance Plan, CIP, LTIP, Omnibus
Incentive Plan, Benefits Summary, 401K plan, Supplemental Health Plan, and related benefit agreements constitute the entire agreement
by and between the Parties with respect to the subject matter contained herein and supersede all prior agreements or understandings,
oral or written, with respect to the subject matter contained herein. Notwithstanding the foregoing, Executive shall remain subject
to and bound by any employee handbook and any other employee policies adopted from time to time.

 

(c)
       Amendments; Waivers; Etc. This Agreement may not be altered, amended or modified
in any manner, nor may any of its provisions be waived, except by written amendment executed by the Parties hereto that specifically
states that they intended to alter, amend or modify this Agreement. No provision of this Agreement may be waived by either Party
hereto except by written waiver executed by the waiving party that specifically states that it intends to waive a right hereunder.
Any such waiver, alteration, amendment or modification shall be effective only in the specific instance and for the specific purpose
for which it was given. No remedy herein conferred upon or reserved by a Party is intended to be exclusive of any other available
remedy, but each and every such remedy shall be cumulative and in addition to every other remedy given under this Agreement or
in connection with this Agreement and now or hereafter existing at law or in equity.

 

(d)
       Governing Law and Venue. This Agreement and the rights of the Parties shall be governed
by and construed and enforced in accordance with the laws of the State of Iowa, without regard to any state’s choice of
law principles or rules. The venue for any action hereunder shall be in the State of Iowa, County of Dubuque, whether or not such
venue is or subsequently becomes inconvenient, and the parties consent to the jurisdiction of the state and federal courts in
or applicable to the State of Iowa, County of Dubuque.

 

(e)       Successors
and Assigns. Neither this Agreement nor any rights or obligations hereunder are assignable by Executive. The Company shall
have the right to assign its rights and obligations under this Agreement to any affiliate or successor of the Company. This Agreement
will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s
death and (b) any successor of the Company. Any such successor of the Company (including but not limited to any person or entity
which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets
or business of the Company) will be deemed substituted for the Company under the terms of this Agreement for all purposes.

 

(g)       Counterparts.
This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed
an original, and all of which together shall constitute one and the same instrument.

 

     6

     

    

 

(h)       Tax
Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

 

(i)       Section
Headings. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or provision hereof. 

 

     7

     

    

 

SIGNATURE
PAGE TO EXECUTIVE EMPLOYMENT AGREEMENT

 

IN
WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date set forth below.

 

	 	 	EXECUTIVE
	 	 	 	 
	December
    17, 2018	 	/s/
    Jerald K. Dittmer
	Date	 	 	Jerald K. Dittmer
	 	 	 	 
	 	 	FLEXSTEEL INDUSTRIES, INC.
	 	 	 	 
	December
    17, 2018	 	By:	/s/ Thomas
    M. Levine
	Date	 	 	Thomas M. Levine
	 	 	Its:	Chair of the Board

 

     8

     

    

 

	 	Flexsteel
                                         Industries, Inc.

                                                                  385
                                         Bell Street

                                                                  Dubuque,
                                         IA 52001
	T
                                         563.556.7730

                                                                  F
                                         563.556.8345

                                                                  www.flexsteel.com
	EXHIBIT
    A

 

CONFIDENTIALITY
AND NONCOMPETITION AGREEMENT

Agreement
made December 28, 2018 between Flexsteel Industries, Inc., a corporation organized and existing under the laws of Minnesota, with
its principal office located at 385 Bell Street, Dubuque, Iowa (“Flexsteel”) on behalf of itself and its subsidiaries
and Jerald K. Dittmer (“Employee”)(collectively referred to as the “Parties”).

 

RECITALS

Flexsteel
has employed Employee to devote his/her full time, attention, and energies to the business of Flexsteel and to use his/her best
efforts, skill, and abilities in performing the specific duties of such employment, and Employee shall not, without prior written
consent of Flexsteel, either directly or indirectly, engage in any other occupation, profession or business. 

As
a result of the employment by Flexsteel, Employee will have access to information not generally known to the general public or
in the industry(s) in which Flexsteel is or may become engaged about Flexsteel’s business/functional strategies, product
design and development), processes, customers, services, suppliers, pricing policies, marketing strategies and related matters.
In addition, Flexsteel may provide training to Employee in relation to these areas. It is the desire of Flexsteel and Employee
that all such training and information be and remain confidential. 

In
consideration of the matters described above, and of the mutual benefits and obligations set forth in this Agreement, the Parties
agree as follows:

 

SECTION
ONE: CONFIDENTIALITY

		A.	Nondisclosure.
                                         Employee shall not, during or after the term of this Agreement, directly or indirectly,
                                         use, disseminate, or disclose to any person (including other employees of Flexsteel not
                                         having a need to know or authority to know), firm or other business entity for any purpose
                                         whatsoever, any information not generally known in the industry in which Flexsteel is
                                         or may be engaged which was disclosed to Employee or known by Employee as a result of
                                         or through his/her employment by Flexsteel. This includes information regarding Flexsteel’s
                                         employee’s products, processes, customers, services, suppliers, pricing policies
                                         and related matters, and also includes information relating to research, development,
                                         inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising,
                                         and selling.

		B.	Confidential
                                         Relationship. Employee shall hold in a fiduciary capacity for the benefit of
                                         Flexsteel all information in paragraph A above, along with any and all inventions, discoveries,
                                         concepts, ideas, improvements, ideas, improvements or know-how, discovered or developed
                                         by Employee, solely or jointly with other employees, during the term of this Agreement,
                                         which may be directly or indirectly useful in or related to the business of Flexsteel
                                         or its subsidiaries, or may be within the scope of its or their research or development
                                         work.

		C.	Customer
                                         Lists. Employee shall, at the time of and during employment, furnish a complete
                                         list of all the correct names and places of businesses of all its customers, immediately
                                         notify Flexsteel of the name and address of any new customer, and report all changes
                                         in location of old customers, so that upon the termination of employment, Flexsteel will
                                         have a complete list of the correct names and addresses of customer with whom Employee
                                         has dealt.

 

    A-1

     

    

 

	 	Flexsteel
                                         Industries, Inc.

                                                                  385
                                         Bell Street

                                                                  Dubuque,
                                         IA 52001
	T
                                         563.556.7730

                                                                  F
                                         563.556.8345

                                                                  www.flexsteel.com
	 

 

		D.	Return
                                         of Documents. To protect the interests of Flexsteel, Employee agrees that, during
                                         or after the termination of Employee’s employment by Flexsteel, all documents,
                                         records, notebooks, and similar repositories containing such information described in
                                         paragraphs A, B and C above, including copies of such items, then in Employee’s
                                         possession or work area, whether prepared by Employee or others, are the property of
                                         Flexsteel and shall be returned to Flexsteel upon Flexsteel’s request.

 SECTION
TWO: NON-DISPARAGEMENT 

The
Employee agrees and covenants that the Employee will not at any time make, publish, or communicate to any person or entity or
in any public forum any defamatory or disparaging remarks, comments, or statements concerning Flexsteel or its businesses, or
its employees, officers and existing and prospective customers, suppliers and other associated third parties. 

This
section does not, in any way, restrict or impede the Employee from exercising protected rights to the extent that such rights
cannot be waived by agreement, including but not limited to Employee’s section 7 rights under the NLRA, or from complying
with any applicable law or agency, provided that such compliance does not exceed that required by the law, regulation or order.
The employee shall promptly provide such written notices of such order to Flexsteel’s legal department.

 

SECTION
THREE: NONCOMPETITION

		A.	Employee
                                         Conduct with Respect to Competitors. During the term of Employee’s employment
                                         by Flexsteel and for twelve (12) months after termination of such employment, Employee
                                         agrees that Employee will not, without the prior written consent of Flexsteel, directly
                                         or indirectly, whether as an employee, officer, director, independent contractor, consultant,
                                         stockholder, partner, or otherwise, engage in or assist others to engage in or have any
                                         interest in any business which competes with Flexsteel in any geographic area in which
                                         Flexsteel markets or has marketed its products during the year preceding termination.

		B.	Solicitation
                                         of Employees. Employee agrees that during the term of Employee’s employment
                                         and for twelve (12) months after the termination of such employment, Employee will not
                                         induce or attempt to induce any person who is an employee of Flexsteel to leave the employ
                                         of Flexsteel and engage in any business which competes with Flexsteel.

		C.	Maximum
                                         Restrictions of Time, Scope, and Geographic Area Intended. The Parties agree
                                         and acknowledge that the time, scope and geographic area and other provisions of this
                                         Agreement are reasonable under these circumstances. Employee further agrees that if,
                                         despite the express agreement of the parties to this Agreement, a court is expressly
                                         authorized to modify any unenforceable provision of this Agreement in lieu of severing
                                         the unenforceable provision from this Agreement in its entirety, whether by rewriting
                                         the offending provision, or deleting any or all of the offending provision, adding additional
                                         language to this Agreement, or by making any other modifications as it deems warranted
                                         to carry out the intent and agreement of the Parties as embodied herein to the maximum
                                         extent as permitted by law. The Parties expressly agree that this Agreement as so modified
                                         by the court shall be binding upon and enforceable against each of them.

 

    A-2

     

    

 

	 	Flexsteel
                                         Industries, Inc.

                                                                  385
                                         Bell Street

                                                                  Dubuque,
                                         IA 52001
	T
                                         563.556.7730

                                                                  F
                                         563.556.8345

                                                                  www.flexsteel.com
	 

 

SECTION
FOUR: BREACH OF AGREEMENT 

		A.	Remedies.
                                         Employee agrees that violating Section One of this Agreement at any time, including
                                         during litigation, will produce damages and injury to Flexsteel. In the event of the
                                         breach or, or threatened breach by Employee of Section One of this Agreement, Flexsteel
                                         shall be entitled to seek injunctive relief, both preliminary and permanent, enjoining
                                         and restraining such breach or threatened breach. Such remedies shall be in addition
                                         to all other remedies available to Flexsteel in law or in equity, including by not limited
                                         to Flexsteel’s right to recover from Employee any and all damages that may be sustained
                                         as a result of Employee’s breach.

		B.	Agreement
                                         Survives Termination. All rights of the Parties pursuant to this Agreement shall
                                         survive any termination.

		C.	Choice
                                         of Law. The validity, interpretation, and performance of this Agreement shall
                                         be controlled and construed under the laws of Iowa.

		D.	Attorney’s
                                         Fees. If an attorney shall be retained to interpret or enforce the provisions
                                         of this Agreement, the prevailing party shall be entitled to reasonable attorney fees,
                                         including any such fees set by the trial or appellate court upon trial or appeal.

SECTION
FIVE: MISCELLANEOUS 

		A.	Entire
                                         Agreement. This Agreement contains all the understandings and representations
                                         between Employee and Flexsteel pertaining to the subject matter hereof and supersedes
                                         all prior and contemporaneous understandings, agreements and representations, both oral
                                         and written, with respect to such subject matter.

		B.	Counterparts.
                                         This Agreement may be executed in counterparts, each of which shall be deemed
                                         an original, but all of which taken together shall constitute one and the same instrument.
                                         Delivery of an executed counterpart’s signature page of this Agreement by facsimile,
                                         email in portable document format (.pdf), or by any other electronic means intended to
                                         preserve the original graphic and pictorial appearance of a document, has the same effect
                                         as delivery of an executed original of this Agreement.

Nothing
in this Agreement shall be construed to in any way terminate, supersede, undermine, or otherwise modify the “at-will”
status of the employment relationship between Flexsteel and the Employee, pursuant to which either Flexsteel or the Employee may
terminate the employment relationship at any time, with or without cause, and with or without notice.  

 

	EMPLOYEE	FLEXSTEEL INDUSTRIES, INC.
	By:	 	 	By:	 
	 	 	 
	Name:
    Jerald K. Dittmer	 	Name:
    Thomas M. Levine
	Title:
    President/CEO	 	Title:
    Chair of the Board
	Date:
    December 28, 2018	 	Date:
    December 28, 2018

  

    A-3

     

    

 

EXHIBIT
B

 

Commitments
and/or Investment

 

None.

 

    B-1Exhibit 10.2

 

FLEXSTEEL
INDUSTRIES, INC. 

NOTIFICATION
OF NON-STATUTORY STOCK OPTION AWARD

 

	Name
    of Optionee:  Jerald K. Dittmer
	Effective
    Date:  December 28, 2018
	Number
    of Shares Covered:  55,000	Date
    of Grant:  December 28, 2018
	Exercise
    Price Per Share:  $21.96	Expiration
    Date:  December 28, 2028

 

Flexsteel
Industries, Inc. (the “Company”) hereby grants you an option (the “Option”) under this Notification
of Non-Statutory Stock Option Award (this “Notification of Award”) as an inducement grant. The Options granted
under this Notification of Award are subject to the following terms and conditions:

 

		1.	Omnibus
                                         Stock Plan. The Option is not granted directly pursuant to the Company’s 2013
                                         Omnibus Stock Plan (the “Plan”) (See Attachment C “Omnibus Stock
                                         Plan”). However, all applicable terms and conditions of the Plan will govern the
                                         Shares purchased or purchasable under the Option. Capitalized terms not otherwise defined
                                         within this Notification of Award shall have the respective meanings assigned to such
                                         terms in the Plan.

 

		2.	Stock
                                         Option. The Option is not intended to be an Incentive Stock Option within the meaning
                                         of Section 422 of the Internal Revenue Code (the “Code”).

 

		3.	Purchase
                                         Price. The purchase price of the Stock is the Exercise Price Per Share, which shall
                                         not be less than the Fair Market Value of the Stock on the Date of Grant.

 

		4.	Expiration
                                         Date. Unless the right to exercise the Option is terminated earlier under Section
                                         8, the Option will expire on the Expiration Date. The Expiration Date shall not be more
                                         than ten years from the Date of Grant. You are solely responsible for exercising this
                                         Option, if at all, prior to its Expiration Date. The Company has no obligation to notify
                                         you of this Option’s expiration.

 

		5.	Vesting.
                                         The Shares under the Option shall vest pursuant to the following vesting schedule:

 

	Shares	Date
	18,333	July
    1, 2019
	18,333	July
    1, 2020
	18,334	July
    1, 2021

 

In
the event that a Change in Control (see Attachment A, “Definitions”) occurs while the Employee is employed by the
Company, then the vesting schedule set forth above shall be automatically accelerated so that all Shares purchased or purchasable
upon exercise of this Option shall become fully vested, effective as of the effective time of the Change in Control.

 

    
	Notification of Non-Statutory Stock Option Award	1	 

     

    

 

		6.	Exercise
                                         Period. The Option may only be exercised prior to the Expiration Date. Your right
                                         to exercise some or all of the Option may be terminated before the Expiration Date as
                                         provided in Section 8, relating to termination of your employment. In all cases, you
                                         may only exercise the Option to the extent the Option has vested as stated in the Notification
                                         of Award.

 

		7.	Transferability.
                                         The Option may be exercised during your lifetime only by you and any exercise must be
                                         prior to the Expiration Date. You may not transfer the Option, other than by will or
                                         the laws of descent and distribution.

 

		8.	Termination
                                         of Employment. All of your rights in this Option, to the extent not previously vested
                                         and exercised, shall terminate upon your termination of employment except as described
                                         in this Section 8. With respect to the vested and exercisable portion of the Option,
                                         and subject to subsection (f):

 

(a)       In
the event of your termination of employment due to reasons other than death, Disability, Termination for Cause (see Attachment
A, “Definitions”) or termination on or after your Retirement Date, the Option may be exercised (to the extent exercisable
at the date of termination) by you within three months after the date of termination of employment.

 

(b)       In
the event of your termination of employment on or after your Retirement Date, the Option may be exercised (to the extent exercisable
at the date of termination) by you within three years after the date of termination of employment.

 

(c)
      In the event of your termination of employment due to Disability, the Option may be exercised
in full by you within one year after the date of termination of employment.

 

(d)       In
the event of your termination of employment due to death, the Option may be exercised in full by your estate or by a person who
acquires the right to such Option by bequest or inheritance or otherwise by reason of your death, within one year after the date
of termination of employment.

 

(e)       In
the event of your Termination for Cause, the Option and your right to exercise the Option shall terminate immediately.

 

(f)        Notwithstanding
anything in this Notification of Award, in no event may the Option be exercised after the Expiration Date.

 

		9.	Method
                                         of Exercise; Use of Company Stock.

 

(a)       The
Option may be exercised by delivering written notice of exercise to the Company at the principal executive office of the Company,
to the attention of the Company’s Secretary. The notice must state the number of Shares to be purchased, and must be signed
by the person exercising the Option. If you are not the person exercising the Option, the person also must submit appropriate
proof of his/her right to exercise the Option. The Company may designate a third party to administer the option program in which
case the third party may receive any required notice.

 

    
	Notification of Non-Statutory Stock Option Award	2	 

     

    

 

(b)       Upon
giving notice of any exercise hereunder, you must provide for payment of the purchase price of the Shares being purchased through
one or a combination of the following methods:

 

(i)          Purchase.
By paying cash (including check paid to the Company, wire transfer, bank draft, or money order);

 

(ii)    
   Delivery of Shares. By delivery or tender to the Company of unencumbered Shares (by actual delivery or
attestation) having an aggregate Fair Market Value on the date the Option is exercised equal to the purchase price of the
Shares being purchased under the Option, or a combination thereof, as determined by the Committee (provided, however, that no
fractional Shares will be issued or accepted);

 

(iii)        Broker-Assisted
Cashless Exercise. By directing a stockbroker designated by the Company to affect a broker assisted cashless exercise to sell
Shares issued on exercise of the Option and remitting the proceeds of such sale to the Company; or

 

(iv)     
 Net Exercise. By instructing the Company to withhold Shares having an aggregate Fair Market Value on the date of
exercise less than or equal to the purchase price of the Shares acquired upon exercise; provided that this method of exercise
may only be used to deliver net shares to you and no cash compensation may be provided.

 

In
no event will you be permitted to pay any portion of the purchase price with Shares, through a broker-assisted cashless exercise
or through net exercise, if the Committee, in its sole discretion, determines that payment in such manner could have adverse tax,
securities law or financial accounting consequences for the Company.

 

		10.	Withholding.
                                         In any case where withholding is required or advisable under federal, state or local
                                         law in connection with any exercise by you under this Notification of Award, the Company
                                         is authorized to withhold appropriate amounts from amounts payable to you, or may require
                                         that you remit to the Company an amount equal to such appropriate amounts. Upon the exercise
                                         of the Option, you may elect, subject to the approval of the Committee and compliance
                                         with applicable laws and regulations, to satisfy any withholding requirements, in whole
                                         or in part, by having the Company withhold Stock having a Fair Market Value, on the date
                                         the tax is to be determined, equal to the standard required withholding rates for non-periodic
                                         payments. In no event will the Company be required to permit the exercise of the Option
                                         unless the applicable withholding requirements are satisfied.

 

		11.	Changes
                                         in Capitalization, Dissolution, Liquidation, Reorganization, Acquisition. The terms
                                         stated in the Notification of Award are subject to modification upon the occurrence of
                                         certain events as described in Section 16 of the Plan.

 

		12.	Severability.
                                         In the event any provision of this Notification of Award is held illegal or invalid for
                                         any reason, the illegality or invalidity will not affect the remaining parts of this
                                         Notification of Award, and the Notification of Award will be interpreted and enforced
                                         as if the illegal or invalid provision had not been included.

 

		13.	No
                                         Guarantee of Employment. The Notification of Award will in no way restrict the right
                                         of the Company to terminate your employment at any time.

 

		14.	Tax
                                         Advice. You acknowledge that you have not looked to or relied upon the Company or
                                         any of its officers, directors, optionees, shareholders, accountants or legal counsel
                                         for tax advice concerning the tax consequences of the grant to, and your exercise of,
                                         the Option and that you have obtained such advice, to the extent you determine that it
                                         is necessary, from other sources located by you.

 

    
	Notification of Non-Statutory Stock Option Award	3	 

     

    

 

		15.	No
                                         Shareholder Rights. You will have no rights as a shareholder with respect to any
                                         Stock subject to the Option prior to the date of exercise of the Option and, after such
                                         date, will only have rights as a shareholder with respect to the Stock acquired upon
                                         exercise.

 

		16.	Governing
                                         Terms. This Notification of Award is not made according to the provisions of the
                                         Plan. However, all applicable terms and conditions of the Plan will govern the Shares
                                         purchased or purchasable under the Option. The terms of the Plan are incorporated by
                                         reference in this Notification of Award. Terms used in this Notification of Award have
                                         the meanings used in the Plan unless the context clearly requires otherwise. The terms
                                         “termination of employment,” “terminate employment,” and similar
                                         terms shall mean “Separation from Service” as defined in the Plan. In the
                                         event of a conflict between the provisions of the Plan and the provisions of this Notification
                                         of Award, the provisions of this Notification of Award will govern.

 

		17.	Resale
                                         Restrictions. The terms of the Plan shall not restrict the resale of Stock acquired
                                         upon exercise of the Option. Resales by participants who are officers or directors of
                                         the Company must comply with (i) Rule 144 under the Securities Act of 1933, as amended,
                                         and (ii) the six-month short swing profit restrictions under Section 16(b) of the Securities
                                         Exchange Act of 1934, as amended. The Board of Directors of Flexsteel Industries, Inc.
                                         has adopted Stock Ownership Guidelines (see Attachment D “Stock Ownership Guidelines”).
                                         These guidelines are a part of this Notification of Award.

 

		18.	Entire
                                         Understanding. This Notification of Award constitutes the entire understanding of
                                         you and the Company with respect to the subject matter of this Notification of Award,
                                         and, except as otherwise provided in the Plan, may not be amended, changed, modified,
                                         terminated, or waived other than by written instrument signed by you and the Company.
                                         This Notification of Award supersedes all prior oral or written agreements and understandings
                                         between you and the Company concerning the subject matter of the Notification of Award,
                                         including any implied or express representations regarding your ownership of any interest
                                         in the Company or its property, and any prior oral or written agreements conveying stock
                                         option rights to you.

 

		19.	Limitation
                                         on Rights; No Right to Future Grants; Extraordinary Item of Compensation. By accepting
                                         the Option, you acknowledge that: (a) the grant of the Option is a one-time benefit that
                                         does not create any contractual or other right to receive future grants of options, or
                                         benefits in lieu of options; (b) all determinations with respect to any such future grants,
                                         including but not limited to, the times when options will be granted, the number of shares
                                         of Stock subject to each option, the Exercise Price Per Share, and the time or times
                                         when each option will be exercisable, will be at the sole discretion of the Company;
                                         (c) the value of the Option is an extraordinary item of compensation that is outside
                                         the scope of your employment agreement, if any, with the Company; (d) the Option is not
                                         part of normal or expected compensation for purposes of calculating any severance, resignation,
                                         redundancy, end of service payment, bonus, long-service award, pension or retirement
                                         benefit or similar payment; (e) the exercisability of the Option ceases upon termination
                                         of employment with the Company for any reason except as may otherwise be explicitly provided
                                         in the Plan or this Notification of Award or otherwise permitted by the Committee; (f)
                                         the future value of the Stock subject to the Option is unknown and cannot be predicted
                                         with certainty; and (g) if the Stock subject to the Option does not increase in value,
                                         the Option will have no value.

 

    
	Notification of Non-Statutory Stock Option Award	4	 

     

    

 

		20.	Forfeiture
                                         and Repayment. If you receive or become entitled to receive a payment under this
                                         Notification of Award within six months before your Separation from Service with the
                                         Company, the Company, in its sole discretion, may require you to forfeit or return the
                                         Award, as the case may be, in the event you: (a) engage in Competitive Activity at any
                                         time during your employment or within a two-year period after your Separation from Service
                                         or (b) engage in Improper Use of Confidential Information at any time. (See Attachment
                                         A, “Definitions.”) The Company also reserves the right to require you to
                                         pay back to the Company any amount received under the Award as described in Section 18
                                         of the Plan. Further, in no event will you be entitled to an Award under this Notification
                                         of Award if you have a Termination for Cause at any time before the payment date of the
                                         Award. Any repayment due under this Section 20 or Section 18 of the Plan will be made
                                         by you either in the Shares, or in a dollar amount equal to the Fair Market Value of
                                         the Shares determined on the date of repayment, you received under the Award. The Committee,
                                         in its discretion, will determine which method of payment is acceptable. Further, in
                                         no event will you be entitled to an Award under this Notification of Award if you have
                                         a Termination for Cause at any time prior to the payment date.

 

		21.	Beneficiary
                                         Designation. If your employment is terminated as a result of your death, someone
                                         other than you may become entitled to exercise this Option, as provided in Section 8
                                         of this Notification of Award. You are hereby permitted to designate a beneficiary to
                                         exercise the vested portion of this Option in the event of your death. Any beneficiary
                                         can be named and you may change your beneficiaries at any time by submitting such designation,
                                         in writing, to the Company. (See Attachment B, “Beneficiary Designation of Employee”)

 

[Signature
Page to Follow]

 

    
	Notification of Non-Statutory Stock Option Award	5	 

     

    

 

FLEXSTEEL
INDUSTRIES, INC. 

NOTIFICATION
OF NON-STATUTORY STOCK OPTION AWARD 

ACKNOWLEDGEMENT

 

	Name
    of Optionee:  Jerald K. Dittmer
	Effective
    Date:  December 28, 2018	Vesting
                                         Schedule:       18,333 shares July 1, 2019

        

        18,333
        shares July 1, 2020

        

        18,334
        shares July 1, 2021

        

	Number
    of Shares Covered:  55,000	Date
    of Grant:  December 28, 2018
	Exercise
    Price Per Share:  $21.96	Expiration
    Date:  December 28, 2028

 

	 	FLEXSTEEL INDUSTRIES, INC.:
	 	 
		/s/
    Marcus D. Hamilton
	 	By: Marcus D. Hamilton
	 	Its: Chief Financial Officer

 

Acknowledgement:
Your receipt of this Notification of Award constitutes your agreement to be bound by the terms and conditions of this Notification
of Award and the Plan.

 

	 	OPTIONEE:
	 	 
		/s/
    Jerald K. Dittmer
	 	Jerald K. Dittmer

 

    
	Notification of Non-Statutory Stock Option Award	6	 

     

    

 

ATTACHMENT
A

 

Definitions

 

The
Capitalized terms used in this Notification of Award have the meanings set forth below.

 

“Change
in Control” means any of the following but only if such event meets the definition of “change in control”
for purposes of Section 409A of the Code):

 

		(i)	Any
                                         individual, entity or group becomes a “Beneficial Owner” (as defined in Rule
                                         13d-3 of the Securities Exchange Act of 1934, as amended), directly or indirectly, of
                                         at least thirty percent (30%) but less than fifty percent (50%) of the voting stock of
                                         the Company in a transaction that is not previously approved by the Board of Directors
                                         of the Company;

 

		(ii)	Any
                                         individual, entity or group becomes a Beneficial Owner, directly or indirectly, of at
                                         least fifty percent (50%) of the voting stock of the Company;

 

		(iii)	The
                                         person who were directors of the Company immediately prior to any contested election
                                         or series of contested elections, tender offer, exchange offer, merger, consolidation,
                                         other business combination, or any combination of the foregoing cease to constitute a
                                         majority of the members of the Board of Directors immediately following such occurrence;

 

		(iv)	Any
                                         merger, consolidation, reorganization or other business combination where the individuals
                                         or entities who constituted the Company’s shareholders immediately prior to the
                                         combination will not immediately after the combination own at least fifty percent (50%)
                                         of the voting securities of the business resulting from the combination;

 

		(v)	The
                                         sale, lease, exchange, or other transfer of all or substantially all the assets of the
                                         Company to any individual, entity or group not affiliated with the Company;

 

		(vi)	The
                                         liquidation or dissolution of the Company; or

 

		(v)	The
                                         occurrence of any other event by which the Company no longer operates as an independent
                                         public company.

 

“Competitive
Activity” means any of the following regardless of whether it is undertaken, directly or indirectly, on your own behalf
or on behalf of any person or entity other than the Company, including without limitation as a proprietor, principal, agent, partner,
officer, director, stockholder, employee, member of any association, contractor, consultant or otherwise:

 

		(i)	Engaging
                                         in any business activity, in any geographic market in which the Company is then engaged
                                         in business that is competitive with the business of the Company; or

 

		(ii)	Hiring
                                         or soliciting for employment any person who is then an employee of the Company; or

 

		(iii)	Inducing
                                         or attempting to induce any person to end his or her employment relationship with the
                                         Company; or

 

		(iv)	Soliciting
                                         business concerning any business (as described in Section (i) above) from any person
                                         or entity who is, or who was, a client, customer, prospective client or prospective customer
                                         of the Company; or

 

    
	Notification of Non-Statutory Stock Option Award	7	 

     

    

 

		(v)	Taking
                                         any action to divert business from, or inducing or attempting to induce any customer
                                         or prospective customer or any vendor, supplier or other business relation to cease doing
                                         business with the Company.

 

“Improper
Use of Confidential Information” means:

 

		(i)	Any
                                         use or disclosure of Confidential Information except as required for the performance
                                         of your duties as an employee of the Company;

 

		(ii)	Any
                                         act or omission that directly or indirectly would materially reduce the value of Confidential
                                         Information except for such acts or omissions that are required for the performance of
                                         your duties as an employee of the Company.

 

		(iii)	Notwithstanding
                                         anything in Sections (i) or (ii) above, Improper Use of Confidential Information does
                                         not include:

 

		(A)	any
                                         disclosure, use or other act or omission that is expressly authorized in writing, in
                                         advance by the Company; or

 

		(B)	any
                                         required disclosure of Confidential Information by law or legal process, if: (x) you
                                         provide prompt notice to the Company in writing, and prior to disclosing any Confidential
                                         Information, so that the Company may elect to seek an appropriate protective order to
                                         prevent disclosure at the Company’s option and expense; and (y) you cooperate with
                                         the Company in any efforts to seek a protective order.

 

For
purposes of this definition, “Confidential Information” means any non-public information regarding the Company or
any of its owners, directors, representatives, agents, employees, suppliers, vendors, shareholders, members, clients, customers,
or other third parties or entities with whom the Company does business and which you have learned or developed in the past as
a result of your employment by or association with the Company or which you learn or develop while providing services to the Company.
Confidential Information includes, but is not limited to, trade secrets, information about customers, prospective customers, marketing
strategies, business strategies, sales strategies, products, services, key personnel, suppliers, pricing, technology, computer
software code, methods, processes, designs, research, development systems, techniques, finances, accounting, purchasing, forecasts,
or planning. All information disclosed to you or to which you obtain access in whatever form, whether originated by you or by
others, during the period that you provide services to the Company will be presumed to be Confidential Information if it is treated
by the Company as being Confidential Information or if you have a reasonable basis to believe it to be Confidential Information.
For these purposes, Confidential Information will not include knowledge or information: (i) that is now or subsequently becomes
generally publicly known, other than as a direct or indirect result of Improper Use or Disclosure of Confidential Information
by you; or (ii) that is independently made available to you in good faith by a third party who has not violated any legal duty
or confidential relationship with the Company.

 

“Termination
for Cause” means the involuntary termination of a Participant’s employment with the Company as a result of dishonesty,
fraud, misappropriation of funds, theft relating to the Participant’s position, harassment, an act of violence, acts punishable
by law, misconduct as described in the Flexsteel Industries, Inc. Employee Handbook, as amended from time to time, or such other
serious misconduct as will be determined by the Company to constitute conduct that warrants forfeiture pursuant to the Plan and
this Notification of Award.

 

    
	Notification of Non-Statutory Stock Option Award	8	 

     

    

 

ATTACHMENT
B

 

FLEXSTEEL
INDUSTRIES, INC.

 

NON-STATUTORY
STOCK OPTION

 

BENEFICIARY
DESIGNATION OF EMPLOYEE

 

Pursuant
to the Notification of Non-Statutory Stock Option Award granted to me by Flexsteel Industries, Inc. (the “Company”)
on December 28, 2018, I, Jerald K. Dittmer, hereby designate the following as beneficiary of any portion of my award which has
been earned according to the terms of the Company’s 2013 Omnibus Stock Option Plan and unpaid at the time of my death.

 

	A.	Primary Beneficiary:	 	 

 

	B.	Contingent Beneficiary:	 	 

	 	 	 	 
	 	 	 	 
	 	Signature:  	 	 

 

	 	Name:    	Jerald
    K. Dittmer	 

 

*This
election is valid until a later dated designation is completed and filed with the Company.

 

    
	Notification of Non-Statutory Stock Option Award	9	 

     

    

 

ATTACHMENT
C

 

FLEXSTEEL
INDUSTRIES, INC.

 

OMNIBUS
STOCK PLAN

 

Effective
July 1, 2013

 

PURPOSE 

The
purpose of the Plan is to promote the interests of the Company and its shareholders by providing key personnel of the Company
with an opportunity to acquire a proprietary interest in the Company and reward them for achieving a high level of corporate performance,
and thereby develop a stronger incentive to put forth maximum effort for the continued success and growth of the Company. In addition,
the opportunity to acquire a proprietary interest in the Company will aid in attracting and retaining key personnel of outstanding
ability. The Plan is also intended to provide nonemployee directors with an opportunity to acquire a proprietary interest in the
Company, to compensate nonemployee directors for their contribution to the Company and to aid in attracting and retaining nonemployee
directors.

 

ELIGIBILITY 

Participation
in the Plan is limited to employees of the Company and to the members of the Board. The granting of awards under the Plan is solely
at the discretion of the Nominating and Compensation Committee of the Board (the “Committee”).

 

ADMINISTRATION
OF THE PLAN 

The
Committee will administer the Plan. The Committee has exclusive power to (i) make awards, (ii) determine when and to whom awards
will be granted, the form of each award, the amount of each award, and any other terms or conditions of each award consistent
with the Plan, and (iii) determine whether, to what extent and under what circumstances, awards may be canceled, forfeited or
suspended.

 

SHARES
AVAILABLE UNDER THE PLAN 

The
number of shares of common stock available for distribution under the Plan may not exceed 700,000 (subject to adjustment for changes
in capitalization of the Company). Any Shares subject to the terms and conditions of an award under the Plan that are not used
because the terms and conditions of the award are not met may again be used for an Award under the Plan.

 

DESCRIPTION
OF PLAN AWARDS 

The
Plan provides that the Committee may grant awards to participants in the form of (i) shares of common stock subject to restrictions
on transfer and conditions of forfeiture, commonly referred to as “restricted stock,” (ii) right to receive shares
of common stock subject to restrictions and conditions for payment of shares are satisfied, commonly referred to as “restricted
stock unit,” (iii) “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code
or non-statutory stock options, (iv) rights to receive a payment from the Company in Common Stock equal to the excess of the fair
market value of a share of common stock on the date of exercise over a specified price fixed by the Committee, commonly referred
to as “Stock Appreciation Rights” or “SARs,” or (v) rights to receive payment from the Company in common
stock based upon the achievement of performance goals established by the Committee, commonly known as “performance units.”

 

    
	Notification of Non-Statutory Stock Option Award	10	 

     

    

 

Options.
The Committee will have the authority to grant stock options and to determine all terms and conditions of each stock option, including
a vesting schedule, if any. The Committee will fix the option price per share of Common Stock, which may not be less than the
fair market value of the Common Stock on the date of grant. The Committee will determine terms and conditions of exercise, as
well as the expiration date of each option, but the expiration date will not be later than 10 years after the grant date.

 

The
option price is payable in full at the time of exercise, provided that to the extent permitted by law, the Notification of Award
may permit the participants to simultaneously exercise options and sell the shares thereby acquired pursuant to a brokerage transaction
and use the proceeds from the sale as payment of the purchase price of the shares, or exercise the option in a “net exercise,”
by which the number of shares distributed to the participant is reduced by the aggregate purchase price of the shares being exercised
divided by the then fair market value of a share. The purchase price may also be payable in cash or by delivery or tender of shares
(by actual delivery or attestation) having a fair market value as of the date the option is exercised equal to the purchase price
of the shares being exercised, or a combination thereof.

 

If
the aggregate fair market value of the shares subject to the option that becomes exercisable during a calendar year exceeds $100,000,
then the option will be treated as a nonqualified stock option to the extent the $100,000 limitation is exceeded. Each incentive
stock option that the administrator grants to an eligible employee who owns more than ten percent of the total combined voting
power of all classes of stock then issued by our company or a subsidiary must have an exercise price at least equal to 110% of
the fair market value of the common stock on the date of grant and must terminate no later than five years after the date of grant.

 

Stock
Appreciation Rights. The Committee will have the authority to grant stock appreciation rights. A stock appreciation right
is the right of a participant to receive Common Stock with a fair market value, equal to the appreciation of the fair market value
of a share of common stock during a specified period of time. The Committee will determine all terms and conditions of each stock
appreciation right.

 

Performance
and Stock Awards. The Committee will have the authority to grant awards of restricted stock or restricted stock units. Restricted
stock means shares of common stock that are subject to a risk of forfeiture, restrictions on transfer or both a risk of forfeiture
and restrictions on transfer. Restricted stock unit means the right to receive a payment shares equal to the fair market value
of one share of Common Stock. The Committee will determine all terms and conditions of the awards.

 

    
	Notification of Non-Statutory Stock Option Award	11	 

     

    

 

PERFORMANCE
GOALS 

For
purposes of the Plan, Performance Goals are the goals established for a given performance period, the achievement of which may
be a condition for receiving an award under the Plan. A Performance Goal may be adjusted in accordance with Section 162(m) of
the Internal Revenue Code during a Performance Period to prevent dilution or enlargement of an Award as a result of extraordinary
events or circumstances as determined by the Committee or to exclude the effects of extraordinary, unusual or nonrecurring events,
changes in accounting principles, discontinued operations, acquisitions, divestitures and material restructuring charges. Performance
Goals may be based on one or more of the following criteria and may be based on attainment of a particular level of or positive
change in consolidated (company-wide) or subsidiary, division or operating unit financial measures: (1) pre-tax or after-tax income
(before or after allocation of corporate overhead and incentive compensation), (2) net income, (3) reduction in expenses, (4)
operating income, (5) earnings (including earnings before taxes, earnings before interest and taxes, or earnings before interest,
taxes, depreciation and amortization), (6) gross revenue, (7) working capital, (8) profit margin or gross profits, (9) share price,
(10) cash flow, free cash flow or cash flow per share (before or after dividends), (11) cash flow return on investment, (12) return
on capital (including return on total capital or return on invested capital), (13) return on assets or net assets, (14) market
share, (15) pre-tax or after-tax earnings per share, (16) operating earnings per share, (17) total stockholder return, (18) growth
measures, including revenue growth, as compared with a peer group or other benchmark, (19) economic value-added models or equivalent
metrics, (20) comparisons with various stock market indices, (21) improvement in or attainment of expense levels or working capital
levels, (22) operating margins, gross margins or cash margins, (23) year-end cash, (24) debt reductions, (25) stockholder equity,
(26) regulatory achievements, (27) implementation, completion or attainment of measurable objectives with respect to research,
development, products or projects, production volume levels, acquisitions and divestitures, (28) leadership, recruiting, developing
and maintaining personnel, (29) customer satisfaction, (30) operating efficiency, productivity ratios, (31) strategic business
criteria, consisting of one or more objectives based on meeting specified revenue, market penetration, geographic business expansion
goals (including accomplishing regulatory approval for projects), cost or cost savings targets, accomplishing critical milestones
for projects, and goals relating to acquisitions or divestitures, or any combination thereof (in each case before or after such
objective income and expense allocations or adjustments as the Committee may specify within the applicable period).

 

AWARD
LIMITS 

To
qualify awards under the Plan as “performance-based compensation” under Section 162(m), the Company is required to
establish limits on the number of awards that may be granted to an individual participant. The maximum number of shares that may
be awarded to a participant under the Plan in any fiscal year of the Company, by form of Award, is as follows: (a) restricted
stock: 30,000 shares; (b) restricted stock units: 30,000 shares; (c) shares purchasable under options (including non-statutory
stock options and incentive stock options): 30,000 shares; (d) shares with respect to which stock appreciation rights may be exercised:
30,000 shares; and (e) performance units: 30,000 shares. Each of these limitations is subject to adjustment for changes in capitalization
of the Company.

 

FEDERAL
TAX TREATMENT 

The
Plan is not a qualified pension, profit-sharing or stock bonus plan under Section 401(a) of the Code. The Plan is not subject
to any provisions of the Employee Retirement Income Security Act of 1974.

 

The
U.S. federal income tax consequences of the Plan under current federal law, which is subject to change, are summarized in the
following discussion which deals with the general tax principles applicable to the Plan. This summary is not intended to be exhaustive
and does not describe state, local or FICA tax consequences. The tax consequences to a participant depend on the type of award
granted under the Plan.

 

    
	Notification of Non-Statutory Stock Option Award	12	 

     

    

 

Options.
Stock option grants under the Plan may either be granted as incentive stock options, which are governed by Section 422, as amended,
or as non-qualified stock options, which are governed by Section 83 of the Internal Revenue Code, as amended. Generally, no federal
income tax is payable by the participant upon the grant of an incentive stock option and no deduction is taken by us. If certain
holding periods are met, the exercise of an incentive stock option does not result in taxation to the participant; rather, the
participant is taxed only at the time of sale of the shares received upon exercise. If the shares have been held for at least
one year after the date of exercise and at least two years from the date of grant of the option, the participant will be taxed
on any appreciation in excess of the exercise price as long-term capital gains. In that event, we are not entitled to a deduction
for the amount of the capital gains. Under current tax laws, if a participant exercises a non-qualified stock option, the participant
will be taxed on the difference between the fair market value of the stock on the exercise date and the exercise price and, thereafter,
the participant would receive capital gains on any appreciation in stock value after the exercise date, depending upon the length
of time the participant held the stock after exercise. When the option is exercised, we will be entitled to a corresponding tax
deduction.

 

Restricted
and Performance Stock and Units. Awards of restricted stock and restricted stock units, performance stock and performance
units under the Plan generally are not subject to federal income tax when awarded, unless the participant properly elects to accelerate
the tax recognition. Restricted stock is generally subject to ordinary income tax at the time the restrictions lapse and performance
stock is taxed at the time the performance targets are met. Restricted stock units and performance units are generally subject
to ordinary tax at the time of payment, even if vested earlier. We are entitled to a corresponding deduction at the time the participant
recognizes taxable income on the restricted or performance stock or units.

 

Section
162(m) Limit on Deductibility of Compensation. Section 162(m) of the Internal Revenue Code limits the deduction the Company
can take for compensation paid to our “Covered Employees” (as defined under Code Section 162(m)) to $1,000,000 per
year per individual. However, performance-based compensation that meets the requirements of Section 162(m) does not have to be
included as part of the $1,000,000 limit. The Plan is designed so that awards granted to the covered individuals may meet the
Section 162(m) requirements for performance-based compensation.

 

Code
Section 409A. Awards under the Plan may constitute, or provide for, a deferral of compensation under Section 409A of the Internal
Revenue Code. If the requirements of Section 409A are not complied with, then holders of such awards may be taxed earlier than
would otherwise be the case (e.g., at the time of vesting instead of the time of payment) and may be subject to an additional
20% penalty tax and, potentially, interest and penalties. The Plan has been designed to issue awards that comply with, or be exempt
from Section 409A and the Department of Treasury regulations and other interpretive guidance that may be issued pursuant to Section
409A.

 

FORFEITURE
AND CLAWBACK 

The
Company may provide that if a participant has received or been entitled to an award within six months before the participant’s
termination of employment with the Company, the Committee may require the participant to return or forfeit the award in the event
of certain occurrences specified in the award. The occurrences may, but need not, include termination for “cause”
(as defined in the award or, if applicable, as defined in any employment agreement between the participant and the Company), competition
with the Company, unauthorized disclosure of material proprietary information of the Company, a violation of applicable business
ethics policies of the Company, a violations of applicable law, or any other occurrence specified in the award within the period
or periods of time specified in the award. In addition, the Company reserves the right to require a participant to pay back to
the Company all shares received under the Plan to the extent required by law, under any applicable listing standard or under any
applicable clawback policy adopted by the Company.

 

    
	Notification of Non-Statutory Stock Option Award	13	 

     

    

 

CHANGE
IN CONTROL 

The
Company may provide that an award under the Plan includes a provision for full vesting or a pro rata payment if a participant’s
employment terminates during a performance period in connection with a change in control.

 

EFFECTIVE
DATE AND DURATION OF THE PLAN 

The
Plan became effective as of July 1, 2013, but subject to the shareholders’ approval of the Plan at the 2013 Annual Meeting
of Shareholders. The Plan will remain in effect until all Common Stock subject to it is distributed, all awards have expired or
lapsed, or the Plan is terminated pursuant to its terms or June 30, 2023; provided, however, that awards made before the termination
date may be exercised, vested or otherwise effectuated beyond the termination date unless limited in the agreement or otherwise.
No award of an incentive stock option will be made more than 10 years after the effective date.

 

AMENDMENT
AND MODIFICATION OF AWARDS UNDER THE PLAN 

The
Board may at any time and from time-to-time terminate, suspend or modify the Plan. The Committee may at any time alter or amend
any or all agreements under the Plan to the extent permitted by law. No termination, suspension, or modification of the Plan will
materially and adversely affect any right acquired by any participant under an award granted before the date of termination, suspension,
or modification, unless otherwise agreed to by the participant in the agreement or otherwise, or required as a matter of law.

 

RESALE
RESTRICTIONS 

The
resale of shares of Common Stock acquired upon exercise of awards granted under the Plan is generally not restricted by the terms
of the Plan. Resales by participants who are officers or directors of the Company must comply with (i) Rule 144 under the Securities
Act of 1933, as amended, and (ii) the six-month short swing profit restrictions under Section 16(b) of the Exchange Act.

 

    
	Notification of Non-Statutory Stock Option Award	14	 

     

    

ATTACHMENT
D

STOCK
OWNERSHIP GUIDELINES

Adopted
July 22, 2016

 

The
Board of Directors (the “Board”) of Flexsteel Industries, Inc. (“Flexsteel” or the “Company”)
has adopted Stock Ownership Guidelines (“Ownership Guidelines”). These Ownership Guidelines are applicable to all
Flexsteel Section 16 executive officers (“executive officers”) (as such term is defined pursuant to Section 16 of
the Securities and Exchange Act of 1934, as amended), the non-employee directors of the Board (“directors”), other
officers of the Company (“officers”), and all other employees that receive stock based compensation (“key associates”)
in any form from the Company (collectively “participants”).

 

Ownership
Guidelines 

Pursuant
to these Ownership Guidelines, each of the participants will be expected to maintain an ownership position in the Company’s
shares of common stock as set forth in the applicable guidelines below:

 

Minimum
Stock Ownership Requirement

 

	Leadership Position 	Ownership Guidelines
	Directors of the Board	3 times annual director cash compensation
	Executive Officers	2 times base salary
	Officers	1 times base salary
	Key Associates	0.5 times base salary

 

Ownership
Defined 

For
purposes of meeting the applicable Ownership Guidelines, stock that counts toward satisfaction of Flexsteel’s Stock Ownership
Guidelines include:

 

		●	Flexsteel Industries, Inc. common stock owned (i) directly by the participant or their spouse,
                                         (ii) jointly by the participant or their spouse, and (iii) indirectly by a trust, partnership,
                                         limited liability company or other entity for the benefit of the participant or their
                                         spouse;

		●	100%
                                         of Restricted Stock Awards (vested and unvested) issued under the Company’s Equity
                                         Incentive Plans; and 

		●	100%
                                         of the intrinsic value of unexercised Stock Options (vested and unvested) issued under
                                         the Company’s Equity Plans.

 

Subject
to the Retention Ratio requirements, there is no expected time period to achieve the minimum stock ownership requirement.

 

    
	Notification of Non-Statutory Stock Option Award	15	 

     

    

 

Retention
Ratio 

Participants
must maintain at least 60% of the stock received from equity awarded (on a shares-issued basis) until minimum stock ownership
requirement level is achieved.

 

Stock
Holding Requirements 

Once
the Ownership Guideline has been achieved, participants will be required to maintain the stock holding requirement for the duration
of their employment with or service to the Company.

 

Compliance 

The
Company’s Compensation Committee (the “Committee”) shall have authority to enforce these Stock Ownership Guidelines.

 

Non-Compliance 

If
a participant is not in compliance with the Ownership Guidelines, the participant will be prohibited from selling or otherwise
disposing of the Flexsteel common stock until their holdings meet the applicable minimum requirements, and then only to the extent
that their remaining holdings do not fall below the applicable minimum holding requirement.

 

Administration 

The
Committee shall periodically assess these Ownership Guidelines and recommend changes, if any, to the Board of Directors. The Board
of Directors may amend or terminate these Ownership Guidelines in its discretion.

 

Hardship 

There
may be instances in which the Ownership Guidelines would place a severe hardship on the participant. Under these circumstances,
the Committee may, on a case-by-case basis, modify the Ownership Guidelines, in its discretion.

 

    
	Notification of Non-Statutory Stock Option Award	16

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