Document:

Exhibit 10.9 to Flexsteel Industries, Inc. Form 10-K for fiscal year ended June 30, 2006

EXHIBIT 10.9 

	
	
 

	

	
Note Modification Agreement   

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

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

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

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

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

2. MODIFICATION OF NOTE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

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

	
  

	
Borrower: 

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall  

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	May 26, 2006 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson 

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	John C. Otteson, 	VP 
	
  

	
  

	

	
  

	
  

	
Printed Name 

	
Title 

	
  

	
  

		
Date Signed:  

	 May 30, 2006	
	
	
	

	
 

	
 

	

	
Note Modification Agreement   

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

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

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

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

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

2. MODIFICATION OF NOTE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

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

	
  

	
 

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall 

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	May 26, 2006 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	John C. Otteson, 	VP 
	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	May 30, 2006 	
	
	
	

	
 

	
 

	

	
Amendment to Credit Agreement   

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

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

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

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

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
2.

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

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
3.

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

	
 

	
 

	
4.

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

	
 

	
 

	
5.

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

	
 

	
 

	
6.

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

	
 

	
 

	
7.

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

	
 

	
 

	
8.

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

	
 

	
 

	
 

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

	
  

	
 

	
  

	
  

	
   

	
 

	
Borrower: 

	
  

	
 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall 

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	May 26, 2006 	
	
	
	

	
  

	
  

	
  

	 
	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson  

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	John C. Otteson, 	VP
	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	May 30, 2006 	
	
	
	

	
	
 

	

	
Note Modification Agreement   

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

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

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

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

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

2. MODIFICATION OF NOTE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

THE REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK

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

	
  

	

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall 

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	January 4, 2006 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson  

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	John C. Otteson, 	VP 
	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	January 5, 2006 	
	
	
	

	
 

	
 

	

	
Amendment
  to Credit Agreement    

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

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

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

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

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
 

	
2.

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

	
 

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
3.

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

	
 

	
 

	
 

	
4.

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

	
 

	
 

	
 

	
5.

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

	
 

	
 

	
 

	
6.

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

	
 

	
 

	
 

	
7.

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

	
 

	
 

	
 

	
8.

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

	
 

	
 

	
 

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

	
  

	

	
  

	
  

	
 

	
 

	
Borrower:  

	
  

	

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall  

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	January 4, 2006 	
	
	
	

	
  

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson  

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	John C. Otteson, 	VP 
	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	January 5, 2006 	
	
	
	

	
 

	
 

	

	
Note Modification Agreement   

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

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

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

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

	
 

	
 

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

	
 

	
 

	
2. MODIFICATION OF NOTE.

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Applicable
  Margin

	
 

	
 

	
 

	

	
 

	
Leverage Ratio

	
 

	
Prime Rate Advance

	
 

	
Eurodollar Advance

	
 

	

	
 

	

	
 

	

	
 

	
Greater than or equal to 3.00 to 1.00

	
 

	
1.00

	
%

	
 

	
1.50

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
1.25

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
1.00

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
0.75

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
0.75

	
%

	
 

	
Less than or equal to 1.00 to 1.00

	
 

	
1.00

	
%

	
 

	
0.75

	
%

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

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

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

	
  

	

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall 

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	December 29, 2005 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   Robert E. McElwain 

	
  

	
  

	

	
  

	
  

	
  

			Robert E. McElwain, 	SVP
	

	
 

	

	
  

	
  

	
Printed
Name 

	
Title 

	

	
  

		
Date Signed:  

	December 31, 2005 	
	
	
	

	
 

	
 

	
 

	
Note Modification Agreement   

	

	
 

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

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

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

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

	
 

	
 

	
1.

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

	
 

	
 

	
2.

	
MODIFICATION
  OF NOTE.

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
   

	
 

	
Applicable
  Margin

	
 

	

 

	
 

	

	
 

	
Leverage
  Ratio

	
 

	
Prime Rate Advance

	
 

	
Eurodollar Advance

	
 

	

	

 

	

	
 

	

	
 

	
Greater than or equal to
  3.00 to 1.00

	
 

	
1.00

	
%

	
 

	
1.25

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
1.00

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
0.875

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
0.75

	
%

	
 

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

	
 

	
1.00

	
%

	
 

	
0.625

	
%

	
 

	
Less than or equal to 1.00
  to 1.00

	
 

	
1.00

	
%

	
 

	
0.50

	
%

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

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

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

	
  

	

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall  

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	VP & CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	December 29, 2005 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   Robert E. McElwain 

	
  

	
  

	

	
  

	
  

	
  

			Robert E. McElwain, 	SVP
	

	
 

	

	
  

	
  

	
Printed
Name 

	
Title 

	

	
  

		
Date Signed:  

	December 31, 2005 	
	
	
	

	
 

	
 

	
 

	

	
Amendment to Credit Agreement   

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

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

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

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

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
2.

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

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
Funded Debt to EBITDA Ratio 

	
Non-usage Fee 

	

	

	
Greater than or equal to 3.00 to 1.00

	
20 bp

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

	
20 bp

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

	
10 bp

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

	
l0 bp

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

	
10 bp

	
Less than or equal to 1.00 to 1.00

	
l0 bp

	
 

	
 

	
 

	
 

	
2.2

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

	
 

	
 

	
Funded Debt to EBITDA Ratio 

	
Letter of

Credit Fee 

	

	

	
Greater than or equal to 3.00 to 1.00

	
l .50%

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

	
1.25%

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

	
1.00%

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

	
0.75%

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

	
0.75%

	
Less than or equal to 1.00 to 1.00

	
0.75%

	
 

	
 

	
 

	
 

	
 

	
2.3

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

	
 

	
 

	
 

	
 

	
 

	
 

	
J.

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

	
 

	
 

	
 

	
 

	
 

	
 

	
K.

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

	
 

	
 

	
3.

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

	
 

	
 

	
4.

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

	
 

	
 

	
5.

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

	
 

	
 

	
6.

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

	
 

	
 

	
7.

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

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK

	
 

	
 

	
8.

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

	
  

	

	
  

	
  

	
 

	
 

	
Borrower:  

	
  

	

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall  

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	CFO 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	December 29, 2005 	
	
	
	

	
  

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   Robert E. McElwain 

	
  

	
  

	

	
  

	
  

	
  

			Robert E. McElwain,  	SVP
	

	
 

	

	
  

	
  

	
Printed
Name 

	
Title 

	

	
  

		
Date Signed:  

	December 30, 2005 	
	
	
	

	
 

	
 

	

	
Amendment to Credit Agreement

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

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

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

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

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
 

	
2.

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

	
 

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
2.2

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
3.

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

	
 

	
 

	
 

	
4.

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

	
 

	
 

	
 

	
5.

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

	
 

	
 

	
 

	
6.

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

	
 

	
 

	
 

	
7.

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

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
8.

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

	
  

	

	
  

	
  

	
   

	
 

	
Borrower:  

	
  

	

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   Timothy E. Hall 

	

  

	

  

	

	
  

	
  

			Timothy E. Hall, 	Chief Financial Officer 
			

			Printed
Name 	Title 
	 
		
Date Signed:  

	August 23, 2005 	
	
	
	

	
  

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson 

	
  

	
  

	

	
  

	
  

	
  

			John C. Otteson, 	First Vice President 
	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	August 25, 2005 	
	
	
	

	
 

	
 

	

	
Line of Credit Note

	
 

	
 

	
 

	
$20,000,000.00 

	
Due:
June
  29, 2006

	
Date: June 10, 2005

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

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

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

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

	
 

	
 

	
 

	
 

	
Applicable Margin 

	
 

	

	
Funded Debt to EBITDA Ratio 

	
Prime Rate Advance 

	
Eurodollar Advance 

	

	

	

	
Greater than or equal to 2.00 to 1.00

	
0.00%

	
1.00%

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

	
0.00%

	
0.75%

	
Less than 1.00 to 1.00

	
0.00%

	
0.50%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK

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

	
  

	

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   R. J. Klosterman  

	

  

	

  

	

	
  

	
  

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

			Printed
Name 	Title 
	 
		
Date Signed:  

	June 15, 2005 	
	
	
	

	
  

	
  

	
  

	
 

	
 

	

	
Note Modification
  Agreement

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

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

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

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

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

2.  MODIFICATION OF NOTE.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          5.3
The Borrower shall pay to the Bank:

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

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

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

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

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

THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

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

	
  

	

	
  

	
  

	
Address:   

	
3400
Jackson St. 

	
Borrower:  

	
  

	
Dubuque,
IA 52001 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   R.J. Klosterman

	

  

	

  

	

	
  

	
  

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

			Printed
Name 	Title 
	 
		
Date Signed:  

	June 15, 2005 	
	
	
	

	
  

	
  

	
  

	
BANK’S ACCEPTANCE 

	
  

	
  

	
  

	
  

	
  

	
The
foregoing agreement is hereby agreed to and acknowledged. 

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson  

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	
John C. Otteson, 

	
First Vice President 

	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	June 20, 2005 	
	
	
	

	
 

	
 

	

	
Amendment to Credit Agreement

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

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

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

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

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
 

	
2.

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

	
 

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
2.2

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
3.

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

	
 

	
 

	
 

	
4.

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

	
 

	
 

	
 

	
5.

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

	
 

	
 

	
 

	
6.

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

	
 

	
 

	
 

	
7.

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

	
 

	
 

	
 

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

	
 

	
 

	
8.

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

	
  

	

	
  

	
  

	
   

	

	
Borrower:  

	
  

	

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   R.J. Klosterman 

	

  

	

  

	

	
  

	
  

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

			Printed
Name 	Title 
	 
		
Date Signed:  

	June 15, 2005 	
	
	
	

	
  

	
  

	
  

	
  

	
  

	
  

	
  

	
Bank: 

	
  

	
  

	
  

	
JPMorgan Chase Bank, N.A. 

	
  

	
  

	
  

	
  

	
By: 

	
/s/   John C. Otteson  

	
  

	
  

	

	
  

	
  

	
  

	
  

	
  

	
John C. Otteson, 

	
First Vice President 

	
  

	
  

	

	
  

	
  

	
Printed
Name 

	
Title 

	
  

	
  

		
Date Signed:  

	June 20, 2005 	
	
	
	

	
 

	
 

	

	
Line of Credit Note 

	
 

	
 

	
 

	
$20,000,000.00
  

	
Due: September 30, 2007

	
Date: June 30, 2004

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

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

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

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Applicable Margin

	
 

	
 

	
 

	

	

	

	
Funded Debt to EBITDA Ratio

	
 

	
 

	
Prime Rate Advance

	
 

	
 

	
Eurodollar Advance

	
 

	

	
 

	

	

	

	

	

	

	
Greater than or equal to 2.00 to 1.00

	
 

	
 

	
0.00%

	
 

	
 

	
1.25%

	
 

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

	
 

	
 

	
0.00%

	
 

	
 

	
0.75%

	
 

	
Less than 1.00 to 1.00

	
 

	
 

	
0.00%

	
 

	
 

	
0.75%

	
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK  

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

	
  

	

	
  

	
  

	
Address:   

	
P. O. Box 877

	
Borrower:  

	
  

	
Dubuque, IA 52004-0877

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   R.J. Klosterman 

	

  

	

  

	

	
  

	
  

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

			Printed
Name 	Title 
	 
		
Date Signed:  

	June 29, 2004 	
	
	
	

	
 

	
 

	

	
Credit Agreement 

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

	
 

	
 

	
1.

	
Credit Facilities.

	
 

	
 

	
 

	
 

	
1.1

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

	
 

	
 

	
 

	
 

	
1.2

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
Funded Debt to EBITDA Ratio

	
Non-usage Fee

	

	

	
Greater than or equal to 2.00
  to 1.00

	
20 bp

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

	
10 bp

	
Less than 1.00 to 1.00

	
10 bp

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
1.3

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

	
 

	
 

	
 

	
 

	
1.4

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
Funded Debt to EBITDA
Ratio

	
Non-usage Fee

	

	

	
Greater than or equal to 2.00
  to 1.00

	
20 bp

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

	
10 bp

	
Less than 1.00 to 1.00

	
10 bp

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
Funded Debt to EBITDA Ratio

	
L/C Fee

	

	

	
Greater than or equal to 2.00
  to 1.00

	
125 bp

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

	
75 bp

	
Less than 1.00 to 1.00

	
75 bp

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
2. 

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

	
 

	
 

	
 

	
2.1

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

	
 

	
 

	
 

	
 

	
2.2

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

	
 

	
 

	
 

	
 

	
2.3

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

	
 

	
 

	
 

	
 

	
2.4

	
“DMI” means DMI Furniture, Inc.

	
 

	
 

	
 

	
 

	
2.5

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

	
 

	
 

	
 

	
 

	
2.6

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
2.7

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

	
 

	
 

	
 

	
 

	
2.8

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

	
 

	
 

	
 

	
 

	
2.9

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

	
 

	
 

	
 

	
 

	
2.10

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

	
 

	
 

	
 

	
3.

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

	
 

	
 

	
 

	
 

	
3.1

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

	
 

	
 

	
 

	
 

	
3.2

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

	
 

	
 

	
 

	
 

	
3.3

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

	
 

	
 

	
 

	
 

	
3.4

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

	
 

	
 

	
 

	
 

	
3.5

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	

	
3.6

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

	
 

	
 

	
 

	

	
3.7

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

	
 

	
 

	
 

	
 

	
3.8

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

	
 

	
 

	
 

	
 

	
3.9

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

	
 

	
 

	
 

	
 

	
3.10

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

	
 

	
 

	
 

	

	

	
3.11

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	4.	Negative Covenants.			
	 					
	
 

	
4.1 

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

	
 

	
 

	
 

	
 

	
4.2

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

	

	
 

	
 

	
 

	

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
Cash
  equivalent investments;

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
(iv)

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

	
 

	
 

	
 

	
(v)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
I.

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

	
sale of
  inventory in the ordinary course of business; or

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
5.

	
Representations.

	
 

	
 

	
 

	
 

	
5.1

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

	
 

	
 

	
 

	
 

	
5.2

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

	
 

	
 

	
6.

	
Default/Remedies.

	
 

	
 

	
 

	
 

	
6.1

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
6.2

	
Remedies.

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
7.

	
Miscellaneous.

	
 

	
 

	
 

	
7.1

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

	
 

	
 

	
 

	
 

	
7.2

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

	
 

	
 

	
 

	
 

	
7.3

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

	
 

	
 

	
 

	
 

	
7.4

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

	
 

	
 

	
 

	
 

	
7.5

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

	
 

	
 

	
 

	
 

	
7.6

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
7.7

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

	
 

	
 

	
 

	
 

	
7.8

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
7.9

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

	
 

	
 

	
 

	
 

	
7.10

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

	
 

	
 

	
 

	
 

	
7.11

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

	
 

	
 

	
 

	
 

	
7.12

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

	
 

	
 

	
 

	
 

	
7.13

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

	
 

	
 

	
 

	
 

	
7.14

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

	
 

	
 

	
 

	
 

	
7.15

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

	
 

	
 

	
 

	
 

	
7.16

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

	
 

	
 

	
8.

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

	
 

	
 

	
 

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

THE REMAINDER
OF THIS PAGE IS INTENTIONALLY LEFT BLANK

	
 

	
 

	
9.

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

	
 

	
 

	
10.

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

	
Address(es) for Notices:

		
Borrower:

	
 

	
 

	
P.O.
  Box 877

		
Flexsteel
  Industries, Inc.

	
 

	
Dubuque,
  IA 52004-0877

		
 

	
 

	
 

	
 

			
	
Attn: 

	Chief Financial Officer		
By:

	/s/   R. J. Klosterman 
	

	
                                        

                                			
                                        

                                
	 					
	
 

			

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

			

	
                                        

                                
	
 

			

	Printed Name 	
Title

	
 

			
 

	
 

	
 

			
Date Signed:

	June 29, 2004	
 

					
                                        

                                
	
 

			
 

	 					
	
Address
  for Notices:

		
Bank:

	
 

	
 

	
 

			
	
111
  Monument Circle

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

	
Indianapolis,
  IN 46277

		
 

	
 

	
 

	

 

			
 

	
 

	
 

	
Attn:

			
By:

	
/s/ Brian Smith

	

	
                                        

                                			
                                        

                                
	 					
	
 

			

	Brian Smith,	
                                        
                                                Vice President

                                
	
 

			

	
                                        

                                
	
 

			

	Printed Name	
                                        Title

                                
	
 

			
 

	
 

	
 

			
Date
  Signed:

	June 30, 2004
	

	
 

			
 

	

	
 

	
 

	

	
Line of Credit Note

	
 

	
 

	
 

	
$20,000,000.00

	
Due: June 29, 2005

	
Date: June 30, 2004

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

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

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

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Applicable Margin

	
 

	
 

	

	
Funded Debt to EBITDA Ratio

	
 

	
Prime Rate Advance

	
 

	
Eurodollar Advance

	

	
 

	

	
 

	

	
Greater than or equal to 2.00 to 1.00

	
 

	
0.00%

	
 

	
1.00%

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

	
 

	
0.00%

	
 

	
0.75%

	
Less 1.00 to 1.00

	
 

	
0.00%

	
 

	
0.50%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE REMAINDER OF THIS PAGE IS
INTENTIONALLY LEFT BLANK

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

	
  

	

	
  

	
  

	
Address:   

	
P.O. Box 877 

	
Borrower:  

	
  

	
Dubuque, IA 52004-0877 

	
  

	
  

	
  

	
Flexsteel Industries, Inc. 

	
  

	
  

	
  

	
  

	
By: 

	

/s/   R.J. Klosterman 

	

  

	

  

	

	
  

	
  

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

			Printed
Name 	Title 
	 
		
Date Signed:  

	June 29, 2004 	
	
	
	

          

Master Agreement
For Irrevocable
Letters of Credit

This Agreement is between

Flexsteel Industries, Inc.
and

Bank One, NA and its
subsidiaries and affiliates

MASTER AGREEMENT FOR IRREVOCABLE LETTERS OF CREDIT

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

	
 

	
 

	
 

	
 

	
1.

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

	
 

	
 

	
 

	
 

	 
	
2.

	
FEES AND INTEREST.   Applicant agrees to pay Issuer:

	
 

	
 

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
 

	
(i)

	
the rate customarily charged by Issuer; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

	
(c)

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

	
 

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
3.

	
PAYMENTS.

	
 

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
4  

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

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

	
Makes to Issuer the
  following representations and warranties:

	
 

	
 

	
 

	
 

	
 

	
(i)

	
Applicant is a corporation
  organized under the laws of Minnesota.

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(vi)

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

	
 

	
 

	
 

	
 

	
5.

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

	
 

	
Its Obligations (as defined
  in Section 12); and

	
 

	
(a)      The following
  covenants:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(vi)

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

	
 

	
 

	
 

	
 

	
6. 

	
RESPONSIBILITY OF ISSUER.

	
 

	
 

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
 

	
(c)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
Any delay in giving or
  failing to give any notice,

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(vi)

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

	
 

	
 

	
 

	
 

	
 

	
(d)

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

	
 

	
 

	
 

	
 

	
 

	
(e)

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

	
 

	
 

	
 

	
 

	
7.

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

	
 

	
(a)      Action or inaction required or permitted under:

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(iv)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(v)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(vi)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(vii)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
(c)

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

	
 

	
 

	
 

	
 

	
(d)

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

	
 

	
 

	
 

	
 

	
(e) 

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

	
 

	
 

	
 

	
 

	
(f) 

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

	
 

	
 

	
 

	
 

	
(g)

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

	
 

	
 

	
 

	
 

	
(h)

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

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
(j)

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

	
 

	
 

	
 

	
 

	
(k)

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

	
 

	
 

	
 

	
 

	
(l)

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

	
 

	
 

	
 

	
 

	
(m)

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

	
 

	
 

	
 

	
 

	
(n)

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

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

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

	
 

	
 

	
 

	
 

	
8.

	
SECURITY INTEREST.   This Section Intentionally Deleted.

	
 

	
 

	
 

	
9.

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

	
 

	
 

	
 

	
10.

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

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
11.

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

	
 

	
 

	
 

	
12.

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

	
 

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
(c)

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

	
 

	
 

	
 

	
 

	
(d)

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

	
 

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

	
 

	
 

	
 

	
13.

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

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
 

	
or

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
 

	
 

	
 

	
(ii)

	
The fraud, forgery or illegal action of others; or

	
 

	
 

	
 

	
 

	
 

	
 

	
(iii)

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

	
 

	
 

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
14.

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

	
 

	
 

	
15.

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

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
(c) 

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

	
 

	
 

	
 

	
16.

	
GUARANTORS.   This Section Intentionally Deleted.

	
 

	
 

	
 

	
 

	
17.

	
CORRESPONDENTS.   This Section Intentionally Deleted.

	
 

	
 

	
18.

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

	
 

	
 

	
19.

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

	
 

	
 

	
20.

	
MISCELLANEOUS.

	
 

	
 

	
 

	
(a)

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

	
 

	
 

	
 

	
 

	
(b)

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

	
 

	
 

	
 

	
 

	
(c)

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

	
 

	
 

	
 

	
 

	
(d)

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

	
 

	
 

	
 

	
 

	
(e)

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

	
 

	
 

	
 

	
 

	
(f)

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

	
 

	
 

	
 

	
 

	
(g)

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

	
 

	
 

	
 

	
 

	
(h)

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

	
 

	
 

	
 

	
 

	
(i)

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

	
 

	
 

	
 

	
21.

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

	
 

	
 

	
22.

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

	
 

	
 

	
23.

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

	
 

	
 

	
 

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

	
 

	
 

	
24. 

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

	
 

	
 

	
25.

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

	
 

	
 

	
26.

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

	
 

	
 

	
27.

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

	
 

	
 

	
28.

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

	
 

	
 

	
 

	
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

	
 

	
 

	
 

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

	
 

	
 

	
29. 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
30. 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

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

	
 

	
 

	
 

	
 

	
 

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

APPLICANT:  

FLEXSTEEL INDUSTRIES, INC.  

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

DMI FURNITURE, INC.  

	By:    	  	 
	Name:    	    	 
	Its:    	  	 
	Dated:    	     	 

Appendix A to the Master Agreement For Irrevocable Letters of Credit

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

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

	
   

  
	
Flexsteel Industries, Inc.

  
	
  

  
	
  Applicant Name/Correspondent Bank

  

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  K. B. Lauritsen

  	
   

  	
  President,
  C.E.O.

  	
   

  	
  /s/   K. B. Lauritsen 

  	
   

  	
June 29, 2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
  Date

  
	 
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  R. J. Klosterman

  	
   

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

  	
   

  	
  /s/   R. J. Klosterman 

  	
   

  	
  June 29, 2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
  Date

  
	 
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Timothy E. Hall

  	
   

  	
  Treasurer

  	
   

  	
  /s/   Timothy E. Hall 

  	
   

  	
June 29, 2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
  Date

  
	 

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

	
   

  
	
Flexsteel Industries, Inc.

  
	
  

  
	
Applicant Name/Correspondent Bank

  

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  K. B. Lauritsen

  	
   

  	
  President,
  C.E.O.

  	
   

  	
  /s/   K. B. Lauritsen 

  	
   

  	
  June 29,
  2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
  Date

  
	 
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	
  R. J. Klosterman

  	
   

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

  	
   

  	
  /s/   R. J. Klosterman 

  	
   

  	
  June 29, 2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	
  Timothy E. Hall

  	
   

  	
  Treasurer

  	
   

  	
  /s/   Timothy E. Hall 

  	
   

  	
  June 29,
  2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
  Printed Name

  	
   

  	
  Title

  	
   

  	
  Signature

  	
   

  	
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  Phillip J. Keller

  	
   

  	
  C.F.O.
DMI Furniture, Inc.

  	
   

  	
  /s/   Phillip J. Keller 

  	
   

  	
June 29, 2004

  
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

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

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

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	 
	
  

  	
   

  	
  

  	
   

  	
  

  	
   

  	
  

  
	
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  Date$1.0 MILLION UNSECURED SUBORDINATED PROMISSORY NOTE

FOR VALUE RECEIVED, Environmental Solutions Worldwide, Inc., a Florida
corporation (hereinafter called "Borrower" or "Maker"), hereby promises to pay
to Ledelle Holding Limited, registration number HE 156857, Neocleous House, 199
Arch Makarios III Avenue, P.O. Box 50613, CY-3608 Limasol, Cyprus (the "Lender"
or "Holder") or order, the sum of One Million ($1,000,000) dollars, with
interest accruing at the annual rate of 9%, on December 31, 2006 (the "Maturity
Date") or any extension thereof. The foregoing terms shall apply to this
Unsecured Promissory Note (the "Note"):

                                    ARTICLE I
                               GENERAL PROVISIONS

           1.1 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day
grace period to pay the principal and interest due under this Note.

           1.2 PAYMENT TERMS. The Note principal and accrued interest shall be
payable on December 31, 2006, the Maturity Date.

           1.3 INTEREST RATE. Interest payable on this Note shall accrue at the
annual rate of nine (9%) percent per annum and is payable on the Maturity Date
or any extension thereof unless otherwise provided for herein.

           1.4 ISSUANCE DATE. Shall be the date the Note is executed by the
Borrower as set forth below.

           1.5 RIGHT TO PRE-PAY. Borrower shall have the right to pre-pay this
Note at any time prior to Maturity Date or any extension thereof without
penalty.

           1.6 EXTENSION OF MATURITY DATE. At the Holder's option, the Maturity
Date of the Note can be extend on a month to month basis. Holder may notify
Maker by facsimile of any extension of the Maturity Date on or before the
Maturity Date or any extension thereof or within the applicable Payment Grace
Period for the Maturity Date or extension thereof.

           1.7 ELECTION TO RECEIVE PAYMENT IN STOCK. Holder may at its option on
and only on the Maturity Date, or on and only on any Maturity Date extension in
accordance with Section 1.6, elect to receive payment of principal and all
accrued interest in the form of restricted shares of Maker's common stock, par
value ($.001) (the "Common Stock") with cost free piggyback registration rights.
Should Holder elect to receive payment of this Note by way of issuance of
restricted Common Stock, notwithstanding Section 1.3 herein, interest is to be
calculated at twelve (12%) percent per annum from the Issuance Date based upon
the following formula:

                                     X/Y=Z

           X = Principal and Accrued Interest at annual rate of 12% per annum
from issuance of Note.

                                                                               1

<PAGE>

           Y = The lesser of the twenty one (21) day average closing price of
Maker's Common Stock as reported by Bloomberg Financial Markets immediately
preceding the Issuance Date of the Note or the twenty (21) day average closing
price of Maker's Common Stock as reported by Bloomberg Financial Markets
immediately preceding the Maturity Date (December 31, 2006) of the Note.

           Z = the number of shares of restricted Common Stock to be issued in
satisfaction of the Note and all accrued interest.

                                   ARTICLE II
                                EVENT OF DEFAULT

           The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable in accordance with Article I, upon demand,
without presentment, or grace period, all of which hereby are expressly waived,
except as set forth below:

           2.1 BREACH OF COVENANT. The Borrower breaches any material covenant
or other term or condition of this Note in any material respect and such breach,
if subject to cure, continues for a period of ten (10) days after written notice
to the Borrower from the Holder.

           2.2 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
therewith shall be false or misleading in any material respect as of the date
made.

           2.3 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

           2.4 JUDGMENTS. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $100,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.

           2.5 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.

           2.6 FAILURE TO DELIVER REPLACEMENT NOTE. Borrower's failure to timely
deliver if required a replacement Note.

           2.7 CROSS DEFAULT. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement, in each case, which is not cured after any required
notice and/or cure period.

                                                                               2

<PAGE>

                                   ARTICLE III
                                  MISCELLANEOUS

           3.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part
of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

           3.2 NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Environmental Solutions
Worldwide, Inc., 335 Connie Crescent, Concord Ontario L4K 5R2 with a copy by
telecopier only to: Baratta, Baratta & Aidala, LLP 597 Fifth Avenue, New York,
NY 10017, Attn: Joseph A. Baratta, Esq., telecopier number: (212) 750-8297, and
(ii) if to the Holder, to the name, address set forth on the front page of this
Note, with a copy by telecopier only to (INSERT LEGAL COUNSEL), telecopier
number: (INSERT FAX#).

           3.3 AMENDMENT PROVISION. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.

           3.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.

           3.5 COST OF COLLECTION. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.

           3.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.

                                                                               3

<PAGE>

           3.7 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

           3.8 SUBORDINATION. This Note is subordinate to the Borrower's
outstanding secured obligations.

           3.9 LEGAL REPRESENTATION. Both Borrower and Holder warrant and
represent that the law firm of Baratta, Baratta & Aidala, LLP has acted solely
as legal counsel for Borrower and that Holder has been

provided with sufficient opportunity to consult with its own legal and financial
advisors in connection with the transaction evidenced by this Note.

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an
authorized officer on this __ day of __________, 2006.

                                         ENVIRONMENTAL SOLUTIONS WORLDWIDE, INC.

                                         By:________________________________
                                              Name: Joey Schwartz
                                              Title: Chief Financial Officer
WITNESS:

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

AGREED TO:

--------------------------------
Ledelle Holding Limited

                                                                               4

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