NOTIFICATION OF INCENTIVE STOCK OPTION AWARD

UNDER THE FLEXSTEEL INDUSTRIES, INC. OMNIBUS STOCK PLAN



Flexsteel Industries, Inc. (the “Company”) hereby grants to you an option (the “Option”) under this Notification of Incentive Stock Option Award (this “Notification of Award”), under the Flexsteel Industries, Inc. Omnibus Stock Plan (the “Plan”), provided upon request.  Options granted under this Notification of Award are subject to the following terms and conditions:



In the event of an Involuntary Termination, other than for Cause, 30 days before or 12 months following a Change of Control (see Attachment A, “Definitions”) of the Company, then the vesting schedule set forth above shall be automatically accelerated so that all Shares purchased or purchasable upon exercise of this Option shall become fully vested, effective as of the effective time of the Change in Control.

(a)In the event of your termination of employment due to reasons other than death, Disability, Termination for Cause (see Attachment A, “Definitions”) or termination on or after you reach the age of 62, the Option may be exercised (to the extent exercisable at the date of termination) by you within three months after the date of termination of employment.



(b)In the event of your termination of employment on or after you reach the age of 62, the Option may be exercised (to the extent exercisable at the date of termination) by you within three months after the date of termination of employment. 



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



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



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

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

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

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

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

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

(iii)Broker-Assisted Cashless Exercise.  By directing a stockbroker designated by the Company to effect a broker assisted cashless exercise to sell Shares issued on exercise of the Option and remitting the proceeds of such sale to the Company. Please note that, if this

option is utilized, this will disqualify the ISO status of the shares used for the broker-assisted cashless exercise; or

(iv)  Net Exercise.  By instructing the Company to withhold Shares having an aggregate Fair Market Value on the date of exercise less than or equal to the purchase price of the Shares acquired upon exercise; provided that this method of exercise may only be used to deliver net shares to you and no cash compensation may be provided, other than cash in lieu of a fractional share. Please note that, if this option is utilized, this will disqualify the ISO status of the shares used for the net exercise.

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

NOTIFICATION OF INCENTIVE STOCK OPTION AWARD

UNDER THE FLEXSTEEL INDUSTRIES, INC. OMNIBUS STOCK PLAN





FLEXSTEEL INDUSTRIES, INC.:





Acknowledgement: Your receipt of this Notification of Award, including the Guidelines for Stock Ownership, constitutes your agreement to be bound by the terms and conditions of this Notification of Award and the Plan.



OPTIONEE:





ATTACHMENT A

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“Improper Use of Confidential Information” means: 

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

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

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

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

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

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

“Involuntary Termination” has the meaning set forth in U.S. Treasury Regulation §1.409A-1(n).  Generally, this means that the Company has terminated your employment under circumstances where you have not initiated or requested the termination and you are willing and able to continue your employment.  An “involuntary termination,” for these purposes, also includes your separation from service due to “good reason” if your separation occurs due to a material diminution in your base compensation; a material diminution of your authority, duties or responsibilities; or a material change in the geographic location at which you must perform services.  In order for a separation from service to be considered a “good reason” separation from service, you must provide a

written notice to the Company of the existence of the condition within a 30-day period following the initial existence of the condition, upon which the Company must be provided a period of at least 90 days during which it may remedy the condition.

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

ATTACHMENT B

FLEXSTEEL INDUSTRIES, INC.

OMNIBUS STOCK PLAN

INCENTIVE STOCK OPTION

BENEFICIARY DESIGNATION OF EMPLOYEE



Under the Flexsteel Industries, Inc. Omnibus Stock Plan, I, «Name», hereby designate the following as beneficiary of any portion of my award which has been earned according to the terms of the Plan and unpaid at the time of my death.









Signature:  ________________________________



Name:     «Name»



Date:  ____________________________________



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