SPAN AMERICA MEDICAL SYSTEMS INC
SEVERANCE AGREEMENT FOR JAMES FERGUSON
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<TYPE>EX-10.20
<SEQUENCE>3
<FILENAME>g79881exv10w20.htm
<DESCRIPTION>SEVERANCE AGREEMENT FOR JAMES FERGUSON
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<P align="center"><FONT size="2">EXHIBIT 10.20
</FONT>
<P align="center"><FONT size="2">SEVERANCE PROTECTION AGREEMENT<BR>
BETWEEN<BR>
SPAN-AMERICA MEDICAL SYSTEMS, INC. AND JAMES D. FERGUSON
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Severance Protection Agreement (this &#147;Agreement&#148;) is made and entered
into effective the 25th day of July, 2002, by and between James D. Ferguson, an
individual (the &#147;Executive&#148;), and Span-America Medical Systems, Inc., a South
Carolina corporation (the &#147;Company&#148;).
</FONT>
<P align="center"><FONT size="2">W I T N E S S E T H
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS the Company&#146;s Board of Directors (the &#147;Board&#148;) has determined that
it is essential and in the best interests of the Company and its shareholders
to retain the services of the Executive in the event of a threat or occurrence
of a Change in Control of the Company;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS, in order to induce the Executive to remain in the employ of the
Company in the event of a threat or the occurrence of a Change in Control, the
Company desires to provide the Executive with certain benefits in the event his
or her employment is terminated as a result of, or in connection with, a Change
in Control; and
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;WHEREAS the Executive is willing to continue his or her employment with
the Company under the terms and conditions set forth herein;
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Definitions. For purposes of this Agreement, the following terms shall
have the meanings specified below.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Accrued Compensation&#148; shall mean an amount which shall include all
amounts earned or accrued through the employment termination date but not paid
as of that date, including, without limitation, (i)&nbsp;base salary, (ii)
reimbursement for reasonable and necessary expenses incurred by the Executive
on behalf of the Company during the period ending on the termination date,
(iii)&nbsp;vacation pay, (iv)&nbsp;bonuses and incentive compensation, and (v)&nbsp;all other
amounts to which the Executive is entitled under any compensation plan of the
Company at the times such payments are due. For purposes of any termination
pursuant to Section&nbsp;3.1.2, Accrued Compensation shall include the amount to
which the Executive would have been entitled under any bonus plan of the
Company for the fiscal year in which a Change in Control occurs, pro rated to
reflect the portion of the year during which Executive was employed by the
Company and based on an average of Executive&#146;s bonus payments over the three
year period immediately prior to the termination.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Cause&#148; shall mean as follows: A termination of employment is for &#147;Cause&#148;
if the Executive has been convicted of a felony or a felony prosecution has
been brought against the Executive or if the termination is evidenced by a
resolution adopted in good faith by two-thirds (<SUP>2</SUP>/3) of the Board that the
Executive (i)&nbsp;intentionally and continually failed substantially to perform his
reasonably assigned duties with the Company (other than a failure resulting
from the Executive&#146;s incapacity due to physical or mental illness or because of
a Change in Control) which failure continued for a period of at least thirty
(30)&nbsp;days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or (ii)&nbsp;intentionally
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<P><FONT size="2">engaged in illegal conduct or gross misconduct which results in material
economic harm to the Company; provided, however, that (A)&nbsp;where the Executive
has been terminated for Cause because a felony prosecution has been brought
against him and no conviction or plea of guilty or plea of nolo contendere or
its equivalent results therefrom, then said termination shall no longer be
deemed to have been for Cause and the Executive shall be entitled to all the
benefits provided by Section&nbsp;3.1.2 or 3.1.3 hereof, as appropriate, from and
after the date on which the prosecution of the Executive has been dismissed or
a judgment of acquittal has been entered, whichever shall first occur; and (B)
no termination of the Executive&#146;s employment shall be for Cause as set forth in
clause (ii)&nbsp;above until (x)&nbsp;there shall have been delivered to the Executive a
copy of a written notice setting forth that the Executive was guilty of the
conduct set forth in clause (ii)&nbsp;and specifying the particulars thereof in
detail, and (y)&nbsp;the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Executive&#146;s counsel if
the Executive so desires). No act, nor failure to act, on the Executive&#146;s
part, shall be considered &#147;intentional&#148; unless the Executive has acted or
failed to act with a lack of good faith and with a lack of reasonable belief
that the Executive&#146;s action or failure to act was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of any senior
officer of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. Any
termination of the Executive&#146;s employment by the Company hereunder shall be
deemed to be a termination other than for Cause unless it meets all
requirements of this definition.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Change in Control&#148; shall mean:
</FONT>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;The acquisition by any Person (other than (A)&nbsp;any employee plan
established by the Company; (B)&nbsp;the Company or any of its affiliates (as
defined in Rule&nbsp;12b-2 promulgated under the Exchange Act); (C)&nbsp;an
underwriter temporarily holding securities pursuant to an offering of
such securities; or (D)&nbsp;a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportions as
their ownership of the Company), directly or indirectly, of securities of
the Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company) representing an
aggregate of 35% or more of the combined voting power of the Company&#146;s
then outstanding voting securities.</FONT></TD>
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        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;During any period of up to two consecutive years, individuals
who, at the beginning of such period, constitute the Board cease for any
reason to constitute at least a majority thereof, provided that any
person who becomes a director subsequent to the beginning of such period
and whose nomination for election is approved by at least two-thirds of
the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved (other than a director (A)&nbsp;whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company, as such terms are used in Rule&nbsp;14a-11 of Regulation&nbsp;14A under
the Exchange Act, or (B)&nbsp;who was designated by a Person who has entered
into an agreement with the Company to effect a transaction described in
clause (i), (iii)&nbsp;or (iv)&nbsp;hereof) shall be deemed a director as of the
beginning of such period;</FONT></TD>
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        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than (A)&nbsp;a
merger or consolidation that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of any Company, at least 51% of the
combined voting power of the voting securities of the Company or such
surviving entity or any</FONT></TD>
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        <TD><FONT size="2">parent thereof outstanding immediately after such merger or
consolidation, or (B)&nbsp;a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person is or becomes the beneficial owner (as defined in clause (i)
above), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company) representing 25% or more
of the combined voting power of the Company&#146;s then outstanding voting
securities; or (C)&nbsp;a plan of complete liquidation of the Company or an
agreement for the sale or disposition of the Company of all or
substantially all of the Company&#146;s assets; or</FONT></TD>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;The occurrence of any other event or circumstance which is not
covered by (i)&nbsp;through (iii)&nbsp;above which the Board determines affects
control of the Company and, in order to implement the purposes of this
Agreement as set forth above, adopts a resolution that such event or
circumstance constitutes a Change in Control for the purposes of this
Agreement.</FONT></TD>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Code&#148; shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute, rule or regulation of similar effect.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Disability&#148; or &#147;Disabled&#148; shall mean the Executive&#146;s inability as a
result of physical or mental incapacity to substantially perform Executive&#146;s
duties for the Company on a full-time basis, with or without accommodation, for
a period of six (6)&nbsp;months.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Exchange Act&#148; shall mean the Securities Exchange Act of 1934, as amended.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Involuntary Termination&#148; shall mean the termination of Executive&#146;s
employment by the Executive which, in the sole judgment of the Executive, is
due to (i)&nbsp;a change (other than a clearly immaterial change) of the Executive&#146;s
responsibilities, position (including status as President and Chief Executive
Officer of the Company, its successor or ultimate parent entity, office, title,
reporting relationships or working conditions), authority or duties (including
changes resulting from the assignment to the Executive of any duties
inconsistent with Executive&#146;s positions, duties or responsibilities as in
effect immediately prior to a Change in Control); or (ii)&nbsp;a change (other than
a clearly immaterial change) in the terms or status (including the rolling two
year termination date) of this Agreement; or (iii)&nbsp;a reduction (other than a
clearly immaterial reduction) in the Executive&#146;s compensation or benefits; or
(iv)&nbsp;a forced relocation of the Executive outside the Greenville-Spartanburg
area; or (v)&nbsp;a significant increase in the Executive&#146;s travel requirements
(collectively &#147;Status Changes&#148;); provided, however, Executive must elect to
terminate Executive&#146;s employment within two (2)&nbsp;years of the Status Change on
which Executive bases Executive&#146;s employment termination.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Person&#148; shall mean any individual, corporation, bank, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or other entity.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Term. Unless earlier terminated as provided herein, this Agreement
shall have a rolling term of two years (the &#147;Term&#148;) commencing on the date
hereof. This Agreement shall be deemed to extend each day for an additional day
automatically and without any action on behalf of either party. Either party
may, by written notice to the other, cause this Agreement to cease to extend
automatically and, upon such notice, the &#147;Term&#148; of this Agreement shall be the
two years following the date of such notice, and this Agreement shall terminate
upon the expiration of such Term.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Termination of Employment.
</FONT>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1. If, during the term of this Agreement, the Executive&#146;s
employment with the Company is terminated within one year following a
Change in Control under any of the following circumstances, the Executive
shall be entitled to the following compensation and benefits.</FONT></TD>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.1. If the Executive&#146;s employment with the Company shall be
terminated (i)&nbsp;by the Company for Cause or Disability, (ii)&nbsp;by
reason of the Executive&#146;s death, or (iii)&nbsp;by the Executive, other
than any Involuntary Termination, the Company shall pay to the
Executive all Accrued Compensation.</FONT></TD>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.2. If the Company terminates Executive without Cause and
otherwise for any reason other than death of Disability, including,
without limitation, any Involuntary Termination, then Executive
shall be entitled to receive immediately in a lump sum as severance
upon such termination, (a)&nbsp;all Accrued Compensation, (b)&nbsp;aggregate
compensation and benefits equal to two (2)&nbsp;times Executive&#146;s annual
compensation at the rate in effect immediately prior to the Change
in Control and (c)&nbsp;for certain lost benefits, an amount equal to
10% of the Executive&#146;s base salary at the rate in effect
immediately prior to the Change in Control. For purposes of
determining compensation which is not fixed (such as a bonus), the
annual amount of such unfixed compensation shall be deemed to be
equal to the average of such compensation over the three year
period immediately prior to the termination.</FONT></TD>
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        <TD><FONT size="2">&nbsp;</FONT></TD>
        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1.3. In the event of such termination pursuant to Section
3.1.2, (A)&nbsp;all rights of Executive pursuant to awards of share
grants or options granted by the Company shall be deemed to have
vested and shall be released from all conditions and restrictions,
except for restrictions on transfer pursuant to the Securities Act
of 1933, as amended, and (B)&nbsp;the Executive shall be deemed to be
credited with service with the Company for such remaining Term for
the purposes of the Company&#146;s benefit plans; (C)&nbsp;the Executive
shall be deemed to have retired from the Company and shall be
entitled as of the termination date, or at such later time as he
may elect to commence receiving the total combined qualified and
non-qualified retirement benefit to which he is entitled hereunder,
or Executive&#146;s total non-qualified retirement benefit hereunder if
under the terms of the Company&#146;s qualified retirement plan for
salaried employees he is not entitled to a qualified benefit, and
(D)&nbsp;if any provision of this Section&nbsp;3.1.2 cannot, in whole or in
part, be implemented and carried out under the terms of the
applicable compensation, benefit, or other plan or arrangement of
the Company because the Executive has ceased to be an actual
employee of the Company, because the Executive has insufficient or
reduced credited service based upon Executive&#146;s actual employment
by the Company, because the plan or arrangement has been terminated
or amended after the effective date of this Agreement, or because
of any other reason, the Company itself shall pay or otherwise
provide the equivalent of such rights, benefits and credits for
such benefits to Executive, Executive&#146;s dependents, beneficiaries
and estate. Subject to applicable legal limits to the contrary,
including, without limitation, limits applicable to incentive stock
options under the Code, in the event of termination pursuant to
Section&nbsp;3.1.2, Executive shall have one (1)&nbsp;year from the date of
such termination to exercise any outstanding stock options.</FONT></TD>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2. No Mitigation. The payments hereunder are not subject to
mitigation in the event Executive receives compensation and is no longer
actively employed.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3. The severance pay and benefits provided for in this Section&nbsp;3
shall be in lieu of any other severance or termination pay to which the
Executive may be entitled under any Company severance or termination
plan, program, practice or arrangement.
</FONT>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Excess Parachute Payments.
</FONT>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1. It is the intention of the parties hereto that the severance
payments and other compensation provided for herein are reasonable
compensation for Executive&#146;s services to the Company and shall not
constitute &#147;excess parachute payments&#148; within the meaning of Section&nbsp;280G
of the Code and any regulations thereunder. In the event that the
Company&#146;s independent accountants acting as auditors for the Company on
the date of a Change in Control determine that the payments provided for
herein constitute &#147;excess parachute payments,&#148; then the compensation
payable hereunder shall be reduced to the point that such compensation
shall not qualify as &#147;excess parachute payments.&#148;</FONT></TD>
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        <TD><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2. To the extent that payments under Section&nbsp;3 cause a &#147;parachute
payment,&#148; as defined in Section&nbsp;280G(b)(2) of the Code, the Company shall
indemnify Executive and hold Executive harmless against all claims,
losses, damages, penalties, expenses, and excise taxes relating thereto.
To effect this indemnification, the Company shall pay Executive an
additional amount that is sufficient to pay any excise tax imposed by
Section&nbsp;4999 of the Code on the payments and benefits to which Executive
is entitled without the additional amount plus any penalties or interest
imposed by the Internal Revenue Service in regard to such amounts, plus
another additional amount sufficient to pay all the excise and income
taxes on the additional amounts. The determination of any additional
amount that must be paid under this section at any time shall be made in
good faith by the independent auditors then employed by the Company.</FONT></TD>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignment. The parties acknowledge that this Agreement has been
entered into due to, among other things, the special skills of Executive, and
agree that this Agreement may not be assigned or transferred by Executive, in
whole or in part, without the prior written consent of Company.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notices. All notices, requests, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered or seven days after mailing if mailed, first
class, certified mail postage prepaid:
</FONT>
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    <TD valign="top"><FONT size="2">To the Company:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
Span-America Medical Systems, Inc.</FONT></TD>
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    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
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    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
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    <TD align="left" valign="top"><FONT size="2">
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
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Attn:  <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
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<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
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    <TD valign="top"><FONT size="2">To Executive:</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
<TR valign="bottom">
    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
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<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
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    <TD valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top"><FONT size="2">
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></FONT></TD>
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<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any party may change the address to which notices, requests, demands, and
other communications shall be delivered or mailed by giving notice thereof to
the other party in the same manner provided herein.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions Severable. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal
or unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Entire Agreement. This Agreement, together with any agreement with
respect to Executive&#146;s employment with the Company, forms the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangement, oral or written, between the
<P align="center"><FONT size="2">5</FONT>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

</FONT>
<P><FONT size="2">parties hereto with respect to the subject matter hereof. In the event of
any conflict between this Agreement and any other agreement with respect to any
termination of Executive&#146;s employment with the Company, the provisions of this
Agreement shall control.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not an Employment Agreement. This Agreement is not intended to be and
shall not be construed to be an employment agreement between the Company and
Executive. It is not intended to and shall not be construed to create, modify,
or otherwise affect the current or future terms of Executive&#146;s employment by
the Company except as expressly provided in Section&nbsp;8.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Non-Compete Cancellation. If the Executive is entitled to the payments
and benefits described in 3.1.2, then any agreement by the Executive not to
compete with the Company or its affiliates after the Executive&#146;s termination
date shall be null and void and any such agreement shall be deemed to be
amended accordingly.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Executive&#146;s Expenses. The Company shall pay or reimburse the
Executive for all costs, including reasonable attorney&#146;s, accountants&#146; and
actuary&#146;s fees and expenses, incurred by the Executive (i)&nbsp;to confirm the
Executive&#146;s rights to and amounts of payments hereunder, (ii)&nbsp;to contest or
dispute any termination of the Executive&#146;s employment following a Change in
Control or seek to obtain or enforce any right or benefit provided by this
Agreement in litigation or arbitration, or (iii)&nbsp;in connection with any audit
by a taxing authority related to any payment or benefit hereunder, or any
subsequent contest or litigation relating to the tax treatment of such payment
or benefit. Upon demand therefor, the Company shall advance to the Executive
any amount as to which the Company shall advance to the Executive any amount as
to which the Executive reasonably believes he or she will b entitled pursuant
to this Section&nbsp;11 for costs that the Executive has incurred or will incur
during the ninety (90)&nbsp;days following such demand.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amendments and Modifications. This Agreement may be amended or
modified only by a writing signed by the parties hereto.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Governing Law. The validity and effect of this agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of South Carolina.
</FONT>
<P><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
</FONT>
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    <TD width="50%">&nbsp;</TD>
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    <TD width="50%">&nbsp;</TD>
    <TD valign="top"><FONT size="2">SPAN-AMERICA MEDICAL SYSTEMS, INC</FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
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    <TD width="50%">&nbsp;</TD>
    <TD valign="top"><FONT size="2">By: &nbsp;&nbsp;<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u>
</TR>
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    <TD width="50%"></TD>
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name:</FONT></TD>
</TR>

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    <TD width="50%">&nbsp;</TD>
    <TD valign="top"><FONT size="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title:</FONT></TD>
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    <TD width="50%">&nbsp;</TD>
    <TD valign="top"><FONT size="2">EXECUTIVE</FONT></TD>
</TR>
<TR><TD><FONT size="2">&nbsp;</FONT></TD></TR>
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    <TD width="50%">&nbsp;</TD>
    <TD valign="top"><FONT size="2"><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name: James D. Ferguson</FONT></TD>
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