Unassociated Document


    Exhibit
10.16

    


    SEVERANCE
PROTECTION AGREEMENT

    BETWEEN

    SPAN-AMERICA
MEDICAL SYSTEMS, INC. AND MARIE SITTER

    


     

    This
Severance Protection Agreement (this "Agreement") is made
and entered into effective the 1st day of December, 2008, by and
between Marie Sitter, an
individual (the "Executive"), and
Span-America Medical Systems, Inc., a South Carolina corporation (the "Company").

    


    W I T N E
S S E T H

     

    WHEREAS
the Company's Board of Directors (the "Board") 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;

     

    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

     

    WHEREAS
the Executive is willing to continue his or her employment with the Company
under the terms and conditions set forth herein;

     

    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:

     

    1.          
  Definitions. For purposes of this Agreement, the following terms
shall have the meanings specified below.

     

    "Accrued Compensation"
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) 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) vacation pay, (iv) bonuses and incentive
compensation, and (v) 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 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's bonus payments over the three year period immediately prior to the
termination.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    "Cause" shall mean as
follows:  A termination of employment is for "Cause" 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 (2/3)
of the Board that the Executive (i) intentionally and continually failed
substantially to perform his reasonably assigned duties with the Company (other
than a failure resulting from the Executive'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) 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) intentionally engaged in illegal conduct or gross misconduct which
results in material economic harm to the Company; provided, however, that (A)
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 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's employment shall be for Cause as set forth
in clause (ii) above until (x) 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) and specifying the particulars thereof in
detail, and (y) the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Executive's counsel if
the Executive so desires).  No act, nor failure to act, on the
Executive's part, shall be considered "intentional" 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'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'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.

     

    "Change in Control"
shall mean:

     

    (i)           The
acquisition by any Person (other than (A) any employee plan established by the
Company; (B) the Company or any of its affiliates (as defined in Rule 12b-2
promulgated under the Exchange Act); (C) an underwriter temporarily holding
securities pursuant to an offering of such securities; or (D) 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's then
outstanding voting securities.

     

    (ii)           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) 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
14a-11 of Regulation 14A under the Exchange Act, or (B) who was designated by a
Person who has entered into an agreement with the Company to effect a
transaction described in clause (i), (iii) or (iv) hereof) shall be deemed a
director as of the beginning of such period;

     

    (iii)           The
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than (A) 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  parent thereof outstanding immediately after such
merger or consolidation, or (B) 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's
then outstanding voting securities; or (C) 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's assets; or

     

    
      
         

      

      
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    (iv)           The
occurrence of any other event or circumstance which is not covered by (i)
through (iii) 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.

     

    "Code" shall mean the
Internal Revenue Code of 1986, as amended, or any successor statute, rule or
regulation of similar effect.

     

    "Disability" or "Disabled" shall mean
the Executive's inability as a result of physical or mental incapacity to
substantially perform Executive's duties for the Company on a full-time basis,
with or without accommodation, for a period of six (6) months.

     

    "Exchange Act" shall
mean the Securities Exchange Act of 1934, as amended.

     

    "Involuntary
Termination" shall mean the termination of Executive's employment by the
Executive which, in the sole judgment of the Executive, is due to (i) a change
(other than a clearly immaterial change) of the Executive's responsibilities,
position (including status as Vice President of Human Resources
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's positions, duties or responsibilities as in effect
immediately prior to a Change in Control); or (ii) a change (other than a
clearly immaterial change) in the terms or status (including the rolling one
year termination date) of this Agreement; or (iii) a reduction (other than a
clearly immaterial reduction) in the Executive's compensation or benefits; or
(iv) a forced relocation of the Executive outside the Greenville-Spartanburg
area; or (v) a significant increase in the Executive's travel requirements
(collectively "Status
Changes"); provided, however, Executive must elect to terminate
Executive's employment within two (2) years of the Status Change on which
Executive bases Executive's employment termination.

     

    "Person" shall mean
any individual, corporation, bank, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization or other
entity.

     

    2.         
   Term. Unless earlier
terminated as provided herein, this Agreement shall have a rolling term of one year (the "Term") 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 "Term" of this Agreement
shall be the one year
following the date of such notice, and this Agreement shall terminate upon the
expiration of such Term.

     

    3.           
 Termination of
Employment.

     

    3.1.           If,
during the term of this Agreement, the Executive'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.

     

    
      
         

      

      
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    3.1.1.                      If
the Executive's employment with the Company shall be terminated (i) by the
Company for Cause or Disability, (ii) by reason of the Executive's death, or
(iii) by the Executive, other than any Involuntary Termination, the Company
shall pay to the Executive all Accrued Compensation.

     

    3.1.2.                      If
the Company terminates Executive without Cause and otherwise for any reason
other than death or 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) all Accrued Compensation, (b)
aggregate compensation equal to one (1) times Executive's annual
compensation at the rate in effect immediately prior to the Change in
Control and (c) for certain lost benefits, an amount equal to 10% of the
Executive'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.

     

    3.1.3.                      In
the event of such termination pursuant to Section 3.1.2, (A) 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) the Executive shall be deemed to be credited with
service with the Company for such remaining Term for the purposes of the
Company's benefit plans; (C) 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's total non-qualified retirement benefit hereunder if under the terms
of the Company's qualified retirement plan for salaried employees he is not
entitled to a qualified benefit, and (D) if any provision of this Section 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'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'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 3.1.2, Executive shall have one (1) year from
the date of such termination to exercise any outstanding stock
options.

     

    3.2.           No
Mitigation.  The payments hereunder are not subject to
mitigation in the event Executive receives compensation and is no longer
actively employed.

     

    3.3.           The
severance pay and benefits provided for in this Section 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.

     

    
      
         

      

      
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    4.     
       Excess Parachute
Payments.

     

    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's
services to the Company and shall not constitute "excess parachute payments"
within the meaning of Section 280G of the Code and any regulations thereunder.
In the event that the Company'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 "excess parachute payments," then the
compensation payable hereunder shall be reduced to the point that such
compensation shall not qualify as "excess parachute payments."

     

    4.2.           To
the extent that payments under Section 3 cause a "parachute payment," as defined
in Section 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 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.

     

    5.          
  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.

     

    6.       
     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:

     

    
      	To the
      Company:  	 	Span-America Medical
      Systems, Inc.
	 	 	 
	 	 	 
	 	 	 Attn:      	 
	 	 	 	 
	To
      Executive:    	 	  
	 	 	 
	 	 	 


    

     

    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.

     

    7.       
     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.

     

    8.        
    Entire Agreement.
This Agreement, together with any agreement with respect to Executive'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 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's
employment with the Company, the provisions of this Agreement shall
control.

     

    
      
         

      

      
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    9.        
    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's
employment by the Company except as expressly provided in Section
8.

     

    10.           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's termination date shall be null
and void and any such agreement shall be deemed to be amended
accordingly.

     

    11.           Executive's
Expenses.  The Company shall pay or reimburse the Executive for
all costs, including reasonable attorney's, accountants' and actuary's fees and
expenses, incurred by the Executive (i) to confirm the Executive's rights
to and amounts of payments hereunder, (ii) to contest or dispute any
termination of the Executive'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) 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 Executive reasonably believes he or she
will be entitled pursuant to this Section 11 for costs that the Executive has
incurred or will incur during the ninety (90) days following such
demand.

     

    12.           Amendments and
Modifications. This Agreement may be amended or modified only by a
writing signed by the parties hereto.

     

    13.           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.

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above.

     

     

    
      
        
          	 	SPAN-AMERICA MEDICAL
      SYSTEMS, INC.
	 	 
	 	 	 	 
	
                   

                	
                  By:
      

                	
                   /s/ James
      D. Ferguson

                
	 	 	Name: 
      James D. Ferguson
	 	 	Title:   
      President and Chief Executive Officer
	 	 	 	 


        

      

       

      
        
          
            	 	EXECUTIVE
	 	 	 
	
                     

                  	 	 
	 	
                       
      Marie Sitter

                  
	 	 	      
                    Name:  Marie
      Sitter

                  
	 	 	 	 


          

        

      

    

     

    
      
         

      

      
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