Document:

Exhibit
      10.2

     

    THIS
      AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT
      AND
      IF THE FEDERAL ARBITRATION ACT IS INAPPLICABLE, THE SOUTH CAROLINA UNIFORM
      ARBITRATION ACT, § 15-48-10, ET. SEQ., CODE OF LAWS OF SOUTH CAROLINA (1976), AS
      AMENDED.

     

    CAROLINA
      FIRST BANK

     

    REVOLVING
      NOTE

     

    $10,000,000.00

    Greenville,
      South Carolina

    June
      5, 2007

     

    FOR
      VALUE
      RECEIVED, SPAN-AMERICA
      MEDICAL SYSTEMS, INC.,
      A SOUTH
      CAROLINA CORPORATION (“Borrower”),
      PROMISES TO PAY TO THE ORDER OF CAROLINA
      FIRST BANK, ITS
      SUCCESSORS AND/OR ASSIGNS (hereinafter called the “Lender”),
      at
      the office of the Lender at 104 South Main Street, Greenville, South Carolina
      29601, or at such other place as the holder may designate in writing, on the
      Maturity Date (as defined in the Loan Agreement between Borrower and Lender,
      dated of even date herewith (the “Loan
      Agreement”)
      in
      immediately available funds the principal sum of Ten Million and no/100 Dollars
      ($10,000,000.00), or so much thereof as may be advanced from time to time.
      Lender is hereby irrevocably authorized by Borrower to record the amount
      outstanding from time to time of the Loan (as defined in the Loan Agreement)
      together with the applicable interest, and notations of payments of interest
      and/or principal received by Lender in respect thereof, which recordation shall,
      in the absence of manifest error, be rebuttably presumed accurate. All advances
      from Lender to Borrower hereunder may be repaid and readvanced and shall be
      made
      in accordance with and pursuant to the terms of the Loan Agreement. Any Event
      of
      Default under the Loan Agreement is an event of default under the terms of
      this
      Note (the “Note”).
      Except as expressly provided herein, all capitalized terms used in this Note
      shall have the same meaning as used in the Loan Agreement.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

    

    The
      purpose of the Loan evidenced by this Note is for: (a) a one time cash dividend
      not to exceed $5.00 per share plus a single regular quarterly dividend of $0.08
      per share; (b) working capital; (c) capital expenditures; and (d) other general
      corporate purposes.

     

    Interest.
      The
      principal amount hereof from time to time outstanding and unpaid shall bear
      interest from and including the date hereof until payment thereof in full.
      From
      the date hereof through the Maturity Date, and subject to the provisions set
      forth herein for the increase in the applicable interest rate upon the
      occurrence of an Event of Default (as defined in the Loan Agreement), interest
      due hereunder shall accrue at the LIBOR Rate plus the applicable margin (the
      LIBOR Rate plus the applicable margin, the “Interest Rate”) as indicated in the
      following pricing matrix, as determined by the Leverage Ratio (as defined in
      the
      Loan Agreement). The applicable margin for the initial period shall be .85%
      or
      85 basis points. 

     

    

      
        	
                Level

              	
                 

              	
                 

              	
                Ratio

              	
                 

              	
                 

              	
                Applicable
                  LIBOR Rate Margin

              	
                 

              
	
                I

              	
                 

              	
                 

              	
                <
                  1.0 to 1.0

              	
                 

              	
                 

              	
                .85%
                  or 85 basis points

              	
                 

              
	
                II

              	
                 

              	
                 

              	
                >
                  1.0 to 1.0 and <1.5 to 1.0

              	
                 

              	
                 

              	
                1.10%
                  or 110 basis points

              	
                 

              
	
                III

              	
                 

              	
                 

              	
                >1.5
                  to 1.0 and

                <2.0
                  to 1.0

              	
                 

              	
                 

              	
                1.35%
                  or 135 basis points

              	
                 

              
	
                IV

              	
                 

              	
                 

              	
                >2.0
                  to 1.0

              	
                 

              	
                 

              	
                1.65%
                  or 165 basis points

              	 

      

    

     

    Testing
      shall be made as of the end of each Interest Period based upon the Leverage
      Ratio for such Interest Period. Changes in the applicable margin shall become
      effective as of the Rate Set Date based upon the Leverage Ratio of the previous
      Interest Period. 

    
       

      For
        the
        purposes of this Note, the following terms shall apply:

       

      “Leverage
        Ratio” shall have the meaning given to it in the Loan Agreement.

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    “Interest
      Period” means the date hereof through June 30, 2007, and each fiscal quarter
      thereafter.

     

    “LIBOR
      Rate” means the thirty (30) day LIBOR as reported by the British Banker’s
      Association (for the purpose of displaying London Interbank Offered Rates for
      United States Dollar deposits) determined as of 11:00 a.m. (London time)
      (rounded upward to the next higher of 1/100 of 1%), two (2) Business Days prior
      to the first Business Day of each calendar month. 

     

    “Rate
      Set
      Date” shall be the date hereof, and on the first (1st)
      day of
      each Interest Period thereafter.

     

    Interest
      shall accrue and be computed on the basis of a year of 360 days.

     

    Repayment
      of Principal and Interest.
      Principal, interest, and prepayment premiums, if any, are payable in United
      States dollars, without offset or deduction of any kind for taxes or otherwise.
      Commencing on the first (1st)
      business day of the first month following the date of the initial advance under
      this Note and continuing on the first (1st)
      business day of each consecutive month thereafter as long as any principal
      amounts are due hereunder, Borrower shall make payments to Lender of accrued
      interest on all outstanding principal amounts. All outstanding principal and
      accrued but unpaid interest shall be paid in full by the Maturity
      Date.

     

    Advances.
      Lender
      has agreed, on the terms and subject to the conditions set forth in the Loan
      Agreement, to make advances to Borrower from time to time prior to the Maturity
      Date, upon the request of Borrower. Each advance shall be made in accordance
      with the terms and conditions set forth in the Loan Agreement and each of
      Borrower’s requests shall specify the date of the requested advance and the
      amount thereof. Upon Borrower’s fulfillment of all applicable conditions for
      making an advance, Lender shall make the requested advance in the manner or
      manners designated in the Loan Agreement, or make the advance in such other
      manner as Lender and Borrower from time to time may agree. Lender may rely
      on
      any verbal request for an advance as fully as if such request were in
      writing.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    This
      Note
      is issued pursuant to the Loan Agreement and is entitled to the benefits
      thereof. The holder of this Note may enforce the agreements of Borrower
      contained in the Loan Agreement and, upon the occurrence of an Event of Default,
      may exercise the remedies provided for therein or otherwise available at law
      or
      in equity.

    Borrower,
      at its option, subject to the terms of the Loan Agreement and the payment of
      accrued interest to the date of prepayment, may prepay, and upon the occurrence
      of certain events shall prepay, all or part of the principal outstanding under
      this Note, without prepayment premium or penalty of any kind. 

     

    Upon
      the
      occurrence of an Event of Default, any outstanding principal amounts advanced
      under this Note and any interest then accrued thereon may be declared to be
      immediately due
      and
      payable as provided in the Loan Agreement. Following the occurrence of any
      such
      Event of Default, the outstanding principal shall bear interest thereafter
      until
      cured at the interest rate stated herein plus
      four
      percent (4%). 

     

    If
      Borrower shall fail to make any installment of principal or interest within
      twenty (20) days from the due date thereof, whether by acceleration or
      otherwise, Borrower agrees to pay to Lender a late charge equal to one percent
      (1.0%) of the overdue installment.

     

    This
      Note
      shall be subject to arbitration as provided in the Loan Agreement. Borrower
      shall pay to the holder hereof such amounts in United States dollars as shall
      be
      sufficient to pay the enforcement costs and expenses of such holder, including
      without limitation, attorney’s fees and expenses, including, but not limited to,
      fees and expenses incurred on appeal in each case only in the event Lender
      prevails in such actions or in the event the holder takes actions to protect
      its
      interests hereunder in proceedings in bankruptcy. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    No
      reference herein to the Loan Agreement and no provision of this Note or the
      Loan
      Agreement shall alter or impair the obligation of Borrower, which is absolute
      and unconditional, to pay the principal of (and any default rate, late charge,
      or other charges, if any) and interest on this Note as provided
      herein.

     

    Borrower
      hereby waives presentment, demand, protest and notice of any kind whatsoever.
      The non-exercise by the holder of any of its rights hereunder in any particular
      instance shall not constitute a waiver hereof in that or any subsequent
      instance.

     

    This
      Note, and all future advances, are secured as provided in the Loan
      Agreement.

     

    This
      Note
      is the Note referred to in the Loan Agreement. This Note, except as governed
      by
      applicable federal law, shall be construed in accordance with and governed
      by
      the laws of the State of South Carolina.

     

    Agreed
      to
      this 5th
      day of
      June, 2007 and given under the hand and seal of the undersigned.

     

    
      	 	 	 
	 	
              SPAN
                AMERICA MEDICAL SYSTEMS, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ Richard
              C. Coggins
	 	
              
Its:
Chief
              Financial Officer
	 	
               [Corporate
                Seal]

            

    

     

    
      
        
        

      

      
        5Exhibit
      10.3

     

    THIS
      AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT
      AND
      IF THE FEDERAL ARBITRATION ACT IS INAPPLICABLE, THE SOUTH CAROLINA UNIFORM
      ARBITRATION ACT, § 15-48-10, ET. SEQ., CODE OF LAWS OF SOUTH CAROLINA (1976), AS
      AMENDED.

     

    
      	 STATE OF SOUTH CAROLINA	  ) 	 
	 COUNTY OF GREENVILLE	  )	 NEGATIVE
              PLEDGE AGREEMENT

    

     

    THIS
      NEGATIVE PLEDGE AGREEMENT (“Negative
      Pledge”)
      is
      entered into this 5th
      day of
      June, 2007, by Span-America
      Medical Systems, Inc.
      (“Borrower”)
      to
      Carolina First Bank ("Bank").

    

    Statement
      of Purpose.
      Simultaneously with the execution of this Negative Pledge, Borrower and Bank
      have entered into a Loan Agreement (“Loan
      Agreement”)
      to
      provide, inter alia,
      to the
      Borrower a revolving line of credit loan in the amount of Ten Million and no/100
      Dollars ($10,000,000.00) (the "Loan")
      upon
      the terms and conditions more particularly described therein. As a condition
      precedent to the making of the Loan, the Bank has required Borrower to provide
      the pledge, promises, and assurances more particularly set forth
      hereinbelow.

    

    Agreement.
      In
      consideration of the foregoing premises, and for other good and valuable
      consideration, the legal sufficiency of which are hereby acknowledged, Borrower
      hereby (i) represents and warrants to the Bank that, as of the date hereof,
      it
      has not pledged, granted any security interests in, transferred, leased,
      mortgaged, assigned, abandoned or otherwise disposed of any material part of
      its
      assets (including promissory notes and mortgages), whether consensual or
      otherwise, whether real or personal, except those in favor of lenders on a
      purchase money security interest basis or those previously released or otherwise
      disclosed to Bank in writing prior to the date hereof; (ii) covenants and agrees
      with the Bank that it shall not (A) pledge, grant any security interest in,
      or
      mortgage (except for granting Permitted Liens as defined in the Loan Agreement),
      or (B) except in the transfer of inventory in the ordinary course of business,
      transfer, lease, assign, abandon or otherwise dispose of, any of its right,
      title, and interest in and to any material part of its assets (including
      promissory notes and mortgages), whether real, personal or otherwise, whether
      now owned or hereafter acquired to any other party, for so long as any
      obligations are owed to the Bank in connection with the Loan or any commitment
      to lend shall exist under the Loan, without the prior written consent of Bank,
      and (iii) covenants and agrees with Bank that, upon the occurrence of an Event
      of Default (as defined in the Loan Agreement) under the Loan and the request
      of
      Bank, Borrower shall grant to Bank a first-priority, perfected security interest
      in and to all of Borrower's Accounts, Instruments, and Chattel Paper (as defined
      in the South Carolina Uniform Commercial Code), or if such security interest
      has
      already been granted take such steps as are commercially reasonable to perfect
      it in a manner senior to all other creditors other than creditors holding
      Permitted Liens as defined in the Loan Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Arbitration.
      This
      Negative Pledge shall be subject to arbitration under the terms and conditions
      provided in the Loan Agreement.

    

    This
      Negative Pledge is executed to be effective as of the date first written
      above.

     

    
      	 WITNESSES: 	 	 	 SPAN-AMERICA
              MEDICAL SYSTEMS, INC.
	 	 	 	 
	 	 	 	 
	/s/
              Deborah S.
              Crain	 	 By:
              	/s/ Richard
              C. Coggins  (Seal)
	
              

            	 	 	
              
Its:
              Chief
              Financial Officer
	/s/ Brenda L. H. Russell	 	 	
            
	
              

            	 	 	 

    

     

    
      	STATE OF SOUTH CAROLINA 	  ) 	 
	 	 	 ACKNOWLEDGMENT
	 COUNTY OF GREENVILLE	  )	
            

    

     

    I,
      the
      undersigned, a Notary Public, do hereby certify that Span-America
      Medical Systems, Inc. by
      Richard
      Coggins  its
      duly authorized CFO, personally
      appeared before me this day and acknowledged the due execution of the foregoing
      instrument.

     

    Witness
      my hand and seal, this 5th
      day
      of
      June, 2007.

    
      	 	 	 
	
            	
            	 /s/
              Kathy W.
              Young                                        
	 
              
              (Seal)  

            	
              
                

              

               Notary
                Public for South Carolina

              My Commission Expires:    01-05-2014

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