Document:

EXHIBIT
      4.1

    

    PHANTOM
      ENTERTAINMENT, INC.

    

    2007
      EXECUTIVE COMPENSATION PLAN A

    
      
        

      

    

     

    This
      Phantom Entertainment, Inc. 2007 EXECUTIVE COMPENSATION PLAN
      A
      (the "
Plan
      ") is
      designed to retain employees and reward them for making major contributions
      to
      the success of the Company. These objectives are accomplished by making
      incentive awards under the Plan thereby providing Participants with a
      proprietary interest in the growth and performance of the Company.

    

    
      	
              1.

            	
              Definitions.

            

    

    

    
      	
               

            	
              (a)

            	
              "Board"
                -
                The Board of Directors of the
                Company.

            

    

    

    
      	
               

            	
              (b)

            	
              "Code"
                -
                The Internal Revenue Code of 1986, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (c)

            	
              "Committee"
                -
                The Compensation Committee of the Company's Board, or such other
                committee
                of the Board that is designated by the Board to administer the Plan,
                composed of not less than two members of the Board all of whom are
                disinterested persons, as contemplated by Rule 16b-3 ("Rule
                16b-3")
                promulgated under the Securities Exchange Act of 1934, as amended
                (the
                "Exchange
                Act").

            

    

    

    
      	
               

            	
              (d)

            	
              "Company"
                -
                Phantom Entertainment, Inc. and its subsidiaries including subsidiaries
                of
                subsidiaries.

            

    

    

    
      	
               

            	
              (e)

            	
              "Exchange  Act"
                -
                The Securities Exchange Act of 1934, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (f)

            	
              "Fair
                Market Value"
                -
                The fair market value of the Company's issued and outstanding Stock
                as
                determined in good faith by the Board or
                Committee.

            

    

    

    
      	
               

            	
              (g)

            	
              "Grant"
                -
                The grant of any stock award to a Participant pursuant to such terms,
                conditions and limitations as the Committee may establish in order
                to
                fulfill the objectives of the Plan.

            

    

    

    
      	
               

            	
              (h)

            	
              "Grant
                Agreement"
                -
                An agreement between the Company and a Participant that sets forth
                the
                terms, conditions and limitations applicable to a
                Grant.

            

    

    

    
      	
               

            	
              (i)

            	
              "Participant"
                -
                An outside consultant, professional and service provider of the Company
                to
                whom an Award has been made under the
                Plan.

            

    

    

    
      	
               

            	
              (j)

            	
              "Securities
                Act"
                -
                The Securities Act of 1933, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (k)

            	
              "Stock"
                -
                Authorized and issued or unissued shares of common stock of the
                Company.

            

    

    

    
      	
               

            	
              (l)

            	
              "Stock
                Award"
                -
                A Grant made under the Plan in stock or denominated in units of stock
                for
                which the Participant is not obligated to pay additional
                consideration.

            

    

    

    
      	
              2.

            	
              Administration.

            

    

     

    The
      Plan
      shall be administered by the Board, provided however, that the Board may
      delegate such administration to the Committee. Subject to the provisions of
      the
      Plan, the Board and/or the Committee shall have authority to (a) grant, in
      its
      discretion, Stock Awards; (b) determine in good faith the fair market value
      of
      the Stock covered by any Grant; (c) determine which eligible persons shall
      receive Grants and the number of shares, restrictions, terms and conditions
      to
      be included in such Grants; (d) construe and interpret the Plan; (e) promulgate,
      amend and rescind rules and regulations relating to its administration, and
      correct defects, omissions and inconsistencies in the Plan or any Grant; (f)
      consistent with the Plan and with the consent of the Participant, as
      appropriate, amend any outstanding Grant; (g) determine the duration and purpose
      of leaves of absence which may be granted to Participants without constituting
      termination of their engagement for the purpose of the Plan or any Grant; and
      (h) make all other

    

    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

     

    determinations
      necessary or advisable for the Plan’ administration. The interpretation and
      construction by the Board of any provisions of the Plan or selection of
      Participants shall be conclusive and final. No member of the Board or the
      Committee shall be liable for any action or determination made in good faith
      with respect to the Plan or any Grant made thereunder.

    

    
      	
              3.

            	
              Eligibility.

            

    

    

    The
      persons who shall be eligible to receive Grants shall be officers, executive
      and
      non-executive employees, directors, outside consultants, professionals and
      service providers of the Company.

    

    
      	
              4.

            	
              Stock.

            

    

    

    
      	
               

            	
              (a)

            	
              Authorized
                Stock:
                Stock subject to Grants may be either unissued or reacquired
                Stock.

            

    

    

    
      	
               

            	
              (b)

            	
              Number
                of Shares:
                Subject to adjustment as provided in Section 5(i) of the Plan , the
                total
                number of shares of Stock which may be purchased or granted directly
                by
                Stock Awards granted under the Plan shall not exceed One Hundred
                and Fifty
                Million (150,000,000) shares. If any Grant shall for any reason terminate
                or expire, any shares allocated thereto but remaining unvested shall
                again
                be available for Grants with respect thereto under the Plan as though
                no
                Grant had previously occurred with respect to such shares. Any shares
                of
                Stock issued pursuant to a Grant and repurchased pursuant to the
                terms
                thereof shall be available for future Grants as though not previously
                covered by a Grant.

            

    

    

    
      	
               

            	
              (c)

            	
              Reservation
                of Shares:
                The Company shall reserve and keep available at all times during
                the term
                of the Plan such number of shares as shall be sufficient to satisfy
                the
                requirements of the Plan . If, after reasonable efforts, which efforts
                shall not include the registration of the Plan or Grants under the
                Securities Act, the Company is unable to obtain authority from any
                applicable regulatory body, which authorization is deemed necessary
                by
                legal counsel for the Company for the lawful issuance of shares hereunder,
                the Company shall be relieved of any liability with respect to its
                failure
                to issue and sell the shares for which such requisite authority was
                so
                deemed necessary unless and until such authority is
                obtained.

            

    

    

    
      	
              5.

            	
              Stock
                Awards.

            

    

    

    All
      or
      part of any Stock Award under the Plan may be subject to conditions established
      by the Board or the Committee, and set forth in a Stock Award Agreement, which
      may include, but are not limited to, continuous service with the Company,
      achievement of specific business objectives, increases in specified indices,
      attaining growth rates and other comparable measurements of Company performance.
      Such Awards may be based on Fair Market Value or other specified valuation.
      All
      Stock Awards will be made pursuant to the execution of a Stock Award
      Agreement.

    

    
      	
               

            	
              (a)

            	
              Conditions
                and Restrictions.
                Shares of Stock which Participants may receive as a Stock Award under
                a
                Stock Award Agreement may include such restrictions as the Board
                or
                Committee, as applicable, shall determine, including restrictions
                on
                transfer, repurchase rights, right of first refusal, and forfeiture
                provisions. When transfer of Stock is so restricted or subject to
                forfeiture provisions it is referred to as “Restricted
                Stock.”
                Further, with Board or Committee approval, Stock Awards may be deferred,
                either in the form of installments or a future lump sum distribution.
                The
                Board or Committee may permit selected Participants to elect to defer
                distributions of Stock Awards in accordance with procedures established
                by
                the Board or Committee to assure that such deferrals comply with
                applicable requirements of the Code including, at the choice of
                Participants, the capability to make further deferrals for distribution
                after retirement. Any deferred distribution, whether elected by the
                Participant or specified by the Stock Award Agreement or by the Board
                or
                Committee, may require the payment be forfeited in accordance with
                the
                provisions of Section 5(c). Dividends or dividend equivalent rights
                may be
                extended to and made part of any Stock Award, subject to such terms,
                conditions and restrictions as the Board or Committee may
                establish.

            

    

    

    
      	 	
              (b)

            	
              Cancellation
                and Rescission of Grants.
                Unless the Stock Award Agreement specifies otherwise, the Board or
                Committee, as applicable, may cancel any unvested or deferred Grants
                at
                any time if the Participant is not in compliance with all other applicable
                provisions of the Stock Award Agreement, the Plan and with the following
                conditions:  

            

    

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

     

    
      	 	
              (i)

            	
              A
                Participant shall not render services for any organization or engage
                directly or indirectly in any business which, in the judgment of
                the chief
                executive officer of the Company or other senior officer designated
                by the
                Board or Committee, is or becomes competitive with the Company, or
                which
                organization or business, or the rendering of services to such
                organization or business, is or becomes otherwise prejudicial to
                or in
                conflict with the interests of the Company. For Participants whose
                engagement has terminated, the judgment of the chief executive officer
                shall be based on the Participant's position and responsibilities
                while
                employed by the Company, the Participant's post-engagement
                responsibilities and position with the other organization or business,
                the
                extent of past, current and potential competition or conflict between
                the
                Company and the other organization or business, the effect on the
                Company's customers, suppliers and competitors and such other
                considerations as are deemed relevant given the applicable facts
                and
                circumstances. A Participant who has retired shall be free, however,
                to
                purchase as an investment or otherwise, stock or other securities
                of such
                organization or business so long as they are listed upon a recognized
                securities exchange or traded over-the-counter, and such investment
                does
                not represent a substantial investment to the Participant or a greater
                than five percent (5%) equity interest in the organization or
                business.

            
	 	 	 
	 	
              (ii)

            	
              A
                Participant shall not, without prior written authorization from the
                Company, disclose to anyone outside the Company, or use in other
                than the
                Company's business, any confidential information or material relating
                to
                the business of the Company, acquired by the Participant either during
                or
                after engagement with the Company.  

            
	 	 	 
	 	
              (iii)

            	
              A
                Participant shall disclose promptly and assign to the Company all
                right,
                title and interest in any invention or idea, patentable or not, made
                or
                conceived by the Participant during engagement by the Company, relating
                in
                any manner to the actual or anticipated business, research or development
                work of the Company and shall do anything reasonably necessary to
                enable
                the Company to secure a patent where appropriate in the United States
                and
                in foreign countries.

            
	 	 	 
	 	
              (iv)

            	
              Upon
                exercise, payment or delivery pursuant to a Grant, the Participant
                shall
                certify on a form acceptable to the Committee that he or she is in
                compliance with the terms and conditions of the Plan
                .

            

    

    

    
      	
               

            	
              (c)

            	
              Nonassignability.

            

    

    

    
      	 	
              (i)

            	
              Except
                pursuant to Section 5(e)(iii) and except as set forth in Section
                5(d)(ii),
                no Grant or any other benefit under the Plan shall be assignable
                or
                transferable, or payable to, anyone other than the Participant to
                whom it
                was granted.  

            
	 	 	 
	 	
              (ii)

            	
              Where
                a Participant terminates engagement and retains a Grant pursuant
                to
                Section 5(e)(ii) in order to assume a position with a governmental,
                charitable or educational institution, the Board or Committee, in
                its
                discretion and to the extent permitted by law, may authorize a third
                party
                (including but not limited to the trustee of a "blind" trust), acceptable
                to the applicable governmental or institutional authorities, the
                Participant and the Board or Committee, to act on behalf of the
                Participant with regard to such
                Awards.

            

    

    

    
      	
               

            	
              (d)

            	
              Termination
                of Engagement.
                If
                the engagement or service to the Company of a Participant terminates,
                other than pursuant to any of the following provisions under this
                Section
                5(e), all unvested or deferred Stock Awards shall be cancelled
                immediately, unless the Stock Award Agreement provides
                otherwise:

            

    

    

    
      	 	
              (i)

            	
              Retirement
                Under a Company Retirement Plan.
                When a Participant's engagement terminates as a result of retirement
                in
                accordance with the terms of a Company retirement Plan, the Board
                or
                Committee may permit Stock Awards to continue in effect beyond the
                date of
                retirement in accordance with the applicable Grant Agreement and
                vesting
                of any such Grants may be accelerated.

            
	 	 	 
	 	
              (ii)

            	
              Rights
                in the Best Interests of the Company.
                When a Participant resigns from the
                Company

            

    

    

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

     

    and,
      in
      the judgment of the Board or Committee, the acceleration and/or continuation
      of
      outstanding Stock Awards would be in the best interests of the Company, the
      Board or Committee may (i) authorize, where appropriate, the acceleration and/or
      continuation of all or any part of Grants issued prior to such termination
      and
      (ii) permit the vesting of such Grants for such period as may be set forth
      in
      the applicable Grant Agreement, subject to earlier cancellation pursuant to
      Section 8 or at such time as the Board or Committee shall deem the continuation
      of all or any part of the Participant's Grants are not in the Company's best
      interest.  

    
      	
            	 	 
	 	
              (iii)

            	
              Death
                or Disability of a Participant.

            

    

     

    
      	 	
              (1)

            	
              In
                the event of a Participant's death, the Participant's estate or
                beneficiaries shall have a period up to the expiration date specified
                in
                the Grant Agreement within which to receive or exercise any outstanding
                Grant held by the Participant under such terms as may be specified
                in the
                applicable Grant Agreement. Rights to any such outstanding Grants
                shall
                pass by will or the laws of descent and distribution in the following
                order: (a) to beneficiaries so designated by the Participant; if
                none,
                then (b) to a legal representative of the Participant; if none, then
                (c)
                to the persons entitled thereto as determined by a court of competent
                jurisdiction. Grants so passing shall be made at such times and in
                such
                manner as if the Participant were living.
 

            

    

    

    
      	
               

            	
              (2)

            	
              In
                the event a Participant is deemed by the Board or Committee to be
                unable
                to perform his or her usual duties by reason of mental disorder or
                medical
                condition which does not result from facts which would be grounds
                for
                termination for cause, Grants and rights to any such Grants may be
                paid to
                the Participant, if legally competent, or a committee or other legally
                designated guardian or representative if the Participant is legally
                incompetent by virtue of such
                disability.

            

    

    

    
      	
               

            	
              (3)

            	
              After
                the death or disability of a Participant, the Board or Committee
                may in
                its sole discretion at any time (1) terminate restrictions in Grant
                Agreements; (2) accelerate any or all installments and rights; and
                (3)
                instruct the Company to pay the total of any accelerated payments
                in a
                lump sum to the Participant, the Participant's estate, beneficiaries
                or
                representative; notwithstanding that, in the absence of such termination
                of restrictions or acceleration of payments, any or all of the payments
                due under the Grant might ultimately have become payable to other
                beneficiaries.

            

    

    

    
      	
               

            	
              (4)

            	
              In
                the event of uncertainty as to interpretation of or controversies
                concerning this Section 5, the determinations of the Board or Committee,
                as applicable, shall be binding and
                conclusive.

            

    

    

    
      	
              6.

            	
              Investment
                Intent. All Grants under the Plan are intended to be exempt from
                registration under the Securities Act provided by Rule 701 thereunder.
                Unless and until the sale and issuance of Stock subject to the Plan
                are
                registered under the Securities Act or shall be exempt pursuant to
                the
                rules promulgated thereunder, each Grant under the Plan shall provide
                that
                the purchases or other acquisitions of Stock thereunder shall be
                for
                investment purposes and not with a view to, or for resale in connection
                with, any distribution thereof. Further, unless the issuance and
                sale of
                the Stock have been registered under the Securities Act, each Grant
                shall
                provide that no shares shall be purchased upon the exercise of the
                rights
                under such Grant unless and until (i) all then applicable requirements
                of
                state and federal laws and regulatory agencies shall have been fully
                complied with to the satisfaction of the Company and its counsel,
                and (ii)
                if requested to do so by the Company, the person exercising the rights
                under the Grant shall (i) give written assurances as to knowledge
                and
                experience of such person (or a representative employed by such person)
                in
                financial and business matters and the ability of such person (or
                representative) to evaluate the merits and risks of receiving the
                Stock as
                compensation, and (ii) execute and deliver to the Company a letter
                of
                investment intent and/or such other form related to applicable exemptions
                from registration, all in such form and substance as the Company
                may
                require. If shares are issued upon exercise of any rights under a
                Grant
                without registration under the Securities Act, subsequent registration
                of
                such shares shall relieve the purchaser thereof of any investment
                restrictions or representations made upon the exercise of such
                rights.

            

    

    

    
      	
              7.

            	
              Amendment,
                Modification, Suspension or Discontinuance of the Plan. The Board
                may,
                insofar as

            

    

     

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

     

    permitted
      by law, from time to time, with respect to any shares at the time not subject
      to
      outstanding Grants, suspend or terminate the Plan or revise or amend it in
      any
      respect whatsoever, except that without the approval of the shareholders of
      the
      Company, no such revision or amendment shall (i) increase the number of shares
      subject to the Plan, (ii) decrease the price at which Grants may be granted,
      (iii) materially increase the benefits to Participants, or (iv) change the
      class
      of persons eligible to receive Grants under the Plan; provided, however, no
      such
      action shall alter or impair the rights and obligations under any Stock Award
      outstanding as of the date thereof without the written consent of the
      Participant thereunder. No Grant may be issued while the Plan is suspended
      or
      after it is terminated, but the rights and obligations under any Grant issued
      while the Plan is in effect shall not be impaired by suspension or termination
      of the Plan.  

    

    In
      the
      event of any change in the outstanding Stock by reason of a stock split, stock
      dividend, combination or reclassification of shares, recapitalization, merger,
      or similar event, the Board or the Committee may adjust proportionally (a)
      the
      number of shares of Stock (i) reserved under the Plan, (ii) covered by
      outstanding Stock Awards; (b) the Stock prices related to outstanding Grants;
      and (c) the appropriate Fair Market Value and other price determinations for
      such Grants. In the event of any other change affecting the Stock or any
      distribution (other than normal cash dividends) to holders of Stock, such
      adjustments as may be deemed equitable by the Board or the Committee, including
      adjustments to avoid fractional shares, shall be made to give proper effect
      to
      such event. In the event of a corporate merger, consolidation, acquisition
      of
      property or stock, separation, reorganization or liquidation, the Board or
      the
      Committee shall be authorized to issue or assume stock options, whether or
      not
      in a transaction to which Section 424(a) of the Code applies, and other Grants
      by means of substitution of new Grant Agreements for previously issued Grants
      or
      an assumption of previously issued Grants.

    

    
      	
              8.

            	
              Tax
                Withholding. The Company shall have the right to deduct applicable
                taxes
                from any Grant payment and withhold, at the time of delivery or exercise
                of Stock Awards or vesting of shares under such Grants, an appropriate
                number of shares for payment of taxes required by law or to take
                such
                other action as may be necessary in the opinion of the Company to
                satisfy
                all obligations for withholding of such taxes. If Stock is used to
                satisfy
                tax withholding, such stock shall be valued based on the Fair Market
                Value
                when the tax withholding is required to be
                made.

            

    

     

    
      	
              9.

            	
              Availability
                of Information. During the term of the Plan and any additional period
                during which a Grant granted pursuant to the Plan shall be payable,
                the
                Company shall make available, not later than one hundred and twenty
                (120)
                days following the close of each of its fiscal years, such financial
                and
                other information regarding the Company as is required by the bylaws
                of
                the Company and applicable law to be furnished in an annual report
                to the
                shareholders of the Company.

            

    

     

    
      	
              10.

            	
              Notice.
                Any written notice to the Company required by any of the provisions
                of the
                Plan shall be addressed to the chief personnel officer or to the
                chief
                executive officer of the Company, and shall become effective when
                it is
                received by the office of the chief personnel officer or the chief
                executive officer.

            

    

    

    
      	
              11.

            	
              Indemnification
                of Board. In addition to such other rights or indemnifications as
                they may
                have as directors or otherwise, and to the extent allowed by applicable
                law, the members of the Board and the Committee shall be indemnified
                by
                the Company against the reasonable expenses, including attorneys'
                fees,
                actually and necessarily incurred in connection with the defense
                of any
                claim, action, suit or proceeding, or in connection with any appeal
                thereof, to which they or any of them may be a party by reason of
                any
                action taken, or failure to act, under or in connection with the
                Plan or
                any Grant granted thereunder, and against all amounts paid by them
                in
                settlement thereof (provided such settlement is approved by independent
                legal counsel selected by the Company) or paid by them in satisfaction
                of
                a judgment in any such claim, action, suit or proceeding, except
                in any
                case in relation to matters as to which it shall be adjudged in such
                claim, action, suit or proceeding that such Board or Committee member
                is
                liable for negligence or misconduct in the performance of his or
                her
                duties; provided that within sixty (60) days after institution of
                any such
                action, suit or Board proceeding the member involved shall offer
                the
                Company, in writing, the opportunity, at its own expense, to handle
                and
                defend the same.

            

    

     

    
      	
              12.

            	
              Governing
                Law. The Plan and all determinations made and actions taken pursuant
                hereto, to the extent not otherwise governed by the Code or the securities
                laws of the United States, shall be governed by the law of the State
                of
                Delaware and construed accordingly.

            

    

    

    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

     

     

    
      	
              13.

            	
              Termination
                Dates. The Plan shall terminate on June 5, 2017 subject to earlier
                termination by the Board pursuant to Section
                7.

            

    

     

    
      	
               

            	
              Phantom
                Entertainment, Inc.

               

            
	
               

            	
              /s/
                Greg
                Koler                                             
                

              Its:
                Chief Executive Officer and

              Interim
                Chief Financial Officer

              (Principal
                Executive, Financial and Accounting
                Officer)

            

    

     

    

    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

     

    PHANTOM
      ENTERTAINMENT, INC.

    2007
      Employee Compensation Plan A

     

    This
      PHANTOM ENTERTAINMENT, Inc. 2007
      EMPLOYEE COMPENSATION PLAN
      A (the
      "Plan")
      is
      designed to retain employees and reward them for making major contributions
      to
      the success of the Company. These objectives are accomplished by making
      incentive awards under the Plan thereby providing Participants with a
      proprietary interest in the growth and performance of the Company.

    

    
      	
              1.

            	
              Definitions.

            

    

    

    
      	
               

            	
              (a)

            	
              "Board
                "
                - The Board of Directors of the
                Company.

            

    

    

    
      	
               

            	
              (b)

            	
              "Code
                "
                - The Internal Revenue Code of 1986, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (c)

            	
              "Committee
                "
                - The Compensation Committee of the Company's Board, or such other
                committee of the Board that is designated by the Board to administer
                the
                Plan, composed of not less than two members of the Board all of whom
                are
                disinterested persons, as contemplated by Rule 16b-3 ("Rule
                16b-3")
                promulgated under the Securities Exchange Act of 1934, as amended
                (the
                "Exchange
                Act").

            

    

    

    
      	
               

            	
              (d)

            	
              "Company"
                -
                Phantom Entertainment, Inc. and its subsidiaries including subsidiaries
                of
                subsidiaries.

            

    

    

    
      	
               

            	
              (e)

            	
              "Exchange  Act"
                -
                The Securities Exchange Act of 1934, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (f)

            	
              "Fair
                Market Value"
                -
                The fair market value of the Company's issued and outstanding Stock
                as
                determined in good faith by the Board or
                Committee.

            

    

    

    
      	
               

            	
              (g)

            	
              "Grant"
                -
                The grant of any stock award to a Participant pursuant to such terms,
                conditions and limitations as the Committee may establish in order
                to
                fulfill the objectives of the Plan.

            

    

    

    
      	
               

            	
              (h)

            	
              "Grant
                Agreement"
                -
                An agreement between the Company and a Participant that sets forth
                the
                terms, conditions and limitations applicable to a
                Grant.

            

    

    

    
      	
               

            	
              (i)

            	
              "Participant"
                -
                An outside consultant, professional and service provider of the Company
                to
                whom an Award has been made under the
                Plan.

            

    

    

    
      	
               

            	
              (j)

            	
              "Securities
                Act"
                -
                The Securities Act of 1933, as amended from time to
                time.

            

    

    

    
      	
               

            	
              (k)

            	
              "Stock"
                -
                Authorized and issued or unissued shares of common stock of the
                Company.

            

    

    

    
      	
               

            	
              (l)

            	
              "Stock
                Award"
                -
                A Grant made under the Plan in stock or denominated in units of stock
                for
                which the Participant is not obligated to pay additional
                consideration.

            

    

    

    
      	
              2.

            	
              Administration.

            

    

     

    The
      Plan
      shall be administered by the Board, provided however, that the Board may
      delegate such administration to the Committee. Subject to the provisions of
      the
      Plan, the Board and/or the Committee shall have authority to (a) grant, in
      its
      discretion, Stock Awards; (b) determine in good faith the fair market value
      of
      the Stock covered by any Grant; (c) determine which eligible persons shall
      receive Grants and the number of shares, restrictions, terms and conditions
      to
      be included in such Grants; (d) construe and interpret the Plan; (e) promulgate,
      amend and rescind rules and regulations relating to its administration, and
      correct defects, omissions and inconsistencies in the Plan or any Grant; (f)
      consistent with the Plan and with the consent of the Participant, as
      appropriate, amend any outstanding Grant; (g) determine the duration and purpose
      of leaves of absence which may be granted to Participants without constituting
      termination of their engagement for the purpose of the Plan or any Grant; and
      (h) make all other determinations necessary or advisable for the Plan's
      administration. The interpretation and construction by the Board of any
      provisions of the Plan or selection of Participants shall be conclusive and
      final. No member of the Board or the Committee shall be liable for any action
      or
      determination made in good faith with respect to the Plan or any Grant made
      thereunder.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              Eligibility.

            

    

    

    The
      persons who shall be eligible to receive Grants shall be non-executive
      employees, outside consultants, professionals and service providers of the
      Company.

    

    
      	
              4.

            	
              Stock.

            

    

    

    
      	
               

            	
              (a)

            	
              Authorized
                Stock:
                Stock subject to Grants may be either unissued or reacquired
                Stock.

            

    

    

    
      	
               

            	
              (b)

            	
              Number
                of Shares:
                Subject to adjustment as provided in Section 5(i) of the Plan, the
                total
                number of shares of Stock which may be purchased or granted directly
                by
                Stock Awards granted under the Plan shall not exceed Two Hundred
                and Fifty
                Million (250,000,000) shares. If any Grant shall for any reason terminate
                or expire, any shares allocated thereto but remaining unvested shall
                again
                be available for Grants with respect thereto under the Plan as though
                no
                Grant had previously occurred with respect to such shares. Any shares
                of
                Stock issued pursuant to a Grant and repurchased pursuant to the
                terms
                thereof shall be available for future Grants as though not previously
                covered by a Grant.

            

    

    

    
      	
               

            	
              (c)

            	
              Reservation
                of Shares:
                The Company shall reserve and keep available at all times during
                the term
                of the Plan such number of shares as shall be sufficient to satisfy
                the
                requirements of the Plan. If, after reasonable efforts, which efforts
                shall not include the registration of the Plan or Grants under the
                Securities Act, the Company is unable to obtain authority from any
                applicable regulatory body, which authorization is deemed necessary
                by
                legal counsel for the Company for the lawful issuance of shares hereunder,
                the Company shall be relieved of any liability with respect to its
                failure
                to issue and sell the shares for which such requisite authority was
                so
                deemed necessary unless and until such authority is
                obtained.

            

    

    

    
      	
              5.

            	
              Stock
                Awards.

            

    

    

    All
      or
      part of any Stock Award under the Plan may be subject to conditions established
      by the Board or the Committee, and set forth in a Stock Award Agreement, which
      may include, but are not limited to, continuous service with the Company,
      achievement of specific business objectives, increases in specified indices,
      attaining growth rates and other comparable measurements of Company performance.
      Such Awards may be based on Fair Market Value or other specified valuation.
      All
      Stock Awards will be made pursuant to the execution of a Stock Award
      Agreement.

    

    
      	
               

            	
              (a)

            	
              Conditions
                and Restrictions.
                Shares of Stock which Participants may receive as a Stock Award under
                a
                Stock Award Agreement may include such restrictions as the Board
                or
                Committee, as applicable, shall determine, including restrictions
                on
                transfer, repurchase rights, right of first refusal, and forfeiture
                provisions. When transfer of Stock is so restricted or subject to
                forfeiture provisions it is referred to as " Restricted
                Stock.
                "
                Further, with Board or Committee approval, Stock Awards may be deferred,
                either in the form of installments or a future lump sum distribution.
                The
                Board or Committee may permit selected Participants to elect to defer
                distributions of Stock Awards in accordance with procedures established
                by
                the Board or Committee to assure that such deferrals comply with
                applicable requirements of the Code including, at the choice of
                Participants, the capability to make further deferrals for distribution
                after retirement. Any deferred distribution, whether elected by the
                Participant or specified by the Stock Award Agreement or by the Board
                or
                Committee, may require the payment be forfeited in accordance with
                the
                provisions of Section 5(c). Dividends or dividend equivalent rights
                may be
                extended to and made part of any Stock Award, subject to such terms,
                conditions and restrictions as the Board or Committee may
                establish.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

     

    
      	 	
              (b)

            	
              Cancellation
                and Rescission of Grants.
                Unless the Stock Award Agreement specifies otherwise, the Board or
                Committee, as applicable, may cancel any unvested or deferred Grants
                at
                any time if the Participant is not in compliance with all other applicable
                provisions of the Stock Award Agreement, the Plan and with the following
                conditions:  

            

    

    

    
      	 	
              (i)

            	
              A
                Participant shall not render services for any organization or engage
                directly or indirectly in any business which, in the judgment of
                the chief
                executive officer of the Company or other senior officer designated
                by the
                Board or Committee, is or becomes competitive with the Company, or
                which
                organization or business, or the rendering of services to such
                organization or business, is or becomes otherwise prejudicial to
                or in
                conflict with the interests of the Company. For Participants whose
                engagement has terminated, the judgment of the chief executive officer
                shall be based on the Participant's position and responsibilities
                while
                employed by the Company, the Participant's post-engagement
                responsibilities and position with the other organization or business,
                the
                extent of past, current and potential competition or conflict between
                the
                Company and the other organization or business, the effect on the
                Company's customers, suppliers and competitors and such other
                considerations as are deemed relevant given the applicable facts
                and
                circumstances. A Participant who has retired shall be free, however,
                to
                purchase as an investment or otherwise, stock or other securities
                of such
                organization or business so long as they are listed upon a recognized
                securities exchange or traded over-the-counter, and such investment
                does
                not represent a substantial investment to the Participant or a greater
                than five percent (5%) equity interest in the organization or business.
                 

            
	 	 	 
	 	
              (ii)

            	
              A
                Participant shall not, without prior written authorization from the
                Company, disclose to anyone outside the Company, or use in other
                than the
                Company's business, any confidential information or material relating
                to
                the business of the Company, acquired by the Participant either during
                or
                after engagement with the Company.  

            
	 	 	 
	 	
              (iii)

            	
              A
                Participant shall disclose promptly and assign to the Company all
                right,
                title and interest in any invention or idea, patentable or not, made
                or
                conceived by the Participant during engagement by the Company, relating
                in
                any manner to the actual or anticipated business, research or development
                work of the Company and shall do anything reasonably necessary to
                enable
                the Company to secure a patent where appropriate in the United States
                and
                in foreign countries.

            
	 	 	 
	 	
              (iv)

            	
              Upon
                exercise, payment or delivery pursuant to a Grant, the Participant
                shall
                certify on a form acceptable to the Committee that he or she is in
                compliance with the terms and conditions of the
                Plan.

            

    

     

    
      	
               

            	
              (c)

            	
              Nonassignability.

            

    

    

    
      	 	
              (i)

            	
              Except
                pursuant to Section 5(e)(iii) and except as set forth in Section
                5(d)(ii),
                no Grant or any other benefit under the Plan shall be assignable
                or
                transferable, or payable to, anyone other than the Participant to
                whom it
                was granted.  

            
	 	 	 
	 	
              (ii)

            	
              Where
                a Participant terminates engagement and retains a Grant pursuant
                to
                Section 5(e)(ii) in order to assume a position with a governmental,
                charitable or educational institution, the Board or Committee, in
                its
                discretion and to the extent permitted by law, may authorize a third
                party
                (including but not limited to the trustee of a "blind" trust), acceptable
                to the applicable governmental or institutional authorities, the
                Participant and the Board or Committee, to act on behalf of the
                Participant with regard to such
                Awards.

            

    

    

    
      	 	
              (d)

            	
              Termination
                of Engagement.
                If
                the engagement or service to the Company of a Participant terminates,
                other than pursuant to any of the following provisions under this
                Section
                5(e), all unvested or deferred Stock Awards shall be cancelled
                immediately, unless the Stock Award Agreement provides otherwise:
                 

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	 	
              (i)

            	
              Retirement
                Under a Company Retirement Plan.
                When a Participant's engagement terminates as a result of retirement
                in
                accordance with the terms of a Company retirement plan, the Board
                or
                Committee may permit Stock Awards to continue in effect beyond the
                date of
                retirement in accordance with the applicable Grant Agreement and
                vesting
                of any such Grants may be accelerated.  

            
	 	 	 
	 	
              (ii)

            	
              Rights
                in the Best Interests of the Company.
                When a Participant resigns from the Company and, in the judgment
                of the
                Board or Committee, the acceleration and/or continuation of outstanding
                Stock Awards would be in the best interests of the Company, the Board
                or
                Committee may (i) authorize, where appropriate, the acceleration
                and/or
                continuation of all or any part of Grants issued prior to such termination
                and (ii) permit the vesting of such Grants for such period as may
                be set
                forth in the applicable Grant Agreement, subject to earlier cancellation
                pursuant to Section 8 or at such time as the Board or Committee shall
                deem
                the continuation of all or any part of the Participant's Grants are
                not in
                the Company's best interest.  

            
	 	 	 
	 	
              (iii)

            	
              Death
                or Disability of a Participant. 

            

    

    

    
      	 	
              (1)

            	
              In
                the event of a Participant's death, the Participant's estate or
                beneficiaries shall have a period up to the expiration date specified
                in
                the Grant Agreement within which to receive or exercise any outstanding
                Grant held by the Participant under such terms as may be specified
                in the
                applicable Grant Agreement. Rights to any such outstanding Grants
                shall
                pass by will or the laws of descent and distribution in the following
                order: (a) to beneficiaries so designated by the Participant; if
                none,
                then (b) to a legal representative of the Participant; if none, then
                (c)
                to the persons entitled thereto as determined by a court of competent
                jurisdiction. Grants so passing shall be made at such times and in
                such
                manner as if the Participant were living.
 

            

    

    

    
      	 	
              (2)

            	
              In
                the event a Participant is deemed by the Board or Committee to be
                unable
                to perform his or her usual duties by reason of mental disorder or
                medical
                condition which does not result from facts which would be grounds
                for
                termination for cause, Grants and rights to any such Grants may be
                paid to
                the Participant, if legally competent, or a committee or other legally
                designated guardian or representative if the Participant is legally
                incompetent by virtue of such disability.
 

            

    

    

    
      	 	
              (3)

            	
              After
                the death or disability of a Participant, the Board or Committee
                may in
                its sole discretion at any time (1) terminate restrictions in Grant
                Agreements; (2) accelerate any or all installments and rights; and
                (3)
                instruct the Company to pay the total of any accelerated payments
                in a
                lump sum to the Participant, the Participant's estate, beneficiaries
                or
                representative; notwithstanding that, in the absence of such termination
                of restrictions or acceleration of payments, any or all of the payments
                due under the Grant might ultimately have become payable to other
                beneficiaries.  

            

    

    

    
      	
               

            	
              (4)

            	
              In
                the event of uncertainty as to interpretation of or controversies
                concerning this Section 5, the determinations of the Board or Committee,
                as applicable, shall be binding and
                conclusive.

            

    

    

    
      	
              6.

            	
              Investment
                Intent. All Grants under the Plan are intended to be exempt from
                registration under the Securities Act provided by Rule 701 thereunder.
                Unless and until the sale and issuance of Stock subject to the Plan
                are
                registered under the Securities Act or shall be exempt pursuant to
                the
                rules promulgated thereunder, each Grant under the Plan shall provide
                that
                the purchases or other acquisitions of Stock thereunder shall be
                for
                investment purposes and not with a view to, or for resale in connection
                with, any distribution thereof. Further, unless the issuance and
                sale of
                the Stock have been registered under the Securities Act, each Grant
                shall
                provide that no shares shall be purchased upon the exercise of the
                rights
                under such Grant unless and until (i) all then applicable requirements
                of
                state and federal laws and regulatory agencies shall have been fully
                complied with to the satisfaction of the Company and its counsel,
                and (ii)
                if requested to do so by the Company, the person exercising the rights
                under the Grant shall (i) give written assurances as to knowledge
                and
                experience of such person (or a representative employed by such person)
                in
                financial and business matters and the ability of such person (or
                representative) to evaluate the merits and risks of receiving the
                Stock as
                compensation, and (ii) execute and deliver to the Company a letter
                of
                investment intent and/or such other form related to applicable exemptions
                from registration, all in such form and substance as the Company
                may
                require. If shares are issued upon exercise of any rights under a
                Grant
                without registration under the Securities Act, subsequent registration
                of
                such shares shall relieve the purchaser thereof of any investment
                restrictions or representations made upon the exercise of such
                rights.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              7.

            	
              Amendment,
                Modification, Suspension or Discontinuance of the Plan. The Board
                may,
                insofar as permitted by law, from time to time, with respect to any
                shares
                at the time not subject to outstanding Grants, suspend or terminate
                the
                Plan or revise or amend it in any respect whatsoever, except that
                without
                the approval of the shareholders of the Company, no such revision
                or
                amendment shall (i) increase the number of shares subject to the
                Plan,
                (ii) decrease the price at which Grants may be granted, (iii) materially
                increase the benefits to Participants, or (iv) change the class of
                persons
                eligible to receive Grants under the Plan; provided, however, no
                such
                action shall alter or impair the rights and obligations under any
                Stock
                Award outstanding as of the date thereof without the written consent
                of
                the Participant thereunder. No Grant may be issued while the Plan
                is
                suspended or after it is terminated, but the rights and obligations
                under
                any Grant issued while the Plan is in effect shall not be impaired
                by
                suspension or termination of the Plan.  

            

    

    

    In
      the
      event of any change in the outstanding Stock by reason of a stock split, stock
      dividend, combination or reclassification of shares, recapitalization, merger,
      or similar event, the Board or the Committee may adjust proportionally (a)
      the
      number of shares of Stock (i) reserved under the Plan, (ii) covered by
      outstanding Stock Awards; (b) the Stock prices related to outstanding Grants;
      and (c) the appropriate Fair Market Value and other price determinations for
      such Grants. In the event of any other change affecting the Stock or any
      distribution (other than normal cash dividends) to holders of Stock, such
      adjustments as may be deemed equitable by the Board or the Committee, including
      adjustments to avoid fractional shares, shall be made to give proper effect
      to
      such event. In the event of a corporate merger, consolidation, acquisition
      of
      property or stock, separation, reorganization or liquidation, the Board or
      the
      Committee shall be authorized to issue or assume stock options, whether or
      not
      in a transaction to which Section 424(a) of the Code applies, and other Grants
      by means of substitution of new Grant Agreements for previously issued Grants
      or
      an assumption of previously issued Grants.

     

    
      	
              8.

            	
              Tax
                Withholding. The Company shall have the right to deduct applicable
                taxes
                from any Grant payment and withhold, at the time of delivery or exercise
                of Stock Awards or vesting of shares under such Grants, an appropriate
                number of shares for payment of taxes required by law or to take
                such
                other action as may be necessary in the opinion of the Company to
                satisfy
                all obligations for withholding of such taxes. If Stock is used to
                satisfy
                tax withholding, such stock shall be valued based on the Fair Market
                Value
                when the tax withholding is required to be
                made.

            

    

     

    
      	
              9.

            	
              Availability
                of Information. During the term of the Plan and any additional period
                during which a Grant granted pursuant to the Plan shall be payable,
                the
                Company shall make available, not later than one hundred and twenty
                (120)
                days following the close of each of its fiscal years, such financial
                and
                other information regarding the Company as is required by the bylaws
                of
                the Company and applicable law to be furnished in an annual report
                to the
                shareholders of the Company.

            

    

     

    
      	
              10.

            	
              Notice.
                Any written notice to the Company required by any of the provisions
                of the
                Plan shall be addressed to the chief personnel officer or to the
                chief
                executive officer of the Company, and shall become effective when
                it is
                received by the office of the chief personnel officer or the chief
                executive officer.

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              11.

            	
              Indemnification
                of Board. In addition to such other rights or indemnifications as
                they may
                have as directors or otherwise, and to the extent allowed by applicable
                law, the members of the Board and the Committee shall be indemnified
                by
                the Company against the reasonable expenses, including attorneys'
                fees,
                actually and necessarily incurred in connection with the defense
                of any
                claim, action, suit or proceeding, or in connection with any appeal
                thereof, to which they or any of them may be a party by reason of
                any
                action taken, or failure to act, under or in connection with the
                Plan or
                any Grant granted thereunder, and against all amounts paid by them
                in
                settlement thereof (provided such settlement is approved by independent
                legal counsel selected by the Company) or paid by them in satisfaction
                of
                a judgment in any such claim, action, suit or proceeding, except
                in any
                case in relation to matters as to which it shall be adjudged in such
                claim, action, suit or proceeding that such Board or Committee member
                is
                liable for negligence or misconduct in the performance of his or
                her
                duties; provided that within sixty (60) days after institution of
                any such
                action, suit or Board proceeding the member involved shall offer
                the
                Company, in writing, the opportunity, at its own expense, to handle
                and
                defend the same.

            

    

     

    
      	
              12.

            	
              Governing
                Law. The Plan and all determinations made and actions taken pursuant
                hereto, to the extent not otherwise governed by the Code or the securities
                laws of the United States, shall be governed by the law of the State
                of
                Delaware and construed accordingly.

            

    

    

    
      	
              13.

            	
              Termination
                Dates. The Plan shall terminate on June 5, 2017 subject to earlier
                termination by the Board pursuant to Section
                7.

            

    

     

    
      	
               

            	
               

            	
               

            
	
               

            	
              Phantom
                Entertainment, Inc.

            
	
               

               

            	
               

               

            	
               

               

            
	
               

            	
              By:  

            	
              /s/
                Greg
                Koler                                                                         
                

            
	
               

            	 
	
               

            	
              Its:

            	
              Chief
                Executive Officer and Interim Chief Financial Officer 

              (Principal
                Executive, Financial and Accounting
                Officer)Exhibit
      10.1

     

    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.

     

    LOAN
      AGREEMENT

     

    THIS
      LOAN
      AGREEMENT (the “Loan
      Agreement”
or
      “Agreement”)
      is
      made and entered into on the 5th
      day of
      June, 2007, by and between Carolina
      First Bank, a
      South
      Carolina banking corporation (“Lender”),
      and
Span-America
      Medical Systems, Inc.,
      a South
      Carolina corporation (“Borrower”)
      (collectively, the “Parties”
and
      each a “Party”).

     

    Background
      Statement

     

    Borrower
      has requested a revolving line of credit from Bank to be used for the purpose
      of: (a) a one time cash dividend not to exceed $5.00 per share plus one regular
      quarterly dividend of $0.08 per share; (b) working capital; (c) capital
      expenditures; and (d) other general corporate purposes.

     

    NOW,
      THEREFORE, in consideration of Lender making a loan in the principal amount
      of
      Ten Million and no/100 Dollars ($10,000,000.00), to Borrower for the purpose
      set
      forth in Section
      2.2,
      as
      evidenced by the Note (as defined below), Lender and Borrower enter into this
      Loan Agreement and agree as follows:

     

    1. Definitions.
      For the
      purposes hereof:

     

    1.1 “Affiliate”
means,
      with respect to a named Person, (a) any Person directly or
      indirectly owning five percent (5%) or more of the voting stock or rights in
      such named Person or of which the named Person owns five percent (5%) or more
      of
      such voting stock or rights; (b) any Person controlling or controlled by or
      under common control with such named Person; (c) any officer, director or
      managing employee or agent of such named Person or any Affiliate of the named
      Person; and (d) any immediate family member of the named Person or any Affiliate
      of such named Person.

     

    1.2 “Business
      Day” means any day the Lender is open for business.

     

    1.3 “Closing”
      or “Closing Date” means June 5, 2007.

     

    1.4 “Code”
      means the Uniform Commercial Code as in effect under the laws of the State
      of
      South Carolina from time to time, as the same may be amended.

     

    1.5 “EBITDA”
      means net income, less income or plus loss from discontinued operations and
      extraordinary items, plus income taxes, plus interest expense, plus depreciation
      and amortization expense. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    1.6 “Environmental
      Laws” means applicable state, federal or local environmental laws or
      regulations, including but not limited to, the Comprehensive Environmental
      Response, Compensation and Liability Act of 1980, as amended by the Superfund
      Amendments and Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq.; the
      Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 1101
et seq.;
      the
      Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery
      Act, 42 U.S.C. § 6901 et seq.;
      the
      Hazardous Materials Transportation Act of 1974, 49 U.S.C. § 1801 et seq.;
      the
      Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.;
      the
      Clean Air Act, 42 U.S.C. § 7401 et seq.;
      the
      Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § 136 et seq.;
      the
      Safe Drinking Water Act, 42 U.S.C. § 300f et seq.;
      the
      Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.;
      the
      Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq.;
      the
      Endangered Species Act, 16 U.S.C. 1531 et seq.;
      any
      laws regulating the use of biological agents or substances including medical
      or
      infectious wastes, each as amended or supplemented, and any applicable and
      analogous future or present local, state, and federal statutes, regulations,
      and
      ordinances promulgated pursuant thereto.

     

    1.7 “Event
      of Default” shall have the meaning set forth in Article
      6.

     

    1.8 “Funded
      Debt” means all outstanding indebtedness for borrowed money and other
      interest-bearing indebtedness, including current and long term
      indebtedness.

     

    1.9 “GAAP”
      means generally accepted accounting principles and practices as in effect from
      time to time and recognized as such by the American Institute of Certified
      Public Accountants, consistently applied.

     

    1.10 “Indebtedness”
      means, collectively, all liabilities (including, without limitation, capital
      lease obligations) of the subject Person, whether owing by such Person alone
      or
      with one or more others in a joint, several, or joint and several capacity,
      whether now owing or hereafter arising, whether owing absolutely or
      contingently, whether created by loan, overdraft, guaranty of payment, or other
      contract or by quasi-contract or tort, statute or other operation of law or
      otherwise.

     

    1.11 “Lien”
      means any interest in property (real, personal or mixed, and tangible or
      intangible) securing an obligation owed to, or a claim by, a Person other than
      the owner of the property, whether such interest is based on common law,
      statute, or contract, and including, but not limited to, the security interest,
      security title or Lien arising from a security agreement, mortgage, deed of
      trust, deed to secure debt, encumbrance, pledge, conditional sale or trust
      receipt or a lease, consignment or bailment for security purposes. The term
      “Lien” shall include covenants, conditions, restrictions and other encumbrances
      affecting any property. For the purpose of this Agreement, Borrower shall be
      deemed to be the owner of any property which it has acquired or holds subject
      to
      a conditional sale agreement or other arrangement pursuant to which title of
      the
      property has been retained by or vested in some other Person for security
      purposes.

     

    1.12 “Loan
      Documents” means this Loan Agreement, the Note, Negative Pledge Agreement,
      consents and all other documents, instruments, certificates and agreements
      executed and/or delivered by Borrower and/or Guarantors, or any third party,
      in
      favor of Lender in connection with the Loan.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    1.13 “Loan”
      means the revolving loan more particularly described in Section
      2.1.

     

    1.14 “Leverage
      Ratio” shall mean, as of the end of each fiscal quarter of the Borrower, for the
      Borrower and its Subsidiaries on a consolidated basis for the four consecutive
      fiscal quarters ending on such date, the ratio of (i) Funded Debt of the
      Borrower and its Subsidiaries on the last day of such period to (ii) EBITDA,
      as
      calculated for the Borrower’s then most-recently ended four fiscal
      quarters.

     

    1.15 “Material
      Adverse Change” means the occurrence of events or circumstances which, if
      unchanged, would materially impair Borrower’s or any Guarantor’s: (i) financial
      condition, (ii) ability to meet its financial obligations as they become due,
      or
      (iii) ability to conduct its business as presently conducted.

     

    1.16 “Maturity
      Date” means June 5, 2012.

     

    1.17 “Negative
      Pledge Agreement" means the Negative Pledge Agreement of Borrower covering
      all
      of Borrower’s assets dated the date hereof.

     

    1.18 “Note”
      means the promissory note of Borrower in favor of Lender dated of even date
      herewith in the amount of the Loan as set forth in Section
      2.1
      (substantially in the form of Exhibit
      1.18
      attached
      hereto), as well as any promissory note or notes issued by Borrower in
      substitution, replacement, extension, amendment or renewal of any such
      promissory note or notes.

     

    1.19 “Obligations”
      means (a) all principal and/or interest which may be due under the Note, and
      all
      other present and future Indebtedness, obligations and liabilities of Borrower
      to Lender arising pursuant to this Agreement and/or any other Loan Document,
      regardless of whether such Indebtedness, obligations or liabilities are direct,
      indirect, fixed, contingent, joint or joint and several (including any interest,
      fees and other charges under this Agreement or any other Loan Document, which
      would accrue but for the filing of a bankruptcy or insolvency action, whether
      or
      not such claim is allowed in such bankruptcy or insolvency action); (b) all
      other obligations or liabilities of Borrower owing to Lender, from time to
      time,
      whether now existing or hereafter arising, regardless of how incurred; and
      (c)
      all renewals, extensions and modifications of any of the foregoing, or any
      part
      thereof. The term also includes, without limitation, all Indebtedness,
      liabilities or obligations of Borrower which may at any time become due under
      any rate swap agreement, basis swap, forward rate agreement, commodity swap,
      commodity option, equity or equity index swap, bond option, interest rate
      option, foreign exchange agreement, rate cap agreement, rate floor agreement,
      rate collar agreement, currency swap agreement, cross-currency swap agreement,
      currency option or any other similar agreement entered into between Borrower
      and
      Lender, or any Affiliate of Lender. The term “Obligations” further includes any
      of the foregoing that arise after the filing of a petition by or against
      Borrower under the United States Bankruptcy Code, even if the obligations do
      not
      accrue because of the automatic stay under United States Bankruptcy Code Section
      362 or otherwise.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

       

    

    1.20 “Permitted
      Indebtedness” means those matters specified in Section
      4.2(g)
      hereof.

     

    1.21 “Permitted
      Liens” means any Lien of any kind specified in Section
      4.2(c) hereof.

     

    1.22 “Person”
      means an individual person, corporation, limited liability company, trust,
      joint
      venture, limited or general partnership, any government or agency or political
      subdivision of any government, or any other entity or organization.

     

    1.23 “Solvent”
      means, as to any Person, such Person (i) owns property, real, personal, and
      mixed, whose aggregate fair saleable value is greater than the amount required
      to pay all of such Person’s Indebtedness (including contingent debt), and (ii)
      is able to pay all of its Indebtedness as such Indebtedness matures, and (iii)
      has capital sufficient to carry on its business and transactions and all
      business and transactions in which it is about to engage.

     

    1.24 “Subsidiary”
means
      any corporation, partnership or other entity in which any
      Person, directly or indirectly, owns fifty percent (50%) or more of the stock,
      capital or other interests (legal or beneficial) which is effectively
      controlled, directly or indirectly, by such Person.

     

    1.25 “Substances”
      shall have the meaning as defined in Section
      3.8
      hereof.

     

    1.26 “Intercompany
      Transaction” means any Account, Chattel Paper, General Intangible, Instrument,
      Document or other Indebtedness or obligation arising from business done with
      or
      for, or Indebtedness owed between or among, Borrower and any Subsidiary or
      Affiliate thereof.

     

    1.27 “Tangible
      Net Worth” means (i) the aggregate amount of assets shown on the balance sheet
      of a Person at any particular date (not including capitalized interest, debt
      discount and expense, goodwill, patents, trademarks, copyrights, franchises,
      licenses, and such other assets as are properly classified “intangible assets”
under GAAP) less
      (ii)
      liabilities (including capitalized leases, subordinated debt, reserves for
      deferred taxes and other deferred sums appearing on the liabilities side of
      such
      Person’s balance sheet), all computed in accordance with GAAP. 

     

    
      	 	
              2.

            	
              The
                Loan.

            

    

     

    2.1 Loan.
      Lender
      hereby agrees to make to Borrower a revolving line of credit loan in the amount
      of up to Ten Million and no/100 Dollars ($10,000,000.00) pursuant to the
      following terms: 

     

    (i) Subject
      to all terms set forth herein for so long as no Event of Default exists, Lender
      agrees, from time to time and on the terms hereinafter set forth, to loan to
      Borrower, when requested by Borrower, principal amounts aggregating up to Ten
      Million and no/100 Dollars ($10,000,000.00). Within the aforesaid limits,
      Borrower may borrow, make payments, and reborrow under this Agreement, subject
      to the provisions hereof.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    (ii) The
      obligation to repay the Note shall be evidenced by the Note and shall mature
      upon the Maturity Date. 

     

    (iii) In
      addition, as an accommodation to Borrower, Lender may permit telephonic requests
      for loans and electronic transmittal of instructions, authorizations, agreements
      or reports to Lender by Borrower. Unless Borrower specifically directs Lender
      in
      writing not to accept or act upon telephonic or electronic communications from
      Borrower, Lender shall have no liability to Borrower for any loss or damage
      suffered by Borrower as a result of Lender’s honoring of any requests, execution
      of any instructions, authorizations or agreements or reliance on any reports
      communicated to Lender telephonically or electronically and purporting to have
      been sent to Lender by Borrower and Lender shall have no duty to verify the
      origin of any such communication or the authority of the person sending
      it.

     

    (iv) If
      the
      outstanding principal amount of the Note at any time exceeds Ten Million and
      no/100 Dollars ($10,000,000.00), Borrower shall immediately pay the Lender
      an
      amount equal to such excess as a payment on the principal amount of the Note.
      

     

    (b) Notice
      and Manner of Borrowing.
      For
      advances under the Note, Borrower shall give Lender notice of a request for
      an
      advance not later than 2:00 p.m. Greenville, South Carolina time on the Business
      Day immediately preceding the date of the requested advance, specifying the
      date
      and amount thereof. Any such notice (including, but not limited to, telephonic
      notice) which Lender believes in good faith to have been given by a duly
      authorized officer of Borrower shall be deemed given by Borrower. 

     

    (c) Zero
      Balance Program and Transaction Clearing Services.
      Notwithstanding anything to the contrary in this Section 2, if Borrower
      subscribes to Lender’s Carolina First Agreement for Transaction Clearing
      Services and if and for so long as Lender in its discretion permits such
      services to be applicable to the Loan, the terms of such services, as set forth
      in the Carolina First Agreement for Transaction Clearing Services and/or the
      Deposit Account Agreement applicable to Borrower’s Deposit Accounts at Lender,
      shall control matters related to such services, including but not limited to
      the
      manner in which advances under the Loan are made and repaid by credit or debit
      to the Borrower’s Deposit Account. Lender shall have the right in its discretion
      to terminate the application of such treasury services to the Loan at any time.
      

     

    2.2 Purpose.
      The
      proceeds of the Loan shall be used by Borrower for: (a) a one time cash dividend
      not to exceed $5.00 per share plus one regular quarterly dividend of $0.08
      per
      share; (b) working capital; (c) capital expenditures; and (d) other general
      corporate purposes.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    2.3 Conditions
      Precedent.
      Lender
      shall disburse the proceeds of the Loan to Borrower in accordance with the
      terms
      hereof, and the terms of the Note. In no event shall Lender be obligated to
      advance any sum to Borrower until all matters, documents, papers and
      certificates required hereunder have been furnished to Lender’s satisfaction or
      so long as any Event of Default has occurred and is continuing. In addition
      to
      other matters set forth herein, the following documents and matters shall be
      required to be executed or performed by Borrower and Guarantors at or before
      the
      Closing Date:

     

    
      	 	
              (a)

            	
              This
                Loan Agreement, duly executed and
                delivered;

            

      	 	 	 

    

    
      	 	
              (b)

            	
              The
                Note, duly executed and delivered;

            

      	 	 	 

    

    
      	 	
              (c)

            	
              The
                Negative Pledge Agreement;

            

      	 	 	 

    

    
      	 	
              (d)

            	
              Borrowing
                resolutions and a certificate from the secretary of Borrower exhibiting,
                among other things, true copies of Borrower’s current articles of
                incorporation and bylaws, in form and substance satisfactory to Lender,
                authorizing the execution, delivery and performance of all Loan Documents,
                on behalf of Borrower;

            

      	 	 	 

    

    
      	 	
              (e)

            	
              Certificate
                of existence for Borrower from the South Carolina Secretary of State
                and
                satisfactory evidence of Borrower’s qualification to do business in any
                applicable foreign jurisdictions; 

            

      	 	 	 

    

    
      	 	
              (f)

            	
              In
                a form reasonably acceptable to Lender, an opinion of Borrower’s counsel
                opining, among other things, as to the due authorization and execution
                of
                the Loan Documents and the enforceability of the Loan Documents in
                accordance with the terms thereof. To the extent required by the
                execution
                of any Loan Documents provided subsequent to the Closing Date,
                supplemental opinions shall be required of a tenor satisfactory to
                Lender;

            

      	 	 	 

    

    
      	 	
              (g)

            	
              Evidence,
                to the satisfaction of Lender, of Borrower’s compliance with Environmental
                Laws;

            

      	 	 	 

    

    
      	 	
              (h)

            	
              Certification
                from Borrower that its Leverage Ratio (taken as a whole) will not
                exceed
                3.00:1.0 as of the Closing Date;

            

      	 	 	 

    

    
      	 	
              (i)

            	
              Payment
                of all fees and closing costs required hereunder and under the Loan
                Documents;

            

      	 	 	 

    

    
      	 	
              (j)

            	
              Certificates
                of insurance required under Section
                4.1(e)
                hereof; 

            

      	 	 	 

    

    
      	 	
              (k)

            	
              Such
                other matters as Lender may reasonably
                require.

            

    

     

    2.4 Fees.
      

     

    (a) Borrower
      shall pay a facility fee of $5,000.00 due and payable upon the closing date
      and
      Borrower shall pay all fees associated with the drafting and negotiation of
      this
      Agreement and ancillary documents hereto, including, but not limited to
      reasonable attorney’s fees. 

     

    3. Representations
      and Warranties.
      To
      induce Lender to make the Loan, Borrower makes the following representations
      and
      warranties, which shall survive the execution and delivery of the Note and
      other
      Loan Documents:

     

    3.1 Good
      Standing.
      Borrower is duly organized, validly existing, and in good standing under the
      laws of the State of South Carolina, and has the power and authority to own
      its
      property and to carry on its business in each jurisdiction in which it does
      business. 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    3.2 Authority
      and Compliance.
      Borrower has full power and authority to execute and deliver the Loan Documents
      and to incur and perform the Obligations provided for therein, all of which
      have
      been duly authorized by all proper and necessary corporate action. To Borrower’s
      knowledge, no consent or approval of any public authority or other third party
      is required as a condition to the validity of any of the Loan Documents, and
      Borrower is in material compliance with all laws and regulatory
      requirements.

     

    3.3 Binding
      Agreement.
      This
      Loan Agreement and the other Loan Documents executed by Borrower constitute
      valid and legally binding obligations of Borrower, enforceable in accordance
      with their terms except to the extent that enforceability may be limited by
      applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent
      conveyance or similar laws affecting the enforcement of creditors’ rights
      generally and subject to general principles of equity (regardless of whether
      such enforcement is considered in a proceeding at law or in equity) and the
      discretion of any tribunal before which enforceability may be
      considered.

     

    3.4 Litigation.
      There
      is no proceeding litigation, bankruptcy or insolvency involving Borrower or
      any
      of its Subsidiaries pending or, to the knowledge of Borrower, threatened, before
      any court or governmental authority, agency or arbitration authority that may,
      individually or collectively, result in a Material Adverse Change.

     

    3.5 No
      Conflicting Agreements.
      There
      is no charter, bylaw, stockholders agreement, stock provision, or other document
      pertaining to the organization, power, or authority of Borrower and no provision
      of any existing material agreement, mortgage, indenture or contract binding
      on
      Borrower or affecting its properties, which would conflict with or in any way
      prevent the execution, delivery, or carrying out of the terms of this Loan
      Agreement and the other Loan Documents.

     

    3.6 Ownership
      of Assets.
      The
      Borrower has good title to its assets free and clear of all judgments, liens,
      and encumbrances except for Permitted Liens.

     

    3.7 Taxes.
      All
      taxes and assessments due and payable by Borrower have been paid other than
      taxes being contested in good faith.

     

    3.8 Environmental
      Matters.
      Borrower represents and warrants to Lender to the best of its knowledge, except
      as may be otherwise disclosed in writing to Lender, that any real estate owned
      or leased by it (the “Real
      Estate”)
      has
      never been and is not now being used in violation of Environmental Laws; that
      no
      proceedings have been commenced against Borrower concerning any alleged
      violations of any Environmental Laws on or related to the Real Estate, nor
      does
      Borrower have any reason to know of any such proceedings; that the Real Estate
      is free of any hazardous or toxic substance or wastes (as defined by any
      Environmental Law), including but not limited to, friable asbestos, PCBs in
      regulated concentrations, petroleum products, fertilizers and pesticides
      (“Substances”)
      and is
      not being used for the storage, treatment or disposal of any Substances, or
      if
      there are any Substances on the Real Estate, Borrower is maintaining them in
      accordance with all applicable laws; that if Borrower is transporting any
      Substances, such transportation is being conducted in compliance with all
      applicable laws; that Borrower has all required permits for the use and
      discharge of any Substances on the Real Estate and all uses and discharges
      on
      the Real Estate are being made in compliance with such permits; that, in the
      event that any of the foregoing representations and warranties is untrue or
      is
      qualified in any way, Borrower has made a complete disclosure to Lender of
      all
      facts which might indicate an environmental risk or the violation of any
      Environmental Laws on or related to the Real Estate.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    3.9 Compliance
      with Laws.
      Borrower is in material compliance with all federal, state, and local laws,
      regulations and governmental requirements applicable to it or to any of its
      property, business operations, employees, and transactions including, but not
      limited to, Environmental Laws.

     

    3.10 Accurate
      Financial Information.
      The
      financial information furnished to Lender by Borrower is complete and accurate
      in all material respects and neither Borrower nor any of its Subsidiaries has
      any undisclosed direct or material contingent liabilities. The financial
      information provided by Borrower and its Subsidiaries, in connection with
      Borrower’s application to Lender for the Loan, remains substantially accurate in
      all material respects and no Material Adverse Change has occurred in the
      financial condition of any of the reporting entities since such information
      was
      furnished.

     

    3.11 Solvency.
      (i)
      Borrower is Solvent; (ii) Borrower has made adequate provision for the payment
      of all of its creditors other than Lender; and (iii) Borrower has not entered
      into this transaction to provide preferential treatment to Lender or any other
      creditor of Borrower in anticipation of seeking relief under federal or state
      bankruptcy or insolvency laws.

     

    3.12  ERISA.
      No
      employee benefit plan established or maintained, or to which contributions
      have
      been made, by Borrower or any parent, subsidiary or Affiliate thereof, which
      is
      subject to Part 3 of Subtitle 13 of Title I of the Employee Retirement Income
      Security Act of 1974, as amended (“ERISA”), had an “accumulated funding
      deficiency” (as such term is defined in Section 302 of ERISA) as of the last day
      of the most recent fiscal year of such plan ended prior to the date hereof,
      or
      would have had such an accumulated funding deficiency on such day if such year
      were the first year of such plan to which such Part 3 applied; and no material
      liability to the Pension Benefit Guaranty Corporation has been incurred with
      respect to any such plan by such party.

     

    Each
      respective employee benefit plan of Borrower materially complies and will
      materially comply with all applicable requirements of ERISA and of the Internal
      Revenue Code of 1986 as amended (“Code”) and with all applicable rulings and
      regulations issued under the provisions of ERISA and the Code. This Loan
      Agreement and the consummation of the transactions contemplated herein will
      not
      involve any prohibited transaction within the scope of ERISA or Section 4975
      of
      the Code.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    3.13 Place
      of Business.
      Borrower’s chief executive office is located at 70 Commerce Center, Greenville,
      South Carolina 29615.

     

    3.14 Name.
      Borrower has not changed its name or been known by any other name other than
      “New Products, Inc. and “Span-America, Inc.” since it filed Articles of
      Incorporation with the South Carolina Secretary of State on September 21, 1970
      nor has it been the surviving corporation in a merger. Borrower does not now
      use
      nor has Borrower ever used any trade or fictitious name in the conduct of its
      business. 

     

    3.15 No
      Subordination.
      The
      Obligations of Borrower under the Loan Documents are not subordinated, and
      will
      not be subordinated, in right of payment to any other obligations of any party
      except for Permitted Liens.

     

    3.16 Event
      of Default.
      No
      event has occurred and is continuing which is or which, with the giving of
      notice or lapse of time or both, would be an Event of Default.

     

    3.17 Regulation
      U.
      Borrower is not engaged principally, or as one of its important activities,
      in
      the business of extending credit for the purchasing or carrying of margin stock,
      nor is Borrower an “investment” company as classified in the Investment Company
      Act of 1940. 

     

    3.18 Subsidiaries. As
      of the
      Closing Date, Borrower has no Subsidiaries.

     

    3.19 Material
      Adverse Change.
      Since
      December 30, 2006, no Material Adverse Change has occurred in the business,
      properties, operations or condition (financial or otherwise) of the Borrower
      or
      any of its Subsidiaries. Borrower’s Leverage Ratio (taken as a whole) will not
      exceed 3.00:1.0 as of the Closing Date.

    

    4. Covenants
      of Parties.

     

    4.1 Affirmative
      Covenants.
      During
      the term of this Loan Agreement, Borrower will:

     

    (a) Continuation
      of Preclosing Conditions, Representations and Warranties.
      Agree
      that all conditions precedent to the making of the Loan shall remain satisfied
      at all times during the term of this Loan Agreement, and that representations
      and warranties made by Borrower in the Loan Documents shall be deemed to be
      made
      at all times during the term of this Loan Agreement except for the
      representations and warranties set forth in Sections 3.4, 3.7, 3.8, 3.10, 3.12,
      3.18 and 3.19.

     

    (b) Maintenance.
      Preserve and maintain all licenses, trademarks, privileges, permits, franchises,
      certificates and the like necessary for the operation of its business. Borrower
      shall also maintain its existence in good standing in its state of
      organization.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (c) Financial
      Statements.
      Furnish
      or cause to be furnished to Lender (i) Borrower’s fiscal year-end audited
      financial statements within one hundred and twenty (120) days after the close
      of
      each fiscal year, prepared on a consolidated basis by independent certified
      public accountants who are satisfactory to Lender, together with an opinion
      of
      such accountants in form and content acceptable to Lender and accompanied by
      a
      certificate of compliance signed by the chief financial officer of Borrower,
      affirming Borrower’s continuing compliance with the terms and conditions of this
      Loan Agreement, which shall include a computation of compliance with all
      financial covenants along with supporting schedules; and (ii) Borrower’s
      internally-prepared monthly financial statements, prepared on a consolidated
      basis, satisfactory to Lender, within twenty-five (25) days after the close
      of
      each fiscal month-end, and certified by the chief financial officer of Borrower
      to be true, correct and complete in all material respects, and accompanied
      by a
      certificate of compliance signed by the chief financial officer of Borrower,
      affirming Borrower’s continuing compliance with the terms and conditions of this
      Loan Agreement, which shall include a computation of compliance with all
      financial covenants along with supporting schedules. All financial statements
      shall be prepared in accordance with GAAP, shall be in form and content
      satisfactory to Lender and shall include, without limitation, an income
      statement and a balance sheet.

     

    (d) Insurance.
      Maintain with financially sound and reputable insurance companies insurance
      of
      the kinds, covering the risks, and in the amounts reasonably comparable to
      those
      usually carried by entities and individuals engaged in businesses similar to
      that of Borrower. Such insurance shall include, but not be limited to, liability
      insurance, and comprehensive hazard/casualty insurance on buildings and contents
      and all equipment and fixtures. Such insurance shall not be required to include
      insurance on the non-payment of Borrower customer notes. 

     

    (e) Access
      to Field Audits.
      At
      reasonable times and after reasonable notice to Borrower, permit any
      representative or agent of Lender to have access to all financial records,
      inventory and procedures of Borrower, and conduct periodic field audits at
      any
      one or more of Borrower’s places of business, and shall allow the Lender or its
      agents access to, and to make copies of, all of the books and records of the
      Borrower. The Borrower shall pay the Lender’s reasonable costs incurred in
      connection with no more than two such audits per Borrower’s fiscal
      year.

     

    (f) Notification
      of Environmental Claims.
      If any
      Substances shall be brought upon the Real Estate of Borrower, Borrower shall
      maintain and/or remove them in accordance with all applicable laws. Borrower
      shall promptly take all action that is needed to abate any material
      environmental risk or comply with any Environmental Laws on or related to the
      Real Estate at its sole expense, subject to such legal and/or equitable defenses
      as are available to Borrower. At Lender’s request from time to time, for
      Reasonable Cause, Borrower shall obtain additional environmental audits covering
      any Real Estate from experts reasonably acceptable to Lender. Borrower will
      promptly inform Lender in writing of any environmental risk or violation of
      any
      Environmental Laws on or related to the Real Estate or the commencement of
      any
      proceeding against it or receipt of any notices by it concerning any alleged
      violation of Environmental Laws on or related to the Real Estate. Borrower
      will
      permit Lender, or any person or firm designated by Lender, to conduct a
      reasonable inspection of Real Estate on reasonable notice, and will immediately
      advise Lender in writing of (i) any and all enforcement, cleanup, remedial,
      removal, or other governmental or regulatory actions instituted, completed,
      or
      threatened pursuant to any applicable federal, state, or local laws, ordinances
      or regulations relating to any Substances affecting its business operations;
      and
      (ii) all claims made or threatened by any third party against it relating to
      damages, contributions, cost recovery, compensation, loss or injury resulting
      from any Substances. Borrower shall immediately notify Lender of any remedial
      action with respect to any environmental risk or condition taken by it with
      respect to its business operations. (For purposes hereof, “Reasonable
      Cause”
shall
      be deemed to have occurred at any time that: (i) Borrower is obligated to
      provide notice to Lender under this Paragraph 4.1(f), or (ii) Borrower shall
      have received notice from any governmental agency indicating a violation or
      potential violation of Environmental Laws.)

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (g) Environmental
      Indemnity.
      Borrower hereby indemnifies and holds Lender harmless from and against all
      liability, claims, demands, causes of action, losses, damages, costs and
      expenses (including reasonable attorneys’ fees and court costs), including all
      foreseeable and unforeseeable consequential damages, directly or indirectly
      arising out of the use, generation, storage, release, or disposal of Substances,
      including, without limitation, the cost of any required or necessary inspection,
      audit, clean-up, or detoxification and the preparation of any closure or other
      required plans, consent orders, license applications, or the like, whether
      such
      action is required or necessary prior to or following transfer of title of
      Borrower’s real or personal property, to the full extent that such action is
      attributable, directly or indirectly, to the use, generation, storage, release
      or disposal of Substances on Borrower’s real or personal property. Borrower
      agrees that the indemnity obligations in this paragraph shall include
      indemnifying Lender for all reasonable attorneys’ fees and expenses incurred by
      Lender to enforce the terms of this paragraph 4.1(g). Borrower’s indemnity
      obligations under this paragraph are exclusive of, and in addition to, any
      other
      insurance obligations which Borrower has under this Loan Agreement or any of
      the
      Loan Documents. The provisions of this Paragraph shall survive the satisfaction
      or release of all Obligations and shall continue thereafter in full force and
      effect.

     

    (h) Purpose
      of Loan.
      Use the
      proceeds of the Loan only for the purpose represented to Lender in Section
      2.2.

     

    (i) Notice
      of Litigation.
      Promptly notify Lender in the event that any legal action is filed against
      Borrower or any subsidiary; provided however, such notice shall not be required
      with respect to any matters which, if determined adversely to Borrower, would
      reasonably be expected to result in less than $25,000.00 in damages when
      aggregated with other then-pending litigation against Borrower.

     

    (j) Compliance
      with Law.
      Materially comply with all applicable federal, state, and local laws and
      regulations including, but not limited to, Environmental Laws, ERISA and laws
      governing companies in the business the same as or similar to Borrower’s
      business.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    (k) Fees/Expenses.
      Pay or
      reimburse Lender for any out-of-pocket expenses, including attorneys’ fees,
      reasonably incurred by Lender in enforcing this Agreement, the Note and the
      other Loan Documents. 

     

    (l) Payment
      on Note.
      Duly
      and punctually pay all the principal and interest on the Note, in accordance
      with the terms of this Agreement and of the Note, and pay all other material
      Indebtedness of Borrower reflected on the financial statements delivered to
      the
      Lender and referred to in Section
      4.1(c)
      hereof,
      and all other material Indebtedness incurred after the date hereof in accordance
      with the terms of such Indebtedness, unless there is a good faith dispute
      regarding the same and in such case such payments shall be made into an escrow
      account agreed upon by the Borrower and Lender.

     

    (m) Notice
      to Lender.
      Immediately notify Lender of (i) any Event of Default or of any fact, condition
      or event, that would with the giving of notice or passage of time, or both,
      become an Event of Default or the failure of Borrower to observe its
      undertakings hereunder; (ii) the occurrence of a Material Adverse Change; (iii)
      material governmental proceedings; or (iv) the formation or acquisition of
      a
      Subsidiary.

     

    (n) Taxes.
      Pay all
      taxes and assessments when due other than taxes being contested in good
      faith.

     

    (o) Maintenance
      of Properties.
      Keep
      its material properties in good repair, working order and condition, reasonable
      wear and tear accepted, and from time to time make all needed and proper
      repairs, renewals, replacements, additions, and improvements thereto and
      materially comply with the provisions of all leases to which it is a party
      or
      under which it occupies property so as to prevent any material loss or
      forfeiture thereof or thereunder.

     

    (p) Deposit
      Relationship.
      Borrower
      shall maintain a depository account with Lender. All advances and payments
      due
      under the Note shall be deposited or automatically debited, as the case may
      be,
      from Borrower’s account with Lender. 

     

    4.2 Negative
      Covenants.
      During
      the term of this Loan Agreement, Borrower will not, without the prior written
      consent of Lender:

     

    (a) Merger/Changes/Sale
      of Assets.
      Other
      than as permitted under Section 4.2(j), enter into any merger, reorganization
      or
      consolidation, make any substantial change in the basic type of business now
      conducted by it or sell all or substantially all of its assets outside the
      ordinary course of business. This provision does not prevent the sale of
      obsolete equipment in the ordinary course of business.

     

    (b) Name;
      Location of Collateral.
      Change
      the name, identity or corporate structure of Borrower; adopt or make use of
      any
      fictitious or tradename not disclosed elsewhere in this Agreement; or change
      the
      location of its chief executive office or the state of its incorporation or
      organization.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    (c) Liens
      and Security Interests.
      Create,
      incur, assume, or suffer to exist any Lien of any kind on its property or
      assets, now owned or hereafter acquired, except for the following (all of which
      are referred to herein as “Permitted
      Liens”):

     

    (i) Liens
      for
      taxes not yet due or which are being contested in good faith by appropriate
      proceedings and against which reserves deemed adequate by Lender have been
      set
      up (excluding any Lien imposed pursuant to any of the provisions of
      ERISA);

     

    (ii) Other
      Liens, charges and encumbrances incidental to the conduct of its business or
      the
      ownership of its property and assets and created by operation of
      law;

     

    (iii) Purchase
      money Liens and encumbrances created to secure the Indebtedness permitted by
      Section
      4.2(g)
      hereof;

     

    (iv) Liens,
      charges and encumbrances in favor of the Lender; and

     

    (v) Liens,
      charges and encumbrances reflected on Exhibit
      4.2(c)
      to this
      Agreement.

     

    (d) Judgments,
      etc.
      Allow
      any number of judgments for the payment of money in excess of the aggregate
      sum
      of $100,000.00 excluding amounts with respect to which an insurance carrier
      admits full coverage (except for applicable deductibles), to remain unsatisfied
      against it for a period of thirty (30) consecutive days, unless execution
      thereof is stayed.

     

    (e) Pledge
      of Assets.
      Pledge
      any of the Borrower’s Assets or any interest therein.

     

    (f) Loans
      to Others.
      Make
      any material loans, advances, extensions of credit, guaranty or become surety
      for, any other person or entities other than extensions of credit to customers
      and prepayments to vendors and suppliers in the ordinary course of
      business.

     

    (g) Indebtedness/Guarantees.
      Except
      as permitted or contemplated by this Agreement, create, incur, assume or suffer
      to exist any Indebtedness or obligation for money borrowed, or guarantee, or
      endorse, or otherwise be or become contingently liable in connection with the
      obligations of any Person (including, without limitation, any Affiliate), except
      for the following (all of which are referred to herein as “Permitted
      Indebtedness”):

     

    (i) Indebtedness
      for taxes not at the time due and payable or which are being actively contested
      in good faith by appropriate proceedings and against which reserves deemed
      adequate by Lender have been established by Borrower, but only if the
      non-payment of such taxes being contested does not result in a Lien upon any
      property of Borrower that has priority over the Lien held by
      Lender;

     

    (ii) Contingent
      liabilities arising out of the endorsement of negotiable instruments in the
      ordinary course of collection or similar transactions in the ordinary course
      of
      business;

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    (iii) Accounts
      payable to trade creditors which are not aged more than one hundred twenty
      (120)
      days from billing date and current operating expenses (other than for borrowed
      money) which are not more than sixty (60) days past due, in each case incurred
      in the ordinary course of business and paid within such time period, unless
      the
      same are actively being contested in good faith and by appropriate and lawful
      proceedings and Borrower shall have set aside such reserves, if any, with
      respect thereto as have been recommended by independent public accountants;
      

     

    (iv) Indebtedness
      for deferred compensation owed to employees and former employees;

     

    (v) Commitments
      to purchase equipment and machinery entered into in the ordinary course of
      business and Indebtedness related thereto; and

     

    (vi) Indebtedness
      for money borrowed from the Lender.

     

    (h) Affiliate
      Transactions.
      Purchase, acquire or lease property from, or sell, transfer or lease any
      Inventory, materials, Goods, Equipment, assets or property to, any Affiliate
      of
      Borrower, except in the ordinary course of Borrower’s business and under terms
      and conditions which would apply if disinterested parties were
      involved.

     

    (i) Financing
      Statements.
      Permit
      any financing statement to be on file with respect to the Assets of the Borrower
      other than financing statement for Permitted Liens.

     

    (j) Acquisitions.
      Purchase or acquire the obligations, stock or assets of or any other interest
      in
      any Person, except for (i) purchases and acquisitions in an amount not in excess
      of $1,000,000 in any one consecutive twelve-month period; and (ii) in addition
      to clause (i) of this paragraph (j), direct obligations of the United States
      of
      America or certificates of deposit or other investments issued by Lender, or
      by
      any bank chartered under the laws of the United States or any State of the
      United States.

     

    (k) Dividends.
      During
      any fiscal year, declare any dividends on any shares of any class of Borrower’s
      stock, or apply any of Borrower’s property or assets to the purchase, redemption
      or other retirement of, or set apart any sum for the payment of any dividends
      on, or make any other distribution by reduction of capital or otherwise in
      respect of, any shares of any class of stock of Borrower, the aggregate value
      of
      which exceeds 50% of the sum of (i) the Company’s income from continuing
      operations for such fiscal year plus (ii) the absolute value of the aggregate
      after-tax non-cash and extraordinary losses of the Company for such fiscal
      year.
      Notwithstanding the foregoing, the Company may declare and pay aggregate
      non-extraordinary quarterly dividends in any fiscal quarter in an amount not
      in
      excess of the aggregate non-extraordinary quarterly dividends paid in the
      immediately preceding fiscal quarter so long as after giving effect to the
      payment of such dividends, the Company remains in compliance with the financial
      covenants set forth in Section 4.3 of this Agreement.

     

    (l) Lease
      Transactions.
      Enter
      into any sale and lease-back arrangement, either directly or
      indirectly.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    (m) Subsidiary
      Divestiture.
      Transfer, sell, pledge, encumber, or otherwise assign any shares of stock or
      other interest in any Subsidiary or permit any Subsidiary to sell or otherwise
      dispose of substantially all of its assets.

     

    (n) Partnerships
      or Joint Ventures.
      Become
      or agree to become a general or limited partner in any material general or
      limited partnership or joint venturer in any joint venture.

     

    (o) Capital
      Expenditures.
      Make,
      without Lender’s written consent, spend or incur obligations (including the
      total amount of capital leases) of more than $1,500,000 in any fiscal
      year.

     

    (p) Prepayment
      of Debt.
      Prepay
      any outstanding debt (other than debt to Lender).

     

    (q) Safety
      Catheter Impairment Permitted.
      Notwithstanding any other provision of this Agreement or any of the Loan
      Documents to the contrary, the Borrower shall be permitted to take or engage
      in
      any action which may result in the total or partial impairment of the assets
      included in its safety catheter financial reporting segment, and any such action
      shall not constitute a default or Event of Default hereunder or give rise to
      any
      rights of Lender arising in connection with or as a result of a default or
      Event
      of Default hereunder, provided Borrower at all times complies with the financial
      covenants set forth in 4.3.

     

    4.3 Financial
      Covenants.
      During
      the term of this Loan Agreement, Borrower will, at all times, maintain the
      following, all on a consolidated basis:

     

    (a) Tangible
      Net Worth.
      At all
      times, Tangible Net Worth of not less than the then applicable Tangible Net
      Worth Threshold. The “Tangible Net Worth Threshold” shall initially be
      $6,500,000, and on the 120th
      day of
      each fiscal year of the Company occurring during the term of this Agreement,
      the
      Threshold Tangible Net Worth shall be increased by an amount equal to one-half
      of the Company’s consolidated net income for the most recently-completed full
      fiscal year reported in the Company’s fiscal year-end audited financial
      statements required to be provided by the Company to the Lender by clause (i)
      of
      Paragraph 4.1(c) of this Agreement.

     

    (b) Leverage
      Ratio.
      A
      Leverage Ratio of not more than 3.00 to 1.00 at all times.

     

    Unless
      otherwise agreed to by Lender, in writing or as otherwise set forth herein,
      Borrower’s compliance with the foregoing financial covenants shall be determined
      in accordance with GAAP, after eliminations for Intercompany
      Transactions.

     

    5. [Reserved].

     

    6. Events
      of Default.
      The
      occurrence of any of the following shall constitute an event of default
      (“Event
      of Default”):

     

    6.1 Payment.
      Any
      payment of principal, interest, or other sum owed to Lender under the Loan
      Documents or otherwise due from Borrower to Lender is not made when due, whether
      at stated maturity, upon acceleration, or otherwise and such breach continues
      for twenty (20) days after the due date thereof. 

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    6.2 Additional
      Defaults.
      Any
      provision or covenant of any Loan Document is materially breached, or any
      warranty, representation, or statement made or furnished to Lender by Borrower
      in writing in connection with the Loan and the Loan Documents (including any
      warranty, representation, or statement in Borrower’s financial statements) or to
      induce Lender to make the Loan, is untrue or misleading in any material respect
      and such breach or falsity is not cured within thirty (30) days after written
      notice thereof is given by Lender to Borrower.

     

    6.3 Cross-Default.
      Any
      material default by Borrower that occurs under any agreement for indebtedness
      with Lender or any third party which default is not corrected within the cure
      period provided in such agreement, if any.

     

    6.4 Dissolution
      or Bankruptcy.
      Dissolution or termination or liquidation of existence of Borrower or
      insolvency, business failure, appointment of a receiver of any part of the
      property of, assignment for the benefit of creditors by, or the commencement
      of
      any proceeding under state or federal bankruptcy laws or other insolvency laws
      by Borrower or the commencement of an involuntary proceeding against Borrower
      under state or federal bankruptcy laws which is not dismissed within thirty
      (30)
      days after such commencement, or a merger or consolidation or sale of Borrower’s
      assets other than as permitted hereunder.

     

    6.5 Adverse
      Changes.
      Any
      Material Adverse Change in the condition of Borrower which Lender reasonably
      determines will materially affect the ability of Borrower to meet its
      obligations under this Loan Agreement.

     

    6.6 Business
      Disruption; Condemnation.
      There
      shall occur a cessation of a substantial part of the business of Borrower for
      a
      period which significantly affects Borrower’s capacity to continue its business,
      on a profitable basis; or Borrower shall suffer the loss or revocation of any
      license or permit now held or hereafter acquired by it which is necessary to
      the
      continued or lawful operation of its business; or Borrower shall be enjoined,
      restrained or in any way prevented by court, governmental or administrative
      order from conducting all or any material part of its business
      affairs.

     

    6.7 
      Invalidity of Loan Documents.
      Assertion or actual invalidity of any Loan Document.

     

    6.8 Sale
      of Assets. 
      Borrower
      shall sell all or substantially all of its assets not in the ordinary course
      of
      business. 

     

    7. Lender’s
      Remedies.
      In
      addition to any remedies available to Lender under the Note and other Loan
      Documents, the Lender shall have the following remedies:

     

    7.1 Acceleration.
      Upon
      the occurrence of an Event of Default, Lender shall have the option to declare
      the entire unpaid principal amount of the Loans, accrued interest and all other
      Obligations immediately due and payable, without presentment, demand, or notice
      of any kind.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    7.2 Remedies.
      Upon
      the occurrence of an Event of Default, Lender shall be entitled to pursue all
      rights and remedies available under each of the Loan Documents, as well as
      all
      rights and remedies available at law, or in equity, and such rights and remedies
      shall be cumulative. Without in any way limiting the generality of the
      foregoing, Lender shall also have the following non-exclusive
      rights:

     

    (a) Set-off.
      To
      exercise any and all rights of set-off which Lender may have against any
      account, fund, or property of any kind, tangible or intangible, belonging to
      Borrower which shall be in Lender’s possession or under its
      control;

     

    (b) Cure.
      To cure
      any Event of Default in such manner as deemed appropriate by
      Lender;

     

    (c) Foreclosure.
      To
      foreclose pursuant to the terms of any Loan Document, or at law or in
      equity.

     

    7.3 Advances/Reimbursements.
      All
      amounts due Lender as a result of expenditures made by Lender or losses suffered
      by Lender not paid within twenty (20) days of presentment to Borrower shall
      bear
      interest at the rate applicable to past due principal as specified in the Note
      or herein from the date demanded until paid in full. Unless otherwise specified
      in the Loan Documents, such advances and other sums, together with accrued
      interest, shall be due and payable on demand.

     

    7.4 Default
      Rate of Interest.
      Notwithstanding anything contained in the Note, upon an Event of Default,
      interest shall accrue on the entire outstanding principal of the Loan from
      and
      after such date until and including the date on which the default is cured
      at
      the rates accruing under the Note, plus an additional four percent (4%) per
      annum (400 basis points). The increase of such interest rate shall not affect
      or
      otherwise limit or apply in lieu of any other remedy available to Lender as
      provided for herein.

     

    7.5 Late
      Charge.
      If
      Borrower shall fail to make any installment of principal or interest within
      twenty (20) days from the due date therefore, whether by acceleration or
      otherwise, Borrower agrees to pay to Lender a late charge equal to one percent
      (1%) of the overdue installment.

     

    7.6 Marshalling
      of Assets; Payments Set Aside.
      Lender
      shall be under no obligation to marshal any assets or securities in favor of
      Borrower or any other Person or against or in payment of any or all of the
      Obligations. To the extent that any sum credited against the Obligations is
      subsequently invalidated, declared to be fraudulent or preferential, set aside
      or required to be repaid to a trustee, receivor or any other party under any
      bankruptcy law, state of federal law, common law or equitable cause, then to
      the
      extent of such recovery, the Obligations or such part thereof originally
      intended to be satisfied, and all Liens, rights and remedies therefore, shall
      be
      revived and continued in full force and effect as if such payment had not been
      made or such enforcement or set-off had not occurred.

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    8. Miscellaneous.

     

    8.1 Notice.
      All
      notices, demands, or other communications given hereunder or under the Loan
      Documents shall be in writing, and shall be sent via overnight courier or mailed
      to the address of each party as set forth below, said mailing to be certified
      United States government mail to the address set forth below, with notice in
      each case to be deemed served and effective upon the earlier of (i) when
      received, (ii) when recorded as being delivered by the overnight courier service
      or (iii) three (3) business days after having been deposited in the United
      States mail as indicated above. Either party must provide written direction
      to
      the other in order to change the address to which said notice shall be
      sent.

     

    If
      to
      Lender, to  Carolina
      First Bank

    104
      South
      Main Street

    Greenville,
      South Carolina 29601

    Attn:
      Kevin M. Short

     

    With
      copy, to:  Nexsen
      Pruet, LLC

    201
      W.
      McBee Ave., Ste. 400

    Greenville,
      South Carolina 29601

    Attn:
      David Gossett, Esq.

     

    If
      to
      Borrower, to         Span-America
      Medical Systems, Inc.

    70
      Commerce Center

    Greenville,
      South Carolina 29615

    Attn:
      Richard Coggins

    

    With
      copy, to 
Wyche,
      Burgess, Freeman & Parham, P.A.

    44
      E.
      Camperdown Way (29601)

    Post
      Office Box 728

    Greenville,
      South Carolina 29602

    Attn:
      Eric K. Graben, Esq.

     

    8.2 Waiver.
      No
      failure or delay on the part of Lender in exercising any power or right
      hereunder, and no failure of Lender to give Borrower notice of an Event of
      Default, shall operate as a waiver thereof, nor shall any single or partial
      exercise of any such right or power preclude any other or further exercise
      thereof or the exercise of any other right or power hereunder. No modification
      or waiver of any provision of any Loan Document or consent to any departure
      by
      Borrower from any Loan Document shall in any event be effective unless the
      same
      shall be in writing, signed by Lender and Borrower, and such waiver or consent
      shall be effective only in the specific instance and for the particular purpose
      for which it was given.

     

    8.3 Benefit.
      The
      Loan Documents shall be binding upon and shall inure to the benefit of Borrower
      and Lender and their respective successors and assigns.

     

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    8.4 Governing
      Law and Jurisdiction.
      The
      Loan Documents and this Loan Agreement, unless otherwise specifically provided
      therein, and all matters relating thereto, shall be governed by and construed
      and interpreted in accordance with the laws of the State of South Carolina;
      PROVIDED
      HOWEVER,
      to the
      extent that the creation, validity, perfection, enforceability or priority
      of
      any lien or security interest, or the rights and remedies with respect to any
      lien or security interest are governed by the laws of a jurisdiction other
      than
      the State of South Carolina, then the laws of such jurisdiction shall govern,
      except as superseded by applicable United States Federal Law.

     

    8.5 Assignment.
      Borrower may
      not
      assign the Loan Documents or any interest therein without Lender’s prior written
      consent.

     

    8.6 Severability.
      Invalidity of any one or more of the terms, conditions or provisions of this
      Loan Agreement shall in no way affect the balance hereof, which shall remain
      in
      full force and effect.

     

    8.7 Construction.
      Whenever the context and construction so require, all words used in the singular
      number herein shall be deemed to have been used in the plural, and vice versa,
      and the masculine gender shall include the feminine and neuter and the neuter
      shall include the masculine and feminine. All references to Sections shall
      mean
      Sections of the Loan Document. The terms “herein,” “hereinbelow,” “hereunder,”
and similar terms are references to the particular Loan Document in its entirety
      and not merely the particular Article, Section, or Exhibit in which any such
      term appears. Captions are inserted only as a matter of convenience and for
      reference and in no way define, limit or describe the scope of the Loan Document
      or the intent of any provision thereof. All references to any Loan Document
      shall include all amendments, extensions, renewals, restatements or replacements
      of the same. The terms “include”, “including” and similar terms shall be
      construed as if followed by the phrase “without being limited to” and “Real
      Estate” and “Collateral” shall be construed as if followed by the phrase “or any
      part thereof”. No inference in favor of or against any party shall be drawn from
      the fact that such party has drafted any portion of the Loan Document.

     

    8.8 Headings.
      Any
      headings used in the Loan Documents are solely for the convenience of the
      Parties, and are not part of the agreement between the Parties, and shall not
      be
      construed as such.

     

    8.9 Execution
      in Counterparts.
      All
      Loan Documents may be executed in two or more counterparts, each of which shall
      be deemed to be an original, but all of which shall constitute one and the
      same
      instrument, and in making proof of the Loan Document, it shall not be necessary
      to produce or account for more than one such counterpart.

     

    8.10 Examinations/Communications.
      Lender’s examinations, inspections, or receipt of information pertaining to the
      matters set forth in the Loan Documents shall not in any way be deemed to reduce
      the full scope and protection of the Loan Documents or the Obligations of
      Borrower related to the Loan Documents. 

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    8.11 No
      Third Party Beneficiaries.
      The
      Loan Documents are entered into for the sole benefit of Borrower, its successors
      and assigns, and no third party shall be deemed to have any privity of contract
      nor any right to rely on any Loan Document to any extent or for any purpose
      whatsoever, nor shall any other person have any right of action of any kind
      hereof or be deemed to be a party beneficiary.

     

    8.12 No
      Participation.
      Nothing
      in the Loan Documents, and no action or inaction whatsoever on the part of
      Lender undertaken in connection with the Loan, shall be deemed to make Lender
      a
      partner or joint venturer with Borrower, and Borrower indemnifies and holds
      Lender harmless from and against any and all claims, losses, causes of action,
      expenses (including attorneys’ fees) and damages arising from the relationship
      between Lender and Borrower being construed as or related to be anything other
      than that of lender and borrower. This provision shall survive the termination
      of all Loan Documents.

     

    8.13 Notice
      of Conduct.
      Borrower agrees to use commercially reasonable efforts to give Lender written
      notice of any action or inaction, to the extent that any such Party has actual
      knowledge thereof, by Lender or any agent or attorney of Lender in connection
      with the Loan Documents or the Obligations of any party under the Loan Documents
      that Borrower reasonably believes may be actionable against Lender or any agent
      or attorney of Lender or a defense to payment of any Obligations of Borrower,
      including commission of a tort or violation of any contractual duty implied
      by
      law, and a reasonable opportunity to cure or correct such action or inaction.
      Upon request of Lender from time to time, Borrower shall also confirm in writing
      the status of the Loan, and the Obligations, and provide other information
      reasonably requested by Lender.

     

    8.14 Costs,
      Expenses and Attorneys’ Fees.
      Borrower shall pay to Lender immediately upon demand the full amount of all
      reasonable out-of-pocket costs and expenses, including reasonable attorneys’
fees, costs of experts and all other expenses, incurred by Lender (a) upon
      the
      occurrence of an Event of Default, or of circumstances which, if left uncured,
      would result in an Event of Default, the costs of additional appraisals,
      environmental studies, title insurance, survey updates and legal reviews; (b)
      the perfection, preservation, protection and continuation of the liens and
      security interest granted Lender and the custody, preservation, protection,
      repair and operation of any collateral, (c) the pursuit by Lender of its rights
      and remedies under the Loan Documents and applicable law, and (d) defending
      any
      counterclaim, cross-claim or other action, or participating in any bankruptcy
      proceeding, mediation, arbitration, litigation or dispute resolution of any
      other nature involving Lender or Borrower, except to the extent Lender has
      been
      adjudicated to have engaged in culpable conduct. 

     

    8.15 Further
      Assurances.
      At any
      time after the date hereof, Borrower, at the request of Lender, shall execute
      and deliver such further documents and agreements and take such further actions
      as Lender reasonably deems necessary or appropriate to permit each transaction
      contemplated by the Loan Documents to be consummated in accordance with the
      provisions thereof and to perfect, preserve, protect and continue all liens,
      security interests and rights of Lender under the Loan Documents, security
      agreements, financing statements, continuation statements, a new or replacement
      Note, and/or agreements supplementing, extending or otherwise modifying the
      Note, this Loan Agreement, and/or security agreement, and certificates as to
      the
      amount of the indebtedness evidenced by the Note. Upon Borrower’s payment in
      full of all amounts outstanding under the Loan, Lender shall return to Borrower
      for cancellation the original Note and any extensions, replacements or renewals
      thereof.

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    8.16 Integration.
      To the
      extent only of any conflict between the terms of this Loan Agreement and any
      other Loan Document (other than the Note), the terms of this Loan Agreement
      shall prevail. To the extent only of any conflict between the terms of this
      Loan
      Agreement and the Note, the terms of the Note shall prevail.

     

    8.17 Time
      of the Essence.
      Time is
      of the essence to all Loan Documents.

     

    8.18 Arbitration.
      ANY
      CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT
      LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS INSTRUMENT, AGREEMENT,
      OR
      DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY
      CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
      ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
      APPLICABLE, THE UNIFORM ARBITRATION ACT, § 15-48-10, ET. SEQ., CODE OF LAWS OF
      SOUTH CAROLINA (1976), AS AMENDED), THE RULES OF PRACTICE AND PROCEDURE FOR
      THE
      ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR
      THEREOF (“J.A.M.S.”), AND THE “SPECIAL RULES” SET FORTH BELOW. IN THE EVENT OF
      ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
      ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
      TO
      THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY
      OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM
      TO
      WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
      ACTION.

     

    A. SPECIAL
      RULES.
      THE ARBITRATION SHALL BE CONDUCTED IN GREENVILLE, SOUTH CAROLINA AND
      ADMINISTERED BY J.A.M.S. IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
      ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
      SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
      FOR ARBITRATION FURTHER, THE ARBITRATOR(S) SHALL ONLY, UPON A SHOWING OF CAUSE,
      BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL
      60 DAYS.

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    B.
      RESERVATION
      OF RIGHTS.
      NOTHING IN THIS ARBITRATION PROVISION SHALL BE DEEMED TO (I) LIMIT THE
      APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE
      AND
      ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II) BE
      A
      WAIVER BY LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
      SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO
      (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR
      (B)
      TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
      FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
      INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER; OR
      (III)
      IMPAIR OR CONSTITUTE A WAIVER OF ANY RIGHT OF BORROWER TO THE PROTECTION OF
      BANKRUPTCY PROCEEDINGS IN THE U.S. BANKRUPTCY COURTS OR SIMILAR INSOLVENCY
      PROCEEDINGS UNDER STATE LAW IN ANY STATE COURT. LENDER MAY EXERCISE SUCH SELF
      HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
      ANCILLARY REMEDIES AND BORROWER MAY SEEK SUCH BANKRUPTCY OR INSOLVENCY
      PROTECTION IN ANY FEDERAL OR STATE COURT BEFORE, DURING, OR AFTER THE PENDENCY
      OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT,
      OR
      DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
      MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
      SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT
      IN
      ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
      RESORT TO SUCH REMEDIES.

     

     

    9. Additional
      Provisions.
      Riders,
      schedules and exhibits attached hereto, if any, are hereby incorporated into
      this Loan Agreement as if set forth verbatim.

     

    [Signature
      Page Follows] 

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

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

     

    
      	 	 	 
	 	
              BORROWER:
Span-America
                Medical Systems, Inc.

            
	 
 	 
 	 
 
	
            	By:  	/s/ Richard
              C. Coggins
	 	
              

              Its: 
                Chief Financial Officer

            
	 	
            

    

     

    
      	 	 	 
	 	
              LENDER:
Carolina
                First Bank

            
	 
 	 
 	 
 
	
            	By:  	/s/
              Kevin M. Short
	 	
              
Kevin
              M. Short
              Its:
                Vice President

            

    

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    List
      of Exhibits and Schedules

     

    Exhibits
      & Schedules 

     

    Exhibit
      1.18  Note

     

    Exhibit
      4.2(c) Liens,
      Charges and Encumbrances

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    EXHIBIT
      1.18

    

    FORM
      OF
      NOTE

     

    (See
      Attached)

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    EXHIBIT
      4.2(C)

     

    LIENS,
      CHARGES AND ENCUMBRANCES

     

    None.

     

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    EXHIBIT
      4.2(F)

     

    PERMITTED
      INDEBTEDNESS

     

    None.

     

    
      
         

      

      
        27

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