Document:

EX-4.2

 

EXHIBIT 4.2

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

HARTVILLE GROUP, INC.

	 	 	 
	Warrant Shares:                     

	 	Initial Exercise Date: February 29, 2008

      
    THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received, 
                                 (the
“Holder”) is entitled, upon
the terms and subject to the limitations on
exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the
“Initial Exercise Date”) and on or prior to the close of business on March 1, 2013 (the
“Termination Date”) but not thereafter, to subscribe for and purchase from Hartville Group,
Inc., a Nevada corporation (the “Company”), up to                      shares (the “Warrant
Shares”) of Common Stock. The purchase price of one share of Common Stock under this Warrant
shall be equal to the Exercise Price, as defined in Section 2(b).

     Section 1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain Securities Purchase Agreement (the
“Purchase Agreement”), dated February 29, 2008, among the Company and the purchasers
signatory thereto.

     Section 2. Exercise.

     a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company (or such
other office or agency of the Company as it may designate by notice in writing to

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the registered Holder at the address of the Holder appearing on the books of the
Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto;
and, within 3 Trading Days of the date said Notice of Exercise is delivered to the Company,
the Company shall have received payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States bank.
Notwithstanding anything herein to the contrary, the Holder shall not be required to
physically surrender this Warrant to the Company until the Holder has purchased all of the
Warrant Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for cancellation within 3
Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial
exercises of this Warrant resulting in purchases of a portion of the total number of Warrant
Shares available hereunder shall have the effect of lowering the outstanding number of
Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant
Shares purchased. The Holder and the Company shall maintain records showing the number of
Warrant Shares purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt of such notice.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling
and determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this
paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number
of Warrant Shares available for purchase hereunder at any given time may be less than the
amount stated on the face hereof.

     b) Exercise Price. The exercise price per share of the Common Stock under this
Warrant shall be $1.50, subject to adjustment hereunder (the “Exercise Price”).

     c) Cashless Exercise. If at any time after the earlier of (i) the one year
anniversary of the date of the Purchase Agreement and (ii) the completion of the
then-applicable holding period required by Rule 144, or any successor provision then in
effect, there is no effective registration statement registering, or no current prospectus
available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be
exercised at such time by means of a “cashless exercise” in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to the quotient
obtained by dividing [(A-B) (X)] by (A), where:

	 	(A)	 	=  the VWAP on the Trading Day immediately preceding the date
of such election;

	 
	 	(B)	 	=  the
Exercise Price of this Warrant, as adjusted; and

	 
	 	(X)	 	=  the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means of a cash
exercise rather than a cashless exercise.

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     Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant
shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

     d) Exercise Limitations.

	 	i.	 	Holder’s Restrictions. The Company shall
not effect any exercise of this Warrant, and a Holder shall not have the
right to exercise any portion of this Warrant, pursuant to Section 2 or
otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder
(together with the Holder’s Affiliates, and any other person or entity
acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and
its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which such
determination is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or
any of its Affiliates and (B) exercise or conversion of the unexercised
or nonconverted portion of any other securities of the Company
(including, without limitation, any other Common Stock Equivalents)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of
its affiliates. Except as set forth in the preceding sentence, for
purposes of this Section 2(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder, it being acknowledged by
the Holder that the Company is not representing to the Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and
the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in
this Section 2(d)(i) applies, the determination of whether this Warrant
is exercisable (in relation to other securities owned by the Holder
together with any Affiliates) and of which portion of this Warrant is
exercisable shall be in the sole discretion of the Holder, and the
submission of a Notice of Exercise shall be deemed to be the Holder’s
determination of whether this Warrant is exercisable (in relation to
other securities owned by the Holder together with any Affiliates) and of
which portion of this Warrant is exercisable, in each case subject to the
Beneficial Ownership Limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. In addition, a
determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. For purposes of this
Section 2(d)(i), in determining the number of outstanding shares of
Common Stock, a Holder

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	 	 	 	may rely on the number of outstanding shares of Common Stock as reflected in
(A) the Company’s most recent periodic or annual report, as the case may be,
(B) a more recent public announcement by the Company or (C) any other notice
by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of a Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was reported. The
“Beneficial Ownership Limitation” shall be 4.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to
the issuance of shares of Common Stock issuable upon exercise of this
Warrant. The Holder, upon not less than 61 days’ prior notice to the
Company, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2(d)(i), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares
of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(d)(i) shall continue to apply. Any such
increase or decrease will not be effective until the 61st day
after such notice is delivered to the Company. The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(d)(i) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent
with the intended Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply
to a successor holder of this Warrant.

	 	ii.	 	RESERVED

     e) Mechanics of Exercise.

     i. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the Transfer Agent to the
Holder by crediting the account of the Holder’s prime broker with the
Depository Trust Company through its Deposit Withdrawal Agent Commission
(“DWAC”) system if the Company is then a participant in such system
and either (A) there is an effective registration statement permitting the
resale of the Warrant Shares by the Holder or (B) the shares are eligible
for resale without volume or manner-of-sale limitations pursuant to Rule
144, and otherwise by physical delivery to the address specified by the
Holder in the Notice of Exercise within 3 Trading Days from the delivery to
the Company of the Notice of Exercise Form,

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surrender of this Warrant (if required) and payment of the aggregate
Exercise Price as set forth above (the “Warrant Share Delivery
Date”). This Warrant shall be deemed to have been exercised on the date
the Exercise Price is received by the Company. The Warrant Shares shall be
deemed to have been issued, and Holder or any other person so designated to
be named therein shall be deemed to have become a holder of record of such
shares for all purposes, as of the date the Warrant has been exercised by
payment to the Company of the Exercise Price (or by cashless exercise, if
permitted) and all taxes required to be paid by the Holder, if any, pursuant
to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If
the Company fails for any reason to deliver to the Holder certificates
evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant
Share Delivery Date, the Company shall pay to the Holder, in cash, as
liquidated damages and not as a penalty, for each $1,000 of Warrant Shares
subject to such exercise (based on the VWAP of the Common Stock on the date
of the applicable Notice of Exercise), $10 per Trading Day (increasing to
$20 per Trading Day on the fifth Trading Day after such liquidated damages
begin to accrue) for each Trading Day after such Warrant Share Delivery Date
until such certificates are delivered.

     ii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, at the request of a
Holder and upon surrender of this Warrant certificate, at the time of
delivery of the certificate or certificates representing Warrant Shares,
deliver to Holder a new Warrant evidencing the rights of Holder to purchase
the unpurchased Warrant Shares called for by this Warrant, which new Warrant
shall in all other respects be identical with this Warrant.

     iii. Rescission Rights. If the Company fails to cause the
Transfer Agent to transmit to the Holder a certificate or the certificates
representing the Warrant Shares pursuant to Section 2(e)(i) by the Warrant
Share Delivery Date, then, the Holder will have the right to rescind such
exercise.

     iv. Compensation for Buy-In on Failure to Timely Deliver
Certificates Upon Exercise. In addition to any other rights available
to the Holder, if the Company fails to cause the Transfer Agent to transmit
to the Holder a certificate or the certificates representing the Warrant
Shares pursuant to an exercise on or before the Warrant Share Delivery Date,
and if after such date the Holder is required by its broker to purchase (in
an open market transaction or otherwise) or the Holder’s brokerage firm
otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall
(A) pay in cash to the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the shares of

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Common Stock so purchased exceeds (y) the amount obtained by
multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2)
the price at which the sell order giving rise to such purchase obligation
was executed, and (B) at the option of the Holder, either reinstate the
portion of the Warrant and equivalent number of Warrant Shares for which
such exercise was not honored or deliver to the Holder the number of shares
of Common Stock that would have been issued had the Company timely complied
with its exercise and delivery obligations hereunder. For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with an aggregate sale price giving rise to such purchase obligation
of $10,000, under clause (A) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In and, upon request of the Company, evidence of the
amount of such loss. Nothing herein shall limit a Holder’s right to pursue
any other remedies available to it hereunder, at law or in equity including,
without limitation, a decree of specific performance and/or injunctive
relief with respect to the Company’s failure to timely deliver certificates
representing shares of Common Stock upon exercise of the Warrant as required
pursuant to the terms hereof.

     v. No Fractional Shares or Scrip. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. As to any fraction of a share which Holder would otherwise be
entitled to purchase upon such exercise, the Company shall, at its election,
either pay a cash adjustment in respect of such final fraction in an amount
equal to such fraction multiplied by the Exercise Price or round up to the
next whole share.

     vi. Charges, Taxes and Expenses. Issuance of certificates for
Warrant Shares shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company,
and such certificates shall be issued in the name of the Holder or in such
name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder and the Company may require, as
a condition thereto, the payment of a sum sufficient to reimburse it for any
transfer tax incidental thereto.

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     vii. Closing of Books. The Company will not close its
stockholder books or records in any manner which prevents the timely
exercise of this Warrant, pursuant to the terms hereof.

     Section 3. Certain Adjustments.

     a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of
shares or (iv) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding immediately after such
event and the number of shares issuable upon exercise of this Warrant shall be
proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain
unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective
immediately after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.

     b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
applicable, at any time while this Warrant is outstanding, shall sell or grant any option to
purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or
announce any offer, sale, grant or any option to purchase or other disposition) any Common
Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at
an effective price per share less than the then Exercise Price (such lower price, the
“Base Share Price” and such issuances collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Exercise Price, such issuance
shall be deemed to have occurred for less than the Exercise Price on such date of the
Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the
Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such
that the aggregate Exercise Price payable hereunder, after taking into account the decrease
in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such
adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock
Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid
or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall
notify the Holder, in

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writing, no later than the Trading Day following the issuance of any Common Stock or
Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and other
pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of
clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to
this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such
Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon
the Base Share Price regardless of whether the Holder accurately refers to the Base Share
Price in the Notice of Exercise.

     c) Subsequent Rights Offerings. If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and
not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the VWAP at the record date mentioned below, then, the Exercise
Price shall be multiplied by a fraction, of which the denominator shall be the number of
shares of the Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered (assuming receipt by the
Company in full of all consideration payable upon exercise of such rights, options or
warrants) would purchase at such VWAP. Such adjustment shall be made whenever such rights
or warrants are issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights, options or warrants.

     d) Pro Rata Distributions. If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to Holders of the
Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or
rights or warrants to subscribe for or purchase any security other than the Common Stock
(which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by a fraction
of which the denominator shall be the VWAP determined as of the record date mentioned above,
and of which the numerator shall be such VWAP on such record date less the then per share
fair market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith. In either case the adjustments shall be
described in a statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

     e) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its assets in one
or a series of related transactions, (iii) any tender offer or exchange offer

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(whether by the Company or another Person) is completed pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other securities, cash or
property or (iv) the Company effects any reclassification of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (each “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have
the right to receive, for each Warrant Share that would have been issuable upon such
exercise immediately prior to the occurrence of such Fundamental Transaction, the number of
shares of Common Stock of the successor or acquiring corporation or of the Company, if it is
the surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. For purposes of any such exercise, the
determination of the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall
apportion the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental Transaction shall issue
to the Holder a new warrant consistent with the foregoing provisions and evidencing the
Holder’s right to exercise such warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions of this
Section 3(e) and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is
(1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under
the Exchange Act, or (3) a Fundamental Transaction involving a person or entity not traded
on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global
Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the
Holder’s option, exercisable at any time concurrently with or within 30 days after the
consummation of the Fundamental Transaction, an amount of cash equal to the value of this
Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained
from the “OV” function on Bloomberg L.P. using (A) a price per share of Common Stock equal
to the VWAP of the Common Stock for the Trading Day immediately preceding the date of
consummation of the applicable Fundamental Transaction, (B) a risk-free interest rate
corresponding to the U.S. Treasury rate for a 30 day period immediately prior to the
consummation of the applicable Fundamental Transaction, (C) an expected volatility equal to
the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of
the Trading Day immediately following the public announcement of the applicable Fundamental
Transaction and (D) a

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remaining option time equal to the time between the date of the public announcement of
such transaction and the Termination Date.

     f) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     g) Notice to Holder.

     i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to any provision of this Section 3, the Company shall
promptly mail to the Holder a notice setting forth the Exercise Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment. If the Company enters into a Variable Rate Transaction,
despite the prohibition thereon in the Purchase Agreement, the Company shall
be deemed to have issued Common Stock or Common Stock Equivalents at the
lowest possible conversion or exercise price at which such securities may be
converted or exercised.

     ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) the Company shall
authorize the granting to all holders of the Common Stock rights or warrants
to subscribe for or purchase any shares of capital stock of any class or of
any rights, (D) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the
affairs of the Company, then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the Warrant
Register of the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are
to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of the Common Stock of record shall be entitled to exchange their
shares of the Common Stock for securities, cash or other

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property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
The Holder is entitled to exercise this Warrant during the period commencing
on the date of such notice to the effective date of the event triggering
such notice.

     Section 4. Transfer of Warrant.

     a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of
the Purchase Agreement, this Warrant and all rights hereunder (including, without
limitation, any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent, together
with a written assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any transfer
taxes payable upon the making of such transfer. Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations specified in
such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The
Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant
Shares without having a new Warrant issued.

     b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice. All Warrants issued on transfers or exchanges
shall be dated the Initial Exercise Date and shall be identical with this Warrant except as
to the number of Warrant Shares issuable pursuant thereto.

     c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all other purposes, absent actual
notice to the contrary.

     d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective registration statement under the Securities
Act and under applicable state securities or blue sky laws or (ii) eligible for resale

11

 

without volume or manner-of-sale restrictions pursuant to Rule 144, the Company may
require, as a condition of allowing such transfer, that the Holder or transferee of this
Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase
Agreement.

     Section 5. Miscellaneous.

     a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

     b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

     c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall not be
a Business Day, then, such action may be taken or such right may be exercised on the next
succeeding Business Day.

     d) Authorized Shares.

          The Company covenants that, during the period the Warrant is outstanding, it
will reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance
of this Warrant shall constitute full authority to its officers who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights under
this Warrant. The Company will take all such reasonable action as may be necessary
to assure that such Warrant Shares may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of the Trading
Market upon which the Common Stock may be listed. The Company covenants that all
Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights represented
by this Warrant, be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

12

 

          Except and to the extent as waived or consented to by the Holder, the Company
shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (i) not increase
the par value of any Warrant Shares above the amount payable therefor upon such
exercise immediately prior to such increase in par value, (ii) take all such action
as may be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction thereof,
as may be, necessary to enable the Company to perform its obligations under this
Warrant.

          Before taking any action which would result in an adjustment in the number of
Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     e) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

     f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.

     g) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

     h) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.

13

 

     i) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

     j) Remedies. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive and not to assert the defense in any action for
specific performance that a remedy at law would be adequate.

     k) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders from time to
time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

     l) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and Holders holding Warrants at least equal
to 67% of the Warrant Shares issuable upon exercise of all then outstanding Warrants.

     m) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

     n) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Pages Follow)

14

 

          IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized as of the date first above indicated.

	 	 	 	 	 
	 	HARTVILLE GROUP, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

15

 

	 	 	 	 	 

NOTICE OF EXERCISE

	 	 	TO: HARTVILLE GROUP, INC.

          (1) The undersigned hereby elects to purchase                      Warrant Shares of the Company pursuant
to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of
the exercise price in full, together with all applicable transfer taxes, if any.

          (2) Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o [if permitted] the cancellation of such number of Warrant Shares as is
necessary, in accordance with the formula set forth in subsection 2(c), to
exercise this Warrant with respect to the maximum number of Warrant Shares
purchasable pursuant to the cashless exercise procedure set forth in subsection
2(c).

          (3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

________________________

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery
of a certificate to:

________________________

________________________

________________________

          (4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________________

Signature of Authorized Signatory of Investing Entity:
__________________________________________________________

Name of Authorized Signatory:
____________________________________________________________________________

Title of Authorized Signatory:
_____________________________________________________________________________

Date:
________________________________________________________________________________________________

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

     FOR VALUE RECEIVED, [     ] all of or [          ] shares of the foregoing Warrant and all rights
evidenced thereby are hereby assigned to

	 	 	 	 	 
	 

	 	whose address is

	 	 	 	 	 
	 
	 	 	 	 
	 
	 	 	. 	 
	 		 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 

Dated:
____________, _______

	 	 	 	 	 
	Holder’s Signature:

	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	
Holder’s Address:
	 	 	 	 
	 
	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 

	 	 	 	 	 
	Signature Guaranteed:

	 	 	 	 
	 

	 	 	 	 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the
face of the Warrant, without alteration or enlargement or any change whatsoever, and must be
guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign the foregoing
Warrant.ex1055.htm

    Exhibit 10.55

    

    SEVERANCE
COMPENSATION

    AND

    RESTRICTIVE
COVENANT AGREEMENT

    

    

    THIS SEVERANCE COMPENSATION AND
RESTRICTIVE COVENANT AGREEMENT (the “Agreement”) is dated as of June 4,
2007 between MATRIA HEALTHCARE,
INC., a Delaware corporation (the “Company”), and THOMAS D. UNDERWOOD (the
“Executive”).

    

    

    WHEREAS, the severance
benefits payable by the Company to the Executive as provided herein are in part
intended to ensure that the Executive receives reasonable compensation given the
specific circumstances of Executive’s employment history with the
Company;

    

    

    NOW, THEREFORE, in
consideration of their respective obligations to one another set forth in this
Agreement, and other good and valuable consideration, the receipt, sufficiency
and adequacy of which the parties hereby acknowledge, the parties to this
Agreement, intending to be legally bound, hereby agree as follows:

    

    1.           Term.  The
term of this Agreement began on June 4, 2007 and shall terminate, except to the
extent that any obligation of the Company hereunder remains unpaid as of such
time, upon the Date of Termination (as hereinafter defined) of the Executive’s
employment with the Company as a result of the Executive’s death, Disability (as
defined in Section 2(b)) or Retirement (as defined in Section 2(c)),
by the Company for Cause (as defined in Section 2(d)), or by the Executive other
than for Good Reasons (as defined in Section 2(e)).

    

    2.           Termination of Employment
During the Term.

    

    (a)           General.  The
Executive shall be entitled to the compensation and benefits provided in
Section 3 upon the termination of the Executive’s employment with the
Company by the Executive or by the Company during the term of this Agreement,
unless such termination is as a result of (i) the Executive’s death;
(ii) the Executive’s Disability; (iii) the Executive’s Retirement;
(iv) the Executive’s termination by the Company for Cause; or (v) the
Executive’s decision to terminate employment other than for Good
Reason.

    

    (b)           Disability.  The
term “Disability” as used in this Agreement shall mean termination of the
Executive’s employment by the Company as a result of the Executive’s incapacity
due to physical or mental illness, provided that the Executive shall have been
absent from his duties with the Company on a full-time basis for six consecutive
months and such absence 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    shall
have continued unabated for 30 days after Notice of Termination as described in
Section 2(f) is thereafter given to the Executive by the Company.

    

    (c)           Retirement.  The
term “Retirement” as used in this Agreement shall mean termination of the
Executive’s employment by the Company based on the Executive’s having attained
age 65 or such later retirement age as shall have been established pursuant to a
written agreement between the Company and the Executive.

    

    (d)           Cause.  The
term “Cause” for purposes of this Agreement shall mean (i) the Executive’s
failure, neglect or refusal, as determined by the reasonable judgment of the
Company, to perform the duties of his position, unless the Executive shall have
cured such failure, neglect or refusal within 30 days of receipt of written
notice from the Company of such failure, neglect or refusal and has not at any
time thereafter repeated such failure or failed to sustain such cure; (ii) any
intentional act by the Executive that has the effect of injuring the reputation
or business of the Company or any of its affiliates in any material respect;
(iii) the Executive’s continued or repeated absence from the Company, unless
such absence is (x) approved or excused by the Chief Executive Officer of the
Company or (y) is the result of illness, Disability or incapacity; (iv) the
Executive’s use of illegal drugs or repeated drunkenness; (v) the Executive’s
arrest and/or conviction for the commission of a felony; or (vi) the commission
by the Executive of an act of fraud, deceit, material misrepresentation or
embezzlement against the Company or any of its affiliates.  For
purposes of this Agreement only, the preparation and filing of fictitious, false
or misleading claims in connection with any federal, state or other third party
medical reimbursement program, or any other violation of any rule or regulation
in respect of any federal, state or other third party medical reimbursement
program by the Company or any subsidiary of the Company shall not be deemed to
constitute “criminal fraud” or “civil fraud.”

    

    (e)           Good
Reason.  For purposes of this Agreement, “Good Reason” shall
mean (i) a reduction of the Executive’s base salary; (ii) any failure of the
Company to continue the Executive’s participation in its applicable Management
Incentive Plan or any reduction in the Executive’s bonus amount as expressed as
a percentage of the Executive’s base salary; (iii) failure of the Company to
continue the Executive’s participation in any benefit programs except those
programs or arrangements that may be discontinued for all other similarly
situated executives of the Company; or (iv) a relocation of the Company’s
principal executive offices to a location more than 50 miles outside of
Marietta, Georgia or the relocation of the Executive’s office to any place other
than the Company’s principal executive offices.

    

    (f)           Notice of
Termination.  Any termination of the Executive’s employment by
the Company for a reason specified in Section 2(b), 2(c) or 2(d) shall be
communicated to the Executive by a Notice of Termination prior to the effective
date of the termination.  For purposes of this Agreement, a “Notice of
Termination” shall mean a written notice which shall indicate whether such
termination is for the reason set forth in Section 2(b), 2(c) or 2(d) and which
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated.  For purposes of this Agreement, no 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    termination
of the Executive’s employment by the Company shall constitute a termination for
Disability, Retirement or Cause unless such termination is preceded by a Notice
of Termination.

    

    (g)           Date of
Termination.  For purposes of this Agreement, “Date of
Termination” shall mean (a) if the Executive’s employment is terminated by
the Company for Disability, 30 days after a Notice of Termination is given to
the Executive (provided that the Executive shall not have returned to the
performance of the Executive’s duties on a full-time basis during such 30-day
period) or (b) if the Executive’s employment is terminated by the Company
or the Executive for any other reason, the date on which the Executive’s
termination is effective.

    

    3.           Compensation and Benefits
upon Termination of Employment.

    

    (a)           If
the Company shall terminate the Executive’s employment other than pursuant to
Section 2(b), 2(c) or 2(d) and Section 2(f), or if the Executive shall
terminate his or her employment for Good Reason, then, provided the Executive
shall have executed the Company’s standard general release (which release shall
not obligate the Executive to release any benefits payable in connection with
any supplemental executive retirement plan or other retiree benefits), the
Company shall pay to the Executive, as severance compensation and in
consideration of the Executive’s adherence to the terms of Section 4 hereof and
execution of the aforesaid general release, the following:

    

    (i)           On
the Date of Termination, the Company shall become liable to the Executive for an
amount equal to one times the Executive’s annual base compensation, targeted
base bonus and annual car allowance, which amount shall be payable over the one
year following the Date of Termination on the regular payroll
dates.

    

    (ii)           For
a period of one year following the Date of Termination, the Executive and anyone
entitled to claim under or through the Executive shall be entitled to all
benefits under the group hospitalization plan, health care plan, dental care
plan, life insurance or death benefit plan, or other present or future similar
group employee benefit plan or program of the Company for which he was eligible
at the Date of Termination, to the same extent as if the Executive had continued
to be an employee of the Company during such period.

    

    (iii)           Notwithstanding
any other provision of this Agreement, it is intended that any payment or
benefit provided pursuant to or in connection with this Agreement that is
considered to be nonqualified deferred compensation subject to Section 409A of
the Code shall be provided and paid in a manner, and at such time and in such
form, as complies with the applicable requirements of Section 409A of the
Code.  If and to the extent required by Section 409A of the Code, no
payment or benefit shall be made or provided to a “specified employee” (as
defined below) prior to the six-month anniversary of the Executive’s separation
from service (within the meaning of Section 409A(a)(2)(A)(i) of the
Code).  The amounts provided for in this Agreement that constitute
nonqualified deferred compensation shall be paid as soon as the six-month
deferral period ends.  In the event that benefits are required to be
deferred, any such benefit may be provided during such six-month deferral period
at the Executive’s expense, with

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

      the
Executive having a right to reimbursement from the Company for the amount of any
premiums or expenses paid by the Executive once the six month deferral period
ends.  For this purpose, a specified employee shall mean an individual
who is a key employee (as defined in Section 416(i) of the Code without
regard to Section 416(i)(5) of the Code) of the Company at any time during
the 12-month period ending on each December 31 (the “identification
date”).  If the Executive is a key employee as of an identification
date, the Executive shall be treated as a specified employee for the 12-month
period beginning on the April 1 following the identification
date.  Notwithstanding the foregoing, the Executive shall not be
treated as a specified employee unless any stock of the Company or a corporation
or business affiliated with it pursuant to Sections 414(b) or (c) of the Code is
publicly traded on an established securities market or
otherwise.

    

    

    (b)           The
parties hereto agree that the payments provided in Section 3(a) hereof are
reasonable compensation in light of the Executive’s services rendered to the
Company and in consideration of the Executive’s adherence to the terms of
Section 4 hereof.

    

    (c)           The
payments provided in Section 3(a) above shall be in lieu of any other
severance compensation otherwise payable to Executive under any other agreement
between Executive and the Company (other than the Change in Control Severance
Compensation and Restrictive Covenant Agreement of even date (the “CIC”)) or the
Company’s established severance compensation policies; provided, however, that
nothing in this Agreement shall affect or impair Executive’s vested rights under
any other employee benefit plan or policy of the Company.  In
circumstances in which the Executive is entitled to severance benefits under the
CIC, the Company’s obligations under this Agreement shall be null and
void.

    

    4.           Protective
Covenants.

    

    (a)           Definitions.

    

    This Subsection sets forth the
definition of certain capitalized terms used in Subsections (a) through (f) of
this Section 4.

    

    (i)  “Competing Business”
shall mean a business (other than the Company) that, directly or through a
controlled subsidiary or through an affiliate, (a) provides disease management
programs for diabetes, congestive heart failure, coronary artery disease,
chronic obstructive pulmonary disease, cancer, pregnancy, depression, chronic
pain or hepatitis C; and/or (b) provides obstetrical home care; and/or (c)
provides on-line programs targeting weight loss, nutrition and diet, fitness,
smoking cessation or stress management; and/or (d) provides
informatics  services (collectively, “Competing
Services”).  Notwithstanding the foregoing, no business shall be
deemed a “Competing Business” unless, within at least one of the business’s
three most recently concluded fiscal years, that business, or a division of that
business, derived more than twenty percent (20%) of its gross revenues or more
than $2,000,000 in gross revenues from the provision of Competing
Services.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    
 

    (ii)  “Competitive Position”
shall mean:  (A) the Executive’s direct or indirect equity ownership
(excluding ownership of less than one percent (1%) of the outstanding common
stock of any publicly held corporation) or control of any portion of any
Competing Business; or (B) any employment, consulting, partnership, advisory,
directorship, agency, promotional or independent contractor arrangement between
the Executive and any Competing Business where the Executive performs services
for the Competing Business substantially similar to those the Executive
performed for the Company, provided, however, that the Executive shall not be
deemed to have a Competitive Position solely because of the Executive’s services
for a Competing Business that are not directly related to the provision of
Competing Services, unless more than thirty-five percent (35%) of the gross
revenues of the Competing Business are derived from the provision of Competing
Services.

    

    (iii)  “Covenant Period”
shall mean the period of time from the date of this Agreement to the date that
is one year after the Date of Termination.

    

    (iv)  “Customers” shall mean
actual customers, clients or referral sources to or on behalf of which the
Company provides Competing Services (A) during the one year prior to the date of
this Agreement and (B) during the Covenant Period.

    

    (v)  “Restricted Territory”
shall mean the 48 contiguous states of the continental United
States.

    

    (b)           Limitation on
Competition.  In consideration of the Company’s entering into
this Agreement, the Executive agrees that during the Covenant Period, the
Executive will not, without the prior written consent of the Company, anywhere
within the Restricted Territory, either directly or indirectly, alone or in
conjunction with any other party, accept, enter into or take any action in
conjunction with or in furtherance of a Competitive Position (other than action
to reject an unsolicited offer of a Competitive Position).

    

    (c)           Limitation on Soliciting
Customers.  In consideration of the Company’s entering into
this Agreement, the Executive agrees that during the Covenant Period, the
Executive will not, without the prior written consent of the Company, alone or
in conjunction with any other party, solicit, divert or appropriate or attempt
to solicit, divert or appropriate on behalf of a Competing Business with which
Executive has a Competitive Position any Customer located in the Restricted
Territory (or any other Customer with which the Executive had any direct contact
on behalf of the Company) for the purpose of providing the Customer or having
the Customer provided with a Competing Service.

    

    (d)           Limitation on Soliciting
Personnel or Other Parties.  In consideration of the Company’s
entering into this Agreement, the Executive hereby agrees that he will not,
without the prior written consent of the Company, alone or in conjunction with
any other party, solicit or attempt to solicit any employee, consultant,
contractor, independent broker or other personnel of the Company or any
subsidiary of the Company to terminate, alter or lessen that party’s affiliation

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    with the
Company or to violate the terms of any agreement or understanding between such
employee, consultant, contractor or other person and the Company or any
subsidiary of the Company.

    

    (e)           Acknowledgement.  The
parties acknowledge and agree that the Protective Covenants are reasonable as to
time, scope and territory given the Company’s need to protect its trade secrets
and confidential business information and given the substantial payments and
benefits to which the Executive may be entitled pursuant to this
Agreement.

    

    (f)           Remedies.  The
parties acknowledge that any breach or threatened breach of a Protective
Covenant by the Executive is reasonably likely to result in irreparable injury
to the Company, and therefore, in addition to all remedies provided at law or in
equity, the Executive agrees that the Company shall be entitled to a temporary
restraining order and a permanent injunction to prevent a breach or contemplated
breach of the Protective Covenant.  If the Company seeks an
injunction, the Executive waives any requirement that the Company post a bond or
any other security.

    

    5.           No Obligation to Mitigate
Damages; No Effect on Other Contractual Rights.

    

    (a)           All
compensation and benefits provided to the Executive under this Agreement are in
consideration of the Executive’s services rendered to the Company and of the
Executive’s adhering to the terms set forth in Section 4 hereof and the
Executive shall not be required to mitigate damages or the amount of any payment
provided for under this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement be reduced by
any compensation earned by the Executive as the result of employment by another
employer after the Date of Termination, or otherwise.

    

    (b)           The
provisions of this Agreement, and any payment provided for hereunder, shall not
reduce any amounts otherwise payable, or in any way diminish the Executive’s
existing rights, or rights which would accrue solely as a result of the passage
of time, under any Benefit Plan, Incentive Plan or Securities Plan, employment
agreement or other contract, plan or arrangement.

    

    6.           Notice.  For
purposes of this Agreement, notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered by overnight courier service (e.g., Federal Express) or mailed by
United States certified mail, return receipt required, postage prepaid, as
follows:

    

    If to Company:

    

    Matria Healthcare, Inc.

    1850 Parkway Place, 12th
Floor

    Marietta,
GA  30067

    Attention:  General
Counsel

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    
 

    If to Executive:

    

    Thomas D. Underwood

    10570 Oxford Mill Circle

    Alpharetta,
GA  30022

    

    or such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.

    

    7.           Miscellaneous.  No
provisions of this Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing signed by the
Executive and the Company.  No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.  No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.

    

    8.           Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original but all of which together shall constitute one and the
same instrument.

    

    9.           Section 409A
Indemnification.  Notwithstanding any other provision of this
Agreement, it is intended that any payment or benefit which is provided pursuant
to or in connection with this Agreement which is considered to be nonqualified
deferred compensation subject to Section 409A of the Code shall be provided and
paid in a manner, and at such time and in such form, as complies with the
applicable requirements of Section 409A of the Code.  The Company and
the Executive shall cooperate to modify this Agreement as necessary to comply
with the requirements of Section 409A of the Code.  In the event the
Company does not so cooperate, it shall indemnify and hold harmless the
Executive on an after-tax basis from any tax or interest penalty imposed under
Section 409A of the Code with respect to any payment or benefit provided
pursuant to this Agreement or any other plan or arrangement sponsored or
maintained by the Company to the extent such tax or interest penalty is imposed
as a result of any failure of the Company to comply with Section 409A of the
Code with respect to such payment or benefit.

    

    10.           Severability;
Modification.  All provisions of this Agreement are severable
from one another, and the unenforceability or invalidity of any provision of
this Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement, but such remaining provisions shall be interpreted
and construed in such a manner as to carry out fully the intention of the
parties.  Should any judicial body interpreting this Agreement deem
any provision of this Agreement to be unreasonably broad in time, territory,
scope or otherwise, it is the intent and desire of the parties that such
judicial body, to the greatest extent possible, reduce the breadth of
such

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

     provision
to the maximum legally allowable parameters rather than deeming such provision
totally unenforceable or invalid.

    

    11.           Confidentiality.  The
Executive acknowledges that he has previously entered into, and continues to be
bound by the terms of, a Confidentiality and Non-Solicitation Agreement with the
Company.

    

    12.           Agreement Not an Employment
Contract.  This Agreement shall not be deemed to constitute or
be deemed ancillary to an employment contract between the Company and the
Executive, and nothing herein shall be deemed to give the Executive the right to
continue in the employ of the Company or to eliminate the right of the Company
to discharge the Executive at any time.

    

    

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

    

    

    MATRIA HEALTHCARE, INC.

    

    

    By:           

    Its Chief Administrative
Officer

    

    

    THOMAS D. UNDERWOOD

    

    

    Executive

    

    
      
         

      

      
        8

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