EX-4.2



 






EXHIBIT 4.2



NEITHER THIS SECURITY NOR THE SECURITIES INTO 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




To Purchase _______ Shares of Common Stock of




Hartville Group, Inc.



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 the five year
anniversary of the Initial Exercise Date (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, par
value $0.001 per share, of the Company (the “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 November [11/26], 2004, 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 at any time or times on or after the Initial Exercise Date and on or
before the Termination Date by delivery to the Company of a duly executed facsimile copy of
the Notice of Exercise Form annexed hereto (or such other office or agency of the Company
as it may designate by notice in writing to the registered Holder at the



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address of such Holder appearing on the books of the Company); provided,
however, within 5 Trading Days of the date said Notice of Exercise is delivered to
the Company, the Holder shall have surrendered this Warrant to the Company and 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.




     b) Exercise Price. The exercise price of the Common Stock under this Warrant
shall be $0.01, subject to adjustment hereunder (the “Exercise Price”).




     c) Cashless Exercise. If at any time after one year from the date of issuance
of this Warrant there is no effective Registration Statement registering 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 Closing Price 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.






     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) Holder’s Restrictions. The Holder shall not have the right to exercise any
portion of this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after
giving effect to such issuance after exercise, the Holder (together with the Holder’s
affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in
excess of 4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such issuance. 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 the determination of such sentence 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 Debentures or
Warrants) 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), beneficial ownership
shall be calculated in accordance with Section 13(d) of the Exchange Act, it being
acknowledged by Holder that the Company is not representing to Holder that such



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calculation is in compliance with Section 13(d) of the Exchange Act and 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) applies, the determination of
whether this Warrant is exercisable (in relation to other securities owned by the Holder)
and of which a portion of this Warrant is exercisable shall be in the sole discretion of
such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder’s
determination of whether this Warrant is exercisable (in relation to other securities owned
by such Holder) and of which portion of this Warrant is exercisable, in each case subject to
such aggregate percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of this Section 2(d), in
determining the number of outstanding shares of Common Stock, the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent
Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth
the number of shares of Common Stock outstanding. Upon the written or oral request of the
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 provisions of this Section 2(d) may be waived by the Holder upon, at the
election of the Holder, not less than 61 days’ prior notice to the Company, and the
provisions of this Section 2(d) shall continue to apply until such 61st day (or
such later date, as determined by the Holder, as may be specified in such notice of waiver).




     e) Mechanics of Exercise.




     i. Authorization of Warrant Shares. 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 in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue). 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.



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     ii. Delivery of Certificates Upon Exercise. Certificates for
shares purchased hereunder shall be transmitted by the transfer agent of the
Company 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 a participant in such
system, 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, surrender of this Warrant and
payment of the aggregate Exercise Price as set forth above (“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 and all
taxes required to be paid by the Holder, if any, pursuant to Section
2(e)(vii) prior to the issuance of such shares, have been paid.




     iii. Delivery of New Warrants Upon Exercise. If this Warrant
shall have been exercised in part, the Company shall, 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.




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




     v. 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 its transfer agent to transmit
to the Holder a certificate or 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) 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 (1) 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 Common Stock so purchased exceeds (y) the amount obtained by
multiplying (A) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (B)
the price at which the sell order giving rise to



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such purchase obligation was executed, and (2) 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 (1) 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, together with applicable
confirmations and other evidence reasonably requested by the Company.
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.




     vi. 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 pay a cash
adjustment in respect of such final fraction in an amount equal to such
fraction multiplied by the Exercise Price.




     vii. 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.




     viii. 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.




     f) Call Provision. Subject to the provisions of Section 2(d) and this Section
2(f), if the VWAP for each of 10 consecutive Trading Days (the “Measurement Period”)



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exceeds $0.50 (subject to adjustment for forward and reverse stock splits,
recapitalizations, stock dividends and the like after October___, 2005) (the “Threshold
Price”), then the Company may, within 1 Trading Day of the end of such period, call for
cancellation of all or any portion of this Warrant for which a Notice of Exercise has not
yet been delivered (such right, a “Call”). To exercise this right, the Company must
deliver to the Holder an irrevocable written notice (a “Call Notice”), indicating
therein the portion of unexercised portion of this Warrant to which such notice applies. If
the conditions set forth below for such Call are satisfied from the period from the date of
the Call Notice through and including the Call Date (as defined below), then any portion of
this Warrant subject to such Call Notice for which a Notice of Exercise shall not have been
received by the Call Date will be cancelled at 6:30 p.m. (New York City time) on the tenth
Trading Day after the date the Call Notice is received by the Holder (such date, the
“Call Date”). Any unexercised portion of this Warrant to which the Call Notice does
not pertain will be unaffected by such Call Notice. In furtherance thereof, the Company
covenants and agrees that it will honor all Notices of Exercise with respect to Warrant
Shares subject to a Call Notice that are tendered through 6:30 p.m. (New York City time) on
the Call Date. The parties agree that any Notice of Exercise delivered following a Call
Notice shall first reduce to zero the number of Warrant Shares subject to such Call Notice
prior to reducing the remaining Warrant Shares available for purchase under this Warrant.
For example, if (x) this Warrant then permits the Holder to acquire 100 Warrant Shares, (y)
a Call Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m. (New York City time)
on the Call Date the Holder tenders a Notice of Exercise in respect of 50 Warrant Shares,
then (1) on the Call Date the right under this Warrant to acquire 25 Warrant Shares will be
automatically cancelled, (2) the Company, in the time and manner required under this
Warrant, will have issued and delivered to the Holder 50 Warrant Shares in respect of the
exercises following receipt of the Call Notice, and (3) the Holder may, until the
Termination Date, exercise this Warrant for 25 Warrant Shares (subject to adjustment as
herein provided and subject to subsequent Call Notices). Subject again to the provisions of
this Section 2(f), the Company may deliver subsequent Call Notices for any portion of this
Warrant for which the Holder shall not have delivered a Notice of Exercise. Notwithstanding
anything to the contrary set forth in this Warrant, the Company may not deliver a Call
Notice or require the cancellation of this Warrant (and any Call Notice will be void),
unless, from the beginning of the 10 consecutive Trading Days used to determine whether the
Common Stock has achieved the Threshold Price through the Call Date, (i) the Company shall
have honored in accordance with the terms of this Warrant all Notices of Exercise delivered
by 6:30 p.m. (New York City time) on the Call Date and (ii) the Registration Statement
shall be effective as to all Warrant Shares and the prospectus thereunder available for use
by the Holder for the resale of all such Warrant Shares and (iii) the Common Stock shall be
listed or quoted for trading on the Trading Market, and (iv) there is a sufficient number of
authorized shares of Common Stock for issuance of all Securities under the Transaction
Documents, and (v) the issuance of the shares shall be in accordance with Section 2(d)
herein. The Company’s right to Call the Warrant shall be exercised ratably among the
Holders based on each Holder’s initial purchase of Common Stock. Notwithstanding anything
herein to the contrary but subject to all pricing, equity and other conditions under this
Section 2(f), other than clause (ii) above, the Company’s right to exercise a Call hereunder
may be



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done via the cashless exercise provision set forth in Section 2(c) provided that the
Warrant Shares upon such cashless exercise are immediately free trading and issued without
restrictive legend pursuant to Rule 144(k).




     Section 3. Certain Adjustments.




          a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (A) 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 pursuant to this Warrant), (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or
(D) 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 before such event and of which the denominator shall be the number of
shares of Common Stock outstanding after such event and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted. 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 offer, sell, grant any
option to purchase or offer, sell or grant any right to reprice its securities, 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”), as adjusted hereunder (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 is 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), then, the Exercise Price shall be 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 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. The Company shall notify the Holder in writing, no later than the Trading Day
following the issuance of any Common Stock or



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Common Stock Equivalents subject to this section, indicating therein the applicable
issuance price, or of 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) Pro Rata Distributions. If the Company, at any time prior to the
Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the
Warrants) evidences of its indebtedness or assets 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
Closing Price determined as of the record date mentioned above, and of which the numerator
shall be such Closing Price 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 Holders 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.




          d) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its assets in one or
a series of related transactions, (C) any tender offer or exchange offer (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 (D)
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 (in any such case, a “Fundamental Transaction”),
then, upon any subsequent conversion of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise absent such
Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the
number of shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and Alternate Consideration receivable upon or
as a result of such reorganization, reclassification, 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 or (b) if the Company is acquired in an all cash
transaction, cash equal to the value of this Warrant as determined in accordance with the
Black-Scholes option pricing formula (the “Alternate Consideration”). For purposes
of any such exercise, the determination of the Exercise Price shall be appropriately
adjusted to apply to such



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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(d) and insuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.




          e) Exempt Issuance. Notwithstanding the foregoing, no adjustments, Alternate
Consideration nor notices shall be made, paid or issued under this Section 3 in respect of
an Exempt Issuance (as defined in the Purchase Agreement).




          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. The number of shares of
Common Stock outstanding at any given time shall not includes shares of Common Stock owned
or held by or for the account of the Company, and the description of any such shares of
Common Stock shall be considered on issue or sale of Common Stock. 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) Voluntary Adjustment By Company. The Company may at any time during the term
of this Warrant reduce the then current Exercise Price to any amount and for any period of
time deemed appropriate by the Board of Directors of the Company.




          h) Notice to Holders.




     i. Adjustment to Exercise Price. Whenever the Exercise Price is
adjusted pursuant to this Section 3, the Company shall promptly mail to each
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 issues a variable rate security, 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 in the
case of a Variable Rate Transaction (as defined in the Purchase Agreement),
or the lowest possible adjustment



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price in the case of an MFN Transaction (as defined in the Purchase
Agreement.




     ii. Notice to Allow Exercise by Holder. If (A) the Company
shall declare a dividend (or any other distribution) 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; (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
addresses 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 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 20-day period commencing 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 Sections 5(a) and 4(d) hereof and to the provisions of
Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are
transferable, in whole or in part, upon surrender of this Warrant at the principal office of
the Company, 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

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Warrants in the name of the assignee or assignees 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. A 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.




          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
registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as a condition
of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a
qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.




     Section 5. Miscellaneous.



          a) Title to Warrant. Prior to the Termination Date and subject to compliance
with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the Company by the Holder
in person or by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.




          b) No Rights as Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate
Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased

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shall be and be deemed to be issued to such Holder as the record owner of such shares
as of the close of business on the later of the date of such surrender or payment.




          c) 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.




          d) 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 be a
Saturday, Sunday or a legal holiday, then such action may be taken or such right may be
exercised on the next succeeding day not a Saturday, Sunday or legal holiday.




          e) 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.




     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 (a) 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, (b) 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 (c) use commercially reasonable efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body



37









 




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.



          f) 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.




          g) 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.




          h) 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.




          i) 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.




          j) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or 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.




          k) Remedies. 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 the defense in any action for specific performance
that a remedy at law would be adequate.




          l) 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

38









 










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 any such Holder or
holder of Warrant Shares.



          m) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the Holder.




          n) 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.




          o) 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.




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




39









 









     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized.



Dated: September 30, 2005




	 	 	 	 	 
	 	HARTVILLE GROUP, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



40









 






	 	 	 	 	 



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):




[  ] in lawful money of the United States; or




[  ] 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:




 






 






 






               (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:                                                                                                                                             




41









 





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, 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.




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