SECURITIES PURCHASE AGREEMENT
 
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of June 14, 2006, by and among friendlyway Corporation, a Nevada corporation
(the "Company"), and the purchasers listed on the Schedule of Purchasers
attached hereto (each a “Purchaser” and collectively, the “Purchasers”).
 
RECITALS
 
WHEREAS, the Company has authorized the sale to the Purchasers of its Senior
Subordinated Secured Convertible Term Notes in the aggregate principal amount of
up to One Million Eight Hundred Thousand Dollars ($1,800,000) (each as amended,
modified or supplemented from time to time, a "Note"), which Notes are
convertible into shares of the Company's common stock, $0.001 par value per
share (the "Common Stock") at an initial fixed conversion price of $0.14 per
share of Common Stock ("Initial Conversion Price");
 
WHEREAS, the Company wishes to issue warrants to the Purchasers to purchase in
the aggregate up to approximately 33.3% of the number of shares of Common Stock
issuable upon conversion of the total amount being invested by the Purchasers,
or up to Four Million One Hundred Fifty Thousand Nine Hundred Sixty Nine
(4,150,969) shares of Common Stock (subject to adjustment as set forth therein)
if all of the Notes are sold hereunder;
 
WHEREAS, the Purchasers desire to purchase the Notes and the Warrants (as
defined in Section 2) on the terms and conditions set forth herein; and
 
WHEREAS, the Company desires to issue and sell the Notes and the Warrants to the
Purchasers on the terms and conditions set forth herein.
 
AGREEMENT 
 
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises, representations, warranties and covenants hereinafter set forth and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
 
1. Agreement to Sell and Purchase. Pursuant to the terms and conditions set
forth in this Agreement, on the Closing Date (as defined in Section 3), the
Company agrees to sell to the Purchasers, and the Purchasers, severally and not
jointly, hereby agree to purchase from the Company, a Note in the principal
amount and at the purchase price set forth opposite such Purchaser's name on
Schedule I hereto, convertible in accordance with the terms thereof into shares
of the Company's Common Stock in accordance with the terms of such Note and this
Agreement. It is understood and agreed that the purchases by the Purchasers are
to be separate transactions. The purchase of the Notes on the Closing Date shall
be known as the "Offering." A form of the Note is annexed hereto as Exhibit A.
The Notes will mature on the Maturity Date (as defined in the Notes).
Collectively, the Notes, the Warrants and Common Stock issuable upon conversion
of the Notes and upon exercise of the Warrants are referred to as the
"Securities."
 
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2.  Warrants; Placement Agent Fees. On the Closing Date:
 
(a)  The Company will issue and deliver to each Purchaser a Warrant to purchase
up to that number of shares of the Company's Common Stock set forth opposite the
name of such Purchaser on Schedule I hereto (as amended, modified or
supplemented from time to time, a "Warrant"). The Warrants must be delivered on
the Closing Date. A form of Warrant is annexed hereto as Exhibit B. All the
representations, covenants, warranties, undertakings, and indemnification, and
other rights made or granted to or for the benefit of the Purchasers by the
Company are hereby also made and granted in respect of the Warrants and shares
of the Company's Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares").
 
(b)  The Company shall pay or issue to Sloan Securities Corp., as placement
agent of the Offering (the “Placement Agent”) (i) an agency fee in an amount
equal to ten percent (10%) of the aggregate principal amount of Notes purchased
at each Closing and (ii) a warrant to purchase ten percent (10%) of the shares
of Common Stock into which the Notes are initially convertible and the Warrants
are initially exercisable. The foregoing fees and warrants are referred to
herein as the "Sloan Compensation." In addition, the Company shall promptly make
payment to a law firm designated by Sloan Securities Corp., for up to $35,000,
of legal fees and expenses (“Legal Expense Obligation”).
 
(c)  The Closing Payment and the expenses referred to in the preceding clauses
(net of deposits, if any, previously paid by the Company) shall be paid at
Closing out of funds held pursuant to an Escrow Agreement (as defined below) and
a disbursement letter (the "Disbursement Letter").
 
3.  Closing, Delivery, Payment and Certain Conditions.
 
3.1  Closing. The initial closing of the purchase and sale of a minimum of
$500,000 of Notes and Warrants (the “Minimum Amount”) under this Agreement (the
“Initial Closing”) shall be held at the offices of Sloan Securities Corp.
(“Sloan”), 444 Madison Avenue, New York, New York (or remotely via the exchange
of documents and signatures), on or before July 31, 2006, which date may be
extended by the Company and Sloan to a date not later than August 31, 2006 (the
date of the Initial Closing is hereinafter referred to as the “Initial Closing
Date”). The subsequent closing(s) of the purchase and sale of up to an
additional $1,300,000 of Notes and Warrants in excess of the Minimum Amount (the
“Maximum Amount”) under this Agreement (the “Subsequent Closing(s)”) shall take
place at a time agreed upon by the Company and the Purchasers participating in
the respective Subsequent Closing (the date(s) of the Subsequent Closing(s) is
hereinafter referred to as the “Subsequent Closing Date(s)”), all of which shall
occur in any event no later than August 31, 2006. The Purchasers agree that any
additional persons or entities that acquire Notes and Warrants at any
“Subsequent Closing” shall become “Purchasers” under this Agreement with all the
rights and obligations attendant thereto, upon their execution of this Agreement
without further action by any other Purchasers. For purposes of this Agreement,
the terms “Closing” and “Closing Date”, unless otherwise indicated, refer to the
applicable closing and closing date of the Initial Closing or the Subsequent
Closing(s), as the case may be.
 
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3.2  Delivery. At the Closing on the Closing Date, the Company will deliver to
the Purchasers, among the other Related Agreements (as defined below), Notes in
the form attached as Exhibit A representing the aggregate principal amount of up
to $1,800,000 and Warrants in the form attached as Exhibit B in each Purchaser's
name representing in the aggregate approximately 33.3% of the number of shares
of the Company's Common Stock issuable through conversion of the Notes, and each
Purchaser will deliver to the Company, among other things, the amounts set forth
to be delivered by it in the Disbursement Letter by certified funds or wire
transfer.
 
3.3  Conversion and Lockup. Prior to the date of an effective registration
statement covering the resale of the Common Stock issuable upon conversion of
the Notes and exercise of the Warrants (“Resale Registration Statement”), the
Company shall have caused its officers, directors, controlling shareholders and
certain other persons requested by the Purchasers to agree to "lockup" and not
sell their shares of Common Stock of the Company, pursuant to documentation, and
on terms and conditions, acceptable to the Purchasers.
 
3.4  Pledge Requirement. Prior to the Closing Date, Kenneth Upcraft, the CEO and
President of the Company, shall execute a Pledge Agreement pursuant to which
Upcraft shall pledge to Atlantic Professional Association, Inc., as agent for
the Purchasers a first lien and security interest in such number of shares of
the Company’s stock owned by him that equates to 200% of the aggregate principal
balance of the Notes issued hereunder at each Closing which pledge shall remain
in effect until complete repayment of the Notes. The valuation of such shares
shall be based upon the volume weighted average price (“VWAP”) of the Company’s
common stock for the ten (10) trading days prior to the Closing.
 
4.  Representations and Warranties of the Company. The Company hereby represents
and warrants to the Purchasers as follows (which representations and warranties
are supplemented by the Company's filings under the Securities Exchange Act of
1934, as amended, made prior to the date of this Agreement (collectively, the
"Exchange Act Filings"), copies of which have been provided to the Purchasers):
 
4.1  Organization, Good Standing and Qualification. Each of the Company and each
of its Subsidiaries (as defined below) is a corporation, partnership or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each of the
Company and each of its Subsidiaries has the corporate, partnership or limited
liability company, as the case may be, power and authority to own and operate
its properties and assets, to execute and deliver (i) this Agreement, (ii) the
Notes and the Warrants to be issued in connection with this Agreement, (iii) the
Registration Rights Agreement relating to the Securities dated as of the date
hereof among the Company, the Placement Agent and the Purchasers (as amended,
modified or supplemented from time to time, the "Registration Rights
Agreement"), in the form attached as Exhibit C, (iv) the Subsidiary Guaranty
dated as of the date hereof made by certain Subsidiaries of the Company (as
amended, modified or supplemented from time to time, the "Subsidiary Guaranty"),
in the form attached as Exhibit D, (v) the Security Agreement dated as of the
date hereof among the Company, certain Subsidiaries of the Company, and Atlantic
Professional Association, Inc., as agent for the Purchasers (as amended,
modified or supplemented from time to time, the "Security Agreement"), in the
form attached as Exhibit E, (vi) the Pledge Agreement dated as of the date
hereof among the Company, Kenneth Upcraft, and Atlantic Professional
Association, Inc., as agent for the Purchasers (as amended, modified or
supplemented from time to time, the "Pledge Agreement"), in the form attached as
Exhibit F, (vii) the Escrow Agreement dated as of the date hereof among the
Company, the Placement Agent and Signature Bank, the escrow agent, in the form
attached as Exhibit G hereto (as amended, modified or supplemented from time to
time, the "Escrow Agreement") and (viii) all other agreements related to this
Agreement and the Term Note and referred to herein (the preceding clauses (ii)
through (vii), collectively, the "Related Agreements"), to issue and sell the
Notes and the shares of Common Stock issuable upon conversion of the Notes (the
"Note Shares"), to issue and sell the Warrants and the Warrant Shares, and to
carry out the provisions of this Agreement and the Related Agreements and to
carry on its business as presently conducted. Each of the Company and each of
its Subsidiaries is duly qualified and is authorized to do business and is in
good standing as a foreign corporation, partnership or limited liability
company, as the case may be, in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so has not, or would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, liabilities,
condition (financial or otherwise), properties, operations or prospects of the
Company and its Subsidiaries, taken individually and as a whole (a "Material
Adverse Effect").
 
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4.2  Subsidiaries. Each direct and indirect Subsidiary of the Company, the
direct owner of such Subsidiary and its percentage ownership thereof, is set
forth on Schedule 4.2. For the purpose of this Agreement, a "Subsidiary" of any
person or entity means (i) a corporation or other entity whose shares of stock
or other ownership interests having ordinary voting power (other than stock or
other ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the directors of such corporation, or other
persons or entities performing similar functions for such person or entity, are
owned, directly or indirectly, by such person or entity or (ii) a corporation or
other entity in which such person or entity owns, directly or indirectly, more
than 50% of the equity interests at such time.
 
4.3  Capitalization; Voting Rights.
 
(a) The authorized capital stock of the Company, as of the date hereof consists
of 105,000,000 shares, of which 100,000,000 are shares of Common Stock, par
value $0.001 per share, 25,428,130 shares of which are issued and outstanding,
and 5,000,000 are shares of preferred stock, par value $0.001 per share, none of
which are issued and outstanding. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule 4.3.
 
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(b) Except as disclosed on Schedule 4.3, other than: (i) the shares reserved for
issuance under the Company's stock option plans; and (ii) shares which may be
granted pursuant to this Agreement and the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or arrangements
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Except as disclosed on Schedule 4.3, neither the offer,
issuance or sale of any of the Notes or the Warrants, or the issuance of any of
the Note Shares or Warrant Shares, nor the consummation of any transaction
contemplated hereby will result in a change in the price or number of any
securities of the Company outstanding, under anti-dilution or other similar
provisions contained in or affecting any such securities.
 
(c) All issued and outstanding shares of the Company's Common Stock: (i) have
been duly authorized and validly issued and are fully paid and nonassessable;
and (ii) were issued in compliance in all material respects with all applicable
state and federal laws concerning the issuance of securities.
 
(d) The rights, preferences, privileges and restrictions of the shares of the
Common Stock are as stated in the Company's Articles of Incorporation, as
amended to date (the "Charter"). The Note Shares and Warrant Shares have been
duly and validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Company's Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; provided, however, that the Securities may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
 
4.4  Authorization; Binding Obligations. All corporate, partnership or limited
liability company, as the case may be, action on the part of the Company and
each of its Subsidiaries (including the respective officers and directors)
necessary for the authorization of this Agreement and the Related Agreements,
the performance of all obligations of the Company and its Subsidiaries hereunder
and under the other Related Agreements at the Closing and, the authorization,
sale, issuance and delivery of the Notes and the Warrants has been taken or will
be taken prior to the Closing. This Agreement and the Related Agreements, when
executed and delivered and to the extent it is a party thereto, will be valid
and binding obligations of each of the Company and each of its Subsidiaries,
enforceable against each such person in accordance with their terms, except:
 
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
 
(b) general principles of equity that restrict the availability of equitable or
legal remedies.
 
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The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants for Warrant Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
 
4.5  Liabilities. Neither the Company nor any of its Subsidiaries has any
contingent liabilities in excess of $75,000, except current liabilities incurred
in the ordinary course of business and liabilities disclosed in any Exchange Act
Filings.
 
4.6  Agreements; Action. Except as set forth on Schedule 4.6 or as disclosed in
any Exchange Act Filings:
 
(a) there are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business); or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from the
purchase of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
 
(b) Since January 31, 2006, neither the Company nor any of its Subsidiaries has:
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any person in
excess, individually or in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
 
(c) For the purposes of subsections (a) and (b) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or entities
the Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
 
4.7  Obligations to Related Parties. Except as set forth on Schedule 4.7, there
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
 
(a) for payment of salary for services rendered and for bonus payments;
 
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(b) reimbursement for reasonable expenses incurred on behalf of the Company and
its Subsidiaries;
 
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock option
plan approved by the Board of Directors of the Company); and
 
(d) obligations listed in the Company's financial statements or disclosed in any
of its Exchange Act Filings. Except as described above or set forth on Schedule
4.7, none of the officers, directors or, to the best of the Company's knowledge,
key employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $50,000 or have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete with
the Company. Except as described above, no officer, director or stockholder, or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Company and no agreements, understandings or
proposed transactions are contemplated between the Company and any such person.
Except as set forth on Schedule 4.7, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
 
4.8  Changes. Since January 31, 2006, except as disclosed in any Exchange Act
Filing or in any Schedule to this Agreement or in any of the Related Agreements,
there has not been:
 
(a) any change in the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company or any of its
Subsidiaries, which individually or in the aggregate has had, or would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect;
 
(b) any resignation or termination of any officer, key employee or group of
employees of the Company or any of its Subsidiaries;
 
(c) any material change, except in the ordinary course of business, in the
contingent obligations of the Company or any of its Subsidiaries by way of
guaranty, endorsement, indemnity, warranty or otherwise;
 
(d) any damage, destruction or loss, whether or not covered by insurance, which
has had, or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect;
 
(e) any waiver by the Company or any of its Subsidiaries of a material right
under a written contract or of a material debt owed to it;
 
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(f) any direct or indirect loans made by the Company or any of its Subsidiaries
to any stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of business;
 
(g) any material change in any compensation arrangement or agreement with any
employee, officer, director or stockholder of the Company or any of its
Subsidiaries;
 
(h) any labor organization activity related to the Company or any of its
Subsidiaries;
 
(i) any debt, obligation or liability incurred, assumed or guaranteed by the
Company or any of its Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
 
(j) any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
 
(k) any change in any material agreement to which the Company or any of its
Subsidiaries is a party or by which either the Company or any of its
Subsidiaries is bound which either individually or in the aggregate has had, or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
 
(l) any other event or condition of any character that, either individually or
in the aggregate, has had, or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect; or
 
(m) any arrangement or commitment by the Company or any of its Subsidiaries to
do any of the acts described in subsection (a) through (m) above.
 
4.9  Title to Properties and Assets; Liens, Etc. Except as set forth on Schedule
4.9, each of the Company and each of its Subsidiaries has good and valid title
to its properties and assets, and good title to its leasehold estates, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than:
 
(a) those resulting from taxes which have not yet become delinquent;
 
(b) minor liens and encumbrances which do not materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or any of its Subsidiaries; and
 
(c) those that have otherwise arisen in the ordinary course of business.
 
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule 4.9, the Company and
its Subsidiaries are in compliance with all material terms of each lease to
which any of them is a party or is otherwise bound.
 
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4.10 Intellectual Property. Except as set forth on Schedule 4.10:

(a) Each of the Company and each of its Subsidiaries owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes necessary for its business as now conducted and to the Company's
knowledge, as presently proposed to be conducted (the "Intellectual Property"),
without any known infringement of the rights of others. There are no outstanding
options, licenses or agreements of any kind relating to the foregoing
proprietary rights, nor is the Company or any of its Subsidiaries bound by or a
party to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products.
 
(b) Neither the Company nor any of its Subsidiaries has received any
communications alleging that the Company or any of its Subsidiaries has violated
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity, nor is the
Company or any of its Subsidiaries aware of any basis therefor.
 
(c) The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company or any of its Subsidiaries, except
for inventions, trade secrets or proprietary information that have been
rightfully assigned to the Company or any of its Subsidiaries.
 
4.11  Compliance with Other Instruments. Neither the Company nor any of its
Subsidiaries is in violation or default of (x) any term of its Charter or
Bylaws, or (y) of any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by which it is bound
or of any judgment, decree, order or writ, which violation or default, in the
case of this clause (y), has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Related Agreements to which it is a party, and the issuance and sale of the
Notes by the Company and the other Securities by the Company each pursuant
hereto and thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company or any of its Subsidiaries or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
 
4.12  Litigation. Except as set forth on Schedule 4.12 hereto, there is no
action, suit, proceeding or investigation pending or, to the Company's
knowledge, currently threatened against the Company or any of its Subsidiaries
that prevents the Company or any of its Subsidiaries from entering into this
Agreement or the other Related Agreements, or from consummating the transactions
contemplated hereby or thereby, or which has had, or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect or any change in the current equity ownership of the Company or any of
its Subsidiaries, nor is the Company aware that there is any basis to assert any
of the foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries intends to initiate.
 
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4.13  Tax Returns and Payments. Each of the Company and its Subsidiaries has
timely filed all tax returns (federal, state and local) required to be filed by
it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by the Company or any of its
Subsidiaries on or before the Closing, have been paid or will be paid prior to
the time they become delinquent. Except as set forth on Schedule 4.13, neither
the Company nor any of its Subsidiaries has been advised:
 
(a) that any of its returns, federal, state or other, have been or are being
audited as of the date hereof; or
 
(b) of any deficiency in assessment or proposed judgment to its federal, state
or other taxes.
 
The Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
 
4.14  Employees. Except as set forth on Schedule 4.14, neither the Company nor
any of its Subsidiaries has any collective bargaining agreements with any of its
employees. There is no labor union organizing activity pending or, to the
Company's knowledge, threatened with respect to the Company or any of its
Subsidiaries. Except as disclosed in the Exchange Act Filings or on Schedule
4.14, neither the Company nor any of its Subsidiaries is a party to or bound by
any currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or other
employee compensation plan or agreement. To the Company's knowledge, no employee
of the Company or any of its Subsidiaries, nor any consultant with whom the
Company or any of its Subsidiaries has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or any of its Subsidiaries because of the nature of
the business to be conducted by the Company or any of its Subsidiaries; and to
the Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's and
its Subsidiaries' contracts with its independent contractors, will not result in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere in any material respect with their duties to the Company or any of its
Subsidiaries. Neither the Company nor any of its Subsidiaries has received any
notice alleging that any such violation has occurred. Except for employees who
have a current effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has been
granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries. Except as set forth on Schedule
4.14, the Company is not aware that any officer, key employee or group of
employees intends to terminate his, her or their employment with the Company or
any of its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any officer, key employee or
group of employees.
 
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4.15  Registration Rights and Voting Rights. Except as set forth on Schedule
4.15, neither the Company nor any of its Subsidiaries is presently under any
obligation, and neither the Company nor any of its Subsidiaries has granted any
rights, to register any of the Company's or its Subsidiaries' presently
outstanding securities or any of its securities that may hereafter be issued.
Except as set forth on Schedule 4.15 or except as disclosed in Exchange Act
Filings, neither the Company nor any of its Subsidiaries has entered into any
agreement with respect to the voting of equity securities of the Company or any
of its Subsidiaries.
 
4.16  Compliance with Laws; Permits. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation, order
or restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, as will be filed in a timely manner. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
 
4.17  Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to its
knowledge, no material expenditures are or will be required in order to comply
with any such existing statute, law or regulation.
 
4.18  Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchasers contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and will have
been registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
 
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4.19  Full Disclosure. Each of the Company and each of its Subsidiaries have
provided the Purchasers with all information requested by the Purchasers in
connection with their decision to purchase the Note and the Warrant, including
all information the Company and its Subsidiaries believe is reasonably necessary
to make such investment decision. Neither this Agreement, the Related
Agreements, or the exhibits and schedules hereto and thereto contain any untrue
statement of a material fact nor omit to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading.
 
4.20  Insurance. Each of the Company and each of its Subsidiaries have general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and its Subsidiaries in the same or similar business.
 
4.21  SEC Reports. Except as set forth on Schedule 4.21, the Company has filed
all reports and other documents required to be filed by it under the Securities
Exchange Act 1934, as amended (the "Exchange Act"). The Company has furnished
the Purchasers with copies of: (i) its Annual Reports on Form 10-KSB for its
fiscal year ended October 31, 2005; (ii) its Quarterly Report on Form 10-QSB for
its fiscal quarter ended January 31, 2006 and (iii) its Current Report on Form
8-K filed on May 3, 2006 (collectively, the "SEC Reports"). Except as set forth
on Schedule 4.21, each SEC Report was, at the time of its filing, in substantial
compliance with the requirements of its respective form and none of the SEC
Reports, nor the financial statements (and the notes thereto) included in the
SEC Reports, as of their respective filing dates, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
 
4.22  Listing. The Company's Common Stock is listed for trading on the Over the
Counter Bulletin Board ("OTCBB") and satisfies all requirements for the
continuation of such trading. The Company has not received any notice that its
Common Stock will not be eligible to be traded on the OTCBB or that its Common
Stock does not meet all requirements for such trading.
 
4.23  No Integrated Offering. Neither the Company, nor any of its Subsidiaries
or affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the Offering to be
integrated with prior offerings by the Company for purposes of the Securities
Act and which would prevent the Company from selling the Securities pursuant to
Rule 506 under the Securities Act, or any applicable exchange-related
stockholder approval provisions, nor will the Company or any of its affiliates
or Subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.
 
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4.24  Stop Transfer. The Securities are restricted securities as of the date of
this Agreement. Neither the Company nor any of its Subsidiaries will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
 
4.25  Dilution. The Company specifically acknowledges that its obligation to
issue the shares of Common Stock upon conversion of the Notes and exercise of
the Warrants is binding upon the Company and enforceable regardless of the
dilution such issuance may have on the ownership interests of other shareholders
of the Company.
 
4.26  Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor any of its Subsidiaries has been designated,
and is not owned or controlled, by a "suspected terrorist" as defined in
Executive Order 13224. The Company hereby acknowledges that the Purchasers seek
to comply with all applicable laws concerning money laundering and related
activities. In furtherance of those efforts, the Company hereby represents,
warrants and agrees that: (i) none of the cash or property that the Company or
any of its Subsidiaries will pay or will contribute to the Purchasers has been
or shall be derived from, or related to, any activity that is deemed criminal
under United States law; and (ii) no contribution or payment by the Company or
any of its Subsidiaries to the Purchasers, to the extent that they are within
the Company's and/or its Subsidiaries' control shall cause the Purchasers to be
in violation of the United States Bank Secrecy Act, the United States
International Money Laundering Control Act of 1986 or the United States
International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001. The Company shall promptly notify the Purchasers if any of these
representations ceases to be true and accurate regarding the Company or any of
its Subsidiaries. The Company agrees to provide the Purchasers any additional
information regarding the Company or any of its Subsidiaries that the Purchasers
deem necessary or convenient to ensure compliance with all applicable laws
concerning money laundering and similar activities. The Company understands and
agrees that if at any time it is discovered that any of the foregoing
representations are incorrect, or if otherwise required by applicable law or
regulation related to money laundering or similar activities, the Purchasers may
undertake appropriate actions to ensure compliance with such applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchasers' investment in the Company. The Company further understands that the
Purchasers may release confidential information about the Company and its
Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchasers, in their sole reasonable discretion, after
consultation with legal counsel, determine that it is in the best interests of
the Purchasers in light of relevant rules and regulations under the laws set
forth in subsection (ii) above.
 
5.  Representations and Warranties of the Purchaser. Each Purchaser, severally
and not jointly, hereby represents and warrants to the Company as follows (such
representations and warranties do not lessen or obviate the representations and
warranties of the Company set forth in this Agreement):
 
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5.1  Prohibited Transactions. During the last thirty (30) days prior to the date
hereof, such Purchaser has not, directly or indirectly, effected or agreed to
effect any short sale, whether or not against the box, established any “put
equivalent position” (as defined in Rule 16a-1(h) under the 1934 Act) with
respect to the Common Stock, granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with
respect to any security that includes, relates to or derived any significant
part of its value from the Common Stock or otherwise sought to hedge its
position in the Securities (each, a “Prohibited Transaction”). Prior to the
earliest to occur of (i) the termination of this Agreement, (ii) the effective
date of the Resale Registration Statement (iii) the Effectiveness Date (as
defined in the Registration Rights Agreement), such Purchaser shall not engage,
directly or indirectly, in a Prohibited Transaction. Such Purchaser acknowledges
that the representations, warranties and covenants contained in this Section 5.1
are being made for the benefit of the Purchasers as well as the Company and that
each of the other Purchasers shall have an independent right to assert any
claims against such Purchaser arising out of any breach or violation of the
provisions of this Section 5.1.
 
5.2  Organization, Good Standing and Qualification. Such Purchaser, if not an
individual, is a corporation, partnership, limited duration company or limited
liability company, as the case may be, duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each
non-individual Purchaser has the corporate, partnership, limited duration
company or limited liability company, as the case may be, power and authority to
own and operate its properties and assets, to execute and deliver (i) this
Agreement, and (ii) all applicable Related Agreements, to purchase the Notes and
the Note Shares, to purchase the Warrants and the Warrant Shares, and to carry
out the provisions of this Agreement and the Related Agreements. Each of the
Purchasers is duly qualified and is authorized to do business and is in good
standing as a foreign corporation, partnership, limited duration company or
limited liability company, as the case may be, in such Purchasers jurisdictions
of organization.
 
5.3  Requisite Power and Authority. Such Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
company action on such Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements has been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
such Purchaser, enforceable in accordance with their terms, except:
 
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
and
 
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(b) as limited by general principles of equity that restrict the availability of
equitable and legal remedies.
 
5.4  Investment Representations. Such Purchaser understands that the Securities
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon such Purchaser's representations
contained in this Agreement, including, without limitation, that such Purchaser
is an "accredited Purchaser" within the meaning of Regulation D under the
Securities Act. Such Purchaser confirms that it has received or has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Note and the Warrant to be
purchased by it under this Agreement and the Note Shares and the Warrant Shares
acquired by it upon the conversion of such Note and the exercise of such
Warrant, respectively. Such Purchaser further confirms that it has had an
opportunity to ask questions and receive answers from the Company regarding the
Company's and its Subsidiaries' business, management and financial affairs and
the terms and conditions of the Offering, the Notes, the Warrants and the
Securities.
 
5.5  The Purchasers Bear Economic Risk. Such Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Such Purchaser acknowledges and agrees
that it must bear the economic risk of this investment until the Securities are
sold pursuant to: (i) an effective registration statement under the Securities
Act; or (ii) an applicable exemption from registration with respect to such
sale.
 
5.6  Acquisition for Own Account. Such Purchaser is acquiring its Notes and
Warrant and the Note Shares and the Warrant Shares for such Purchaser's own
account for investment only, and not as a nominee or agent and not with a view
towards or for resale in connection with their distribution.
 
5.7  The Purchasers Can Protect Their Interest. Such Purchaser represents that
by reason of its, or of its management's, business and financial experience,
such Purchaser has the capacity to evaluate the merits and risks of its
investment in its Notes, Warrant and the Securities and to protect its own
interests in connection with the transactions contemplated in this Agreement and
the Related Agreements. Further, such Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in this
Agreement or the Related Agreements.
 
5.8  Accredited Purchaser. Such Purchaser represents that it is an accredited
Purchaser within the meaning of Regulation D under the Securities Act.
 
5.9  Legends.
 
(a) The Notes shall bear substantially the following legend:
 
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS TERM NOTE OR SUCH
SHARES UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO FRIENDLYWAY CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED."
 
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(b) The Note Shares and the Warrant Shares, shall bear a legend which shall be
in substantially the following form until such shares are covered by an
effective registration statement filed with the Securities and Exchange
Commission (the "SEC"):
 
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
FRIENDLYWAY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
 
(c) The Warrant shall bear substantially the following legend:
 
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
WARRANT OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
FRIENDLYWAY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
 
6.  Covenants of the Company. The Company covenants and agrees with the
Purchasers as follows:
 
6.1  Stop-Orders. The Company will advise the Purchasers, promptly after it
receives notice of issuance by the SEC, any state securities commission or any
other regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock of the Company for offering or sale in
any jurisdiction, or the initiation of any proceeding for any such purpose.
 
6.2  Listing. The Company's shares of Common Stock issuable upon conversion of
the Notes and upon the exercise of the Warrants are listed on the OTCBB (the
"Principal Market") as of the date hereof and the Company shall maintain such on
the Principal Market so long as any other shares of Common Stock shall be so
listed. The Company will maintain the listing of its Common Stock on the
Principal Market, and will comply in all material respects with its reporting,
filing and other obligations.
 
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6.3  Market Regulations. The Company shall notify the SEC, NASD and applicable
state authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Purchasers
and promptly provide copies thereof to the Purchasers.
 
6.4  Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
 
6.5  Use of Funds. The Company agrees that it will use the proceeds of the sale
of the Notes and the Warrants for the purposes specified on Schedule 6.5 only.
 
6.6  Access to Facilities. The Company and each of its Subsidiaries will permit
any representatives designated by any Purchaser (or any successor of such
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to:
 
(a) visit and inspect any of the properties of the Company or any of its
Subsidiaries;
 
(b) examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom; and
 
(c) discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
 
Notwithstanding the foregoing, neither the Company nor any of its Subsidiaries
will provide any material, non-public information to any Purchaser unless such
Purchaser signs a confidentiality agreement and otherwise complies with
Regulation FD under the federal securities laws.
 
6.7  Taxes. Each of the Company and each of its Subsidiaries will promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company and its Subsidiaries;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall be contested in good faith by appropriate
proceedings and if the Company and/or such Subsidiary shall have set aside on
its books adequate reserves with respect thereto, and provided, further, that
the Company and its Subsidiaries will pay all such taxes, assessments, charges
or levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
 
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6.8  Insurance. Each of the Company and its Subsidiaries will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar businesses similarly situated as the
Company and its Subsidiaries; and the Company and its Subsidiaries will
maintain, with financially sound and reputable insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar businesses similarly situated as the Company and its Subsidiaries and to
the extent available on commercially reasonable terms. The Company and each of
its Subsidiaries will jointly and severally bear the full risk of loss from any
loss of any nature whatsoever with respect to the assets pledged to the
Purchaser as security for their obligations hereunder and under the Related
Agreements. At the Company's and each of its Subsidiaries' joint and several
cost and expense in amounts and with carriers reasonably acceptable to the
Purchasers, the Company and each of its Subsidiaries shall (i) keep all their
insurable properties and properties in which they have an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to the
Company's or the respective Subsidiary's including business interruption
insurance; (ii) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to the Company's or the respective
Subsidiary's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of the
Company or any of its Subsidiaries either directly or through governmental
authority to draw upon such funds or to direct generally the disposition of such
assets; (iii) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (iv) maintain all
such worker's compensation or similar insurance as may be required under the
laws of any state or jurisdiction in which the Company or the respective
Subsidiary is engaged in business; and (v) furnish the Agent with (x) copies of
all policies and evidence of the maintenance of such policies at least thirty
(30) days before any expiration date, (y) excepting the Company's workers'
compensation policy, endorsements to such policies naming the Agent (as defined
below) as "co-insured" or "additional insured" and appropriate loss payable
endorsements, naming the Agent as a loss payee, and (z) evidence that as to the
Agent or the Purchasers the insurance coverage shall not be impaired or
invalidated by any act or neglect of the Company or any Subsidiary and the
insurer will provide the Agent with at least thirty (30) days notice prior to
cancellation. In the event that as of the date of receipt of each loss recovery
upon any such insurance, the Agent or the Purchasers have not declared an event
of default with respect to this Agreement or any of the Related Agreements, then
the Company and/or such Subsidiary shall be permitted to direct the application
of such loss recovery proceeds toward investment in property, plant and
equipment that would comprise "Collateral" secured by the Agent’s security
interest pursuant to its security agreement, with any surplus funds to be
applied toward payment of the obligations of the Company to the Purchasers. In
the event that the Agent or the Purchasers have properly declared an event of
default with respect to this Agreement or any of the Related Agreements, then
all loss recoveries received by the Agent upon any such insurance thereafter may
be applied to the obligations of the Company hereunder and under the Related
Agreements, in such order as the Agent may determine. Any surplus (following
satisfaction of all Company obligations to the Purchasers) shall be paid by the
Agent to the Company or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by the Company or the Subsidiary, as
applicable, to the Agent, on demand.
 
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6.9  Intellectual Property. Each of the Company and each of its Subsidiaries
shall maintain in full force and effect its existence, rights and franchises and
all licenses and other rights to use Intellectual Property owned or possessed by
it and reasonably deemed to be necessary to the conduct of its business.
 
6.10  Properties. Each of the Company and each of its Subsidiaries will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and each of the Company and
each of its Subsidiaries will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision would, either individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
 
6.11  Confidentiality. The Company agrees that it will not disclose, and will
not include in any public announcement, the names of the Purchasers, unless
expressly agreed to by the Purchasers or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement. Notwithstanding the foregoing, the Company may disclose the
Purchasers' identity and the terms of this Agreement to its current and
prospective debt and equity financing sources. Notwithstanding the provisions of
this section, the Purchasers consent to the Company's filing of this Agreement
and the Related Agreements as exhibits to its Form 8-K.
 
6.12  Required Approvals. For so long as twenty-five percent (25%) of the
aggregate principal amount of the Original Notes are outstanding, the Company,
without the prior written consent of the Note Requisite Holders (as hereinafter
defined) shall not, and shall not permit any of its Subsidiaries to:
 
(a) (i) directly or indirectly declare or pay any dividends, other than
dividends paid to the Company or any of its wholly-owned Subsidiaries, (ii)
issue any preferred stock that is mandatorily redeemable prior to the one year
anniversary of Maturity Date (as defined in the Notes) or (iii) redeem any of
its preferred stock or other equity interests;
 
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(b) liquidate, dissolve or effect a material reorganization (it being understood
that in no event shall the Company dissolve, liquidate or merge with any other
person or entity (unless the Company is the surviving entity);
 
(c) become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's or any of its Subsidiaries' right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
 
(d) materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole;
 
(e) (i) create, incur, assume or suffer to exist any indebtedness (other than
Permitted Senior Debt, as defined in the Security Agreement, and exclusive of
debt incurred to finance the purchase of equipment not in excess of five percent
(5%) of the fair market value of the Company's and its Subsidiaries' assets)
whether secured or unsecured other than (x) the Company's indebtedness to the
Purchasers, (y) indebtedness set forth on Schedule 6.12(e) attached hereto and
made a part hereof and any refinancings or replacements thereof on terms no less
favorable to the Company than the indebtedness being refinanced or replaced, and
(z) any debt incurred in connection with the purchase of assets in the ordinary
course of business, or any refinancings or replacements thereof on terms no less
favorable to the Company than the indebtedness being refinanced or replaced;
(ii) cancel any debt owing to it in excess of $50,000 in the aggregate during
any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by the Company for
deposit or collection or similar transactions in the ordinary course of business
or guarantees of indebtedness otherwise permitted to be outstanding pursuant to
this clause (e); and
 
(f) create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary
becomes party to the Security Agreement and the Subsidiary Guaranty (either by
executing a counterpart thereof or an assumption or joinder agreement in respect
thereof) and, to the extent required by the Purchasers, satisfies each condition
of this Agreement and the Related Agreements as if such Subsidiary were a
Subsidiary on the Closing Date.
 
6.13  Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Section 5.8 above
at such time as:
 
(a) the holder thereof is permitted to dispose of such Securities pursuant to
Rule 144(k) under the Securities Act; or
 
(b) upon resale subject to an effective registration statement after such
Securities are registered under the Securities Act.
 
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The Company agrees to cooperate with the Purchasers in connection with all
resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested representations from the selling Purchaser and the broker,
if any.
 
6.14  Margin Stock. The Company will not permit any of the proceeds of the Term
Note or the Warrant to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
 
6.15  Penalty Shares. If the Company generates less than $2,000,000 of the
earnings before interest, taxes, depreciation and amortization (“EBITDA”) for
the 12-month period ending 12 months after closing, then the Company shall issue
penalty shares (“Penalty Shares”) to the Purchasers on a pro-rata basis based on
their respective principal amount of Notes, coupled with attendant registration
rights, as follows:

[$2MM – Actual EBITDA] x  [# shares underlying Notes]
$2MM
 
7. Covenants of the Purchasers. Each Purchaser, severally and not jointly,
covenants and agrees with the Company as follows:
 
7.1  Confidentiality. Such Purchaser agrees that it will not disclose, and will
not include in any public announcement, the name of the Company, unless
expressly agreed to by the Company or unless and until such disclosure is
required by law or applicable regulation, and then only to the extent of such
requirement.
 
7.2  Non-Public Information. Such Purchaser agrees not to effect any sales of
the shares of the Company's Common Stock while in possession of material,
non-public information regarding the Company if such sales would violate
applicable securities law.

7A Agent Appointment.

7A.1 Note Agent. Each Purchaser hereby confirms the appointment of Atlantic
Professional Association, Inc. to act as its agent (“Agent”) pursuant to the
Notes. In such capacity, Agent shall only be obligated to take action and shall
act as directed by the Note Requisite Holders (as hereinafter defined); neither
Agent nor any of its officers, directors, managers, members, employees or
affiliates shall be responsible to Purchasers for any losses that any of such
Purchasers may incur hereunder. The Agent shall be entitled to conclusively rely
on any such direction or consent from the Note Requisite Holders. In addition,
the Agent may act in reliance upon any signature believed by it to be genuine,
and may assume that any person who has been designated by the Purchasers to give
any written instructions, notice or receipt, or make any statements in
connection with the provisions hereof has been duly authorized to do so. Agent
shall have no duty to make inquiry as to the genuineness, accuracy or validity
of any statements or instructions or any signatures on statements or
instructions. For its services hereunder, the Company shall pay the Agent a fee
of $500.00 on the Initial Closing Date.
 
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7A.2 Security Agent. Each Purchaser hereby confirms the appointment of Agent to
act as its security agent (the “Security Agent”) under the Security Agreement
with respect to the Collateral (as defined in the Security Agreement), under the
Pledge Agreement with respect to the Pledged Stock (as defined in the Pledge
Agreement), and under the Subsidiary Guaranty, to take all actions as
contemplated in such capacity in the Security Agreement and Pledge Agreement and
to be entitled to the benefits of the provisions of the Security Agreement, the
Pledge Agreement and the Subsidiary Guaranty. Each Purchaser acknowledges that
actions by the Security Agent under the Security Agreement, the Pledge Agreement
and the Subsidiary Guaranty shall be authorized by the Note Requisite Holders.

7A.3 Agent Resignation. Agent may resign as Agent or Security Agent at any time
by giving written notice (“Notice”) to the Company and the Purchasers, which
resignation shall be effective 30 days from the date of the Notice (“Effective
Resignation Date”). Upon the earlier of (i) the Effective Resignation Date or
(ii) the appointment of a successor Agent or Security Agent by the Note
Requisite Holders, Agent shall have no further obligations hereunder or pursuant
to the applicable agreements. In the event a successor Agent is not appointed by
the Note Requisite Holders on or before the Effective Resignation Date, then
Agent shall have the right to deliver any Collateral or Pledged Stock held by it
with a clerk of a court of competent jurisdiction or a third party escrow
provider pending the appointment of a successor Agent by the Note Requisite
Holders.

7A.4 Note Requisite Holders. For purposes this Agreement, “Note Requisite
Holders” shall mean holders of Notes representing at least 51% of the aggregate
amount of principal and accrued interest then outstanding under such Notes.

7A.5 Indemnification. In Agent’s capacity as Agent and Security Agent, the
Company and the Purchasers each agree to indemnify and hold the Agent harmless
from and against any and all expenses (including counsel fees), liabilities,
claims, damages, actions, suits or other charges incurred by or assessed against
the Agent for anything done or omitted by them in the performance of their
duties, except upon final judicial determination of gross negligence or willful
misconduct on the part of the Agent.

8. Conditions of the Purchasers’ Obligations at Closing. On or before the date
of each Closing, the obligations of the Purchasers under subsection 1 of this
Agreement is subject to the fulfillment on or before the Closing of each of the
following conditions:

8.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 4 hereof shall be true and correct in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the date of such
Closing.
 
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8.2 Performance. The Company shall have performed and complied with in all
material respects all agreements, obligations, and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.

8.3 Compliance Certificate. The President or Chief Executive Officer of the
Company shall deliver to the Purchasers, at each Closing, a certificate
certifying that the conditions specified in Sections 8.1 and 8.2 have been
fulfilled.

8.4 Proceedings and Documents. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchasers
and counsel to the Purchasers, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.

8.5 Secretary’s Certificate. The Company shall have delivered to the Purchasers
a certificate executed by the Secretary of the Company dated as of the Closing
certifying the following matters: (a) the resolutions adopted by the Company’s
Board of Directors relating to the transactions contemplated by this Agreement;
and (b) the Certificate of Incorporation and Bylaws of the Company.

8.6 Delivery of Notes and Warrants. The Company shall have delivered the Notes
and the Warrants to the Purchasers, as specified in Section 1.

8.7 Ancillary Agreements. The Company shall have executed and delivered to the
Purchasers this Agreement and the Related Agreements.

8.8 Opinion of Counsel. The Purchasers shall have received an opinion of counsel
to the Company substantially in the form attached hereto as Exhibit H.

8.9 Other Payments. Concurrent with the Closing, the Company shall pay the Sloan
Compensation (as such terms are defined in Section 2(b) hereof) and the Legal
Expense Reimbursement.

9. Conditions of the Company’s Obligations at Closing. The obligations of the
Company to the Purchaser under this Agreement are subject to the fulfillment on
or before any Closing of each of the following conditions by the Purchasers:

9.1 Representations and Warranties. The representations and warranties of the
Purchasers contained in Section 5 shall be true and correct on and as of such
Closing with the same effect as though such representations and warranties had
been made on and as of such Closing.

9.2 Payment of Purchase Price. The Purchasers shall have delivered the purchase
price specified in Section 1.1.
 
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9.3 Ancillary Agreements. The Company and the Purchasers shall have entered into
the Related Agreements, as applicable.
 
10.  Covenants of the Company and the Purchasers Regarding Indemnification.

10.1  Company Indemnification. The Company agrees to indemnify, hold harmless,
reimburse and defend the Purchasers and each of the Purchasers' officers,
directors, agents, affiliates, control persons, and principal shareholders,
against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon the
Purchasers which results, arises out of or is based upon: (i) any
misrepresentation by the Company or any of its Subsidiaries or breach of any
warranty by the Company or any of its Subsidiaries in this Agreement, any other
Related Agreement or in any exhibits or schedules attached hereto or thereto; or
(ii) any breach or default in performance by the Company or any of its
Subsidiaries of any covenant or undertaking to be performed by the Company or
any of its Subsidiaries hereunder, under any other Related Agreement or any
other agreement entered into by the Company and/or any of its Subsidiaries and
the Purchasers relating hereto or thereto.
 
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10.2  The Purchasers' Indemnification. Each Purchaser, severally and not
jointly, agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company's officers, directors, agents, affiliates, control
persons and principal shareholders, against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon: (i) any misrepresentation by such Purchaser or breach of any warranty by
such Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by such
Purchaser of any covenant or undertaking to be performed by such Purchaser
hereunder, or under any other Related Agreement. Any indemnity obligation of any
Purchaser to the Company pursuant to this Section 10 shall be limited to the
gross proceeds received from the Company from such Purchaser at Closing.
 
11.  Miscellaneous.
 
11.1  Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY
AGAINST THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND
EACH RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR
IN THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
 
11.2  Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Purchasers and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
 
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11.3  Successors. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
heirs, executors and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Securities from time to time, other than the holders of Common Stock which has
been sold by such Purchaser pursuant to Rule 144 or an effective registration
statement. The Purchasers may not assign their rights hereunder to a competitor
of the Company.
 
11.4  Entire Agreement. This Agreement, the Related Agreements, the exhibits and
schedules hereto and thereto and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.

11.5  Amendment and Waiver. This Agreement may be amended or terminated and the
observance of any term of this Agreement may be waived with respect to all
parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company
and the Note Requisite Holders. Notwithstanding the foregoing, (a) this
Agreement may not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Purchaser without the written
consent of such Purchaser unless such amendment, termination or waiver applies
to all Purchasers in the same fashion, (b) the Schedule of Purchasers hereto may
be amended by the Company from time to time in accordance with Section 3.1 to
add information regarding additional Purchasers participating in Subsequent
Closings without the consent of the other parties hereto and (c) Section 4,
Section 5, Section 6, Section 7, Section 10, Section 11.2, or Section 11.5 may
not be amended without the written consent of the Company and holders of at
least 85% of the aggregate amount of principal and accrued interest then
outstanding under the Notes. The Company shall give prompt written notice of any
amendment or termination hereof or waiver hereunder to any party hereto that did
not consent in writing to such amendment, termination or waiver. Any amendment,
termination or waiver effected in accordance with this Section 11.5 shall be
binding on all parties hereto, even if they do not execute such consent. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision.
 
11.6  Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party, upon any breach, default or
noncompliance by another party under this Agreement or the Related Agreements,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of or in any similar breach, default or noncompliance thereafter
occurring. All remedies, either under this Agreement or the Related Agreements,
by law or otherwise afforded to any party, shall be cumulative and not
alternative.
 
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11.7  Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given:
 
(a) upon personal delivery to the party to be notified;
 
(b) when sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;
 
(c) three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or
 
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt.
 
All communications shall be sent as follows:

If to the Company, to:
 

  Friendlyway Corporation
7222 Commerce Center Drive, Suite 240
Colorado Springs, CO 80919
Attention: Ken Upcraft, Chief Executive Officer and President
Fax: (719) 598-3897

 
If to Purchasers:
 

  To the Purchasers’ address as set forth in the Financing Signature Page

 
If to Sloan:
 

 
Sloan Securities Corp.
444 Madison Avenue, 23rd Floor
New York, NY 10022
Attention: James C. Ackerman, President and CEO
Fax: (212) 308-6433.

 
With a copy to:
 

 
Littman Krooks LLP
655 Third Avenue, 20th Floor
New York, NY 10017
Attention: Steven Uslaner, Esq.
Fax: (212) 490-2990

 
or at such other address as the Company or such Purchaser may designate by
written notice to the other parties hereto given in accordance herewith.
 
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11.8  Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
 
11.9  Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
 
11.10  Counterparts; Facsimile Signatures. This Agreement may be executed in one
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart.  This Agreement may be executed
by delivery of the Omnibus Signature Page, which is included in the Subscription
Documentation Package provided with this Agreement, pursuant to which the
Purchaser agrees to become a Purchaser, as defined in this Agreement, and
further agrees to become bound by the terms and conditions of each of the
Related Agreements. The Omnibus Signature Page may also be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument and be deemed a part of
this Agreement ab initio. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
 
11.11  Broker's Fees. Other than Sloan Securities Corp., each party hereto
represents and warrants that no agent, broker, investment banker, person or firm
acting on behalf of or under the authority of such party hereto is or will be
entitled to any broker's or finder's fee or any other commission directly or
indirectly in connection with the transactions contemplated herein. Each party
hereto further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in this
Section 11.11 being untrue.

11.12 Expenses. The Company and each Purchaser shall pay their respective costs
and expenses incurred with respect to the negotiation, execution, delivery
and performance of this Agreement; provided that the Company will be responsible
for the Legal Expense Obligation.
 
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
 
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IN WITNESS WHEREOF, the parties hereto have executed this SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
 

        FRIENDLYWAY CORPORATION   
   
   
    By:   /S/ KEN UPCRAFT  

--------------------------------------------------------------------------------

Kenneth Upcraft, CEO and President

 

 
As to Section 7A only:
        Agent:        
ATLANTIC PROFESSIONAL ASSOCIATION, INC.
 
   
   
    By:  
/S/ LAWRENCE S. ACKERMAN 
 

--------------------------------------------------------------------------------

Name:  Lawrence S. Ackerman
Title:    President
   

PURCHASERS      
[TO SIGN OMNIBUS SIGNATURE PAGE 
                 ANNEXED HERETO] 
 
 

 
 

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FRIENDLYWAY CORPORATION
OMNIBUS SIGNATURE PAGE
(MUST BE COMPLETED BY PURCHASER)

By execution and delivery of this signature page, the undersigned hereby: agrees
to become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase Agreement”) by and among friendlyway Corporation (the “Company”)
and the other Purchasers party thereto; acknowledges having read the
representations in the Purchase Agreement; and represents that the statements
contained therein are complete and accurate with respect to the undersigned as a
Purchaser. The undersigned further hereby agrees to be bound by the terms and
conditions of (i) the Purchase Agreement as a "Purchaser" thereunder, and (ii)
the Registration Rights Agreement as a "Holder" thereunder, and authorizes the
Company to attach this signature page to the Purchase Agreement and the
Registration Rights Agreement, or counterparts thereof. Terms that are
capitalized but not defined in this Omnibus Signature Page have the meanings
given to them in the Purchase Agreement.
 

Purchaser hereby subscribes to purchase a total of: 
$ _____________ Principal amount of Notes *

 

--------------------------------------------------------------------------------

* Purchasers are entitled to warrant coverage based on the principal amount of
Notes purchased as described in the Purchase Agreement.
 

--------------------------------------------------------------------------------

 
PURCHASER
               
(Name of Investor as it should appear on Term Note and Warrants)
 
(Today’s Date)
           
(Signature of Investor or authorized signatory)
 
(Print name of Investor or authorized signatory)
     

 

    Address:   
(If signing as an authorized signatory, print your title)
   

 

    Telephone:  
(Jurisdiction of organization, if applicable)
  Facsimile:       E-mail:    

    Federal Tax ID or  

    Social Security No.:  

 

--------------------------------------------------------------------------------

 
ACCEPTED AND AGREED:

FRIENDLYWAY CORPORATION

 

By: _____________________________________ Date:
____________________________________
      Authorized Officer
 

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SCHEDULES AND EXHIBITS

Schedule of Purchasers

Schedule 4.2 - Subsidiaries

Schedule 4.3 -  Capitalization

Schedule 4.6 - Agreements; Actions

Schedule 4.7 - Related Parties

Schedule 4.9 - Title to Properties and Assets; Liens, Etc.

Schedule 4.10 - Intellectual Property

Schedule 4.12 - Litigation

Schedule 4.13 - Tax Returns and Payments

Schedule 4.14 - Employees

Schedule 4.15 - Registration Rights and Voting Rights

Schedule 4.21 - SEC Reports

Schedule 6.5 - Use of Funds

Exhibit A - Form of Term Note

Exhibit B - Form of Warrant

Exhibit C - Registration Rights Agreement

Exhibit D - Subsidiary Guaranty

Exhibit E - Security Agreement

Exhibit F - Pledge Agreement

Exhibit G - Escrow Agreement

Exhibit H - Form of Opinion of Christopher K. Brenner, P.C.
 
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Exhibit A

Form of Term Note
 
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Exhibit B

Form of Warrant
 
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Exhibit C

Registration Rights Agreement
 
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Exhibit D

Subsidiary Guaranty
 
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Exhibit E

Security Agreement

 
36

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Exhibit F

Pledge Agreement
 
37

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Exhibit G

Escrow Agreement
 
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Exhibit H
Form of Legal Opinion

2.1 The Company has been duly organized as a corporation and is validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
has full corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Memorandum and is duly qualified as
a foreign corporation for the transaction of business and is in good standing in
each jurisdiction where the conduct of its business makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect upon the business (as currently conducted), financial condition,
prospects or results of operation of the Company (a "Material Adverse Effect").
 
2.2 The authorized capital stock of the Company on the date hereof consists of
(i) 100,000,000 shares of Common Stock, $0.001 par value per share, and (ii)
5,000,000 shares of Preferred Stock, $0.001 par value per share. All outstanding
shares of capital stock of the Company have been duly authorized and are validly
issued, fully paid and non-assessable.
 
2.3 The Notes and Warrants and shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants (collectively, the “Conversion
Shares”) have been duly authorized for issuance by all necessary corporate
action on the part of the Company. The Conversion Shares when issued, sold and
delivered against payment therefore in accordance with the provisions of the
Notes and Warrants, as applicable, will be duly and validly issued, fully paid
and non-assessable. The issuance of the Conversion Shares are not subject to any
statutory or, to our knowledge, contractual or other preemptive rights. A
sufficient number of authorized but unissued shares of Common Stock have been
reserved for issuance upon conversion of the Notes and exercise of the Warrants,
as well as other shares of Common Stock that may be issuable pursuant to the
terms and provisions of the Notes and Warrants.
 
2.4 The execution and delivery by the Company of the Transaction Documents to
which they are a party and the consummation by the Company of the transactions
contemplated thereby have been have been duly authorized by all necessary
corporate action on the part of the Company, and duly executed and delivered by
the Company. Each of the Transaction Documents to which it is a party
constitutes the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
 
2.5 The execution and delivery by the Company of the Transaction Documents to
which they are a party and the consummation by the Company of the transactions
contemplated thereby will not (i) violate the provisions of any United States
federal or state law, rule or regulation currently applicable to the Company or
the Nevada Revised Statures; (ii) violate the provisions of the Company's
Articles of Incorporation or By-Laws; (iii) violate any judgment, decree, order
or award known to us of any court, governmental body or arbitrator having
jurisdiction over the Company; or (iv) result in the breach or termination of
any material term or provision of an agreement known to us to which the Company
is a party, except in any such case where the breach or violation would not have
a Material Adverse Effect on the Company or its ability to perform its
obligations under the Transaction Documents.
 
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2.6 Assuming that the Shares were sold only to "accredited investors" (as
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, as amended ("1933 Act")) and the Placement Agent complied in all material
respects with Regulation D and the terms and conditions of the Offering set
forth in the Placement Agency Agreement, such sales were made in conformity in
all material respects with the requirements of Section 4(2) of the 1933 Act and
Regulation D, and with the requirements of all other United States federal
regulations applicable to the Company currently in effect relating to private
offerings of securities of the type made in the Offering.
 
2.7 To our knowledge, there is no action, proceeding or litigation pending or
threatened against the Company before any court, governmental or administrative
agency or body.
 
2.8 Either (i) no consent, approval or authorization of, or other action by, and
no notice to or filing with, any United States federal or state governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of the Transaction Documents to which it is a party and
the consummation by the Company of the transactions contemplated thereunder,
except for (A) the filing of a Form D that may be filed with the United States
Securities and Exchange Commission; (B) any filings under the securities laws of
the various jurisdictions in which the Shares are being offered and sold in the
Offering; and (C) any filings relating to public disclosure of the transactions
contemplated by the Transaction Documents, or (ii) any required consent,
approval, authorization, action or filing has been obtained, performed or made
by the Company.
 
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