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.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    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):

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    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

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (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."

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    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;

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    


    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.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    


    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.

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    


    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. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    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]

     

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    


    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] 

            
	 	
               

            


    

     

     

    
      

      

    

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    
      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 

            	 


    

    


    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

     

    Exhibit
      A

    


    Form
      of Term Note

     

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    


    Exhibit
      B

    


    Form
      of Warrant

     

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

     

    Exhibit
      C

    


    Registration
      Rights Agreement

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    Exhibit
      D

    


    Subsidiary
      Guaranty

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    


    Exhibit
      E

    


    Security
      Agreement

    
 

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    Exhibit
      F

    


    Pledge
      Agreement

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

    
 

    Exhibit
      G

    


    Escrow
      Agreement

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        40