FRIENDLYWAY
      CORPORATION AND CERTAIN OF ITS SUBSIDIARIES

    FORM
      OF NOTE SECURITY AGREEMENT

     

    To:
      Atlantic Professional Association, Inc., as Agent for
      PURCHASERS

     

    Date:
      July 19, 2006

     

    To
      Whom It May Concern:

     

    1.
      To
      secure the payment of all Obligations (as hereafter defined), friendlyway
      Corporation, a Nevada corporation (the "Company"), and each other entity that
      is
      required to enter into this Note Security Agreement (each an "Assignor" and,
      collectively, the "Assignors") hereby assign and grant to Agent, as collateral
      agent for the Purchasers (as that term is defined in the Securities Purchase
      Agreement referenced below), a continuing security interest in all of the
      following property now owned or at any time hereafter acquired by any Assignor,
      or in which any Assignor now has or at any time in the future may acquire any
      right, title or interest (the "Collateral"): all cash, cash equivalents,
      accounts, accounts receivable, deposit accounts, inventory, equipment
      (including, without limitation, the Pantel CashXpress self service kiosks or
      other similar or other designated kiosks (hereinafter “Kiosks”), goods,
      documents, instruments (including, without limitation, promissory notes),
      contract rights, general intangibles (including, without limitation, payment
      intangibles and an absolute right to license on terms no less favorable than
      those currently in effect among our affiliates), chattel paper, supporting
      obligations, investment property (including, without limitation, all equity
      interests owned by any Assignor), letter-of-credit rights, trademarks, trademark
      applications, tradestyles, patents, patent applications, copyrights, copyright
      applications and other intellectual property in which any Assignor now has
      or
      hereafter may acquire any right, title or interest, all proceeds and products
      thereof (including, without limitation, proceeds of insurance) and all
      additions, accessions and substitutions thereto or therefore, including, without
      limitation, Kiosks which may be manufactured from and after the date hereof.
      Except as otherwise defined herein, all capitalized terms used herein shall
      have
      the meaning provided such terms in the Securities Purchase Agreement referred
      to
      below.

     

    2.
      The
      term "Obligations" as used herein shall mean and include all debts, liabilities
      and obligations owing by each Assignor to Purchasers arising under, out of,
      or
      in connection with: (i) that certain Securities Purchase Agreement dated as
      of
      the date hereof by and between the Company, the Purchasers and the Agent (the
      "Securities Purchase Agreement") and (ii) the Related Agreements referred to
      in
      the Securities Purchase Agreement, (the Securities Purchase Agreement and each
      Related Agreement, as each may be amended, modified, restated or supplemented
      from time to time, are collectively referred to herein as the "Documents"),
      and
      in connection with any documents, instruments or agreements relating to or
      executed in connection with the Documents or any documents, instruments or
      agreements referred to therein or otherwise, and in connection with any other
      indebtedness, obligations or liabilities of any Assignor to Purchasers, whether
      now existing or hereafter arising, direct or indirect, liquidated or
      unliquidated, absolute or contingent, due or not due and whether under, pursuant
      to or evidenced by a note, agreement, guaranty, instrument or otherwise, in
      each
      case, irrespective of the genuineness, validity, regularity or enforceability
      of
      such Obligations, or of any instrument evidencing any of the Obligations or
      of
      any collateral therefor or of the existence or extent of such collateral, and
      irrespective of the allowability, allowance or disallowance of any or all of
      the
      Obligations in any case commenced by or against any Assignor under Title 11,
      United States Code, including, without limitation, obligations or indebtedness
      of each Assignor for post-petition interest, fees, costs and charges that would
      have accrued or been added to the Obligations but for the commencement of such
      case.


    
      
        
        

      

      
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    3.
      Each
      Assignor hereby jointly and severally represents, warrants and covenants to
      Agent that:

     

    (a)
      it is
      a corporation, partnership or limited liability company, as the case may be,
      validly existing, in good standing and organized under the respective laws
      of
      its jurisdiction of organization set forth on Schedule
      A,
      and
      each Assignor will provide Agent thirty (30) days' prior written notice of
      any
      change in any of its respective jurisdiction of organization;

     

    (b)
      its
      legal name is as set forth in its respective Certificate of Incorporation or
      other organizational document (as applicable) as amended through the date hereof
      and as set forth on Schedule
      A,
      and it
      will provide Agent thirty (30) days' prior written notice of any change in
      its
      legal name;

     

    (c)
      its
      organizational identification number (if applicable) is as set forth on
Schedule
      A
      hereto,
      and it will provide Agent thirty (30) days' prior written notice of any change
      in its organizational identification number;

     

    (d)
      it is
      the lawful owner of the respective Collateral and it has the sole right to
      grant
      a security interest therein and will defend the Collateral against all claims
      and demands of all persons and entities;

     

    (e)
      it
      will keep its respective Collateral free and clear of all attachments, levies,
      taxes, liens, security interests and encumbrances of every kind and nature
      ("Encumbrances"), except (i) Encumbrances securing the Obligations, (ii) (a)
      Encumbrances of carriers, warehousemen, artisans, bailees, mechanics and
      materialmen incurred in the ordinary course of business securing sums not
      overdue; (b) Encumbrances incurred in the ordinary course of business in
      connection with worker's compensation, unemployment insurance or other forms
      of
      governmental insurance or benefits, relating to employees, securing sums (i)
      not
      overdue or (ii) being diligently contested in good faith provided that adequate
      reserves with respect thereto are maintained on the books of Company or any
      Subsidiary thereof, in conformity with GAAP; (c) Encumbrances in favor of Agent
      or the Purchasers; (d) Encumbrances for taxes (i) not yet due or (ii) being
      diligently contested in good faith by appropriate proceedings, provided that
      adequate reserves with respect thereto are maintained on the books of the
      Company or any Subsidiary thereof in conformity with GAAP provided, that, the
      Encumbrance shall have no effect on the priority of Encumbrances in favor of
      any
      Purchaser or the value of the assets in which any Purchaser has an Encumbrance;
      (e) Purchase Money Liens (as defined below) securing Purchase Money Indebtedness
      (as defined below) to the extent permitted in this Agreement, (iii) to the
      extent said Encumbrance does not secure indebtedness in excess of $50,000 and
      such Encumbrance is removed or otherwise released within ten (10) days of the
      creation thereof and (iv) Encumbrances in connection with up to $600,000 of
      senior debt advanced to the Company by Ram Capital Resources or its affiliates
      (“Permitted Senior Debt”). Encumbrances securing Permitted Senior Debt is
      expressly senior to the lien on the Collateral granted to Agent pursuant to
      this
      Note Security Agreement. 


    
      
        
        

      

      
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    (f)
      it
      will, at its and the other Assignors' joint and several cost and expense, keep
      the Collateral in a good state of repair (ordinary wear and tear excepted)
      and
      will not waste or destroy the same or any part thereof other than ordinary
      course discarding of items no longer used or useful in its or such other
      Assignors' business;

     

    (g)
      it
      will not without Agent’s prior written consent, sell, exchange, lease or
      otherwise dispose of the Collateral, whether by sale, lease or otherwise, except
      for the sale of inventory in the ordinary course of business and for the
      disposition or transfer in the ordinary course of business during any fiscal
      year of obsolete and worn-out equipment or equipment no longer necessary for
      its
      ongoing needs, having an aggregate fair market value of not more than $25,000
      and only to the extent that:

     

    (i)
      the
      proceeds of any such disposition are used to acquire replacement Collateral
      which is subject to each of Purchasers' first priority perfected security
      interest (subject to any Permitted Senior Debt), or are used to repay
      Obligations or to pay general corporate expenses; and

     

    (ii)
      following the occurrence of an Event of Default which continues to exist the
      proceeds of which are remitted to Agent to be held as cash collateral for the
      Obligations;

     

    (h)
      it
      will insure or cause the Collateral to be insured in Agent’s name against loss
      or damage by fire, theft, burglary, pilferage, loss in transit and such other
      hazards as Agent shall specify in amounts and under policies by insurers
      acceptable to Agent and all premiums thereon shall be paid by such Assignor
      and
      the policies delivered to Agent. If any such Assignor fails to do so, Agent
      may
      procure such insurance and the cost thereof shall be promptly reimbursed by
      the
      Assignors, jointly and severally, and shall constitute Obligations;

     

    (i)
      it
      will at all reasonable times allow any of Agent’s representatives free access to
      and the right of inspection of the Collateral;

     

    (j)
      such
      Assignor (jointly and severally with each other Assignor) hereby indemnifies
      and
      saves Agent harmless from all loss, costs, damage, liability and/or expense,
      including reasonable attorneys' fees, that any Agent may sustain or incur to
      enforce payment, performance or fulfillment of any of the Obligations and/or
      in
      the enforcement of this Note Security Agreement or in the prosecution or defense
      of any action or proceeding either against Agent or any Assignor concerning
      any
      matter growing out of or in connection with this Note Security Agreement, and/or
      any of the Obligations and/or any of the Collateral except to the extent caused
      by Agent’s own gross negligence or willful misconduct (as determined by a court
      of competent jurisdiction in a final decision) and


    
      
        
        

      

      
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    "Purchase
      Money Indebtedness" means (a) any indebtedness incurred for the payment of
      all
      or any part of the purchase price of any fixed asset, including indebtedness
      under capitalized leases, (b) any indebtedness incurred for the sole purpose
      of
      financing or refinancing all or any part of the purchase price of any fixed
      asset, and (c) any renewals, extensions or refinancings thereof (but not any
      increases in the principal amounts thereof outstanding at that time); "Purchase
      Money Lien" means any Encumbrance upon any fixed assets that secures the
      Purchase Money Indebtedness related thereto but only if such Encumbrance shall
      at all times be confined solely to the asset the purchase price of which was
      financed or refinanced through the incurrence of the Purchase Money Indebtedness
      secured by such Encumbrance and only if such Encumbrance secures only such
      Purchase Money Indebtedness.

     

    4.
      The
      occurrence of any of the following events or conditions shall constitute an
      "Event of Default" under this Note Security Agreement:

     

    (a)
      any
      covenant, warranty, representation or statement made or furnished to Agent
      or
      the Purchasers by any Assignor or on any Assignor's behalf was breached in
      any
      material respect or false in any material respect when made or furnished, as
      the
      case may be, and, in the case of a covenant, if subject to cure, shall not
      be
      cured for a period of fifteen (15) days;

     

    (b)
      the
      loss, theft, substantial damage, destruction, sale or encumbrance to or of
      any
      of the Collateral or the making of any levy, seizure or attachment thereof
      or
      thereon except to the extent:

     

    (i)
      such
      loss is covered by insurance proceeds which are used to replace the item or
      repay Purchasers; or

     

    (ii)
      said
      levy, seizure or attachment does not secure indebtedness in excess of $100,000
      and such levy, seizure or attachment has not been removed or otherwise released
      within ten (10) days of the creation or the assertion thereof;

     

    (c)
      any
      Assignor shall become insolvent, cease operations, dissolve, terminate its
      business existence, make an assignment for the benefit of creditors, or suffer
      the appointment of a receiver, trustee, liquidator or custodian of all or any
      part of Assignors' property;

     

    (d)
      any
      proceedings under any bankruptcy or insolvency law shall be commenced by or
      against any Assignor;

     

    (e)
      the
      Company shall repudiate, purport to revoke or fail to perform any or all of
      its
      obligations under any Note (after passage of applicable cure periods, if any);
      or


    
      
        
        

      

      
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    (f)
      an
      Event of Default shall have occurred under and as defined in any
      Document.

     

    6.
      Upon
      the occurrence of any Event of Default and at any time thereafter,
      Agent may
      declare all Obligations immediately due and payable and Agent shall have the
      remedies of a secured party provided in the Uniform Commercial Code as in effect
      in the State of New York, this Agreement and other applicable law. Upon the
      occurrence of any Event of Default and at any time thereafter, Agent will have
      the right to take possession of the Collateral and to maintain such possession
      on any Assignor's premises or to remove the Collateral or any part thereof
      to
      such other premises as Agent may desire. Upon Agent’s request, each of the
      Assignors shall assemble or cause the Collateral to be assembled and make it
      available to Agent at a place designated by Agent. If any notification of
      intended disposition of any Collateral is required by law, such notification,
      if
      mailed, shall be deemed properly and reasonably given if mailed at least ten
      (10) days before such disposition, postage prepaid, addressed to any Assignor
      either at such Assignor's address shown herein or at any address appearing
      on
      Agent’s records for such Assignor. Any proceeds of any disposition of any of the
      Collateral shall be applied by Agent to the payment of all expenses in
      connection with the sale of the Collateral, including reasonable attorneys'
      fees
      and other legal expenses and disbursements and the reasonable expense of
      retaking, holding, preparing for sale, selling, and the like, and any balance
      of
      such proceeds may be applied by Agent toward the payment of the Obligations
      in
      such order of application as Agent may elect, and each Assignor shall be liable
      for any deficiency. 

     

    7.
      If any
      Assignor defaults in the performance or fulfillment of any of the material
      terms, conditions, promises, covenants, provisions or warranties on such
      Assignor's part to be performed or fulfilled under or pursuant to this Note
      Security Agreement, Agent may, at its option without waiving its right to
      enforce this Note Security Agreement according to its terms, immediately or
      at
      any time thereafter and with notice to the Assignors, perform or fulfill the
      same or cause the performance or fulfillment of the same for each Assignor's
      joint and several account and at each Assignor's joint and several cost and
      expense, and the cost and expense thereof (including reasonable attorneys'
      fees)
      shall be added to the Obligations and shall be payable on demand with interest
      thereon at the then interest rate on the principal amount of the Notes (as
      defined in the Securities Purchase Agreement) plus 24% per annum.

     

    8.
      Each
      Assignor appoints Agent, any of Agent’s officers, employees or any other person
      or entity whom Agent may designate as its attorney, with power to execute such
      documents in each of its behalf and to supply any omitted information and
      correct patent errors in any documents executed by any Assignor or on any
      Assignor's behalf; to file financing statements against each Assignor covering
      the Collateral (and, in connection with the filing of any such financing
      statements, describe the Collateral as "all assets and all personal property,
      whether now owned and/or hereafter acquired" (or any substantially similar
      variation thereof)); to sign its name on public records; and to do all other
      things Agent deems necessary to carry out this Note Security Agreement. Each
      Assignor hereby ratifies and approves all acts of the attorney and neither
      Agent
      nor the attorney will be liable for any acts of commission or omission, nor
      for
      any error of judgment or mistake of fact or law other than gross negligence
      or
      willful misconduct (as determined by a court of competent jurisdiction in a
      final decision). This power being coupled with an interest, is irrevocable
      so
      long as any Obligations remain unpaid.


    
      
        
        

      

      
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    9.
      No
      delay or failure on Agent’s part in exercising any right, privilege, remedy or
      option hereunder shall operate as a waiver of such or of any other right,
      privilege, remedy or option, and no waiver whatever shall be valid unless in
      writing, signed by Agent and then only to the extent therein set forth, and
      no
      waiver by Agent of any default shall operate as a waiver of any other default
      or
      of the same default on a future occasion. Agent’s books and records containing
      entries with respect to the Obligations shall be admissible in evidence in
      any
      action or proceeding, shall be binding upon each Assignor for the purpose of
      establishing the items therein set forth and shall constitute prima facie proof
      thereof. Agent shall have the right to enforce any one or more of the remedies
      available to Agent, successively, alternately or concurrently. Each Assignor
      agrees to join with Agent in executing financing statements or other instruments
      to the extent required by the Uniform Commercial Code in form satisfactory
      to
      Agent and in executing such other documents or instruments as may be required
      or
      deemed necessary by Agent for purposes of effecting or continuing Agent’s
      security interest in the Collateral.

     

    10.
      This
      Note Security Agreement shall be governed by and construed in accordance with
      the laws of the State of New York and cannot be terminated orally. All of the
      rights, remedies, options, privileges and elections given to Agent hereunder
      shall inure to the benefit of Agent’s successors and assigns. The term "Agent"
      as herein used shall include any parent of Agent’s, any of Agent’s subsidiaries
      and any co-subsidiaries of Agent’s parent, whether now existing or hereafter
      created or acquired, and all of the terms, conditions, promises, covenants,
      provisions and warranties of this Agreement shall inure to the benefit of each
      of the foregoing, and shall bind the representatives, successors and assigns
      of
      each Assignor. Agent and each Assignor hereby (a) waive any and all right to
      trial by jury in litigation relating to this Agreement and the transactions
      contemplated hereby and each Assignor agrees not to assert any counterclaim
      in
      such litigation, (b) submit to the nonexclusive jurisdiction of any New York
      State court sitting in the borough of Manhattan, the city of New York and (c)
      waive any objection Agent or any Assignor may have as to the bringing or
      maintaining of such action with any such court.

     

    11.
      It is
      understood and agreed that any person or entity that desires to become an
      Assignor hereunder, or is required to execute a counterpart of this Note
      Security Agreement after the date hereof pursuant to the requirements of any
      Document, shall become an Assignor hereunder by (x) executing a Joinder
      Agreement in form and substance satisfactory to Agent, (y) delivering
      supplements to such exhibits and annexes to such Documents as Agent shall
      reasonably request and (z) taking all actions as specified in this Agreement
      as
      would have been taken by such Assignor had it been an original party to this
      Agreement, in each case with all documents required above to be delivered to
      Agent and with all documents and actions required above to be taken to the
      reasonable satisfaction of Agent.

     

    12.
      All
      notices from Agent to any Assignor shall be sufficiently given if mailed or
      delivered to such Assignor's address set forth below.


    
      
        
        

      

      
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    13.
      All
      rights of the Purchasers hereunder shall be exercised by Agent, as their
      agent.

     

    [SIGNATURE
      PAGE FOLLOWS]


    
      
        
        

      

      
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      Very
        truly yours,

       

    

    
      
        	
                FRIENDLYWAY
                  CORPORATION

              
	 
 	 
 
	By:  	/S/
                KEN UPCRAFT
	 	
                
Kenneth
                Upcraft, President &
CEO


      

    

     

    

      
        
          	
                  FRIENDLYWAY
                    TECHNOLOGIES, INC.

                
	 
 	 
 
	By:  	/S/
                  KEN UPCRAFT
	 	
                  
Kenneth
                  Upcraft, President &
CEO


        

      

      
 

    

    
      
        
          	
                  PANTEL
                    SYSTEMS, INC.  

                
	 
 	 
 
	By:  	/S/
                  KEN UPCRAFT
	 	
                  

                  Kenneth
                    Upcraft, President & CEO

                


        

      

       

       

    

    
      
        
          	
                  PANTEL
                    FINANCIAL CENTERS, INC.  

                
	 
 	 
 
	By:  	/S/
                  KEN UPCRAFT
	 	
                  

                  Kenneth
                    Upcraft, President & CEO

                
	 
	 


        

      

      

        
          
            
            

          

          
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    SCHEDULE
      A


    


    
      	
              Entity

            	
               

            	
              Jurisdiction
                of Organization

            	
               

            	
              Organization
                Identification Number

            
	 	 	 	 	 
	
              Friendlyway
                Corporation

            	 	
              Nevada

            	 	
              C8895-1990

            
	 	 	 	 	 
	
              Friendlyway
                Technologies, Inc.

            	 	
              Delaware

            	 	
              3241220

            
	 	 	
               

            	 	 
	
              Pantel
                Systems, Inc.

            	 	
              Nevada

            	 	
              E0070142005-9

            
	 	 	
               

            	 	 
	
              Pantel
                Financial Centers, Inc.

            	 	
              Nevada

            	 	
              E0276262005-1

            


    

     

    
      
        
        

      

      
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