FORBEARANCE AGREEMENT

EXHIBIT 10.1

FORBEARANCE AGREEMENT

FORBEARANCE AGREEMENT, dated of as April 21, 2008, by and between ARIEL WAY, INC. (the “ Company ”), YA GLOBAL INVESTMENTS, L.P. (formerly, CORNELL CAPITAL PARTNERS, LP) (“ YA Global ”) and MONTGOMERY EQUITY PARTNERS, LTD. , a Cayman Islands exempted Company and wholly owned subsidiary of YA Global (“ Montgomery ” and together with YA Global, the “ Investor ”).  All capitalized terms used herein shall have the respective meanings assigned thereto in the Transaction Documents (as defined below) unless otherwise defined herein.

W I T N E S S E T H:

WHEREAS, the Company and the Investor have entered into certain financing arrangements set forth on Schedule A attached hereto and referred to herein as the “ Transaction Documents ”  pursuant to which, the Investor is the holder of the following convertible preferred stock (collectively, the “ Preferred Stock ”) issued by the Company:

The amounts referenced in this chart above are as of March 13, 2008 and do not include any additional costs, charges, expenses, or liquidated damages.  

WHEREAS , pursuant to the Transaction Documents, the Investor is the holder of warrants (the “ Existing Warrants ”) to purchase 1,000,000 shares of the Company’s common stock, par value $.001 per share (the “ Common Stock ”);

WHEREAS, the Company has breached the terms of the Transaction Documents due to the actions or occurrences set forth in Section 1 below; and

WHEREAS, the Company has requested that the Investor forbear from exercising its rights as a result of the Existing Defaults, which are continuing, before September 6, 2008; and

WHEREAS, the Investor is willing to agree to forbear from exercising certain of its rights and remedies before September 6, 2008 on the terms and conditions specified herein;

NOW, THEREFORE, in consideration of the foregoing, and the respective agreements, warranties and covenants contained herein, the parties hereto agree, covenant and warrant as follows:

1.

EVENTS OF DEFAULT .  The Investor is hereby providing the Company with formal notice of the actions and inactions set forth below, each of which can trigger an Event of

Default under the Preferred Stock and the Transaction Documents (referred to herein as the “ Existing Defaults ”).  

a.

The Company has failed to reserve and keep available out of its authorized but unissued shares of Common Stock, a number of shares sufficient to effect conversion of the Preferred Stock.  Furthermore, the Company has failed to call and hold a special meeting of its stockholders within thirty (30) days of the time that it no longer had a number of shares sufficient to effect conversion of the Preferred Stock, for the purpose of increasing the number of authorized shares of Common Stock.  

2.

  ACKNOWLEDGMENTS .  

a.

Acknowledgement of Obligations .  The Company hereby acknowledges, confirms and agrees that as of the date hereof, (i) the Investor owns the Preferred Stock and the outstanding principal amount of the  Preferred Stock plus accrued and unpaid interest and liquidated damages thereon as set forth in the first recital above and (ii) the principal and interest set forth herein, all interest accrued and accruing hereafter and all liquidated damages, fees, costs, expenses and other charges now or hereafter payable by the Company to the Investor under the Transaction Documents (collectively, the “ Obligations ”), are unconditionally owing by the Company to the Investor, without offset, defense or counterclaim of any kind, nature or description whatsoever.

b.

Binding Effect of Documents .  The Company hereto acknowledges, confirms and agrees that:  (a) each of the Transaction Documents to which it is a party has been duly executed and delivered to the Investor by the Company, and each is in full force and effect as of the date hereof, (b) the agreements and obligations of the Company contained in such documents and in this Agreement constitute the legal, valid and binding obligations of the Company, enforceable against each in accordance with their respective terms, and the Company has no valid defense to the enforcement of such obligations, and (c) the Investor  is and shall be entitled to the rights, remedies and benefits provided for in the Transaction Documents and applicable law, without setoff, defense or counterclaim of any kind, nature or descriptions whatsoever.

3.

FORBEARANCE IN RESPECT OF CERTAIN EVENTS OF DEFAULT.

a.

Acknowledgement of Default .  The Company hereby acknowledges and agrees that the Existing Defaults have occurred and are continuing, and each constitutes an Event of Default and entitles the Investor to exercise its rights and remedies under the Transaction Documents, applicable law or otherwise.  The Company further represents and warrants that as of the date hereof no other Event of Default under the Transaction Documents exist.  The Investor has not waived, presently does not intend to waive and may never waive such Existing Defaults and nothing contained herein or the transactions contemplated hereby shall be deemed to constitute any such waiver.  The Company hereby acknowledges and agrees that

2

the Investor has the presently exercisable right to declare the Obligations to be immediately due and payable under the terms of the Transaction Documents.

b.

Forbearance .

i.

In reliance upon the representations, warranties and covenants of the Company contained in this Agreement, and subject to the terms and conditions of this Agreement and any documents or instruments executed in connection herewith, the Investor agrees to forbear from exercising its rights and remedies under the Transaction Documents or applicable law in respect of or arising out of the Existing Defaults, subject to the conditions, amendments and modifications contained herein for the period (the “ Forbearance Period ”) commencing on the date hereof and ending on September 6, 2008, so long as the following conditions are met: (i) the Company strictly complies with the terms of this Agreement, and (ii) there is no occurrence or existence of any Event of Default, other than the Existing Defaults.

ii.

Upon the termination or expiration of the Forbearance Period, the agreement of the Investor to forbear shall automatically and without further action terminate and be of no force and effect, it being expressly agreed that the effect of such termination will be to permit the Investor to exercise such rights and remedies immediately, including, but not limited to, the acceleration of all of the Obligations without any further notice, passage of time or forbearance of any kind.  This Agreement shall be deemed to satisfy any and all requirements by the Investor to notify the Company of the occurrence of the Existing Defaults and satisfies any obligation by the Investor to give the Company an opportunity to cure the Existing Defaults.

c.

No Other Waivers; Reservation of Rights .

i.

The Investor has not waived, is not by this Agreement waiving, and has no intentions of waiving, any Events of Default which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Existing Defaults or otherwise), and the Investor has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default (other than, during the Forbearance Period, the Existing Defaults to the extent expressly set forth herein), which may have occurred or are continuing as of the date hereof or which