Exhibit 10.02

 

THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON STOCK MAY BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.

 

 

Principal Amount $20,000

Issue Date: August 4, 2008

     

 

8% SENIOR SECURED PROMISSORY NOTE DUE MARCH 6, 2009

 

FOR VALUE RECEIVED, NaturalNano, Inc., a Nevada corporation (“NaturalNano”), and
NaturalNano Research, Inc., a Delaware corporation and wholly owned subsidiary
of NaturalNano (“NN Research” and, together with NaturalNano, the “Borrowers”),
hereby jointly and severally promise to pay to the order of Longview Special
Financing, Inc., Lindstrasse 6, Zurich 8022, Switzerland (the “Holder”), the sum
of Twenty Thousand Dollars ($20,000), on March 6, 2009 (the “Maturity Date”).

 

Interest on the outstanding principal balance shall be paid in arrears at the
rate of eight percent (8%) per annum, payable quarterly on the first day of May,
August, November and February of each year; with the first payment being due
November 1, 2008 and a final interest payment due on the Maturity Date. Interest
shall be payable to the holder of this Note of record on the fifteenth day of
the preceding month. Interest shall be computed on the basis of a 360-day year,
using the number of days actually elapsed. Interest may be paid in cash or in
shares of NaturalNano’s common stock, par value $.001 per share (“Common
Stock”); provided, that any payment in shares of Common Stock shall be subject
to the provisions of Section 1.2 of this Note. Interest shall be payable at the
default interest rate of the lesser of (x) eighteen percent (18%) per annum or
(y) the maximum rate of interest which may legally be charged, (a) if the
Borrowers fail to make any monetary payment due on this Note within ten (10)
days after the date such payment is due and continuing at such rate until the
payment default is cured, and (b) during the pendency of any Event of Default,
as hereinafter defined, other than a failure to make any monetary payment.

 

Payment of this Note is secured by a security interest in the Collateral, as
defined in the Loan and Security Agreement, dated as of March 6, 2007, among the
Holder, NaturalNano and the other parties named therein (the “Loan Agreement”),
and the Holder of this Note shall have all rights granted to the Investors, as
defined in the Loan Agreement, pursuant the Loan Agreement. The Borrowers hereby
ratify and confirm the security interest granted to the Holder pursuant to the
Loan Agreement and the other Transaction Documents (including the IP Pledge and
the Stock Pledge, as defined herein) and acknowledge and agree that the term
“Obligations”

 

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Exhibit 10.02

 

under the Loan Agreement includes all indebtedness and obligations of the
Borrowers to the Holder under this Note.

 

It is expressly understood and agreed that the delivery of this Note by the
Borrowers shall (i) cause an adjustment to the conversion price under the 8%
Senior Secured Promissory Notes Due March 6, 2009 originally issued and sold
pursuant to the Loan Agreement (the “Prior Notes”), such that the Conversion
Price (as defined in such Prior Notes) shall be reduced to an amount not greater
than the Conversion Price of this Note and (ii) (A) cause an adjustment to the
Warrants (as defined in the Loan Agreement), such that the exercise price of
such Warrants shall be reduced to an amount not in excess of the Conversion
Price of this Note and (B) the number of shares issuable upon exercise of the
Warrants shall be increased as set forth in the Warrants.

 

SECTION 1.

Interest Payments

1.1.      Payment of Interest in Cash. Except as provided in Section 1.2 of this
Note, interest shall be paid in cash on the interest payment dates.

 

1.2.      Payment of Interest in Stock. The Borrowers may pay interest on this
Note in shares of Common Stock provided that the following conditions are met:

 

1.2.1.   The shares of Common Stock issuable in payment of interest shall be
subject to a current and effective registration statement and NaturalNano shall
deliver to the Holder an unlegended stock certificate or, if the Holder shall
have provided NaturalNano with account information, NaturalNano shall have
caused the shares to be electronically delivered to Holder’s brokerage account.

 

1.2.2.   NaturalNano shall be current in its filings with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended.

 

1.2.3.   The Common Stock shall be traded on the OTC Bulletin Board, the Nasdaq
Stock Market or the New York or American Stock Exchange, NaturalNano shall not
have received notice from any such market or exchange to the effect that the
Common Stock may be subject to delisting from such market or exchange, and no
event shall have occurred which would result in the delisting of the Common
Stock from such market.

 

1.2.4.   The number of shares of Common Stock to be issued shall be determined
by dividing the amount of the interest payment by eighty five percent (85%) of
the daily volume weighted average price (“VWAP”) of the Common Stock for the 20
trading days immediately preceding (but not including) the day that is one
trading day prior to the interest payment date.

 

1.2.5.   VWAP means the daily volume weighted average price of the Common Stock
for such date (or the nearest preceding date) on the primary trading market on
which the Common Stock is then listed or quoted as reported by Bloomberg
Financial

 

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Exhibit 10.02

 

L.P. (based on a trading day from 9:30 a.m. EST to 4:02 p.m. Eastern Time) using
the VAP function.

 

 

SECTION 2.

Conversion

 

 

2.1       Conversion Right. The Holder shall have the right at any time and from
time to time until the principal and interest on this Note shall have been paid
in full, to convert the principal and any interest due under this Note into
shares of Common Stock as provided in this Section 2.

 

2.2       Conversion Procedure. If the Holder exercises its right of conversion,
the Holder shall give NaturalNano a Notice of Conversion in the form annexed to
this Note, setting forth the amount of principal and interest which the Holder
is converting into Common Stock at the Conversion Price in effect on the date of
such notice. The date of such notice is referred to as the Conversion Date. Upon
delivery to NaturalNano of a completed Notice of Conversion, NaturalNano shall
issue and deliver to the Holder within three (3) business days after the
Conversion Date (such third day being the “Delivery Date”) that number of shares
of Common Stock for the amount of principal and interest on the Note which is
being converted, as set forth in Section 2.9 of this Note. To the extent that
the Holder does not elect to convert interest, the Borrowers shall pay accrued
interest to the Conversion Date on that portion of the principal of the Note
with respect to which accrued interest is not being converted, such payment to
be made not later than the Delivery Date. Except to the extent that the unpaid
principal balance of this Note is being presented for conversion, the Holder
shall not be required to present this Note in order to effect conversion, and
the Holder shall maintain a ledger setting forth each conversion of principal
and interest on this Note and such ledger shall, absent manifest error, be
deemed to be binding and conclusive on the Borrowers.

 

2.3       Conversion Price. The Conversion Price shall be $0.005 per share of
Common Stock, subject to adjustment as set forth in Section 2.4 of this Note.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal and interest
of the Note to be converted by the Conversion Price in effect on the Conversion
Date.

 

2.4       Adjustment to the Conversion Price. The Conversion Price and number
and kind of shares or other securities to be issued upon conversion shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:

 

2.4.1    Merger or Sale of Assets. If NaturalNano shall at any time consolidate
with or merge into or sell or convey all or substantially all its assets to any
other Person, as defined in the Loan Agreement, this Note, as to the unpaid
principal portion thereof and accrued interest thereon, shall thereafter be
deemed to be convertible into such number and kind of shares of capital stock or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing

 

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Exhibit 10.02

 

provision shall similarly apply to successive transactions of a similar nature
by any such successor or purchaser. Without limiting the generality of the
foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such consolidation, merger,
sale or conveyance.

 

2.4.2    Reclassification. If NaturalNano at any time shall, by reclassification
or otherwise, change the Common Stock into the same or a different number of
securities of any class or classes that may be issued or outstanding, this Note,
as to the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be convertible into an adjusted number of such securities and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock immediately prior to such reclassification or other change.

 

2.4.3    Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Conversion Price shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

 

2.4.4    Stock Issuance. If, while this Note is outstanding, NaturalNano sells
or otherwise issues any Convertible Securities, shares of Common Stock, or
shares of any class of capital stock at a price per share of Common Stock, or
with a conversion right or Conversion Price to acquire Common Stock at a price
per share of Common Stock (other than (x) an Exempt Issuance, as defined below,
or (y) an issuance covered by Sections 2.4.1, 2.4.2 or 2.4.3 of this Note), that
is less than the Conversion Price in effect at the time of such sale (such lower
price being referred to as the “Lower Price”), the Conversion Price shall be
reduced to an adjusted Conversion Price which is equal to the Lower Price. Such
adjustment shall be made successively whenever any such sale or other issuance
at a Lower Price is made. The term “Convertible Security” shall mean any debt or
equity security or instrument upon the conversion or exercise of which shares of
Common Stock may be issued. “Exempt Issuance” shall mean means the issuance of
(a) shares of Common Stock or options to employees, officers, directors and
consultants (other than consultants whose services relate to the raising of
funds) of the Borrowers pursuant to the NaturalNano’s outstanding stock option
or long-term incentive plans (as in effect on the date hereof and at an exercise
price not in excess of the closing bid price of the Common Stock on the date of
grant), (b) securities upon the exercise or conversion of this Note, (c) any
other options, warrants or convertible securities which are outstanding as of
the date hereof and disclosed in NaturalNano’s filings with the Securities and
Exchange Commission on or prior to the date hereof, (d) securities issued
pursuant to acquisition, licensing agreements, or other strategic transactions,
provided any such issuance shall only be to a Person which is, itself or through
its subsidiaries, an operating company (including, without limitation, a company
engaged primarily in research and development) in a business which NaturalNano’s
board of directors believes

 

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Exhibit 10.02

 

is beneficial to the Borrowers and in which the Borrowers receive benefits in
addition to the investment of funds, but shall not include a transaction in
which any Borrower is issuing securities primarily for the purpose of raising
capital or to an entity whose primary business is investing in securities.

 

(a)       For purposes of this Section 2.4.4, the price at which such shares of
Common Stock are issued shall be the consideration paid for the Common Stock or
the price at which NaturalNano agrees to issue shares of Common Stock. The price
at which any Convertible Security is issued shall be the amount received for the
issuance of the Convertible Security plus the minimum amount of additional
consideration which is payable upon exercise or conversion of the Convertible
Security. If NaturalNano issues securities as a unit, regardless of whether such
issuance is defined as a unit, a separate computation shall be made with respect
to (x) shares of Common Stock and convertible securities (based on the maximum
number of shares of Common Stock which may be issued upon conversion, including
conversion of interest or dividends, but excluding warrants, rights and options)
and (y) warrants, options or rights, with a separate computation being made as
to each warrant, option or right which is issued. If warrants, options or rights
are issued, NaturalNano shall not be deemed to have received any consideration
for the issuance of the shares upon exercise of the warrant, option or right
other than the lowest exercise price provided therein. If NaturalNano has an
agreement which provides for the issuance of shares at a fixed price or a
formula price with a maximum price, NaturalNano shall be deemed to have issued
securities at such maximum price regardless of whether any securities are
actually sold, and any issuance of securities below such maximum price shall, if
such price is a Lower Price, be a sale which results in an adjustment pursuant
to this Section 2.4.4.

 

(b)       By way of example, if NaturalNano issues for $1,000,000 securities
consisting of 500,000 shares of Common Stock and a convertible note for
$1,000,000 with a conversion price of $.004 and warrants to purchase 1,000,000
shares of Common Stock at $.004, the Lower Price would be determined by dividing
the total consideration paid for the Common Stock and the note ($1,000,000) by
the number of shares of Common Stock issued (250,500,000 shares, representing
the 500,000 shares issued at closing plus the 250,000,000 shares issuable upon
conversion of the note), which would result in Lower Price of $.003992, which
would become the adjusted Conversion Price. If, in the same example, the
exercise price of the warrant were $.003 per share, the Lower Price would be
$.003, which would become the adjusted Conversion Price. If, in either case, the
conversion price of all or any part of the convertible security or the exercise
price of all or any of the warrants were subsequently reduced, a further
adjustment would be made.

 

(c)       Any stock or convertible securities (other than warrants or options
which shall be valued at the lowest stated Conversion Price thereof) issued for
services that are not Exempt Issuances shall, for purposes of this Note, be
valued

 

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Exhibit 10.02

 

at the par value thereof unless such issuance is made with the prior written
approved of the Holder, in which event the securities shall be valued in the
manner as set forth in the Holder’s approval.

 

2.5       Notice of Adjustment. Whenever the Conversion Price is adjusted
pursuant to Section 2.4 of this Note, NaturalNano shall promptly mail to the
Holder a notice setting forth the Conversion Price after such adjustment and
setting forth a statement of the facts requiring such adjustment.

 

2.6       Reservation of Shares. NaturalNano will promptly, and in no event
later than November 30, 2008, take all actions to ensure that, during the period
that the conversion right exists, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock issuable upon the full conversion of this Note. NaturalNano
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. NaturalNano agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents who
are charged with the duty of executing and issuing stock certificates to execute
and issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.

 

2.7       Right to Require Conversion. Provided an Event of Default or an event
which with the passage of time or the giving of notice could become an Event of
Default has not occurred, whether or not such Event of Default has been cured,
and provided that all of the shares of Common Stock issuable upon conversion of
the Note, have been registered pursuant to the Securities Act of 1933, as
amended (the “Securities Act”) the Borrowers shall have the right to require the
Holder of this Note to covert all or any portion of this Note into shares of
Common Stock at the Conversion Price on the date that the Borrowers give notice
of such required conversion, subject to the following terms and conditions.

 

2.7.1    The Borrowers may only exercise such right if a registration statement
covering the sale by the Holder of all of the shares of Common Stock issuable
upon conversion of this Note (the “Registration Statement”) is current and
effective and, based on the date of the prospectus forming a part of the
registration statement and the age of the financial statements contained in the
registration statement, the registration statement can be used by the Holder in
connection with the sale of the Common Stock for at least three months without
the need to file a post-effective amendment to update the registration
statement, and there shall not have occurred any material event concerning
either of the Borrowers for which disclosure would be necessary in order that
the information contained in the registration statement is true and correct in
all material respects and does not omit any information necessary to make the
information contained therein not misleading. The notice of required conversion
shall include the certificate of the Borrowers’ respective chief executive
officers as to the matters set forth in this Section 2.7.1.

 

2.7.2    The Common Stock shall be traded on the OTC Bulletin Board, the Nasdaq
Stock Market or the New York or American Stock Exchange and shall be eligible
for transfer using the facilities of the Depository Trust Company (the “DTC
Program”);

 

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Exhibit 10.02

 

NaturalNano shall not have received notice from any such market or exchange to
the effect that the Common Stock may be subject to delisting from such market or
exchange, and no event shall have occurred which would result in the delisting
of the Common Stock from such market.

 

2.7.3    The closing price of the Common Stock on the principal market or
exchange on which the stock is traded is not less than $1.00 for not less than
20 consecutive trading days ending on the date prior to the date on which
NaturalNano gives notice to the Holder exercising its rights under this Section
2.7.

 

2.7.4    NaturalNano will tender to the Holder such number of shares of Common
Stock as are issuable upon conversion of the principal amount of this Note being
converted, but not such number of shares as would result in a violation of the
4.99% Limitation, as hereinafter defined (it being understood that the portion
of the Note that would otherwise violate the 4.99% Limitation if it were to be
so converted shall remain issued and outstanding).

 

2.7.5    Any partial exercise of the rights under this Section 2.7 shall be made
proportionately as to the Holder and all other holders of the notes issued by
the Borrowers on the date hereof (the “August Notes”).

 

 

2.8

Limitation on Right to Convert or Exercise Securities.

 

 

2.8.1

 

(A) Notwithstanding any other provision of this Note, except as expressly
provided in this Note, the Holder shall not be entitled to convert this Note
into shares of Common Stock to the extent that such conversion would result in
beneficial ownership by the Holder and its Affiliates, as defined in the Loan
Agreement, of more than 4.99% of the then outstanding number of shares of Common
Stock on such date. For the purposes of this Agreement beneficial ownership
shall be determined in accordance with Section 13(d) of the 1934 Act, and
Regulation 13d-3 thereunder. The limitation set forth in this Section 2.4(A) is
referred to as the “4.99% Limitation.” Notwithstanding the above, upon the
Holder providing NaturalNano with 61 days’ prior written notice that the Holder
would like to waive this Section 2.8.1(A) of this Note with regard to any or all
shares of Common Stock issuable upon conversion of this Note, this Section
2.8.1(A) shall be of no force or effect with regard to all or a portion of the
Note referenced in such notice.

 

(B) Notwithstanding any other provision of this Note, except as expressly
provided in this Note, the Holder shall not be entitled to convert this Note
into shares of Common Stock to the extent that such conversion would result in
beneficial ownership by the Holder and its Affiliates, as defined in the Loan
Agreement, of more than 9.99% of the then outstanding number of shares of Common
Stock on such date. For the purposes of this Agreement beneficial ownership
shall be determined in accordance with Section 13(d) of the 1934 Act, and
Regulation 13d-3 thereunder. Notwithstanding the

 

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Exhibit 10.02

 

above, upon the Holder providing NaturalNano with 61 days’ prior written notice
that the Holder would like to waive this Section 2.8.1(B) of this Note with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 2.8.1(B) shall be of no force or effect with regard to all or
a portion of the Note referenced in such notice.

 

2.8.2    The limitations set forth in Section 2.8.1 shall terminate upon the
close of business on the business day immediately preceding the date fixed for
consummation of any transaction resulting in a Change of Control of NaturalNano.
A “Change in Control” means a consolidation or merger of NaturalNano with or
into another company or entity in which NaturalNano is not the surviving entity
or the sale of all or substantially all of the assets of NaturalNano to another
company or entity not controlled by the then existing stockholders of
NaturalNano in a transaction or series of transactions. Upon the occurrence of a
Change of Control, NaturalNano shall promptly send written notice thereof, by
hand delivery or by overnight delivery, to the Holder.

 

 

2.9

Mechanics of Conversion.

 

2.9.1    Delivery of Certificate Upon Conversion. Except as otherwise set forth
herein, not later than the Delivery Date, NaturalNano shall deliver to the
Holder (a) a certificate or certificates which, after the effective date of a
registration statement covering the shares of Common Stock issuable upon
conversion of this Note (the “Effective Date”), shall be free of restrictive
legends and trading restrictions (other than those required by the Securities
Act) representing the number of shares of Common Stock being acquired upon the
conversion of the Note, and (b) a bank check in the amount of accrued and unpaid
interest on the portion of the Note being converted unless the Holder converts
such interest into Common Stock. After the Effective Date, NaturalNano shall,
upon request of the Holder, deliver any certificate or certificates required to
be delivered by NaturalNano under this Section 2.9 electronically through the
Depository Trust Company or another established clearing company performing
similar functions if NaturalNano’s transfer agent has the ability to deliver
shares of Common Stock in such manner. If in the case of any Notice of
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the Delivery Date, the Holder shall be entitled to
elect by written notice to the Borrowers at any time on or before its receipt of
such certificate or certificates thereafter, to rescind such conversion, in
which event the conversion shall be deemed void ab initio.

 

2.9.2    Obligation Absolute; Partial Liquidated Damages. NaturalNano’s
obligations to issue and deliver the Common Stock upon conversion of this Note
in accordance with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any waiver or
consent with respect to any provision hereof, the recovery of any judgment
against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Borrowers or
either of them or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit

 

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Exhibit 10.02

 

such obligation of the Borrowers to the Holder in connection with the issuance
of such shares. In the event the Holder shall elect to convert any or all of
this Note, NaturalNano may not refuse conversion based on any claim that such
Holder or any one associated or affiliated with the Holder of has been engaged
in any violation of law, agreement or for any other reason unless an injunction
from a court, on notice, restraining and or enjoining conversion of all or part
of this Note shall have been sought and obtained and NaturalNano posts a surety
bond for the benefit of the Holder in the amount of 150% of the Conversion Value
of Note outstanding, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration or litigation of the dispute and
the proceeds of which shall be payable to the Holder to the extent it obtains
judgment. In the absence of an injunction precluding the same, NaturalNano shall
issue the Common Stock or, if applicable, cash, upon a properly noticed
conversion. If NaturalNano fails to deliver to the Holder such certificate or
certificates pursuant to this Section 2.9 within two trading days of the
Delivery Date applicable to such conversion, the Borrowers shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of
Conversion Value of Note being converted, $50 per trading day (increasing to
$100 per trading day three (3) trading days after such damages begin to accrue
and increasing to $200 per trading day six (6) trading days after such damages
begin to accrue) for each trading day after the Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder’s right to
pursue actual damages for the NaturalNano’s failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.

 

2.9.3    Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. If NaturalNano fails to deliver to the Holder such certificate or
certificates pursuant to this Section 2.9 by the Delivery Date, and if after
such Delivery Date the Holder purchases (in an open market transaction or
otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of
the Common Stock which the Holder was entitled to receive upon the conversion
relating to such Delivery Date (a “Buy-In”), then the Borrowers shall pay in
cash to the Holder the amount by which (a) the Holder’s total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (i) the product of (x) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (y) the price at which the sell order giving rise to such purchase obligation
was executed. For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of this Note with respect to which the aggregate sale price giving
rise to such purchase obligation is $10,000, under the immediately preceding
sentence the Borrowers shall be required to pay the Holder $1,000. The Holder
shall provide the Borrowers written notice indicating the amounts payable to the
Holder in respect of the Buy-In, together with applicable confirmations and
other evidence reasonably requested by the Borrowers. Nothing in this Section
2.9 shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to NaturalNano’s
failure to timely

 

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Exhibit 10.02

 

deliver certificates representing shares of Common Stock upon conversion of the
shares of this Note pursuant to its terms.

 

2.9.4    Fractional Shares. Upon a conversion hereunder, NaturalNano shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock. All fractional shares shall be carried forward and any fractional
shares which remain after a Holder converts all of this Note shall be rounded up
to the next whole number of shares.

 

2.9.5    Transfer Taxes. The issuance of certificates for shares of the Common
Stock on conversion of this Note shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Borrowers shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Note and the
Borrowers shall not be required to issue or deliver such certificates unless or
until the person or persons requesting the issuance thereof shall have paid to
the Borrower the amount of such tax or shall have established to the
satisfaction of the Borrowers that such tax has been paid.

 

SECTION 3.

Events of Default.

3.1.      The entire unpaid principal amount of this Note, together with
interest thereon shall, on written notice from the Holders of a majority of the
outstanding principal amount of the August Notes or by the Agent, as defined in
the Loan Agreement, upon the request of the holders of a majority of the
outstanding principal amount of the August Notes, forthwith become and be due
and payable if any one or more Events of Default shall have occurred (for any
reason whatsoever and whether such happening shall be voluntary or involuntary
or be affected or come about by operation of law pursuant to or in compliance
with any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body) and be continuing.

 

3.2.      The occurrence of any one or more of the following events or
conditions shall constitute an “Event of Default” under this Agreement:

 

3.2.1.   Borrowers’ failure to make any payment of principal or interest or any
other sums within fifteen (15) days of the date when due on this Note or on any
of the Obligations, as defined in the Loan Agreement.

 

3.2.2.   Any representation or warranty or other statement made or furnished to
the Holder by or on behalf of the Borrowers in the Loan Agreement or in any
document or instrument furnished in connection with the Loan Agreement proves to
have been false or misleading in any material respect when made or furnished.

 

3.2.3.   Breach of or failure in the due observance or performance in any
material respect of any covenant, condition or agreement on the part of the
Borrower to be observed or performed pursuant to the Loan Agreement or any of
the other Transaction

 

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Exhibit 10.02

 

Documents and the failure to cure (if curable) any such breach or failure within
fifteen (15) days after receipt of written notice thereof from the holder of any
Note issued pursuant to the Loan Agreement to the Borrower; provided, however,
that the obligations of NaturalNano with respect to its failure to file the
Registration Statement (as defined in the Registration Rights Agreement, or the
failure of the registration statement to be declared effective shall be subject
to the provisions of the Registration Rights Agreement and not this Section 3.

 

3.2.4.   Failure of the Common Stock to be listed or quoted on the OTC Bulletin
Board, the Nasdaq Stock Market or the American or New York Stock Exchange for
any reason.

 

3.2.5.   Failure of the Common Stock, at any time after the Registration
Statement becomes effective, to be eligible for transfer pursuant to the DTC
Program for any reason.

 

3.2.6.   Breach of or failure in the due observance or performance of any
covenant, condition or agreement on the part of the Borrowers to be observed or
performed pursuant to the Loan Agreement or any other Transaction Documents (as
defined in the Loan Agreement) or breach by Borrower of any other agreement with
the Holder beyond the expiration of any grace or cure periods provided therein.

 

3.2.7.   A judgment or judgments for the payment of money in excess of $25,000
shall be rendered against either Borrower, and any such judgment shall remain
unsatisfied and in effect for any period of 30 consecutive days without a stay
of execution; or

 

3.2.8.   Either Borrower shall (a) apply for or consent to the appointment of a
receiver, trustee or liquidator of all or a substantial part of any of its
assets; (b) be unable, or admit in writing its inability, to pay its debts as
they mature; (c) file or permit the filing of any petition, case arrangement,
reorganization, or the like under any insolvency or bankruptcy law, or the
adjudication of it as a bankrupt, or the making of an assignment for the benefit
of creditors or the consenting to any form or arrangement for the satisfaction,
settlement or delay of debt or the appointment of a receiver for all or any part
of its properties; or (d) any action shall be taken by the Borrower for the
purpose of effecting any of the foregoing; or

 

3.2.9.   An order, judgment or decree shall be entered, or a case shall be
commenced, against either Borrower, without its application, approval or consent
by any court of competent jurisdiction, approving a petition or permitting the
commencement of a case seeking reorganization or liquidation of such Borrower or
appointing a receiver, trustee or liquidator of the Borrower, or of all or a
substantial part of the assets of the Borrower, and the Borrower, by any act,
indicate its approval thereof, consent thereto, or acquiescence therein, or such
order, judgment, decree or case shall continue unstayed and in effect for any
period of 90 consecutive days or an order for relief in connection therewith
shall be entered; or

 

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Exhibit 10.02

 

3.2.10. If the Borrower shall dissolve or liquidate, or be dissolved or
liquidated, or cease to legally exist, or merge or consolidate, or be merged or
consolidated with or into any other corporation; or

 

3.2.11. Failure by the Borrower to pay any other indebtedness or obligation in
excess of $25,000, or if any such other indebtedness or obligation which is not
subject to a bonafide dispute shall be accelerated, or if there exists any event
of default under any instrument, document or agreement governing, evidencing or
securing such other indebtedness or obligation which is not subject to a
bonafide dispute; or

 

3.2.12. Failure by any Borrower to take all steps necessary to grant or maintain
to the Holder and/or the Agent a perfected first priority security interest in
any intellectual property acquired subsequent to the Closing Date;

 

3.2.13. The issuance by NaturalNano of any preferred stock without the prior
written consent of the holders of a majority of the outstanding principal amount
of the August Notes; or

 

3.2.14. Substantial loss, theft, damage, or destruction of the Collateral
provided to the Holder pursuant to this Note or the Loan Agreement, and not
covered by insurance in any material respect.

 

SECTION 4.

Miscellaneous

4.1.      Usury Saving Provision. All payment obligations arising under this
Note are subject to the express condition that at no time shall the Borrowers be
obligated or required to pay interest at a rate which could subject the Holder
to either civil or criminal liability as a result of being in excess of the
maximum rate which the Borrowers are permitted by law to contract or agree to
pay. If by the terms of this Note, the Borrowers are at any time required or
obligated to pay interest at a rate in excess of such maximum rate, the
applicable rate of interest shall be deemed to be immediately reduced to such
maximum rate, and interest thus payable shall be computed at such maximum rate,
and the portion of all prior interest payments in excess of such maximum rate
shall be applied and shall be deemed to have been payments in reduction of
principal.

 

4.2.      Failure or Indulgence Not Waiver. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

 

4.3.      Governing Law. This Agreement and the rights of the parties shall be
construed and enforced in accordance with the laws of the State of New York
applicable to agreements executed and to be performed wholly within such state
and without regard to principles of

 

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Exhibit 10.02

 

conflicts of law. Each party irrevocably (a) consents to the jurisdiction of the
federal and state courts situated in New York County, New York in any action
that may be brought pursuant to this Agreement, and (b) submits to and accepts,
with respect to its properties and assets, generally and unconditionally, the in
personal jurisdiction of the aforesaid courts, waiving any defense that such
court is not a convenient forum. In any such litigation to the extent permitted
by applicable law, each party waives personal service of any summons, complaint
or other process, and agrees that the service thereof may be made either (i) in
the manner for giving of notices provided in Section 4.5 of this Note (other
than by telecopier) or (ii) in any other manner permitted by law.

 

4.4.      Waiver of Right to Trial by Jury. BORROWERS HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE
AND WAIVE ANY RIGHT TO BRING A COUNTERCLAIM AGAINST THE HOLDER IN ANY ACTION TO
ENFORCE THIS NOTE. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR HOLDER TO
ACCEPT THIS NOTE.

 

4.5.      Notice. All notices, requests or other communications required or
permitted to be given under this Agreement to any party shall be in writing and
shall be deemed to have been sufficiently given when delivered by personal
service or sent by registered mail, overnight courier services with provided
evidence of delivery or attempted delivery, or facsimile, to the Borrowers c/o
NaturalNano, Inc., 15 Schoen Place, Pittsford, New York 14534-2025, telecopier
(585) 267-4825, to the attention of the person who executed this Note on behalf
of NaturalNano of this Agreement or to the Holder at its address set forth on
the Borrower’s records. Either party may, be like notice, change the address or
telecopy number or the person to whom notice is to be given. Notice shall be
deemed given when received or when attempted delivery is made (based on evidence
of attempted delivery by the United States Postal Service or an overnight
courier or a messenger service), provided that notice by telecopier shall be
deemed given when receipt is acknowledged by the recipient.

 

4.6.      Amendment Provision. The term “Note” and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented. No consideration shall be offered to any holder of any of the
August Notes for any waiver or modification without offering the same shall
consideration to all holders of the August Notes.

 

4.7.      Assignability. This Note shall be binding upon the Borrowers and their
respective successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns. The Borrowers may not assign any of its
obligations under this Note without the consent of the Holder.

 

4.8.      Cost of Collection. If default is made in the payment of this Note,
Borrowers shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys’ fees, regardless of whether the Holder commenced
litigation in order to enforce its rights under this Note.

 

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Exhibit 10.02

 

4.9.      Stockholder Status. The Holder shall not have rights as a stockholder
of NaturalNano with respect to unconverted portions of this Note. However, from
and after the Conversion Date, the Holder will have all the rights of a
shareholder of NaturalNano with respect to the shares of Common Stock to be
received by Holder after delivery by the Holder of a Conversion Notice to the
Borrower regardless of whether physical certificates shall have been delivered.

 

4.10.    No Waiver of Default; Continuing Effect of Transaction Documents. The
provisions of the Prior Notes, the Loan Agreement and the other Transaction
Documents shall remain in full force and effect in accordance with their terms
and are hereby ratified and confirmed. The Collateral granted to the Holder or
the Agent under the Transaction Documents, including, without limitation,
pursuant to the Patent Security Agreement, dated as of March 6, 2007, among the
Borrowers (the “IP Pledge”), and the Pledge Agreement, dated as of March 6,
2007, by and among Holder, NaturalNano and the other parties thereto (the “Stock
Pledge”), shall continue to secure all Obligations, including this Note and the
Prior Notes. The Holder does not in any way waive the Borrowers’ obligations to
comply with any of the provisions, covenants and terms of the Loan Agreement and
the other Transaction Documents, nor does the Holder waive any other right the
Holder may have at law or in equity. The Holder and the Borrowers agree it is
their intention that nothing herein shall be construed to extinguish, release or
discharge or constitute, create or effect a novation of, or an agreement to
extinguish, any of the obligations, indebtedness and liabilities of the
Borrowers or any other party existing prior to the date hereof under the
provisions of the Loan Agreement or any of the other Transaction Documents. Any
assignment or pledge to the Holder or the Agent of, or any security interest or
lien granted to the Holder or the Agent in or on, any collateral and security
for such obligations, indebtedness and liabilities of the Borrower to the Holder
are hereby ratified and confirmed. Without limiting the generality of the
foregoing, it is understood and agreed that all extensions of credit made by the
Holder to the Borrowers or to any affiliate thereof on or prior to the date
hereof are not amended hereby, continue in full force and effect, and shall be
secured and cross collateralized by all Collateral pledged to the Holder or the
Agent, or to be pledged to the Holder or the Agent, for any and all obligations
of each and every Borrower and their respective affiliates.

 

 

[Signature on following page]

 

14

 

 

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Exhibit 10.02

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by the proper and duly authorized officers as of the date and year
first above written.

 

 

 

 

 

NATURALNANO, INC.

 

 

 

 

By:  

/s/Kent A. Tapper

 

Name: Kent A. Tapper

 

Title: CFO

 

 

 

 

 

NATURALNANO RESEARCH, INC.

 

 

 

 

By:  

/s/Kent A. Tapper

 

Name: Kent A. Tapper

 

Title: Assistant Secretary

 

 

 

 

 

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