Exhibit 10.1

SEPARATION AGREEMENT AND MUTUAL RELEASE
 
This Separation Agreement and Mutual Release (this “Agreement”) is made as of
the 31st day of October 2006 by and between NaturalNano, Inc. (the “Company”)
and Michael D. Riedlinger (the “Executive”). In consideration of the covenants
and undertakings set forth in this Agreement, the Company and the Executive,
intending to be legally bound, covenant and agree as follows:
 
I.    Resignation.

The Executive hereby tenders his resignation as President of the Company and as
a member of the Company’s Board of Directors, effective immediately. The Company
and the Board of Directors hereby accept such resignation by the Executive,
effective immediately. As a result, the employment of the Executive with the
Company will cease effective as of the date hereof, although the Executive will
remain on the payroll through October 31, 2006.

II.    Compensation and Benefits.

A.    Severance Payments. The Company will provide the Executive with severance
pay in the amount of forty-seven thousand five hundred dollars ($47,500.00),
subject to required state and federal withholding. Such amount shall be paid in
twelve (12) equal bi-weekly installments of three thousand nine hundred
fifty-eight dollars and thirty-three cents ($3,958.33), less applicable state
and federal withholding, in accordance with the Company’s customary payroll
practices, with the first installment commencing November 15, 2006. During the
time that Executive is receiving the aforementioned severance payments, the
Executive shall use his commercially reasonable efforts to assist the Company in
the transition to its new President and in the completion of the additional
duties set forth on Exhibit A (the “Additional Duties”), attached hereto.

B.    Health Care Benefits. The Company shall continue medical and dental
insurance coverage for the Executive until the earlier of (i) April 30, 2007 or
(ii) such time as the Executive secures employment which provides health
insurance coverage substantially equivalent to that provided by the Company on
the date hereof. The medical and dental coverage provided by the Company to the
Executive hereby shall be consistent in all material respects to the coverage
provided to him while an employee of the Company.
 
C.    Stock Options. The Executive may exercise all options vested as of the
date hereof, in accordance with the terms of that certain Non-Qualified Stock
Option Award Agreement with a grant date of March 1, 2005 (the “Award
Agreement”) and of the NaturalNano, Inc. 2005 Incentive Stock Plan (the “Plan”).
The Company agrees and acknowledges that options to purchase 2,000,000 shares of
the Company’s Common Stock at an exercise price of $0.05 per share (post-split),
which options were granted by the Company to the Executive pursuant to the Award
Agreement have become fully vested and are presently exercisable by the
Executive. The Company agrees and acknowledges that such options may be
exercised by the Executive at any time through March 1, 2015, that being the
Expiration Date as set forth in the Award Agreement, and shall have such other
benefits as provided in, and shall be subject to the terms and conditions of,
the Plan. No additional options will vest subsequent to the date hereof.

 
 

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

 
 
D.    Other Employee Benefit Plans. This Agreement shall not affect the amount
of the Executive’s vested benefits under the employee benefit plans in which he
participates (the ”Vested Benefits”). The parties also acknowledge that after
the date hereof, the Executive is not eligible to participate in the Company’s
benefit plans except as specifically set forth in this Agreement.

E.    Payment of Employment Related Expenses. During the Executive’s employment
and prior to the date hereof, the Executive incurred certain reimburseable
expenses, including but not limited to travel expenses. The Company shall
reimburse the Executive for such expenses which were incurred by him on or
before the date hereof, upon presentation by the Executive to the Company of
reasonably satisfactory statements and invoices, and subject to the Company’s
normal approval process for reimbursement of expenses.

F.    Other Payments. Except for the Executive’s final paycheck for his services
up to October 31, 2006, except for any earned but unused vacation pay, and
except as is specifically provided herein, the Executive agrees that he has
received all salary, benefits, bonuses, vacation and sick pay, and all other
wages and benefits to which he was entitled from the Company, and he waives and
releases any claim that he has not received the foregoing payments or benefits.
 
G.    The Executive acknowledges and agrees that the payments and insurance
coverage set forth in Section II (A-F) above, exceed any and all obligations of
the Company with respect to the Executive’s employment, and the termination of
his employment with Company, and constitutes sufficient consideration for the
release of claims set forth in Section III below.

H.    The Executive further agrees that he will not, at any time after the date
hereof, make any remarks or comments, orally or in writing, to any person or
entity which or who have, or could reasonably be anticipated to have, business
dealings with the Company, which remarks or comments reasonably could be
construed to be derogatory or disparaging the Company or any of its 5% or
greater shareholders known to the Executive, officers, directors, employees,
attorneys or agents, or which reasonably could be anticipated to be damaging or
injurious to the Company’s reputation or good will or to the reputation or good
will of any person associated with the Company. The Company further agrees that
neither it nor any of its officers, directors, employees, attorneys or agents or
anyone acting under the direction of or with express authority from the Company
will, at any time after the date hereof, make any remarks or comments, orally or
in writing, to any person or entity which or who have, or could reasonably be
anticipated to have, business dealings with the Executive, which remarks or
comments reasonably could be construed to be derogatory or disparaging the
Executive or any entity with which he may become affiliated, or which reasonably
could be anticipated to be damaging or injurious to the Executive’s reputation
or to the reputation or good will of any person associated with the Executive.

III.    Mutual General Release.

A.    In consideration of the undertakings and obligations of the parties, as
set forth herein, and except for those obligations arising out of this
Agreement, the parties hereto, for themselves and for their respective officers,
directors, shareholders, heirs, executors, administrators, successors and
assigns, as the case may be, each hereby covenant not to sue and fully release
the other party, and its and his past and present parents, subsidiaries and
affiliates, and its past and present directors, shareholders, officers, agents,
representatives, employees, successors and assigns, as the case may be
(hereinafter collectively referred to as “releasees”), jointly and individually,
from any and all actions, causes of action, obligations, liabilities, judgments,
suits, debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, extents, executions, claims and demands whatsoever, in law,
admiralty or equity, whether liquidated or unliquidated, contingent or
otherwise, whether specifically mentioned or not, which against the releasees,
the releasing party ever had, now has or hereafter can, shall or may have, for,
upon or by reason of any matter, cause or thing whatsoever from the beginning of
the world to the date of execution of this Agreement;
 
 
 

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

 
 
B.    The Executive acknowledges that this Release covers, without limitation,
any claims arising out of or connected in any way with his employment with the
Company or the termination of that employment, including any claims of
discrimination on the basis of sex, disability, race, color, national origin,
ancestry, age (including, without limitation, any right or claims under the
federal law known as the Age Discrimination in Employment Act 29 U.S.C. §621, et
seq.), creed, handicap, citizenship, ethnic characteristics, sexual or
affectional preference or marital status and also includes, no matter how
denominated or described, any claims of discrimination under any federal, state
or local law, rule, regulation or executive order, and any claims of wrongful
discharge or termination, breach of contract, written or oral, express or
implied, breach of promise, public policy, retaliation, defamation, impairment
of economic opportunity, loss of business opportunity, fraud, misrepresentation,
or other tort, perceived disability, history of disability, unpaid compensation
(including, but not limited to, salary, wages, benefits, bonuses, severance pay,
vacation pay and sick leave or personal leave pay) and any claims now known to
the Executive arising under the Employee Retirement Income Security act of 1974;

C.    Each party hereto further acknowledges and agrees that this release
extends to all claims of every kind and nature whatsoever, known or unknown,
suspected or unsuspected, and each party acknowledges that it or he, as the case
may be, may hereafter discover facts in addition to or different from those
which it or he, as the case may be, knows or believes to be true with respect to
the subject matter of this mutual general release, but that it is each parties
respective intention to fully and finally settle and release hereby, without
limitation, all such matters as well and, in furtherance of that intention, the
foregoing release shall be and remain in effect as a full and complete release
notwithstanding the discovery or existence of such additional or different
facts.

IV.    Confidential Information, Invention and Non-Competition Agreement. 

The Executive acknowledges that during the course of his employment with the
Company he had access to and possession of valuable confidential, proprietary
and trade secret information. The Executive further acknowledges and agrees that
during his employment he was bound by, and following the effective date of his
resignation he will continue to be bound by, the Confidential Information,
Invention and Non-Competition Agreement, dated January 1, 2005 (the
“Confidentiality Agreement”), for the duration and to the extent provided
therein. In consideration of the obligations undertaken by the Company pursuant
to this Agreement, the Confidentiality Agreement is incorporated herein by
reference and made a part hereof. To the extent that there is any inconsistency
between this Agreement and the Confidentiality Agreement, the terms of this
Agreement shall govern.

V.    Insider Trading Policy.

The Executive agrees to continue to abide by the Company’s Insider Trading
Policy in effect on the date hereof, for a period of six (6) months from the
date hereof.

 
 

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

 
 
VI.    Other Terms of the Agreement.

A.    The Executive agrees that he will use his reasonable efforts to make
himself available to provide information within his knowledge to the Company and
its representatives to the extent such information is necessary for the Company
to defend itself in any pending or future litigation, and to testify as
necessary in such litigation; provided, however, that the Company shall
compensate the Executive for any costs reasonably incurred by him in connection
with his compliance with this Section VI(A).

B.    Nothing contained in this Agreement, nor its execution by the Company,
shall be considered or deemed to be an admission by either party, or in the case
of the Company, any of its affiliates, of any wrongdoing or any violation or
breach of any federal, state or municipal law, statute, ordinance, rule,
regulation or order.

C.    The Executive and the Company represent and acknowledge that in executing
this Agreement they are not relying, and have not relied, upon any
representation or statement by either party, their agents, representatives, or
attorneys not set forth herein, and that this Agreement constitutes the entire
agreement between the parties. Any oral or written representations, prior
agreements, or understandings not reflected in this Agreement, including without
limitation, the employment letter agreement dated January 3, 2005 and Amendment
No. 1 thereto dated September 20, 2005, shall have no force or effect and are
superseded by this Agreement, except that each of the Confidentiality Agreement,
the Award Agreement and the Vested Benefits shall remain in full force and
effect as set forth in Sections II and III of this Agreement.

D.    This Agreement shall at all times be construed and governed in accordance
with the laws of the State of New York. It may not be changed orally. This
Agreement may be executed simultaneously in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Any dispute hereunder shall be subject to the jurisdiction
and venue of the courts located in Monroe County, New York.

E.    If any provision of this Agreement is found by a court of competent
jurisdiction to be void or unenforceable, then such provision shall be severed
from the Agreement and all other provisions of this Agreement shall remain in
full force and effect.

F.    No promises or agreements modifying the terms of this Agreement shall be
binding unless in writing and signed by the Executive and the Company with
specific reference to this Agreement.

G.    By signing this Agreement, the Executive acknowledges and agrees that:

 
(1.)
He has been afforded a reasonable and sufficient period of time to review of
this Agreement, for deliberation thereon and for negotiation of the terms
thereof;

 
(2.)
That he has been specifically urged by the Company in writing to consult with
legal counsel of his choice before signing this Agreement and that he has been
represented be counsel of his choice in the negotiation of this Agreement;

 
 
 

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

 
 

 
(3.)
He has carefully read and understands the terms of this Agreement;

 
(4.)
He has signed this Agreement freely and voluntarily and without duress or
coercion and with full knowledge and understanding of its significance and
consequences and of the rights relinquished, surrendered, released and
discharged hereunder; and

 
(5.)
The only consideration for signing this Agreement are the terms stated herein
and no other promise, agreement or representation of any kind has been made to
him by any person or entity whatsoever to cause him to sign this Agreement.

 
 

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

 

In witness whereof, the parties have executed this Agreement as of the date
first above written.
 

              /s/ Michael D. Riedlinger    

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

Michael D. Riedlinger
STATE OF NEW YORK    )
COUNTY OF MONROE    ) ss:
     

 
On October 31, 2006, before me came Michael D. Riedlinger to me personally known
and known to me to be the same person described herein and who executed the
foregoing Instrument, and he duly acknowledged to me that he executed the same.
 

        /s/ Mary Ellen O’Dell Schantz      

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

Notary Public            
Mary Ellen O’Dell Schantz
Notary Public, State of New York
Qualified in Monroe County
Commission Expires Sept. 16, 2010
     

 

        NATURALNANO, INC.  
   
   
    By:   /s/ Kathleen A. Browne  

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

Kathleen A. Browne   Chief Financial Officer

STATE OF NEW YORK    )
COUNTY OF MONROE    ) ss:
 
On October 31, 2006, before me came Kathleen A. Browne, to me personally known
and known to me to be the same person described herein and who executed the
foregoing Instrument, and he duly acknowledged to me that he executed the same.
 

        /s/ Paul M. LeFrois, Jr.      

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

Notary Public            
Paul M. LeFrois, Jr.
Notary Public, State of New York, New York
Monroe County No. 01LE5019379
Commission Expires 10/19/2009
     

 
 
 

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

 

EXHIBIT A

ADDITIONAL DUTIES
 

1.
Coordinate with the Company’s officers and directors regarding the orderly
transfer of information and relationships with various parties.

2.
Transition of all Company files and all equipment to its main office in
Rochester, New York, including, but not limited to: computer hard drive,
computer files, discs, paper files, correspondence (internal and external),
presentations, planning documents, equipment, contacts (lists, identification,
relationship and contact information) and software. The Company will allow the
Executive to keep his laptop after transfer of files.

3.
Document outstanding items and actions initiated.

4.
Coordinate transfer of all external material contacts, discussions and
negotiations initiated or in progress with external parties

5.
Coordinate transfer of all intellectual property related materials,
documentation and work in progress.

 
 

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