Exhibit
      4.1

    


    LOAN
      AND SECURITY AGREEMENT

    


    THIS
      AGREEMENT made as of March 7, 2007 by and among the investors listed on Schedule
      1 to this Agreement (collectively, the “Investors,”
and
      each, individually, a “Investor”),
      Platinum Advisors LLC, a limited liability company, as agent for the Investors
      (the “Agent”)
      and
      NaturalNano, Inc., a Nevada corporation with its chief executive office,
      principal place of business and mailing address at 15 Schoen Place, Pittsford,
      New York 14534-2025
      (“NaturalNano”),
      and
      NaturalNano Research, Inc., a Delaware corporation (“NN
      Research”
and,
      together with NaturalNano, the “Borrower”).
      The
      obligations of NaturalNano and NN Research shall be joint and
      several.

    


    Section
      1. DEFINITIONS.
      As used
      herein:

     

    1.1. 4.99%
      Limitation
      has the
      meaning set forth in Section 2.4 of this Agreement.

     

    1.2. Accounting
      Terms. All accounting terms not specifically defined
      herein shall be construed in accordance with generally accepted accounting
      principles in the United States and all financial data submitted pursuant to
      this Agreement shall be prepared in accordance with such
      principles.

     

    1.3. Accounts means
      “Accounts” as defined in the Uniform Commercial Code.

     

    1.4. Additional
      Collateral
      means
      (a) all “Securities Entitlements,” “Investment Property,”
      “Financial Assets,” “Commercial Tort Claims” and “Documents” as those terms are
      defined in the Uniform Commercial Code as of the date hereof, whether now
      existing or hereafter acquired or arising, (b) all securities, bills of lading,
      dock warrants, dock receipts, warehouse receipts or orders for the delivery
      of
      goods, and any other documents which in the regular course of business or
      financing are treated as adequately evidencing that the persons in possession
      of
      them are entitled to receive, hold, and dispose of the goods they cover; (c)
      all
      motor vehicles, whether now owned or hereafter acquired by the Borrower, and
      all
      accessions and additions thereto, replacements therefor, and substitutions
      therefor; (d) all “General Intangibles” as that term is defined in the Uniform
      Commercial Code as of the date hereof, whether now owned or hereafter acquired,
      including, without limitation, Payment Intangibles and Software (as those terms
      are defined in the Uniform Commercial Code), all choses in action, causes of
      action, and all other intangible personal property of the Borrower, including,
      without limitation, corporate or other business records, inventions, designs,
      patents, patent applications, trademarks, servicemarks, tradenames, trade
      secrets, goodwill, copyrights, registrations, licenses, franchises, customer
      lists, tax refund claims, credit files, computer programs, printouts and other
      computer materials and records, guaranty claims, security interests or other
      property held by or granted to Borrower to secure payment of any obligation
      of
      any obligor of Borrower and any and all of the rights of Borrower of whatever
      nature under any and all contracts, agreements, or leases (whether of real
      or
      personal property) to which the Borrower is or may become a party, including
      without limitation all of the rights of Borrower to enforce all of the
      provisions of, and to obtain payments or other performance due under, all
      contracts, agreements, or leases; (e) all of Borrower’s rights (including rights
      as licensee and lessee) with respect to all patents, trademarks, copyrights
      and
      other intellectual property rights, know-how, technology, computer hardware
      and
      software and all rights with respect thereto including, any and all licenses,
      options, warranties, service contracts, program services, test rights,
      maintenance rights, support rights, improvement rights, renewal rights and
      indemnifications, and any substitutions, replacements, additions or model
      conversions of any of the foregoing, and further including (i) computer and
      other electronic data processing hardware, including all integrated computer
      systems, central processing units, memory units, display terminals, printers,
      computer elements, card readers, tape drives, hard and soft disk drives, cables,
      electrical supply hardware, generators, power equalizers, accessories,
      peripheral devices and other related computer hardware, (ii) all Software and
      all software programs designed for use on the computers and electronic data
      processing hardware described in clause (i) above, including all operating
      system software, utilities and application programs in any form (source code
      and
      object code in magnetic tape, disk or hard copy format or any other listings
      whatsoever (iii) any firmware associated with any of the foregoing; and (iv)
      any
      documentation for hardware, Software and firmware described in clauses (i),
      (ii)
      and (iii) above, including flow charts, logic diagrams, manuals, specifications,
      training materials, charts and pseudo codes, and (f) all monies, securities
      and
      other property of the Borrower, and the proceeds thereof, now or hereafter
      held
      or received by or in transit to the Investor whether for safekeeping, custody,
      pledge, transmission, collection or otherwise, and also in and to any and all
      deposits, general or special, and credits of the Borrower with, and any and
      all
      claims of the Borrower against, the Bank now or at any time hereafter
      existing.


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    1.5. Additional
      Definitions.
      Unless
      otherwise specifically defined herein, all terms used in this Agreement and
      in
      all documents referred to herein and which have been defined in Articles 1,
      2 or
      9 of the Uniform Commercial Code, shall be interpreted and construed in light
      of
      the sections, the definitions, the “official comment,” and the definitional and
      substantive cross-references of the Uniform Commercial Code.

     

    1.6. Affiliate
      means,
      with respect to any Person (the subject Person), a Person: (a) which directly
      or
      indirectly Controls, or is Controlled by, or is under common Control with,
      the
      subject Person; (2) which directly or indirectly beneficially owns or holds
      a
      majority of the outstanding shares of any class of voting stock of the subject
      Person; or (3) a majority of the outstanding shares of any class of the voting
      stock of which is directly or indirectly beneficially owned or held by the
      subject Person.

     

    1.7. Agent’s
      Warrants
      shall
      have the meaning set forth in Section 7.18.

     

    1.8. Agreement
      means
      this Loan and Security Agreement, as the same may hereafter be supplemented,
      modi-fied or amended.

     

    1.9. Business
      Day
      means
      with respect to any date that is specified in this Agreement, a day other than
      a
      Saturday or Sunday or other day on which commercial banks in the City of New
      York are required or permitted to be closed during all or part of normal banking
      hours. Any payment which is due on a date which is not a Business Day shall
      be
      payable on the next day which is a Business Day.

     

    1.10. Closing
      Date
      means
      the on which the Borrower issues the Notes and Warrants and receives the
      proceeds from the sale thereof.


    
      
        
        

      

      
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    1.11. Collateral means
      all
      of Borrower’s personal property, now owned or hereafter acquired, including
      without limitation all Accounts, Letter-of-Credit Rights, Supporting
      Obligations, Electronic Chattel Paper, Tangible Chattel Paper and Instruments,
      as these terms are defined in the Uniform Commercial Code, together with all
      Inventory, Equipment, Patents,
      Trademarks and Additional Collateral and all products and proceeds of the
      foregoing including, without limitation, proceeds of any insurance policies
      insuring any of the foregoing, all as more particularly described on
Schedule
      1.10
      to the
      Disclosure Schedule.

     

    1.12. The
      Commission
      means
      the
      United States Securities and Exchange Commission.

     

    1.13. Common
      Stock
      means
      shares of the NaturalNano’s common stock, par value $.001 per
      share.

     

    1.14. Control
      means
      the possession, directly or indirectly, of the power to direct or cause the
      direction of the management and policies of a Person, whether through the
      ownership of voting securities, by contract, or otherwise.

     

    1.15. Disclosure
      Schedule
      shall
      have the meaning set forth in the introductory paragraph of Section 4 of this
      Agreement.

     

    1.16. Equipment means
      all
      Equipment, as that term is defined in the Uniform Commercial Code as of the
      date
      hereof, of Borrower, whether now owned or hereafter acquired, and including,
      without limitation, machinery, furniture, furnishings, and fixtures, and any
      and
      all goods used or bought for use in or being used or for use in the conduct
      of
      Borrower’s business and all goods used or bought for use in Borrower’s business
      which are not included within the definition of Inventory, and all accessions
      and additions thereto, replacements therefor, and substitutions therefor,
      supplies and motor vehicles, now owned and hereafter acquired, present and
      future, by the Borrower of whatsoever name, nature, kind or description,
      wherever located, and all additions and accessions thereto and replacements
      or
      substitutions therefor, and all pro-ceeds thereof and all proceeds of any
      insurance thereon.

     

    1.17. Escrow
      Agreement
      means
      the escrow agreement among the Borrower, the Investors, the Agent and Sichenzia
      Ross Friedman Ference LLP, as escrow agent.

     

    1.18. The
      Exchange
      Act
      means
      the Securities Exchange Act of 1934, as amended.

     

    1.19. Exempt
      Issuance
      means
the
      issuance of (a) shares of Common Stock or options to employees, officers,
      directors of
      and
      consultants (other than consultants whose services relate to the raising of
      funds)
      the
      Borrower pursuant to the NaturalNano’s outstanding stock option or long-term
      incentive plans or as otherwise provided in Section 6.10 of this Agreement,
      (b)
      securities upon the exercise or conversion of the Securities issued hereunder,
      in payment of principal or interest on the Notes, and pursuant to the
      Registration Rights Agreement, (c) any other options, warrants or convertible
      securities which are outstanding on the Closing Date after completion of the
      Closing and set forth in Schedule 4.3.1 to the Disclosure Schedule, (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 is beneficial to
      the
      Borrower and in which the Borrower receives benefits in addition to the
      investment of funds, but shall not include a transaction in which NaturalNano
      is
      issuing securities primarily for the purpose of raising capital or to an entity
      whose primary business is investing in securities. For purposes of the
      parenthetical clause in clause (a), an investor relations firm that is not
      involved in fund raising is not deemed to be consultant whose services are
      related to the raising of funds.


    
      
        
        

      

      
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    1.20. Governmental
      Entity
      means a
      court, arbitral tribunal, administrative agency or commission or other
      governmental or other regulatory authority or agency.

     

    1.21. Inventory
      means
      all “Inventory” as that term is defined in the Uniform Commercial Code as of the
      date hereof, including, without limitation, any and all goods, merchandise
      or
      other personal property, wherever located and whether or not in transit, now
      owned or hereafter acquired by the Borrower, which is or may at any time be
      held
      for sale or lease, or furnished or to be furnished under any contract of service
      or held as raw materials, work in process, supplies or materials used or
      consumed in the Borrower’s business, and all such property the sale or other
      disposition of which has given rise to Accounts, Chattel Paper, Documents,
      or
      Instruments and which has been returned to or repossessed or stopped in transit
      by the Borrower.

     

    1.22. Knowledge
      means
      the actual knowledge of any officer or director of Borrower or such knowledge
      which the chief executive officer, chief financial officer and chief technical
      officer would have in the diligent conduct of the Borrower’s
      business.

     

    1.23. Material
      Adverse Change
      means
      any adverse change in the business, operations, properties, including Patents,
      Trademarks and other intellectual property rights, or financial condition or
      prospects of Borrower.

     

    1.24. Material
      Adverse Effect
      means
      any adverse effect on the business, operations, properties, including Patents,
      Trademarks and other intellectual property rights, or financial condition or
      prospects of Borrower that is material and adverse to Borrower and its
      subsidiaries and affiliates, taken as a whole and/or any condition,
      circumstance, or situation that would prohibit or otherwise materially interfere
      with the ability of Borrower to perform any of its material obligations under
      this Agreement, the Note, the Supplemental Agreements, or the Registration
      Rights Agreement or to perform its obligations under any other material
      agreement to which Borrower is a party.

     

    1.25. Notes
      mean,
      collectively, the Borrower’s 8% Senior Secured Convertible Notes as defined in
      Section 2 of this Agreement, in the aggregate principal amount of $3,347,500.
      The Notes shall be in substantially the form of Exhibit A to this
      Agreement.

     

    1.26. Obligations
      mean all
      loans, advances, debts, liabili-ties, obligations, covenants and duties owing
      by
      the Bor-rower to the Investors and/or the Agent of every kind and description
      (whether or not evidenced by any note or other instrument and whether or not
      for
      the payment of money), direct or in-direct, absolute or contingent, due or
      to
      become due, now existing or hereafter arising, whether or not such obliga-tions
      are related to the transaction described in this Agreement and the Transaction
      Documents, by class, or kind, or whether or not contem-plated by the parties
      at
      the time of the granting of this security interest, including without
      limitation, all interest, fees, charges, expenses and attorneys’ fees chargeable
      to the Borrower or incurred by the Investors or the Agent in connection with
      the
      Notes and the transactions contemplated by the Transaction Documents or
      otherwise.

     

    
      
        
        

      

      
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    1.27. Patents
      mean all
      of the Borrower’s right, title and interest, present and future, in and to (a)
      all letters patent of the United States or any other country, all right, title
      and interest therein and thereto, and all registrations and recordings thereof,
      including without limitation applications, registrations and recordings in
      the
      United States Patent and Trademark Office or in any similar office or agency
      of
      the United States and State thereof or any other country or any political
      subdivision thereof, all whether now owned or hereafter acquired by the
      Borrower; and (b) all reissues, continuations, continuations-in-part or
      extensions thereof and all li-censes thereof; and all proceeds of the foregoing
      and all proceeds of any insurance on the foregoing.

     

    1.28. Person
      means an
      individual, partnership, corporation, business trust, joint stock Borrower,
      trust, unincorporated association, joint venture, governmental authority,
      limited liability Borrower, or other entity of whatever nature.

     

    1.29. Pledge
      Agreement
      means
      the agreement between the Investors, the Agent and NaturalNano pursuant to
      which
      it pledges the stock of NN Research. The Pledge Agreement shall be in
      substantially the form of Exhibit B to this Agreement.

     

    1.30. Purchase
      Price
      means
      the purchase price for the Notes and Warrants, which is $3,250,000.

     

    1.31. Registration
      Rights Agreement
      means
      the registration rights agreement among NaturalNano and the Investors. The
      Registration Rights Agreement shall be in substantially the form of Exhibit
      C to
      this Agreement.

     

    1.32. Requisite
      Investors
      means
      holders of Notes representing, in the aggregate, a majority of then-outstanding
      principal amount of the Notes.

     

    1.33. The
      Securities
      Act
      means
      the Securities Act of 1933, as amended.

     

    1.34. Subsidiary
      means
      any Person which is either (a) controlled by the Borrower or (b) in which the
      Borrower and its other Subsidiaries own at least 40% of the equity or have
      at
      least 40% of the voting power.

     

    1.35. Supplemental
      Agreements
      mean any
      and all agreements, instruments, documents, security agreements, mortgages,
      financing statements, and supplements thereto granting or intending to grant
      to
      the Investor any lien, security inter-est, pledge, assignment or indemnification
      to secure the Obligations, or entered into between the Borrower in favor of,
      or
      with, and the Investor, at any time, for any purpose including, without
      limitation, this Agreement and the Note.

     

    1.36. Securities
      means
      the Notes and Warrants.

     

    1.37. TI
      means
      Technology Innovations, Inc.

     

    
      
        
        

      

      
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    1.38. TI
      Patents
      means
      the patents and patent applications relating to all intellectual property rights
      that are owned by TI and are licensed to NaturalNano or NN Research or are
      otherwise usable in their respective businesses.

     

    1.39. Trademarks
      mean all
      of the Borrower’s right, title and interest, present and future, in and to (a)
      all trademarks, trade names, trade styles, service marks, prints and labels
      on
      which said trademarks, trade names, trade styles and service marks have appeared
      or appear, designs and general intangibles of like nature, now existing or
      hereafter adopted or acquired, all right, title and interest therein and
      thereto, and all registrations and recordings thereof, including without
      limitation applications, registrations and recordings in the United States
      Patent and Trademark Office or in any similar office or agency of the United
      States, any State thereof, or any other country or any political subdivision
      thereof, all whether now owned or hereafter acquired by the Borrower; (b) all
      reissues, ex-tensions or renewals thereof and all licenses thereof; and (c)
      the
      goodwill of the business symbolized by each of the Trademarks, and all customer
      lists and other records of the Borrower relating to the distribution of products
      bearing the Trademarks; and all proceeds of the foregoing and all proceeds
      of
      any insurance on the foregoing.

     

    1.40. Transaction
      Documents
      means
      this Agreement, the Securities, the Registration Rights Agreement, the Escrow
      Agreement, the Pledge Agreement and the other Supplemental Agreements, the
      UCC-1
      financing statements, the collateral assignment of Patents and Trademarks or
      other instrument relating to the perfection of a security interest in Patents
      and Trademarks, and all other instruments, documents, certificates and
      agreements executed in connection with the transactions contemplated by this
      Agreement.

     

    1.41. Warrants
      mean the
      common stock purchase warrants issued by NaturalNano on the Closing Date to
      the
      Investors pursuant to Section 2 of this Agreement. The Warrants shall be in
      substantially the form of Exhibits D-1 and D-2 to this Agreement.

     

    Section
      2. ISSUANCE
      OF SECURITIES.

     

    2.1. Issuance
      of Securities.
      Upon
      the
      terms and subject to the conditions set forth in this Agreement, and in
      accordance with applicable law, the Borrower agrees to sell to the Investors,
      and the Investors agrees to purchase from the Borrower, on the Closing Date
      (i)
      Notes in the principal amount of $3,347,500 and (ii) Warrants to purchase a
      total of 22,823,866 shares of Common Stock, of which Warrants to purchase
      11,411,933 shares of Common Stock will have an exercise price of $.22 per share,
      and Warrants to purchase 11,411,933 shares of Common Stock will have an exercise
      price of $.33 per share. On the Closing Date, the Borrower shall issue to the
      Agent, the Agent’s Warrants pursuant to Section 7.18 of this
      Agreement.

     

    2.2. Payment
      of Purchase Price.
      The
      Purchase Price shall be paid by the Investors to the Borrower on the Closing
      Date by a wire transfer or check in the amount of the Purchase Price into escrow
      to be held by the escrow agent pursuant to the terms of the Escrow
      Agreement.

     

    2.3. Delivery
      of Securities.
      Borrower shall
      cause the Notes and Warrants to be issued to the Investors upon the release
      of
      the Purchase Price to the Borrower by the escrow agent pursuant to the terms
      of
      the Escrow Agreement.

     

    
      
        
        

      

      
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    2.4. Limitation
      on Right to Convert or Exercise Securities.
      Notwithstanding any other provision of this Agreement, except as expressly
      provided in the Note or the Warrants, no Investor or other holder of any Note
      or
      Warrant shall be entitled to convert the Note into
      shares of Common Stock or to exercise the Warrant to the extent that such
      conversion or exercise would result in beneficial ownership by the Investor
      or
      other holder and its Affiliates 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 is referred to as the “4.99%
      Limitation.”

     

    Section
      3. COLLATERAL
      AND SECURITY INTEREST.

     

    3.1. Security
      Interest.
      As
      security for payment and performance of the Obligations, the Borrower hereby
      assigns and grants to the Investors and the Agent a continuing security interest
      in the Collateral. The Investor shall retain its security interest in all
      Collateral, eligible and ineligible, until all Obligations have been fully
      satisfied. In the event that, for any reason after payment and satisfaction
      of
      all Obligations in full, the Investors or any Investor shall be required to
      return to the Borrower any amounts received by them or it in respect of the
      Obligations, the Borrower shall remain liable for the amount paid over to
      Borrower, and such amount, together with interest at the default rate of
      interest provided in the Notes, shall remain as an Obligation and the security
      interest shall reattach to the Collateral.

     

    3.2. Collection
      of Accounts.
      Upon an
      Event of Default, the Agent, on behalf of the Investors, or its designee may
      notify customers or account debtors that Accounts have been assigned to the
      Investor or of the Investor’s security interest therein and collect them
      directly. All such payments will be placed by the Agent into a cash collateral
      account and, until paid to the Investors pursuant to this Agreement, shall
      be
      held by the Agent as collateral for payment and/or performance of the Borrower’s
      Obligations to the Investors.

     

    3.3. Returns
      and Credits.
      Any
      merchandise which is returned by an account debtor or otherwise recovered shall
      remain part of the Investors’ security. The Borrower shall notify the Investor
      promptly of all returns and re-coveries and, upon an Event of Default, deliver
      at Agent’s request, the merchandise to the Agent. The Borrower shall also notify
      the Agent promptly of all disputes and claims and settle or adjust them at
      no
      expense to the Agent or the Investors, but no discount, credit or allowance
      (other than in the ordinary course of the Borrower’s busi-ness) shall be granted
      to any customer or account debtor, and no returns of merchandise (other than
      in
      the ordinary course of the Borrower’s business) shall be accepted by the
      Borrower without the consent of the Agent. The Agent may, after an Event of
      Default, settle or adjust disputes and claims directly with customers or account
      debtors for amounts and upon terms which the Agent considers advisable, and
      in
      all cases the Agent, on behalf of the Investors, will credit the Borrower’s
      account with only the net amounts received by the Agent in payment of
      Accounts.

     

    3.4. Further
      Assurance.
      Upon
      the reasonable request of the Agent or any Investor, the Borrower shall perform
      all other steps reasonably requested by the Agent or the Investor to create
      and
      maintain in the Investor’s favor a valid first priority security interest,
      assignment or lien in, of or on all Accounts and all other security held by
      or
      for the Investor.

     

    
      
        
        

      

      
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    3.5. Power
      of Attorney.
      The
      Borrower appoints the Agent, or any person whom the Agent may designate, as
      its
      attorney, with power, after an Event of Default: to endorse the Borrower’s name
      on any checks, notes, acceptances, money orders, drafts or other forms of
      payment or security that may come into any Investor’s or the Agent’s possession;
      to sign the Borrower’s name on any invoice or bill of lading relating to any
      Accounts, on notices of assignment, financing statements, and other public
      records, on verifi-cations of accounts and on notices to customers; to notify
      the post office authorities to change the address for de-livery of the
      Borrower’s mail to an address designated by the Agent; to send requests for
      verification of Accounts to customers or account debtors; and to do all things
      necessary to carry out this Agreement. The Borrower ratifies and approves all
      acts of the attorney. Neither any Investor nor the Agent nor the attorney will
      be liable for any acts or omissions nor for any error of judgment or mistake
      of
      fact or law. This power, being coupled with an interest, is irrevocable so
      long
      as any Accounts assigned to the Investors or in which the Investors have a
      security interest remain unpaid or until the Obligations have been fully
      satisfied. The Agent, on behalf of the Investors, or the Investors may file
      one
      or more financing statement disclosing the Investors’ security interest without
      the Borrower’s signature appearing thereon.

     

    3.6. Possession
      of Collateral.
      Upon an
      Event of Default, the Agent, on behalf of the Investors, will have the right:
      (a) to take physical possession of the Collateral and to maintain such
      possession on the Borrower’s premises; and/or (b) to remove the Collateral or
      any part thereof to such other places as the Investor may desire; and/or (c)
      without removal, to render the Equipment unusable and to dispose of the
      Collateral on the Borrower’s premises. Upon an Event of Default, the Borrower
      shall, upon the Investor’s demand, assemble the Collateral and make it available
      to the Investor at a place reasonably convenient to the Investor.

     

    3.7. Location
      of Collateral.
      The
      Collateral is and will be owned by the Borrower, free of all other liens and
      encumbrances (except as set forth in Schedule
      3.7
      to the
      Disclosure Schedule), and shall be kept by the Borrower at those locations
      listed in Schedule
      3.7
      to the
      Disclosure Schedule and the Borrower will not (without the Investors’ prior
      written approval) remove the Collateral therefrom, except for the purposes
      of
      sale in the regular course of business.

     

    3.8. Limitation
      on Disposition of Collateral.
      The
      Borrower will not sell, exchange or otherwise dispose of the Collateral, other
      than Inventory in the ordinary course of business, or any part thereof, or
      any
      interest therein without the express written authorization of the Agent; in
      the
      event of the sale, exchange or other disposition of the Collateral or any part
      thereof or any interest therein (and no such sale, exchange or other disposition
      is hereby otherwise authorized or consented to), the security interest of the
      Investors shall nevertheless continue in said Collateral (including all
      proceeds, cash and non-cash) notwithstanding said sale, exchange or other
      disposition; all of said proceeds shall remain Collateral hereunder and shall
      be
      transferred and paid over to the Investor immediately following said sale,
      exchange or other disposition, and shall be applied at the option of the
      Investor to the payment of the Obligations; and the receipt by the Investor
      of
      all or any of said proceeds shall not be deemed or construed to be an
      authorization or consent of the Investor to such sale, exchange or other
      disposition of said Collateral. Any license of Borrower’s patents and other
      intellectual property rights with a non-affiliated party negotiated on an
      arms-length basis shall not be deemed a disposition of such patents or other
      intellectual property rights, it being understood and agreed that the Investors’
security interest shall attach to Borrower’s rights under such
      license.

     

    
      
        
        

      

      
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    3.9. Further
      Assurances Relating to Inventory.
      The
      Borrower shall perform any and all steps reasonably requested by the Investors
      or the Agent to perfect the Investors’ security interest in the Inventory, such
      as leasing warehouses to the Investors or the Investors’ designee, placing and
      maintaining signs, appointing custodians, executing and filing financing or
      continuation statements in form and substance satisfactory to the Investors
      or
      the Agent, maintaining stock records and transferring Inventory to warehouses.
      If any Inventory is in the possession or control of any of the Borrower’s agents
      or processors, the Borrower shall notify such agents or processors of the
      Investors’ security interest therein, and, upon request, instruct them to hold
      all such Inventory for the Investors’ account and subject to the instructions of
      the Investors or the Agent. A physical listing of all Inventory, wherever
      located, shall be taken by the Borrower whenever reasonably requested by the
      Agent, and a copy of each such physical listing shall be supplied to each
      Investor. The Investors and the Agent may examine and inspect the Inventory
      at
      any time during normal business hours upon reasonable prior notice.

     

    3.10. Further
      Assurances Relating to Intellectual Property Rights.
      The
      Borrower shall file such instruments and documents as shall be necessary to
      insure that any Patents and Trademarks which may be owned by Borrower or any
      Subsidiary are subject to the security interest granted by this Agreement.
      The
      Borrower shall not take any action which would have an adverse effect upon
      the
      ability of the Investors to maintain and enforce their security interest in
      license agreements for which Borrower is the licensee. 

     

    3.11. Discharge
      of Liens.
      The
      Investors may, at their option, discharge any taxes, liens, security interests
      or other encumbrances at any time levied or placed on the Collateral, and the
      Investors may pay insurance premiums or procure insurance and otherwise pay
      for
      the maintenance and preservation of the Collateral and the Borrower will
      reimburse the Investors on demand for any payment made or expense incurred
      by
      the Investor pursuant to the foregoing authority, with interest at the highest
      rate provided in this Agreement.

     

    3.12. Existence,
      Properties, Insurance.
      The
      Borrower will at all times maintain, preserve and protect all franchises,
      patents, and trade names and preserve all the remainder of its property used
      or
      useful in the conduct of its business and keep the same in good condition and
      repair (normal wear and tear and obsolescence excepted), and from time to time
      make, or cause to be made, all needful and proper repairs, renewals,
      replacements, betterments and improvements thereto, and will pay or cause to
      be
      paid, except when the same may be contested in good faith, all rent due on
      premises where any property is held or may be held, so that the business carried
      on in connection therewith may be continuously conducted. The Borrower will
      have
      and maintain insurance at all times with respect to all Collateral against
      risks
      of fire (including so-called extended coverage), theft and such risks as any
      Investor may require containing such terms, in such form, and for such periods,
      and written by such companies as may be satisfactory to the Investors, such
      insurance to be payable to the Investors and the Borrower as their interests
      may
      appear; each policy of liability insurance shall name each Investor and the
      Agent as an additional insured; each policy of property casualty and business
      interruption insurance shall have a loss payee endorsement
      providing:

     

    3.12.1. That
      loss
      or damage, if any under the policy, shall be payable to the Agent, as agent
      for
      the Investors, as mortgagee and/or secured party, as its interests may
      appear;

     

    
      
        
        

      

      
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    3.12.2. That
      the
      insurance as to the interest of the Investors shall not be invalidated by any
      act or neglect of the insured or owner of the property described in said policy,
      nor by any foreclosure, or other proceeding, nor by any change in the title
      of
      ownership of said property, nor by the occupation of the premises where the
      property is located for purposes more hazardous than are permitted by said
      policy;

     

    3.12.3. That,
      if
      the policy is canceled at any time by the insurance carrier, in such case the
      policy shall continue in force for the benefit of the Investors for not less
      than thirty (30) days after written notice of cancellation to the Investors
      from
      the insurance carrier; and

     

    3.12.4. That
      the
      policy will not be reduced or canceled at the request of the insured nor will
      said loss payee endorsement be amended or deleted without thirty (30) days’
prior written notice to the Investors from the insurance carrier.

     

    3.13. Certificate
      of Insurance.
      The
      Borrower will furnish the Investors and the Agent with certificates or other
      evidence satisfactory to the Investors of compliance with the foregoing
      insurance provisions, and upon an Event of Default the Agent may act as attorney
      for the Borrower in obtaining, adjusting, settling, and canceling such insurance
      and receiving and endorsing any drafts. The Borrower hereby assigns to the
      Investors any and all monies which may become due and payable under any policies
      of property casualty insurance insuring the Collateral and business interruption
      insurance, including return of unearned premiums, and hereby directs any
      insurance Borrower issuing any such policy to make payment directly to the
      Investors and authorizes the Agent, on behalf of the Investors, at its option:
      (a) to apply such monies in payment on account of any of the Obligations,
      whether or not due, and remit any surplus to the Borrower; or (b) to return
      said
      funds to the Borrower for the purpose of replacement of the Collateral. The
      Borrower will also at all times maintain necessary workmen’s compensation
      insurance and such other insurance as may be required by law or as may be
      reasonably required by the Investors.

     

    3.14. Setoff. Borrower
      hereby grants to the Investors a lien, security interest and a right of setoff
      as security for all of the Obligations, upon and against all deposits, credits,
      collateral and property, now or hereafter in the possession, custody,
      safekeeping or control of any Investor or the Agent or any entity under the
      control of Investor or the Agent , or in transit to any of them. At any time
      after the occurrence of an Event of Default, without demand or notice, Investors
      may set off the same or any part thereof and apply the same to any liability
      or
      obligation of Borrower even though unmatured and regardless of the adequacy
      of
      any other Collateral securing the Obligations. ANY
      AND ALL RIGHTS TO REQUIRE INVESTOR TO EXERCISE ITS RIGHTS OR REMEDIES WITH
      RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO
      EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER
      PROPERTY OF THE BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
      WAIVED.
      The
      Investors shall not be required to marshal any present or future security for,
      or guarantees of, the Obligations or to resort to any such security or guarantee
      in any particular order and the Borrower waives to the fullest extent that
      it
      lawfully can, (a) any right it might have to require the Investors to pursue
      any
      particular remedy before proceeding against the Investor and (b) any right
      to
      the benefit of, or to direct the application of the proceeds of any Collateral
      until the Obligations are paid in full.

     

    
      
        
        

      

      
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    3.15. Agreements
      of the Borrower with Respect to the Collateral.
      Borrower agrees as follows with respect to the Collateral:

     

    3.15.1. Subject
      to the provisions of this Section 3.15, as long as no event of default shall
      exist and be continuing, Borrower may receive and retain the proceeds of any
      Accounts, without any obligations to pay any such amounts to the Investors
      as a
      payment of Obligations, and the Investors shall have no right to contact or
      notify in any manner any Account Debtor directly; provided, however, that the
      Investors shall have the right to obtain verification of Accounts Receivable
      and
      may, through a third party designated by the Investors and reasonably acceptable
      to Borrower, communicate with Account Debtor to confirm the amount of the
      receivable, and the Borrower shall bear the cost of such verification. Borrower
      hereby agrees, at its own expense, to endeavor to collect, as and when due,
      all
      amounts due under the Accounts, including the taking of such action with respect
      to such collection as the Investors may reasonably request or, in the absence
      of
      such request, as Borrower shall deem advisable.

     

    3.15.2. Borrower
      shall establish a special account (the “Special Account”) at the Bank or at a
      New York City bank reasonably acceptable to the Investors, in which Borrower
      shall deposit or have deposited, in a manner and in accordance with a procedure
      acceptable to the Investors, as security for payment of the Obligations, all
      cash, checks, drafts, wire transfers and other instruments for the payment
      of
      money which may be received by Borrower at any time in full or partial payment
      or otherwise as proceeds of any of the Accounts. Such amounts or items which
      may
      be received by Borrower and any amounts or items deposited in the Special
      Account shall not be commingled with any other of Borrower’s funds or property,
      but will be held separate and apart from Borrower’s other funds and property.
      Except as provided in Section 3.15.3 of this Agreement, Borrower may administer
      the funds deposited in the Special Account and may withdraw and utilize such
      funds as required in the course of its business. Borrower shall provide the
      Investors and the Agent with the account number, branch, bank and bank officer
      in charge with respect to the Special Account and shall advise the Bank in
      writing that, upon receipt by the Bank of notice from the Investors or the
      Agent
      as contemplated by said Section 3.15.3, the Investors shall Lender, have the
      rights with respect to the Special Account as are set forth in said Section
      3.15.3.

     

    3.15.3. The
      Investors may, at any time when any Obligations are outstanding, if an Event
      of
      Default shall have occurred, require Borrower to give the Investors control
      of
      the Collateral.

     

    (a) The
      Investors’ control of the Accounts shall include, but not be limited to, the
      Investors’ right, at Borrower’s cost and expense, to (i) assume control, to the
      exclusion of Borrower, of the Special Account; (ii) to establish one or more
      lockbox accounts at one or more banks or trust companies designated by the
      Investors under which the Investors would exercise exclusive control over
      withdrawals from and charges against such accounts, to the exclusion of
      Borrower; (iii) to notify Account Debtor and instruct them to make all payments
      due Borrower to the lockbox account designated by the Investors, and (iv) to
      take such action as the Investors deem appropriate, including the institution
      of
      collection proceedings and litigation, against any delinquent Account Debtor,
      in
      Borrower’s name and/or Investors’ own names, as the Investors shall deem
      appropriate, and to sell any such Collateral as hereinafter
      provided.

     

    
      
        
        

      

      
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    (b) The
      Investors’ control of the Collateral other than Accounts shall include, but not
      be limited to, the Investors’ or the Agent’s right, at Borrower’s cost and
      expense, (i) to enter upon any premises on which any of the Collateral may
      be
      located and, without resistance or interference by Borrower, take possession
      of
      the Collateral, (ii) to dispose of any part or all of the Collateral on any
      premises of Borrower, as hereafter provided, and to dispose of any Collateral
      consisting of intellectual property, including Patents and Trademarks, in such
      manner as the Investors or the Agent shall deem reasonable, (iii) to require
      Borrower to assemble and make available to the Investors or the Agent any part
      or all of the Collateral at any place and time designated by the Investors
      and
      reasonably convenient to both parties, it being agreed that a location in the
      New York City Metropolitan Area is reasonably convenient to Borrower, (iv)
      to
      remove any or all of the Collateral from any premises on which the same may
      be
      located, for the purpose of effecting sale or other disposition thereof or
      for
      any other purpose, and (v) to take such action as Investors deem appropriate,
      including the sale, lease, rental or other disposition of any such Collateral
      as
      hereinafter provided.

     

    (c) Borrower
      will take such action as the Investors may request in order to assist the
      Investors in exercising its rights under this Section 3.15.3, and the Investors,
      the Agent or their designees may take such action, in the name and on behalf
      of
      Borrower, as they deem necessary in order to enable them to exercise their
      rights under this Section 3.15.3. In the event that Borrower shall receive
      any
      cash, checks, drafts, wire transfers and other instruments for the payment
      of
      money in full or partial payment or otherwise as proceeds of any of the
      Collateral, Borrower shall immediately cause such amounts and items to be
      deposited in a lockbox account designated by the Investors or the Agent. In
      the
      event that Borrower shall obtain possession, by return, repossession or
      otherwise, of any goods the sale or lease of which shall have given rise to
      any
      Accounts, Borrower will, not later than three days after such items shall have
      come into Borrower’s possession, pay to the lockbox account designated by the
      Investors, the unpaid purchase price or lease rental of such goods.

     

    (d) In
      the
      event that, pursuant to Section 3.15.3(a) or (b) of this Agreement, the Agent
      or
      the Investors assume control of the Accounts, then the Agent shall apply the
      proceeds from the Accounts to a reduction of the Obligations in such order
      as
      the Agent shall, in its sole discretion, determine, including the payment of
      the
      expenses incurred in collection of Accounts or any other Collateral. Any excess
      shall be paid over to Borrower. The Agent is hereby authorized to endorse,
      in
      the name of Borrower, any item, howsoever received by the Investors or the
      Agent
      representing any payment on or other proceeds of any of the Collateral. The
      proceeds of the Accounts shall be applied to the reduction of the Obligations
      in
      the manner hereinbefore set forth on the Business Day following the date on
      which the Investors receive the cash from the Accounts, which day shall be,
      with
      respect to a check delivered in respect of an Account, the day on which the
      lockbox bank can advise the Agent that the check has cleared.

     

    (e) Upon
      the
      occurrence of any Event of Default and at any time thereafter as long as any
      Obligations are outstanding, the Investors may, without notice to (except as
      set
      forth in this Section 3.15) or demand upon Borrower, declare any part or all
      of
      the Obligations immediately due and payable, and the Investors shall have the
      following rights and remedies (to the extent permitted by applicable law) in
      addition to all other rights and remedies of a secured party under the UCC,
      all
      such rights and remedies being cumulative, not exclusive, and enforceable
      alternatively, successively or concurrently:

     

    
      
        
        

      

      
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    (i) The
      Agent
      may, at any time and from time to time, with or without judicial process or
      the
      aid and the assistance of others, sell, resell, lease, assign and deliver,
      grant
      options for or otherwise dispose of any or all of the Collateral in its then
      condition or following any commercially reasonable preparation or processing,
      at
      public or private sale or proceedings, or otherwise, by one or more contracts,
      in one or more parcels, at the same or different times, with or without having
      the Collateral at the place of sale or other disposition, for cash and/or
      credit, upon such terms, at such place(s) and time(s) and to such persons,
      firms
      or corporations as the Investors deem best, all without demand for performance
      or any notice or advertisement whatsoever except that, where an applicable
      statute requires reasonable notice of sale or other disposition, Borrower hereby
      agrees that the sending of five (5) days’ notice, given in the manner provided
      in Section 11.4 of this Agreement (other than by telecopier), to the address
      of
      Borrower set forth in this Agreement, of the place and time of any public sale
      or of the time after which any private sale or other intended disposition is
      to
      be made, shall be deemed reasonable notice thereof. If any of the Collateral
      is
      sold by the Investors upon credit or for future delivery, the Investors shall
      not be liable for the failure of the purchaser to pay for same, and in the
      event
      of such failure, the Investors may resell or otherwise dispose of such
      Collateral. The Agent or any Investor may buy any part or all of the Collateral
      at any public or private sale and in each case make payment therefor by any
      means, whether by credit against the Obligations or otherwise; the Investors
      may
      apply the cash proceeds actually received from any sale or other disposition
      to
      the costs and expenses in connection therewith, including the expenses of
      retaking, holding, preparing for sale, selling or otherwise disposing of the
      Collateral, to reasonable attorneys’ fees, to legal and travel expenses,
      premiums on bonds and undertakings, fees of custodians, sheriffs, marshals
      and
      auctioneers and others, and all other expenses which may be incurred by the
      Investors in attempting to collect the Obligations or in otherwise exercising
      their rights pursuant to this Agreement, proceed against the Collateral or
      enforce the Notes or this Agreement, or in the prosecution or defense of any
      action or proceeding related to the Obligations or the Note and/or this
      Agreement, and then to the Obligations in such order and manner and as to
      principal and interest and other Obligations as the Agent may in its sole
      discretion determine; and Borrower shall remain liable and will pay the
      Investors on demand any deficiency remaining, together with interest thereon
      at
      a rate equal to the highest rate then payable on any of the Obligations, and
      the
      balance of any cost or expenses unpaid, with any surplus to be paid to Borrower
      subject to legal process or any duty of the Investors imposed by law in favor
      of
      the holder of any subordinate security interest in the Collateral known to
      the
      Investors. Any purchase of any Collateral by the Investors shall be purchased
      by
      it discharged from all claims and free from any right of redemption. In case
      of
      any sale by the Agent of any of the Collateral on credit, or for future
      delivery, the property so sold may be retained by the Agent until the selling
      price is paid by the purchaser. Neither the Agent nor any Investor shall incur
      any liability if the purchaser fails to take up and pay for the property so
      sold. In case of any such failure, the Collateral may be sold again, from time
      to time. It is understood that any action or rights which Investors may exercise
      shall be exercised by the Agent on behalf of the Investors.

     

    (ii) The
      Investors may at any time and from time to time without notice to Borrower
      set
      off, appropriate and apply any and all Collateral in or coming into possession
      of the Investors to the payment of any or all of the Obligations, in such order
      and manner and as to principal and interest and expenses as the Investors may
      in
      its sole discretion determine.

     

    
      
        
        

      

      
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    (f) If,
      and
      to the extent that, a perfected security interest hereunder in any Collateral
      shall cease to be perfected for any reason whatsoever (including, without
      limitation, release of all or any balance in the Special Account or any lockbox
      account or use or disposition by Borrower of any proceeds of Collateral), then
      such Collateral (referred to in this Section 3.15.3(vi) as “released
      Collateral”) shall be deemed thereby released from the security interest
      hereunder in exchange, as of the time of such release, for any other Collateral
      of equivalent value in which a perfected security interest under this Agreement
      is being obtained contemporaneously or has been most recently obtained; but
      only
      to the extent such other Collateral does not represent either (A) Collateral
      in
      exchange for which any previously released Collateral shall have been deemed
      released, or (B) Collateral of equivalent value to any loan or advance
      (otherwise than by renewal or extension) from the Investors to Borrower in
      which
      Collateral a perfected security interest hereunder shall have been obtained
      contemporaneously with or most recently prior to such loan or
      advance.

     

    3.16. Other
      Obligations of Borrower.
      Borrower:

     

    3.16.1. will,
      upon request of the Agent or the Investors, execute such financing statements
      and other documents (and pay the cost of filing or recording the same in all
      public offices deemed necessary by the Investors) and do such other acts and
      things, all as the Agent or any Investor may from time to time reasonably
      request to establish and maintain a valid security interest in the Collateral
      (free of all other liens, claims and rights of third parties) to secure the
      payment of the Obligations;

     

    3.16.2. will
      keep, at its address set forth in this Agreement, its records concerning the
      Collateral, which records will be of such character as will enable the Agent,
      the Investors or their designees to determine at any time the status of the
      Collateral, and Borrower will not, without the Investors’ prior written consent,
      duplicate any such records at any other address;

     

    3.16.3. will,
      within twenty (20) calendar days of the last day of each month, unless the
      Investors agree to quarterly information, furnish the Agent and the Investors
      with monthly schedules (including information with respect to employee payroll
      taxes), executed by a duly authorized officer of Borrower, showing all Accounts
      outstanding, on an aging basis, in such detail as the Agent or the Investors
      may
      request, in addition to such other information concerning Borrower, the
      Collateral, the Special Account and the Account Debtors relating to the Accounts
      as the Investors may from time to time request;

     

    3.16.4. will
      permit the Agent, any Investors and their designees, from time to time, upon
      reasonable notice, to inspect, audit and make copies of and extracts from all
      records and all other papers in the possession of Borrower pertaining to the
      Collateral, the Special Account and the Account Debtors;

     

    3.16.5. will
      stamp on its records concerning the Collateral, a notation, and will affix
      to
      any Collateral which constitutes equipment, a notice, in form satisfactory
      to
      the Agent or the Investors, of the security interest of the Investors under
      this
      Agreement;

     

    
      
        
        

      

      
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    3.16.6. will
      not
      create or permit to exist any lien on or security interest in any Collateral
      to
      or in favor of anyone other than the Investors;

     

    3.16.7. will
      reimburse the Investors for all expenses, including reasonable attorneys’ fees
      and legal expenses, incurred by the Investors in seeking to collect or enforce
      any rights to the Collateral or under this Agreement, the Note or the other
      Transaction Documents;

     

    3.16.8. when
      and
      as reasonably requested by the Investors, will execute and deliver to the
      Investors reports as to the Collateral listing all items thereof and, with
      respect to Collateral other than Accounts Receivable, describing the condition
      and value thereof;

     

    3.16.9. will
      assume all responsibility for the operation and use of the
      Collateral;

     

    3.16.10. will
      maintain liability and casualty insurance in such amounts and against such
      risks
      as is customary in the industry; provided, that in no event shall liability
      insurance be for less than three million dollars ($3,000,000) and casualty
      insurance for less than the total Obligations plus the any other indebtedness
      of
      Borrower, and name the Investors as an additional insured;

     

    3.16.11. will,
      at
      Borrower’s sole cost and expense, perform all acts, and execute all documents
      reasonably requested by the Agent or any of the Investors at any time to
      evidence, perfect, maintain and enforce the Investors’ first priority security
      interest in the Collateral, or otherwise in furtherance of the provisions of
      this Agreement; and

     

    3.17. Concerning
      the Agent.
      The
      Investors hereby acknowledge and appoint the Agent to act on their behalf as
      provided in this Agreement, and that, in so acting, the Agent is acting on
      behalf of the Investors. The Agent shall incur no liability to the Investors
      for
      any action taken or any omission to take any action unless such action or
      failure of action resulted from the Agent’s gross negligence or willful conduct.


     

    3.18. Right
      of Investors to Make Payments.
      The
      Investors may, in their sole discretion and at any time, for the account and
      expense of Borrower, pay any amount or do any act required of Borrower hereunder
      or requested by the Investors to preserve, protect, maintain or enforce the
      Obligations, the Collateral or the priority of the security interest granted
      in
      this Agreement, and which Borrower fails to do or pay, including, without
      limitation, payment of any judgment against Borrower, any insurance premium,
      any
      warehouse charge, any processing charge, any landlord’s claim, and any other
      lien, claim or encumbrance upon or with respect to the Collateral and any such
      payment shall be added to the Obligations and shall be repayable upon demand,
      together with interest at the highest rate then payable on any of the
      Obligations. The Agent or the Investors may, in their sole discretion and at
      any
      time, demand, sue for, collect or receive any money or property at any time
      payable or receivable on account of or in exchange for, or make any compromise
      or settlement deemed desirable by the Investors with respect to, any of the
      Collateral, and/or extend the time of payment, arrange for payment in
      installments or otherwise modify the terms of, or release, any of the
      Obligations and/or the Collateral, or any obligor, maker, endorser, acceptor,
      surety or guarantor of, or any party to, any of the Obligations or the
      Collateral, all without notice to or consent by Borrower and without otherwise
      discharging or affecting the Obligations, the Collateral or the first priority
      security interest granted in this Agreement. Any proceeds of the Collateral
      received by Borrower shall not be commingled, but shall be segregated, held
      by
      Borrower in trust as the exclusive property of the Investors, and be immediately
      delivered to the Investors in kind, duly endorsed in blank where appropriate
      to
      effectuate the provisions of this Agreement, the same to be held by the
      Investors as additional Collateral hereunder or, at the Investors’ option, to be
      applied to payment of the Obligations, whether or not due and in any order,
      all
      as provided in Section 3.15.3 of this Agreement. At any time, the Investors
      may
      assign, transfer and deliver or otherwise dispose of any of the Obligations
      alone or together with any or all of the Collateral, whereupon such Investors
      shall be fully discharged from all responsibility and the transferee shall
      be
      vested with full powers and rights of such Investors with respect thereto,
      but
      the Investors shall retain all rights and powers with respect to any obligations
      or Collateral not assigned, transferred, delivered or otherwise disposed
      of.

     

    
      
        
        

      

      
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    3.19. Waiver
      of Automatic Stay.
      The
      Borrower acknowledges and agrees that should a proceeding under any bankruptcy
      or insolvency law be commenced by or against the Borrower, or if any of the
      Collateral should become the subject of any bankruptcy or insolvency proceeding,
      then the Investors should be entitled to, among other relief to which they
      may
      be entitled under the Transaction Documents and/or applicable law, an order
      from
      the court granting immediate relief from the automatic stay pursuant to 11
      U.S.C. Section 362 to permit the Holder to exercise all of its rights and
      remedies pursuant to the Transaction Documents and/or applicable law.
TO
      THE EXTENT PERMITTED BY LAW, THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE
      AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, THE BORROWER
      EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY
      OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING,
      WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION,
      REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS
      RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE
      LAW.
      The
      Borrower hereby consents to any motion for relief from stay that may be filed
      by
      the Holder in any bankruptcy or insolvency proceeding initiated by or against
      the Borrower and, further, agrees not to file any opposition to any motion
      for
      relief from stay filed by the Holder. The Borrower represents, acknowledges
      and
      agrees that this provision is a specific and material aspect of the Transaction
      Documents, and that the Holder would not agree to the terms of the Note or
      the
      other Transaction Documents if this waiver were not a part of this Agreement.
      The Borrower further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Investors,
      the
      Agent nor any person acting on behalf of the Investors or the Agent has made
      any
      representations to induce this waiver, that the Borrower has been represented
      in
      the signing of this Agreement, the Notes and the other Transaction Documents
      and
      in the making of this waiver by independent legal counsel selected by the
      Borrower and that the Borrower has discussed this waiver with
      counsel.

     

    Section
      4. REPRESENTATIONS,
      WARRANTIES AND GENERAL COVENANTS. The
      Borrower hereby represents and warrants to the Investors (which representations
      and warranties will survive the delivery of the Securities and this Agreement
      shall be deemed to be continuing until the Note is fully paid or converted
      and
      the Warrants are fully exercised) that, except as set forth in a disclosure
      schedule separately provided to the Investors (the “Disclosure
      Schedule”):

     

    
      
        
        

      

      
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    4.1. Organization
      and Qualification.
      Each of
      NaturalNano and NN Research:

     

    4.1.1. Is
      and
      will continue to be duly organized and validly existing and in good standing
      under the laws of its state of organization.

     

    4.1.2. Is
      qualified and in good standing to do business in all other jurisdictions in
      which the property owned, leased or operated by it or the nature of the business
      conducted by it makes such qualification necessary, except where such failure
      will not have a Material Adverse Effect. Neither NaturalNano nor NN Research
      is
      qualified to conduct business in the State of New York and each of them will
      promptly take such steps as are necessary in order that they are qualified
      to
      conduct business as a foreign corporation in the State of New York.

     

    4.1.3. Has
      the
      power to execute and deliver this Agreement, the Securities, the Registration
      Rights Agreement, the other Supplemental Agreements and to borrow
      hereunder.

     

    4.1.4. Has
      all
      requisite permits, authorizations, franchise agreements and licenses, without
      unusual restrictions or limitations, to own, operate and lease its properties
      and to conduct the business in which it is presently engaged, all of which
      are
      in full force and effect.

     

    4.2. No
      Legal Bar.
      All
      corporate and other action necessary for the Borrower to execute, deliver and
      perform in accordance with the terms of this Agreement and the other Transaction
      Documents has been taken, and this Agreement constitutes, and the other
      Transaction Documents to which the Borrower is a party, will, when executed
      and
      delivered, constitute the valid and binding obligations of the Borrower
      enforceable in accordance with their respective terms. The execution and
      delivery of this Agreement and compliance by the Borrower with any of the terms
      and provisions hereof or of the Notes, the Registration Rights Agreement and
      any
      other Transaction Documents will not, on the Closing Date and thereafter as
      long
      as the Notes remain unpaid or unconverted and any portion of the Warrants
      remains unexercised, violate any provision of any existing law or regulation
      or
      any writ or decree of any court or governmental instrumentality, or any
      agreement or instrument to which the Borrower is a party or which is binding
      upon it or its assets, and will not result in the creation or imposition of
      any
      lien, security interest, charge or encumbrance of any nature whatsoever upon
      or
      in any of its assets, except as contemplated by this Agreement; and no consent
      of any other party, and no consent, license approval or authorization of or
      registration or declaration with any governmental bureau or agency, is required
      in connection with the execution, delivery, performance, validity and
      enforceability of this Agreement, the Note, the Registration Rights Agreement
      or
      any of the other Transaction Documents.

     

    4.3. Capitalization.

     

    4.3.1. The
      authorized and outstanding capital stock of NaturalNano as
      of the
      date of this Agreement
      and as
      adjusted to reflect issuances pursuant to or contemplated by this Agreement
      is
      set forth in Schedule 4.3.1 to the Disclosure Schedule. Schedule
      4.3.1
      contains
      all shares and derivatives currently and potentially outstanding. The Borrower
      hereby represents that any and all shares and current potentially dilutive
      events have been included in Schedule 4.3.1,
      including employment agreements, acquisition, consulting agreements, debts,
      payments, financing or business relationships that could be paid in equity,
      derivatives or resulting in additional equity issuances.

     

    
      
        
        

      

      
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    4.3.2. All
      outstanding shares of capital stock have been duly authorized and are validly
      issued, and are fully paid and non-assessable and free from preemptive rights.
      All shares of capital stock described above to be issued have been duly
      authorized and when issued, will be validly issued, fully paid and
      non-assessable and free from preemptive rights.

     

    4.3.3. Except
      for the issuance of Common Stock upon conversion of the Notes and upon exercise
      of the Warrants or as set forth in Schedule 4.3.1
      to the
      Disclosure Schedule as of the date hereof and as of the Closing Date, there
      are
      not now outstanding options, warrants, rights to subscribe for, calls or
      commitments of any character whatsoever relating to, or securities or rights
      convertible into or exchangeable for, shares of any class of capital stock
      of
      the Borrower, or agreements, understandings or arrangements to which the
      Borrower is a party, or by which the Borrower is or may be bound, to issue
      additional shares of its capital stock or options, warrants, scrip or rights
      to
      subscribe for, calls or commitment of any character whatsoever relating to,
      or
      securities or rights convertible into or exchangeable for, any shares of any
      class of its capital stock. The Borrower agrees to inform the Investors in
      writing of any additional options, warrants, rights or convertible securities
      granted prior to the Closing Date or which, prior to the Closing Date, the
      Borrower agrees to issue.

     

    4.3.4. The
      Borrower on the Closing Date (i) will have full right, power, and authority
      to
      sell, assign, transfer, and deliver, by reason of record and beneficial
      ownership, to the Investors, the Notes and Warrants, free and clear of all
      liens, charges, claims, options, pledges, restrictions, and encumbrances
      whatsoever; and (ii) upon conversion of the Notes or exercise of the Warrants,
      the Investors will acquire title to such underlying shares of Common Stock,
      free
      and clear of all liens, charges, claims, options, pledges, restrictions, and
      encumbrances whatsoever
      except
      for any of the foregoing which results from actions or omissions on the part
      of
      the Investor.

     

    4.3.5. The
      capital stock of NN Research consists of 30,000,000 authorized shares of common
      stock, par value $.01 per share, of which 10,000,000 shares are issued and
      outstanding and owned by NaturalNano, free and clear of any lien, option,
      security interest, purchase right or other encumbrance. Except
      as
      contemplated by this Agreement, the Note, the Warrants and the Supplemental
      Agreements and except as set forth in Schedule 4.3.1 to the Disclosure Schedule,
      the Borrower does not have any agreements or understandings pertaining to the
      purchase or sale of its equity.

     

    4.3.6. Except
      as
      set forth in Schedule 4.3.7, Borrower does not have any Subsidiary and there
      is
      no Person in which Borrower has an equity interest or to which Borrower has
      advanced money, whether or not represented by a note, or directly or indirectly
      guaranteed obligations or provided security for the obligations of such
      Person.

     

    4.3.7. The
      Borrower’s executive officers and directors understand the nature of the
      Securities being sold hereby and recognize that the issuance of the Securities
      will have a potential dilutive effect on the equity holdings of other holders
      of
      the Borrower’s equity or rights to receive equity of the Borrower. The board of
      directors of the Borrower has concluded, in its good faith business judgment
      that the issuance of the Securities is in the best interests of the Borrower.
      The Borrower specifically acknowledges that its obligation to issue the shares
      of Common Stock upon conversion of the Notes and upon exercise of the Warrants
      is binding upon the Borrower and enforceable regardless of the dilution such
      issuance may have on the ownership interests of other stockholders of the
      Borrower or parties entitled to receive equity of the Borrower.

     

    
      
        
        

      

      
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          18 -

        
          

        

      

      
        
        

      

    


    4.4. Financial
      Statements; SEC Documents.

     

    4.4.1. Borrower
      has delivered to the Investors its audited consolidated balance sheet at
      December 31, 2005 and its audited consolidated statements of operations for
      the
      year ended December 31, 2005, the period from inception (December 22, 2004)
      to
      December 31, 2004 and the cumulative period from December 22, 2004 to December
      31, 2005, statement of stockholders’ equity for the year ended December 31,
      2005, for the period from December 22, 2004 to December 31, 2004 and
      the cumulative period from December 22, 2004 to December 31, 2005, and
      statements of cash flows for the year ended December 31, 2005, for the
      period from December 22, 2004 to December 31, 2004 and the cumulative period
      from December 22, 2004 to December 31, 2005 together with notes to the financial
      statements, and its unaudited consolidated condensed balance sheet at September
      30, 2006, consolidated statements of operations for the nine months ended
      September 30, 2006 and the period from December 22, 2004 through September
      30,
      2006, statements of stockholders’ equity for the period from December 22, 2004
      through September 30, 2006, and statements of cash flows for the nine months
      ended September 30, 2006 and 2005 and the period from December 22, 2004 through
      September 30, 2006 together with notes to financial statements. The audited
      financial statements were audited by, and the unaudited financial statements
      were reviewed, but not audited, by Goldstein Golub Kessler LLP, registered
      independent accounting firm. Goldstein Golub Kessler LLP is independent within
      the rules and regulations of the Commission. The financial statements present
      and reflect, in accordance with generally accepted accounting principles,
      consistently applied, the Borrower’s financial position on the balance sheet
      date and the results of its operations, changes in stockholders’ equity and cash
      flows for the periods covered in accordance with generally accepted accounting
      principles consistently applied; provided, however, that the financial
      statements for the interim period were prepared in accordance with the rules
      and
      regulations of the Commission applicable to quarterly reports on Form 10-QSB.
      The
      books
      and records of the Borrower have been, and are being, maintained in all material
      respects in accordance with generally accepted accounting principles
      consistently applied and any other applicable legal and accounting requirements
      and reflect only actual transaction. The
      Borrower has no liabilities or obligations which are material, individually
      or
      in the aggregate, which are not disclosed in the financial statements, other
      than those incurred in the ordinary course of the Company’s businesses since
      September 30, 2006, and which, individually or in the aggregate, would
      reasonably be expected to have a Material Adverse Effect.

     

    4.4.2. As
      of the
      date of the financial information submitted, there were no material unrealized
      or anticipated losses from any unfavorable commitments of the Borrower; and
      there has been no material adverse change in the business or assets or in the
      condition, financial or otherwise, of the Borrower from that set forth in said
      financial statements.

     

    
      
        
        

      

      
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    4.4.3. The
      Borrower has provided the Investors with a copy of:

     

    (a) Each
      letter of comment received from the Commission since December 22,
      2004.

     

    (b) Each
      letter responding to the comments of the Commission.

     

    (c) Each
      so-called management letter from the Borrower’s independent registered
      accounting firm which sets forth any comments on the Borrower’s financial
      statement, financial controls or other financial procedures or the Borrower’s
      books and records, or, if no such letter has been issued, a letter from the
      independent registered accounting firm to that effect.

     

    (d) Any
      response to any management letter.

     

    4.4.4. The
      Common Stock is traded on the OTC Bulletin Board, and, at or prior to the
      effective date of the Registration Statement, as defined in the Registration
      Rights Agreement, will be, eligible
      for transfer pursuant to the Depository Trust Company Automated Securities
      Transfer Program (the “DTC Program”). The name, address, telephone number, fax
      number, contact person and e-mail address of the NaturalNano’s transfer agent
      are set forth on Schedule 4.4.4 to the Disclosure Schedule. The
      Borrower has not taken any action which is likely to cause the Common Stock
      to
      be delisted from trading on the OTC Bulletin Board or to lose its eligibility
      for transfer pursuant to the DTC Program, and the Borrower does not know of
      any
      event which is likely to result in such delisting or ineligibility. NaturalNano
      will take such action as is necessary in order to file its 10-KSB for the year
      ended December 31, 2006 in a timely manner without the need to file for an
      extension pursuant to Section 12b-25 of the Exchange Act.

     

    4.4.5. The
      Borrower has responded to all comments from the Commission relating to any
      filing made by the Borrower pursuant to the Securities Act or the Exchange
      Act,
      other than comments relating to a registration statement on Form SB-2 which
      will
      be withdrawn.

     

    4.4.6. All
      of
      the Borrower’s filings with the Commission pursuant to the Exchange Act comply
      as to form with the requirements of the Exchange Act and the information
      contained therein does not contain a material misstatement of fact or the
      omission of a fact necessary to make the information presented not
      misleading.

     

    4.5. Title,
      Liens and Encumbrances.

     

    4.5.1. The
      Borrower has good and marketable title, and the right to grant a security
      interest in, to all Collateral, and none of the Collateral is subject to any
      pledge, lease, trust, bailment, lien, security interest, encumbrance, charge
      or
      title retention or other security agreement or arrangement of any character
      whatsoever other than as permitted in the Supplemental Agreements.

     

    4.5.2. The
      security interest granted by this Agreement constitutes a valid, binding and
      enforceable first priority security interest on the Collateral, except as
      enforceability may be affected by bankruptcy, insolvency and other laws of
      general applications affecting the enforcement of creditors’ rights.

     

    
      
        
        

      

      
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          20 -

        
          

        

      

      
        
        

      

    


    4.6. No
      Material Litigation.
      There
      is no litigation or administrative proceeding of or before any Government Entity
      is pending or, to the Knowledge of the Borrower, threatened against the Borrower
      or any of its property which, if adversely determined based on the claims made
      against the Borrower, would have a Material Adverse Effect.

     

    4.7. No
      Default.
      The
      Borrower is not, on the date hereof, in default with respect to the payment
      or
      performance of any of its obligations or in the performance of any covenants
      or
      conditions to be performed by it pursuant to the terms and provisions of any
      indenture, agreement or instrument to which it is a party or by which it may
      be
      bound and the Borrower has received no notice of default
      thereunder.

     

    4.8. Compliance
      with Laws.
      The
      Borrower has complied in all material respects with and will continue to comply
      with all applicable statutes and regulations of the United States of America,
      and all states, counties, municipalities and agencies of any thereof with
      respect to (a) any restrictions, specifications or other requirements pertaining
      to products or technology which the Borrower develops, manufactures or sells,
      or
      to the services it performs; (b) the conduct of its business operations; (c)
      the
      use, maintenance and operation of the real and personal properties owned or
      leased by it in the operation of its business, including compliance with all
      application zoning and environmental laws and regulations; and (d) the issued
      and outstanding capital stock of the Borrower and the disclosure of material
      facts and information to its stockholders.

     

    4.9. No
      Secondary Liabilities.
      There
      are no outstanding contracts or agreements of guaranty or suretyship made by
      the
      Borrower, or to which it is a party, or to which the Borrower or any of the
      Borrower’s assets are subject.

     

    4.10. Taxes.
      The
      Borrower has filed or caused to be filed or obtained extensions for the filing
      of, and will continue to file and cause to be filed, all federal, state and
      local tax returns required by law to be filed, and has paid and will continue
      to
      pay all taxes shown to be due and payable on said returns or on any assessment
      made against it, except if being contested in good faith and adequate provision
      has been made therefor on its books of account. No claims are being asserted
      with respect to such taxes which are not reflected in the financial statements
      which have been furnished by the Borrower to the Investors.

     

    4.11. Intellectual
      Property Rights.

     

    4.11.1. 
      Schedule
      4.11 to the Disclosure Schedule sets
      forth a true and complete list of any existing Patents and patent applications,
      Trademark registrations and applications, service mark registrations and
      applications, computer software (other than off-the-shelf software for which
      the
      Borrower has the required number of use licenses), copyright registrations
      and
      applications, material unregistered trademarks, service marks, and copyrights,
      and internet domain names used or held for use in connection with the Borrower’s
      business, together with all licenses related to the foregoing, whether the
      Borrower is the licensee or licensor thereunder.
      Schedule
      4.11 specifically identified each of the TI Patents.

     

    
      
        
        

      

      
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    4.11.2. The
      Borrower is the sole and exclusive owner or valid licensee of all Patents,
      Trademarks and other intellectual property which is shown on said Schedule
      4.11
      to be owned by it, free and clear of all encumbrances other than the rights
      of
      licensees under license agreements which are set forth on said Schedule 4.11,
      and, with respect to licensed intellectual property, encumbrances incurred
      by
      Persons other than the Borrower, except as disclosed in the said Schedule 4.11
      with respect to one of Patents; provided, however, that the failure to have
      title Patent will not have a Material Adverse Effect. The Borrower is the
      licensee under a valid and enforceable license agreement with respect to all
      intellectual property shown on Schedule 4.11 as being licensed by the Borrower.
      Neither the execution of this Agreement nor the enforcement of any rights which
      the Investors or the Agent may have under this Agreement and the Other
      Supplemental Agreements breaches or would result in a breach of the license
      agreement or would give the licensor any right to terminate or otherwise modify
      the terms of the license agreements.

     

    4.11.3. All
      patents, registrations and applications for intellectual property that are
      owned
      by the Borrower and listed in Schedule 4.11 (a) are, to the Knowledge of the
      Borrower, valid, subsisting, in proper form and, to the Knowledge of Borrower,
      have been duly maintained, including the submission of all necessary filings
      and
      fees in accordance with the legal and administrative requirements of the
      appropriate jurisdictions and (b) except as disclosed on the Schedule 4.11,
      have
      not lapsed, expired or been abandoned, and no patent, registration or
      application therefor is the subject of any opposition, interference,
      cancellation proceeding or other legal or governmental proceeding before any
      Governmental Entity in any jurisdiction. The Borrower has no Knowledge of any
      facts that would make any intellectual property invalid or
      unenforceable.

     

    4.11.4. To
      the
      Knowledge of the Borrower, all Patents that are licensed by the Borrower are
      valid and subsisting.

     

    4.11.5. To
      the
      Borrower’s Knowledge, the Borrower owns or has the valid right to use all of the
      intellectual property used by it or held for use by it in connection with its
      business. To the Knowledge of the Borrower, there are no conflicts with or
      infringements of any of the Borrower’s intellectual property by any third party.
      To the Knowledge of the Borrower, the conduct of the Borrower’s businesses the
      Borrower as currently conducted does not conflict with or infringe in any way
      on
      any proprietary right of any third party. 

     

    4.11.6. Except
      as
      set forth on Schedule 4.11, there is no claim, suit, action or proceeding
      pending or, to the Knowledge of the Borrower, threatened against the Borrower
      (i) alleging any such conflict or infringement with any third party’s
      proprietary rights or (ii) challenging the ownership, use, validity or
      enforceability of the intellectual property used by the Borrower in its
      business.

     

    4.11.7. All
      consents, filings, and authorizations by or with Governmental Entities or third
      parties, if any, necessary with respect to the consummation of the transactions
      contemplated by this Agreement, as they may affect the Borrower’s intellectual
      property, have been obtained.

     

    
      
        
        

      

      
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          22 -

        
          

        

      

      
        
        

      

    


    4.11.8. The
      Borrower has not entered into any consent, indemnification, forbearance to
      sue,
      settlement agreement or cross-licensing arrangement with any Person relating
      to
      the Borrower’s intellectual property or, to the Knowledge of the Borrower, any
      intellectual property licensed by the Borrower, or the intellectual property
      of
      any third party, except as contained in any license agreements listed in
      Schedule 4.11.

     

    4.11.9. The
      Borrower is not, nor will it be as a result of the execution and delivery of
      this Agreement or the performance of its obligations under this Agreement,
      the
      Note or the Other Supplemental Agreements, in breach of any license, sublicense
      or other agreement relating to the Borrower’s Intellectual
      Property.

     

    4.12. Absence
      of Certain Changes.
      Since
      September 30, 2006, except as set forth in the Schedule 4.12 to the Disclosure
      Schedule, the Borrower has conducted its business only in the ordinary and
      usual
      course consistent with past practice, and the Borrower has not:

     

    4.12.1. Suffered
      any Material Adverse Change;

     

    4.12.2. Incurred
      any liability or obligation (absolute, accrued, contingent or otherwise) except
      for those incurred in the ordinary course of business and consistent with past
      practice (counting obligations or liabilities arising from one transaction
      or a
      series of similar transactions, and all periodic installments or payments under
      any lease or other agreement providing for periodic installments or payments,
      as
      a single obligation or liability) or increased, or experienced any change in
      any
      assumptions underlying or methods of calculating, any bad debt, contingency
      or
      other reserves;

     

    4.12.3. Paid,
      discharged or satisfied any claim, liability or obligation (whether absolute,
      accrued, contingent or otherwise) other than the payment, discharge or
      satisfaction in the ordinary course of business and consistent with past
      practice of liabilities and obligations reflected or reserved against in the
      September 30, 2006 balance sheet or incurred in the ordinary course of business
      and consistent with past practice since September 30, 2006;

     

    4.12.4. Permitted
      or allowed any of its property or assets (real, personal or mixed, tangible
      or
      intangible) to be subjected to any mortgage, pledge, lien, security interest,
      encumbrance, restriction or charge of any kind;

     

    4.12.5. Cancelled
      any debts or waived any claims or rights of substantial value;

     

    4.12.6. Sold,
      transferred, or otherwise disposed of any of its properties or assets (real,
      personal or mixed, tangible or intangible), except in the ordinary course of
      business and consistent with past practice;

     

    4.12.7. Disposed
      of or permitted to lapse any rights to the use of any intellectual property,
      or
      disposed of or disclosed to any Person any trade secret, formula, process,
      know-how or other Intellectual Property not theretofore a matter of public
      knowledge;

     

    4.12.8. Granted
      any general increase in the compensation of officers or employees (including
      any
      such increase pursuant to any bonus, pension, profit sharing or other plan
      or
      commitment which is disclosed in the Borrower’s financial statements) or any
      increase in the compensation payable or to become payable to any officer or
      employee, and no such increase is customary on a periodic basis or required
      by
      agreement or understanding;

     

    
      
        
        

      

      
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          23 -

        
          

        

      

      
        
        

      

    


    4.12.9. Made
      any
      single capital expenditure or commitment in excess of $5,000 for additions
      to
      property, plant, equipment or intangible capital assets or made in the aggregate
      capital expenditures and commitments in excess of $10,000 for additions to
      property, plant, equipment or intangible capital assets;

     

    4.12.10. Declared,
      paid or set aside for payment any dividend or other distribution in respect
      of
      its capital stock or redeemed, purchased or otherwise acquired, directly or
      indirectly, any shares of capital stock or other securities of the
      Borrower;

     

    4.12.11. Made
      any
      change in any method of accounting or accounting practice;

     

    4.12.12. Paid,
      loaned or advanced any amount to, or sold, transferred or leased any properties
      or assets (real, personal or mixed, tangible or intangible) to, or entered
      into
      any agreement or arrangement with, any of its officers or directors or any
      Affiliate of any of its officers or directors except for directors’ fees and
      compensation to officers at rates not exceeding the rates disclosed in
      NaturalNano’s most recent filings with the Commission; 

     

    4.12.13. Allowed
      any obligations of the Borrower to become more than thirty (30) days past due;
      or

     

    4.12.14. Agreed,
      whether in writing or otherwise, to take any action described in this Section
      4.12.

     

    4.12.15. Approved
      any stock dividend, split or distribution, reverse split, combination of shares
      or other recapitalization.

     

    4.13. Employment
      Agreements; Collective Bargaining Agreements.

     

    4.13.1. Except
      as
      set forth in Schedule 4.13 to the Disclosure Schedule, the Borrower has not
      entered into, and is not a party to, any employment, consulting or other
      services agreement with any officer, director, 5% stockholder or other person
      who has base compensation of more than $75,000. A copy of each of such
      agreements has been provided to the Investors.

     

    4.13.2. Schedule
      4.13 also sets forth the directors’ compensation and any proposed changes in the
      directors’ compensation.

     

    4.13.3. The
      Borrower is not a party to any collective bargaining agreements.

     

    4.14. Employee
      Benefit Plans.
      To the
      extent that any present or future pension or other employee benefit plan of
      the
      Borrower is subject to state or federal statutes or regulations, the Borrower
      represents and warrants that it is and shall at all times be in compliance
      with
      said statutes and regulations and will furnish the Investors with copies of
      such
      reports as it may be required to furnish under said statutes or regulations.
      A
      description of each such plan is set forth in Schedule 4.15 to the Disclosure
      Schedule.

     

    
      
        
        

      

      
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    4.15. Commercial
      Tort Claims.
      The
      Borrower shall promptly notify the Investors and the Agent in writing upon
      incurring or otherwise obtaining a Commercial Tort Claim after the date hereof
      against any third party and, upon the Agent’s reasonable request, enter into a
      Supplemental Agreement and do such other acts and things required by Agent
      or
      the Investors to confirm Investors’ security interest in such Commercial Tort
      Claim.

     

    4.16. Other
      Collateral.
      Borrower
      shall promptly notify Investor in writing upon acquiring or otherwise obtaining
      any Collateral after the date hereof consisting of Deposit Accounts, Investment
      Property, Letter-of-Credit Rights or Electronic Chattel Paper and, upon the
      reasonable request of any Investor or the Agent, promptly execute such other
      documents, and do such other acts or things deemed appropriate by Investors
      or
      the Agent to deliver to Investors control with respect to such Collateral;
      promptly notify Investors in writing upon acquiring or otherwise obtaining
      any
      Collateral after the date hereof consisting of documents or other instruments
      and, upon the reasonable request of any Investor or the Agent, will promptly
      execute such other documents, and do such other acts or things deemed
      appropriate by Investors or the Agent to deliver to Investors possession of
      such
      Documents which are negotiable and Instruments, and, with respect to
      non-negotiable Documents, to have such nonnegotiable Documents issued in the
      name of Investors; and with respect to Collateral in the possession of a third
      party, other than Certificated Securities and Goods covered by a Document and
      obtain an acknowledgment from the third party that it is holding the Collateral
      for the benefit of Investor.

     

    4.17. Lien
      Perfection; Further Assurances.
      Borrower
      shall execute such UCC-1 financing statements as may be required by the UCC
      and
      such other instruments, assignments or documents as are necessary to perfect
      Investor’s lien upon any of the Collateral and shall take such other action as
      may be required to perfect or to continue the perfection of Investor’s lien upon
      the Collateral. Unless prohibited by applicable law, Borrower hereby irrevocably
      authorizes the Agent on behalf of the Investors to execute and/or file any
      such
      financing statements, including, without limitation, financing statements that
      indicate the Collateral as all assets of Borrower or words of similar effect,
      on
      Borrower’s behalf. Borrower also hereby ratifies its authorization for the Agent
      to have filed in any jurisdiction any like financing statements or amendments
      thereto it filed prior to the date hereof. The parties agree that a photographic
      or other reproduction of this Agreement shall be sufficient as a financing
      statement and may be filed in any appropriate office in lieu thereof. At
      Investors’ or the Agent’s reasonable request, Borrower shall also promptly
      execute or cause to be executed and shall deliver to Investor any and all
      documents, instruments and agreements deemed necessary by Investors or the
      Agent
      to give effect to or carry out the terms or intent of the Supplemental
      Agreements. The Borrower shall further take such steps as the Investors or
      the
      Agent may reasonably request for the Investors (a) to obtain an acknowledgement,
      in form and substance reasonably satisfactory to the Agent, of any bailee having
      possession of any of the Collateral that the bailee holds such Collateral for
      the Investors, (b) to obtain “control” of any Investment Property, Deposit
      Accounts, Letter-of-Credit Rights or Electronic Chattel Paper (in accordance
      with provisions in UCC Sections 9-104, 9-105, 9-106 and 9-107 relating to what
      constitutes “control” for such items of Collateral), with any agreements
      establishing control to be in form and substance satisfactory to the Investors,
      and (c) otherwise to insure the continued perfection and priority of the
      Investors’ security interest in any of the Collateral and of the preservation of
      its rights therein, whether in anticipation and following the effectiveness
      of
      Revised Article 9 of the Uniform Commercial Code in any jurisdiction.


     

    
      
        
        

      

      
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    4.18. Solvency. The
      Borrower hereby represents to the Investor that it is solvent and is generally
      paying its debts as such debts become due and that neither the execution of
      this
      Agreement nor the issuance of the Notes pursuant to this Agreement will render
      the Borrower insolvent.

     

    4.19. Investment
      Company.
      Neither
      the Borrower nor any of its Affiliates is an investment company within the
      meaning of the Investment Company Act of 1940. 

     

    4.20. No
      Broker.
      No
      broker, finder or investment banker is entitled to any brokerage, finder’s or
      other fee or commission in connection with the transactions contemplated by
      this
      Agreement based upon arrangements made by or on behalf of the Borrower. The
      Borrower shall indemnify and hold harmless the Investors and the Agent for
      any
      loss, liability, damage or expense, including reasonable fees and expenses
      of
      counsel, they may incur as a result of a breach of this Section
      4.20.

     

    4.21. No
      Disagreements with Accountants and Lawyers.
      Except
      as disclosed on Schedule 4.21, there are no disagreements of any kind presently
      existing, or reasonably anticipated by the Borrower to arise, between the
      Borrower and the accountants and lawyers formerly or presently employed by
      the
      Borrower, including but not limited to disputes or conflicts over payment owed
      to such accountants and lawyers, nor have there been any such disagreements
      during the two years prior to the Closing Date.

     

    4.22. Predecessor.
      All
      representations and warranties by the Borrower shall, where applicable, relate
      to the business of Cementitious
      Materials, Inc. prior to the reverse merger with NaturalNano.

     

    4.23. Accuracy
      of Representations and Warranties.
      No
      representation or warranty by the Borrower contained in any certificate or
      other
      document furnished or to be furnished by the Borrower pursuant hereto or in
      connection with the transactions contemplated hereunder, contains, or at the
      time of delivery will contain, any untrue statement of material fact or omits
      or
      will omit to state a material fact necessary to make it not
      misleading.

     

    Section
      5. REPRESENTATIONS
      AND WARRANTIES OF THE INVESTORS.
      Each
      Investor, severally and not jointly, represents and warrants to the Borrower
      that:

     

    5.1. Authorization
      and Power.
      Such
      Investor was
      not
      formed for the purpose of investing solely in the Securities. The execution,
      delivery and performance of this Agreement by the Investor and the consummation
      by the Investor of the transactions contemplated hereby have been duly
      authorized by all necessary action where appropriate. The
      state
      in which any offer to purchase the Securities was made or accepted by the
      Investor is the state shown as the Investor’s address. The
      Investor has the requisite power and authority to enter into and perform this
      Agreement and to purchase the Securities being sold to it hereunder.
This
      Agreement, the Registration Rights Agreement and the Escrow Agreement have
      been
      duly executed and delivered by the Investor and at the Closing shall constitute
      valid and binding obligations of the Investor enforceable against the Investor
      in accordance with their terms, except as such enforceability may be limited
      by
      applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
      conservatorship, receivership or similar laws relating to, or affecting
      generally the enforcement of, creditors’ rights and remedies or by other
      equitable principles of general application.

     

    
      
        
        

      

      
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    5.2. No
      Conflicts.
      The
      execution, delivery and performance of this Agreement and the consummation
      by
      the Investor of the transactions contemplated hereby or relating hereto do
      not
      and will not result in a violation of the Investor’s governing instruments. The
      Investor is not required to obtain any consent, authorization or order of,
      or
      make any filing or registration with, any court or governmental agency in order
      for it to execute, deliver or perform any of the Investor’s obligations under
      this Agreement or to purchase the Securities from the Borrower in accordance
      with the terms hereof, provided that for purposes of the representation made
      in
      this sentence, the Investor is assuming and relying upon the accuracy of the
      relevant representations and agreements of the Borrower herein.

     

    5.3. Financial
      Risks.
      The
      Investor acknowledges that the Investor is able to bear the financial risks
      associated with an investment in the securities being purchased by the Investor
      from the Borrower and that it has been given full access to such records of
      the
      Borrower and the subsidiaries and to the officers of the Borrower and the
      subsidiaries as it has deemed necessary or appropriate to conduct its due
      diligence investigation. The Investor is capable of evaluating the risks and
      merits of an investment in the securities being purchased by the Investor from
      the Borrower by virtue of its experience as an Investor and its knowledge,
      experience, and sophistication in financial and business matters and the
      Investor is capable of bearing the entire loss of its investment in the
      securities being purchased by the Investor from the Borrower.

     

    5.4. Accredited
      Status.
      The
      Investor is (i) an “accredited investor” as that term is defined in Rule 501 of
      Regulation D promulgated under the 1933 Act, (ii) experienced in making
      investments of the kind described in this Agreement and the related documents,
      (iii) able, by reason of the business and financial experience of its officers,
      managers or general partners and professional advisors (who are not affiliated
      with or compensated in any way by the Borrower or any of its affiliates or
      selling agents), to protect its own interests in connection with the
      transactions described in this Agreement, and the related documents, and (iv)
      able to afford the entire loss of its investment in the Securities being
      purchased by the Investor from the Borrower. The Investor is acquiring the
      Securities for investment and not with a view to the sale or distribution
      thereof and understands that such Securities are restricted securities, as
      defined in the Rule 144 of the Commission under Securities Act, and may not
      be
      sold or otherwise distributed except pursuant to an effective registration
      statement or an exemption from the registration requirements of the Securities
      Act and that the certificates for the Securities and the Common Stock issuable
      upon conversion of the Note or exercise of the Warrants shall have the legends
      set forth below. Nothing in this Section 5.4 shall be construed to affect in
      any
      manner the right of the Investor to have the Common Stock issuable upon
      conversion of the Notes and exercise of the Warrants registered pursuant to
      the
      Registration Rights Agreement.

     

    
      
        
        

      

      
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    5.4.1. The
      Notes
      shall have the following or a similar legend:

     

    “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.”

     

    5.4.2. The
      Warrants shall have the following or a similar legend:

     

    “THIS
      WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
      STATE SECURITIES LAWS. NEITHER THIS WARRANT 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.”

     

    5.4.3. The
      Common Stock shall have the following or a similar legend:

     

    “THE
      SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
      UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
      THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
      THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
      ANY
      APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
      TO THE ISSUING CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.”

     

    5.5. Brokers.
      No
      broker, finder or investment banker is entitled to any brokerage, finder’s or
      other fee or commission in connection with the transactions contemplated by
      this
      Agreement based upon arrangements made by or on behalf of the Investor. The
      Investor shall indemnify and hold harmless the Borrower for any loss, liability,
      damage or expense, including reasonable fees and expenses of counsel, the
      Borrower may incur as a result of a breach by such Investor of this Section
      5.5.

     

    5.6. Full
      Disclosure.
      No
      representation or warranty made by the Investor in this Agreement contains
      any
      untrue statement of a material fact, or omits to state a material fact necessary
      to make the statements contained herein or therein not misleading.

     

    
      
        
        

      

      
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    Section
      6. NEGATIVE
      COVENANTS.
      So long
      as any Obligations of the Borrower to the Investors remain outstanding and
      unpaid and, with respect to Sections 6.5 of this Agreement, as long as the
      Warrants are outstanding, the Borrower covenants and agrees as
      follows:

     

    6.1. Limitation
      on Liens. 
      The
      Borrower shall not create, assume or suffer to exist, any mortgage, pledge,
      encumbrance, lien, security interest or charges of any kind upon any of its
      assets (other than statutory liens provided same are paid within the time
      provided for payment without penalty or interest) or equity interests, whether
      now owned or hereafter acquired.

     

    6.2. Limitation
      on Advances and Investments.
      The
      Borrower shall not make or suffer to exist any advances or loans to, or any
      investments in (by transfers or property, contributions to capital, purchase
      of
      stock or securities or evidence of indebtedness, acquisition of assets or
      business or otherwise) any Person other than the securities of the United States
      of America and certificates of deposits in a bank or trust Borrower or other
      deposit account acceptable to the Agent, and the Borrower shall not prepay
      any
      financing-related debt obligations. Notwithstanding the forgoing, Borrower
      may
      make advances to employees in the normal course of business based upon its
      employee expense reimbursement plan; provided, however, that all such advances
      shall be in compliance with the provisions of Section 402 of the Sarbanes-Oxley
      Act of 2002.

     

    6.3. Limitation
      on Other Borrowing.
      The
      Borrower shall not incur, create, assume or permit to exist any indebtedness
      or
      liability outside of trade payables incurred in the ordinary course of the
      Borrower’s business or any other indebtedness or liability evidenced by notes,
      bonds, debentures or similar obligations or incorporated in any lease or license
      agreement, except as provided in this Agreement or as set forth in Schedule
      6.3
      to the Disclosure Schedule.

     

    6.4. Prohibition
      on Dividends, Distributions and Purchases of Capital
      Stock.
      Borrower shall not declare or pay any dividend or distribution (whether in
      cash,
      property or otherwise) or redeem, retire, purchase or otherwise acquire for
      value any equity interests. 

     

    6.5. Limitation
      on Fundamental Changes.
      The
      Borrower shall not (a) convey, sell, lease or otherwise dispose of all or
      substantially all of its property, assets or business; enter into any
      transaction not in the usual course of business or (b) make any change in its
      capital structure, including any stock split, dividend or distribution or
      reverse split or combination of shares or other recapitalization not approved
      by
      Investors holding 75% of the principal amount of Notes then outstanding, or
      (c)
      make any change in any of its business objectives, purposes and operations
      which
      might in any way adversely affect the ability of the Borrower to repay the
      Obligations, or (d) merge or consolidate with or into any other firm or
      corporation or, without Investors’ approval or change its name, or (e) permit a
      transfer of more than 10% of its equity interests without the prior written
      consent of the Investors or (f) amend its articles of incorporation or by-laws
      in any manner which adversely affects the holders of the Notes or Warrants.
      

     

    6.6. Limitation
      on Disposition of Assets. The
      Borrower shall not, other than in the ordinary course of business, sell,
      exchange or otherwise dispose of any of its assets, or any part thereof or
      any
      interest therein, without the express written authorization of the Investors.
      The Borrower shall not take any action which would impair, or the effect of
      which would impair, Borrower’s rights in its intellectual property, including
      the Patents and Trademarks and licenses relating to intellectual property.
      

     

    
      
        
        

      

      
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    6.7. Limitation
      on Contingent Liabilities. The
      Borrower shall not become liable as guarantor, surety, endorser or otherwise
      for, or agree to purchase, repurchase or assume, any obligation of any Person,
      except for endorsement of commercial paper for deposit, collection, or discount
      in the ordinary course of business.

     

    6.8. Limitation
      on Acquisition of Affiliates.
      The
      Borrower shall not acquire, directly or indirectly, any Affiliates without
      the
      prior written consent of the Investors.

     

    6.9. Reliance
      on Financial Statements.
      No
      event or condition has occurred which requires the filing by the NaturalNano
      of
      an 8-K current report or any other report under the Exchange Act the effect
      of
      which is to state that previously filed financial statements cannot be relied
      upon.

     

    6.10. Limitation
      on Grant of Equity-Based Incentives.
      The
      Borrower shall not, until all Obligations have been satisfied in full, grant
      any
      options or other equity-based incentives to its officers, directors, employees
      or consultants except pursuant to stock option or long-term incentive plans
      which are outstanding on the date of this Agreement and are listed on Schedule
      6.11 to the Disclosure Schedule without the approval of the holders of 75%
      of
      the then outstanding principal amount of Notes. 

     

    6.11. Limitation
      on Transactions with Affiliates.
      As long
      as at least 25% of the initial principal amount of Notes is outstanding, the
      Borrower will not, without the written consent of the holders of a majority
      of
      the then outstanding principal amount of Notes, engage
      in
      any transactions with any officer, director, employee or any Affiliate of the
      Borrower, including any contract, agreement or other arrangement providing
      for
      the furnishing of services to or by, providing for rental of real or personal
      property to or from, or otherwise requiring payments to or from any officer,
      director or such employee or, to the knowledge of the Borrower, any entity
      in
      which any officer, director, or any such employee has a substantial interest
      or
      is an officer, director, trustee or partner, in each case in excess of $20,000
      other than (i) for payment of salary or consulting fees for services rendered,
      (ii) reimbursement for expenses incurred on behalf of the Borrower and (iii)
      for
      other employee benefits, including stock option agreements under any stock
      option plan of the Borrower.

     

    Section
      7. AFFIRMATIVE
      COVENANTS.
      The
      Borrower covenants and agrees that, so long as any of the Obligations shall
      remain outstanding, and, with respect to Sections with respect to Sections
      7.1,
      7.3, 7.5, 7.6, 7.8 (but not beyond the time period set forth therein), 7.11,
      7.14, and 7.15 of this Agreement, as long as the Warrants are outstanding,
      the
      Borrower will perform and observe each and all of the covenants and agreements
      herein set forth.

     

    7.1. Performance
      of Obligations under this Agreement, the Note and the Supplemental
      Agreements.
      The
      Borrower will make punctual payment of all monies and will faithfully and fully
      keep and perform all of the terms, conditions, covenants and agreements
      contained on the Borrower’s part to be paid, kept or performed hereunder, and
      will be bound in all respects as debtor under this Agreement, the Note, the
      Warrants, the Registration Rights Agreement and the Supplemental Agreements;
      and
      will make punctual payment of all monies and will faithfully and fully keep
      and
      perform all of the terms, conditions, covenants and agreements on its part
      to be
      paid, kept or performed under the terms of any lease or mortgage of the premises
      where Borrower operates or any license to which the Borrower is a party, whether
      as licensor or licensee, and will promptly notify the Investors and the Agent
      in
      the event of any default on the part of the Borrower or receipt by the Borrower
      of any notice of alleged default under any such lease, mortgage or license.
      The
      Borrower will pay and discharge at or before their maturity all taxes,
      assessments, rents, claims, debts and charges.

     

    
      
        
        

      

      
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    7.2. Information,
      Access to Books and Inspection.
      The
      Borrower will furnish to the Investors such information regarding the business
      affairs and financial condition of the Borrower as the Investors may reasonably
      request, and upon reasonable notice to Borrower give any representative of
      the
      Investors access during normal business hours to, and permit such representative
      to examine and copy, and make extracts from, any and all books, records and
      documents in the possession of the Borrower relating to its affairs and to
      inspect any of the properties of the Borrower. Notwithstanding the foregoing,
      the Borrower shall not disclose to the Investors or the Agent any material
      non-public information concerning the Borrower in violation of Section 7.15
      of
      this Agreement.

     

    7.3. Existence,
      Properties and Insurance.
      The
      Borrower will do or cause to be done all things necessary to preserve and keep
      in full force and effect the legal existence of Borrower and its rights and
      franchises, and comply with all laws applicable thereto; at all times maintain,
      preserve and protect all franchises, patents, and trade names and preserve
      all
      the remainder of its property used or useful in the conduct of its business
      and
      keep the same in good condition and repair (normal wear and tear and
      obsolescence excepted), and from time to time make, or cause to be made, all
      needful and proper repairs, renewals, replacements, betterments and improvements
      thereto, and will pay or cause to be paid, except when the same may be contested
      in good faith, all rent due on premises where any property is held or may be
      held, so that the business carried on in connection therewith may be
      continuously conducted. The Borrower will have and maintain insurance at all
      times with respect to its properties against risks of fire (including so-called
      extended coverage), theft and such risks as the Investor may require containing
      such terms, in such form, and for such periods, and written by such companies
      as
      may be satisfactory to the Investor. The Borrower will furnish the Investor
      with
      certificates or other evidence satisfactory to the Investor of compliance with
      the foregoing insurance provisions. The Borrower will also at all times maintain
      necessary workmen’s compensation insurance and such other insurance as may be
      required by law or as may be reasonably required by the Investor. 

     

    7.4. Notices
      of Default and Governmental Orders.
      The
      Borrower will promptly give notice in writing to the Investors of the occurrence
      of any event which constitutes or which with notice or lapse of time, or both,
      would constitute an Event of Default; of any court or governmental orders,
      notices, claims, investigations, litigation and proceedings affecting the
      Borrower, and of any dispute which may exist between the Borrower, on the one
      hand, and any Governmental Entity or any other party, on the other hand, which,
      if decided adversely against the Borrower, would have a Material Adverse Effect
      and would prevent the Borrower to operate its business as presently
      operated.

     

    
      
        
        

      

      
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    7.5. SEC
      Filings.
      The
      Borrower shall file with the Commission each filing required by the Exchange
      Act
      pursuant to Section 13 on or prior to the date that such filing is due. The
      financial statements included in each annual report on Form 10-K or Form 10-KSB
      and quarterly report on Form 10-Q or Form 10-QSB shall include financial
      statements which comply in all material respects with the requirements of the
      Exchange Act and the applicable requirements of Item 310 of Regulation S-B
      or
      Regulation S-X, as the case may be. 

     

    7.6. Independent
      Board and Audit and Compensation Committees.
      Not
      later than the first to occur of NaturalNano’s next meeting of stockholders or
      September 30, 2007, NaturalNano’s board of directors shall consist of a majority
      of independent
      directors and its audit and compensation committees shall consist solely of
      independent directors, and the chairman of the audit committee shall be an
      audit
      committee financial expert. The independence of the directors shall be
      determined by the rules of the Nasdaq Stock Exchange unless the Common Stock
      is
      listed on the New York or American Stock Exchange, in which event independence
      shall be determined by the rules of such exchange. 

     

    7.7. Use
      of Proceeds.
      The
      Borrower will use the net proceeds from the sale of the Securities as set forth
      in Schedule 7.7 of the Disclosure Schedule.

     

    7.8. Right
      of First Refusal

     

    7.8.1. In
      the
      event that, during the twelve months following the Closing Date, the Borrower,
      which term, for purposes of this Section 7.8, shall include any subsidiary
      of
      the Borrower, seeks to raise additional funds through a private placement of
      its
      securities (a “Proposed Financing”), other than Exempt Issuances, each Investor
      shall have the right to participate in the Proposed Financing on a pro rata
      basis, based on the percentage that (a) the number of shares of Common Stock
      held by the Investor plus the number of shares of Common Stock issuable upon
      conversion of the Note then owned by the Investor plus the number of shares
      of
      Common Stock issuable upon conversion of the Warrants, in each case without
      regard to the 4.99% Limitation, bears to (b) the total number of shares of
      Common Stock outstanding plus the number of Shares issuable upon conversion
      of
      the Notes and the Warrants, without regard to the 4.99% Limitations any other
      limitations on exercise such other convertible preferred stock or debt
      securities.

     

    7.8.2. The
      terms
      on which the Investor shall purchase securities pursuant to the Proposed
      Financing shall be the same as such securities are purchased by other investors
      in such Proposed Financing. The Borrower shall give the Investors not less
      than
      twenty (20) days notice setting forth the terms of the Proposed Financing.
      In
      the event that the terms of the Proposed Financing are changed, the Borrower
      shall provide each Investor with the same notice of the revised terms that
      are
      provided to the other investors in such Proposed Financing.

     

    7.8.3. In
      the
      event that any Investor does not exercise its right to participate in the
      Proposed Financing, the Borrower may sell the securities in the Proposed
      Financing at a price and on terms which are no more favorable to the investors
      in such Proposed Financing than the terms offered to the Investors. If the
      Borrower subsequently changes the price or terms so that the terms are at a
      price or more favorable to the investors in the Proposed Financing, the Borrower
      shall reoffer the securities to the Investors as provided in this Section
      7.8.

     

    
      
        
        

      

      
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    7.8.4. In
      the
      event that any Investor exercises its right of first refusal pursuant to this
      Section 7.8, the references in this Agreement to 4.99% shall, from and after
      the
      purchase by the Investor of such securities, be deemed for all purposes to
      mean,
      with respect to that Investor only, 9.99%.

     

    7.9. Right
      to Convert into Subsequent Offering.
      If
      the
      Borrower completes a private equity or equity-linked financing, each Investor
      will have the right to exchange all or any portion of the unpaid principal
      amount of its Note, plus all accrued but unpaid interest thereon, for securities
      in such financing on the most favored terms available to other Investors,
      provided that the exchange is made in compliance with applicable securities
      laws.

     

    7.10. Price
      Adjustment.
      The
      Note and the Warrants shall include a provision to the effect that if, at any
      time when the Note and Warrants are outstanding,
      the
      Borrower issues convertible debt securities, shares of Common Stock, or shares
      of any class of preferred stock or other convertible securities at a price
      per
      share of Common Stock, or with a conversion right to acquire Common Stock at
      a
      price per share of Common Stock
      or
      warrants or options, such price being referred to as the “lower price” (other
      than (x) an Exempt Issuance or (y) an issuance covered by the provisions of
      the
      Note and Warrants relating to stock dividends, distributions and reverse splits
      or (z) an issuance of Common Stock upon exercise or upon conversion of warrants,
      options or other convertible securities for which an adjustment has already
      been
      made pursuant to the applicable provisions of the Note or the
      Warrants,
      that is
      less than the conversion price of the Note or exercise price of the Warrant
      in
      effect
      at the time of such sale the conversion price of the Note and the exercise
      price
      of the Warrants shall be adjusted so that it equals the lower price. The initial
      conversion price and exercise price shall be set forth in the Note and the
      Warrants.

     

    7.11. Employment
      and Consulting Contracts.
      For
      three years after the Closing Date or such earlier date as all of the Notes
      shall have been paid or converted and all of the Warrants shall have been
      exercised and, in each case, the underlying Common Stock shall have been sold,
      the Borrower must have a unanimous approval from the compensation committee
      for
      any officer, director or consultant whose compensation is more than $100,000
      per
      annum. This Section 7.12 does not apply to the Borrower’s attorneys and
      accountants.

     

    7.12. Subsequent
      Equity Sales.
      From
      the date hereof until such time as all of the Notes shall have been paid or
      converted and all of the Warrants shall have been exercised and, in each case,
      the underlying Common Stock shall have been sold, NaturalNano shall not effect
      or enter into an agreement to effect any financing involving a “Variable
      Rate Transaction”
or
      an
“MFN
      Transaction”
(each
      as defined below). The term “Variable
      Rate Transaction”
shall
      mean a transaction in which the Borrower issues or sells any debt or equity
      securities that are convertible into, exchangeable or exercisable for, or
      include the right to receive additional shares of Common Stock either (i) at
      a
      conversion, exercise or exchange rate or other price that is based upon and/or
      varies with the trading prices of or quotations for the shares of Common Stock
      at any time after the initial issuance of such debt or equity securities, or
      (ii) with a conversion, exercise or exchange price that is subject to being
      reset at some future date after the initial issuance of such debt or equity
      security or upon the occurrence of specified or contingent events directly
      or
      indirectly related to the business of the Borrower or the market for the Common
      Stock. The term “MFN
      Transaction”
shall
      mean a transaction in which the Borrower issues or sells any securities in
      a
      capital raising transaction or series of related transactions which grants
      to an
      investor the right to receive additional shares based upon future transactions
      of the Borrower on terms which are more favorable to the Investor than the
      terms
      initially provided to the Investor in its initial securities purchase agreement
      with the Borrower. The Investors shall be entitled to obtain injunctive relief
      against the Borrower to preclude any such issuance, which remedy shall be in
      addition to any right to collect damages. No Variable Rate Transaction or MFN
      Transaction shall be an Exempt Issuance.

     

    
      
        
        

      

      
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    7.13. Amendment
      of Articles.
      At
      or
      before the next annual meeting of the stockholders of NaturalNano, the board
      of
      directors shall propose and submit to the holders of the Common Stock for
      approval, an amendment to the articles of incorporation that provides
      substantially as follows:

     

    “The
      terms and conditions of any rights, options and warrants or other securities
      approved by the Board of Directors may provide that any or all of such terms
      and
      conditions may not be waived or amended or may be waived or amended only with
      the consent of the holders of a designated percentage of a designated class
      or
      classes of capital stock of the Corporation (or a designated group or groups
      of
      holders within such class or classes, including but not limited to disinterested
      holders), and the applicable terms and conditions of any such rights, options
      or
      warrants so conditioned may not be waived or amended or may not be waived or
      amended absent such consent.”

     

    7.14. Stock
      Splits.
      All
      forward and reverse stock splits shall affect all equity and derivative holders
      proportionately.

     

    7.15. No
      Disclosure of Material Non-Public Information.
      The
      Borrower will not disclose to the Investors or the Agent any material non-public
      information concerning the Borrower except (a) with the consent of Investors
      or
      the Agent and (b) if such consent is given, pursuant to a non-disclosure
      agreement which provides, among other things, that the Investor or the Agent
      will not disclose the material non-public information to any person and the
      Investor or the Agent will not engage in any transactions involving
      NaturalNano’s securities while in possession of material non-public
      information.

     

    7.16. Regulation
      D Offering.
      The
      offer and issuance of the Securities to the Investors is being made pursuant
      to
      the exemption from the registration provisions of the Securities Act afforded
      by
      Section 4(2) or Section 4(6) of the Securities Act and/or Rule 506 of Commission
      promulgated thereunder. On the Closing Date, the Borrower will provide an
      opinion reasonably acceptable to Subscriber from the Borrower’s legal counsel
      provided for in Section 9.4 of this Agreement. The Borrower will also provide,
      at the Borrower’s expense, such other legal opinions in the future as are
      reasonably necessary for the issuance and resale of the Common Stock issuable
      upon conversion of the Notes and exercise of the Warrants pursuant to an
      effective registration statement under the Securities Act, Rule 144 or an
      exemption from registration.

     

    
      
        
        

      

      
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    7.17. Indemnification.

     

    7.17.1. The
      Borrower agrees to indemnify, hold harmless, reimburse and defend the Investors,
      the Investors’ officers, directors, agents, Affiliates, control persons, and
      principal shareholders, against any claim, cost, expense, liability, obligation,
      loss or damage (including reasonable legal fees) of any nature, incurred by
      or
      imposed upon the Investor or any such person which results, arises out of or
      is
      based upon (a) any material misrepresentation by Borrower or material breach
      of
      any warranty by Borrower in this Agreement or in any Exhibits or Schedules
      attached hereto, or other agreement delivered pursuant hereto; or (b) after
      any
      applicable notice and/or cure periods, any material breach or default in
      performance by the Borrower of any covenant or undertaking to be performed
      by
      the Borrower hereunder, or any other agreement entered into by the Borrower
      and
      Investor relating hereto.

     

    7.17.2. Each
      Investor agrees to indemnify, hold harmless, reimburse and defend the Borrower
      and each of the Borrower’s officers, directors, agents, Affiliates, control
      persons and principal shareholders against any claim, cost, expense, liability,
      obligation, loss or damage (including reasonable legal fees) of any nature,
      incurred by or imposed upon the Borrower or any such person which results,
      arises out of or is based upon (a) any material misrepresentation by such
      Investor in this Agreement or in any Exhibits or Schedules attached hereto,
      or
      other agreement delivered pursuant hereto; or (b) after any applicable notice
      and/or cure periods, any material breach or default in performance by such
      Investor of any covenant or undertaking to be performed by such Investor
      hereunder, or any other agreement entered into by the Borrower and Investors,
      relating hereto.

     

    7.17.3. In
      no
      event shall the liability of any Investor or successor hereunder or under any
      Transaction Document or other agreement delivered in connection herewith be
      greater in amount than the lesser of (a) the principal amount of Notes purchased
      by the Investor or (b) the dollar amount of the net proceeds actually received
      by such Investor upon the sale of the shares of Common Stock issuable upon
      conversion of the Notes or exercise of the Warrants.

     

    7.17.4. The
      procedures set forth in the Registration Rights Agreements with respect to
      indemnification shall apply to the indemnification set forth in this Section
      7.17.

     

    7.18. Payment
      of Due Diligence Expenses.

     

    7.18.1. On
      the
      Closing Date, the Borrower will
      pay
      to the Agent a due diligence fee of $195,000 of which $97,500 will be paid
      in
      cash at the Closing and $97,500 will be paid in the form of a Note. With respect
      to the $97,500 which is being paid to the Agent in the form of a Note, the
      Agent
      shall, for all purposes in this Agreement be deemed to be an Investor with
      respect to such Note with the same effect as if the Agent purchased a Note
      for
      $97,500. NaturalNano shall also issue to the Agent at the Closing, warrants
      (the
“Agent’s
      Warrants”)
      to
      purchase 10% of the number of shares issuable upon exercise of each set of
      the
      Warrants sold to the Investors, which represents Warrants to purchase 1,141,194
      shares of Common Stock at $.22 per share and 1,141,194 shares of Common Stock
      at
      $.33 per share. Except for the exercise price, the Agent’s Warrants shall be in
      substantially the form of Exhibit D-2.

     

    7.18.2. Upon
      any
      exercise of the Warrants issued to the Investors, the Borrower will pay the
      Agent a fee of 6% of the proceeds, of which 3% of such proceeds will be paid
      in
      cash and the remaining 3% will be paid in the form of a Note with the same
      effect as if the Agent were an Investor with respect to such additional Note
      pursuant to this Agreement and shall receive the Warrants that would be issued
      if the Agent had made an investment equal to the principal amount of the Note;
      provided, however, that if the Warrants are exercised after the Notes are paid
      in full or fully converted into Common Stock, such fee shall be paid in
      cash.

     

    
      
        
        

      

      
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    7.19. Actions
      by Subsidiaries.

     

    7.19.1. Each
      Subsidiary of the Borrower shall be subject to the covenants set forth in
      Sections 6 and 7 of this Agreement with the same force as if such subsidiary
      were named in this Agreement.

     

    7.19.2. In
      the
      event that the Borrower creates or acquires any Subsidiaries, the Borrower
      shall
      immediately (a) pledge the stock or other equity interest in the Subsidiary
      pursuant to the Pledge Agreement, (b) cause the Subsidiary to grant the Lenders
      a first priority security interest in all of its assets and (c) cause the
      Subsidiary to agree to abide by the provisions of Sections 6 and 7 of this
      Agreement.

     

    7.19.3. In
      the
      event that the Borrower acquires an interests in a Person that is not a
      Subsidiary, the Borrower shall immediately pledge the stock or other equity
      interest in such Person pursuant to the Pledge Agreement.

     

    7.20. Payments
      to TI.
      Without
      the consent of the holders of a majority of the principal amount of the Notes
      then outstanding, the Borrower shall not make any payment to TI on account
      of
      the Company’s obligations to TI for money borrowed as long as any Notes are
      outstanding except from the proceeds from the exercise of Warrants, and the
      Borrower shall deliver at the Closing the agreement of TI not to demand payment
      prior to the date on which the Borrower may pay TI pursuant to this Section
      7.20.

     

    Section
      8. DEFAULT

     

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

     

    8.1.1. Borrower’s
      failure to make any payment of principal or interest or any other sums within
      fifteen (15) days of the date when due on any of the Obligations.

     

    8.1.2. Any
      representation or warranty or other statement made or furnished to the Investors
      by or on behalf of the Borrower in this Agreement or in any document or
      instrument furnished in connection with this Agreement proves to have been
      false
      or misleading in any material respect when made or furnished.

     

    8.1.3. 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 this Agreement, the Registration Rights Agreement and
      the
      other Supplemental Agreements and the failure to cure (if curable) any such
      breach or failure within fifteen (15) days after receipt of written notice
      thereof from any Investor to the Borrower; provided, however, that the
      obligations of NaturalNano with respect to its failure to file the registration
      statement 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 8.

     

    
      
        
        

      

      
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    8.1.4. 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.

     

    8.1.5. Failure
      of the Common Stock to be eligible for transfer pursuant to the DTC Program
      for
      any reason on or after the effective date of the Registration Statement, as
      defined in the Registration Rights Agreement.

     

    8.1.6. Breach
      of
      or failure in the due observance or performance of any covenant, condition
      or
      agreement on the part of the Borrower to be observed or performed pursuant
      to
      any Supplemental Agreements or breach by Borrower of any other agreement with
      Investors beyond the expiration of any grace or cure periods provided
      therein.

     

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

     

    8.1.8. The
      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

     

    8.1.9. An
      order,
      judgment or decree shall be entered, or a case shall be commenced, against
      the
      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 the 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 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

     

    8.1.10. 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

     

    8.1.11. 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

     

    
      
        
        

      

      
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    8.1.12. Failure
      by the Borrower to take all steps necessary to grant Investors a perfected
      first
      priority security interest in any intellectual property acquired subsequent
      to
      the Closing Date; or 

     

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

     

    8.2. Acceleration.
      Upon
      and after an Event of Default, the entire unpaid balance owed under this
      Agreement or any Note or other documents evidencing the same, plus any other
      Obligations, shall, at the option of the Investors, upon written notice from
      the
      Requisite Investors or from the Agent on behalf of the Requisite Investors,
      immediately become due and payable without presentment, demand, protest, notice
      of protest, or other notice of dishonor of any kind, all of which are hereby
      expressly waived by the Borrower, and Agent and the Investors shall immediately
      be entitled to exercise all of its rights and remedies under this Agreement,
      the
      Pledge Agreement, the Supplemental Agreements and applicable law.

     

    Section
      9. CONDITIONS
      TO INVESTORS’ OBLIGATIONS TO CLOSE.
      The
      obligations of the Investors to purchase the Securities shall be subject to
      the
fulfillment,
      on or prior to Closing Date unless specified otherwise, of the following
      conditions:

     

    9.1. Representations
      True and Correct.
      The
      representations and warranties of the Borrower contained in this Agreement
      shall
      be true and correct in all material respects on and as of the Closing Date
      with
      the same force and effect as if made on as of the Closing Date and the Borrower
      shall have performed and complied in all material respects with all covenants,
      agreements, and conditions required by this Agreement to be performed or
      complied with by it prior to or at the Closing Date, and the certificate of
      the
      chief executive officer and chief financial officer of Borrower as to the
      matters set forth in this Section 9.1 and Section 9.2 of this
      Agreement.

     

    9.2. No
      Adverse Proceedings.
      On the
      Closing Date, no action or proceeding shall be pending by any public authority
      or individual or entity before any court or administrative body to restrain,
      enjoin, or otherwise prevent the consummation of this Agreement or the
      transactions contemplated hereby or to recover any damages or obtain other
      relief as a result of the transactions proposed hereby.

     

    9.3. Delivery
      of Securities.
      The
      Borrower shall have delivered to the Investors, the Notes and Warrants set
      forth
      on Schedule A to this Agreement and to the Agent the payment, Note and Warrant
      provided in Section 7.19 of this Agreement.

     

    9.4. Opinion
      of Counsel.
      The
      Borrower shall have delivered the opinion of counsel as to the matter set forth
      in Exhibit E to this Agreement.

     

    9.5. Lien
      Search.
      The
      Borrower shall have delivered a lien search, which shall include a search of
      the
      Patent and Trademark Office, which shall show no security interest in the
      Collateral other than the security interest contemplated by this
      Agreement.

     

    9.6. Recordings
      of Liens.
      The
      Borrower shall have delivered evidence that UCC-1 filings have been made with
      the Secretary of State of the State of Nevada with respect to NaturalNano and
      Delaware with respect to NN Research and any other jurisdictions where such
      filings are required in order to perfect the Investors’ security interest in the
      Collateral, and that filings have been made with the Patent and Trademark Office
      evidencing the Investor’s security interest in the Borrower’s Patent and
      Trademarks.

     

    
      
        
        

      

      
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    9.7. Other
      Deliveries.
      The
      Borrower shall have delivered to the Agent, on behalf of the
      Investors:

     

    9.7.1. The
      executed Escrow Agreement.

     

    9.7.2. The
      assignment by TI of the TI Patents to NaturalNano in form for recording in
      the
      United States Patent and Trademark Office and the comparable government offices
      in any other countries in which the TI Patents or an applications therefor
      are
      filed or registered in the forms of Exhibit F.

     

    9.7.3. The
      executed Registration Rights Agreement and other Supplemental
      Agreements.

     

    9.7.4. The
      lock-up agreement of TI and such other agreements and documents as the Investors
      may reasonably request, each to be in form and substance satisfactory to the
      Investors.

     

    9.7.5. Evidence
      that the Borrower’s board of directors has approved the Transaction Documents
      and, NatualNano’s board of directors has approved, subject to stockholder
      approval, the amendment to NaturalNano’s certificate of incorporation set forth
      in Section 7.13 of this Agreement.

     

    9.7.6. Copies
      articles of incorporation and all amendment of NaturalNano and NN Research
      certified by the Secretary of State of the state of incorporation.

     

    9.7.7. Copies
      of
      by-laws of NaturalNano and NN Research, certified by their respective
      secretaries.

     

    9.7.8. Good
      standing certificates as to the good standing of NaturalNano and NN Research
      in
      the state of its incorporation.

     

    9.7.9. The
      certificate of insurance required by Section 3.13 of this
      Agreement.

     

    9.7.10. Such
      other documents or instrument as may be reasonably requested by the Investors
      or
      the Agent.

     

    Section
      10. CONDITION
      TO BORROWER’S OBLIGATIONS TO CLOSE.
      The
      obligations of the Investors to purchase the Securities shall be subject to
      the
      payment by the Investors of the purchase price of the Securities to the Escrow
      Agent.

     


    
      
        
        

      

      
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    Section
      11. MISCELLANEOUS
      PROVISIONS.

     

    11.1. Entire
      Agreement.
      This
      Agreement, including all exhibits and schedules hereto
      which
      constitute an integral part of this Agreement,
      sets
      forth the entire agreement and understanding between the parties and supersedes
      all prior
      or
      contemporaneous written or oral
      agreements, promises, representations, understandings, letters
      of intent and
      negotiations, between
      the parties with respect to the subject matter
      of this
      Agreement. No part of
      this
      Agreement
      may be
      modified or amended, nor may any right be waived,
      except
      by a written
      instrument which expressly refers to this Agreement, states that it is a
      modification or amendment of this Agreement or a waiver and is signed by the
      parties to this Agreement, or, in the case of waiver, by the party granting
      the
      waiver. No course of conduct or dealing or trade usage or custom and no course
      of performance shall be relied on or referred to by any party to contradict,
      explain or supplement any provision of this Agreement, it being acknowledged
      by
      the parties that this Agreement is intended to be, and is, the complete and
      exclusive statement of the agreement with respect to its subject matter, subject
      to the Additional Agreements. Any waiver shall be limited to the express terms
      thereof and shall not be construed as a waiver of any other provisions or the
      same provisions at any other time or under any other circumstances. No delay
      or
      failure by either party to exercise any right under this Agreement, and no
      partial or single exercise of that right, shall constitute a waiver of that
      or
      any other rights.
      Notwithstanding the foregoing, 4.99% Limitation and the provisions relating
      to
      the 4.99% Limitation may not be modified, amended or waived by any Investor
      or
      by the Borrower. 

     

    11.2. 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 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 personam 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
      11.4
      of this Agreement (other than by telecopier) or (ii) in any other manner
      permitted by law. 

     

    11.3. Waiver
      of Right to Trial by Jury.
      BORROWER
      AND INVESTORS MUTUALLY 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 AGREEMENT OR ANY OTHER DOCUMENTS CONTEMPLATED
      TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
      DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
      WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR INVESTORS TO ACCEPT THIS
      AGREEMENT.

     

    11.4. 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
      certified or registered mail, overnight
      courier services with provided evidence of delivery or attempted
      delivery,
      or
      facsimile, to the recipient addressed to the parties at their respective
      addresses set forth on the signature page of this Agreement to the attention
      to
      the person who executed this Agreement on behalf of the party.
      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, provided
      that notice by telecopier shall be deemed given when receipt is acknowledged
      by
      the recipient.

     

    
      
        
        

      

      
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    11.5. Survival
      of Agreements.
      All
      agreements, representations and warranties made herein, in any agreement and
      in
      any statements, notices, invoices, certificates, schedules, documents or other
      instruments delivered to the Investor in connection with this Agreement or
      any
      other agreement shall survive the making of the loans and advances
      hereunder.

     

    11.6. Rights
      of Assignee.
      All
      rights of each Investor in, to and under this Agreement shall pass to and may
      be
      exercised by any assignee thereof. The Borrower agrees that, in the event of
      an
      assignment of this Agreement and notice of such assignment to the Borrower,
      the
      liability of the Borrower to a holder for value of this Agreement shall be
      immediate and absolute and not affected by any actions of the assigning
      Investor; and that the Borrower will not set up any claim against the Investor
      as a defense, counterclaim or setoff to any action for the unpaid balance owed
      under this Agreement or for possession, brought by said holder.

     

    11.7. Binding
      Effect.
      All
      rights and obligations of the Investors hereunder shall inure to the benefit
      of
      and be binding upon its successors and assigns, and all the obligations of
      the
      Borrower contained in this Agreement shall bind the successors, heirs and
      assigns of the Borrower. Since the Borrower consists of more than one party,
      all
      of the obligations, covenants, representations and warranties of the Borrower
      contained in this Agreement shall be the joint and several obligations of the
      parties constituting the “Borrower.”

     

    11.8. Counsel
      Fees and Expenses.
      The
      Borrower agrees to pay all reasonable counsel fees and expenses, including
      recording and filing fees, incurred by the Investor in connection with the
      financing of any kind and character hereafter incurred by the Investor, whether
      in connection with efforts to collect the Obligations, or in the enforcement
      or
      defense of any of the provisions of this Agreement; or negotiations regarding
      and consultation concerning this Agreement or any Supplemental Agreement, or
      preparation therefor, or the financing extended thereunder; or the defense
      of
      any proceedings involving any claims made or threatened against or arising
      out
      of this Agreement or any Supplemental Agreement, or the financing extended
      thereunder, or which the Investors may hereafter incur in protecting, enforcing,
      increasing or releasing any security held by the Investors or any Obligation
      or
      any provision of this Agreement or any Supplemental Agreement. Borrower’s
      obligation to pay such counsel fees and expenses of the Investors shall exist
      whether or not proceedings are instituted or legal appearances are made in
      any
      court on behalf of the Investors or any of them. The legal fees for the
      preparation of the Transaction Documents and the closing shall be $20,000,
      plus
      disbursements, of which $10,000 has been paid on account. If the Investors
      engage special patent counsel, the Borrower shall also pay the reasonable fees
      and expenses of patent counsel.

     

    11.9. Descriptive
      Headings. The
      descriptive headings of the several sections of this Agreement are inserted
      for
      convenience only and shall not be deemed to affect the meaning or construction
      of any of the provisions hereof.

     

    
      
        
        

      

      
        -
          41 -

        
          

        

      

      
        
        

      

    


    11.10. Severability.
      If any
      provision of this Agreement or application thereof to any person or circumstance
      shall to any extent be invalid, the remainder of this Agreement or the
      application of such provision to persons, entities or circumstances other than
      those as to which it is held invalid, shall not be affected thereby and each
      provision of this Agreement shall be valid and enforceable to the fullest extent
      permitted by law.

     

    11.11. Third
      Party Purchaser. Each
      Investor shall have the unrestricted right at any time or from time to time,
      and
      without Borrower’s consent, to sell, assign, endorse, or transfer all or any
      portion of its rights and obligations hereunder to one or more entities (each,
      an “Assignee”) and, Borrower agrees that it shall execute, or cause to be
      executed such documents including without limitation, amendments to this
      Agreement and to any other documents, instruments and agreements executed in
      connection herewith as the Investors or the Agent shall deem necessary to effect
      the foregoing. In addition, at the reasonable request of the Investors and
      any
      such Assignee, Borrower shall issue one or more new promissory notes, as
      applicable, to any such Assignee. Upon the execution and delivery of appropriate
      assignment documentation, amendments and any other documentation required by
      an
      Investor in connection with such assignment, such Assignee shall be a party
      to
      this Agreement and shall have all of the rights and obligations of the assigning
      Investor hereunder (and under any and all other documents, instruments and
      agreements executed in connection herewith) to the extent that such rights
      and
      obligations have been assigned by Investor pursuant to the assignment
      documentation between Investor and Assignee.

     

    11.12. Preparation
      of Agreement.
      Neither
      this Agreement nor any of the other Transaction Documents shall be construed
      more strongly against any party regardless of who is responsible for its
      preparation. The parties acknowledge each contributed and is equally responsible
      for its preparation. In
      resolving any dispute regarding, or construing any provision in, this Agreement,
      there shall be no presumption made or inference drawn because of the drafting
      history of the Agreement, or because of the inclusion of a provision not
      contained in a prior draft or the deletion or modification of a provision
      contained in a prior draft.

     

    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.

     

    [Signatures
      on following page]

     

    
      
        
        

      

      
        -
          42 -

        
          

        

      

      
        
        

      

    


    SIGNATURE
      PAGE TO LOAN AND SECURITY AGREEMENT (A)

     

    
      	
              15
                Schoen Place

              Pittsford,
                New York 14534-2025

              Telecopier:
                (585) 267-4825

            	 	
              NATURALNANO,
                INC.

              a
                Nevada corporation 

               

               

                                        

            	
            
	 	 	By:
  /s/
              Cathy A.
              Fleischer       	 
	 	 	
              Name:
                Cathy A. Fleischer

              Title:  
                President

            	 
	
              15
                Schoen Place

              Pittsford,
                New York 14534-2025

              Telecopier:
                (585) 267-4825

            	 	
              NATURALNANO
                RESEARCH, INC.

              a
                Delaware corporation 

               

               

               

            	
            
	 	 	
              By:
                  /s/
                Kathleen A. Browne

            	 
	 	 	
              Name:
                Kathleen A. Browne

              Title:  
                CFO

            	 
	
              152
                W. 57th Street, 54th Floor

              New
                York, NY 10019

              Telecopier:
                (212)

            	 	
              PLATINUM
                ADVISORS LLC

              a
                Delaware limited liability company 

               

                    

               

            	
            
	 	 	By:
              /s/ Mark Nordlicht	 
	 	 	
              Name: Mark
                Nordlicht

              Title:

            	 


    


    
      
        
        

      

      
        -
          43 -

        
          

        

      

      
        
        

      

    


    SIGNATURE
      PAGE TO LOAN AND SECURITY AGREEMENT (B)

     

    
      	
              Investor

            	 	 	
              Purchase
                Price 

            	 	 	
              Note/Conversion
                Shares

            	 	 	
              A
                Warrants

            	 	 	
              B
                Warrants

            	 
	
              Platinum
                Partners Long Term Growth IV

               

               

              By:
                /s/ Mark
                Nordlicht                           
                

              Name:
                Mark Nordlicht

              Title:

              Address:
                152
                W. 57th Street, 54th Floor

               
                New York, NY 10019

              Telecopier:
                (212)

            	 	
              $

            	
              2,750,000

            	 	
              $

            	
              2,750,000/

              12,500,000

            	 	 	
              9,375,000

            	 	 	
              9,375,000

            	 
	
              Longview
                Special Financing, Inc.

               

               

              By:
                /s/ François
                Morax                         
                 

              Name:
                François
                Morax

              Title:  
                Director

              Address:
                Lindstrassse
                6

               6341
                Baar

               Switzerland

              Telecopier:

            	 	 	
              500,000

            	 	
              $

            	
              500,000/

              2,272,728

            	 	 	
              1,704,546

            	 	 	
              1,704,546

            	 
	
              Platinum
                Advisors, LLC

               

               

              By:
                /s/ Mark
                Nordlicht                            

              Name:
                Mark Nordlicht

              Title:

              Address:
                152
                W. 57th Street, 54th Floor

               
                New York, NY 10019

              Telecopier:
                (212)

            	 	 	
              97,500

            	 	
              $

            	
              97,500/

              
                443,182

              

            	 	 	
              332,387

            	 	 	
              332,387

            	 
	
               

            	 	
              $

            	
              3,347,500

            	 	
              $

            	
              3,347,500/

            	 	 	
              11,411,933

            	 	 	
              11,411,933

            	 
	
              Total

            	 	 	 	 	 	
              15,215,910

            	 	 	 	 	 	 	 


    


    
      
        
        

      

      
        -
          44 -

        
          

        

      

      
        
        

      

    


    List
      of Exhibits

     

    
      	
              Exhibit

            	
              Description

            	
              Section

            
	
              A

            	
              Notes

            	
              1.25

            
	
              B

            	
              Pledge
                Agreement

            	
              1.29

            
	
              C

            	
              Registration
                Rights Agreement

            	
              1.31

            
	
              D-1
                and D-2

            	
              A
                Warrants and B Warrants, respectively

            	
              1.41

            
	
              E

            	
              Opinion
                of Counsel

            	
              9.4

            
	
              F

            	
              Assignment
                of TI Patents

            	
              9.7.2

            


    

     


    
      
        
        

      

      
        -
          45 -