f8k120409ex10ii_naturalnano.htm


     

    Exhibit
10.2

     

     

    
      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

      


      THIS
NOTE IS SUBORDINATE IN RIGHTS OF PAYMENT AND SECURITY TO THE OBLIGATIONS OF THE
BORROWER TO THE SENIOR CREDITORS

      


      Principal Amount:
$225,000                                                                                                Issue
Date: November 30, 2009

      


      


      SUBORDINATED SECURED
CONVERTIBLE PROMISSORY NOTE

      


      
        FOR VALUE
RECEIVED, NaturalNano, Inc., a Nevada corporation (hereinafter called
“Borrower”), hereby promises to pay to  __________________, located at
______________________ (together with its successors, representatives, and
permitted assigns, the “Holder”) or order, without demand, the sum of two
hundred and twenty five thousand dollars ($225,000) (the “Principal Amount”) on
February __, 2011 (the “Maturity Date”),
if not sooner paid.

      

      .

      This Note
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder dated at or about the date hereof (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription
Agreement.  Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement.  The following terms shall apply to
this Note:

      


      ARTICLE
I

      


      GENERAL
PROVISIONS

      


      
        1.1    
Interest.  The
outstanding principal amount of this Note shall bear simple interest at a rate
of ten
percent (10%) per annum from the date of this Note above until the Maturity
Date.  Such interest will be based on a 365-day year and calculated
for the actual number of days elapsed in which interest is being
calculated.

         

        1.2   
 Interest
Payments.  The Borrower shall pay the Holder all accrued but
unpaid interest on the first
business day of each fiscal quarter, provided however, that the first interest
payment shall also include all interest accrued between the Closing Date and
January 1, 2010.  The Holder shall have no obligation to deliver to
the Borrower any invoice or other statement setting forth the amount of
principal, interest or any other amount due on any payment date, and any absence
by the Holder to provide any such invoice or statement shall not reduce or
otherwise impair the Borrower’s obligation to pay any amounts payable
hereunder.  The Borrower shall make all interest payments under this
Note to the Holder by 5:00 p.m. EST on the date when due.  The
Borrower shall make all payments in:

      

       
 

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

       

      (a)    United
States Dollars in immediately available funds transferred by wire transfer to an
account designated by the Holder; or

      


      (b)    if a
registration statement for shares of Common Stock related to interest payments
is so effective on an interest payment date, then in shares of the Company’s
Common Stock based on a 25% discount to:

      


      
        	
                (i)  

              	
                the
      closing bid price on the Bulletin Board;
or

              


      

      


      
        	
                (ii)  

              	
                if
      on a national exchange, the volume weighted average price
      (VWAP)

              


      

      


      ,in each
case, for the twenty (20) trading days immediately preceding (but not including)
the applicable interest payment date.

      


      
        1.3   
 Default
Interest.  Upon the occurrence of an Event of Default (as
defined in Article III hereof),
then to the extent permitted by law, the Borrower will pay interest in cash to
the Holder, payable on demand, on the outstanding principal balance of this Note
from the date of the Event of Default until such Event of Default is cured at
the rate of the lesser of eighteen percent (18%) per annum and the maximum
applicable legal rate per annum.

      

      


      1.4     Ranking.  Except
as set forth in the next sentence, this Note shall be senior in priority to all
obligations of the Borrower.  This note shall be subordinate in
payment and security to all obligations the Borrower has to Platinum Long Term
Growth IV, LLC (aka Platinum Partners Long Term Growth IV), Longview Special
Finance, Inc. (aka Longview Special Financing, Inc.), and Platinum Advisors, LLC
(collectively, the “Senior Creditors”) pursuant to the following instruments and
agreements (as the same may be amended, modified or refinanced, the “Senior
Debt”):

      


      (a) the
$2,750,000 8% Senior Secured Promissory Note due March 6, 2009 issued to
Platinum Long Term Growth IV, LLC (aka Platinum Partners Long Term Growth)
(“Platinum”);

      


      (b) the
$500,000 8% Senior Secured Promissory Note due March 6, 2009 issued to Longview
Special Finance Inc. (aka Longview Special Financing Inc.)
(“Longview”);

      


      (c) the
$97,500 8% Senior Secured Promissory Note due March 6, 2009 issued to Platinum
Advisors, LLC;

      


      (d) the
$150,000 8% Senior Secured Promissory Note due March 6, 2009 issued to
Platinum;

      


      (e) the
$20,000 8% Senior Secured Promissory Note due March 6, 2009 issued to
Longview;

      


      (f) the
$190,000 8% Senior Secured Promissory Note due January 31, 2010 issued to
Platinum;

      


      (g) the
$30,000 8% Senior Secured Promissory Note due January 31, 2010 issued to
Longview;

      


      (h) the
$59,500 8% Senior Secured Promissory Note due January 31, 2010 issued to
Platinum;

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      
 

      (i) the
$25,500 8% Senior Secured Promissory Note due January 31, 2010 issued to
Longview;

      


      (j) an
aggregate of $145,711.12 in additional indebtedness issued pursuant to several
short-term bridge notes and other instruments.

      


      1.5    Security.  Payment
of the principal of, and interest on, this Note and all other amounts due under
the Subscription Agreement, is secured by certain personal property as provided
in the Security Agreement.

      


      1.6   
Payment.  Payment
of this Note and all interest thereon shall be paid to the Holder by wire
transfer to an account designated by the Holder or at such address outside of
the United States and its possessions as the Holder may instruct the Borrower in
writing in U.S. Dollars.

      


      1.7     Conversion
Privileges.  The Conversion Privileges set forth in Article II
shall remain in full force and effect immediately from the date hereof and until
the Note is paid in full regardless of the occurrence of an Event of
Default.  The Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof.

      


      ARTICLE
II

      


      CONVERSION
RIGHTS

      


      The
Holder shall have the right to convert the principal and any interest due under
this Note into Shares of the Borrower's Common Stock, $0.001 par value per share
(“Common Stock”) as set forth below.

      


      2.1.     Conversion into the
Borrower's Common Stock.

      


      (a)           The
Holder shall have the right from and after the date of the issuance of this Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid principal portion of this Note, and accrued interest, at the election
of the Holder (the date of giving of such notice of conversion being a
“Conversion Date”) into fully paid and nonassessable shares of Common Stock as
such stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the Conversion Price as defined in Section 2.1(b) hereof,
determined as provided herein.  Upon delivery to the Borrower of a
completed Notice of Conversion, a form of which is annexed hereto as Exhibit A,
Borrower shall issue and deliver to the Holder within seven (7) business days
after the Conversion Date (such fourth day being the “Delivery Date”) that
number of shares of Common Stock for the portion of the Note converted in
accordance with the foregoing.  At the election of the Holder, the
Borrower will deliver accrued but unpaid interest on the Note, if any, through
the Conversion Date directly to the Holder on or before the Delivery
Date.  The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
outstanding principal amount of the Note and accrued but unpaid interest, if
any, to be converted, by the Conversion Price.

      


      (b) Subject
to adjustment as provided in Section 2.1(c) hereof, the initial conversion price
per share shall be equal to $0.005 (“Conversion Price”).

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      
 

      (c)           
The Conversion Price and number and kind of shares or other securities to be
issued upon conversion determined pursuant to Section 2.1(a), shall be subject
to adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:

      


      A.           Merger, Sale of Assets,
etc.  If (A) the Borrower effects any merger
or  consolidation of the Borrower with or into another entity, (B) the
Borrower effects any sale of all or substantially all of its assets in one or a
series of related transactions,  (C) any tender offer or exchange
offer (whether by the Borrower or another entity) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, (D) the Borrower consummates a stock
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with one
or more persons or entities whereby such other persons or entities acquire more
than the 50% of the outstanding shares of Common Stock (not including any shares
of Common Stock held by such other persons or entities making or party to, or
associated or affiliated with the other persons or entities making or party to,
such stock purchase agreement or other business combination), (E) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
Common Stock of the Borrower, or (F) the Borrower effects any reclassification
of the Common Stock or any compulsory share exchange pursuant to which the
Common Stock is effectively converted into or exchanged for other securities,
cash or property (in any such case, a “Fundamental  Transaction”),
this Note, as to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to evidence the right to convert into such
number and kind of shares or other securities and property as would have been
issuable or distributable on account of such Fundamental Transaction, upon or
with respect to the securities subject to the conversion right immediately prior
to such Fundamental Transaction.  The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser.  Without limiting the generality of
the foregoing, the anti-dilution provisions of this Section shall apply to such
securities of such successor or purchaser after any such Fundamental
Transaction.

      


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

      


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

      


                          D.           Share
Issuance.   So long as this Note is outstanding, if the
Borrower shall issue any Common Stock except for the Excepted Issuances, prior
to the complete conversion or payment of this Note, for a consideration per
share that is less than the Conversion Price that would be in effect at the time
of such issuance, then, and thereafter successively upon each such issuance, the
Conversion Price shall be reduced to such other lower issue
price.  For purposes of this adjustment, the issuance of any security
or debt instrument of the Borrower carrying the right to convert such security
or debt instrument into Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security, debt instrument, warrant, right,
or option and again upon the issuance of shares of Common Stock upon exercise of
such conversion or purchase rights if such issuance is at a price lower than the
then applicable Conversion Price.  The reduction of the Conversion
Price described in this paragraph is in addition to the other rights of the
Holder described in the Subscription Agreement.  Common Stock issued
or issuable by the Borrower for no consideration will be deemed issuable or to
have been issued for $0.001 per share of Common Stock.

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      
 

      (d)           Whenever
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment.

      


      (e)           During
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock not less than an amount of Common Stock
equal to 100% of the amount of shares of Common Stock issuable upon the full
conversion of this Note.  Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and
non-assessable.  Borrower agrees that its issuance of this Note shall
constitute full authority to its officers, agents, and transfer agents who are
charged with the duty of executing and issuing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.

      


      2.2      Method of
Conversion.  This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a) hereof and the Subscription
Agreement.  Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid.

      


      2.3.     Maximum
Conversion.  The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number of shares
of Common Stock which would be in excess of the sum of (i) the number of shares
of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion
Date.  For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder.  Subject to the foregoing, the Holder shall not be limited
to aggregate conversions of 4.99%.  The Holder shall have the
authority and obligation to determine whether the restriction contained in this
Section 2.3 will limit any conversion hereunder and to the extent that the
Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder.  The Holder may waive the
conversion limitation described in this Section 2.3, in whole or in part, upon
and effective after 61 days prior written notice to the Borrower to increase
such percentage to up to 9.99%.

    

     

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
       

      ARTICLE
III

       

      EVENT
OF DEFAULT

      


      The
occurrence of any of the following events of default (“Event of Default”) shall,
at the option of the Holder hereof, make all sums of principal and interest then
remaining unpaid hereon and all other amounts payable hereunder immediately due
and payable, upon demand, without presentment, or grace period, all of which
hereby are expressly waived, except as set forth below:

      


      3.1     Failure to Pay Principal or
Interest.  The Borrower fails to pay any installment of
principal, interest or other sum due under this Note when due.

      


      3.2      Breach of
Covenant.  The Borrower breaches any material covenant or other
term or condition of the Subscription Agreement, Transaction Document or this
Note in any material respect and such breach, if subject to cure, continues for
a period of twenty (20) days after written notice to the Borrower from the
Holder.

      


      3.3      Breach of Representations
and Warranties.  Any material representation or warranty of the
Borrower made herein, in the Subscription Agreement or any Transaction Document
shall be false or misleading in any material respect as of the date made and the
Closing Date.

      


      3.4      Liquidation.   Any
dissolution, liquidation or winding up of Borrower or any substantial portion of
its business.

       

      3.5      Cessation of
Operations.   Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such debts
become due, provided, however that any disclosure of the Borrower’s ability to
continue as a “going concern” shall not be an admission that the Borrower cannot
pay its debts as they come due.

       

      3.6      Maintenance of
Assets.   The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future) or that
represents any material part of the Collateral (as defined in the Security
Agreement).

      


      3.7      Receiver or
Trustee.  The Borrower or any Subsidiary of Borrower shall make
an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed.

      


      3.8    
Judgments.  Any
money judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than
$100,000.

      


      3.9    
Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Borrower or any Subsidiary of Borrower.

      


      3.10    Delisting.   Delisting
of the Common Stock from any Principal Market; failure to comply with the
requirements for continued listing on a Principal Market for a period of five
(5) consecutive trading days; or notification from a Principal Market that the
Borrower is not in compliance with the conditions for such continued listing on
such Principal Market.

      


      3.11    Non-Payment.   A
default by the Borrower under any one or more obligations in an aggregate
monetary amount in excess of $100,000 for more than five days after the due
date, unless the Borrower is contesting the validity of such obligation in good
faith and has segregated cash funds equal to not less than one-half of the
contested amount.

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
 

      3.12    Stop
Trade.  An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five (5) or more consecutive trading
days.

      


      3.13   Failure to Deliver Common
Stock or Replacement Note.  Borrower's failure to timely
deliver Common Stock to the Holder pursuant to and in the form required by this
Note and Sections 7 and 11 of the Subscription Agreement, or, if required, a
replacement Note.

      


      3.14    Reservation
Default.   Failure by the Borrower to have reserved for
issuance upon conversion of the Note or upon exercise of the Warrants issued in
connection with the Subscription Agreement, the number of shares of Common Stock
as required in the Subscription Agreement, this Note and the Warrants, and such
failure continues for a period of thirty (30) days.

      


      3.15    Financial Statement
Restatement.  The restatement of any financial statements filed
by the Borrower with the Securities and Exchange Commission for any date or
period from two years prior to the Issue Date of this Note and until this Note
is no longer outstanding, if the result of such restatement would, by comparison
to the unrestated financial statements, have constituted a Material Adverse
Effect.

      


      3.16   Reverse
Splits.   The Borrower effectuates a reverse split of its
Common Stock without twenty days prior written notice to the
Holder.

      


      3.17   Event Described in
Subscription Agreement.  The occurrence of an Event of Default
as described in the Subscription Agreement that, if susceptible to cure, is not
cured during any designated cure period.

      


      3.18   Executive Officers Breach of
Duties.  Any of Borrower’s named executive officers or
directors is convicted of a violation of securities laws related to activities
regarding the Borrower’s securities, or a settlement in excess of $250,000 is
reached by any such officer or director relating to a violation of securities
laws related to activities regarding the Borrower’s securities, breach of
fiduciary duties or self-dealing.

      


      3.19    Cross
Default.  A default by the Borrower of a material term,
covenant, warranty or undertaking of any other material agreement to which the
Borrower is a party, or the occurrence of a material event of default under any
such other agreement to , in each case, which is not cured after any required
stated notice and/or cure period.

      


      ARTICLE
IV

      


      MISCELLANEOUS

      


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

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      4.2      Notices.  All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice.  Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the first business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.  The
addresses for such communications shall be:

       

      If to the
Borrower, to:

      


      NaturalNano,
Inc.

      15 Schoen
Place

      Pittsford,
NY 14534

      Facsimile:
(585) 267-4861

      


      If to the
Holder:

      


      To the
address and facsimile number listed on the first paragraph of this
Note

      


      With a
copy by fax only to (which copy shall not constitute notice):

      


      Anslow
& Jaclin LLP

      Attn:
Joseph M. Lucosky, Esq.

      195 Route
9 South, Suite 204

      Manalapan,
NJ 07726

      facsimile:
(732) 577-1188

      


      4.3     Amendment
Provision.  The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.

       

      4.4      Assignability.  This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to the benefit of the Holder and its successors and
assigns.  The Borrower may not assign its obligations under this
Note.

       

      4.5      Expenses.  The
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys’ fees.

       

      A.           Expenses for
Amendments.  If the Holder shall employ counsel for advice or
other representation or shall incur legal or other costs and expenses in
connection with any amendment or modification of this Note or any of the other
Transaction Documents, then, and in any such even, the reasonable counsel fees
arising from such services and all expenses, costs, charges and other reasonable
fees of such counsel incurred in connection with or related to any of the events
or actions described above shall be payable by the company.

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

       

      B.           Costs of
Collection.  In the event of a default or an Event of Default,
in addition to any other sums payable by the Borrower hereunder, the Borrower
shall pay the Holder’s and any other holders’ of the Notes costs of collection,
including reasonable attorneys’ fees, including post judgment costs of
collection, incurred by the Holder’s or any other holders’ of the Notes in the
collection of the obligations of the Borrower to the Holder and any other
holders of the notes whether under this Note or the other Transaction Documents,
and in the enforcement of any provision hereof and thereof, whether suit be
brought or not.

       

      C.           Expenses in
Dispute.  In the event of any dispute regarding the subject
matter hereunder, the non-prevailing party in any dispute shall be required to
fully reimburse the prevailing party in any dispute for all of its documents
attorneys’ fees, costs and expenses incurred in connection with such dispute,
the outcome of which shall have been determined by a court of competent
jurisdiction.

       

      4.6      Governing
Law.  This Note shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles that would result in the application of the substantive laws of
another jurisdiction.  Any action brought by either party against the
other concerning the transactions contemplated by this Agreement must be brought
only in the civil or state courts of New York or in the federal courts located
in the State and county of New York.  Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts.  The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and
costs.  In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or unenforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Borrower in any other
jurisdiction to collect on the Borrower's obligations to Holder, to realize on
any collateral or any other security for such obligations, or to enforce a
judgment or other decision in favor of the Holder.  This Note shall be deemed an
unconditional obligation of Borrower for the payment of money and, without
limitation to any other remedies of Holder, may be enforced against Borrower by
summary proceeding pursuant to New York Civil Procedure Law and Rules Section
3213 or any similar rule or statute in the jurisdiction where enforcement is
sought.  For purposes of such rule or statute, any other document or
agreement to which Holder and Borrower are parties or which Borrower delivered
to Holder, which may be convenient or necessary to determine Holder’s rights
hereunder or Borrower’s obligations to Holder are deemed a part of this Note,
whether or not such other document or agreement was delivered together herewith
or was executed apart from this Note.

       

      4.7      Maximum
Payments.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum rate permitted by applicable law.  In the event
that the rate of interest required to be paid or other charges hereunder exceed
the maximum rate permitted by applicable law, any payments in excess of such
maximum rate shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.

       

      4.8      Non-Business
Days.   Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

       

      4.9      Redemption.  This
Note may not be redeemed or called without the consent of the Holder except as
described in this Note or the Subscription Agreement.

      


      4.10    Shareholder
Status.  The Holder shall not have rights as a shareholder of
the Borrower with respect to unconverted portions of this
Note.  However, the Holder will have the rights of a shareholder of
the Borrower with respect to the Shares of Common Stock to be received after
delivery by the Holder of a Conversion Notice to the Borrower.

      


      4.11    Facsimile
Signature.  In the event that the Borrower’s signature is
delivered by facsimile transmission, PDF, electronic signature or other similar
electronic means, such signature shall create a valid and binding obligation of
the Borrower with the same force and effect as if such signature page were an
original thereof.

      


      [REMAINDER
OF PAGE LEFT BLANK]

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      [SIGNATURE
PAGE TO SUBORDINATED SECURED CONVERTIBLE PROMISSORY NOTE]

      


      


      IN WITNESS WHEREOF, Borrower
has caused this Note to be signed in its name by an authorized officer as of the
30th
day of November, 2009.

      


      


      NATURALNANO,
INC.

      


      


      By:________________________________

                 Name:
Jim Wemett

                 Title:
Chief Executive Officer

      


       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
 

      NOTICE OF
CONVERSION

      


      (To be
executed by the Registered Holder in order to convert the Note)

       

      The
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by NATURALNANO, INC. on ________, 200__
into Shares of Common Stock of NATURALNANO, INC. (the “Borrower”) according to
the conditions set forth in such Note, as of the date written
below.

      


       

      Date of
Conversion:                                                                                                                                                                                                                            
        

      


      


      Conversion
Price:                                                                                                                                                                                                                                    
    

      


      


      Number of Shares of Common Stock Beneficially Owned on
the Conversion Date: Less than 5% of the
outstanding Common Stock of NATURALNANO, INC.

      


       

      Shares To
Be Delivered:                                                                                                                                                                                                                                  

      


      


      Signature:                                                                                                                                                          
                                                                                               


      


      


      Print
Name:                                                                                                                                                                                                                                       


      


      


      Address:                                                                                                                                                                                                                                      


      


                                                                                                                                                                                                                                               


      
 

       

       12