Document:

EXHIBIT 10.2

 

THIS NOTE AND THE SHARES OF CAPITAL STOCK ISSUABLE UPON ANY CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED TO ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES ACT, OR (B) THE PARENT SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.

  

NATURALNANO, INC.

BITCOIN BIDDER, INC.

 

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

 

	
$[_____] 

	
 

	
 

	
June [__], 2014

 

BITCOIN BIDDER, INC., a Nevada corporation (the “Company”) and NATURALNANO, INC, a Nevada corporation (the “Parent” and, together with the Company, the “Maker”), for value received, hereby promises to pay to [____] or its assigns (the “Holder”), the principal amount of [_____] ($_____) (the “Principal Amount”), together with interest (computed on the basis of a 365-day year for the actual number of days elapsed) from the date hereof on the unpaid balance of such Principal Amount from time to time outstanding at the rate of ten percent (10%) per annum (“Interest”) until paid in full or converted as provided herein.

 

This Note is one of a series of notes is issued pursuant to the terms of the Securities Purchase Agreement, by and between the Company, the Parent and the purchasers signatory thereto, including the Holder, dated the date hereof (the “Purchase Agreement”). Upon the occurrence of a Security Interest Trigger, the payment of all amounts and all of the Makers’ obligations under this Note are secured by a first priority security interest in favor of Holder on the Secured Assets (as defined in the Purchase Agreement) pursuant to the terms of that certain Security Agreement, dated the date hereof. The rights to the Secured Assets by the Holder is pari passu to each of the holders of other notes issued pursuant to the Purchase Agreement. Capitalized terms used herein but otherwise not defined shall have the definitions ascribed to them in the Purchase Agreement. 

 

1. Repayment of the Note. The entire Principal Amount and all accrued and unpaid Interest shall be due and payable on the earlier of (1) the Maturity Date and (2) the occurrence of an Event of Default (as defined below). “Maturity Date” shall be defined as the earlier of (i) the Application Payment Refund Date, (ii) the Second Application Refund Date and (ii) June [__], 2015.

 

2. Prepayment of the Note. The Makers may prepay any outstanding amounts owing under this Note, in whole or in part, at any time prior to the Maturity Date, subject to conversions by the Holder, in accordance with Section 3 of this Note.

 

3. Conversion.

 

(a) Optional Conversion. At any time or from time to time and prior to payment in full of the entire Principal Amount, the Holder shall have the right, at the Holder’s option, to convert the Principal Amount and accrued Interest thereon, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Parent. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing the Conversion Amount by $0.001.

 

	 
	
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(b) Conversion Mechanics. In order to convert this Note into Common Stock, the Holder shall give written notice to the Parent at its principal corporate office or the notice address provided in this Note (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Holder) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) of the election to convert the same pursuant to this section (the date on which a Conversion Notice is given, a “Conversion Date”). Such Conversion Notice shall state the Conversion Amount and the number of shares of Common Stock to which the Holder is entitled pursuant to the Conversion Notice (the “Conversion Shares”). The Parent shall immediately, but in no event later than five (5) trading days after receipt of a Conversion Notice (the “Required Delivery Date”), deliver the Conversion Shares to the Holder.

 

(c) No Fractional Shares. No fractional Conversion Shares shall be issued by the Parent. In lieu thereof, the shares of Common Stock otherwise issuable shall be rounded up to the nearest whole Conversion Share.

 

(d) Holder’s Conversion Limitations. The Parent shall not affect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, pursuant to Section 3 or otherwise, to the extent that after giving effect to such issuance after conversion as set forth on the applicable Conversion Notice, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted portion of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Parent (including, without limitation, any other Common Stock equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 3(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Parent is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Note is convertible shall be in the sole discretion of the Holder, and the submission of an Conversion Notice shall be deemed to be the Holder’s determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Note is convertible, in each case subject to the Beneficial Ownership Limitation, and the Parent shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 3(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Parent’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Parent or (C) a more recent written notice by the Parent or the Parent’s transfer agent for the Common Stock setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Parent shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Parent, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note. The Holder may increase or decrease the Beneficial Ownership Limitation provisions of this Section 3(d). Any such increase will not be effective until the 61st day after such notice is delivered to the Parent. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 3(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

 

	 
	
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(e) Other Adjustments. If the Parent shall at any time or from time to time after the Original Issuance Date of this Note, effect a stock split of the outstanding Common Stock, the applicable Conversion Price in effect immediately prior to the stock split shall be proportionately decreased.  If the Parent shall at any time or from time to time after the Original Issuance Date of this Note, combine the outstanding shares of Common Stock, the applicable Conversion Price in effect immediately prior to the combination shall be proportionately increased. Any adjustments under this Section 3(f) shall be effective at the close of business on the date the stock split or combination occurs. If the Parent shall at any time or from time to time after the Original Issuance Date, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in shares of Common Stock, then, and in each event, the applicable Conversion Price in effect immediately prior to such event shall be decreased as of the time of such issuance or, in the event such record date shall have been fixed, as of the close of business on such record date, by multiplying, the applicable Conversion Price then in effect by a fraction:

 

(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date; and

 

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

 

If the Parent shall at any time or from time to time after the Original Issuance Date of this Note, make or issue or set a record date for the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an appropriate revision to the applicable Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the holders of this Note shall receive upon conversions thereof, in addition to the number of shares of Common Stock receivable thereon, the number of securities of the Parent which they would have received had this Note been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the Conversion Date, retained such securities (together with any distributions payable thereon during such period), giving application to all adjustments called for during such period under this Section 3.5(f) with respect to the rights of the Holder; provided, however, that if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions.

 

If at any time or from time to time after the Original Issuance Date of this Note there shall be a capital reorganization of the Parent (other than by way of a stock split or combination of shares or stock dividends or distributions provided for in this Section 3(f), or a reclassification, exchange or substitution of shares, or a merger or consolidation of the Parent with or into another person where the holders of outstanding voting securities prior to such merger or consolidation do not own over fifty percent (50%) of the outstanding voting securities of the merged or consolidated entity, immediately after such merger or consolidation, or the sale of all or substantially all of the Parent’s properties or assets to any other person (an “Organic Change”), then as a part of such Organic Change, (A) if the surviving entity in any such Organic Change is a public company that is registered pursuant to the Exchange Act, and its common stock is listed or quoted on a national exchange or the OTC Bulletin Board or OTCQB, an appropriate revision to the Conversion Price shall be made and provision shall be made (by adjustments of the Conversion Price or otherwise) so that the Holder shall have the right thereafter to convert such Note into the kind and amount of shares of stock and other securities or property of the Parent or any successor corporation resulting from Organic Change, and (B) if the surviving entity in any such Organic Change is not a public company that is registered pursuant to the Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national exchange or the OTC Bulletin Board or OTCQB, the Holder shall have the right to demand prepayment of the outstanding principal amount of this Note plus all accrued but unpaid interest hereon. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3(f) with respect to the rights of the Holder after the Organic Change to the end that the provisions of this Section 3(f) (including any adjustment in the applicable Conversion Price then in effect and the number of shares of stock or other securities deliverable upon conversion of this Note) shall be applied after that event in as nearly an equivalent manner as may be practicable.

 

	 
	
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(g) Buy-In. In addition to any other rights available to the Holder, if the Parent fails to cause its transfer agent to transmit via DWAC or transmit to the Holder a certificate or certificates representing the shares of Common Stock issuable upon conversion of this Note on or before the Required Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the shares of Common Stock issuable upon conversion of this Note which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Parent shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Common Stock issuable upon conversion of this Note that the Parent was required to deliver to the Holder in connection with the conversion at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Note and equivalent number of shares of Common Stock for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Parent timely complied with its conversion and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Parent shall be required to pay the Holder $1,000. The Holder shall provide the Parent written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Parent. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Parent’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof

 

4. Termination of Rights Under this Note. This Note shall no longer be deemed to be outstanding, and all rights with respect to this Note shall immediately cease and terminate, upon receipt by the Holder of (i) the Principal Amount outstanding and all accrued and unpaid Interest thereon, on the Maturity Date or, (ii) the conversion of the entire Principal Amount and Interest then due hereunder.

 

5. Taxes or other Issuance Charges. The Parent shall pay any and all taxes or other expenses that may be payable in respect of any issuance or delivery of the Conversion Shares.

 

6. Event of Default. (a) Each of the following events, individually, shall constitute an “Event of Default”:

 

(i) any Maker shall fail to pay any Loan Amount when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

 

(ii) any Maker shall fail to pay any accrued but unpaid interest when and as the same shall become due and payable;

 

(iii) any Maker shall fail to perform any obligation or pay any fee or any other amount payable under any of the Transaction Documents, when and as the same shall become due and payable;

 

(iv) any representation or warranty made by or on behalf of any Maker in or in connection with any Transaction Document, or in any report, certificate or other document furnished pursuant to or in connection with any Transaction Document, shall prove to have been incorrect in any material respect when made or deemed made or shall be breached;

 

(v) any Maker shall fail to observe or perform any covenant, condition or agreement contained in any Transaction Document (other than those specified in clause (i), (ii), and (iii) of this Section 6 and such failure shall continue unremedied for a period of ten (10) days after notice thereof from Purchaser to Makers;

 

	 
	
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(vi) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Maker or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Maker or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for ninety (90) days or an order or decree approving or ordering any of the foregoing shall be entered;

 

(vii) any Maker shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (vi) of this Section 6, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Maker or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

 

(viii) any Maker shall be unable, admit in writing its inability, or fail generally, to pay its debts as they become due;

 

(ix) one or more final judgments for the payment of money in an aggregate amount in excess of $25,000 shall be rendered against any Maker and the same shall remain undischarged for a period of twenty (20) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Maker to enforce any such judgment;

 

(x) any default by any Maker under, or the occurrence of any event of default as defined in, any other indebtedness owed by any Maker;

 

(xi) any event causing or resulting in the UCC Pledge not to be a first priority perfected lien on the Secured Assets on or after a Security Interest Trigger;

 

 (xii) any event, transaction, action or omission of or involving any Maker shall occur which Purchaser reasonably believes will result in a Material Adverse Effect;

 

(xiii) any of this Agreement or the Note shall cease to be, or shall be asserted by any Maker or other obligor thereunder not to be, in full force and effect;

 

(xiv) a Change of Control shall occur; or

 

(xv) after a Security Interest Trigger, the Security Agreement and/or any related documents with respect to the security interest granted in this transaction shall for any reason fail or cease to create a separate valid and perfected and first priority lien on the Collateral (as defined in the Security Agreement) in favor of the Purchaser.

 

(b) Remedies. Notwithstanding anything to the contrary in any Transaction Document, upon the occurrence of an Event of Default, and in every such event (other than an event with respect to any Maker described in clauses (vi), (vii) or (viii) of Section 6, at any time during the continuance of such event, Purchaser may, at its sole election, by notice to the Makers, declare the Loan Amount then outstanding to be due and payable in whole (or in part, in which case any Loan Amount not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the outstanding Loan Amount so declared to be due and payable, together with all fees and other payment obligations of the Makers accrued but unpaid under the Transaction Documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company, and in case of any event with respect to the Company described in clauses (vi), (vii) or (viii) of Section 6, the Loan Amount then outstanding, together with all fees and other payment obligations of the Company accrued but unpaid under the Transaction Documents, shall automatically become due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Makers.

 

	 
	
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7. Non-Waiver. The failure of the Holder to enforce or exercise any right or remedy provided in this Note or at law or in equity upon any default or breach shall not be construed as waiving the rights to enforce or exercise such or any other right or remedy at any later date. No exercise of the rights and powers granted in or held pursuant to this Note by the Holder, and no delays or omission in the exercise of such rights and powers shall be held to exhaust the same or be construed as a waiver thereof, and every such right and power may be exercised at any time and from time to time.

 

8. Waiver by the Makers. The Makers hereby waives presentment, protest, notice of protest, notice of nonpayment, notice of dishonor and any and all other notices or demands relative to this Note, except as specifically provided herein.

 

9. Usury Savings Clause. The Makers and the Holder intend to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts due under this Note under applicable law, then it is the Makers’ and Holder’s express intention that the Company not be required to pay Interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Section 9 shall control over all other provisions of this Note which may be in apparent conflict hereunder, that such excess amount shall be immediately credited to the balance of the Principal Amount of this Note, and the provisions hereof shall immediately be reformed and the amounts thereafter decreased, so as to comply with the then applicable usury law, but so as to permit the recovery of the fullest amount otherwise due under this Note.

 

10. Holder Not a Stockholder. The Holder shall not have, solely on account of such status as a holder of this Note, any rights of a stockholder of the Parent, either at law or in equity, or any right to any notice of meetings of stockholders or of any other proceedings of the Parent until such time as this Note has been converted, at which time the Holder shall be deemed to be the holder of record of the Conversion Shares, as applicable, notwithstanding that the transfer books of the Parent shall then be closed or certificates representing such Conversion Shares shall not then have been actually delivered to the Holder.

 

11. Miscellaneous.

 

(a) Governing Law; Venue. This Note shall be governed by and interpreted in accordance with the Uniform Commercial Code as from time to time in effect in the State of Nevada as to matters within the scope thereof, and, with respect to all other matters, shall be governed by and interpreted in accordance with the laws of the State of New York, without regard for any conflict of laws. The Company irrevocably consents to the exclusive jurisdiction of any Federal or State court of New York sitting in New York County, New York in connection with any action or proceeding arising out of or relating to this Note, any document or instrument delivered pursuant to, in connection with or simultaneously with this Note, or a breach of this Note or any such document or instrument.

 

(b) Successors and Assigns. This Note and the obligations hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties; provided, however, that neither party may assign any of its rights or obligations hereunder without the prior written consent of the other, except that the Holder may assign all or any portion of its rights hereunder to its Affiliate (as such term is defined in Rule 405 of the Securities Act) without such consent by giving written notice of such assignment to the Company. Assignment of all or any portion of this Note in violation of this Section shall be null and void.

 

(c) Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in accordance with Section 7(c) of the Purchase Agreement.

 

	 
	
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(d) Amendment; Waiver. No modification, amendment or waiver of any provision of this Note shall be effective unless in writing and approved by the Company, the Parent and the Holder.

 

(e) Invalidity. Any provision of this Note which may be determined by a court of competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invaliding the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

 

(f) Section and Paragraph Headings. The section and paragraph headings contained herein are for convenience only and shall not be construed as part of this Note.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

SIGNATURE PAGE FOLLOWS]

 

 

	 
	
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 IN WITNESS WHEREOF, this Note has been executed and delivered on the date first above written by the duly authorized representative of the Company and the Parent.

 

BITCOIN BIDDER, INC.

 

By: 

Name: 

Title: 

 

NATURALNANO, INC.

 

By: 

Name: 

Title:

 

	 
	
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EXHIBIT A

 

 

Date:  

 

NATURALNANO, INC. 

763 Linden Avenue

Rochester, NY 14625

Attn: Chief Executive Officer

 

CONVERSION NOTICE

 

The above-captioned Holder hereby gives notice to NaturalNano, Inc., a Nevada corporation (the “Company”), pursuant to that certain Secured Convertible Promissory Note made by the Company and the Parent  in favor of the Holder dated [__], 2014 in the principal amount of $[____] (the “Note”); that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Parent as of the date of conversion specified below.

 

A. Date of conversion: ______________________

B. Conversion #: __________________________

C. Conversion Amount: _____________________

D. Conversion Price: _______________________

E. Conversion Shares: ______________________

F. Remaining Note Balance: _________________

 

Please transfer the Conversion Shares to the undersigned at:

 

Address:

_______________________________

_______________________________

_______________________________

 

Sincerely,

 

By: ____________________________

Name: _________________________          

 

 

	 
	
9EXHIBIT 10.3

 

SECURITY AGREEMENT

 ﻿

THIS SECURITY AGREEMENT (this “Security Agreement”) is made as of June [__], 2014 by and between Bitcoin Bidder, Inc., a Nevada corporation (“Debtor”), and the holders )  (each, a “ Lender” and collectively, the “Lenders”) of the 10% Senior Secured Convertible Promissory Notes of the Debtor and the Parent (as defined below).

 

R E C I T A L S

 

WHEREAS, pursuant to a Securities Purchase Agreement of even date herewith by and between the Lenders, Debtor and NaturalNano, Inc. (the “Parent”) (as amended or modified from time to time, the “Purchase Agreement”), the Lenders have made an investment (the “Investment”) in 10% senior secured convertible promissory notes (each, a “Note” and, collectively, the “Notes) of the Debtor and Parent.

 

WHEREAS, it is a condition precedent to each Lender making the Investment that Debtor execute and deliver to the Lenders a security agreement in the form hereof. 

 

WHEREAS, this Security Agreement is the Security Agreement referred to in the Purchase Agreement.

 

WHEREAS, each Lender’s Security Interest (as defined herein) shall only become effective upon the occurrence of a Security Interest Trigger.

 

NOW, THEREFORE, in consideration of the Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor hereby agrees with the Lenders as follows:

 

ARTICLE I
DEFINITIONS

 

Capitalized terms not defined herein shall have the meaning given to them in the Purchase Agreement. Capitalized terms not otherwise defined herein and defined in the UCC shall have, unless the context otherwise requires, the meanings set forth in the UCC as in effect on the date hereof, the recitals and as follows:

 

1.1 Accounts. “Accounts” shall mean all accounts, including without limitation all rights to payment for proceeds of the sale of any bitcoins owned or hereinafter acquired by the Debtor, and any associated rights thereto.

 

1.2 Collateral. “Collateral” shall mean all bitcoins owned or hereinafter acquired by the Debtor, any proceeds from the sale of such bitcoins and any Accounts maintained in connection with bitcoins owned by the Debtor.

 

1.3 Event of Default. “Event of Default” shall have the meaning specified in the Purchase Agreement.

 

	 
	
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1.4 Obligations. “Obligations” shall mean means all obligations and liabilities of every nature of Debtor and Parent now or hereafter existing under or arising out of or in connection with the Notes, the Purchase Agreement and all other documents, instruments or certificates required to be delivered by Debtor and Parent at or prior to the Closing pursuant to the Purchase Agreement (collectively, the “Purchase Documents”); together with all extensions or renewals thereof, whether for principal, interest, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owned with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Lenders as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Debtor now or hereafter existing under this Security Agreement (including, without limitation, interest and other amounts that, but for the filing of a petition in bankruptcy with respect to Debtor, would accrue on such obligations, whether or not a claim is allowed against Debtor for such amounts in the related bankruptcy proceeding).

 

1.5 Person. “Person” shall mean and include an individual, partnership, corporation, trust, unincorporated association and any unit, department or agency of government.

 

1.6 Security Agreement. “Security Agreement” shall mean this Security Agreement, together with the schedules attached hereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

 

1.7 Security Interest. “Security Interest” shall mean the security interest of each Lender in the Collateral granted by Debtor pursuant to this Security Agreement.

 

1.8 Transaction Documents. “Transaction Documents” shall meanthe Transaction Documents (as that term is defined in thePurchase Agreement).

 

1.9 UCC. “UCC” shall mean the Uniform Commercial Code as adopted in the State of Nevada and in effect from time to time.

 

ARTICLE II
THE SECURITY INTEREST; REPRESENTATIONS AND WARRANTIES

 

2.1 The Security Interest. Upon the occurrence of a Security Interest Trigger, the Debtor shall hereby grant to each Lender a first priority lien and security interest in the Collateral to secure the payment and performance of all of the Obligations. The lien and security interest granted to each Lender under this Agreement shall constitute a first priority lien and security interest senior to all other liens and security interests. The Debtor shall not grant any subsequent liens or security interests in and to the Collateral, which shall be senior to or have a priority over the lien and security interest granted to the Lenders. The rights to the Collateral of each Lender is pari passu to each of the other Lenders.

 

2.2 Representations and Warranties. Debtor hereby represents and warrants to the Lenders that:

 

	 
	
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(a) The records of Debtor with respect to the Collateral are presently located only at the address(es) listed on Schedule 1attached to this Security Agreement.

 

(b) The Collateral is presently located only at the location(s) listed on Schedule 1attached to this Security Agreement.

 

(c) The chief executive office and chief place(s) of business of Debtor are presently located at the address(es) listed on Schedule 1to this Security Agreement.

 

(d) Debtor is a Nevada corporation and its exact legal name is set forth in the definition of “Debtor” in the introductory paragraph of this Security Agreement. The organization identification number of Debtor is listed on Schedule 1to this Security Agreement.

 

(e) Debtor has good title to, or valid leasehold interest in, all of the Collateral and there are no liens on any of the Collateral.

 

2.3 Authorization to File Financing Statements. Debtor hereby irrevocably authorizes the Lenders at any time and from time after the occurrence of a Security Interest Trigger to time to file in any UCC jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of Debtor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC or such other jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by Part 5 of Article 9 of the UCC for the sufficiency of filing office acceptance of any financing statement or amendment, including whether Debtor is an organization, the type of organization and any state or federal organization identification number issued to Debtor. Debtor agrees to furnish any such information to each Lender promptly upon request. 

 

2.4 Further Assurances. On or after the occurrence of a Security Interest Trigger, the Debtor will execute and deliver to each Lender, at the request of such Lender, at any time and from time to time, such financing statements and other instruments and do such other acts and things as each Lender may reasonably deem necessary or desirable in order to establish, perfect and maintain a valid first priority security interest in the Collateral in favor of each Lender (free and clear of all other security interests, liens, charges, encumbrances and other claims, whether voluntarily or involuntarily created) or in order to facilitate the collection of the Collateral.

 

ARTICLE III
AGREEMENTS OF DEBTOR

 

From and after the date of a Security Interest Trigger, and until all of the Obligations are paid in full, Debtor shall:

 

3.1 Sale of Collateral. Not sell, lease, transfer or otherwise dispose of Collateral or any interest therein.

 

3.2 Maintenance of Security Interest. 

 

	 
	
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(a) At the expense of Debtor, defend the Security Interest against any and all claims of any Person adverse to the Lenders and take such action and execute such financing statements and other documents as any Lender may from time to time request to maintain the perfected status of the Security Interest. Debtor shall not further encumber or grant a security interest in any of the Collateral except as provided for in the Purchase Agreement.

 

(b) Take any other action requested by any Lender to ensure the attachment, perfection and first priority of, and the ability of such Lender to enforce its security interest in any and all of the Collateral including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC, to the extent, if any, that Debtor’s signature thereon is required therefor, (ii) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Lenders to enforce, its security interest in such Collateral, (iii) taking all actions required by any earlier versions of the UCC (to the extent applicable) or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction, and (iv) obtaining waivers from landlords where any of the tangible Collateral is located in form and substance satisfactory to such Lender.

 

3.3 Locations. Give each Lender at least thirty (30) days prior written notice of Debtor’s intention to relocate the tangible Collateral or any of the records relating to the Collateral from the locations listed on Schedule 1 attached to this Security Agreement, in which event Schedule 1shall be deemed amended to include the new location. Any additional filings or refilings requested by a Lender as a result of any such relocation in order to maintain the Security Interest in the Collateral shall be at Debtor’s expense.

 

3.4 Insurance. Keep the Collateral consisting of tangible personal property insured against loss or damage to the Collateral under a policy or policies covering such risks as are ordinarily insured against by similar businesses, but in any event including fire, lightning, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, damage from aircraft, smoke and uniform standard extended coverage and vandalism and malicious mischief endorsements, limited only as may be provided in the standard form of such endorsements at the time in use in the applicable state. Such insurance shall be for amounts not less than the actual replacement cost of the Collateral. No policy of insurance shall be so written that the proceeds thereof will produce less than the minimum coverage required by the preceding sentence, by reason of co-insurance provisions or otherwise, without the prior consent thereto in writing by the Lenders. Debtor will obtain each Lender’s loss payable endorsements on applicable insurance policies in favor of the Lenders and will provide certificates of such insurance to each Lender. Debtor shall cause each insurer to agree, by endorsement on the policy or policies or certificates of insurance issued by it or by independent instrument furnished to each Lender, that such insurer will give thirty (30) days written notice to each Lender before such policy will be altered or canceled. No settlement of any insurance claim shall be made without each Lender’s prior consent. In the event of any insured loss, Debtor shall promptly notify each Lender thereof in writing, and Debtor hereby authorizes and directs any insurer concerned to make payment of such loss directly to each Lender as its interest may appear. Each Lender is authorized, in the name and on behalf of Debtor, to make proof of loss and to adjust, compromise and collect, in such manner and amounts as it shall determine, all claims under all policies; and Debtor agrees to sign, on demand of each Lender, all receipts, vouchers, releases and other instruments which may be necessary or desirable in aid of this authorization. The proceeds of any insurance from loss, theft, or damage to the Collateral shall be held in a segregated account established by the Lenders and disbursed and applied at the discretion of the Lenders, either in reduction of the Obligations or applied toward the repair, restoration or replacement of the Collateral.

 

	 
	
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3.5 Name; Legal Status. (a) Without providing at least 30 days prior written notice to each Lender, Debtor will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, (b) if Debtor does not have an organizational identification number and later obtains one, Debtor shall forthwith notify each Lender of such organizational identification number, and (c) Debtor will not change its type of organization or jurisdiction of organization.

 

ARTICLE IV
RIGHTS AND REMEDIES

 

4.1 Right to Cure. In case of failure by Debtor to procure or maintain insurance, or to pay any fees, assessments, charges or taxes arising with respect to the Collateral, each Lender shall have the right, but shall not be obligated, to effect such insurance or pay such fees, assessments, charges or taxes, as the case may be, and, in that event, the cost thereof shall be payable by Debtor to each Lender immediately upon demand, together with interest at an annual rate equal to 10% from the date of disbursement by such Lender to the date of payment by Debtor.

 

4.2 Rights of Parties. Upon the occurrence and during the continuance of an Event of Default, in addition to all the rights and remedies provided in the Transaction Documents or in Article 9 of the UCC and any other applicable law, the Lenders may (but is under no obligation so to do):

 

(a) require Debtor to assemble the Collateral at a place designated by the Lenders, which is reasonably convenient to the parties; and

 

(b) take physical possession of tangible Collateral and of Debtor’s records pertaining to all Collateral that are necessary to properly administer and control the Collateral or the handling and collection of Collateral, and sell, lease or otherwise dispose of the Collateral in whole or in part, at public or private sale, on or off the premises of Debtor; and

 

(c) collect any and all money due or to become due and enforce in Debtor’s name all rights with respect to the Collateral; and

 

(d) settle, adjust or compromise any dispute with respect to any Account; and

 

(e) receive and open mail addressed to Debtor; and

 

(f) on behalf of Debtor, indorse checks, notes, drafts, money orders, instruments or other evidences of payment.

 

	 
	
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4.3 Power of Attorney. Upon the occurrence and during the continuance of an Event of Default, Debtor does hereby constitute and appoint the Lenders as Debtor’s true and lawful attorney with full power of substitution for Debtor in Debtor’s name, place and stead for the purposes of performing any obligation of Debtor under this Security Agreement and taking any action and executing any instrument which the Lenders may deem necessary or advisable to perform any obligation of Debtor under this Security Agreement, which appointment is irrevocable and coupled with an interest, and shall not terminate until the Obligations are paid in full.

 

4.4 Right to Collect Accounts. Upon the occurrence and during the continuance of an Event of Default and without limiting Debtor’s obligations under the Transaction Documents: (a) Debtor authorizes the Lenders to notify any and all debtors on the Accounts to make payment directly to the Lenders (or to such place as the Lenders may direct); (b) Debtor agrees, on written notice from the Lenders, to deliver to the Lenders promptly upon receipt thereof, in the form in which received (together with all necessary endorsements), all payments received by Debtor on account of any Account; (c) the Lenders may, at their option, apply all such payments against the Obligations or remit all or part of such payments to Debtor; and (d) the Lenders may take any actions in accordance with Section 4.7 of this Agreement.

 

4.5 Reasonable Notice. Written notice, when required by law, sent in accordance with the provisions of Section 7(c) of the Purchase Agreement and given at least ten (10) business days (counting the day of sending) before the date of a proposed disposition of the Collateral shall be reasonable notice.

 

4.6 Limitation on Duties Regarding Collateral. The sole duty of the Lenders with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Lenders deal with similar property for its own account. Neither the Lenders nor any of their respective directors, officers, employees or agents, shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of Debtor or otherwise.

 

4.7 Lock Box; Collateral Account. This Section 4.7 shall be effective only upon the occurrence and during the continuance of an Event of Default. If the Lenders so request in writing, Debtor will direct each of its debtors on the Accounts to make payments due under the relevant Account or chattel paper directly to a special lock box to be under the control of the Lenders. Debtor hereby authorizes and directs the Lenders to deposit into a special collateral account to be established and maintained by the Lenders all checks, drafts and cash payments received in said lock box. All deposits in said collateral account shall constitute proceeds of Collateral and shall not constitute payment of any Obligation until so applied. At its option, the Lenders may, at any time, apply finally collected funds on deposit in said collateral account to the payment of the Obligations, in the order of application selected in the sole discretion of the Lenders, or permit Debtor to withdraw all or any part of the balance on deposit in said collateral account. If a collateral account is so established, Debtor agrees that it will promptly deliver to the Lenders, for deposit into said collateral account, all payments on Accounts and chattel paper received by it. All such payments shall be delivered to the Lenders in the form received (except for Debtor’s indorsement where necessary). Until so deposited, all payments on Accounts and chattel paper received by Debtor shall be held in trust by Debtor for and as the property of Ethe Lenders and shall not be commingled with any funds or property of Debtor. 

 

	 
	
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4.8 Application of Proceeds. The Lenders shall apply the proceeds resulting from any sale or disposition of the Collateral in the following order:

 

(a) to the costs of any sale or other disposition;

 

(b) to the expenses incurred by the Lender in connection with any sale or other disposition, including attorneys’ fees;

 

(c) to the payment of the Obligations then due and owing in any order selected by the Lenders; and

 

(d) to Debtor.

 

4.9 Other Remedies. No remedy herein conferred upon the Lenders is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Security Agreement and the Transaction Documents now or hereafter existing at law or in equity or by statute or otherwise. No failure or delay on the part of any Lender in exercising any right or remedy hereunder shall operate as a waiver thereof nor shall any single or partial exercise of any right hereunder preclude other or further exercise thereof or the exercise of any other right or remedy.

 

ARTICLE V
MISCELLANEOUS

 

5.1 Expenses and Attorneys’ Fees. Debtor shall pay all fees and expenses incurred by each Lender, including the fees of counsel including in-house counsel, in connection with the protection, administration and enforcement of the rights of each Lender under this Security Agreement or with respect to the Collateral, including without limitation the protection and enforcement of such rights in any bankruptcy. 

 

5.2 Setoff. Debtor agrees that each Lender shall have all rights of setoff and bankers’ lien provided by applicable law.

 

5.3 Assignability; Successors. Debtor’s rights and liabilities under this Security Agreement are not assignable or delegable, in whole or in part, without the prior written consent of the Lenders. The provisions of this Security Agreement shall inure to the benefit of and be binding upon the successors and assigns of the parties.

 

5.4 Survival. All agreements, representations and warranties made in this Security Agreement or in any document delivered pursuant to this Security Agreement shall survive the execution and delivery of this Security Agreement, and the delivery of any such document.

 

5.5 Governing Law. This Security Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York applicable to contracts made and wholly performed within such state.

 

5.6 Counterparts; Headings. This Security Agreement may be executed in several counterparts, each of which shall be deemed an original, but such counterparts shall together constitute but one and the same agreement. The article and section headings in this Security Agreement are inserted for convenience of reference only and shall not constitute a part hereof.

 

	 
	
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5.7 Notices. All communications or notices required or permitted by this Security Agreement shall be given to Debtor in accordance with Section 7(c) of the Purchase Agreement.

 

5.8 Amendment; No Waiver; Cumulative Remedies. No amendment of this Security Agreement shall be effective unless in writing and signed by Debtor and the Lenders. No Lender shall, by any act (except by a written instrument signed by such Lender), including by delay, indulgence, omission or otherwise, be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law.

 

5.9 Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Security Agreement in such jurisdiction or affecting the validity or enforceability of any provision in any other jurisdiction.

 

5.10 WAIVER OF RIGHT TO JURY TRIAL. EACH LENDER AND DEBTOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS SECURITY AGREEMENT WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.

 

5.11 Submission to Jurisdiction. As a material inducement to the Lenders to make the Investment:

 

(a) DEBTOR AGREES THAT ALL ACTIONS OR PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS SECURITY AGREEMENT MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF NEW YORK OR THE FEDERAL COURTS LOCATED IN NEW YORK AND DEBTOR CONSENTS TO THE JURISDICTION OF SUCH COURTS. DEBTOR WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH COURT AND ANY RIGHT IT MAY HAVE NOW OR HEREAFTER HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN AN INCONVENIENT COURT; AND

 

(b) Debtor consents to the service of process in any such action or proceeding by certified mail sent to Debtor at the address specified in Section 7(c) of the Purchase Agreement.

 

[SIGNATURE PAGE TO FOLLOW]

 

	 
	
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IN WITNESS WHEREOF, this Security Agreement has been executed as of the day and year first above written.

 

	 	BITCOIN BIDDER, INC. 	 
	 	 	 	 
		By	/s/	 
	 	 	Name: 
Title:

	 

 

	 	LENDER: 	 
	 	 	 	 
		By	/s/	 
	 	 	Name:
Title:

	 

 

 

	 
	
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