Document:

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;

       

       

      
        
          
          

        

        
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      (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”).

       

       

      
        
          
          

        

        
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      (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.

       

       

      
        
          
          

        

        
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      (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%.

    

     

     

     

    
      
        
        

      

      
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      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.

       

      
        
          
          

        

        
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      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.

       

       

      
        
          
          

        

        
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      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.

       

       

      
        
          
          

        

        
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      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:                                                                                                                                                                                                                                      

      

                                                                                                                                                                                                                                               

      
 

       

       12f8k120409ex10iii_naturalnano.htm

     

    Exhibit
10.3

     

     

    
      NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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.

      

      
        	 
      	
                Right
      to Purchase 45,000,000 shares of Common Stock of NaturalNano, Inc.
      (subject to adjustment as provided
herein)

              

      

      

      COMMON
STOCK PURCHASE WARRANT

       

      
        	No. ______ 	 Issue Date:
      November 30, 2009

      

       

      
        NATURALNANO,
INC., a corporation organized under the laws of the State of Nevada (the
“Company”), hereby certifies that, for value received, ________________________,
located at ________________________, Fax: ___________, or its successors,
representatives, and permitted assigns (the “Holder”), is entitled, subject to
the terms set forth below, to purchase from the Company at any time after the
Issue Date until 5:00 p.m., E.S.T on the fifth (5th) anniversary of the Issue
Date (the “Expiration Date”), 45,000,000  fully paid and nonassessable
shares of Common Stock at a per share purchase price of $0.025.  The
aforedescribed purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the “Purchase Price.”  The number
and character of such shares of Common Stock and the Purchase Price are subject
to adjustment as provided herein.  The Company may reduce the Purchase
Price for some or all of the Warrants, temporarily or permanently, provided such
reduction is made as to all outstanding Warrants for all Holders of such
Warrants.  Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Subscription Agreement (the
“Subscription Agreement”), dated as of November 30, 2009, entered into by the
Company and the Holder.

      

       

      As used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:

       

      (a)           The
term “Company” shall mean NaturalNano, Inc., a Nevada corporation, and any
corporation which shall succeed or assume the obligations of NaturalNano, Inc.
hereunder.

       

      (b)           The
term “Common Stock” includes (i) the Company's Common Stock, $0.001 par
value per share, as authorized on the date of the Subscription Agreement, and
(ii) any other securities into which or for which any of the securities
described in (i) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or
otherwise.

       

      (c)           The
term “Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holder of the Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 4 herein or otherwise.

       

      (d)           The
term “Warrant Shares” shall mean the Common Stock issuable upon exercise of this
Warrant.

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

       

      1.           Exercise of
Warrant.

       

      1.1.           Number of Shares Issuable
upon Exercise.  From and after the Issue Date through and
including the Expiration Date, the Holder hereof shall be entitled to receive,
upon exercise of this Warrant in whole in accordance with the terms of
subsection 1.2 or upon exercise of this Warrant in part in accordance with
subsection 1.3, shares of Common Stock of the Company, subject to
adjustment pursuant to Section 4.

       

      1.2.           Full
Exercise.  This Warrant may be exercised in full by the Holder
hereof by delivery of an original or facsimile copy of the form of subscription
attached as Exhibit A hereto (the “Subscription Form”) duly executed by
such Holder and delivery within two days thereafter of payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.  The original Warrant is not required to be surrendered to the
Company until it has been fully exercised.

       

      1.3.           Partial
Exercise.  This Warrant may be exercised in part (but not for a
fractional share) by delivery of a Subscription Form in the manner and at the
place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying
(a) the number of whole shares of Common Stock designated by the Holder in
the Subscription Form by (b) the Purchase Price then in
effect.  On any such partial exercise provided the Holder has
surrendered the original Warrant, the Company, at its expense, will forthwith
issue and deliver to or upon the order of the Holder hereof a new Warrant of
like tenor, in the name of the Holder hereof or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may request, the whole number of
shares of Common Stock for which such Warrant may still be
exercised.

       

      1.4.           Fair Market Value.
Fair Market Value of a share of Common Stock as of a particular date (the
“Determination Date”) shall mean:

       

      (a)           If
the Company's Common Stock is traded on an exchange or is quoted on the NASDAQ
Global Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New
York Stock Exchange or the NYSE Amex Equities, then the weighted average of the
closing sale prices of the Common Stock for the ten (10) Trading Days
immediately prior to (but not including) the Determination Date;

       

      (b)           If
the Company's Common Stock is not traded on an exchange or on the NASDAQ Global
Market, NASDAQ Global Select Market, the NASDAQ Capital Market, the New York
Stock Exchange or the NYSE Amex Equities, but is traded on the OTC Bulletin
Board or in the over-the-counter market or Pink Sheets, then the average of the
closing bid and ask prices reported for the ten (10) Trading Days immediately
prior to (but not including) the Determination Date;

       

      (c)           Except
as provided in clause (d) below and Section 3.1, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree, or in
the absence of such an agreement, by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or

       

      (d)           If
the Determination Date is the date of a liquidation, dissolution or winding up,
or any event deemed to be a liquidation, dissolution or winding up pursuant to
the Company's charter, then all amounts to be payable per share to holders of
the Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

       

      1.5.           Company
Acknowledgment. The Company will, at the time of the exercise of the
Warrant, upon the request of the Holder hereof, acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant. If the Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such Holder any such rights.

       

      1.6.           Delivery of Stock
Certificates, etc. on Exercise. The Company agrees that, provided the
full purchase price listed in the Subscription Form is received as specified in
Section 1.2, the shares of Common Stock purchased upon exercise of this Warrant
shall be deemed to be issued to the Holder hereof as the record owner of such
shares as of the close of business on the date on which delivery of a
Subscription Form shall have occurred and payment made for such shares as
aforesaid. As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within five (5) business days thereafter (“Warrant
Share Delivery Date”), the Company at its expense (including the payment by it
of any applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such Holder
of any applicable transfer taxes) may direct in compliance with applicable
securities laws, a certificate or certificates for the number of duly and
validly issued, fully paid and non-assessable shares of Common Stock (or Other
Securities) to which such Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then Fair Market Value of one full
share of Common Stock, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.  The
Company understands that a delay in the delivery of the Warrant Shares after the
Warrant Share Delivery Date could result in economic loss to the
Holder.  As compensation to the Holder for such loss, the Company
agrees to pay (as liquidated damages and not as a penalty) to the Holder for
late issuance of Warrant Shares upon exercise of this Warrant the proportionate
amount of $100 per business day after the Warrant Share Delivery Date for each
$10,000 of Purchase Price of Warrant Shares for which this Warrant is exercised
which are not timely delivered.  The Company shall pay any payments
incurred under this Section in immediately available funds upon
demand.  Furthermore, in addition to any other remedies which may be
available to the Holder, in the event that the Company fails for any reason to
effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the
Holder may revoke all or part of the relevant Warrant exercise by delivery of a
notice to such effect to the Company, whereupon the Company and the Holder shall
each be restored to their respective positions immediately prior to the exercise
of the relevant portion of this Warrant, except that the liquidated damages
described above shall be payable through the date notice of revocation or
rescission is given to the Company.

       

      1.7.           Buy-In.   In
addition to any other rights available to the Holder, if the Company fails to
deliver to a Holder the Warrant Shares as required pursuant to this Warrant,
within seven (7) business days after the Warrant Share Delivery Date and the
Holder or a broker on the Holder’s behalf, purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Holder of the Warrant Shares which the Holder was entitled to
receive from the Company (a “Buy-In”), then the Company shall pay in cash to the
Holder (in addition to any remedies available to or elected by the Holder) the
amount by which (A) the Holder's total purchase price (including brokerage
commissions, if any) for the shares of common stock so purchased exceeds (B) the
aggregate Purchase Price of the Warrant Shares required to have been delivered
together with interest thereon at a rate of 10% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall be
paid as liquidated damages and not as a penalty).  For example, if a
Holder purchases shares of Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to $10,000 of Purchase Price of Warrant Shares to
have been received upon exercise of this Warrant, the Company shall be required
to pay the Holder $1,000, plus interest. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In.

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      

       

      2.           Cashless
Exercise.

       

      (a)           If
a registration statement is effective and the Holder may sell its shares of
Common Stock upon exercise hereof, this Warrant may be exercisable in whole or
in part for cash only as set forth in Section 1 above.  If no such
registration statement is available, then commencing six months after the
Closing Date, payment upon exercise may be made at the option of the Holder
either in (i) cash, wire transfer or by certified or official bank check
payable to the order of the Company equal to the applicable aggregate Purchase
Price, (ii) by delivery of Common Stock issuable upon exercise of the Warrants
in accordance with Section (b) below or (iii) by a combination of
any of the foregoing methods, for the number of Common Stock specified in such
form (as such exercise number shall be adjusted to reflect any adjustment in the
total number of shares of Common Stock issuable to the holder per the terms of
this Warrant) and the holder shall thereupon be entitled to receive the number
of duly authorized, validly issued, fully-paid and non-assessable shares of
Common Stock (or Other Securities) determined as provided herein.

       

      (b)           Subject
to the provisions herein to the contrary, if the Fair Market Value of one share
of Common Stock is greater than the Purchase Price (at the date of calculation
as set forth below), in lieu of exercising this Warrant for cash, the holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being cancelled) by delivery of a properly endorsed
Subscription Form delivered to the Company by any means described in Section 13,
in which event the Company shall issue to the holder a number of shares of
Common Stock computed using the following formula:

       

      X=Y (A-B)

                A

       

      
        
          	
                  Where     
      

                	
                  X=

                	
                  the
      number of shares of Common Stock to be issued to the
  holder

                
	 
      	 
      	 
      
	 
      	
                  Y=

                	
                  the
      number of shares of Common Stock purchasable under the Warrant or, if only
      a portion of the Warrant is being exercised, the portion of the Warrant
      being exercised (at the date of such calculation)

                
	 
      	 
      	 
      
	 
      	
                  A=

                	
                  Fair
      Market Value

                
	 
      	 
      	 
      
	 
      	
                  B=

                	
                  Purchase
      Price (as adjusted to the date of such
  calculation)

                

        

         

      

      For
purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction in the manner described above shall be deemed to have been acquired
by the Holder, and the holding period for the Warrant Shares shall be deemed to
have commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.

       

      3.           Adjustment for
Reorganization, Consolidation, Merger, etc.

       

      3.1.
Fundamental
Transaction. If, at any time while this Warrant is outstanding, (A) the
Company effects any merger or consolidation of the Company with or into another
entity, (B) the Company 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 Company 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 Company consummates a
stock purchase agreement or other business combination (including, without
limitation, a reorganization, recapitalization, or spin-off) 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 

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

       

      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 Company, or (F) the Company 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”), then, upon any
subsequent exercise of this Warrant, the Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the
option of the Holder, (a) upon exercise of this Warrant, the number of shares of
Common Stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a Holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event or (b) if the Company is acquired in (1) a
transaction where the consideration paid to the holders of the Common Stock
consists solely of cash, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3
under the 1934 Act, or (3) a transaction involving a person or entity not traded
on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq
Global Market or the Nasdaq Capital Market, cash equal to the Black-Scholes
Value. For purposes of any such exercise, the determination of the Purchase
Price shall be appropriately adjusted to apply to such Alternate Consideration
based on the amount of Alternate Consideration issuable in respect of one share
of Common Stock in such fundamental Transaction, and the Company shall apportion
the Purchase Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new warrant consistent with the foregoing provisions
and evidencing the Holder's right to exercise such warrant into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 3.1 and insuring
that this Warrant (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.
“Black-Scholes Value” shall be determined in accordance with the Black-Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using (i)
a price per share of Common Stock equal to the VWAP of the Common Stock for the
Trading Day immediately preceding the date of consummation of the applicable
Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of the date of such request and (iii) an expected volatility equal to the 100
day volatility obtained from the HVT function on Bloomberg L.P. determined as of
the Trading Day immediately following the public announcement of the applicable
Fundamental Transaction.

      

      3.2.           Continuation of
Terms.  Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4.  In the event this Warrant does not
continue in full force and effect after the consummation of the transaction
described in this Section 3, then only in such event will the Company's
securities and property (including cash, where applicable) receivable by the
Holder of the Warrants be delivered to the Trustee as contemplated by
Section 3.2.

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      3.3           Share
Issuance.  Until the Expiration Date, if the Company shall
issue any Common Stock except for the Excepted Issuances (as defined in the
Subscription Agreement), prior to the complete exercise of this Warrant for a
consideration less than the Purchase Price that would be in effect at the time
of such issuance, then, and thereafter successively upon each such issuance, the
Purchase Price shall be reduced to such other lower price for then outstanding
Warrants.  For purposes of this adjustment, the issuance of any
security or debt instrument of the Company 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 Purchase Price
upon the issuance of the above-described security, debt instrument, warrant,
right, or option if such issuance is at a price lower than the Purchase Price in
effect upon such issuance and again at any time upon any subsequent issuances of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the Purchase Price in effect upon such
issuance.  Common Stock issued or issuable by the Company for no
consideration will be deemed issuable or to have been issued for $0.001 per
share of Common Stock.  Upon any reduction of the Purchase Price, the
number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof, be entitled to receive shall be adjusted to
a number determined by multiplying the number of shares of Common Stock that
would otherwise (but for the provisions of this Section 3.3) be issuable on such
exercise by a fraction of which (a) the numerator is the Purchase Price that
would otherwise (but for the provisions of this Section 3.3) be in effect, and
(b) the denominator is the Purchase Price in effect on the date of such
exercise.

       

      4.           Extraordinary Events
Regarding Common Stock.  In the event that the Company shall
(a) issue additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this
Section 4. The number of shares of Common Stock that the Holder of this
Warrant shall thereafter, on the exercise hereof, be entitled to receive shall
be adjusted to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

       

      5.           Certificate as to
Adjustments.  In each case of any adjustment or readjustment in
the shares of Common Stock (or Other Securities) issuable on the exercise of the
Warrants, the Company at its expense will promptly cause its Chief Financial
Officer or other appropriate designee to compute such adjustment or readjustment
in accordance with the terms of the Warrant and prepare a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such adjustment or readjustment and as adjusted
or readjusted as provided in this Warrant. The Company will forthwith mail a
copy of each such certificate to the Holder of the Warrant and any Warrant Agent
of the Company (appointed pursuant to Section 11 hereof).

       

      6.           Reservation of Stock, etc.
Issuable on Exercise of Warrant; Financial
Statements.   The Company will at all times reserve and
keep available, solely for issuance and delivery on the exercise of the
Warrants, all shares of Common Stock (or Other Securities) from time to time
issuable on the exercise of the Warrant.  This Warrant entitles the
Holder hereof, upon written request, to receive copies of all financial and
other information distributed or required to be distributed to the holders of
the Company's Common Stock.

       

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      7.           Assignment; Exchange of
Warrant.  Subject to compliance with applicable securities
laws, this Warrant, and the rights evidenced hereby, may be transferred by any
registered holder hereof (a “Transferor”). On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B
attached hereto (the “Transferor Endorsement Form”) and together with an opinion
of counsel reasonably satisfactory to the Company that the transfer of this
Warrant will be in compliance with applicable securities laws, the Company will
issue and deliver to or on the order of the Transferor thereof a new Warrant or
Warrants of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a “Transferee”), calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor.

       

      8.           Replacement of
Warrant.  On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense, twice only, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.

       

      9.           Registration
Rights.  The Holder of this Warrant shall be entitled to
customary piggy-back registration rights as set forth in the Subscription
Agreement.

       

      10.           Maximum
Exercise.  The Holder shall not be entitled to exercise this
Warrant on an exercise date, 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 an exercise
date, and (ii) the number of shares of Common Stock issuable upon the
exercise of this Warrant with respect to which the determination of this
limitation is being made on an exercise 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 on such date.  For the purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the 1934 Act and Rule 13d-3
thereunder.  Subject to the foregoing, the Holder shall not be limited
to aggregate exercises which would result in the issuance of more than
4.99%.  The restriction described in this paragraph may be
waived, in whole or in part, upon sixty-one (61) days prior notice from the
Holder to the Company to increase such percentage to up to 9.99%, but not in
excess of 9.99%.  The Holder may decide whether to convert a
Convertible Note or exercise this Warrant to achieve an actual 4.99% or up to
9.99% ownership position as described above, but not in excess of
9.99%.

       

      11.           Warrant
Agent.  The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a “Warrant Agent”) for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 7, and
replacing this Warrant pursuant to Section 8, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such Warrant Agent.

       

      12.           Transfer on the Company's
Books.  Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the
contrary.

       

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      13.           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 second 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
Company, 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
Warrant

      

      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

       

      14.           Law Governing This
Warrant.  This Warrant shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws.  Any action brought by either party against the
other concerning the transactions contemplated by this Warrant shall be brought
only in the state courts of New York or in the federal courts located in the
state and county of New York.  The parties to this Warrant hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non
conveniens.  The Company and Holder waive trial by
jury.  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 Warrant or any other agreement delivered in
connection herewith 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 enforceability of
any other provision of any agreement.   Each party hereby
irrevocably waives personal service of process and consents to process being
served in any suit, action or proceeding in connection with this Agreement or
any other Transaction Document by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.

       

      [-signature
page follows-]

       

      

       

      

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      

       

      IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

       

      
        	 
      	
                NATURALNANO,
      INC.

                 

                 

                By:                                                              

                Name: Jim Wemett

                Title: Chief Executive
      Officer

                 

              
	 
      	 
      	 
      

      

       

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
 

      Exhibit A

      

      FORM OF
SUBSCRIPTION

      (to be
signed only on exercise of Warrant)

       

       

      TO:  NATURALNANO,
INC.

       

      The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):

      

      ___           ________
shares of the Common Stock covered by such Warrant; or

      ___           the
maximum number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.

      

      The
undersigned herewith makes payment of the full purchase price for such shares at
the price per share provided for in such Warrant, which is
$___________.  Such payment takes the form of (check applicable box or
boxes):

      

      ___           $__________
in lawful money of the United States; and/or

      ___           the
cancellation of such portion of the attached Warrant as is exercisable for a
total of _______ shares of Common Stock (using a Fair Market Value of $_______
per share for purposes of this calculation); and/or

      

      ___           the
cancellation of such number of shares of Common Stock as is necessary, in
accordance with the formula set forth in Section 2, to exercise this
Warrant with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in
Section 2.

      

      The
undersigned requests that the certificates for such shares be issued in the name
of, and delivered to ___________________________________ whose address is
_______________________________________________________________________________________.

      

      The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the “Securities Act”), or pursuant to an exemption from registration
under the Securities Act.

      

      
        	
                Dated:___________________

              	
                                                                                                             
          

                (Signature
      must conform to name of holder as specified 

                on
      the face of the Warrant)

                 

                 

                                                                                                             
      

                                                                                                              
      

                (Address)

              

      

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

       

      Exhibit B

      

      

      FORM OF
TRANSFEROR ENDORSEMENT

      (To be
signed only on transfer of Warrant)

       

      For value
received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading “Transferees” the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of NaturalNano, Inc. to which the within Warrant relates specified under
the headings “Percentage Transferred” and “Number Transferred,” respectively,
opposite the name(s) of such person(s) and appoints each such person Attorney to
transfer its respective right on the books of NaturalNano, Inc. with full power
of substitution in the premises.

       

      

      
        	
                Transferees

              	
                Percentage Transferred

              	
                Number Transferred

              
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	 
      	 
      

      

      

      

      
        	
                Dated:  ______________,
      ___________

                 

                 

                 

                Signed
      in the presence of:

                 

                                                                                           
      

                (Name)

                 

                 

                ACCEPTED
      AND AGREED:

                [TRANSFEREE]

                 

                                                                                             

                (Name)

                 

              	
                                                                                                                   
      

                (Signature
      must conform to name of holder as specified 

                on
      the face of the warrant)

                 

                 

                 

                                                                                                            
           

                                                                                                                
      

                (address)

                 

                                                                                                                 
      

                                                                                                                 
      

                (address)

              

      

      

      
 

       

       11

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