THIS NOTE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. NEITHER THIS NOTE NOR SUCH SHARES OF COMMON
STOCK MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUING
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
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Principal
Amount $59,500
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Issue
Date: October 31, 2008
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8% SENIOR SECURED PROMISSORY NOTE
DUE JANUARY 31, 2010
FOR VALUE RECEIVED, NaturalNano,
Inc., a Nevada corporation (“NaturalNano”), and
NaturalNano Research, Inc., a Delaware corporation and wholly owned
subsidiary of NaturalNano (“NN Research” and, together
with NaturalNano, the “Borrowers”), hereby jointly and
severally promise to pay to the order of Platinum Long Term Growth
IV, LLC, 152 West 57 th Street, 54 th Floor,
New York, New York (the “Holder”), the sum of
Fifty-Nine Thousand Five Hundred Dollars ($59,500), on January 31,
2010 (the “Maturity Date”).
Interest on the outstanding
principal balance shall be paid in arrears at the rate of eight
percent (8%) per annum, payable quarterly on the first day of
January, July, April and October of each year (provided that the
first interest payment hereunder shall be due January 31, 2009) and
a final interest payment due on the Maturity Date. Interest shall
be payable to the holder of this Note of record on the fifteenth
day of the preceding month. Interest shall be computed on the basis
of a 360-day year, using the number of days actually elapsed.
Interest may be paid in cash or in shares of NaturalNano’s
common stock, par value $.001 per share (“Common
Stock”); provided, that any payment in shares of Common Stock
shall be subject to the provisions of Section 1.2 of this Note.
Interest shall be payable at the default interest rate of the
lesser of (x) eighteen percent (18%) per annum or (y) the maximum
rate of interest which may legally be charged, (a) if the Borrowers
fail to make any monetary payment due on this Note within ten (10)
days after the date such payment is due and continuing at such rate
until the payment default is cured, and (b) during the pendency of
any Event of Default, as hereinafter defined, other than a failure
to make any monetary payment.
Payment of this Note is secured
pursuant to, and as described in, the Loan and Security Agreement,
dated as of September 29, 2008, among the Holder, NaturalNano and
the other parties named therein (the “Loan Agreement”).
This Note satisfies the Holder’s obligations with respect to
the Second Advance (each such term as defined in the Loan
Agreement); provided, however, the Borrowers acknowledge that they
have not satisfied the conditions for the Second Advance set forth
in the Loan Agreement, and the funding of the Second Advance shall
not be deemed to satisfy (absent waiver or consent by the Requisite
Investors) any of the conditions set
forth in Section 9.3.7 of the Loan Agreement
with respect to the Third Advance, which Third Advance may be made
only at the sole discretion of the Requisite
Investors.
This Note is one a series of Notes issued or to
be issued pursuant to the Loan Agreement, all of which are
collectively referred to herein as the
“Notes”.
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SECTION
1.
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Interest
Payments
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1.1.
Payment of Interest in Cash . Except as provided in
Section 1.2 of this Note, interest shall be paid in cash on the
interest payment dates.
1.2.
Payment of Interest in Stock . The Borrowers may pay
interest on this Note in shares of Common Stock provided that the
following conditions are met:
1.2.1. The shares of Common Stock
issuable in payment of interest shall be subject to a current and
effective registration statement or eligible to be immediately sold
without volume restrictions or current public information
requirements pursuant to Rule 144 under the Securities Act and
NaturalNano shall deliver to the Holder an unlegended stock
certificate or, if the Holder shall have provided NaturalNano with
account information, NaturalNano shall have caused the shares to be
electronically delivered to Holder’s brokerage
account.
1.2.2. NaturalNano shall be current
in its filings with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934, as
amended.
1.2.3. The Common Stock shall be
traded on the OTC Bulletin Board, the Nasdaq Stock Market or the
New York or American Stock Exchange, NaturalNano shall not have
received notice from any such market or exchange to the effect that
the Common Stock may be subject to delisting from such market or
exchange, and no event shall have occurred which would result in
the delisting of the Common Stock from such
market.
1.2.4. The number of shares of Common
Stock to be issued shall be determined by dividing the amount of
the interest payment by eighty five percent (85%) of the daily
volume weighted average price (“VWAP”) of the Common
Stock for the 20 trading days immediately preceding (but not
including) the day that is one trading day prior to the interest
payment date.
1.2.5. VWAP means the daily volume
weighted average price of the Common Stock for such date (or the
nearest preceding date) on the primary trading market on which the
Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. EST to 4:02
p.m. Eastern Time) using the VAP function.
1.2.6. Following such issuance, the
Holder shall not beneficially own (determined as set forth in
Section 2.8 hereof) in excess of 4.99% (or 9.99% if the
Holder
has waived the provisions of Section 2.8.1(A)
hereof) of the then outstanding number of shares of Common Stock on
the date of such issuance (the calculation of such percentage to be
determined jointly by the Holder and the Borrower in good
faith).
2.1
Conversion Right . The Holder shall have the right at
any time and from time to time until the principal and interest on
this Note shall have been paid in full, to convert the principal
and any interest due under this Note into shares of Common Stock as
provided in this Section 2.
2.2
Conversion Procedure . If the Holder exercises its
right of conversion, the Holder shall give NaturalNano a Notice of
Conversion in the form annexed to this Note, setting forth the
amount of principal and interest that the Holder is converting into
Common Stock at the Conversion Price in effect on the date of such
notice. The date of such notice is referred to as the Conversion
Date. Upon delivery to NaturalNano of a completed Notice of
Conversion, NaturalNano shall issue and deliver to the Holder
within three (3) business days after the Conversion Date (such
third day being the “Delivery Date”) that number of
shares of Common Stock for the amount of principal and interest on
the Note which is being converted, as set forth in Section 2.9 of
this Note. To the extent that the Holder does not elect to convert
interest, then, in accordance with and subject to the provisions of
Section 1.2 of this Note, the Borrowers shall pay accrued interest
to the Conversion Date on that portion of the principal of the Note
with respect to which accrued interest is not being converted, such
payment to be made not later than the Delivery Date. Except to the
extent that the unpaid principal balance of this Note is being
presented for conversion, the Holder shall not be required to
present this Note in order to effect conversion, and the Holder
shall maintain a ledger setting forth each conversion of principal
and interest on this Note and such ledger shall, absent manifest
error, be deemed to be binding and conclusive on the
Borrowers.
2.3
Conversion Price . The Conversion Price shall be
$0.005 per share of Common Stock, subject to adjustment as set
forth in Section 2.4 of this Note. 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 principal and interest
of the Note to be converted by the Conversion Price in effect on
the Conversion Date.
2.4
Adjustment to the Conversion Price . The Conversion
Price and number and kind of shares or other securities to be
issued upon conversion shall be subject to adjustment from time to
time upon the happening of certain events while this conversion
right remains outstanding, as follows:
2.4.1 Merger or Sale of
Assets . If NaturalNano shall at any time consolidate with or
merge into or sell or convey all or substantially all its assets to
any other Person, as defined in the Loan Agreement, this Note, as
to the unpaid principal portion thereof and accrued interest
thereon, shall thereafter be deemed to be convertible into such
number and kind of shares of capital stock or other securities and
property as would have been issuable or distributable on account of
such consolidation, merger, sale or
conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately
prior to such consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to successive
transactions of a similar nature by any such successor or
purchaser.
2.4.2 Reclassification
. If NaturalNano 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 convertible into
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.
2.4.3 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.
2.5
Notice of Adjustment . Whenever the Conversion Price
is adjusted pursuant to Section 2.4 of this Note, NaturalNano 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.
2.6
Reservation of Shares . NaturalNano shall promptly,
and in no event later than November 30, 2008, take all actions to
ensure that, during the period that the conversion right exists, it
will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of Common
Stock issuable upon the full conversion of this Note. NaturalNano
represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. NaturalNano 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.
2.7
Right to Require Conversion . Provided an Event of
Default or an event which with the passage of time or the giving of
notice could become an Event of Default has not occurred, whether
or not such Event of Default has been cured, and provided that all
of the shares of Common Stock issuable upon conversion of the Note,
have been registered pursuant to the Securities Act of 1933, as
amended (the “Securities Act”) the Borrowers shall have
the right to require the Holder of this Note to convert all or any
portion of this Note into shares of Common Stock at the Conversion
Price on the date that the Borrowers give notice of such required
conversion, subject to the following terms and
conditions.
2.7.1 The Borrowers may only
exercise such right if a registration statement covering the sale
by the Holder of all of the shares of Common Stock issuable upon
conversion of this Note (the “Registration Statement”)
is current and effective and, based on the date of the prospectus
forming a part of the registration statement and the age of the
financial statements contained in the registration statement, the
registration statement can be used by the Holder in connection with
the sale of the Common Stock for at least three months without the
need to file a post-effective amendment to update the registration
statement, and there shall not have occurred any material event
concerning either of the Borrowers for which disclosure would be
necessary in order that the information contained in the
registration statement is true and correct in all material respects
and does not omit any information necessary to make the information
contained therein not misleading. Or, if a registration statement
shall not be effective or any of the other conditions set forth
above cannot be satisfied by the Borrowers, Borrowers, nevertheless
may require conversion if sufficient common stock is available for
delivery to the Holder that is eligible to be immediately sold
without volume restrictions or current public information
requirements pursuant to Rule 144 under the Securities Act. The
notice of required conversion shall include the certificate of the
Borrowers’ respective chief executive officers as to the
matters set forth in this Section 2.7.1.
2.7.2 The Common Stock shall
be traded on the OTC Bulletin Board, the Nasdaq Stock Market or the
New York or American Stock Exchange and shall be eligible for
transfer using the facilities of the Depository Trust Company (the
“DTC Program”); NaturalNano shall not have received
notice from any such market or exchange to the effect that the
Common Stock may be subject to delisting from such market or
exchange, and no event shall have occurred which would result in
the delisting of the Common Stock from such
market.
2.7.3 The closing price of the
Common Stock on the principal market or exchange on which the stock
is traded is not less than $1.00 (as adjusted for splits,
combinations and the like occurring after the date hereof) for not
less than 20 consecutive trading days ending on the date prior to
the date on which NaturalNano gives notice to the Holder exercising
its rights under this Section 2.7.
2.7.4 NaturalNano will tender
to the Holder such number of shares of Common Stock as are issuable
upon conversion of the principal amount of this Note being
converted, but not such number of shares as would result in a
violation of the 4.99% Limitation, as hereinafter defined or 9.99%
if the Holder has waived the provisions of Section 2.8.1(A) hereof
(it being understood that the portion of the Note that would
otherwise violate the 4.99% Limitation or the limitations of
Section 2.8.1 if it were to be so converted shall remain issued and
outstanding). In connection with any such
conversio
