THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT THERETO UNDER SUCH ACT AND APPLICABLE LAWS OR
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.

 

PROTEA BIOSCIENCES GROUP, INC.

10% CONVERTIBLE PROMISSORY NOTE

DUE JANUARY 20, 2013

 

$[ ] Issue Date: November 30, 2012

  

Protea Biosciences Group, Inc., a Delaware corporation (the “Company”), the
principal office of which is located at 955 Hartman Run Road, Morgantown, WV
26507 for value received hereby promises to pay to ___________________________,
or its registered assigns (“Holder”), the sum of [___________________________],
or such other amount as shall then equal the outstanding principal amount hereof
and all accrued unpaid interest, as set forth below, on the earlier to occur of
(i) the date that is 60 days from the Issue Date set forth above (“Maturity
Date”), or (ii) when declared due and payable by the Holder upon the occurrence
of an Event of Default (as defined below). Payment for all amounts due hereunder
shall be made by wire transfer of immediately available funds, in lawful tender
of the United States, to an account designated in writing by the Holder.

 

The following is a statement of the rights of the Holder of this Note and the
conditions to which this Note is subject, and to which the Holder hereof, by the
acceptance of this Note, agrees:

 

1.                  Definitions. As used in this Note, the following terms,
unless the context otherwise requires, have the following meanings:

 

(i)               “Company” includes any corporation that, to the extent
permitted by this Note, shall succeed to or assume the obligations of the
Company under this Note.

 

(ii)             “Holder,” when the context refers to a holder of this Note,
shall mean any person who shall at the time be the registered holder of this
Note.

 

2.                  Interest. Simple interest on the unpaid principal balance of
this Note shall accrue from _____________, at the rate of ten percent (10%) per
annum. All accrued unpaid interest shall be due and payable to the Holder on the
Maturity Date.

 

3.                  Events of Default. If any of the events specified in this
Section 3 shall occur (herein individually referred to as an “Event of
Default”), the Holder of the Note may, so long as such condition exists, declare
the entire principal and unpaid accrued interest hereon immediately due and
payable, by notice in writing to the Company:

 

 

 

  

(i)               Any failure to pay the principal balance of or accrued
interest on this Note when due hereunder.

 

(ii)             The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action; or

 

(iii)           If, within sixty (60) days after the commencement of an action
against the Company seeking any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been resolved in favor of the
Company or all orders or proceedings thereunder affecting the operations or the
business of the Company stayed, or if the stay of any such order or proceeding
shall thereafter be set aside, or if, within sixty (60) days after the
appointment without the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company, such appointment shall not have been vacated; or

 

4.                  Prepayment. This Note may be prepaid at any time without
penalty or premium with the express written consent of the Holder.

 

5.                  Conversion.

 

5.1              Voluntary Conversion. The Holder of this Note has the right, at
the Holder’s option, at any time prior to payment in full of the principal
balance and all accrued interest of this Note, to convert this Note, in
accordance with the provisions of Section 5.2 hereof, in whole or in part, into
fully paid and nonassessable shares of common stock, par value $0.0001 per share
of the Company (“Common Stock”). The number of shares of Common Stock into which
this Note may be converted (“Conversion Shares”) pursuant to this Section 5.1
shall be equal to one (1) share of Common Stock for each $2.00 of outstanding
principal and accrued unpaid interest due under the Note on the date of
conversion (the “Conversion Rate”).

 

5.2              Notice of Conversion. Before the Holder shall be entitled to
convert this Note into shares of Common Stock pursuant to Section 5.1, it shall
surrender this Note at the office of the Company and shall give written notice
by mail, postage prepaid, to the Company at its principal corporate office, of
the election to convert the same pursuant to Section 5.1, and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to the Holder of this Note a
certificate or certificates for the number of shares of Common Stock to which
the Holder of this Note shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of this Note, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.

 

2

 

 

5.3              Mechanics and Effect of Conversion. No fractional shares of
Common Stock shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to the Holder, upon the conversion of this
Note, the number of shares issued upon the conversion of this Note shall be
rounded up to the nearest whole share. At its expense, the Company shall, as
soon as practicable after conversion, issue and deliver to the Holder at its
principal office a certificate or certificates for the number of shares of
Common Stock to which the Holder shall be entitled upon such conversion,
together with any other securities and property to which the Holder is entitled
upon such conversion under the terms of this Note.

 

6.                  Conversion Rate Adjustments.

 

6.1              Adjustments for Stock Splits and Subdivisions. In the event the
Company should at any time or from time to time after the date of issuance
hereof fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”)
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Rate of this Note shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares, unless such adjustment has already been made to the
Conversion Rate.

 

6.2              Adjustments for Reverse Stock Splits. If the number of shares
of Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Rate for this Note shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion hereof shall be decreased in proportion to such decrease in
outstanding shares, unless such adjustment has already been made to the
Conversion Rate.

 

6.3              Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of
this Note such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion of the Note; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of the entire outstanding principal amount and accrued
interest of this Note, in addition to such other remedies as shall be available
to the holder of this Note, the Company will use its best efforts to take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes.

 

3

 

  

7.                  Assignment. Subject to the restrictions on transfer
described in Section 9 below, the rights and obligations of the Company and the
Holder of this Note shall be binding upon and benefit the successors and assigns
of the parties.

 

8.                  Waiver and Amendment. Any provision of this Note may be
amended, waived or modified upon the written consent of the Company and the
Holder.

 

9.                  Transfer of This Note or Securities Issuable on Conversion
Hereof. With respect to any offer, sale or other disposition of this Note or
securities into which such Note may be converted, the Holder will give written
notice to the Company prior thereto, describing briefly the manner thereof,
together with a written opinion of such Holder’s counsel, to the effect that
such offer, sale or other distribution may be effected without registration or
qualification (under any federal or state law then in effect). Promptly upon
receiving such written notice and opinion, if so requested, the Company, as
promptly as practicable, shall notify such Holder that such Holder may sell or
otherwise dispose of this Note or such securities, all in accordance with the
terms of the notice delivered to the Company. Each Note thus transferred and
each certificate representing the securities thus transferred shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with the Act, unless in the opinion of counsel for the Company such
legend is not required. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.

 

10.              Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if faxed with confirmation of receipt by
telephone or if mailed by registered or certified mail, postage prepaid, at the
respective addresses of the parties set forth below. Any party hereto may by
notice so given change its address for future notice hereunder. Notice shall
conclusively be deemed to have been given when personally delivered, faxed, or
when deposited in the mail in the manner set forth above and shall be deemed to
have been received when delivered.

 

Holder:_______________________

_______________________

_______________________

_______________________

 

Borrower:Protea Biosciences Group, Inc.

955 Hartman Run Road

Morgantown, WV 26507

Attn: Stephen Turner

Fax: 304-292-7101

 

4

 

 

with a copy to (which shall not constitute notice):

 

Richardson & Patel LLP

750 Third Avenue, 9th Floor

New York, NY 10017

Attn: David N. Feldman

Fax: 917-677-8165

 

11.              No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company; and no dividends or
interest shall be payable or accrued in respect of this Note or the interest
represented hereby or the Conversion Shares obtainable hereunder until, and only
to the extent that, this Note shall have been converted pursuant to Section 5.1.

 

12.              Usury. This Note is hereby expressly limited so that in no
event whatsoever, whether by reason of acceleration of maturity of the loan
evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the
Holder hereunder for the loan, use, forbearance or detention of money exceed
that permissible under applicable law. If at any time the performance of any
provision of this Note or of any other agreement or instrument entered into in
connection with this Note involves a payment exceeding the limit of the interest
that may be validly charged for the loan, use, forbearance or detention of money
under applicable law, then automatically and retroactively, ipso facto, the
obligation to be performed shall be reduced to such limit, it being the specific
intent of the Company and the Holder that all payments under this Note are to be
credited first to interest as permitted by law, but not in excess of (i) the
agreed rate of interest set forth herein or therein or (ii) that permitted by
law, whichever is the lesser, and the balance toward the reduction of principal.
The provisions of this Section 12 shall never be superseded or waived and shall
control every other provision of this Note and all other agreements and
instruments between the Company and the Holder entered into in connection with
this Note.

 

13.              Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding that
body of law relating to conflict of laws.

 

14.              Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except where otherwise indicated, all references herein to Sections refer to
Sections hereof.

 

15.              Waiver. The Company hereby waives demand, notice, presentment,
protest and notice of dishonor.

 

 

[Signature Page to Convertible Promissory Note Follows]

 

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IN WITNESS WHEREOF, the Company has caused this Note to be issued this 30th day
of November, 2012.

 

  PROTEA BIOSCIENCES GROUP, INC.   a Delaware corporation               By:  /s/
Stephen Turner   Name: Stephen Turner   Title: Chief Executive Officer

 

 

Signature of Holder: ______________________

 

Name of Holder: _________________________

 

Address: ______________________________

 

______________________________________

 

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NOTICE OF CONVERSION

 

(To Be Signed Only Upon Conversion of Note)

 

TO PROTEA BIOSCIENCES GROUP, INC.

 

The undersigned, the holder of the foregoing Note, hereby surrenders such Note
for conversion into shares of Common Stock of PROTEA BIOSCIENCES GROUP, INC. to
the extent of $__________________ unpaid principal amount and accrued interest
of such Note, and requests that the certificates for such shares be issued in
the name of, and delivered to ____________________, whose address is _
________________________________.

 

Dated: _____________________

 

      (Signature must conform in all respects to name of holder as specified on
the face of the Note)           (Address)

 

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