CONVERSION AGREEMENT
 
THIS CONVERSION AGREEMENT (the "Agreement"), dated as of _________, 2013, by and
among, Protea Biosciences Group, Inc., a Delaware corporation (the "Company")
and the undersigned holder (a "Holder" and together with the other as set forth
on Schedule A hereto of the Company’s convertible promissory notes, the
"Holders").
 
RECITALS
 
WHEREAS, the Company has issued certain convertible promissory notes (each a
"Note" and collectively, the “Notes”) to the Holders in the principal amounts
set forth beside each Holder’s name on Schedule A hereto (each, such Holder’s
“Principal Amount”);
 
WHEREAS, as an inducement for the Holders to convert the Principal Amount and
accrued and unpaid interest (the “Conversion Amount”) due under the Notes into
shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share
(the “Common Stock”) on or prior to June 30, 2013 (the “Conversion”); the
Company has agreed to issue warrants substantially in the form attached hereto
as Exhibit A (the “Warrant”).
 
NOW THEREFORE, in consideration of the premises and the mutual covenants and
agreements of the parties hereinafter set forth, the parties hereto hereby agree
as follows:
 
1.          CONVERSION.
 
(a)          The Holder agrees, on or prior to June 30, 2013 (the “Termination
Date”), subject to the conditions set forth herein, to convert the Holder’s
Conversion Amount into the number of Shares set forth on Schedule A, in
accordance with the terms and conditions of the Note issued in the name of the
Holder. Provided that the Conversion Notice (as defined in the Note) is received
on or prior to the Termination Date, at the Closing (as defined below), the
Company shall issue a Warrant to purchase that number of shares of Common Stock
(the “Warrant Shares”) equal to 75% of the number of Shares issued to the Holder
in connection with the Conversion, as set forth beside the Holder’s name on
Schedule A. The Shares and Warrant are collectively referred to herein as the
“Securities.”
 
(b)          The consummation of the transactions contemplated by this Agreement
shall take place at a closing (the "Closing") on the date on which the last of
the conditions set forth in Section 4 below are fulfilled, but in all cases on
or before June 30, 2013.  If the Closing does not occur on or before the
Termination Date, the Holder shall retain all rights to convert the Holder’s
Notes pursuant to the terms of conditions of the Notes, but this Agreement shall
have no further force and effect and the Holder shall have no right to receive
the Warrant or the Warrant Shares. Upon the Holder’s execution of this Agreement
prior to the Termination Date, the Holder shall deliver the Conversion Notice
and its Note for cancellation and within five business days of receipt of the
Conversion Notice and Note for cancellation, the Company shall deliver to the
Holder (i) certificates representing the Shares to which the Holder is entitled
as a result of such Conversion and (ii) the Warrant representing the Warrant
Shares to which the Holder is entitled as a result of such Conversion. From and
after the delivery of the Securities, the Notes shall be cancelled.  After the
Closing, the Company shall have no further obligation to pay either cash or
Common Stock, other than the Shares and, upon exercise of the Warrant, the
Warrants Shares, for principal, interest or any other fees due under the Notes
to the Holder. If a Holder has lost its Notes and is unable to deliver its
Notes, it shall immediately submit an affidavit of loss and indemnity agreement
so that the Notes may be replaced and deemed cancelled in accordance with the
terms hereof (each a “Lost Note Affidavit”).
 
 

 
2.          REPRESENTATIONS AND WARRANTIES OF COMPANY. The Company hereby
represents and warrants to the Holder as follows:

 
(a)          The Shares and the Warrant Shares have been duly authorized and,
when issued pursuant to this Agreement, the Shares, and when exercised pursuant
to the Warrant, the Warrant Shares, will be validly issued, fully-paid and
non-assessable. The issuance of the Securities, and when exercised pursuant to
the Warrant, , the Warrant Shares, will be exempt from registration pursuant to
Section 4(2) or Regulation D promulgated under the Securities Act of 1933, as
amended ("Securities Act") and such Securities and Warrant Shares will be
"restricted securities" as defined under Rule 144 promulgated under the
Securities Act.
 
(b)          The Company has full legal power to execute and deliver this
Agreement and to perform its obligations hereunder. All acts required to be
taken by the Company to enter into this Agreement and to carry out the
transactions contemplated hereby have been properly taken, and this Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms and does not conflict with, result in a breach or
violation of or constitute (or with notice of lapse of time or both constitute)
a default under any instrument, contract or other agreement to which the Company
or its subsidiaries is a party.
 
3.          REPRESENTATIONS AND WARRANTIES OF THE HOLDER. The Holder represents
and warrants to the Company as follows:
 
(a)          The Holder has full legal power to execute and deliver this
Agreement and to perform its obligations hereunder. All acts required to be
taken by such Holder to enter into this Agreement and to carry out the
transactions contemplated hereby have been properly taken and this Agreement
constitutes a legal, valid and binding obligation of such Holder enforceable in
accordance with its terms.
 
(b)          The Holder represents and warrants that the Holder has been
furnished by the Company during the course of this transaction with all
information regarding the Company which the Holder, as well as its investment
advisor, attorney and/or accountant, has requested or desired to know, and has
been afforded the opportunity to ask questions of and receive answers from duly
authorized officers or other representatives of the Company concerning the terms
and conditions of the Conversion, and has received any additional information
which the Holder has requested concerning the Company and the terms and
conditions of the Conversion. No oral representations or warranties of any kind
have been made to the Holder by the Company or its officers, directors,
employees or agents.
 
(c)          The Holder is an “accredited investor” within the meaning of Rule
501 of Regulation D of the Securities Act, as presently in effect, and has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Company's securities and
has obtained, in its judgment, sufficient information about the Company to
evaluate the merits and risks of an investment in the Company.
 
(d)          The Holder consents to the placement of a legend on any certificate
or other document evidencing the Securities and the Warrant Shares substantially
as set forth below, that such Securities and Warrant Shares have not been
registered under the Securities Act or any state securities or “blue sky” laws
and setting forth or referring to the restrictions on transferability and sale
thereof contained in this Agreement. The Holder is aware that the Company will
make a notation in its appropriate records with respect to the restrictions on
the transferability of the Securities and the Warrant Shares.
 
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ALL APPLICABLE STATE
SECURITIES OR “BLUE SKY” LAWS (SUCH FEDERAL AND STATE LAWS, THE “SECURITIES
LAWS”) OR (B) IF THE CORPORATION HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL
FOR THE HOLDER, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO
THE CORPORATION, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF THE
SECURITIES LAWS.
 
 
 
4.           CONDITIONS TO CLOSING.
 
(a)          The obligations of the Company to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment of the
following conditions:
 
(i)          The representations and warranties set forth in Section 2 and
Section 3 hereof shall be true and correct on and as of the Closing.
 
(ii)          All proceedings, corporate or otherwise, to be taken by the Holder
in connection with the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken and all necessary consents,
approvals or authorizations required to be obtained by the Company or the
Holders shall have been obtained in form and substance reasonably satisfactory
to the Company.
 
(iii)          The Company and the Holder shall have received from the other
party an executed signature page delivered by mail, facsimile transmission or by
e-mail delivery of a ".pdf" format data file.
 
(iv)          The Company shall have received, the Conversion Notice, the Note
or a Lost Note Affidavit from the Holder.
 
5.           CONFIDENTIALITY. The Holder shall not make any public announcements
in respect of this Agreement or the transactions contemplated. Notwithstanding
the foregoing, any disclosure may be made by a party which its counsel advises
is required by applicable law or regulation, in which case the Company shall be
given such reasonable advance notice as is practicable in the circumstances and
the parties shall use their best efforts to prepare such disclosure. The parties
may also make appropriate disclosure of the transactions contemplated by this
Agreement to their officers, directors, agents and employees.
 
6.           MISCELLANEOUS.
 
(a)          All headings used herein are used for convenience only and shall
not be used to construe or interpret this Agreement. Except where otherwise
indicated, all references herein to Sections refer to Sections hereof.
 
(b)          This Agreement may be executed in two or more counterparts, each of
which together shall be deemed an original, but all of which together shall
constitute one and the same instrument. In the event that any signature is
delivered by facsimile transmission or by e-mail delivery of a ".pdf" format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or ".pdf" signature page were an original
thereof.
 
(c)          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 as set forth on the signature page. 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.
 
(d)          This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, excluding that body of law relating to
conflict of laws. Exclusive venue and jurisdiction for any action arising
hereunder shall lie in the court of competent jurisdiction located in New York,
New York, and the parties specifically agree to submit to such jurisdiction and
waive any objections to such venue.
 
 

 
(e)          The rights and obligations of the Company and the Holder under this
Agreement shall be binding upon and benefit the successors and assigns of the
parties. Notwithstanding anything to the contrary contained herein, this
Agreement may not be assigned or transferred by the Company without the prior
written consent of the Holder, which consent may be granted or withheld in the
Holder's sole and absolute discretion.
 
(f)          Each party hereto shall pay its own costs and expenses, attorneys'
fees, incurred by it with respect to the negotiation, execution, delivery and
performance of this Agreement, including any expenses of enforcing this
provision. This provision shall survive the Closing of the Agreement.
 
(g)          This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, among the parties with respect
thereto. All amendments or modifications of this Agreement and all consents,
waivers and notices delivered hereunder or in connection herewith shall be in
writing.
 
[SIGNATURE PAGE FOLLOWS]
 
 

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
 
 
Company:
 
 
 
PROTEA BIOSCIENCES GROUP, INC.
 
 
 
By:
 
 
Name: Steven Turner
Title: President
 
 
 
HOLDER:
 
 

 
Holder Name (Print)
 
 
 
 
 
Authorized Person (if Purchaser is an entity or trust)
 
 
 
 
 
Signature of Holder or Authorized Person
 
 
 
 
 
Holder Address
 
 
 
 
 
Principal Amount of Holder’s Notes
 
 
 
 
 
Number of Shares
 
 
 
 
 
Number of Warrant Shares

 
 

 
Exhibit A
 
Form of Warrant
 
 

 
 
SCHEDULE A
 
Holder
 
Principal Amount
of
Notes
 
Shares
 
Warrant Shares
 
Leo Harris
 
$
175,000
 
 
350,000
 
 
262,500
 
Nancy Turner
 
$
100,000
 
 
200,000
 
 
150,000
 
Scott S. Segal
 
$
175,000
 
 
350,000
 
 
262,500
 
Stanley M. Hostler
 
$
785,000
 
 
1,570,000
 
 
1,177,500
 
Summit Resources, Inc.
 
$
875,000
 
 
1,750,000
 
 
1,312,500
 
Virginia E. Child
 
$
525,000
 
 
1,050,000
 
 
787,500
 
Ed Roberson
 
$
35,000
 
 
70,000
 
 
52,500
 
Stanley M. Hostler and Virginia E. Child
 
$
68,216
 
 
136,432
 
 
102,324
 
Stephen and Nancy Turner
 
$
20,000
 
 
40,000
 
 
30,000
 
Brian Prim
 
$
50,000
 
 
100,000
 
 
75,000
 
Carl Hostler
 
$
90,000
 
 
180,000
 
 
135,000
 
 
 
 
 
 
 
 
 
 
 
 
Total:
 
$
2,898,216
 
 
5,796,432
 
 
4,347,324