AMENDED AND RESTATED SECURITY AGREEMENT

 
Protea Biosciences, Inc., 955 Hartman Run Road, Suite 210, Morgantown, West
Virginia 26507, herein called “Debtor,” and West Virginia Economic Development
Authority, herein called “Secured Party,” agree as follows:

 
WHEREAS, Debtor and Secured Party executed and delivered a Security Agreement
dated October 21, 2010 (the “Original Security Agreement”) to secure the
obligations of Debtor under that Promissory Note dated October 21, 2010,
executed by Debtor to the Secured Party, and that certain Loan Agreement dated
October 21, 2010, between the Debtor and Secured Party (the “Loan Agreement”),
in connection with a loan made by the Secured Party to the Debtor in the amount
of $900,000 (the “WVEDA Loan”); and

 
WHEREAS, as contemplated by the aforesaid Loan Agreement, the West Virginia
Infrastructure and Jobs Development Council has on the date hereof made a loan
to Debtor in the amount of $900,000 (the “WVIJDC Loan”) to finance a portion of
the costs of the Phase II Equipment described in the Loan Agreement; and
 
WHEREAS, the Debtor and Secured Party desire to amend and restate the Original
Security Agreement to reflect the addition of the Phase II Equipment described
in the Loan Agreement as part of the Collateral encumbered by the Original
Security Agreement as amended hereby (the “Collateral”) and also to provide that
the security interest granted by the Debtor in the Collateral to secure the
WVIJDC Loan is on parity with the security interest therein granted by the
Debtor to secure the WVEDA Loan.
 
NOW, THEREFORE, in consideration of the premises and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties hereto agree that the Original Security
Agreement is amended and restated to read as follows:
 
1.         Debtor hereby grants to Secured Party a first lien security interest
in all equipment and machinery of Debtor described in Exhibit A hereto, and all
replacements, additions and improvements thereto and proceeds thereof (the
“Collateral”).
 
3383744.1

Amended and Restated Security Agreement
 
 

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2.         The security interest created by this Security Agreement shall become
a first lien security interest position, shared on a parity, pursuant to that
certain Intercreditor Agreement of even date herewith between Secured Party and
the West Virginia Infrastructure and Jobs Development Council, with the security
interest therein in favor of West Virginia Infrastructure and Jobs Development
Council to secure West Virginia Infrastructure and Jobs Development Council in
the repayment of a loan to Debtor in the original principal amount of $900,000.

 
3.         Debtor warrants and agrees that:

 
a.           Debtor shall pay Secured Party the sum of $900,000 evidenced by
that certain Promissory Note dated as of October 21, 2010, and referred to in
that certain Loan Agreement dated as of October 21, 2010, herewith between the
parties hereto, together with the interest and other obligations described in
said Promissory Note and Loan Agreement. This Security Agreement shall, in
addition to securing said sums due to Secured Party, secure all future advances
made by Secured Party, to, or for the account of Debtor, including advances for
loans, repairs to or maintenance of the Collateral, and all reasonable costs and
expenses incurred in the collection of any such indebtedness.

 
b.           The Collateral covered hereby will be used primarily in Debtor’s
business located at the address mentioned above, unless Secured Party consents
in writing to another use, and said Collateral will not be misused or abused,
wasted or allowed to deteriorate, except for the ordinary wear and tear from its
intended primary use.

 
c.           Until this Security Agreement is terminated, the Collateral will be
insured against fire, theft, vandalism, malicious mischief, and other hazards in
an amount and with policy or policies of insurance acceptable to Secured Party.
Such casualty insurance policy or policies shall contain a “New York Standard
Mortgage Clause,” or its equivalent. Further, until this Security Agreement is
terminated, Debtor will maintain liability insurance in amounts and coverages
satisfactory to Secured Party and, if Debtor’s county is designated as a flood
prone area and the FIA map shows that Debtor’s property is located within a
special flood hazard area, Debtor will purchase Federal Flood Insurance in
amounts and coverages satisfactory to Secured Party. All aforesaid policies
shall be payable to Secured Party, West Virginia Infrastructure and Jobs
Development Council and Debtor, as their interests appear, and with the policy
or policies, or copies thereof, deposited with Secured Party, and such policy or
policies shall provide for not less than thirty (30) days written notice to
Secured Party of the cancellation of such policy or policies.
 
3383744.1
Amended and Restated Security Agreement
 
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d.           The Collateral will not be sold, transferred or disposed of or be
subjected to any unpaid charges, including taxes, or to any security interest,
lien or other subsequent interest of a third person created or suffered by
Debtor voluntarily or involuntarily, unless Secured Party consents in advance in
writing to such charge, transfer, disposition, security interest, lien or other
subsequent interest.

 
e.           Debtor hereby authorizes the Secured Party to file and, if
determined by Secured Party to be necessary or convenient, Debtor will sign and
execute alone or with Secured Party any Financing Statements, fixture filings,
or other documents and Debtor agrees to procure any documents and pay all costs
necessary to protect the security interests under this Security Agreement
against the rights or interests of third parties.

 
f.           Debtor will reimburse Secured Party for any action, including
without limitation attorney fees and expenses, to remedy a default which Secured
Party elects pursuant to the terms hereof or under said Loan Agreement.

 
g.           Debtor represents and warrants to the Secured Party that the
equipment and machinery described in Exhibit A shall at all times prior to the
payment in full of the debt secured hereby remain as personal property and shall
never constitute fixtures unless Secured Party consents otherwise in advance in
writing.
 
4.         Until default hereunder, Debtor shall be entitled to the possession
of the Collateral and to use and enjoy the same.
 
5.         Debtor shall be in default hereunder upon an Event of Default as set
forth in said Loan Agreement or failure to pay any amount payable hereunder or
under said Promissory Note or Loan Agreement within the time provided in said
Promissory Note or Loan Agreement or upon failure to observe or perform any of
Debtor’s other agreements contained herein.
 
3383744.1

Amended and Restated Security Agreement
 
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6.         Upon Debtor’s default, Secured Party may exercise its rights of
enforcement under the Uniform Commercial Code in force in West Virginia, at the
date of this Security Agreement and, in conjunction with, in addition to or in
substitution for those rights, at the discretion of Secured Party, may enter
upon Debtor’s premises to take possession of, assemble, and collect the
Collateral or render it unusable, and may require Debtor to assemble the
Collateral and make it available at a place designated by Secured Party which is
mutually convenient to allow Secured Party to take possession of or dispose of
the Collateral. Secured Party may waive any default or remedy any default in any
reasonable manner without waiving the default remedy and without waiving any
other prior or subsequent defaults. In the event of default by Debtor in its
obligations to Secured Party and the repossession of the Collateral by Secured
Party, such Secured Party may sell and transfer the entire interest in and full
and complete title to the Collateral. Whenever notice is required by law to be
sent by the Secured Party to the Debtor of any sale, lease or other disposition
of the Collateral, ten (10) days’ written notice sent to the Debtor’s address
set forth above will be reasonable.
 
7.         Debtor warrants that it has good title to the Collateral described
herein; that the same is free and clear from all liens and encumbrances other
than the aforesaid security interest in favor of Secured Party and the West
Virginia Infrastructure and Jobs Development Council; and that Debtor has the
right to convey the same to Secured Party as collateral.
 
8.         All the Collateral described herein is located in Monongalia County,
West Virginia, and will remain in said County until said Promissory Note is paid
in full.
 
9.         The only office of the Debtor is at 955 Hartman Run Road, Suite 210,
Morgantown, West Virginia 26507.
 
3383744.1

Amended and Restated Security Agreement
 
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Dated this 10th day of December, 2010.
 

 
PROTEA BIOSCIENCES, INC.
           
By:
  /s/ Stephen Turner      
Its: 
CEO             
WEST VIRGINIA ECONOMIC
 
DEVELOPMENT AUTHORITY
           
By:
  /s/ David G. Warner       
Its:
Executive Director 

 
3383744.1 
Amended and Restated Security Agreement
 
5

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EXHIBIT A
 
LIST OF EQUIPMENT AND MACHINERY
 
Vendor
 
Equipment
     
AB Sciex
 
ABI 5500 QTRAP LC/MS/MS — Model # 5500, Serial # AU23751008. [Invoice #
400022349]
     
AB Sciex
 
HPLC/API 4000 Mass Spec (2 Units) — Model # 4000, Serial Nos. J1030110 and
J2480202. [Invoice # 400025969]
     
Hitachi
 
Total Amino Acid Analyzer — Model # L-8900, Serial # 2145-003. [Invoice #
83015295]
     
AB Sciex
 
Transformer (HPLC/API 4000 related equipment) — Serial Nos. 27860523 and
27860524. [Invoice # 400026283]
     
Thermo Fisher
 
Watson LIMS Software [Invoice # 01-77694]
     
Waters
 
Synapt G2 HDMS 8k with UPLC (Serial # UCA229)
     
AB Sciex
 
Hotfixes (HPLC/API related equipment/software) [Invoice # 400026481]
     
AB Sciex
 
Pump, auto sampler, etc. (Invoice 400027024)
         
Pumps: Model #LC-20AD (Serial #L20104853838, #L20104853839, #L20104853845 &
#L20104853846)
         
Autosamplers: Model #SIL-20AC HT (Serial #L20354855845 & #L20354855847)
         
Communication modules: Model #CBM-20A (Serial #L20234852691 & #L20234852713)
         
Column ovens: Model #CTO-20AC (Serial #L20214750719 &#L20214750722)
         
Degassers: Model #DGO-20A3 (Serial #SSI-3-1745 & #SSI-3-1766)

 
3383744.1
Amended and Restated Security Agreement
 
 

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FIRST AMENDMENT TO LOAN AGREEMENT
 
This Amendment, is made and entered into on the 10th day of December, 2010, by
and between PROTEA BIOSCIENCES, INC., a Delaware corporation (the “Company”) and
the WEST VIRGINIA ECONOMIC DEVELOPMENT AUTHORITY, a West Virginia public
corporation (the “WVEDA”).

 
WHEREAS, the Company and the WVEDA entered into that certain Loan Agreement
dated October 21, 2010 (the “Loan Agreement”) whereby the Company obtained from
the WVEDA a term loan in the original principal amount of $900,000 (the “Loan”);
and

 
WHEREAS, the Company and the WVEDA have agreed to amend the Loan Agreement (i)
to reduce the grace period provided in D.l.a. of the Loan Agreement from 30 days
to 10 days to be consistent with the Loan Agreement relating to the loan made by
the West Virginia Infrastructure and Jobs Development Council on the date hereof
in the amount of $900,000; (ii) to add an additional Event of Default relating
to defaults by the Company with respect to indebtedness other than the Loan; and
(iii) to add a provision with respect to the imposition of a late fee on late
payments made by the Company.

 
NOW, THEREFORE, WITNESSETH: That for valuable considerations, the mutual receipt
and sufficiency of which are hereby acknowledged, the parties covenant and agree
that the Loan Agreement shall be amended as follows:
 
1.         Paragraph D. 1 (a) of the Loan Agreement is amended to read as
follows:
 
(a)       Failure by the Company to pay any amounts required to be paid under
this Loan Agreement at the times specified herein and such failure shall
continue for a period of ten (10) days after the same has become due;
 
2.         Paragraph D.l. of the Loan Agreement is amended to add a new
subparagraph (g) as follows:
 
(g)       The Company shall fail to pay as and when due any installment of
principal or interest due on, or shall otherwise be in default under, any
indebtedness or other obligations owed to any creditor of the Company
(including, without limitation, the WVIJDC, the WVEDA with respect to any other
loan by the WVEDA to the Company whether made prior to or after the date hereof,
or any other lender of creditor
 
3383916.1

 
 

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3.           In order to provide for the amendment set forth in 2. above, the
“or” at the end of D. 1(e) is hereby deleted and the “.” at the end of D. 1(f)
is hereby replaced with “; or”.
 
4.           Paragraph D.2. of the Loan Agreement is amended to add a new
subparagraph (d) as follows:

 
(d)        Any payment due to the WVEDA under this Loan Agreement and not made
within ten (10) days of its due date may be subject to a late payment charge
equal to five percent (5%) of the monthly payment due. An additional five
percent (5%) may be charged for each successive month the payment remains past
due. All such late payment charges may be imposed by the WVEDA in its sole and
absolute discretion, and shall apply individually to all payments due and there
shall be no daily pro-rate adjustment. All late charges accrue to the benefit of
the WVEDA and are in addition to, not in lieu of, the continuing accrual of
interest.
 
Except as expressly modified or amended as provided herein, the Loan Agreement
shall remain in full force and effect.

 
WITNESS the following signatures as of the date first written above.

 
PROTEA BIOSCIENCES, INC.
           
By:
  /s/ Stephen Turner      
Its:   
CEO            
WEST VIRGINIA ECONOMIC
 
DEVELOPMENT AUTHORITY
           
By:
  /s/ David A. Warner      
David A. Warner
     
Its:   
Executive Director 

 
3383916.1
 
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