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 NOVEMBER [__], 2012

 

$100,000 Issue Date: September __, 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.

 

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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.

 

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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

 

 

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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 ___th day
of September __, 2012.

 

  PROTEA BIOSCIENCES GROUP, INC.   a Delaware corporation               By:    
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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