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