Document:

Exhibit 10.1

 

SUBSCRIPTION AGREEMENT

 

SUBSCRIPTION AGREEMENT
(this “Agreement”) made as of the last date set forth on the signature page hereof between Protea Biosciences Group,
Inc. (the “Company”), and the undersigned (the “Subscriber”).

 

WITNESSETH:

 

WHEREAS, the Company
is conducting a private offering (the “Offering”) for which Laidlaw & Company (UK) Ltd. is acting as placement
agent on a “best efforts” basis (the “Placement Agent”), consisting of up to a maximum of $2,500,000 (the
“Maximum Offering”) of 20% original issue discount unsecured convertible debentures (the “Debentures”)1,
initially convertible into shares of the Company’s common stock par value $0.001 per share (the “Common Stock”)
at a conversion price equal to $0.25, subject to adjustment (the “Conversion Price”), pursuant to Section 4(a)(2)
of the Securities Act of 1933, as amended (the “Securities Act”) and/or Rule 506 promulgated thereunder; and

 

WHEREAS, in connection
with the purchase of the Debentures, each Subscriber will receive a three-year warrant (the “Warrant,” and together
with the Debentures, collectively, the “Securities”) to purchase such number of shares of Common Stock of the Company
equal to 75% of the number of shares of Common Stock initially issuable upon conversion of the Debentures in this Offering at an
exercise price equal 30% (thirty) percent premium to conversion price, subject to adjustment thereunder (the “Exercise Price”);
and

 

WHEREAS, the Subscriber
desires to purchase such number of shares of Common Stock as set forth on the signature page hereof on the terms and conditions
hereinafter set forth.

 

NOW, THEREFORE, in consideration
of the premises and the mutual representations and covenants hereinafter set forth, the parties hereto do hereby agree as follows:

 

I.           SUBSCRIPTION
FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER

 

1.1     Subject
to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase from the Company,
and the Company subject to its rights to accept or reject this subscription, agrees to sell to the Subscriber, such aggregate face
amount of Debentures for the aggregate purchase price as is set forth on the signature page hereof. The purchase price is payable
by wire transfer, to be held in escrow until the conditions to closing are achieved, to Signature Bank, the escrow agent (the “Escrow
Agent”).

 

1.2     The
Securities will be offered for sale until the earlier of [May 6, 2016], subject to the right of the Company and the Placement Agent
to mutually extend the Termination Date to May 31, 2016 without notice to prospective investors (the “Final Termination Date”).
The Offering is being conducted on a “best-efforts” basis.

 

 

 

1 The total face amount
is up to $[       ].

 

    1 

     

    

 

1.3     The
Company may hold an initial closing (“Initial Closing”) at any time after a sum equal to or greater than one hundred
thousand dollars ($100,000) (the “Minimum Offering Amount”) has been raised. After the Initial Closing, subsequent
closings with respect to additional Securities may take place at any time prior to the Final Termination Date as determined by
the Company, with respect to subscriptions accepted prior to the Final Termination Date (each such closing, together with the Initial
Closing, being referred to as a “Closing”). The Company may elect to terminate the Offering at any time prior to the
Final Termination Date (the earlier of the date of any such termination or the Final Termination date, the “Termination Date”).
The last Closing of the Offering, occurring on or prior to the Termination Date, shall be referred to as the “Final Closing”.
Any subscription documents or funds received after the Final Closing will be returned, without interest or deduction. In the event
that any Closing does not occur prior to the Final Termination Date, all amounts paid by the Subscriber shall be returned to the
Subscriber, without interest or deduction.

 

1.4     The
Subscriber recognizes that the purchase of the Securities involves a high degree of risk including, but not limited to, the following:
(a) the Company has a limited operating history and requires substantial funds in addition to the proceeds of the Offering; (b)
an investment in the Company is highly speculative, and only investors who can afford the loss of their entire investment should
consider investing in the Company and the Securities; (c) the Subscriber may not be able to liquidate its investment; (d) transferability
of the Securities is extremely limited; (e) in the event of a disposition, the Subscriber could sustain the loss of its entire
investment; (f) the Company has not paid any dividends since its inception and does not anticipate paying any dividends; and (g)
the other risks associated with the Company’s business, financial situation and the Offering set forth in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “Form 10-K”) as publicly filed with and
available at the website of the United States Securities and Exchange Commission (the “SEC”) and on Exhibit A
annexed hereto.

 

1.5     At
the time such Subscriber was offered the Securities, it was, and as of the date hereof it is, and on each date on which it converts
the Debentures and/or exercises any Warrants it will be an “accredited investor” as defined in Rule 501(a) under the
Securities Act, as indicated by the Subscriber’s responses to the questions contained in Article VII hereof, and that the
Subscriber is able to bear the economic risk of an investment in the Securities.

 

1.6     The
Subscriber hereby acknowledges and represents that (a) the Subscriber has knowledge and experience in business and financial matters,
prior investment experience, including investment in securities that are non-listed, unregistered and/or not traded on a national
securities exchange or the Subscriber has employed the services of a “purchaser representative” (as defined in Rule
501 of Regulation D), attorney and/or accountant to read all of the documents furnished or made available by the Company both to
the Subscriber and to all other prospective investors in the Securities to evaluate the merits and risks of such an investment
on the Subscriber’s behalf; (b) the Subscriber recognizes the highly speculative nature of this investment; and (c) the Subscriber
is able to bear the economic risk that the Subscriber hereby assumes.

 

1.7      The
Subscriber hereby acknowledges receipt and careful review of this Agreement, the Warrant, the Debenture and all other exhibits
thereto (collectively referred to as the “Transaction Documents”) and has had access to the Company’s Form 10-Kand
the exhibits thereto, and has received any additional information that the Subscriber has requested from the Company, 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 Company and the terms and conditions of the Offering; provided, however that no investigation performed
by or on behalf of the Subscriber shall limit or otherwise affect its right to rely on the representations and warranties of the
Company contained herein. except to the extent that the Subscriber had actual knowledge at the time of Closing that any such representation
or warranty was untrue.

 

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1.8     (a)    In
making the decision to invest in the Securities, the Subscriber has relied solely upon the information provided by the Company
in the Transaction Documents and upon the information set forth in the Form 10-K. To the extent necessary, the Subscriber has retained,
at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences
of this Agreement and the purchase of the Securities hereunder. The Subscriber disclaims reliance on any statements made or information
provided by any person or entity in the course of Subscriber’s consideration of an investment in the Securities other than
the Transaction Documents.

 

(b)   The
Subscriber represents that (i) the Subscriber was contacted regarding the sale of the Securities by the Placement Agent with whom
the Subscriber had a prior substantial pre-existing relationship and (ii) it did not learn of the offering of the Securities by
means of any form of general solicitation or general advertising, and in connection therewith, the Subscriber did not (A) receive
or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general advertising.

 

1.9     The
Subscriber hereby acknowledges that the Offering has not been reviewed by the SEC nor any state regulatory authority since the
Offering is intended to be exempt from the registration requirements of Section 5 of the Securities Act, pursuant to Regulation
D. The Subscriber understands that the Securities have not been registered under the Securities Act or under any state securities
or “blue sky” laws and agrees not to sell, pledge, assign or otherwise transfer or dispose of the Securities unless
they are registered under the Securities Act and under any applicable state securities or “blue sky” laws or unless
an exemption from such registration is available.

 

1.10   The
Subscriber understands that the Securities have not been registered under the Securities Act by reason of a claimed exemption under
the provisions of the Securities Act that depends, in part, upon the Subscriber’s investment intention and investment qualification.
In this connection, the Subscriber hereby represents that the Subscriber is purchasing the Securities for the Subscriber’s
own account for investment and not with a view toward the resale or distribution to others; provided, however, that nothing contained
herein shall constitute an agreement by the Subscriber to hold the Securities for any particular length of time and the Company
acknowledges that the Subscriber shall at all times retain the right to dispose of its property as it may determine in its sole
discretion, subject to any restrictions imposed by applicable law. The Subscriber, if an entity, further represents that it was
not formed for the purpose of purchasing the Securities.

 

1.11   The
Subscriber consents to the placement of a legend on any certificate or other document evidencing the Securities and, when issued,
the shares of Common Stock issuable upon conversion of the Debentures (the “Conversion Shares”) and exercise of the
Warrant (the “Warrant Shares” and collectively with the Conversion Shares, the “Shares”) that such securities
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 Subscriber is aware that the Company will
make a notation in its appropriate records with respect to the restrictions on the transferability of such Securities or the Shares.

 

1.12    The
Subscriber hereby represents that the address of the Subscriber furnished by Subscriber on the signature page hereof is the Subscriber’s
principal residence if Subscriber is an individual or its principal business address if it is a corporation or other entity.

 

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1.13   Such
Subscriber understands that the Securities are “restricted securities” and have not been registered under the Securities
Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view
to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state
securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable
state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding
the distribution of such Securities in violation of the Securities Act or any applicable state securities law. Furthermore, such
Subscriber is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any
seminar or any other general solicitation or general advertisement.

 

1.14    The
Subscriber represents that the Subscriber has full power and authority (corporate, statutory and otherwise) to execute and deliver
this Agreement and to purchase the Securities. This Agreement constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.

 

1.15   If
the Subscriber is a corporation, partnership, limited liability company, trust, employee benefit plan, individual retirement account,
Keogh Plan, or other tax-exempt entity, it is authorized and qualified to invest in the Company and the person signing this Agreement
on behalf of such entity has been duly authorized by such entity to do so.

 

1.16   The
Subscriber acknowledges that if he or she is a Registered Representative of a Financial Industry Regulatory Authority (“FINRA”)
member firm, he or she must give such firm the notice required by the FINRA’s Rules of Fair Practice, receipt of which must
be acknowledged by such firm in Section 7.4 below.

 

1.17   To
effectuate the terms and provisions hereof, the Subscriber hereby appoints the Placement Agent as its attorney-in-fact (and the
Placement Agent hereby accepts such appointment) for the purpose of carrying out the provisions of the Escrow Agreement by and
between the Company, the Placement Agent and Escrow Agent (the “Escrow Agreement”) including, without limitation, taking
any action on behalf of, or at the instruction of, the Subscriber and executing any release notices required under the Escrow Agreement
and taking any action and executing any instrument that the Placement Agent may deem necessary or advisable (and lawful) to accomplish
the purposes hereof. All acts done under the foregoing authorization are hereby ratified and approved and neither the Placement
Agent nor any designee nor agent thereof shall be liable for any acts of commission or omission, for any error of judgment, for
any mistake of fact or law except for acts of gross negligence or willful misconduct. This power of attorney, being coupled with
an interest, is irrevocable while the Escrow Agreement remains in effect.

 

1.18    The
Subscriber agrees not to issue any public statement with respect to the Subscriber’s investment or proposed investment in
the Company or the terms of any agreement or covenant between them and the Company without the Company’s prior written consent,
except such disclosures as may be required under applicable law or under any applicable order, rule or regulation.

 

1.19    The
Subscriber understands, acknowledges and agrees with the Company that this subscription may be rejected, in whole or in part, by
the Company, in the sole and absolute discretion of the Company, at any time before any Closing notwithstanding prior receipt by
the Subscriber of notice of acceptance of the Subscriber’s subscription.

 

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1.20   The
Subscriber acknowledges that the information contained in the Transaction Documents or otherwise made available to the Subscriber
is confidential and non-public and agrees that all such information shall be kept in confidence by the Subscriber and neither used
by the Subscriber for the Subscriber’s personal benefit (other than in connection with this subscription) nor disclosed to
any third party for any reason, notwithstanding that a Subscriber’s subscription may not be accepted by the Company; provided,
however, that (a) the Subscriber may disclose such information to its affiliates and advisors who may have a need for such information
in connection with providing advice to the Subscriber with respect to its investment in the Company so long as such affiliates
and advisors have an obligation of confidentiality, and (b) this obligation shall not apply to any such information that (i) is
part of the public knowledge or literature and readily accessible at the date hereof, (ii) becomes part of the public knowledge
or literature and readily accessible by publication (except as a result of a breach of this provision) or (iii) is received from
third parties without an obligation of confidentiality (except third parties who disclose such information in violation of any
confidentiality agreements or obligations, including, without limitation, any subscription or other similar agreement entered into
with the Company).

 

1.21   The
Subscriber will indemnify and hold harmless the Company and the Placement Agent and, where applicable, their respective directors,
officers, employees, agents, advisors, affiliates and shareholders, and each other person, if any, who controls any of the foregoing
(collectively, the “Issuer Indemnified Parties”) from and against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating,
preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened)
(a “Loss”) arising out of or based upon any representation or warranty of the Subscriber contained herein or in any
document furnished by the Subscriber to the Company and/or the Placement Agent in connection herewith being untrue in any material
respect or any breach or failure by the Subscriber to comply with any covenant or agreement made by the Subscriber herein or therein;
and if for any reason (other than a final non-appealable judgment finding any Issuer Indemnified Party liable for losses, claims,
damages, liabilities or expenses for its gross negligence or willful misconduct) the foregoing indemnity is unavailable to an Issuer
Indemnified Party or insufficient to hold an Issuer Indemnified Party harmless, then the Subscriber shall contribute to the amount
paid or payable by an Issuer Indemnified Party as a result of such loss, claim, damage, liability or expense in such proportion
as is appropriate to reflect not only the relative benefits received by the Company or the Placement agent, as applicable, on the
one hand and the Subscriber on the other, but also the relative fault of the Issuer or the Placement Agent, as applicable, on the
one hand and the Subscriber on the other, as well as any relevant equitable considerations; provided, however, that
the Subscriber shall not be liable to indemnify any Issuer Indemnified Parties under this Section or to contribute to the amount
paid or payable by all Issuer Indemnified Parties under this Section in an amount under both such provisions that in the aggregate
exceeds the Subscriber’s aggregate purchase price tendered hereunder.

 

II.          REPRESENTATIONS
BY AND COVENANTS OF THE COMPANY

 

The Company hereby represents
and warrants to the Subscriber that:

 

2.1      Organization,
Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to own and use its properties and its assets and conduct
its business as currently conducted. Each of the Company’s subsidiaries identified on Schedule 2.1 hereto (the “Subsidiaries”)
is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation with
the requisite corporate power and authority to own and use its properties and assets and to conduct its business as currently conducted.
Neither the Company, nor any of its Subsidiaries is in violation of any of the provisions of their respective articles of incorporation,
by-laws or other organizational or charter documents, including, but not limited to the Charter Documents (as defined below). Each
of the Company and its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where
the failure to be so qualified or in good standing, as the case may be, would not result in a direct and/or indirect (i) material
adverse effect on the legality, validity or enforceability of any of the Securities and/or this Agreement, (ii) material adverse
effect on the results of operations, assets, business, condition (financial and other) or prospects of the Company and its Subsidiaries,
taken as a whole, or (iii) material adverse effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under the Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse Effect”).

 

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2.2     Capitalization
and Voting Rights. The authorized, issued and outstanding capital stock of the Company is as set forth in Schedule 2.2
hereto and all issued and outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable.
Except as set forth in Schedule 2.2 hereto, (i) there are no outstanding securities of the Company or any of its Subsidiaries
which contain any preemptive, redemption or similar provisions, nor is any holder of securities of the Company or any Subsidiary
entitled to preemptive or similar rights arising out of any agreement or understanding with the Company or any Subsidiary by virtue
of any of the Transaction Documents, and there are no contracts, commitments, understandings or arrangements by which the Company
or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries; (ii) neither
the Company nor any Subsidiary has any stock appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement; and (iii) except as set forth in Schedule 2.2 there are no outstanding options, warrants, agreements, convertible
securities, preemptive rights or other rights to subscribe for or to purchase or acquire, any shares of capital stock of the Company
or any Subsidiary or contracts, commitments, understandings, or arrangements by which the Company or any Subsidiary is or may become
bound to issue any shares of capital stock of the Company or any Subsidiary, or securities or rights convertible or exchangeable
into shares of capital stock of the Company or any Subsidiary. Except as set forth in Schedule 2.2 and as otherwise required
by law, there are no restrictions upon the voting or transfer of any of the shares of capital stock of the Company pursuant to
the Company’s Charter Documents (as defined below) or other governing documents or any agreement or other instruments to
which the Company is a party or by which the Company is bound. All of the issued and outstanding shares of capital stock of the
Company are validly issued, fully paid and nonassessable and the shares of capital stock of the Subsidiaries are owned by the Company,
free and clear of any mortgages, pledges, liens, claims, charges, encumbrances or other restrictions (collectively, “Encumbrances”).
All of such outstanding capital stock has been issued in compliance with applicable federal and state securities laws. The issuance
and sale of the Securities and, upon issuance, the Shares, as contemplated hereby will not obligate the Company to issue shares
of Common Stock or other securities to any other person (other than the Subscriber) and except as set forth in Schedule 2.2 will
not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security. The Company does
not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any person
the right to purchase any equity interest in the Company upon the occurrence of certain events.

 

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2.3     Authorization;
Enforceability. The Company has all corporate right, power and authority to enter into, execute and deliver this Agreement
and each other agreement, document, instrument and certificate to be executed by the Company in connection with the consummation
of the transactions contemplated hereby, including, but not limited to Transaction Documents and to perform fully its obligations
hereunder and thereunder. All corporate action on the part of the Company, its directors and stockholders necessary for the (a)
authorization execution, delivery and performance of this Agreement and the Transaction Documents by the Company; and (b) authorization,
sale, issuance and delivery of the Securities and upon issuance, the Shares contemplated hereby and the performance of the Company’s
obligations under this Agreement and the Transaction Documents has been taken. This Agreement and the Transaction Documents have
been duly executed and delivered by the Company and each constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies, and to
limitations of public policy. The Securities are duly authorized and, when issued and paid for in accordance with the applicable
Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Encumbrances other
than restrictions on transfer provided for in the Transaction Documents. The Shares, when issued and paid for in accordance with
the terms of the Transaction Documents, will be validly issued, fully paid and nonassessable, free and clear of all Encumbrances
imposed by the Company other than restrictions on transfer provided for in the Transaction Documents. The Company has reserved
a sufficient number of Conversion Shares and Warrant Shares for issuance upon the conversion of the Debentures and exercise of
the Warrants, respectively, free and clear of all Encumbrances, except for restrictions on transfer set forth in the Transaction
Documents or imposed by applicable securities laws. Except as set forth on Schedule 2.3 hereto, the issuance and sale of
the Securities (including the Shares) contemplated hereby will not give rise to any preemptive rights or rights of first refusal
on behalf of any person other than the Subscribers.

 

2.4      No
Conflict; Governmental Consents.

 

(a)   The
execution and delivery by the Company of this Agreement and the Transaction Documents, the issuance and sale of the Securities
(including, when issued, the Shares) and the consummation of the other transactions contemplated hereby or thereby do not and will
not (i) result in the violation of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court
or governmental authority to or by which the Company is bound including without limitation all foreign, federal, state and local
laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably
be expected to result in a Material Adverse Effect, (ii) conflict with or violate any provision of the Company’s Articles
of Incorporation (the “Articles”), as amended or the Bylaws, (and collectively with the Articles, the “Charter
Documents”) of the Company, and (iii) conflict with, or result in a material breach or violation of, any of the terms or
provisions of, or constitute (with or without due notice or lapse of time or both) a default or give to others any rights of termination,
amendment, acceleration or cancellation (with or without due notice, lapse of time or both) under any agreement, credit facility,
lease, loan agreement, mortgage, security agreement, trust indenture or other agreement or instrument to which the Company or any
Subsidiary is a party or by which any of them is bound or to which any of their respective properties or assets is subject, nor
result in the creation or imposition of any Encumbrances upon any of the properties or assets of the Company or any Subsidiary.

 

(b)   No
approval by the holders of Common Stock, or other equity securities of the Company is required to be obtained by the Company in
connection with the authorization, execution, delivery and performance of this Agreement and the other Transaction Documents or
in connection with the authorization, issue and sale of the Securities and, upon issuance, the Shares, except as has been previously
obtained.

 

(c)    No
consent, approval, authorization or other order of any governmental authority or any other person is required to be obtained by
the Company in connection with the authorization, execution, delivery and performance of this Agreement and the other Transaction
Documents or in connection with the authorization, issue and sale of the Securities and, upon issuance, the Shares, except such
post-sale filings as may be required to be made with the SEC, FINRA and with any state or foreign blue sky or securities regulatory
authority, all of which shall be made when required.

 

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2.5     Consents
of Third Parties. No vote, approval or consent of any holder of capital stock of the Company or any other third parties is
required or necessary to be obtained by the Company in connection with the authorization, execution, deliver and performance of
this Agreement and the other Transaction Documents or in connection with the authorization, issue and sale of the Securities and,
upon issuance, the Shares, except as previously obtained, each of which is in full force and effect.

 

2.6     SEC
Reports; Financial Statements. The Company has (a) for the twenty-four (24) months preceding the filing of the Form 10-K (or
such shorter period as the Company was required by law to file such reports) (i) disclosed all material information required to
be publicly disclosed by it on Form 8-K, (ii) filed all reports on Form 10-Q and Form 10-K and (iii) filed all other reports (other
than any Form 8-K) required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a)
or 15(d) thereof, and (b) since the filing of the Form 10-K, the Company has filed all reports required to be filed by it under
the Securities Act and Exchange Act (the foregoing materials being collectively referred to herein as the "SEC Reports"
and, together with the Schedules to this Agreement (if any), the "Disclosure Materials") on a timely basis or has timely
filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.
As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the
SEC with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United
States generally accepted accounting principles (“GAAP”) applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the footnotes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results
of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end
audit adjustments.

 

2.7     Licenses.
Except as otherwise set forth on the Schedule 2.7, the Company and its Subsidiaries have sufficient licenses, permits and
other governmental authorizations currently required for the conduct of their respective businesses or ownership of properties
and is in all material respects in compliance therewith.

 

2.8     Litigation.
Except as set forth on the Schedule 2.8, the Company knows of no pending or threatened legal or governmental proceedings
against the Company or any Subsidiary which could materially adversely affect the business, property, financial condition or operations
of the Company and its Subsidiaries, taken as a whole, or which materially and adversely questions the validity of this Agreement
or the other Transaction Documents or the right of the Company to enter into this Agreement and the other Transaction Documents,
or to perform its obligations hereunder and thereunder. Neither the Company nor any Subsidiary is a party or subject to the provisions
of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could materially
adversely affect the business, property, financial condition or operations of the Company and its Subsidiaries taken as a whole.
There is no action, suit, proceeding or investigation by the Company or any Subsidiary currently pending in any court or before
any arbitrator or that the Company or any Subsidiary intends to initiate. Neither the Company nor any Subsidiary, nor any director
or officer thereof, is or since the filing of the Form 10-K has been the subject of any action involving a claim of violation of
or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the Company’s
knowledge, there is not pending or contemplated, any investigation by the SEC involving the Company or any current or former director
or officer of the Company.

 

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2.9     Compliance.
Except as set forth on Schedule 2.9, neither the Company nor any Subsidiary: (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under
or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation
of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation
of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal,
state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

2.10   Regulatory
Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess
such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither
the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material
Permit.

 

2.11   Disclosure.
The information set forth in the Transaction Documents as of the date hereof and as of the date of each Closing contains no untrue
statement of a material fact nor omits to state a material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.

 

2.12   Investment
Company. The Company is not an “investment company” within the meaning of such term under the Investment Company
Act of 1940, as amended, and the rules and regulations of the SEC thereunder.

 

2.13    Brokers.
Except for the Placement Agent and as set forth on Schedule 2.13, neither the Company nor any of the Company's officers,
directors, employees or stockholders has employed or engaged any broker or finder in connection with the transactions contemplated
by this Agreement and no fee or other compensation is or will be due and owing to any broker, finder, underwriter, placement agent
or similar person in connection with the transactions contemplated by this Agreement. The Company is not party to any agreement,
arrangement or understanding whereby any person has an exclusive right to raise funds and/or place or purchase any debt or equity
securities for or on behalf of the Company.

 

    9 

     

    

 

2.14   Intellectual
Property; Employees.

 

(a)   The
Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes necessary for its business as now conducted and as presently
proposed to be conducted, without any known infringement of the rights of others as set forth on Schedule 2.14 and which
the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Except
as disclosed on Schedule 2.14 or the SEC Reports, there are no material outstanding options, licenses or agreements of
any kind relating to the Intellectual Property Rights, nor is the Company bound by or a party to any material options, licenses
or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or entity other than such licenses or agreements arising
from the purchase of “off the shelf” or standard products. The Company has not received any written communications
alleging that the Company has violated or, by conducting its business as presently proposed to be conducted, would violate any
Intellectual Property Rights of any other person or entity. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect

 

(b)   Except
as set forth on Schedule 2.14, the Company is not aware that any of its employees is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court
or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company’s
business as presently conducted.

 

(c)    Neither
the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company,
nor the conduct of the Company’s business as presently conducted, will, to the Company’s knowledge, conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument
under which any employee is now obligated.

 

(d)    To
the Company’s knowledge, no employee of the Company, nor any consultant with whom the Company has contracted, is in violation
of any term of any employment contract, proprietary information agreement or any other agreement and to the Company’s knowledge
the continued employment by the Company of its present employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation. The Company has not received any written notice alleging that any
such violation has occurred. Except as set forth on Schedule 2.14, no employee of the Company has been granted the right
to continued employment by the Company or to any compensation following termination of employment with the Company except for any
of the same which would not have a Material Adverse Effect on the business of the Company. The Company is not aware that any officer,
key employee or group of employees intends to terminate his, her or their employment with the Company, nor does the Company have
a present intention to terminate the employment of any officer, key employee or group of employees.

 

2.15    Title
to Properties and Assets; Liens, Etc. Except as set forth on Schedule 2.15, the Company has good and marketable title
to its properties and assets, including the properties and assets reflected in the most recent balance sheet included in the Company’s
financial statements, and good title to its leasehold estates, in each case subject to no Encumbrances, other than (a) those resulting
from taxes which have not yet become delinquent; and (b) Encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company; and (c) those that have otherwise arisen in the ordinary course
of business, none of which are material. Except as set forth in Schedule 2.15, the Company is in compliance with all material
terms of each lease to which it is a party or is otherwise bound.

 

    10 

     

    

 

2.16    Obligations
to Related Parties. Except as set forth on Schedule 2.15, there are no obligations of the Company to officers, directors,
stockholders, or employees of the Company other than (a) for payment of salary or other compensation for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally
available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of
Directors of the Company). Except as set forth on Schedule 2.16, none of the officers or directors of the Company and, to
the Company’s knowledge, none of the employees of the Company is presently a party to any transaction with the Company or
any Subsidiary (other than as holders of stock options and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental
of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or,
to the Company’s knowledge, any entity in which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.

 

2.17   Material
Changes. Except as set forth in Schedule 2.17, since the date of the latest audited financial statements included within
the SEC Reports (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result
in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company's financial statements pursuant to generally accepted accounting principles
or required to be disclosed in filings made with the SEC, (iii) the Company has not altered its method of accounting or the identity
of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not
issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock option plans. The
Company does not have pending before the SEC any request for confidential treatment of information.

 

2.18   Sarbanes-Oxley.
The Company is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations
thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a
Material Adverse Effect.

 

2.19   No
General Solicitation. None of the Company, its Subsidiaries, any of their affiliates, and any person acting on their
behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the
Securities Act) in connection with the offer or sale of the Securities.

 

2.20   No
Integrated Offering. Assuming the accuracy of the Subscriber representations and warranties set forth in Article I hereunder,
none of the Company, its Subsidiaries, any of their affiliates, and any person acting on their behalf has, directly or indirectly,
made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration
of any of the Securities under the Securities Act or that is likely to cause this offering of the Securities to be integrated with
prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including
without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities
of the Company are listed or designated. Except as set forth on Schedule 2.15, none of the Company, its Subsidiaries, their
affiliates and any person acting on their behalf, have taken any action or steps referred to in the preceding sentence that would
require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated
with other offerings.

 

2.21   Application
of Takeover Protections. The Company has taken all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover
provision under the Company's Charter Documents or the laws of its state of incorporation that is or could become applicable to
the Subscriber as a result of the Subscriber and the Company fulfilling their obligations or exercising their rights under this
Agreement, including, without limitation, the Company's issuance of the Securities and the Subscriber' ownership of the Securities.

 

    11 

     

    

  

2.22   Taxes.
Each of the Company and its subsidiaries has filed all U.S. federal, state, local and foreign tax returns which are required to
be filed by each of them and all such returns are true and correct in all material respects. The Company and each subsidiary has
paid all taxes whether or not shown on such returns or pursuant to any assessments received by any of them or by which any of them
are obligated to withhold from amounts owing to any employee, creditor or third party. The Company and each subsidiary has properly
accrued all taxes required to be accrued and/or paid, except where the failure to accrue would not have a Material Adverse Effect.
To the knowledge of the Company, none of the tax returns of the Company nor any of its subsidiaries is currently being audited
by any state, local or federal authorities. Neither the Company nor any subsidiary has waived any statute of limitations with respect
to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. The Company has set aside on its
books adequate provision for the payment of any unpaid taxes.

 

2.23    Registration
Rights. Except as set forth on Schedule 2.23, no person has any right to cause the Company to effect the registration
under the Securities Act of any securities of the Company.

 

2.24    Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the SEC is contemplating terminating
such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any trading market on
which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or
maintenance requirements of such trading market. The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance requirements

 

2.25   Disclosure.
All disclosure furnished by or on behalf of the Company to the Subscriber in the Transaction Documents regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and
does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not misleading.

 

2.26   Seniority.
No indebtedness or other claim against the Company is senior to the Debentures in right of payment, whether with respect to interest
or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is
senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered
thereby).

 

2.27   Private
Placement. Assuming the accuracy of the Subscribers’ representations and warranties set forth in Section 1, no registration
under the Securities Act is required for the offer and sale of the Securities by the Company to the Subscriber as contemplated
hereby.

 

    12 

     

    

  

III.         TERMS
OF SUBSCRIPTION

 

3.1     The
minimum purchase that may be made by any prospective investor shall be $50,000. Subscriptions for investment below the minimum
investment may be accepted at the discretion of the Placement Agent and the Company. The Company and the Placement Agent each reserve
the right to reject any subscription made hereby, in whole or in part, in its sole discretion. The Company’s agreement with
each Subscriber is a separate agreement and the sale of the Securities to each Subscriber is a separate sale.

 

3.2     All
funds shall be deposited in the account identified in Section 1.1 hereof.

 

3.3      Certificates
representing the Debentures and the Warrants purchased by the Subscriber pursuant to this Agreement will be prepared for delivery
to the Subscriber as soon as practicable (but in no event more than five (5) Trading Days) following the Closing at which such
purchase takes place. The Subscriber hereby authorizes and directs the Company to deliver the certificates representing the Debentures
and the Warrants purchased by the Subscriber pursuant to this Agreement directly to the Placement Agent unless otherwise indicated
on the signature page hereto.

 

IV.          CONDITIONS
TO OBLIGATIONS OF THE SUBSCRIBER

 

4.1     The
Subscriber’s obligation to purchase the Securities at the Closing at which such purchase is to be consummated is subject
to the fulfillment on or prior to such Closing of the following conditions, which conditions may be waived at the option of each
Subscriber to the extent permitted by law:

 

(a)          Representations
and Warranties; Covenants. The representations and warranties made by the Company in Section 2 hereof qualified as to materiality
shall be true and correct as of the Initial Closing at all times prior to and on the Closing Date, except (i) to the extent any
such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be
true and correct as of such earlier date, and, (ii) the representations and warranties made by the Company in Section 2 hereof
not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date,
except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation
or warranty shall be true and correct in all material respects as of such earlier date; provided however, that notwithstanding
the foregoing, the Company shall only be required to update the Disclosure Schedules by the delivery to the Subscribers by the
Company of an amended Disclosure Schedule with respect to any information that is of a material nature as of such proposed Closing
Date. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the date
of such Closing shall have been performed or complied with in all material respects.

 

(b)          No
Legal Order Pending. There shall not then be in effect any legal or other order enjoining or restraining the transactions contemplated
by this Agreement.

 

(c)          No
Law Prohibiting or Restricting Such Sale. There shall not be in effect any law, rule or regulation prohibiting or restricting
such sale or requiring any consent or approval of any person, which shall not have been obtained, to issue the Securities (except
as otherwise provided in this Agreement).

 

    13 

     

    

 

(d)         Required
Consents. The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or
appropriate for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated
by the Transaction Documents, all of which shall be in full force and effect.

 

(e)          Adverse
Changes. Since the date of execution of this Agreement, no event or series of events shall have occurred that reasonably could
have or result in a Material Adverse Effect.

 

(f)          No
Suspensions of Trading in Common Stock; Listing. Trading in the Common Stock shall not have been suspended by the SEC or any
trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material
information regarding the Company) at any time since the date of execution of this Agreement, and the Common Stock shall have been
at all times since such date listed for trading on a trading market.

 

(g)         Blue
Sky. The Company shall have completed qualification for the Securities and the Shares under applicable Blue Sky laws.

 

(h)         Legal
Opinion. The Company’s corporate counsel shall have delivered a legal opinion addressed to the Subscribers in a form
reasonably acceptable to the Placement Agent.

 

(i)            Disclosure
Schedules. The Company shall have delivered to the Subscriber a copy of its Disclosure Schedules (or amended Disclosure Schedules)
qualifying any of the representations and warranties contained in Section 2 as of the applicable Closing.

 

		V.	COVENANTS OF THE COMPANY

 

5.1     Transfer
Restrictions.

 

(a)          The
Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities
other than pursuant to an effective registration statement or Rule 144 promulgated under the Securities Act, to the Company or
to an affiliate of a Subscriber or in connection with, the Company may require the transferor thereof to provide to the Company
an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred
Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the
terms of this Agreement, and shall have the rights of a Subscriber under this Agreement.

 

(b)          The
Subscriber agrees to the imprinting, so long as is required by this Section 5.1, of a legend on any of the Securities, including
the Shares, substantially in the following form:

 

[NEITHER] THIS SECURITY [NOR THE SECURITIES
INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY [AND THE
SECURITIES ISSUABLE UPON [EXERCISE] [CONVERSION] OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

    14 

     

    

  

(c)          The
Subscriber understands that prior to September 2, 2011, the Company was a “shell company” as defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Pursuant to Rule 144(i), securities issued
by a current or former shell company (that is, the Securities and the Shares) that otherwise meet the holding period and other
requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 unless at the time of a proposed sale pursuant to
Rule 144 the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and has filed all reports
and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports. As a
result, the restrictive legends on certificates for the Securities or the Shares cannot be removed except in connection with an
actual sale meeting the foregoing requirements or pursuant to an effective registration statement.

 

(d)          Certificates
evidencing the Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration
statement covering the resale of such security is effective under the Securities Act, or (ii) following any sale of such Shares
pursuant to Rule 144, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the SEC). The Company shall cause its counsel, at the Company’s
expense, to issue a legal opinion to the Company’s transfer agent promptly (but in no event later than the requisite share
delivery date set forth in the Debenture and the Warrants) if required by the Company’s transfer to effect the removal of
the legend hereunder.

 

5.2     Listing
of Securities. The Company agrees, (i) if the Company applies to have the Common Stock traded on any other trading market,
it will include in such application the shares of Common Stock and Shares, and will take such other action as is necessary or desirable
to cause the shares of Common Stock and Shares to be listed on such other trading market as promptly as possible, and (ii) it will
take all action reasonably necessary to continue the listing and trading of its Common Stock on a trading market and will comply
in all material respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the trading
market.

 

5.3      Reservation
of Shares. The Company shall at all times while the Debenture and Warrants are outstanding maintain a reserve from its duly
authorized shares of Common Stock of a number of shares of Common Stock sufficient to allow for the issuance of the Shares.

 

5.4     Replacement
of Securities. If any certificate or instrument evidencing any Securities or the Shares is mutilated, lost, stolen or destroyed,
the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company
of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement
securities. If a replacement certificate or instrument evidencing any securities is requested due to a mutilation thereof, the
Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

 

    15 

     

    

  

5.5     Furnishing
of Information. Until the time that no Subscriber owns Securities, the Company covenants to maintain the registration of the
Common Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange
Act. As long as Subscriber owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will
prepare and furnish to Subscriber and make publicly available in accordance with Rule 144(c) such information as is required for
the Subscribers to sell the Securities under Rule 144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, to the extent required from time to time to enable such person to sell such Securities
without registration under the Securities Act within the requirements of the exemption provided by Rule 144.

 

5.6     Securities
Laws; Publicity. Unless otherwise required by applicable law, the Company shall, by 8:30 a.m. (New York City time) on the fourth
trading day immediately following the first and last Closings hereunder, issue a Current Report on Form 8-K disclosing the material
terms of the transactions contemplated hereby and including the Transaction Documents as exhibits thereto to the extent required
by law. The Company shall not publicly disclose the name of Subscriber, or include the name of any Subscriber in any filing with
the SEC or any regulatory agency or trading market, without the prior written consent of Subscriber, except: (a) as required by
federal securities law in connection with the filing of final Transaction Documents (including signature pages thereto) with the
SEC and (b) to the extent such disclosure is required by law, in which case the Company shall provide the Subscriber with prior
notice of such disclosure permitted under this clause (b).

 

5.7     Form
D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Securities as required under Regulation
D promulgated under the Securities Act and to provide a copy thereof, promptly upon request of the Subscriber. The Company shall
take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the
Securities for, sale to the Subscriber at the Closing under applicable securities or “Blue Sky” laws of the states
of the United States, and shall provide evidence of such actions promptly upon request of any Subscriber.

 

5.8     Equal
Treatment of Subscribers. No consideration (including any modification of any Transaction Document) shall be offered or paid
to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same
consideration is also offered to all of the parties to the Transaction Documents.

 

5.9           Indemnification. 

 

(a)      The
Company agrees to indemnify and hold harmless the Subscriber, its affiliates and their respective officers, directors, employees,
agents and controlling persons (collectively, the “Subscriber Indemnified Parties”) from and against any and all loss,
liability, damage or deficiency suffered or incurred by any Indemnified Party by reason of any misrepresentation or breach of warranty
by the Company or, after any applicable notice and/or cure periods, nonfulfillment of any covenant or agreement to be performed
or complied with by the Company, in each case contained in this Agreement or any of the other Transaction Documents; and will promptly
reimburse the Subscriber Indemnified Parties for all expenses (including reasonable fees and expenses of legal counsel) as incurred
in connection with the investigation of, preparation for or defense of any pending or threatened claim related to or arising in
any manner out of any of the foregoing, or any action or proceeding arising therefrom (collectively, “Proceedings”),
whether or not such Subscriber Indemnified Party is a formal party to any such Proceeding.

    16 

     

    

 

(b)     If
for any reason (other than a final non-appealable judgment finding any Subscriber Indemnified Party liable for losses, claims,
damages, liabilities or expenses for its gross negligence or willful misconduct) the foregoing indemnity is unavailable to an Subscriber
Indemnified Party or insufficient to hold an Subscriber Indemnified Party harmless, then the Company shall contribute to the amount
paid or payable by a Subscriber Indemnified Party as a result of such loss, claim, damage, liability or expense in such proportion
as is appropriate to reflect not only the relative benefits received by the Company on the one hand and the Subscriber on the other,
but also the relative fault of the Company or the Placement Agent, as applicable, on the one hand and the Subscriber on the other,
as well as any relevant equitable considerations.

 

(c)      Notwithstanding
the foregoing, the Company shall not be liable to indemnify any Subscriber Indemnified Parties under Section 5.9(a) or to contribute
to the amount paid or payable by all Subscriber Indemnified Parties under Section 5.9(b) in an amount under both such Sections
that in the aggregate exceeds the Subscriber’s aggregate purchase price tendered hereunder.

 

5.10       Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents,
the Company covenants and agrees that neither it, nor any other person acting on its behalf, will provide Subscriber or its agents
or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Subscriber
shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and
confirms that Subscriber shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

 

VI.                          5.11       Use
of Proceeds. Except as set forth on Schedule 5.11 attached hereto, the Company shall use the net proceeds from the sale
of the Securities hereunder for working capital purposes and shall not use such proceeds for: (a) the satisfaction of any portion
of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior
practices), (b) the redemption of any Common Stock or Common Stock equivalents or (c) the settlement of any outstanding litigation.
MISCELLANEOUS

 

6.1     Any
and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall
be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via
facsimile or by electronic communication at or prior to 5:30 p.m. (New York City time) on a day in which the New York Stock Exchange
is open for trading (a “Trading Day”), (b) the next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile or electronic communication on a day that is not a Trading Day or later than 5:30 p.m. (New York City
time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be addressed as follows:

 

if to the
Company, to it at:

 

Protea Biosciences Group, Inc.

1311 Pineview Drive, Suite 501

Morgantown, WV 26505

Attn: Stephen C. Turner, CEO

 

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

 

CKR Law LLP

1330 Avenue of the Americas, 14th Floor

New York, NY 10019

Attn: Barrett S. DiPaolo, Esq.

 

    17 

     

    

 

if to the Subscriber, to the Subscriber’s
address indicated on the signature page of this Agreement.

 

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

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, NY 10006

Attn: Richard Friedman

 

if to the Escrow Agent, to it at:

 

Signature Bank

261 Madison Ave.

New York, NY 10016

Attn: Cliff Broder, Group
Director and Senior Vice President

Fax: 646-822-1359

 

6.2      Except
as otherwise provided herein, this Agreement shall not be changed, modified or amended except by a writing signed by the parties
to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed
by the party to be charged. No waiver of any default with respect to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair
the exercise of any such right.

 

6.3     This
Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives,
successors and assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written
consent of Subscriber (other than by merger). Subscriber may assign any or all of its rights under this Agreement to any person
to whom Subscriber assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect
to the transferred Securities, by the provisions of the Transaction Documents

 

6.4     The
Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and schedules.

 

    18 

     

    

 

6.5     Upon
the execution and delivery of this Agreement by the Subscriber and the Company, this Agreement shall become a binding obligation
of the Subscriber with respect to the purchase of Securities as herein provided, subject, however, to the right hereby reserved
by the Company to enter into the same agreements with other Subscriber and to reject any subscription, in whole or in part, provided
the Company returns to Subscriber any funds paid by Subscriber with respect to such rejected subscription or portion thereof, without
interest or deduction.

 

6.6     All
questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of
conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense
of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto
or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement
of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding.

 

6.7     In
order to discourage frivolous claims the parties agree that unless a claimant in any proceeding arising out of this Agreement succeeds
in establishing his claim and recovering a judgment against another party (regardless of whether such claimant succeeds against
one of the other parties to the action), then the other party shall be entitled to recover from such claimant all of its/their
reasonable legal costs and expenses relating to such proceeding and/or incurred in preparation therefor.

 

6.8     The
holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and effect. If any provision of this Agreement shall be
declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, such provision
shall be interpreted so as to remain enforceable to the maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent
they are valid, legal and enforceable, and no provisions shall be deemed dependent upon any other covenant or provision unless
so expressed herein.

 

6.9     It
is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a
waiver of any subsequent breach by that same party.

 

6.10   The
Company agrees to execute and deliver all such further documents, agreements and instruments and take such other and further action
as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

 

6.11   This
Agreement may be executed in two or more counterparts each of which shall be deemed an original, but all of which shall together
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.

 

    19 

     

    

  

6.12    Nothing
in this Agreement shall create or be deemed to create any rights in any person or entity not a party to this Agreement.

 

6.13   In
addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Subscriber
and the Company will be entitled to specific performance under this Agreement. The parties agree that monetary damages may not
be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby
agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

6.14  
Acknowledgment Regarding Subscriber’s Trading Activity. The Company further understands and acknowledges that (a)
Subscriber may engage in hedging activities at various times during the period that the Securities are outstanding, including,
without limitation, during the periods that the value of the Shares deliverable with respect to Securities are being determined,
and (b) such hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at
and after the time that the hedging activities are being conducted.  The Company acknowledges that such aforementioned hedging
activities do not constitute a breach of any of the Transaction Documents.

 

    20 

     

    

 

To subscribe for the Debentures and Warrants

to Purchase Shares of Common Stock in
the private offering of

 

PROTEA BIOSCIENCES GROUP, INC.

 

1.       Date
and Fill the face amount and aggregate purchase price of 20% original issue discount unsecured convertible debentures (the
“Debentures”), initially convertible into shares of the Company’s common stock par value $0.001
per share (the “Common Stock”) at a conversion price equal to $0.25, and (b) a three-year warrant (the
“Warrant”, and together with the Debentures, collectively, the “Securities”)
to purchase such number of shares of Common Stock of the Company equal to 75% of the number of shares of Common Stock initially
issuable upon conversion of the Debentures in this Offering at an exercise price equal 30% (thirty) percent premium to conversion
price, subject to adjustment thereunder (the “Exercise Price”), the “Securities” being
subscribed for and Complete and Sign the Signature Page included in this Subscription Agreement.

 

2.       Initial
the Accredited Investor Certification attached to this Subscription Agreement.

 

3.       Complete
and Sign the Signature Page attached to this Subscription Agreement. NOTICE: Please note that by executing the attached
Subscription Agreement, you will be deemed to have executed the Debenture and have agreed to the terms of the Warrant (collectively
the “Transaction Documents”), each of which are attached to the Subscription Agreement, and will be treated for all
purposes as if you did sign and agree to, as applicable, each such Transaction Document even though you may not have physically
signed the signature pages to such documents.

 

4.       Complete
and Return the attached Investor Questionnaire and, if applicable, Wire Transfer Authorization attached to this Subscription
Agreement.

 

5.       Return
all forms to your Account Executive and then send all signed original documents with a check (if applicable) to:

 

Laidlaw & Company
(UK) Ltd.

Attn: Investment
Banking

546 Fifth Avenue,
5th Floor

New York, NY 10036

 

6.      Please
make your subscription payment payable to the order of “Signature Bank, as Escrow Agent for Protea Biosciences Group,
Inc.” Account No. 1502805505

 

For
wiring funds directly to the escrow account, use the following instructions:

 

 Signature
Bank 

261 Madison Avenue 

New York, NY 10016 

Acct. Name: Signature Bank as Escrow Agent
for 

Protea Biosciences Group,
Inc. 

ABA Number: 026013576 

SWIFT Code: SIGNUS33 

A/C Number: 1502805505

FBO: Purchaser Name 

Social Security Number 

Address

 

    21 

     

    

 

ANTI-MONEY LAUNDERING REQUIREMENTS

 

	
        The USA PATRIOT Act

        
	 	What is money laundering?	 	How big is the problem and why is it important?
	 	 	 	 	 
	The USA PATRIOT Act is designed to detect, deter, and punish terrorists in the United States and abroad.  The Act imposes new anti-money laundering requirements on brokerage firms and financial institutions.  Since April 24, 2002 all brokerage firms have been required to have new, comprehensive anti-money laundering programs. To help you understand these efforts, we want to provide you with some information about money laundering and our steps to implement the USA PATRIOT Act.	 	Money laundering is the process of disguising illegally obtained money so that the funds appear to come from legitimate sources or activities.  Money laundering occurs in connection with a wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering, and terrorism.	 	The use of the U.S. financial system by criminals to facilitate terrorism or other crimes could well taint our financial markets.  According to the U.S. State Department, one recent estimate puts the amount of worldwide money laundering activity at $1 trillion a year.

 

	What are we required to do to eliminate money laundering?
	 	 	 
	Under new rules required by the USA PATRIOT Act, our anti-money laundering program must designate a special compliance officer, set up employee training, conduct independent audits, and establish policies and procedures to detect and report suspicious transaction and ensure compliance with the new laws.	 	As part of our required program, we may ask you to provide various identification documents or other information.  Until you provide the information or documents we need, we may not be able to effect any transactions for you.

 

    22 

     

    

 

PROTEA BIOSCIENCES GROUP, INC.

SIGNATURE PAGE TO

SUBSCRIPTION AGREEMENT 

 

AGGREGATE FACE AMOUNT OF THE DEBENTURE
= $_________ 

 

AGGREGATE PURCHASE PRICE OF THE DEBENTURE
= $_________ (the “Purchase Price”, or 80% of the Aggregate Face Amount of the Debenture being purchased) (NOTE: to
be completed by the Purchaser)

 

If the Purchaser is an INDIVIDUAL, and if
purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:

 

	 	 	 	 	 
	 	Print Name(s)	 	Social Security Number(s)	 
	 	 	 	 	 
	 	Print Name(s)	 	Social Security Number(s)	 
	 	 	 	 	 
	 	Signature of Purchaser	 	Signature of Co-Purchaser (if applicable):	 
	 	 	 	 	 
	 	Address:	 	 	 
	 	 	 	 	 
	 	 	 	Date	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 

 

If the Purchaser is a PARTNERSHIP, CORPORATION,
LIMITED LIABILITY COMPANY or TRUST:

 

	 	 	 	 	 
	 	 	 	Federal Taxpayer	 
	 	Name of Partnership,	 	Identification Number 	 
	 	Corporation, Limited	 	 	 
	 	Liability Company or Trust	 	 	 
	 	 	 	 	 
	 	By:	 	 	 	 
	 	 	Name:	 	State of Organization	 
	 	 	Title:	 	 	 
	 	 	 	 	 
	 	Address:	 	 	 
	 	 	 	 	 
	 	 	 	Date	 
	 	 	 	 	 

 

	AGREED AND ACCEPTED:	 	 	 
	 	 	 	 
	PROTEA BIOSCIENCES GROUP, INC.	 	 	 
	 	 	 	 
	By:	 	 	 	 
	 	Name:	 	Date	 
	 	Title:	 	 	 

 

     

     

    

 

FORM OF INVESTOR QUESTIONNAIRE

 

PROTEA BIOSCIENCES GROUP, INC.

 

For Individual Investors Only

 

(All individual investors must INITIAL
where appropriate. Where there are joint investors both parties must INITIAL):

 

	Initial _______	I certify that I have a “net worth” of at least $1 million either individually or through aggregating my individual holdings and those in which I have a joint, community property or other similar shared ownership interest with my spouse.  For purposes of calculating net worth under this paragraph, (i) the primary residence shall not be included as an asset, (ii) to the extent that the indebtedness that is secured by the primary residence is in excess of the fair market value of the primary residence, the excess amount shall be included as a liability, and (iii) if the amount of outstanding indebtedness that is secured by the primary residence exceeds the amount outstanding 60 days prior to the execution of this Subscription Agreement, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability.
	 	 
	Initial _______	I certify that I have had an annual gross income for the past two years of at least $200,000 (or $300,000 jointly with my spouse) and expect my income (or joint income, as appropriate) to reach the same level in the current year.
	 
	For Non-Individual Investors
	 
	(all Non-Individual Investors must INITIAL where appropriate):
	 
	Initial _______	The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that is 100% owned by persons who meet either of the criteria for Individual Investors, above.
	 	 
	Initial _______	The undersigned certifies that it is a partnership, corporation, limited liability company or business trust that has total assets of at least $5 million and was not formed for the purpose of investing in Company.
	 	 
	Initial _______	The undersigned certifies that it is an employee benefit plan whose investment decision is made by a plan fiduciary (as defined in ERISA §3(21)) that is a bank, savings and loan association, insurance company or registered investment adviser.
	 	 
	Initial _______	The undersigned certifies that it is an employee benefit plan whose total assets exceed $5,000,000 as of the date of the Subscription Agreement.
	 	 
	Initial _______	The undersigned certifies that it is a self-directed employee benefit plan whose investment decisions are made solely by persons who meet either of the criteria for Individual Investors, above.
	 	 
	Initial _______	The undersigned certifies that it is a U.S. bank, U.S. savings and loan association or other similar U.S. institution acting in its individual or fiduciary capacity.

 

    A-1 

     

    

 

	Initial _______	The undersigned certifies that it is a broker-dealer registered pursuant to §15 of the Securities Exchange Act of 1934.
	 	 
	Initial _______	The undersigned certifies that it is an organization described in §501(c)(3) of the Internal Revenue Code with total assets exceeding $5,000,000 and not formed for the specific purpose of investing in Company.
	 	 
	Initial _______	The undersigned certifies that it is a trust with total assets of at least $5,000,000, not formed for the specific purpose of investing in Company, and whose purchase is directed by a person with such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.
	 	 
	Initial _______	The undersigned certifies that it is a plan established and maintained by a state or its political subdivisions, or any agency or instrumentality thereof, for the benefit of its employees, and which has total assets in excess of $5,000,000.
	 	 
	Initial _______	The undersigned certifies that it is an insurance company as defined in §2(a)(13) of the Securities Act of 1933, as amended, or a registered investment company.

 

    A-2 

     

    

 

PROTEA BIOSCIENCES GROUP, INC.

Investor Questionnaire

(Must be completed by Purchaser)

 

	Section A - Individual Purchaser Information
	 
	EXACT Purchaser Name(s) in which securities are to be issued: 
	 
	 
	 
	Individual executing Profile or Trustee: 
	 
	 
	Social Security Numbers / Federal I.D. Number: 
	 

 

	Date of Birth:	 	Marital Status:	 

 

	Joint Party Date of Birth:  	 	 	 

 

	Investment Experience (Years): 	 	 

 

	Annual Income: 	 	 

 

	Net Worth: 	 	 

 

	Home Street Address: 	 
	 	 
	 	 
	Home City, State & Zip Code: 	 
	 	 
	 	 
	Home Phone:	 	Home Fax: 	 
	 	 
	Home Email: 	 	 
	 	 
	Employer: 	 	 
	 	 
	Employer Street Address: 	 
	 	 
	 	 
	Employer City, State & Zip Code: 	 
	 	 

 

	Bus. Phone: 	 	 	Bus. Fax:  	 

 

	Bus. Email:	 	 
	 
	Type of Business:	 
	 
	 
	LAIDLAW Account Executive / Outside Broker/Dealer: 
	 
	 
	Please check if you are a FINRA member or affiliate of a FINRA member firm: _______

  

    A-3 

     

    

 

	Section
    B – Entity Purchaser Information
	 
	EXACT Purchaser Name(s) in which securities are to be issued: 
	 
	 
	Authorized Individual executing Profile or Trustee: 
	 
	 
	Social Security Numbers / Federal I.D. Number: 
	 
	 	 
	Investment Experience (Years): 	 	 
	 	 
	Net Worth: 	 	 
	 	 
	Was the Trust formed for the specific purpose of purchasing the Securities?
	 	 
	 ̈ Yes   ̈ No	 
	 	 
	Principal Purpose (Trust)	 	 
	 	 
	Type of Business: 	 	 
	 	 	 
	Street Address: 	 	 
	 	 
	City, State & Zip Code: 	 	 
	 	 
	Phone:	 	Fax: 	 
	 	 
	Email: 	 	 
	 	 
	Laidlaw Account Executive / Outside Broker/Dealer: 
	 	 
	 	 
	Please check if you are a FINRA member or affiliate of a FINRA member firm: _______

  

    A-4 

     

    

 

Section C – Form of Payment
– Check or Wire Transfer

 

____ Check payable to “SIGNATURE
BANK, AS ESCROW AGENT FOR PROTEA BIOSCIENCES GROUP, INC.

 

____ Wire funds from my outside
account according to the “To subscribe for the Debentures and Warrants to Purchase Shares of Common Stock in the private
offering of PROTEA BIOSCIENCES GROUP, INC.”

 

____ Wire funds from my LAIDLAW Account – See following
page

 

	 	 	 	Section D – Purchaser Instructions for Payments of any Dividends
	 	 	 	 
	 	 ̈	 	Please make any dividend and any other payment checks pursuant to the Securities to “Sterne Agee & Leach Inc. c/f Insert Client Name]” and deliver such checks to Laidlaw so that they may deposit them into my Laidlaw brokerage account
	 	 	 	 
	 	 ̈	 	Please make out any dividend and any other payment checks pursuant to the Securities in the registered name of the Purchaser set forth in the signature page to the Subscription Agreement for the Securities and mail such checks to me at the address specified in such signature page.

 

Section E – Securities Delivery
Instructions (check one)

 

	____  Please deliver my securities to Laidlaw for deposit into my brokerage account.	 
	 	 
	____  Please deliver my securities to the address listed in the above Investor Questionnaire.	 
	 	 
	____  Please deliver my securities to the below address:	 

 

	 	 	 	 
	 	 	 	 
	 	 	 	 

 

	Purchaser Signature(s) 	 	 	Date 	 
	 	 	 	 
	Joint Purchaser Signature (if applicable): 	 	 	Date	 

 

    A-5 

     

    

 

Wire Transfer Authorization

 

	 	TO:	OPERATIONS MANAGER
	 	 	LAIDLAW & CO. (UK) LTD.
	 	 	 
	 	RE:	Client Wire Transfer Authorization
	 	 	PROTEA BIOSCIENCES GROUP, INC.

 

	 	DATE:	 	 

 

 

 

This memorandum authorizes the transfer of the following
listed funds from my LAIDLAW Brokerage Account as follows:

 

LAIDLAW Brokerage Account # ______________________

 

Wire Amount$______________________

 

SIGNATURE BANK 

261 Madison Avenue 

New York, NY 10016 

ABA Number: 026013576 

For Credit to Signature Bank,
as Escrow Agent for 

Protea Biosciences Group, Inc.

Account No.: 1502805505

 

	 	 	REFERENCE:	 
	 	 	 	 
	 	 	PURCHASER'S LEGAL NAME 	 
	 	 	 	 
	 	 	 	 
	 	 	TAX ID NUMBER	 
	 	 	 	 
	 	 	 	 
	 	 	PURCHASER'S ADDRESS	 
	 	 	 	 
	 	 	 	 
	 	FBO:	  	 

 

	 	Signature:	 	 
	 	 	 	 
	 	Signature:	 	 
	 	 	(Joint Signature)	 

 

    A-6 

     

    

 

Exhibit A

 

Risk Factors

 

An investment in the Securities involves
a high degree of risk and is subject to many uncertainties.  In addition to the risk factors specific to this offering set forth
below, the risk factors set forth in Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K filed
with the Commission on March 16, 2016, are incorporated herein by reference. These risks and uncertainties may adversely affect
the Company’s business, operating results and financial condition. In such an event, the trading price for Common Stock could
decline substantially, and you could lose all or part of your investment. In order to attain an appreciation for these risks and
uncertainties, you should read all risk factors in their entirety and consider all of the information and advisements contained
in the Transaction Documents, including the following risk factors and uncertainties.

 

RISKS RELATED TO THIS OFFERING

 

There will be restrictions on resale
of the securities and the shares and there is no assurance of the registration of the securities.

 

None of the Securities may be sold unless,
at the time of such intended sale, there is a current registration statement covering the resale of the Securities or there exists
an exemption from registration under the Securities Act, and such Securities have been registered, qualified, or deemed to be exempt
under applicable securities or “blue sky” laws in the state of residence of the seller or in the state where sales
are being effected.  The Company has no current intention of filing a registration statement covering the resale of the Securities.
If no registration statement is filed and declared effective covering the resale of any of the Securities sold pursuant to this
Agreement, investors will be precluded from disposing of such Securities unless such Securities may become eligible to be disposed
of under the exemptions provided by Rule 144 under the Securities Act without restriction. If the Securities are not registered
for resale under the Securities Act, or exempt therefrom, and registered or qualified under applicable securities or “blue
sky” laws, or deemed exempt therefrom, the value of such securities will be greatly reduced.

 

The Company was at one time a “shell
company” as defined in Rule 12b-2 under the Exchange Act. Pursuant to Rule 144(i), securities issued by a current or former
shell company (that is, the Shares) that otherwise meet the holding period and other requirements of Rule 144 nevertheless cannot
be sold in reliance on Rule 144 unless at the time of a proposed sale pursuant to Rule 144, the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act and has filed all reports and other materials required to be filed by Section
13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was
required to file such reports and materials), other than Form 8-K reports. As a result, the restrictive legends on certificates
for the Shares cannot be removed except in connection with an actual sale meeting the foregoing requirements or pursuant to an
effective registration statement.

 

    A-7 

     

    

 

We have significant discretion over
the use of certain of the net proceeds.

 

A significant portion of the net proceeds
of this Offering will be applied to working capital and other general corporate purposes. Accordingly, our management will have
broad discretion as to the application of such proceeds.  There can be no assurance that management’s use of proceeds
generated through this Offering will prove optimal or translate into revenue or profitability for the Company. Investors are urged
to consult with their attorneys, accountants and personal investment advisors prior to making any decision to invest in the Company.

 

The offering price for the securities
has been arbitrarily determined by us.

 

The offering price of the Securities was
arbitrarily determined by us.  The price of the Securities does not necessarily bear any relationship to established valuation
criteria such as earnings, book value or assets. Rather, the price of the Securities may be derived as a result of our negotiations
with the investors based upon various factors including prevailing market conditions, our future prospects and our capital structure.
These prices do not necessarily accurately reflect the actual value of the Securities or the price that may be realized upon disposition
of the Securities.

 

An investment in our securities is
speculative and there can be no assurance of any return on any such investment.

 

An investment in the Securities is speculative
and there is no assurance that investors will obtain any return on their investment.  Investors will be subject to substantial
risks involved in an investment in the Company, including the risk of losing their entire investment.

 

Your ownership interest is subject
to dilution. 

 

If you purchase Securities in this Offering,
you will experience immediate dilution in the value of your Shares received upon conversion or exercise.  In addition, each
investor’s proportionate ownership interest may be diluted when we issue additional shares of our common stock.  We
may raise additional capital in the future through additional sales of shares of our common stock, and your percentage interest
in our common stock would be diluted if you do not participate in such additional sales.

 

    A-8 

     

    

 

FORWARD-LOOKING STATEMENTS

 

We have included in this Agreement, including
the Schedule, certain forward-looking statements. Such statements can be identified by the use of forward-looking terminology such
as “believe,” “expect,” “may,” “should,” “seek,” “on-track,”
“plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative
thereof or comparable terminology, or by discussions of vision, strategy or outlook, including statements related to revenues and
profitability, pricing and competition, the continued viability of our technology, our growth and expansion plans, including retaining
new employees, compliance with governmental regulations, our intellectual property protection strategies, payment of dividends,
the volatility of our common stock and the market for our common stock, dilution, trading restrictions, use of proceeds and the
need for additional debt or equity funding. You are cautioned that our business and operations are subject to a variety of risks
and uncertainties, many of which are beyond our control and, consequently, our actual results may differ materially from those
projected by any forward-looking statements. See the section titled “Risk Factors” on Schedule 3A.9 and those described
under the heading “Risk Factors” contained in the Company’s Annual Report on Form 10-K filed with
the Commission on March 16, 2016, for information regarding certain important factors that could cause our actual results to differ
materially from those projected in our forward-looking statements. Our forward-looking statements contained herein speak only as
of the date of this Agreement. We make no commitment to revise or update any forward-looking statements in order to reflect events
or circumstances after the date any such statements are made. 

 

    A-9Exhibit 10.2

 

NEITHER THIS SECURITY NOR THE SECURITIES
INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH
EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

	Original Issue Date:	[_____, 2016]
	Face Amount:	$[      ]
	Purchase Price	$[      ]
	No.:	[      ]

 

20% ORIGINAL ISSUE DISCOUNT UNSECURED
CONVERTIBLE DEBENTURE

DUE [______________, 2016]

 

THIS 20% ORIGINAL
ISSUE DISCOUNT UNSECURED CONVERTIBLE DEBENTURE is one of a series of duly authorized and validly issued 20% Original Issue Discount
Unsecured Convertible Debentures of Protea Biosciences Group, Inc., a Delaware corporation, (the “Company”),
having its principal place of business at 1311 Pineview Drive, Suite 501, Morgantown, WV 26505, designated as its 20% Original
Issue Discount Unsecured Convertible Debenture due [_______, 2016]1 (this debenture, the “Debenture”
and, collectively with the other debentures of such series, the “Debentures”).

 

FOR VALUE RECEIVED,
the Company promises to pay to [    ] or its registered assigns (the “Holder”), or
shall have paid pursuant to the terms hereunder, the principal sum of $[   ] on [________, 2016] (the “Maturity
Date”), or such earlier date as this Debenture is required or permitted to be repaid or converted, as provided hereunder,
and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance
with the provisions hereof. This Debenture is subject to the following additional provisions:

 

Section 1.          Definitions.
For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined
herein shall have the meanings set forth in the Subscription Agreement and (b) the following terms shall have the following meanings:

 

_______________________________

 

1
Six months from the original issue date.

    	 	1	 

     

    

 

"Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

“Alternate
Consideration” shall have the meaning set forth in Section 5(b).

 

“Automatic
Conversion Price” shall have the meaning set forth in Section 4(d).

 

“Bankruptcy
Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or
any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case
or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the
Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part
of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant
Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof
calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company
or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence
in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

“Beneficial
Ownership Limitation” shall have the meaning set forth in Section 4(c)(ii).

 

“Business
Day” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States
or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action
to close.

 

“Buy-In”
shall have the meaning set forth in Section 4(e)(v).

 

“Change
of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof
by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of
in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of the Debentures and the
Securities issued together with the Debentures), (b) the Company merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately
prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction,
or (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company
immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after
the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board
of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof
(or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors
was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by
the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth
in clauses (a) through (d) above.

    	 	2	 

     

    

 

“Closing
Bid Price” means on any particular date (a) the last reported closing bid price per share of Common Stock on such
date on the Trading Market (as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or (b) if there is no such price
on such date, then the closing bid price on the Trading Market on the date nearest preceding such date (as reported by Bloomberg
L.P. at 4:15 p.m. (New York City time)), or (c)  if the Common Stock is not then listed or quoted on a Trading Market and
if prices for the Common Stock are then reported in the “pink sheets” published by Pink Sheets LLC (or a similar organization
or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported,
or (d) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses
of which shall be paid by the Company; provided that in each case where Bloomberg L.P. data is being relied upon, Holder shall
provide to the Company a copy of such information for the Company's records.

 

“Common
Stock Equivalent” shall have the meaning set forth in Section 4(b).

 

“Conversion”
shall have the meaning ascribed to such term in Section 4.

 

“Conversion
Date” shall have the meaning set forth in Section 4(a).

 

“Conversion
Price” shall have the meaning set forth in Section 4(b).

 

“Conversion
Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

 

“Conversion
Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with
the terms hereof.

 

“Debenture
Register” shall have the meaning set forth in Section 2(c).

 

“Event
of Default” shall have the meaning set forth in Section 8(a).

    	 	3	 

     

    

 

“Equity
Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions by virtue of
one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages due under Sections
2(d), 4(e)(iv) and 4(e)(v) and other fees and expenses (other than principal and interest) owing to the Holder in respect of this
Debenture, (c) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents
are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock
on a Trading Market will continue uninterrupted for the foreseeable future), (d) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction
Documents, (f) there is no existing Event of Default or no existing event which, with the passage of time or the giving of notice,
would constitute an Event of Default, (g) the issuance of the shares in question to the Holder would not violate the limitations
set forth in Section 4(c) herein provided that any shares proposed to be issued that would cause a violation of Section
4(c) will be automatically deemed canceled by the Company and upon such cancellation this clause (g) shall be satisfied, (h) there
has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not
been consummated, and (i) the Holder is not in possession of any information provided by the Company that constitutes, or may constitute,
material non-public information other than information required to be provided by the Company under Sections 5.11 and 5.12 of the
Subscription Agreement.

 

“Fundamental
Transaction” shall have the meaning set forth in Section 5(b).

 

“Interest
Notice Period” shall have the meaning set forth in Section 2(a).

 

“Interest
Payment Date” shall have the meaning set forth in Section 2(a).

 

“Interest
Share Amount” shall have the meaning set forth in Section 2(a).

 

"Interest
Rate" shall mean ten percent (10%) per annum.

 

“Late
Fees” shall have the meaning set forth in Section 2(d).

 

“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Mandatory
Default Amount” means the sum of (a) 100% of the outstanding principal amount of this Debenture, plus 100% of accrued
and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

 

“New
York Courts” shall have the meaning set forth in Section 8(d).

 

“Notice
of Conversion” shall have the meaning set forth in Section 4(a).

    	 	4	 

     

    

 

“Original
Issue Date” means the date of the first issuance of the Debentures, regardless of any transfers of any Debenture and
regardless of the number of instruments which may be issued to evidence such Debentures.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“Public
Offering Closing” shall have the meaning set forth in Section 4(b).

 

“Subscription
Agreement” means the Subscription Agreement, dated as of [May __, 2016] among the Company and the original Holders, as
amended, modified or supplemented from time to time in accordance with its terms.

 

“Securities
Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share
Delivery Date” shall have the meaning set forth in Section 4(e)(ii).

 

“Subsidiary”
shall have the meaning set forth in the Subscription Agreement.

 

“Trading
Day” means a day on which the New York Stock Exchange is open for business.

 

“Trading
Market” means the following markets or exchanges on which the Common Stock may be listed or quoted for trading on the
date in question: the NYSE MKT, LLC, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the
New York Stock Exchange or the OTC Bulletin Board, or the other OTC markets, including the OTCQX, OTCQB and OTC Pink markets

 

“Transaction
Documents” shall have the meaning set forth in the Subscription Agreement.

 

Section 2.          Interest.

 

a)     Payment
of Interest in Cash or Kind. The Company shall pay interest to the Holder at the Interest Rate on the aggregate principal amount
of the principal being converted on any Conversion Date (as to that principal amount then being converted), and on the Maturity
Date (each such date, an “Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then
the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s option, in duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock (the dollar amount to be paid in shares, the “Interest
Share Amount”) or a combination thereof; provided, however, that payment in shares of Common Stock on account
of interest may only occur if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the
2 Trading Days immediately prior to the applicable Interest Payment Date (the “Interest Notice Period”) and
through and including the date such shares of Common Stock are actually issued to the Holder, (ii) the notice of Conversion delivered
by the Holder to Company affirms that the issuance of the Conversion Shares on account of principal and interest will not violate
Section 4(c) hereunder. To the extent that any such issuance of Conversion Shares on account of interest under this Section 2(a)
would violate section 4(c), such interest shall either be paid in cash or at the Company's election deferred and paid in Conversion
Shares at the next Conversion Date. In the event that the Company shall elect to pay all or any part of the interest amount in
Common Stock, the number of shares of Common Stock issuable to the Holder shall be determined by dividing (i) the Interest Share
Amount, by (ii) the Conversion Price then in effect.

    	 	5	 

     

    

 

b)     Payment
of Principal Amount in Cash or Kind. On the Maturity Date, in the event that the Holder has not elected to convert all or any
portion of the Principal Amount into Common Stock, the Company may pay all or any portion the then outstanding principal amount
of this Debenture in cash or, at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock (the dollar amount to be paid in shares, the “Principal Share Amount”) or a combination
thereof; provided, however, that payment in shares of Common Stock on account of the principal amount may only occur
if (i) all of the Equity Conditions have been met (unless waived by the Holder in writing) during the 2 Trading Days immediately
prior to the applicable Maturity Date (the “Principal Notice Period”) and through and including the date such
shares of Common Stock are actually issued to the Holder, (ii) the notice of Conversion delivered by the Holder to Company affirms
that the issuance of the Conversion Shares on account of principal and interest will not violate Section 4(c) hereunder. To the
extent that any such issuance of Conversion Shares on account of the principal amount under this Section 2(b) would violate Section
4(c), such principal amount shall be paid in cash. In the event that the Company shall elect to pay all or any part of the principal
amount in Common Stock, the number of shares of Common Stock issuable to the Holder shall be determined by dividing (i) the Principal
Share Amount, by (ii) the Conversion Price then in effect.

 

c)     Company’s
Election to Pay Principal and/or Interest in Cash or Shares of Common Stock. Subject to the terms and conditions herein, including
the existence of the Equity Conditions, the decision whether to pay interest or the principal amount hereunder in cash, shares
of Common Stock or a combination thereof shall be at the sole discretion of the Company.

 

d)     Interest
Calculations. Interest on the principal balance of this Note shall be calculated on the basis of a 360-day year, consisting
of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding
principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder,
has been made. Interest shall cease to accrue with respect to any principal amount converted, provided that, the Company actually
delivers the Conversion Shares within the time period required by Section 4(e)(ii) herein. Interest hereunder will be paid to the
Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture
(the “Debenture Register”). Except as otherwise provided herein, if at any time the Company pays interest partially
in cash and partially in shares of Common Stock to the holders of the Debentures, then such payment of cash shall be distributed
ratably among the holders of the then-outstanding Debentures based on their (or their predecessor’s) initial purchases of
Debentures pursuant to the Subscription Agreement.

    	 	6	 

     

    

 

e)     Late
Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the
lesser of 18% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue
daily from the date such interest is due hereunder through and including the date of actual payment in full.

 

f)      Prepayment.
Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.

 

Section 3.          
Registration of Transfers and Exchanges.

 

a)     Different
Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer
or exchange.

 

b)     Investment
Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth
in the Subscription Agreement and may be transferred or exchanged only in compliance with the Subscription Agreement and applicable
federal and state securities laws and regulations.

 

c)     Reliance
on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of
the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and
neither the Company nor any such agent shall be affected by notice to the contrary.

 

Section 4.          Conversion.

 

a)     Voluntary
Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be
convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject
to the conversion limitations set forth in Section 4(c) hereof). The Holder shall effect conversions by delivering to the
Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”),
specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected
(such date, or the date of a mandatory conversion pursuant to Section 4(d), the “Conversion Date”). If no Conversion
Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is actually delivered
hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions
hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable
conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).
The Company may deliver an objection to any Notice of Conversion within 1 Business Day of delivery of such Notice of Conversion.
In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of
manifest error.

 

    	 	7	 

     

    

 

b)     Conversion
Price. The conversion price in effect on any voluntary Conversion Date shall be equal to $0.25, subject to adjustment
herein (the “Conversion Price”).

 

c)     Conversion
Limitations. Holder shall not have the right to convert any portion of this Debenture, pursuant to Section 4 or otherwise,
to the extent that after giving effect to such issuance after conversion the Holder (together with the Holder’s Affiliates,
and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially
own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of this Section beneficial ownership shall
be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. Holder
is solely responsible for any schedules required to be filed in accordance therewith. The Company shall have no obligation to verify
or confirm the accuracy of such filings.  In any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its
Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon exercise of this Debenture. The Holder, upon not less than 61 days’
prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(c), provided
that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of this Debenture held by the Holder and the provisions
of this Section 4(c) shall continue to apply. Any such increase or decrease will not be effective until the 61st day
after such notice is delivered to the Company. The limitations contained in this paragraph shall apply to a successor holder of
this Debenture.

 

d)        Automatic
Conversion. In the event that after the Original Issue Date through and including the Maturity Date the Company shall close
an underwritten public offering, for cash (the “Public Offering Closing”), of Common Stock, or any security convertible
into or exercisable of exchangeable for shares of Common stock (a “Common Stock Equivalent”), then on the date of the
Public Offering Closing the entire outstanding principal amount of and accrued but unpaid interest on this Debenture shall automatically,
without necessity of any action by the Company or the Holder, be converted into shares of Common Stock at a conversion price equal
to the lesser of (i) the Conversion Price or (ii) 85% of the per share price to the public of the Common Stock (or of the conversion,
exercise or exchange price per share of Common Stock contained in the Common Stock Equivalent) sold in the Public Offering Closing
(the “Automatic Conversion Price”).

 

    	 	8	 

     

    

 

e)     Mechanics
of Conversion.

 

i.           Conversion
Shares Issuable Upon Conversion of Principal and Interest Amount. The number of Conversion Shares issuable upon a conversion
hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount and accrued but unpaid
interest of this Debenture to be converted by (y) the Conversion Price then in effect or the Automatic Conversion Price, as applicable.

 

ii.          Delivery
of Certificate Upon Conversion. Not later than four Trading Days after each Conversion Date (the “Share Delivery Date”),
the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion
Shares which, on or after the six month anniversary of the Original Issue Date, shall be free of restrictive legends and trading
restrictions (other than those which may then be required by the Subscription Agreement) representing the number of Conversion
Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest (if
the Company has elected or is required to pay accrued interest in cash). On the six month anniversary of the Original Issue Date,
the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under
this Section 4(e) electronically through the Depository Trust Company or another established clearing corporation performing similar
functions.

 

iii.         Failure
to Deliver Certificates. If in the case of any Notice of Conversion such certificate or certificates are not delivered to or
as directed by the applicable Holder by the fourth Trading Day after the Conversion Date, the Holder shall be entitled to elect
by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion,
in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall
promptly return to the Company the Common Stock certificates representing the principal amount of this Debenture unsuccessfully
tendered for conversion to the Company.

 

    	 	9	 

     

    

 

iv.         Obligation
Absolute; Partial Liquidated Damages. The Company’s obligations to issue and deliver the Conversion Shares upon conversion
of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by
the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against
any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law
by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder
of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion
based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law,
agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the
Holder in the amount of 130% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder
such certificate or certificates pursuant to Section 4(e)(ii) by the fifth Trading Day after the Conversion Date, the Company shall
pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10
per Trading Day (increasing to $20 per Trading Day on the seventh (7th) Trading Day after such liquidated damages begin
to accrue) for each Trading Day after such fourth (4th) Trading Day until such certificates are delivered. Nothing herein
shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 7 hereof for the
Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to
pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant
to any other Section hereof or under applicable law.

    	 	10	 

     

    

 

v.         Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder,
if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant
to Section 4(e)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open
market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating
to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition
to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including
any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common
Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the
sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of
the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted
conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely
complied with its delivery requirements under Section 4(e)(ii). For example, if the Holder purchases Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the
actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a
total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.
The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and,
upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any
other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock
upon conversion of this Debenture as required pursuant to the terms hereof.

 

vi.        Reservation
of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized
and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest
on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons
other than the Holder (and the other holders of the Debentures), not less than such aggregate number of shares of the Common Stock
as shall (subject to the terms and conditions set forth in the Subscription Agreement) be issuable (taking into account the adjustments
and restrictions of Section 5) upon the conversion of the outstanding principal amount of this Debenture and payment of interest
hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable.

 

vii.        Fractional
Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture.
As to any fraction of a share which Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its
election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the
Conversion Price then in effect or the Automatic Conversion Price, as applicable or round up to the next whole share.

 

    	 	11	 

     

    

 

viii.      Transfer
Taxes. The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge
to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such
certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved
in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture
so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.

 

Section 5.          Certain
Adjustments.

 

a)     Stock
Dividends and Stock Splits. If the Company, at any time while this Debenture is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents
(which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment
of interest on, the Debentures), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues,
in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion
Price then in effect shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

    	 	12	 

     

    

 

b)     Fundamental
Transaction. If, at any time while this Debenture is outstanding, (i) the Company effects any merger or consolidation of the
Company with or into another Person, (ii) the Company effects any sale of all or substantially all of its assets in one transaction
or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property,
or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental
Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for
each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental
Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common
Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Conversion
Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of 1 share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among
the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company
or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions
and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant
to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with
the provisions of this Section 5(b) and insuring that this Debenture (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.

 

c)     Calculations.
All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

 

d)     Notice
to the Holder.

 

i.           Adjustment
to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall
promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

 

    	 	13	 

     

    

 

ii.          Notice
to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on
the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C)
the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale
or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last
address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Debenture during
the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice.

 

Section 6.          Rule
144. The Company covenants to use its reasonable best efforts to facilitate the public resale by Holder(s) of any Conversion
Shares pursuant to Rule 144 under the Securities Act of 1933 as amended.

 

Section 7.          Negative
Covenants. As long as any portion of this Debenture remains outstanding, unless the holders of at least 51% in principal amount
of the then outstanding Debentures shall have otherwise given prior written consent, the Company shall not, and shall not permit
any of its subsidiaries (whether or not a Subsidiary on the Original Issue Date) to, directly or indirectly:

 

a)         repay,
repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness, other than the Debentures if on a pro-rata basis,
other than regularly scheduled principal and interest payments as such terms are in effect as of the Original Issue Date, provided
that such payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist
or occur; or

 

b)        enter
into any agreement with respect to any of the foregoing.

 

Section 8.          Events
of Default.

 

a)      “Event
of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether
such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental body):

 

    	 	14	 

     

    

 

i. any
default in the payment of (A) the principal amount of any Debenture or (B) interest, liquidated damages and other amounts owing
to a Holder on any Debenture, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date
or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above,
is not cured within 5 Trading Days;

 

ii. the
Company shall fail to observe or perform any other covenant or agreement contained in the Debentures (other than a breach by the
Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause
(xi) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of
such failure sent by the Holder or by any other Holder to the Company and (B) 12 Trading Days after the Company has become or should
have become aware of such failure;

 

iii. a
default or Event of Default (subject to any grace or cure period provided in the applicable agreement, document or instrument)
shall occur under (A) any of the Transaction Documents or (B) any other agreement, lease, document or instrument to which the Company
or any Subsidiary is obligated (and not covered by clause (vi) below) that could reasonably be expected to have a Material Adverse
Effect;

 

iv. any
representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto
or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or
incorrect in any material respect as of the date when made or deemed made;

 

v. the
Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy
Event;

 

vi. the
Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation
greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii. the
Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within seven Trading Days;

 

    	 	15	 

     

    

 

viii. the
Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all
or in excess of 40% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute
a Change of Control Transaction);

 

ix.  the
Company shall fail for any reason to deliver certificates to a Holder on or prior to the fifth Trading Day after a Conversion Date
pursuant to Section 4(e) or the Company shall provide at any time notice to the Holder, including by way of public announcement,
of the Company’s intention to not honor requests for conversions of any Debentures in accordance with the terms hereof; or

 

x. any
monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their
respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 45 calendar days.

 

b)     Remedies
Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but
unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the
occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture
shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon
the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the
Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any
presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration
may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder
of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

    	 	16	 

     

    

 

Section 9.        Miscellaneous.

 

a)     Notices.
Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation,
any Notice of Conversion, shall be in writing and delivered personally, by facsimile, by electronic communication or sent by a
nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile
number or address as the Company may specify for such purpose by notice to the Holder delivered in accordance with this Section
9(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, by electronic communication or sent by a nationally recognized overnight courier service addressed
to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile
number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered
via facsimile or electronic communication prior to 5:30 p.m. (New York City time), (ii) the date immediately following the date
of transmission, if such notice or communication is delivered via facsimile or electronic communication between 5:30 p.m. (New
York City time) and 11:59 p.m. (New York City time) on any date, (iii) the second Business Day following the date of mailing, if
sent by nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required
to be given.

 

b)     Absolute
Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable,
on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt
obligation of the Company. This Debenture ranks pari passu with all other Debentures now or hereafter issued under
the terms set forth herein.

 

c)     Lost
or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen
or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but
only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory
to the Company.

 

d)    Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed
by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of
conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of
the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates,
directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City
of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.
Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action
or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such
party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the
transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture,
then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other
costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

    	 	17	 

     

    

 

e)     Waiver.
Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the
Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered
a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture.
Any waiver by the Company or the Holder must be in writing.

 

f)      Severability.
If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons
and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable
law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of
interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at
any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury
law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on
this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants
or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits
or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution
of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been
enacted.

 

g)     Next
Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment
shall be made on the next succeeding Business Day.

 

h)     Headings.
The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit
or affect any of the provisions hereof.

 

i)      Assumption. 
Any successor to the Company or any surviving entity in a Fundamental Transaction shall (i) assume, prior to such Fundamental Transaction,
all of the obligations of the Company under this Debenture and the other Transaction Documents pursuant to written agreements in
form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) and (ii) issue to the
Holder a new debenture of such successor entity evidenced by a written instrument substantially similar in form and substance to
this Debenture, including, without limitation, having a principal amount and interest rate equal to the principal amount and the
interest rate of this Debenture and having similar ranking to this Debenture, which shall be satisfactory to the Holder (any such
approval not to be unreasonably withheld or delayed).  The provisions of this Section 9(i) shall apply similarly and equally
to successive Fundamental Transactions and shall be applied without regard to any limitations of this Debenture.

 

(Signature Pages Follow)

 

    	 	18	 

     

    

 

IN WITNESS WHEREOF,
the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

 

	 	Protea Biosciences Group, Inc.
	 	 
	 	By:	 
	 	 	Name: Stephen Turner
	 	 	Title: Chief Executive Officer
	 	 	Facsimile No. for delivery of Notices: 304-292-7101

 

     

     

    

 

ANNEX A

 

NOTICE OF CONVERSION

 

 

The undersigned hereby
elects to convert principal under the 20% Original Issue Discount Convertible Debenture due [_______, 2016] of Protea Biosciences
Group, Inc., a Delaware corporation (the “Company”), into shares of common stock (the “Common Stock”),
of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in
the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will
be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of
this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not
exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange
Act.

 

The undersigned agrees
to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.

 

Conversion calculations:

Date to Effect Conversion:

 

Principal Amount of Debenture
to be Converted:

 

Payment
of Interest in Common Stock  ̈
yes  ̈ no

If yes, $_____ of Interest Accrued.

 

Number of Conversion Shares payable
on Principal or Interest that would exceed the limits set forth in Section 4(c) of the Note:

 

Number of shares of Common Stock
to be issued:

 

 

Signature:

 

Name:

 

Address for Delivery
of Common Stock Certificates:

 

     

     

    

 

Schedule 1

 

CONVERSION SCHEDULE

 

The 20% Original Issue Discount Unsecured
Convertible Debenture due on [_________, 2016] in the original principal amount of $____________ is issued by Protea Biosciences
Group, Inc., a Delaware corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced
Debenture.

 

Dated: 

 

	Date of Conversion

(or for first entry,

Original Issue Date)	 	Amount of

Conversion	 	Aggregate

Principal

Amount

Remaining

Subsequent to

Conversion

(or original

Principal

Amount)	 	Company Attest

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