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 $2,000,000 (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 June 30, 2015, subject to the right of the Company and the Placement
Agent to mutually extend the Termination Date to August 31, 2015 without notice to prospective investors (the “Termination
Date”). The Offering is being conducted on a “best-efforts” basis. 

 

 

 

1
The total face amount is $2,500,000.

 

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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 and will continue until such time as no
less than five hundred thousand dollars ($500,000) has been raised at which time the Company and Laidlaw may elect to terminate
the Offering. After the Initial Closing, subsequent closings with respect to additional Securities may take place at any time prior
to the Termination Date as determined by the Company, with respect to subscriptions accepted prior to the Termination Date (each
such closing, together with the Initial Closing, being referred to as a “Closing”). 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 the any Closing does
not occur prior to the 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 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 Annual
Report on Form 10-K and the exhibits thereto for the year ended December 31, 2014 (the “Form 10-K”) as publicly filed
with and available at the website of the United States Securities and Exchange Commission (the “SEC”), 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. 

 

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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
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; provided, however, that the Subscriber shall not
be liable for any Loss 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.

 

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.

 

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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.

 

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.

 

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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 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. 

 

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

 

    	9

    	 

    

 

(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.

 

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.

 

    	10

    	 

    

 

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. 

 

2.27    (which
is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property
covered thereby).

 

2.28    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.

 

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. 

 

    	12

    	 

    

 

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).

 

(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.

 

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(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, 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) [reserved] or (iv) 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.

 

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. 

 

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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 second
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 “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 under this Agreement, the Transaction Documents; and will promptly reimburse the 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 Indemnified Party
is a formal party to any such Proceeding.

 

(b)     If
for any reason (other than a final non-appealable judgment finding any Indemnified Party liable for losses, claims, damages, liabilities
or expenses for its gross negligence or willful misconduct) the foregoing indemnity is unavailable to an Indemnified Party or insufficient
to hold an Indemnified Party harmless, then the Company shall contribute to the amount paid or payable by an 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 Advisor on the other, but also the relative fault by the Company and the
Indemnified Party, as well as any relevant equitable considerations.

 

    	16

    	 

    

 

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.

 

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.

 

5.12        Participation
in Future Financing.

 

(a)          From
the date hereof until the one year anniversary of the Final Closing, upon any issuance by the Company or any of its Subsidiaries
of Common Stock, Common Stock equivalents (a “Subsequent Financing”), each Subscriber shall have the right to
participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation
Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing. 

 

(b)          At
least 5 trading days prior to the closing of the Subsequent Financing, the Company shall deliver to each Subscriber a written notice
of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Subscriber
if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).
Upon the request of a Subscriber, and only upon a request by such Subscriber, for a Subsequent Financing Notice, the Company shall
promptly, but no later than 1 trading day after such request, deliver a Subsequent Financing Notice to such Subscriber. The Subsequent
Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended
to be raised thereunder and the person or persons through or with whom such Subsequent Financing is proposed to be effected and
shall include a term sheet or similar document relating thereto as an attachment. 

 

(c)          Any
Subscriber desiring to participate in such Subsequent Financing must provide written notice to the Company by not later than 5:30
p.m. (New York City time) on the 5th trading day after all of the Subscribers have received the Pre-Notice that the
Subscriber is willing to participate in the Subsequent Financing, the amount of the Subscriber’s participation, and that
the Subscriber has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice.
If the Company receives no notice from a Subscriber as of such 5th trading day, such Subscriber shall be deemed to have
notified the Company that it does not elect to participate. 

 

(d)          If
by 5:30 p.m. (New York City time) on the 5th trading day after all of the Subscribers have received the Pre-Notice,
notifications by the Subscribers of their willingness to participate in the Subsequent Financing (or to cause their designees to
participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining
portion of such Subsequent Financing on the terms and with the persons set forth in the Subsequent Financing Notice. 

 

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(e)          If
by 5:30 p.m. (New York City time) on the 5th trading day after all of the Subscribers have received the Pre-Notice,
the Company receives responses to a Subsequent Financing Notice from Subscribers seeking to purchase more than the aggregate amount
of the Participation Maximum, each such Subscriber shall have the right to purchase its Pro Rata Portion (as defined below) of
the Participation Maximum.  “Pro Rata Portion” means the ratio of (x) the Subscription Amount of Securities
purchased on the Closing Date by a Subscriber participating under this Section 5.12 and (y) the sum of the aggregate Subscription
Amounts of Securities purchased by all Subscribers participating under this Section 5.12.

 

(f)          The
Company must provide the Subscribers with a second Subsequent Financing Notice, and the Subscribers will again have the right of
participation set forth above in this Section 5.12, if the Subsequent Financing subject to the initial Subsequent Financing Notice
is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 30 trading days after the date
of the initial Subsequent Financing Notice. 

 

(g)          Notwithstanding
the foregoing, this Section 5.12 shall not apply in respect of (i) an Exempt Issuance (as defined in the Debentures and the Warrants),
or (ii) an underwritten public offering of Common Stock.

 

5.13         Most
Favored Nation Provision. Until December 31, 2015, if the Company effects a Subsequent Financing, Subscriber may elect, in
its sole discretion, to exchange all or some of the Debentures then held by Subscriber for any securities issued in a Subsequent
Financing on a $1.00 for $1.00 basis based on the outstanding principal amount of such Debentures, along with any liquidated damages
and other amounts owing thereon, and the effective price at which such securities are to be sold in such Subsequent Financing;
provided, however, that this Section 5.13 shall not apply with respect to (i) an Exempt Issuance (as defined in the
Debentures) or (ii) an underwritten public offering of Common Stock.

 

VI.          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.

955 Hartman Run Road

Morgantown, WV 26507

Attn: Stephen C. Turner, CEO

 

    	18

    	 

    

 

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

 

CKR Law

1330 Avenue of the Americas, 35th Floor

New York, NY 10019

Attn: Barrett S. DiPaolo, Esq.

 

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):

 

Robinson Brog Leinwand Greene Genovese & Gluck P.C.

875 3rd Avenue, 9th Floor

New York, NY 10022

Attn: David E. Danovitch, Esq.

 

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.

 

    	19

    	 

    

 

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.

 

    	20

    	 

    

 

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. 

 

    	21

    	 

    

 

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.

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. [                 
]

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

 

    	22

    	 

    

 

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.

 

    	23

    	 

    

 

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)

 

Date (NOTE: To be completed by the Purchaser): __________________,
2015

	 

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.

 

    	 

    	 

    

 

 

	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.

    	 

    	 

    

 

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: _________________

 

Liquid Net Worth:_____________

 

Net Worth: ________________

 

	Investment Objectives (circle one or more):	 	Long Term Capital Appreciation, Short Term Trading, Businessman’s Risk, Income, Safety of Principal, Tax Exempt Income or other

 

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: _______

 

    	 

    	 

    

 

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): ___________

Annual Income: _______________

 

Net Worth: ________________

 

Was the Trust formed for the specific purpose of purchasing
the Units?

 

 ̈ Yes   ̈
No

 

Principal Purpose (Trust)______________________________________

 

Type of Business: ________________________________________________________

 

	Investment Objectives (circle one or more):	 	Long Term Capital Appreciation, Short Term Trading, Businessman’s Risk, Income, Safety of Principal, Tax Exempt Income or other

 

Street Address: ________________________________________________________________________

 

City, State & Zip Code: ________________________________________________________________________

 

Phone: ________________________                    Fax: ________________________

 

Email: __________________________

 

Laidlaw Account Executive / Outside Broker/Dealer:

_______________________________________________________

 

    	 

    	 

    

 

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

 

		____	The funds for this investment are rolled over, tax deferred
from ____________________ within the Allowed 60-day window

 

Section D – Purchaser Instructions
for Payments of any Dividends

 

		      ̈	Please make any dividend
and any other payment checks pursuant to the Units 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 Units in the registered name of the Purchaser set forth in the signature page to the Subscription Agreement for
the Units 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 	 

 

    	 

    	 

    

 

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                                          $______________________

 

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

 

	Signature:	 	 
	 	 	 
	Signature:	 	 
	 	(Joint Signature)	 

 

    	 

    	 

    

 

Exhibit A

 

Portions of the following Exhibit are an excerpt of the information
contained in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2014 as filed with the Securities
and Exchange Commission (the “Form 10-K”). As such, this Exhibit is qualified in its entirety by the more detailed
information regarding the Company’s business and financial conditions as set forth in the Form 10-K. In addition, investors
are advised that the information in this Exhibit has not been updated since the filing of the Form 10-K. Investors should review
the Company’s financial statements and other information set forth in the Form 10-K and subsequent periodic reports including
Forms 10-Q and 8-K filed with the Securities and Exchange Commission, as well as the Disclosure Schedules to the Transaction Documents.
You are encouraged to seek the advice of your attorney, tax consultant, and business advisor with respect to the legal, tax, and
business aspects of an investment in the Securities.

 

RISK FACTORS

 

Our business is subject to many risks
and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occur,
our business and financial performance could be adversely affected, our actual results could differ materially from our expectations,
and the price of our stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may
be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely
affect our business and financial performance. You should carefully consider the risks described below, together with all other
information included in this prospectus including our financial statements and related notes, before making an investment decision.
The statements contained in this prospectus that are not historic facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements.
If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that
case, the trading price of our common stock could decline, and investors in our securities may lose all or part of their investment.

 

Risks Related to Our Business

 

We are an emerging growth company
with a limited operating history and limited sales to date.

 

The Company is subject to all of the risks
inherent in the establishment of an emerging growth company, including the absence of an operating history, and the risk that we
may be unable to successfully develop, manufacture and sell our products. There can be no assurance that the Company will be able
to execute its business plan, including without limitation the Company’s plans to develop, then manufacture, market and sell,
its technologies, products and services. The Company has engaged in limited manufacturing operations to date, and although the
Company believes that its plans to conduct manufacturing of its products internally will work, there is no assurance that this
will be the case. The Company began to sell products and services in the fourth quarter of 2007, and sales to date are limited.
There can be no assurance that the Company’s sales projections and marketing plans will be achieved as anticipated and planned.
It is likely that losses will be incurred during the early stages of operations. The Company believes that its future success will
depend on its ability to develop and introduce its instruments and services for mass spec molecular imaging, to meet a wide range
of customer needs and achieve market acceptance. The Company cannot assure prospective investors that it will be able to successfully
develop and market its products or that it will recover the initial investment that must be made to develop and market such products.

 

    	A-1

    	 

    

 

We have incurred net losses since
inception.

 

We incurred a net loss of $11,474,770 and
$11,417,670 for the fiscal years ended December 31, 2014 and 2013, respectively, and net losses of $69,867,118 since inception.
The opinion of our independent registered public accountants on our audited financial statements as of and for the year ended December 31,
2014 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern is dependent upon raising capital from financing transactions. To stay in business, we will need
to raise additional capital through public or private sales of our securities, debt financing or short-term bank loans, or a combination
of the foregoing. We can provide no assurance as to whether our capital raising efforts will be successful or as to when, or if,
we will be profitable in the future. Even if the Company achieves profitability, it may not be able to sustain such profitability.

 

Issuance of Common Stock to fund
our operations or upon the exercise of outstanding warrants and options may dilute your investment.

 

We have been operating at a loss since
inception and our working capital requirements continue to be significant. We have been supporting our business through the sale
of debt and equity since inception. We will need additional funding for developing products and services, increasing our sales
and marketing capabilities, technologies and assets, as well as for working capital requirements and other operating and general
corporate purposes. Our working capital requirements depend and will continue to depend on numerous factors, including the timing
of revenues, the expense involved in development of our products, and capital improvements. If we are unable to generate sufficient
revenue and cash flow from operations, we will need to seek additional equity or debt financing to provide the capital required
to maintain or expand our operations, which may have the effect of diluting our existing stockholders or restricting our ability
to run our business.

 

There can be no assurance that we will
be able to raise sufficient additional capital on acceptable terms, or at all. If such financing is not available on satisfactory
terms, or is not available at all, we may be required to delay, scale back or eliminate the development of business opportunities
and our operations and financial condition may be materially adversely affected. Debt financing, if obtained, may involve agreements
that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, could increase
our expenses and require that our assets be provided as a security for such debt. Debt financing would also be required to be repaid
regardless of our operating results. Equity financing, if obtained, could result in dilution to our then existing stockholders.
As of the date of this filing, we have warrants to purchase an aggregate of 53,167,193 shares of Common Stock issued and outstanding.
The Company also has reserved an aggregate of 4,150,000 shares of Common Stock for issuance under its 2002 Equity Incentive Plan
(the “2002 Plan”) and 5,000,000 shares of Common Stock have been reserved for issuance under the Company’s 2013
Equity Incentive Plan (the “2013 Plan”). As of the date of this filing, options to purchase an aggregate of 7,019,750
shares of Common Stock have been granted and are outstanding under the 2002 Plan and the 2013 Plan, collectively. The Company has
3,387,725 shares of the Preferred Stock outstanding which is potentially convertible into 27,525,344 shares of Common Stock.

 

    	A-2

    	 

    

 

We depend on the pharmaceutical and
biotechnology industries.

 

Over the past several years, some areas
of our businesses have grown significantly as a result of an increase in the sales of our bioanalytical instrument platform known
as “LAESI®” and the increase in pharmaceutical, academic and clinical research laboratory outsourcing of their
clinical drug research support activities. We believe that, due to the significant investment in facilities and personnel required
to support drug development, pharmaceutical, academic and clinical research laboratories look to purchase our bioanalytical instrument
platforms and solutions technology to meet and administer their drug research requirements. Our revenues depend greatly on the
expenditures made by these pharmaceutical and academic/clinical research laboratory companies in research and development. In some
instances, companies in these industries are reliant on their ability to raise capital in order to fund their research and development
projects. Accordingly, economic factors and industry trends that affect our clients in these industries also affect our business.
If companies in these industries were to reduce the number of research and development projects they conduct or outsource, our
business could be materially adversely affected.

 

Changes in government regulation
or in practices relating to the pharmaceutical industry could change the need for the services we provide.

 

Governmental agencies throughout the world,
but particularly in the United States, strictly regulate the drug development process. Changes in regulation, such as regulatory
submissions to meet the internal research and development standards of pharmaceutical research, a relaxation in existing regulatory
requirements, the introduction of simplified drug approval procedures or an increase in regulatory requirements that we may have
difficulty satisfying or that make our services less competitive, could substantially change the demand for our services. Also,
if the government increases efforts to contain drug costs and pharmaceutical companies profits from new drugs, our customers may
spend less, or reduce their growth in spending on research and development.

 

We may be affected by health care
reform.

 

In March 2010, the United States Congress
enacted the Patient Protection and Affordable Care Act (“PPACA”) which is intended over time to expand health insurance
coverage and impose health industry cost containment measures.  PPACA legislation and the accompanying regulations may significantly
impact the pharmaceutical and biotechnology industries as it is implemented over the next several years.  In addition, the
U.S. Congress, various state legislatures and European and Asian governments may consider various types of health care reform in
order to control growing health care costs. We are unable to predict what legislative proposals will be adopted in the future,
if any.

 

    	A-3

    	 

    

 

Implementation of health care reform legislation
may have certain benefits but also may contain costs that could limit the profits that can be made from the development of new
drugs. This could adversely affect research and development expenditures by pharmaceutical and biotechnology companies, which could
in turn decrease the business opportunities available to us both in the United States and abroad. In addition, new laws or regulations
may create a risk of liability, increase our costs or limit our service offerings.

 

A reduction in research and development
budgets at pharmaceutical companies and clinical research institutions may adversely affect our business.

 

Our customers include researchers at pharmaceutical
companies and academic/clinical research laboratory institutions. Our ability to continue to grow and win new business is dependent
in large part upon the ability and willingness of the pharmaceutical and biotechnology industries to continue to spend on research
and development and to outsource their product equipment and service needs. Fluctuations in the research and development budgets
of these researchers and their organizations could have a significant effect on the demand for our products and services. Research
and development budgets fluctuate due to changes in available resources, mergers of pharmaceutical companies and spending priorities
and institutional budgetary policies of academic/ clinical research organizations. Our business could be adversely affected by
any significant decrease in life sciences research and development expenditures by pharmaceutical and academic/ clinical research
companies. Similarly, economic factors and industry trends that affect our clients in these industries also affect our business.

 

We rely on a limited number of key
customers, the importance of which may vary dramatically from year to year, and a loss of one or more of these key customers may
adversely affect our operating results.

 

Five customers accounted for approximately
42% of our gross revenue in fiscal 2014 and five customers accounted for approximately 53% of our gross revenues in fiscal 2013.
The loss of a significant amount of business from one of our major customers would materially and adversely affect our results
of operations until such time, if ever, as we are able to replace the lost business. Significant clients or projects in any one
period may not continue to be significant clients or projects in other periods. In any given year, there is a possibility that
a single pharmaceutical or academic/ clinical research laboratory company may account for 5% or more of our gross revenue or that
our business may be dependent on one or more large projects. To the extent that we are dependent on any single customer, we are
subject to the risks faced by that customer to the extent that such risks impede the customer's ability to stay in business and
make timely payments to us.

 

We may bear financial risk if we
underprice our contracts or overrun cost estimates.

 

Since some of our contracts are structured
as fixed price or fee-for-service, we bear the financial risk if we initially underprice our contracts or otherwise overrun our
cost estimates. Such underpricing or significant cost overruns could have a material adverse effect on our business, results of
operations, financial condition, and cash flows.

 

    	A-4

    	 

    

 

A default in our credit facility
could materially and adversely affect our operating results and our financial condition. 

 

The Company has an outstanding line of
credit with United Bank. This credit facility requires us to adhere to certain contractual covenants. If there were an event
of default under our credit facility that was not cured or waived, the lenders of the defaulted debt could cause all amounts outstanding
with respect to that debt to be due and payable immediately. We cannot assure that our assets or cash flow would be sufficient
to fully repay borrowings under the credit facility, either upon maturity or if accelerated, upon an event of default, or that
we would be able to refinance or restructure the payments becoming due on the credit facility. Please see Note 4, Bank Line of
Credit, for additional detail regarding our credit facility.

 

We might incur expense to develop
products that are never successfully commercialized.

 

We have incurred and expect to continue
to incur research and development and other expenses in connection with our products business. The potential products to which
we devote resources might never be successfully developed or commercialized by us for numerous reasons, including:

 

	 	·	inability to develop products that address our customers’ needs;

	 	·	competitive products with superior performance;

	 	·	patent conflicts or unenforceable intellectual property rights;

	 	·	demand for the particular product; and

	 	·	other factors that could make the product uneconomical; and

	 	·	termination of pre-existing license agreements.

 

Incurring expenses for a potential product
that is not successfully developed and/or commercialized could have a material adverse effect on our business, financial condition,
prospects and stock price.

 

Our business uses biological and
hazardous materials, which could injure people or violate laws, resulting in liability that could adversely impact our financial
condition and business.

 

Our activities involve the controlled use
of potentially harmful biological materials, as well as hazardous materials and chemicals. We cannot completely eliminate the risk
of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination
or injury, we could be held liable for damages that result, and any liability could exceed our insurance coverage and ability to
pay. Any contamination or injury could also damage our reputation, which is critical to getting new business. In addition, we are
subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and
specified waste products. The cost of compliance with these laws and regulations is significant and if changes are made to impose
additional requirements, these costs could increase and have an adverse impact on our financial condition and results of operations.

 

    	A-5

    	 

    

 

Hardware or software failures, delays
in the operations of our computer and communications systems or the failure to implement system enhancements could harm our business.

 

Our success depends on the efficient and
uninterrupted operation of our computer and communications systems. A failure of our network or data gathering procedures could
impede the processing of data, delivery of databases and services, client orders and day-to-day management of our business and
could result in the corruption or loss of data. While all of our operations have disaster recovery plans in place, they might not
adequately protect us. Despite any precautions we take, damage from fire, floods, hurricanes, power loss, telecommunications failures,
computer viruses, break-ins and similar events at our computer facilities could result in interruptions in the flow of data to
our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data
communications capacity could result in interruptions in our service. In the event of a delay in the delivery of data, we could
be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could
result in delays in our ability to deliver our products and services to our clients. Additionally, significant delays in the planned
delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our
reputation and harm our business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters,
the outbreak of war, the escalation of hostilities and acts of terrorism, particularly involving cities in which we have offices,
could adversely affect our businesses. Although we carry property and business interruption insurance, our coverage might not be
adequate to compensate us for all losses that may occur.

 

We rely on third parties for important
services.

 

We depend on third parties to provide us
with services critical to our business. The failure of any of these third parties to adequately provide the needed services including,
without limitation, licensed intellectual property rights, could have a material adverse effect on our business.

 

We license a significant portion
of our Intellectual Property from third parties; if the Company fails to remain in compliance with these agreements the Company’s
business may be adversely affected.

 

The Company has entered into a number of
technology license agreements with various universities for the exclusive use of a significant portion of the patent-based intellectual
property that the Company uses. While the Company is currently in compliance with the respective terms of these agreements, if
there be one or more breaches thereunder, such as the failure to pay the applicable royalties, and one or more of these agreements
are terminated, the Company will not be able to use such technology and the Company’s business may be adversely affected.

 

We may be unable to obtain or maintain
patent or other intellectual property protection for any products or processes that we may develop.

 

The Company faces risks and uncertainties
related to intellectual property rights. The Company may be unable to obtain or maintain its patents or other intellectual property
protection for any products or processes that it may develop; third parties may obtain patents covering the manufacture, use or
sale of these products or processes which may prevent the Company from commercializing its technology; or any patents that the
Company may obtain may not prevent other companies from competing with it by designing their products or conducting their activities
so as to avoid the coverage of the Company’s patents.

 

    	A-6

    	 

    

 

Since patent applications in the U.S. are
maintained in secrecy for at least portions of their pendency periods (published on U.S. patent issuance or, if earlier, 18 months
from earliest filing date for most applications) and since other publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we are the first to make the inventions to be covered by our patent
applications. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual
questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it
will allow in biotechnology patents.

 

Proceedings to obtain, enforce or defend
patents and to defend against charges of infringement are time consuming and expensive activities, and it is possible that the
Company could become involved in such proceedings. Unfavorable outcomes in these proceedings could limit the Company’s activities
and any patent rights that the Company may obtain, which could adversely affect its business or financial condition. Even if such
proceedings ultimately are determined to be without merit, they can be expensive and distracting for the Company’s operations
and personnel.

 

In addition, the Company’s success
will depend in part on the ability of the Company to preserve its trade secrets. The Company cannot ensure investors that the obligations
to maintain the confidentiality of trade secrets or proprietary information will not wrongfully be breached by employees, consultants,
advisors or others or that the Company’s trade secrets or proprietary know how will not otherwise become known or be independently
developed by competitors in such a manner that the Company has no legal recourse.

 

We are in a highly competitive market.

 

The Company is engaged in the highly competitive
field of biotechnology. Competition from numerous existing biotechnology companies and others entering the proteomics field is
intense and expected to increase. Many of these companies are larger, more established and recognized in the marketplace, and/or
have substantially greater financial and business resources than the Company. Moreover, competitors who are able to develop and
to commence commercial sales of their products before the Company could do so enjoy a significant competitive advantage. Likewise,
innovations by competitors could cause the Company’s products or services to become obsolete or less attractive in the marketplace,
adversely affecting sales and/or sales projections. The Company cannot assure investors that its technology will enable it to compete
successfully in the future.

 

We may expand our business through
acquisitions.

 

We occasionally review acquisition candidates.
Factors which may affect our ability to grow successfully through acquisitions include: 

	 	·	inability to obtain financing;

 

    	A-7

    	 

    

 

	 	·	difficulties and expenses in connection with integrating the acquired companies and achieving the expected benefits;

	 	·	diversion of management’s attention from current operations;

	 	·	the possibility that we may be adversely affected by risk factors facing the acquired companies;

	 	·	acquisitions could be dilutive to earnings, or in the event of acquisitions made through the issuance of our Common Stock to the shareholders of the acquired company, dilutive to the percentage of ownership of our existing stockholders;

	 	·	potential losses resulting from undiscovered liabilities of acquired companies not covered by the indemnification we may obtain from the seller; and

	 	·	loss of key employees of the acquired companies.

 

We are dependent on certain key personnel.

 

The success of the Company is dependent
to a significant degree upon the skill and experience of its founders and other key personnel including Stephen Turner, Matthew
Powell, Greg Kilby, Edward Hughes, Steve O’Loughlin and others. The loss of the services of any of these individuals would
adversely affect the Company’s business. Although the Company has obtained key man life insurance policies on Mr. Turner,
its President and CEO, there is no assurance that policy proceeds would cover all potential costs or operational challenges that
would result from the loss of services from Mr. Turner and in any event such policy would not cover the lives or loss of these
other individuals. The Company cannot assure prospective investors that it would be able to find adequate replacements for these
key individuals. In addition, the Company believes that its future success will depend in large part upon its continued ability
to attract and retain highly skilled employees, who are in great demand.

 

We are developing products in a rapidly
evolving field and there are no assurances that the results of our research and development efforts will not be rendered obsolete
by the research efforts and technological activities of others.

 

The bioanalytics field in which the Company
is developing products is rapidly evolving. The Company cannot assure prospective investors that any results of the Company’s
research and development efforts will not be rendered obsolete by the research efforts and technological activities of others,
including the efforts and activities of governments, major research facilities, and large multinational corporations. While the
Company believes that its initial efforts to develop its bioanalytics technology platform have been successful thus far, there
can be no assurance that the Company will be able to successfully expand its operations in the future, to commercialize, market
and sell products and services at projected levels, or to fully develop the technology in a timely and successful manner.

 

There is no assurance that the Company’s
manufacturing plans will be successful.

 

The Company employs internal and contract
manufacturing. There is no assurance that the Company’s manufacturing plans will be successful. While the Company has a quality
assurance program for its products, there nonetheless is inherent in any manufacturing process the risk of product defects or manufacturing
problems that could result in potential liability for product liability risks.

 

    	A-8

    	 

    

 

Sale of European Subsidiary

 

As described in greater detail under in
the “Business” and “Certain Relationships and Related Transactions” section below, on December 12, 2014
the Company completed the sale of 100% of the issued and outstanding capital stock of ProteaBio Europe SAS (“Protea Europe”),
a wholly-owned subsidiary of Protea Biosciences, Inc., the Company’s wholly owned subsidiary, to AzurRx BioPharma, Inc. (the
“Buyer”) pursuant to the terms and conditions of a Stock Purchase and Sale Agreement (the “SPA”), dated
as of May 21, 2014 (such transaction, the “Sale”). Effective upon the closing of the Sale, Thijs Spoor, a former director
of the Company, was appointed to serve as a director and the Executive Chairman of the Buyer. While the Board did not establish
a special committee to evaluate the fairness of this related party transaction or obtain a fairness opinion, the Board nevertheless
believes that the terms of the transaction are no less favorable to the Company and its shareholders than such terms that would
have been obtained from an unaffiliated third party.

 

In connection with the consummation of
the Sale, the Company received $300,000, inclusive of the forgiveness of a $100,000 Company note. While the SPA contemplates certain
contingent payments to the Company, there can be no assurance that the Company will ever recoup its $4 million investment in Protea
Europe.

 

Unfavorable general economic conditions
may materially adversely affect our business.

 

While it is difficult for us to predict
the impact of general economic conditions on our business, these conditions could reduce customer demand for some of our products
or services, which could cause our revenue to decline. Also, our customers that are especially reliant on the credit and capital
markets, may not be able to obtain adequate access to credit or equity funding, which could affect their ability to make timely
payments to us. Moreover, we rely on obtaining additional capital and/or additional funding to provide working capital to support
our operations. We regularly evaluate alternative financing sources. Further changes in the commercial capital markets or in the
financial stability of our investors and creditors may impact the ability of our investors and creditors to provide additional
financing. In addition, the financial condition of our credit facility providers, which is beyond our control, may adversely change.
Any decrease in our access to borrowings under our credit facility, tightening of lending standards and other changes to our sources
of liquidity could adversely impact our ability to obtain the financing we need to continue operating the business in our current
manner. For these reasons, among others, if the economic conditions stagnate or decline, our operating results and financial condition
could be adversely affected.

 

    	A-9

    	 

    

 

Risks Relating to Ownership of Our Securities

 

We may not have sufficient authorized
shares of Common Stock

 

We are authorized to issue 250,000,000
shares of Common Stock of which shares 66,588,600 are currently issued and outstanding. After giving effect to the issuances of
the shares of Common Stock underlying outstanding Preferred Stock, warrants and options (as described herein) and all other Common
Stock equivalents, there would be, on a fully diluted basis, approximately 84,834,000 issued and outstanding shares of Common Stock.
While we have covenanted to always reserve sufficient shares of Common Stock to meet the Company’s obligations under outstanding
warrants and Preferred Stock, there is no assurance the Company will be able to do so. The Company obtained written consent from
a majority of the Company’s stockholders to authorize the Company’s Board of Directors to file a certificate of amendment
to the Company’s certificate of incorporation with the Secretary of State of Delaware to increase the total authorized number
of shares of the Company’s Common Stock from 200,000,000 to 250,000,000 within twelve months of September 4, 2014. Nevertheless,
if the Company fails to deliver the requisite number of shares of Common Stock upon conversion of Preferred Stock and/or the exercise
of the warrants, it may face substantial monetary penalties.

 

There is no active public trading
market for our Common Stock and we cannot assure you that an active trading market will develop in the near future.

 

Our Common Stock is quoted under the symbol
“PRGB” in the over-the-counter markets, including the OTC Markets tier of the OTC Markets Group, Inc. ; however it
is not listed on any stock, exchange and there is currently very limited trading in our securities. We cannot assure you that an
active trading market for our Common Stock will develop in the future due to a number of factors, including the fact that we are
a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment
community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse
and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such
time as we became more seasoned and viable. There may be periods of several days or more when trading activity in our shares is
minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally
support continuous sales. We cannot give you any assurance that an active public trading market for our Common Stock will develop
or be sustained. You may not be able to liquidate your shares quickly or at the market price if trading in our Common Stock is
not active.

 

There is limited liquidity on the
OTC Markets which may result in stock price volatility and inaccurate quote information.

 

OTC Markets is a significantly more limited
trading market than the New York Stock Exchange or The NASDAQ Stock Market, which may result in a less liquid market available
for existing and potential stockholders to trade shares of our Common Stock, could depress the trading price of our Common Stock
and could have a long-term adverse impact on our ability to raise capital in the future. When fewer shares of a security are being
traded on the OTC Markets, volatility of prices may increase and price movement may outpace the ability to deliver accurate quote
information. Due to lower trading volumes in shares of our Common Stock, there may be a lower likelihood of one’s orders
for shares of our Common Stock being executed, and current prices may differ significantly from the price one was quoted at the
time of order entry. Future trading volume may be limited by the fact that many major institutional investment funds, including
mutual funds, as well as individual investors follow a policy of not investing in OTC Markets stocks and certain major brokerage
firms restrict their brokers from recommending OTC Markets stocks because they are considered speculative, volatile and thinly
traded.

 

    	A-10

    	 

    

 

Our share price could be volatile
and our trading volume may fluctuate substantially.

 

The market price of our common shares may
experience volatility. Many factors could have a significant impact on the future price of our common shares, including:

 

	 	·	our failure to successfully implement our business objectives;

	 	·	compliance with ongoing regulatory requirements;

	 	·	market acceptance of our products;

	 	·	technological innovations, new commercial products or drug discovery efforts and clinical activities by us or our competitors;

	 	·	changes in government regulations;

	 	·	general economic conditions and other external factors;

	 	·	actual or anticipated fluctuations in our quarterly financial and operating results;

	 	·	the degree of trading liquidity in our common shares; and

	 	·	our ability to meet the minimum standards required for remaining listed on the OTC Markets.

 

These factors also include ones beyond
our control, such as market conditions within our industry and changes in pharmaceutical and biotechnology industries. In addition,
in recent years, the stock market has experienced significant price and volume fluctuations. The stock market, and in particular
the market for pharmaceutical and biotechnology company stocks, has also experienced significant decreases in value in the past.
This volatility and valuation decline has affected the market prices of securities issued by many companies, often for reasons
unrelated to their operating performance, and might adversely affect the price of our Common Stock.

 

Our Common Shares are a penny stock.
Trading of our Common Shares may be restricted by the SEC’s penny stock regulations and the FINRA’s sales practice
requirements, which may limit a shareholder’s ability to buy and sell our common shares.

 

Our common shares are deemed to be a penny
stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any
equity security that has a market price (as defined) less than $5.00 per share subject to certain exceptions. Our securities are
covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other
than established customers and “accredited investors”. The term “accredited investor” refers generally
to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock as well as the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before
or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary market for the common shares that are subject to
these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common shares.

 

    	A-11

    	 

    

 

In addition to the “penny stock”
rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is
a high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial Industry
Regulatory Authority requirements make it more difficult for broker-dealers to recommend that their customers buy our common shares,
which may limit your ability to buy and sell our shares.

 

We have established Preferred Stock
which can be designated by the Company’s board of directors without shareholder approval.

 

The Company has authorized 10,000,000 shares
of Preferred Stock, of which 3,337,725 shares of Series A Convertible Preferred Stock are issued and outstanding. The shares of
Preferred Stock of the Company may be issued from time to time in one or more series, each of which shall have a distinctive designation
or title as shall be determined by the board of directors of the Company prior to the issuance of any shares thereof. The Preferred
Stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions thereof as adopted by the board of directors. In each
such case, we will not need any further action or vote by our stockholders. One of the effects of undesignated Preferred Stock
may be to enable the board of directors to render more difficult or to discourage an attempt to obtain control of us by means of
a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of our management. The issuance of shares
of Preferred Stock pursuant to the board of director's authority described above may adversely affect the rights of holders of
Common Stock. For example, Preferred Stock issued by us may rank prior to the Common Stock as to dividend rights, liquidation preference
or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock at a premium or may otherwise adversely affect the market price
of the Common Stock.

 

    	A-12

    	 

    

 

Most
of our total outstanding shares are subject to a market standoff agreement which provides that the purchaser will not sell, assign
or otherwise transfer or dispose of any Common Stock, warrants or other securities of the Company if so requested by an underwriter
for a period not to exceed 180 days.  If our securities are locked up at the request of any underwriter, and there are substantial
sales of shares of our Common Stock, the price of our Common Stock could decline, particularly sales by our directors, executive
officers and significant stockholders, or if there is a large number of shares of our Common Stock available for sale.

 

Most of our total outstanding shares are
subject to a market standoff agreement which provides that the purchaser will not, sell, assign or otherwise transfer or dispose
of any Common Stock, warrants or other securities of the Company if so requested by an underwriter for a period not to exceed 180
days.  If our securities are locked up at the request of any underwriter, the price of our Common Stock could decline if there
are substantial sales of our Common Stock following the “lock-up” period, particularly sales by our directors, executive
officers and significant stockholders, or if there is a large number of shares of our Common Stock available for sale.

 

Our Certificate
of Incorporation provides our directors with limited liability.

 

Our Certificate of Incorporation states
that our directors shall not be personally liable to us or any stockholder for monetary damages for breach of fiduciary duty as
a director, except for any matter in respect of which such director shall be liable under Section 174 of the Delaware General Corporation
Law or shall be liable because the director (1) shall have breached his duty of loyalty to us or our stockholders, (2) shall have
acted not in good faith or in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall
have acted not in good faith or in a manner involving intentional misconduct or a knowing violation of law, or (3) shall have derived
an improper personal benefit. Article Seven further states that the liability of our directors shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as it may be amended. These provisions may discourage stockholders
from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought
by stockholders on our behalf against a director.

 

Certain
provisions of our Certificate of Incorporation and Delaware law make it more difficult for a third party to acquire us and make
a takeover more difficult to complete, even if such a transaction were in the stockholders’ interest.

 

Our Certificate
of Incorporation and the Delaware General Corporation Law contain provisions that may have the effect of making it more difficult
or delaying attempts by others to obtain control of the Company, even when these attempts may be in the best interests of our stockholders.

  

We also are subject
to the anti-takeover provisions of the Delaware General Corporation Law, which prohibit us from engaging in a “business combination”
with an “interested stockholder” unless the business combination is approved in a prescribed manner and prohibit the
voting of shares held by persons acquiring certain numbers of shares without obtaining requisite approval. This statute has the
effect of making it more difficult to effect a change in control of a Delaware company.

 

    	A-13

    	 

    

 

We
are subject to the “seasoning” requirements imposed by the NYSE Euronext, NYSE MKT, and the NASDAQ Stock Market which
will make us ineligible to list and trade on a national exchange until after trading for at least one year in the over-the-counter
markets (or some other national or foreign regulated exchange), unless we are able to complete a firm commitment underwritten
public offering with gross proceeds of at least $40 million.

 

Because of our
status as a former SEC-reporting shell company, we are subject to SEC rules which require such companies to (1) trade in the over-the-counter
markets (or some other national or foreign regulated exchange) for at least one year following the filing with the SEC of all required
information about the reverse merger, including audited financial statements for the combined entity and (2) to timely file all
required periodic reports with the SEC, including one annual report that includes audited financial statements for a full fiscal
year commencing after filing the required information about the reverse merger, before seeking to “uplist” to a national
securities exchange like NASDAQ, NYSE MKT or NYSE Euronext. We completed a reverse merger in September of 2011 and our Form 10-K
filed for the fiscal year ended December 31, 2012 includes audited financial statements for a full fiscal year commencing after
filing our Current Report on Form 8-K containing Form 10 information following the reverse merger. This means we will not be eligible
to apply for listing on such exchanges until a market maker has filed a Form 211 to initiate trading and our securities begin to
trade in the over-the-counter markets for at least one year. We may only bypass the requirements set forth above if we can complete
a firm commitment underwritten public offering with gross proceeds of at least $40 million. As a result, our stockholders may find
it more difficult to dispose of shares or obtain accurate quotations as to the market value of our Common Stock. In addition, we
would be subject to an SEC rule that, if we failed to meet the criteria set forth in such rule, imposes various practice requirements
on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors.
Consequently, such rule may deter broker-dealers from recommending or selling our Common Stock, which may further affect its liquidity.
This would also make it more difficult for us to raise additional working capital through subsequent financings. In the event we
do seek the listing of our Common Stock on a national securities exchange such as NASDAQ, NYSE MKT or NYSE Euronext, we cannot
assure you that we will be able to meet the initial listing standards of either of these or any other stock exchange, or that we
will be able to maintain a listing of our Common Stock on either of these or any other stock exchange.

 

Our financial
controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public
company, could materially harm our stock price.

 

As a public reporting company, we require
significant financial resources to maintain our public reporting status. We cannot assure you we will be able to maintain adequate
resources to ensure that we will not have any future material weakness in our system of internal controls. The effectiveness of
our controls and procedures may in the future be limited by a variety of factors, including:

 

	faulty human judgment and simple errors, omissions or mistakes;

	 	•	fraudulent action of an individual or collusion of two or more people;

	 	•	inappropriate management override of procedures; and

	 	•	
        the possibility that any enhancements to
        controls and procedures may still not be adequate

        to assure timely and accurate financial
        information.

 

    	A-14

    	 

    

 

Our internal control over financial reporting
is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our
internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect
on the financial statements.

 

Despite these controls, because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller
reporting companies, like us, face additional limitations. Smaller reporting companies employ fewer individuals and can find it
difficult to employ resources for complicated transactions and effective risk management. Additionally, smaller reporting companies
tend to utilize general accounting software packages that lack a rigorous set of software controls.

 

Our management assessed
the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the criteria established in
“Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that assessment, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, our
internal controls over financial reporting were ineffective due to a lack of a sufficient complement of personnel commensurate
with the Company’s reporting requirements, an inconsistency to establish appropriate authorities and responsibilities in
pursuit of the Company’s financial reporting objectives, and insufficient written documentation or training of our internal
control policies and procedures which provide staff with guidance or framework for accounting and disclosing financial transactions.

 

If we fail to
have effective controls and procedures for financial reporting in place, we could be unable to provide timely and accurate financial
information and be subject to SEC investigation and civil or criminal sanctions.

 

We must
implement additional and expensive procedures and controls in order to grow our business and organization and to satisfy new reporting
requirements, which will increase our costs and require additional management resources.

 

As a public reporting
company, we are required to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC, including
the requirements that we maintain disclosure controls and procedures and adequate internal control over financial reporting. In
the future, if our securities are listed on a national exchange, we may also be required to comply with marketplace rules and the
heightened corporate governance standards. Compliance with the Sarbanes-Oxley Act and other SEC and national exchange requirements
will increase our costs and require additional management resources. We recently have begun upgrading our procedures and controls
and will need to continue to implement additional procedures and controls as we grow our business and organization to satisfy new
reporting requirements. If we are unable to complete the required assessment as to the adequacy of our internal control over financial
reporting, as required by Section 404 of the Sarbanes-Oxley Act, or if we fail to maintain internal control over financial reporting,
our ability to produce timely, accurate and reliable periodic financial statements could be impaired.

 

    	A-15

    	 

    

 

If we do not maintain
adequate internal control over financial reporting, investors could lose confidence in the accuracy of our periodic reports filed
under the Securities Exchange Act of 1934, as amended. Additionally, our ability to obtain additional financing could be impaired
or a lack of investor confidence in the reliability and accuracy of our public reporting could cause our stock price to decline.

 

We are an
“emerging growth company” under the JOBS Act of 2012 and we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make our Common Stock less attractive to investors.

 

We are an “emerging
growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take
advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not
“emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation
requirements of section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our
Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as
a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

 

In addition, Section
107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an
“emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised
accounting standards.

 

We will remain
an “emerging growth company” for up to five years following our initial public offering, although we will lose that
status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period,
or if the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the last day of our most recently
completed second fiscal quarter.

 

    	A-16

    	 

    

 

Our
status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when
we need it.

 

Because of the
exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have
an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors
and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business
with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in
our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations
may be materially and adversely affected.

 

Our directors,
officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of
our other stockholders.

 

Our officers,
directors and principal stockholders collectively beneficially own approximately 45% of our outstanding Common Stock. As a result,
these stockholders, if they act together, will be able to control the management and affairs of our company and most matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our
Common Stock. This concentration of ownership may not be in the best interests of our other stockholders.

 

We have
not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to
the value of our stock.

 

We have never paid cash dividends on our
Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. We currently intend to
retain any future earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable
future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various
factors, including, but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any
credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our Common Stock may be limited
by Delaware state law. Accordingly, investors must rely on sales of their Common Stock after price appreciation, which may never
occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our Common
Stock.

 

You should consult your own independent
tax advisor regarding any tax matters arising with respect to the securities offered in connection with the Resale.

 

Participation in the Resale could result
in various tax-related consequences for investors. All prospective purchasers of the resold securities are advised to consult their
own independent tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences relevant to the purchase, ownership
and disposition of the resold securities in their particular situations.

 

IRS CIRCULAR 230 DISCLOSURE: TO ENSURE
COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE, WE INFORM YOU THAT ANY U.S. TAX ADVICE CONTAINED HEREIN (INCLUDING
ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE INTERNAL
REVENUE CODE. IN ADDITION, ANY U.S. TAX ADVICE CONTAINED HEREIN (INCLUDING ANY ATTACHMENTS) IS WRITTEN TO SUPPORT THE “PROMOTION
OR MARKETING” OF THE MATTER(S) ADDRESSED HEREIN. YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES FROM YOUR
OWN INDEPENDENT TAX ADVISOR.

 

    	A-17Exhibit 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: 	May 22, 2015
	Face Amount: 	$2,500,000 
	Purchase Price	$2,000,000
	No.: 	0001

 

20% ORIGINAL ISSUE DISCOUNT UNSECURED
CONVERTIBLE DEBENTURE

DUE NOVEMBER 22, 2015

 

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 955 Hartman Run Road, Morgantown, WV 26507, designated as its 20% Original Issue Discount Unsecured
Convertible Debenture due November 22, 2015 (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 $2,500,000 on Novermber 22, 2015 (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

    	 

    

 

“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).

 

“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(d)(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.

 

“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(d)(iv) and 4(d)(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.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company
pursuant to any stock or option plan (collectively, the “ESOP”) duly adopted for such purpose, by a majority
of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established
for such purpose and as further qualified by the provisions of any agreement of the Company pertaining to the subject matter of
the ESOP, (b) except as specifically provided herein, securities upon the exercise or exchange of or conversion of any securities
issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of the Debenture, provided that such securities have not been amended since the date of the Debenture to
increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities
and which securities and the principal terms thereof are set forth on schedule to the Subscription Agreement, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company,
provided that any such issuance shall only be to a person (or to the equityholders of a person) which is, itself or through its
subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall
provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which
the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing
in securities.

 

    	4

    	 

    

 

“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 9(d).

 

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

 

“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.

 

“Subscription
Agreement” means the Subscription Agreement, dated as of __________, 2015 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(d)(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

 

    	5

    	 

    

 

“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.

 

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.

 

    	6

    	 

    

 

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(d)(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.

 

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.

 

    	7

    	 

    

 

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, 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.

 

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

 

    	8

    	 

    

 

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)        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.

 

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(d) 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(d)(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 8 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.

 

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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(d)(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(d)(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.

 

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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 or round up to the next whole share.

 

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 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(e) 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.

 

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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

 

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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):

 

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;

 

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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;

 

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(d) 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.

 

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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.

 

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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.

 

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.

 

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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)

 

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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 November 22, 2015 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 November 22, 2015 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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00245-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00245-of-00352.parquet"}]]