Document:

THIS WARRANT AND THE SECURITIES UNDERLYING
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH SECURITIES ACT, ANY APPLICABLE STATE SECURITIES LAWS AND THE RULES AND REGULATIONS THEREUNDER. 

 

PROTEA BIOSCIENCES GROUP, INC.

 

WARRANT

 

TO PURCHASE COMMON STOCK OF THE COMPANY

 

	Warrant No. __	 	Issue Date: , 2013

 

FOR VALUE RECEIVED,
PROTEA BIOSCIENCES GROUP, INC., a Delaware corporation (the “Company”), grants the following rights , and [his/her/its]
permitted assigns, heirs, executors and administrators (individually and collectively, the “Holder”), as of the day
of , 2013 (the “Issue Date”). This warrant (the “Warrant”) has been issued by the Company in connection
with the Conversion of those certain Notes issued by the Company and held by the Holder into shares of the Company's common stock,
par value $0.0001 per share (the “Common Stock”), at a conversion price of $0.50 per share, pursuant to the terms and
conditions set forth in that certain Conversion Agreement by and between the Company and the Holder dated as of , 2013 (the “Conversion
Agreement”). Terms not defined herein shall have the meaning set forth in the Conversion Agreement.

 

Section 1.Grant.

 

The Holder is hereby
granted the right (collectively, the “Purchase Rights”), in accordance with the terms and conditions of this Warrant,
from the date hereof until the expiration of the “Exercise Period” (as defined below), to purchase from the Company
that number of fully paid and non-assessable shares of the Common Stock of the Company, set forth in Section 2 hereof, at the “Exercise
Price” (as defined below), upon delivery of this Warrant to the Company with the Notice of Exercise form attached as Exhibit
1 hereto, duly executed, and upon tender of the Exercise Price for the shares of Common Stock to be purchased.

 

Section 2.Number of Shares
of Common Stock Purchasable.

 

2.1Subject to the other provisions
of this Section 2, this Warrant entitles the Holder to purchase from time to time up to shares of the Company’s Common Stock
(the “Warrant Shares”).

 

2.2In case prior to the expiration
of the Purchase Rights by exercise or by the terms of this Warrant, the Company shall undertake any reclassification, stock split,
reverse stock split, stock dividend or any similar proportionately-applied change (collectively, a “Reclassification”)
of outstanding shares of Common Stock (other than a change solely in, of, or from par value), the Holder shall thereafter be entitled,
upon exercise of this Warrant for the same total consideration as presently required, to purchase the kind and amount of shares
of stock and other securities and property receivable upon such Reclassification by a holder of the number of shares of Common
Stock which this Warrant entitles the Holder hereof to purchase immediately prior to such Reclassification. Notice of any such
Reclassification shall be given to the Holder pursuant to Section 11 hereof.

 

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2.3In case prior to the expiration
of the Purchase Rights by exercise or by the terms of this Warrant, the Company shall determine to consolidate or merge with, or
convey all, or substantially all, of its property or assets to, any other corporation or corporations, or dissolve, liquidate or
wind up, then, as a condition precedent to such consolidation, merger, conveyance, dissolution, liquidation or winding up, notice
shall be given to the Holder pursuant to Section 11 hereof and lawful and adequate provision shall be made whereby the Holder shall
thereafter have the right to receive from the Company or the successor corporation, as the case may be, upon the basis and upon
the terms and conditions specified in this Warrant, in lieu of the shares of Common Stock of the Company theretofore purchasable
upon the exercise of the Purchase Rights, such shares of stock, securities, or assets as may be issued or payable with respect
to, or in exchange for, the number of shares of Common Stock of the Company theretofore purchasable upon the exercise of the Purchase
Rights had such consolidation, merger, conveyance, dissolution, liquidation or winding up not taken place; and in any such event
the rights of the Holder to an adjustment of the number of shares of Common Stock purchasable upon the exercise of the Purchase
Rights as herein provided, shall continue and be preserved in respect of any stock or securities which the Holder becomes entitled
to purchase.

 

2.4(a) For purposes of this Section
2.4, the capitalized terms in this Section shall have the following meanings:

 

(i) “Additional
Shares of Common Stock” shall mean all shares of Common Stock issued or sold by the Corporation after the Issue Date, other
than Exempted Securities;

 

(ii) “Convertible
Securities” shall mean shares of Common Stock issued or deemed issued upon the conversion or exercise, as appropriate, of
any debt or equity securities of the Company which are convertible into or exercisable for shares of Common Stock of the Company;

 

(iii) “Exempted
Securities” shall mean:

 

(A) 
Convertible Securities issued prior to the Issue Date, provided, however, that the agreements or instruments evidencing the Convertible
Securities have not been amended after the Issue Date so as to increase the number of shares of Common Stock issuable under the
Convertible Securities or to lower the conversion or exercise price, as appropriate, of the Convertible Securities;

 

(B)shares
of Common Stock issued or deemed issued as a dividend or distribution on the Common Stock;

 

(C)shares
of Common Stock issued or issuable upon the exercise of this Warrant;

 

(D)shares
of Common Stock issued or issuable by reason of a stock split, split-up, or other distribution on shares of Common Stock; or

 

(E)shares
of Common Stock issued or issuable to employees, consultants, directors or officers pursuant to an equity incentive plan, employment
agreement or other agreement as compensation for services provided to the Company.

 

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(b) At any time after
the Issue Date through December 31, 2013, the Company issues or sells Additional Shares of Common Stock, for a consideration per
Additional Share of Common Stock that is less than $0.50 (as such amount may be adjusted proportionately for any Reclassification)
(a "Dilutive Issuance"), on the date of and immediately prior to the Dilutive Issuance, the Exercise Price, then in effect,
will be reduced concurrently with the Dilutive Issuance to a price (rounded to the nearest cent) calculated by multiplying such
Exercise Price by a fraction, of which (i) the numerator shall be the number of shares of Common Stock outstanding on a fully diluted
basis immediately prior to such Dilutive Issuance plus the number of shares of Common Stock which the aggregate consideration received
or to be received by the Company for the total number of Additional Shares of Common Stock issued pursuant to the Dilutive Issuance
would purchase at the Exercise Price; and (ii) the denominator shall be the number of shares of Common Stock outstanding on a fully
diluted basis immediately prior to such Dilutive Issuance plus the number of such Additional Shares of Common Stock so issued.
The provisions of this Section 2.4(b) shall not operate to increase the Exercise Price.

 

Section 3.Exercise Period;
Registration Statement Notice.

 

3.1The Purchase Rights represented
hereby shall be exercisable in whole or in part from time to time after the date of issuance of this Warrant until the earlier
of (i) a Qualified Public Offering or (ii) 5:00 p.m. Eastern time on the fifth anniversary of the Issue Date hereof (the “Exercise
Period”). For purposes of this Warrant, the term “Qualified Public Offering” shall mean the closing of a firm
commitment underwritten offering pursuant to an effective registration statement under the Securities Act covering the offer and
sale of Common Stock for the account of the Company in which the net cash proceeds to the Company (after deduction of underwriting
discounts and commissions) are at least $10,000,000.

 

3.2The Company shall give the Holder
written notice, at the address of the Holder set forth on the Company’s books, not less than twenty days prior to the closing
of a Qualified Public Offering.

 

Section 4.Exercise.
The Purchase Rights represented by this Warrant are exercisable upon the terms and conditions set forth herein at the option of
the Holder in whole at any time and in part, but not for less than 100 shares at a time, at any time and from time to time during
the Exercise Period upon the delivery of the Notice of Exercise form attached hereto as Exhibit 1 to the Company with such
notice duly executed and upon payment in cash, wire transfer or bank cashier’s check of the Exercise Price. The Purchase
Rights shall be deemed to have been exercised, and the Holder shall be deemed to have become a stockholder of record of the Company
for the purposes of receiving dividends and for all other purposes whatsoever with respect to the shares of Common Stock so purchased,
as of the date of delivery of such properly executed notice accompanied by proper tender of the Exercise Price at the office of
the Company. As promptly as practicable on or after such date, and in any event within three (3) business days thereafter, the
Company at its expense shall issue and deliver, or cause to be issued and delivered, to the person or persons entitled to receive
the same, a certificate or certificates for the number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense shall execute and deliver a new Warrant of like tenor exercisable for the number
of shares for which this Warrant may then be exercised. 

 

Section 5.Exercise Price.
The exercise price for each share of Common Stock issuable to the Holder hereunder shall be $1.10 per share subject to adjustment
hereunder (the “Exercise Price”).

 

Section 6.Company’s
Warranties and Covenants as to Capital Stock. The Company has taken all action necessary and appropriate to properly
authorize, reserve and issue those shares of Common Stock issuable to the Holder pursuant to this Warrant including an authorization
of issuance and setting of exercise price. The Common Stock deliverable on the exercise of the Purchase Rights represented hereby
shall, when issued, be duly and validly issued, fully paid and nonassessable. The Company shall at all times reserve and hold available
sufficient shares of Common Stock to satisfy all conversion and purchase rights of all outstanding convertible securities and warrants.

 

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Section 7.Transfer; Compliance
With Securities Laws; Right of Company to Request Opinion of Counsel Confirming Such Compliance; Holder Responsible for Costs of
Transfer Including Reasonable Counsel Fees.The Purchase Rights shall be registered on the books of the Company,
which shall be kept by it at its principal office for that purpose. This Warrant and the Common Stock issuable upon exercise of
the Purchase Rights, may not be transferred or assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and the transferee, including, if requested by the Company, an opinion of counsel satisfactory
to the Company to the effect that the transfer or assignment is in compliance with applicable securities laws. Subject to such
compliance, the Purchase Rights shall be transferable on said books, in whole or in part, by the Holder in person or by duly authorized
attorney upon surrender of this Warrant properly endorsed by the Holder executing the Permitted Transfer or Assignment Form attached
hereto and made a part hereof as Exhibit 2. All reasonable and documented costs associated with any transfer or assignment,
including, without limitation, the reasonable fees of counsel to the Company shall be borne by the transferor or assignor. The
Company agrees that, while the Purchase Rights remain valid and outstanding, its stock transfer books shall not be closed for any
purpose whatsoever except under arrangements which shall insure to persons exercising warrants or applying for transfer of stock
all rights and privileges which they might have had or received if the stock transfer books had not been closed and they had exercised
their Purchase Rights at any time during which such transfer book shall have been closed.

 

Section 8.Charges, Taxes
and Expenses.Issuance of certificates for shares of Common Stock issuable upon the exercise of this Warrant or
any portion thereof (and issuance of a replacement Warrant certificate in the event of partial exercise) shall be made without
charge to the Holder hereof for any issue taxes or any other incidental expenses in respect of the issuance of such certificates
to and in the name of the registered Holder of this Warrant, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder of this Warrant. Certificates will be issued in a name other than that
of the Holder upon the request of a Holder and payment by the Holder of any applicable transfer taxes and compliance with all applicable
securities laws and with all applicable provisions of this Warrant including but not limited to Section 7 hereof.

 

Section 9.Exchange for
Other Denominations.This Warrant is exchangeable for new certificates of like tenor and date representing
in the aggregate the right to purchase the number of shares purchasable hereunder in denominations designated by the Holder at
the time of surrender. In the event of the purchase, at any time prior to the expiration of the Exercise Period, of less than all
of the shares of Common Stock purchasable hereunder, the Company shall cancel this Warrant upon surrender thereof, and shall promptly
execute and deliver to the Holder hereof a new warrant of like tenor and date for the balance of the shares purchasable hereunder.

 

Section 10.Loss, Theft,
Destruction or Mutilation of Warrant.Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable and documented expenses incidental thereto,
and upon surrender of this Warrant, if mutilated, the Company shall promptly make and deliver a new warrant of like tenor and date,
in lieu of this Warrant and cancel this Warrant.

 

Section
11.Notices Including Certificate of Company In Event of Adjustment.

 

(a)Whenever the number of
shares purchasable hereunder shall be adjusted pursuant to Section 2 hereof, the Company shall issue a certificate signed by its
Chief Financial Officer or its President or such other appropriate officer, setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of such certificate to be mailed (by first-class mail,
postage prepaid) to the Holder of this Warrant.

 

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(b)In case:

 

(i)the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution, or any right
to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or

 

(ii)of any capital reorganization
of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into
another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation, or

 

(iii)of any voluntary dissolution,
liquidation or winding-up of the Company,

 

then, and in each such case, the Company
shall mail or deliver or cause to be mailed or delivered to the Holder or Holders a notice specifying, as the case may be, (A)
the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (B) the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders
of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up. Such notice
shall be mailed or delivered at least 15 business days prior to the date therein specified.

 

(c)All notices, requests, consents
and demands required by this Warrant shall be in writing and shall be personally delivered or mailed, postage prepaid, to the Company
at:

 

PROTEA
BIOSCIENCES GROUP, INC.

955 Hartman Run Road

Morgantown, WV 26507

Attn: President

Fax: 304-292-7101

 

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

 

Richardson & Patel
LLP

405 Lexington Avenue,
49th Floor

New York, New York
10174

Attn: David Feldman,
Esq.

Fax: (917) 677-8165

 

and to the Holder at the address of such
Holder set forth in the Conversion Agreement executed by the original holder of this Warrant in connection with the purchase of
the Shares and Warrants. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery with written verification of receipt.

 

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Section 12.Miscellaneous.This
Warrant shall not entitle the Holder to any of the rights of a stockholder of the Company. This Warrant shall be binding upon the
Company’s successors. This Warrant shall be governed, construed and enforced in accordance with the laws of the State of
Delaware. In case any provision of this Warrant shall be invalid, illegal or unenforceable, or partially invalid, illegal or unenforceable,
the provision shall be enforced to the extent, if any, that it may legally be enforced and the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired thereby. This Warrant shall any term hereof may be changed,
waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof.

 

[Signatures appear on following page.]

 

 

 

 

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IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed, under seal and delivered on its behalf as of the Issue Date set forth
above.

 

	 	PROTEA BIOSCIENCES GROUP, INC.
	 	 	 
	 	 	 
	 	 	 
	 	By:	 
	 	 	Stephen Turner
	 	 	President

 

 

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EXHIBIT 1

 

NOTICE OF EXERCISE PURSUANT TO

 ATTACHED WARRANT

 

                                  , 20___

 

To: PROTEA BIOSCIENCES GROUP, INC.

 

(1)The undersigned, the Holder
of record of the attached Warrant of PROTEA BIOSCIENCES GROUP, INC., hereby exercises the option granted by the Purchase Rights
evidenced by the attached Warrant and hereby tenders payment of the Exercise Price as determined by the Warrant to purchase upon
the terms set forth in such Warrant [________] shares of Common Stock, which constitutes all [or a portion] of the shares of Common
Stock issued pursuant to the Purchase Rights represented by this Warrant of PROTEA BIOSCIENCES GROUP, INC. All capitalized terms
used but not defined in this notice have the meanings assigned to such terms in the Warrant.

 

(2)In exercising this Warrant,
the undersigned hereby confirms and acknowledges that (a) the undersigned has complied with all terms and conditions of the Conversion
Agreement as defined in the Warrant, including the requirement that the issuance of the Shares Warrants in connection with the
Conversion was limited to “accredited” investors only, (b) the shares of the Common Stock to be issued are being acquired
solely for investment and solely for the account of the undersigned, (c) the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any applicable state securities laws, and (d) as required under the terms of the Conversion Agreement, the certificate
or certificates representing said shares of Common Stock shall bear a restrictive legend prohibiting and restricting transfer of
such shares except in compliance with applicable federal and state securities laws.

 

(3)Please issue a certificate or
certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below.

 

(4)Please issue a new Warrant for
the unexercised portion of the attached Warrant, if any, in the name of the undersigned or in such other name as is specified below:

 

 

	ATTEST:	HOLDER:	  	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	 	 
	 	Name:	 	 
	 	 	 	 
	 	Title:	 	 

 

(If certificates for Common Stock or new
Warrants are requested in a name other than the undersigned, be advised that the delivery of the certificates and/or new Warrants
will be delayed until the Company assures itself that such change is permitted under Section 7 of the Warrant that such change
does not violate applicable federal and state securities laws.)

 

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EXHIBIT 2

 

PERMITTED TRANSFER OR ASSIGNMENT FORM

 

NOTE: THIS ASSIGNMENT BEARS A RESTRICTIVE
LEGEND BELOW

 

FOR VALUE RECEIVED,
the undersigned Holder of record of this Warrant of PROTEA BIOSCIENCES GROUP, INC. (the “Company”), which is dated
___________, hereby sells, assigns and transfers unto the Assignee named below all of the rights, including, without limitation,
the Purchase Rights (as such term is defined in this Warrant) of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock set forth below:

 

Name of Transferee/AssigneeAddressNo.
of Shares

 

and does hereby irrevocably constitute
and appoint the Secretary of PROTEA BIOSCIENCES GROUP, INC. to make such transfer on the books of PROTEA BIOSCIENCES GROUP, INC.,
maintained for the purpose, with full power of substitution in the premises.

 

Attached hereto, if
and to the extent requested by the Company, is an opinion of counsel that the assignment does not violate or is exempt from, any
federal and state securities laws. As provided in the Warrant, including but not limited to Section 7 of the Warrant, the Company
may, in its sole discretion, decide whether such opinion is satisfactory, and Assignee and Holder agree to any reasonable delay
in transfer caused by such evaluation and further acknowledge and agree that they shall bear all reasonable and documented costs
associated with any transfer or assignment, including, without limitation, the reasonable fees of counsel to the Company shall
be borne by the transferor or assignor.

 

The undersigned also
represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of Common Stock to be issued
upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise
dispose of this Warrant or any shares of stock to be issued upon exercise hereof or conversion thereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended, or any state securities laws. Further, the Assignee
has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale in violation of applicable securities laws.

 

Accordingly, the
following restrictive legend is made applicable to this assignment (and to this Warrant and securities covered by this Warrant
as assigned hereby to Assignee):

 

This Assignment and this Warrant and
the securities underlying this Warrant as assigned hereby, have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”), and may not be offered, sold or otherwise transferred, assigned, pledged or hypothecated in
the absence of such registration or an exemption therefrom under such Securities Act, any applicable state securities laws and
the rules and regulations thereunder.

 

[Signatures appear on following page.]

 

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	Dated:  	 	 	HOLDER:	 
	 	 	 	 	 	 
	 	 	 	 	By:	 
	 	 	 	 	Name:	 
	 	 	 	 	Title:	 
	 	 	 	 	 	 
	Dated:	 	 	ASSIGNEE:  	 
	 	 	 	 	 	 
	 	 	 	 	By:	 
	 	 	 	 	Name:	 
	 	 	 	 	Title:	 

 

 

 

    	10Note
and Warrant

 

Purchase
Agreement

 

This
Note and Warrant Purchase Agreement (the “Agreement”) is made as of , 2013 (the “Effective
Date”) by and among Protea Biosciences Group, Inc., a Delaware corporation
(the “Company”), and the purchasers executing a signature page attached hereto (each, individually, a
“Purchaser”, and collectively, the “Purchasers”). Any capitalized term not
otherwise defined herein shall have the meaning set forth for such term in the Notes (defined below).

 

Recitals

 

WHEREAS, the
Purchasers desire to purchase and the Company desires to sell the Notes and the Warrants (each as defined below) on the terms and
conditions described herein.

 

Agreement

 

Now,
Therefore, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth
below, the Company and each Purchaser, intending to be legally bound, hereby severally and not jointly agree as follows:

 

1.Amount
and Terms of the Notes. Subject to the terms of this Agreement, at each Closing (as defined below) the Company agrees
to issue and sell to each of the Purchasers, and each Purchaser agrees, severally and not jointly, to purchase from the Company,
a subordinated convertible promissory note in the form attached to this Agreement as Exhibit A (each, a “Note”
and collectively, the “Notes”), in the principal amount set forth on such Purchaser’s signature
page hereto (each, a “Loan Amount”), in an aggregate principal amount of up to One Million Dollars ($1,000,000)
(the “Maximum”). The Notes shall become immediately due and payable on the one (1) year anniversary of
the Issue Date set forth in the Notes (the “Maturity Date”).

 

2.Conversion
of the Notes. The Notes shall be convertible into the currently contemplated financing (the “ Financing”)
through. The Financing is planned to include the sale of two shares of the Company’s common stock par value $0.0001 per share
(the “Common Stock”) and a warrant to purchase one share of Common Stock, exercisable at $0.75 per share
for each $1.00 invested in the Financing (the “ Conversion Price”). The Financing is also planned to
include certain registration and anti-dilution rights and a right to participate in certain future securities offerings of the
Company. All terms of the Financing remain subject to change in the discretion of the Company and . If an initial closing of the
sale of securities in the Financing does not take place within one hundred twenty (120) days after the issuance of the Notes and
Warrants, the Notes shall be convertible by the Purchasers at their individual option for the sixty (60) days thereafter. The rate
of conversion (the “Optional Conversion Price”) in the case of an optional conversion outside of the
Financing will equal, for each $100,000 of principal and interest converted (or portion thereof), 200,000 shares of Common Stock
(the “Optional Conversion Shares”) and a warrant (the “Optional Conversion Warrants”)
to purchase 150,000 shares of Common Stock, exercisable at $1.10 per share for a period of five years, subject to proportionate
adjustments for stock splits, combinations, stock dividends and other recapitalization events.

 

3.Warrants.
In addition to the Notes, each Purchaser shall also receive a non-callable warrant (each a “Warrant”
and collectively, the “Warrants”), exercisable for a term of five years from the issue date of the Warrant,
in substantially the form attached hereto as Exhibit B, to purchase that number of shares equal to 37.5% of the shares of
Common Stock issuable to the Purchaser upon conversion of the Note pursuant to Section 2 above, up to an aggregate of 750,000 shares
(the “Warrant Shares”) of Common Stock, at an exercise price of $1.10 per share (the “Exercise
Price”). The Notes, Warrants and the shares of Common Stock issuable upon exercise of the Warrants and conversion
of the Notes may hereinafter, collectively, be referred to as the “Securities”).

 

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4.Use
of Proceeds. The Company shall use the net proceeds from the sale of the Notes and Warrants for general corporate purposes.

 

5.
The Closing(s).

 

5.1Closing
Date. The initial closing of the sale and purchase of the Notes and Warrants (the “Initial Closing”)
shall be held on the Effective Date or at such other subsequent time as the Company and the initial Purchasers agree.

 

5.2Subsequent
Closing(s). The Company may, at its discretion, allow one or more subsequent closings of the purchase and sale of the Notes
and Warrants up to the Maximum (each a “Subsequent Closing” and together with the Initial Closing and
each other Subsequent Closing, each, a “Closing”). Upon their execution and delivery of this Agreement
and such other counterpart signature pages as contemplated by Section 5.3 below, such parties shall be deemed to be “Purchasers”
for all purposes under this Agreement.

 

5.3Delivery.
At each Closing, (i) each Purchaser will deliver to the Company a check or wire transfer funds in the amount of such Purchaser’s
Loan Amount; and (ii) the Company will issue and deliver to each Purchaser (a) a Note in favor of such Purchaser payable in
the principal amount of such Purchaser’s Loan Amount and (b) a corresponding Warrant.

 

6.Representations
and Warranties of the Company. Except as set forth in any periodic reports or current reports filed by the Company with
the Securities and Exchange Commission (the “Commission”), the Company hereby represents and warrants
to each Purchaser in a Closing, as of the date of such Closing, as follows:

 

6.1Organization
and Authority. The Company and each of its respective subsidiaries, (i) is a corporation or company, as applicable, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or formation, as applicable, (ii) has all
requisite corporate power or company power, as applicable, and authority to own, lease and operate its properties and to carry
on its business as presently conducted, and (iii) has all requisite corporate power or company power, as applicable, and authority
to execute, deliver and perform their obligations under this Agreement, the Notes, the Warrants and any other related documentation
(collectively, the “Loan Documents”), and to consummate the transactions contemplated hereby.

 

6.2Qualifications.
Each of the Company and its subsidiaries is duly qualified to do business as a foreign corporation or foreign company, as applicable,
and is in good standing in all jurisdictions where such qualification is necessary and where failure so to qualify could reasonably
be expected to have a material adverse effect on the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company and its subsidiaries, taken as a whole.

 

6.3Capitalization
of the Company. The authorized capital stock of the Company consists of 200,000,000 shares of Common Stock, and 10,000,000
shares of "blank check" preferred stock, par value $0.0001 per share. The Securities to be issued to the Purchasers have
been duly authorized. The Warrant Shares, when issued and paid for in accordance with the Warrants, will be duly and validly issued,
fully paid and non-assessable. The Company shall also have duly authorized the issuance of up to 18,000,000 shares of Common Stock
issuable in connection with the Financing.

 

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6.4Authorization.
The Loan Documents have been duly and validly authorized by the Company. This Agreement, assuming due execution and delivery by
each Purchaser, when the Agreement is executed and delivered by the Company, will be, a valid and binding obligation of the Company,
enforceable in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally and general principles
of equity, regardless of whether enforcement is considered in a proceeding in equity or at law.

 

6.5Non-Contravention.
The execution and delivery of Loan Documents by the Company, the issuance of the Securities as contemplated by the Loan Documents
and the completion by the Company of the other transactions contemplated by Loan Documents do not and will not, with or without
the giving of notice or the lapse of time, or both, (i) result in any violation of any provision of the certificate of incorporation
or by-laws or similar instruments of the Company or its subsidiaries, (ii) conflict with or result in a breach by the Company or
its subsidiaries of any of the terms or provisions of, or constitute a default under, or result in the modification of, or result
in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the
Company or its subsidiaries, pursuant to any agreements, instruments or documents filed as exhibits to the Company’s reports
filed with the Commission pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
or any indenture, mortgage, deed of trust or other agreement or instrument to which any of the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or any of their properties or assets are bound or affected, in any
such case which could reasonably be expected to have a material adverse effect on the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company its subsidiaries, taken as a whole, or the validity or
enforceability of, or the ability of the Company to perform its obligations under the Loan Documents, (iii) violate or contravene
any applicable law, rule or regulation or any applicable decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties or assets that could reasonably be expected to have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or prospects of the Company and its subsidiaries,
taken as a whole, or the validity or enforceability of, or the ability of the Company to perform its obligations under the Loan
Documents, or (iv) cause the loss of, or violate, any permit, certification, registration, approval, consent, license or franchise
necessary for the Company or its subsidiaries to own or lease and operate any of its properties and to conduct any of its business
or the ability of the Company or its subsidiaries to make use thereof, except such loss or violations as individually or in the
aggregate would not have a material adverse effect on the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company and its subsidiaries, taken as a whole.

 

6.6Absence
of Certain Proceedings. Neither the Company nor its subsidiaries is aware of any action, suit, proceeding, inquiry or investigation
before or by any court, public board or body, or governmental agency pending or threatened against or affecting the Company or
any of its subsidiaries, in any such case wherein an unfavorable decision, ruling or finding could reasonably be expected to have
a material adverse effect on the business, properties, operations, condition (financial or other), results of operations or prospects
of the Company, or the transactions contemplated by the Loan Documents or which could adversely affect the validity or enforceability
of, or the authority or ability of the Company to perform its obligations under the Loan Documents; and to the Company's knowledge
there is not pending or contemplated any, and there has been no, investigation by the Commission involving the Company or its subsidiaries
or any of their current directors or officers.

 

6.7Compliance
with Law. Neither the Company nor any of its subsidiaries is in violation of or has any liability under any statute, law, rule,
regulation, ordinance, decision or order of any governmental agency or body or any court, domestic or foreign, except where such
violation or liability could not individually or in the aggregate be reasonably expected to have a material adverse effect on the
business, properties, operations, condition (financial or other), results of operations or prospects of the Company and its subsidiaries,
taken as a whole; and to the knowledge of the Company there is no pending investigation that would reasonably be expected to lead
to such a claim.

 

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6.8Tax
Matters. The Company and each of its subsidiaries has filed all federal, state and local income and franchise tax returns required
to be filed and has paid all taxes shown by such returns to be due, and no tax deficiency has been determined adversely to the
Company or any of its subsidiaries which has had (nor does the Company or any of its subsidiaries have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) could reasonably be expected to
have a material adverse effect on the business, properties, operations, condition (financial or other), results of operations,
or prospects of the Company or any of its subsidiaries, taken as a whole.

 

6.9Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other
person in connection with the execution, delivery and performance by the Company of the Loan Documents, other than: (i) the filings
required pursuant to this Agreement, (ii) the filings with the Commission pursuant to Section 8 of this Agreement, and (iii) the
filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws.

 

6.10Private
Placement. Assuming the accuracy of the representations and warranties of each Purchaser set forth in Section 6 below, no registration
under the Securities Act of 1933, as amended (the “Securities Act”) is required for the offer and sale of the Securities
by the Company to the Purchasers as contemplated hereby.

 

6.11No
General Solicitation. Neither the Company nor any of its officers or directors has offered or sold any of the Securities by
any form of general solicitation or general advertising.

 

6.12Investment
Company. The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.

 

7.
Representations and Warranties of the Purchasers.

 

Each Purchaser, solely
and on such Purchaser’s behalf alone, represents and warrants as follows:

 

7.1The
Purchaser acknowledges that this subscription may be accepted or rejected, in whole or in part, by the Company in its sole discretion.
The Company shall have no obligation to sell the Securities to the Purchaser unless and until this Agreement is executed and delivered
by the Purchaser and accepted by the Company and the Company has received the Purchaser’s Loan Amount.

 

7.2Except
as provided under applicable state securities laws, this subscription is irrevocable upon acceptance by the Company, except that
the Purchaser shall have no obligation under it in the event that the subscription is rejected in whole or the offering of the
Securities is canceled.

 

7.3The
Purchaser recognizes that the purchase of the Securities involves a high degree of risk including, but not limited to, the following:
(i) 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; (ii) the Purchaser may not be able to liquidate the Purchaser’s
investment; (iii) transferability of the Securities is extremely limited; (iv) in the event of a disposition of the Securities,
the Purchaser could sustain the loss of the Purchaser’s entire investment, and (v) the Company has not paid any dividends
since inception and does not anticipate the payment of dividends in the foreseeable future.

 

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7.4
The Purchaser represents that the Purchaser is an “accredited investor” as such term is defined in Rule
501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”),
and that the Purchaser is able to bear the economic risk of an investment in the Securities. If the Purchaser is purchasing in
an individual capacity, then Purchaser certifies that either (a) the Purchaser had an individual income of more than $200,000 in
each of calendar years 2011 and 2012, or joint income with the Purchaser’s spouse in excess of $300,000 in each of those
years, and that the Purchaser reasonably expects to reach the same income level in calendar year 2013 or (b) the Purchaser has
an individual net worth, or with the Purchaser’s spouse has a joint net worth, in excess of $1,000,000 (excluding the
value of the individual’s primary residence).

 

7.5The
Purchaser hereby acknowledges and represents that the Purchaser has prior investment experience, including investment in securities
that are not listed, are unregistered and are not traded on any stock exchange or an automated quotation system.

 

7.6The
Purchaser hereby acknowledges receipt and careful review of this Agreement, the form of Note and the form of Warrant and hereby
represents that the Purchaser has been furnished by the Company during the course of this transaction with all information regarding
the Company and the Securities that the Purchaser has requested or desired to know, has been afforded the opportunity to ask questions
of, and to receive answers from, duly authorized officers or other representatives of the Company concerning the terms and conditions
of the Securities and the affairs of the Company and has received any additional information which the Purchaser has requested.
In evaluating the suitability of this investment in the Company, the Purchaser has not relied upon any representations or other
information (whether oral or written) other than as set forth in this Agreement.

 

7.7To
the extent the Purchaser has deemed necessary, the Purchaser has retained, at the sole expense of the Purchaser, and relied upon
appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and its purchase
of the Securities hereunder.

 

7.8The
Purchaser represents that no Securities were offered or sold to it by means of any form of general solicitation or general advertising,
and in connection therewith the Purchaser 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.

 

7.9The
Purchaser hereby represents that the Purchaser either by reason of the Purchaser’s business or financial experience, or the
business or financial experience of the Purchaser’s professional advisors (who are unaffiliated with and who are not compensated
by the Company or any affiliate or selling agent of the Company, directly or indirectly), has the capacity to protect the Purchaser’s
interests in connection with the transaction contemplated hereby and to adequately evaluate the risks and merits of the investment
in the Securities.

 

    	5

    	 

    

7.10The
Purchaser is able to bear the substantial economic risks of an investment in the Company and could afford a complete loss of such
investment. The Purchaser's overall commitment to investments which are not readily marketable is not disproportionate to the Purchaser's
net worth and the Purchaser's investment in the Company will not cause such overall commitment to become excessive. The Purchaser
has adequate net worth and means of providing for current needs and personal contingencies to sustain a complete loss of the Purchaser's
investment in the Company, and the Purchaser has no need for liquidity in this investment.

 

7.11The
Purchaser hereby acknowledges that the Securities have not been reviewed by the Commission or any state regulatory authority, and
that the sale of the Securities is intended to be exempt from the registration requirements of Section 8 of the Securities Act
based in part upon the Purchaser’s representations and agreements contained in this Agreement. The Purchaser agrees that
it shall not sell or otherwise transfer the Securities unless they are registered under the Securities Act and applicable state
securities laws or unless and until the Company receives an opinion of counsel satisfactory to the Company that an exemption from
such registration is available. The Purchaser acknowledges that no federal or state agency has made any determination as to the
fairness of the offering of the Securities, or any recommendation or endorsement of the Securities.

 

7.12The
Purchaser 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 which depends, in part, upon the Purchaser’s investment intention. In this connection,
the Purchaser hereby represents that the Purchaser is purchasing the Securities for the Purchaser’s own account for investment
and not with a view toward the resale or distribution to others. If other than a natural person, the Purchaser was not formed for
the purpose of purchasing the Securities.

 

7.13The
Purchaser understands that the Securities may not be sold, transferred, or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an effective registration statement covering the Securities
or an available exemption from registration under the Securities Act, the Securities must be held indefinitely. In particular,
the Purchaser is aware that the Securities may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of such rule are met.

 

7.14The
Purchaser acknowledges that except as set forth in Section 5 of this Agreement, the Company has made no representations with respect
to registration of the Securities, that no such registration is contemplated in the foreseeable future, that there can be no assurance
that there will be any market for the Securities in the future, and that, as a result, the Purchaser must be prepared to bear the
economic risk of the Purchaser’s entire investment for an indefinite period of time.

 

7.15The
Purchaser consents to the placement of a legend on any certificate or other document evidencing the Securities 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 Purchaser is aware that the Company will
make a notation in its appropriate records with respect to the restrictions on the transferability of such Securities.

 

7.16The
Purchaser hereby represents that the address of the Purchaser furnished by Purchaser on the signature page hereof is the Purchaser’s
legal residence or principal business address, as the case may be.

 

7.17The
Purchaser represents that the Purchaser has full power and authority to execute and deliver this Agreement and to purchase the
Securities. This Agreement constitutes the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser
in accordance with its terms.

 

    	6

    	 

    

7.18The
Purchaser acknowledges that at such time, if ever, as the Securities are registered under the Securities Act, sales of the Securities
will continue to be subject to state securities laws.

 

7.19The
Purchaser represents and warrants that, other than the Placement Agent (defined below) as described in Section 10 below, the Purchaser
has not engaged, consented to nor authorized any broker, finder or intermediary to act on the Purchaser’s behalf, directly
or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. The Purchaser
shall indemnify and hold harmless the Company from and against all fees, commissions or other payments owing to any such person
or firm acting on behalf of the Purchaser hereunder.

 

7.20The
Purchaser shall be the beneficial owner of the Securities for which the Purchaser subscribes.

 

7.21If
this Agreement is executed and delivered on behalf of a partnership, trust, corporation or other entity, the Purchaser has been
duly authorized to execute and deliver this Agreement and all other documents and instruments executed and delivered on behalf
of such entity in connection with this investment in the Company.

 

7.22The
Purchaser has completed the Accredited Investor Questionnaire attached hereto as Exhibit C, and represents and warrants
that the information contained in such documents is true and complete as of the date of this Agreement.

 

7.23The
foregoing representations and warranties are true as of the date of this Agreement and shall be true as of the Closing. If, in
any respect, such representations and warranties shall not be true on or prior to such date, the Purchaser will give prompt written
notice of such fact to the Company.

 

7.24The
Purchaser understands and acknowledges that the Company may conduct additional offerings simultaneously and may issue shares of
Common Stock or other securities at a per share price that may be different than the purchase price paid for the Securities or
with other terms and conditions that may not be offered to the Purchaser hereto.

 

7.25The
Purchaser has reviewed copies of (i) the current report on Form 8-K filed by the Company on September 9, 2011, as amended on November
14, 2011; (ii) each periodic report on Form 10-Q and Form 10-K filed by the Company since September 9, 2011; and (iii) each current
report on Form 8-K filed by the Company since September 9, 2011 (collectively, the “Filings”) with the Commission
under the Exchange Act and available for review at www.sec.gov.  The Purchaser further acknowledges that it is familiar with
the contents of the Filings and that there is no further information about the Company that the Purchaser desires in determining
whether to acquire the Notes and Warrants.

 

8.“Market
Stand-off” Agreement. Each Purchaser agrees that, if such Purchaser is requested by an underwriter (an
“Underwriter”) of shares of the Company’s Common Stock or other securities of the Company, the
Purchaser will not sell, assign or otherwise transfer or dispose of any of the Securities or other securities of the Company held
by it or under its control for a specified period of time (not to exceed 180 days) following the effective date of a registration
statement filed by the Company under the Securities Act in connection with such underwritten offering. Although the provisions
of Section 8 of this Agreement shall be binding upon each Purchaser and such Purchaser’s successors and assigns without the
execution of any further agreements or documents memorializing this obligation, if the Company or an Underwriter so requests such
Purchaser will execute such further agreements and documents as are requested to further memorialize this obligation. Any such
further agreements or documents shall be in a form satisfactory to the Company and the Underwriter. The Company may impose stop-transfer
instructions with respect to the shares of Common Stock or other securities subject to the foregoing restriction until the end
of the specified period.

 

    	7

    	 

    

9.
Registration Rights.

 

9.1For
purposes of this Section 9 the capitalized terms in this Section 9 shall have the following meanings:

 

(a) “Family
Member” means a) with respect to any individual, such individual’s spouse, any descendants (whether natural
or adopted), any trust all of the beneficial interests of which are owned by any of such individuals or by any of such individuals
together with any organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the estate of any
such individual, and any corporation, association, partnership or limited liability company all of the equity interests of which
are owned by those above described individuals, trusts or organizations and (b) with respect to any trust, the owners of the beneficial
interests of such trust.

 

(b)“Holders”
means the Purchaser or any of Purchaser’s Permitted Assignees (defined below) who acquire rights in accordance with this
Agreement with respect to any Registrable Securities (defined below) directly or indirectly from the Purchaser or from any Permitted
Assignee.

 

(c)“Investor
Shares” means the Optional Conversion Shares.

 

(d)“Investor
Warrants” means the Warrants and the Optional Conversion Warrants.

 

(e) “Permitted
Assignee” means (a) with respect to a partnership, its partners or former partners in accordance with their partnership
interests, (b) with respect to a corporation, its stockholders in accordance with their interest in the corporation, (c) with respect
to a limited liability company, its members or former members in accordance with their interest in the limited liability company,
(d) with respect to an individual party, any Family Member of such party, (e) an entity that is controlled by, controls, or is
under common control with a transferor, or (f) a party to this Agreement.

 

(f)“Registrable
Securities” means the Investor Shares and the Registrable Warrant Shares but excludes (i) any Registrable Securities
sold by a person in a transaction pursuant to a registration statement filed under the Securities Act, or (ii) any Registrable
Securities that are at the time subject to an effective registration statement under the Securities Act, or (iii) any shares that
may be resold without restriction, other than the requirement for the Company to have filed its periodic reports during the 12
prior months, pursuant to Rule 144 promulgated under the Securities Act.

 

(g)“Registrable
Warrant Shares” means the shares of Common Stock issued or issuable to each Purchaser upon exercise of the Investor
Warrants.

 

(h)"Rule
415" means Rule 415 under the Securities Act.

 

9.2Piggyback
Registration.   In the event the Company shall determine in its sole discretion to register with the Commission for
sale any Common Stock, for its own account or for the account of others, other than (i) a registration relating solely to employee
benefit plans or securities issued or issuable to employees, consultants (to the extent the securities owned or to be owned by
such consultants could be registered on Form S-8) or any of their Family Members (including a registration on Form S-8) or (ii)
a registration relating solely to a Securities Act Rule 145 transaction or a registration on Form S-4 in connection with a merger,
acquisition, divestiture, reorganization or similar event, the Company shall promptly give to the holders of the Registrable Securities
written notice thereof (and in no event shall such notice be given less than ten (10) calendar days prior to the filing of such
registration statement), and shall, include all of the Registrable Securities (subject to Rule 415 related cutbacks applied in
the Company’s sole discretion) specified in a written request delivered by the Holder thereof within five (5) calendar days
after receipt of such written notice from the Company. The Company may, without the consent of the Holders, withdraw such registration
statement prior to its becoming effective if the Company or such other stockholders have elected to abandon the proposal to register
the securities proposed to be registered thereby.

 

    	8

    	 

    

Notwithstanding the
foregoing, if such registration undertaken by the Company is in connection with an underwritten public offering, and the underwriter
in such public offering reasonably determines that inclusion of all of the Registrable Securities in such registration would be
detrimental to the successful completion of the offering contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the
number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders
(based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation
with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of
the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends
the inclusion of none of such Registrable Securities.

 

Further, the Company
and the Purchaser agree that in the event the Securities convert as a result of the Financing, the registration rights provided
by this Section 9 shall immediately terminate and the Common Stock issued or issuable upon conversion of the Securities shall be
governed by the terms and conditions of the Financing exclusively.

 

9.3Expenses.
The Company shall bear all expenses incurred by the Company in compliance with the registration obligation of the Company, including,
without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company incurred
in connection with any registration, qualification or compliance pursuant to this Agreement and all underwriting discounts, selling
commissions and expense allowances applicable to the sale of any securities by the Company for its own account in any registration.
All underwriting discounts, selling commissions and expense allowances applicable to the sale by each Purchaser of Registrable
Securities and all fees and disbursements of counsel for each Purchaser shall be borne by such Purchaser.

 

9.4Indemnification.

 

(a)To
the extent permitted by law, the Company will indemnify the Purchasers, each of such Purchaser’s officers, directors, agents,
employees and partners, and each person controlling such Purchaser, with respect to the registration of Registrable Securities
under the Securities Act and qualification of Registrable Securities under state securities laws effected pursuant to this Agreement,
against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of
or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular
or other document prepared and filed by the Company pursuant to which Registrable Securities were registered under the Securities
Act (including any related registration statement, notification or the like) incident to such registration or qualification, or
(ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in connection with such registration or qualification,
and subject to the provisions of this section below, will reimburse each Purchaser, the Purchaser’s officers, directors,
agents, employees and partners, and each person controlling the Purchaser, for any legal and any other expenses as they are reasonably
incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided, however,
that the Company will not be liable to the extent that any such claim, loss, damage, liability or expense arises out of or is based
on any failure of a Purchaser or such Purchaser’s representatives to distribute Registrable Securities in accordance with
applicable laws (including failure to deliver any required preliminary prospectus or final prospectus (or the final prospectus
as amended and supplemented) at or before the written confirmation of the sale of such Registrable Securities); nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based
upon a violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection
with such registration by each Purchaser, any such partner, officer, director, employee, agent or controlling person of such Purchaser,
or any such underwriter or any person who controls any such underwriter. Notwithstanding the foregoing, the indemnity contained
in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement
is effected without the consent of the Company (which consent shall not be unreasonably withheld).

 

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(b)To
the extent permitted by law, each Purchaser will indemnify the Company, and its directors, officers, agents, employees and each
underwriter, if any, of the Company’s securities covered by such registration statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act and the rules and regulations thereunder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based on any failure of such Purchaser or the Purchaser’s
representatives to distribute Registrable Securities in accordance with applicable laws (including failure to deliver any required
preliminary prospectus or final prospectus (or the final prospectus as amended and supplemented to the extent such amendment or
supplement is timely provided to such Purchaser as required herein) as required by applicable law); or any untrue statement (or
alleged untrue statement) of a material fact contained in such registration statement, prospectus, offering circular or other document,
or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, directors, officers, partners, persons, underwriters or control persons
for any legal or any other expenses as they are reasonably incurred in connection with investigating or defending any such claim,
loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document
in reliance upon and in conformity with written information furnished to the Company by each Purchaser for specific use in such
registration statement, prospectus, offering circular or other document; provided, however, that the obligations of each Purchaser
hereunder shall be limited to an amount equal to the net proceeds to such Purchaser from Registrable Securities sold under such
registration statement, prospectus, offering circular or other document as contemplated herein; provided, further, that the indemnity
agreement contained in this subsection shall not apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Purchaser, which consent shall not be unreasonably withheld
or delayed.

 

(c)Each
party entitled to indemnification under this section (the “Indemnified Party”) shall give notice to the party
required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably
be withheld), and the Indemnified Party may participate in such defense at such party’s expense; and provided further that
if counsel to the Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party then the Indemnified Party may retain one separate
counsel at the expense of the Indemnifying Party; and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless and only to the extent
that such failure to give notice results in material prejudice to the Indemnifying Party. No Indemnifying Party, in the defense
of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall
be reasonably required in connection with defense of such claim and litigation resulting therefrom.

 

    	10

    	 

    

(d)If
the indemnification provided for in this section is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result
of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in
such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.

 

10.Purchaser
indemnification.Each Purchaser acknowledges that such Purchaser understands the meaning and legal consequences of
the representations, warranties and agreements contained in this Agreement, and hereby agrees to indemnify and hold harmless the
Company and any affiliate thereof, and the officers, directors, stockholders, agents and employees of the foregoing or any professional
advisors thereto from and against any and all loss, damage, liability or expense (including reasonable attorneys' fees) due to
or arising out of a breach of any representation or warranty or failure to fulfill any obligation of such Purchaser, contained
in this Agreement, or arising out of the sale or distribution by such Purchaser of any Securities in violation of the Securities
Act or any applicable state securities laws. Notwithstanding any of the representations, warranties, acknowledgments or agreements
made herein by such Purchaser, such Purchaser does not hereby, or in any other manner, waive any rights granted to him or her under
federal or state securities laws.

 

11.
Miscellaneous.

 

11.1Notice.
Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by registered or certified
mail, return receipt requested, by overnight delivery by reputable courier or delivered by hand against written receipt therefor,
if to the Company addressed to Protea Biosciences Group, Inc. 955 Hartman Run Road, #210, Morgantown, WV 26507, Attn: President,
or such other address as has been provided to the Purchaser by the Company in writing, and if to the Purchasers at each Purchaser’s
address stated on the signature page of this Agreement, or such other address as has been provided to the Company by the Purchasers
in writing. Notices shall be deemed to have been given or delivered on the date of mailing, except notices of change of address,
which shall be deemed to have been given or delivered when received.

 

    	11

    	 

    

11.2Modification;
Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom will be effective unless
in writing and approved by (i) the Company and (ii) the Purchasers holding Notes representing at least fifty one percent (51%)
of the outstanding aggregate Loan Amounts (a “Majority in Interest”). Any provision of the Notes or Warrants
may be amended or waived by the written consent of the Company and a Majority in Interest. Notwithstanding the foregoing, the written
consent of a Purchaser shall be required to reduce the principal amount of a Note held by such Purchaser, or reduce the rate of
interest of the Note held by such Purchaser or increase the exercise price of any Warrant.

 

11.3Successors
and Assigns; Entire Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. Any such transferee or assignee of a Purchaser will be bound by
this Agreement and shall explicitly assume any obligations of such Purchaser under this Agreement in a writing delivered to the
Company. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and
merge and supersede all prior discussions, agreements and understandings of any and every nature among them.

 

11.4Waiver.
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 the same party.

 

11.5Further
Assurances. The parties shall execute and deliver all such further documents, agreements and instruments and shall take such
other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

 

11.6Counterparts.
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. Executed facsimile or other electronic signature pages (e.g., portable document format)
to this Agreement shall be considered originals.

 

11.7Governing
Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without
regard to principles of conflicts or choice of law.

 

11.8Expenses.
Each Purchaser will pay such Purchaser’s own expenses in connection with the transactions contemplated hereby, whether or
not such transactions are consummated.

 

11.9Survival.
The representations, warranties and covenants of each Purchaser contained herein shall survive the closing of the purchase and
sale of the Securities and any transfer or disposition of the Securities.

 

11.10Titles
and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

 

11.11Severability.
If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement,
and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable
provision. The balance of this Agreement shall be enforceable in accordance with its terms.

 

[Signature
Page Follows.]

 

    	12

    	 

    

 

 

In
Witness Whereof, the parties have executed this Note and Warrant Purchase
Agreement as of the date first written above.

 

 

	 	Company:
	 	 	 
	 	PROTEA BIOSCIENCES GROUP, INC.
	 	 	 
	 	 	 
	 	By:	 
	 	 	Name: Stephen Turner
	 	 	Title: President
	 	 	 
	 	 	 
	 	PURCHASER: 
	 	 	 
	 	 	 
	 	 	 
	 	Purchaser Name (Print)
	 	 	 
	 	 	 
	 	Authorized Person (if Purchaser is an entity or trust)
	 	 	 
	 	 	 
	 	Signature of Purchaser or Authorized Person
	 	 	 
	 	 	 
	 	Loan Amount
	 	 	 
	 	 	 
	 	Number of Warrant Shares

 

    	 

    	 

    

Exhibit
A

 

Form
of Note

 

    	 

    	 

    

Exhibit
B

 

Form
of Warrant

 

    	 

    	 

    

Exhibit
C

 

Form
of Accredited Investor Questionnaire

 

PROTEA BIOSCIENCES GROUP, INC.

 

ACCREDITED INVESTOR CERTIFICATION

 

Please complete the following certification.
If the answer to any question is “none” or “none applicable,” please so state.

 

Your answers will, at all times, be kept
strictly confidential, however, you hereby agree that Protea Biosciences Group, Inc. may present this questionnaire to such parties
as it deems appropriate in order to assure itself that the issuance of the securities to you will not result in a violation of
the exemption from registration under U.S. securities laws.

 

In case of insufficient space, please use
the reverse side to assure that complete answers are submitted. If the securities are being purchased jointly, all joint owners
should complete.

 

	Name: 	 	 

 

	Address: 	 	 

 

	Social Security Number or Taxpayer Identification Number: 	 	 

 

	Telephone Number: 	 	 

 

	E-mail Address: 	 	 

 

	State of Residence or Principal Place of Business: 	 	 

 

	Type of Business: 	 	 

 

 

    	 

    	 

    

 

Accredited Investor Qualification Information--Please
check or initial all that apply.1

 

	_____ (a) 	 	The undersigned is a natural person whose net worth, or joint net worth with spouse, at the time of purchase, exceeds $1,000,000 (excluding the value of my primary residence).
	 	 	 
	_____ (b)	 	The undersigned is a natural person whose individual gross income (excluding that of my spouse) exceeded $200,000 in the last two fiscal years, and who reasonably expects individual gross income exceeding $200,000 in the current fiscal year.
	 	 	 
	_____ (c) 	 	The undersigned is a natural person whose joint gross income with spouse exceeded $300,000 in the last two fiscal years, and who reasonably expects joint gross income with my spouse exceeding $300,000 in the current fiscal year.
	 	 	 
	_____ (d) 	 	The undersigned is a bank, savings and loan association, broker/dealer, insurance company, investment company, pension plan, or other entity defined in Rule 501(a)(1) of Regulation D as promulgated under the Securities Act of 1933 by the Securities and Exchange Commission.
	 	 	 
	_____ (e) 	 	The undersigned is a trust, and the trustee is a bank, savings and loan association, or other institutional investor as defined in Rule 501(a)(1) of Regulation D as promulgated under the Securities Act of 1933 by the Securities and Exchange Commission.
	 	 	 
	_____ (f) 	 	The undersigned is a private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940.
	 	 	 
	_____ (g) 	 	The undersigned is a trust, and the grantor (i) has the power to revoke the trust at any time and regain title to the trust assets; and (ii) meets the requirements of items (a) (b), or (c) above.
	 	 	 
	_____ (h) 	 	The undersigned is a tax-exempt organization described in Section 501(c) (3) of the Internal Revenue Code, or a corporation, business trust, or partnership, not formed for the specific purpose of acquiring the securities with total assets in excess of $5,000,000.
	 	 	 
	_____ (i) 	 	The undersigned is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the securities.
	 	 	 
	_____ (j) 	 	The undersigned is an entity in which all of the equity owners meet the requirements of items (a) through (i) above.

 

 

1If the securities are being
purchased jointly, each joint owner should initial where applicable.

 

    	 

    	 

    

 

SIGNATURE PAGE FOR

 

INDIVIDUALS AND TRUSTS

 

IN WITNESS WHEREOF,
I hereby represent that all of the above representations are true and correct to the best of my knowledge.

 

The securities will
be owned, and should be shown on the records of Protea Biosciences Group, Inc., as follows (please check box):

 

[ ] A single person

 

[ ] Husband and
wife, as community property

 

[ ] Joint tenants
with right of survivorship (both parties must sign)

 

[ ] Tenants-in-Common
(all parties must sign)

 

[ ] Trust (trustee must sign
as trustee and indicate name of trust and date of trust document;

 

trustee must
also provide a copy of trust document)

 

[ ] Other (explain,
signature as required)

 

Executed this __ day
of ________________, 2013

 

 

	 	   
	 	(Signature)
	 	 
	 	   
	 	(Please Print Name of Individual or Trust and
	 	 Date of Trust if Applicable)
	 	 
	 	   
	 	(Signature)
	 	 
	 	   
	 	(Please Print Name of Individual or Trust and 
	 	Date of Trust if Applicable)

 

    	 

    	 

    

 

 

SIGNATURE PAGE FOR

 

CORPORATIONS AND PARTNERSHIPS

 

IN WITNESS WHEREOF,
I hereby represent that all of the above representations are true and correct to the best of my knowledge.

 

[ ] Corporation
(signature of authorized officer(s) required; please provide certified resolution authorizing investment)

 

[ ] Partnership
(signature of all general partners required by partnership agreement; partnerships must provide copy of partnership agreement)

 

Executed this __ day
of ________________, 2013

 

 

	 	 
	 	(Please Print Name of Entity)
	 	 	 
	 	By: 	  
	 	 	 
	   	 
	 	(Name)	 
	 	 	 
	 	   
	 	(Title)	 
	 	 	 
	 	By:   	 
	 	 	 
	 	   
	 	(Name)	 
	 	 	 
	 	   
	 	(Title)

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