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PURCHASE AGREEMENT

PURCHASE AGREEMENT (the “Agreement”), dated as of August 2, 2012, by and between
SAUER ENERGY, INC., a Nevada corporation, (the “Company”), and ST. GEORGE
INVESTMENTS, LLC, an Illinois limited liability company (the “Investor”).

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Investor, and the Investor wishes to buy from the
Company, up to Five Million Dollars ($5,000,000) of the Company's common stock,
$0.0001 par value per share (the "Common Stock").  The shares of Common Stock to
be purchased hereunder are referred to herein as the "Purchase Shares."

 

NOW, THEREFORE, the Company and the Investor hereby agree as follows:

 

1.       CERTAIN DEFINITIONS.

For purposes of this Agreement, the following terms shall have the following
meanings:

(a)

“Available Amount” means initially Five Million Dollars ($5,000,000) in the
aggregate, which amount shall be reduced by the Draw Down Amount each time the
Investor purchases shares of Common Stock pursuant to Section 2 hereof.

 

(b)

“Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law
for the relief of debtors.

(c)      “Closing Date” means with respect to a Closing the fifth (5th) Trading
Day following the Put Notice Date related to such Closing or such earlier date
as the Company and Investor shall agree, provided all conditions to such Closing
have been satisfied on or before such Trading Day.

(d)       

“Common Stock” means the common stock of the Company, $.0001 par value.

(e)       

“Confidential Information” means any information disclosed by either party to
the other party, either directly or indirectly, in writing, orally or by
inspection of tangible objects (including, without limitation, documents,
prototypes, samples, plant and equipment), which is designated as
"Confidential," "Proprietary" or some similar designation. Information
communicated orally shall be considered Confidential Information if such
information is confirmed in writing as being Confidential Information within ten
(10) Trading Days after the initial disclosure. Confidential Information may
also include information disclosed to a disclosing party by third
parties.  Confidential Information shall not, however, include any information
which: (i) was publicly known and made generally available in the public domain
prior to the time of disclosure by the disclosing party; (ii) becomes publicly
known and made generally available after disclosure by the disclosing party to
the receiving party through no action or inaction of the receiving party; (iii)
is already in the possession of the receiving party at the time of disclosure by
the disclosing party as shown by the receiving party’s files and records
immediately prior to the time of disclosure; (iv) is obtained by the receiving
party from a third

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party without a breach of such third party’s obligations of confidentiality; or
(v) is independently developed by the receiving party without use of or
reference to the disclosing party’s Confidential Information, as shown by
documents and other competent evidence in the receiving party’s possession.

(f)

“Custodian” means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

(g)

“Draw Down  Amount” means, with respect to any particular purchase made
hereunder, the portion of the Available Amount to be purchased by the Investor
pursuant to Section 2 hereof.

(h)

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i)

“Excluded Block Trades” shall mean block trades that exceed a number of shares
valued at $25,000.

(j)       

“Maturity Date” means the date that is thirty-six (36) months from the date of
execution of this Agreement.

(k)        “Person” means an individual or entity including but not limited to
any limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.

 

(l)   

“Principal Market” means the OTC Bulletin Board; provided however, that in the
event the Company’s Common Stock is ever listed or traded on the Nasdaq Global
Market, the Nasdaq Global Select Market, the Nasdaq Capital Market, the New York
Stock Exchange, or the NYSE Amex, or successor to any of these national
securities exchanges, than the “Principal Market” shall mean such other market
or exchange on which the Company’s Common Stock is then listed or traded.

(m)    “Purchase Price” means ninety four percent (94%) of the three (3) lowest
daily volume weighted average prices for the Common Stock as published by the
Bloomberg Financial Markets during the fifteen (15) consecutive Trading Days
ending on the Trading Day immediately preceding such Closing Date.

(n)     “Put Notice” shall mean an irrevocable written notice from the Company
to the Investor directing the Investor to buy such Draw Down Amount of Purchase
Shares as specified by the Company therein on the Closing Date.

(o)         “Put Notice Date” is the day that a Put Notice is deemed delivered
which shall be deemed delivered on (i) the Trading Day it is received by
facsimile or otherwise by Investor if such notice is received on or prior to
12:00 noon Chicago time or (ii) the immediately succeeding Trading Day if it is
received by facsimile or otherwise after 12:00 noon Chicago time on a Trading
Day or at any time on a day which is not a Trading Day.

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(p)       

“SEC” means the United States Securities and Exchange Commission.

(q)       

“Securities Act” means the Securities Act of 1933, as amended.

(r)

“Settlement Date” means the first Trading Day following the Closing Date.

(s)

“Threshold  Price” means the price specified by the Company in the Put Notice
below which no Purchase Shares may be sold, which price must be higher than
 ninety four percent (94%) of the lowest daily volume weighted average price of
the Company’s Common Stock for the ten (10) Trading Days prior to the Put Notice
Date.

(t)

“Trading Day” means a day on which the Principal Market shall be open for
business.

(u)      “Transfer Agent” means the transfer agent of the Company as set forth
in Section 11(f) hereof or such other person who is then serving as the transfer
agent for the Company in respect of the Common Stock.

 

2.  PURCHASE OF COMMON STOCK.

 

Subject to the terms and conditions set forth in this Agreement, the Company has
the right to sell to the Investor, and the Investor has the obligation to
purchase from the Company, Purchase Shares as follows:

 

 

(a)    

Purchase and Commencement of Regular Sales of Common Stock.  Upon the
satisfaction of the conditions set forth in Sections 7 and 8 hereof (the
“Commencement” and the date of satisfaction of such conditions the “Commencement
Date”) and thereafter, the Company shall have the right but not the obligation
to direct the Investor by its delivery to the Investor of a Put Notice from time
to time to buy Purchase Shares (each such purchase a “Purchase”) in any amount
up to the lower of (i) One Hundred Thousand Dollars ($100,000) or (ii) one
hundred percent (100%) of the average daily dollar volume for the ten (10)
Trading Days preceding the Put Notice Date, excluding any Excluded Block Trades
(the “Purchase Amount”) at the Purchase Price on the Closing Date, which price
shall not be less than the Threshold Price.  The Company may deliver multiple
Put Notices to the Investor so long as at least five (5) Trading Days have
passed since the most recent Closing Date.

 

(b)

Payment for Purchase Shares.   On or prior to each Closing Date, the Company
shall deliver to the Investor all of the documents required to be delivered
pursuant to Section 8 of this Agreement.  On the Settlement Date, the Company
the Company shall use its commercially reasonable efforts to cause the Transfer
Agent to electronically transmit, prior to the applicable Settlement  Date, the
applicable Purchase Shares by crediting the account of the Investor's prime
broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system,
and provide proof satisfactory to the Investor of such delivery  and the
Investor shall pay to the escrow agent for delivery to the Company an amount
equal to the Draw Down Amount with respect to such Purchase Shares as full
payment for such Purchase Shares via wire transfer of immediately available
funds within twenty-four (24) hours of evidence of credit to its account  of

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the Purchase Shares.  If the issuance would result in the issuance of a fraction
of a share of Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.  All payments made under
this Agreement shall be made in lawful money of the United States of America or
wire transfer of immediately available funds to such account as the Company may
from time to time designate by written notice in accordance with the provisions
of this Agreement.  Whenever any amount expressed to be due by the terms of this
Agreement is due on any day that is not a Trading Day, the same shall instead be
due on the next succeeding day that is a Trading Day.

 

 In addition, on or prior to each Closing Date, each of the Company and Investor
shall deliver to each other all documents, instruments and writings required to
be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated herein.

 

         (c)       Threshold Price.   The Company and the Investor shall not
effect any sales and purchases designated by the Company in its Put Notice under
this Agreement on any Closing Date where the Purchase Price for any purchases of
Purchase Shares would be less than the Threshold Price.  In the event that
during the time between the Put Notice Date and the Closing Date, the closing
bid price of the common stock of the Company on a Trading Day is below the
Threshold Price set forth in the Put Notice, then for each such Trading Day the
parties shall be under no obligation to purchase and sell one-fifth (1/5) of the
Draw Down Amount specified in the Put Notice, and the Draw Down Amount shall be
accordingly reduced by such amount.

(d)

Limitation On Investor’s Obligation.  In no event shall the Investor be required
to purchase  an amount of Purchase Shares which when aggregated with all other
shares of securities then owned by Investor beneficially or deemed beneficially
owned by Investor, would result in Investor owning more than 9.99% of all of
such Common Stock as would be outstanding on such Closing Date, as determined in
accordance with Section 16 of the Exchange Act and the regulations promulgated
thereunder. For purposes of this Section, in the event that the amount of Common
Stock outstanding as determined in accordance with Section 16 of the Exchange
Act and the regulations promulgated thereunder is greater on a Closing Date than
on the date upon which the Put Notice associated with such Closing Date is
given, the amount of Common Stock outstanding on such Closing Date shall govern
for purposes of determining whether Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement, would own more than 9.99% of the
Common Stock following such Closing Date.

(e)

Cover. If the Company fails for any reason to take or cause to be taken all
steps necessary on the part of the Company to deliver the Purchase Shares on
such Closing Date and the Investor purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Investor (the "Sold
Shares"), which delivery the Investor anticipated to make using the Purchase
Shares (a "Buy-In"), then the Company shall pay to such Investor, in addition to
all other amounts contemplated in other provisions of this Agreement and all
related documents, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined below). The "Buy-In Adjustment Amount" is the amount equal to the
excess, if any, of (x) such Investor’s total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds

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(after brokerage commissions, if any) received by such Investor from the sale of
the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to such
Investor in immediately available funds immediately upon demand by such
Investor. By way of illustration and not in limitation of the foregoing, if such
Investor purchases Covering Shares having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock that it sold for net proceeds of $10,000, the Buy-In Adjustment
Amount that the Company will be required to pay to such Investor will be $1,000.

 

3.       INVESTOR'S REPRESENTATIONS AND WARRANTIES.

 

The Investor represents and warrants to the Company that as of the date hereof
and as of the Commencement Date:

 

(a)       Investment Purpose.  The Investor is acquiring the Purchase Shares,
the Commitment Shares (as defined in Section 5(e) hereof) and the Fee Shares (as
defined in Section 5(e) hereof)  (collectively “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 (this
representation and warranty not limiting the Investor’s right to sell the
Securities at any time pursuant to the registration statement described herein
or otherwise in compliance with applicable federal and state securities laws and
with respect to the Commitment Shares and Fee Shares, subject to Section 5(e)
hereof).  The Investor is acquiring the Securities hereunder in the ordinary
course of its business.

 

(b)      Accredited Investor Status.  The Investor is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.

(c)     Reliance on Exemptions.  The Investor understands that the Securities
may be offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Investor's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Investor to acquire the Securities.

(d)     Information.  The Investor understands that its investment in the
Securities involves a high degree of risk.  The Investor (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities.  Neither such inquiries nor any other due diligence investigations
conducted by the Investor or its representatives shall modify, amend

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or affect the Investor's right to rely on the Company's representations and
warranties contained in Section 4 below.  The Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Securities.

(e)     No Governmental Review.  The Investor understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(f)      Transfer or Sale.  The Investor understands that (i) the Securities may
not be offered for sale, sold, assigned or transferred unless (A) registered
pursuant to the Securities Act or (B) an exemption exists permitting such
Securities to be sold, assigned or transferred without such registration; (ii)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the  Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder.

(g)      Validity; Enforcement.  This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Investor and is a valid and
binding agreement of the Investor enforceable against the Investor in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.

(h)      Residency.  The Investor is a resident of the State of the State of
Illinois.

(i)       No Short Selling.  The Investor represents and warrants to the Company
that at no time prior to the date of this Agreement has any of the Investor, its
agents, representatives or affiliates engaged in or effected, in any manner
whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the Exchange Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock; provided, however, that the Investor may enter into
any short exempt sale or any short sale or other hedging or similar arrangement
it deems appropriate with respect to Purchase Shares after it receives a Put
Notice with respect to such Purchase Shares so long as such sales or
arrangements do not involve more than the number of such Purchase Shares
specified in the Put Notice.

(j)       No General Solicitation.  Neither the Investor  nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in or is
aware of 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.

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4.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to the Investor that as of the date hereof
and as of the Commencement Date:

(a)      Organization and Qualification.  The Company and each of the
Subsidiaries (which for purposes of this Agreement means any entity in which the
Company, directly or indirectly, owns 50% or more of the voting stock or capital
stock or other similar equity interests) is an entity duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted.  Neither the Company nor any Subsidiary is in violation
nor in default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the Subsidiaries is duly qualified to
conduct business and is in good standing as a foreign corporation or other
entity 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, could not
have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document; (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole; or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “
Material Adverse Effect ”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.  The Company has no
Subsidiaries except as set forth on Schedule 4(a).

 

(b)       Authorization; Enforcement; Validity.  (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement  and each of
the other agreements entered into by the parties on the date hereof and the
Commencement Date and attached hereto as exhibits to this Agreement
(collectively, the "Transaction Documents"), and to issue the Securities in
accordance with the terms hereof and thereof; (ii) the execution and delivery of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including without limitation, the
issuance of the Commitment Shares and Fee Shares and the reservation for
issuance and the issuance of the Purchase Shares issuable under this Agreement,
have been duly authorized by the Company's Board of Directors and no further
consent or authorization is required by the Company, its Board of Directors or
its shareholders; (iii) this Agreement has been, and each other Transaction
Document shall be on the date hereof, the Commencement Date and the Closing
Date, duly executed and delivered by the Company; and (iv) this Agreement
constitutes, and each other Transaction Document upon its execution on behalf of
the Company, shall constitute, the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.  The Board of Directors of the Company has

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approved the resolutions (the “Signing Resolutions”) substantially in the form
as set forth as Exhibit C attached hereto to authorize this Agreement and the
transactions contemplated hereby.  The Signing Resolutions are valid, in full
force and effect and have not been modified or supplemented in any respect.  The
Company has delivered to the Investor a true and correct copy of a unanimous
written consent adopting the Signing Resolutions executed by all of the members
of the Board of Directors of the Company.  No other approvals or consents of the
Company’s Board of Directors and/or shareholders is necessary under applicable
laws and the Company’s Certificate of Incorporation and/or Bylaws to authorize
the execution and delivery of this Agreement or any of the transactions
contemplated hereby, including, but not limited to, the issuance of the
Commitment Shares and Fee Shares and the issuance of the Purchase Shares.

(c)       Capitalization.  As of the date hereof, the authorized capital stock
of the Company is set forth on Schedule 4(c).   Except as disclosed in Schedule
4(c), (i) no shares of the Company's capital stock are subject to preemptive
rights or any other similar rights or any liens or encumbrances suffered or
permitted by the Company; (ii) there are no outstanding debt securities; (iii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries; (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the Securities Act (except the Registration Rights Agreement); (v) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, 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; (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement; and (vii) the Company does not
have any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement.  The Company has furnished to the Investor true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "Certificate of Incorporation"), and the
Company's By-laws, as amended and as in effect on the date hereof (the
"By-laws"), and summaries of the terms of all securities convertible into or
exercisable for Common Stock, if any, and copies of any documents containing the
material rights of the holders thereof in respect thereto.

 

(d)          Issuance of Securities.  Upon issuance and payment therefor in
accordance with the terms and conditions of this Agreement, the Purchase Shares,
shall be validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock.  The Commitment
Shares and the Fee Shares have been duly authorized and, upon issuance in
accordance with the terms hereof, the Commitment Shares and the Fee Shares shall
be (i) validly issued, fully paid and non-assessable; (ii) free from all taxes,
liens and charges with respect to

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the issue thereof; and (iii) 10,000,000 shares of Common Stock have been duly
authorized and reserved for issuance upon purchase under this Agreement as
Purchase Shares.  

(e)     No Conflicts.  Except as disclosed in Schedule 4(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market applicable to the Company or any
of its Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
under clause (ii), which could not reasonably be expected to result in a
Material Adverse Effect.  Except as disclosed in Schedule 4(e), neither the
Company nor its Subsidiaries is in violation of any term of or in default under
its Certificate of Incorporation, any Certificate of Designation, Preferences
and Rights of any outstanding series of preferred stock of the Company or
By-laws or their organizational charter or by-laws, respectively.  Except as
disclosed in Schedule 4(e), neither the Company nor any of its Subsidiaries is
in violation of any term of or is in default under any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which could not reasonably be expected to have a Material Adverse
Effect.  The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, ordinance,
regulation of any governmental entity, except for possible violations, the
sanctions for which either individually or in the aggregate could not reasonably
be expected to have a Material Adverse Effect.  Except as specifically
contemplated by this Agreement and as required under the Securities Act or
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents in accordance with the terms hereof or
thereof.  Except as disclosed in Schedule 4(e), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence shall be obtained or effected on or prior to
the Commencement Date.  Except as listed in Schedule 4(e), since one (1) year
prior to the date hereof, the Company has not received nor delivered any notices
or correspondence from or to the Principal Market.  The Principal Market has not
commenced any delisting proceedings against the Company.

 

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(f)          SEC Documents; Financial Statements .  Except as disclosed in
Schedule 4(f),   the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by the Company under the Securities Act
and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
the two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Documents”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Documents prior to the expiration of any such
extension.  As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable, and none of the SEC Documents, 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
the light of the circumstances under which they were made, not misleading.  The
financial statements of the Company included in the SEC Documents comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission 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 applied on a consistent basis
during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, 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.  Except
as listed in Schedule 4(f), the Company has received no notices or
correspondence from the SEC for the one (1) year preceding the date hereof.
  The SEC has not commenced any enforcement proceedings against the Company or
any of its subsidiaries.

(g)      Absence of Certain Changes.  Except as disclosed in Schedule 4(g),
since the filing of the Company’s Form 10-Q for the period ended March 31, 2012,
there has been no material adverse change in the business, properties,
operations, financial condition or results of operations of the Company or its
Subsidiaries.  The Company has not taken any steps, and does not currently
expect to take any steps, to seek protection pursuant to any Bankruptcy Law nor
does the Company or any of its Subsidiaries have any knowledge or reason to
believe that its creditors intend to initiate involuntary bankruptcy or
insolvency proceedings.  .

(h)     Absence of Litigation.  There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's Subsidiaries or any of the Company's or the
Company's Subsidiaries' officers or directors in their capacities as such, which
could reasonably be expected to have a Material Adverse Effect.  A description
of each action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
which, as of the date of this Agreement, is pending or threatened in writing
against or affecting the Company, the Common Stock or any of the Company's
Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or
directors in their capacities as such, is set forth in Schedule 4(h).

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(i)       Acknowledgment Regarding Investor's Status.  The Company acknowledges
and agrees that the Investor is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby.  The Company further acknowledges that the
Investor is not acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated hereby and thereby and any advice given by the
Investor or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to the Investor's purchase of the Securities.  The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives and advisors.

(j)      No General Solicitation.  Neither the Company, nor any of its
affiliates, nor any person acting on its or 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.

(k)     Intellectual Property Rights.   The Company and its Subsidiaries own or
possess adequate rights or licenses to use all material trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted.  Except as set forth on Schedule 4(k), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement.  The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 4(k), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.

(l)      Environmental Laws .  To the Company’s knowledge, the Company and its
Subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”); (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except where, in each of the three

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foregoing clauses, the failure to so comply could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.

 

(m)       Title.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all liens,
encumbrances and defects (“Liens”) and , except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the
Subsidiaries and Liens for the payment of federal, state or other taxes, the
payment of which is neither delinquent nor subject to penalties.  Any real
property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.   Any real property
and facilities held under lease by the Company and any of its Subsidiaries are
held by them under valid, subsisting and enforceable leases with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its Subsidiaries.

(n)      Insurance.  The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged.  Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.

(o)     

Regulatory Permits .  The Company and its Subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.

(p)      Tax Status.  The Company and each of its Subsidiaries has made or filed
all federal and state income and all other material tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply.  There are no unpaid taxes in any material amount

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claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim.

(q)      Transactions With Affiliates.  Except as set forth in the SEC
Documents, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any Subsidiary (other than 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
knowledge of the Company, any entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $100,000 other than for (i) payment of salary
or consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) other employee benefits, including
stock option agreements under any stock option plan of the Company.

(r)      Application of Takeover Protections.  The Company and its board of
directors have taken or will take prior to the Commencement Date 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 Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Investor as a result of the transactions contemplated
by this Agreement, including, without limitation, the Company's issuance of the
Securities and the Investor's ownership of the Securities.

 

(s)      Disclosure.  Except with respect to the material terms and conditions
of the transactions contemplated by the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided
the Investor or its agents or counsel with any information that it believes
constitutes or might constitute material, non-public information which is not
otherwise disclosed in the Company’s periodic reports and current reports filed
under the Securities and Exchange Act of 1934, as amended.  The Company
understands and confirms that the Investor will rely on the foregoing
representation in effecting purchases and sales of securities of the
Company.  All of the disclosure furnished by or on behalf of the Company to the
Investor 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.  The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit 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 and when made, not misleading.  The
Company acknowledges and agrees that the Investor neither makes nor has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3 hereof.  

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(t)      Foreign Corrupt Practices.  Neither the Company, nor to the knowledge
of the Company, any agent or other person acting on behalf of the Company, has:
(i) directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds; (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law; or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

(u)       DTC Eligible.  The Company through its transfer agent, does not
currently participates in the Depository Trust Company Fast Automated Securities
Transfer Program (“DTC FAST System”) however, it shall be a condition to the
Investor’s obligation to purchase any Purchase Shares that the Company’s Common
Stock can be transferred electronically to third parties via the DTC FAST
System.

5.      COVENANTS.

(a)      Filing of Form 8-K and Registration Statement .  The Company agrees
that it shall, within the time required under the Exchange Act file a Report on
Form 8-K disclosing this Agreement and the transaction contemplated hereby.  The
Company shall also file within thirty (30) days a new registration statement
covering only the sale of the Purchase Shares, the Commitment Shares and the Fee
Shares  in accordance with the terms of the Registration Rights Agreement
between the Company and the Investor, dated as of the date hereof (“Registration
Rights Agreement”).  The Company shall cause the registration statement to be
declared effective within ninety (90) days of the date hereof.  Until the
termination of this Agreement in accordance with the terms of Section 11 hereof,
the Company shall use its best efforts to maintain the continuous effectiveness
of the Registration Statement under the Securities Act. Any securities issuable
under this Agreement that have not been registered under the Securities Act
shall bear the following restrictive legend (the “Restrictive Legend”):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION OF HOLDER’S COUNSEL,
IN A CUSTOMARY FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS.

   

 

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(b)     Blue Sky. The Company shall take such action, if any, as is reasonably
necessary in order to obtain an exemption for or to qualify (i) the initial sale
of the Purchase Shares, Commitment Shares and Fee Shares to the Investor under
this Agreement and (ii) any subsequent resale of the Commitment Shares, Fee
Shares and any Purchase Shares by the Investor, in each case, under applicable
securities or "Blue Sky" laws of the states as required by the Registration
Rights Agreement.

(c)      Listing/DTC.  The Company shall promptly secure the listing of all of
the Purchase Shares, Commitment Shares and Fee Shares upon each national
securities exchange and automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all such securities from time to time issuable under the terms of the
Transaction Documents.  The Company shall maintain the Common Stock's
authorization for quotation on the Principal Market.  Neither the Company nor
any of its Subsidiaries shall take any action that would be reasonably expected
to result in the delisting or suspension of the Common Stock on the Principal
Market.  The Company shall promptly, and in no event later than the following
Trading Day, provide to the Investor copies of any notices it receives from the
Principal Market regarding the continued eligibility of the Common Stock for
listing on such automated quotation system or securities exchange.  The Company
shall pay all fees and expenses in connection with satisfying its obligations
under this Section.  The Company shall use commercially reasonable efforts to
ensure that its Common Stock can be transferred electronically via the DTC FAST
System.

(d)      Limitation on Short Sales and Hedging Transactions.  The Investor
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11, the Investor and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the Exchange Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock.

(e)      Issuance of Commitment Shares.  Immediately upon the execution of this
Agreement, the Company shall issue to the Investor as consideration for the
Investor entering into this Agreement a number of shares of restricted Common
Stock (the “Commitment Shares”) having a value equal to $100,000 (which
represents two percent (2%) of the initial Available Amount) and a number of
shares of restricted Common Stock (the “Fee Shares”) having a value equal to
$20,000, in each case based upon a deemed valuation equal to 94% of the volume
weighted average price of the Common Stock on the five days preceding the
execution of this Agreement and shall deliver to the Transfer Agent a letter in
the form as set forth as Exhibit E attached hereto with respect to the issuance
of the  Commitment Shares and Fee Shares.   The   Commitment Shares and Fee
Shares shall be issued in certificated form and shall bear the Restrictive
Legend and shall be included in the registration statement in accordance with
the terms of the Registration Rights Agreement. The Commitment Shares and Fee
Shares shall be fully earned as of the Commencement Date.

 

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(f)     Due Diligence.  The  Investor shall have the right, from time to time as
the Investor may reasonably deem appropriate, to perform reasonable due
diligence on the Company during normal business hours.  The Company and its
officers and employees shall provide information and reasonably cooperate with
the Investor in connection with any reasonable request by the Investor related
to the Investor's due diligence of the Company.  Each party hereto agrees not to
disclose any Confidential Information of the other party to any third party
except to those employees and financial, legal and accounting advisors (the
persons to whom such disclosure is permissible being collectively called
“Representatives”) of the receiving party who are required to have the
information in order to evaluate or engage in discussions concerning the
contemplated business opportunity   and shall not use the Confidential
Information for any purpose other than in connection with, or in furtherance of,
the transactions contemplated hereby.  Each party hereto acknowledges that the
Confidential Information shall remain the property of the disclosing party and
agrees that it shall take all reasonable measures to protect the secrecy of any
Confidential Information disclosed by the other party. The Company confirms that
neither it nor any other Person acting on its behalf shall provide the Investor
or its agents or counsel with any information that it believes constitutes or
might constitute material, non-public information which is not otherwise
disclosed in the Registration Statement or prospectus supplements thereto. In
the event that the receiving party or its Representatives (the “Compelled
Party”) become legally compelled to disclose any of the Confidential
Information, the Compelled Party shall, to the extent permitted by law, provide
the disclosing party with prompt written notice of such requirement sufficient
to permit the disclosing party to seek a protective order or other appropriate
remedy.  In the event that such protective order or remedy is not obtained, or
that the disclosing party waives compliance with the provisions hereof, the
Compelled Party shall disclose only such portion of Confidential Information
which the Compelled Party is advised by written opinion of counsel is legally
required and shall exercise its best efforts to obtain assurance that
confidential treatment will be accorded such Confidential Information.  In any
event, the Compelled Party shall not oppose any action by the disclosing party
to obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Confidential Information.

 

(g)     Purchase Records.  The Investor and the Company shall each maintain
records showing the remaining Available Amount at any given time and the dates
and Purchase Amounts for each purchase or shall use such other method,
reasonably satisfactory to the Investor and the Company.

 

(h)      Taxes.   The Company shall pay any and all transfer, stamp or similar
taxes that may be payable with respect to the issuance and delivery of any
shares of Common Stock to the Investor made under this Agreement.

 

(i)      No Variable Rate Transactions.   From the date hereof until the
Maturity Date unless all $5,000,000 has been sold to the Investor or the
Investor defaults in any purchase obligation, the Company shall be prohibited
from effecting or entering into an agreement to effect any issuance by the
Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
for cash consideration (or a combination of units thereof) involving a Variable
Rate Transaction other than in connection with an Exempt Issuance.  “Variable
Rate Transaction” means a transaction in which the Company (i) issues or sells
any debt or equity

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securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a
conversion price, exercise price or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares of
Common Stock at any time after the initial issuance of such debt or equity
securities, or (B) with a conversion, exercise or exchange price that is subject
to being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock or (ii) enters into any agreement, including, but not limited
to, an equity line of credit, whereby the Company may sell securities at a
future determined price.  “Exempt Issuance” means the issuance of (a) shares of
Common Stock or options to employees, officers, directors or vendors of the
Company approved 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; (b) 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 this Agreement, provided that such
securities have not been amended since the date of this Agreement to increase
the number of such securities or to decrease the exercise price, exchange price
or conversion price of such securities; and (c) securities issued pursuant to
acquisitions or strategic transactions approved by a majority of the
disinterested directors of the Company, which acquisitions or strategic
transactions can have a Variable Rate Transaction component, provided that any
such issuance shall only be to a Person (or to the equity holders of a Person)
which is, itself or through its subsidiaries, an operating company or 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.

(j)

Investor’s Right of First Refusal.  For any private capital raising transaction
of equity securities or securities convertible into equity securities, which
close after the date hereof  and on or prior to the date which is thirty (30)
days after the date of termination of this Agreement, the Company agrees to
deliver to the Investor, at least ten (10) days prior to the closing of such
transaction, written notice describing the proposed transaction, including the
terms and conditions thereof, and providing the Investor and its affiliates an
option during the ten (10) day period following delivery of such notice to
purchase the securities being offered in such transaction on the same terms as
contemplated by such transaction. This right shall not apply to any transaction
involving issuances of securities to a company being acquired by the Company or
in connection with disposition of a business or exercise of options or
restricted stock plans for the benefit of Company employees or directors or the
issuance of debt securities with no equity feature incurred solely for working
capital purposes.

6.     TRANSFER AGENT INSTRUCTIONS.

The Company shall cause any restrictive legend on the Commitment Shares, Fee
Shares and Purchase Shares to be removed, provided that a registration statement
covering such shares is then effective.  The Company shall issue irrevocable
instructions to the Transfer Agent, and any subsequent transfer agent, to issue
Purchase Shares in the name of the Investor for the

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Purchase Shares (the "Irrevocable Transfer Agent Instructions").  The Company
warrants to the Investor that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 6, will be given by the Company
to the Transfer Agent with respect to the Purchase Shares and that the
Commitment Shares and the Purchase Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement.

7.

CONDITIONS TO THE COMPANY'S RIGHT TO COMMENCE SALES OF SHARES OF COMMON STOCK.

 

The right of the Company hereunder to commence sales of the Purchase Shares is
subject to the satisfaction of each of the following conditions:

(a)       The Investor shall have executed each of the Transaction Documents and
delivered the same to the Company; and

(b)           A registration statement covering the sale of all of the
Commitment Shares, Fee Shares and Purchase Shares shall have been declared
effective under the Securities Act by the SEC and no stop order with respect to
the registration statement shall be pending or threatened by the SEC.

8.

CONDITIONS TO THE INVESTOR'S OBLIGATION TO PURCHASE SHARES OF COMMON STOCK.

The obligation of the Investor to buy Purchase Shares (other than the Purchase
Shares) under this Agreement is subject to the satisfaction of each of the
following conditions:

(a)       The Company shall have executed each of the Transaction Documents and
delivered the same to the Investor;

 

(b)           The Company shall have issued to the Investor the Commitment
Shares and Fee Shares;

  

(c)       The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the Principal Market;

(d)       The Investor shall have received the opinion(s) of the Company's legal
counsel dated as of each Closing Date substantially in the form of Exhibit A
attached hereto; provided such opinion(s) shall contain such assumptions,
exceptions, limitations, qualifications and definitions as are customary under
Nevada law for similar type transactions;

(e)        The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
4 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of each

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Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Commencement Date and each Closing
Date.  The Investor shall have received a certificate, executed by the Chief
Executive Officer, President or Chief Financial Officer of the Company, dated as
of each Closing Date, to the foregoing effect in the form attached hereto as
Exhibit B;

(f)        The Board of Directors of the Company shall have adopted resolutions
in the form attached hereto as Exhibit C which shall be in full force and effect
without any amendment or supplement thereto as of the Commencement Date and each
Closing Date;

(g)        The Company shall have reserved out of its authorized and unissued
Common Stock, solely for the purpose of effecting purchases of Purchase Shares
hereunder, 10,000,000 shares of Common Stock;

(h)        The Irrevocable Transfer Agent Instructions, in form acceptable to
the Investor shall have been delivered to and acknowledged in writing by the
Company and the Company's Transfer Agent;

(i)        The Company shall have delivered to the Investor a certificate
evidencing the incorporation and good standing of the Company in the State of
Nevada issued by the Secretary of State of the State of Nevada as of a date
within five (5) Trading  Days of each Closing Date the Commencement Date;

(j)     The Company shall have delivered to the Investor a certified copy of the
Articles of Incorporation as certified by the Secretary of State of the State of
Nevada within five (5) Trading Days of each Closing Date;

(k)     The Company shall have delivered to the Investor a secretary's
certificate executed by the Secretary of the Company, dated as of each Closing
Date, in the form attached hereto as Exhibit D;

 

(l)       A registration statement covering the sale of all of the Purchase
Shares, Fee Shares and Commitment Shares shall have been declared effective
under the Securities Act by the SEC and no stop order with respect to the
registration statement shall be pending or threatened by the SEC.  The Company
shall have prepared and delivered to the Investor a final and complete form of
prospectus, dated and current as of the Commencement Date, to be used by the
Investor in connection with any sales of any Commitment Shares, Fee Shares or
any Purchase Shares, and to be filed by the Company one (1) Trading Day after
the Commencement Date.  The Company shall have made all filings under all
applicable federal and state securities laws necessary to consummate the
issuance of the Commitment Shares, Fee Shares and Purchase Shares pursuant to
this Agreement in compliance with such laws.  The Company shall have no
knowledge of an event that is likely to have the effect of causing the
registration statement to be suspended or otherwise ineffective;

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(m)

On each Closing Date, the number of Purchase Shares then to be purchased by
Investor shall not exceed the number of such shares that, when aggregated with
all other shares of securities then owned by Investor beneficially or deemed
beneficially owned by Investor, would result in Investor owning more than 9.99%
of all of such Common Stock as would be outstanding on such Closing Date, as
determined in accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder. For purposes of this Section, in the event that the
amount of Common Stock outstanding as determined in accordance with Section 16
of the Exchange Act and the regulations promulgated thereunder is greater on a
Closing Date than on the date upon which the Put Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on such Closing
Date shall govern for purposes of determining whether Investor, when aggregating
all purchases of Common Stock made pursuant to this Agreement, would own more
than 9.99% of the Common Stock following such Closing Date.

  

(n)     

No Event of Default has occurred, or any event which, after notice and/or lapse
of time, would become an Event of Default has occurred;

(o)    On or prior to the Commencement Date, the Company shall have taken all
necessary action, if any, and such other actions as are reasonably requested by
the Investor, in order to render inapplicable any control share acquisition,
business combination, shareholder rights plan or poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Articles of Incorporation or the laws of the state of its
incorporation which is or could become applicable to the Investor as a result of
the transactions contemplated by this Agreement, including, without limitation,
the Company's issuance of the Securities and the Commitment Shares and the
Investor's ownership of the Securities and the Commitment Shares;

(p)      The Company shall have provided the Investor with the information
requested by the Investor in connection with its due diligence requests made
prior to, or in connection with, the Commencement and each Closing Date, in
accordance with the terms of Section 5(f) hereof; and

(q)

There shall be no pending or threatened litigation against the Company that
prohibits the transactions contemplated herein, no assertion by the Securities
and Exchange Commission of a violation of Section 5 of the Securities Act and
the Company shall have complied with all federal, state and local laws, rules
and regulations in connection with the transactions contemplated herein.

(r)

On each Closing Date, the Company’s Common Stock can be transferred
electronically to third parties via the DTC FAST System.

9.

INDEMNIFICATION.

In consideration of the Investor's execution and delivery of the Transaction
Documents and acquiring the Securities hereunder and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless the Investor and all of its
affiliates, shareholders, officers, directors, employees and

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direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby; (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby; or
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument
or  document contemplated hereby or thereby, other than with respect to
Indemnified Liabilities which directly and primarily result from the gross
negligence or willful misconduct of the Indemnitee.  To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable
law.  Payment under this indemnification shall be made within thirty (30) days
from the date Investor makes written request for it. A certificate containing
reasonable detail as to the amount of such indemnification submitted to the
Company by Investor shall be conclusive evidence, absent manifest error, of the
amount due from the Company to Investor.

  

10.       EVENTS OF DEFAULT.

An "Event of Default" shall be deemed to have occurred at any time as any of the
following events occurs:

(a)       the registration statement registering at least 10,000,000 Purchase
Shares shall not have been filed with the SEC within thirty (30) days of the
date hereof; the registration statement registering at least 10,000,000 Purchase
Shares shall not have been declared effective by the SEC within ninety (90) days
of the date hereof; effectiveness of a registration statement registering the
Purchase Shares or Commitment Shares or Fee Shares lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the Investor for sale of any or all of the Purchase Shares or Commitment
Shares or Fee Shares, and such lapse or unavailability continues for a period of
 thirty (30) consecutive Trading Days or for more than an aggregate of sixty
(60) Trading Days in any 365-day period;

(b)        the suspension from trading or failure of the Common Stock to be
listed  or quoted on the Principal Market for a period of three (3) consecutive
Trading Days;

(c)        the delisting of the Company’s Common Stock from the Principal
Market, provided, however, that the Common Stock is not immediately thereafter
trading on the New York Stock Exchange, the Nasdaq Global Market, the Nasdaq
Global Select Market, the Nasdaq Capital Market, or NYSE Amex (or successor
national securities exchange);

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(d)       the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Investor  within two (2) Trading Days after the applicable the
Closing Date which the Investor is entitled to receive;

(e)      the Company breaches any representation, warranty, covenant or other
term or condition under any Transaction Document if such breach could have a
Material Adverse Effect and except, in the case of a breach of a covenant which
is reasonably curable, only if such breach continues for a period of at least
five (5) Trading Days after notice to the Company;

(f)        if any Person commences a proceeding against the Company pursuant to
or within the meaning of any Bankruptcy Law and the same is not discharged
within 60 days;

(g)      if the Company pursuant to or within the meaning of any Bankruptcy Law;
(A) commences a voluntary case; (B) consents to the entry of an order for relief
against it in an involuntary case; (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property; (D) makes a
general assignment for the benefit of its creditors or is generally unable to
pay its debts as the same become due;

(h)     a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property; or (C) orders the liquidation of the Company or any Subsidiary;

(i)     if at any time the Company is not eligible to transfer its Common Stock
electronically via the DTC FAST System or another generally accepted electronic
transfer system.;

(j)       

 the failure of the Company to timely file with the SEC a report required to be
filed by it with the SEC under the Exchange Act (including any extensions
therefor); or

(k)

the failure of the Company to remain solvent after receipt of funds from the
Investor. The Company shall be solvent if (i) the fair saleable value of the
Company’s assets exceeds the amount that will be required to be paid on or in
respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs, taking into account
the particular capital requirements of the business conducted by the Company and
projected capital requirements and capital availability thereof, and (iii) the
current cash flow of the Company, together with the proceeds the Company would
receive were it to liquidate all of its assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid.  

  

In addition to any other rights and remedies under applicable law and this
Agreement, including the Investor termination rights under Section 11 hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would

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become an Event of Default, has occurred and is continuing, or so long as the
Purchase Price is below the Threshold Price, the Investor shall not be permitted
or obligated to purchase any shares of Common Stock under this Agreement.  If
pursuant to or within the meaning of any Bankruptcy Law, the Company commences a
voluntary case or any Person commences a proceeding against the Company, a
Custodian is appointed for the Company or for all or substantially all of its
property, or the Company makes a general assignment for the benefit of its
creditors, (any of which would be an Event of Default as described in Sections
10(f), 10(g) and 10(h) hereof) this Agreement shall automatically terminate
without any liability or payment to the Company without further action or notice
by any Person.  No such termination of this Agreement under Section 11(a) or
11(d) shall affect the Company's or the Investor's obligations under this
Agreement with respect to pending purchases and the Company and the Investor
shall complete their respective obligations with respect to any pending
purchases under this Agreement.

11.    TERMINATION

This Agreement may be terminated only as follows:

(a)       By the Investor any time an Event of Default exists without any
liability or payment to the Company.  However, if pursuant to or within the
meaning of any Bankruptcy Law, the Company commences a voluntary case or any
Person commences a proceeding against the Company, a Custodian is appointed for
the Company or for all or substantially all of its property, or the Company
makes a general assignment for the benefit of its creditors, (any of which would
be an Event of Default as described in Sections 10(f), 10(g) and 10(h) hereof)
this Agreement shall automatically terminate without any liability or payment to
the Company without further action or notice by any Person.  No such termination
of this Agreement under this Section 11(a) shall affect the Company's or the
Investor's obligations under this Agreement with respect to pending purchases
and the Company and the Investor shall complete their respective obligations
with respect to any pending purchases under this Agreement.

(b)       In the event that the Commencement shall not have occurred, the
Company shall have the option to terminate this Agreement for any reason or for
no reason without any liability whatsoever of any party to any other party under
this Agreement.

(c)       In the event that the Commencement shall not have occurred on or
before December 2, 2012, due to the failure to satisfy the conditions set forth
in Sections 7 and 8 above with respect to the Commencement, the non-breaching
party shall have the option to terminate this Agreement at the close of business
on such date or thereafter without liability of any party to any other party.

(d)        At any time after the Commencement Date, the Company shall have the
option to terminate this Agreement for any reason or for no reason by delivering
notice (a “Company Termination Notice”) to the Investor electing to terminate
this Agreement without any liability whatsoever of any party to any other party
under this Agreement.  The Company Termination Notice shall not be effective
until one (1) Trading Day after it has been received by the Investor.  No such
termination of this Agreement under this Section 11(d) shall affect the

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Company's or the Investor's obligations under this Agreement with respect to
pending purchases and the Company and the Investor shall complete their
respective obligations with respect to any pending purchases under this
Agreement.

(e)        This Agreement shall automatically terminate on the date that the
Company sells and the Investor purchases the full Available Amount as provided
herein, without any action or notice on the part of any party and without any
liability whatsoever of any party to any other party under this Agreement.

(f)        If by the Maturity Date for any reason or for no reason the full
Available Amount under this Agreement has not been purchased as provided for in
Section 2 of this Agreement, this Agreement shall automatically terminate on the
Maturity Date, without any action or notice on the part of any party and without
any liability whatsoever of any party to any other party under this Agreement.

 

Except as set forth in Sections 11(a) (in respect of an Event of Default under
Sections 10(f), 10(g) and 10(h)) and 11(f), any termination of this Agreement
pursuant to this Section 11 shall be effected by written notice from the Company
to the Investor, or the Investor to the Company, as the case may be, setting
forth the basis for the termination hereof.  The representations and warranties
and covenants of the Company and the Investor contained in Sections 3, 4, 5, and
6 hereof, the indemnification provisions set forth in Section 9 hereof and the
agreements and covenants set forth in Sections   10 and 11, shall survive the
Commencement and any termination of this Agreement.  No termination of this
Agreement shall affect the Company's or the Investor's rights or obligations (i)
under the Registration Rights Agreement which shall survive any such termination
or (ii) under this Agreement with respect to pending purchases and the Company
and the Investor shall complete their respective obligations with respect to any
pending purchases under this Agreement.

12.       MISCELLANEOUS.

(a)        Governing Law; Jurisdiction; Jury Trial.  The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its shareholders.  All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois.  Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, 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 brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper.  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 to such party at the
address for such notices to it under this Agreement and agrees

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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 manner permitted by law.   EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(b)      Counterparts.  This Agreement may be executed in two or more identical
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party; provided that a facsimile signature or signature
delivered by e-mail in a “.pdf” format data file shall be considered due
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile signature or a
signature in a “.pdf” format data file.

(c)       Headings.  The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

(d)       Severability.  If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e)       Entire Agreement.  This  Agreement supersedes all other prior oral or
written agreements between the Investor, the Company, their affiliates and
persons acting on their behalf with respect to the matters discussed herein, and
this Agreement, the other Transaction Documents and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters.  The Company
acknowledges and agrees that is has not relied on, in any manner whatsoever, any
representations or statements, written or oral, other than as expressly set
forth in this Agreement.

(f)       Notices.  Any notices, consents or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt when delivered
personally; (ii) upon receipt when sent by email; or (iii) one (1) Trading Day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
email for such communications shall be:

If to the Company:

Sauer Energy, Inc.

2326 Teller Road

Newbury Park, California 91320

Telephone: (888) 829-8748

Email: deiter@sauerenergy.com

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Attention: Dieter R. Sauer, Jr., Chief Executive Officer

With a copy to:  

Frank J. Hariton, Esq.

1065 Dobbs Ferry Road

White Plains, New York 10607

Telephone; (914) 674-4373

Email: Hariton@sprynet.com

  

If to the Investor:

St. George Investments, LLC

303 East Wacker Drive, Suite 1200

Chicago, IL 60601

Telephone: 312-297-7001

Email:  jfife@chicagoventur.com

Attention:  John Fife, Chief Executive officer

With a copy to:  

Leslie Marlow, Esq.

The Chrysler Building

405 Lexington Avenue, 26th Floor

New York, New York 10174

Telephone; (516) -2223

Email: lmarlow@gracinmarlow.com

If to the Transfer Agent:  

Holladay Stock Transfer, Inc.2939 North 67th PlaceScottsdale, AZ
85251Telephone:  480-481-3940Email: diane@holladay1.comAttention: Dianne
Freidermann

or at such other address and/or to the attention of such other person as the
recipient party has specified by written notice given to each other party three
(3) Trading Days prior to the effectiveness of such change.  Written
confirmation of receipt (A) given by the recipient of such notice, consent or
other communication, or (B) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by
email or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.

 

(g)        Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns.  The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor,
including by merger or consolidation.  The Investor may not assign its rights or
obligations under this Agreement.

(h)       No Third Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

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(i)      Publicity.  The Investor shall have the right to approve before
issuance any press release, SEC filing or any other public disclosure made by or
on behalf of the Company whatsoever with respect to, in any manner, the
Investor, its purchases hereunder or any aspect of this Agreement or the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of the Investor, to make any press release
or other public disclosure (including any filings with the SEC) with respect to
such transactions as is required by applicable law and regulations so long as
the Company and its counsel consult with the Investor in connection with any
such press release or other public disclosure at least two (2) Trading Days
prior to its release.  The Investor must be provided with a copy thereof at
least two (2) Trading Days prior to any release or use by the Company
thereof.  The Company agrees and acknowledges that its failure to fully comply
with this provision constitutes a material adverse effect on its ability to
perform its obligations under this Agreement.

(j)       Further Assurances.  Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

(k)      No Financial Advisor, Placement Agent, Broker or Finder.  The Company
represents and warrants to the Investor that it has not engaged any financial
advisor, placement agent, broker or finder in connection with the transactions
contemplated hereby.  The Investor represents and warrants to the Company that
it has not engaged any financial advisor, placement agent, broker or finder in
connection with the transactions contemplated hereby.  The Company shall be
responsible for the payment of any fees or commissions, if any, of any financial
advisor, placement agent, broker or finder relating to or arising out of the
transactions contemplated hereby.   The Company shall pay, and hold the Investor
harmless against, any liability, loss or expense (including, without limitation,
attorneys' fees and out of pocket expenses) arising in connection with any such
claim.

(l)        No Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

(m)      Remedies, Other Obligations, Breaches and Injunctive Relief.  The
Investor’s remedies provided in this Agreement shall be cumulative and in
addition to all other remedies available to the Investor under this Agreement,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy of the Investor contained herein shall be deemed a
waiver of compliance with the provisions giving rise to such remedy and nothing
herein shall limit the Investor's right to pursue actual damages for any failure
by the Company to comply with the terms of this Agreement.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investor and that the remedy at law for any such breach
may be inadequate.  The Company therefore agrees that, in the event of any such
breach or threatened breach, the Investor shall be entitled, in addition to all
other available

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remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

 

(n)        Enforcement Costs.  If: (i) this Agreement is placed by the Investor
in the hands of an attorney for enforcement or is enforced by the Investor
through any legal proceeding; or (ii) an attorney is retained to represent the
Investor in any bankruptcy, reorganization, receivership or other proceedings
affecting creditors' rights and involving a claim under this Agreement; or (iii)
an attorney is retained to represent the Investor in any other proceedings
whatsoever in connection with this Agreement, then the Company shall pay to the
Investor, as incurred by the Investor, all reasonable costs and expenses
including attorneys' fees incurred in connection therewith, in addition to all
other amounts due hereunder.

 (o)        Failure or Indulgence Not Waiver.  No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.

 

*     *     *     *     *

 

 

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IN WITNESS WHEREOF, the Investor and the Company have caused this Purchase
Agreement to be duly executed as of the date first written above.

 

 

THE COMPANY:

 

 

 

 

 

SAUER ENERGY, INC.

 

 

 

 

 

 

By:

 

 

 

 

Name: Dieter R. Sauer, Jr.

Title: Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

INVESTOR:

 

 

 

 

 

ST. GEORGE IVESTMENTS, LLC

 

 

 

 

 

 

By:

 

 

 

Name: John Fife

Title: Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

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