MEMBERSHIP INTEREST PURCHASE AGREEMENT
 
THIS AGREEMENT is made as of April 1, 2008 (the “Effective Date”), by SUNSTONE
CORPORATION, an Oklahoma corporation (“Seller”), and OSAGE EXPLORATION AND
DEVELOPMENT, INC., a Delaware corporation (“Purchaser”).
 
A. Seller owns a 100% membership interest (the “Interest”) in Cimarrona Limited
Liability Company, an Oklahoma limited liability company (the “Company”), which
owns a 9.4% cost-bearing interest in certain oil and gas contracts in Colombia
(the “Oil and Gas Asset”).
 
B. The Purchase Price (as defined below) has been negotiated and set based on
the limited representations and warranties of the parties, and the Purchaser
recognizes that Seller is not representing or warranting as to the assets or
liabilities of the Company except as expressly set forth in Section 3.1.
Purchaser has conducted the diligence Purchaser believes is reasonable and has
determined in its business judgment that the Purchase Price is fair and
reasonable based on the limited representations and warranties in this
Agreement.
 
C. Subject to the terms and conditions set forth in this Agreement, the
Purchaser desires to purchase from the Seller, and the Seller desires to sell to
the Purchaser, the Interest.
 
The parties agree as follows:
 
ARTICLE I
Purchase and Sale
 
1.1 Purchase and Sale. Seller agrees to sell and Purchaser agrees to buy the
Interest, including all of Seller’s rights under the Limited Liability Agreement
of the Company dated December 8, 1993, as amended (the “Company’s Operating
Agreement”).
 
1.2 Purchase Price. The purchase price for the Interest shall be the following
(the “Purchase Price”):
 
(a) 2,750,000 shares of Purchaser’s common stock, par value $0.0001 per share
(“Purchaser’s Common Stock”), which shall be delivered to Seller at the Closing
(as defined in Section 2.1); and
 
(b) A warrant granting Seller or its designee or assignee the right to purchase,
from time to time, up to 1,125,000 shares of Purchaser’s Common Stock, in
substantially the form attached as Exhibit A (the “Warrant”); provided, (i) the
Warrant shall be exercisable for a period of at least three years and shall be
on the same terms and conditions as any warrants granted to investors in the
Equity Offering; (ii) if the Equity Offering does not include an issuance of
warrants, the Warrant shall be for a period of five years at an exercise price
equal to the valuation of Purchaser’s Common Stock issued in the Equity
Offering; (iii) the exercise price under the Warrant shall be $1.25 per share of
Purchaser’s Common Stock; and (iv) the Warrant will contain customary
anti-dilution provisions. Further, at Seller’s election, the Warrant may be
exchanged for a replacement warrant in the form of the warrants issued in the
Equity Offering, if any.
 
 
 

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ARTICLE II
Closing
 
2.1 Closing. The transactions contemplated by this Agreement shall close at 2:00
p.m. on April 8, 2008 or on such other business day after all conditions
precedent to the parties’ obligations under this Agreement, as set forth in
Article V, have been satisfied or waived by the party to whom the condition
precedent is intended to protect at the offices of McAfee & Taft A Professional
Corporation, Tenth Floor, Two Leadership Square, 211 N. Robinson, Oklahoma City,
Oklahoma 73102, or at such other time, date, and place as is mutually agreeable
to Purchaser and Seller (the “Closing”); provided that the sale contemplated by
this Agreement shall be effective as of the Effective Date. 
 
2.2 Closing Deliveries.
 
(a) At the Closing, Seller shall deliver the following to Purchaser:
 
i. An assignment of the Interest in substantially the form attached as Exhibit B
to this Agreement, duly executed by Seller; and
 
ii. $100,000 in immediately available funds.
 
(b) At the Closing, Purchaser shall deliver the following to Seller:
 
i. A certificate evidencing Purchaser’s issuance to Seller of 2,750,000 shares
of Purchaser’s Common Stock; and
 
ii. The Warrant, duly executed by Purchaser.
 
ARTICLE III
Representations and Warranties
 
3.1 Representations and Warranties of Seller. To induce Purchaser to enter into
this Agreement and purchase the Interest, Seller represents and warrants to
Purchaser as follows:
 
(a) Seller has full corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been duly
executed and delivered by Seller and (assuming the valid authorization,
execution, and delivery of this Agreement by the Purchaser) constitutes the
valid and binding obligation of Seller enforceable against it in accordance with
its terms, except that such enforceability may be limited by (i) applicable
insolvency, bankruptcy, reorganization, moratorium, or other similar laws
affecting or relating to the enforcement of creditors’ rights generally, and
(ii) applicable equitable principles (whether considered in a proceeding at law
or equity). Seller has duly authorized the execution, delivery and performance
of this Agreement and all other agreements contemplated hereby. Neither the
execution and delivery of this Agreement, nor the transactions contemplated
hereby, will result in a violation of, or a conflict with, the Articles of
Incorporation, Articles of Organization, Bylaws, Operating Agreement or other
charter documents of Seller.
 
 
 

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(b) Seller is the sole owner of legal and beneficial title to the Interest and
owns the Interest free and clear of all security interests, claims,
encumbrances, trusts, pledges, and other encumbrances (collectively,
“Encumbrances”), except for any Encumbrances imposed by the Company’s Operating
Agreement or applicable law.
 
(c) Except for any fees due to Larry Ray in connection with the transactions
contemplated by this Agreement, which Purchaser has agreed to pay, neither
Purchaser nor the Company will be liable to any broker, investment banker,
financial advisor or other person entitled to any broker’s, finder’s, financial
advisor’s, or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
 
(d) Seller is acquiring the shares of Purchaser’s Common Stock and the Warrant
for its own account, for investment, and not with a view to a distribution
thereof.
 
(e) Seller is an “Accredited Investor” within the meaning of Rule 501 of
Regulation D under the Securities Act of 1933.
 
(f) Seller understands that the shares of Purchaser’s Common Stock to be issued
in connection with this Agreement or pursuant to the Warrant are restricted
stock and may not be sold, transferred or otherwise disposed of by Seller
without registration under the Securities Act and any state securities laws, or
an exemption therefrom, and that in the absence of an effective registration
statement covering such shares or an available exemption from registration, the
shares may be required to be held indefinitely, except to the extent such shares
may be sold in compliance with the provisions of Rule 144 promulgated under the
Securities Act.
 
(g) To Seller’s knowledge, (i) Schedule 1 lists all contracts included in the
Oil and Gas Asset, and (ii) other than the contracts listed on Schedule 1 and
assets to be distributed to Seller pursuant to Section 4.1, the Company has no
material assets. To Seller’s knowledge, no consent, permit, approval or
authorization of any governmental or regulatory authority or any other person is
required to be obtained by the Seller by virtue of the execution, delivery and
performance of this Agreement.
 
(h) To Seller’s knowledge, there are no pending or threatened actions, claims,
investigations, lawsuits, proceedings, or arbitrations against the Company,
except for the assessments and proceedings relating to the assessment against
the Company of additional tax of 793,835,000 Colombian pesos for the taxable
period of 2001, and 884,000,000 Colombian pesos for the taxable period of 2003,
plus sanctions and interest related to such assessments (the “Colombian Tax
Claims”). The Colombian Tax Claim relating to the taxable period 2001 is
currently on appeal to the Council of State and the Colombian Tax Claim for the
taxable period 2003 is currently before the judge of the administrative court.
 
(i) To Seller’s knowledge, the financial statements attached as Exhibit C do not
materially misstate the financial position of the Company as of the date of such
financial statements, except for $634,000 in tax credits included in other
assets and $1,978,000 included as a deferred income tax asset, provided
Purchaser acknowledges that such financial statements are not prepared in
accordance with generally accepted accounting principals, do not contain
footnote disclosers, were prepared primarily for internal management purposes
and not on an accrual basis, and do not contain any liabilities related to the
Colombian Tax Claims.
 
 
 

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(j) To Seller’s knowledge, the representations and warranties of Seller in this
Agreement do not contain any untrue statement of a material fact and do not omit
to state a material fact necessary, in light of the circumstances, to make the
representations and warranties not misleading.
 
3.2 Representations and Warranties of Purchaser. To induce Seller to enter into
this Agreement and sell the Interest and acquire shares of Purchaser’s Common
Stock and the Warrant, Purchaser represents and warrants to Seller as follows:
 
(a) Purchaser has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Purchaser and the
consummation by Purchaser of the other transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Purchaser.
This Agreement has been duly executed and delivered by Purchaser and (assuming
the valid authorization, execution, and delivery of this Agreement by Seller)
constitutes the valid and binding obligation of Purchaser enforceable against it
in accordance with its terms, except that such enforceability may be limited by
(i) applicable insolvency, bankruptcy, reorganization, moratorium, or other
similar laws affecting or relating to the enforcement of creditors’ rights
generally, and (ii) applicable equitable principles (whether considered in a
proceeding at law or equity). Purchaser has duly authorized the execution,
delivery, and performance of this Agreement and all other agreements
contemplated hereby.
 
(b) As of March 31, 2008, the authorized capital stock of Purchaser consists
solely of 190,000,000 shares of Purchaser’s Common Stock and 10,000,000 shares
of preferred stock, par value $0.0001 per share, of which 35,959,775 shares of
Purchaser’s Common Stock are issued and outstanding 3,756,917 shares are
reserved for issuance under options or warrants. No shares of Purchaser’s
preferred stock are issued and outstanding and no shares of Purchaser’s Common
Stock or Purchaser’s preferred stock are held in treasury. Upon the issuance to
Seller of the shares of Purchaser’s Common Stock to be issued hereunder or
pursuant to the Warrant, Seller will be the beneficial owner of such shares,
free and clear of all Encumbrances.
 
(c) When issued to Seller, all shares of Purchaser’s Common Stock to be issued
hereunder or pursuant to the Warrant will be duly authorized, validly issued,
fully paid, nonassessable, not subject to or issued in violation of any purchase
option, right of first refusal, preemptive right, subscription right or any
similar right, and will have been issued in compliance with all applicable laws.
The issuance of such shares has been approved by Purchaser’s board of directors,
and no other corporate approval is necessary for such issuance. The issuance of
such shares to Seller will not result in Purchaser being obligated to issue (i)
any additional shares of Purchaser’s Common Stock or (ii) any other securities
that would dilute Seller’s interest in Purchaser.
 
(d) Purchaser has filed all proxy statements, reports and other documents
required to be filed by it under the Securities Exchange Act 1934, as amended
(collectively, the “SEC Reports”). Each SEC Report was, at the time of its
filing, in substantial compliance with the requirements of its respective form.
None of the SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, contained or contain any untrue statement of a
material fact or omitted or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
 
 
 

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(e) Purchaser is acquiring the Interest for its own account, for investment, and
not with a view to a distribution thereof.
 
(f) Purchaser is an “Accredited Investor” within the meaning of Rule 501 of
Regulation D under the Securities Act.
 
(g) Purchaser understands that the Interest may not be sold, transferred, or
otherwise disposed of by Purchaser without registration under the Securities Act
and any state securities laws, or an exemption therefrom, and that in the
absence of an effective registration statement covering the Interest or an
available exemption from registration, the Interest may be required to be held
indefinitely.
 
(h) Purchaser has agreed to pay the fee due to Larry Ray in connection with the
transactions contemplated by this Agreement. Seller will not be liable to any
broker, investment banker, financial advisor or other person entitled to any
broker’s, finder’s, financial advisor’s, or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Purchaser.
 
(i) In making its decision to purchase the Interest, Purchaser has relied upon
independent investigations made by Purchaser. Purchaser has been given the
opportunity to examine relevant documents and to ask questions of, and to
receive answers from, the Company and any persons acting on the Company’s behalf
concerning the terms and conditions of this Agreement, the Oil and Gas Asset,
the Company’s financial statements, liabilities and the Colombian Tax Claims,
any other matter relating to the business and affairs of the Company, and an
investment in the Interest and to obtain any additional information necessary to
verify the accuracy of the information provided. In making its decision to
purchase the Interest, the Purchaser is not relying upon any information other
than the results of its own independent review of information provided to
Purchaser by the Company. Except as expressly provided in Section 3.1 of this
Agreement, Purchaser acknowledges that the condition of the Company and the
purchase of the Interest are “AS IS, WHERE IS.”
 
(j) To Purchaser’s knowledge, the representations and warranties of Purchaser in
this Agreement do not contain any untrue statement of a material fact and do not
omit to state a material fact necessary, in light of the circumstances, to make
the representations and warranties not misleading.
 
 
 

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ARTICLE IV
Covenants
 
4.1 Distribution of Assets; Peace Bonds; Effective Date.
 
(a) Immediately prior to the Closing, Seller will cause the Company to
distribute to Seller all assets of the Company, excluding only the Oil and Gas
Asset, the Peace Bonds pursuant to Section 4.1(b), and cash and cash equivalents
pursuant to Section 4.1(c). The Company shall retain the Oil and Gas Asset and
its bank accounts.
 
(b) The Company is the holder of a Peace Bond maturing May 22, 2008 in the
amount of 108,598,000 Colombian pesos, and a second Peace Bond maturing October
30, 2008 in the amount of 253,396,000 Colombian pesos (collectively, the “Peace
Bonds”). It is the intent of the parties that the Peace Bonds be held until
maturity, cashed in by the Company and that the full amount of such Peace Bonds
and interest be paid to Seller. Purchaser agrees to cause the Company to
promptly submit the Peace Bonds for redemption on their maturity dates and to
promptly pay to Seller the full amount of the proceeds of such Peace Bonds in
equivalent U.S. dollars.
 
(c) The parties intend for the Seller to receive all cash and cash equivalents
held by the Company at the Effective Date, less the payment by the Company of
any accounts payable incurred in the ordinary course of business until the
Effective Date (including obligations to accountants and attorneys). To effect
such intent, the parties agree that the Company will retain all cash in any bank
accounts owned by the Company at the Effective Date for a period of 60 days, at
which time Purchaser shall cause the Company to remit to Seller all cash and
cash equivalents (other than the Peace Bonds) held by the Company at the
Effective Date, less any payments made with respect to any accounts payable
incurred in the ordinary course of business until the Effective Date (including
obligations to accountants and attorneys), and proper documentation of the
amount of cash existing in the Company’s bank accounts at the Effective Date and
invoices or other evidence of the payments made by the Company.
 
(d) For purposes of clarification, the parties intend that (i) Seller receive
any income received by the Company relating to the production of oil and gas
before the Effective Date and all assets held by the Company immediately before
the Effective Date (other than the Oil and Gas Asset) after payment by the
Company of all existing accounts payable and joint interest billings from
Pacific Stratus Energy relating to the operation of the Oil and Gas Asset prior
to the Effective Date (to the extent any such billings relate to periods after
the Effective Date, such amounts will be pro-rated), and (ii) the Company retain
the Oil and Gas Asset and any income and expense associated with any production
and operations on or after the Effective Date. Except for the payment of the
foregoing joint interest billings and any accounts payable incurred in the
ordinary course of business until the Effective Date (including obligations to
accountants and attorneys), which shall be paid from cash of the Company held in
the Company’s bank accounts pursuant to Section 4.1(c), Seller is not
responsible for any other liabilities associated with the operations of the Oil
and Gas Assets or otherwise of the Company prior to the Effective Date.
 
 
 

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4.2 Equity Offering. Purchaser shall use commercially reasonable efforts to
complete a private offering of Purchaser’s Common Stock to accredited investors
(the “Equity Offering”). The term “Equity Offering” shall not include: (i) any
issuance of securities by Purchaser to its affiliates; (ii) any issuance that
raises less than $5,000,000; or (iii) any offering that is not completed by
August 5, 2008. Purchaser has engaged Energy Capital Solutions, LP to assist
Purchaser in such offering. Purchaser shall reasonably inform Seller of the
progress of any attempted Equity Offering and shall notify Seller in writing
within ten business days of the completion of an Equity Offering.
 
4.3 Registration Rights. Seller shall be entitled to “piggy back” registration
rights with respect to its shares of Purchaser’s Common Stock and any shares of
Purchaser’s Common Stock into which the Warrant may be converted. Purchaser
intends to file a registration statement with the United States Securities and
Exchange Commission with respect to the shares to be issued in the Exchange
Offering, and Purchaser will include Seller’s shares of Purchaser’s Common Stock
and any shares of Purchaser’s Common Stock into which the Warrant in such
registration, if any.
 
4.4 Third Party Consents. Each of the parties will use their respective
commercially reasonable efforts (i) to take promptly, or cause to be taken
(including actions after the Closing), all actions, and to do promptly, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement and (ii) as promptly
as practicable after the date of this Agreement, to obtain all governmental
authorizations from, give all notices to, and make all filings with, all
governmental authorities, and to obtain all other consents, waivers, approvals
and other authorizations from, and give all other notices to, all other third
parties, that are necessary or advisable in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement.
 
4.5 Observation of Meetings. So long as Seller or any affiliate of Seller holds
shares of Purchaser’s Common Stock constituting 3% of the total outstanding
shares of Purchaser’s Common Stock, Purchaser shall provide due notice of each
meeting of the board of directors of Purchaser to Seller or such affiliate, as
applicable, and shall permit representatives designated by Seller or such
affiliate, as applicable, to observe such meetings.
 
4.6 Preemptive Rights. For a period of two years from the Effective Date, so
long as Seller holds at least 1,000,000 shares of Purchaser’s Common Stock, if
Purchaser determines to issue shares of Purchaser’s Common Stock or any options,
warrants, or other securities convertible into shares of Purchaser’s Common
Stock other than the Equity Offering, Seller shall have a preemptive right to
purchase, on the same terms and conditions included in such offering, up to
Seller’s pro rata share of such securities. Seller’s pro rata share of such
securities shall be the ratio of the number of shares of Purchaser’s Common
Stock held by Seller (including any shares of Purchaser’s Common Stock that
Seller may purchase pursuant to the Warrant) immediately prior to such offering
to the total number of shares of Purchaser’s Common stock outstanding
immediately prior to such offering, assuming full conversion of all outstanding
options, warrants, or other securities convertible into Purchaser’s Common
Stock. Seller shall have 10 business days after notice by Purchaser to exercise
this preemptive right, or Seller’s waiver of such right may be presumed by
Purchaser.
 
 
 

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4.7 SEC Filings. So long as Seller or any affiliate of Seller holds shares of
Purchaser’s Common Stock constituting 1% of the total outstanding shares of
Purchaser’s Common Stock, but in any event until one year following the issuance
of any shares of Purchaser’s Common Stock upon exercise of the Warrant,
Purchaser will remain subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act of 1934, as amended, and will timely file
all SEC Reports in substantial compliance with the requirements of its
respective form. No SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
 
ARTICLE V
Conditions to Closing
 
5.1 Conditions to Purchaser’s Obligations. The obligation of Purchaser to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction or waiver by Purchaser in writing, on or prior to the Closing,
of each of the following conditions:
 
(a) Each of the representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects when made and as of
the Closing; each of the covenants and agreements of the Seller to be performed
on or prior to the Closing shall have been duly performed in all material
respects; and Purchaser shall have received from Seller at the Closing a
certificate to the foregoing effect, dated as of the Closing and executed by or
on behalf of Seller.
 
(b) All consents, approvals, and waivers from third parties and any governmental
entity and other parties necessary to Seller’s consummation of the transactions
contemplated hereby shall have been obtained.
 
(c) No action, suit or proceeding will be pending or threatened before any
governmental entity the result of which could prevent or prohibit the
consummation of any of the transactions contemplated by this Agreement and no
judgment, order, decree, stipulation, injunction or charge having any such
effect will exist.
 
5.2 Conditions to Seller’s Obligations. The obligation of Seller to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction or waiver by Seller in writing, on or prior to the Closing, of each
of the following conditions:
 
(a) Each of the representations and warranties of Purchaser contained in this
Agreement shall be true and correct in all material respects when made and as of
the Closing; each of the covenants and agreements of Purchaser to be performed
on or prior to the Closing shall have been duly performed in all material
respects; and Seller shall have received from Purchaser at the Closing
certificates to the foregoing effect, dated as of the Closing and executed on
behalf of Purchaser.
 
(b) All consents, approvals and waivers from third parties and any governmental
entity and other parties necessary to the consummation of the transactions
contemplated hereby shall have been obtained.
 
 
 

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ARTICLE VI
Termination
 
6.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
 
(a) by mutual written consent of Seller and Purchaser;
 
(b) by either Seller or Purchaser if any governmental entity shall have issued
an order, decree, or ruling or taken any other action permanently enjoining,
restraining, or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, or ruling, or other action shall have become
final and nonappealable; provided, however, that the right to terminate this
Agreement pursuant to this Section 6.1(b) shall not be available to any party
who has not used its best efforts to cause such order to be lifted;
 
(c) by Purchaser, if Seller should have breached in any material respect any of
its representations, warranties, covenants, or other agreements contained in
this Agreement, which breach or failure to perform cannot be or has not been
cured within 30 days after the giving of written notice to the Seller; or
 
(d) by Seller, if Purchaser shall have breached in any material respect any of
its respective representations, warranties, covenants or other agreements
contained in this Agreement, which breach or failure to perform cannot be or has
not been cured within 30 days after the giving of written notice to Purchaser.
 
6.2 Effect of Termination. In the event of a termination of this Agreement by
either Seller or Purchaser as provided in Section 6.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of Purchaser or Seller or their respective officers or directors, except with
respect to Sections 8.1, 8.9, 8.10, 8.11, and 8.15, which shall survive
termination; provided, however, that nothing herein shall relieve any party for
liability for any willful or knowing breach hereof.
 
ARTICLE VII
Indemnification
 
7.1 Seller’s Indemnity. Seller agrees to defend, indemnify, and hold Purchaser
and its affiliates and their respective successors and assigns harmless from,
against, and in respect of any and all Losses (as defined below) resulting from
any breach of representations, warranties, or covenants made by Seller in this
Agreement.
 
7.2 Purchaser’s Indemnity. Purchaser agrees to defend, indemnify, and hold
Seller harmless from, against, and in respect of any Losses resulting from any
breach of representations, warranties, or covenants made by Purchaser in this
Agreement;
 
7.3 Indemnification Procedure.
 
(a) If any party (the “Aggrieved”) desires to make a claim against any other
party (the “Indemnitor”) in connection with any Losses for which the Aggrieved
may seek indemnification hereunder (a “Claim”), the Aggrieved shall notify the
Indemnitor of such Claim and the amount and circumstances surrounding it. Upon
receipt of such notice from the Aggrieved, the Indemnitor shall be entitled, at
the Indemnitor’s election, to assume or participate in the defense of such
Claim. In any case in which the Indemnitor assumes the defense of the Claim, the
Indemnitor shall give the Aggrieved ten calendar days notice prior to executing
any settlement agreement, and the Aggrieved shall have the right to approve or
reject the settlement and related expenses; provided, however, that upon
rejection of any settlement and related expenses, the Aggrieved shall assume
control of the defense of such Claim and the liability of the Indemnitor with
respect to such Claim shall be limited to the amount or the monetary equivalent
of the rejected settlement and related expenses.
 
 
 

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(b) The Aggrieved shall retain the right to employ its own counsel and to
discuss matters with the Indemnitor related to the defense of any Claim, the
defense of which has been assumed by the Indemnitor pursuant to Section 7.3(a)
of this Agreement, but the Aggrieved shall bear and shall be solely responsible
for its own costs and expenses in connection with such participation; provided,
however, that all decisions of the Indemnitor shall be final and that the
Aggrieved shall cooperate with the Indemnitor in all respects in the defense of
the Claim, including refraining from taking any position adverse to the
Indemnitor.
 
(c) With respect to liquidated claims, if within 30 days after receiving notice
thereof the Indemnitor has not contested such Claim in writing, the Indemnitor
will pay the full amount thereof within ten days after the expiration of such
period.
 
(d) If the Indemnitor fails to give notice of the assumption of the defense of
any Claim within a reasonable time period not to exceed 45 days after receipt of
notice thereof from the Aggrieved, the Indemnitor shall no longer be entitled to
assume (but shall continue to be entitled to participate in) such defense. The
Aggrieved may, at its option, continue to defend such Claim and, in such event,
the Indemnitor shall indemnify the Aggrieved for all reasonable fees and
expenses in connection therewith. The Indemnitor shall be entitled to
participate at its own expense and with its own counsel in the defense of any
Claim the defense of which it does not assume. Prior to effectuating any
settlement of such Claim, the Aggrieved shall furnish the Indemnitor with
written notice of any proposed settlement in sufficient time to allow the
Indemnitor to act thereon. Within 15 days after the giving of such notice, the
Aggrieved shall be permitted to effect such settlement unless the Indemnitor (a)
reimburses the Aggrieved in accordance with the terms of this Article VII for
all reasonable fees and expenses incurred by the Aggrieved in connection with
such Claim; (b) assumes the defense of such Claim; and (c) takes such other
actions as the Aggrieved may reasonably request as assurance of the Indemnitor’s
ability to fulfill its obligations under this Article VIII in connection with
such Claim.
 
(e) For purposes of this Agreement, “Losses” shall mean all actual liabilities,
losses, costs, damages, penalties, assessments, demands, claims, causes of
action, including, without limitation, reasonable attorneys’, accountants’ and
consultants’ fees and expenses and court costs.
 
7.4 Survival. The representations and warranties of each party made in this
Agreement, and the corresponding right to bring a claim therefore, shall survive
for a period of two years following the Closing.
 
 
 

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7.5 Limitation of Claims. Notwithstanding anything in this Agreement to the
contrary, (a) no right to indemnification shall arise until the aggregate Claims
of the Aggrieved exceeds $10,000 and, in such event, the right to
indemnification shall only exist with respect to Claims in excess of such
amount, and (b) in no event shall either party have any obligation to indemnify
the other party for amounts in excess of $50,000, except for matters to be paid
pursuant to Section 4.1; provided, that the foregoing limitations shall not
apply to breaches of representations or warranties made with an intent to
defraud.
 
ARTICLE VIII
Miscellaneous Provisions
 
8.1 Costs and Expenses. Each party shall be responsible for its own costs and
expenses incurred in the preparation and delivery of this Agreement and in
connection with the transactions contemplated by this Agreement, whether or not
consummated, including without limitation, the expenses of their own attorneys
and accountants. If a party commences an action to enforce another party’s
obligations under this Agreement, the party prevailing in such action shall be
entitled to recover its reasonable attorney’s fees and costs incurred in such
action.
 
8.2 Notices. Any notice, request, instruction or other communication to be given
hereunder by either party to the other shall be given by hand delivery,
facsimile, certified or registered mail (return receipt requested) or by
overnight express service, addressed to the respective party or parties at the
following addresses:
 

If to Seller:
SunStone Corporation

101 North Robinson, Suite 800
Oklahoma City, Oklahoma 73102
Facsimile: (405) 605-1281
Attention: P. Mark Moore, President
 
With a copy (which shall not constitute notice) to:
 
McAfee & Taft A Professional Corporation
Tenth Floor, Two Leadership Square
211 N. Robinson
Oklahoma City, Oklahoma 73102
Facsimile: (405) 235-0439
Attention: W. Chris Coleman
 

If to Purchaser:
Osage Exploration and Development, Inc.

2445 Fifth Avenue, Suite 310
San Diego, California 92101
Facsimile: (619) 677-3964
Attention: Kim Bradford, Chairman, President and CEO
 
or to such other address or addresses as either party may designate to the
others by like notice as hereinabove set forth. Any notice given hereunder shall
be deemed given and received on the date of hand delivery, the date on which
confirmation of facsimile transmission is received if such receipt occurs during
regular business hours and on the next business day if it does not occur during
regular business hours, or three business days after deposit with the United
States Postal Service, or one business day after delivery to an overnight
express service for next day delivery, as the case may be.
 
 
 

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8.3 Severability. If any provision of this Agreement or application to any party
or circumstances shall be determined by any court of competent jurisdiction to
be invalid and unenforceable to any extent, the remainder of this Agreement or
the application of such provision to such person or circumstances, other than
those as to which it is so determined invalid or unenforceable, shall not be
affected thereby, and each provision hereof shall be valid and shall be enforced
to the fullest extent permitted by law.
 
8.4 Parties in Interest. This Agreement shall inure to the benefit of and bind
the parties and their successors and permitted assigns.
 
8.5 Further Assurances. After the Closing, upon the reasonable request of
Purchaser, Seller shall execute, acknowledge, and deliver all such instruments
and documents necessary to confirm, designate, and effect an orderly transfer to
Purchaser of the Interest or otherwise reasonably necessary to carry out the
transactions contemplated by this Agreement.
 
8.6 Modification and Waiver. No modification or amendment of this Agreement
shall be effective unless it is in writing signed by Seller and Purchaser. No
waiver of any provision of this Agreement, and no consent by any party to any
departure therefrom, shall be effective unless in writing signed by the party to
be bound thereby, and the waiver will only then be effective for the period and
on the conditions and for the specific instances and purposes specified in such
writing.
 
8.7 Assignment. Neither party may assign or otherwise transfer this Agreement
without the prior written consent of the other party.
 
8.8 Captions. The captions in this Agreement are inserted only as a matter of
convenience and for reference and in no way define, limit, or describe the scope
of this Agreement or the scope or content of any of it provisions.
 
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
 
8.10 Arbitration. Except as otherwise provided in this Agreement, in the event
of any dispute hereunder, the parties agree that such dispute will be resolved
only by arbitration, conducted in Oklahoma City, Oklahoma, by the American
Arbitration Association (“AAA”), pursuant to its commercial arbitration rules as
the same may be amended from time to time. Each party agrees to participate
therein diligently and in good faith. Unless the parties otherwise agree, in any
dispute involving more than $100,000, three arbitrators shall be employed.
Otherwise, a single arbitrator shall be used. The determination made in any such
arbitration shall set forth the reasons forming the basis for the determination
and shall be binding upon the parties hereto and may be entered for judgment in
any court of competent jurisdiction. Except as otherwise determined by the
arbitrator(s), all fees and expenses of the arbitrator(s) and the AAA shall be
borne equally by the parties.
 
 
 

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8.11 Jurisdiction. The parties irrevocably submit to the jurisdiction of any
state or federal court in Oklahoma City, Oklahoma, for purposes of enforcing the
provisions of this Agreement.
 
8.12 Entire Agreement. This Agreement is the final expression of the entire
understanding of the parties with respect to the subject matter of this
Agreement and supersedes any prior agreements or understandings of the parties
with respect to such subject matter. The parties have made no agreements,
promises, warranties, covenants, or undertakings other than those expressly
stated in this Agreement.
 
8.13 Construction. The rule of construction that an agreement is to be construed
most strictly against the party who drafted the document is not applicable to
this Agreement because all parties participated in the preparation of this
Agreement.
 
8.14 Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original of this Agreement, and all
counterparts together shall constitute one agreement. The exchange of executed
counterparts of this Agreement or of signature pages by facsimile or other
electronic transmission shall constitute effective execution and delivery of
this Agreement and may be used in lieu of the original for all purposes.
 
8.15 Waiver of Jury Trial. THE PARTIES IRREVOCABLY WAIVE ANY RIGHT TO DEMAND
THAT ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY
RELATED TO THIS AGREEMENT OR THE RELATIONSHIP OF THE PARTIES BE TRIED BY JURY.
THIS WAIVER EXTENDS TO ANY RIGHT TO DEMAND A TRIAL BY JURY ARISING FROM ANY
SOURCE, INCLUDING THE CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN,
COMMON LAW, OR ANY APPLICABLE STATUTE OR REGULATION. THE PARTIES ACKNOWLEDGE
THAT THEY ARE KNOWINGLY AND VOLUNTARILY WAIVING THEIR RIGHTS TO DEMAND TRIAL BY
JURY AND THAT SUCH WAIVER IS A MATERIAL CONSIDERATION FOR ENTERING INTO AND
PERFORMING THIS AGREEMENT.
 
[Signatures of the Parties Appear on Following Page]
 
 
 
 

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EXECUTED as of the day and year first stated above.
 

 
SUNSTONE CORPORATION, an Oklahoma corporation
         
By:__________________________________
 
P. Mark Moore, President
             
OSAGE EXPLORATION AND DEVELOPMENT, INC., a Delaware corporation
         
By:____________________________________
 
Kim Bradford, Chairman, President and CEO

 
 
 
 

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SCHEDULE 1
TO
MEMBERSHIP INTEREST PURCHASE AGREEMENT
 
1.
Unitization Agreement - Integral Plan for the Unified Exploitation of the Guadas
Field Oil Structure Corresponding to the Dindal and Rio Seco Contracts by and
among Ecopetrol, The GHK Company (“GHK”), Sociedad Internacional Petrolera S.A.
(“Sipetrol”), Seven Seas Petroleum Colombia, Inc. (“Seven Seas”), Cimarrona
Limited Liability Company (“Cimarrona”), and Petrolinson S.A. (“Petrolinson”).

 
2.
Association Contract by and between Ecopetrol, GHK and Petrolinson dated January
22, 1993 (Dindal Area).

 
3.
International Operating Agreement by and between GHK, Cimarrona, Esmeralda
Limited Liability Company (“Esmeralda”), Sipetrol, Seven Seas and Petrolinson
S.A. effective August 1, 1994 (Dindal Area).

 
4.
Contract of Partial Assignment of Interests, Rights and Obligations under the
Dindal Association Contract.

 
5.
Association Contract by and between Ecopetrol and GHK (Rio Seco Sector) dated
January 23, 1995.

 
6.
International Operating Agreement by and between GHK, Cimarrona, Esmeralda,
Sipetrol, Seven Seas, and Petrolinson effective October 1, 1996 (Rio Seco Area).

 
7.
Contract of Partial Assignment of Interests, Rights and Obligations under the
Rio Seco Association Contract.

 

 
 

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EXHIBIT A
 
FORM OF WARRANT
 
 
 
 
 

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EXHIBIT B
 
ASSIGNMENT OF MEMBERSHIP INTEREST

 
 
FOR VALUE RECEIVED, SUNSTONE CORPORATION, an Oklahoma corporation, does hereby
transfer its entire membership interest in Cimarrona Limited Liability Company,
an Oklahoma limited liability company (the “Company”), including all of its
rights under the Company’s Operating Agreement, free and clear of all security
interests, claims, encumbrances, trusts, pledges, and other encumbrances, to
Osage Exploration and Development, Inc., a Delaware corporation.
 
This assignment is made pursuant to a Membership Interest Purchase Agreement
dated as of April 7, 2008, and incorporates all of the terms, conditions,
representations, warranties, and indemnities in that agreement.
 
EXECUTED EFFECTIVE as of April 1, 2008.
 

 

 

 
SUNSTONE CORPORATION, an Oklahoma corporation
     
By:__________________________________
 
P. Mark Moore, President

 
 
 
 

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EXHIBIT C
 
FINANCIAL STATEMENTS
 
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