Document:

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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (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. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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]

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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

              

      

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    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.

            

    

     

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    FORM
      OF
      WARRANT

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    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

            

    

    

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      C

     

    FINANCIAL
      STATEMENTSTHE
      SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE
      STATE SECURITIES LAWS. THE SECURITIES 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, OR APPLICABLE STATE SECURITIES
      LAWS
      OR AN APPLICABLE EXEMPTION THEREFROM. THE SECURITIES MAY BE PLEDGED IN
      CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE
      SECURITIES.

     

     

    OSAGE
      EXPLORATION AND DEVELOPMENT, INC.

     

    WARRANT
      TO PURCHASE COMMON STOCK

     

    
      	
              Warrant
                No.:     A-4 

            	
              Number
                of Shares: 1,125,000

            
	
              CUSIP
                No.:    68771Q106  

            	
              (subject
                to adjustment)

            

    

    

    Date
      of
      Issuance: April 8, 2008

    

    Osage
      Exploration and Development, Inc., a Delaware corporation (the “Company”),
      hereby certifies that, for good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, Sunstone Corporation, an Oklahoma
      corporation, the registered holder hereof or its permitted assigns is entitled,
      subject to the terms and conditions set forth below, to purchase from the
      Company upon surrender of this Warrant (as defined below), at any time or times
      on or after the date hereof, but not after 5:00 p.m., Eastern Time, on the
      Expiration Date (as defined below), 1,125,000 fully paid nonassessable shares
      of
      Common Stock (as defined below) of the Company at the Exercise Price per share
      provided in Section 1(c) of this Warrant, subject to adjustment as provided
      below. 

      

    Section
      1.  Definitions. 
      The following terms as used in this Warrant shall have the following
      meanings:

     

    (a) “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the City of New York are required by law or executive order to remain
      closed.

     

    (b) “Common
      Stock”
means
      (i) the common stock, $0.0001 par value per share, of the Company, and
      (ii) any capital stock into which such Common Stock shall have been changed
      or any capital stock resulting from a reclassification of such Common
      Stock.

     

    (c) “Exercise
      Price”
shall
      be equal to $1.25, subject to further adjustment as hereinafter
      provided.

     

    (d) “Expiration
      Date”
means
      April 8, 2013 or, if such date does not fall on a Business Day or on a Trading
      Day, then the next Business Day.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a joint stock company, a trust, an unincorporated organization
      or
      association and a government or any department or agency thereof.

     

    (f) “Principal
      Market”
means
      the principal securities exchange or trading market for the Common
      Stock.

     

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

     

    (i) “Trading
      Day”
shall
      mean (x) a day on which the Principal Market is open for business or
      (y) if the applicable security is not so listed on a Principal Market or
      admitted for trading or quotation, a Business Day.

     

    (j) “Warrant”
means
      this Warrant and all warrants issued in exchange, transfer or replacement
      thereof.

     

    (k) “Warrant
      Shares”
means
      all shares of Common Stock issuable upon exercise of the Warrants. 

     

    Section
      2.  Exercise of Warrant.

     

    (a) 
      Subject to the terms and conditions hereof, including the early termination
      of
      this Warrant pursuant to Section 3(b) of this Warrant, this Warrant
      may be exercised by the holder hereof then registered on the books of the
      Company, in whole or in part, at any time on any Business Day on or after the
      opening of business on the date hereof and prior to 5:00 p.m., Eastern Time,
      on
      the Expiration Date by (i) delivery of a written notice, in the form of the
      subscription notice attached as Exhibit A hereto or a reasonable facsimile
      thereof (the “Exercise Notice”), to the Company, of such holder’s election to
      exercise all or a portion of this Warrant, which notice shall specify the number
      of Warrant Shares to be purchased, (ii) payment to the Company of an amount
      equal to the Exercise Price multiplied by the number of Warrant Shares as to
      which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash
      or delivery of a certified check or bank draft payable to the order of the
      Company or wire transfer of immediately available funds and (iii) the
      surrender of this Warrant to a common carrier for overnight delivery to the
      Company as soon as practicable following such date (or an indemnification
      undertaking or other form of security reasonably satisfactory to the Company
      with respect to this Warrant in the case of its loss, theft or destruction,
      or
      an affidavit of lost Warrant, in accordance with Section 11); provided, however,
      that if such Warrant Shares are to be issued in any name other than that of
      the
      registered holder of this Warrant, such issuance shall be deemed a transfer
      and
      the provisions of Section 8 of this Warrant shall be applicable. In the
      event of any exercise of the rights represented by this Warrant in compliance
      with this Section 2(a), the Company shall use its best efforts on or before
      the third Business Day, but in no event later than the fifth Business Day (the
      “Warrant Share Delivery Date”) following the date of receipt by the Company of
      the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an
      indemnification undertaking or other form of security reasonably satisfactory
      to
      the Company with respect to this Warrant in the case of its loss, theft or
      destruction, or an affidavit of lost Warrant, in accordance with Section
      11) (the “Exercise Delivery Documents”), (A) at the holder’s request,
      to credit such aggregate number of shares of Common Stock to which the holder
      shall be entitled to the holder’s or its designee’s balance account with The
      Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission
      system or (B) to issue and deliver to the address as specified in the
      Exercise Notice, a certificate or certificates in such denominations as may
      be
      requested by the holder in the Exercise Notice, registered in the name of the
      holder or its designee, for the number of shares of Common Stock to which the
      holder shall be entitled upon such exercise. Upon delivery of the Exercise
      Delivery Documents, the holder of this Warrant shall be deemed for all corporate
      purposes to have become the holder of record of the Warrant Shares with respect
      to which this Warrant has been exercised, irrespective of the date of delivery
      of this Warrant as required by clause (iii) above or the certificates
      evidencing such Warrant Shares. In the case of a dispute as to the determination
      of the Exercise Price or the arithmetic calculation of the number of Warrant
      Shares, the Company shall promptly issue to the holder the number of shares
      of
      Common Stock that is not disputed and shall submit the disputed determination
      or
      arithmetic calculation to the holder via facsimile within two (2) Business
      Days
      after receipt of the holder’s Exercise Notice. If the holder and the Company are
      unable to agree upon the determination of the Exercise Price or arithmetic
      calculation of the number of Warrant Shares within two (2) Business Days of
      such
      disputed determination or arithmetic calculation being submitted to the holder,
      then the Company shall immediately submit via facsimile (i) the disputed
      determination of the Exercise Price or the Closing Price (as defined in Section
      9(f) of this Warrant) to an independent, reputable investment banking firm
      selected jointly by the Company and the holder or (ii) the disputed
      arithmetic calculation of the number of Warrant Shares to its independent,
      outside auditor. The Company shall cause the investment banking firm or the
      outside auditor, as the case may be, to perform the determination or calculation
      and notify the Company and the holder of the results no later than ten (10)
      Business Days from the time it receives the disputed determination or
      calculation. Such investment banking firm’s or outside auditor’s determination
      or calculation, as the case may be, shall be deemed conclusive absent manifest
      error. All fees and expenses of such determinations shall be borne solely by
      the
      Company.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b) Unless
      the rights represented by this Warrant shall have expired or shall have been
      fully exercised, the Company shall, as soon as practicable but in no event
      later
      than five (5) Business Days after any exercise (the “Warrant Delivery Date”) and
      at its own expense, issue a new Warrant identical in all respects to this
      Warrant exercised except it shall represent rights to purchase the number of
      Warrant Shares purchasable immediately prior to such exercise under this
      Warrant, less the number of Warrant Shares with respect to which this Warrant
      is
      exercised.

     

    (c) Notwithstanding
      anything contained in this Warrant to the contrary, the Company shall not be
      required to issue fractions of shares of Common Stock upon exercise of this
      Warrant or to distribute certificates which evidence such fractional shares.
      In
      lieu of any fractional shares, there shall be paid to the holder an amount
      of
      cash equal to the same fraction of the current market value of a share of Common
      Stock. For purposes of this Section 2(c) of this Warrant, the current
      market value of a share of Common Stock shall be the Closing Price of a share
      of
      Common Stock for the Trading Day immediately prior to the date of such exercise
      or if not listed on a Principal Market, then as determined in good faith by
      a
      majority of the Company’s Board of Directors, whose determination shall be
      final, binding and conclusive. If more than one Warrant shall be presented
      for
      exercise in full at the same time by the same holder, the number of full shares
      of Common Stock which shall be issuable upon the exercise thereof shall be
      computed on the basis of the aggregate number of shares of Common Stock
      purchasable on exercise of all Warrants so presented.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (d) If
      the
      Company shall fail for any reason or for no reason (except in the case of a
      dispute as to the Exercise Price or the Closing Price which is being resolved
      in
      accordance with Section 2(a) of this Warrant) to issue to the holder on or
      before the Warrant Share Delivery Date, a certificate for the number of shares
      of Common Stock to which the holder is entitled or to credit the holder’s or its
      designee’s balance account with DTC, in accordance with Section 2 of this
      Warrant, for such number of shares of Common Stock to which the holder is
      entitled upon the holder’s exercise of this Warrant or a new Warrant for the
      number of shares of Common Stock to which such holder is entitled pursuant
      to
      Section 2(b) of this Warrant, the Company shall, in addition to any
      other remedies under this Warrant or otherwise available to such holder, pay
      as
      additional damages in cash to such holder on each day after the Warrant Share
      Delivery Date if such exercise is not timely effected and/or each day after
      the
      Warrant Delivery Date if such Warrant is not delivered, as the case may be,
      an
      amount equal to one-half percent (0.5%) per month multiplied by the product
      of
      (I) the sum of the number of shares of Common Stock not issued to the
      holder on or prior to the Warrant Share Delivery Date and to which such holder
      is entitled and, in the event the Company has failed to deliver a Warrant to
      the
      holder on or prior to the Warrant Delivery Date and to which such holder is
      entitled, the number of shares of Common Stock issuable upon exercise of the
      Warrant as of the Warrant Delivery Date and (II) the Closing Price of the
      Common Stock on the Warrant Share Delivery Date, in the case of failure to
      deliver Common Stock, or on the Warrant Delivery Date, in the case of failure
      to
      deliver a Warrant, provided that if the Common Stock is not listed on a
      Principal Market, then the Closing Price shall be as determined in good faith
      by
      a majority of the Company’s Board of Directors, whose determination shall be
      final, binding and conclusive.

    

    (e) If
      the
      Company completes an Equity Offering (as defined in the Membership Interest
      Purchase Agreement dated April 8, 2008 between Sunstone Corporation and the
      Company), the holder of this Warrant may at the holder’s election, exchange this
      Warrant for a replacement Warrant in the form of those issued in such Equity
      Offering. To effect such exchange, the holder shall deliver this Warrant
      together with a notice of the Holder’s election to exchange the Warrant for such
      replacement warrant to the Company in the manner provided in this Section 2
      for
      exercise of the Warrant. Upon receipt of such documents, the Company shall,
      as
      soon as practicable but in no event later than five (5) Business Days after
      such
      receipt and at its own expense, issue to the holder a new warrant to purchase
      the number of shares of Common Stock set forth herein at the price and on the
      terms specified in these warrants issued in the Equity Offering.

     

    
      
         

      

      
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    Section
      3.  Date; Duration.
      The
      date of this Warrant is April 8, 2008 (the “Warrant Date”). This Warrant, in all
      events, shall be wholly void and of no effect at 5:00 pm, Eastern Time, on
      the
      Expiration Date or the Termination Date (as defined below), if applicable,
      as
      the case may be, except that notwithstanding any other provisions hereof, the
      provisions of Section 8(c) of this Warrant shall continue in full
      force and effect after such date as to any Warrant Shares or other securities
      issued upon the exercise of this Warrant.

      

    Section
      4.  Covenants as to Common Stock.
      The
      Company hereby covenants and agrees as follows:

     

    (a) Issuance
      of Warrants and Warrant Shares.
      This
      Warrant is, and any Warrants issued in substitution for or replacement of this
      Warrant will, upon issuance, be, validly issued, fully paid and non-assessable
      and free from all taxes, liens and charges with respect to the issuance thereof,
      and shall not be subject to preemptive rights or other similar rights of
      shareholders of the Company. All Warrant Shares which may be issued upon the
      exercise of the rights represented by this Warrant will, upon issuance and
      payment hereof, be validly issued, fully paid and nonassessable and free from
      all taxes, liens and charges created by or through the Company with respect
      to
      the issue thereof, with the holders being entitled to all rights accorded to
      a
      holder of Common Stock.

     

    (b) Reservation
      of Shares.
      During
      the period within which the rights represented by this Warrant may be exercised,
      the Company will take all actions reasonably necessary to at all times have
      authorized, and reserved for the purpose of issuance, no less than one hundred
      ten percent (110%) of the number of shares of Common Stock needed to provide
      for
      the issuance of the Warrant Shares upon exercise of all of the Warrants without
      regard to any limitations on conversions or exercise.

     

    (c) Listing.
      The
      Company shall promptly use reasonable efforts to secure the listing of the
      shares of Common Stock issuable upon exercise of this Warrant upon the Principal
      Market upon which shares of Common Stock are then listed (subject to official
      notice of issuance upon exercise of this Warrant) and shall use reasonable
      efforts to maintain, so long as any other shares of Common Stock shall be so
      listed, such listing of all shares of Common Stock issuable from time to time
      upon the exercise of this Warrant; and the Company shall use reasonable efforts
      to list on the Principal Market and shall use reasonable efforts to maintain
      such listing of, any other shares of capital stock of the Company issuable
      upon
      the exercise of this Warrant if and so long as any shares of the same class
      shall be listed on such Principal Market. The Company shall pay all fees and
      expenses in connection with satisfying its obligations under this
      Section 4(c). 

     

    (d) Certain
      Actions.
      The
      Company will not, by amendment of its Articles of Incorporation or through
      any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities, or any other voluntary action, avoid or seek to avoid the
      observance or performance of any of the terms to be observed or performed by
      it
      hereunder. Without limiting the generality of the foregoing, the Company
      (i) will not increase the par value of any shares of Common Stock issuable
      upon the exercise of this Warrant above the Exercise Price then in effect,
      (ii) will take all such actions as may be reasonably necessary or
      appropriate in order that the Company may validly and legally issue fully paid
      and nonassessable shares of Common Stock upon the exercise of this Warrant
      and
      (iii) will not take any action which results in any adjustment of the
      Exercise Price if the total number of shares of Common Stock issuable after
      the
      action upon the exercise of all of the Warrants would exceed the total number
      of
      shares of Common Stock then authorized by the Company’s Articles of
      Incorporation and available for the purpose of issue upon such
      exercise.

     

    
      
         

      

      
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    (e) Obligations
      Binding on Successors.
      This
      Warrant will be binding upon any entity succeeding to the Company in one or
      a
      series of transactions by merger, consolidation or acquisition of all or
      substantially all of the Company’s assets or other similar
      transactions.

     

    Section
      5.  Taxes.

     

    (a) The
      Company shall pay any and all documentary, stamp, transfer and other similar
      taxes which may be payable with respect to the issuance and delivery of Warrant
      Shares upon exercise of this Warrant.

     

    (b) Notwithstanding
      any other provision of this Warrant or any other Transaction Document, for
      income tax purposes, any assignee or transferee shall agree that the Company
      and
      the Company’s Transfer Agent shall be permitted to withhold from any amounts
      payable to such assignee or transferee any taxes required by law to be withheld
      from such amounts. Unless exempt from the obligation to do so, each assignee
      or
      transferee shall execute and deliver to the Company or the Transfer Agent,
      as
      applicable, a properly completed Form W-8 or W-9, indicating that such assignee
      or transferee is not subject to back-up withholding for United States Federal
      income tax purposes. Each assignee or transferee that does not deliver such
      a
      form pursuant to the preceding sentence shall have the burden of proving to
      the
      Company’s reasonable satisfaction that it is exempt from such
      requirement.

     

    Section
      6.  Warrant Holder Not Deemed a Shareholder.
      Except
      as otherwise specifically provided herein, prior to the exercise of the Warrants
      represented hereby, the holder of this Warrant shall not be entitled, solely
      by
      virtue of this Warrant, to any rights of a shareholder of the Company,
      including, without limitation, the right to vote or to consent to any action
      of
      the shareholders of the Company, to receive dividends or other distributions,
      to
      exercise any preemptive right or to receive dividends or other distributions,
      to
      exercise any preemptive right or to receive any notice of meetings of
      shareholders of the Company, or to receive any notice of any proceedings of
      the
      Company. In addition, nothing contained in this Warrant shall be construed
      as
      imposing any liabilities on such holder to purchase any securities (upon
      exercise of this Warrant or otherwise) or as a shareholder of the Company,
      whether such liabilities are asserted by the Company or by creditors of the
      Company.

     

    Section
      7.  Compliance with Securities Laws.
      

     

    (a) The
      holder of this Warrant, by the acceptance hereof, represents and warrants that
      (i) it is acquiring this Warrant and (ii) upon exercise of this
      Warrant will acquire the Warrant Shares then issuable upon exercise thereof
      for
      its own account for investment only and not with a view towards, or for resale
      in connection with, the public sale or distribution thereof, except pursuant
      to
      sales registered or exempted from registration under the Securities Act;
      provided, however, that by making the representations herein, the holder does
      not agree to hold this Warrant or any of the Warrant Shares for any minimum
      or
      other specific term and reserves the right to dispose of this Warrant and the
      Warrant Shares at any time in accordance with or pursuant to a registration
      statement or an exemption under the Securities Act. The holder of this Warrant
      further represents, by acceptance hereof, that, as of this date, such holder
      is
      an “accredited investor” as such term is defined in Rule 501(a) of
      Regulation D promulgated by the Securities and Exchange Commission under the
      Securities Act and was not organized for the specific purpose of acquiring
      the
      Warrants or Warrant Shares.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    (b) This
      Warrant and all the Warrant Shares issued upon exercise hereof shall be stamped
      or imprinted with a legend in substantially the following form (in addition
      to
      any legend required by state securities laws or any securities exchange upon
      which such Warrant Shares may, at the time of such exercise, be listed) on
      the
      face thereof unless at the time of exercise such Warrant Shares shall be
      registered under the Securities Act:

     

    THE
      SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE
      SECURITIES LAWS. THE SECURITIES 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 OR APPLICABLE STATE SECURITIES LAWS OR
      AN
      EXEMPTION THEREFROM. THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
      FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THE SECURITIES.

    

    The
      legend set forth above shall be removed and the Company shall direct the Agent
      (in the case of Warrants) to issue a new Warrant or Warrant(s) of like tenor
      and
      exercisable for the same number of Warrant Shares, or the Transfer Agent (in
      the
      case of Warrant Shares) to issue a certificate or certificates representing
      Warrant Shares, as appropriate, without such legends to the holder of the
      Warrant(s) or Warrant Shares upon which they are stamped, (i) if such
      Warrant(s) or Warrant Shares are registered for resale under the Securities
      Act
      and are transferred or sold pursuant to such registration, (ii) if,
      pursuant to a sale transaction, such holder provides the Company with an opinion
      of counsel reasonably acceptable to the Company to the effect that a public
      sale, assignment or transfer of the Warrant(s) or Warrant Shares may be made
      without registration under the Securities Act, or (iii) the provisions of Rule
      144 of the Securities Act permit such removal. The Company shall not require
      such opinion of counsel for the sale of Warrant(s) or Warrant Shares in
      accordance with Rule 144 of the Securities Act, provided the seller provides
      such representations that the Company shall reasonably request confirming
      compliance with the requirements of Rule 144.

     

    
      
         

      

      
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    Section
      8.  Ownership and Transfer.

     

    (a) The
      Company shall maintain at its principal corporate office (or such office or
      agency of the Company as the Company may designate by notice to the holder
      hereof), a register for this Warrant (the “Warrant Register”), in which the
      Company shall record the name and address of the Person in whose name this
      Warrant has been issued, as well as the name and address of each transferee.
      The
      Company may treat the Person in whose name any Warrant is registered on the
      Warrant Register as the owner and holder thereof for all purposes,
      notwithstanding any notice to the contrary, but in all events recognizing any
      transfers made in accordance with the terms of this Warrant.

     

    (b) This
      Warrant and all rights hereunder shall be assignable and transferable by the
      holder hereof without the consent of the Company upon surrender of this Warrant
      with a properly executed assignment (in the form of Exhibit B attached
      hereto) at the principal corporate trust office of the Company (or such office
      or agency of the Company as the Company may designate in writing to the holder
      hereof). 

     

    Section
      9.  Adjustment of Exercise Price and Number of Shares
      Issuable.
      The
      Exercise Price, the number of Warrant Shares issuable upon the exercise of
      each
      Warrant, and the number of Warrants outstanding are subject to adjustment from
      time to time upon the occurrence of the events enumerated in this
      Section 9.

     

    (a) In
      case
      the Company shall hereafter pay a dividend in shares of Common Stock, or make
      a
      distribution of shares of Common Stock, to all holders of the outstanding Common
      Stock, the Exercise Price in effect at the opening of business on the date
      following the date fixed for the determination of shareholders entitled to
      receive such dividend or other distribution shall be reduced by multiplying
      such
      Exercise Price by a fraction of which (i) the numerator shall be the number
      of shares of Common Stock outstanding at the close of business on the Record
      Date (as defined in Section 9(f) of this Warrant) fixed for such
      determination and (ii) the denominator shall be the sum of such number of
      shares and the total number of shares constituting such dividend or other
      distribution, such reduction in the Exercise Price to become effective
      immediately after the opening of business on the day following the Record Date.
      If any dividend or distribution of the type described in this
      Section 9(a) of this Warrant is declared but not so paid or made, the
      Exercise Price shall again be adjusted to the Exercise Price which would then
      be
      in effect if such dividend or distribution had not been declared.

     

    (b) In
      case
      the outstanding shares of Common Stock shall be subdivided into a greater number
      of shares of Common Stock, the Exercise Price in effect at the opening of
      business on the day following the day upon which such subdivision becomes
      effective shall be proportionately reduced, and conversely, in case outstanding
      shares of Common Stock shall be combined into a smaller number of shares of
      Common Stock, the Exercise Price in effect at the opening of business on the
      day
      following the day upon which such combination becomes effective shall be
      proportionately increased, such reduction or increase, as the case may be,
      to
      become effective immediately after the opening of business on the day following
      the day upon which such subdivision or combination becomes effective.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    (c) In
      case
      the Company shall issue rights or warrants to all holders of its outstanding
      shares of Common Stock entitling them to subscribe for or purchase shares of
      Common Stock at a price per share less than the Current Market Price (as defined
      in Section 9(f) of this Warrant) on the Record Date fixed for the
      determination of shareholders entitled to receive such rights or warrants,
      the
      Exercise Price shall be adjusted so that the same shall equal the price
      determined by multiplying the Exercise Price in effect at the opening of
      business on the date after such Record Date by a fraction (i) the numerator
      of which shall be the sum of the number of shares of Common Stock outstanding
      at
      the close of business on the Record Date plus the number of shares that the
      aggregate offering price of the total number of shares so offered for
      subscription or purchase would purchase at such Current Market Price and
      (ii) the denominator of which shall be the sum of the number of shares of
      Common Stock outstanding at the close of business on the Record Date plus the
      total number of additional shares of Common Stock so offered for subscription
      or
      purchase. Such adjustment shall become effective immediately after the opening
      of business on the day following the Record Date fixed for determination of
      shareholders entitled to receive such rights or warrants. To the extent that
      shares of Common Stock are not delivered pursuant to such rights or warrants,
      upon the expiration or termination of such rights or warrants, the Exercise
      Price shall be readjusted to the Exercise Price that would then be in effect
      had
      the adjustments made upon the issuance of such rights or warrants been made
      on
      the basis of delivery of only the number of shares of Common Stock actually
      delivered. In the event that such rights or warrants are not so issued, the
      Exercise Price shall again be adjusted to be the Exercise Price that would
      then
      be in effect if such date fixed for the determination of shareholders entitled
      to receive such rights or warrants had not been fixed. In determining whether
      any rights or warrants entitle the holders to subscribe for or purchase shares
      of Common Stock at less than the Current Market Price, and in determining the
      aggregate offering price of such shares of Common Stock, there shall be taken
      into account any consideration received for such rights or warrants, the value
      of such consideration, if other than cash, to be determined in good faith by
      the
      Company’s Board of Directors. 

     

    (d) In
      case
      the Company shall, by dividend or otherwise, distribute to all holders of its
      Common Stock shares of any class of capital stock of the Company (other than
      any
      dividends or distributions to which Section 9(a) of this Warrant
      applies) or evidences of its indebtedness or other assets (including securities,
      but excluding (1) any rights or warrants referred to in
      Section 9(c) of this Warrant and (2) dividends and distributions
      paid exclusively in cash (except as set forth in Sections 9(e) and 9(f) of
      this Warrant (the foregoing hereinafter in this Section 9(d) called the
“Securities”)), unless the Company elects to reserve such Securities for
      distribution to the holders upon exercise of the Warrants so that any such
      holder converting Warrants will receive upon such exercise, in addition to
      the
      shares of Common Stock to which such holder is entitled, the amount and kind
      of
      such Securities which such holder would have received if such holder had
      exercised its Warrants into Common Stock immediately prior to the Record Date
      for such distribution of the Securities, then, in each such case, the Exercise
      Price shall be reduced so that the same shall be equal to the price determined
      by multiplying the Exercise Price in effect immediately prior to the close
      of
      business on the Record Date with respect to such distribution by a fraction
      (i)
      the numerator of which shall be the Current Market Price (as defined in
      Section 9(f) of this Warrant) on such date less the fair market value (as
      determined in good faith by the Company’s Board of Directors, whose
      determination shall be conclusive) on such date of the portion of the Securities
      so distributed applicable to one share of Common Stock and (ii) the denominator
      of which shall be such Current Market Price, such reduction to become effective
      immediately prior to the opening of business on the day following the Record
      Date; provided, however, that in the event the then fair market value (as
      determined in good faith by the Company’s Board of Directors, whose
      determination shall be conclusive) of the portion of the Securities so
      distributed applicable to one share of Common Stock is equal to or greater
      than
      the Current Market Price on the Record Date, in lieu of the foregoing
      adjustment, adequate provision shall be made so that each holder shall have
      the
      right to receive upon conversion of a Warrant (or any portion thereof) the
      amount of Securities such holder would have received had such holder converted
      such Warrant (or portion thereof) immediately prior to such Record Date.

      

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    In
      the
      event that such dividend or distribution is not so paid or made, the Exercise
      Price shall again be adjusted to be the Exercise Price which would then be
      in
      effect if such dividend or distribution had not been declared. If the Company’s
      Board of Directors determines the fair market value of any distribution for
      purposes of this Section 9(d) by reference to the actual or when issued
      trading market for any securities comprising all or part of such distribution,
      it must in doing so consider the prices in such market over the same period
      (the
“Reference Period”) used in computing the Current Market Price pursuant to
      Section 9(f) of this Warrant to the extent possible, unless the Company’s
      Board of Directors determines in good faith that determining the fair market
      value during the Reference Period would not be in the best interest of the
      holders.

    

    In
      the
      event that the Company implements a new shareholder rights plan, such rights
      plan shall provide that upon exercise of the Warrants the holders will receive,
      in addition to the Common Stock issuable upon such exercise, the rights issued
      under such rights plan (as if the holder had exercised the Warrant prior to
      implementing the rights plan and notwithstanding the occurrence of an event
      causing such rights to separate from the Common Stock at or prior to the time
      of
      exercise). Any distribution of rights or warrants pursuant to a shareholder
      rights plan complying with the requirements set forth in the immediately
      preceding sentence of this paragraph shall not constitute a distribution of
      rights or warrants for the purposes of this Section 9(d).

    

    Rights
      or
      warrants distributed by the Company to all holders of Common Stock entitling
      the
      holders thereof to subscribe for or purchase shares of the Company’s capital
      stock (either initially or under certain circumstances), which rights or
      warrants, until the occurrence of a specified event or events (“Trigger Event”),
      (i) are deemed to be transferred with such shares of Common Stock,
      (ii) are not exercisable, and (iii) are also issued in respect of
      future issuances of Common Stock, shall be deemed not to have been distributed
      for purposes of this Section 9(d) (and no adjustment to the Exercise Price
      under this Section 9(d) will be required) until the occurrence of the
      earliest Trigger Event. If such right or warrant is subject to subsequent
      events, upon the occurrence of which such right or warrant shall become
      exercisable to purchase different securities, evidences of indebtedness or
      other
      assets or entitle the holder to purchase a different number or amount of the
      foregoing or to purchase any of the foregoing at a different purchase price,
      then the occurrence of each such event shall be deemed to be the date of
      issuance and record date with respect to a new right or warrant (and a
      termination or expiration of the existing right or warrant without exercise
      by
      the holder thereof). In addition, in the event of any distribution (or deemed
      distribution) of rights or warrants, or any Trigger Event or other event (of
      the
      type described in the preceding sentence) with respect thereto, that resulted
      in
      an adjustment to the Exercise Price under this Section 9(d), (1) in
      the case of any such rights or warrants that shall all have been redeemed or
      repurchased without exercise by any holders thereof, the Exercise Price shall
      be
      readjusted upon such final redemption or repurchase to give effect to such
      distribution or Trigger Event, as the case may be, as though it were a cash
      distribution, equal to the per share redemption or repurchase price received
      by
      a holder of Common Stock with respect to such rights or warrants (assuming
      such
      holder had retained such rights or warrants), made to all holders of Common
      Stock as of the date of such redemption or repurchase, and (2) in the case
      of such rights or warrants all of which shall have expired or been terminated
      without exercise, the Exercise Price shall be readjusted as if such rights
      and
      warrants had never been issued.

    

    
      
         

      

      
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    For
      purposes of this Section 9(d) and Sections 9(a) and (c) of this
      Warrant, any dividend or distribution to which this Section 9(d) is
      applicable that also includes shares of Common Stock, or rights or warrants
      to
      subscribe for or purchase shares of Common Stock to which Section 9(a) or
      (c) of this Warrant applies (or both), shall be deemed instead to be (1) a
      dividend or distribution of the evidences of indebtedness, assets, shares of
      capital stock, rights or warrants other than such shares of Common Stock or
      rights or warrants to which Section 9(c) of this Warrant applies (and
      any Exercise Price reduction required by this Section 9(d) with respect to
      such dividend or distribution shall then be made) immediately followed by (2)
      a
      dividend or distribution of such shares of Common Stock or such rights or
      warrants (and any further Exercise Price reduction required by Sections
      9(a) and (c) of this Warrant with respect to such dividend or
      distribution shall then be made), except (A) the Record Date of such
      dividend or distribution shall be substituted as “the date fixed for the
      determination of shareholders entitled to receive such dividend or other
      distribution,” “Record Date fixed for such determination” and “Record Date”
within the meaning of Section 9(a) of this Warrant and as “the date
      fixed for the determination of shareholders entitled to receive such rights
      or
      warrants,” “the Record Date fixed for the determination of the shareholders
      entitled to receive such rights or warrants” and “such Record Date” within the
      meaning of Section 9(c) of this Warrant and (B) any shares of
      Common Stock included in such dividend or distribution shall not be deemed
      “outstanding at the close of business on the date fixed for such determination”
within the meaning of Section 9(a) of this Warrant.

     

    (e) Subject
      to the provisions of Section 9(i), in case the Company shall, by dividend or
      otherwise, distribute to all holders of its Common Stock cash (excluding any
      cash that is distributed upon a merger or consolidation to which Section 10
      of this Warrant applies or as part of a distribution referred to in
      Section 9(d) of this Warrant), the Exercise Price shall be reduced so that
      the same shall equal the price determined by multiplying the Exercise Price
      in
      effect immediately prior to the close of business on the Record Date with
      respect to such distribution by a fraction (i) the numerator of which shall
      be equal to the Current Market Price on the Record Date less an amount equal
      to
      the quotient of (x) the amount of such cash distributed to all holders of its
      Common Stock, and (y) the number of shares of Common Stock outstanding on the
      Record Date and (ii) the denominator of which shall be equal to the Current
      Market Price on such date; provided, however, that in the event the portion
      of
      the cash so distributed applicable to one share of Common Stock is equal to
      or
      greater than the Current Market Price of the Common Stock on the Record Date,
      in
      lieu of the foregoing adjustment, adequate provision shall be made so that
      each
      holder shall have the right to receive upon exercise of a Warrant (or any
      portion thereof) the amount of cash such holder would have received had such
      holder exercised such Warrant (or portion thereof) immediately prior to such
      Record Date. In the event that such dividend or distribution is not so paid
      or
      made, the Exercise Price shall again be adjusted to be the Exercise Price that
      would then be in effect if such dividend or distribution had not been
      declared.

     

    
      
         

      

      
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    (f) For
      purposes of this Section 9, the following terms shall have the meanings
      indicated: 

     

    (1) “Closing
      Price”
with
      respect to any securities on any day shall mean the closing sale price regular
      way on such day or, in case no such sale takes place on such day, the average
      of
      the reported closing bid and asked prices, regular way, in each case on the
      Principal Market.

     

    (2) “Current
      Market Price”
shall
      mean the average of the daily Closing Prices per share of Common Stock for
      the
      ten (10) consecutive Trading Days immediately prior to the date in question;
      provided, however, that (1) if the “ex” date (as hereinafter defined) for
      any event (other than the issuance or distribution requiring such computation)
      that requires an adjustment to the Exercise Price pursuant to Section 9(a),
      (b), (c), (d) or (e) of this Warrant occurs during such ten (10) consecutive
      Trading Days, the Closing Price for each Trading Day prior to the “ex” date for
      such other event shall be adjusted by multiplying such Closing Price by the
      same
      fraction by which the Exercise Price is so required to be adjusted as a result
      of such other event, (2) if the “ex” date for any event (other than the
      issuance or distribution requiring such computation) that requires an adjustment
      to the Exercise Price pursuant to Section 9(a), (b), (c), (d) or (e) of
      this Warrant occurs on or after the “ex” date for the issuance or distribution
      requiring such computation and prior to the day in question, the Closing Price
      for each Trading Day on and after the “ex” date for such other event shall be
      adjusted by multiplying such Closing Price by the reciprocal of the fraction
      by
      which the Exercise Price is so required to be adjusted as a result of such
      other
      event, and (3) if the “ex” date for the issuance or distribution requiring
      such computation is prior to the day in question, after taking into account
      any
      adjustment required pursuant to clause (1) or (2) of this proviso, the Closing
      Price for each Trading Day on or after such “ex” date shall be adjusted by
      adding thereto the amount of any cash and the fair market value (as determined
      in good faith by the Company’s Board of Directors in a manner consistent with
      any determination of such value for purposes of Section 9(d) of this
      Warrant, whose determination shall be conclusive) of the evidences of
      indebtedness, shares of capital stock or assets being distributed applicable
      to
      one share of Common Stock as of the close of business on the day before such
      “ex” date. For purposes of this paragraph, the term “ex” date, (1) when
      used with respect to any issuance or distribution, means the first date on
      which
      the Common Stock trades regular way on the relevant exchange or in the relevant
      market from which the Closing Price was obtained without the right to receive
      such issuance or distribution and (2) when used with respect to any
      subdivision or combination of shares of Common Stock, means the first date
      on
      which the Common Stock trades regular way on such exchange or in such market
      after the time at which such subdivision or combination becomes effective.
      Notwithstanding the foregoing, whenever successive adjustments to the Exercise
      Price are called for pursuant to this Section 9, such adjustments shall be
      made to the Current Market Price as may be necessary or appropriate to
      effectuate the intent of this Section 9 and to avoid unjust or inequitable
      results as determined in good faith by the Company’s Board of
      Directors.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    (3) “Fair
      Market Value”
shall
      mean the amount which a willing buyer would pay a willing seller in an arm’s
      length transaction.

     

    (4) “Record
      Date”
shall
      mean, with respect to any dividend, distribution or other transaction or event
      in which the holders of Common Stock have the right to receive any cash,
      securities or other property or in which the Common Stock (or other applicable
      security) is exchanged for or converted into any combination of cash, securities
      or other property, the date fixed for determination of shareholders entitled
      to
      receive such cash, securities or other property (whether such date is fixed
      by
      the Company’s Board of Directors or by statute, contract or
      otherwise).

     

    (g) The
      Company may make such reductions in the Exercise Price, in addition to those
      required by Section 9(a), (b), (c), (d) or (e) of this Warrant, as the Company’s
      Board of Directors considers to be advisable to avoid or diminish any income
      tax
      to holders of Common Stock or rights to purchase Common Stock resulting from
      any
      dividend or distribution of stock (or rights to acquire stock) or from any
      event
      treated as such for income tax purposes. 

     

    (h) To
      the
      extent permitted by applicable law, the Company from time to time may reduce
      the
      Exercise Price by any amount for any period of time if the period is at least
      twenty (20) days, the reduction is irrevocable during such period and the
      Company’s Board of Directors shall have made a determination that such reduction
      would be in the best interests of the Company, which determination shall be
      conclusive and described in a Board Resolution. Whenever the Exercise Price
      is
      reduced pursuant to the preceding sentence, the Company shall mail or cause
      to
      be mailed to the holder of each Warrant at his last address in the Warrant
      Register a notice of the reduction at least five (5) days prior to the date
      the
      reduced Exercise Price is to take effect, and such notice shall state the
      reduced Exercise Price and the period during which it will be in
      effect.

     

    (i) No
      adjustment in the Exercise Price shall be required under this Section 9
      unless such adjustment would require an increase or decrease of at least one
      percent (1%) in the Exercise Price; provided, however, that any adjustments
      which by reason of this Section 9(i) are not required to be made shall
      be carried forward and taken into account in any subsequent adjustment. All
      calculations under this Section 9 shall be made by the Company and shall be
      made to the nearest cent or to the nearest one hundredth of a share, as the
      case
      may be. No adjustment need be made for a change in the par value of the Common
      Stock.

     

    (j) Notice
      to Holders of Warrants Prior to Certain Actions.
      In
      case:

     

    (1) the
      Company shall declare a dividend (or any other distribution) on its Common
      Stock
      that would require an adjustment in the Exercise Price pursuant to this
      Section 9; or

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    (2) the
      Company shall authorize the granting to the holders of its Common Stock of
      rights or warrants to subscribe for or purchase any share of any class or any
      other rights or warrants; or

     

    (3) of
      any
      reclassification of the Common Stock of the Company (other than a subdivision
      or
      combination of its outstanding Common Stock, or a change from par value to
      no
      par value), or of any consolidation or merger to which the Company is a party
      and for which approval of any shareholders of the Company is required, or of
      the
      sale and transfer of all or substantially all of the assets of the Company;
      or

     

    (4) of
      the
      voluntary or involuntary dissolution, liquidation or winding-up of the
      Company;

    

    the
      Company shall mail or cause to be mailed to the holder at such address appearing
      in the Warrant Register as promptly as possible but in any event at least
      fifteen (15) days prior to the applicable date hereinafter specified, a notice
      stating (x) the date on which a record is to be taken for the purpose of such
      dividend, distribution or rights are to be determined, or (y) the date on which
      such reclassification, consolidation, merger, sale, transfer, dissolution,
      liquidation or winding-up is expected to become effective or occur, and the
      date
      as of which it is expected that holders of Common Stock of record shall be
      entitled to exchange their Common Stock for securities or other property
      deliverable upon such reclassification, consolidation, merger, sale, transfer,
      dissolution, liquidation or winding-up. Failure to give such notice, or any
      defect therein, shall not affect the legality or validity of such dividend,
      distribution, reclassification, consolidation, merger, sale, transfer,
      dissolution, liquidation or winding-up. In addition, whenever the Exercise
      Price
      is adjusted as provided in this Section 9, the Company shall prepare a
      notice of such adjustment of the Exercise Price setting forth the adjusted
      Exercise Price and the date on which each adjustment becomes effective and
      shall
      mail such notice of such adjustment of the Exercise Price to the holder of
      each
      Warrant at his last address in the Warrant Register within twenty (20) days
      of
      the effective date of such adjustment. Failure to deliver such notice shall
      not
      effect the legality or validity of any such adjustment. 

     

    (k) In
      any
      case in which this Section 9 provides that an adjustment shall become
      effective immediately after a Record Date for an event, the Company may defer
      until the occurrence of such event (i) issuing to the holder of any Warrant
      exercised after such Record Date and before the occurrence of such event the
      additional shares of Common Stock issuable upon such exercise by reason of
      the
      adjustment required by such event over and above the Common Stock issuable
      upon
      such conversion before giving effect to such adjustment and (ii) paying to
      such holder any amount in cash in lieu of any fractions of shares of Common
      Stock pursuant to Section 2(c) of this Warrant. 

     

    (l) For
      purposes of this Section 9, the number of shares of Common Stock at any
      time outstanding shall not include shares held in the treasury of the Company
      but shall include shares issuable in respect of scrip certificates issued in
      lieu of fractions of shares of Common Stock. The Company will not pay any
      dividend or make any distribution on shares of Common Stock held in the treasury
      of the Company.

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (m) Upon
      each
      adjustment of the Exercise Price pursuant to this Section 9, each Warrant
      shall thereupon evidence the right to purchase that number of shares of Common
      Stock (calculated to the nearest hundredth of a share) obtained by multiplying
      the number of shares of Common Stock purchasable immediately prior to such
      adjustment upon exercise of the Warrant by the Exercise Price in effect
      immediately prior to such adjustment and dividing the product so obtained by
      the
      Exercise Price in effect immediately after such adjustment. The adjustment
      pursuant to this Section 9(m) to the number of shares of Common Stock
      purchasable upon exercise of a Warrant shall be made each time an adjustment
      of
      the Exercise Price is made pursuant to this Section 9 (or would be made but
      for Section 9(k) of this Warrant).

     

    Section
      10.  Effect of Reclassification, Consolidation, Merger or
      Sale.
      If any
      of the following events occur, namely (i) any reclassification or change of
      the outstanding shares of Common Stock (other than a change in par value, or
      from par value to no par value, or from no par value to par value, or as a
      result of a subdivision or combination), (ii) any consolidation, merger or
      combination of the Company with another person as a result of which holders
      of
      Common Stock shall be entitled to receive stock, securities or other property
      or
      assets (including cash) with respect to or in exchange for such Common Stock
      (other than as a result of a change in name, a change in par value or a change
      in the jurisdiction of incorporation), (iii) any statutory exchange, as a
      result of which holders of Common Stock generally shall be entitled to receive
      stock, securities or other property or assets (including cash) with respect
      to
      or in exchange for such Common Stock (such transaction, a “Statutory Exchange”),
      or (iv) any sale or conveyance of the properties and assets of the Company
      as, or substantially as, an entirety to any other person as a result of which
      holders of Common Stock shall be entitled to receive stock, securities or other
      property or assets (including cash) with respect to or in exchange for such
      Common Stock, then the Company or the successor or purchasing person, as the
      case may be, shall issue a replacement Warrant providing that such Warrant
      shall
      be exercisable for the kind and amount of shares of stock and other securities
      or property or assets (including cash) receivable upon such reclassification,
      change, consolidation, merger, combination, Statutory Exchange, sale or
      conveyance by a holder of a number of shares of Common Stock issuable upon
      exercise of such Warrants (assuming, for such purposes, a sufficient number
      of
      authorized shares of Common Stock available for issuance upon exercise of all
      such Warrants) immediately prior to such reclassification, change,
      consolidation, merger, combination, Statutory Exchange, sale or conveyance
      assuming such holder of Common Stock did not exercise his rights of election,
      if
      any, that holders of Common Stock who were entitled to vote or consent to such
      transaction had as to the kind or amount of securities, cash or other property
      receivable upon such consolidation, merger, combination, Statutory Exchange,
      sale or conveyance (provided that, if the kind or amount of securities, cash
      or
      other property receivable upon such consolidation, merger, combination,
      Statutory Exchange, sale or conveyance is not the same for each share of Common
      Stock in respect of which such rights of election shall not have been exercised
      (“non-electing share”), then for the purposes of this Section 10, the kind
      and amount of securities, cash or other property receivable upon such
      consolidation, merger, combination, Statutory Exchange, sale or conveyance
      for
      each non-electing share shall be deemed to be the kind and amount so receivable
      per share by a plurality of the non-electing shares). Such replacement Warrant
      shall provide for adjustments which shall be as nearly equivalent as may be
      practicable to the adjustments provided for in Section 9 of this Warrant.
      If, in the case of any such reclassification, change, consolidation, merger,
      combination, Statutory Exchange, sale or conveyance, the stock or other
      securities and assets receivable thereupon by a holder of shares of Common
      Stock
      shall include shares of stock or other securities and assets of a corporation
      other than the successor or purchasing person, as the case may be, in such
      reclassification, change, consolidate, merger, combination, Statutory Exchange,
      sale or conveyance, then such replacement Warrant shall also be executed by
      such
      other person and shall contain such additional provisions to protect the
      interests of the holder of the Warrants as the Company’s Board of Directors
      shall reasonably consider necessary by reason of the foregoing. The Exercise
      Price for the stock and other securities, property and assets (including cash)
      so receivable upon such event shall be an amount equal to the Exercise Price
      immediately prior to such event. 

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    The
      Company shall mail or cause to be mailed such replacement Warrant to each holder
      of Warrants, at such holder’s address appearing in the Warrant Register within
      twenty (20) days after execution thereof. Failure to deliver such notice shall
      not affect the legality or validity of such replacement Warrant.

    

    The
      above
      provisions of this Section 10 shall similarly apply to successive
      reclassifications, changes, consolidations, mergers, combinations, sales and
      conveyances.

    

    If
      this
      Section 10 applies to any event or occurrence, Section 9 of this
      Warrant shall not apply.

     

    Section
      11.  Lost, Stolen, Mutilated or Destroyed Warrants.
      If this
      Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
      on
      receipt of an indemnification undertaking or other form of security reasonably
      acceptable to the Company (or in the case of a mutilated Warrant, the Warrant),
      issue a new Warrant of like denomination and tenor as this Warrant so lost,
      stolen, mutilated or destroyed. In every case, the applicant for a replacement
      Warrant shall furnish to the Company such security or indemnity as may be
      reasonably required by the Company to save it harmless, and, in every case
      of
      destruction, loss or theft, the applicant shall also furnish to the Company
      evidence to its satisfaction of the destruction, loss or theft of the
      applicant’s Warrant and of the ownership thereof. Upon the issuance of any
      replacement Warrant, the Company may require the payment of a sum sufficient
      to
      cover any tax or other governmental charge that may be imposed in relation
      thereto and any other expenses connected therewith.

     

    Section
      12.  Notice.
      Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Warrant must be in writing and will be deemed
      to
      have been delivered: (i) upon receipt, when delivered personally;
      (ii) upon receipt, when sent by facsimile; or (iii) one (1) Business
      Day after deposit with a nationally recognized overnight delivery service,
      in
      each case properly addressed to the party to receive the same. If notice is
      to
      be sent to the Company, the holder shall use its reasonable best efforts to
      provide additional copies to the individuals listed below; provided, however,
      that the failure of such holder to send such additional copies shall in no
      way
      limit the effectiveness of any notice sent to the Company as provided for below.
      The addresses and facsimile numbers for such communications shall
      be:

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    If
      to the
      Company:

    

    Osage
      Exploration and Development, Inc. 

    2445
      Fifth Avenue, Suite 310

    San
      Diego, CA 92101

    Telephone:
      (619) 677-3956

    Facsimile:
      (619) 677-3964

    Attention:
      Ran Furman

    Email: ran.furman@gmail.com

    

    If
      to a
      holder of this Warrant, to it at the address and facsimile number set forth
      on
      the Warrant Register. Each party shall provide five days’ prior written notice
      to the other party of any change in address or facsimile number. Written
      confirmation of receipt (A) given by the recipient of such notice, consent,
      waiver or other communication, (B) mechanically or electronically generated
      by the sender’s facsimile machine containing the time, date, recipient facsimile
      number and an image of the first page of such transmission or (C) provided
      by a nationally recognized overnight delivery service shall be rebuttable
      evidence of personal service, receipt by facsimile or receipt from a nationally
      recognized overnight delivery service in accordance with clause (i),
      (ii) or (iii) above, respectively.

     

    Section
      13.  Amendments.
      This
      Warrant and any term hereof may be amended, changed, waived, discharged, or
      terminated only by an instrument in writing signed by the Company and the holder
      of this Warrant. No waivers of any term, condition or provision of this Warrant
      in any one or more instances shall be deemed to be or construed as a further
      or
      continuing waiver of any such term, condition or provision.

     

    Section
      14.  Governing Law; Jurisdiction; Waiver of Jury Trial.
      The
      corporate laws of the State of Delaware 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
      Warrant shall be governed by the internal laws of the State of Oklahoma, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of Oklahoma or any other jurisdictions) that would cause the
      application of the laws of any jurisdictions other than the State of Oklahoma.
      Each party hereby irrevocably submits to the non-exclusive jurisdiction of
      the
      state and federal courts sitting in Oklahoma City, Oklahoma, for the
      adjudication of any dispute hereunder or in connection herewith 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 Warrant and agrees that
      such service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. If any provision of this
      Warrant shall be invalid or unenforceable in any jurisdiction, such invalidity
      or unenforceability shall not affect the validity or enforceability of the
      remainder of this Warrant in that jurisdiction or the validity or enforceability
      of any provision of this Warrant in any other jurisdiction. 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.

     

    Section
      15. Descriptive
      Headings. The headings of this Warrant are for convenience of reference only
      and
      shall not limit or otherwise affect the meaning hereof. 

     

    [The
      remainder of this page has been intentionally left blank.]

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    IN
      WITNESS WHEREOF,
      the
      Company has caused this Warrant to be duly executed as of day and year first
      above written.

     

     

    
      	
               

            	
              OSAGE
                EXPLORATION AND DEVELOPMENT, INC.

            
	
               

            	
               

            
	
              By:

            	 
	 	
              Kim
                Bradford

            
	 	
              Chairman,
                President and CEO

            

    

     

    
 

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    

    EXHIBIT A
      TO WARRANT

     

    FORM
      OF EXERCISE NOTICE

    

    The
      undersigned holder hereby exercises the right to purchase ______________ shares
      of Common Stock (“Warrant Shares”) of Osage Exploration and Development, Inc. a
      Delaware corporation (the “Company”), evidenced by the attached Warrant (the
“Warrant”). Capitalized terms used herein and not otherwise defined shall have
      the respective meanings set forth in the Warrant.

     

    1. Payment
      of Exercise Price.
      The
      holder shall pay the sum of $___________________ to the Company in accordance
      with the terms of the Warrant.

     

    2. Sale
      of Warrant Shares.
      The
      holder of this warrant has sold or will sell the shares of common stock issuable
      pursuant to this Notice pursuant to a registration statement or an exemption
      from registration under the Securities Act of 1933, as amended. 

     

    3. Private
      Placement Representations.
      The
      holder of this Warrant confirms the continuing validity of, and reaffirms as
      of
      the date hereof, its representations and warranties set forth in Section 7
      of the Warrant.

     

    Date:
      _______________, ____

     

     

    
      	 	 	 
	
              Name
                of Registered

            	 	
              Tax
                ID of Registered Holder

            
	
              Holder

            	 	
              (if
                applicable)

            

    

    

    

    By:        

     

    Name:       

     

    Title:       

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    

    EXHIBIT B
      TO WARRANT

     

    FORM
      OF ASSIGNMENT

     

    FOR
      VALUE
      RECEIVED, the undersigned does hereby assign and transfer to ________________,
      Tax ID No. __________, a warrant to purchase ____________ shares of the capital
      stock of Osage Exploration and Development, Inc., a Delaware corporation,
      represented by warrant certificate no. _____, standing in the name of the
      undersigned on the books of said corporation. The undersigned does hereby
      irrevocably constitute and appoint ______________, attorney to transfer the
      warrants of said corporation, with full power of substitution in the
      premises.

     

    Dated:
      _________, ______

    
      	 
	________________________________________
	 
	
              By:___________________________________________

            
	 
	
              Name:_________________________________________

            
	 
	
              Title:__________________________________________

            
	 
	
              Taxpayer
                I.D. No. or Soc. Sec. No:

            
	 
	________________________________________
	 
	
              Address:

            
	________________________________________
	________________________________________
	________________________________________

    

     

    Name
      in
      which new Warrant(s) should be registered: 

     

    Right
      to
      Purchase No. of Shares of Common Stock: _________________ 

     

    Name:
      _________________________________________ 

     

    Taxpayer
      I.D. No. or Soc. Sec. No: ______________________ 

     

    Address:   
      _____   

    _______________

      _______________

       

    

     The
      balance of the attached Warrant not so transferred shall be returned to the
      transferor in the form of a new Warrant reflecting such reduced
      amount.

    
      
         

      

      
        20

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