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 & Xxxx A Professional Corporation, Tenth
Floor, Two Leadership Square, 000 X. Xxxxxxxx, Xxxxxxxx Xxxx, Xxxxxxxx 00000,
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 Xxxxx Xxx 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 Xxxxxxxx Xxx 0000, 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 Xxxxx Xxx 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 xxxxxxxx from Pacific
Stratus Energy relating to the operation of the Oil and Gas Asset prior to
the
Effective Date (to the extent any such xxxxxxxx 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 xxxxxxxx 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
|
000
Xxxxx
Xxxxxxxx, Xxxxx 000
Xxxxxxxx
Xxxx, Xxxxxxxx 00000
Facsimile:
(000) 000-0000
Attention:
P. Xxxx Xxxxx, President
With
a
copy (which shall not constitute notice) to:
McAfee
& Xxxx A Professional Corporation
Tenth
Floor, Two Leadership Square
000
X.
Xxxxxxxx
Xxxxxxxx
Xxxx, Xxxxxxxx 00000
Facsimile:
(000) 000-0000
Attention:
W. Xxxxx Xxxxxxx
| If to Purchaser: |
Osage
Exploration and Development, Inc.
|
0000
Xxxxx Xxxxxx, Xxxxx 000
Xxx
Xxxxx, Xxxxxxxxxx 00000
Facsimile:
(000) 000-0000
Attention:
Xxx Xxxxxxxx, 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.
Xxxx Xxxxx, President
|
|
|
OSAGE
EXPLORATION AND DEVELOPMENT, INC., a Delaware
corporation
|
|
|
By:____________________________________
|
|
|
Xxx
Xxxxxxxx, Chairman, President and
CEO
|
SCHEDULE
1
TO
|
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,
0000 (Xxxxxx Xxxx).
|
|
3.
|
International
Operating Agreement by and between GHK, Cimarrona, Xxxxxxxxx Limited
Liability Company (“Xxxxxxxxx”), Sipetrol, Seven Seas and Petrolinson S.A.
effective Xxxxxx 0, 0000 (Xxxxxx
Xxxx).
|
|
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, Xxxxxxxxx, Sipetrol,
Seven Seas, and Petrolinson effective October 1, 0000 (Xxx Xxxx
Xxxx).
|
|
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.
Xxxx Xxxxx, President
|
EXHIBIT
C
FINANCIAL
STATEMENTS
