WALLSTIN PETROLEUM, LLC MEMBERSHIP INTEREST EXCHANGE AGREEMENT

WALLSTIN PETROLEUM, LLC

 

MEMBERSHIP INTEREST EXCHANGE AGREEMENT

 

This Membership Interest Exchange Agreement (“Agreement”) is dated as of August 5, 2005, and is between the following parties: Joe Wallen, James Templer, William H. Stinson, and Quest Oil Corporation, a Nevada corporation. Wallen, Templer and Stinson are collectively referred herein as the “Members,” Quest is referred to herein as the “Purchaser,” and the Members and Purchaser are collectively referred to herein as the “Parties.”

 

WHEREAS, Wallstin Petroleum LLC, is a limited liability company organized under the laws of the state of Texas (referred to herein as “WP”). The Members own 100% of the membership interests of WP;

 

WHEREAS, WP owns certain assets as described in Exhibit “A” (the “Assets”);

 

WHEREAS, the Members desire to exchange with the Purchaser all of their membership interests in WP for shares of common stock of the Purchaser;

 

WHEREAS, the Purchaser desires to own 100% of the membership interests of WP and to complete a share exchange transaction (the “Exchange”) pursuant to which the Purchaser will issue shares of the common stock of Purchaser to the Members in exchange for 100% of the membership interests of WP held by the Members;

 

WHEREAS, should any claim or controversy arise in connection with the Assets that would limit or effect the ownership interest of Purchaser in the Assets, the Parties hereto agree that the Exchange shall be subject to cancellation;

 

WHEREAS, the Parties desire to make certain representations, warranties and agreements in connection with completion of the proposed share exchange transaction;

 

NOW, THEREFORE, in consideration of the foregoing recitals, which shall be considered an integral part of this Agreement, and the covenants, conditions, representations and warranties hereinafter set forth, the Parties hereby agree as follows:

 

1. Exchange & Closing

 

1.1 The Exchange. At the Closing (as hereinafter defined), Purchaser shall acquire 100% of the membership interests of WP held by the Members, free and clear of all liens, charges or encumbrances, in exchange for shares of common stock of the Purchaser (the “Exchange Shares”), as provided for in Section 1.3 hereof. The Exchange shall take place upon the terms and conditions provided for in this Agreement and applicable state law. For United States federal income tax purposes, it is intended that the Exchange shall constitute a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

1.2  Closing and Closing Date. Subject to the provisions of this Agreement, the “Closing” of the share exchange described in this Agreement shall occur on: (i) the first business day on which the last of the Closing conditions set forth in Article V is fulfilled or waived or ;(ii) such other date as the Parties hereto may agree (the “Closing Date”), at such time and place as the Parties hereto may agree.

 

a) Conversion. On the Closing Date, the membership interests of the Members will be exchanged for one million five hundred thousand(1,500,000) shares of common stock of the Purchaser as per the following:

 

 

 

b) Exchange of Certificates. On and after the Closing Date, the Members shall be entitled to receive in exchange for their membership interest, upon surrender thereof to the Purchaser or its exchange agent, a certificate or certificates representing the number of whole Exchange Shares into which such Member’s membership interest were converted pursuant to Section 1.3(a).

 

c) Compensation Agreements. Upon the Closing, Purchaser will negotiate compensation agreements with Mr. Joseph F. Wallen and Mr. William H.

 

d) The Parties shall execute and deliver such other documents as are customary and reasonably necessary to consummate the transactions contemplated hereby.

 

2.  Representations and Warranties of Members. The Members each hereby represent and warrant as follows:

 

    2.1 Organization and Qualification. WP is a limited liability company duly organized and validly existing under the laws of the State of Texas. WP has all requisite power and authority to carry on its business as currently conducted, other than such failures that would not reasonably be expected to have a material adverse effect on WP’s business, properties or financial condition (a “Material Adverse Effect”).

 

    2.2 Capitalization. The Members collectively own 100% of the Membership Interest of WP. Other than such membership interests, as of the Closing, there are no outstanding rights, options, warrants, preemptive rights, rights of first refusal or similar rights for the purchase or acquisition of WP.

 

    2.3 Subsidiaries. WP does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. WP is not a participant in any joint venture, partnership, or similar arrangement.

 

    2.4 Valid Issuance of Membership interests. The WP membership interests of the Members, when delivered in accordance with the terms of this Agreement for the consideration expressed herein, shall be duly and validly issued and will be free of restrictions on

transfer directly or indirectly created by WP other than restrictions on transfer under this Agreement, and under applicable state and federal securities laws.

 

    2.5 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of WP is required in connection with the offer, sale or issuance of the Membership interests, except for the following: (i) the filing of such notices as may be required under the Securities Act of 1933, as amended(the “Securities Act”); (ii) the compliance with any other applicable state securities laws, which compliance will have occurred within the appropriate time periods therefore.

 

    2.6 Litigation. There are no actions, suits, proceedings or investigations pending or, to the best of the knowledge of the Members, threatened before any court, administrative agency or other governmental body against WP which questions the validity of this Agreement.

 

    2.7 Employees. To the best of the knowledge of the Members, WP is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement or other employee compensation agreement or arrangement with any collective bargaining agent.

 

    2.8 Intellectual Property. To the best of the knowledge of the Members, WP has sufficient title to and ownership of, or other rights to use, all trade secrets, and, to its knowledge, copyrights, information, proprietary rights, trademarks, service marks and trade names in each case necessary for its business as now conducted without any material conflict with or infringement of the rights of others.

 

    2.9 Compliance with Other Instruments. To the best of the knowledge of the Members, WP is not in violation or default of any provision of its charter or its operating agreement in effect immediately prior to the Closing.

 

    2.10 Permits. To the best of the knowledge of the Members, WP has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it.

 

    2.11 Environmental and Safety Laws. To the best of the knowledge of the Members, WP is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, except for such violations as would not reasonably be expected to have a Material Adverse Effect.

 

    2.12 Registration Rights. To the best of the knowledge of the Members ,WP has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity.

 

    2.13 Title to Property and Assets. To the best of the knowledge of the Members, WP has good and marketable title to all of properties and assets owned by it, free and clear of all mortgages, liens and encumbrances, except liens for current taxes and assessments not yet due and possible minor liens and encumbrances which do not, in any case, materially detract from the value of the property subject thereto or materially impair the operations of WP. With respect to the material property and assets it leases, WP is in material compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of all liens, claims or encumbrances, except for such liens, claims or encumbrances which would not materially impair the operations of WP. WP’s material properties and assets are in good condition and repair, in all material respects, for the purposes for which they are currently used, ordinary wear and tear excepted.

 

    2.14 Agreements; Actions. To the best of the knowledge of the Members:

 

        (a) there are no agreements, understandings or proposed transactions between WP and any of its officers, directors, affiliates, or any affiliate thereof.

 

        (b) Other than the WP operating agreement and agreements entered into in the ordinary course of business consistent with past practice, there are no agreements, understandings, instruments, contracts, judgments, orders, writs or decrees to which WP is a party or by which it is bound that involve (i) obligations of, or payments by WP in excess of, ten thousand ($10,000. 00) dollars, (ii) provisions restricting the development, manufacture or distribution of WP’s products or services or (iii) indemnification by WP with respect to infringement of proprietary rights.

 

        (c) To the best of the knowledge of the Members, since May 31, 2005, WP has not (i) incurred indebtedness for money borrowed in excess of $1 million individually or $1 million in the aggregate, or (ii) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory and license agreements in the ordinary course of business.

 

    2.15 Tax Returns and Audits. To the best of the knowledge of the Members, WP (a) is characterized as a partnership for United States federal income tax purposes, (b) has prepared and filed all United States federal, state and local income tax returns required to be filed by it, and (c) has no deficiency assessment or proposed adjustment by any taxing authority to WP’s federal, state, or local income taxes is pending.

 

    2.16 Brokers or Finders. To the best of the knowledge of the Members, WP has not agreed to incur, directly or indirectly, any liability for brokerage or finders’ fees, agents’ commissions or other similar charges in connection with this Agreement or any of the transactions contemplated hereby.

 3. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants that:

    3.1 Authority. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the State of Nevada, has the power and capacity to enter into this Agreement and carry out its terms and at Closing.

 

    3.2 Investment. Purchaser is acquiring the Membership interests for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof.

 

    3.3 Access to Data. Purchaser has received and reviewed information about WP and the Members and has had an opportunity to discuss WP’s business, management and financial affairs with its management and to review WP’s facilities.

 

    3.4 Authorization. As of the Closing, all action on the part of Purchaser, and its respective officers, directors and partners necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of Purchaser hereunder shall have been taken, and this Agreement assuming due execution by the parties hereto, constitute valid and legally binding obligations of Purchaser, enforceable in accordance with their respective terms, subject to: (i) judicial principles limiting the availability of specific performance, injunctive relief, and other equitable remedies and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights.

 

    3.5 Compliance with Other Instruments. Purchaser is not in violation or default of any provision of its certificate of incorporation or other organizational documents, as applicable, each as in effect immediately prior to the Closing.

 

    3.6 Accredited Investor. Purchaser is an “accredited investor” as defined in Rule 501 of Regulation D as promulgated by the Securities and Exchange Commission under the Securities Act.