EXHIBIT 2.1
PLAN AND AGREEMENT OF MERGER
AMONG
KEY ENERGY SERVICES, INC.,
KEY MERGER SUB, INC.
AND
Q SERVICES, INC.
MAY 13, 2002
TABLE OF CONTENTS
Article 1 DEFINITIONS........................................................2
1.1 DEFINITIONS..................................................2
Article 2 THE MERGER........................................................10
2.1 SURVIVING CORPORATION.......................................10
2.2 EFFECTIVE DATE..............................................10
2.3 CONTINUED CORPORATE EXISTENCE OF SURVIVING CORPORATION......10
2.4 GOVERNING LAW AND ARTICLES OF INCORPORATION OF SURVIVING
CORPORATION.................................................10
2.5 BYLAWS OF SURVIVING CORPORATION.............................10
2.6 DIRECTORS OF SURVIVING CORPORATION..........................10
2.7 OFFICERS OF SURVIVING CORPORATION...........................10
2.8 VACANCIES...................................................10
2.9 CONVERSION OF SECURITIES UPON MERGER........................11
2.9.1 CANCELLATION OF TREASURY SHARES.......................11
2.9.2 QSI STOCK OPTIONS AND WARRANTS........................11
2.9.3 REDEMPTION OF PREFERRED STOCK.........................12
2.9.4 CONVERSION OF QSI COMMON STOCK........................12
2.9.5 HOLDBACK..............................................13
2.9.6 CONVERSION OF MERGER SUB COMMON STOCK.................13
2.9.7 NO FRACTIONAL SHARES..................................13
2.10 PURCHASE PRICE ADJUSTMENT PAYMENT...........................13
2.10.1 KEY ADJUSTMENT PAYMENT...............................14
2.10.2 QSI ADJUSTMENT PAYMENT...............................14
2.11 SURRENDER OF QSI CERTIFICATES...............................15
2.11.1 CERTIFICATES NOT DELIVERED ON THE EFFECTIVE DATE.....15
2.11.2 LOST, STOLEN OR DESTROYED CERTIFICATES...............16
2.12 QSI TRANSFER BOOKS CLOSED...................................16
2.13 ASSETS AND LIABILITIES OF MERGING CORPORATIONS BECOME THOSE
OF SURVIVING CORPORATION....................................16
2.14 DISSENTING SHAREHOLDERS.....................................16
2.15 FEDERAL INCOME TAX TREATMENT................................16
2.16 CLOSING.....................................................16
Article 3 REPRESENTATIONS AND WARRANTIES OF QSI.............................16
3.1 REPRESENTATIONS AND WARRANTIES QSI..........................16
3.1.1 ORGANIZATION, GOOD STANDING AND AUTHORITY.............16
3.1.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER
OBLIGATIONS...........................................17
3.1.3 CAPITALIZATION........................................17
3.1.4 OWNERSHIP OF THE QSI SHARES...........................17
3.1.5 SUBSIDIARIES..........................................18
3.1.6 FINANCIAL STATEMENTS..................................18
3.1.7 LIABILITIES...........................................18
3.1.8 ADDITIONAL COMPANY INFORMATION........................19
3.1.9 NO DEFAULTS...........................................21
3.1.10 ABSENCE OF CERTAIN CHANGES AND EVENTS................21
3.1.11 TAXES................................................21
3.1.12 INTELLECTUAL PROPERTY................................24
3.1.13 TITLE TO AND CONDITION OF ASSETS.....................24
3.1.14 CONTRACTS............................................24
3.1.15 LICENSES AND PERMITS.................................25
3.1.16 LITIGATION...........................................25
3.1.17 ENVIRONMENTAL COMPLIANCE.............................25
3.1.18 COMPLIANCE WITH OTHER LAWS...........................27
3.1.19 ERISA PLANS OR LABOR ISSUES..........................27
3.1.20 REPRESENTATIONS RELATING TO OPERATION OF SALTWATER
DISPOSAL XXXXX........................................28
3.1.21 INVESTIGATIONS.......................................29
3.1.22 REAL PROPERTY OWNED..................................29
3.1.23 REAL PROPERTY LEASED.................................29
3.1.24 ABSENCE OF CERTAIN BUSINESS PRACTICES................30
3.1.25 INSURANCE............................................30
3.1.26 FINDER'S FEE.........................................30
3.1.27 RELATED PARTY INTERESTS..............................30
3.1.28 COMPLIANCE WITH DEPARTMENT OF TRANSPORTATION RULES AND
REGULATIONS...........................................31
3.1.29 PREDECESSORS IN INTEREST.............................31
Article 4 REPRESENTATIONS AND WARRANTIES OF KEY.............................31
4.1 REPRESENTATIONS AND WARRANTIES OF KEY.......................31
4.1.1 ORGANIZATION AND GOOD STANDING OF MERGER SUB..........31
4.1.2 AGREEMENTS AUTHORIZED BY MERGER SUB AND ITS EFFECT ON
OTHER OBLIGATIONS.....................................31
4.1.3 INVESTIGATIONS........................................31
4.1.4 ORGANIZATION AND GOOD STANDING OF KEY.................32
4.1.5 AGREEMENT AUTHORIZED BY KEY AND ITS EFFECT ON OTHER
OBLIGATIONS...........................................32
4.1.6 ISSUANCE OF KEY SHARES................................32
4.1.7 CAPITALIZATION........................................32
4.1.8 REPORTS AND FINANCIAL STATEMENTS......................33
4.1.9 ABSENCE OF CERTAIN CHANGES AND EVENTS.................33
4.1.10 FINDER'S FEE.........................................33
Article 5 OBLIGATIONS PENDING EFFECTIVE DATE................................34
5.1 AGREEMENTS OF KEY AND QSI...................................34
5.1.1 MAINTENANCE OF PRESENT BUSINESS.......................34
5.1.2 MAINTENANCE OF PROPERTIES.............................34
5.1.3 MAINTENANCE OF BOOKS AND RECORDS......................34
5.1.4 COMPLIANCE WITH LAW...................................34
5.1.5 INSPECTION OF KEY AND QSI.............................34
5.2 REGULATORY AND OTHER AUTHORIZATIONS.........................34
5.3 ADDITIONAL AGREEMENTS.......................................35
5.3.1 PROHIBITION OF CERTAIN EMPLOYMENT CONTRACTS...........35
5.3.2 PROHIBITION OF CERTAIN LOANS..........................35
5.3.3 PROHIBITION OF CERTAIN COMMITMENTS....................35
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5.3.4 DISPOSAL OF ASSETS....................................35
5.3.5 MAINTENANCE OF INSURANCE..............................35
5.3.6 ACQUISITION PROPOSALS.................................35
5.3.7 NO AMENDMENT TO ARTICLES OF INCORPORATION, ETC........36
5.3.8 NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES..........36
5.3.9 PROHIBITION ON DIVIDENDS..............................36
5.3.10 SHAREHOLDER MEETING..................................36
5.3.11 INVESTIGATION........................................36
5.3.12 RELATED PARTY OBLIGATIONS. BEFORE THE
EFFECTIVE DATE,......................................37
5.4 ADDITIONAL AGREEMENTS OF KEY................................37
5.4.1 REGISTRATION STATEMENT................................37
5.4.2 LISTING OF KEY STOCK..................................38
5.4.3 DELIVERY OF REPORTS...................................38
5.4.4 RESALE OF KEY SHARES..................................38
5.4.5 ASSISTANCE IN BLOCK SALE TRANSACTIONS.................42
5.4.6 ISSUANCES OF KEY COMMON STOCK.........................42
5.5 SUPPLEMENTAL INFORMATION....................................42
Article 6 CONDITIONS PRECEDENT TO OBLIGATIONS...............................42
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI..................42
6.1.1 REPRESENTATIONS AND WARRANTIES OF KEY TRUE AT EFFECTIVE
DATE..................................................42
6.1.2 NO MATERIAL LITIGATION................................43
6.1.3 OPINION OF KEY COUNSEL................................43
6.1.4 LISTING OF KEY COMMON STOCK...........................44
6.1.5 CONSENT OF CERTAIN PARTIES IN PRIVITY WITH KEY........44
6.1.6 HSR...................................................44
6.1.7 SECRETARY'S CERTIFICATES..............................44
6.1.8 EMPLOYMENT AGREEMENTS.................................44
6.1.9 QSI SHAREHOLDER APPROVAL..............................44
6.1.10 REDEMPTION OF PREFERRED STOCK........................44
6.1.11 CREDIT AGREEMENT.....................................44
6.1.12 REGISTRATION STATEMENT...............................44
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF KEY AND MERGER SUB...44
6.2.1 REPRESENTATIONS AND WARRANTIES OF QSI TRUE AT EFFECTIVE
DATE..................................................45
6.2.2 NO MATERIAL LITIGATION................................45
6.2.3 OPINION OF QSI COUNSEL................................45
6.2.4 HSR...................................................46
6.2.5 RESIGNATIONS..........................................46
6.2.6 EMPLOYMENT AGREEMENTS.................................46
6.2.7 QSI SHAREHOLDER APPROVAL..............................46
6.2.8 NON-COMPETE AGREEMENTS................................46
6.2.9 SECRETARY'S CERTIFICATE...............................46
6.2.10 QSI REPRESENTATIVES..................................46
6.2.11 SHAREHOLDERS AGREEMENT...............................46
6.2.12 RELATED PARTY AGREEMENTS.............................46
6.2.13 OPTIONS..............................................47
6.2.14 WARRANTS.............................................47
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6.2.15 REDEMPTION OF PREFERRED STOCK........................47
6.2.16 AFFILIATE AGREEMENTS.................................47
6.2.17 SEVERANCE POLICY.....................................47
Article 7 TERMINATION AND ABANDONMENT.......................................47
7.1 TERMINATION.................................................47
7.1.1 BY MUTUAL CONSENT.....................................47
7.1.2 BY KEY BECAUSE OF DISSENTING SHAREHOLDERS.............47
7.1.3 BY QSI BECAUSE OF CONDITIONS PRECEDENT................48
7.1.4 BY QSI BECAUSE OF MATERIAL ADVERSE EFFECT.............48
7.1.5 BY KEY OR MERGER SUB BECAUSE OF CONDITIONS PRECEDENT..48
7.1.6 BY KEY OR MERGER SUB BECAUSE OF MATERIAL ADVERSE
EFFECT................................................48
7.1.7 BY KEY OR MERGER SUB, OR BY QSI BECAUSE OF LEGAL
PROCEEDINGS...........................................48
7.1.8 BY KEY OR MERGER SUB, OR BY QSI, IF TRANSACTIONS NOT
EFFECTIVE BY JULY 17, 2002............................48
7.1.9 BY KEY OR MERGER SUB BECAUSE OF MATERIAL DEVELOPMENTS.48
7.2 TERMINATION BY BOARD OF DIRECTORS...........................49
7.3 EFFECT OF TERMINATION.......................................49
7.4 WAIVER OF CONDITIONS........................................49
Article 8 ADDITIONAL AGREEMENTS.............................................49
8.1 EMPLOYMENT MATTERS..........................................49
8.2 VOTING AND SUPPORT AGREEMENTS...............................50
8.3 LIABILITY THRESHOLD.........................................50
8.4 FURTHER ASSURANCES..........................................51
Article 9 MISCELLANEOUS.....................................................52
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.......52
9.1.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF KEY AND
MERGER SUB............................................52
9.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF QSI......52
9.2 ENTIRETY; AMENDMENTS........................................52
9.3 COUNTERPARTS................................................52
9.4 NOTICES AND WAIVERS.........................................52
9.5 CAPTIONS....................................................53
9.6 SUCCESSORS AND ASSIGNS......................................53
9.7 SEVERABILITY................................................53
9.8 JOINT DRAFTING..............................................53
9.9 APPLICABLE LAW..............................................54
EXHIBITS
Exhibit A Form of Non-Compete Agreement
Exhibit B QSI Affiliate Agreement
Exhibit C Voting and Support Agreement
Exhibit D Letter of Transmittal
Exhibit E Employment Agreements
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PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Agreement") is entered into as
of May 13, 2002 among Key Energy Services, Inc., a Maryland corporation
("Key"); Key Merger Sub, Inc., a Texas corporation and a wholly-owned
subsidiary of Key ("Merger Sub"); and Q Services, Inc., a Texas corporation
("QSI"). Merger Sub and QSI are sometimes collectively referred to herein as
the "Merging Corporations."
W I T N E S S E T H
WHEREAS, Key is a corporation duly organized and validly existing under
the laws of the State of Maryland, with its principal place of business at 0
Xxxxx Xxxxx, Xxxxxxx, Xxxxx 00000;
WHEREAS, the authorized capital stock of Key consists of 200,000,000
shares of Key Common Stock, of which as of May 9, 2002, 109,772,863 shares are
issued and outstanding, and 11,680,658 shares are reserved for issuance pursuant
to outstanding stock options, warrants and other convertible securities;
WHEREAS, Merger Sub is a corporation duly organized and validly existing
under the laws of the State of Texas, with its principal place of business at 0
Xxxxx Xxxxx, Xxxxxxx, Xxxxx 00000;
WHEREAS, Key owns 1,000 shares of Merger Sub Common Stock, which
constitutes all of the issued and outstanding shares of capital stock of Merger
Sub;
WHEREAS, QSI is a corporation duly organized and validly existing under
the laws of the State of Texas, with its principal place of business at 0000
Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000;
WHEREAS, the authorized capital stock of QSI consists of (i) 40,000,000
shares of QSI Common Stock, of which on the date hereof 15,083,815 shares are
issued and outstanding, 0 shares are held in treasury, and 2,276,368 shares are
reserved for issuance pursuant to outstanding stock options and warrants and
(ii) 200,000 shares of preferred stock, no par value, of which (A) 100,000
shares are designated as Series A Preferred Stock, of which 72,000 shares are
issued and outstanding and (B) 100,000 shares are designated as Series B
Redeemable Preferred Stock, of which 2,600 shares are issued and outstanding;
WHEREAS, (i) the board of directors of Key, (ii) Key (in its capacity as
Merger Sub's sole shareholder) and the board of directors of Merger Sub, and
(iii) the board of directors of QSI desire to merge Merger Sub with and into QSI
in accordance with the provisions of Section 5.03 of the TBCA pursuant to the
terms and provisions of this Agreement, and have approved such merger (the
"Merger") and the other terms and provisions of this Agreement; and
WHEREAS, in connection with the merger contemplated by this Agreement, Key
will issue shares of Key Common Stock that will be registered on a registration
statement on Form S-4 (File No. 333-83924) (the "Registration Statement"), which
has been declared effective under the Securities Act.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the Merger contemplated hereby, the mode of carrying the Merger
into effect, the manner and basis of converting the shares of QSI Common Stock
outstanding on the Effective Date of the Merger into the right to receive the
Merger Consideration described in Section 2.9 hereof, and such other details and
provisions as are deemed necessary or proper, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. In addition to the other defined terms used herein, as
used in this Agreement, the following terms when capitalized have the meanings
indicated.
"ACQUISITION PROPOSAL" means any proposal for a merger,
consolidation or other business combination involving QSI or for the
acquisition or purchase of any equity interest in, or a material portion
of the assets of, QSI, other than the transactions with Key and Merger Sub
contemplated by this Agreement.
"AGREEMENT" means this Plan and Agreement of Merger, as the same may
be amended or modified.
"AUDITED FINANCIAL STATEMENTS" means the audited consolidated
balance sheets and related consolidated statements of income, retained
earnings, and cash flows of QSI and its subsidiaries, with appended notes
which are an integral part of such statements, as at and for fiscal years
ended December 31, 1999, 2000 and 2001.
"BALANCE SHEET DATE" means March 31, 2002.
"CASH OUT OPTIONS" has the meaning specified in Section 2.9.2.1
hereof.
"CASH OUT WARRANTS" has the meaning specified in Section 2.9.2.2
hereof.
"CERTIFICATES" means the certificates representing issued and
outstanding shares of QSI Common Stock.
"COBRA" means Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
"CODE" means the United States Internal Revenue Code of 1986, as
amended.
"DISPUTED POTENTIAL LIABILITY" has the meaning specified in Section
7.3 hereof.
"EFFECTIVE DATE" has the meaning specified in Section 2.2 hereof.
"EFFECTIVE PRICE PER SHARE" means the sum of the Purchase Price plus
the Option/Warrant Strike Proceeds divided by the Fully Diluted QSI Shares
Outstanding.
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"EMPLOYEE PLAN" means (i) any "employee benefit plan" as defined in
Section 3(3) of the ERISA, maintained or contributed to; and (ii) any
personnel policy, stock option plan, collective bargaining agreement,
bonus plan or arrangement, incentive award plan or arrangement, vacation
policy, severance pay plan, policy, or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement, cafeteria plans
and each other employee or fringe benefit plan, agreement, arrangement,
program, practice, or understanding which is not described in clause (i),
in each case currently sponsored, maintained or contributed to by QSI, any
QSI Subsidiary or ERISA Affiliate or for which QSI, any QSI Subsidiary or
ERISA Affiliate has or could have any liability.
"EMPLOYMENT AGREEMENTS" has the meaning specified in Section 6.1.8
hereof.
"ENCUMBRANCES" means all liens, security interests, pledges,
mortgages, deeds of trust, claims, rights of first refusal, options,
charges, restrictions or conditions to transfer or assignment, and other
encumbrance of any kind or nature, except (i) liens for Taxes,
impositions, assessments, fees, rents or other governmental charges levied
or assessed or imposed and not yet delinquent or such liens being
contested in good faith by appropriate proceedings, which proceedings are
set forth on SCHEDULE 1.1 hereto, (ii) statutory liens (including
materialmen's, warehousemen's, mechanics', repairmen's, landlords', and
other similar liens) arising in the ordinary course of business securing
payments not yet delinquent or being contested in good faith by
appropriate proceedings, which proceedings are set forth on SCHEDULE 1.1
hereto; (iii) with respect to each individual asset, defects,
imperfections or irregularities of title or similar liens that would not
materially and adversely impact the use or ownership of such asset by QSI
or any QSI Subsidiary; and (iv) preferential purchase rights and other
similar arrangements with respect to which consents or waivers are
obtained for this transaction or as to which the time for asserting such
rights has expired at the Effective Date without an exercise of such
rights, (iv) Encumbrances entered into in the ordinary course of business
that do not secure the payment of indebtedness for borrowed money and none
of which affect the benefit or use of the asset or assets subject thereto
or affect the ability of QSI or any QSI Subsidiary to conduct its
business; and (vi) any conditions relating to the real property or real
property rights owned or leased by QSI or any QSI Subsidiary that are set
forth on SCHEDULES 3.1.8.1 or 3.1.22.1 hereto.
"ENVIRONMENTAL ASSESSMENT" means the right of Key or its contractors
or agents to: (i) review QSI's environmental records in any publicly
available environmental records; (ii) submit a pre-inspection
environmental questionnaire to QSI; (iii) make a site assessment to
visually inspect the problems and operations of QSI and each QSI
Subsidiary; (iv) conduct interviews with QSI's corporate and site
personnel responsible for environmental matters; and (v) copy any
governmental documents regarding the properties and operations of QSI or
any QSI Subsidiary.
"ENVIRONMENTAL LAW" means any and all laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, and other legally
enforceable requirements (including, without limitation, common law) of
the United States, or any federal, state, local,
3
municipal or other governmental authority, or quasi-governmental
authority, regulating, relating to, or imposing liability or standards of
conduct for soil surface water or groundwater quality, solid, liquid or
contained gaseous waste, subsurface disposal operations, wastewater or
stormwater discharge, air emissions, protection of the environment or of
human health, or employee health and safety as such were in effect at the
time of the relevant conduct.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" means any entity which is a member of QSI's or a
QSI Subsidiary's controlled group under Section 414 of the Code or Section
4001(a)(14) of ERISA.
"ESCROWED CASH" has the meaning specified in Section 2.9.5 hereof.
"ESCROWED CONSIDERATION" means the Escrowed Shares (determined at
the Key Share Price), plus the Escrowed Cash.
"ESCROWED SHARES" has the meaning specified in Section 2.9.5 hereof.
"ESTIMATED BALANCE SHEET" has the meaning specified in Section
2.9.4.2 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FINAL BALANCE SHEET" has the meaning specified in Section 2.10
hereof.
"FINAL EFFECTIVE PRICE PER SHARE" means the sum of the Final
Purchase Price plus the Option/Warrant Strike Proceeds divided by the
Fully Diluted QSI Shares Outstanding.
"FINAL MERGER CONSIDERATION" has the meaning specified in Section
2.10 hereof.
"FINAL OPTION PAYOUT" means the dollar amount to be paid with
respect to an Option, calculated as (i) that number of shares of QSI
Common Stock subject to such Option, MULTIPLIED BY (ii) the Final Option
Spread.
"FINAL OPTION SPREAD" means, with respect to an Option, that amount
equal to (i) the Final Effective Price Per Share, less (ii) the exercise
price per share of such Option.
"FINAL PURCHASE PRICE" means $265,000,000 less (i) "Total
Liabilities" as recorded on the Final Balance Sheet and calculated in
accordance with Section 2.10 hereof and (ii) the aggregate amount of
Redemption Notes, plus "Total Current Assets" as recorded on the Final
Balance Sheet and calculated in accordance with Section 2.10 hereof.
4
"FINAL WARRANT PAYOUT" means the dollar amount to be paid with
respect to each Cash Out Warrant, calculated as (i) that number of shares
of QSI Common Stock such holder would have been entitled to receive had
such holder exercised the warrant, MULTIPLIED BY (ii) the Final Warrant
Spread.
"FINAL WARRANT SPREAD" means, with respect to each Cash Out Warrant,
that amount equal to (i) the Final Effective Price Per Share, LESS (ii)
the exercise price per share of such Warrant.
"FULLY DILUTED QSI SHARES OUTSTANDING" means the sum of the
currently issued and outstanding shares of QSI Common Stock plus the
number of shares of QSI Common Stock issuable if all outstanding Warrants
and Options were exercised in full immediately prior to the Effective
Date, without taking into account any cashless exercise thereof effected
in connection with this Agreement.
"FUTURE ACQUISITION" means any future acquisition of any business,
assets or capital stock by Key.
"HSR" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1978
and the rules and regulations promulgated thereunder.
"INDEMNIFIED EXECUTIVES" means each person who is now, or has been
before the date hereof or who becomes before the Effective Date, an
officer or director of QSI or any of the QSI's subsidiaries.
"INDEMNIFIED QSI SHAREHOLDER" has the meaning specified in Section
5.4.4.2 hereof.
"INDEMNIFIED PERSON" has the meaning specified in Section 5.4.4.4
hereof.
"INTELLECTUAL PROPERTY" means all patents, patent applications,
trademarks and service marks (including registrations and applications
therefore), trade names, copyrights and written know-how, trade secrets
and all other similar proprietary data and the goodwill associated
therewith.
"KEY" has the meaning specified in the preamble to this Agreement.
"KEY ADJUSTMENT PAYMENTS" has the meaning specified in Section
2.10.1 hereof.
"KEY COMMON STOCK" means the common stock, par value $0.10 per
share, of Key.
"KEY SHARES" means the shares of Key Common Stock to be issued in
the Merger.
"KEY SHARE PRICE" means the average of the closing prices of Key
Common Stock on the New York Stock Exchange for the 10 trading days
immediately preceding the day before the Effective Date (the "10-Day
Average"); PROVIDED, HOWEVER, that if the 10-Day Average is equal to or
less than $11.00, then the Key Share Price shall be $11.00, and if
5
the 10-Day Average is equal to or greater than $13.00, the Key Share Price
shall be $13.00.
"LIABILITY NOTICE" means the notice given by Key to QSI pursuant to
Section 8.3.1.2 hereof.
"LIABILITY THRESHOLD" has the meaning specified in Section 6.2.1
hereof.
"MERGER" has the meaning specified in the recitals to this
Agreement.
"MERGER CONSIDERATION" has the meaning specified in Section 2.9.4.1
hereof.
"MERGER SUB" has the meaning specified in the preamble to this
Agreement.
"MERGER SUB COMMON STOCK" means the common stock, par value $.001
per share, of Merger Sub.
"MERGING CORPORATIONS" has the meaning specified in the preamble to
this Agreement.
"NON-COMPETE AGREEMENT" means the non-compete agreement in the form
of EXHIBIT A hereto.
"NOTE HOLDER" means each holder of either an Option Note or Warrant
Note.
"OPTIONS" means all options to purchase QSI Common Stock,
including, without limitation, all options issued under the Q Services,
Inc. 1999 Stock Incentive Plan and the Q Services, Inc. 2000 Stock
Incentive Plan.
"OPTION NOTES" has the meaning specified in Section 2.9.2.1 hereof.
"OPTION PAYOUT" means the dollar amount to be paid with respect to
an Option, calculated as (i) that number of shares of QSI Common Stock
subject to such Option, MULTIPLIED BY (ii) the Option Spread.
"OPTION SPREAD" means, with respect to an Option, that amount equal
to (i) the Effective Price Per Share, LESS (ii) the exercise price per
share of such option.
"OPTION/WARRANT STRIKE PROCEEDS" means the total dollar proceeds
which would be received by QSI upon exercise of the Options and Warrants
assuming all Options and Warrants were exercised for cash immediately
prior the Effective Date and not taking into account any cashless exercise
thereof effected in connection with this Agreement.
"OTHER OPTIONS" has the meaning specified in Section 2.9.2.1 hereof.
"OTHER WARRANTS" has the meaning specified in Section 2.9.2.2
hereof.
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"PAYING AGENT" means at any time the bank or trust company acting as
Key's paying agent at that time in connection with the exchange of
Certificates for the Merger Consideration.
"PERMITS" has the meaning specified in Section 3.1.8.14 hereof.
"PERSON" shall mean an individual, firm, corporation, general or
limited partnership, limited liability company, limited liability
partnership, joint venture, trust, governmental authority or body,
association, unincorporated organization or other entity.
"POTENTIAL LIABILITY" means (i) an environmental condition
identified in the Environmental Assessment of or on a particular property
owned, leased or operated by QSI or a QSI Subsidiary or (ii) any other
condition, fact or item identified by Key in the course of its inspection
of QSI pursuant to Section 5.1.5 hereof with respect to any SWD Well that,
in either case, would make a representation or warranty contained in
Sections 3.1.8.17, 3.1.8.18, 3.1.17 (including all subparagraphs thereto)
and 3.1.20 hereof untrue in any respect.
"PROSPECTUS" means the prospectus contained in the Registration
Statement, as amended pursuant to a post-effective amendment to the
Registration Statement, that complies as to form and substance with the
requirements of the Securities Act, pursuant to which the Key Shares will
be issued and which will also be available for use by the holders of QSI
Common Stock who are affiliates of QSI in the resale of the Key Shares
they receive in the Merger without restriction under the Securities Act.
"PURCHASE PRICE" means $265,000,000, LESS (i) "Total Liabilities" as
recorded on the Estimated Balance Sheet and calculated in accordance with
Section 2.9.4.2 hereof and (ii) the aggregate amount of the Redemption
Notes, PLUS "Total Current Assets" as recorded on the Estimated Balance
Sheet and calculated in accordance with Section 2.9.4.2 hereof.
"QSI" means Q Services, Inc., a Texas corporation.
"QSI ADJUSTMENT PAYMENT" has the meaning specified in Section 2.10.2
hereof.
"QSI AFFILIATE AGREEMENT" means the affiliate agreement in the form
of EXHIBIT B hereto.
"QSI COMMON STOCK" means the common stock, no par value per share,
of QSI.
"QSI DEFICIENCY" has the meaning specified in Section 2.10.2 hereof.
"QSI EMPLOYEE" has the meaning specified in Section 8.1 hereof.
"QSI LEASED PROPERTIES" has the meaning specified in Section
3.1.23.1 hereof.
"QSI OWNED PROPERTIES" has the meaning specified in Section 3.1.22.1
hereof.
7
"QSI PREFERRED STOCK" means, collectively, the Series A Preferred
Stock and the Series B Preferred Stock.
"QSI REPRESENTATIVES" means Xxxxx Xxxxxxxxxx and Xxxxxxx XxXxxx.
"QSI SHARES" means the issued and outstanding shares of QSI Common
Stock and QSI Preferred Stock.
"QSI SHAREHOLDERS" means the holders of QSI Common Stock and QSI
Preferred Stock, all of which are identified on SCHEDULE 3.1.4 hereto.
"QSI SUBSIDIARIES" means any corporation, partnership, joint venture
or other legal entity in which QSI beneficially owns a controlling equity
interest, each of which are identified on SCHEDULE 3.1.5 hereto.
"REDEMPTION NOTES" has the meaning set forth in Section 2.9.3
hereof.
"REGISTRATION STATEMENT" has the meaning specified in the recitals
to this Agreement.
"REPLACEMENT PLANS" has the meaning specified in Section 8.1 hereof.
"REPORTS" has the meaning specified in Section 4.1.8 hereof.
"REQUIRED INTELLECTUAL PROPERTY" has the meaning specified in
Section 3.1.12 hereof.
"REQUIRED PERMITS" has the meaning specified in Section 3.1.15
hereof.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING QSI SHAREHOLDERS" means the Persons identified on SCHEDULE
1.2 hereto.
"SERIES A PREFERRED STOCK" means the preferred stock, no par value,
of QSI designated as Series A Redeemable Preferred Stock.
"SERIES B PREFERRED STOCK" means the preferred stock, no par value
of QSI designated as Series B Redeemable Preferred Stock.
"SHAREHOLDERS MEETING" means the meeting of the QSI Shareholders to
be held to approve this Agreement and the Merger contemplated hereby.
"XXXX LITIGATION" means the litigation filed in the District Court
in Xxxxxx County, Texas, 218th Judicial District, Case No.
02--03--0056--CK, styled XXXX X. XXXXXX INDUSTRIES, INC. & POOL COMPANY
TEXAS, LTD.
8
"SUBSTANCE OF ENVIRONMENTAL CONCERN" means any substance that is
defined as toxic or hazardous under any Environmental Law or that is
regulated pursuant to or could give rise to liability under any
Environmental Law.
"SUPPLEMENTAL INFORMATION" has the meaning specified in Section 5.5
hereof.
"SURVIVING CORPORATION" has the meaning specified in Section 2.1
hereof.
"SWD XXXXX" means each of those saltwater disposal xxxxx identified
on SCHEDULE 3.1.8.18 hereto.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under ss.59A of the Code), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and including any obligations
to indemnify or otherwise assume or succeed to the Tax liability of any
other person.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"TBCA" means the Texas Business Corporation Act, as amended.
"TRADING DAY" means any day the New York Stock Exchange is open for
trading.
"UNAUDITED FINANCIAL STATEMENTS" means the unaudited consolidated
balance sheet and related consolidated statements of income, retained
earnings and cash flows of QSI and its consolidated subsidiaries as at and
for the period ended on the Balance Sheet Date.
"VOTING AND SUPPORT AGREEMENT" means a Voting and Support Agreement
dated the date hereof in substantially the form of EXHIBIT C hereto.
"WARRANTS" means all warrants to purchase QSI Common Stock.
"WARRANT NOTES" has the meaning specified in Section 2.9.2.2 hereof.
"WARRANT PAYOUT" means the dollar amount to be paid with respect to
each Warrant, calculated as (i) that number of shares of QSI Common Stock
such holder would have been entitled to receive had such holder exercised
the Warrant, MULTIPLIED by (ii) the Warrant Spread.
"WARRANT SPREAD" means, with respect to each Warrant, that amount
equal to (i) the Effective Price Per Share, LESS (ii) the exercise price
per share of such Warrant.
9
ARTICLE 2
THE MERGER
2.1 SURVIVING CORPORATION. Subject to the terms and conditions hereof,
Merger Sub shall be, upon the Effective Date, merged with and into QSI with QSI
being the surviving corporation (the "Surviving Corporation"), which shall
continue its corporate existence and remain a Texas corporation governed by and
subject to the laws of that state. Accordingly, on the Effective Date, the
separate existence of Merger Sub, except insofar as continued by statute, shall
cease.
2.2 EFFECTIVE DATE. The Merger shall become effective upon the filing of
the articles of merger with the Secretary of State of Texas following its
execution in accordance with Sections 5.04 and 5.05 of the TBCA. The date upon
which the Merger becomes effective is referred to in this Agreement as the
"Effective Date."
2.3 CONTINUED CORPORATE EXISTENCE OF SURVIVING CORPORATION. On the
Effective Date, the corporate identity and existence of QSI shall continue
unaffected and unimpaired by the Merger as provided in and in accordance with
the TBCA, and the corporate identity and existence of Merger Sub shall be wholly
merged into QSI and QSI shall be fully vested therewith as provided in and in
accordance with the TBCA.
2.4 GOVERNING LAW AND ARTICLES OF INCORPORATION OF SURVIVING CORPORATION.
The laws of Texas shall continue to govern the Surviving Corporation after the
Effective Date. On and after the Effective Date, the articles of incorporation
of Merger Sub shall be the articles of incorporation of the Surviving
Corporation; PROVIDED, HOWEVER, that Article 1 thereof shall be amended to read
"The name of the corporation is Q Services, Inc. (the "Corporation")."
Thereafter the articles of incorporation may be amended as provided by law and
such articles of incorporation of the Surviving Corporation.
2.5 BYLAWS OF SURVIVING CORPORATION. On the Effective Date, the bylaws of
Merger Sub shall be the bylaws of the Surviving Corporation until altered,
amended or repealed, or until new bylaws shall be adopted in accordance with the
provisions of law, the articles of incorporation of Surviving Corporation and
the bylaws of Surviving Corporation.
2.6 DIRECTORS OF SURVIVING CORPORATION. The incumbent director of Merger
Sub immediately before the Effective Date shall constitute the board of
directors of the Surviving Corporation from and after the Effective Date, and
such person shall remain the director of the Surviving Corporation until his
successor is duly elected and qualified in accordance with the articles of
incorporation and the bylaws of the Surviving Corporation.
2.7 OFFICERS OF SURVIVING CORPORATION. The incumbent officers of Merger
Sub immediately before the Effective Date shall be the officers of the Surviving
Corporation from and after the Effective Date and until their successors are
duly elected and qualified in accordance with the articles of incorporation and
the bylaws of the Surviving Corporation.
2.8 VACANCIES. If on or after the Effective Date, a vacancy shall for any
reason exist in the board of directors or in any of the offices of the Surviving
Corporation, such vacancy shall be
10
filled in the manner provided in the articles of incorporation and bylaws of the
Surviving Corporation.
2.9 CONVERSION OF SECURITIES UPON MERGER.
2.9.1 CANCELLATION OF TREASURY SHARES. On the Effective Date, as a
result of the Merger and without any action on the part of the holder
thereof, all shares of capital stock of QSI held in treasury by QSI shall
be canceled and retired and shall cease to exist from the Effective Date,
and no consideration shall be paid with respect thereto.
2.9.2 QSI STOCK OPTIONS AND WARRANTS.
2.9.2.1 OPTIONS. As of the Effective Date, this Agreement
shall be amended to include SCHEDULE 2.9.2.1 hereto, which
identifies each of the Options that has been designated by QSI to
receive an Option Payout in cash (which Options shall be amended to
provide for an Option Payout in accordance with this Section
2.9.2.1) (the "Cash Out Options"), and such Options shall be
surrendered to QSI immediately before the Effective Date in
exchange for an amount equal to the Option Payout. Upon such
surrender, QSI shall issue a non-interest bearing promissory note
(in a form reasonably acceptable to Key) to each holder of a Cash
Out Option, which note shall be in a principal amount equal to the
Option Payout relating to such Option, less any applicable
withholding obligations (collectively, the "Option Notes"). Upon
issuance and delivery of the Option Notes to the holders of the
Cash Out Options, QSI shall cancel the Cash Out Options and such
Options shall cease to exist. On the Effective Date, the Option
Notes shall be paid by QSI subject to Section 2.9.5 hereof. QSI
shall, to the extent required, accelerate the time at which Options
other than the Cash Out Options (the "Other Options") may be
exercised in full to a limited period of time before the Effective
Date, and amend the Other Options, to the extent required, to
provide that the holder may surrender all or a portion of each
Other Option during such period in exchange for an Option Payout
(or a portion thereof corresponding to the portion of the Other
Option that is so surrendered), less any applicable withholding
obligations payable in the form of QSI Common Stock (valued at the
Effective Price Per Share).
2.9.2.2 WARRANTS. As of the Effective Date, this Agreement
shall be amended to include SCHEDULE 2.9.2.2 hereto, which
identifies each of the Warrants that has been designated by QSI to
receive a Warrant Payout in cash (which such Warrant shall be
amended to provide for a Warrant Payout in accordance with this
Section 2.9.2.2) (the "Cash Out Warrants"), and such Warrants shall
be surrendered to QSI immediately before the Effective Date in
exchange for an amount equal to the Warrant Payout. Upon such
surrender, QSI shall issue a non-interest bearing promissory note
(in a form reasonably acceptable to Key) to each holder of a Cash
Out Warrant, which note shall be in a principal amount equal to the
Warrant Payout, less any applicable withholding obligations
(collectively, the "Warrant Notes"). Upon issuance and delivery of
the Warrant Notes to the holders of the Cash Out Warrants, the Cash
Out
11
Warrants shall be cancelled and shall cease to exist. On the
Effective Date, the Warrant Notes shall be paid by QSI subject to
Section 2.9.5 hereof. QSI shall, to the extent required, accelerate
the time at which Warrants other than the Cash Out Warrants (the
"Other Warrants") may be exercised in full to a limited period of
time before the Effective Date and amend the Other Warrants, to the
extent required, to provide that the holder may surrender all or a
portion of each Other Warrant during such period in exchange for a
Warrant Payout (or a portion thereof corresponding to the portion
of the Other Warrant that is so surrendered), less any applicable
withholding obligations payable in the form of QSI Common Stock
(valued at the Effective Price Per Share).
2.9.3 REDEMPTION OF PREFERRED STOCK. Immediately before the
Effective Date, QSI shall issue a non-interest bearing promissory note (in
a form reasonably acceptable to Key) to each holder of the issued and
outstanding shares of QSI Preferred Stock in the amount required to effect
the redemption of such shares in accordance with their respective
certificates of designation (or in accordance with agreements with holders
of QSI Preferred Stock) (collectively, the "Redemption Notes"). Upon
issuance and delivery of the Redemption Notes to the holders of the shares
of QSI Preferred Stock, the QSI Preferred Stock shall be redeemed,
cancelled, and cease to exist. The aggregate principal amount of the
Redemption Notes shall equal the stated value of the outstanding shares of
QSI Preferred Stock, plus accrued dividends payable in accordance with
their respective certificates of designation. On the Effective Date, QSI
shall pay the Redemption Notes in cash to each holder of such Redemption
Notes. As soon as practicable after the date of this Agreement, QSI shall
take all corporate action necessary to redeem the QSI Preferred Stock on
the Effective Date as provided herein, including, but not limited to, the
notice of redemption as required by the QSI Articles of Incorporation.
2.9.4 CONVERSION OF QSI COMMON STOCK. On the Effective Date and
without any action on the part of the holders thereof, each of the issued
and outstanding shares of QSI Common Stock shall automatically become and
be converted into the right to receive from Key the Merger Consideration.
2.9.4.1 MERGER CONSIDERATION. The merger consideration to be
received for each share of QSI Common Stock (the "Merger
Consideration") will be that number of Key Shares equal to the
result determined by (i) dividing the sum of the Purchase Price
plus the Option/Warrant Strike Proceeds by the Key Share Price and
(ii) dividing the result obtained in clause (i) by the Fully
Diluted QSI Shares Outstanding. The aggregate Merger Consideration
to be received by each holder of QSI Common Stock is equal to the
result obtained by (x) multiplying the Merger Consideration by (y)
the number of shares of QSI Common Stock owned by such holder of
QSI Common Stock. As of the Effective Date, this Agreement shall be
amended to include as SCHEDULE 2.9.4.1 hereto the calculation of
the Purchase Price. In the event of any split, combination or
reclassification of Key Common Stock or the authorization of any
issuance of any other securities in exchange or in substitution for
shares of Key Common Stock at any time during the period from the
date of this Agreement to the Effective Date, Key and QSI shall
make such adjustment to the Merger Consideration as Key and QSI
12
shall mutually agree so as to preserve the economic benefits that
the parties each reasonably expected on the date of this Agreement
to receive as a result of the consummation of the Merger and the
other transactions contemplated by this Agreement.
2.9.4.2 ESTIMATED BALANCE SHEET. No later than one business
day before the Effective Date, QSI shall have prepared and
delivered to Key a consolidated balance sheet of QSI and the QSI
Subsidiaries estimated as of the Effective Date (the "Estimated
Balance Sheet"), which balance sheet will be prepared, except as
provided below, in accordance with generally accepted accounting
principles, consistent with past practices, and which shall be in
the form attached hereto as SCHEDULE 2.9.4.2. In connection with
its preparation of the Estimated Balance Sheet, QSI shall consult
with and accept input from Key in an effort to facilitate the
adjustment process and procedures in Section 2.10 hereof. "Total
Liabilities" as reflected on the Estimated Balance Sheet (and on
the Final Balance Sheet) shall (i) include, whether or not in
accordance with generally accepted accounting principles, all of
QSI's transaction costs associated with the Merger, including
without limitation, finder's fees, whether identified on SCHEDULE
3.1.26 or otherwise, accounting fees and attorneys' fees (including
fees payable pursuant to Section 5.3.11 hereof) and all expenses
related to the foregoing, but (ii) exclude "Deferred Income Tax
Liability, net."
2.9.5 HOLDBACK. Notwithstanding any other provision of this Section
2.9 to the contrary, (i) 5% of the aggregate Merger Consideration issuable
to all of the holders of QSI Common Stock on the Effective Date (the
"Escrowed Shares"), and (ii) 5% of the aggregate amount of cash payable to
the holders of the Option Notes and Warrant Notes (the "Escrowed Cash"),
shall be held in escrow by Key pending calculation of the Final Merger
Consideration set forth in Section 2.10 of this Agreement.
2.9.6 CONVERSION OF MERGER SUB COMMON STOCK. On the Effective Date,
as a result of Merger, each issued and outstanding share of Merger Sub
Common Stock shall be converted into one share of common stock, par value
$.001 per share, of the Surviving Corporation.
2.9.7 NO FRACTIONAL SHARES. If the number of Key Shares issuable to
a holder of QSI Common Stock pursuant to this Section 2.9 results in a
fractional share, then the number of Key Shares issuable as the Merger
Consideration to such holder of QSI Common Stock shall be rounded up to
the next whole share.
2.10 PURCHASE PRICE ADJUSTMENT PAYMENT. Within 60 days after the Effective
Date, Key shall cause to be prepared and delivered to the QSI Representatives a
consolidated balance sheet of the Surviving Corporation as of the Effective Date
(the "Final Balance Sheet"), which balance sheet will be prepared in accordance
with generally accepted accounting principles (subject to the adjustments in
Section 2.9.4.2) consistent with past practices and consistent with the form
attached hereto as SCHEDULE 2.9.4.2. Key and the QSI Representatives shall
jointly review the Final Balance Sheet, and endeavor in good faith to resolve
all disagreements
13
regarding the entries thereon and reach a final determination thereof within 15
days from the expiration of the 60-day period. If the parties cannot agree on
the entries to be placed on the Final Balance Sheet, the dispute will be
resolved by PriceWaterhouseCoopers, LLP, or if such firm is unable or unwilling
to serve in such capacity, by an independent accounting firm mutually agreed to
by the QSI Representatives and Key, whose resolution shall be binding on and
enforceable against the parties hereto. Within 10 days of reaching the
determination of the Final Balance Sheet, Key shall re-calculate the Merger
Consideration pursuant to this Section 2.10. The final Merger Consideration to
be received for each share of QSI Common Stock (the "Final Merger
Consideration") will be that number of Key Shares equal to the result determined
by (i) dividing the sum of the Final Purchase Price plus the Option/Warrant
Strike Proceeds by the Key Share Price and (ii) dividing the result obtained in
clause (i) by the Fully Diluted QSI Shares Outstanding. Key shall also calculate
the Final Effective Price Per Share, the Final Option Spread, the Final Option
Payout, the Final Warrant Spread and the Final Warrant Payout. The aggregate
Final Merger Consideration to be received by each holder of the QSI Common Stock
is equal to the result obtained by (x) multiplying the Final Merger
Consideration by (y) the number of shares of QSI Common Stock owned by each
holder of QSI Common Stock giving effect to differences between the Final Option
Payout and the Option Payout and differences between the Final Warrant Payout
and the Warrant Payout. Upon calculation of the Final Merger Consideration, the
aggregate Final Merger Consideration for each holder of QSI Common Stock will be
compared to the holder's aggregate Merger Consideration. Any and all adjustments
necessary to reconcile any difference in amounts between the aggregate Final
Merger Consideration for a holder and such holder's aggregate Merger
Consideration shall be made in accordance with Sections 2.10.1 and 2.10.2
hereof. The Final Option Payout and the Final Warrant Payout for each Note
Holder will be compared to the Option Payout or Warrant Payout received by such
Note Holder. Any and all adjustments necessary to reconcile any difference in
amount shall be made in accordance with Sections 2.10.1 and 2.10.2 hereof.
2.10.1KEY ADJUSTMENT PAYMENT. If the aggregate Final Merger
Consideration equals the aggregate Merger Consideration, (i) the holders
of QSI Common Stock shall be entitled to receive from Key the Escrowed
Shares in accordance with their pro rata ownership of QSI Common Stock as
set forth on SCHEDULE 3.1.4 hereto, and (ii) the Note Holders shall be
entitled to receive from Key the Escrowed Cash in accordance with each
Note Holder's respective Option Note or Warrant Note, as the case may be.
In addition to the foregoing, if the Final Merger Consideration is greater
than the Merger Consideration, (i) each holder of QSI Common Stock shall
be entitled to receive the difference between the holder's aggregate Final
Merger Consideration and such holder's aggregate Merger Consideration
already received and each Note Holder shall be entitled to receive the
difference between the holder's Final Option Payout or Final Warrant
Payout and such holder's Option Payout or Warrant Payout already received
(the "Key Adjustment Payments"). The Key Adjustment Payments will include
first, the Escrow Consideration and, second, at Key's Option, cash or a
number of Key Shares equal to the additional amount necessary for Key to
satisfy the Key Adjustment Payments divided by the Key Share Price.
2.10.2 QSI ADJUSTMENT PAYMENT. If the aggregate Final Merger
Consideration is less than the aggregate Merger Consideration and the
amount of such deficiency (the amount of such deficiency being referred to
as the "QSI Adjustment Payment") is less than the value of the Escrowed
14
Consideration, then Key shall (i) deduct from the Escrowed Cash for each
Note Holder the difference between the holder's Final Option Payout or
Final Warrant Payout and such holder's Option Payout or Warrant Payout
already received; and (ii) deduct from the Escrowed Shares the number of
Key Shares equal to the QSI Adjustment Payment (less the amount of
Escrowed Cash deducted pursuant to clause (i)) divided by the Key Share
Price. The holders of QSI Common Stock and the Note Holders shall be
entitled to receive the balance, if any, of the Escrow Consideration in
either cash or Key Shares based on the difference between their aggregate
Final Merger Consideration and their aggregate Merger Consideration. If
the amount of the QSI Adjustment Payment is greater than the value of the
Escrowed Consideration, (the amount of such deficiency being referred to
as the "QSI Deficiency"), then Key shall be entitled to retain the Escrow
Consideration, and (ii) each holder of QSI Common Stock shall pay to Key
the difference between their aggregate Final Merger Consideration and
their aggregate Merger Consideration already received (after giving credit
for the final Escrow Consideration applicable to each holder of QSI Common
Stock) and each Note Holder shall pay to Key the difference between the
holder's Final Option Payout or Final Warrant Payout and such holder's
Option Payout or Warrant Payout already received (after giving credit for
the final Escrow Consideration applicable to each Note Holder). At the
option of the holders of the QSI Common Stock or the Note Holders, such
holders may satisfy the QSI Deficiency by tendering Key Shares equal to
the QSI Deficiency divided by the Key Share Price or otherwise paying
cash.
2.11 SURRENDER OF QSI CERTIFICATES. Before the Effective Date, Key will
designate the Paying Agent and from time to time will make or cause to be made
available to the Paying Agent Key Shares in the amounts and at the times
necessary for the payment of the Merger Consideration on surrender of
Certificates. QSI shall use all reasonable efforts to cause each holder of QSI
Common Stock to surrender all the Certificates to Key on the Effective Date. On
the first business day following the Effective Date, Key will cancel all the
Certificates delivered to it as of the Effective Date, and the holders of the
QSI Common Stock delivering such Certificates together with a completed and
executed Letter of Transmittal, in substantially the form attached hereto as
EXHIBIT D, will receive the Merger Consideration to which they are entitled,
subject to Section 2.9.5 hereof. Until any Certificate has been surrendered and
replaced pursuant to this Section 2.11, that Certificate will, for all purposes,
be deemed to evidence ownership of the Merger Consideration such holder of QSI
Common Stock is entitled to receive, subject to Section 2.9.5 hereof.
2.11.1 CERTIFICATES NOT DELIVERED ON THE EFFECTIVE DATE. With
respect to the Certificates not delivered on the Effective Date, as soon
as reasonably practicable after the Effective Date, but in any event
within five days following the Effective Date, the Paying Agent will mail
to each holder of record of a Certificate set forth in SCHEDULE 3.1.4
hereto:
2.11.1.1 LETTER OF TRANSMITTAL. A letter of transmittal, which
will specify that delivery will be effected, and risk of loss and
title to Certificates will pass, only on delivery of Certificates to
the Paying Agent and will be in a form and have such other
provisions as Key may specify; and
15
2.11.1.2 INSTRUCTIONS FOR SURRENDER. Instructions for use in
effecting the surrender of Certificates in exchange for the Merger
Consideration.
2.11.2 LOST, STOLEN OR DESTROYED CERTIFICATES. If any Certificates
shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming such Certificates to be lost, stolen
or destroyed, and delivery of such indemnity as Key may reasonably
request, a Paying Agent will deliver in exchange for such lost, stolen or
destroyed Certificates one or more certificates representing Key Common
Stock deliverable in respect thereof, as determined in accordance with the
terms hereof.
2.12 QSI TRANSFER BOOKS CLOSED. Upon the Effective Date, the stock
transfer books of QSI shall be closed, and no transfer of any shares of capital
stock of QSI shall thereafter be made or consummated.
2.13 ASSETS AND LIABILITIES OF MERGING CORPORATIONS BECOME THOSE OF
SURVIVING CORPORATION. The Merger shall have the effects set forth in the TBCA,
including Section 5 of the TBCA.
2.14 DISSENTING SHAREHOLDERS. Key agrees that if the Merger becomes
effective, it promptly will pay to dissenting shareholders of QSI the amounts,
if any, to which they are entitled under the provisions of Sections 5.11 and
5.12 of the TBCA.
2.15 FEDERAL INCOME TAX TREATMENT. The Merger is intended to qualify as a
tax-free reorganization described in ss.368(a) of the Code. The partieS intend
that this Agreement constitutes a "plan of reorganization" among QSI, Key and
Merger Sub within the meaning of Treas. Reg. ss. 1.368-2(g). NeitheR Key nor QSI
will take any action or permit any of their respective affiliates to take any
action that would result in the Merger failing to qualify as a tax-free
reorganization under ss. 368(a) of the Code.
2.16 CLOSING. The Closing of the Merger shall be at the offices of Xxxxxx
& Xxxxxx, L.L.P., 000 Xxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxx, 00000, on such date as
mutually agreed by the parties, which shall be no later than the third business
day after satisfaction or waiver of the conditions set forth herein unless
another date or place is agreed to in writing by the parties hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF QSI
3.1 REPRESENTATIONS AND WARRANTIES QSI. QSI hereby represents and warrants
to Key and Merger Sub as follows:
3.1.1 ORGANIZATION, GOOD STANDING AND AUTHORITY. QSI is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has full requisite corporate power and
authority to carry on its business as it is currently conducted, and to
own and operate the properties currently owned and operated by it, and is
duly qualified or licensed to do business and is in good standing as
foreign entity authorized to do business in all jurisdictions in which the
16
character of the properties owned or the nature of the business conducted
by it would make such qualification or licensing necessary.
3.1.2 AGREEMENT AUTHORIZED AND ITS EFFECT ON OTHER OBLIGATIONS. The
execution and delivery of this Agreement and the transactions contemplated
hereby have been authorized by the board of directors of QSI. This
Agreement and the transactions contemplated hereby are the valid and
binding obligations of QSI, enforceable against QSI in accordance with its
terms. The Voting and Support Agreements are valid and binding obligations
of the parties thereto (other than Key), enforceable against each of the
parties thereto (other than Key) in accordance with their terms. Except as
reflected in SCHEDULE 3.1.2 hereto, the execution, delivery and
performance of this Agreement by QSI will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default
under (x) the articles of incorporation, bylaws or other organizational
documents of QSI or any of the QSI Subsidiaries; (y) any obligation,
indenture, mortgage, deed of trust, lease, contract or other agreement to
which QSI or any of the QSI Subsidiaries is a party or by which QSI, any
of the QSI Subsidiaries or their respective properties are bound, or (z)
any provision of any law, rule, regulation, order, permit, certificate,
writ, judgment, injunction, decree, determination award or other decision
of any court, arbitrator or other governmental authority to which QSI, any
of the QSI Subsidiaries or any of their respective properties are subject.
3.1.3 CAPITALIZATION. The authorized capitalization of QSI consists
of (i) 40,000,000 shares of QSI Common Stock, of which, as of the date
hereof, 15,083,815 shares are issued and outstanding and all of which are
held beneficially and of record by the holders of the QSI Common Stock, 0
shares are held in treasury and 2,276,368 shares are reserved for issuance
pursuant to stock options and warrants; and (ii) 200,000 shares of QSI
Preferred Stock, of which (a) 72,000 shares of Series A Preferred Stock
and (b) 2,600 shares of Series B Preferred Stock are issued and
outstanding. Other than as set forth in the previous sentence of this
Section 3.1.3 and as reflected on SCHEDULE 3.1.3 hereto on the date
hereof, QSI does not have any outstanding options, convertible securities,
warrants, calls or commitments of any character relating to any of its
authorized but unissued shares of capital stock. All issued and
outstanding shares of QSI Common Stock and QSI Preferred Stock are validly
issued, fully paid and non-assessable and, except as set forth on SCHEDULE
3.1.3 hereto, are not subject to preemptive rights. Except as set forth on
Schedule 3.1.3 hereto, and except as contemplated by the Voting and
Support Agreements, none of the outstanding shares of QSI Common Stock or
QSI Preferred Stock is subject to any voting trusts, voting agreement or
other agreement or understanding with respect to the voting thereof. All
QSI Shares have been issued in compliance with applicable state and
federal securities laws.
3.1.4 OWNERSHIP OF THE QSI SHARES. SCHEDULE 3.1.4 hereto sets forth
a complete and accurate list of (i) each of the holders of QSI Common
Stock and the number of shares of QSI Common Stock owned of record by each
such holder; (ii) each holder of QSI Preferred Stock and the number of and
class of the shares of QSI Preferred Stock owned of record by each such
holder; (iii) each holder of an Option or Warrant, and the number of
shares of QSI Common Stock issuable upon the exercise of each such Option
and the exercise price of each such Option; and (iv) each holder of a
17
Warrant, and the number of shares of QSI Common Stock issuable upon the
exercise of each such Warrant and the exercise price of each such Warrant.
On the Effective Date, SCHEDULE 3.1.4 hereto shall be amended to include
the Merger Consideration payable to each of the holders of QSI Common
Stock and the amount of Escrowed Shares attributable to each such holder.
3.1.5 SUBSIDIARIES. SCHEDULE 3.1.5 hereto sets forth a complete list
of all QSI Subsidiaries, and also sets forth (i) its jurisdiction of
incorporation, formation, or organization, (ii) each jurisdiction in which
it is qualified to do business as a foreign entity, (iii) its authorized,
issued, and outstanding shares of capital stock, membership, partnership,
or other equity interests and (iv) the record holder or holders of all
outstanding shares of capital stock or equity interest and the percentage
ownership of each such holder or holders. All outstanding shares of
capital stock and all partnership or limited liability company interests
of the QSI Subsidiaries are validly issued, fully paid and nonassessable,
and except as set forth on SCHEDULE 3.1.5 hereto, QSI has good and valid
title thereto, free and clear of any Encumbrance. Except as set forth on
SCHEDULE 3.1.5 hereto, each such QSI Subsidiary is a corporation, limited
partnership or limited liability company that is duly organized, validly
existing and in good standing under the laws of the jurisdiction under
which it is incorporated, has full requisite corporate, partnership or
limited liability company power and authority to carry on its business as
it is currently conducted, and to own and operate the properties currently
owned and operated by it, and is duly qualified and licensed to do
business and is in good standing as a foreign entity authorized to do
business in all jurisdictions in which the character of the properties
owned or the nature of the business conducted makes such qualification or
licensing necessary.
3.1.6 FINANCIAL STATEMENTS. QSI has delivered to Key copies of the
Audited Financial Statements. Such Audited Financial Statements are
complete in all materials respects, present fairly the financial condition
of QSI and its consolidated subsidiaries as of the dates indicated and the
results of operations for the respective periods indicated, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as noted therein. QSI also has
delivered to Key copies of the Unaudited Financial Statements. Such
Unaudited Financial Statements are complete in all material respects
(except for the omission of notes and schedules), present fairly the
financial condition of QSI and its consolidated subsidiaries as of the
date indicated and the results of operations for the period indicated and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, subject to normal year-end
adjustments and other adjustments described therein. The Audited Financial
Statements and Unaudited Financial Statements are attached hereto as
SCHEDULE 3.1.6.
3.1.7 LIABILITIES. QSI does not have any liabilities or obligations,
either accrued, absolute, contingent or otherwise, including any
liabilities for Taxes, other than those (i) reflected or reserved against
in the unaudited consolidated balance sheet of QSI on the Balance Sheet
Date; (ii) incurred in the ordinary course of business since the Balance
Sheet Date (which will be properly reflected or reserved against in the
Estimated Balance Sheet and the Final Balance Sheet); (iii) set forth on
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SCHEDULE 3.1.7 hereto; or (iv) contracts in the ordinary course of
business which individually do not involve payments by or liability of QSI
in excess of $10,000.
3.1.8 ADDITIONAL COMPANY INFORMATION. Attached as SCHEDULES 3.1.8.1
through 3.1.8.18 hereto are true, complete and correct lists of the
following items, copies of each of which have been delivered to Key:
3.1.8.1 REAL ESTATE. All real property owned, leased or
subject to a contract of purchase and sale, or lease commitment, by
QSI or any QSI Subsidiary;
3.1.8.2 MACHINERY AND EQUIPMENT. All equipment, pressure
pumping equipment, machinery, transportation equipment, trucks,
transport trailers, frac tanks, open top tanks, rental tools and
other major items of equipment, which in each case has a value on
QSI's consolidated financial records in excess of $25,000, owned,
leased or subject to a contract of purchase and sale, or lease
commitment, by QSI or any QSI Subsidiary;
3.1.8.3 INVENTORY. All material inventory items or groups of
material inventory items owned by QSI or any QSI Subsidiary;
3.1.8.4 RECEIVABLES. All accounts and notes receivable of QSI
or any QSI Subsidiary, together with (i) aging schedules by invoice
date; (ii) the amounts provided for as an allowance for bad debts;
and (iii) the identity and location of any asset in which QSI or any
QSI Subsidiary holds a security interest to secure payment of the
underlying indebtedness;
3.1.8.5 PAYABLES. All trade accounts payable of QSI or any QSI
Subsidiary together with an aging schedule;
3.1.8.6 INSURANCE. All insurance policies or surety and
performance bonds currently maintained by QSI or any QSI Subsidiary,
including title insurance policies and those covering QSI or any QSI
Subsidiary properties, machinery and equipment identified on
SCHEDULE 3.1.8.2 hereto, employees and operations, as well as
listing of any premiums, deductibles or retroactive adjustments due
or pending on such policies or any predecessor policies;
3.1.8.7 CONTRACTS. All contracts, which includes the payment
by or to QSI or a QSI Subsidiary of an amount in excess of $100,000,
including leases under which QSI or any QSI Subsidiary is lessor or
lessee, which are to be performed in whole or in part after the date
hereof, but excluding master service agreements entered into by QSI
or any QSI Subsidiary in the ordinary course of business;
3.1.8.8 EMPLOYEE PLANS. All Employee Plans;
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3.1.8.9 SALARIES. The names and salary rates of all present
employees of QSI or any QSI Subsidiary, and, to the extent existing
on the date hereof, all arrangements with respect to any bonuses to
be paid to them from and after the date hereof;
3.1.8.10 BANK ACCOUNTS. The name of each bank in which QSI or
any QSI Subsidiary has an account and the names of all persons
authorized to draw thereon;
3.1.8.11 EMPLOYEE AGREEMENTS. Any collective bargaining
agreements of QSI or any QSI Subsidiary or ERISA Affiliate with any
labor union or other representative of employees, including
amendments, supplements, and written or oral understandings, and all
employment, non-competition and consulting and severance agreements
of QSI or any QSI Subsidiary;
3.1.8.12 INTELLECTUAL PROPERTY. All Intellectual Property.
3.1.8.13 TRADE NAMES. All trade names, assumed and fictitious
names used or held by QSI or any QSI Subsidiary, whether and where
such names are registered and where used;
3.1.8.14 LICENSES AND PERMITS. All material permits,
authorizations, certificates, approvals, registrations, variances,
waivers, exemptions, rights-of-way, franchises, ordinances, licenses
and other rights of every kind and character of QSI or any QSI
Subsidiary (collectively, the "Permits") under which QSI or any QSI
Subsidiary conducts its business. For purposes of this Section
3.1.8.14, all environmental permits and permits pertaining to the
SWD Xxxxx shall be deemed to be material;
3.1.8.15 PROMISSORY NOTES. All long-term and short-term
promissory notes, installment contracts, loan agreements,
credit-agreements, and any other agreements of QSI or any QSI
Subsidiary relating thereto or with respect to collateral securing
the same;
3.1.8.16 GUARANTEES. All indebtedness, liabilities and
commitments of others and as to which QSI or any QSI Subsidiary is a
guarantor, endorser, co-maker, surety, or accommodation maker, or is
contingently liable therefor and all letters of credit, whether
stand-by or documentary, issued by any third party for the benefit
of QSI or any QSI Subsidiary;
3.1.8.17 ENVIRONMENT. All environmental permits, approvals,
certifications, licenses, registrations, orders and decrees
applicable to current operations conducted by QSI or any QSI
Subsidiary and all environmental audits, assessments, investigations
and reviews conducted by QSI or any QSI Subsidiary within the last
three years or otherwise in QSI's or any QSI Subsidiary's possession
on any property owned, leased or used by QSI or any QSI Subsidiary;
and
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3.1.8.18 SWD XXXXX. All SWD Xxxxx owned or leased by QSI or
any QSI Subsidiary including the location of such SWD Xxxxx.
SCHEDULES 3.1.8.1 through 3.1.8.18 hereto shall be true, complete and
correct as of the Effective Date except for the items contained in SCHEDULES
3.1.8.3, 3.1.8.4 and 3.1.8.5 hereto, which are true, complete and correct as of
the Balance Sheet Date.
3.1.9 NO DEFAULTS. Neither QSI nor any QSI Subsidiary is in default
in any obligation or covenant on its part to be performed under any
obligation, lease, contract, order, plan or other arrangement.
3.1.10 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as disclosed on
SCHEDULE 3.1.10 hereto, and other than as a result of the transactions
contemplated by this Agreement, since the Balance Sheet Date, there has
not been:
3.1.10.1 FINANCIAL CHANGE. Any material adverse change in the
financial condition, results of operations, assets, liabilities or
business of QSI and the QSI Subsidiaries taken as a whole;
3.1.10.2 PROPERTY DAMAGE. Any material damage, destruction, or
loss to the business or properties of QSI and the QSI Subsidiaries
taken as a whole (whether or not covered by insurance);
3.1.10.3 DIVIDENDS. Any declaration, setting aside, or payment
of any dividend or other distribution in respect of QSI Common
Stock, QSI Preferred Stock or any direct or indirect redemption,
purchase or any other acquisition by QSI of any such stock;
3.1.10.4 CAPITALIZATION CHANGE. Any change in the capital
stock or in the number of shares or classes of QSI's authorized or
outstanding capital stock as described in Section 3.1.3 hereof
(other than exercise of Options or Warrants); or
3.1.10.5 LABOR DISPUTES. Any labor or employment dispute of
whatever nature.
3.1.11 TAXES.
3.1.11.1 FILING TAX RETURNS. SCHEDULE 3.1.11.1 hereto lists
all federal, state, local, and foreign income Tax Returns filed with
respect to QSI and each of the QSI Subsidiaries for taxable periods
ended on or after December 31, 1996, and indicates those Tax Returns
that have been audited and those Tax Returns that currently are the
subject of audit. Each of QSI and the QSI Subsidiaries has delivered
to Key correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies
assessed against or agreed to by QSI or any of the QSI Subsidiaries
since January 1, 1997. Each of QSI and the QSI Subsidiaries filed
all Tax Returns that it was required to file under applicable laws
21
and regulations. All such Tax Returns were correct and complete in
all material respects and have been prepared in substantial
compliance with all applicable laws and regulations. All Taxes owed
by QSI and each of the QSI Subsidiaries (whether or not shown on any
Tax Return) have been paid. Except as provided on SCHEDULE 3.1.11.1
hereto, neither QSI nor any of the QSI Subsidiaries currently are
the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made against QSI or any of the
QSI Subsidiaries by an authority in a jurisdiction where it does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets
of QSI or any of the QSI Subsidiaries that arose in connection with
any failure (or alleged failure) to pay any Tax.
3.1.11.2 WITHHOLDING. Except as set forth on SCHEDULE 3.1.11.2
hereto, each of QSI and the QSI Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, stockholder or other third
party.
3.1.11.3 NO ADDITIONAL TAXES. Except as set forth on SCHEDULE
3.1.11.3 hereto, neither QSI nor any director or officer (or
employee responsible for Tax matters) of QSI or any of the QSI
Subsidiaries expects any authority to assess any additional Taxes
for any period for which Tax Returns have been filed. There is no
dispute or claim or audits or proceedings pending or being conducted
concerning any liability for Taxes of QSI or any of the QSI
Subsidiaries. Neither QSI nor any of the QSI Subsidiaries has
received from any foreign, federal, state or local taxing authority
(including jurisdictions where QSI or the QSI Subsidiaries have not
filed Tax Returns) any (i) notice indicating an intent to open an
audit or other review, (ii) request for information related to Tax
matters or (iii) notice of deficiency or proposed adjustment for any
amount of Tax proposed, asserted or assessed by any taxing authority
against QSI or any of the QSI Subsidiaries.
3.1.11.4 NO WAIVER OF LIMITATIONS PERIODS. Except as provided
in SCHEDULE 3.1.11.4 hereto, neither QSI nor any QSI Subsidiary has
waived any statute of limitations in respect of Taxes or agreed to
any extension of time with respect to a Tax assessment or
deficiency.
3.1.11.5 TAX BASIS, NOLS, ETC. SCHEDULE 3.1.11.5 hereto sets
forth the following information with respect to QSI and each of the
QSI Subsidiaries (or, in the case of clause (ii) below, with respect
to each of the QSI Subsidiaries) as of the most recent practicable
date (as well as on an estimated pro forma basis as of the Effective
Date giving effect to the consummation of the transactions
contemplated hereby): (i) the basis of QSI or the QSI Subsidiary in
its assets; (ii) the basis of QSI in each QSI Subsidiary's capital
stock (or the amount of any excess loss account) or other equity
interest; (iii) the amount of any net operating loss, net capital
loss, unused investment or other credit, unused foreign tax, credit,
foreign loss, or excess charitable contribution allocable to QSI or
the QSI Subsidiary; and (iv) the amount of any deferred gain or loss
22
allocable to QSI or the QSI Subsidiary arising out of any deferred
intercompany transaction.
3.1.11.6 UNPAID TAXES. The unpaid Taxes of QSI and the QSI
Subsidiaries (i) did not, as of the Balance Sheet Date, exceed the
reserve for Tax liability (other than any reserve for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth on QSI's unaudited consolidated balance sheet at
the Balance Sheet Date, and (ii) do not exceed that reserve as
adjusted for the passage of time through the date hereof in
accordance with the past custom and practice of QSI and the QSI
Subsidiaries in filing their Tax Returns. Since the Balance Sheet
Date, neither QSI nor any of the QSI Subsidiaries has incurred any
liability for Taxes arising from extraordinary gains or losses, as
that term is used in generally accepted accounting principles,
outside of the ordinary course of business consistent with past
custom and practice.
3.1.11.7 ACCOUNTING METHOD. Except as set forth on SCHEDULE
3.1.11.7 hereto, QSI has used the accrual method of accounting for
federal income tax purposes since 1996 and has been entitled to use
such method of accounting for each taxable year thereafter.
3.1.11.8 ADDITIONAL TAX MATTERS. None of QSI nor any of the
QSI Subsidiaries has filed a consent under Code Section 341(f)
concerning collapsible corporations. Neither QSI nor any of the QSI
Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not
be deductible under Codess.280G. Neither QSI nor any of the QSI
Subsidiaries is, or has been during the last five years, a United
States real property holding corporation within the meaning of
Codess.897(c)(2) during the applicable period specified in
Codess.897(c)(1)(A)(ii). Except as provided in Schedule 3.1.11.8
hereto, neither QSI nor any of the QSI Subsidiaries is a party to
any Tax allocation or sharing agreement. Neither QSI nor any of the
QSI Subsidiaries (i) has been a member of an affiliated group filing
a consolidated federal income Tax Return (other than a group the
common parent of which was QSI) or (ii) has any liability for the
Taxes of any person (other than QSI and the QSI Subsidiaries) under
Treas. Reg.ss.1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or
otherwise. None of QSI or the QSI Subsidiaries will be required to
include any item of income in, or exclude any item of deduction
from, taxable income for any taxable period (or portion thereof)
ending after the Effective Date as a result of any: (i) change in
method of accounting for a taxable period ending on or before the
Effective Date; (ii) "closing agreement" as described in Codess.
7121 (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or before the Effective Date;
(iii) intercompany transactions or any excess loss account described
in Treasury Regulations under Codess. 1502 (or any corresponding or
similar provision of state, local or foreign income Tax law); (iv)
installment sale or open transaction disposition made on or before
the Effective Date; or (v) prepaid amount received on or before the
Effective Date.
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3.1.11.9 CONTINUITY OF BUSINESS ENTERPRISE. QSI operates at
least one significant historic business line, or owns at least a
significant portion of its historic business assets, in each case
within the meaning of Treas. Reg.ss.-1.368-1(d).
3.1.12 INTELLECTUAL PROPERTY. QSI and each QSI Subsidiary owns or
possesses licenses to use all Intellectual Property that is either
material to the business of QSI or such QSI Subsidiary or that is
necessary for the rendering of any services rendered by QSI or such QSI
Subsidiary and the use or sale of any equipment or products used or sold
by QSI or such QSI Subsidiary, including all such Intellectual Property
listed in SCHEDULES 3.1.8.12 and 3.1.8.13 hereto (the "Required
Intellectual Property"). Except as set forth on SCHEDULE 3.1.12 hereto,
the Required Intellectual Property is owned or licensed by QSI or such QSI
Subsidiary free and clear of any Encumbrance. Except as set forth on
SCHEDULE 3.1.12 hereto, neither QSI nor any QSI Subsidiary has granted to
any other person any license to use any Required Intellectual Property.
Except as set forth on SCHEDULE 3.1.12 hereto, neither QSI nor any QSI
Subsidiary has infringed, misappropriated, or conflicted with the
Intellectual Property rights of others in connection with the use by QSI
or such QSI Subsidiary of the Required Intellectual Property or otherwise
in connection with QSI's or such QSI Subsidiary's operation of its
business, nor has QSI or any QSI Subsidiary received any notice of such
infringement, misappropriation, or conflict with such Intellectual
Property rights of others.
3.1.13 TITLE TO AND CONDITION OF ASSETS. Except as set forth on
SCHEDULE 3.1.13 hereto, (i) QSI and each QSI Subsidiary has good and
indefeasible title to all its properties, interests in properties and
assets, real and personal, free and clear of any Encumbrance of any nature
whatsoever, (ii) all leases pursuant to which QSI or any QSI Subsidiary
leases (whether as lessee or lessor) any substantial amount of real or
personal property are in good standing, valid, and effective, and there is
not, under any such leases, any existing default or event of default, or
event that with notice or lapse of time, or both, would constitute a
default by QSI or any QSI Subsidiary and in respect to which QSI or such
QSI Subsidiary has not taken adequate steps to prevent a default from
occurring, (iii) the buildings and premises of QSI or any QSI Subsidiary
that are used in its business are in good operating condition and repair,
subject only to ordinary wear and tear, (iv) all equipment, pressure
pumping equipment, machinery, transportation equipment, trucks, transport
trailers, frac tanks, open top tanks, rental tools and other major items
of equipment of QSI and each QSI Subsidiary listed on SCHEDULE 3.1.8.2
hereto are in good operating condition and in a state of good maintenance
and repair, ordinary wear and tear excepted, (v) all such assets conform
to all applicable laws governing their use, and (vi) neither QSI nor any
QSI Subsidiary has violated any law, statute, ordinance, or regulation
relating to any such assets, nor has any notice of such violation been
received by QSI or any QSI Subsidiary, except such as have been fully
complied with.
3.1.14 CONTRACTS. All contracts, leases, plans or other arrangements
to which QSI or any QSI Subsidiary is a party, by which QSI or any QSI
Subsidiary is bound or to which QSI or any QSI Subsidiary or their
respective assets are subject are in full force and effect, and constitute
valid and binding obligations of QSI or such QSI Subsidiary. Neither QSI
24
nor such QSI Subsidiary is, and no other party to any such contract,
lease, plan or other arrangement is in default thereunder, and no event
has occurred that (with or without notice, lapse of time, or the happening
of any other event) would constitute a default thereunder. Except as set
forth on SCHEDULE 3.1.14 hereto, no consent by any party to any of the
contracts to which QSI or any QSI Subsidiary is a party is required in
connection with the consummation of the transactions contemplated hereby
other than such consents as have been obtained on or before the date
hereof or that will be obtained prior to the Effective Date. Neither QSI
nor any QSI Subsidiary has received any notice from a customer that such
customer will (or is likely to) cease doing business with QSI or any QSI
Subsidiary (or their successors) as a result of the consummation of the
transactions contemplated hereby.
3.1.15 LICENSES AND PERMITS. QSI and each QSI Subsidiary possess all
Permits necessary under law or otherwise for QSI or such QSI Subsidiary to
conduct its business as now being conducted and to conduct, own, operate,
maintain and use its assets in the manner in which they are now being
conducted, operated, maintained and used, including all such Permits
listed in SCHEDULE 3.1.8.14 and SCHEDULE 3.1.8.17 hereto (collectively,
the "Required Permits"), but excluding Permits required under applicable
Environmental Law that are covered by Section 3.1.17.2 hereof. Each of the
Required Permits and QSI's and each QSI Subsidiary's rights with respect
thereto is valid and subsisting, in full force and effect, and enforceable
by QSI and such QSI Subsidiary subject to administrative powers of
regulatory agencies having jurisdiction and will continue in full force
and effect after the Effective Date assuming Key takes all necessary
action on its part for the continuation of such permits. QSI and each QSI
Subsidiary is in compliance in all respects with the terms of each of its
Required Permits. None of the Required Permits has been, or to the
knowledge of QSI or any QSI Subsidiary, is threatened to be, revoked,
canceled, suspended or modified.
3.1.16 LITIGATION. Except as set forth on SCHEDULE 3.1.16 hereto,
there is no suit, action, or legal, administrative, arbitration, or other
proceeding or governmental investigation pending to which QSI or any QSI
Subsidiary is a party or to which QSI or any QSI Subsidiary might
reasonably be likely to become a party or, to the knowledge of QSI, or any
QSI Subsidiary, threatened.
3.1.17 ENVIRONMENTAL COMPLIANCE. Notwithstanding any other provision
of Article 3 to the contrary, this Section 3.1.17 contains the exclusive
representations and warranties of QSI with respect to environmental
matters. Except as set forth on SCHEDULE 3.1.17 hereto:
3.1.17.1 ENVIRONMENTAL CONDITIONS. There are no environmental
conditions or circumstances, including, without limitation, the
presence or release of any Substance of Environmental Concern in
concentrations that would require remedial action to meet standards
under applicable law, in, on, under or relating to any property
presently or previously owned, leased or operated by QSI or any QSI
Subsidiary, or in, on, under or relating to any property where any
Substance of Environmental Concern or waste generated by QSI's or
any QSI Subsidiary's operations or use of its assets was disposed
of;
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3.1.17.2 PERMITS, ETC. QSI and each QSI Subsidiary has and,
within the period of all applicable statutes of limitations, has had
in full force and effect all Permits required under applicable
Environmental Law to conduct its operations as now conducted or at
the time any prior operations were conducted, and is, and within the
period of all applicable statutes of limitations has been, operating
in compliance thereunder;
3.1.17.3 COMPLIANCE. QSI's and each QSI Subsidiary's
operations and use of its assets are, and within the period of all
applicable statutes of limitations, have been in compliance with
applicable Environmental Law;
3.1.17.4 ENVIRONMENTAL CLAIMs. No notice has been received by
QSI or any QSI Subsidiary from any entity, governmental agency or
individual regarding any existing, pending or threatened
investigation, inquiry, inspection, notice of violation, complaint,
enforcement action, litigation, demand, or liability, including,
without limitation, any claim for remedial obligations, response
costs or contribution, relating to any Substance of Environmental
Concern or any Environmental Law;
3.1.17.5 ENFORCEMENT. Neither QSI nor any QSI Subsidiary or
other party acting on behalf of QSI has entered into or agreed to
any consent decree, order, settlement or other binding agreement,
nor is subject to any judgment, decree, order or other binding
agreement, in any judicial, administrative, arbitral, or other
forum, relating to compliance with or liability under any
Environmental Law;
3.1.17.6 LIABILITIES. Neither QSI nor any QSI Subsidiary has,
pursuant to contract or by operation of law, any liabilities of any
kind, fixed or contingent, known or unknown, under any Environmental
Law, except to the extent reserved against on the Estimated Balance
Sheet and Final Balance Sheet;
3.1.17.7 RENEWALS. QSI, each QSI Subsidiary (or their
respective successors) will be able to renew without material
expense each of the permits, licenses, or other authorizations
required pursuant to Environmental Law to conduct or use any of
QSI's or any of QSI's Subsidiaries' current or planned operations;
and
3.1.17.8 ASBESTOS, PCBS, MOLD AND MILDEW. No friable asbestos
or friable asbestos-containing materials currently exist on any
property owned, leased or operated by QSI or any QSI Subsidiary, or
are now or were ever used to produce any intermediate, component or
product manufactured or marketed by QSI or any QSI subsidiary. No
polychlorinated biphenyls exist in concentrations of 50 parts per
million or more in electrical equipment owned or being used by QSI
or any QSI Subsidiary in its operations or on its properties. No
mold or mildew of a type that affects human health currently exists
at any building or structure owned, leased or operated by QSI or any
QSI Subsidiary in amounts that present a threat to human health or
safety.
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3.1.18 COMPLIANCE WITH OTHER LAWS. Neither QSI nor any QSI
Subsidiary is in violation of or in default with respect to, or in alleged
violation of or alleged default with respect to, the Occupational Safety
and Health Act (29 U.S.C. ss.ss.651 ET SEQ.) as amended, or ANy other
applicable law or any applicable rule, regulation, or any writ or decree
of any court or any governmental commission, board, bureau, agency, or
instrumentality, or delinquent with respect to any report required to be
filed with any governmental commission, board, bureau, agency or
instrumentality.
3.1.19 ERISA PLANS OR LABOR ISSUES. True, correct, and complete
copies of each of the Employee Plans, and related trusts, contracts and
agreements, if applicable, including all amendments thereto, and any
governmental correspondence and determination letters have been furnished
to Key. There has also been furnished to Key, with respect to each
Employee Plan required to file such report, the Form 5500s for the past
three years and the most recent summary plan description. Except as
identified in SCHEDULE 3.1.8.8 hereto, neither QSI nor any QSI Subsidiary
currently sponsors, maintains or contributes to or has or could have any
liability with respect to any Employee Plan. Each Employee Plan complies
currently, and has complied in the past, in form and operation, with the
plan's terms and with the applicable provisions of ERISA, the Code and all
other applicable laws, including, without limitation, the qualification
and reporting and disclosure requirements of the Code and ERISA including,
without limitation, filing of all applicable Forms 5500 and timely
providing all notices, including, but not limited to, under COBRA and the
Health Insurance, Portability and Accountability Act. Each Employee Plan
intended to be qualified under Code Section 401(a) or 501, (i) satisfies
in form the requirements of such Section except to the extent amendments
are not required by law to be made until a date after the Effective Date,
(ii) has received, or will apply for during the applicable time period, a
favorable determination letter from the IRS that covers all amendments
required to be made by the Code and the regulations as in effect as of the
date of this Agreement regarding such qualified status, and (iii) has not
been operated in a way that would adversely affect its qualified status.
Also, with respect to each Employee Plan, QSI, each QSI Subsidiary, and
any other party in interest have not engaged in any prohibited transaction
or any violation of its fiduciary duties to such plan. All contributions,
premiums or payments required to be made with respect to each Employee
Plan under the terms of such Employee Plan, ERISA, the Code or other
applicable law have been timely made and there will be no delinquent
contributions as of the Effective Date. For completed years of such
Employee Plans, all such contributions have been fully deducted for income
tax purposes and no such deduction has been challenged or disallowed by
any governmental entity, and no fact or event exists that could give rise
to any such challenge or disallowance. All Employee Plans may be amended
or terminated at any time without any liability other than for
administrative expenses. There has been no amendment to, written
interpretation of, announcement specifically relating to, or change in
employee participation or coverage under, any Employee Plan that would
increase the expense of maintaining such Employee Plan above the level of
the expense incurred in respect thereto for the most recent fiscal year
ended before the date hereof. Except as set forth on SCHEDULE 3.1.19
hereto, none of the Employee Plans (i) is a "voluntary employees'
beneficiary association" within the meaning of Code ss. 501(c)(9), (ii)
provides foR medical or other insurance or welfare benefits to current or
future retired employees or former
27
employees of QSI, any QSI Subsidiary or ERISA Affiliate (other than as
required for group health plan continuation coverage under COBRA or
applicable state law at the expense of the participant or employee), (iii)
obligates QSI, any QSI Subsidiary or ERISA Affiliate to pay any benefits,
including but not limited to severance benefits, make any other payments
whether in stock or cash, or vest any benefits as a result of a change in
control of QSI or any QSI Subsidiary or the transactions contemplated by
this Agreement, (iv) require payments or property or vesting of such to be
characterized as an "Excess Parachute Payment" as defined in Code Section
280G, (v) is a foreign plan or covers non-U.S. residents and non-U.S.
citizens, or (vi) is a multi-employer welfare arrangement as defined in
ERISA Section (3)(40). With respect to any Employee Plans, during the
seven years preceding the Effective Date, (A) no under-funded pension plan
subject to Code Section 412 will have been transferred out of QSI, any QSI
Subsidiary or ERISA Affiliate, (B) neither QSI, any QSI Subsidiary nor any
ERISA Affiliate will have participated in or contributed to, or had an
obligation to contribute to, any multiemployer plan and neither QSI, any
QSI Subsidiary nor any ERISA Affiliate will have withdrawal liability with
respect to any multiemployer plan, (C) neither QSI, any QSI Subsidiary nor
any ERISA Affiliate will have maintained any pension plan subject to Title
IV of ERISA and (D) all contributions (including installments to any plan
subject to Code Section 412 or ERISA Section 302) have been timely made
and no accumulated funding deficiency, whether or not waived, has ever
been incurred. There are no claims, events, lawsuits, audits or any other
actions or proceedings that have been asserted, instituted or threatened
against any Employee Plan (or against QSI, any QSI Subsidiary or ERISA
Affiliate concerning any Employee Plan) for which QSI or any QSI
Subsidiary could be liable (x) by an employee or foreign employee of QSI,
any QSI Subsidiary or ERISA Affiliate, an independent contractor or any
other individual or third party entity, (y) by any fiduciary, participant
or beneficiary of such plan, except routine claims for benefits
thereunder, or (z) by any governmental entity. Neither QSI nor any QSI
Subsidiary has engaged in any unfair labor practices. Neither QSI nor any
QSI Subsidiary is a party to and has no liability under any collective
bargaining agreement. No QSI or any QSI Subsidiary employees are leased
employees. Neither QSI, any QSI Subsidiary, any ERISA Affiliate is aware
of any pending or threatened dispute with any of its existing or former
employees or independent contractors for which QSI or any QSI Subsidiary
could be liable.
3.1.20 REPRESENTATIONS RELATING TO OPERATION OF SALTWATER DISPOSAL
XXXXX. QSI and the QSI Subsidiaries own or lease the Real Property on
which the SWD Xxxxx and the tanks, lines, pipes, equipment and other
assets used in the operation of the SWD Xxxxx are located. Except as set
forth in SCHEDULE 3.1.20 hereto, QSI and the QSI Subsidiaries own the
wellbores of the SWD Xxxxx, and the wellbores of the SWD Xxxxx and the
casing therein are sound, free of holes or other defects and are fully
operational. Except as set forth in SCHEDULE 3.1.20 hereto, the SWD Xxxxx
are fully capable of being used to discharge saltwater and other
non-hazardous oil and gas wastes (including that produced from xxxxx not
located on the Real Property on which the SWD Xxxxx are located) in the
quantities and at the depths indicated in the permits and licenses issued
to QSI and the QSI Subsidiaries in connection with the SWD Xxxxx by the
Railroad Commission of Texas or any other regulatory agency having
jurisdiction over such operations. QSI and the QSI Subsidiaries hold and,
during the period of all applicable statute of limitations,
28
have held all permits and licenses required by law or regulation and other
regulatory agencies to operate the SWD Xxxxx as a saltwater and other
non-hazardous oil and gas wastes disposal well, and to operate the tanks,
lines, pipes, equipment and other assets used in the operation of the SWD
Xxxxx, is in full compliance with all of those permits and licenses, and
all of those permits and licenses are valid, current and in full force and
effect, and none of those licenses or permits are under threat of
revocation, cancellation, suspension or modification. The SWD Xxxxx have
been at all times, up to and including the date hereof, operated in
compliance with all laws, rules, regulations (including, specifically,
federal, state and environmental laws and regulations) and permits
applicable to its operation, and no notices of violation or non-compliance
have been received by QSI or any of the QSI Subsidiaries and none are
expected. There are no contracts or other commitments applicable to the
ownership or operation of the SWD Xxxxx that cannot be cancelled, without
penalty, upon 30 days (or less) notice.
3.1.21 INVESTIGATIONS. Except as required pursuant to the HSR, no
investigation or review by any governmental entity with respect to QSI or
any QSI Subsidiary or any of the transactions contemplated by this
Agreement is pending or, to the knowledge of QSI or any QSI Subsidiary,
threatened, nor has any governmental entity indicated to QSI or any QSI
Subsidiary an intention to conduct the same, and there is no action, suit
or proceeding pending or, to the knowledge of QSI or any QSI Subsidiary,
threatened against or affecting QSI or any QSI Subsidiary at law or in
equity, or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
3.1.22 REAL PROPERTY OWNED.
3.1.22.1 QSI OWNED PROPERTIES. SCHEDULE 3.1.8.1 hereto sets
forth a true and complete list of all real property owned in fee
simple title by QSI or any QSI Subsidiary (collectively, the "QSI
Owned Properties"). QSI or a QSI Subsidiary has good and
indefeasible title to all QSI Owned Properties, except as disclosed
in SCHEDULE 3.1.22.1 hereto.
3.1.22.2 COMPLIANCE WITH LAW. All improvements on the QSI
Owned Properties and the operations therein conducted conform in all
material respect to all applicable health, fire, safety, zoning and
building laws, ordinances and administrative regulations. Except as
set forth on SCHEDULE 3.1.22.2 hereto, the operating condition and
state of repair of all buildings, structures, improvements and
fixtures on the QSI Owned Properties are sufficient to permit the
use and operation of all such buildings, structures, improvements
and fixtures for their intended use.
3.1.23 REAL PROPERTY LEASED.
3.1.23.1 QSI LEASED PROPERTIES. SCHEDULE 3.1.8.1 hereto sets
forth a list of all leases with respect to all real properties in
which QSI or any QSI Subsidiary has a leasehold, subleasehold, or
other occupancy interest (the "QSI Leased Properties"). Complete and
29
accurate copies of all such leases and all amendments thereto have
been provided to Key. Except as set forth on SCHEDULE 3.1.13 hereto,
all of the leases for the QSI Leased Properties are valid and
effective in favor of QSI or a QSI Subsidiary in accordance with
their respective terms.
3.1.23.2 NOTICE OF DEFAULT. QSI has not received written
notice that it is in breach of or default (and, to the knowledge of
QSI, no event has occurred, that, with due notice or lapse of time
or both, would constitute such a breach or default) under any lease.
3.1.23.3 SUBLEASES. No QSI Leased Property is subject to any
sublease, license or other agreement granting to any Person any
right to the use, occupancy or enjoyment of QSI Leased Property or
any portion thereof through QSI or any QSI Subsidiary.
3.1.24 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither QSI, any QSI
Subsidiary nor any officer, employee or agent of QSI or any QSI
Subsidiary, nor any other person acting on QSI's behalf or on behalf of
any QSI Subsidiary, has directly or indirectly, within the past five
years, given or agreed to give any gift or similar benefit to any
customer, supplier, government employee or other person who is or may be
in a position to help or hinder the business of QSI or any QSI Subsidiary
(or to assist QSI or any QSI Subsidiary in connection with any actual or
proposed transaction) was made in violation of applicable law, or that
might subject QSI or any QSI Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding.
3.1.25 INSURANCE. Insurance policies identified on SCHEDULE 3.1.8.6
hereto are in full force and effect and will fully cover all pending
claims against QSI or any of the QSI Subsidiaries.
3.1.26 FINDER'S FEE. Other than as set forth on SCHEDULE 3.1.26
hereto, all negotiations relative to this Agreement, and the transactions
contemplated hereby, have been carried on by QSI and its counsel directly
with Key, Merger Sub and their counsel, without the intervention of any
other person in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee or any
similar payments.
3.1.27 RELATED PARTY INTERESTS. Except as described in reasonable
detail in SCHEDULE 3.1.27 hereto, no shareholder, employee, officer or
director, or former employees, officers or directors of QSI (or any entity
owned or controlled by one or more of such parties) (i) has any interest
in any property, real or personal, tangible or intangible, used in or
pertaining to QSI's business, (ii) is indebted to QSI or any QSI
Subsidiary, or (iii) has any financial interest, direct or indirect, in
any outside business which has significant transactions with QSI. QSI is
not indebted to any of its shareholders, directors or officers (or any
entity owned or controlled by one or more of such parties), except for
amounts due under normal salary arrangements and for reimbursement of
ordinary business expenses.
30
3.1.28 COMPLIANCE WITH DEPARTMENT OF TRANSPORTATION RULES AND
Regulations. QSI and the QSI Subsidiaries are and, except as set forth on
SCHEDULE 3.1.28 hereto, have been in compliance with the rules and
regulations of the United States Department of Transportation and any
applicable state department of transportation.
3.1.29 PREDECESSORS IN INTEREST. For purposes of this Agreement, the
references to QSI and to the QSI Subsidiaries shall include and apply to
any predecessors in interest of QSI or any QSI Subsidiary.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF KEY
4.1 REPRESENTATIONS AND WARRANTIES OF KEY. Key hereby represents and
warrants to QSI as follows:
4.1.1 ORGANIZATION AND GOOD STANDING OF MERGER SUB. Merger Sub is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Texas, has full requisite corporate power and
authority to carry on its business as it is currently conducted, and to
own and operate the properties currently owned and operated by it, and is
duly qualified or licensed to do business and is in good standing as a
foreign corporation authorized to do business in all jurisdictions in
which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary.
4.1.2 AGREEMENTS AUTHORIZED BY MERGER SUB AND ITS EFFECT ON OTHER
Obligations. The consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate and
shareholder action on the part of Merger Sub and this Agreement is a valid
and binding obligation of Merger Sub enforceable against Merger Sub in
accordance with its terms. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby
will not conflict with or result in a violation or breach of any term or
provision of, nor constitute a default under (i) the articles of
incorporation or bylaws of Merger Sub; (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which
Merger Sub is a party or by which Merger Sub or its properties are bound;
or (iii) any provision of any law, rule, regulation, order, permit,
certificate, writ, judgment, injunction, decree, determination, award or
other decision of any court, arbitrator, or other governmental authority
to which Merger Sub or any of its properties are subject.
4.1.3 INVESTIGATIONS. Except as required pursuant to HSR, no
investigation or review by any governmental entity with respect to Key or
any of the transactions contemplated by this Agreement is pending, or to
the knowledge of Key threatened, nor has any governmental entity indicated
to Key an intention to conduct the same, and there is no action
superseding suit or proceeding pending, or the knowledge of Key
threatened, against or affecting Key at law or equity or before any
federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality.
31
4.1.4 ORGANIZATION AND GOOD STANDING OF KEY. Key is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Maryland, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and operate
the properties currently owned and operated by it, and is duly qualified
or licensed to do business and is in good standing as a foreign
corporation authorized to do business in all jurisdictions in which the
character of the properties owned or the nature of the business conducted
by it would make such qualification or licensing necessary.
4.1.5 AGREEMENT AUTHORIZED BY KEY AND ITS EFFECT ON OTHER
OBLIGATIONS. The consummation of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the
part of Key, and this Agreement is a valid and binding obligation of Key
enforceable against Key in accordance with its terms. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result in a
violation or breach of any term or provision of, nor constitute a default
under (i) the charter or bylaws (or other organizational documents) of
Key; (ii) any obligation, indenture, mortgage, deed of trust, lease,
contract or other agreement to which Key is a party or by which Key or its
properties are bound; or (iii) any provision of any law, rule, regulation,
order, permit, certificate, writ, judgment, injunction, decree,
determination, award or other decision of any court, arbitrator, or other
governmental authority to which Key or any of its properties are subject.
4.1.6 ISSUANCE OF KEY SHARES. The Key Shares, when issued and
delivered in accordance with the terms of this Agreement, will (i) be
validly issued, fully paid and nonassessable shares of Key Common Stock
that will have been issued under the Registration Statement; (ii) not be
subject to any preemptive rights; and (iii) be listed for trading on the
New York Stock Exchange subject to notice of issuance. The Registration
Statement will be effective under the Securities Act and no order
suspending the effectiveness of the Registration Statement will have been
issued and, to Key's knowledge, no proceedings with respect thereto will
have been commenced or threatened.
4.1.7 CAPITALIZATION. The capitalization of Key consists of
200,000,000 shares of Key Common Stock, of which as of May 9, 2002,
109,772,863 shares are issued and outstanding, 11,680,658 shares are
reserved for issuance pursuant to outstanding stock options, warrants and
conversion of other convertible securities. Pursuant to Key's articles of
incorporation, Key's board of directors has the authority, without further
shareholder action, to redesignate up to 15,169,320 of the authorized and
unissued shares of Key Common Stock into one or more series of preferred
stock. As of the date hereof, no shares have been so designated or issued.
Except as set forth in this Section 4.1.7, as of the date hereof there are
(i) no securities of Key or any other person convertible into or
exchangeable or exercisable for shares of capital stock or other voting
securities of Key and (ii) no subscriptions, options, warrants, calls,
rights obligating Key to issue, deliver, sell, purchase, redeem or acquire
shares of capital stock or other voting securities of Key. All of the
outstanding shares of Key Common Stock are validly issued, fully paid and
nonassessable and not subject to any preemptive right. As of the date
hereof there is no, and at the Effective Date there will not be any,
32
stockholder agreement, voting trust or other agreement or understanding to
which Key is a party or by which it is bound relating to the voting of any
shares of capital stock of Key.
4.1.8 REPORTS AND FINANCIAL STATEMENTS. Since December 31, 1998, Key
has filed with the Commission all reports required to be filed by Key
under the Exchange Act and the rules and regulations of the Commission.
The consolidated financial statements of Key and its subsidiaries included
in Key's most recent report on Form 10-K and most recent report on Form
10-Q, and any other reports filed with the Commission by Key under the
Exchange Act since December 31, 1998 (the "Reports") were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved and fairly present the
consolidated financial position for Key and its subsidiaries as of the
dates thereof and the consolidated results of their operations and changes
in financial position for the periods then ended; and the Reports did not
and will not 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
were made, not misleading.
4.1.9 ABSENCE OF CERTAIN CHANGES AND EVENTS. Other than as set forth
on SCHEDULE 4.1.9 hereto and as a result of the transactions contemplated
by this Agreement, since March 31, 2002, there has not been:
4.1.9.1 FINANCIAL CHANGE. Any material adverse change in the
financial condition, results of operations, assets, liabilities or
business of Key;
4.1.9.2 DIVIDENDS. Any declaration, setting aside, or payment
of any dividend or other distribution in respect of Key Common Stock
or any direct or indirect redemption, purchase or any other
acquisition by Key of any such stock;
4.1.9.3 CAPITALIZATION CHANGE. Any change in the capital stock
or in the number of shares or classes of Key's authorized or
outstanding capital stock as described in the recitals to this
Agreement (other than exercise of outstanding options or warrants);
or
4.1.9.4 OTHER CHANGES. Any other event or condition known to
Key particularly pertaining to and materially adversely affecting
the operations, assets or business of Key, other than events or
conditions that are of a general or industry-wide nature and of
general public knowledge, or which have been disclosed in writing to
QSI.
4.1.10 FINDER'S FEE. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by Key, Merger
Sub and their counsel directly with QSI and their counsel, without the
intervention by any other person as the result of any act of Key in such a
manner as to give rise to any valid claim against any of the parties
hereto for any brokerage commission, finder's fee or any similar payments.
33
ARTICLE 5
OBLIGATIONS PENDING EFFECTIVE DATE
5.1 AGREEMENTS OF KEY AND QSI. Each of Key and QSI agree that from the
date hereof to the Effective Date, it will (and unless otherwise indicated by
the context, since March 31, 2002, it has):
5.1.1 MAINTENANCE OF PRESENT BUSINESS. Other than as contemplated by
this Agreement, operate its business only in the usual, regular, and
ordinary manner so as to maintain the goodwill it now enjoys and, to the
extent consistent with such operation, use all reasonable efforts to
preserve intact its present business organization, keep available the
services of its present officers and employees, and preserve its
relationships with customers, suppliers, jobbers, distributors and others
having business dealings with it. Notwithstanding any provision in this
Agreement to the contrary, each of the parties hereto agree and
acknowledge that Key may continue to pursue any Future Acquisitions in its
sole discretion;
5.1.2 MAINTENANCE OF PROPERTIES. At its expense, maintain all of its
property and assets in customary repair, order, and condition, reasonable
wear and use and damage by fire or unavoidable casualty excepted;
5.1.3 MAINTENANCE OF BOOKS AND RECORDS. Maintain its books of
account and records in the usual, regular, and ordinary manner, in
accordance with generally accepted accounting principles applied on a
consistent basis;
5.1.4 COMPLIANCE WITH LAW. Duly comply in all material respects with
all laws applicable to it and to the conduct of its business; and
5.1.5 INSPECTION OF KEY AND QSI. Permit the other party, and its
officers and authorized representatives, during normal business hours, to
inspect its records and to consult with its officers, employees,
attorneys, and agents for the purpose of determining the accuracy of the
representations and warranties hereinabove made and the compliance with
covenants contained in this Agreement. Each of Key and QSI agree that it
and its officers and representatives shall hold all data and information
obtained with respect to the other party hereto, including information
obtained pursuant to the Environmental Assessment, in confidence in
accordance with the terms of the Confidentiality Agreement previously
entered into by Key and QSI, and each further agree that it will not use
such data or information or disclose the same to others, except to the
extent such data or information either are, or become, published or a
matter of public knowledge.
5.2 REGULATORY AND OTHER AUTHORIZATIONS. Each party hereto agrees to use
its reasonable best efforts to obtain all authorizations, consents, orders and
approvals of federal, state, local and foreign regulatory bodies and officials
and non-governmental third parties that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement, and each party will cooperate fully with the other parties in
promptly seeking to obtain all such authorizations, consents, orders and
34
approvals. Without limitation, Key and QSI shall each make an appropriate filing
of a Notification and Report Form pursuant to the HSR as promptly as
practicable. Each such filing shall request early termination of the waiting
period imposed by the HSR.
5.3 ADDITIONAL AGREEMENTS. QSI agrees that from the date hereof to the
Effective Date, it will:
5.3.1 PROHIBITION OF CERTAIN EMPLOYMENT CONTRACTS. Not enter into
any contracts of employment that (i) cannot be terminated on notice of 14
days or less or (ii) provide for any severance payments or benefits
covering a period beyond the earlier of the termination date of this
Agreement or notice thereof, except as may be required by law.
5.3.2 PROHIBITION OF CERTAIN LOANS. Not incur any borrowings in
excess of except (i) the refinancing of indebtedness now outstanding, (ii)
trade payables incurred in the ordinary course of business, (iii)
additional borrowings under existing credit facilities, not to exceed
$4,000,000, or (iv) as is otherwise agreed to in writing by Key.
5.3.3 PROHIBITION OF CERTAIN COMMITMENTS. Not enter into commitments
of a capital expenditure nature or incur any contingent liability other
than a contractual contingent liability except (i) as may be necessary for
the maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business, not to
exceed $1,000,000 in the aggregate, (ii) as may be required by law or
(iii) as is otherwise agreed to in writing by Key.
5.3.4 DISPOSAL OF ASSETS. Not sell, dispose of, or encumber, any
property or assets except (i) the assets set forth on SCHEDULE 5.3.4
hereto, or (ii) as is otherwise agreed to in writing by Key.
5.3.5 MAINTENANCE OF INSURANCE. Maintain the current insurance upon
all its properties and with respect to the conduct of its business, which
insurance may be added to from time to time in its discretion; provided,
that if during the period from the date hereof to and including the
Effective Date any of its property or assets are damaged or destroyed by
fire or other casualty, the obligations of Key, Merger Sub and QSI under
this Agreement shall not be affected thereby (subject, however, to the
provision that the coverage limits of such policies are adequate in amount
to cover the replacement value of such property or assets and loss of
profits during replacement, less commercially reasonable deductible, if of
material significance to the assets or operations of QSI) but it shall
promptly notify Key in writing thereof and proceed with the repair or
restoration of such property or assets in such manner and to such extent
as may be approved by Key, and upon the Effective Date all proceeds of
insurance and claims of every kind arising as a result of any such damage
or destruction shall remain the property of the Surviving Corporation.
5.3.6 ACQUISITION PROPOSALS. Not directly or indirectly (i) solicit,
initiate or encourage any inquiries regarding any Acquisition Proposals at
any time before termination of this Agreement pursuant to Article 7 hereof
from any person or (ii) participate in any discussions or negotiations
35
regarding, or furnish to any person other than Key or its representatives
any information with respect to, or otherwise, facilitate or encourage any
Acquisition Proposal by any other person. QSI shall promptly communicate
to Key the terms of any such written Acquisition Proposal that it may
receive or any inquiries made to it or any of its directors, officers,
representatives or agents.
5.3.7 NO AMENDMENT TO ARTICLES OF INCORPORATION, ETC. Not amend its
certificate of incorporation or bylaws or other organizational documents
or merge or consolidate with or into any other corporation or change in
any manner the rights of its capital stock or the character of its
business.
5.3.8 NO ISSUANCE, SALE, OR PURCHASE OF SECURITIES. Not issue or
sell, or issue options or rights to subscribe to, or enter into any
contract or commitment to issue or sell (upon conversion or otherwise),
any shares of its capital stock or subdivide or in any way reclassify any
shares of its capital stock, or acquire, or agree to acquire, any shares
of its capital stock other than in connection with exercise of stock
options and warrants issued and outstanding as of the date hereof.
5.3.9 PROHIBITION ON DIVIDENDS. Not declare or pay any dividend on
shares of its capital stock or make any other distribution of assets to
the holders thereof; PROVIDED THAT, QSI may accrue dividends with respect
to the QSI Preferred Stock to the extent required under the certificates
of designation.
5.3.10 SHAREHOLDER MEETING. No sooner than 20 days, but in any
event, as soon as practicable, after the date Key has delivered the
Prospectus to QSI for delivery to the QSI Shareholders as provided in
Section 5.4.1 hereof, QSI shall call and hold the Shareholders' Meeting in
accordance with QSI's organizational documents to vote on the approval of
this Agreement and the Merger contemplated hereby, and deliver to each QSI
shareholder a copy of the Prospectus no later than the date the notice
with respect to the Shareholders' Meeting is delivered to the QSI
Shareholders. At the Shareholders' Meeting, the board of directors of QSI
shall (i) confirm that it has made a determination that this Agreement and
the Merger are fair and in the best interest of the QSI Shareholders; (ii)
declare the advisability of this Agreement, including the Merger; and
(iii) recommend to the QSI Shareholders that they approve and adopt this
Agreement, including the Merger it contemplates and (iv) recommend to the
QSI Shareholders to approve any existing compensation arrangements for
employees in accordance with Code ss. 280G(b)(5)(B).
5.3.11 INVESTIGATION. ENGAGEMENT OF XXXXXX & XXXXXX, L.L.P. QSI will
engage Xxxxxx & Xxxxxx, L.L.P. to investigate the allegations made with
respect to QSI in the Xxxx Litigation. The cost of such investigation
shall be paid by QSI and included on the Final Balance Sheet, which cost
shall not exceed $20,000. The terms of QSI's engagement of Xxxxxx &
Xxxxxx, L.L.P. pursuant to this Section 5.3.11.1 will be set forth in an
engagement letter executed by each such party on the date hereof. Such
engagement letter will establish an attorney/client relationship between
Xxxxxx & Xxxxxx, L.L.P. and QSI designed to preserve the attorney/client
36
privilege with respect to the information Xxxxxx & Xxxxxx, L.L.P. obtains
or develops in the course of its investigation. Such engagement letter
will include a waiver by QSI of the conflict of interest that Xxxxxx &
Xxxxxx, L.L.P. will have by virtue of conducting its investigation
pursuant to this Section 5.3.11.1 at the same time it is representing Key
in connection with this Agreement. In addition, Xxxxxx & Xxxxxx, L.L.P.
will agree to maintain any information it obtains or develops in the
course of its investigation in strict confidence, and at the conclusion of
its investigation, to return to QSI all such information, including
written materials derived therefrom.
5.3.11.1 SCOPE OF INVESTIGATION. QSI will cooperate fully with
Key in its investigation, and will allow Xxxxxx & Xxxxxx, L.L.P. to
interview all QSI personnel and the personnel of any relevant QSI
Subsidiary who may have knowledge of the events surrounding QSI's
alleged conduct in the Xxxx Litigation. QSI also will provide Xxxxxx
& Xxxxxx, L.L.P. all internal written materials in QSI's or its
counsel's possession that reasonably relates to the allegations
concerning QSI made in the Xxxx Litigation, including any
information QSI has assembled pursuant to any internal investigation
QSI has conducted with respect thereto. Xxxxxx & Xxxxxx, L.L.P. will
be instructed to submit a preliminary report to Key no later than 14
calendar days after the date hereof. Key will have the opportunity
to ask questions of Xxxxxx & Xxxxxx, L.L.P. and the officers and
personnel of QSI and any relevant QSI Subsidiary concerning Xxxxxx &
Xxxxxx, L.L.P.'s initial findings. Xxxxxx & Xxxxxx, L.L.P. will then
conduct any additional investigation necessary to complete its
investigation and will deliver a final report to Key on the day
before the Effective Date. The preliminary report mentioned above
and the final report will be oral summaries of the information that
Xxxxxx & Xxxxxx, L.L.P. obtains or derives in the course of its
investigation and will not include any specific information
concerning QSI's pricing models or other information that would
reasonably be considered confidential with respect to QSI's
competitors. Key will maintain any information it receives through
Xxxxxx & Xxxxxx, L.L.P.'s reports in strict confidence.
5.3.12 RELATED PARTY OBLIGATIONS. Before the Effective Date, QSI
will collect in full all related party receivables and advances to
employees, including those shown on SCHEDULE 3.1.27 hereto.
5.4 ADDITIONAL AGREEMENTS OF KEY.
5.4.1 REGISTRATION STATEMENT. Key will take such steps as are
required to obtain the effectiveness under the Securities Act of the
post-effective amendment to the Registration Statement containing the
Prospectus and to deliver to QSI a sufficient number of copies of the
Prospectus, so that QSI can deliver a copy of the Prospectus to each of
the Selling QSI Shareholders in accordance with Section 5.3.10 hereof;
provided, however, that before filing such post-effective amendment, Key
shall furnish to and afford each of the Selling QSI Shareholders a
reasonable opportunity to review copies of such post-effective amendment
and provided, further, that Key shall not file such post-effective
amendment if Selling QSI Shareholders that in the aggregate hold in excess
37
of 25% of the outstanding shares of QSI Common Stock before the Effective
Date or, after the Effective Date, 25% of the Key Shares that may be sold
under the Prospectus shall reasonably object.
5.4.2 LISTING OF KEY STOCK. Key will take such steps as are required
to list on the New York Stock Exchange the Key Shares to be issued
pursuant to this Agreement.
5.4.3 DELIVERY OF REPORTS. Key will promptly furnish to QSI copies
of all communications from Key to its stockholders and all reports filed
by Key with the SEC and the New York Stock Exchange.
5.4.4 RESALE OF KEY SHARES.
5.4.4.1 REGISTRATION STATEMENT AND PROSPECTUS. Key will use
its reasonable efforts to maintain the effectiveness of the
Registration Statement and make the Prospectus available for use by
the Selling QSI Shareholders for resale of their Key Shares received
in the Merger until the restrictions imposed by Rule 145 under the
Securities Act no longer apply to such Selling QSI Shareholders,
except for such periods that Key may require the Selling QSI
Shareholders to refrain from effecting any public sales or
distributions of the Key Shares under the Prospectus due to the
existence of material, non-public information the disclosure of
which would be required in the Prospectus in order to prevent such
Prospectus from containing any untrue statement of material fact or
omitting to state any material fact necessary to make the statements
therein not misleading. In connection with its efforts to maintain
the effectiveness of the Registration Statement, Key agrees to (i)
file with the SEC in a timely manner all reports and other documents
required of Key under the Exchange Act; (ii) promptly use its
reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued; and (iii)
promptly prepare and file with the SEC any amendments or supplements
to the Registration Statement or Prospectus that may be required
under the Securities Act or the rules and regulations thereunder so
that the Registration Statement, at the time the post-effective
amendment thereto containing the Prospectus becomes effective shall
not 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 not misleading, or so the Prospectus, on any
date that it is delivered in connection with the sale of the Key
Shares, will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that before filing any
such amendment or supplement to the Registration Statement or the
Prospectus, Key shall furnish to and afford the Selling QSI
Shareholders a reasonable opportunity to review copies thereof; and
provided, further, that Key shall not file any such amendment or
supplement to the Registration Statement or the Prospectus if any
Selling QSI Shareholder shall reasonably object. Key agrees to take
such steps as are required under the Securities Act to cause the
Prospectus, as of the Effective Date, to be available for use by the
Selling QSI Shareholders for resale of their Key Shares received in
38
the Merger and to continue to be available for a period of 22
consecutive Trading Days immediately after the Effective Date. Key
agrees to file such Prospectus on the Effective Date with the New
York Stock Exchange under Rule 153 of the Securities Act and to
provide each Selling QSI Shareholder at the sole expense of Key as
many copies of the Prospectus and each amendment or supplement
thereto and any documents incorporated by reference therein as such
Selling QSI Shareholder may reasonably request. Key hereby consents
to the use of such Prospectus and each amendment or supplement
thereto by each Selling QSI Shareholder and the agents, if any, and
dealers (if any), in connection with the offering and sale of the
Key Shares covered by such Prospectus and any amendment or
supplement thereto.
5.4.4.2 INDEMNIFICATION AND CONTRIBUTION. Key will indemnify
and hold harmless (i) each Selling QSI Shareholder; (ii) any person
that may be deemed an "underwriter" for a Selling QSI Shareholder;
(iii) each person, if any, who controls (within the meaning of
either Section 15 of the Securities Act or Section 20 of the
Exchange Act) any Selling QSI Shareholder or any such "underwriter"
(any of the persons referred to in this clause (iii) being
hereinafter referred to as a "controlling person"); and (iv) the
respective officers, directors, partners, employees, representatives
and agents of the Selling QSI Shareholders or any controlling person
(any person referred to in clause (i), (ii), (iii) or (iv) may
hereinafter be referred to as an "Indemnified QSI Shareholder"),
from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, reasonable legal fees
and other expenses reasonably incurred in connection with any suit,
action or proceeding or any claim asserted) caused by any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement or Prospectus, or any amendment or
supplement thereto, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by
any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information
relating to such Selling QSI Shareholder furnished to Key in writing
by such Selling QSI Shareholder expressly for use in therein. Key
shall notify Indemnified QSI Shareholders promptly of the
institution, threat or assertion of any claim, proceeding (including
any governmental investigation) or litigation in connection with the
matters addressed by this Agreement that involves Key or such
Indemnified QSI Shareholder.
5.4.4.3 INDEMNIFICATION BY SELLING QSI SHAREHOLDERS. Each
Selling QSI Shareholder agrees, severally and not jointly, to
indemnify and hold harmless Key, its directors, officers and each
person who controls Key within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from Key to each Selling QSI
Shareholder, but only with reference to such losses, claims, damages
or liabilities which are caused by any untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in
conformity with information relating to such Selling QSI Shareholder
39
furnished to Key in writing by such Selling QSI Shareholder
expressly for use in any Registration Statement or Prospectus, or
any amendment or supplement thereto or any related preliminary
prospectus.
5.4.4.4 INDEMNIFICATION PROCEDURES. If any suit, action,
proceeding (including any governmental or regulatory investigation),
claim or demand shall be brought or asserted against any person in
respect of which indemnity may be sought pursuant to either Section
5.4.4.2 or Section 5.4.4.3 hereof, such person (the "Indemnified
Person") shall promptly notify the person or persons against whom
such indemnity may be sought (each an "Indemnifying Person") in
writing, and such Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to
the Indemnified Person to represent the Indemnified Person and any
others entitled to indemnification pursuant to this Section 5.4.4.4
that the Indemnifying Person may designate in such proceeding and
shall pay the reasonable fees and expenses of such counsel related
to such proceeding. In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such Indemnified
Person unless (i) such Indemnifying Person and the Indemnified
Person shall have mutually agreed to the contrary; (ii) such
Indemnifying Person has failed within a reasonable time to retain
counsel reasonably satisfactory to such Indemnified Person; or (iii)
the named parties in any such proceeding (including any impleaded
parties) include an Indemnifying Person and an Indemnified Person
and representation of both parties by the same counsel would be
inappropriate due to a conflict of interests between them. It is
understood that an Indemnifying Person shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Indemnified Persons, and that
all such fees and expenses shall be reimbursed as they are incurred.
Any such separate firm for the Indemnified QSI Shareholders shall be
designated in writing by the Indemnified QSI Shareholders holding a
majority of the Key Shares subject to the Registration Statement and
the Prospectus, and any such separate firm for Key, its directors,
respective officers and such control persons of Key shall be
designated in writing by Key. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, such Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. No Indemnifying
Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability
on claims that are the subject matter of such proceeding.
5.4.4.5 CONTRIBUTION. If the indemnification provided for in
Section 5.4.4.2 hereof and Section 5.4.4.3 hereof is unavailable to
40
an Indemnified Person or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying
such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such
losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Person
on the one hand and the Indemnified Person on the other in
connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the parties
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by Key or such Indemnified QSI Shareholder and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
Each of Key and each of the Indemnified QSI Shareholders agree
that it would not be just and equitable if contribution pursuant to
this Section 5.4.4.5 were determined by pro rata allocation or by
any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 5.4.4.5, in no event shall any
Indemnified QSI Shareholder be required to contribute any amount in
excess of the amount by which the net proceeds received by such
Indemnified QSI Shareholder from the sale of the Key Shares pursuant
to the Registration Statement or Prospectus exceeds the amount of
damages that such Indemnified QSI Shareholder would have otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The remedies provided for in Sections 5.4.4.2 through 5.4.4.5
shall not limit any rights or remedies that may otherwise be
available to any indemnified party under federal or state securities
laws, which shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any
Indemnified QSI Shareholder or by or on behalf of Key, its officers
or directors or any other person controlling Key.
5.4.4.6 THIRD PARTY BENEFICIARIES. The Indemnified QSI
Shareholders are intended to be third party beneficiaries of the
provisions of this Section 5.4.4, which may be enforced by such
Indemnified QSI Shareholders. This Section 5.4.4 may not be amended
without the consent of Selling QSI Shareholders holding a majority
of (i) the outstanding shares of QSI common stock held by Selling
41
QSI Shareholders (before the Effective Date) or (ii) the Key Shares
held by the Selling QSI Shareholders (after the Effective Date).
5.4.5 ASSISTANCE IN BLOCK SALE TRANSACTIONS. Key understands that
one or more Selling QSI Shareholders is contemplating a "block sale" of
all or a portion of the Key Shares received by such Selling QSI
Shareholder in the Merger. Key agrees to take commercially reasonable
actions requested by the broker/dealer engaged by a Selling QSI
Shareholder for this purpose, consistent with customary practice for
transactions of this type.
5.4.6 ISSUANCES OF KEY COMMON STOCK. Key will not issue any shares
of Key Common Stock during the 60 calendar day period beginning on the
Effective Date except for (i) the issuance of Key Shares pursuant to this
Agreement; (ii) the issuance of any options granted to employees or
directors of Key; (iii) the issuance of any equity securities of Key in
connection with the acquisition of the equity interest, businesses or
assets of any unaffiliated entity; (iv) the issuance of equity securities
of Key in exchange for outstanding securities of Key; and (v) the issuance
of equity securities of Key upon the exercise of outstanding options,
warrants or other securities convertible into or exchangeable for equity
securities of Key.
5.5 SUPPLEMENTAL INFORMATION. The parties acknowledge and agree that QSI
shall have the continuing right until the Effective Date to provide Key promptly
with such additional supplemental information (collectively, the "Supplemental
Information"), in the form of (i) amendments to then existing Schedules or (ii)
additional Schedules, as would be necessary to make each of those
representations and warranties true and correct as of the Effective Date;
PROVIDED, HOWEVER, that Key shall be entitled to use such Supplemental
Information so provided (i) in the calculation of the Liability Threshold
pursuant to clause (iii) of Section 6.2.1 and Section 7.1.9 hereof to the extent
such Supplemental Information pertains to representations or warranties set
forth in Sections 3.1.8.17, 3.1.8.18, 3.1.17 (including all subparagraphs
thereto) and 3.1.20 hereof, and (ii) to determine with respect to all other
representations and warranties if a material adverse effect has occurred
pursuant to clause (iii) of Section 6.2.1 hereof. QSI and Key acknowledge that
new contracts, permits and other matters which are permitted by the terms of
this Agreement and are entered into in the ordinary course of business following
the execution hereof shall not be included in calculating the Liability
Threshold.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF QSI. The obligation of QSI to
consummate and effect the transactions hereunder shall be subject to the
satisfaction of the following conditions, or to the waiver thereof by QSI in the
manner contemplated by Section 7.4 hereof before the Effective Date.
6.1.1 REPRESENTATIONS AND WARRANTIES OF KEY TRUE AT EFFECTIVE DATE.
The representations and warranties of Key herein contained shall be true
as of and at the Effective Date with the same effect as though made at
42
such date, except (i) as affected by transactions permitted or
contemplated by this Agreement and (ii) which breaches of such
representations and warranties in the aggregate would not be reasonably
likely to result in a material adverse effect on the financial condition
or business of Key and its subsidiaries, taken as a whole; each of Key and
Merger Sub shall have performed and complied with all agreements and
covenants required by this Agreement to be performed or complied, in all
material respects, with by Key and Merger Sub before the Effective Date;
and each of Key and Merger Sub shall have delivered to QSI a certificate,
dated the Effective Date and signed by its respective chief executive
officer or its president, and by its chief financial or accounting
officer, and its secretary, to both such effects.
6.1.2 NO MATERIAL LITIGATION. No suit, action, or other proceeding
shall be pending, or to Key's or Merger Sub's knowledge, threatened,
before any court or governmental agency in which it will be, or it is,
sought to restrain or prohibit or to obtain damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby or that might result in a material adverse change in
the value of the consolidated assets and business of Key.
6.1.3 OPINION OF KEY COUNSEL. QSI shall have received a favorable
opinion, dated as of the Effective Date, from Xxxxxx & Xxxxxx, L.L.P.,
counsel for Key and Merger Sub, in form and substance satisfactory to QSI
to the effect that (i) Key and Merger Sub have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective states of organization; (ii) all corporate proceedings
required to be taken by or on the part of the Key and Merger Sub to
authorize the execution and delivery of this Agreement and the
implementation of the transactions contemplated hereby have been taken;
(iii) the Key Shares to be delivered to the holders of QSI Common Stock in
accordance with this Agreement have been duly authorized, and when issued,
will be validly issued, fully paid and nonassessable outstanding shares of
Key Common Stock; (iv) the Registration Statement and the post-effective
amendment to the Registration Statement have become effective under the
Securities Act, and no order suspending the effectiveness of the
Registration Statement (including the post-effective amendment) has been
issued, and to the knowledge of such counsel, no proceedings with respect
to thereto have been commenced or threatened; (v) the Prospectus complies
as to form under the Securities Act and the rules and regulations of the
SEC thereunder for use of the Selling QSI Shareholders in the resale of
the Key Shares; and (vi) this Agreement has been duly executed and
delivered by, and is the legal, valid and binding obligation of Key and
Merger Sub and is enforceable against Key and Merger Sub in accordance
with its terms except as enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights
of creditors generally. In rendering such opinion, such counsel may rely
upon certificates of public officials and of officers of Key and Merger
Sub as to matters of fact and the opinion or opinions of other counsel,
which opinions shall be reasonably satisfactory to QSI, as to matters
other than federal, general corporate law of Delaware or Texas law.
43
6.1.4 LISTING OF KEY COMMON STOCK. The New York Stock Exchange shall
have agreed that on the Effective Date it will list the shares of Key
Common Stock issuable at the Effective Date of this Agreement.
6.1.5 CONSENT OF CERTAIN PARTIES IN PRIVITY WITH KEY. The holders of
any material indebtedness of Key or Merger Sub, the lessors of any
material property leased by Key or Merger Sub, and the other parties to
any other material agreements to which Key or Merger Sub is a party shall,
when and to the extent necessary in the reasonable opinion of the QSI
Representatives, have consented to the transactions contemplated hereby.
6.1.6 HSR. All waiting periods required by HSR shall have expired
with respect to the transactions contemplated by this Agreement, or early
termination with respect thereto shall have been obtained. In addition,
any approvals required under any state laws comparable to HSR shall have
been obtained.
6.1.7 SECRETARY'S CERTIFICATES. Each of Key and Merger Sub shall
deliver a secretary's certificate, which certificates shall have all
corporate and charter documents of such entity attached thereto and
attesting to: (i) the due organization of Key and the Merger Sub; (ii) the
due authorization of the transactions contemplated by this Agreement; and
(iii) all corporate, shareholder or other resolutions adopted by Key and
the Merger Sub in connection with the transactions contemplated by this
Agreement.
6.1.8 EMPLOYMENT AGREEMENTS. Key shall have executed and delivered
each of the employment agreements with the persons identified therein,
each of which are attached hereto as EXHIBIT E (the "Employment
Agreements").
6.1.9 QSI SHAREHOLDER APPROVAL. The approval of the requisite number
of QSI Shareholders of this Agreement and the transactions contemplated
hereby, including without limitation the Merger, on or before the
Effective Date, and such approval shall not have been amended, modified or
rescinded on or before the Effective Date.
6.1.10 REDEMPTION OF PREFERRED STOCK. On or before the Effective
Date, QSI shall have redeemed all of the issued and outstanding shares of
QSI Preferred Stock and filed with the Secretary of State of Texas a
certificate of elimination with respect to each of the Series A Preferred
Stock and Series B Preferred Stock.
6.1.11 CREDIT AGREEMENT. Key shall have paid the obligations payable
pursuant to the Credit Agreement dated as of December 17, 2001 among QSI,
Xxxxxx Brothers, Inc., Xxxxxx Commercial Paper, Inc. and Southwest Bank of
Texas, N.A.
6.1.12 REGISTRATION STATEMENT. The SEC shall have declared the
post-effective amendment to the Registration Statement effective on or
before the Effective Date.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF KEY AND MERGER SUB. The
obligations of Key and Merger Sub to consummate and effect the transactions
hereunder shall be subject to the satisfaction of the following conditions, or
to the waiver thereof by Key and Merger Sub in the manner contemplated by
Section 7.4 before the Effective Date.
44
6.2.1 REPRESENTATIONS AND WARRANTIES OF QSI TRUE AT EFFECTIVE DATE.
The representations and warranties of QSI herein contained shall be true
as of and at the Effective Date with the same effect as though made at
such date, except (i) as affected by transactions permitted or
contemplated by this Agreement, (ii) which breaches of representations and
warranties contained in Sections 3.1.8.17, 3.1.8.18, 3.1.17 (including all
subparagraphs thereto) and 3.1.20 hereof would not be reasonably likely to
result in costs, damages, expenses, losses or liabilities with respect to
the operations, assets or liabilities of QSI and the QSI Subsidiaries
taken as a whole of more than $5,000,000 (the "Liability Threshold"), and
(iii) which breaches of such representations and warranties (other than
the representations and warranties contained in Sections 3.1.8.17,
3.1.8.18, 3.1.17 (including all subparagraphs thereto) and 3.1.20 hereof)
in the aggregate would not be reasonably likely to result in a material
adverse effect on the financial condition or business of QSI and the QSI
Subsidiaries, taken as a whole; QSI shall have performed and complied with
all agreements and covenants required by this Agreement to be performed or
complied with, in all material respects, by it before the Effective Date;
and QSI shall have delivered to Key and Merger Sub a certificate, dated
the Effective Date and signed by its chief executive officer or its
president, and by its chief financial or accounting officer, and by its
secretary to both such effects.
6.2.2 NO MATERIAL LITIGATION. No suit, action, or other proceeding
shall be pending, or to QSI's knowledge, threatened, before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby or
which might result in a material adverse change in the value of the assets
and business of QSI. Neither QSI nor any QSI Subsidiary shall have become
a party to any legal or regulatory proceeding arising out of the
allegations made by the plaintiff in the Xxxx litigation. Based upon the
report of Xxxxxx & Xxxxxx, L.L.P. delivered to Key pursuant to Section
5.3.11 hereof, Key shall not, in good faith, have any reasonable basis to
conclude that the allegations concerning QSI in the Xxxx Litigation are
true.
6.2.3 OPINION OF QSI COUNSEL. Key and Merger Sub shall have received
a favorable opinion, dated the Effective Date, from Xxxxxx & Xxxxxx L.L.P.
counsel to QSI, in form and substance satisfactory to Key and Merger Sub,
to the effect that (i) QSI and each QSI Subsidiary is duly organized and
is validly existing as a corporation, limited partnership or limited
liability company in good standing under the laws of its state of
organization; (ii) all corporate and shareholder proceedings required to
be taken by or on the part of QSI to authorize the execution and delivery
of this Agreement and the implementation of the transactions contemplated
hereby have been taken; (iii) all outstanding shares of QSI Common Stock
have been validly issued and are fully paid and nonassessable outstanding
shares of QSI Common Stock; (iv) QSI owns of record all of the equity
interests in each QSI Subsidiary; (v) all outstanding shares of QSI
Preferred Stock have been validly issued and are fully paid and
nonassessable outstanding shares of QSI Preferred Stock; and (vi) this
Agreement has been duly executed and delivered by and is the legal, valid
and binding obligation of QSI and is enforceable against QSI in accordance
with its terms except as enforceability may be limited by (a) equitable
principles of general applicability or (b) bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the rights
of creditors generally. In rendering such opinion, such counsel may rely
45
upon certificates of public officials and officers of QSI as to matters of
fact and the opinion or opinions of other counsel, which opinions shall be
reasonably satisfactory to Key and Merger Sub, as to matters other than
federal or Texas law.
6.2.4 HSR. All waiting periods required by HSR shall have expired
with respect to the transactions contemplated by this Agreement, or early
termination with respect thereto shall have been obtained. In addition,
any approvals required under any state laws comparable to HSR shall have
been obtained.
6.2.5 RESIGNATIONS. Each of the officers and directors of QSI and
QSI Subsidiaries shall have submitted his or her resignation as an officer
or director of QSI or QSI Subsidiary, as the case may be, in form and
substance satisfactory to Key.
6.2.6 EMPLOYMENT AGREEMENTS. Each of the Employment Agreements shall
have been executed and delivered. QSI shall have terminated each of the
employment agreements identified on SCHEDULE 6.2.6 hereto, and shall have
received a full release with respect to each such employment agreement of
its obligations thereunder.
6.2.7 QSI SHAREHOLDER APPROVAL. The approval of the requisite number
of QSI Shareholders of this Agreement and the transactions contemplated
hereby, including without limitation the Merger, on or before the
Effective Date, and such approval shall not have been amended, modified or
rescinded on or before the Effective Date.
6.2.8 NON-COMPETE AGREEMENTS. Each of the individuals identified on
SCHEDULE 6.2.8 hereto shall have executed and delivered a Non-Compete
Agreement.
6.2.9 SECRETARY'S CERTIFICATE. Each of QSI and the QSI Subsidiaries
shall deliver a secretary's certificate, which certificates shall have all
corporate and charter documents of such entity attached thereto and
attesting to: (a) the due organization of such entity; (b) the due
authorization of the transactions contemplated by this Agreement; and (c)
all corporate, shareholder or other resolutions adopted by QSI or the QSI
Subsidiaries in connection with the transactions contemplated by this
Agreement.
6.2.10 QSI REPRESENTATIVES. All corporate and shareholder action
shall have been take to authorize the QSI Representatives to act as the
representatives of the QSI Shareholders, including the authorization to
act on behalf of the QSI Shareholders and to take any and all actions
required or permitted to be taken by the QSI Representatives under this
Agreement.
6.2.11 SHAREHOLDERS AGREEMENT. QSI shall have terminated any
shareholder, voting or similar agreements on or prior to the Effective
Date, all in form and substance satisfactory to Key.
6.2.12 RELATED PARTY AGREEMENTS. Each of the agreements described in
SCHEDULE 6.2.12 hereto shall have been amended to provide that Key or the
Surviving Corporation or its subsidiaries may terminate such agreements on
30 days notice without penalty and shall remove any purchase option, all
46
in form and substance satisfactory to Key.
6.2.13 OPTIONS. All issued and outstanding Options shall have either
been (i) amended to provide for cashless exercise and such Options shall
have been exercised, or (ii) classified as a Cash Out Option, and the
aggregate Option Payout with respect to such Cash Out Options shall not
exceed $1,000,000. Each holder of an Option classified as a Cash Out
Option shall have been issued an Option Note in accordance with Section
2.9.2.1 hereof.
6.2.14 WARRANTS. All issued and outstanding Warrants shall have
either been (i) amended to provide for cashless exercise and such Warrants
shall have been exercised, or (ii) classified as a Cash Out Warrant and
the aggregate Warrant Payout with respect to such Cash Out Warrants shall
not exceed $500,000. Each holder of a Warrant classified as a Cash Out
Warrant shall have been issued a Warrant Note in accordance with Section
2.9.2.2 hereof.
6.2.15 REDEMPTION OF PREFERRED STOCK. QSI shall have taken all
necessary steps to insure that the QSI Preferred Stock has been redeemed
in accordance with Section 2.9.3 hereof.
6.2.16 AFFILIATE AGREEMENTS. To insure compliance with Rule 145 of
the rules and regulations promulgated by the SEC under the Securities Act,
each of QSI's directors, executive officers and beneficial owners of 5% or
more of QSI's Common Stock shall have executed and delivered to Key the
QSI Affiliate Agreements.
6.2.17 SEVERANCE POLICY. QSI shall have terminated any severance
policy of QSI or any QSI Subsidiary without cost to either QSI or Key,
other than any severance contained within any agreement set forth in
SCHEDULE 3.1.8.11 hereto.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 TERMINATION. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the Merger contemplated
hereby abandoned at any time before the Effective Date:
7.1.1 BY MUTUAL CONSENT. By mutual written consent of Key, Merger
Sub and QSI.
7.1.2 BY KEY BECAUSE OF DISSENTING SHAREHOLDERS. By Key, if the
holders of any shares of QSI Common Stock representing in excess of 0.5%
of the issued and outstanding shares of QSI Common Stock elect to exercise
the right to dissent under applicable provisions of Texas law in
connection with the Merger contemplated by this Agreement.
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7.1.3 BY QSI BECAUSE OF CONDITIONS PRECEDENT. By QSI, if any
condition set forth in Section 6.1 hereof has not been met and has not
been waived, notwithstanding any investigation made by or on behalf of
QSI.
7.1.4 BY QSI BECAUSE OF MATERIAL ADVERSE EFFECT. By QSI, if there
has been a material adverse effect in the financial condition or business
of Key and its subsidiaries, taken as a whole, since March 31, 2002.
7.1.5 BY KEY OR MERGER SUB BECAUSE OF CONDITIONS PRECEDENT. By Key
or Merger Sub, if any condition set forth in Section 6.2 hereof has not
been met and has not been waived, notwithstanding any investigation made
by or on behalf of Key.
7.1.6 BY KEY OR MERGER SUB BECAUSE OF MATERIAL ADVERSE EFFECT. By
Key or Merger Sub, if there has been a material adverse effect in the
financial condition or business of QSI and the QSI Subsidiaries, taken as
a whole, since March 31, 2002.
7.1.7 BY KEY OR MERGER SUB, OR BY QSI BECAUSE OF LEGAL PROCEEDINGS.
By either Key or Merger Sub, or by QSI, if any suit, action, or other
proceeding shall be pending or threatened by the federal or a state
government before any court or governmental agency, in which it is sought
to restrain, prohibit, or otherwise affect the consummation of the
transactions contemplated hereby.
7.1.8 BY KEY OR MERGER SUB, OR BY QSI, IF TRANSACTIONS NOT EFFECTIVE
BY JULY 17, 2002. By either Key or Merger Sub, or by QSI, if the
transactions contemplated hereby shall not have become effective on or
before July 17, 2002; PROVIDED, HOWEVER, that such date shall be extended
but not beyond October 15, 2002, if Key is notified by the SEC that the
post-effective amendment to the Registration Statement filed in connection
with the transactions contemplated by this Agreement shall be reviewed or
if there is any other delay in its effectiveness.
7.1.9 BY KEY OR MERGER SUB BECAUSE OF MATERIAL DEVELOPMENTS. By Key
or Merger Sub if, one or more of QSI's representations or warranties
contained in Sections 3.1.8.17, 3.1.8.18, 3.1.17 (including all
subparagraphs thereto), and 3.1.20 hereof was not true as of the date
hereof or not true immediately before the Effective Date, and all of such
untrue representations and warranties, in the aggregate, would be
reasonably likely to result in costs, damages, diminution in value,
expenses, losses or liabilities with respect to the business, operations,
assets or liabilities of QSI and the QSI Subsidiaries taken as a whole of
more than the Liability Threshold; PROVIDED THAT no claims, costs,
damages, expenses, losses or liabilities shall be included in the
calculation of the Liability Threshold to the extent such amounts are
insured against without reservation of rights (but only to the extent
collectable and less any deductibles or self insured retentions) or to the
extent that the Estimated Balance Sheet (and Final Balance Sheet) includes
a specific reserve with respect to such matter of this kind or nature.
Notwithstanding the other provisions of this Section 7.1.9 or any other
provision of this Agreement, for the purposes of calculating the Liability
Threshold (i) the disclosures on SCHEDULE 3.1.17 and SCHEDULE 3.1.20 shall
48
not be taken into account in determining whether there has been a breach
of the representations and warranties contained in Sections 3.1.8.17,
3.1.8.18, 3.1.17 and 3.1.20 hereof, and (ii) plugging and abandonment
costs with regard to the items set forth in such Schedules shall be
included.
7.2 TERMINATION BY BOARD OF DIRECTORS. An election of Key, Merger Sub or
QSI terminate this Agreement and abandon the Merger as provided in Section 7.1
hereof shall be exercised on behalf of Key, Merger Sub or QSI, as the case may
be, by its board of directors.
7.3 EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement pursuant to and in accordance with the provisions of Section
7.1 hereof, this Agreement shall become void and have no force or effect,
without any liability on the part of any party hereto (or the stockholders,
general partner or controlling persons or directors or officers of any party
hereto). Notwithstanding the foregoing, a termination of this Agreement shall
not relieve any party hereto from any liability for damages incurred as a result
of a willful breach by such party of its covenants and agreements hereunder
occurring before such termination. Each party hereto acknowledges and agrees
that, in connection with such termination, breaches of a representation or
warranty hereunder by the other party shall not give rise to liability for
damages except in the event of a breach of a representation or warranty
resulting from a knowing and intentional act involving actual fraud or an intent
to mislead or deceive. In addition, if there are one or more Potential
Liabilities that have been the subject of one or more Liability Notices (i) as
to which Key and QSI have been unable to determine are properly characterized as
such or as to which Key and QSI have been unable to agree as to the most
reasonable, cost-effective remedy in accordance with Section 8.3.1.2 hereof
(each, a "Disputed Potential Liability"); (ii) Key believes the Liability
Threshold has been exceeded; and (iii) QSI had previously withheld its
permission for Key to conduct testing with respect to the Disputed Potential
Liabilities as contemplated in Section 8.3.1.1 hereof, then Key's termination of
this Agreement pursuant to Section 6.2.1 or 7.1.9 hereof shall be without
liability to Key.
7.4 WAIVER OF CONDITIONS. Subject to the requirements of any applicable
law, any of the terms or conditions of this Agreement may be waived at any time
by the party that is entitled to the benefit thereof, by action taken by its
board of directors, the executive committee of its board of directors or its
chief executive officer or its general partner. No waiver of a particular term
or condition of this Agreement shall constitute a waiver of any other term or
condition.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 EMPLOYMENT MATTERS. After the Effective Date, Key, in its sole
discretion, may take all actions necessary or appropriate to (i) permit each
individual who is an employee of QSI or any QSI Subsidiary immediately before
the Effective Date (a "QSI Employee") to continue to participate from and after
the Effective Date in an Employee Plan, or (ii) terminate, freeze or merge any
Employee Plan. Before the Effective Date, upon written request from Key, QSI and
each QSI Subsidiary shall terminate, freeze or merge any identified Employee
Plan maintained by QSI or any QSI Subsidiary effective as of a date specified by
Key before the Effective Date; PROVIDED, HOWEVER, that no Employee Plan shall be
terminated unless QSI agrees to such termination. If Key terminates or
discontinues an Employee Plan after the Effective Date or requests QSI or a QSI
Subsidiary to terminate an Employee Plan before the Effective Date, Key shall
49
take all actions necessary or appropriate to permit the QSI Employees
participating in such Employee Plan to participate in the comparable benefit
plan, if any, maintained by Key or any of its affiliates for similarly situated
employees (the "Replacement Plans"); PROVIDED, however, that if the Employee
Plan that is so terminated or discontinued is a group health plan, then Key
shall cause each QSI Employee participating in such group health plan and his or
her eligible dependents (including, without limitation, all such QSI Employee's
dependents covered by such group health plan as of the time such coverage
ceases) to be covered under a Replacement Plan that (i) provides medical and
dental benefits to each such QSI Employee and such eligible dependents effective
immediately upon the cessation of coverage of such individuals under such group
health plan in accordance with such plan's terms, and (ii) waives any
preexisting condition restrictions to the extent necessary to provide immediate
coverage, if such waiver is required under the Health Insurance Portability and
Accountability Act. Key and its affiliates shall recognize each QSI Employee's
years of service and level of seniority prior to the Effective Date with QSI and
any QSI Subsidiaries for purposes of eligibility and vesting under any
Replacement Plan that is a medical, dental or Code Section 401(k) Plan. In the
event that Key adopts a severance plan to address reduction in force implemented
in connection with the integration of the operations of Key and QSI, such plan
shall treat similarly situated employees of Key and QSI the same. Further, if,
on or after the Effective Date, Key terminates the employment of any QSI
Employee to whom QSI or any QSI Subsidiary is obligated to pay severance
benefits as identified on SCHEDULES 3.1.8.8, 3.1.8.11 or 3.1.19 hereto, and such
obligation is not waived, Key, and not QSI, any QSI Subsidiary or the QSI
Shareholders, shall be responsible for the payment of such severance benefits.
8.2 VOTING AND SUPPORT AGREEMENTS. Contemporaneously with the execution
and delivery of this Agreement, each of the QSI Shareholders identified on
SCHEDULE 8.2 hereto shall execute and deliver the Voting and Support Agreements.
8.3 LIABILITY THRESHOLD.
8.3.1.1 ENVIRONMENTAL ASSESSMENT. Key shall have the right, at its
sole cost, risk and expense, to conduct or have conducted an Environmental
Assessment of the properties and operations of QSI and each QSI
Subsidiary. QSI agrees to provide Key (or its agents or contractors) with
reasonable access as necessary to conduct the Environmental Assessment and
the investigation. QSI shall have the right to require Key (or its agents
or contractors) to conform to QSI's (or the operator's, if not QSI's)
safety and industrial hygiene procedures in the conduct of the
Environmental Assessment. During the Environmental Assessment, Key shall
not be permitted to (i) conduct any soil, water or groundwater sampling or
subsurface testing of any kind; or (ii) contact any governmental authority
regarding the properties and operations of QSI or any QSI Subsidiary, in
either case without first obtaining written permission from QSI, which
permission shall be granted or denied within three days of receipt by QSI
of the written request therefor, with respect to the specific sampling,
testing or contact proposed by Key; provided, however, that Key may make
such contacts as may be necessary to arrange to review and copy publicly
available agency records relating to environmental conditions and
permitted operations at properties owned, leased or operated by QSI or any
QSI Subsidiary.
50
8.3.1.2 IDENTIFICATION AND CALCULATION8.3.1.3 . Key shall deliver to
QSI a written notice as soon as practicable after receiving a report
identifying any Potential Liability. Such notice (the "Liability Notice")
shall:
(i) identify the property on which the Potential Liability
exists;
(ii) set forth Key's estimate of the most cost-effective
remedy to cure the Potential Liability; and
(iii) set forth Key's estimate of any liability for damages to
third parties that could arise out of the Potential Liability.
Key and QSI will negotiate in good faith to determine (a) whether
each Potential Liability identified on the Liability Notice is
properly characterized as such, (b) the cost of implementing the
remedy determined in accordance with clause (ii) above, and (c) the
net present value of any damages that could arise out of third party
claims identified on the Liability Notice. The estimate of the most
cost-effective remedy determined in accordance with clause (ii)
above shall include investigation costs typically associated with
the proposed remedy, but shall not include investigation costs
incurred by Key in the investigation pursuant to which Key assembled
the information on the Liability Notice. In estimating the amount of
the potential third party damages pursuant to clause (iii) above,
Key and QSI shall consider both the magnitude of the Potential
Liability and the likelihood of liability actually arising out of
the Potential Liability. A Potential Liability identified on a
Liability Notice shall not be included in the Liability Threshold to
the extent Key and QSI agree in writing that it should not so be
included or to the extent it has been corrected or remedied by QSI
to Key's satisfaction before the Effective Date.
8.4 FURTHER ASSURANCES. From time to time, as and when requested by any
party hereto, any other party hereto shall execute and deliver, or cause to be
executed and delivered, such documents and instruments and shall take, or cause
to be taken, such further or other actions as may be reasonably necessary to
effect the transactions contemplated hereby.
8.5 INDEMNIFICATION; OFFICERS AND DIRECTORS INSURANCE. Except to the
extent Surviving Corporation is merged into Key or its affiliates, the Surviving
Corporation's articles of incorporation and bylaws shall not be amended in a
manner that adversely affects the rights of any Indemnified Executive thereunder
unless otherwise required by applicable law. The Surviving Corporation shall
maintain, for not less than three years after the Effective Date, director's and
officer's liability insurance covering each Indemnified Executive on terms not
materially less favorable than the insurance maintained in effect by QSI on the
date hereof in terms of coverage (including without limitation types of claims,
time period of claims, exclusions and persons covered), amounts and deductibles;
provided that the costs of such insurance shall not exceed $100,000 or the
covered Indemnified Executive shall be responsible for payments in amounts in
excess of such $100,000, shall reduce the coverage limits to levels that will
not exceed the $100,000 premium, or may elect to terminate coverage. Each
51
Indemnified Executive is intended to be a third party beneficiary of this
Section 8.5 and may specifically enforce its terms. This Section 8.5 shall not
limit or otherwise adversely affect any rights any Indemnified Executive may
have under any agreement with QSI or under QSI's articles of incorporation or
bylaws.
8.6 PUBLIC ANNOUNCEMENTS. Except as may be required by applicable law, no
party hereto shall make any public announcements or otherwise communicate with
any news media or any other party, with respect to this Agreement or any of the
transactions contemplated hereby without prior consultation with the other
parties as to the timing and contents of any such announcement or communications
as may be reasonable under the circumstances; provided, however, that nothing
contained herein shall prevent any party from (i) promptly making all filings
with governmental authorities as may, in its judgment, be required or advisable
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby or (ii) disclosing the
terms of this Agreement to such party's legal counsel, financial advisors or
accountants in furtherance of the transactions contemplated by this Agreement.
ARTICLE 9
MISCELLANEOUS
9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
9.1.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF KEY AND MERGER
SUB. The representations, warranties, covenants and agreements made by Key
or Merger Sub shall not survive the Effective Date; PROVIDED THAT nothing
herein shall limit the survival of any covenant or agreement of the
parties hereto which by its terms requires performance after the Effective
Date.
9.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF QSI. The
representations, warranties, covenants and agreements made by QSI shall
not survive the Effective Date; PROVIDED THAT nothing herein shall limit
the survival of any covenant or agreement of the parties hereto which by
its terms requires performance after the Effective Date.
9.2 ENTIRETY; AMENDMENTS. This Agreement and each agreement executed
contemporaneously herewith embodies the entire agreement among the parties with
respect to the subject matter hereof, and all prior agreements between the
parties with respect thereto are hereby superseded in their entirety. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
9.3 COUNTERPARTS. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original instrument,
but all such counterparts together shall constitute but one instrument.
9.4 NOTICES AND WAIVERS. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested:
52
IF TO KEY OR MERGER SUB
Addressed to: With a copy to:
Key Energy Services, Inc. Xxxxxx & Xxxxxx, L.L.P.
000 Xxxxx Xxxxx Xxxx 000 Xxxxxxxxx
Xxx Xxxx, Xxxxxxxxxxxx 00000 Xxxxxxx, Xxxxx 00000-0000
Attn: General Counsel Attn: Xxxxxx X. Xxxxx
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
IF TO QSI
Addressed to: With a copy to:
Q Services, Inc. Xxxxxx & Xxxxxx L.L.P.
0000 Xxxxxxx Xxxx 0000 Xxxxx Xxxx Xxxxx
Xxxxx 000 1001 Xxxxxx
Houston, Texas 77027 Xxxxxxx, Xxxxx 00000-0000
Attn: Xxxxx X. Xxxxxxxxxx Attn: T. Xxxx Xxxxx
Facsimile: (000) 000-0000 Fax: (000) 000-0000
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal business hours
on any business day.
9.5 CAPTIONS. The captions contained in this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any article, section, or paragraph hereof.
9.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
9.7 SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
9.8 JOINT DRAFTING. This Agreement and its exhibits have been jointly
drafted by each of the parties hereto and their counsel. Neither this Agreement
nor any of its exhibits shall be construed against any party based on its
authorship.
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9.9 APPLICABLE LAW. This Agreement shall be governed by and construed and
enforced in accordance with the applicable laws of the State of Texas.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed in
their individual names or their respective corporate names by their respective
duly authorized representatives, as applicable, all as of the day and year first
above written.
KEY ENERGY SERVICES, INC.
By: /s/ XXXX X. XXXXXX, XX.
------------------------------------------
Xxxx X. Xxxxxx, Xx., SENIOR VICE PRESIDENT
KEY MERGER SUB, INC.
By: /s/ XXXX X. XXXXXX, XX.
------------------------------------------
Xxxx X. Xxxxxx, Xx., VICE PRESIDENT
Q SERVICES, INC.
By: /s/ XXXXX X. XXXXXXX
-----------------------------------------
Xxxxx X. Xxxxxxx, PRESIDENT
55
