-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IH258ZgM4mcVaDDEJC5DkgR7kDDa9JC8WqjDmdLEWWgQUEhiob025b9rSyTK6IWl AbeNFyq3TKwIoLyH3FwLsw== 0000939802-04-000270.txt : 20040514 0000939802-04-000270.hdr.sgml : 20040514 20040514170329 ACCESSION NUMBER: 0000939802-04-000270 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CBQ INC CENTRAL INDEX KEY: 0000814926 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841047159 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28831 FILM NUMBER: 04808666 BUSINESS ADDRESS: STREET 1: 48 S.W. STREET CITY: DANIA BEACH STATE: FL ZIP: 33004 BUSINESS PHONE: (954) 450-2888 MAIL ADDRESS: STREET 1: 48 S.W. STREET CITY: DANIA BEACH STATE: FL ZIP: 33004 FORMER COMPANY: FORMER CONFORMED NAME: FREEDOM FUNDING INC DATE OF NAME CHANGE: 19961205 FORMER COMPANY: FORMER CONFORMED NAME: YORKSHIRE LEVERAGED GROUP INC DATE OF NAME CHANGE: 19890301 10QSB 1 form10qsb033104.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2004 -------------------------------------------- [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from to --------------------- ------------------- Commission file number 33-4707-NY --------------------------------------------------------------- CBQ, Inc. -------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 84-1047159 - -------------------------------------------------------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 12535 Orange Drive, Suite 163, Davie, Florida 33330 ------------------------------------------------------------------------------ (Address of principal executive offices) (954) 474-0224 Issuer's telephone number (Former name, former address and former fiscal year, if changed since last report.) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ----- No ----- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date: March 31, 2004 Approximately 500,000,000 shares Transitional Small Business Disclosure Format (check one). Yes ; No X ---- ----- PART I Item 1. Financial Statements CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) March 31, December 31, 2004 2003 ------------------ ------------------ Assets: Current assets: Cash $ 90,250 $ 24,841 Deferred Tax Asset 7,300 7,300 ------------------ ------------------ Total Current Assets 97,550 32,141 ------------------ ------------------ Fixed Assets: Office Equipment 2,688 - Accumulated Depreciation (224) - ------------------ ------------------ Net Fixed Assets 2,464 - ------------------ ------------------ Other non-current assets: Deposits 1,713 1,713 ------------------ ------------------ Total assets $ 101,727 $ 33,854 ================== ==================
CBQ, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) March31, December 31, 2004 2003 ------------------ ------------------ Liabilities and Stockholders' Deficit: Current liabilities: Accounts payable, trade $ 8,570 $ 63,117 Accrued expenses 79,000 254,000 Customer Deposits 60,000 60,895 Due to related party - 1,215 Due to shareholders - 145,000 ------------------ ------------------ Total liabilities 147,570 524,227 ------------------ ------------------ Stockholders' Deficit: Preferred Stock, par value $.001 per share Authorized 100,000,000 shares, Issued -0- shares at March 31, 2004 and December 31, 2003 - - Common Stock, par value $.0001 per share Authorized 500,000,000 shares, Issued 499,350,300 Shares at March 31, 2004 and December 31, 2003 49,935 49,935 Additional paid-in capital 935,986 563,658 Shareholder receivables (118,628) (112,517) Accumulated deficit (913,136) (991,449) ------------------ ------------------ Total Stockholders' Deficit (45,843) (490,373) ------------------ ------------------ Total Liabilities and Stockholders' Deficit $ 101,727 $ 33,854 ================== ==================
See accompanying notes. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) For the three months ended March 31, ---------------------------------------- 2004 2003 ------------------ ------------------ Revenues $ 273,432 $ 176,938 Cost of Sales 142,140 90,679 ------------------ ------------------ Gross Profit 131,292 86,259 ------------------ ------------------ Operating Expenses: Sales and Marketing 4,815 323 Other General and Administrative 47,344 66,905 ------------------ ------------------ Total Operating Expenses 52,159 67,228 ------------------ ------------------ Net Operating Income (Loss) 79,133 19,031 Other Income (Expense): Interest Expense (820) (2,299) ------------------ ------------------ Net Income (Loss) $ 78,313 $ 16,732 ================== ================== Weighted Average Shares Outstanding 499,350,300 97,000,000 ================== ================== Income (Loss) per Share $ - $ - ================== ==================
See accompanying notes. CBQ, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) For the three months ended March 31, ------------------------------------- 2004 2003 ----------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Continuing operations: Net Income (Loss) $ 78,313 $ 16,732 Adjustments necessary to reconcile net loss to net cash used in operating activities: Depreciation 224 - (Increase) decrease in security deposits - (1,713) Increase (decrease) in accounts payable (3,434) - Increase (decrease) in customer deposits (895) - ----------------- ------------------ Net cash used in operating activities 74,208 15,019 ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets (2,688) - ----------------- ------------------ Net cash provided by (used) investing activities (2,688) - ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Shareholder receivables (6,111) - ----------------- ------------------ Net Cash Provided by Financing Activities (6,111) - ----------------- ------------------ Net (Decrease) Increase in Cash and Cash Equivalents 65,409 15,019 Cash and Cash Equivalents at Beginning of Period 24,841 - ----------------- ------------------ Cash and Cash Equivalents at End of Period $ 90,250 $ 15,019 ================= ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 820 $ 2,299 Franchise and income taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: NONE See accompanying notes. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for CBQ, Inc. and Subsidiaries is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. Interim Reporting The unaudited financial statements as of March 31, 2004 and for the three month periods ended March 31, 2004 and 2003 reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. Organization and Basis of Presentation CBQ, Inc., (formerly Freedom Funding, Inc.) a Colorado corporation, was incorporated September 18, 1986, under the laws of the State of Delaware, and changed its situs to Colorado in 1989. Souvenir Direct, Inc. was incorporated on September 9, 2002 under the laws of the State of Florida. On December 1, 2003, CBQ, Inc. acquired 100% of the outstanding common stock of Souvenir Direct, Inc. in a reverse acquisition. At this time, a new reporting entity was created. Souvenir Direct, Inc. is considered the reporting entity for financial reporting purposes. Nature of Business The Company is engaged in the business of marketing and selling novelty, gift, and promotional items in North America. The items are manufactured in the People's Republic of China by third-party manufacturing companies. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Principles of Consolidation The consolidated financial statements for the three months ended March 31, 2004 and the year ended December 31, 2003 include the accounts of the parent entity and its subsidiary Souvenir Direct, Inc. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The results of subsidiaries acquired or sold during the year are consolidated from their effective dates of acquisition through their effective dates of disposition. All significant intercompany balances and transactions have been eliminated. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Net Income (Loss) Per Common Share Basic earnings (loss) per share has been computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the years. There were no common stock equivalent shares outstanding at March 31, 2004 and 2003. Concentration of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Reclassifications Certain reclassifications have been made in the 2003 financial statements to conform with the 2004 presentation. Major Suppliers The Company's major suppliers are from the People's Republic of China and to a lesser extent a variety of Pacific Rim countries. The Company relies on 30 manufacturing concerns in China for its products. The loss of these Chinese manufacturing sources would adversely impact on the business of the Company. Major Customers At March 31, 2004, the Company receives approximately 36% of its gross revenues from its top three accounts. The loss of these customers would adversely impact the business of the Company. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue Recognition Sales revenue is recognized upon the shipment of merchandise from suppliers to customers. Allowances for sales returns, rebates and discounts are recorded as a component on net sales in the period the allowances are recognized. Advertising Advertising costs are expensed as incurred. Advertising expense was $4,815 for the three months ended March 31, 2004 and $323 for the three months ended March 31, 2003. Income Taxes The Company accounts for income taxes under the provisions of SFAS No. 109, "Accounting for Income Taxes." SFAS No.109 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. NOTE 2 - LEASES The Company leases approximately 1,500 square feet of office space from Flamingo Commons, LLC. The lease requires monthly lease payments of approximately $1,200 . The lease expires in September 2005. The office space is used as the corporate headquarters. It is located at 12535 Orange Drive, Suite 613, Davie, Florida 33330. The Company also rents a storage facility on a month-to-month basis. Monthly rentals for the storage facility are approximately $150. Rental expense under these leases was approximately $15,000 for the year ended December 31, 2003. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 NOTE 4 - LEASES (continued) The minimum future lease payments under these leases for the next five years are: Year Ended December 31, - ------------------------------------------- 2004 $ 14,400 2005 10,800 2006 - 2007 - 2008 - -------------- Total minimum future lease payments $ 25,200 ============== NOTE 5 - STOCK TRANSACTIONS On September 9, 2002, the Company issued 100 shares of common stock for $2,774 of start- up expenses. On December 1, 2003, the Company issued 97,000,000 shares of common stock to acquire Souvenir Direct, Inc. in a reverse acquisition. The 100 shares that were previously issued were retroactively adjusted to reflect the equivalent number of shares that were issued in connection with the reverse acquisition. The acquisition was recorded by a credit to common stock of $9,600 and a debit to paid-in capital of $2,674 and a debit to retained earnings of $6,926. Also on December 1, 2003, an additional 402,350,300 shares of common stock were issued to the previous owners of CBQ, Inc. All references to stock reflect the retroactive adjustment to the shares. NOTE 6 - INCOME TAXES As of December 31, 2003, the provision for income taxes consists of federal income tax and Florida state income tax. The provision consists of the following: Current: Federal $ - State - ----------------- - Deferred tax benefit (7,300) ----------------- Income tax benefit $ (7,300) ================= Deferred taxes result from temporary differences in the recognition of income and expenses for income tax reporting and financial statement reporting purposes. The Company had deferred tax CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 NOTE 6 - INCOME TAXES (continued) benefits of $7,300 as of December 31, 2003. These deferred tax benefits are the result of prepaid customer deposits that are made towards future sales. The difference between the effective income tax rate and the federal statutory income tax rate on the income (loss) from continuing operations are presented below:
December 31, 2003 ------------------ Expense (Benefit) at the federal statutory rate of 15% $ - Nondeductible expenses - State Income Taxes - Deferred Tax Benefit (7,300) Other - ------------------ Effective Tax Expense (Benefit) $ (7,300) ==================
The above table reflects activity from December 1, 2003 to December 31, 2003. Prior to December 1, 2003, the Company was an S-corporation and did not incur income taxes. Instead, its earnings and losses were included in the personal returns of its shareholders and taxed depending on their personal tax situations. The 2002 financial statements do not reflect a provision for income taxes. NOTE 7 - LEGAL SETTLEMENTS On December 19, 2003, the Company settled a $459,662 judgment with Bell Microproducts, Inc. This $459,662 plus interest of $103,996 had been included in the Company's accounts payable. Bart Fisher, a former officer and director and principal shareholder of the Company paid the entire settlement of 3,000,000 shares of common stock and $25,000 cash. Mr. Fisher agreed to assume the obligation to pay the settlement consideration without any consideration or reimbursement from the Company. In June 2001, ITC/INFO Tech ("Claimant") obtained a default award of $79,000 against the Company. The award was based on non-payment for computer goods shipped by ITC to two subsidiaries of the Company. The Company has offered to settle the award for shares of restricted stock, but the Claimant has refused to accept such an offer to date. The Claimant has made no effort to enforce its award since June 2001. The Company may offer a cash and stock settlement in the near future to eliminate this award. As of December 31, 2003 and March 31, 2004, the award amount has been included in the accrued expenses of the Company. CBQ, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS MARCH 31, 2004 AND 2003 NOTE 8 - CONTINGENCIES Celeste Trust Reg., Esquire Trade, et al. v. CBQ, Inc. (Case# 03 Civ. 9650 RMB; US District Court, SDNY, 12/4/2003). A lawsuit filed against CBQ, Inc. by three plaintiffs on or about December 4, 2003, but which the Company did not receive notice of until the week of February 18, 2004 or thereabouts. The plaintiffs purchased debentures issued by Socrates Technologies Corporation (STC), a public Delaware corporation in 2000. When the Company purchased the assets of two STC subsidiaries in March 2001, the plaintiffs allege that the Company promised to issue to the plaintiffs and others the consideration that was to be paid to STC for the acquired assets and to so do in order to compensate the plaintiffs for their investment in the STC debentures, which were apparently in default at that time. The total consideration paid for the STC subsidiaries' assets were 7.65 million shares of Company Common Stock and a Promissory Note made by CBQ, Inc. for $700,000 principal amount. The Company is currently contesting the lawsuit. On April 15, 2004, the Court denied the plaintiffs' motion for default judgment and set the case for discovery and trial. NOTE 9 - SUBSIDIARY In February 2004, the Company established a new subsidiary, China Pathfinder Fund, LLC, a Florida limited liability company. The purpose of this new subsidiary is to pursue the business of acting as a funding and merger-and-acquisition agent in the United States and China. Item 2. Management's Discussion and Analysis or Plan of Operation General - This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's annual report on Form 10-KSB for the year ended December 31, 2003. PLAN OF OPERATIONS - The Company was organized for the purpose of creating a corporate vehicle to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek perceived advantages of a publicly held corporation. The Company may incur significant post-merger or acquisition registration costs in the event management wishes to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition including the costs of preparing post- effective amendments, Forms 8-K, agreements and related reports and documents. While the Company believes that SDI will be able to generate sufficient cash flow to pay for SDI's and the Company's direct overhead costs and, with respect to SDI, its internal planned growth in fiscal year 2004, SDI does not generate sufficient cash flow at this time to fund an acquisition program, development of new businesses (except ones requiring low start-up costs or which are complementary to the Company's current low-overhead distribution operations). The Company will not have sufficient funds (unless it is able to raise funds in a private placement or in connection with an acquisition) to undertake any significant business development, or extensive marketing, in terms of scope of campaign and geographical reach, of new products. Accordingly, following the acquisition, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company may be required to give up a substantial portion of its interest in the acquired product or to issue large number of shares of its capital stock. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired. RESULTS OF OPERATIONS - The Company had no operations during 2002. On December 1, 2003, the Company acquired all of the issued and outstanding shares of common stock of Souvenir Direct, Inc. ("SDI"), a private Florida corporation engaged in the business of distributing to its customers custom manufactured souvenir, promotional and gift items manufactured in China. The financial results of SDI for the three months ended March 31, 2004 and 2003 are reflected in the financial statements of this Report. Prior to the spring of 2002, the Company was engaged in systems development, the development of customized software programs for business clients and in value-added reseller of computer hardware and software manufactured by other companies. After the spring of 2002, the Company had no business operations. Accordingly, comparisons with prior periods are not meaningful. LIQUIDITY AND CAPITAL RESOURCES. Historically, the Company has not generated enough cash flow from operations to cover its overhead costs and the cost of growth. The inadequacy of cash flow and the inability of the Company to consistently obtain funding and ongoing funding on commercially reasonable terms have undermined the former business operations of the Company and forced the Company to obtain funding from management and through the sale of Company securities. The Company sought to acquire SDI because it is a low overhead distributor operation run by two persons, with no inventory of any consequence to finance and with the ability to grow without extensive outlays of funds. The Company is hoping that SDI will generate enough cash flow to cover the overhead costs of the Company and SDI and to fund the expansion of SDI's business. Any acquisitions by the Company will most likely require third-party funding of the acquisition and the acquired operations. As a small business and a penny stock company, the Company will continue to face difficulty in obtaining financing or funding on reasonable commercial terms. The Company expects future development and expansion will be financed through cash flow from operations and other forms of financing such as the sale of additional equity and debt securities, capital leases and other credit facilities. There are no assurances that such financing will be available on terms acceptable or favorable to the Company. Further, the increase in the number of shares of common stock in the public markets may reduce the ability or appeal of the Company to future sources of possible financing or funding. GOVERNMENT REGULATIONS - The Company is subject to all pertinent Federal, State, and Local laws governing its business. The Company is subject to licensing and regulation by a number of authorities in its State or municipality. These may include health, safety, and fire regulations. The Company's operations are also subject to Federal and State minimum wage laws governing such matters as working conditions and overtime. IMPACT OF INFLATION. To date, the Company has not experienced any significant effect from inflation. The Company's major expenses have been the cost of marketing its product lines to customers in North America. That effort involves mostly Mr. Ullman traveling to make direct marketing and sales pitches to customers and potential customers as well as showing the SDI products at industry trade shows around North America and visiting China to maintain and expand SDI's distribution and manufacturing relationships and channels. The Company generally has been able to meet increase in costs by raising prices of its products. COUNTRY RISK. Almost all of the Company's contract manufacturing operations and sources of products are located in China. As such, the Company is subject to significant risks not typically faced by companies operating in or obtaining products from North America and Western Europe. Political, economic and trade conflicts between the United States and China, including possible conflict over North Korea's nuclear weapons program or the independence of Taiwan, could severely hinder the ability of the Company to obtain products and fill customer orders from the Company's current Chinese manufacturing sources. Further, Chinese commercial law is still evolving to accommodate increasing capitalism in Chinese society, especially in terms of commercial relationships and dealings with foreign companies, and can be unpredictable in application or principal. The same unpredictability exists with respect to the central Chinese government, which can unilaterally and without prior warning impose new legal, economic and commercial laws, policies and procedures. This element of unpredictability heightens the risk of doing business in China. China is also under international pressure to value its currency in a manner that would increase the value of Chinese currency in respect of other world currencies and thereby increase the cost of Chinese goods in the world market. The Company does not believe that such revaluation of Chinese currency would adversely impact its business because of the low-cost nature of the Company's products and the fact that U.S. dollars is the currency of use in all of the Company's commercial transactions. Item 3. Controls and Procedures The Company's Chief Executive Officer and Chief Financial Officer have concluded, based on an evaluation conducted within 90 days prior to the filing date of this Quarterly Report on Form 10- QSB, that the Company's disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary to evaluate whether: (i) this Quarterly Report on Form 10-QSB contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report on Form 10-QSB, and (ii) the financial statements, and other financial information included in this Quarterly Report on Form 10-QSB, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Quarterly Report on Form 10-QSB. There have been no significant changes in the Company's internal controls or in other factors since the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that could significantly affect these internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS CELESTE TRUST LITIGATION. Celeste Trust Reg., Esquire Trade, et al. v. CBQ, Inc. (Case# 03 Civ. 9650 RMB; US District Court, SDNY, 12/4/2003). A lawsuit filed against CBQ, Inc. by three plaintiffs on or about December 4, 2003, but which the Company did not receive notice of until the week of February 18, 2004 or thereabouts. The plaintiffs purchased debentures issued by Socrates Technologies Corporation (STC), a former public Delaware corporation, in 2000. When the Company purchased the assets of two STC subsidiaries in March 2001, the plaintiffs allege that the Company promised to issue to the plaintiffs the consideration that was to be paid to STC by CBQ, Inc. for the acquired STC subsidiaries' assets and to so do in order to compensate the plaintiffs for their investment in the STC debentures, which were apparently in default at that time. The total consideration paid for the STC subsidiaries' assets were 7.65 million shares of Company Common Stock and a Promissory Note made by CBQ, Inc. for $700,000 principal amount. The Company is currently contesting the lawsuit. On April 15, 2004, the Court denied the plaintiffs' motion for default judgment and the case is being for discovery and trial. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None/Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None/Not Applicable. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.3 Operating Agreement for China Pathfinder Fund, LLC, a Florida limited liability company. 10.1 Form of Indemnification Agreement, dated April 18, 2004. 10.2 Employment Agreement by CBQ, Inc. and Howard Ullman, Dated April 18, 2003. 31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. i) Items 12 and 7 - Financial results for Fiscal Year 2003. Report dated and filed April 22, 2004. ii) Item 9 Regulation FD Disclosure - Web Cast Transcript. Report dated February 13, 2004 and filed February 26, 2004; and iii) Item 5 - Appointment of new director. Report dated February 13, 2004 and dated February 26, 2004. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 14th day of May, 2004. CBQ, Inc. May 14, 2004 /s/ Howard Ullman Howard Ullman CEO, President and Chairman (Principal Executive Officer) (Principal Financial and Accounting Officer) EX-3 2 form10qsb033104ex3-3.txt Exhibit 3.3 OPERATING AGREEMENT OF China Pathfinder Fund, LLC a Florida limited liability company This Operating Agreement (the "Agreement") of China Pathfinder Fund, LLC, a Florida limited liability company (the "Company"), is made as of this ___ day of April 2004, and is by and among the Persons listed on Schedule A attached hereto (collectively, the "Members"), who constitute all the Members of the Company as of such date. Each of the Members hereby agrees, recites and provides as follows: SECTION I DEFINITIONS 1.01 Act shall mean the Florida Limited Liability Company Act, as amended from time to time. 1.02 Affiliate shall mean any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. The term "control" (including the terms "controlling", "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of at least 50% of the voting securities, by contract, or otherwise. 1.03 Agreement shall mean this Operating Agreement, as it may be amended from time to time. 1.04 Capital Account shall have the meaning provided in Section 8.04 hereof. 1.05 Capital Contribution shall mean the amount of money or other property contributed to the Company by each Member, pursuant to the terms of this Agreement. 1.06 Capital Transaction shall mean the refinancing or sale, exchange or other disposition of all or any substantial part of the assets of the Company, except for any Terminating Capital Transaction. 1.07 Cash Available for Distribution shall have the meaning provided in Section 9.02(b). 1.08 Code shall mean the Internal Revenue Code of 1986, as amended. 1.09 Company shall mean the limited liability company governed by this Agreement. 1.10 Company Minimum Gain shall have the meaning set forth in Regulations Section 1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of Company Minimum Gain is determined by first computing for each nonrecourse liability of the Company any gain the Company would realize if it disposed of the property subject to that liability for no consideration other than full satisfaction of the liability, and then aggregating the separately computed gains. A Member's share of Company Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(g)(1). 1.11 Event of Bankruptcy as to any Person shall mean the filing of a petition for relief as to such Person as debtor or bankrupt under the Bankruptcy Code of 1978 or other similar provision of law of any jurisdiction (except if such petition is contested by such Person and has been dismissed within 90 days); insolvency of such Person as finally determined by a court proceeding; filing by such Person of a petition or application to accomplish the same or for the appointment of a receiver or a trustee for such Person or a substantial part of its assets; commencement of any proceedings relating to such Person as a debtor under any other reorganization, arrangement, insolvency, adjustment of debt or liquidation law of any jurisdiction, whether now in existence or hereinafter commenced by another, if such Person indicates its approval of such proceeding, consents thereto or acquiesces therein, or such proceeding is contested by such Person and has not been finally dismissed within 90 days. 1.12 Managers shall have the meaning provided in Section 5.01(a). 1.13 Member or Members shall mean any or all of those Persons listed on Schedule A or any Persons who replace them as substitute Members as provided herein, in each such Person's capacity as a Member of the Company. 1.14 Member Nonrecourse Debt Minimum Gain shall have the meaning set forth in Regulations Section 1.704-2(i). A Member's share of Member Nonrecourse Debt Minimum Gain shall be determined in accordance with Regulations Section 1.704-2(i)(5). 1.15 Percentage Interest as to any Member shall mean, as of the date of computation, the number of Membership Units owned by such Member divided by the total number of issued and outstanding Membership Units. 1.16 Person shall mean and include an individual, proprietorship, trust, estate, partnership, joint venture, association, company, corporation or other entity. 1.17 Regulations shall mean the Federal Income Tax Regulations issued under the Code, as amended and as hereafter amended from time to time. Reference to any particular provision of the Regulations shall mean that provision of the Regulations on the date hereof and any succeeding provision of the Regulations. 1.18 Sale or Refinancing Proceeds shall mean the cash proceeds from a Capital Transaction after payment, or adequate provision for, debts of the Company and any Company reserves; provided, however, that Sale or Refinancing Proceeds shall not include proceeds from any Terminating Capital Transaction. 1.19 Service shall mean the Internal Revenue Service. 1.20 State shall mean the State of Florida. 1.21 Terminating Capital Transaction shall mean the sale, exchange or other disposition of all or substantially all of the assets of the Company, after which transaction the Company is dissolved and terminated. 1.22 Transferee shall have the meaning provided in Section 9.01(b). 1.23 Unit or Membership Unit shall mean a unit of ownership interest in the Company, including the right of such Member to any and all the benefits to which such Member may be entitled as provided in this Agreement and in the Act, together with the obligations of such Member to comply with all the provisions of this Agreement and of the Act. The initial Unit ownership of each Member is set forth on the attached Schedule A. SECTION II FORMATION, NAME AND TERM 2.01 Formation. The Members hereby acknowledge the formation of the Company as a limited liability company pursuant to the Act by virtue of Articles of Organization filed with the Clerk of the Florida Secretary of State on or about February __, 2004. The rights and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein. 2.02 Name, Office and Registered Agent. The name of the Company shall be "China Pathfinder Fund, LLC". The principal office and place of business of the Company shall be 12535 Orange Drive, #613, Davie, Florida 33330. The Board of Managers may at any time change the location of such office, provided the Board of Managers gives notice to all Members of any such change. The name and address of the statutory agent of the Company for purposes of the Act is Howard Ullman, 12535 Orange Drive, #613, Davie, Florida 33330. The statutory agent's sole duty as such is to forward to the Company at its principal office and place of business any notice that is served on it as statutory agent. 2.03 Governing Law. This Agreement and all questions with respect to the rights and obligations of the Members, the construction, enforcement and interpretation hereof, and the formation, administration and termination of the Company shall be governed by the provisions of the Act and other applicable laws of the State. 2.04 Term. (a) The term of the Company's existence shall be perpetual, except that the Company shall be dissolved upon the first to occur of any of the following events: (i) The determination in writing of the holders of 66-2/3% of the Membership Units to dissolve and terminate the Company; (ii) The entry of a decree of judicial dissolution under Section 608-4991 of the Act; (iii) The occurrence of an Event of Bankruptcy as to a Member or the death, resignation, expulsion or dissolution of a Member or the occurrence of any other event that terminates the membership of a Member, unless there are at least two remaining Members, and, within 90 days of such event, the remaining Members holding at least 66-2/3% of the remaining Membership Units agree in writing to continue the business of the Company, in which event the Company shall not be dissolved and the Company and the business of the Company shall be continued; provided that if any Member is a partnership or a limited liability company on the date of such occurrence, the dissolution of such Member as a result of the dissolution, termination, resignation, death, incompetence, removal or Event of Bankruptcy of a partner or member in such partnership or limited liability company, as the case may be, shall not be an event of dissolution of this Company if the business of such Member is continued by its remaining partner(s) or member(s), as the case may be, either alone or with additional partners or members and such Member and such partners or members comply with any other applicable requirements of this Agreement; or (iv) The passage of 30 days after the sale or other disposition of all or substantially all of the assets of the Company (except that if the Company receives an installment obligation as consideration for such sale, the Company shall continue, unless sooner dissolved under the provisions of this Agreement, until such time as such note or notes are paid in full). (b) Upon the dissolution of the Company for any reason, the Board of Managers shall proceed promptly to wind up the affairs of and liquidate the Company. The Board of Managers shall have reasonable discretion to determine the time, manner and terms of any sale or sales of Company's property pursuant to such liquidation. (c) In the event that the Company is dissolved and not continued as a result of an event of termination described in Section 2.04(a)(iii), then all of those remaining Members who desire to continue the Company or to continue operating its business and affairs in substantially the same manner as prior to the occurrence of such event of termination, shall have the right to form a new limited liability company pursuant to articles of organization and an operating agreement and such newly formed limited liability company shall have the option, for a period of six months after such event of termination, to purchase all of the assets of the Company and assume all the liabilities and contractual obligations of the Company at a price equal to 90% of the then net fair market value of such assets (such discount being granted in recognition of the fact that no broker will be involved in such transaction). The net fair market value of such business assets shall be determined by agreement among the Members desiring to continue the business and the resigning Members or their representatives. If the parties are unable to agree, the Members desiring to continue the business shall have the right to select one appraiser, the resigning Members shall have the right to select a second appraiser, and the two appraisers so selected shall select a third appraiser. The three appraisers shall appraise the assets, and determine the net fair market value of the business, and the middle of the three appraised values shall be the value utilized to calculate the purchase price. The purchase price shall be paid in the form of a promissory note, bearing interest at the applicable federal rate in effect under the Code, which promissory note shall provide for level amortization of the balance of principal and interest over a period of ten years based on monthly payments. Such note shall include a provision providing that such note is subordinate to all debts of the newly formed purchasing limited liability company to creditors other than Members of the purchasing limited liability company. SECTION III BUSINESS OF THE COMPANY The purpose of the Company is to engage in any lawful act or activity for which limited liability companies may be organized under the Act. SECTION IV RIGHTS AND OBLIGATIONS OF MEMBERS 4.01 Members. The Members of the Company are those persons listed on Schedule A attached hereto. 4.02 Voting Rights; Management Rights. Except as otherwise provided herein or as required by law, voting power shall be vested in the Members, and all matters requiring a vote pursuant to this Agreement or the Act shall be determined by the vote of Members holding a majority in interest of the Membership Units. The Members, other than any Members elected to serve as Managers or officers, shall not take part in the management of the business nor transact any business for the Company in their capacity as Members, nor shall they have power to sign for or to bind the Company; provided, however, that the Members shall have the right to approve or consent to certain matters, as provided herein. 4.03 Other Activities. Except as otherwise expressly provided herein, any Member may engage in or possess any interest in another business or venture of any nature and description, independently or with others, even if such activities compete directly with the business of the Company, and neither the Company nor any Member hereof shall have any rights in or to any such independent ventures or the income or profits derived therefrom. 4.04 No Right to Withdraw. Except as set forth in Section X, no Member shall have any right to voluntarily resign or otherwise withdraw from the Company without the written consent of all the remaining Members. 4.05 Places of Meetings. All meetings of the Members shall be held at such place, either within or without the State, as from time to time may be fixed by the Board of Managers. 4.06 Annual Meetings. The annual meeting of the Members, for the election of Board of Managers and transaction of such other business as may come before the meeting, shall be held in each year on the second Tuesday in April, at 10:00 a.m., if that day is not a legal holiday. If that day is a legal holiday, the annual meeting shall be held on the next succeeding day not a legal holiday. 4.07 Special Meetings. A special meeting of the Members for any purpose or purposes may be called at any time by the Chairman of the Board of Managers, the Vice-Chairman of the Board of Managers or the President, or by Members holding a majority in interest of the Membership Units and entitled to vote with respect to the business to be transacted at such meeting. At a special meeting no business shall be transacted and no action shall be taken other than that stated in the notice of the meeting. 4.08 Notice of Meetings. Written or printed notice stating the place, day and hour of every meeting of the Members and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be mailed not less than ten nor more than sixty days before the date of the meeting to each Member entitled to vote at such meeting, at its address maintained in the records of the Company by the Company's Secretary. Such further notice shall be given as may be required by law, but meetings may be held without notice if all the Members entitled to vote at the meeting are present in person or by proxy or if notice is waived in writing by those not present, either before or after the meeting. 4.09 Quorum. Any number of Members together holding at least a majority of the Membership Units entitled to vote with respect to the business to be transacted, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of business. If less than' a quorum shall be in attendance at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority of the Members present or represented by proxy without notice other than by announcement at the meeting. 4.10 Voting. At any meeting of the Members each Member of a class entitled to vote on any matter coming before the meeting shall, as to such matter, have a vote, in person or by proxy, `equal to the number of Membership Units held in its name on the date, not more than seventy days prior to such meeting, fixed by the Board of Managers as the record date for the purpose of determining Members entitled to vote. Every proxy shall be in writing, dated and signed by the Member entitled to vote or its duly authorized attorney-in-fact. SECTION V MANAGEMENT 5.01 General Powers. The property, officers and business of the Company shall be managed under the direction of the Board of Managers, and, except as otherwise expressly provided by law, the Articles of Organization or this Agreement, all of the powers of the Company shall be vested in such Board. 5.02 Number of Managers. The number of Managers constituting the Board of Managers shall be not less than one nor more than ten, ` such number to be designated from time to time by resolution of the Board of Managers or by resolution of the Members. 5.03 Election and Removal of Managers; Quorum. (a) Managers shall be elected at each annual meeting of Members to succeed those Managers whose terms have expired and to fill any vacancies then existing. (b) Managers shall hold their offices for terms of one year and until their successors are elected. Any Manager may be removed from office at a meeting called expressly for that purpose by the vote of Members holding not less than a majority in interest of the Membership Units entitled to vote at an election of Managers. (c) Any vacancy occurring in the Board of Managers may be filled by the affirmative vote of the majority of the remaining Managers though less than a quorum of the Board, and the term of office of any Manager so elected shall expire at the next Members' meeting at which Managers are elected. (d) A majority of the number of Managers described in this Agreement shall constitute a quorum for the transaction of business. The act of a majority of Members present at a meeting at which a quorum is present shall be the act of the Board of Managers. Less than a quorum may adjourn any meeting. 5.04 Meetings of Managers. An annual meeting of the Board of Managers shall be held as soon as practicable after the adjournment of the annual meeting of the Members at such place as the Board of Managers may designate. Other meetings of the Board of Managers shall be held at places within or without the State and at times fixed by resolution of the Board of Managers, or upon call of the Chairman of the Board of Managers, the Vice-Chairman of the Board of Managers, the President or any of the Managers. The Secretary or officer performing the Secretary's duties shall give not less than twenty-four hours' notice by letter, telegraph, telephone or facsimile (or in person) of all meetings of the Board of Managers, provided that notice need not be given of the annual meeting or of regular meetings held at times and places fixed by resolution of the Board of Managers. Meetings may be held at any time without notice if all of the Managers are present, or if those not present waive notice in writing either before or after the meeting. The notice of meetings of the Board of Managers need not state the purpose of the meeting. 5.05 Third Party Reliance. Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the Managers or any of them as set forth herein. 5.06 No Duty to Consult. Except as otherwise provided herein or in the Act, the Board of Managers shall have no duty or obligation to consult with or seek the advice of the Members in connection with the conduct of the business of the Company. 5.07 Compensation. By resolution of the Board of Managers, Managers may be allowed a fee and expenses for attendance at all meetings, but nothing herein shall preclude Managers from serving the Company in other capacities and receiving compensation for such other services. SECTION VI COMMITTEES 6.01 Executive Committee. The Board of Managers, by resolution adopted by a majority of the number of Managers fixed by this Agreement, may elect an Executive Committee which shall consist of not less than two Managers, including the President. When the Board of Managers is not in session, the Executive Committee shall have all power vested in the Board of Managers by law, by the Articles of Organization, or by this Agreement, provided that the Executive Committee shall not have power to (a) approve or recommend to the Members action that the Act requires to be approved by Members; (b) fill vacancies on the Board of Managers or on any of its committees; (c) adopt, amend, or repeal this Agreement; (d) approve a plan of merger not requiring Member approval; (e) authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Managers; or (f) admit additional Members, or change or determine the relative rights, preferences and liabilities of a class of Members, other than within limits specifically provided by the Board of Managers. The Executive Committee shall report at the next regular or special meeting of the Board of Managers all action which the Executive Committee may have taken on behalf of the Board of Managers since the last regular or special meeting of the Board of Managers. 6.02 Finance Committee. The Board of Managers, by resolution adopted by a majority of the number of Managers fixed by this Agreement, may elect a Finance Committee which shall consist of not less than two Managers. The Finance Committee shall consider and report to the Board of Managers with respect to plans for corporate expansion, capital structure and long-range financial requirements. The Committee shall also consider and report to the Board of Managers with respect to such other matters relating to the financial affairs of the Company as may be requested by the Board of Managers or the appropriate officers of the Company. The Committee shall report periodically to the Board of Managers on all action which it may have taken. 6.03 Other Committees. The Board of Managers, by resolution adopted by a majority of the number of Managers fixed by this Agreement, may establish such other standing or special committees of the Board of Managers as it may deem advisable, consisting of not less than two Managers; and the members, terms and authority of such committees shall be as set forth in the resolutions establishing the same. 6.04 Meetings. Regular and special meetings of any Committee established pursuant to this Section VI may be called and held subject to the same requirements with respect to time, place and notice as are specified in this Agreement for regular and special meetings of the Board of Managers. 6.05 Quorum and Manner of Acting. A majority of the members of any Committee serving at the time of any meeting thereof shall constitute a quorum for the transaction of business at such meeting. The action of a majority of those members present at a Committee meeting at which a quorum is present shall constitute the act of the Committee. 6.06 Term of Office. Members of any Committee shall be elected as above provided and shall hold office until their successors are elected by the Board of Managers or until such Committee is dissolved by the Board of Managers. 6.07 Resignation and Removal. Any member of a Committee may resign at any time by giving written notice of his intention to do so to the President or the Secretary of the Company, or may be removed, with or without cause, at any time by such vote of the Board of Managers as would suffice for his election. 6.08 Vacancies. Any vacancy occurring in a Committee resulting from any cause whatever may be filled by the affirmative vote of a majority of the number of Managers fixed by this Agreement. SECTION VII OFFICERS 7.01 Election of Officers; Terms. The officers of the Company shall consist of a President, a Secretary and a Treasurer. Other officers, including a Chairman of the Board of Managers, one or more Vice-Presidents (whose seniority and titles, including Executive Vice-Presidents and Senior Vice-Presidents, may be specified by the Board of Managers), and assistant and subordinate officers, may from time to time be elected by the Board of Managers. All officers shall hold office until the next annual meeting of the Board of Managers and until their successors are elected. The President shall be chosen from among the Managers. Any two officers may be combined in the same person as the Board of Managers may determine. 7.02 Removal of Officers; Vacancies. Any officer of the Company may be removed summarily with or without cause, at any time, by the Board of Managers. Vacancies may be filled by the Board of Managers. 7.03 Duties. The officers of the Company shall have such duties as generally pertain to their offices, respectively, as well as such powers and duties as are hereinafter provided or as from time to time shall be conferred by the Board of Managers. The Board of Managers may require any officer to give such bond for the faithful performance of his duties as the Board of Managers may see fit. 7.04 Duties of the President. The President shall be the chief executive officer of the Company and shall be primarily responsible for the implementation of policies of the Board of Managers. He shall have authority over the general management and direction of the business and operations of the Company and its divisions, if any, subject only to the ultimate authority of the Board of Managers. He shall be a Manager, and except as otherwise provided in this Agreement or in the resolutions establishing such committees, the President shall be ex officio a member of all Committees of the Board of Managers. In the absence of the Chairman and the Vice-Chairman of the Board of Managers, or if there are no such officers, the President shall preside at all meetings of the Company. He may sign and execute in the name of the Company Unit certificates, deeds, mortgages, bonds, contracts or other instruments except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Managers or by this Agreement to some other officer or agent of the Company or shall be required by law otherwise to be signed or executed. In addition, he shall perform all duties incident to the office of the President and such other duties as from time to time may be assigned to him by the Board of Managers. 7.05 Duties of the Vice-Presidents. Each Vice-President, if any, shall have such powers and duties as may from time to time be assigned to him by the President or the Board of Managers. Any Vice-President may sign and execute in the name of the Company Unit certificates, deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Managers, except where the signing and execution of such documents shall be expressly delegated by the Board of Managers or the President to some other officer or agent of the Company or shall be required by law or otherwise to be signed or executed by some other officer or agent. 7.06 Duties of the Treasurer. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Company, and shall deposit all monies and securities of the Company in such banks and depositories as shall be designated by the Board of Managers. He shall be responsible: (a) for maintaining adequate financial accounts and records in accordance with generally accepted accounting practices; (b) for the preparation of appropriate operating budgets and financial statements; (c) for the preparation and filing of all tax returns required by law; and (d) for the performance of all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Managers, the Finance Committee or the President. The Treasurer may sign and execute in the name of the Company Unit certificates, deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing and the execution thereof shall be expressly delegated by the Board of Managers or by this Agreement to some other officer or agent of the Company or shall be required by law or otherwise to be signed or executed. 7.07 Duties of the Secretary. The Secretary shall act as secretary of all meetings of the Board of Managers and Members of the Company. When requested, he shall also act as secretary of the meetings of the committees of the Board of Managers. He shall keep and preserve the minutes of all such meetings in permanent books. He shall see that all notices required to be given by the Company are duly given and served; shall have custody of all deeds, leases, contracts and other important documents of the Company; shall have charge of the books, records and papers of the Company relating to its organization and management as a Company; shall see that all reports, statements and other documents required by law (except tax returns) are properly filed; and shall in general perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Managers or the President. 7.08 Compensation. The Board of Managers shall have authority to fix the compensation of all officers of the Company. SECTION VIII CAPITAL CONTRIBUTIONS AND FINANCIAL OBLIGATIONS OF MEMBERS 8.01 Initial Capital Contributions. The initial Capital Contributions of each Member are as set forth opposite such Member's name on Schedule A. 8.02 No Interest Upon Contributions. No Member shall be entitled to interest on its Capital Contribution. 8.03 Return of Capital Contributions. No Member shall be entitled to withdraw any part of its Capital Contribution or its Capital Account or to receive any distribution from the Company, except as specifically provided in this Agreement. Except as otherwise provided herein, there shall be no obligation to return to any Member or withdrawn Member any part of such Member's Capital Contribution to the Company for so long as the Company continues in existence. 8.04 Additional Contributions. No Member, as such, shall be liable for any of the debts of the Company or, except as required by Section 9.05 hereof, be required to contribute any additional capital or lend any funds to the Company, each Member's liability being limited to its Capital Contribution plus any distributions made to it under this Agreement. 8.05 Capital Accounts. A separate capital account (a "Capital Account") shall be established and maintained for each Member in accordance with Regulations Section 1.704-1(b)(2)(iv). SECTION IX PROFITS AND LOSSES; DISTRIBUTIONS 9.01 General Allocation of Profits and Losses. (a) Except as otherwise provided in this Section 9.01, profits and losses of the Company will be allocated pro rata among the Members in accordance with their respective Percentage Interests. (b) If a Member transfers any or all of its Membership Units to another Person (the "Transferee"), the distributive shares of the various items allocable among the transferor and the Transferee during such fiscal year of the Company shall be allocated between the transferor and the Transferee based on the date of the transfer of the interest without regard to the results of Company activities in the respective portions of such fiscal year in which the transfer occurred. (c) Notwithstanding any provision to the contrary, (i) any expense of the Company that is a "nonrecourse deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be allocated pro rata among the Members in accordance with their respective Percentage Interests, (ii) any expense of the Company that is a "partner nonrecourse deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be allocated in accordance with Regulations Section 1.704-2(i)(1), (iii) if there is a net decrease in Company Minimum Gain within the meaning of Regulations Section 1.704-2(0(1) for any taxable year of the Company, items of gain and income shall be allocated among the Members in accordance with Regulations Section 1.704-2(f) and the ordering rules contained in Regulations Section 1.704-2(j), and (iv) if there is a net decrease in Member Nonrecourse Debt Minimum Gain within the meaning of Regulations Section 1.704-2(i)(4) for any taxable year of the Company, items of gain and income shall be allocated among the Members in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules contained in Regulations Section 1.704-2(j). A Member's "interest in partnership profits" for purposes of determining such Member's share of the nonrecourse liabilities of the Company within the meaning of Regulations Section 1.752-3(a)(3) shall be such Member's Percentage Interest. (d) "Profits" and "losses" and any items of income, gain, expense or loss referred to in this Section 9.01 shall be determined in accordance with federal income tax accounting principles as modified by Regulations Section 1.704-1(b)(2)(iv), except that profits and losses shall not include items of income, gain and expense that are specially allocated pursuant to Section 9.01(c). All allocations of income, profits, gains, expenses and losses (and all items contained therein) for federal income tax purposes shall be identical to all allocations of such items set forth in this Section 9.01, except as otherwise required by Section 704(c) of the Code and Section 1.704-1(b)(4) of the Regulations. (e) It is intended that the allocations under this Agreement shall effect an allocation for federal income tax purposes in a manner consistent with Section 704(b) of the Code and the Regulations promulgated thereunder. If for any reason the allocations contained in this Agreement shall conflict with the Regulations promulgated under Section 704(b) of the Code, the Board of Managers may amend the allocation provisions contained herein if it believes that such an amendment is necessary to reflect allocations consistent with such Regulations. 9.02 Distribution of Cash Available for Distribution. (a) The Board of Managers may in its sole discretion elect to distribute to the Members within 90 days following the end of each fiscal year an amount not to exceed Cash Available for Distribution (as defined in Section 9.02(b)) for such fiscal year (or part thereof) pro rata among the Members in accordance with their respective Percentage Interests. (b) For purposes of this Agreement, the term "Cash Available for Distribution" for a fiscal year of the Company shall mean the profits and losses of the Company (other than profits and losses arising from a Terminating Capital Transaction), but subject to the following adjustments: (i) In determining Cash Available for Distribution for any year, there shall be added depreciation, amortization and other noncash charges (including accrued but unpaid interest). (ii) In determining Cash Available for Distribution for any year, there shall be subtracted the following amounts: (A) Principal payments on Company indebtedness, including indebtedness to a Member; (B) Working capital and contingency reserves, as determined by the Board of Managers; (C) Payments for capital expenditures; and (D) Fees, interest payments on the Company's indebtedness, and other expenses to the extent actually paid by the Company in such year, but not reflected in the computation of profits and losses. 9.03 Distribution of Sale or Refinancing Proceeds. In addition to the annual distribution provided for in paragraph (a) of Section 9.02, the Board of Managers may within 90 days after a Capital Transaction make a special distribution to Members in an amount not to exceed the cash portion of the Sale or Refinancing Proceeds from such Capital Transaction. Such distribution shall be allocated to the Members as provided in paragraph (a) of Section 9.02. 9.04 Distribution of Proceeds from a Terminating Capital Transaction. The net proceeds of a Terminating Capital Transaction shall be distributed in the following order of priority: (a) First, towards the satisfaction of all outstanding debts and other obligations of the Company; (b) Second, towards repayment of outstanding loans, if any, made by Members to the Company; and (c) Last, to the Members with positive Capital Accounts in accordance with their respective positive Capital Account balances. For purposes of Section 9.04(c), the Capital Account of each Member shall be determined after all adjustments made in accordance with Sections 9.01, 9.02 and 9.03 hereof resulting from Company operations and from all sales and dispositions of all or any part of the Company's assets. Any distributions pursuant to this Section 9.04 should be made by the end of the Company's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). To the extent deemed advisable by the Board of Managers, appropriate arrangements (including the use of a liquidating trust) may be made to assure that adequate funds are available to pay any contingent debts or obligations. 9.05 Capital Account Deficit Restoration. If any Member has a negative balance in its Capital Account following a liquidation of the Company, as determined after taking into account all Capital Account adjustments in accordance with Sections 9.01, 9.02 and 9.03 hereof resulting from Company operations and from all sales and dispositions of all or any part of the Company's assets, such Member shall contribute to the Company an amount of cash equal to the negative balance in its Capital Account and such cash shall be distributed by the Company to the other Members in accordance with Section 9.04 hereof or to creditors, if any. Any contribution pursuant to the preceding sentence shall be made by the end of the Company's taxable year in which the liquidation occurs (or, if later, within 90 days after the date of the liquidation). 9.06 Distribution of Debt Instruments. (a) In the event the Company sells any of its assets and all or a portion of the sales price is paid by a promissory note or installment contractual obligations (each, a "Debt Instrument"), all interest and principal received by the Company with respect thereto shall be treated as Sale or Refinancing Proceeds or if such sale occurs in conjunction with the dissolution of the Company, as net proceeds of a Terminating Capital Transaction, and shall be distributed in accordance with Section 9.03 or 9.04 hereof, as the case may be. (b) In the event the Company holds a Debt Instrument as described in Section 9.06(a) and the Company either is dissolved in conjunction with the sale which gave rise to such Debt Instrument or dissolves prior to payment in full of such Debt Instrument, the Board of Managers shall assign such Debt Instrument to a trustee who shall collect all sums which may become due and payable under the Debt Instrument, who shall have the power and authority to act to enforce all rights of the holder of such Debt Instrument and shall distribute such sums as provided in Section 9.03 or 9.04, as applicable. 9.07 Illiquid Securities. At the time of the Company's dissolution for any reason, the Board of Managers may determine in its sole discretion that it would not be prudent to sell at such time certain of the Company's securities in connection with the dissolution because of a lack of liquidity or otherwise. In such event, any Securities not sold as part of the dissolution shall be assigned to a trustee who shall collect all sums that may become due and payable with respect to such securities and who shall have full power to vote and dispose of such securities in such manner as it deems in its sole good faith business judgment is in the best interest of the Members receiving the proceeds of the dissolution. SECTION X TRANSFERS AND THE ADDITION, SUBSTITUTION AND WITHDRAWAL OF MEMBERS 10.01 Restrictions on Transfers. Except as otherwise provided herein, Membership Units may be assigned only as follows: (a) Unless waived by the Board of Managers, a Membership shall not be transferred in the absence of an opinion of counsel, satisfactory to the Board of Managers, that the registration of the sale of the Membership Unit is not required under the Securities Act of 1933, as amended (the "1933 Act"), or any applicable state securities laws; (b) Any transfer of a Membership Unit, other than to an existing Member, shall be effective only to give the Transferee the right to receive the share of allocations and distributions to which the transferor would otherwise be entitled. Any Transferee, who is not a Member prior to the transfer, shall not have the right to become a substituted Member unless the non-transferring Members holding at least 66-2/3% of the Membership Units not subject to such transfer, in the exercise of their sole and absolute discretion, expressly consent thereto in writing and the Transferee agrees to be bound by all the terms and conditions of this Agreement as then in effect. Unless and until a Transferee is admitted as a substituted Member, the Transferee shall have no right to exercise any of the powers, rights and privileges of a Member hereunder. A Member who has assigned its entire interest in all of its Membership Units shall cease to be a Member and thereafter shall have no further powers, rights and privileges as a Member hereunder, but shall, unless otherwise relieved of such obligations by agreement of all of the other Members or by operation of law, remain liable for all obligations and duties incurred as a Member. A Transferee who becomes a substitute Member is liable for any obligations of its transferor to make or retain capital contributions as provided in this Agreement and by the Act; provided, however, such transferor shall not be obligated for liabilities of its Transferee unknown to it at the time it became a Member; (c) The Company may, in its reasonable discretion, charge a reasonable fee to cover the additional administrative expenses incurred in connection with or as a consequence of the transfer of its Membership Units; (d) The Company, each Member and any other Person having business with the Company need deal only with Members who are admitted as Members or as substituted Members of the Company, and they shall not be required to deal with any other Person by reason of assignment by a Member or by reason of the death of a Member, except as otherwise provided in this Agreement. In the absence of the substitution (as provided herein) of a Member for an assigning or a deceased Member, any payment to a Member or to a Member's executors or administrators shall release the Company and the Board of Managers from all liability to any other Persons who may be interested in such payment by reason of an assignment by, or the death of, such Member; (e) No Person shall have a perfected lien or security interest in an Interest unless the creation of such security interest is in accordance with the provisions of this Agreement and the Company is notified of such security interest and provided a copy of all documentation with respect thereto, including financing statements, prior to execution and filing; (f) Any transfer not in accord with this Agreement shall be void ab initio; and (g) Each Member agrees not to transfer all or any of its Membership Units (or take or omit to take any action, filing, election, or other action which could result in a deemed transfer) if such transfer (either considered alone or in the aggregate with prior transfers by other Members) would result in the termination of the Company for federal income tax purposes. Such a transfer is void ab initio. 10.02 Right of First Refusal. Subject to the provisions of Section 10.03 below, in the event that any Member (the "Selling Member") desires to transfer any of its Membership Units in accordance with Section 10.01 above, the Company shall have the right, for a period of ten business days after the Company gives notice to the Selling Member of receipt of the opinion described in Section 10.01 above, to purchase such Units (or designate a purchaser for such Units subject to the consent of the non-transferring Members holding at least 66-2/3% of the Membership Units not subject to such transfer as set forth in Section 10.01(b)) held by the Selling Member at the price at which the Selling Member has received a good faith offer to purchase such Units. If the Company (or its designee) shall not offer to purchase such Units within such ten-day period, the remaining Members (the "Electing Members") shall have the right for a period of ten business days after the expiration of the Company's option to exercise its right of first refusal, to purchase a proportionate share of the Selling Member's Membership Units at the price per Unit at which the Selling Member has received a good faith offer to purchase such Units. If neither the Company (or its designee) nor the Electing Members elect to purchase such Units within their respective option periods, the Selling Member shall not be obligated to give the Company or the remaining Members any further right of first refusal hereunder with respect to the proposed sale and may proceed with such sale or sales of such Membership Units; provided, however, that any such sale or sales shall be effected within 90 days of the Company's election not to exercise its right of first refusal. For purposes of this Section 10.02, a "proportionate share" shall mean the portion that each Electing Member's Membership Units bears to the Membership Units held by all Electing Members opting to purchase a portion of the Selling Member's Membership Units pursuant to this Section 10.02. 10.03 Termination. The right of first refusal set forth in Section 10.02 above shall terminate and be of no further force and effect upon the election of holders of more than 66-2/3% of the Membership Units. 10.04 New Members or Additional Capital. The Board of Managers may from time to time (i) admit any Person to the Company as a new Member in exchange for such Capital Contributions as the Board of Managers deems in the best interest of the Company or (ii) accept such additional Capital Contributions from existing Members as the Board of Managers deems in the best interest of the Company; provided that the Board of Managers determines that the sale of such new Membership Units is exempt from registration under the 1933 Act and all applicable state securities laws and any such new Members expressly agree in writing to be bound by all of the terms and conditions of this Agreement as then in effect. SECTION XI INDEMNIFICATION 11.01 Definitions in this Section: "applicant" means the Person seeking indemnification pursuant to this Section XI. "expenses" includes counsel fees. "liability" means the obligation to pay a judgment, settlement, penalty, fine, including any excise tax assessed with respect to an employee benefit plan, or reasonable expenses incurred with respect to a proceeding. "party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding. "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. 11.02 Liability. In any proceeding brought by or in the right of the Company or brought by or on behalf of the Members of the Company, no Manager or officer of the Company shall be liable to the Company or its Members for monetary damages with respect to any transaction, occurrence or course of conduct, whether prior or subsequent to the effective date of this Section XI, except for liability resulting from such Person's having engaged in willful misconduct or a knowing violation of the criminal law or any federal or state securities law. 11.03 Indemnification. The Company shall indemnify any Person who was or is a party to any proceeding, including a proceeding brought by a Member in the right of the Company or brought by or on behalf of the Members of the Company, by reason of the fact that he is or was a Manager or officer of the Company, or is or was serving at the request of the Company as a manager, director, trustee, partner or officer of another limited liability company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability incurred by him in connection with such proceeding unless he engaged in willful misconduct or a knowing violation of the criminal law. A Person is considered to be serving an employee benefit plan at the Company's request if his duties to the Company also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. The Board of Managers is hereby empowered, by a majority vote of a quorum of disinterested Managers, to enter into a contract to indemnify any Manager or officer in respect of any proceedings arising from any act or omission, whether occurring before or after the execution of such contract. 11.04 Applicability. The provisions of this Section XI shall be applicable to all proceedings commenced after the adoption hereof by the Members of the Company, arising from any act or omission, whether occurring before or after such adoption. No amendment or repeal of this Section XI shall have any effect on the rights provided under this Section XI with respect to any act or omission occurring prior to such amendment or repeal. The Company promptly shall take all such actions, and make all such determinations, as shall be necessary or appropriate to comply with its obligation to make any indemnity under this Section XI and shall promptly pay or reimburse all reasonable expenses, including attorneys' fees, incurred by any such Manager or officer in connection with such actions and determinations or proceedings of any kind arising therefrom. 11.05 Standard of Conduct. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the applicant did not meet the standard of conduct described in Sections 11.02 or 11.03. 11.06 Determination of Standard of Conduct. Any indemnification under Section 11.03 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the applicant is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 11.03. The determination shall be made: (a) By the Board of Managers by a majority vote of a quorum consisting of Managers not at the time parties to the proceeding; (b) If a quorum cannot be obtained under subsection (a) of this section, by majority vote of a committee duly designated by the Board of Managers (in which designation the Managers who are parties may participate), consisting solely of two or more Managers not at the time parties to the proceeding; (c) By special legal counsel: (i) Selected by the Board of Managers or its committee in the manner prescribed in subsection (a) or (b) of this Section 11.06; or (ii) If a quorum of the Board of Managers cannot be obtained under subsection (a) of this section and a committee cannot be designated under subsection (b) of this section, selected by majority vote of the full Board of Managers, in which selection the Managers who are parties may participate; or (d) By the Members, but Units owned by or voted under the control of the Managers who are at the time parties to the proceeding may not be voted on the determination. Any evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is appropriate, except that if the determination is made by special legal counsel, such evaluation as to reasonableness of expenses shall be made by those entitled under subsection (c) of this Section 11.06 to select counsel. Notwithstanding the foregoing, in the event there has been a change in the composition of a majority of the Board of Managers after the date of the alleged act or omission with respect to which indemnification is claimed, any determination as to indemnification and advancement of expenses with respect to any claim for indemnification made pursuant to this Section XI shall be made by special legal counsel agreed upon by the Board of Managers and the applicant. If the Board of Managers and the applicant are unable to agree upon such special legal counsel the Board of Managers and the applicant each shall select a nominee, and the nominees shall select such special legal counsel. 11.07 Expenses. (a) The Company shall pay for or reimburse the reasonable expenses incurred by any applicant who is a party to a proceeding in advance of final disposition of the proceeding or the making of any determination under Section 11.06 if the applicant furnishes the Company: (i)a written statement of his good faith belief that he has met the standard of conduct described in Section 11.03; and (ii) a written undertaking, executed personally or on his behalf, to repay the advance if it ultimately is determined that he did not meet such standard of conduct. (b) The undertaking required by paragraph (ii) of subsection (a) of this section shall be an unlimited general obligation of the applicant but need not be secured and may be accepted without reference to financial ability to make repayment. (c) Authorizations of payments under this Section 11.07 shall be made by the Persons specified in Section 11.06. 11.08 Additional Indemnities. The Board of Managers is hereby empowered, by majority vote of a quorum consisting of disinterested Managers, to cause the Company to indemnify or contract to indemnify any Person not specified in Section 11.02 or 11.03 who was, is or may become a party to any proceeding, by reason of the fact that he is or was an employee or agent of the Company, or is or was serving at the request of the Company as a manager, director, officer, employee or agent of another company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, to the same extent as if such Person were specified as one to whom indemnification is granted in Section 11.03. The provisions of Sections 11.04 through 11.07 shall be applicable to any indemnification provided hereafter pursuant to this Section 11.08. 11.09 Insurance. The Company may purchase and maintain insurance to indemnify it against the whole or any portion of the liability assumed by it in accordance with this Section XI and may also procure insurance, in such amounts as the Board of Managers may determine, on behalf of any Person who is or was a Manager, officer, employee or agent of the Company, or is or was serving at the request of the Company as a manager, director, officer, employee or agent of another company, corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against or incurred by him in any such capacity or arising from his status as such, whether or not the Company would have power to indemnify him against such liability under the provisions of this Section XI. 11.10 Exclusivity. Every reference herein to managers, directors, officers, employees or agents shall include former managers, directors, officers, employees and agents and their respective heirs, executors and administrators. The indemnification hereby provided and provided hereafter pursuant to the power hereby conferred by this Section 11.10 on the Board of Managers shall not be exclusive of any other rights to which any Person may be entitled, including any right under policies of insurance that may be purchased and maintained by the Company or others, with respect to claims, issues or matters in relation to which the Company would not have the power to indemnify such person under the provisions of this Section XI. Such rights shall not prevent or restrict the power of the Company to make or provide for any further indemnity, or provisions for determining entitlement to indemnity, pursuant to one or more indemnification agreements or other arrangements (including, without limitation, creation of trust funds or security interests funded by letters of credit or other means) approved by the Board of Managers (whether or not any of the Managers of the Company shall be a party to or beneficiary of any such agreements or arrangements); provided, however, that any provision of such agreements or other arrangements shall not be effective if and to the extent that it is determined to be contrary to this Section 11.10 or applicable laws of the State. SECTION XII MISCELLANEOUS PROVISIONS 12.01 Fixing Record Date. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or entitled to receive a payment of any kind, or in order to make a determination of Members for any other proper purpose, the Board of Managers may fix in advance a date as the record date for any such determination of Members, such date in any case to be not more than seventy days prior to the date on which the particular action, requiring such determination of Members, is to be taken. If no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members, or Members entitled to receive payment of a distribution, the date on which notices of the meeting are mailed or the date on which the resolution of the Board of Managers declaring such distribution is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Section 12.01, such determination shall apply to any adjournment thereof unless the Board of Managers fixes a new record date, which it shall do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 12.02 Fiscal and Taxable Year. The fiscal year and taxable year of the Company shall be the calendar year or such other taxable year as may be required by Section 706(b) of the Code. 12.03 Voting of Shares Held. Unless otherwise provided by resolution of the Board of Managers or of the Executive Committee, if any, the President may from time to time appoint an attorney or attorneys or agent or agents of the Company, in the name and on behalf of the Company, to cast the vote which the Company may be entitled to cast as a member, shareholder or otherwise in any other company, any of whose securities may be held by the Company, at meetings of the holders of the shares or other securities of such other company, or to consent in writing to any action by any such other company; and the President shall instruct the person or persons so appointed as to the manner of casting such votes or giving such consent and may execute or cause to be executed on behalf of the Company such written proxies, consents, waivers or other instruments as may be necessary or proper. In lieu of such appointment the President may himself attend any meetings of the holders of shares or other securities of any such other company and there vote or exercise any or all power of the Company as the holder of such shares or other securities of such other company. 12.04 Representations from Recipients. As a condition to the Company's lending or investing funds, the Company shall require the person or entity receiving such funds to certify to the Company in writing, in such form as the Board of Managers shall determine, that no officer, director or employee of a Virginia state bank that is a Member of the Company or any member of such individual's immediate family, has any ownership interest in the person or entity receiving the funds. 12.05 Reports. Not less frequently than annually, the Company shall prepare and distribute to the Members a report of its activities since the prior report. The report shall contain detailed information, financial and otherwise, describing the Company's financial condition, its portfolio of investments, the extent to which the Company is fulfilling its purposes as stated in its Articles of Organization and this Agreement, and any other information the Company deems relevant. The Company shall prepare and deliver, or cause to be prepared and delivered, to the Members, no later than 75 days after the close of each fiscal year, a Schedule K-i, a copy of the Company's informational tax return (IRS Form 1065), and such other reports setting forth in sufficient detail all such information and data with respect to the transactions effected by or involving the Company during such fiscal year as shall enable the Company and each Member to prepare its federal, state, and local income tax returns in accordance with the laws, rules, and regulations then prevailing. 12.06 Bank Accounts; Checks, Notes and Drafts. (a) Funds of the Company shall be deposited in an account or accounts of a type, in form and name and in a bank(s) or other financial institution(s) which are participants in federal insurance programs as selected by the Board of Managers. The Board of Managers shall arrange for the appropriate conduct of such accounts. Funds may be withdrawn from such accounts only for bona fide and legitimate Company purposes and may from time to time be invested in such short-term securities, money market funds, certificates of deposit, or other liquid assets as the Board of Managers deems appropriate. (b) The Members acknowledge that the Board of Managers may maintain Company funds in accounts, money market funds, certificates of deposit or other liquid assets in excess of the insurance provided by the Federal Deposit Insurance Corporation, or other depository insurance institutions and that the Board of Managers shall not be accountable or liable for any loss of such funds resulting from failure or insolvency of the depository institution. (c) Checks, notes, drafts, and other orders for the payment of money shall be signed by such persons as the Board of Managers from time to time may authorize. When the Board of Managers so authorizes, however, the signature of any such person may be a facsimile. 12.07 Books and Records. At all times during the term of the Company, the Board of Managers shall keep, or cause to be kept, full and accurate books of account, records and supporting documents, which shall reflect, completely, accurately and in reasonable detail, each transaction of the Company. The books of account shall be maintained and tax returns prepared and filed on the method of accounting determined by the Board of Managers. The books of account, records, and all documents and other writings of the Company shall be kept and maintained at the principal office of the Company. Each Member or its designated representative shall, upon reasonable notice to the Board of Managers, have access to such financial books, records, and documents during reasonable business hours and may inspect and make copies of any of them at its own expense. The Board of Managers shall cause the Company to keep at its principal office the following: (i) a current list of the full name and last known business address of each Member, in alphabetical order; (ii) a copy of the Articles of Organization and the Certificate of Organization, and all Articles of Amendment and Certificates of Amendment thereto; (iii) copies of the Company's federal, state, and local income tax returns and reports, if any, for the three most recent years; and (iv) copies of this Agreement, as amended, and of any financial statements of the Company for the three most recent years. 12.08 Audits. Any Member may at any time, but no more frequently than annually, request the Company to have an independent accounting firm prepare audited financial statements of the Company. The Member requesting an audit shall bear the expenses of such audit. 12.09 Tax Matters Partner. Howard Ullman, or such other Member as the Board of Managers may designate from time to time, shall be the Tax Matters Partner for the Company within the meaning of Section 6231(a)(7) of the Code. The Tax Matters Partner shall have the right and obligation to take all actions authorized and required, respectively, by the Code for the Tax Matters Partner. In the event the Tax Matters Partner receives notice of a final partnership adjustment under Section 6223(a)(2) of the Code, the Tax Matters Partner shall either (i) file a court petition for judicial review of such final adjustment within the period provided under Section 6226(a) of the Code, a copy of which petition shall be mailed to all other Members on the date such petition is filed, or (ii) mail a written notice to all other Members, which such period, that describes the Tax Matters Partner's reasons for determining not to file such a petition. 12.10 Tax Elections. The Board of Managers shall make any available elections under the Code or any applicable state or local tax law on behalf of the Company. If requested by a Member, the Board of Managers shall cause the Company to make an election under Section 754 of the Code in connection with any transfer by the Member of any of its Membership Units. No election shall be made by the Company or any Member for the Company to be excluded from the application of any of the provisions of Subchapter K, Chapter 1 of Subtitle A of the Code or from any similar provisions of any state or local tax laws. 12.11 Notices. Unless otherwise provided herein, any offer, acceptance, election, approval, consent, certification, request, waiver, notice or other communication required or permitted to be given hereunder (hereinafter collectively referred to as a "Notice"), shall be given by enclosing the same in an envelope addressed to the Member to whom the Notice is to be given at the address of such Member as set forth in the records maintained by the Company or at such other address as any Member hereafter may designate to the Company in accordance with the provisions of this Section 12.11, and deposited in the U.S. Mail postage prepaid. In addition, the Board of Managers shall be sent a copy of all such Notices, by registered or certified mail, return receipt requested. The date at which notice shall be deemed received shall be the date of the receipt of the copy of such notice by the Board of Managers. 12.12 Entire Agreement. This Agreement, including the Exhibits or other documents or schedules attached hereto or incorporated herein by reference, constitutes the entire agreement of the Members with respect to the matters covered herein. This Agreement supersedes all prior agreements and oral understandings among the Members with respect to such matters. 12.13 Amendment. Except as provided by law, in the Articles of Organization or otherwise set forth herein, this Agreement may be amended or altered at any meeting of the Board of Managers by the affirmative vote of a majority of the number of Managers fixed by this Agreement. The Members entitled to vote in respect of the election of Managers, however, shall have the power to rescind, amend, alter or repeal any provision hereto and to enact provisions hereto which, if expressly so provided, may not be amended, altered or repealed by the Board of Managers. 12.14 Interpretation. Whenever the context may require, any noun or pronoun used herein shall include the corresponding masculine, feminine or neuter forms. The singular form of nouns, pronouns and verbs shall include the plural and vice versa. 12.15 Severability. Each provision of this Agreement shall be considered severable and if for any reason any provision or provisions hereof are determined to be invalid and contrary to existing or future law, such invalidity shall not impair the operation or affect those portions of this Agreement which are valid, and this Agreement shall remain in full force and effect and shall be construed and enforced in all respects as if such invalid or unenforceable provision or provisions had been omitted. 12.16 Burden and Benefit Upon Successors. Except as expressly otherwise provided herein, this Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective heirs, executors, administrators, personal and legal representatives, successors and assigns. 12.17 Further Assurances. Each Member hereby agrees that it shall hereafter execute and deliver such further instruments, provide all information and take or forbear such further acts and things as may be reasonably required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof. 12.18 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together will constitute one instrument, binding upon all parties hereto, notwithstanding that all of such parties may not have executed the same counterpart. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. MEMBERS: - ------------------------------------- CBQ, Inc. - ----------------------------------- Howard Ullman - --------------------------------------- Jeffrey Postal - ---------------------------------------- Cora Wong - ---------------------------------------- Bart Fisher SCHEDULE A Member Percentage of Membership Interests CBQ, Inc. 40% Bart Fisher 15% Jeffrey Postal 15% Cora Wong 15% Howard Ullman 15% EX-10 3 form10qsb033104ex10-1.txt Exhibit 10.1 Form of Indemnification Agreement CBQ, INC., A COLORADO CORPORATION ACTION BY BOARD OF DIRECTORS BY UNANIMOUS WRITTEN CONSENT INDEMNIFICATION AGREEMENTS Pursuant to Colorado Business Code Act Section 7-108-202, the Board of Directors unanimously approved and adopted the following board resolution on April __, 2004: WHEREAS, CBQ, Inc., a Colorado corporation, (Company) is a public corporation with its common stock traded on the OTC Bulletin Board and obligated to file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934, and WHEREAS, the Company operates in a current legal environment in which shareholder lawsuits against officers and directors are commonplace and, whether with merit or without merit, a serious threat the ability of public companies to recruit and retain qualified persons to be directors or officers, and WHEREAS, the Company does not currently have directors and officers liability insurance, be it RESOLVED, That the Company's Board of Directors hereby unanimously adopts and approves the form of Indemnification Agreement for the directors and officers of the Company, as set forth in Exhibit One hereto, and FURTHER, RESOLVED, That the Company's Board of Directors hereby authorizes and directs the officers of the Company to take all actions and execute all instruments necessary to cause the form of Indemnification Agreement as set forth in Exhibit One hereto to be presented for execution by the Company and each of the Company's current directors and senior officers; and FURTHER, RESOLVED, That the Company's Corporate Secretary is hereby authorized and directed to place an original, signed and sealed of this Resolution in the corporate records. APPROVED BY: - ---------------------------------------------- Howard Ullman, Chairman and CEO/President Date: April _____, 2004 - ----------------------------------------------------- Cora Wong, Director Date: April ____, 2004 - ------------------------------------------------------- Jeffrey Postal, Director Date: April ___, 2004 - ---------------------------------------------------- Laurie Holtz, Director Date: April ___, 2004 I, ___________________________, Corporate Secretary of the Company, hereby attest that the foregoing written consent was approved by each of the directors of the Company. - ------------------------------------- Signature Date: April ___, 2004 EXHIBIT ONE: FORM OF INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement"), made and entered into as of the 16th day of April, 2004, by and between CBQ, Inc., a Colorado corporation (the "Corporation"), and___________________________________ ("Indemnitee"). Corporation and Indemnitee may hereinafter be referred to individually as a "party" and collectively as the "parties". W I T N E S S E T H: WHEREAS, it is essential to the Corporation to retain and attract as officers the most capable persons available; and WHEREAS, the Indemnitee is an officer or director of the Corporation; and WHEREAS, both the Corporation and Indemnitee recognize the risk of litigation and other claims being asserted against officers of public companies; and WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to maintain continued service to the Corporation in an effective manner and to provide Indemnitee with specific contractual assurance that the protection will be available to the Indemnitee, the Corporation desires to provide in this Agreement for the indemnification of and the advancement of expenses to Indemnitee to the full extent permitted by law, as set forth in this Agreement. NOW THEREFORE, in consideration of the premises and mutual agreements contained herein, including Indemnitee's continued service to the Corporation, the sufficiency of which consideration is hereby acknowledged by each party, the Corporation and Indemnitee hereby agree as follows: Section 1. DEFINITIONS. The following terms, as used herein, shall have the following respective meanings: "C.B.C.A." means the Colorado Business Corporation Act, as currently in effect or as amended from time to time. "Change In Control" means a change in control of the Corporation after the date of this Agreement in any one of the following circumstances: (a) there shall have occurred an event that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; (b) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) (an "Acquiring Person") shall have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding voting securities (a "Share Acquisition"); (c) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (d) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors; PROVIDED, HOWEVER, that an event described in clause (a) or (b) shall not be deemed a Change In Control if such event is approved, prior to its occurrence or within 60 days thereafter, by at least two-thirds of the members of the Board of Directors in office immediately prior to such occurrence. In addition to the foregoing, a Change In Control shall be deemed to have occurred if, after the occurrence of a Share Acquisition that has been approved by a two-thirds vote of the Board as contemplated in the proviso to the preceding sentence, the Acquiring Person shall have become the beneficial owner, directly or indirectly, of securities of the Corporation representing an additional 5% or more of the combined voting power of the Corporation's then outstanding voting securities (a "Subsequent Share Acquisition") without the approval prior thereto or within 60 days thereafter of at least two-thirds of the members of the Board of Directors who were in office immediately prior to such Subsequent Share Acquisition and were not appointed, nominated or recommended by, and do not otherwise represent the interests of, the Acquiring Person on the Board. Each subsequent acquisition by an Acquiring Person of securities of the Corporation representing an additional 5% or more of the combined voting power of the Corporation's then outstanding voting securities shall also constitute a Subsequent Share Acquisition (and a Change In Control unless approved as contemplated by the preceding sentence) if the approvals contemplated by this paragraph were given with respect to the initial Share Acquisition and all prior Subsequent Share Acquisitions by such Acquiring Person. The Board approvals contemplated by the two preceding sentences and by the proviso to the first sentence of this paragraph may contain such conditions as the members of the Board granting such approval may deem advisable and appropriate, the subsequent failure or violation of which shall result in the rescission of such approval and cause a Change In Control to be deemed to have occurred as of the date of the Share Acquisition or Subsequent Share Acquisition, as the case may be. Notwithstanding the foregoing, a Change In Control shall not be deemed to have occurred for purposes of clause (b) of the first sentence of this paragraph with respect to any Acquiring Person meeting the requirements of clauses (i) and (ii) of Rule 13d-l(b)(1) promulgated under the Exchange Act. "Expenses" shall include reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating or being or preparing to be a witness in a Proceeding. "Independent Counsel" means a law firm, or member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the five years previous to his or her selection or appointment has been, retained to represent: (a) the Corporation or Indemnitee in any matter material to either such party, (b) any other party to the Proceeding giving rise to a claim for indemnification hereunder or (c) the beneficial owners, directly or indirectly, of securities of the Corporation representing 5% or more of the combined voting power of the Corporation's then outstanding voting securities. "Matter" is a claim, a material issue, or a substantial request for relief. "Proceeding" includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, including without limitation one initiated by Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement. Section 2. INDEMNIFICATION. The Corporation shall indemnify, and advance Expenses to, Indemnitee to the fullest extent permitted by applicable law in effect on the date of the effectiveness of this Agreement, and to such greater extent as applicable law may thereafter permit. The rights of Indemnitee provided under the preceding sentence shall include, but not be limited to, the right to be indemnified to the fullest extent permitted by Section 7-109-102(4) and (5) of the C.B.C.A. in Proceedings by or in the right of the Corporation and to the fullest extent permitted by Section 7-109-102(1)-(3) of the C.B.C.A. in all other Proceedings, in each case as permitted by Section 7-109-107(b) of the C.B.C.A. To the fullest extent permitted by applicable law, such right to be indemnified shall survive and continue following the termination of Indemnitee's service as an Indemnitee of the Corporation, with respect to conduct and actions taken, and decisions made, by Indemnitee in his capacity as an Indemnitee of the Corporation. The provisions set forth below in this Agreement are provided in furtherance, and not by way of limitation, of the obligations expressed in this Section 2. Section 3. EXPENSES RELATED TO PROCEEDINGS. If Indemnitee is, by reason of his or her status as an Indemnitee of the Corporation, a witness in or a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Corporation shall indemnify Indemnitee against all expenses actually and reasonably incurred by him or on his behalf relating to each Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. Section 4. ADVANCEMENT OF EXPENSES. The Corporation shall pay or reimburse Indemnitee for the Expenses incurred by Indemnitee in advance of the final disposition of a Proceeding within ten days after Indemnitee requests such payment or reimbursement, to the fullest extent permitted by, and subject to compliance with, Sections 7-109-104 and 7-109-107(b) of the C.B.C.A. Section 5. REQUEST FOR INDEMNIFICATION. To obtain indemnification Indemnitee shall submit to the Corporation a written request with such information as is reasonably available to Indemnitee. The Secretary of the Corporation shall promptly advise the Board of Directors of such request. Section 6. DETERMINING ENTITLEMENT TO INDEMNIFICATION IF NO CHANGE IN CONTROL. If there has been no Change In Control at the time the request for Indemnification is sent, Indemnitee 's entitlement to indemnification shall be determined in accordance with Sections 7-109-106 and 7-109-107(b) of the C.B.C.A. If entitlement to indemnification is to be determined by Independent Counsel, the Corporation shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification, specifying the identity and address of Independent Counsel. Indemnitee may, within 14 days after receipt of such written notice of selection, deliver to the Corporation a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis of such assertion. If there is an objection to the selection of Independent Counsel, either the Corporation or Indemnitee may petition any court of competent jurisdiction for a determination that the objection is without a reasonable basis and/or for the appointment of Independent Counsel selected by the court. Section 7. DETERMINING ENTITLEMENT TO INDEMNIFICATION IF CHANGE IN CONTROL. If there has been a Change In Control at the time the request for indemnification is sent, Indemnitee's entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by the Indemnitee. Indemnitee shall give the Corporation written notice advising of the identity and address of the Independent Counsel so selected. The Corporation may, within seven days after receipt of such written notice of selection, deliver to Indemnitee a written objection to such selection. Indemnitee may, within five days after the receipt of such objection from the Corporation, submit the name of another Independent Counsel and the Corporation may, within seven days after receipt of such written notice of selection, deliver to Indemnitee a written objection to such selection. Any objection is subject to the limitations in Section 6 of this Agreement. Indemnitee may petition any court of competent jurisdiction for a determination that the Corporation's objection to the first and/or second selection of Independent Counsel is without a reasonable basis and/or for the appointment as Independent Counsel of a person selected by the court. Section 8. PROCEDURES OF INDEPENDENT COUNSEL. If there has been a Change In Control before the time the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided in this Agreement) to be entitled to indemnification upon submission of a request for indemnification in accordance with Section 5 of this Agreement, and thereafter the Corporation shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by Independent Counsel as a basis for a determination of entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him or her by clear and convincing evidence that the presumption should not apply. Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel, if the person or persons empowered under Section 6 or 7 of this Agreement to determine entitlement to indemnification shall not have made and furnished to Indemnitee in writing a determination within 60 days after receipt by the Corporation of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such indemnification is prohibited by law. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that (a) Indemnitee did not act in good faith and in a manner that he reasonably believed, in the case of conduct in his official capacity as an Indemnitee of the Corporation, to be in the best interests of the Corporation or in all other cases that his conduct was at least not opposed to the Corporation's best interests, or (b) with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 9. EXPENSES OF INDEPENDENT COUNSEL. The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Agreement and in any proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his or her selection until a court as determined that such objection is without a reasonable basis. Section 10. TRIAL DE NOVO. In the event that (a) a determination is made pursuant to Section 6 or 7 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (b) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (c) Independent Counsel has not made and delivered a written opinion determining the request for indemnification (i) within 90 days after being appointed by a court, (ii) within 90 days after objections to his or her selection have been overruled by a court or (iii) within 90 days after the time for the Corporation or Indemnitee to object to his or her selection or (d) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 6, 7 or 8 of this Agreement, Indemnitee shall be entitled to an adjudication in any court of competent jurisdiction of his entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that Indemnitee is not entitled to indemnification, any judicial proceeding (including any arbitration) commenced pursuant to this Section 10 shall be conducted in all respects as a DE NOVO trial on the merits, and Indemnitee shall not be prejudiced by reasons of that adverse determination. If a Change In Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 10, the Corporation shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or deemed to have been made that Indemnitee is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 10, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law. The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Corporation is bound by all provisions of this Agreement. In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication, but only if he or she prevails therein. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication shall nevertheless be paid by the Corporation. Section 11. NON-EXCLUSIVITY. The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of incorporation, Bylaws, a vote of stockholders, a resolution of the Board of Directors or otherwise. No amendment or modification of this Agreement or any provision hereof shall be effective as to Indemnitee for acts, events and circumstances that occurred, in whole or in part, before such amendment or modification. The provisions of this Agreement shall continue as to Indemnitee notwithstanding any termination of his status as an Indemnitee of the Corporation and shall inure to the benefit of his heirs, executors and administrators. Section 12. INSURANCE AND SUBROGATION. To the extent the Corporation maintains an insurance policy or policies providing liability insurance for directors or officers of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Corporation, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of coverage available for any such director or Indemnitee under such policy or policies. In the event of any payment hereunder, the Corporation shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Corporation to bring suit to enforce such rights. The Corporation shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if, and to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Section 13. SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 14. CIRCUMSTANCES WHEN INDEMNITEE IS NOT ENTITLED TO INDEMNIFICATION. Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any Matter therein, brought or made by Indemnitee against the Corporation, other than a Proceeding, or Matter therein, brought by Indemnitee to enforce his rights under this Agreement and in which Indemnitee is successful, in whole or in part. Section 15. NOTICES. Any communication required or permitted to the Corporation shall be addressed to the Secretary of the Corporation and any such communication to Indemnitee shall be given in writing by depositing the same in the United States mail, with postage thereon prepaid, addressed to the person to whom such notice is directed at the address of such person on the records of the Corporation, and such notice shall be deemed given at the time when the same shall be so deposited in the United States mail. Section 16. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. Section 17. CONSENT TO JURISDICTION. THE CORPORATION AND INDEMNITEE EACH HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF THE COURTS OF THE STATE OF COLORADO FOR ALL PURPOSES IN CONNECTION WITH ANY ACTION OR PROCEEDING WHICH ARISES OUT OF OR RELATES TO THIS AGREEMENT AND AGREE THAT ANY ACTION INSTITUTED UNDER THIS AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF THE STATE OF COLORADO. Section 18. AMENDMENT. No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in a writing signed by each of the parties. IN WITNESS WHEREOF, the Corporation and Indemnitee have executed this Agreement as of the day and year first above written. CBQ, INC., A COLORADO CORPORATION By:____________________________________________________ Name/Title:_______________________________________________ INDEMNITEE:________________________________________________________ - -------------------------------------------------------- Signature EX-10 4 form10qsb033104ex10-2.txt Exhibit 10.2 Employment Agreement by CBQ, Inc. and Howard Ullman EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of April 18, 2004, between Howard Ullman, a natural person ("Executive") and CBQ, Inc., a Colorado corporation ("Employer" or the "Company"), with its principal executive offices located at 12535 Orange Drive, #613, Davie, Florida 33330. Executive and the Company may hereinafter also be referred to individually as a "party" and collectively as the "parties". In consideration of the premises and the mutual covenants hereinafter set forth, the sufficiency of which is hereby acknowledged by the parties, the parties hereby agree as follows: 1. Employment of the Executive Employer hereby agrees to employ Executive and Executive hereby agrees to be and remain in the employ of Employer, as Chief Executive Officer and President of Employer, upon the terms and conditions hereinafter set forth. 2. Employment Period The term of Executive's employment under this Agreement (the "Employment Period") shall commence December 1, 2003 (the "Commencement Date") and, subject to earlier termination as provided herein, shall continue for a period of FIVE (5) years (the "Initial Period") after the Commencement Date. Unless earlier terminated, at the end of the Initial Period, the parties will determine whether or not to renew this Agreement and, if so, on what terms and conditions. 3. Duties and Responsibilities (a) During the Employment Period, Executive (i) shall have the title of Chief Executive Officer and President (ii) shall devote his full business time and attention and expend his best efforts, energies and skills on a full-time basis to the business of the Company, and shall not engage in any other activity that would interfere with the performance of his duties under this Agreement, excluding endeavors related to the community, his faith and other charitable functions which do not materially interfere with the performance of his duties hereunder) and (iii) shall perform such duties, and comply with all reasonable directions and instructions of the Company's Board of Directors. (b) During the Employment Period, Executive's responsibilities will include all duties and tasks customarily and typically performed by a chief executive and president of a small public company engaged in the same business of the Company as well as those duties set forth in the Company's By-Laws and those duties reasonably assigned to the Executive by the Company's Board of Directors. Such duties shall include active marketing and sales work and business development work. (c) During the Employment Period, Executive will report only to the Company's Board of Directors in regard to those responsibilities set forth in Paragraph 3.(b) above. 4. Compensation (a) For all services rendered and required to be rendered by, covenants of and restrictions in respect to the Executive, under this Agreement, Employer shall pay to Executive during and with respect to the Employment Period, and Executive agrees to accept a base salary computed at a rate of $200,000 per annum ("Base Salary"), payable on a biweekly basis in accordance with the Employer's standard payroll practices. In addition, on the Commencement Date, Executive will be eligible to participate in the Company's stock benefit plans. If the Base Salary of the Executive is deferred for any reason, the Executive may, at his option, elect to receive shares of Company's common stock in lieu of cash compensation for all or part of any deferred Base Salary. The shares of Company common stock shall be valued on the basis of the then-current closing bid price for the Company's common stock on the date prior to the date on which Executive elects to accept shares of Company common stock for the designated portion of the deferred Base Salary. The shares issued shall be restricted securities under Rule 144, as promulgated under the Securities Act of 1933, as amended, but shall be entitled to piggyback registration rights. (b) In each calendar year of the Initial Period, Executive will also be granted nonqualified options to purchase at least 100,000 shares (the "Options") of the common stock of the Company. The Options agreements will be subject to the Company's stock option plan and contain the terms and conditions determined by the Company's Compensation Committee, which will be consistent with the terms and conditions of stock option grants made to other executive officers of the Company. The strike price of the options will be the closing (Bid) price of the Company's common stock at the close of business on the date prior to the date on which such grants are made to the other executive officers by the Compensation Committee of the Company's Board of Directors (which, for calendar 2004 is scheduled to take place on May 1, 2004). (c) Executive will receive a one-time grant of 1,000,000 shares of the common stock of the Company as restricted shares, which restrictions will lapse if, and only if, the Company has met its fiscal 2004 operating income threshold and Executive has not been terminated prior to January 1, 2005. (d) Effective on the Commencement Date, Executive will be entitled to participate in any of the Company's health benefit plans, together with the Company's Executive vacation policy, deferred compensation plan, stock prices and similar plans in effect from time to time. 5. Termination of Employment Period; Change of Control 5.1 Employer may, at any time during the Employment Period by notice to Executive (the "Termination Notice"), terminate the Employment Period for "Cause" effective immediately. The Termination Notice shall specify the Cause for termination. In such an event, Executive shall not be entitled to any compensation or other amount from the Company from the effective date of termination. For purposes hereof, for "Cause" means: (a) Executive is convicted of a felony involving dishonesty, fraud or breach of trust, with all appeal rights exhausted or barred; or (b) Executive engaged in wrongful conduct materially injurious to the Company; provided that such conduct was not undertaken at the direction of, or with the approval of, the Board; further provided that in the event that the wrongful conduct is capable of being cured, Executive shall have 30 days from his receipt of the Termination Notice to cease or cure such conduct. 5.2 The Company may terminate this Agreement at any time, by delivering a notice to Executive, without Cause, effective 90 days after Executive receives such notice in accordance with the terms hereof. In such an event, Executive's sole remedy shall be: (a) to collect all unpaid Base Salary and all unreimbursed expenses payable for all periods through the effective date of termination; plus (b) if such termination occurs in and only in the first year of the Initial Period (i.e., in calendar 2004), the sum of $750,000; plus (c) a severance payment in the sum of 12 months of Executive's then Base Salary; (the sum of paragraphs 5.2 (a), (b) and (c) being collectively referred to as the "Severance Payment"). The Severance Payment will be due and payable on the effective date of the termination of this Agreement. In the event that the Severance Payment, all Base Salary and all other amounts due hereunder to Executive are not paid in full on such date, Executive will continue to earn his Base Salary until all such amounts are paid in full. 5.3 (a) In the event Executive becomes totally disabled or disabled such that he is rendered unable to perform substantially all of his usual duties for Company, and if such disability shall persist for a continuous period in excess of six months, or an aggregate period in excess of six months in any one fiscal year, Company shall have the right at any time after the end of such period during continuance of Executive's disability by the delivery of not less than 30 days' prior written notice to Executive to terminate Executive's employment under this Agreement whereupon the applicable provisions of Paragraph 5.4 below shall apply. (b) For purposes of this Agreement, if Executive and Company shall disagree as to whether Executive is totally disabled, or disabled such that he is rendered unable to perform substantially all of his usual duties for Company as set forth above, or as to the date at which time such total disability began, the decision of a licensed medical practitioner, mutually agreed upon by the parties, shall be binding as to both questions. If the parties cannot agree as to the identity of the licensed medical practitioner, Executive shall select a licensed medical practitioner of his choice and the Company shall select a licensed medical practitioner of its choice. The two licensed medical practitioners so selected shall select a third licensed medical practitioner, which third individual shall resolve either or both of the questions referred to above and which resolution shall be binding upon the parties. 5.4 If Executive's employment with the Company is terminated on account of Executive's disability as provided for in Paragraph 5.3 above or on account of Executive's death, then Executive (or Executive's estate or personal representative, as applicable) shall only be entitled to receive, and Company shall pay to Executive (or Executive's estate or personal representative, as applicable) the following amounts: (a) all unpaid Base Salary and all unreimbursed expenses payable for all periods through the effective date of termination; plus (b) the sum of eighteen months of Executive's then Base Salary. 5.5 If Executive's employment with Company is terminated for any reason, Company will have no right of offset, nor will Executive be under any duty or obligation to seek alternative or substitute employment at any time after the effective date of such termination or otherwise mitigate any amounts payable by Company to Executive. 5.6 Executive shall have the right by the delivery of written notice to Company within 30 days after either of the events herein below set forth in Subparagraphs (a) or (b) to terminate his employment under this Agreement and receive the Severance Payment as a result of "Constructive Termination without Cause." Constructive Termination without Cause shall mean termination by the Executive of his employment following the occurrence of either of the following events without Executive's written consent: (a) Executive's being asked to report to anyone other than the Board of Directors of the Company; (b) Company hires a Chief Operating Officer without the Executive's consent; (c) a material diminution in Executive's duties; or (d) if Executive's principal place of business for the performance of his duties is changed to a location more than 75 miles from Davie, Florida. Any such Severance Payment will be in addition to any salary or other payments due you through the effective date of such termination. 6. Location of Executive's Activities Executive's principal place of business in the performance of his duties and obligations under this Agreement shall be at Employer's place of business in Davie, Florida. Notwithstanding the preceding sentence, Executive will engage in such travel and spend such time in other places as may be necessary or appropriate in furtherance of his duties hereunder at the Employer's expense. 7. Miscellaneous 7.1 Notices. All notices, requests, demands, consents, and other communications required or permitted to be given or made hereunder shall be in writing and shall be deemed to have been duly given and received, (i) if delivered by hand, the day it is so delivered, (ii) if mailed via the United States mail, certified first class mail, postage prepaid, return receipt requested, five business days after it is mailed, or (iii) if sent by a nationally recognized overnight courier for next business day delivery, the business day after it is sent, to the party to whom the same is so given or made, at the address of such party as set forth at the head of this Agreement, which address may be changed by notice to the other party hereto duly given as set forth herein, with copies delivered as follows: (a) if to Executive: (b) if to the Company: CBQ, Inc. 12535 Orange Drive, #613 Davie, Florida 33330 ATTN: Secretary With a copy to: Paul W. Richter, Esq., 7759 Desiree Street, Alexandria, VA 22315 7.2 Governing Law; Jurisdiction. This agreement shall be governed by, and construed and enforced in accordance with, the substantive and procedural laws of the State of Florida. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts located in Broward County, Florida, and waive any claim based upon forum non-conveniens. 7.3 Headings. All descriptive headings in this agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Agreement. 7.4 Counterparts. This Agreement maybe executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 7.5 Severability. If any provision of this Agreement, or part thereof, is held to be unenforceable, the remainder of such provision and this Agreement, as the case may be, shall nevertheless remain in full force and effect. 7.6 Entire Agreement and Representation. This Agreement contains the entire agreement and understanding between Employee and Executive with respect to the subject matter hereof. This Agreement supersedes any prior agreement between the parties relating to the subject matter hereof. Except as otherwise provided herein, this Agreement cannot be changed or terminated except by an instrument in writing signed by the parties hereto. 7.7 Binding Effect. This Agreement shall be binding upon, and insure to the benefit of, each parties' successors, transferees, heirs and assigns. 7.8 Confidentiality; Disclosure of Information. (a) Executive recognized and acknowledges that he will have access to Confidential Information (as defined below) relating to the business or interests of Company or of persons with whom Company may have business relationships. Except as permitted herein or as may be approved by Company from time to time, Executive will not during the Employment Period or at any time thereafter, use or disclose to any other person or entity, any Confidential Information of Company (except as required by applicable law or in connection with performance of Executive's duties and responsibilities hereunder). If Executive is requested or becomes legally compelled to disclose any of the Confidential Information, he will give prompt notice of such request or legal compulsion to Company. Company may waive compliance with this Paragraph 7.8(a) or will provide Executive with legal counsel at no cost to Executive to seek an appropriate remedy; provided however Executive may disclose any Confidential Information in the event notwithstanding all such efforts of the Company and such legal counsel Executive if compelled by court order to do so. The term "Confidential Information" means information relating to Company's business affairs, proprietary technology, trade secrets, patented processes, research and development data, know-how, market studies and forecasts, competitive analyses, pricing policies, executive lists, employment agreements (other than this Employment Agreement), personnel policies, the substance of agreements with customers, suppliers and others, marketing arrangements, customer lists, commercial arrangements, or any other information relating to Company's business which is treated as confidential or proprietary by Company in accordance with its policies. Notwithstanding the immediately preceding sentence, the provisions of this Paragraph 7.8(a) shall not apply to any information that (1) is in the public domain; (2) is or becomes available to the public other than as a result of a disclosure by Executive in violation of this Paragraph 7.8(a); (3) was available to Executive on a non-confidential basis prior to the date of this Employment Agreement; (4) was already lawfully in Executive's possession prior to the date of this Employment Agreement; or (5) becomes available to Executive on a non-confidential basis from a source other than Company. This obligation shall continue until such Confidential Information becomes publicly available, other than pursuant to a breach of this Paragraph 7.8(a) by the Executive, regardless of whether the Executive continues to be employed by the Company. (b) It is further agreed and understood by and between the parties to this Agreement that all "Company Materials," which include, but are not limited to, computers, computer software, computer disks, tapes, printouts, source, HTML and other codes, flowcharts, schematics, designs, graphics, drawings, photographs, charts, graphs, notebooks, customer lists, sound recordings, other tangible or intangible manifestation of content, and all other documents whether printed, typewritten, handwritten, electronic, or stored on computer disks, tapes, hard drives, or any other tangible medium, as well as samples, prototypes, models, products and the like shall be the exclusive property of Company and, upon termination of Executive's employment with Company, and/or upon the request of Company, all Company Materials, including copies thereof, as well as all other Company property then in Executive's possession or control, shall be returned to and left with Company. 7.9 Indemnification. Company recognizes that the activities within the scope of Executive's employment creates the potential in some jurisdictions of civil or even criminal actions being brought against Executive. To the fullest extent permitted by law, Company shall indemnify, defend, protect and hold Executive harmless from and against all claims, demands, causes of action, actions, suits, costs, damages, penalties, fines, liabilities, losses and expenses, whether civil or criminal, including, without limitation, reasonable attorneys' and consultant's fees and expenses arising out of or resulting from the performance of Executive's duties within the scope of Executive's employment. Company will include Executive as a named insured on Company's directors and officers liability policy. 7.10 Non-Competition and Non-Solicitation Executive acknowledges that Company has invested substantial time, money and resources in the development and retention of its Confidential Information (including trade secrets), customers, accounts and business partners, and further acknowledges that during the course of Executive's employment with Company, Executive will have access to Company's Confidential Information (including trade secrets), and will be introduced to existing and prospective customers, vendors, cable operators, accounts and business partners of Company. Executive acknowledges and agrees that any and all "goodwill" associated with any existing or prospective customer, vendor, cable operator, account or business partner belongs exclusively to Company, including, but not limited to, any goodwill created as a result or direct or indirect contacts or relationships between Executive and any existing or prospective customers, vendors, cable operators, accounts or business partners. Additionally, the parties acknowledge and agree that Executive possesses skills that are special, unique or extraordinary and that the value of Company depends upon his use of such skills on its behalf. In recognition of this, Executive covenants and agrees that: (a) During Executive's employment with Company, Executive may not, without prior written consent of Company (whether as an executive, agent, servant, owner, partner, consultant, independent contractor, representative, stockholder, or in any other capacity whatsoever) perform any work directly competitive in any way to the business of Company or a substantially planned business that Executive is aware of during Executive's employment with Company on behalf of any entity or person other than Company (including Executive). (b) During Executive's employment with Company and for one year thereafter, Executive may not notice, solicit or encourage any Company employee to leave the employ of the Company or any independent contractor to sever its engagement with Company, absent prior written consent from Company. (c) During Executive's employment with Company and for one year thereafter, Executive may not, directly or indirectly, entice, solicit or encourage any customer or prospective customer of Company to cease doing business with Company, reduce its relationship with Company or refrain from establishing or expanding a relationship with Company. 7.11 Non-Disparagement; Non-Disclosure (a) Executive and Company hereby agree that during the Employment Period and all times thereafter, neither Executive or Company will make any public statement, or engage in any conduct, that is disparaging to the other party or, in the case of Company, any of its Executives, officers, directors, or shareholders known to Executive, including, but not limited to, any statement that disparages the products, services, finances, financial condition, capabilities or other aspect of the business of Company and the capabilities of Executive. Notwithstanding any term to the contrary herein, neither Executive nor Company shall be in breach of this Paragraph 7.11 for the making of any truthful statements under oath. 7.12 Representations and Warranties. The execution, delivery and performance of this Agreement by the Company has been duly authorized by all necessary corporate action of the Company and this Agreement constitutes the legal, valid and binding obligation or the Company, enforceable against the Company in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the date first above written. CBQ, Inc., a Colorado corporation By:_______________________________________ Name/Title:___________________________________________ Howard Ullman - ------------------------------------------------- Signature WITNESS NAME:_______________________________________ Witness Signature:__________________________________________ Witness Telephone Numbers:___________________________________ - ---------------------------------------------------------- EX-31 5 form10qsb033104ex31.txt Exhibit 31 Section 302 Certifications I, Howard Ullman, certify that: 1. I have reviewed this quarterly report on form 10-QSB of CBQ, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report. 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange act rules 13a-15(e) and 15d-15(e) for the small business issuer and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report on such evaluation; and c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2004 /s/ Howard Ullman Howard Ullman CEO, President and Chairman (Principal Executive and Financial Officer) EX-32 6 form10qsb033104ex32.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of CBQ, Inc. on Form 10-QSB for the period ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Howard Ullman, Chief Executive/Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Howard Ullman Howard Ullman CEO, President and Chairman (Principal Executive and Financial Officer) May 14, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----