SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8 KSB
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 19, 1998
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(Date of Report)
CBQ, Inc.
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(Exact name of registrant as specified in its charter)
Colorado
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(State or other jurisdiction of incorporation)
33-14707-NY 84-1047159
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(Commission File Number) (IRS Employer Identification Number)
4851 Keller Springs Rd., Ste. 213, Dallas, Texas 75248
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(Address of principal executive offices including zip code)
(972) 732-1100
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(Registrant's telephone number including area code)
Freedom Funding, Inc., 1999 Broadway, Ste. 3235, Denver, Colorado 80202
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(Former name or former address, if changed since last report)
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Item 1. Change in Control of Registrant.
Acquisition of CyberQuest, Inc.
On November 19, 1998, Freedom Funding, Inc., a Colorado corporation (Company),
entered into a reorganization agreement (Reorganization Agreement) with
CyberQuest, Inc., a Colorado corporation (CyberQuest), and the shareholders of
CyberQuest pursuant to which the Company acquired all of the outstanding
proprietary interest of CyberQuest in a stock-for-stock exchange which resulted
in CyberQuest becoming a wholly-owned subsidiary of the Company and the
shareholders of CyberQuest acquiring control of the Company through their stock
ownership.
The Reorganization Agreement calls for the immediate change of the name of the
Company to CBQ, Inc., and the immediate effectuation of a reverse one for four
(1:4) common share split. The Company has initiated this process and anticipates
that the name change and reverse split should become effective during the first
or second week of December, 1998. All further references in this report are to
post-split share figures.
The Company, under the Reorganization Agreement, issued 18,000,000 common shares
and 70,000 shares of the Class A: Redeemable, Convertible Preferred Stock of the
Company to the shareholders of CyberQuest in exchange for the issued and
outstanding shares of this subsidiary. Pursuant to the Reorganization Agreement
the existing director and sole executive officer resigned and the Company
appointed Messrs. Michael Sheriff (Chairman), James E. Malone and R.J. Pipes as
directors. Mr. Sheriff was then appointed Chief Executive Officer, Mr. Malone
President and Treasurer and Mr. William J. Flannery Secretary.
The Series A Preferred Stock issued under the Reorganization Agreement consists
of 70,000 shares with a stated price of $10 per share, and has the following
features: (a) Dividend - None. (b) Conversion - None. (C) Redemption - Elective
and cumulative as follows: (1) from and after November 19, 1998, and up to and
including November 18, 1999, the Company may redeem, at any time and from time
to time, all or any portion of up to 7,000 preferred shares at a price of $10
per share; (2) from and after November 19, 1999, and up to and including
November 18, 2000, the Company may redeem, at any time and from time to time,
all or any portion of (y) the preferred shares not redeemed under (1) and (z) up
to an additional 14,000 preferred shares at a price of $11.00 per share; (3)
from and after November 19, 2000, and up to and including November 18, 2001, the
Company may redeem, at any time and from time to time, all or any portion of (y)
those preferred shares not redeemed under (1) and (2) and (z) up to an
additional 21,000 preferred shares at a price of $12.00 per share; and (4) from
and after November 19, 2001, and up to and including November 18, 2002, the
Company may redeem, at any time and from time to time, all or any portion of (y)
those preferred shares not redeemed under (1), (2) and (3) and (z) up to an
additional 28,000 preferred shares at a price of $13.00 per share. (d)
Liquidation Preference - None. (e) Sinking Fund - None. (f) Voting Rights -
None. (g) Additional Provisions - In the event that the Company offers and sells
at any time during which any shares of Preferred Stock remain outstanding any
share of common stock of the Company at a price of less than $5.00 per share on
a private, non-registered basis, the Company will grant to the holder(s) of any
then outstanding shares of Preferred Stock a warrant allowing the acquisition of
one share of common stock for each ten shares of common stock issued and sold.
The warrant will be exercisable for a period of one (1) year after grant at the
price for which the shares of common stock causing the imposition of this
provision were issued and sold.
Overview of CyberQuest:
Founding and Business Summary: CyberQuest began operations in January,
1996. CyberQuest's web site is at http://www.cbq.com, with principal executive
offices at 4851 Keller Springs Road, Suite 213, Dallas, TX 75248. The telephone
number at this address is: (972) 732-1100; the facsimile number is: (972)
732-1169; and the e-mail address is: [email protected].
CyberQuest is a full-service Internet development company, focusing its efforts
on Internet commerce in the business-to-consumer and business-to-business
marketplace. CyberQuest also develops, implements and maintains business Web
Sites, Intranets and Databases for client companies.
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CyberQuest management has several years experience with marketing and the use of
the Internet. Management first developed a straight-forward method that allows
small, medium and large businesses to integrate and manage Internet sites in
order to complement their other selling efforts. In 1994, pioneering the
Internet marketplace, management developed and launched one of the first
Internet retail commerce sites, the award winning "Good Stuff Cheap," which
offers resellers a medium for marketing merchandise and selling excess inventory
through secured transactions. This site has been featured in a number of
publications, including USA TODAY -- "Hot Site," The Dallas Morning News, the
NET, Wired, WebWeek, and the Discovery Television Internet commerce sites
developed by management have won a number of awards and recognition for
excellence in graphics and overall media presentation.
In April, 1996, acquired and significantly enhanced the technology for "bid4it"
under a world-wide license from EDS. CyberQuest, using bid4it, has introduced a
new sales paradigm -- the interactive on-line exchange (Exchange) in a bid and
ask format. Designed to serve as an efficient and entertaining sales channel for
popular products over the World Wide Web (Web) the site is designed to appeal to
businesses, resellers and consumers. Management believes that bid4it is a new
sales channel for the Internet and that users are attracted to the site because
of its win/win format and convenience. Management believes that there is a
significant market for bid4it; especially for excess and unique merchandise.
Management Team: CyberQuest's leadership team is headed by Messrs. Mike
Sheriff, CEO, and Jim Malone, President. The management staff also includes
Tommie Farris, Commerce Business Manager.
Executive Summary:
Internet Opportunity Presented by bid4it.com: Businesses have aggressively
begun to use the Internet as a fourth channel of distribution. Bid4it(TM)
(www.bid4it.com), CyberQuest's newest E-Commerce site, is designed to serve as
an efficient, entertaining and market-driven e-tailing channel for popular
products over the Web. The site, management believes, appeals to businesses,
resellers and consumers alike, and the Company believes that this on-line
exchange (Exchange) represents a new sales format that it believes will be
further and more widely accepted because it leverages the unique characteristics
of the Internet. Bid4it brings the e-market experience, along with all of its
dynamics, directly into corporate offices and consumers homes and home offices.
Buyers can bid for products 24 hours a day, 7 days a week in a relaxed
atmosphere without the pressure of salespeople and without the inconvenience of
traveling to fixed locations during limited hours. In addition, a sense of
community is engendered as buyers place bids relative to perceived value and
sellers compete for customers in an interactive Exchange sales format.
Bid4it has and will offer a wide variety of new merchandise, including
computers, peripherals, consumer electronics, program cars, rare wines, power
tools, sports and fitness equipment and jewelry. Using CyberQuest's proprietary
bid4it Exchange software, the core technology for which was provided under a
license with EDS, customers bid in a freely competitive market without the
constraints of less flexible pricing that characterize traditional retailing or
the inconvenience or other limitations of an auction. Sellers are able to issue
competing, confidential asking prices and buyer's bids set the price. Using
CyberQuest's proprietary CyberMarketMaker technology, the bids are sorted in
order of submission by price of bid. If two bids match the ask price, the
earlier bid will win based on available inventory. Likewise, if multiple asks
match a bid, the first ask placed will be matched. In response to market
activity, i.e. orders and bids, CyberMarketMaker will adjust the asking prices
up or down accordingly. This Exchange format encourages a negotiation between
bidder and seller in a market-making environment.
Bidders continually maintain control of their bids, having the ability to
withdraw, modify or lower a bid from the privacy of their own password-protected
home pages. Sellers also maintain complete control from the privacy of their
password-protected home pages. Sellers, who may remain anonymous, are in full
control of the terms of the sale. The seller may establish minimum quantities
and, in addition to the asking price, set a floor price below which no sale can
occur. In addition, the vendor may remove items from the site at will or may
change quantities to reflect the vendor's current inventory position. Further,
sellers are free to accept any bid below the ask at their discretion. With this
innovative way to purchase goods and services on the Internet,
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CyberQuest answers the needs of the corporate community, small businesses,
resellers and consumers by providing an optimum marketplace to conduct commerce.
CyberQuest believes that by constantly changing the presentation of its Web site
it will enhance customer interest and attract and maintain a large and loyal
customer base. bid4it's rotating merchandise mix gives customers the opportunity
to bid on desirable merchandise from a number of different product categories,
mostly from well known, name brand manufacturers. This changing product/price
mix and the bid4it Exchange format gives CyberQuest's potential customers the
impression that they may be able to negotiate exceptional deals every time they
visit the site.
Customer satisfaction is assured through agreements with vendors regarding
product guarantees and return privileges. Customer service functions are
integrated and interactive by using on-line forms and E-mail communication. The
customer service staff also offers assistance toll-free during office hours.
Operating under the "Principal Sales Model," CyberQuest takes title to the
merchandise, but carries no inventory. Its transaction fees, i.e. margins, are
improved when CyberQuest acts as its own seller/distributor, accepting lower
distributor discounts in exchange for vendor stocking and drop shipping.
Market Analysis:
Market Opportunity: Commerce conducted over the Web is expected to grow
dramatically from $2.6 billion in 1996 to over $220 billion during 2001,
according to International Data Corporation (IDC), a Boston, MA. market research
firm. Demographics of the more than 30 million potential Web users in 1996,
according to BancAmerica researchers, included 15 million US households, 12
million US businesses, government and educational institutions and 4 million
non-US users. CyberQuest believes it is positioned to effectively compete with
its Exchange on the Internet. To that end CyberQuest intends to leverage its
position as an Internet e-tailer of brand-name merchandise and to build upon its
strategic relationships with vendors, which will encouraging use of the bid4it
Exchange for inter-vendor purchases.
Target Market: The target seller base is equipment manufacturers, major
distributors, and resellers of hard goods, and in some instances, services. Each
segment requires specific custom features, but generally each requires bid4it to
provide efficiency over the current methods employed to buy or sell similar
products.
Market Size: The current market for CyberQuest's services is the
approximately 50 million businesses, industries, small office and consumer
components of Internet users. Further, the growth of Web- based Internet users
is expected to more than double in 1998 to 71.3 million. Estimates for the year
2000 put the growing mass at over 120 million Web users. The
business-to-business component holds the greatest potential for CyberQuest as
businesses transition manufacturing and corporate purchasing to the Web. The
experience of direct competitors has proven the viability of the market and the
willingness of consumers to adopt the Internet as an effective, viable and
alternative distribution channel.
Competition: Direct competition for CyberQuest's bid4it Exchange is
expected to come from several segments. The Internet auction sites, most notably
e-bay (EBAY), Onsale (ONSL) and FirstAuction, represent CyberQuest's most
formidable opponents. FirstAuction is owned and operated by The Internet
Shopping Network (ISN), a large, mall-type Web site which was launched in late
1994. ISN is owned by Home Shopping Network, the multi-billion dollar TV
broadcast retailer. FirstAuction debuted in the summer of 1997, following a
format very similar to Onsale.
CyberQuest's challenge is be to differentiate its bid4it Exchange as superior to
the auction format. CyberQuest must also successfully build a brand identity
which positions bid4it as the preferred site for buyers of new and unique
products; the type of products typically not found at auction sites. As
CyberQuest's business-to- business activity grows, management believes that the
market will support the bid4it Exchange, which may coexist with the auction-type
sites; each with its own market identity and niche. Because the desired keywords
or categories may be pre-sold, CyberQuest must identify new strategic
partnership opportunities which are synergistic to the bid4it Exchange, but not
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likely targets for an auction site partnership. The identified partnerships
would function similarly to a sub-license arrangement. The difference in the two
is that instead of building a customized site for the sub-licensor where their
buyers would, upon selecting (clicking on) a specified product or other
predetermined icon bid, the partner's bidders would come to bid4it from the
partner's Web site to place their bids. This arrangement would net the partner a
commission, or alternatively, would net bid4it a commission depending upon the
agreement of the partners. As business-to-business sales increase, CyberQuest's
challenge is to introduce a continual stream of new trading partners to become
users of the bid4it Exchange. This means that CyberQuest's competition for new
business users will more likely come from those competitors who are unwilling to
change their traditional purchasing methods rather than from any like or similar
Internet competitor to bid4it.
The field of direct competitors is expected to continue to grow and CyberQuest
intends to maximize its marketing, advertising and public relations efforts
while few market leaders are clearly established. Further, management will
emphasize efforts to establish relationships with leading on-line content
providers, commerce companies and leading manufacturers in key product
categories to secure merchandise supply and build competitive barriers to entry.
CyberQuest's indirect competition comes from any Internet E-Commerce site which
sell similar products and from traditional channels of supply.
Business Strategy: CyberQuest's objective is to become the dominant
business-to-business Exchange on the Internet. CyberQuest intends to leverage
its position, if and when obtained, as a leading Internet e-tailer of brand-name
merchandise to build strategic relationships with vendors who will use the
Exchange ultimately to purchase from each other. The following are CyberQuest's
key strategies:
Create Market Awareness and Brand Recognition: CyberQuest operates in a
market in which brand franchise is critical to attracting high quality vendors
and high level customer traffic. Accordingly, CyberQuest's strategy is to
promote, advertise and increase its visibility through a variety of marketing
and promotional techniques, including forming strategic relationships with major
Internet Service Providers (ISPs), search engines and directories by advertising
on leading Web sites and in targeted trade publications and by conducting an
ongoing public relations campaign. In particular, CyberQuest will seek to
establish relationships with leading on-line content providers and commerce
companies to attract traffic to its sites, secure merchandise supply and build
competitive barriers to entry.
Strategic Relationships: CyberQuest has formed the following strategic
relationships in order to set the foundation in the pursuit of its business
strategy:
EDS. As the licensor of the core technology, EDS has a vested interest in
CyberQuest's success. In addition, EDS is potentially a large customer as the
original code was developed for internal EDS use.
Search Engines. CyberQuest has conducted short term tests of banner advertising
on both Yahoo! and Infoseek. In 1999 CyberQuest anticipates that it will focus
on increased use of banner ads on all major search engines. Additionally, where
available, CyberQuest will contract for applicable key words.
Content Providers. CyberQuest anticipates that it will initiate discussions with
major content providers, such as America Online (AOL), Netscape, Ziff Davis and
ESPN with the intent of building site traffic levels utilizing the pattern
established by other high-traffic commerce sites such as Amazon.com, Onsale.com
and FirstAuction.com, among others.
Vendors. All sellers on bid4it are actively encouraged to promote the site where
possible, as it is in the best interest of all parties. This can take the form
of links or banner ads on seller Web sites, press releases, or direct promotion
in alternative advertising.
Vendors: CyberQuest's ability to attract, secure and obtain branded
merchandise for its bid4it Exchange is the key to its success. CyberQuest plans
to build its merchandising staff to facilitate and secure long-term
relationships with a variety of merchandise vendors. CyberQuest seeks to be its
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vendors' preferred choice for liquidating excess merchandise or selling unique
and rare items. CyberQuest intends to strengthen its vendor relationships by
offering more convenient service through its automated order processing and
superior logistical arrangements. In addition, the Company believes its
continuous Exchange process makes it a convenient sales channel for vendors to
liquidate large volumes of merchandise; selling to resellers, corporations and
consumers simultaneously. CyberQuest believes a broad array of merchandise can
be sold effectively through its bid4it Exchange format.
CyberQuest recently expanded its lines of merchandise to include rare wines,
Program Cars, and high-end computer servers. Management believes the types of
products which could be sold over the bid4it Exchange is limitless and the sale
of services may eventually be included.
CyberQuest believes vendors are attracted by the number of buyers who are
searching for perceived bargain prices and the inherent advantage of setting the
price and controlling the process. Accordingly, CyberQuest intends to continue
offering vendors the opportunity to sell excess, new/current or one-of-a-kind
merchandise at the best prices available in the market and to assist them in the
selection of merchandise, to monitor pricing and to automate the process as
fully as possible.
CyberQuest believes buyers are attracted by the wide array of opportunities to
buy desired merchandise at perceived bargain prices and the excitement of
competitively winning desired merchandise. Accordingly, CyberQuest intends to
continue offering customers desired merchandise and to routinely rotate the
selection of merchandise. CyberQuest believes that a significant opportunity
exists to develop incremental revenue, including expanding its product mix with
other products that are well suited for the Internet's electronic format.
Product Distribution: CyberQuest's primary responsibility through bid4it is to
manage the bid and ask match transaction set. Sellers are responsible for
inventory, shipment, and management of their portion of bid4it site operation.
In those cases where sellers desire to relinquish bid4it operation to
CyberQuest, CyberQuest will itself become a bid4it seller through strategic
relationships with key manufacturers and distributors who will drop-ship to
customers or consign to bid4it's contracted, fulfillment warehouse. This
inventory-less distribution is expected to produce potentially higher margins
and will serve to increase the product mix and the number of items offered for
sale.
Sub-Licensing Core Technology: CyberQuest will sub-license its proprietary
software to third parties and will operate and maintain the derivative versions
for the sub-licensors on a fee and royalty basis. Sub-licensing will be to
selected markets that complement and add to bid4it, but do not impede its
intended growth or operations. CyberQuest has completed a sub-license royalty
agreement with a corporation known as bid4ic's, Inc. This company intends to
pursue the brokered integrated circuit and component marketplace. CyberQuest may
begin to receive significant royalties in 1999 and beyond as bid4ic ramps up and
begins to attain market share.
Web Site Advertising: Cyberquest intends to leverage the high level of traffic
on its Web site to provide an attractive reason for third-party advertising on
its Web site.
Web Site Development: Early Internet commerce adopters have discovered that
integrating front-end customer service systems with back-end order entry systems
requires a major investment. In addition to allocating or purchasing a host
computer, businesses must hire or contract programmers to design and develop the
systems, link them to legacy systems, and coordinate and maintain the end-to-end
solution. In addition, they must pay the telephone company, service provider
fees, and licensing fees for server, client and database software. Knowing that
many businesses do not wish to develop, host or maintain their own Internet
E-Commerce sites, CyberQuest believes a substantial opportunity exists for its
Web site development and management services. For example, bid4it Sellers will
be charged for design and graphics on a contract or time and materials basis
when they wish to outsource the work due to overloaded or in some cases
non-existent art and graphics staffs. Other incremental revenue opportunities
are expected to develop as the Internet continues to evolve.
bid4it Core Technology:
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Patent Pending Proprietary Software: CyberQuest believes that one of its
competitive advantages is its internally developed patent-pending proprietary
software that is specifically designed for its Internet Exchange. The original
software, acquired from EDS under license, has been significantly enhanced by
CyberQuest. EDS expended in excess of thirty man-months in the development of
the code and database infrastructure. CyberQuest has agreed to pay EDS a royalty
on net revenues beginning at 8% and declining to 5% over a maximum period of
nine years. Although ownership of the original code remains with EDS, all
derivatives are the exclusive property of CyberQuest. At the present time, major
segments of the code are derivative, and in time most if not all of the code
will be derivative in nature.
Bid Placement: Bid4it provides a graphical user interface (GUI) for buyers
to enter bid requests. The buyer enters a bid either by accepting the lowest
asking price for a particular product or by specifically setting a price at
which he wishes to purchase the product. The bid may be updated at any time by
the person placing the bid. Except for shipping information, the buyer's
identity remains confidential. The bid includes an effective and expiration
date, a minimum and maximum order quantity and the unit price. All bids and
orders are managed by the buyer on private, password protected "home pages."
Ask Placement: Bid4it provides both an EDI (Electronic Data Interchange)
for batch transactions and a GUI interface which sellers may use to enter asking
prices and floor prices. The seller is responsible for maintaining the inventory
levels to supports its quotations on the Exchange. An asking price includes an
effective and expiration date, minimum and maximum order quantity, and the floor
price. The seller may also specify lot sizes. Sellers manage the process through
unique, password-protected seller home pages. In addition, sellers may specify
an unlimited number of sub-sellers or agents, each with their own home pages.
CyberMarketMaker: Bid4it is an automated quotation system, i.e., Exchange,
for products and services modeled after NASDAQ. Bid4it is the market maker for
the products listed on the site. The bid4it "CyberMarketMaker" buys and sells,
but to two distinct groups. Sellers never buy and buyers never sell; therefore,
there is no bid4it spread between asked and bid prices. CyberQuest makes its
money based on the terms negotiated between the seller and buyer.
Notification: Bid4it's default communication with bidders and sellers is by
E-mail and hypertext markup language (HTML) forms. In the case of sellers, an
EDI capability is offered to facilitate efficiency. When a bid and ask are
matched, a message is sent to the successful bidder and a purchaser order is
placed with the seller. On shipment, the bidder receives e-mail notification and
a copy of the receivables (credit card) invoice. Special notification options
are offered to sellers for "exception case" processing. For example, when a bid
quantity exceeds a pre-defined amount and the bid price does not match the
seller's asking price, the seller may receive notification, in addition to
e-mail, by fax, page or telephone call.
Core Competency: CyberQuest believes that its internal marketing, advertising
and public relations expertise is a core competence due to the nature of the
Internet and its inherent application as an advertising medium. CyberQuest has
developed Web site creation methodologies which have been productized for sale
to client companies on a contract or time and materials basis. This expertise
has been employed in the development of Web sites for clients, including
multination companies such as NEC. CyberQuest has honed its Internet e- commerce
abilities through the creation and management of Web sites such as Carrington
Labs' (www.carringtonlabs.com) and Secure Safes (www.securesafes.com). These
methodologies were applied to bid4it. In addition, management's experience with
Good Stuff Cheap has provided additional real-time experience in this industry.
Patent and Trademark: CyberQuest has applied for a US patent on the design,
methodology and operation of bid4it, the underlying software and
CyberMarketMaker, and has trademarked bid4it and CyberMarket Maker. Further
CyberQuest owns the domain names: bid4it, goodstuffcheap.com and cbq.com.
Systems and Hardware Infrastructure: bid4it operates on an Axil Ultima Model
2300 (Sun Microsystems clone), with two 300 MHz UltraSPARC 512 MB RAM, two 4 BG
hard drives, a 4 GB DAT tape backup drive and CD-ROM drive, running a Sun
Solaris 2.5.1 UNIX operating system, Sybase SQL Server 11.0.1 for database
applications, Netscape Enterprise Server 3.0 for standard and secure Web site
service and site search engine, Netscape Messaging Server 3.0.1 for standard and
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secure e-mail service, and WUsage 5 for Web site access statistics. For secure
transactions using the de-facto standard Secure Sockets Layer (SSL) technology,
a VeriSign Global Digital Certificate allows 128-bid encryption of Web-based
files to be transferred to sites all over the world.
Management Team:
Michael L. Sheriff (Chairman and CEO): Mr. Sheriff has over 25 years experience
in the computer and telecommunications industry. He founded and developed Good
Stuff Cheap, a pioneer in Internet-based retail sites. Good Stuff Cheap,
according to Point Communications, an Internet survey group, was one of the top
five retail sites on the Internet in 1994. Mr. Sheriff also was the former
Chairman, President and CEO of Action Fax International, Inc., which operates
one of the largest public fax networks in the world and was an innovator in the
fax services industry. Prior to Action Fax, Mr. Sheriff was the founder and
President of First National Computer Corporation, which pioneered the rental of
personal computers. Under his direction, First National Computer became one of
the largest PC rental firms in the US. In 1983, Mr. Sheriff co-founded and was
Vice- President of Five Dimensions Software, Inc., which designed software
systems for the rent-to-own television and appliance industry, installing over
900 systems. Mr. Sheriff has held senior sales, marketing and management
positions with Data Design & Development, Inc., National Semiconductor, Northern
Telecom, SYCOR, Inc., and SINGER.
James Malone (President): The biographical information for Mr. Malone will be
provided on the next Form 10-KSB.
Tommie P. Farris (Commerce Business Manager): Ms. Farris has over 20 years
experience in the computer industry. She brings to CyberQuest her knowledge of
product marketing, catalog production and merchandising and business research
and analysis. Her responsibilities include bid4it brand recognition, business
and legal management, product merchandising management and seller/client
satisfaction. Prior to CyberQuest, Ms. Farris held the position of senior
marketing research analyst at EDS. Previous areas of responsibility at EDS have
included Internet project management, supplier contract negotiation, management
at the division level, product manager, department supervisor, product marketing
and production management for the EDS/GM microcomputer catalog. Ms. Farris has
experience in start-up and development phase businesses, having owned a computer
mail-order company in the mid-1980's and having been a member of the original
management team of the predecessor to Dell Computer. Ms. Farris holds a BS in
Education with an emphasis in English.
Item 2. Acquisition or Disposition of Assets: See Item 1, above.
Item 3. Bankruptcy or Receivership: Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant: Not Applicable.
Item 5. Other Events: None.
Item 6. Resignation of Registrant's Directors: Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits: The
required financial statements of CyberQuest will be delivered in accordance with
the requirements of this form.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CBQ, Inc.
(Registrant)
By: /s/ Michael Sheriff
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Michael Sheriff, Chief Executive Officer
Date: November 19, 1998
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EXHIBITS
Exhibit 1. Agreement of Purchase
Exhibit 2. Series A Preferred Stock Resolutions and Provisions
EXHIBIT No. 1
AGREEMENT OF PURCHASE
This plan and agreement of purchase (Plan) has been adopted as a reorganization
under Section 368(b) of the Internal Revenue Code and has been entered into in
Dallas, Texas, this 19th day of November, 1998 (Closing Date), between Freedom
Funding, Inc., a Colorado corporation which has agreed to change its name to
CBQ, Inc., and which is sometimes referred to in this Agreement as either the
Purchaser or CBQ, CyberQuest, Inc., a Colorado corporation which is sometimes
referred to in this Agreement as either the Acquired Corporation or CyberQuest
and the shareholders of CyberQuest, all of whom are sometimes collectively
referred to in this Agreement as the Shareholders.
CBQ hereby acquires from the Shareholders all of issued and outstanding capital
stock of CyberQuest in exchange solely for shares of voting stock of CBQ. Under
this Plan, CyberQuest has become a subsidiary of CBQ.
ARTICLE I
EXCHANGE OF VOTING CAPITAL STOCK
1.01. Transfer and Delivery of CyberQuest Shares. Shareholders hereby transfer
and deliver to CBQ certificates evidencing all of the issued and outstanding
capital stock of CyberQuest duly endorsed in blank so as to effect transfer by
delivery.
1.02. Issuance and Delivery of CBQ Shares. In exchange for the transfer by
Shareholders to CBQ of all of the issued and outstanding CyberQuest capital
shares hereunder, CBQ will forthwith cause to be forthwith issued and delivered
to the Shareholders (i) 18,000,000 restricted common shares of CBQ
(collectively, the CBQ Shares), and (ii) 70,000 shares of Class A Preferred
Stock. The foregoing share numbers reflect a reverse one for four (1:4) capital
share split which CBQ shall forthwith implement and make effective. CBQ shall
also forthwith and make effective a change of name from Freedom Funding, Inc.,
to CBQ, Inc.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND ACQUIRED CORPORATION
2.01. Organization and Standing. CyberQuest is a corporation duly organized,
validly existing and in good standing under the laws of Colorado, with all
corporate powers necessary to own property and carry on its business as it is
now being conducted. Copies of the articles of incorporation and bylaws of
CyberQuest delivered to Purchaser herewith are complete and accurate as of the
Closing Date.
2.02. Balance Sheet. A balance sheet and related statements of operations, cash
flows and equity of CyberQuest dated as of and for the three year or lesser
period, if inception occurred within three years, ended December 31, 1997, shall
forthwith be delivered to CBQ. CyberQuest shall cause these financial statements
to be (a) audited in accordance with Generally Accepted Auditing Standards, (b)
prepared in accordance with Generally Accepted Accounting Principles applied on
a consistent basis fairly presenting the financial position of CyberQuest and
(C) prepared to as to comply with Regulation S X and the time periods set forth
in Form 8 KSB, that being within 75 days after the Closing Date. CyberQuest
shall also deliver to CBQ within the aforesaid 75 day period any other audited
and/or unaudited financial statements required under Regulation S-X, Form 8-KSB
or otherwise by applicable securities laws. (The foregoing audited and unaudited
financial statements are collectively referred to herein as the Balance Sheet.)
2.03. Capitalization. CyberQuest has an outstanding capitalization which is all
in the hands of the Shareholders, all of which has been fully paid for and is
non assessable. There are no outstanding subscriptions, options, contracts,
commitments or demands relating to the capital stock of CyberQuest or any other
agreements of any character under which CyberQuest or the Shareholders would be
obligated to issue or purchase shares of CyberQuest capital stock.
<PAGE>
2.04. Title to Assets. CyberQuest has good and marketable title to all of its
assets, all as set forth in the Balance Sheet, none of which are subject to any
mortgage, pledge, lien, charge, security interest, encumbrance or restriction
whatsoever except those that: (a) are disclosed on the Balance Sheet and/or the
footnotes thereto or (b) do not materially and adversely affect the use of the
asset. Further, the assets of CyberQuest are in good condition and repair.
2.05. Schedule of Assets. CyberQuest shall forthwith deliver to Purchaser a
schedule of assets containing, as of the Closing Date, a true and complete: (a)
description of all software licensing and sublicensing agreements in favor of or
made by CyberQuest; (b) description of any real property in which CyberQuest has
a leasehold interest; (C) list of all capitalized equipment of CyberQuest that
sets forth any liens, claims, encumbrances, charges, restrictions, covenants and
conditions concerning the listed items; (d) list of all machinery, tools, and
equipment in which CyberQuest has a leasehold interest, with a description of
each interest; (e) list of all patents, patent licenses, trademarks, trademark
registrations, trade names, copyrights and copyright registrations owned by
CyberQuest; and (f) list of all interests in subsidiaries and/or joint ventures.
2.06. Liabilities. Except as set forth in the Balance Sheet, CyberQuest
presently has no outstanding indebtedness other than liabilities incurred in the
ordinary course of business. CyberQuest is not in default with respect to any
terms or conditions of any indebtedness. Further, CyberQuest has not made any
assignment for the benefit of creditors, nor has any involuntary or voluntary
petition in bankruptcy been filed by or against CyberQuest.
2.07. Litigation. CyberQuest is not a party to, nor has it been threatened with,
any litigation or governmental proceeding that, if decided adversely to it,
would have a material and adverse effect on its operations or business, or on
the financial condition, net worth, prospects or business of CyberQuest. To the
best of the CyberQuest's knowledge, it is not aware of any facts that might
result in any action, suit or other proceeding that would result in any material
and adverse change in the business or financial condition of CyberQuest.
2.08. Compliance with Law and Instruments. The business and operations of
CyberQuest are not infringing on or otherwise acting adversely to any
copyrights, trademark rights, patent rights or licenses owned by any other
person, and there is not any pending claim or threatened action with respect to
such rights. CyberQuest is not obligated to make any payments in the form of
royalties, fees or otherwise to any owner of any patent, trademark, trade name
or copyright.
2.09. Contractual Obligations. CyberQuest is not a party to or bound by any
written or oral: (a) contract not made in the ordinary course of business, (b)
bonus, pension, profit sharing, retirement, stock option, hospitalization, group
insurance or similar plan providing employee benefits other than in the ordinary
course of business, (C) any real or personal property lease other than in the
ordinary course of business or (d) deed of trust, mortgage, conditional sales
contract, security agreement, pledge agreement, trust receipt or any other
agreement subjecting any of the assets or properties of CyberQuest to a lien,
encumbrance. CyberQuest has performed all obligations required to be performed
by it under any of the contracts and leases to which it is a party as of the
Closing Date and is not in material default under any of the contracts, leases
or other arrangements by which it is bound. None of the parties with whom
CyberQuest has contractual arrangements are in default of their obligations.
2.10. Changes in Compensation. Since the date of the Balance sheet, CyberQuest
has not granted any general pay increase to employees or changed the rate of
compensation, commission or bonus payable to any officer, employee, director,
agent or stockholder, other than in the normal course of business.
2.11. Records. All of the account books, minute books, stock certificate books
and stock transfer ledgers of CyberQuest are complete and accurate.
2.12. Authority. The execution and performance of this Agreement have been duly
authorized by all requisite corporate action. This Agreement constitutes a valid
and binding obligation of CyberQuest and the Shareholders in accordance with its
terms. No provision of the articles of incorporation, bylaws, minutes, share
certificates or contracts prevents CyberQuest and/or the Shareholders from
delivering the CyberQuest shares to CBQ in the manner contemplated under the
Plan.
<PAGE>
2.13. Taxes. CyberQuest has filed all income tax returns and, in each
jurisdiction where qualified or incorporated, all income tax and franchise tax
returns that are required to be filed. CyberQuest has paid all taxes as shown on
the returns as have become due, and has paid all assessments received that have
become due.
2.14. Brokers. All negotiations on the part of CyberQuest and the Shareholders
related to the Plan have been accomplished solely by CyberQuest and the
Shareholders without the assistance of any person employed as a broker or
finder. CyberQuest and the Shareholders have done nothing to give rise to any
valid claims for a broker's commission, finder's fee or any similar charge.
2.15. Full Disclosure. As of the Closing Date, CyberQuest and the Shareholders
have disclosed all events, conditions and facts materially affecting the
business and prospects of CyberQuest. The Shareholders and CyberQuest have not
withheld knowledge of any event, condition or fact that they have reasonable
grounds to know may materially affect the business and prospects of CyberQuest.
None of the representations and warranties made by the Shareholders or
CyberQuest in this Agreement or in any instrument, writing or other document
furnished to CBQ contains any untrue statement of a material fact, or fails to
state a material fact.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
3.01. Organization and Standing. CBQ is a corporation duly organized, validly
existing and in good standing under the laws of Colorado, with all corporate
powers necessary to own property and carry on its business as it is now being
conducted. Copies of the articles of incorporation and bylaws of CBQ delivered
to the Shareholders and CyberQuest herewith are complete and accurate as of the
Closing Date.
3.02. Subsidiaries. CBQ has no subsidiaries.
3.03. Capitalization. CBQ has an authorized capitalization consisting of
500,000,000 common shares, $.0001 par value per share, and 100,000,000 preferred
shares, $.001 par value per share. As of the Closing Date, the number of common
shares outstanding is as set forth in the Form 10 QSB as of and for the nine
month period ended September 30, 1998, and, as of the Closing Date, no preferred
shares are issued and outstanding, all of which issued and outstanding common
shares are fully paid for and non assessable. There are no outstanding warrants,
options, contracts, calls, commitments or demands relating to the unissued
securities of CBQ.
3.04. Due Delivery. The CBQ Shares issued to the Shareholders have been validly
authorized and issued and are fully paid for and non assessable. No CBQ
shareholder has any preemptive right of subscription or purchase with respect to
these shares.
3.05. Authority. The execution and performance of this Agreement have been duly
authorized by all requisite corporate action. This Agreement constitutes a valid
and binding obligation of CBQ in accordance with its terms. No provision of the
articles of incorporation, bylaws, minutes, share certificates or contracts
prevents CBQ from delivering the CBQ shares in the manner contemplated under the
Plan.
3.06. Brokers. All negotiations on the part of CBQ related to the Plan have been
accomplished solely by CBQ without the assistance of any person employed as a
broker or finder. CBQ has done nothing to give rise to any valid claims for a
broker's commission, finder's fee or any similar charge.
3.07. Full Disclosure. As of the Closing Date, CBQ has disclosed all events,
conditions and facts materially affecting the business and prospects of CBQ, and
CBQ has not withheld knowledge of any event, condition or fact that it has
reasonable grounds to know may materially affect the business and prospects of
CBQ. None of the representations and warranties made by CBQ in this Agreement or
in any instrument, writing or other document furnished to the Shareholders or
CyberQuest contains any untrue statement of a material fact, or fails to state a
material fact.
ARTICLE IV
SURVIVAL OF WARRANTIES AND WARRANTIES
<PAGE>
4.01. Nature and Survival of Representations and Warranties. All statements of
fact contained in this Agreement or in any memorandum, certificate, letter,
document or other instrument delivered by or on behalf of any of the parties
hereto to any other party pursuant to this Agreement shall be deemed
representations and warranties made by the delivering party to the other parties
under this Agreement. The covenants, representations and warranties of the
parties shall survive the Closing Date for a period of one year, and then they
shall lapse and be of no further effect.
4.02. Expenses. The parties to this Agreement shall pay their own expenses
incurred hereunder and in regards of the transactions contemplated hereby,
including, but not limited to, all fees and expenses of their respective counsel
and accountants.
ARTICLE V
COMPLIANCE WITH SECURITIES LAWS
5.01. Acknowledgments of the Shareholders. The Shareholders acknowledge,
understand and agree that: (a) The certificates representing the CBQ Shares will
each bear a legend restricting transfer in accordance with the exemptions from
registration under the Securities Act of 1933, as amended, which CBQ has relied
upon in the issuance of the CBQ Shares. (b) The CBQ Shares have not been
registered under the Securities Act of 1933, as amended, or any applicable state
law (collectively, the Securities Act). (C) The CBQ Shares may not be sold,
offered for sale, transferred, pledged, hypothecated or otherwise disposed of
except in compliance with the Securities Act. (d) The legal consequences of the
foregoing mean that the Shareholders must bear the economic risk of the
investment in the CBQ Shares for the requisite period of time. (e) No federal or
state agency has made any finding or determination as to the fairness of an
investment in CBQ, or any recommendation or endorsement of this investment.
5.02. Further Representations and Warranties of Shareholders. Shareholders each
individually represent and warrant to CBQ as follows: (a) I have the financial
ability to bear the economic risks of my investment, have adequate means of
providing for my current needs and personal contingencies, and have no need for
liquidity in this investment; and, further, I have evaluated the high risks of
investing in CBQ and have such knowledge and experience in financial and
business matters in general and in particular with respect to this type of
investment that I am capable of evaluating the merits and risks of an investment
in the CBQ Shares. (b) I have been given the opportunity to ask questions of and
receive answers from CBQ concerning the terms and conditions of this investment,
and to obtain additional information necessary to verify the accuracy of the
information I desired in order to evaluate my investment, and in evaluating the
suitability of this investment I have not relied upon any representation or
other information (whether oral or written), other than that furnished to me by
CBQ or its representatives; further, I have had the opportunity to discuss with
my professional, legal, tax and financial advisers the suitability of an
investment in the CBQ Shares for my particular tax and financial situation; and,
further, in making the decision to purchase the CBQ Shares, I have relied solely
upon independent investigations made by me or on my behalf. (C) I am acquiring
the CBQ Shares solely for my own personal account, for investment purposes only,
and am not purchasing with a view to, or for, the resale, distribution,
subdivision or fractionalization thereof.
ARTICLE VI
MISCELLANEOUS
6.01. Amendments. This Agreement may be amended or modified at any time, but
only by an instrument in writing executed by CyberQuest, CBQ and each of the
individual Shareholders.
6.02. Waiver. The Shareholders, CyberQuest and/or CBQ may, in writing, (a)
extend the time for performance of any of the obligations of any other party to
this Agreement, (b) waive any inaccuracies or misrepresentations contained in
this Agreement or in any document delivered pursuant to this Agreement by any
other party and/or (C) waive compliance with any of the covenants, or
performance of any obligations, contained in this Agreement by any other party.
6.03. Assignment. (a) Neither this Agreement nor any right created hereby shall
be assignable by any party without the prior written consent of the other
parties, except by the laws of succession. (b) Except as limited by subparagraph
<PAGE>
(a), this Agreement shall be binding on and inure to the benefit of the
respective successors and assigns of the parties. Nothing in this Agreement,
expressed or implied, is intended to confer upon any person, other than the
parties and their permitted successors and assigns, any rights or remedies under
this Agreement.
6.04. Notices. Any notice or other communication required or permitted by this
Agreement must be in writing and shall be deemed to be properly given when
delivered in person to an officer of the other party, or to the party
individually when deposited in the U.S. mails for transmittal by certified or
registered mail, postage prepaid, or when deposited with a public telegraph
company for transmittal, charges prepaid, or when delivered via facsimile;
provided, however, that the communication is addressed as follows: (a) in case
of CyberQuest and the Shareholders: 4851 Keller Springs Rd., Ste. 213, Dallas,
Texas 75248; FAX: (972) 732 1169; and (b) in case of CBQ: 1999 Broadway, Ste.
3235, Denver, CO 80202; FAX (303) 292 2882.
6.05. Headings. Paragraph and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.06. Entire Agreement. This Agreement contains the entire agreement between the
parties relating to the subject matter hereof. It may be executed in any number
of counterparts, but the aggregate of such counterparts constitute only one and
the same instrument.
6.07. Partial Invalidity. In the event that any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if it never contained any such invalid, illegal or unenforceable
provisions.
6.08. Controlling Law. The validity, interpretation and performance of this
Agreement shall be controlled by and construed under the laws of the State of
Texas.
6.09. Attorney's Fees. If any action at law or in equity, including any action
for declaratory relief, is brought to enforce or interpret the provisions of
this Agreement, the prevailing party shall be entitled to recover reasonable
attorney's fees from the other party. The attorney's fees may be ordered by the
court in the trial of any action described in this paragraph or may be enforced
in a separate action brought for determining attorney's fees.
6.10. Specific Performance. The parties declare that it is impossible to measure
in money the damages that will accrue to a party or its successors as a result
of any other parties' failure to perform any of the obligations under this
Agreement; therefore, if a party or its successor institutes any action or
proceeding to enforce the provisions of this Agreement, any party opposing such
action or proceeding agrees that specific performance may be sought and obtained
for any breach of this Agreement.
<PAGE>
Purchaser: Freedom Funding, Inc.:
By: /s/ Mark S. Pierce
------------------------------------
Mark S. Pierce, President
Acquired Corporation: CyberQuest, Inc.:
By: /s/ Michael Sheriff
------------------------------------
Michael Sheriff, CEO
Shareholders:
Industrial Parts and Supplies, Inc.
By: /s/ Anne DeuPree, President
------------------------------------
Anne DeuPree, President
/s/ Cynthia Jared
- ---------------------------------------
Cynthia Jared
/s/ Lynn Elliott
- ---------------------------------------
Lynn Elliott
Midland, Inc.:
By: Mark S. Pierce
------------------------------------
Mark S. Pierce, President
CyberQuest, Ltd.:
By: CyberQuest Management Group, L.L.C.
------------------------------------
Its General Partner
By: R.J. Pipes
------------------------------------
R.J. Pipes, Its Manager
Andrew Pierce, CO UGMA
By: /s/ Mark S. Pierce
------------------------------------
Mark S. Pierce, CO UGMA
/s/ Michelle E. Kopp
- ---------------------------------------
Michelle E. Kopp
/s/ Lynn Elliott
- ---------------------------------------
Lynn Elliott
EXHIBIT No. 2
SERIES A: REDEEMABLE PREFERRED STOCK
CERTIFICATE SETTING FORTH RESOLUTIONS
BY THE BOARD OF DIRECTORS FOR CBQ, INC.
(Pursuant to the Colorado Corporation Code)
We, the undersigned, as the President and Secretary of CBQ, Inc., a Colorado
corporation formerly known as Freedom Funding, Inc., the Articles of
Incorporation of which are on file in the office of the Secretary of State for
the State of Colorado DO EACH HEREBY CERTIFY AND VERIFY: that the Board of
Directors of CBQ, Inc., in accordance with said articles and pursuant to the
laws of the State of Colorado, duly adopted on November 19, 1998, the preambles
and resolutions attached hereto.
IN WITNESS WHEREOF: We have set our hands this 19th day of November, 1998.
CBQ, INC.
By: /s/ James E. Malone
------------------------------
James E. Malone, President
Attest: /s/ William J. Flannery, III
-----------------------------------
William J. Flannery, III, Secretary
<PAGE>
UNANIMOUS CONSENT IN LIEU OF SPECIAL MEETING
BOARD OF DIRECTORS
FOR
CBQ, INC.
(November 19, 1998)
Pursuant to the provisions of the Colorado Corporation Code, which provide that
action required or permitted by said code to be taken at a meeting of the board
of directors of a corporation may be taken without a meeting with the same force
and effect as a unanimous vote of said board if the action is (I) evidenced by
one or more written consents describing the action taken, (ii) signed by each
director and (iii) delivered to the secretary of the corporation for filing with
the corporate records, the undersigned, being the sole member of the board of
directors of CBQ, Inc., a Colorado corporation formerly known as Freedom
Funding, Inc. (the Board of Directors and the Company, respectively), does
hereby waive any and all notice which may be required to be given with respect
to a meeting of the Board of Directors and does hereby take, ratify, confirm and
approve the following action this 19th day of November, 1998.
WHEREAS, the Company has been presented with an opportunity to acquire as a
subsidiary CyberQuest, Inc., a Colorado corporation (CyberQuest); WHEREAS, the
Company has been presented with a proposed Plan and Agreement of Purchase
(CyberQuest Purchase Agreement) by and between the Company, CyberQuest and the
shareholders (Shareholders) of CyberQuest; WHEREAS, the CyberQuest Purchase
Agreement requires the delivery to the Shareholders of 18,000,000 shares of the
common stock of the Company and 70,000 shares of a series of preferred stock in
order to consummate said agreement; WHEREAS, the execution and delivery of, and
performance under, the CyberQuest Purchase Agreement and the delivery of the
common and preferred shares thereunder is in the best interests of the Company;
WHEREAS, the Articles of Incorporation governing the Company (Articles of
Incorporation) permit the issuance of preferred shares in series with such
designations, preferences and relative participating option or other rights and
qualifications, limitations and restrictions as may be fixed by the Board of
Directors, including, without limitation, the rate of dividends and redemption
and conversion prices, all of which are to be determined after giving
consideration to the financial and general condition of the Company and to the
condition of the securities' markets, if any, existing at the time of issuance;
and WHEREAS, the Board of Directors deems it advisable to establish and issue a
new series of preferred stock at this time to accomplish the consummation of the
CyberQuest Purchase Agreement and have carefully investigated the financial and
general condition of the Company and the relation of the condition of the
Company to the condition of the securities markets, and have determined that it
is in the best interests of the Company to establish a new series of preferred
stock to be denominated Series A: Redeemable Preferred Stock with the attributes
set forth in this resolution and to forthwith deliver a certificate evidencing
the same to the Shareholders:
NOW, THEREFORE, BE IT RESOLVED that the Board of Directors authorizes Corporate
Stock Transfer to issue 18,000,000 restricted common shares of the Company to
the Shareholders in partial consummation of the CyberQuest Purchase Agreement;
RESOLVED that Mr. Mark S. Pierce shall instruct Corporate Stock Transfer in the
number and name of the Shareholders to whom the aforesaid shares shall be
issued; RESOLVED that the Board of Directors hereby authorizes the Company to
issue for the purpose of consummating the CyberQuest Purchase Agreement Seventy
Thousand (70,000) shares of its Series A: Redeemable Preferred Stock at a price
of $10 per share, which series shall have the following features: (a) Dividend -
The series shall be paid no dividend. (b) Conversion - The series shall not be
convertible into any other securities of the Company. (C) Redemption - The
Company shall have an elective and cumulative redemption right as follows: (1)
from and after November 19, 1998, and up to and including November 18, 1999, the
Company may redeem, at any time and from time to time, all or any portion of up
to 7,000 preferred shares at a price of $10 per share; (2) from and after
November 19, 1999, and up to and including November 18, 2000, the Company may
redeem, at any time and from time to time, all or any portion of (y) the
preferred shares not redeemed under (1) and (z) up to an additional 14,000
preferred shares at a price of $11.00 per share; (3) from and after November 19,
2000, and up to and including November 18, 2001, the Company may redeem, at any
time and from time to time, all or any portion of (y) those preferred shares not
redeemed under (1) and (2) and (z) up to an additional 21,000 preferred shares
at a price of $12.00 per share; and (4) from and after November 19, 2001, and up
to and including November 18, 2002, the Company may redeem, at any time and from
time to time, all or any portion of (y) those preferred shares not redeemed
under (1), (2) and (3) and (z) up to an additional 28,000 preferred shares at a
<PAGE>
price of $13.00 per share however, in the event that the Company offers and
sells its securities to the public through an offering registered with the
Securities and Exchange Commission, the Company shall forthwith redeem the
outstanding Preferred Stock not previously redeemed at a price per share of
$10.00 per share until November 18, 1999, $11.00 per share until November 18,
2000, $12.00 per share until November 18, 2001 and $13.00 per share until and
after November 18, 2002. (d) Liquidation Preference - the holders of the series
shall not be entitled to a liquidation preference over any existing or
subsequently established class or series of outstanding stock of the Company.
(e) Sinking Fund - the holders of this series shall not be entitled to the
establishment of any sinking fund for the purpose or retiring the shares of the
series or for any other purpose. (f) Voting Rights - The series shall have no
voting rights other than those provided under Colorado law. (g) Additional
Provisions - In the event that the Company shall offer and sell on a private,
non-registered basis at any time during which any shares of Preferred Stock
remain outstanding any share of common stock of the Company at a price of less
than $5.00 per share, the Company shall forthwith grant to the holder(s) of any
then outstanding shares of Preferred Stock a warrant allowing said holder(s) to
acquire from the Company one (1) share of common stock for each ten shares of
common stock issued and sold. The warrant shall be exercisable for a period of
one (1) year after grant at the price for which the shares of common stock
causing the imposition of this provision were issued and sold.
RESOLVED FURTHER that the following individuals are appointed to serve as
directors of the Company: Michael Sheriff, James E. Malone and R.J. Pipes; that
Mr. Sheriff shall serve as Chairman; and that the resignation of Mr. Mark S.
Pierce as a director of the Company is hereby accepted immediately as evidenced
by his signature below.
RESOLVED FURTHER that the following individuals are appointed to serve as
officers of the Company: Michael Sheriff - Chief Executive Officer, James E.
Malone - President and Treasurer and William J. Flannery, III Secretary; and
that the resignation of Mr. Mark S. Pierce from all positions as an officer of
the Company is hereby accepted immediately as evidenced by his signature below.
RESOLVED FURTHER that the President and Secretary are hereby authorized and
directed to cause to be filed under corporate seal such certificates as shall be
requisite to the end that the stock shall be issued and delivered to the
Shareholders as aforesaid; and
RESOLVED FINALLY that the President be, and he hereby is, authorized to (I)
effectuate, to the extent necessary and appropriate, those actions taken hereby,
(ii) issue a certificate or certificates for the shares, (iii) prepare a form of
certificate for the shares in accordance with the above resolutions and (iv)
provide for filing all necessary documentation with the Secretary of State for
the State of Colorado, applicable state securities authorities and the United
States Securities and Exchange Commission.
IN WITNESS WHEREOF, the undersigned, being the sole member of the Board of
Directors, has hereunto set his hand effective as of the date first specified
above.
/s/ Mark S. Pierce
- ------------------------
Mark S. Pierce, Director
<PAGE>
EXHIBIT A
SERIES A: REDEEMABLE PREFERRED STOCK PROVISIONS
The Series A: Redeemable Preferred Stock (the Preferred Stock or the Series A
Preferred Stock) shall consist of one (1) series of Seventy Thousand (70,000)
shares of the preferred stock of CBQ, Inc., (Company), with each share to be
identical to every other in all respects. The following sets forth the
provisions of the Series A Preferred Stock.
Part 1: Dividends: The holders of the issued and outstanding Preferred Stock
shall not be entitled to receive dividends.
Part 2: Conversion: The holders of the Preferred Stock shall have no conversion
rights.
Part 3: Redemption: The Company shall have an elective and cumulative redemption
right as follows: (1) from and after November 19, 1998, and up to and including
November 18, 1999, the Company may redeem, at any time and from time to time,
all or any portion of up to 7,000 preferred shares at a price of $10 per share;
(2) from and after November 19, 1999, and up to and including November 18, 2000,
the Company may redeem, at any time and from time to time, all or any portion of
(y) the preferred shares not redeemed under (1) and (z) up to an additional
14,000 preferred shares at a price of $11.00 per share; (3) from and after
November 19, 2000, and up to and including November 18, 2001, the Company may
redeem, at any time and from time to time, all or any portion of (y) those
preferred shares not redeemed under (1) and (2) and (z) up to an additional
21,000 preferred shares at a price of $12.00 per share; (4) from and after
November 19, 2001, and up to and including November 18, 2002, the Company may
redeem, at any time and from time to time, all or any portion of (y) those
preferred shares not redeemed under (1), (2) and (3) and (z) up to an additional
28,000 preferred shares at a price of $13.00 per share. In the event that the
Company offers and sells its securities to the public through an offering
registered with the Securities and Exchange Commission, the Company shall
forthwith redeem the outstanding Preferred Stock not previously redeemed at a
price per share of $10.00 per share until November 18, 1999, $11.00 per share
until November 18, 2000, $12.00 per share until November 18, 2001 and $13.00 per
share until and after November 18, 2002.
Part 4: Liquidation: The Preferred Stock shall not be entitled to preferential
liquidation rights over any other class or series of stock previously or which
may subsequently be issued by the Company.
Part 5: Sinking Fund: The Preferred Stock shall not be entitled to the
establishment of any sinking fund for any purpose.
Part 6: Voting Rights: The Preferred Stock shall have no voting rights.
Part 7: Additional Provisions: In the event that the Company shall offer and
sell at any time on a private, non-registered basis during which any shares of
Preferred Stock remain outstanding any share of common stock of the Company at a
price of less than $5.00 per share, the Company shall forthwith grant to the
holder(s) of any then outstanding shares of Preferred Stock a warrant allowing
said holder(s) to acquire from the Company one (1) share of common stock for
each ten shares of common stock issued and sold. The warrant shall be
exercisable for a period of one (1) year after grant at the price for which the
shares of common stock causing the imposition of this provision were issued and
sold.
