<PAGE>
EXHIBIT 10.38
REDEMPTION AND RECAPITALIZATION AGREEMENT
This Redemption and Recapitalization Agreement (the "Agreement")
is
entered into this April 25, 2006 by and between Lightyear PBI
Holdings, LLC, a
Delaware limited liability company ("Investor"), and Private
Business, Inc., a
Tennessee corporation ("Company").
WHEREAS, Investor is the holder of 21,012.5 shares of the
Company's
Series A Preferred Stock (together with any additional shares of
the Company's
Series A Preferred Stock issued as the result of payments in kind
of dividends
for such securities after the date hereof, the "Series A Preferred
Stock"),
10,000 shares of the Company's Series C Preferred Stock (together
with any
additional shares of the Company's Series C Preferred Stock issued
as the result
of payments in kind of dividends for such securities after the date
hereof, the
"Series C Preferred Stock"), a warrant to purchase 16,000,000
shares of the
Company's common stock (the "Common Stock") at an exercise price of
$1.25 per
share (the "Original Series A Warrant"); warrants to purchase
767,045 shares of
the Company's common stock at an exercise price of $1.25 (the
"Series A PIK
Warrants" and, together with the Original Series A Warrant and any
additional
warrants issued as the result of payments in kind of dividends for
the Series A
Preferred Stock, the "Series A Warrants"); a currently exercisable
warrant to
purchase 1,893,940 shares of Common Stock at an exercise price of
$1.32 per
share (the "2006 Warrant"); and a warrant to purchase 1,893,939
shares of Common
Stock at an exercise price of $1.32 per share that becomes
exercisable on June
9, 2007 (the "2007 Warrant" and, together with the Series A
Preferred Stock, the
Series C Preferred Stock, the Series A Warrants and the 2006
Warrant, the
"Investor Securities"); and
WHEREAS, Company desires to engage in an underwritten offering of
its
common stock on substantially the terms set forth in the
Registration Statement
on Form S-1 filed with the Securities Exchange Commission on April
25, 2006 (the
"Offering"), a portion of the proceeds of which will be used, along
with newly
issued shares of Common Stock, to redeem all of the outstanding
shares of Series
A Preferred Stock and Series C Preferred Stock, the 2006 Warrant,
and the 2007
Warrant, and any additional securities issued as the result of
payments in kind
of dividends for such securities after the date hereof as described
herein, and
concurrently therewith, the Company intends to recapitalize the
Series A
Warrants in a manner intended to qualify as a plan of
reorganization with the
meaning of Section 368 of the Internal Revenue Code.
NOW, THEREFORE, intending to be legally bound, the undersigned
have
agreed as follows:
1.
REDEMPTION OF THE INVESTOR SECURITIES. Effective upon the
Closing
(which, for purposes of this Agreement, shall be defined as the
receipt
by Company of the net proceeds from the sale of its common stock in
the
Offering, the consummation of the transactions set forth below and
the
cancellation of the Investor guarantee as described in Section
5(a)(ii)
hereof):
(a) Investor
shall surrender to Company for cancellation all of
Investor's right, title and interest in and to the Series A
Preferred Stock and the Series C Preferred Stock (the
"Preferred Stock Redemption"). Company shall pay Investor at
Closing in immediately available funds the purchase price for
the Preferred Stock Redemption (the "Preferred Stock Purchase
Price"), which shall be calculated as follows:
1
<PAGE>
(i) an amount
equal to: (A) the number of shares of
Series A Preferred Stock held by Investor at Closing,
multiplied by the Original Issue Purchase Price (as
defined in the Amended and Restated Designation of
Preferences, Limitations, and Relative Rights of
Series A Preferred Stock of Private Business, Inc.
(the "Series A Designations")); plus (B) all accrued
but unpaid dividends owed at Closing pursuant to the
Series A Designations on the shares of Series A
Preferred Stock held by Investor at Closing; plus
(ii)
an amount equal to: (A) the number of shares of
Series C Preferred Stock held by Investor at Closing,
multiplied by the Original Issue Purchase Price (as
defined in the Amended and Restated Designation of
Preferences, Limitations, and Relative Rights of
Series C Preferred Stock of Private Business, Inc.
(the "Series C Designations")); plus (B) all accrued
but unpaid dividends owed at Closing pursuant to the
Series C Designations on the shares of Series C
Preferred Stock held by Investor at Closing.
For the avoidance of doubt, a sample calculation of the
Preferred Stock Purchase Price is attached hereto as Exhibit
A.
(b) Investor
shall surrender to Company for cancellation all of
Investor's right, title and interest in and to the Series A
Warrants (the "Series A Warrant Recapitalization"). The
securities to be delivered to Investor in exchange for the
Series A Warrants in the Series A Warrant Recapitalization
(the "Series A Warrant Recapitalization Securities") shall be
that number of newly issued shares of Common Stock equal to
Fourteen and 9/10ths Percent (14.9%) of the Fully Diluted
Common Stock as of the Closing, including the Series A Warrant
Recapitalization Securities, (as defined below). For purposes
of
this Agreement, the Fully Diluted Common Stock as of the
Closing shall equal:
(i) the number
of shares of Common Stock issued and
outstanding immediately following the Closing,
excluding (A) the Investor Securities and (B) the
outstanding shares of the Company's Series B
Preferred Stock, which Company shall redeem within
sixty (60) days following the Closing; plus
(ii)
One Million Sixty Thousand Six Hundred and Six
(1,060,606) shares of Common Stock, representing the
amount agreed to by the parties as representing the
estimated number of shares to be issued pursuant to
existing acquisition earn-outs (which number of
shares shall be adjusted for any reverse stock split
that Company may effect at or prior to the Closing);
plus
(iii) the
number of shares of Common Stock allocable to the
issued and outstanding options to purchase Common
Stock as of the Closing (though there shall not then
be issued options exercisable for more than 7,714,680
shares of Common Stock), as calculated utilizing the
treasury stock repurchase method at the price at
which shares of Common Stock are sold in the
Offering. For the avoidance of doubt, a sample
calculation of the treasury stock repurchase method
is attached hereto as Exhibit B.
2
<PAGE>
The shares of Common Stock issued to Investor as the Series A
Warrant Recapitalization Securities shall be restricted from
transfer for a period of eighteen (18) months from Closing
(the "Restricted Period") pursuant to the terms of a stock
restriction agreement (the "Stock Restriction Agreement"), the
form of which shall be agreed to by Investor and Company prior
to Closing. Investor is acquiring such shares of Common Stock
for its own account and not with a view to their distribution
within the meaning of Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act"). Investor acknowledges
that it is an accredited investor as that term is defined in
Rule 501(a) promulgated under the Securities Act, and that
such shares of Common Stock have not been registered under the
Securities Act or any blue sky laws.
Furthermore, the certificates evidencing the shares of Common
Stock issued as the Series A Warrant Recapitalization
Securities will bear a legend substantially similar to the
following:
The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended (the "Act") or state securities laws and
cannot be offered, sold or otherwise transferred in
the absence of registration or the availability of an
exemption from registration under the Act and
regulations promulgated thereunder and applicable
state securities laws. Furthermore, the shares
represented by this certificate are subject to
certain restrictions on transfer as set forth in a
Stock Restriction Agreement, a copy of which is
available from the Company upon request.
(c) Investor
shall surrender to Company for cancellation all of
Investor's right, title and interest in and to the 2006
Warrant (the "2006 Warrant Redemption"). The purchase price
for the 2006 Warrant Redemption (the "2006 Warrant Purchase
Price") shall be One Million Two Hundred Thousand Dollars
($1,200,000), payable by Company at Closing in immediately
available funds.
(d) The 2007
Warrant shall be cancelled without further action in
accordance with its terms based upon the redemption of the
Series C Preferred Stock.
2.
TERMINATION OF RIGHTS, OBLIGATIONS, DEBTS AND AGREEMENTS.
(a) At
Closing, and with the exception of any rights, obligations,
debts or agreements created by the terms of this Agreement and
the Stock Restriction Agreement, all rights, obligations,
debts, and agreements, whether or not matured or asserted,
between Investor and Company shall be cancelled, terminated
and of no further effect including, but not limited to, the
following:
(i)
termination of the following agreements, together
with termination of all rights, obligations, debts
and agreements arising thereunder: the Amended and
Restated Securities Purchase Agreement dated December
24, 2003, between Company and Investor; the Warrant
Agreement dated January 20, 2004, by and among
Company and Investor; subject to clause (b) below,
the Securityholders Agreement dated January 20, 2004,
by and among Company and Investor (the
"Securityholders Agreement"); the Guaranty Side
Letter dated January 23, 2006
3
<PAGE>
between Company, Investor, and The Lightyear Fund,
L.P.; the Exchange Agreement dated January 23, 2006
between Company and Investor; the Amended and
Restated Warrant Agreement dated January 23, 2006
between Company and Investor; the Securities Purchase
Agreement dated December 9, 2005 between Company and
Investor; and each and every certificate representing
shares of Series A Preferred Stock, shares of Series
C Preferred Stock, or warrants issued pursuant to any
of the foregoing agreements; and
(ii)
termination of all rights, obligations, debts and
agreements arising under each of the Series A
Designations and the Series C Designations.
(b) The
Securityholders Agreement will be amended in a form
reasonably acceptable to the Investor and the Company to
eliminate all of Investor's rights thereunder except a single
demand registration right and unlimited piggyback registration
rights, each of which shall only be exercisable after the
Restricted Period (with the exception of a single exercise of
the piggyback registration rights, which shall be exercisable
during the Restricted Period), all on substantially the same
terms as are set forth in the Securityholders Agreement.
(c) Investor
hereby waives its registration rights and pre-emptive
rights associated with the Offering.
3.
INVESTOR COVENANTS.
(a) Prior to
the Closing, Investor irrevocably and unconditionally
agrees that at any meeting (whether annual or special, and at
each adjourned or postponed meeting) of the shareholders of
Company, however called, Investor will (i) appear at each such
meeting or otherwise cause its shares of Common Stock, Series
A Preferred Stock and Series C Preferred Stock to be counted
as present
thereat for purposes of calculating a quorum, and
(ii) vote, or cause to be voted at such meeting, all of
Investor's shares of Common Stock, Series A Preferred Stock
and Series C Preferred Stock (A) to approve the reverse stock
split as described in Proposal 3 of the Company's proxy
statement dated April 13, 2006, (B) to approve any proposal
required to be made to the shareholders of Company to
facilitate the Offering or any transaction by which Company
raises the equity and/or debt required to consummate the
transactions contemplated in this Agreement, (C) against any
proposal made in
opposition to, or in competition or
inconsistent with, the transactions expressly contemplated by
this Agreement, and (D) against any liquidation or winding up
of Company.
(b) Following
the Closing, David Glenn shall remain on the board
of directors of Company as the sole remaining director
affiliated with Investor (such remaining director shall be
referred to as the "Investor Director"), it being understood
that this provision shall not impact the continued service of
directors McCabe and Hough who are not affiliates of Investor.
4.
COMPANY COVENANTS. Following the Closing, Company shall take
such
actions as may be required under applicable law to cause the board
of
directors of Company (including any nominating committee thereof)
to
nominate and elect the Investor Director to continue to serve on
the
board of directors of Company until the earlier of (a) the
resignation
of the Investor Director o
