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:
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(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.
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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
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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 Xxxxx 00, 0000, (X) 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, Xxxxx Xxxxx 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 XxXxxx and Xxxxx 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 or (b) the date (the "Investor Rights
Termination Date") on which Investor has sold or
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otherwise disposed of an aggregate number of shares of Common Stock
equal to One Third (1/3) of the number of Series A Warrant
Recapitalization Securities. In the event of the death, disability,
retirement, resignation or removal (with or without cause) of the
Investor Director before the Investor Rights Termination Date, Investor
may designate another individual to be elected to fill the vacancy
created thereby, and Company shall cause the vacancy created thereby to
be filled by such new designee as soon as possible, and Company hereby
agrees to take, at any time and from time to time, all actions
necessary to accomplish the same.
5. CONDITIONS.
(a) Conditions to Obligations of Investor. The obligations of
Investor hereunder are subject to the satisfaction, on or
prior to Closing, of the following conditions, unless waived
in writing by Investor:
(i) Company shall repay all principal and accrued
interest, whether or not then due, under the Bank of
America Amended and Restated Credit Facility dated
January 23, 2006, as amended (the "Bank of America
Credit Facility");
(ii) Company shall cause The Lightyear Fund, L.P. to be
released from its guarantee of the Term B Note under
the Bank of America Credit Facility;
(iii) at least one additional co-manager for the Offering
will be determined by the Company's special committee
with input and advice from Company management and
from Friedman, Billings, Xxxxxx & Co., Inc., and such
co-manager shall have been named on the cover of the
preliminary prospectus for the Offering distributed
to potential investors in Company Common Stock before
or during the road show for the Offering;
(iv) no material shareholder litigation shall be pending
naming as defendant Investor or any of the directors
designated by Investor relating to the transactions
contemplated by this Agreement;
(v) Investor and Company shall have entered into a
management rights agreement, substantially in the
form attached hereto as Exhibit 5;
(vi) Company shall concurrently with Closing provide
irrevocable notice to the holder of the Company's
Series B Preferred Stock to redeem all of the Series
B Preferred Stock and, in the event Company fails to
redeem all of the Series B Preferred Stock within
sixty (60) days following the Closing or if any
shares of Series B Preferred Stock are converted into
Common Stock, Company shall issue that number of
additional shares of Common Stock that Investor would
have been entitled to receive had the calculation of
the Series A Warrant Recapitalization Securities been
calculated at the Closing with the inclusion of the
Series B Preferred Stock in the Fully Diluted Common
Stock; and
(vii) Company shall have fulfilled its covenants and
obligations under this Agreement.
(b) Conditions to Obligations of Company. The obligations of
Company hereunder are subject to the satisfaction by Investor
of its covenants and obligations under this Agreement on or
prior to Closing, unless waived in writing by Investor.
6. MISCELLANEOUS.
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(a) Additional Actions and Documents. Each of the parties hereto
hereby agrees to take or cause to be taken such further
actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents, and to obtain such
consents, as may be necessary or as may be reasonably
requested by the other party hereto in order to fully
effectuate the purposes, terms and conditions of this
Agreement.
(b) Fees and Expenses. Each of the parties hereto shall pay its
own fees and expenses incident to this Agreement and the
transactions contemplated hereunder, provided, however, that
Company shall be obligated to pay the reasonably documented
outside legal fees and other expenses of Investor in
connection with this transaction and the related offering in
an amount not to exceed Two Hundred Thousand Dollars
($200,000); provided, however, that in the event it shall be
necessary to modify the terms of this Agreement or the terms
of the Offering in any material respect, or any other
unanticipated circumstance shall arise, such amount shall be
increased to reflect such changes in circumstances.
(c) Assignment. Neither Company nor Investor shall assign its
rights and obligations under this Agreement, in whole or in
part, whether by operation of law or otherwise, without the
prior written consent of the other party hereto, and any such
assignment contrary to the terms hereof shall be null and void
and of no force and effect; provided, however, that Investor
may assign its rights under this Agreement to any of its
Affiliates (as defined below). In no event shall the
assignment by Company or Investor of its rights or obligations
under this Agreement release Company or Investor from their
respective liabilities and obligations hereunder. Investor
shall not assign or transfer any of the Investor Securities
prior to Closing. For purposes of this Agreement, the term
"Affiliate" shall mean with respect to any person, any other
person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common
control with, such specified person, for so long as such
person remains so associated to the specified person.
(d) Entire Agreement; Amendment. This Agreement, together with the
Stock Restriction Agreement, constitutes the entire agreement
between the parties hereto with respect to the transactions
contemplated herein, and they supersede all prior oral or
written agreements, commitments or understandings with respect
to the matters provided for herein. No amendment, modification
or discharge of this Agreement shall be valid or binding
unless set forth in writing and duly executed and delivered by
the party against whom enforcement of the amendment,
modification, or discharge is sought.
(e) Waiver. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement
or any other agreement or document given pursuant to or in
connection with this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default
or any acquiescence therein. No single or partial exercise of
any such right, power or privilege shall preclude the further
exercise of such right, power or privilege, or the exercise of
any other right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by
the party against whom enforcement of such waiver is sought
and then only to the extent expressly specified therein.
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(f) Severability. If any part of any provision of this Agreement
or any other agreement or document given pursuant to or in
connection with this Agreement shall be invalid or
unenforceable in any respect, such part shall be ineffective
to the extent of such invalidity or unenforceability only,
without in any way affecting the remaining parts of such
provision or the remaining provisions of this Agreement.
(g) Governing Law. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating
thereto, shall be governed by and construed in accordance with
the laws of the state of New York.
(h) Jurisdiction; No Jury Trial. Each of the parties hereby
irrevocably and unconditionally submits to the exclusive
jurisdiction of the federal courts located in the State of New
York, for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated
hereby (and each of the parties agrees not to commence any
action, suit or proceeding relating thereto except in such
courts), and further agrees that service of any process,
summons, notice or document by U.S. registered mail to its
address set forth above shall be effective service of process
of any action, suit or proceeding brought against it in any
such court. Each of the parties hereby irrevocably and
unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement
or the transactions contemplated hereby in such federal courts
as aforesaid and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in
any such court has been brought in an inconvenient forum. Each
of the parties hereto hereby irrevocably and unconditionally
waives trial by jury in any legal action or proceeding
relating to this Agreement and for any counterclaim therein.
(i) Notices. All notices, demands, requests, or other
communications which may be or are required to be given,
served, or sent by any party to any other party pursuant to
this Agreement shall be in writing and shall be hand
delivered, sent by overnight courier or mailed by first-class,
registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Company:
Private Business, Inc.
0000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: G. Xxxx Xxxxx
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx Xxxxxx Xxxx Xxxxxxx & Manner, P.C.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxx Xxx
Facsimile: (000) 000-0000
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If to Investor:
c/o The Lightyear Fund, L.P.
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with a copy (which shall not constitute notice) to:
Xxxxxxx Xxxxxxx & Xxxxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxxxx
Facsimile: (000) 000-0000
Each party may designate by notice in writing a new address to
which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand,
request, or communication that shall be hand delivered, sent,
mailed, faxed in the manner described above, shall be deemed
sufficiently given, served, sent, received or delivered for
all purposes at such time as it is delivered to the addressee
(with the return receipt or the delivery receipt being deemed
conclusive, but not exclusive, evidence of such delivery) or
at such time as delivery is refused by the addressee upon
presentation.
(j) Headings. Section headings contained in this Agreement are
inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and
shall not in any way define or affect the meaning,
construction or scope of any of the provisions hereof.
(k) Execution in Counterparts. To facilitate execution, this
Agreement may be executed in as many counterparts as may be
required. It shall not be necessary that the signatures of, or
on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of,
or on behalf of, each party, or that the signatures of the
persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively
constitute a single Agreement. It shall not be necessary in
making proof of this Agreement to produce or account for more
than a number of counterparts containing the respective
signatures of, or on behalf of, all of the parties hereto.
(l) Binding Effect. Subject to any provisions hereof restricting
assignment, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their
respective successors, heirs, executors, administrators, legal
representatives and assigns. Whenever statements as to
enforceability are made in this Agreement, it is acknowledged
and agreed that such enforceability may be limited by
insolvency, bankruptcy, moratorium, or similar laws, rules and
regulations affecting creditors' rights generally and by
general principles of equity.
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(m) No Third-Party Beneficiaries. Nothing in this Agreement will
be construed as giving any person, other than the parties
hereto and their successors and permitted assigns, any right,
remedy or claim under or in respect of this Agreement or any
provision hereof.
(n) Specific Performance. The parties agree that irreparable
damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which
such party is entitled at law or in equity.
(o) Indemnification. The Company shall indemnify and hold harmless
Investor and its affiliates, directors, officers, employees,
partners, members, agents and representatives, including any
directors of the Company that are employees of Lightyear
Capital, LLC (collectively, "Indemnified Persons"), to the
fullest extent permitted by law, against all losses, claims,
damages, liabilities, judgments, fines, expenses and amounts
paid in settlement suffered by any of them ("Damages"), to the
extent arising from, relating to, or otherwise in respect of,
the transactions contemplated hereby (whether pertaining to
any acts or omissions or existing prior to, at or following
the date of this Agreement) except for Damages that both (i)
arise out of or are based on any action of or failure to act
by an Indemnified Person and (ii) that are finally determined
(by a court of competent jurisdiction and after exhausting all
appeals or in an arbitration conducted in accordance with this
Agreement) to have resulted solely from the willful misconduct
of an Indemnified Person, or as a result of any written
material provided to Company by any Indemnified Person for the
purpose of inclusion in the Form S-1 filed in connection with
the Offering. Any Indemnified Person that is a Company
director will be entitled to the advancement of reasonable
expenses as incurred by such Indemnified Person in connection
with any matters for which such Indemnified Person is or may
be entitled to indemnification from the Company pursuant to
this Section 6(o) to the fullest extent permitted under
applicable law.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or have caused this Agreement to be duly executed on their behalf, as
of the day and year first above written.
PRIVATE BUSINESS, INC.
By: /s/ G. Xxxx Xxxxx
------------------------------------------
Name: G. Xxxx Xxxxx
Its: Chief Executive Officer
LIGHTYEAR PBI HOLDINGS, LLC
By: /s/ Xxxxxxx Xxxxxx
------------------------------------------
Name: Xxxxxxx Xxxxxx
Its: Chief Financial Officer
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Exhibit A
Set forth below is a sample calculation of the Preferred Stock Purchase Price
for the Series A and Series C preferred stock, assuming a Closing on July 1,
2006.
Outstanding Shares
Security at July 1, 2006 Liquidation Preference Redemption Amount
Series A 21537.81 $1,000.00 $21,537,812.50
1,000.00 per share +
Series C 10,000 $556,164.38 of accrued
dividends $10,556,164.38
--------------
Total Series A and C $32,093,976.88
Note: The outstanding shares includes the original 20,000 and 10,000 shares of
Series A and Series C, respectively, plus PIK dividends.
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Exhibit B
The treasury method of accounting for options shall be used to calculate the
dilutive effect of outstanding options in the same manner as used by Company in
connection with its quarterly and annual calculation of fully-diluted shares for
its fully-diluted earnings per share as follows (using the price per share in
the Offering in lieu of the calculation period's average market price to
determine dilutive effect):
Step One: The exercise price for each outstanding option (vested or unvested) is
compared to the Offering price.
Step Two: If the exercise price of an option is above the Offering price, then
none of the shares underlying the option are included in the fully-diluted
shares.
Step Three: If the exercise price of an option is below the Offering price, then
the number of shares included in the fully-diluted shares for such option shall
equal:
Total shares underlying the option
less
The amount determined by dividing (x) total proceeds from the full
exercise of the option) by (y) the Offering price.
Example
Company's calculations for option dilutions as of December 31, 2005 for use in
the Company's Annual Report on Form 10-K is included on the following page. The
first dilutive option as of that date based on the average market price was:
12/31/2005 OPTION AVG MKT PROCEEDS TREASURY
OPTIONS/SHRS STRIKE STOCK IF SHARES INCREMENTAL
OUTSTANDING PRICE PRICE DILUTIVE ACQUIRED SHARES
------------------ ------------ ------------ ------------ ------------- ----------------
330,027 $ 0.590 $ 1.200 194,716 162,263 167,764
For purposes of this Agreement, assuming a public offering price per share of
$1.75, the incremental shares to be included in the Fully Diluted Common Stock
as of the Closing for such option would be 218,761.
---------------------------
Note: All figures used in this example are prior to the reverse stock split
currently contemplated by Company.
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Option Dilution Calculation as of December 31, 2005
12/31/2005 OPTION AVG MKT PROCEEDS TREASURY
OPTIONS/SHRS STRIKE STOCK IF SHARES INCREMENTAL
OUTSTANDING PRICE PRICE DILUTIVE ACQUIRED SHARES
------------------- -------------- -------------- -------------- ---------------- -----------------
- $ 0.990 $ 1.200 0 FALSE 0
5,308 $ 1.500 $ 1.200 FALSE - FALSE
137,214 $ 1.651 $ 1.200 FALSE - FALSE
97,159 $ 2.751 $ 1.200 FALSE - FALSE
33,862 $ 4.590 $ 1.200 FALSE - FALSE
54,090 $ 3.301 $ 1.200 FALSE - FALSE
2,726 $ 5.502 $ 1.200 FALSE - FALSE
46,799 $ 5.502 $ 1.200 FALSE - FALSE
47,039 $ 6.180 $ 1.200 FALSE - FALSE
8,179 $ 6.878 $ 1.200 FALSE - FALSE
37,257 $ 39.617 $ 1.200 FALSE - FALSE
17,224 $ 15.990 $ 1.200 FALSE - FALSE
1,212 $ 42.643 $ 1.200 FALSE - FALSE
20,966 $ 24.000 $ 1.200 FALSE - FALSE
23,196 $ 24.000 $ 1.200 FALSE - FALSE
182 $ 21.129 $ 1.200 FALSE - FALSE
636 $ 14.251 $ 1.200 FALSE - FALSE
312 $ 18.570 $ 1.200 FALSE - FALSE
3,937 $ 20.117 $ 1.200 FALSE - FALSE
16,667 $ 12.375 $ 1.200 FALSE - FALSE
4,622 $ 12.189 $ 1.200 FALSE - FALSE
3,635 $ 4.644 $ 1.200 FALSE - FALSE
11,279 $ 5.343 $ 1.200 FALSE - FALSE
27,563 $ 1.307 $ 1.200 FALSE - FALSE
- $ 3.000 $ 1.200 FALSE - FALSE
66,667 $ 3.750 $ 1.200 FALSE - FALSE
18,174 $ 2.201 $ 1.200 FALSE - FALSE
63,143 $ 2.201 $ 1.200 FALSE - FALSE
37,240 $ 2.718 $ 1.200 FALSE - FALSE
33,334 $ 3.750 $ 1.200 FALSE - FALSE
200,000 $ 2.070 $ 1.200 FALSE - FALSE
10,000 $ 1.550 $ 1.200 FALSE - FALSE
- $ 1.640 $ 1.200 FALSE - FALSE
63,409 $ 1.950 $ 1.200 FALSE - FALSE
10,000 $ 2.650 $ 1.200 FALSE - FALSE
100,000 $ 1.770 $ 1.200 FALSE - FALSE
330,027 $ 0.590 $ 1.200 194,716 162,263 167,764
21,919 $ 1.250 $ 1.200 FALSE - FALSE
30,000 $ 1.120 $ 1.200 33,600 28,000 2,000
100,000 $ 1.830 $ 1.200 FALSE - FALSE
217,457 $ 2.190 $ 1.200 FALSE - FALSE
2,641,077 $ 1.320 $ 1.200 FALSE - FALSE
119,620 $ 1.320 $ 1.200 FALSE - FALSE
16,000,000 $ 1.250 $ 1.200 FALSE - FALSE
3,787,879 $ 1.320 $ 1.200 FALSE - FALSE
905,797 $ 1.320 $ 1.200 FALSE - FALSE
------------------- -----------------
25,356,807 169,764
=================== =================
13
