PRIVATE BUSINESS INC, POS AM, 1999-05-26

PRIVATE BUSINESS INC
POS AM, 1999-05-26
BUSINESS SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1999

REGISTRATION NO. 333-75013
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

POST EFFECTIVE

AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PRIVATE BUSINESS, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
TENNESSEE 7389 62-1453841
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

9010 OVERLOOK BOULEVARD
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-8400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

---------------------

JERRY L. COVER
9010 OVERLOOK BOULEVARD
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 221-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

---------------------

COPIES TO:

<TABLE>
<S> <C>
MARK MANNER STEPHEN A. RIDDICK
HARWELL HOWARD HYNE GABBERT & MANNER, P.C. BROBECK, PHLEGER & HARRISON LLP
1800 FIRST AMERICAN CENTER 701 PENNSYLVANIA AVENUE N.W.
NASHVILLE, TENNESSEE 37238 WASHINGTON, DC 20004
(615) 256-0500 (202) 220-6000
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ] ___________________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _____________________

If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. [ ]

---------------------

PRIVATE BUSINESS HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL PRIVATE BUSINESS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2

PROSPECTUS

4,350,000 SHARES

(PRIVATE BUSINESS LOGO)

COMMON STOCK

------------------

We are a leading provider of integrated services and products that help
community banks provide accounts receivable financing to their small business
customers.

We are offering 4,350,000 shares of common stock in an initial public
offering. Our common stock has been approved for quotation on the Nasdaq
National Market under the symbol "PBIZ." The initial public offering price will
be $8.00 per share. In addition, certain of our directors and affiliates of
other directors will purchase 750,000 shares of common stock at $8.00 per share
in a private placement immediately prior to this offering. The market price of
the shares of common stock after this offering may be higher or lower than the
initial public offering price.

INVESTING IN THE COMMON STOCK INVOLVES MATERIAL RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.

------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $8.00 $34,800,000
Underwriting Discount....................................... $0.56 $ 2,436,000
Proceeds to Private Business................................ $7.44 $32,364,000
</TABLE>

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

We have granted the underwriters a 30-day option to purchase up to 652,500
additional shares of common stock at the initial public offering price to cover
any over-allotments.

We expect to issue these shares on June 1, 1999.

BT Alex. Brown
Lehman Brothers
Salomon Smith Barney

MAY 26, 1999
<PAGE> 3

[PHOTOGRAPH OF TWO BUSINESS MEN STANDING IN FRONT OF A LARGE SCREEN PROJECTION
OF THE BUSINESS MANAGER REPORT VIEWER COMPUTER SCREEN. THERE IS A PRIVATE
BUSINESS LOGO IN THE TOP RIGHT HAND CORNER AND BUSINESS MANAGER ACROSS THE
BOTTOM]
<PAGE> 4

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information and financial statements and notes appearing elsewhere in this
prospectus. Generally, the information in this prospectus assumes that the
over-allotment option granted to the underwriters is not exercised. This
prospectus gives effect to a two-for-one split of our common stock to be
effected in the form of a stock dividend, the voluntary conversion of all shares
of our outstanding convertible preferred stock into an aggregate of 11,248,802
shares of common stock and the private placement of 750,000 shares of common
stock at $8.00 per share to certain directors and affiliates of other directors,
all of which will occur immediately prior to this offering.

OUR BUSINESS

Private Business is a leading provider of integrated services and products
that address the problems faced by community banks in managing accounts
receivable financing provided to their small business customers. Our solution to
these problems is called Business Manager(R) and is based on software, marketing
services and online electronic transaction processing. One element of this
solution is our proprietary software that enables our expanding network of over
1,100 client banks to purchase accounts receivable from their small business
customers. The banks then process, bill and track those receivables on an
ongoing basis. As a major component of our solution, we work with client banks
to design, implement and manage the sale of Business Manager accounts receivable
financing services to their small business customers. We also give our client
banks the option of outsourcing application hosting and transaction processing.
In this case, we host the Business Manager software in our data center and
provide transaction processing services from our facilities. The client banks
are able to receive accounts receivable information and make funding decisions
electronically through secure Internet connections to our data center. Business
Manager uses Windows-based technology and is easy-to-use, flexible and scalable.
Business Manager has been endorsed by the American Bankers Association through
its subsidiary, Corporation for American Banking, since 1994.

We believe that the small business sector is largely underserved by
financial service companies primarily because it is very difficult to cost
effectively manage the sale and support of sophisticated financing products to
small businesses. Community banks, in particular, frequently seek differentiated
financial products to help attract and retain small business customers in their
respective markets. However, these banks generally have not engaged in accounts
receivable financing for small businesses due to perceived credit risks and the
costs and burdens of tracking and controlling the purchased receivables.
Community banks also typically lack the product, marketing and technology
expertise needed to successfully implement a receivables financing process.
Because of the challenges created by ongoing consolidation in the banking
industry and increased competition from national and regional banks, many
community banks are changing their business practices and pursuing new
strategies for growth and customer retention. According to the Federal Deposit
Insurance Corporation these strategies may include:

- outsourcing business functions

- expanding the use of non-traditional funding

- partnering with non-bank service providers

- emphasizing personalized services and developing niches or specialty
offerings to serve a broader customer base
1
<PAGE> 5

The Business Manager solution allows banks to provide differentiated, high
margin financial services to their existing small business customers and to new
prospects without incurring the cost of internal technology development and
additional personnel.

Typically, we sign exclusive license agreements with our client banks to
use the Business Manager software and related services with terms ranging from
three to five years. Under our standard contracts, we receive initial fees for
set-up of Business Manager and ongoing royalty payments equal to a percentage of
every receivable purchased by our client banks. During 1998, approximately 70%
of our revenue resulted from ongoing royalty payments as our client banks
purchased approximately $5.6 billion of receivables.

OUR STRATEGY

We intend to grow our business by implementing the following strategies:

Increase the Number of Business Development Managers. We intend to
increase the number of business development managers by approximately 45% to 146
in 1999 in order to expand into additional geographic areas and increase the
penetration of Business Manager in currently covered regions. Business
development managers are our sales personnel who work with client banks to
market the Business Manager accounts receivable financing services to small
businesses.

Expand and Market In-house Processing Facilities. We are expanding our
processing and service center in Williamson County, Tennessee and intend to
increase the marketing of our outsourced electronic processing services to our
client banks.

Expand Electronic Commerce Services. We intend to increase the number of
electronic commerce specialists by approximately 40% to 24 in 1999 to market and
implement electronic links among our client banks, their customers and our own
processing and service center. Our electronic commerce specialists facilitate
electronic communication among us, client banks and small businesses, making
certain that a small business' electronic accounting system correctly
communicates with the Business Manager software.

Continue to Broaden Product and Services Offering. We have a growing
distribution network of over 1,100 client banks reaching over 8,500 small
businesses. We want to use this distribution channel to offer new products and
services, such as point-of-sale communications systems, key man life insurance
and commercial equipment leasing. Most new offerings will be designed to use an
Internet based delivery system. We intend to establish a small business focused
Internet portal providing relevant business information and enabling
communications and commerce among small businesses and use this channel to
market additional products and services to small businesses.

Target Major Metropolitan Areas Through Our Private Business Capital
Subsidiary. In 1999 we plan to increase from seven to 26 the number of sales
managers for Private Business Capital, Inc., our wholly owned subsidiary.
Through Private Business Capital, we sell our Business Manager solution in major
metropolitan areas directly to the small business market and work with national
and regional funding sources where we do not have community bank relationships.

Pursue Strategic Acquisitions and Alliances. Our industry is in its early
stage of development, and we believe we will have opportunities to acquire or
create alliances with other companies. We have no current commitments or
understandings with respect to any material acquisitions.
2
<PAGE> 6

ABOUT US

Private Business, Inc. was incorporated in Tennessee in December 1990. From
incorporation until August 1998, our company was an S Corporation under the
federal tax laws. We are currently a C Corporation. We do not anticipate paying
cash dividends in the forseeable future. Our executive offices are located at
9010 Overlook Boulevard, Brentwood, Tennessee 37027. Our telephone number is
(615) 221-8400. Information contained on our Web site does not constitute a part
of this prospectus.

After this offering, our officers and directors and their affiliates will
own approximately 67.8% of our outstanding stock (66.2% if the underwriters'
over allotment option is exercised in full). As a result, these officers and
directors and their affiliates will be able to control all matters requiring
majority stockholder approval.

THE OFFERING

Common stock offered by Private
Business, Inc........................... 4,350,000 shares

Common stock outstanding after this
offering................................ 26,476,858 shares

Use of proceeds......................... Reduction of indebtedness

Proposed Nasdaq National Market
symbol.................................. "PBIZ"

Common stock outstanding after this offering is based on the number of
shares outstanding as of April 25, 1999. It excludes:

- 3,287,700 shares of common stock issuable upon exercise of options
outstanding as of May 14, 1999 at a weighted average exercise price of
$5.03 per share

- 2,479,300 shares reserved for future grants under Private Business's
stock option plan
3
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The following summary historical consolidated financial data has been
derived from our audited and unaudited consolidated financial statements for the
respective periods and is not necessarily indicative of the future results of
operations. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", the
Consolidated Financial Statements and the notes thereto, and the other
information contained in this prospectus.

We completed a leveraged recapitalization on August 7, 1998 consisting of a
series of transactions including a term loan to us from a bank group, our
redemption of approximately 9.9 million shares of our outstanding common stock,
our issuance of approximately 5.6 million shares of our Series A Convertible
Preferred Stock and our acquisition of the minority interests of Private
Business Insurance, Inc. Recapitalization charges of $13.8 million included
special one time bonuses paid by us to our employees in recognition of their
services to the company, and the fees paid for various services performed
relating to the recapitalization, including investment banking, legal and
accounting services.

On August 7, 1998 we converted from an S Corporation to a C Corporation.
While an S Corporation for the first seven months of 1998, we recorded a state
tax provision of $451,000. While a C Corporation for the last five months of
1998, we recorded a deferred tax benefit of $2.0 million. At the time of
conversion, we recorded a net deferred tax benefit of $1.1 million for the
temporary differences that existed as of the conversion date. Thus, for the year
we recorded an income tax benefit of $2.6 million.

As a result of our election to be treated as an S Corporation for income
tax purposes, we have not been subject to federal income taxes. The unaudited
pro forma net income (loss) available for common stockholders represents the
estimated net income (loss) that would have been available to common
stockholders had we been a C Corporation for income tax purposes for each of the
periods presented.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Software license................................. $ 2,687 $ 3,283 $ 3,193 $ 2,886 $ 2,947 $ 749 $ 731
Royalties........................................ 9,656 18,912 29,028 38,450 43,793 9,767 10,430
Maintenance and other............................ 382 1,528 1,767 2,325 4,065 764 1,250
------- ------- ------- ------- ------- ------- -------
Total revenues........................... 12,726 23,722 33,988 43,660 50,805 11,280 12,410
OPERATING EXPENSES:
General and administrative....................... 2,908 9,189 10,958 11,835 13,397 3,442 3,381
Selling and marketing............................ 6,761 12,474 12,911 15,867 20,494 4,995 5,653
Research and development......................... 252 447 648 1,125 862 196 195
Amortization..................................... 10 76 115 189 443 81 231
Other operating.................................. 911 443 169 340 312 35 78
Recapitalization charges......................... -- -- -- -- 13,781 -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses................. 10,842 22,629 24,801 29,357 49,289 8,750 9,538
------- ------- ------- ------- ------- ------- -------
Operating income................................. 1,884 1,093 9,187 14,304 1,516 2,530 2,872
OTHER EXPENSES:
Interest expense................................. -- -- -- 146 3,405 58 1,900
Minority interest................................ -- -- -- 140 158 11 --
------- ------- ------- ------- ------- ------- -------
Total other expenses..................... -- -- -- 287 3,562 68 1,900
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes................ 1,884 1,093 9,187 14,017 (2,046) 2,461 972
Income tax provision (benefit)................... 115 129 582 743 (2,585) 136 376
------- ------- ------- ------- ------- ------- -------
Net income....................................... 1,769 964 8,605 13,274 539 2,326 596
Preferred stock dividends and accretion.......... -- -- -- -- (2,204) -- (1,367)
------- ------- ------- ------- ------- ------- -------
Net income (loss) available to common
stockholders................................... $ 1,769 $ 964 $ 8,605 $13,274 $(1,665) $ 2,326 $ (771)
======= ======= ======= ======= ======= ======= =======
</TABLE>

4
<PAGE> 8

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------
1998 1998 1999
------------ ------ -----
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
PRO FORMA INFORMATION (1)(2):
Net income (loss) available for common stockholders......... $(2,913) $1,475 $ 596
======= ====== =====
Income (loss) per common share:
Basic....................................................... $ (0.14) $ 0.07 $0.03
======= ====== =====
Diluted..................................................... $ (0.14) $ 0.07 $0.03
======= ====== =====
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------
ACTUAL AS ADJUSTED(3)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 35 $ 35
Working capital............................................. (9,624) (4,485)
Total assets................................................ 30,904 30,221
Long-term debt, net of current portion...................... 89,250 53,226
Redeemable convertible preferred stock...................... 59,725 --
Total stockholders' equity (deficit)........................ (140,062) (39,857)
</TABLE>

- ---------------

(1) Pro forma net income (loss) and per share amounts reflect the effect of
conversion from an S Corp to C Corp for tax purposes in 1998 and to reflect
the effect of the conversion of the preferred stock into 11,248,802 shares
of common stock and resulting elimination of the preferred stock dividends
for the periods the preferred stock was outstanding.
(2) Supplemental pro forma diluted net income (loss) per share of $(0.09) for
the year ending December 31, 1998 and $0.04 for the quarter ended March 31,
1999 was computed by adjusting the pro forma income (loss) per share as
reflected above for the reduction in interest expense after giving effect to
the number of shares sold (at the initial public offering price of $8.00 per
share) and the private placement of 750,000 shares of common stock at $8.00
per share to certain directors and affiliates of other directors, the
aggregate proceeds of which will be used to repay $37.6 million in debt at
December 31, 1998 and March 31, 1999, respectively.
(3) The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the 4,350,000 shares of common stock offered by this
prospectus at the initial public offering price of $8.00 per share, the sale
of 750,000 shares of common stock in a private placement immediately
preceding this offering at $8.00 per share, and the application of the net
proceeds as described in "Use of Proceeds," after deducting the underwriting
discount and estimated offering expenses and conversion of convertible
preferred stock to be converted voluntarily upon completion of this
offering.
5
<PAGE> 9

FORWARD-LOOKING STATEMENTS

Some statements in the Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Business sections, and elsewhere in the prospectus, constitute forward-looking
statements. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Private Business or industry results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include those described
under Risk Factors. There can be no assurance that the forward-looking
statements included in this prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of this information should not be regarded as a
representation by Private Business or any other person that the objectives and
plans of Private Business will be achieved.

RISK FACTORS

You should be aware that there are risks to investing in our common stock.
Based upon factors currently known to us, we believe that the following risk
factors set forth the material risks to us. You should carefully consider the
risks described below together with all of the other information included in
this prospectus before making an investment decision. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.

WE PRIMARILY DEPEND ON ONE PRODUCT.

We currently derive substantially all of our revenues from the sale of
Business Manager, with approximately 6% of our revenues derived from licensing
Business Manager to client banks and approximately 84% derived from ongoing
royalties based on accounts receivables purchased by our bank clients from small
businesses. We expect to continue to derive significant revenues from this
product and related services. If total revenues derived from Business Manager
decline, we do not have sufficient other products or services to replace that
lost revenue, so any events that adversely impact Business Manager will
adversely impact our business. We cannot be certain that we will be able to
continue to successfully market and sell Business Manager to both banks and
their small business customers or that problems will not develop with Business
Manager that could materially impact our business.

WE MAY BE UNABLE TO PROMOTE BUSINESS MANAGER TO NEW AND EXISTING SMALL BUSINESS
CUSTOMERS.

Other than the initial license fee and a small annual support fee, we do
not generate any income from banks licensing Business Manager unless small
businesses finance their accounts receivable through our client banks. If we and
our client banks cannot convince existing and potential small business customers
of the benefits of Business Manager, such businesses will not be willing to use
our solution. Since small business customers of our client banks are a
foundation of our business, their unwillingness to use Business Manager could
have a material adverse effect on our business, financial condition or results
of operations.

6
<PAGE> 10

WE DEPEND ON THE BANKING INDUSTRY ALMOST EXCLUSIVELY FOR CLIENTS.

We license Business Manager almost exclusively to banks, and primarily to
community banks. Due to our dependence upon the banking industry, any events
that adversely impact the industry in general and community banks in particular,
such as changed or expanded bank regulations, could adversely affect us and our
operations. The banking industry is subject to supervision by several federal
and/or state governmental regulatory agencies. Regulation of banks, especially
with respect to receivable services such as Business Manager, can indirectly
affect our business. The use of Business Manager by banks is currently in
compliance with or is not subject to banking regulations. But, these regulatory
agencies could change or impose new regulations on banks, including modifying
the banks' ability to offer products and services similar to ours to their small
business customers. These new regulations, if any, could prevent or lessen the
use of our services by banks.

WE MAY BE UNSUCCESSFUL IN MARKETING TO NEW CLIENT BANKS OR RETAINING CURRENT
CLIENT BANKS.

Our success depends to a large degree on our ability to convince
prospective client banks to purchase Business Manager and offer it to small
businesses. Our failure to maintain market acceptance, retain clients or
successfully expand our offered services could materially adversely affect our
business, financial condition or results of operations. We have spent, and will
continue to spend, considerable resources educating potential customers about
our products and services. However, even with these educational efforts, we may
not be able to maintain market acceptance and client retention. In addition, as
we continue to offer new products and expand our services, existing and
potential client banks or their small business customers may be unwilling to
accept the new products or services. In 1998, and in the first quarter of 1999,
we incurred slight decreases in the number of new software licenses from the
previous period.

WE MAY NOT BE ABLE TO ATTRACT AND HIRE ENOUGH QUALIFIED SALES AND MARKETING
PERSONNEL TO MEET OUR GROWTH PLANS.

If we are unable to implement our growth plans, our business, financial
condition or results of operations could be materially adversely affected. An
important part of our growth strategy is to hire a significant number of
additional sales and marketing personnel in order to increase our marketing
capabilities in our current markets and expand the number of markets we serve.
Since competition for experienced sales and marketing personnel is intense, we
cannot be certain that we will be able to attract enough sales and marketing
personnel or that those we do hire will be able to generate new business at the
rate we currently expect. If we are unable to hire enough sales and marketing
personnel or those we hire are not as productive as we expect, we may not be
able to implement our growth plans.

WE INTEND TO GROW OUR BUSINESS AT A RAPID RATE, WHICH MAY BE DIFFICULT FOR US TO
SUSTAIN OR MANAGE.

Our business has grown significantly in size and complexity over the past
several years. We may not be able to sustain this growth. If we cannot sustain
growth or if our management is unable to manage growth effectively, our
business, financial condition or results of operations could be materially
adversely affected. Our growth has placed, and any additional growth would be
expected to continue to place, a significant strain on our management, systems
and operational resources. We anticipate that continued growth, if any, will
require that we recruit, hire and retain a substantial number of new managerial,
finance, sales, marketing and support personnel.

7
<PAGE> 11

We cannot be certain that we will be successful in recruiting, hiring or
retaining such personnel. Our ability to compete effectively and to manage our
future growth, if any, will depend on our ability to maintain and improve our
operational, financial, and management information systems on a timely basis and
to expand, train, motivate and manage our work force. If we continue to grow, we
cannot be certain that our personnel, systems, procedures and controls will be
adequate to support our operations.

Also, one element of our growth strategy is to actively evaluate and pursue
strategic acquisitions of and alliances with businesses that are complementary
to ours. We cannot be certain that we will be able to integrate fully any such
acquisitions or alliances with our existing operations or otherwise implement
our growth strategy.

WE INTEND TO EXPAND OUR PRODUCTS AND SERVICES OFFERING, WHICH MAY LOWER OUR
OVERALL PROFIT MARGIN.

Part of our business strategy is to expand our products and services
offering, including offering leasing services for the equipment needs of small
businesses. This equipment could be office equipment such as computers, printers
or telephone equipment, or other equipment such as forklifts or moving
equipment, depending upon the particular needs of the small businesses. We
believe that we can provide these services profitably, but such services are
likely to generate a lower profit margin than our current products and services.
As a result, by offering additional products and services, we may lower our
overall profit margin. Although gross revenues would likely increase, the
lowering of our profit margin may be viewed negatively by the stock market,
resulting in a reduction in our stock price.

THE BUSINESS MANAGER SOLUTION MAY NOT BE AS SUCCESSFUL IN A SLOWER ECONOMY.

Since the introduction of Business Manager, the United States economy
generally has been fairly strong. If the United States economy weakens or enters
into a recession or depression, our client banks and their small business
customers may view the services and benefits provided by Business Manager
differently and may be reluctant to use the products and services we provide. In
addition, in an economic recession or depression, the customers of small
businesses may reduce their purchases of goods and services thus reducing
accounts receivable eligible for our solution. This development could have a
material adverse effect on our business, operating results and financial
condition.

THE FINANCIAL SERVICES MARKET IS HIGHLY COMPETITIVE AND WE MAY BE UNABLE TO
EFFECTIVELY COMPETE.

The market for small business financial services is competitive, rapidly
evolving, fragmented and highly sensitive to new product introductions and
marketing efforts by industry participants. Increased competition for services
similar to Business Manager could lower our market share and negatively impact
our business and stock price.

We face primary competition from a limited number of companies that offer
to banks products similar to Business Manager. We believe that we are the
largest of the companies offering these services in terms of revenues and number
of client banks under contract.

8
<PAGE> 12

Private Business, have significantly greater resources, generate more revenues
and have greater name recognition.

We cannot be certain that our competitors will not develop products and
services comparable or superior to those that we have developed or adapt more
quickly to new technologies, evolving industry trends or changing small business
requirements. Most providers of traditional sources of financing have already
established relationships with small businesses, may be able to leverage these
relationships to discourage these customers from purchasing the Business Manager
solution or persuade them to replace our products with their products.

We expect that competition will increase as other established and emerging
companies enter the accounts receivable financing market, as new products and
technologies are introduced and as new competitors enter the market. In
addition, as we develop new services, such as commercial equipment leasing, we
may begin competing with companies with whom we have not previously competed.
Increased competition may result in price reductions, lower profit margins and
loss of our market share, any of which could have a material adverse effect on
our business, financial condition and operating results.

WE DEPEND ON KEY EMPLOYEES.

Our future performance will also largely depend on the efforts and
abilities of our executive officers, as well as our key employees described in
"Management" and on our ability to retain them. Generally, our executive
officers and key employees do not have employment agreements. The loss of any of
our executive officers or key employees could have a material adverse effect on
our business, operating results and financial condition.

YEAR 2000 COMPLIANCE ISSUES AT CLIENT BANKS AND THEIR SMALL BUSINESS CUSTOMERS
MAY IMPACT OUR SERVICES.

The failure of client banks or their small business customers to be year
2000 compliant could have an adverse impact on our ability to process
transactions for such banks and their customers. We have performed tests of all
major functionality with the Business Manager software and our tests showed that
its is fully year 2000 compliant. However, there may be client banks and small
business customers with computers or related software programs that are not year
2000 compliant. In addition, we do not know what the effect would be if the
customers of the small businesses have problems as a result of year 2000 issues.
We also may experience reduced sales of our products as potential customers are
concerned about the year 2000. Potential client banks may reduce their budgets
for new services such as Business Manager due to increased expenditures on their
own year 2000 compliance efforts. Any of these events could have a material
adverse effect on our business, operating results and financial condition.

OUR EXECUTIVE OFFICERS AND DIRECTORS AND THEIR AFFILIATES WILL OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK.

Following the completion of this offering, our executive officers,
directors and their affiliates will beneficially own approximately 67.8% of the
outstanding shares of common stock (66.2% if the underwriters over allotment
option is exercised in full). As a result, these stockholders will be able to
control all matters requiring stockholder approval and, thereby, our management
and affairs. Matters that typically require stockholder approval include:

- election of directors

9
<PAGE> 13

- approval of mergers or consolidations

- sale of all or substantially all of our assets

This concentration of ownership may delay, deter or prevent acts that would
result in a change of control of Private Business, which in turn could reduce
the market price of our common stock.

THE INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE DILUTION PER SHARE OF THE
COMMON STOCK BASED ON ITS BOOK VALUE AFTER THE OFFERING.

The initial public offering price is substantially higher than the book
value of our common stock. At the initial offering price of $8.00 per share, the
book value of the common stock after the offering will be $(1.81) per share.
This represents an immediate and complete dilution per share of the common
stock. The dilution per share represents the difference between the amount per
share paid by the purchasers of shares of common stock in this offering and the
net tangible book value per share of common stock immediately after the
completion of this offering. In addition, to the extent outstanding options are
exercised, there will be further dilution to new investors.

OUR CHARTER AND BYLAWS AND TENNESSEE LAW CONTAIN PROVISIONS THAT COULD
DISCOURAGE A TAKEOVER.

Our charter and our bylaws and Tennessee law contain provisions that could
make it more difficult for a third party to obtain control of Private Business.
For example, our charter provides for a staggered board of directors, restricts
the ability of stockholders to call a special meeting and prohibits stockholder
action by written consent and our bylaws allow the board to expand its size and
fill any vacancies without stockholder approval. In addition, the Tennessee
Business Corporation Act contains provisions such as the Tennessee Business
Combination Act and the Tennessee Greenmail Act which impose restrictions on
stockholder actions. For more information on antitakeover provisions in our
charter, bylaws and Tennessee law, please see the description of these
provisions beginning on page 56.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

Sales of a substantial number of shares of common stock in the public
market following the completion of this offering could have a material adverse
effect on the market price of our common stock. All shares sold in this offering
will be freely tradable unless purchased by an affiliate of Private Business.
The remaining shares of common stock outstanding after the completion of this
offering will be available for sale in the public market as follows:

<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
- ----------------------------- ----------------
<S> <C>
Immediately after completion of this offering....... 28,054
90 days after completion of this offering........... 487,447
150 days after completion of this offering.......... 4,172,271
180 days after completion of this offering.......... 12,516,814
210 days after completion of this offering.......... 4,172,272
365 days after completion of this offering.......... 750,000
----------
Total..................................... 22,126,858
==========
</TABLE>

After completion of this offering, the holders of all of the 22,126,858
shares of common stock outstanding prior to this offering will be entitled to
registration rights. If such holders, by exercising their registration rights,
cause a large number of securities to be registered and sold in the public
market, such sales could have an adverse effect on the market price for

10
<PAGE> 14

our common stock. If we were to include, in a company-initiated registration,
shares held by such holders pursuant to the exercise of their registration
rights, such sales may have an adverse effect on our ability to raise needed
capital.

WE MAY BE UNABLE TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY.

Our success and ability to compete are dependent largely upon our
proprietary technology. Third party claims against our proprietary technology
could negatively affect our business. We cannot be certain that we have taken
adequate steps to deter misappropriation or independent third-party development
of our technology. In addition, we cannot be certain that third parties will not
assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in our favor. Although we are not
currently subject to any dispute either protecting our proprietary technology or
asserting a third party claim against our proprietary technology, any
infringement claims resolved against us could have a material adverse effect on
our business, financial condition or results of operations.

FAILURE OF OUR NETWORK INFRASTRUCTURE AND EQUIPMENT WOULD HAVE A MATERIAL EFFECT
ON OUR BUSINESS.

Failure of our network infrastructure and equipment, upon which our
business is greatly dependent, as well as the occurrence of significant human
error, a natural disaster or other unanticipated problems could halt our
services, damage network equipment and result in substantial expense to repair
or replace damaged equipment. In addition, the failure of our telecommunications
providers to supply the necessary services could also interrupt our business, in
particular, the application hosting and transaction processing services we offer
to our client banks via secure Internet connections. The inability to supply
these services to our customers could negatively affect our business, financial
condition and results of operations and may also harm our reputation.

11
<PAGE> 15

USE OF PROCEEDS

The net proceeds to Private Business from the sale of the 4,350,000 shares
of common stock, at an initial public offering price of $8.00 per share, will be
approximately $31.6 million ($36.5 million if the underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated offering expenses payable by Private Business. In
addition, the net proceeds to Private Business from the private placement of
750,000 shares of common stock at $8.00 per share to certain directors and
affiliates of other directors will be $6.0 million. We intend to use the entire
net proceeds of both this offering and the private placement to reduce
indebtedness. As of April 25, 1999, we had $38.5 million outstanding under a
$40.0 million loan at 7.50%, $54.8 million outstanding under a $55.0 million
loan at 7.75% and $3.0 million outstanding under a revolver at 9.0%. This credit
facility was incurred in connection with Private Business's recapitalization and
used to redeem outstanding shares of common stock and repay mortgage
indebtedness. The credit facility is payable in quarterly installments with one
portion due in full in August 2004 and another portion due in full in August
2006.

Pending application of the net proceeds as described above, Private
Business intends to invest the net proceeds of the offering in short-term,
investment-grade, interest-bearing securities.

DIVIDEND POLICY

We intend to retain any future earnings to support operations and to
finance the growth and development of our business, and we do not anticipate
paying cash dividends for the foreseeable future. Under our current credit
facility, we are prohibited contractually from declaring any dividends, except
for dividends on our convertible preferred stock and dividends that are payable
solely in our common stock. As of March 31, 1999, there were $3.5 million in
accrued dividends on our convertible preferred stock. These dividends will be
forfeited automatically upon the voluntary conversion of the preferred stock in
conjunction with the completion of this offering.

Private Business was an S Corporation for federal income tax purposes from
incorporation until August 7, 1998. Prior to the recapitalization on August 7,
1998, Private Business paid dividends totaling $23.0 million, mainly for the
purpose of providing cash to the stockholders with which to pay the federal
income taxes applicable to our net income. Since terminating our S Corporation
status, Private Business has not paid any cash dividends on its common stock.

12
<PAGE> 16

CAPITALIZATION

The following table sets forth our long-term debt and capitalization as of
March 31, 1999 on an actual basis and as adjusted to reflect the sale of
4,350,000 shares of common stock offered by us in this offering at the initial
public offering price of $8.00 per share and the sale of 750,000 shares of
common stock in a private placement immediately preceding this offering at $8.00
per share, and after deducting the underwriting discounts and commissions and
estimated offering expenses payable by us. This table should be read in
conjunction with our financial statements and notes thereto, which are included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term obligations, net.................................. $ 94,250 $58,226
--------- -------
Redeemable Preferred stock, series A convertible, no par
value; 5,624,404 authorized, issued and outstanding,
actual and no shares outstanding as adjusted.............. 59,725 --
--------- -------
Stockholders' equity
Common stock, no par value; 23,920,910 shares authorized,
10,128,056 shares issued and outstanding, actual;
100,000,000 shares authorized, 26,476,858 shares issued
and outstanding as adjusted............................ -- --
Additional paid-in capital................................ (130,798) (29,909)
Retained earnings (accumulated deficit)................... (9,265) (9,948)
--------- -------
Total stockholders' equity (deficit).............. (140,062) (39,857)
--------- -------
Total capitalization.............................. $ 13,913 $18,369
========= =======
</TABLE>

The "As Adjusted" column:

- excludes 3,287,700 shares of common stock issuable upon exercise of
outstanding options as of May 14, 1999 at a weighted average exercise
price of $5.03 per share

- excludes 2,479,300 shares reserved for future grants under our stock
option plan and

- includes 11,248,802 shares of common stock issuable upon conversion of
convertible preferred stock to be converted voluntarily in conjunction
with the completion of this offering.

13
<PAGE> 17

DILUTION

The net tangible book value of our common stock at December 31, 1998 was
$(85.5) million or $(4.00) per share (assuming the conversion of all shares of
convertible preferred stock into common stock in connection with this offering).
Net tangible book value per share represents the amount of our stockholders'
equity less intangible assets divided by the total number of shares of common
stock outstanding for the period immediately prior to this offering.

Net tangible book value dilution per share represents the difference
between the amount per share paid by the purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to our sale
of 4,350,000 shares of common stock offered by this prospectus at the initial
public offering price of $8.00 per share and the sale of 750,000 shares of
common stock in a private placement immediately preceding this offering at $8.00
per share, after deducting underwriting discounts and commissions and estimated
offering expenses and giving effect to the conversion of 11,248,802 shares of
outstanding convertible preferred stock to be converted in connection with this
offering, our net tangible book value as of December 31, 1998 would have been
$(41.9) million, or $(1.81) per share. This represents an immediate increase in
net tangible book value of $2.19 per share to existing stockholders and an
immediate dilution in net tangible book value of $9.81 per share to new
investors purchasing shares at the initial public offering price. The following
table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 8.00
Net tangible book value per share at December 31, 1998...... $ (4.00)
Increase per share attributable to new investors............ $ 2.19
--------
Net tangible book value per share after this offering....... $ (1.81)
--------
Net tangible book value dilution per share to new
investors................................................. $ 9.81
========
</TABLE>

The following table sets forth, as of December 31, 1998, the difference
between the number of shares of common stock purchased from Private Business,
the total consideration paid and the average price per share paid by the
existing stockholders and by the new investors at the public offering price of
$8.00 per share for shares purchased in this offering, before deducting the
underwriting discounts and commissions and estimated offering expenses:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 22,126,858 83.6% $ 69,860,370 66.7% $3.16
New investors................. 4,350,000 16.4 34,800,000 33.3 8.00
---------- ----- ------------ -----
Total............... 26,476,858 100.0% $104,660,370 100.0%
========== ===== ============ =====
</TABLE>

The foregoing tables assume no exercise of outstanding stock options. The
tables exclude 3,287,700 shares of common stock issuable upon exercise of
outstanding options at a weighted average exercise price of $5.03 per share, and
2,479,300 shares reserved for future grants under our stock option plan. To the
extent that outstanding options are exercised, there will be further dilution to
new investors.

14
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data for the five year
period ended December 31, 1998 has been derived from the consolidated financial
statements of Private Business, Inc. which have been audited by Arthur Andersen
LLP, independent auditors, and are included elsewhere in this prospectus. The
selected historical financial data for the quarters ended March 31, 1998 and
1999 is derived from unaudited financial statements which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
the results of operations. Operating results for the quarter ended March 31,
1999 are not indicative of results for the full year. The selected historical
consolidated financial data are not necessarily indicative of results to be
expected for any future period and should be read in conjunction with
"Management's Discussion and Analysis of the Financial Condition and Results of
Operations" and the Consolidated Financial Statements, including the notes
thereto.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Software license................................ $ 2,687 $ 3,283 $ 3,193 $ 2,886 $ 2,947 $ 749 $ 731
Royalties....................................... 9,656 18,912 29,028 38,450 43,793 9,767 10,430
Maintenance and other........................... 382 1,528 1,767 2,325 4,065 764 1,250
------- ------- ------- ------- ------- ------- -------
Total revenues.......................... 12,726 23,722 33,988 43,660 50,805 11,280 12,410
OPERATING EXPENSES:
General and administrative...................... 2,908 9,189 10,958 11,835 13,397 3,442 3,381
Selling and marketing........................... 6,761 12,474 12,911 15,867 20,494 4,995 5,653
Research and development........................ 252 447 648 1,125 862 196 195
Amortization.................................... 10 76 115 189 443 81 231
Other operating................................. 911 443 169 340 312 35 78
Recapitalization charges........................ -- -- -- -- 13,781(1) -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses................ 10,842 22,629 24,801 29,357 49,289 8,750 9,538
------- ------- ------- ------- ------- ------- -------
Operating income................................ 1,884 1,093 9,187 14,304 1,516 2,530 2,872
OTHER EXPENSES:
Interest expense................................ -- -- -- 146 3,405 58 1,900
Minority interest............................... -- -- -- 140 158 11 --
------- ------- ------- ------- ------- ------- -------
Total other expenses.................... -- -- -- 287 3,562 68 1,900
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes............... 1,884 1,093 9,187 14,017 (2,046) 2,461 972
Income tax provision (benefit).................. 115 129 582 743 (2,585)(2) 136 376
------- ------- ------- ------- ------- ------- -------
Net income...................................... 1,769 964 8,605 13,274 539 2,326 596
Preferred stock dividends and accretion......... -- -- -- -- (2,204) -- (1,367)
------- ------- ------- ------- ------- ------- -------
Net income (loss) available to common
stockholders.................................. $ 1,769 $ 964 $ 8,605 $13,274 $(1,665) $ 2,326 $ (771)
======= ======= ======= ======= ======= ======= =======
INCOME (LOSS) PER SHARE:
Basic........................................... $ 0.09 $ 0.05 $ 0.43 $ 0.66 $ (0.10) $ 0.12 $ (0.08)
======= ======= ======= ======= ======= ======= =======
Diluted......................................... $ 0.09 $ 0.05 $ 0.42 $ 0.65 $ (0.10) $ 0.11 $ (0.08)
======= ======= ======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES USED IN CALCULATING
EARNINGS PER SHARE:
Basic........................................... 20,000 20,009 20,056 20,056 15,919 20,056 10,128
======= ======= ======= ======= ======= ======= =======
Diluted......................................... 20,000 20,054 20,305 20,428 15,919 20,856 10,128
======= ======= ======= ======= ======= ======= =======
</TABLE>

15
<PAGE> 19

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------
1998 1998 1999
------------ ------ -----
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
PRO FORMA INFORMATION(3)(4):
Net income (loss) to common stockholders.................... $(2,913) $1,475 $ 596
======= ====== =====
Net income (loss) per common share:
Basic....................................................... $ (0.14) $ 0.07 $0.03
======= ====== =====
Diluted..................................................... $ (0.14) $ 0.07 $0.03
======= ====== =====
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31, 1999
------------------------------------------------ -------------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED(5)
------- ------- ------- ------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,149 $ 1,986 $ 6,391 $ 4,816 $ 285 $ 35 $ 35
Working capital......................... (495) (550) 2,851 2,772 (7,834) (9,624) (4,485)
Total assets............................ 3,158 5,466 16,386 20,995 31,596 30,904 30,221
Long-term debt, net of current
portion............................... -- -- 846 4,078 90,375 89,250 53,226
Redeemable convertible preferred
stock................................. -- -- -- -- 59,707 59,725 --
Total stockholders' equity (deficit).... 378 937 8,128 8,643 (139,291) (140,062) (39,857)
</TABLE>

- ---------------

(1) Consists of charges that we incurred in connection with a series of
transactions completed on August 7, 1998 that effectively resulted in our
recapitalization. The transactions include a term loan to us from a bank
group, our redemption of approximately 9.9 million shares of our outstanding
common stock, our issuance of approximately 5.6 million shares of our
convertible preferred stock and our acquisition of the minority interests of
Private Business Insurance, Inc. Also included in the recapitalization
charges are a special one time bonus paid by us to our employees in
recognition of services to the company and the fees paid for various
services performed relating to the recapitalization, including investment
banking, legal and accounting services.
(2) On August 7, 1998, we converted from an S Corporation to a C Corporation.
While an S Corporation for the first seven months of 1998, recorded a state
tax provision of $451,000. While a C Corporation for the last five months of
1998, we recorded a deferred tax benefit of $2.0 million. At the time of
conversion, we recorded a net deferred tax benefit of $1.1 million for the
temporary differences that existed as of the conversion date. Thus, for the
year we recorded an income tax benefit of $2.6 million.
(3) As a result of our election to be treated as an S Corporation for income tax
purposes, we have not been subject to federal income taxes. The unaudited
pro forma net income (loss) available for common stockholders represents the
estimated net income (loss) that would have been available to common
stockholders had we been a C Corporation for income tax purposes for each of
the periods presented. In addition, the effect of the conversion of the
preferred stock into 11,248,802 shares of common stock and elimination of
the preferred stock dividend has been reflected for the periods the
preferred stock was outstanding.
(4) Supplemental pro forma diluted net income (loss) per share of $(0.09) for
the year ending December 31, 1998 and $0.04 for the quarter ended March 31,
1999 was computed by adjusting the pro forma income (loss) per share as
reflected above for the reduction in interest expense after giving effect to
the number of shares sold (at the initial public offering price of $8.00 per
share) and the private placement of 750,000 shares of common stock at $8.00
per share to certain directors and affiliates of other directors, the
aggregate proceeds of which will be used to repay $37.6 million in debt at
December 31, 1998 and March 31, 1999, respectively.
(5) The as adjusted column reflects our receipt of the estimated net proceeds
from the sale of the 4,350,000 shares of common stock offered at the initial
public offering price of $8.00 per share and the sale of 750,000 shares of
common stock in a private placement immediately preceding this offering at
$8.00 per share, the application of the net proceeds as described in "Use of
Proceeds," and conversion of convertible preferred stock to be converted
voluntarily upon completion of this offering, after deducting the
underwriting discount and estimated offering expenses.

16
<PAGE> 20

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
prospectus.

OVERVIEW

We are a leading provider of integrated services and products that address
the problems faced by community banks in managing accounts receivable financing
provided to their small business customers. Our solution to these problems is
called Business Manager and is based on software, marketing services and online
electronic transaction processing. One element of this solution is our
proprietary software that enables our expanding network of over 1,100 client
banks to purchase accounts receivable from their small business customers. The
banks then process, bill and track those receivables on an ongoing basis. As a
major component of our solution, we work with client banks to design, implement
and manage the sale of Business Manager accounts receivable financing services
to their small business customers. We also give our client banks the option of
outsourcing to us their application hosting and transaction processing through
secure Internet connections, thereby allowing them to receive accounts
receivable information and make funding decisions electronically.

We generate revenues from three main sources:

- software license fees from new client banks

- ongoing royalties earned on client bank purchases of small business
accounts receivable

- maintenance fees and other revenues, comprised primarily of fees received
for insurance brokerage services, paper-based form sales, software
maintenance fees and processing services

Software license fees consist of two components: the license fee and the
customer training and support fee. These are one-time fees that we earn upon the
initial licensing of our Business Manager software to a community bank. Our
license agreements are executed with terms ranging from three to five years and
are renewable for subsequent terms. We recognize revenues from the license fee
at the time of initiation of the agreement and the customer training and support
fee ratably over the twelve-month service period subsequent to signing the
license agreement. Software license fees for new agreements range from
approximately $16,000 to $240,000 and are generally based on the asset size of
the client bank.

There are two types of royalty fees. The first type is earned upon the
client bank's initial purchase of a small business' accounts receivable during
the first 30 days in our program. The second type is an ongoing royalty fee
earned from subsequent period purchases. Both types of fees are based on a
percentage of the receivables that a client bank purchases from its small
business customers during each month. For the year ended December 31, 1998,
ongoing royalty fees represented over 70% of our total revenues.

Maintenance fees and other revenues include several ancillary products and
services we provide to client banks. Annual software maintenance fees are
generated from our client banks starting on the first anniversary date of the
Business Manager license agreement and annually thereafter. These revenues are
recognized ratably over a twelve-month period beginning on the first anniversary
date of the agreement. Additionally, since 1995, we have brokered, through our
Private Business Insurance subsidiary, credit and fraud insurance

17
<PAGE> 21

products for a national insurance company. We earn fees based on a percentage of
the premium that is paid to the insurance company. We also provide a standard
set of forms that client banks may purchase and use in the normal course of
administering the Business Manager program. Revenues related to these forms are
recognized in the period that they are shipped to the client bank. We offer
processing services to our client banks for an additional fee based on the
volume of transactions processed through the system. We expect revenues from
processing services to increase in the future.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
relationship of the identified consolidated statement of operations items to
total revenues.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------- ----------------
1996 1997 1998 1998 1999
----- ----- ----- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license.............................. 9.4% 6.6% 5.8% 6.6% 5.9%
Royalties..................................... 85.4 88.1 86.2 86.6 84.0
Maintenance and other......................... 5.2 5.3 8.0 6.8 10.1
----- ----- ----- ----- -----
Total revenues........................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
General and administrative.................... 32.2 27.1 26.4 30.5 27.2
Selling and marketing......................... 38.0 36.3 40.3 44.3 45.6
Research and development...................... 1.9 2.6 1.7 1.7 1.6
Amortization.................................. 0.3 0.4 0.9 0.7 1.9
Other operating............................... 0.5 0.8 0.6 0.3 0.6
Recapitalization charges...................... -- -- 27.1 -- --
----- ----- ----- ----- -----
Total operating expenses.............. 73.0 67.2 97.0 77.6 76.9
Operating income................................ 27.0 32.8 3.0 22.4 23.1
Other expenses:
Interest expense........................... -- 0.3 6.7 0.5 15.3
Minority interest.......................... -- 0.3 0.3 0.1 --
----- ----- ----- ----- -----
Total other expenses.................. -- 0.7 7.0 0.6 15.3
----- ----- ----- ----- -----
Income (loss) before income taxes............... 27.0 32.1 (4.0) 21.8 7.8
Income tax provision (benefit).................. 1.7 1.7 (5.1) 1.2 3.0
----- ----- ----- ----- -----
Net income...................................... 25.3% 30.4% 1.1% 20.6% 4.8%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

Software license. Software license fees decreased 2.5% to $731,000 for the
three months ended March 31, 1999, compared to $749,000 for the three months
ended March 31, 1998. The decrease reflects slightly lower average fees paid
with the execution of new license agreements and a slight decrease in the number
of new software license agreements sold during the three months ended March 31,
1999. The decrease in the number of new software license agreements reflects a
number of contributing factors, including our recent focus on marketing more
specifically to banks in targeted areas where we wish to better penetrate the
small business market, the fact that as we increase our market penetration it
becomes more difficult to add new license agreements from the smaller universe
of potential bank clients and increased competition. Software license fees
accounted for 5.9% of total

18
<PAGE> 22

revenue for the three months ended March 31, 1999, compared to 6.6% for the
three months ended March 31, 1998.

Royalties. Royalties increased 6.8% to $10.4 million for the three months
ended March 31, 1999, compared to $9.8 million for the three months ended March
31, 1998. This increase resulted from additional funding through the Business
Manager program. Royalties accounted for 84.0% of total revenue for the first
three months ended March 31, 1999, compared to 86.6% for the three months ended
March 31, 1998. Program funding increased 8% to $1.3 billion for the first three
months ended March 31, 1999, compared to $1.2 billion for the first three months
ended March 31, 1998.

Maintenance and other. Maintenance and other fees increased 63.7% to $1.2
million for the three months ended March 31, 1999, compared to $764,000 for the
three months ended March 31, 1998. Insurance fees increased 99.2% to $701,000
for the three months ended March 31, 1999, compared to $352,000 for the three
months ended March 31, 1998. This increase primarily resulted from increased
participation of client banks and small businesses in our credit and fraud
insurance programs. Software maintenance fees increased 62.5% to $140,000 for
the three months ended March 31, 1999, compared to $86,000 for the three months
ended March 31, 1998. The increase in software maintenance fees reflects
renewals of contracts with banks which were new participants the previous year.
Maintenance and other fees accounted for 10.1% of total revenue for the first
three months ended March 31, 1999, compared to 6.8% for the three months ended
March 31, 1998.

Total revenues. As a result of the changes in the foregoing revenue
categories, total revenues increased 10.0% to $12.4 million for the three months
ended March 31, 1999, compared to $11.3 million for the three months ended March
31, 1998.

General and administrative. General and administrative expenses include
the cost of our executive, finance, human resources, information services,
support services, administrative functions and general operations. General and
administrative expenses decreased 1.8% for the three months ended March 31,
1999, compared to the three months ended March 31, 1998.

Selling and marketing. Selling and marketing expenses include the cost of
wages and commissions paid to our dedicated business development and bank sales
forces, travel costs of the dedicated sales force, recruiting for new personnel,
and marketing fees associated with direct and telemarketing programs. Selling
and marketing expenses increased 13.2% to $5.7 million for the three months
ended March 31, 1999, compared to $5.0 million for the three months ended March
31, 1998. This increase is primarily due to the hiring of 22 additional sales
staff and additional marketing programs provided to client banks.

Research and development. Research and development expenses include the
direct costs associated with developing new versions of the Business Manager
system. Research and development costs decreased slightly to $195,000 for the
three months ended March 31, 1999, compared to $196,000 for the three months
ended March 31, 1998.

Amortization. Amortization costs include the cost of amortizing intangible
assets, including trademarks and the associated costs of goodwill and debt
issuance costs related to our recapitalization in 1998. Amortization increased
185.5% to $231,000 for the three months ended March 31, 1999, compared to
$81,000 for the three months ended March 31, 1998. The increase is primarily
related to increased amortization of debt issuance costs associated with our
recapitalization transaction.

19
<PAGE> 23

Other operating expenses. Other operating expenses include property taxes
and other miscellaneous costs associated with providing support and services for
bank clients. Other operating expenses increased 120.6% to $78,000 for the three
months ended March 31, 1999, compared to $35,000 for the three months ended
March 31, 1998. The increase is primarily related to a full period of operating
expenses and property taxes associated with the property.

Operating income. As a result of the above factors, our operating income
increased 13.5% to $2.9 million for the three months ended March 31, 1999,
compared to $2.5 million for the three months ended March 31, 1998.

Interest expense. Interest expense increased $1.8 million to $1.9 million
for the three months ended March 31, 1999, compared to $58,000 for the three
months ended March 31, 1998. This increase was primarily due to $95 million of
new long-term debt incurred in connection with our recapitalization transaction
completed in August 1998. Total indebtedness as of March 31, 1999 was $96.3
million compared to $4.1 million as of March 31, 1998.

Minority interest expenses. Minority interest expenses consisted of the
share of the earnings of Private Business Insurance allocated to its minority
stockholders. Concurrent with the closing of the recapitalization transaction
completed in August 1998, we purchased the minority interest in Private Business
Insurance; therefore no minority interest expense was incurred for the three
months ended March 31, 1999.

Income tax provision. The income tax provision was $376,000 for the three
months ended March 31, 1999, compared to $136,000 for the three months ended
March 31, 1998. The tax provision is related to utilization of a portion of the
Company's net operating loss carryforwards and decreases in other deferred tax
assets.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Software license. Software license fees increased 2.1% to $2.9 million for
the year ended December 31, 1998, compared to $2.9 million for the year ended
December 31, 1997. This slight increase was primarily due to larger average fees
paid with the execution of new license agreements, partially offset by a
decrease in the number of new license agreements entered into in 1998. The
decrease in the number of new software license agreements reflects a number of
contributing factors, including our recent focus on marketing more specifically
to banks in targeted areas where we wish to better penetrate the small business
market, the fact that as we increase our market penetration it becomes more
difficult to add new license agreements from the smaller universe of potential
bank clients and increased competition. The average fee increased in 1998 to
$17,400 from $13,500 in 1997. Software license fees accounted for 5.8% of total
revenues for the year ended December 31, 1998, compared to 6.6% for the year
ended December 31, 1997. This decrease is primarily due to more rapid growth of
royalties and maintenance and other revenues.

Royalties. Royalties increased 13.9% to $43.8 million for the year ended
December 31, 1998, compared to $38.5 million for the year ended December 31,
1997. This increase resulted from larger amounts of receivables purchased
through Business Manager, partially offset by a decrease in the average fee per
receivable charged by our client banks to their small business customers, of
which we receive a percentage. The decrease in the average fee is primarily due
to an increase in the average size of the receivables portfolio purchased by our
client banks. Receivables purchased by our client banks increased 21.7% to
approximately $5.6 billion for the year ended December 31, 1998, compared to
approximately $4.6 billion for the year ended December 31, 1997. As a percentage
of total revenues, royalties

20
<PAGE> 24

decreased to 86.2% for the year ended December 31, 1998, from 88.1% for the year
ended December 31, 1997, primarily due to a greater increase in maintenance and
other revenues during the same period.

Maintenance and other. Maintenance and other fees increased 74.9% to $4.1
million for the year ended December 31, 1998, compared to $2.3 million for the
year ended December 31, 1997. Insurance fees increased 151.0% to $2.4 million
for the year ended December 31, 1998, compared to $943,000 for the year ended
December 31, 1997. This increase primarily resulted from increased participation
of client banks and small businesses in our credit and fraud insurance programs.
Revenues from the sale of forms to client banks decreased 13.7% to $515,000 for
year ended December 31, 1998, compared to $597,000 for the year ended December
31, 1997. This decrease resulted from our client banks utilizing their own
business forms. Software maintenance fees, which were initially introduced as
part of our standard license agreement in 1995, increased 57.4% to $441,000 for
the year ended December 31, 1998, compared to $280,000 for the year ended
December 31, 1997. This increase resulted from more client banks completing
their first anniversary of participation in the Business Manager program as
compared to the year ended December 31, 1997. Processing fees increased by
$160,000 to $176,000 for the year ended December 31, 1998, compared to $16,000
for the year ended December 31, 1997. This increase resulted from increased
marketing of our processing capabilities and a significant increase in the
utilization of our processing services by our client banks. Other miscellaneous
revenues increased 15.9% to $568,000 for the year ended December 31, 1998, from
$490,000 for the year ended December 31, 1997. As a percentage of total
revenues, maintenance and other revenues increased to 8.0% for the year ended
December 31, 1998, from 5.3% for the year ended December 31, 1997.

Total revenues. As a result of changes in the foregoing revenue
categories, total revenues increased 16.3% to $50.8 million for the year ended
December 31, 1998, compared to $43.7 million for the year ended December 31,
1997.

General and administrative. General and administrative expenses increased
13.2% to $13.4 million for the year ended December 31, 1998, compared to $11.8
million for the year ended December 31, 1997. This increase was primarily due to
the hiring of 54 additional employees to support our expanding client base,
projected growth and new product initiatives. General and administrative
expenses as a percentage of total revenues decreased to 26.4% for the year ended
December 31, 1998 from 27.1% for the year ended December 31, 1997.

Selling and marketing. Selling and marketing expenses increased 29.2% to
$20.5 million for the year ended December 31, 1998, compared to $15.9 million
for the year ended December 31, 1997. This increase was primarily due to the
hiring of 31 additional business development sales personnel, additional
marketing programs and additional travel expenses associated with our expanded
marketing efforts. The increases in sales personnel and marketing programs are
primarily to expand our efforts to market Business Manager to small business
customers in our existing client banks' markets. Additionally, we have expanded
our efforts to market to client banks our outsourcing of the processing
function. Selling and marketing expenses as a percentage of total revenues
increased to 40.3% for the year ended December 31, 1998 from 36.3% for the year
ended December 31, 1997.

Research and development. Research and development expenses decreased
23.3% to $862,000 for the year ended December 31, 1998, compared to $1.1 million
for the year ended December 31, 1997. This decrease reflects the reassignment of
employees previously dedicated to software development. This reassignment
resulted from the expansion of our

21
<PAGE> 25

electronic commerce and processing services. Research and development expenses
as a percentage of total revenues decreased to 1.7% for the year ended December
31, 1998 from 2.6% for the year ended December 31, 1997.

Amortization. Amortization expenses include the cost of amortizing
intangible assets, including trademarks and the associated costs of goodwill and
debt issuance costs related to our recapitalization in 1998. Amortization
increased 134.6% to $443,000 for the year ended December 31, 1998, compared to
$189,000 for the year ended December 31, 1997. The increase is primarily related
to $5.7 million of goodwill and debt issuance costs associated with our
recapitalization transaction completed in August 1998.

Other operating expenses. Other operating expenses include property taxes
and other miscellaneous costs associated with providing support and services to
our client banks. Other operating expenses remained relatively constant at
$312,000 for the year ended December 31, 1998, compared to $340,000 for the year
ended December 31, 1997.

Recapitalization charges. Recapitalization charges were $13.8 million for
the year ended December 31, 1998. These expenses consisted of special one time
bonuses totaling $10.0 million to employees and $3.8 million of transaction
related fees, including investment banking, legal and accounting fees. As a
group, our officers received approximately $7.9 million of the special one-time
bonus.

Operating income. As a result of the above factors, our operating income
decreased 89.4% to $1.5 million for the year ended December 31, 1998, compared
to $14.3 million for the year ended December 31, 1997. Excluding
recapitalization charges of $13.8 million, operating income would have been
$15.3 million for the year ended December 31, 1998, representing an increase of
6.9% over the comparable prior year period.

Interest expense. Interest expense increased $3.3 million to $3.4 million
for the year ended December 31, 1998, from $146,000 for the year ended December
31, 1997. This increase was primarily due to $95.0 million of new long-term debt
incurred in connection with our recapitalization transaction completed in August
1998.

Minority interest expenses. Minority interest expenses increased $17,000
to $158,000 for the year ended December 31, 1998, from $140,000 for the year
ended December 31, 1997. Minority interest expense consists of the share of the
earnings of Private Business Insurance allocated to its minority stockholders.
Concurrent with the closing of the recapitalization transaction completed in
August 1998, we purchased the minority interest in Private Business Insurance.

Income tax provision (benefit). The income tax benefit was $2.6 million
for the year ended December 31, 1998 compared to a tax provision of $743,000 for
the year ended December 31, 1997. This change is a result of our conversion from
an S Corporation to a C Corporation during 1998. In 1997, the entire tax
provision was for state income taxes, whereas in 1998, the tax benefit consisted
of a benefit recorded at the time of conversion of $1.1 million and a benefit of
$2.0 million for the net operating loss incurred during the C Corporation period
in 1998 offset by a state income tax provision of $451,000 during the 1998 S
Corporation period.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Software license. Software license fees decreased 9.6% to $2.9 million for
the year ended December 31, 1997, compared to $3.2 million for the year ended
December 31, 1996. This decrease reflects lower average fees paid upon the
execution of new license

22
<PAGE> 26

agreements. Software license fees accounted for 6.6% of total revenues for the
year ended December 31, 1997, compared to 9.4% for the year ended December 31,
1996.

Royalties. Royalties increased 32.4% to $38.4 million for the year ended
December 31, 1997, compared to $29.0 million for the year ended December 31,
1996, primarily due to an increase in the amount of receivables purchased by our
client banks during the same period. As a percentage of total revenues,
royalties increased to 88.1% for the year ended December 31, 1997, from 85.4%
for the year ended December 31, 1996.

Maintenance and other. Maintenance and other revenues increased 31.6% to
$2.3 million for the year ended December 31, 1997, compared to $1.8 million for
the year ended December 31, 1996. Insurance fees increased 251.8% to $943,000
for the year ended December 31, 1997, compared to $268,000 for the year ended
December 31, 1996. This increase primarily resulted from increased participation
of our client banks and small businesses in our credit and fraud insurance
programs. Revenues from the sale of forms to our client banks decreased 8.4% to
$597,000 for year ended December 31, 1997, compared to $651,000 for the year
ended December 31, 1996. This decrease resulted from our client banks utilizing
their own business forms. Software maintenance fees increased 198.3% to $280,000
for the year ended December 31, 1997, compared to $94,000 for the year ended
December 31, 1996. This increase represents additional software maintenance fees
charged to client banks at the end of the first year of service on the Business
Manager program. Processing fees increased to $16,000 for the year ended
December 31, 1997, compared to none for the year ended December 31, 1996. This
increase resulted from the commencement of our processing services offering in
1997. Other miscellaneous revenues decreased 35.1% to $490,000 for the year
ended December 31, 1997, from $754,000 for the year ended December 31, 1996. As
a percentage of total revenues, maintenance and other revenues increased to 5.3%
for the year ended December 31, 1997, from 5.2% for the year ended December 31,
1996.

Total revenues. As a result of the changes in the foregoing revenue
categories, total revenues increased 28.4% to $43.7 million for the year ended
December 31, 1997, compared to $34.0 million for the year ended December 31,
1996.

General and administrative. General and administrative expenses increased
8.0% to $11.8 million for the year ended December 31, 1997, compared to $11.0
million for the year ended December 31, 1996. This increase was primarily due to
the hiring of additional employees to support our expanding client base and new
product initiatives. General and administrative expenses as a percentage of
total revenues decreased to 27.1% for the year ended December 31, 1997 from
32.2% for the year ended December 31, 1996.

Selling and marketing. Selling and marketing expenses increased 22.9% to
$15.9 million for the year ended December 31, 1997, compared to $12.9 million
for the year ended December 31, 1996. This increase was primarily due to the
hiring of additional dedicated sales personnel and the expansion of our existing
marketing programs. Selling and marketing expenses as a percentage of total
revenues decreased to 36.3% for the year ended December 31, 1997 from 38.0% for
the year ended December 31, 1996.

Research and development. Research and development expenses increased
73.6% to $1.1 million for the year ended December 31, 1997, compared to $648,000
for the year ended December 31, 1996. This increase reflects the personnel costs
associated with the additional staff hired for the production of new releases of
Business Manager. Research and development expenses as a percentage of total
revenues increased to 2.6% for the year ended December 31, 1997 from 1.9% for
the year ended December 31, 1996.

23
<PAGE> 27

Amortization. Amortization expenses include the cost of amortizing
intangible assets, including trademarks and the costs of capitalized software
development. Amortization increased 63.9% to $189,000 for the year ended
December 31, 1997, compared to $115,000 for the year ended December 31, 1996.
This increase was primarily due to additional capitalized software development
costs.

Other operating expenses. Other operating expenses increased 102.0% to
$340,000 for the year ended December 31, 1997, compared to $169,000 for the year
ended December 31, 1996. This increase resulted from the payment of additional
property taxes on real estate purchased in the last quarter of 1996.

Operating income. As a result of the above factors, our operating income
increased 55.7% to $14.3 million for the year ended December 31, 1997, compared
to $9.2 million for the year ended December 31, 1996.

Interest expense. Interest expense was $146,000 for the year ended
December 31, 1997. This interest expense was associated with debt incurred for
the construction of our corporate headquarters. We had no interest expense for
the year ended December 31, 1996.

Minority interest expenses. Minority interest expenses were $140,000 for
the year ended December 31, 1997. These minority interest expenses were
attributable to our majority-owned subsidiary, Private Business Insurance,
becoming profitable in 1997. We had no minority interest expenses for the year
ended December 31, 1996.

QUARTERLY INFORMATION

The following tables set forth our unaudited financial data for each of the
last eight quarters, including such amounts expressed as a percentage of total
revenues. This unaudited quarterly information has been prepared on the same
basis as the consolidated financial statements and, in the opinion of
management, reflects all adjustments (consisting of normal recurring entries)
necessary for a fair presentation of the information for the periods presented.
The operating results for any quarter are not necessarily indicative of results
for any future period.

24
<PAGE> 28

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEP. 30, DEC. 31, MARCH 31, JUNE 30, SEP. 30, DEC. 31, MARCH 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license............... 8.4% 5.5% 6.3% 6.6% 5.4% 4.9% 6.3% 5.9%
Royalties...................... 87.0 88.9 88.2 86.6 87.2 86.8 84.3 84.0
Maintenance and other.......... 4.5 5.6 5.4 6.8 7.4 8.3 9.3 10.1
------- ------- ------- ------- ------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating expenses:
General and administrative..... 27.1 25.4 23.7 30.5 27.3 24.8 23.1 27.2
Selling and marketing.......... 39.7 34.7 34.6 44.3 42.6 38.4 37.6 45.6
Research and development....... 2.6 2.3 2.2 1.7 1.4 1.4 1.1 1.6
Amortization................... 0.4 0.4 0.4 0.7 1.2 1.8 0.6 1.9
Other operating................ 0.8 0.8 0.7 0.3 0.4 0.8 0.9 0.6
Recapitalization charges....... -- -- -- -- -- 105.2 0.1 --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............... 70.6 63.6 61.5 77.6 72.8 172.4 63.6 76.9
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 29.4 36.4 38.5 22.4 27.2 (72.4) 36.4 23.1
Other expenses:
Interest expense............... 0.1 0.6 0.6 0.5 0.6 9.7 14.6 15.3
Minority interest.............. 0.3 0.3 0.5 0.1 0.9 0.2 -- --
------- ------- ------- ------- ------- ------- ------- -------
Total other expenses..... 0.3 0.9 1.1 0.6 1.5 9.9 14.6 15.3
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 29.1 35.5 37.4 21.8 25.7 (82.3) 21.8 7.8
Income tax provision (benefit)... 1.9 2.1 1.3 1.2 1.5 (13.0) (8.8) 3.0
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)................ 27.2% 33.4% 36.1% 20.6% 24.2% (69.2)% 30.6% 4.8%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

SEASONALITY

We have generally realized lower revenues and income in the first quarter
and, to a lesser extent, in the second quarter of the year. We believe that this
is primarily due to a general slowdown in economic activity following the fourth
quarter's holiday season and more specifically a decrease in purchased
receivables by our client banks. Therefore, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparison cannot be relied upon as indicators of our future performance.
Due to the relatively fixed nature of costs such as personnel, facilities and
equipment costs, our revenue decline in a quarter will typically result in lower
profitability for that quarter.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our growth primarily through investments from stockholders
and funds generated from operations.

25
<PAGE> 29

Our operating activities used cash for the three months ended March 31,
1999 and for the year ended December 31, 1998 of $1.7 million and $1.2 million,
respectively, and provided cash for the years ended December 31, 1997 and 1996
of $12.7 million and $10.2 million, respectively. In 1999, our operating cash
was used primarily for employee salaries and wages and interest expense related
to the credit facility. In 1998, our operating cash was used primarily by
employee salaries and wages, the recapitalization charges and costs associated
with debt origination fees. In 1998, our main sources of operating cash were
attributable to revenues generated from client banks. In 1997 and 1996, cash
from operating activities was generated primarily by our net income.

Cash used in investing activities was approximately $669,000, $6.7 million,
$4.9 million, and $5.2 million for the three months ended March 31, 1999 and the
years ended December 31, 1998, 1997 and 1996, respectively. This cash was used
primarily for capital expenditures in the ordinary course of business. Cash was
also used to purchase the minority interests of Private Business Insurance in
1998. Our capital expenditures relate primarily to purchases of furniture,
fixtures and equipment and, in 1997 and 1996, to the construction of our
corporate facilities. We expect that our cost of purchases of property and
equipment will increase as our employee base grows and as we expand our
processing and electronic commerce capabilities. We did not have any material
commitments for capital expenditures as of March 31, 1999.

Additionally, in 1996, we purchased approximately 13.2 acres of land for
approximately $1.9 million and began the construction of our corporate office
building. In concert with the construction, we entered into an agreement with
SunTrust Bank for a construction loan of approximately $4.1 million. Upon
completion of the building project, the construction loan converted into a five
year term loan at a rate of interest equal to LIBOR plus 1.6%. This loan was
repaid upon the completion of the recapitalization on August 7, 1998.

Cash provided by financing activities totaled $2.1 million for the three
months ended March 31, 1999, which consisted of proceeds from our credit
facility partially offset by repayments of long-term debt. Cash provided by
financing activities totaled $3.4 million for the year ended December 31, 1998,
which consisted of the proceeds from our credit facility and the sale of our
preferred stock, offset by cash used to redeem a portion of the shares of common
stock held by our stockholders, to fund an escrow account for potential
indemnification claims in connection with the recapitalization transaction and
to pay dividends to our common stockholders. Cash used in financing activities
totaled approximately $9.4 million during 1997, primarily due to distributions
to stockholders totaling approximately $12.8 million to fund their individual
income tax liabilities associated with our S Corporation taxable income, offset
by cash provided by the proceeds from a construction loan from SunTrust Bank of
approximately $3.3 million incurred in connection with our purchase of real
estate. In 1996, cash used in financing activities totaled approximately
$569,000, primarily due to distributions to stockholders totaling approximately
$1.4 million, offset by cash provided by the proceeds from a construction loan
from SunTrust Bank of approximately $846,000.

On August 7, 1998, Private Business and its current stockholders
consummated three related transactions which collectively resulted in our
recapitalization:

- the redemption on a pro rata basis from our stockholders of 9,927,502
shares of our common stock, which represented 49.5% of the
then-outstanding common stock, for an aggregate purchase price of
$138,340,358 or $13.95 per share

26
<PAGE> 30

- the execution of a $110,000,000 credit facility with Fleet National Bank
and other lenders

- the issuance of 5,624,404 shares of newly authorized Series A convertible
preferred stock for an aggregate purchase price of $60,000,000

After the recapitalization, the common stockholders owned approximately
50.5% and the convertible preferred stockholders owned approximately 49.5% of
Private Business.

The proceeds from the issuance of the convertible preferred stock and the
credit facility were used primarily to fund the redemption and repay mortgage
indebtedness. In addition, we used a portion of the proceeds to pay aggregate
special one time bonuses totaling $10.0 million to our employees. These special
one time bonuses were paid to all 347 persons who were our employees on the date
the bonuses were determined. Our Board of Directors determined that given the
past history of modest fixed salaries and bonuses and commensurate with our
increased value as reflected by the recapitalization, our employees were
entitled to significant special one time bonuses. The remaining proceeds from
the issuance of the convertible preferred stock and the credit facility were
used for general working capital purposes, including the payment of fees and
expenses related to the recapitalization.

Under the credit facility, Private Business borrowed approximately $95.0
million at the closing of the redemption. The credit facility provides for a
term loan in the amount of $40.0 million, a separate term loan in the amount of
$55.0 million, and a revolving line of credit in the amount of $15.0 million,
including a $3.0 million sublimit for swing line advances and a $2.0 million
sublimit for standby letters of credit. The credit facility bears interest in
accordance with a grid pricing formula based on the achievement of various
financial ratios. The formula calls for advances to bear interest ranging from
0.25% to 1.50% above prime rate and for other advances to bear interest ranging
from 1.50% to 2.75% above the Eurodollar rate.

The $40.0 million loan is generally repayable in quarterly installments
which increase annually until the sixth anniversary of the loan. The $55.0
million loan is repayable in equal quarterly installments until December 31,
2004, at which time the required quarterly payments increase dramatically until
maturity. The revolver bears an annual commitment fee and matures concurrently
with the $40.0 million loan. As of March 31, 1999, Private Business had $38.5
million outstanding under the $40.0 million loan at 7.50%, $54.8 million
outstanding under the $55.0 million loan at 7.75%, $3.0 million outstanding
under the revolver at 9% and no outstanding letters of credit.

The credit facility is secured by a pledge of all of our assets. The common
stockholders and some of the preferred stockholders also entered into negative
pledge agreements by which they agreed not to pledge or encumber their shares of
our capital stock prior to repayment of the credit facility in full or a
qualified public offering of our capital stock. The credit facility limits our
ability to incur additional indebtedness beyond that incurred in connection with
our recapitalization, except for:

- debt used to purchase property or equipment in the ordinary course of
business

- up to $2.0 million in capitalized leases

- up to $1.0 million in unsecured debt

27
<PAGE> 31

The credit facility also imposes financial covenants and requirements on us
and contains limitations on our ability to sell material assets, redeem capital
stock and pay dividends, among other actions.

As of March 31, 1999, we had a deficit in working capital of approximately
$9.6 million compared to a working capital deficit of approximately $7.8 million
as of December 31, 1998. The change in working capital resulted primarily from
an increase in short-term borrowings partially offset by decreases in accounts
payable and accrued liabilities; and a decrease in accounts receivable. As of
December, 1998, we had a deficit in working capital of approximately $7.8
million as compared to working capital of $2.8 million and $2.9 million at
December 31, 1997 and 1996, respectively. The change in working capital from
December 31, 1998 to December 31, 1997 resulted primarily from increases in
restricted cash, which represents an escrow account for potential
indemnification claims in connection with the recapitalization transaction,
accounts payable and accrued liabilities, the current portion of our credit
facility and dividends payable.

We intend to use all of the net proceeds generated from this offering and
the private placement to certain directors and affiliates of other directors of
750,000 shares of our common stock at $8.00 per share immediately prior to this
offering to reduce our indebtedness. All outstanding preferred stock will be
converted into common stock at the time of this offering and all accrued
dividends will be forfeited automatically upon the conversion. These two events,
in conjunction with this offering, will reduce our working capital requirements
for future periods. Although cash flows from operations were negative for the
quarter ended March 31, 1999 and the year ended December 31, 1998, we believe
that future operating cash flows, subsequent to the offering and with reduced
interest expense on long-term debt and without the special non-recurring bonuses
paid in connection with the 1998 recapitalization, will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
18 months.

We may, in the future, acquire businesses or products complementary to our
business, although we cannot be certain that any such acquisitions will be made.
The need for cash to finance additional working capital or to make acquisitions
may cause us to seek additional equity or debt financing. We cannot be certain
that such financing will be available, or that our need for higher levels of
working capital will not have a material adverse effect on our business,
financial condition or results of operations.

YEAR 2000 COMPLIANCE

The term "year 2000 issue" refers to the necessity of converting computer
information systems so that such systems recognize more than two digits to
identify a year in any given date field and are thereby able to differentiate
between years in the 20th and 21st centuries ending with the same two digits
(e.g. 1900 and 2000). We have performed tests of all major functionality within
the Business Manager software, specifically those areas which utilize date
fields. Our tests show that the Business Manager software is year 2000
compliant.

We have established a task force to review our exposure to potential year
2000 issues. The task force has and will continue to coordinate the
identification, evaluation, and implementation of changes to computer systems
and applications necessary to achieve a year 2000 date conversion with no effect
on or disruption to our business operations. We are also evaluating non-system
issues relative to the year 2000 and beyond.

We have communicated with our suppliers, client banks, financial
institutions and others to assess their year 2000 compliance. We will continue
to assess the potential impact in the event of non-compliance. Based on these
communications we believe the potential failure of third parties' systems will
not have a material adverse impact on our operations, cash flows or financial
condition.

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We have completed several projects as part of planned upgrades or
replacements of our hardware and information systems and as part of our year
2000 compliance plan. We believe that the implementation of these projects had
the effect of making our hardware and information systems year 2000 compliant.

During 1998, we spent approximately $100,000 to upgrade hardware and
software systems we identified as not being year 2000 compliant. We do not
anticipate expenditures related to year 2000 to be material during 1999. The
projected costs for 1999 are based upon management's best estimates, which were
derived utilizing numerous assumptions of future events. There can be no
guarantee, however, that these cost estimates will be achieved, and actual
results could differ materially. Based on our efforts, we believe that our
hardware and information systems will be year 2000 compliant by October 1999.

As part of our year 2000 preparations, we have identified our most
reasonably likely worst case scenario as having some of our client banks and
their small business customers not achieving year 2000 compliance. We do not
currently believe that a lack of year 2000 compliance by some of our client
banks and their small business customers will have a material adverse effect on
our operations, cash flows or financial condition.

NEW PRONOUNCEMENTS

SFAS 130, "Reporting Comprehensive Income" establishes standards for
displaying comprehensive income and its components in our consolidated financial
statements. Comprehensive income encompasses all changes in stockholders equity
with the exception of those transactions arising with its owners. The adoption
of this pronouncement had no material effect on our results of operations.

SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in our annual consolidated financial statements and requires reporting
selected information about operating segments in interim financial reports. The
standard also establishes requirements for related disclosure about our products
and services, geographic areas and major customers. We operate in one industry
segment, and accordingly, the adoption of this pronouncement had no effect on
our presentation of operating results or financial position.

MARKET RISK

Foreign currency, commodity price and other relevant market risks. Our
revenues and expenses are both generated and denominated in United States
Dollars, and as such, changes in exchange rates will not have an impact on our
operating results, financial position or cash flows. We do not maintain any
investments in commodities and as such do not have any risk exposures. There are
no other relevant market risks that we have identified that could have a
material impact on our operating results, financial position or cash flows.

Interest rate risk. Our exposure to market risk for changes in interest
rates relate primarily to our long-term debt obligations totaling $94.1 million
at December 31, 1998. These long-term debt obligations expire in 2004 and 2006.
In the event that interest rates associated with these debt obligations were to
increase 100 basis points, the impact on future cash flows would be
approximately $940,000.

INFLATION

We do not believe that inflation has had a material effect on our results
of operation. There can be no assurance, however, that our business will not be
affected by inflation in the future.

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BUSINESS

GENERAL

Private Business is a leading provider of integrated services and products
that address the problems faced by community banks in managing accounts
receivable financing provided to their small business customers. Our solution to
these problems is called Business Manager and is based on software, marketing
services and online electronic transaction processing. One element of this
solution is our proprietary software that enables our expanding network of over
1,100 client banks to purchase accounts receivable from their small business
customers. The banks then process, bill and track those receivables on an
ongoing basis. As a major component of our solution, we work with client banks
to design, implement and manage the sale of Business Manager accounts receivable
financing services to their small business customers. We also give our client
banks the option of outsourcing application hosting and transaction processing.
In this case, we host the Business Manager software in our data center and
provide transaction processing services from our facilities. The client banks
are able to receive accounts receivable information and make funding decisions
electronically through secure Internet connections to our data center. Business
Manager uses Windows-based technology and is easy-to-use, flexible and scalable.

Business Manager has been endorsed by the American Bankers Association,
through its subsidiary, Corporation for American Banking, since 1994. The
American Bankers Association employs a competitive process in endorsing
products, including conducting interviews with banks and customers regarding the
product. Only 16 companies have the American Bankers Association's endorsement,
and Business Manager is the only product of its type that has received the
endorsement.

As a complement to Business Manager, we advise and train our client banks
concerning risk management procedures and offer insurance products that mitigate
their exposure to fraud and non-payment. We assume none of the payment risk in
the bank's purchase of receivables; all such risk falls upon the client banks
and their small business customers.

The Business Manager solution benefits both our client banks and their
small business customers. The solution introduces our client banks to a new type
of high margin fee generating service, helping them attract new small business
customers and enhance existing customer relationships. Business Manager also
provides small business customers with access to a new type of bank financing.

Typically, we provide our services under exclusive long-term contracts with
client banks with terms ranging from three to five years. We receive initial
fees for set-up and ongoing royalty payments equal to a percentage of every
receivable purchased by the banks from their small business customers. During
1998, approximately 70% of our revenue resulted from ongoing royalty payments.

During 1998, our network of client banks purchased approximately $5.6
billion of accounts receivable from approximately 8,500 small businesses.

INDUSTRY BACKGROUND

The primary drivers of our business are:

- the growing acceptance of electronic commerce among community banks and
small businesses

- the need for alternative financing for small businesses

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- the desire of community banks to attract and retain small business
customers using alternative financing products

Electronic Commerce Services for the Financial Sector. The market for
electronic commerce products and services in the United States has grown
dramatically in recent years. A large portion of the electronic commerce
services and infrastructure has been provided by third-party vendors and
outsourcing companies. The financial sector has been a major user of outsourced
electronic commerce services. Examples of outsourced electronic commerce
applications in this sector include electronic authorization, processing and
settlement of credit card transactions and electronic data interchange.

Most of the outsourced electronic commerce activity in the financial sector
has focused on servicing the larger merchants and businesses. However, small
businesses have many of the same needs as do large businesses and also some
unique needs particularly suited for electronic commerce outsourcing. While
small businesses have taken advantage of outsourcing and/or electronic commerce
services such as credit card and merchant services, other services generally
have been unavailable in the small business credit and cash management market.

Financing for Small Businesses. Dun & Bradstreet tracks about 10.9 million
small businesses in the U.S. with less than $25 million of annual sales. Private
Business believes that approximately six million of these businesses are
potential prospects for the Business Manager system based on their size,
industry and receivables patterns. We target small businesses with up to $25
million in sales. We focus on small businesses that extend credit to customers,
particularly in the manufacturing, trucking and transportation, wholesale
distribution, health services, retail and business services industries. Our
ideal target markets are small businesses with more than $100,000 in
receivables. We believe that, for many of these small businesses, the need for
working capital is a significant obstacle to growth, and that these businesses
spend much time, money and effort on receivables and cash management. Many of
these small businesses are growing rapidly and are financially sound, but are
not eligible for sufficient traditional bank financing. For example, some
businesses are too new or operate in industries or geographic areas that make
the bank uncomfortable with the security typically available in a traditional
lending environment. In other cases, businesses have reached their bank's credit
limit for traditional bank financing.

Despite the fact that the small business sector provides a very large and
potentially profitable market opportunity, financial services providers have
encountered difficulty in managing cost effective sales and support of targeted
financial services to small businesses. Community banks have generally provided
basic financial services such as business deposit accounts and credit card
merchant services and, in some instances, traditional lines of credit to small
businesses. However, these banks typically have been unable to provide to small
businesses more sophisticated cash management products such as accounts
receivable or lease financing services.

The Community Bank Market. In response to the competitive pressures
arising from deregulation and consolidation, many community banks are adapting
their business practices to meet these new challenges. According to the Federal
Deposit Insurance Corporation ("FDIC"), strategies for coping with these
pressures may include:

- outsourcing business functions

- expanding the use of non-traditional financing

- partnering with non-bank service providers

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<PAGE> 35

- emphasizing personalized services and developing niches or specialty
offerings to serve a broader customer base

At the same time, given the limited asset base of community banks and the
need to improve margins, the adoption of these strategies must take into account
the need to control operating expenses, maintain proper risk control and
minimize operating complexity.

OUR SOLUTION, BUSINESS MANAGER

Business Manager is an integrated solution that includes software, targeted
marketing services, online transaction processing, and ongoing support. Business
Manager enables the management of accounts receivable financing for community
banks, from the purchase of receivables from small businesses to the ongoing
processing, billing and tracking of these receivables. The banks either process
the transactions themselves or outsource this activity to our in-house
processing facility. To automate the process further, we offer electronic links
to the banks and their small business customers through secure connections to
our Internet communications infrastructure.

Our extensive network of local business development managers helps our
client banks develop new marketing strategies and facilitate the market
penetration of Business Manager. Following the initial sale of Business Manager
to our client banks, our business development managers help our client banks
design, implement and manage the sale of the Business Manager accounts
receivable financing program to the client banks' small business customers and
prospects. Utilizing a database of likely small business customers of the
program, the business development manager generally works directly with the
client banks' commercial loan officers to target and meet with qualified small
business customers as part of the direct sale of the program to these
businesses. Once the client bank has signed up a new small business customer,
our business development managers continue to work with the small business
customer in conjunction with the bank loan officer to ensure proper
implementation and post-implementation support. We also help design the
appropriate procedures and controls to successfully implement Business Manager
in order to minimize risk to our client banks.

Business Manager allows banks to provide differentiated, high margin
financial services to their existing small business customers and to new
prospects without incurring the cost of internal technology development and
additional personnel. Business Manager can benefit our client banks by:

- increasing their revenues with high margin fee income

- creating additional relationships with their existing small business
customers

- attracting new small business customers

- improving access to small business customers' financial information,
enabling better credit decisions

Business Manager can also benefit a bank's small business customers by:

- improving cash flow and making funds available for growth

- providing customized aging, sales and customer balance reports

- reducing management time, effort and cost associated with billing and
tracking receivables

- improving receivables tracking and payment by involving the bank

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STRATEGY

We intend to grow our business by implementing the following strategies:

Increase the Number of Business Development Managers. We intend to hire
more business development managers in order to expand into additional geographic
areas and increase the penetration of Business Manager in currently covered
regions. Our experience indicates that increasing the number of business
development managers relative to the number of client banks results in increased
business development manager productivity. During 1998, we increased the number
of business development managers for Business Manager by over 20%, and we intend
to increase the number of business development managers by approximately 45% in
1999.

Expand and Market Our In-house Processing and Service Capabilities. We are
expanding our processing and service center in Williamson County, Tennessee.
With expanded capability, we intend to increase our marketing of the processing
and service center. Our processing and service center provides our client banks
with an outsourcing alternative for processing and customer service and allows
for quick implementation of Business Manager with minimum training while
reducing the need of our client banks to assign or hire dedicated staff. These
features assist in the retention of existing client banks and in the attraction
of new client banks. Furthermore, use of the processing and service center
eliminates restrictions on the growth of Business Manager due to a client bank's
difficulty in adding staff or office space. We believe that a growing number of
our new client banks will use the processing and service center.

Expand Electronic Commerce Services. We are expanding our electronic
commerce offering by hiring new electronic commerce specialists, enhancing our
Internet communications infrastructure and more actively marketing our
electronic commerce services. Our 14 electronic commerce specialists work
directly with our client banks and their small business customers to implement
browser based electronic communications through our Internet server between the
small business and the bank. We intend to hire seven additional electronic
commerce specialists in 1999. Additionally, we are upgrading our Internet
communications infrastructure to improve security, scalability, redundancy and
availability. We are also actively marketing our capabilities in every new sale
of Business Manager to increase adoption of our electronic commerce solution. To
date, approximately 225 banks and 550 small business customers use these
services.

Continue to Broaden Product and Services Offerings. We are successfully
using our sales and distribution channel to offer new products and services to
our expanding network of over 1,100 client banks. For example, we have
introduced credit and fraud insurance, database marketing services, and industry
focused applications for the medical and dental markets. In 1999, we intend to
offer key man life insurance, point of sale communications systems and leasing
services of equipment for small businesses. This equipment could be office
equipment such as computers, printers or telephone equipment or other equipment
such as forklifts or moving equipment, depending upon the particular needs of
the small businesses. Additionally, with the enhancement of our Internet
communications infrastructure, we intend to establish a small business focused
Internet portal providing relevant business information and enabling
communications and commerce among small businesses. In addition, we intend to
use this channel to market additional products and services to small businesses.

Target Major Metropolitan Areas Through Our Private Business Capital
Subsidiary. With a sales presence in Philadelphia, Chicago, Atlanta and Los
Angeles, our Private Business Capital subsidiary markets the Business Manager
solution directly to small businesses in major metropolitan markets. We intend
to increase the number of dedicated

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sales managers in Private Business Capital from seven to 26 during 1999. Though
Private Business typically offers these financing opportunities to local client
banks, we also work with regional and national funding sources to provide
financing if our client banks are unable to participate.

Pursue Strategic Acquisitions and Alliances. The market for financial
services offered to small businesses through community banks is fragmented, and
our industry is still in its formative stage. We believe there is an opportunity
for strategic transactions such as acquisitions, alliances or other partnerships
to broaden our product portfolio and assist us in delivering our services
efficiently. We intend to actively evaluate and pursue strategic transactions to
better position our business. We have no current commitments or understandings
with respect to any material acquisitions.

SUMMARY OF THE BUSINESS MANAGER PROCESS

The following diagram describes the typical process through which we
deliver our solution.
(CHART)

(1) We sign up a new bank for the Business Manager solution and train the bank
personnel. We assign a business development manager to help market Business
Manager to small businesses.

(2) The bank signs up a small business customer for Business Manager.

(3) The small business customer generates receivables in the normal course of
business.

(4) The small business customer submits its receivables to the bank for
purchase.

(5) The bank pays the small business customer cash for the face value of the
receivables, less a discount that the bank keeps for its services and less a
percentage of the face value of the receivables, which is paid into a
reserve account. The bank pays part of its discount to us.

(6) The purchaser of goods or services pays the receivable directly to the bank.
In the event that the purchaser of goods or services does not pay the bank
within a designated period, the small business customer repurchases the
receivable.

(7) At the end of each month, the reserve account is adjusted to reflect the
condition of the receivables.

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PRODUCTS & SERVICES

We provide the following products and services through our Business Manager
solution:

Marketing Services. We provide comprehensive marketing services to client
banks as a key part of the Business Manager solution. We analyze a bank's market
area using our extensive database and provide a detailed assessment of the
market opportunity for Business Manager in a given geographic area. A business
development manager uses this market analysis to help the client bank sell
Business Manager to small businesses.

At March 31, 1999, we employed approximately 111 full-time business
development managers, including eight regional managers. Each business
development manager is responsible for two to 20 banks, depending on bank size
and market potential, with the typical business development manager responsible
for ten banks. The business development manager and the client bank work
together, using the market analysis, to develop a prospect list of the bank's
small business customers who would be likely Business Manager users. The master
prospect list is prioritized, and, together, the client bank and a business
development manager approach the businesses on that list. As a follow-up, a
business development manager periodically contacts small business customers on
the system to help the client bank to retain the small business customer.

Business Manager Software. We develop, update and support the Business
Manager software, a Windows-based software package installed at the client
banks, that enables banks to purchase and manage accounts receivable from their
small business customers. Business Manager provides over 50 detailed reports to
keep the client bank and the small business owner informed about the performance
and aging of the receivables. In addition, Business Manager's software enables
the client bank to periodically verify customers' receivables balances for risk
control purposes.

Processing Services. Our processing and service center can perform for the
client bank and its small business customers all the processing and service
functions that would normally be performed by the client bank's operations
staff. With this option, the processing and service center provides all data
entry, account set-up, batch processing, lock box maintenance, preparation and
mailing of statements and verification letters, invoicing and response to
customer service inquiries. The client bank retains the decision making
responsibility for credit underwriting and for monitoring the small business'
daily financial transaction activity.

Electronic Commerce Capabilities. We provide electronic commerce
capabilities that enable data exchange between the small business customer, our
client banks and our service center. This enables small business customers to
deliver new invoice information electronically and have this information
accessed by our client banks through a Web browser. The small business can
upload this data directly from their accounting software such as Peachtree or
Quickbooks or input this data into a predetermined form provided through the
Internet server and accessible via a Web browser. Our Internet communications
infrastructure provides the gateway to a central repository for this
information. This infrastructure also enables small businesses to access
critical cash management reports online through their Web browser. We believe
this capability reduces the time and cost of processing new invoices for the
small business and enhances our client banks' relationships with their small
business customers.

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Risk Management Procedures. The Business Manager solution also assists
client banks with credit risk management. Controlled management of credit-worthy
businesses' receivables under Business Manager provides an additional level of
security for client banks including multiple payment sources:

- Underwriting Control. The client bank decides which businesses
participate in the Business Manager system and approves limits on the
amount of receivables to be purchased from those businesses.

- Monitoring Capability. Information provided by the Business Manager
software enables the bank to monitor the payment performance of the
receivables, to detect trends in the business that may impact the bank's
risk, and to facilitate verification of receivables owed.

- Primary Source of Payment. The receivables purchased by the bank are the
primary source of payment. In most cases, a small business' customer
makes payment of the receivables directly to the client bank.

- Reserve. As the client bank buys receivables from small businesses, a
portion of the purchase price is paid to a reserve account to protect the
client bank against potential losses on the receivables. The reserve is
adjusted each month to reflect the condition of the receivables.

- Repurchase Obligation. The small business maintains ultimate
responsibility for accounts receivable collection, and receivables that
age beyond a designated period (typically 90 days) are repurchased by the
small business. Client banks may require additional collateral and
personal guarantees to secure the repurchase obligation.

Credit and Fraud Insurance. Our insurance brokerage subsidiary offers two
insurance products for the Business Manager solution. Both products are
primarily underwritten by Continental Credit, an affiliate of CNA Financial
Corporation and one of the nation's major multi-line insurers. Accounts
receivable credit insurance protects the client bank and/or its small business
customers from default in payment of the receivable. Fraud insurance protects
the client bank from two types of fraudulent acts by the client banks'
commercial business customers: fraudulent invoices and diversion of customer
payments.

TRAINING AND SUPPORT

We conduct a variety of training activities for our client banks. This
training is designed to give bank personnel detailed operating knowledge of the
Business Manager solution and the roles that both bank and Private Business
personnel play in the system's success for a particular client bank.

An initial two-day training session is conducted approximately 40 times per
year at our corporate training center by experienced members of our training and
bank services departments. These sessions encompass training for both bank
credit officers and for process coordinators who operate the Business Manager
software. Process coordinators receive detailed instruction and practical
training in effective utilization of the Business Manager software. Credit
officers learn how Business Manager relationships are developed as well as how
they are underwritten, documented, and monitored. Newly licensed banks send both
a credit officer and a process coordinator to this training prior to
implementation of the program, and banks may send additional personnel to these
sessions for training or re-training at any time. In addition, both beginning
and advanced software training for bank process coordinators is offered
throughout the year at various locations around the country.

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Other bank credit officers and relationship managers periodically receive
training in the business development and risk control aspects of the program,
either at the bank site or at mini-conferences held at various locations around
the country.

In addition to training, Private Business offers a variety of support
services to its client banks, including:

- Technical Support. We maintain a technical support department that
handles approximately 30,000 calls annually and is available five days a
week from 7 am to 7 pm (Central Standard Time) to field questions from
client banks and resolve any problems that may be encountered during
processing.

- Field Support. Our six regionally placed field support technicians visit
a client bank periodically to examine its processing procedures, and they
are available for on-site troubleshooting.

- Electronic Commerce Specialists. We have 14 electronic commerce
specialists that help banks and small business customers set up secure
Internet connections to the processing facility in the bank or to our own
processing and service center. These specialists also assist small
business customers in facilitating electronic communication between their
accounting systems and the processing facilities.

- Bank Services. Our bank services department, comprised of three former
commercial bankers, works with client banks on a variety of banking
issues that arise related to the Business Manager solution, including
dealing with regulatory issues, documentation, credit policies, risk
control and operational issues.

- Reference Guide. We provide full documentation in our reference guide as
a comprehensive resource for the ongoing operation of the Business
Manager solution. This reference guide serves as a source book for
answers to day-to-day questions about the software, as well as credit and
operations issues.

SALES AND MARKETING

Our sales effort is focused on marketing Business Manager to banks and
their small business customers.

Our dedicated bank sales force of 16 sales professionals (at March 31,
1999) targets community banks, primarily those which have assets of $1 billion
or less. As of September 30, 1998, there were 8,527 FDIC insured commercial
banks with total assets less than $1 billion. These sales professionals utilize
our database marketing tools to provide a detailed analysis of small businesses
that are likely candidates for the Business Manager product in the prospect
bank's market area.

Once a bank has licensed Business Manager, one of our approximately 105
business development managers works with the bank, combining the bank's customer
list with our prospect analysis and creating a prioritized master prospect list.
Our business development managers and our network of banks together form a
channel for the sale of Business Manager to small businesses.

We also have eight dedicated direct sales professionals (at March 31, 1999)
as part of our Private Business Capital subsidiary. These sales professionals
market directly to small businesses in major metropolitan markets. Though
Private Business typically offers these financing opportunities to local client
banks, we also work with regional and national funding sources to provide
financing if our client banks are unable to participate.

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We also employ six marketing professionals (at March 31, 1999) who are
responsible for the design and production of internal and external marketing
materials. These marketing professionals also attend trade shows and coordinate
various marketing programs, such as direct mail campaigns and conferences.

CUSTOMERS AND CONTRACTS

As of December 31, 1998, Business Manager was licensed to over 1,100 banks.
No client bank contributed more than five percent of our revenue in 1996, 1997
or 1998. As of December 31, 1998, over 8,500 small businesses had signed
agreements with our client banks to sell their accounts receivable.

The typical licensing agreement between Private Business and a client bank
provides that the bank pay an initial fee upon execution of the agreement and an
annual maintenance fee on each anniversary date thereafter. In addition, the
license agreement provides that the bank pay a fee equal to a percentage of the
receivables purchased by the bank from a new small business customer during the
first thirty days after signing such small business customer. Thereafter, the
license agreement provides for a monthly ongoing fee based on a percentage of
the discount charged against the receivables purchased from each small business
customer.

The licensing agreements generally have terms of three to five years plus
provisions that the bank pay ongoing fees on all accounts transferred to a
similar program for a period of 48 months after termination.

If we provide the processing services to the bank, there is a processing
addendum to the licensing agreement which generally has a one year term and
automatically renews for successive one year terms unless terminated. The
processing addendum provides for set up fees and transaction processing fees.
The processing addendum includes a confidentiality provision with respect to all
information received from the client bank relating to the small business
customer and its accounts.

We also provide client banks with a form Business Manager agreement to be
used between the client bank and its small business customers. Private Business
is not a party to this agreement, but the general form of the agreement provides
that the bank will purchase up to a set amount of the small business' accounts
receivable for the face amount less a discount. The Business Manager agreement
provides that the bank will establish an interest bearing reserve account for
the benefit of the small business and will deposit a portion (generally between
ten percent and 20 percent) of the face amount of each receivable purchased into
such reserve account. The agreement further provides that the bank may require
the small business to repurchase all or any portion of any receivable if any
minimum payment remains unpaid after a designated period (generally 90 to 120
days). These agreements have a term of one year and are automatically extended
for additional one year periods, but may be terminated without penalty upon 60
days written notice.

TECHNOLOGY

The Business Manager software program is a PC-based system written
primarily in Smalltalk and "C." It is capable of running in stand-alone mode or
supporting multiple users on Novell or Microsoft NT networks. It exists both in
a full 32 bit version and a version utilizing Win32s. This enables the software
to run under Windows 3.1, Windows 95/98, or Windows NT. For reporting, it relies
on the Crystal Reports report writer. It requires at least 32 MB of RAM and
approximately 25 MB of disk space to install. Disk space needed for usage varies
with the size of the bank's portfolio, but is usually under 200 MB. Upgrades to
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the program are released periodically and generally no less than annually.
Private Business also has the ability to handle non-PC-based small businesses.
As of March 31, 1999, we had 20 people engaged in software engineering, product
development and quality assurance.

Our processing and service facility receives invoice information from
businesses, via our Internet server and uses a PC-based server system to process
this information. The processing and service center uses fail-safe fiber ring
communications and is connected to two separate telecommunications service
providers. The facility has a back-up power generator used in case of power
outage.

COMPETITION

The market for small business financial services is intensely competitive,
fragmented and rapidly changing. We believe that we compete effectively as a
result of our highly trained and motivated sales force as well as the
functionality of Business Manager.

We face primary competition from companies offering products similar to
Business Manager to banks. Only a limited number of companies offer solutions
similar to Business Manager. We believe that we are the largest of such
companies offering these services in terms of revenue and number of client
banks.

We also compete with banks that use their internal information technology
departments to develop proprietary systems or purchase software from third
parties to offer similar services to small businesses, and with providers of
traditional sources of financing to small businesses such as lines of credit,
amortizing loans and factoring. Many banks and other traditional providers of
financing are much larger and more established than Private Business. Most
providers of traditional sources of financing and banks have already established
relationships with small businesses, may be able to leverage their relationships
to discourage these customers from purchasing Business Manager or persuade them
to replace our products with their products.

We expect that competition will increase as other established and emerging
companies enter the accounts receivable financing market, as new products and
technologies are introduced and as new competitors enter the market. In
addition, as we develop new services, such as equipment leasing, we may begin
competing with companies with whom we have not previously competed. Increased
competition may result in price reductions, lower profit margins and loss of our
market share, any of which could materially adversely affect our business,
financial condition and operating results.

EQUIPMENT AND FACILITIES

We own a 36,000 square foot modern corporate office building in Brentwood,
Tennessee, situated on approximately 5.1 acres of land. This building houses our
executive offices as well as administration/operations and other staffs. We
lease approximately 23,500 square feet of office space in Brentwood, Tennessee
and Franklin, Tennessee for processing, insurance and some staff offices. We
recently sold approximately 8.1 acres of undeveloped land adjacent to the
corporate office to a developer who will build a new building. We will lease
approximately 45,000 square feet of office space in this building on a long-term
basis. We intend to move our processing and service center into the new building
which will replace our currently leased space and allow for future expansion. We
expect to occupy the new facility in mid to late 2000.

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EMPLOYEES

At March 31, 1999, Private Business employed 352 people, four of whom were
part-time employees. We have 141 employees involved in direct sales, marketing
and business development activities.

LEGAL PROCEEDINGS

From time to time, Private Business is subject to claims and suits arising
in the ordinary course of business. We are not currently a party to any
proceeding which, in management's opinion, would have a material adverse effect
on our business, financial condition or results of operations.

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MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth information regarding Private Business's
Directors, executive officers and key employees as of March 31, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Directors and Executive Officers
William B. King......................... 54 Chairman of the Board
Jerry L. Cover.......................... 47 President, Chief Executive Officer and
Director
Fred P. Read............................ 44 Vice President -- Finance and Chief
Financial Officer
Joseph T. Stewart....................... 59 Chief Operating Officer
Jeffrey R. Cantwell..................... 41 Chief Technical Officer
Thomas L. Black......................... 47 Director
Gary W. Cage............................ 54 Director
Brian J. Conway......................... 40 Director
Bruce R. Evans.......................... 40 Director
Gregory A. Thurman...................... 50 Director
Key Employees
C. Paul Sims............................ 48 Senior Vice President -- Director of
Bank Services
Will Martin............................. 55 Senior Vice President -- Corporate
Development
Stephen D. Giddens...................... 48 Senior Vice President -- Director of
Business Development
James Wrigley........................... 36 Senior Vice President -- Director of
Bank Sales
R. Paul McCulloch....................... 40 President of Private Business Insurance
Deborah C. Taylor....................... 33 Vice President -- Recruiting and Human
Resources
Tea K. Hoffmann......................... 35 Vice President -- General Counsel
Paul Wholley............................ 42 Vice President -- Director of Client
Services
James T. Quinn.......................... 38 Vice President -- Director of Sales for
Private Business Capital
</TABLE>

William B. King co-founded Private Business in 1991 and has served as
Chairman of the Board since that time. In 1970, he co-founded Madison Financial
Corporation, a provider of marketing products and services to community banks.
Mr. King sold Madison Financial Corporation in 1986 and served as chairman of
the board of its successor FISI*Madison Financial Corporation from 1986 to 1995.
Mr. King is a private investor, and he has served as a major stockholder,
director and/or chairman of a number of privately-held companies during the past
five years. He currently serves as a director of one publicly-held company,
Harbinger Corporation, Atlanta, Georgia.

Jerry L. Cover joined Private Business in 1991 and currently serves as
President, Chief Executive Officer and Director. Mr. Cover served as our
Executive Vice President and Chief Operating Officer from 1994 until 1997 and
has served as President and a Director since

41
<PAGE> 45

1997. He was elected Chief Executive Officer in 1999. Prior to joining Private
Business, Mr. Cover owned and operated small businesses for 17 years.

Fred P. Read joined Private Business in 1995 and has served as Vice
President -- Finance since that time. Mr. Read became Chief Financial Officer in
1998. Prior to joining Private Business, Mr. Read served as division
controller/chief financial officer of Columbia/HCA Information Services, Inc.,
in Nashville, Tennessee, the information services subsidiary of Columbia/HCA
Corporation, from 1986 through 1995.

Joseph T. Stewart joined Private Business in November 1998 as Senior Vice
President and currently serves as Chief Operating Officer. Prior to joining
Private Business, Mr. Stewart served as chief operating officer of PMT Services
Inc., a merchant credit card acquiring company, from 1996 until 1998 and served
as executive vice president of First Data Corp. from 1985 until 1996.

Jeffrey R. Cantwell joined Private Business in 1993 as Vice
President -- Research and Development and currently serves as Chief Technical
Officer, a position which he has held since 1997. Prior to 1993, Mr. Cantwell
was a member of the faculty of the Electrical Engineering Department at
Vanderbilt University for more than seven years.

Thomas L. Black co-founded Private Business in 1991 and has served as a
Director since that time. Mr. Black currently serves as chief executive officer
of Imagic Corporation, Nashville, Tennessee, a check imaging software company,
and as chief executive officer of Tecniflex Inc. in Republic, Missouri, a check
processing equipment maintenance and servicing company. Mr. Black served as our
Chief Executive Officer from 1991 until 1995.

Gary W. Cage has served as a Director since March 1999. Mr. Cage currently
serves as president, chief executive officer and director of Monarch Dental
Corporation, Dallas, Texas, a dental services company. He served as chief
operating officer of Monarch from 1996 to 1997 and, from 1992 to 1996, Mr. Cage
served as chief financial officer, senior vice president, treasurer and
secretary of EmCare Holdings, Inc., in Dallas, Texas, a provider of management
services to emergency physicians.

Brian J. Conway has served as a Director since August 1998. He has been a
managing director or partner of TA Associates, Inc., a private equity investment
firm in Boston, Massachusetts, or its predecessor since 1988, and was an
associate at the firm from 1984 through 1988.

Bruce R. Evans has served as a Director since August 1998. Since 1991, Mr.
Evans has been a general partner of Summit Partners, a venture capital firm in
Boston, Massachusetts where he has been employed since 1986. Mr. Evans serves as
a director of Pediatrix Medical Group, Inc., Omtool, Ltd., DSET Corporation and
several privately-held companies.

Gregory A. Thurman co-founded Private Business in 1991 and has served as a
Director since that time. He served as our President from 1995 until 1997. From
1990 to 1995, he served as chief executive officer and President of FISI*Madison
Financial Corporation. Since March 1999, he has been the chairman of the board
of Journal Communications, Inc., a magazine publishing company in Franklin,
Tennessee.

C. Paul Sims joined Private Business in 1994 and currently serves as Senior
Vice President and Director of Bank Services. Prior to joining Private Business,
Mr. Sims spent 19 years in the banking industry, including 13 years with Union
Planters National Bank, during which he served as Regional President of Union
Planters National Bank in Nashville and Regional Executive Vice President of the
bank for the Middle Tennessee area.

42
<PAGE> 46

Will Martin joined Private Business in 1998 and has served as Senior Vice
President for Corporate Development since that time. Prior to joining Private
Business, Mr. Martin served as a founding partner in a Nashville, Tennessee law
firm from 1975 until 1993. Mr. Martin served as Deputy Assistant Secretary for
International Affairs at the National Oceanic and Atmospheric Administration in
Washington, D.C. from 1993 until 1998.

Stephen D. Giddens joined Private Business in 1992 as a Business
Development Manager and assumed his current position in 1997. Prior to joining
Private Business, Mr. Giddens served as Director of Business Development with
Quaker Oats, Inc. in Chicago from 1982 until 1992.

James Wrigley joined Private Business in 1994 as a Bank Sales
Representative for the Midwest region. In 1995, he served as a National Bank
Sales Representative for Private Business before becoming Director of Bank Sales
in 1996. Prior to joining Private Business, Mr. Wrigley worked in several sales
and management positions for Dun & Bradstreet Information Services.

R. Paul McCulloch joined Private Business in 1995 to head Private Business
Insurance. Prior to joining Private Business, Mr. McCulloch was President of
Crump Financial Services of Nashville from 1990 until 1995. Mr. McCulloch also
worked as a Vice President and Manager at Swett and Crawford Insurance Brokers
from 1985 until 1990.

Deborah C. Taylor joined Private Business in 1993 in her current position
as Vice President -- Recruiting and Human Resources. Prior to joining Private
Business, Ms. Taylor spent more than ten years in the sales industry.

Tea K. Hoffmann joined Private Business in 1993 as a Business Development
Manager before assuming the position of General Counsel in 1994. Prior to
joining Private Business, Ms. Hoffmann worked for the Tennessee Criminal Court
of Appeals and as an attorney for a Nashville law firm.

Paul Wholley joined Private Business in 1992 as a Bank Sales Representative
in the northeast United States and in 1998 assumed the position of Vice
President -- Director of Client Services. Prior to joining Private Business, Mr.
Wholley held sales and management positions with Southwestern Publishing Company
and Versyss, Inc.

James T. Quinn joined Private Business in 1995 as a Business Development
Manager in the northeast United States before becoming Vice
President -- Director of Sales for Private Business Capital in 1998. Mr. Quinn
spent over ten years in sales and sales management positions including six years
experience as a district sales manager for Southwestern Company.

Upon the completion of this offering, the Board of Directors will be
divided into three classes, each of whose members will serve for a staggered
three-year term. Messrs. Cover and Thurman will be Class 1 Directors, Messrs.
Black, Conway and King will be Class 2 Directors and Messrs. Cage and Evans will
be Class 3 Directors. At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the director or
directors of the same class whose terms are then expiring. The initial terms of
the Class 1 Directors, Class 2 Directors and Class 3 Directors expire upon the
election and qualification of successor directors at the annual meeting of
stockholders held during calendar years 2000, 2001, and 2002, respectively. Each
officer serves at the discretion of the Board of Directors.

43
<PAGE> 47

BOARD COMMITTEES

The Audit Committee consists of Messrs. Black, Thurman and Cage. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent public accountants, reviews the results and scope of
the audit and other services provided by Private Business's independent public
accountants and reviews and evaluates Private Business's control functions.

The Compensation Committee consists of Messrs. Black, Evans, and King. The
Compensation Committee administers the issuance of stock options under Private
Business's stock option plan, makes recommendations regarding Private Business's
nonqualified stock options and various incentive compensation and benefit plans
and determines salaries for the executive officers and incentive compensation
for employees and consultants of Private Business.

DIRECTOR COMPENSATION

Commencing upon completion of this offering, non-employee directors will
receive $1,000 cash compensation for each board meeting they attend. Directors
are reimbursed for expenses incurred in connection with attendance at board and
committee meetings. In March 1999, Mr. Cage, an independent director who does
not own any of our stock, was granted an option to purchase 20,000 shares of our
common stock at an exercise price per share equal to the initial public offering
price. No other non-employee directors have received stock option grants. Mr.
Cover, Private Business's only employee director, received his stock option
grants for his service as an employee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to March 1999, Private Business did not have a Compensation Committee
of the Board of Directors, and the entire board participated in all compensation
decisions. During 1998, Mr. Cover was an officer of Private Business, as well as
a director. In March 1999, the Board formed Private Business's Compensation
Committee to review and recommend to the Board the compensation and benefits for
Private Business's executive officers and administer Private Business's stock
option plan. No members of the Compensation Committee are employees of Private
Business.

44
<PAGE> 48

EXECUTIVE COMPENSATION

The following table sets forth the compensation we paid during the fiscal
year ended December 31, 1998 to Private Business's Chief Executive Officer and
the two other most highly compensated executive officers serving at December 31,
1998, who received compensation in excess of $100,000 in fiscal 1998:

SUMMARY COMPENSATION TABLE (1)

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Jerry L. Cover....................... 1998 $202,000 $150,000 40,000 $3,002,132(2)
Chief Executive Officer 1997 154,802 118,000 90,000
1996 133,725 75,000 60,000
Fred P. Read......................... 1998 101,305 40,000 16,000 202,441(2)
Chief Financial Officer 1997 85,125 25,000 14,000
1996 75,308 12,000 6,000
Jeffrey R. Cantwell.................. 1998 100,100 35,000 20,000 249,766(2)
Chief Technical Officer 1997 89,007 30,000 18,000
1996 85,808 25,000 12,000
</TABLE>

- ---------------

(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by these executive officers which are
available generally to all salaried employees of Private Business and
perquisites and other personal benefits received by these executive
officers, which do not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(2) Mr. Cover, Mr. Read and Mr. Cantwell received special one time bonuses in
1998 in conjunction with our recapitalization in recognition of their
contributions to the company as described in "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" on page 27. These bonuses do not represent the customary
incentive structure of Private Business.

45
<PAGE> 49

Option Grants. The table below provides information on grants of stock
options pursuant to Private Business's option plans during the 1998 fiscal year
to the named executive officers. Additional grants have been made to officers,
directors and other employees since December 31, 1998. Private Business grants
no stock appreciation rights.

OPTION GRANTS IN THE FISCAL YEAR ENDING DECEMBER 31, 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jerry L. Cover................. 40,000 8.4%(1) $ 5.334 09/01/2008 $134,181 $340,041
Fred P. Read................... 16,000 3.4%(1) 5.334 09/01/2008 53,672 136,016
Jeffrey R. Cantwell............ 20,000 4.2%(1) 5.334 09/01/2008 67,090 170,020
</TABLE>

- ---------------

(1) Percentages are based on a total of 474,000 options granted to employees,
officers and directors in fiscal 1998.
(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the Securities and Exchange Commission and, therefore,
are not intended to forecast possible future appreciation, if any, of
Private Business's common stock price.

Option Exercises and Values. The table below provides information as to
exercises of options by Messrs. Cover, Read and Cantwell during the 1998 fiscal
year under the option plans and the year-end value of unexercised options.

OPTION HOLDINGS AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jerry L. Cover....................... 141,000 145,000 $988,933(1) $769,988(1)
Fred P. Read......................... 10,500 29,500 65,365(1) 129,255(1)
Jeffrey R. Cantwell.................. 35,250 40,750 247,851(1) 187,729(1)
</TABLE>

- ---------------

(1) Options are classified as "in-the-money" if the market value of the
underlying common stock exceeds the exercise price of the option. The per
share value of such in-the-money options is the difference between the
option exercise price and $8.00, the initial public offering price. Such
amounts may not necessarily be realized. Actual values which may be
realized, if any, upon the exercise of options will be based on the per
share market price of the common stock at the time of exercise and are thus
dependent upon future performance of the common stock.

46
<PAGE> 50

NON-QUALIFIED STOCK OPTION AGREEMENTS

As of May 14, 1999 Private Business has issued non-qualified option
agreements to purchase an aggregate of 1,767,000 shares of its common stock to a
number of its employees, providing them with an equity interest in Private
Business and the opportunity to benefit from any appreciation in the value of
our stock. Also as of May 14, 1999 options to purchase 5,000 shares had been
exercised. These options were not issued pursuant to a plan and are considered
non-qualified options as that phrase is described in Treasury Regulation Section
1-83-7. The options are evidenced by individual stock option agreements.

Each stock option agreement specifies when each option vests and the
exercise price for each option. Payment for shares of Private Business common
stock to be issued upon exercise of an option may be made, at the discretion of
the Board of Directors, either in cash, common stock or unexercised portions of
vested options. Options are nontransferable, other than by will or the laws of
descent and distribution. Generally, under each stock option agreement, the
option terminates on the earlier of ten years from the date such option is
granted or the employee's termination.

The number of shares of common stock that may be granted under the stock
option agreements or the options granted thereunder will be proportionately
adjusted in the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock split or
other change in corporate structure affecting our common stock.

Generally, in the event an optionee is terminated by reason of retirement,
disability, or death, the option will immediately become vested and the optionee
or his or her representative may exercise the option for twelve months following
termination or until the expiration of the term of the option, whichever occurs
first. If the employment of an optionee is terminated for "cause," as defined in
the stock option plan, any unexercised options held by optionee will expire. In
the event the option holder is terminated for any reason other than disability,
death or cause, the holder may exercise his or her option for three months
following termination or the expiration of the stated term of the option,
whichever occurs first.

The stock option agreements provide that options will be fully vested
immediately prior to a change of control of Private Business. A change in
control occurs in the event of a merger or consolidation with another
corporation resulting in less than 75% of the outstanding voting securities of
the surviving or resulting corporation being owned by the former stockholders of
Private Business, a sale of all or substantially all of our assets to another
corporation which is not a wholly-owned subsidiary, or a person acquiring more
than 60% of the outstanding voting securities of Private Business.

1999 STOCK OPTION PLAN

Under Private Business's 1999 Amended and Restated Stock Option Plan,
incentive and non-qualified stock options to purchase shares of our common stock
are available for grant to our employees and other service providers, providing
them with an equity interest in Private Business and the opportunity to benefit
from any appreciation of the value of such stock. The stock option plan allows
for both incentive stock options and nonqualified stock options to purchase in
the aggregate up to 4,000,000 shares of our common stock to be granted by the
Board of Directors. As of May 14, 1999, we had granted options to purchase
1,520,700 shares at the initial public offering price.

47
<PAGE> 51

The stock option plan is administered by the compensation committee of the
Board of Directors. Subject to some limitations, this committee has the
authority to determine the recipients of options, the number of shares of common
stock to be issued upon exercise of each option, the exercise periods of each
option and conditions subject to which options may be exercised.

The stock option plan provides that the exercise price of an incentive
stock option must not be less than 100% of the fair market value of Private
Business's common stock on the day the incentive stock option is granted as
determined in good faith by the committee. The exercise price of an incentive
stock option in the case of an employee who owns stock representing more than
ten percent of the total combined voting power of all classes of stock of
Private Business must not be less than 110% of the fair market value of Private
Business's common stock on the day that incentive stock option is granted.
Shares subject to options granted under the stock option plan that expire,
terminate or are canceled without having been exercised in full are again
eligible for issuance under the stock option plan. The exercise price of a
nonqualified stock option will be determined by the committee and may or may not
be at the fair market value of the stock. Incentive stock options are
nontransferable other than by will or the laws of descent and distribution.
However, the Committee may allow nonqualified stock options to be transferred
only to members of the holders immediate family members, trusts for the benefit
of such family members and entities owned by such family members; provided,
however, the holder must not receive any consideration for such a transfer.

Generally, in the event an incentive stock option holder is terminated as
an employee due to disability or death, the holder or his or her representative
may exercise any unexercised stock options for a period of one year following
termination. If the incentive stock option holder is terminated for any reason
other than disability, death, or cause, the holder may exercise his or her
incentive stock option for a period of three months following termination.
Private Business may allow an incentive stock option to continue beyond the
three month period, in which case the incentive stock option will become a
nonqualified option. If either an incentive stock option or a nonqualified stock
option holder is terminated for "cause," as defined in the stock option plan,
the unexercised options expire. If the holder of a nonqualified stock option is
terminated for any reason other than for cause, the nonqualified stock option
will continue unless otherwise determined by the committee.

In the event of any sale of or transfer of not less than 50% of Private
Business's common stock, the sale of substantially all of the assets of Private
Business, or the dissolution or liquidation of Private Business, one-half of an
optionee's unvested incentive stock options will become fully vested and be
exercisable prior to any such transaction.

401(K) PLAN

Private Business and its affiliates offer a 401(k) Plan for all eligible
employees who are over 18 years of age. Private Business may make matching
discretionary contributions and the Board of Directors has authorized a matching
contribution for 1998 of 100% of each participant's contributions up to a
maximum of $1,000 per participant. No employee may contribute more than 15% of
wages to the 401(k) Plan, and employees are limited to a contribution of no more
than $10,000. Matching funds vest in the participant's account over a period of
seven years of vesting service. The total matching contribution for 1998 was
$151,858.

48
<PAGE> 52

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of May 14, 1999 assuming the completion of a
private placement of 750,000 shares of common stock immediately prior to this
offering, and immediately following the offering by: (1) each person who is
known by us to own beneficially more than five percent of our common stock; (2)
each director and executive officer named in the Summary Compensation Table; and
(3) all of our directors and executive officers as a group. To our knowledge,
each of the persons named in the following table has sole voting and investment
power as to the shares shown unless otherwise noted. Unless otherwise noted, the
address of each holder listed below is our corporate address.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES PERCENTAGE OF
BENEFICIALLY SHARES
SHARES OWNED PRIOR BENEFICIALLY
BENEFICIALLY TO THE OWNED AFTER THE
NAME OWNED OFFERING(1) OFFERING(1)
- ---- ------------ ------------- ---------------
<S> <C> <C> <C>
Summit Partners(2)(3)(4)........................... 4,443,297 20.1% 16.7%
TA Associates Group(2)(4)(5)....................... 4,443,297 20.1% 16.7%
Thomas L. Black.................................... 2,973,718 13.4% 11.2%
William B. King.................................... 1,773,044 8.0% 6.7%
The William B. King Jr. Annuity Trust -- 1997...... 1,825,674 8.5% 6.9%
Cendant Corporation(2)(4).......................... 1,874,801 8.8% 7.1%
Gregory A. Thurman................................. 2,365,339 10.7% 8.9%
The Gregory A. Thurman Annuity Trust -- 1997....... 1,582,040 7.4% 6.0%
Jerry L. Cover(6).................................. 174,645 * *
Joseph T. Stewart(6)............................... 6,109 * *
Fred P. Read(6).................................... 16,941 * *
Jeffrey R. Cantwell(6)............................. 44,275 * *
Gary W. Cage(6).................................... 20,000 * *
Brian J. Conway(5)................................. 10,462 * *
Bruce R. Evans(3).................................. 4,443,297 20.1% 16.7%
All directors and officers as a group
(19 persons)(7).................................. 11,549,581 52.2% 43.6%
</TABLE>

- ---------------

* Indicates less than one percent
(1) The percentages shown are based on 22,126,858 shares of common stock
outstanding prior to the offering and 26,476,858 shares of common stock
outstanding after the offering. Pursuant to Rule 13d-3 under the Exchange
Act, shares of common stock which a person has the right to acquire pursuant
to the exercise of stock options and warrants held by such holder that are
exercisable within 60 days of such date are deemed outstanding for the
purpose of computing the percentage ownership of such person, but are not
deemed outstanding for computing the percentage ownership of any other
person.
(2) The address for Summit Partners is care of Summit Ventures V, L.P. is 600
Atlantic Avenue, Suite 2800, Boston, MA 02210. The address for TA Associates
Group is 125 High Street Tower, Suite 2500, Boston, MA 02110. The address
for Cendant Corporation is 6 Sylvan Way, Parsippany, NJ 07054.
(3) Includes 3,441,701 shares held by Summit Ventures V, L.P., 575,500 shares
held by Summit V Companion Fund, L.P., 230,201 shares held by Summit V
Advisors Fund (QP), L.P., 70,341 shares held by Summit V Advisors Fund, L.P.
and 125,554 shares held by Summit Investors III, L.P. Mr. Evans is a general
partner of Summit Investors III,

49
<PAGE> 53

L.P. and is a member of Summit Partners, LLC, which is the general partner
of Summit Ventures V, L.P., Summit V Companion Fund, L.P., Summit V Advisors
Fund (QP), L.P. and Summit V Advisors Fund, L.P. Mr. Evans may be deemed to
share voting and investment power with respect to all shares held by the
partnerships. Mr. Evans disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest therein.
(4) Summit Partners, TA Associates Group, and Cendant Corporation currently own
convertible preferred stock which will be converted into common stock
immediately prior to the completion of this offering.
(5) Includes 3,379,255 shares owned by TA/Advent VIII, L.P.; 929,760 shares
owned by Advent Atlantic & Pacific III L.P.; 66,747 shares owned by TA
Executives Fund LLC; 70,535 shares owned by TA Investors LLC. TA/Advent
VIII, Advent Atlantic & Pacific III L.P., TA Executives Fund LLC and TA
Investors LLC are part of an affiliated group of investment partnerships
referred to, collectively, as the TA Associates Group. The general partner
of TA/Advent VIII, L.P. is TA Associates VIII LLC. The general partner of
Advent Atlantic & Pacific III L.P. is TA Associates AAP III Partners. TA
Associates, Inc. is the general partner of TA Associates AAP III Partners,
L.P. and the manager of each of TA Associates VIII, LLC, TA Executives Fund,
LLC and TA Investors, LLC is TA Associates, Inc. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all of the shares held of record by the named investment partnerships.
Individually no stockholder, director or officer of TA Associates, Inc. is
deemed to have or share voting and investment power. Principals and
employees of TA Associates, Inc. (including Mr. Conway, a Director of
Private Business) comprise the members of TA Investors LLC. Mr. Conway has a
pecuniary interest in 10,462 shares held by TA Investors, LLC.
(6) The amount shown consists of options to purchase shares of common stock.
These individuals do not own any shares of common stock.
(7) Includes options to purchase 431,683 shares of common stock.

50
<PAGE> 54

RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

RECAPITALIZATION TRANSACTION

General. On August 7, 1998, Private Business and its stockholders
consummated three related transactions:

- the redemption from its stockholders (the "Selling Stockholders") of
9,927,502 shares of its common stock for an aggregate purchase price of
$138,340,358 or $13.95 per share

- a $110,000,000 credit agreement with Fleet National Bank and other
lenders

- the issuance of 5,624,404 shares of newly authorized Series A
convertible preferred stock (the "Convertible Preferred") for an aggregate
purchase price of $60,000,000. Private Business used the proceeds from the
issuance of the Convertible Preferred and the credit facility:

- to fund the redemption

- to pay aggregate bonuses of $10,006,000 to employees of Private
Business

- to repay mortgage indebtedness of Private Business

- for general working capital purposes, including the payment of
fees and expenses related to these transactions

In connection with the recapitalization, Messrs. King, Thurman and Black
received $33,787,788, $34,812,433 and $36,861,723, respectively, for the
redemption of a portion of their common stock. In addition, Messrs. Cover, Read
and Cantwell received special bonuses in conjunction with the recapitalization
of $3,002,132, $202,441 and $249,766, respectively.

The shares acquired by Private Business in the redemption constituted 49.5%
of the then-outstanding common stock. An escrow reserve of $5,000,000 of the
price paid in the redemption is being held until 30 days after Private Business
delivers audited financial statements for its 1999 fiscal year to the holders of
the Convertible Preferred (the "Preferred Holders") to secure any claims for
indemnification that may be made by the Preferred Holders in connection with the
redemption of common stock and the issuance of the Convertible Preferred. To the
extent not claimed, the escrow reserve will be distributed to the Selling
Stockholders at the conclusion of the escrow period.

Stockholders Agreement. In connection with the recapitalization, the
Preferred Holders and the Selling Stockholders entered into a stockholders
agreement on August 7, 1998. The parties to the stockholders agreement are: The
William B. King, Jr. Annuity Trust-1997, William B. King, The Gregory A. Thurman
Annuity Trust-1997, Gregory A. Thurman, The Carl E. Brasser Annuity Trust-1997,
Carl E. Brasser, Tom Black, Kenneth L. Keith, David F. Anderson, TA/Advent VIII,
L.P., Advent Atlantic and Pacific III, L.P., TA Investors, LLC, TA Executives
LLC, Summit Ventures V, L.P., Summit V Advisors Fund (QP), L.P., Summit V
Advisors Fund, L.P., Summit Investors III, L.P., Summit V Companion Fund, L.P.,
Cendant Corporation, BT Investment Partners, Inc., The John Ryan Tyrrell Trust,
The Jack and Sandra Tyrrell Joint Revocable Trust, W. Patrick Ortale, III, Laura
Farish, Chadwick Management Trust, Sunapee Securities, Inc., Squam Lake
Investors III, L.P., and 1998 GPH Fund, LLC. Prior to a qualified public
offering of Private Business's capital stock, the stockholders agreement
restricts the sale or transfer of shares of common stock except in limited
instances or in compliance with a co-sale procedure which permits Preferred
Holders to participate in the proposed sale. A qualified public offering is
defined as a registered public offering of common stock in which Private
Business receives gross proceeds exceeding $40 million, at a price per share of
at least $8.00 (if the offering closes on or before June 30, 1999) or $11.67 (if
the offering closes after June 30, 1999) which prices will be adjusted in the
event of

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specified corporate actions. The stockholders agreement also grants "drag-along"
rights in which two-thirds of the Preferred Holders can cause the remaining
Preferred Holders to participate in significant events such as a merger of
Private Business or a sale of stock or substantially all of Private Business's
assets. Subject to specified parameters, the stockholders agreement also grants
contractual pre-emptive rights to stockholders of Private Business to
participate in offerings of capital stock, other securities or rights to acquire
securities of Private Business. All of the Preferred Holders have waived their
preemptive rights under the stockholders agreement with respect to this
offering.

The stockholders agreement also obligates stockholders to vote their shares
of capital stock to elect up to nine directors, as follows:

- Mr. King, Mr. Thurman and Mr. Black (so long as each owns at least 10% of
Private Business's fully diluted capital stock)

- subject to ownership thresholds, one individual nominated by TA
Associates, Inc., one individual nominated by Summit Partners, LLC and
one individual nominated by holders of two-thirds of the Convertible
Preferred

- one member of Private Business's management

- two non-employee directors

Although this offering may not be a qualified public offering as defined in
the stockholders agreement, the preferred holders will voluntarily convert their
preferred stock, without the payment of any additional consideration or any
accumulated but undeclared dividends, into our common stock immediately prior to
this offering. The stockholders agreement will also be terminated upon the
consummation of this offering.

In addition, Private Business's charter prior to the offering pursuant to
this prospectus contained voting provisions that allowed the Selling
Stockholders to maintain voting control over Private Business even though they
no longer owned 50% of our stock. To accomplish this result, the charter
provided that the Preferred Holders would be entitled to approximately
nine-tenths of a vote per share on the majority of matters submitted to the
stockholders of Private Business for a vote. In connection with this offering,
we have amended and restated our charter again and it no longer contains these
provisions.

Registration Rights Agreement. In connection with the recapitalization,
the Preferred Holders, Private Business and the Selling Stockholders entered
into a registration rights agreement on August 7, 1998, which grants demand
registration rights to the Preferred Holders, exercisable generally by
two-thirds of the Preferred Holders. These demand registration rights can be
exercised (subject to limitations) up to two times after the earlier of August
7, 2000 or ninety days after an initial public offering of Private Business's
common stock. Notwithstanding the above, the registration rights agreement
provides for unlimited demand registration rights (subject to limitations) with
respect to registrations on Form S-3 so long as the aggregate sales proceeds to
Preferred Holders is anticipated to exceed $1.5 million. Other conditions must
also be met before Private Business must honor a demand registration request.
Private Business is required to pay all registration expenses pursuant to the
registration rights agreement, subject to limitations in the agreement.

The registration rights agreement also provides that, subject to
limitations including the discretion of the managing underwriter in an
underwritten offering, the Preferred Holders may request inclusion of their
shares in any registration of securities by Private Business. All of the
Preferred Holders have waived any right under the registration rights agreements
to participate in this offering.

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Noncompetition Agreements. In connection with the recapitalization,
Private Business entered into noncompetition agreements on August 7, 1998, with
each of Messrs. King, Black, Thurman, Brasser, Keith and Cover. The
noncompetition agreements generally expire on the earlier of five years from
execution or three years after the restricted individual is no longer an
employee or director of Private Business or its subsidiaries. The noncompetition
agreements generally prohibit these individuals from competing with business
activities which Private Business or its affiliates actually conduct while the
individual serves as a director, officer or employee of Private Business or
activities which Private Business or its affiliates are actively planning to
conduct at the time the individual ceases to be a director, officer or employee
and actually conduct within the following twelve months. The noncompetition
agreements also restrict these individuals from soliciting employees of Private
Business. Private Business also entered into key employee noncompetition
agreements with various non-stockholder employees.

Cendant Termination and Noncompetition Agreement. In connection with the
recapitalization, Private Business, Mr. King, Mr. Keith and Cendant Corporation
entered into a termination and noncompetition agreement on August 7, 1998, which
terminated a right of first refusal in favor of Cendant which Mr. King granted
in 1995 with respect to his equity interest in Private Business. The termination
and noncompetition agreement also restricts Cendant, subject to exceptions, from
competing against Private Business for three years with respect to the purchase
or financing of merchant receivables. In addition, Private Business agreed that
for three years, subject to exceptions, it would not offer products or services
similar to the checking account packages for individual checking account holders
offered to banks by Cendant's subsidiary, FISI*Madison Financial Corporation, or
offer products or services related to the sale to individual consumers of
accidental death and injury insurance.

TRANSACTIONS WITH MANAGEMENT AND OTHERS

Lease Agreement. On October 27, 1997, Private Business leased a building
containing approximately 6,740 square feet of property in Franklin, Tennessee
from Madison Land Company, a company which is co-owned by Mr. King, one of our
directors. Private Business uses this building for its electronic commerce
operations. The lease expires on November 30, 1999, with an option to renew the
lease on a month-to-month basis for no more than four months. The base annual
rent under the lease is $78,750 per annum, payable in advance monthly
installments of $6,562.50. Private Business believes this lease is on terms as
favorable to us as we could have obtained in an arms-length negotiation with
unaffiliated third parties.

Administrative Support Agreements. Private Business has, in the past,
provided various management and administrative functions for Board Member, Inc.,
Magellan Corp., Madison Land Company, Maryland Farms Land, LLC, Maryland Farms
South, LLC, Private Business Partners, Inc., Careers, Inc., Imagic Corporation,
Discount Brokerage Services, Inc. and Senior Achievement. These companies are
owned or partially owned by various stockholders of Private Business. The
services that were provided included provision of general accounting as well as
allowing employees to participate in our benefits programs. The companies paid
for these services based upon their actual use of the services and in 1998 paid
an aggregate of $180,000 for such services. All of these arrangements have been
terminated.

Indemnification Agreements. In connection with the recapitalization,
Private Business entered into indemnification agreements as of August 7, 1998,
with each of Messrs. King, Black, Thurman, Conway, and Evans, as Directors of
Private Business. Subject to limitations,

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such as the requirement that the directors must have acted in good faith, the
indemnification agreements grant broad contractual rights of indemnification to
the directors for liabilities and expenses they may incur arising from any suit
or proceeding that arises as a result of their status as a director of Private
Business. The indemnification agreements provide for the maximum indemnification
permitted by the Tennessee Business Corporation Act ("TBCA"). In March 1999,
Private Business entered into identical indemnification agreements as part of
its employment benefits with executive officers and key employees who are listed
in "Management". The indemnification agreements also obligate Private Business
in selected instances to advance indemnifiable expenses to the indemnitee.

RELATED PARTY TRANSACTION POLICY

Any future transactions between Private Business and its officers,
directors and affiliates will be on terms as favorable to Private Business as
can be obtained from unaffiliated third parties. Such transactions with such
persons will be subject to approval by a majority of our outside directors or
will be consistent with policies approved by such outside directors.

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DESCRIPTION OF CAPITAL STOCK

Private Business's authorized capital stock consists of 100,000,000 shares
of common stock, no par value and 20,000,000 shares of preferred stock. Upon
completion of this offering and the conversion of the Convertible Preferred in
connection with this offering, 26,476,858 shares of common stock will be issued
and outstanding, and no shares of preferred stock will be outstanding. The
discussion below assumes the conversion of all of the Convertible Preferred has
occurred. The following summary of Private Business's capital stock describes
all material provisions of, but does not purport to be complete, and is subject
to, and qualified in its entirety by, Private Business's charter and the bylaws
that are included as exhibits to the Registration Statement of which this
prospectus forms a part and by the provisions of applicable law.

COMMON STOCK

The issued and outstanding shares of common stock are, and the shares of
common stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
preferred stock, the holders of outstanding shares of common stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. The
shares of common stock are not redeemable or convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
Private Business. Upon liquidation, dissolution or winding up of Private
Business, the holders of common stock are entitled to receive pro rata the
assets of Private Business which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of preferred stock then outstanding. Each outstanding share of
common stock is entitled to vote on all matters submitted to a vote of
stockholders.

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "PBIZ."

PREFERRED STOCK

The Board of Directors may, without any further vote or action by our
stockholders, from time to time, direct the issuance of shares of preferred
stock in one or more series with such designations, rights, preferences and
limitations as the Board of Directors may determine, including the consideration
received therefor. The Board of Directors also has the authority to determine
the number of shares comprising each series, dividend rates, redemption
provisions, liquidation preferences, sinking fund provisions, conversion rights
and voting rights without the approval by the holders of common stock. Although
it is not possible to state the effect that any issuance of preferred stock
might have on the rights of holders of common stock, the issuance of preferred
stock may have one or more of the following effects:

- to restrict common stock dividends if preferred stock dividends have not
been paid

- to dilute the voting power and equity interest of holders of common stock
to the extent that any series of preferred stock has voting rights or is
convertible into common stock

- to prevent current holders of common stock from participating in the
distribution of the company's assets upon liquidation until any
liquidation preferences granted to holders of preferred stock are
satisfied. In addition, the issuance of preferred stock

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may have the effect of discouraging a change in control of Private
Business by, for example, granting voting rights to holders of preferred
stock that require approval by the separate vote of the holders of
preferred stock for any amendment to our charter or any reorganization,
consolidation, merger or other similar transaction involving Private
Business. As a result, the issuance of the preferred stock may discourage
bids for the common stock at a premium over the market price therefor,
and could have a materially adverse effect on the market value of the
common stock. Upon consummation of the offering and the conversion in
full of the Convertible Preferred, there will be no shares of preferred
stock outstanding. The Board of Directors does not presently intend to
issue any shares of preferred stock.

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND BYLAWS

General. Our charter and bylaws contain provisions that could discourage
potential acquisition proposals and could delay or prevent a change in control
of Private Business. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board of Directors and in the
policies formulated by the Board of Directors and to discourage transactions
that may involve an actual or threatened change in control of Private Business.
These provisions are designed to reduce the vulnerability of Private Business to
an unsolicited acquisition proposal and to discourage certain tactics that may
be used in proxy fights. However, such provisions may discourage third parties
from making tender offers for our shares. As a result, the market price of the
common stock may not benefit from any premium which might occur in anticipation
of a threatened or actual change in control. Such provisions also may have the
effect of preventing changes in the management of Private Business.

Board of Directors. The charter and bylaws provide for the Board of
Directors of Private Business to be divided into three classes, as nearly equal
in number as possible. The term of the Class 1 Directors will expire at the 2000
annual meeting of stockholders; the term of the Class 2 Directors will expire at
the 2001 annual meeting of stockholders; and the term of the Class 3 Directors
will expire at the 2002 annual meeting of stockholders (and in all cases when
their respective successors are duly elected and qualified). At each annual
meeting of stockholders, successors to the class of directors whose term expires
at such meeting will be elected to serve for three-year terms or until their
successors are duly elected and qualified. Directors may be removed by the
stockholders only for cause.

The charter and bylaws provide that the Board of Directors shall consist of
no less than one nor more than twelve members (except that such maximum number
may be increased from time to time to reflect the rights of holders of preferred
stock) with the actual number set from time to time by resolution adopted by a
majority of the Board of Directors. Upon the completion of this offering, the
Board of Directors will consist of seven members. The charter and the bylaws
provide that the Board of Directors is authorized to create additional
directorships (up to the maximum number permitted) and to elect additional
directors thereto to serve for the full term of the class of directors in which
such directorship was created. The provisions of the Tennessee Business Code,
the charter and the bylaws relating to the removal of directors and the filling
of vacancies on the Board of Directors will preclude a third party from removing
incumbent directors' without cause and simultaneously gaining control of the
Board of Directors by filling, with its own nominees, the vacancies created by
removal. These provisions also reduce the power of stockholders generally, even
those with a majority voting power in the company, to remove incumbent directors
without cause and to fill vacancies on the Board of Directors.

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Stockholder Action and Special Meetings. The charter and bylaws provide
that any action of the common stockholders must be effected at a duly called
meeting and not by a consent in writing.

Our charter and bylaws do not permit our stockholders to call special
meetings of stockholders. A special meeting of stockholders may only be called
by the President or a majority of the Board of Directors.

Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at stockholders' meetings. Notice to
Private Business from a stockholder who proposes to nominate a person at a
meeting for election as a director must contain:

- the name and residence address of the stockholder who intends to make the
nomination and the name, age and address of the nominee

- the principal occupation and business address of the nominee

- the class and number of shares held of record, beneficially and by proxy,
by the stockholder and the nominee as of the record date of such meeting
(if such record date is publicly available) and as of the date of such
notice

- such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement or
otherwise required pursuant to Regulation 14A under the Exchange Act,
including the consent of each nominee to serve as a director of the
company if so elected

The presiding officer of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with this nomination procedure. The purpose of
requiring advance notice is to afford the Board of Directors an opportunity to
consider the qualifications of the proposed nominees or the merits of other
stockholder proposals and, to the extent deemed necessary or desirable by the
Board of Directors, to inform stockholders about those matters. Although the
advance notice provisions do not give the Board of Directors any power to
approve or disapprove of stockholder nominations or proposals for action by the
company, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the procedures
established by the bylaws are not followed and of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate of
directors or to approve its own proposals, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
Private Business and its stockholders.

Amendment of the Charter. The charter requires the affirmative vote of the
holders of at least 70% of the outstanding shares of the company's capital stock
entitled to vote thereon and 50% of the members of the Board of Directors in
order to amend the range of the permitted size of the Board of Directors. These
voting requirements will make it more difficult for stockholders to make changes
in the charter which would be designed to facilitate the exercise of control
over Private Business. In addition, the requirement for approval by at least a
70% stockholder vote will enable the holders of a minority of the voting
securities of the company to prevent the holders of a majority or more of such
securities from amending these provisions of the charter.

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ANTITAKEOVER LEGISLATION

Business Combination Act. The Tennessee Business Combination Act (the
"Combination Act") contained in TBCA sections 48-103-201 through 48-103-209
provides that any corporation to which the Combination Act applies, which
includes Private Business, shall not engage in any business combination with an
interested stockholder for a period of five years from the date that such
stockholder became an interested stockholder unless prior to such date the Board
of Directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder.

The Combination Act defines business combination generally to mean any:

- merger or consolidation

- share exchange

- sale, lease, exchange, pledge, mortgage, transfer or other disposition
(in one transaction or a series of transactions) of assets representing
10% or more of (A) the market value of the corporation's consolidated
assets, (B) the market value of the corporation's outstanding shares

- the corporation's consolidated net income; issuance or transfer of shares
from the corporation to the interested stockholder

- plan of liquidation or dissolution

- transaction in which the interested stockholder's proportionate share of
the outstanding shares of any class of securities is increased

- financing arrangements pursuant to which the interested stockholder,
directly or indirectly, receives a benefit except proportionately as a
stockholder

Under the Combination Act an interested stockholder generally is defined as
any person who is the direct or indirect beneficial owner of ten percent or more
of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the direct or indirect beneficial
owner of ten percent of more of the voting power of any class or series of the
corporation's stock at any time within the five year period preceding the date
in question.

Some business combinations are exempt from the Combination Act, such as
those of the selling shareholders who were interested stockholders prior to the
time the corporation's stock is registered under Section 12(g) of the Exchange
Act. Consummation of a business combination that is subject to the five-year
moratorium is permitted after such period provided the transaction complies with
all applicable charter and bylaw requirements and applicable Tennessee law and
is approved by at least two-thirds of the outstanding voting stock not
beneficially owned by the interested stockholder, or when the transaction meets
fair price criteria. The fair price criteria include, without limitation, the
requirement that the per share consideration received in any such business
combination by each of the stockholders is equal to the highest of:

- the highest per share price paid by the interested stockholder during the
preceding five-year period for shares of this same class or series plus
interest thereon from such date at a treasury bill rate, less the
aggregate amount of any cash dividends paid and the market value of any
dividends paid other than in cash since such earliest date, up to the
amount of such interest

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- the highest preferential amount, if any, such class or series is entitled
to receive on liquidation

- the market value of the shares on either the date the business
combination is announced or the date when the interested stockholder
reaches the ten percent threshold, whichever is higher, plus interest
thereon less dividends as set forth above

Greenmail Act. The Tennessee Greenmail Act (the "Greenmail Act"),
contained in TBCA sections 48-103-501 through 48-103-505, prohibits any
publicly-traded Tennessee corporation from purchasing any of its shares at a
price above the market value from any person who holds more than three percent
of the class of securities to be purchased if such person has held the shares
for less than two years. For purposes of the Greenmail Act, the market value is
the average of the highest and lowest closing market price for such shares
during the 30 trading days preceding the purchase and sale of the shares;
provided that, if the seller of such shares has commenced a tender offer or has
announced an intention to seek control of the corporation, such market price
shall be based upon the average of the highest and lowest closing price for such
shares during the thirty trading days preceding the commencement of such tender
offer or the making of such announcement. The Greenmail Act permits the
corporation to purchase such shares if the purchase has been approved by the
affirmative vote of a majority of the outstanding shares of each class of voting
stock issued by the corporation or if the corporation makes an offer of at least
equal value per share to all holders of shares of such class. Any person who
sells securities to a corporation in violation of the Greenmail Act is liable to
the corporation for damages equal to two times the amount by which the aggregate
sum paid by the corporation for such securities exceeds the maximum amount
permitted under the Greenmail Act.

The effects of the Combination Act and the Greenmail Act may be to render
more difficult a change of control of Private Business by delaying, deferring or
preventing a tender offer or takeover attempt that a stockholder might consider
to be in such stockholder's best interest, including an attempt that might
result in the payment of a premium over the market price for the shares held by
such stockholder.

LIMITATION ON DIRECTORS' LIABILITY

The TBCA permits corporations to limit or terminate the personal liability
of directors to corporations and their stockholders for monetary damages for
breach of the directors' fiduciary duties of care. The duty of care requires
that, when acting on behalf of the corporation, directors must exercise informed
business judgment based on all material information reasonably available to
them. Absent the limitations now authorized by such legislation, directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their fiduciary duties
of care. Although the TBCA does not change the directors' duties of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission.

Our charter limits the liability of directors (in their capacity as
directors but not in their capacity as officers) to Private Business or its
stockholders to the fullest extent permitted by the TBCA, as so amended.
Specifically, no director of Private Business will be personally liable for
monetary damages for breach of the director's fiduciary duty as a director,
except for liability:

- for any breach of the director's duty of loyalty to Private Business or
its stockholders

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law

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- under Section 48-18-304 of the TBCA, which relates to unlawful payments
of dividends or unlawful stock repurchases or redemptions

- for any transaction from which the director derived an improper personal
benefit. The inclusion of this provision in the charter may have the
effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care,
even though such an action, if successful, might otherwise have
benefitted Private Business and its stockholders

INDEMNIFICATION AND INSURANCE

Under our charter, and in accordance with Section 48-18-502 of the TBCA,
Private Business will indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than a "derivative" action by or in the right of Private Business) by
reason of the fact that such person is or was a director of Private Business,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of Private Business, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe was unlawful.

The charter provides that Private Business will pay for the expenses
incurred by an indemnified director in defending the proceedings specified above
in advance of their final disposition, provided that such person agrees to
reimburse Private Business if it is ultimately determined that such person is
not entitled to indemnification. The charter also provides that Private Business
may, in its sole discretion, indemnify any person who is or was one of its
employees and agents or any person who is or was serving at the request of
Private Business as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise to the same
degree as the foregoing indemnification of directors and officers. In addition,
Private Business may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of Private Business or another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against and incurred by such person in such capacity, or
arising out of the person's status as such whether or not Private Business would
have the power or obligation to indemnify such person against such liability
under the provisions of the TBCA. Private Business maintains insurance for the
benefit of Private Business's officers and directors insuring such persons
against various liabilities, including liabilities under the securities laws.

In addition, Private Business has entered into indemnification agreements
with its officers, directors and key employees as described in Indemnification
Agreements on page 53.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common
stock. Upon completion of this offering and the private placement of 750,000
shares of common stock immediately preceding this offering, we will have
outstanding an aggregate of 26,476,858 shares of our common stock, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options. Of these shares, all of the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term is
defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining
22,126,858 shares of common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or 701
promulgated under the Securities Act, which rules are summarized below.

As a result of such contractual restrictions described below and the
provisions of Rules 144, additional shares will be available for sale in the
public market, subject to presentation of evidence satisfactory to Private
Business, including an opinion of counsel acceptable to Private Business, that
such sales may be made without registration pursuant to the Securities Act as
follows:

- 28,054 shares of common stock currently outstanding will be available for
sale into the public market following the effectiveness of the
registration statement

- 3,287,700 shares of common stock issuable upon exercise of currently
outstanding options will be eligible for sale as the options vest and
following the effectiveness of a registration statement on Form S-8
covering the stock options, which we expect to file shortly after the
completion of this offering

- 487,447 shares of common stock currently outstanding will be eligible for
sale under Rule 144 91 days after the date of this prospectus

- the remainder of the restricted securities will be eligible for sale from
time to time thereafter upon expiration of their respective one-year
holding periods

LOCK-UP AGREEMENTS

All of our officers and directors and certain of our stockholders have
entered into lock-up agreements under which they agreed not to transfer or
otherwise dispose of, directly or indirectly, without the consent of BT Alex.
Brown Incorporated, any shares of our common stock or any securities convertible
into or exchangeable or exercisable for shares of our common stock for a period
of 150 days following the date of this prospectus. Transfers or dispositions may
be made after that time as follows:

- no more than 20% of such securities after 150 days following the date of
this prospectus

- no more than an additional 60% of such securities after 180 days
following the date of this prospectus

- the balance of such securities after 210 days following the date of this
prospectus

Transfers or dispositions can be made during the lock-up periods in the
case of gifts for estate planning purposes where the donee signs a lock-up
agreement.

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THE PRIVATE PLACEMENT

Certain directors and affiliates of other directors have agreed to purchase
750,000 shares of our common stock at $8.00 per share in a private placement
immediately prior to this offering. These shares are restricted under Rule 144
and will not be eligible for resale until one year after the private placement.

RULE 144

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 264,769 shares immediately after this offering

- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale

Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

RULE 144(K)

Under Rule 144(k), a person who is not deemed to have been one of our
Affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an Affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.

RULE 701

In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
are eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with some restrictions,
including the holding period, contained in Rule 144.

REGISTRATION RIGHTS

After this offering, the holders of 22,126,858 shares of our common stock,
or their transferees, will be entitled to rights with respect to the
registration of such shares under the Securities Act. After such a registration,
these shares that are registered will be freely tradable without restriction
under the Securities Act.

STOCK OPTIONS

Shortly after completion of this offering, we plan to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under the 1999 stock option plan and also shares of common
stock issuable upon exercise of options granted outside the 1999 stock option
plan. As of May 14, 1999, options to purchase 3,287,700 shares of common stock
were issued and outstanding, 692,040 of which are

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<PAGE> 66

vested. This registration statement is expected to be filed and become effective
as soon as practicable after the date of this prospectus. Accordingly, shares
registered under such registration statement will, subject to lock-up
agreements, vesting provisions and Rule 144 volume limitations applicable to our
Affiliates, be available for sale in the open market immediately after the
registration statement becomes effective.

63
<PAGE> 67

PLAN OF DISTRIBUTION

Subject to the terms and conditions of the underwriting agreement, the
underwriters, named below through their representatives BT Alex. Brown
Incorporated, Lehman Brothers Inc. and Salomon Smith Barney have severally
agreed to purchase from us the following respective numbers of shares of common
stock at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ----------
<S> <C>
BT Alex. Brown Incorporated................................. 1,090,000
Lehman Brothers Inc......................................... 1,090,000
Salomon Smith Barney Inc.................................... 1,090,000
ABN Amro Incorporated....................................... 60,000
Deutsche Bank Securities Inc................................ 60,000
Goldman, Sachs & Co......................................... 60,000
Hambrecht & Quist LLC....................................... 60,000
ING Baring Furman Selz LLC.................................. 60,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 60,000
Morgan Stanley & Co., Incorporated.......................... 60,000
Banc of America Securities LLC.............................. 60,000
Advest, Inc................................................. 40,000
Robert W. Baird & Co. Incorporated.......................... 40,000
William Blair & Company L.L.C............................... 40,000
J.C. Bradford & Co.......................................... 40,000
First Union Capital Markets Corp............................ 40,000
Fox-Pitt, Kelton Incorporated............................... 40,000
Morgan Keegan & Company, Inc................................ 40,000
Edgar M. Norris & Co., Inc.................................. 40,000
Pennsylvania Merchant Group Ltd............................. 40,000
Raymond James & Associates, Inc............................. 40,000
The Robinson-Humphrey Company, LLC.......................... 40,000
Scott & Stringfellow, Inc................................... 40,000
SoundView Technology Group, Inc............................. 40,000
Stephens Inc................................................ 40,000
Suntrust Equitable Securities............................... 40,000
----------
Total............................................. 4,350,000
==========
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are subject to conditions precedent and that the underwriters will
purchase all of the shares of common stock offered hereby if any of such shares
are purchased.

We have been advised by the representatives that the underwriters propose
to offer the shares of our common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession not in excess of $0.32 per share. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share to certain other dealers. After the initial public offering,
the offering price and other selling terms may be changed by the
representatives.

We have granted the underwriters an option, exercisable not later than 30
days after the date of this prospectus, to purchase up to 652,500 additional
shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the

64
<PAGE> 68

cover page of this prospectus. To the extent that the underwriters exercise such
option, each of the underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of common
stock to be purchased by it in the above table bears to 4,350,000, and we will
be obligated, pursuant to the option to sell such shares to the underwriters.
The underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. If purchased, the
underwriters will offer such additional shares on the same terms as those on
which the 4,350,000 shares are being offered.

We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act.

We have agreed not to offer, sell, sell short, transfer, hypothecate,
pledge or otherwise dispose of any shares of our common stock or other
securities convertible into or exchangeable or exercisable for shares of our
common stock or derivatives of our common stock (or agreement for such) for a
period of 180 days after the date of this prospectus, directly or indirectly, by
us or otherwise, except as consideration for business acquisitions, on exercise
of currently outstanding stock options or on the issuance of options to key
employees and directors under our stock option plans and the exercise of such
options, without the prior written consent of BT Alex. Brown Incorporated.

- no more than 20% of such securities after 150 days following the date of
this prospectus

- no more than an additional 60% of such securities after 180 days
following the date of this prospectus

- the balance of such securities after 210 days following the date of this
prospectus

Transfers or dispositions can be made during the lock-up periods in the
case of gifts for estate planning purposes where the donee signs a lock-up
agreement.

The representatives have advised us that the underwriters do not intend to
confirm sales to any account over which they exercise discretionary authority.

To facilitate this offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of our common
stock. Specifically, the underwriters may over-allot shares of our common stock
in connection with this offering, thereby creating a short position in the
underwriters' syndicate account. Additionally, to cover such over-allotments or
to stabilize the market price of our common stock, the underwriters may bid for,
and purchase, shares of our common stock in the open market. Any of these
activities may maintain the market price of our common stock at a level above
that which might otherwise prevail in the open market. The underwriters are not
required to engage in these activities, and, if commenced, any such activities
may be discontinued at any time. The representatives of the underwriters, on
behalf of the syndicate of underwriters, also may reclaim selling concessions
allowed to an underwriter or dealer, if the syndicate repurchases shares
distributed by that underwriter or dealer.

65
<PAGE> 69

The underwriters and their respective affiliates may be lenders to, engage
in transactions with, and perform services for us in the ordinary course of
business. We paid $3.0 million to BT Alex. Brown in consideration of its
providing advisory services to us in connection with the recapitalization. The
amount paid for these services was determined by arms' length negotiations
between us and BT Alex. Brown. We believe that such amount is within standard
industry parameters for a transaction of that nature. In addition, BT Investment
Partners, Inc. owns approximately 1.75% of our outstanding common stock.

Certain of our directors and affiliates of other directors have agreed to
purchase an aggregate of 750,000 shares of common stock at $8.00 per share in a
private placement which will close immediately prior to this offering. These
shares are restricted under Rule 144 and may not be resold for one year after
the completion of the private placement.

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in such negotiations will be
prevailing market conditions, the results of our operations in recent periods,
the market capitalizations and stages of development of other companies which we
and the representatives of the underwriters believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.

BT Alex. Brown Incorporated will serve as the qualified independent
underwriter in connection with this offering and has assumed the
responsibilities of acting as qualified independent underwriter in pricing our
common stock and conducting "due diligence."

66
<PAGE> 70

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for Private Business by Harwell Howard Hyne Gabbert & Manner, P.C.,
Nashville, Tennessee. Some legal matters related to this offering will be passed
upon for the underwriters by Brobeck, Phleger & Harrison LLP, Washington, D.C.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1997 and 1998, and for each of the three years in the respective periods ended
December 31, 1996, December 31, 1997 and December 31, 1998 included in this
prospectus and Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

Private Business has filed with the SEC a registration statement on Form
S-l pursuant to the Securities Act with respect to the common stock offered
hereby. The prospectus does not contain all the information set forth in the
registration statement, some of which is omitted as permitted by the rules and
regulations of the SEC. Statements contained in the prospectus as to the
contents of any contract, agreement or other document filed with the
registration statement as exhibits are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the copy of
the applicable document filed as an exhibit to the registration statement. For
further information about Private Business and the securities offered hereby,
reference is made to the registration statement and to the consolidated
financial statements, schedules and exhibits filed as a part thereof.

Upon completion of the offering, Private Business will be subject to the
information requirements of the Exchange Act, and, in accordance therewith, will
file reports and other information with the SEC. The registration statement, the
exhibits and schedules forming a part thereof and the reports and other
information filed by Private Business with the SEC in accordance with the
Exchange Act may be inspected without charge at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following regional offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or any part
thereof may also be obtained from the Public Reference Room of the SEC, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain
information regarding the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet Web site at
http://www.sec.gov that contains reports, proxy statements and other
information.

67
<PAGE> 71

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998.................... F-5
Consolidated Statements of Cash Flows for the years December
31, 1996, 1997 and 1998................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Consolidated Balance Sheets as of December 31,
1998 and March 31, 1999................................... F-20
Unaudited Consolidated Statements of Operations for the
three months ended March 31, 1998 and March 31, 1999...... F-21
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and March 31, 1999...... F-22
Notes to Unaudited Consolidated Financial Statements........ F-23
</TABLE>

F-1
<PAGE> 72

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Private Business, Inc.:

We have audited the accompanying consolidated balance sheets of PRIVATE
BUSINESS, INC. (a Tennessee Corporation) and subsidiaries as of December 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Private Business, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Nashville, Tennessee
March 17, 1999, except for Note 15, as
to which the date is May 14, 1999.

F-2
<PAGE> 73

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
1997 1998
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,815,720 $ 285,370
Accounts receivable -- trade, net of allowance for
doubtful accounts of $60,000 and $60,000,
respectively............................................ 5,404,754 5,527,200
Accounts receivable -- other.............................. 410,314 151,528
Deferred tax asset........................................ -- 1,103,749
Other current assets...................................... 275,246 903,356
----------- -------------
Total current assets............................... 10,906,034 7,971,203
----------- -------------
PROPERTY AND EQUIPMENT, NET................................. 9,679,106 10,455,587
OTHER ASSETS:
Restricted cash........................................... -- 5,000,000
Note receivable........................................... 19,911 7,474
Software development costs, net........................... 332,444 309,061
Deferred tax asset........................................ -- 1,932,117
Intangible and other assets, net.......................... 57,309 5,920,730
----------- -------------
Total other assets................................. 409,664 13,169,382
----------- -------------
Total assets....................................... $20,994,804 $ 31,596,172
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,369,863 $ 2,448,759
Accrued liabilities....................................... 4,818,518 5,754,453
Dividends payable......................................... -- 2,174,564
Deferred revenue.......................................... 1,839,676 1,677,239
Current portion of long-term debt......................... 105,723 3,750,000
----------- -------------
Total current liabilities.......................... 8,133,780 15,805,015
----------- -------------
OTHER LONG-TERM PAYABLE..................................... -- 5,000,000
LONG TERM DEBT, net of current portion...................... 4,078,277 90,375,000
----------- -------------
Total liabilities.................................. 12,212,057 111,180,015
----------- -------------
MINORITY INTEREST........................................... 140,126 --
----------- -------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Series A Convertible, no par
value; 5,624,404 authorized, issued and outstanding in
1998...................................................... -- 59,707,207
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 24,000,000 and 23,920,910
shares authorized and 20,055,558 and 10,128,056 shares
issued and outstanding, respectively.................... -- --
Additional paid-in capital................................ 1,190,000 (130,797,604)
Retained earnings (accumulated deficit)................... 7,452,621 (8,493,446)
----------- -------------
Total stockholders' equity (deficit)............... 8,642,621 (139,291,050)
----------- -------------
Total liabilities and stockholders' equity......... $20,994,804 $ 31,596,172
=========== =============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.

F-3
<PAGE> 74

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Software license.............................. $ 3,193,475 $ 2,885,575 $ 2,946,846
Royalties..................................... 29,027,633 38,449,795 43,792,518
Maintenance and other......................... 1,767,289 2,325,005 4,065,196
----------- ----------- -----------
Total revenues........................ 33,988,397 43,660,375 50,804,560
----------- ----------- -----------
OPERATING EXPENSES:
General and administrative.................... 10,958,473 11,835,326 13,396,932
Selling and marketing......................... 12,910,929 15,867,499 20,493,785
Research and development...................... 647,741 1,124,550 862,102
Amortization.................................. 115,277 188,947 443,339
Other operating............................... 168,508 340,361 311,787
Recapitalization charges...................... -- -- 13,780,741
----------- ----------- -----------
Total operating expenses.............. 24,800,928 29,356,683 49,288,686
----------- ----------- -----------
OPERATING INCOME................................ 9,187,469 14,303,692 1,515,874
OTHER EXPENSES:
Interest expense.............................. -- 146,438 3,404,581
Minority interest............................. -- 140,126 157,551
----------- ----------- -----------
Total other expenses.................. 286,564 3,562,132
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES............... 9,187,469 14,017,128 (2,046,258)
Income tax provision (benefit).................. 582,038 743,448 (2,584,909)
----------- ----------- -----------
NET INCOME...................................... 8,605,431 13,273,680 538,651
Preferred stock dividends and accretion......... -- -- (2,203,776)
----------- ----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS.................................. $ 8,605,431 $13,273,680 $(1,665,125)
----------- ----------- -----------
EARNINGS (LOSS) PER SHARE:
Basic......................................... $ 0.43 $ 0.66 $ (0.10)
----------- ----------- -----------
Diluted....................................... $ 0.42 $ 0.65 $ (0.10)
----------- ----------- -----------
PRO FORMA INFORMATION ASSUMING CONVERSION TO C
CORP (Note 11):
Net income (loss) available to common
stockholders............................... $ 5,534,156 $ 8,540,375 $(5,116,903)
----------- ----------- -----------
Basic......................................... $ 0.28 $ 0.43 $ (0.32)
----------- ----------- -----------
Diluted....................................... $ 0.27 $ 0.42 $ (0.32)
----------- ----------- -----------
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.

F-4
<PAGE> 75

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
---------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE,
December 31, 1995.......................................... 20,055,558 $ 1,190,000 $ (252,802) $ 937,198
Common stock dividends..................................... -- -- (1,414,839) (1,414,839)
Net income................................................. -- -- 8,605,431 8,605,431
---------- ------------- ------------ -------------
BALANCE,
December 31, 1996.......................................... 20,055,558 1,190,000 6,937,790 8,127,790
Common stock dividends..................................... -- -- (12,758,849) (12,758,849)
Net income................................................. -- -- 13,273,680 13,273,680
---------- ------------- ------------ -------------
BALANCE,
December 31, 1997.......................................... 20,055,558 1,190,000 7,452,621 8,642,621
Net income through August 7, 1998.......................... -- -- 6,828,321 6,828,321
Common stock dividends..................................... -- -- (7,775,615) (7,775,615)
Preferred stock dividends.................................. -- -- (2,174,564) (2,174,564)
Payments to common stockholders in recapitalization........ (9,927,502) (131,987,604) (6,505,327) (138,492,931)
Net loss for C Corp period................................. -- -- (6,289,670) (6,289,670)
Accretion on preferred stock............................... -- -- (29,212) (29,212)
------------
Comprehensive income (loss) for C Corp period............ (6,318,882)
---------- ------------- ------------ -------------
BALANCE,
December 31, 1998.......................................... 10,128,056 $(130,797,604) $ (8,493,446) $(139,291,050)
========== ============= ============ =============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.

F-5
<PAGE> 76

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 8,605,431 $13,273,680 $ 538,651
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 585,871 909,549 1,605,259
Bad debt expense.......................................... -- 60,000 --
Deferred taxes............................................ -- -- (3,035,866)
Minority interest......................................... -- 140,126 157,551
Changes in assets and liabilities:
Accounts receivable..................................... (1,164,934) (2,308,909) (122,446)
Other current assets.................................... (714,422) 31,263 (369,324)
Other noncurrent assets................................. 9,747 (3,428) (1,851,945)
Accounts payable........................................ 1,994,261 (858,573) 1,078,894
Accrued liabilities..................................... 1,230,150 1,005,237 935,935
Deferred revenue........................................ (341,206) 469,104 (162,437)
------------ ----------- ------------
Net cash provided by (used in) operating
activities....................................... 10,204,898 12,718,049 (1,225,728)
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (5,103,050) (4,644,158) (1,938,401)
Software development costs................................ (151,540) (284,865) (229,107)
Proceeds from sale of equipment........................... 5,969 38,209 --
Acquisition of minority interest.......................... -- -- (4,500,000)
Payments received on notes receivable..................... 17,911 18,035 12,437
------------ ----------- ------------
Net cash used in investing activities.............. (5,230,710) (4,872,779) (6,655,071)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance..................... 845,613 3,338,387 95,000,000
Repayments on note payable................................ -- -- (4,184,000)
Repayments on long-term debt.............................. -- -- (875,000)
Proceeds from sale of preferred stock, net................ -- -- 59,677,995
Payments to common stockholders in recapitalization....... -- -- (138,492,931)
Dividends on common stock................................. (1,414,839) (12,758,849) (7,775,615)
------------ ----------- ------------
Net cash provided by (used in) financing
activities....................................... (569,226) (9,420,462) 3,350,449
------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH............................. 4,404,962 (1,575,192) (4,530,350)
CASH at beginning of year................................... 1,985,950 6,390,912 4,815,720
------------ ----------- ------------
CASH at end of year......................................... $ 6,390,912 $ 4,815,720 $ 285,370
============ =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes during period.............. $ 202,560 $ 762,214 $ 851,957
============ =========== ============
Cash payments of interest during period................... $ 2,344 $ 194,555 $ 3,404,581
============ =========== ============
SUPPLEMENTAL NONCASH DISCLOSURES:
Dividends accrued on preferred stock...................... $ -- $ -- $ 2,174,564
============ =========== ============
</TABLE>

The accompanying notes to consolidated financial statements
are an integral part of these statements.

F-6
<PAGE> 77

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Private Business, Inc. ("the Company") was incorporated under the laws of
the state of Tennessee on December 26, 1990 for the purpose of developing,
marketing and servicing a software package to be used by financial institutions
to purchase and manage small business receivables. The Company operates
primarily in the United States and its customers consist of banks of various
sizes, primarily community banks. During 1998, the Company purchased the
minority interests in three majority owned subsidiaries, Private Business
Insurance, Inc. ("Insurance"), Private Business Processing, Inc. ("Processing")
and Private Business Capital, Inc. ("Capital"). Insurance brokers credit and
fraud insurance, which is underwritten through a third party, to its customers.
Processing performs the outsourced Business Manager functions for various client
banks and Capital markets the Business Manager accounts receivable financing
solution directly to small businesses.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company records minority interest in
earnings to the extent of earnings allocable to minority interests and minority
interests in losses to the extent minority interests capital exists. As
mentioned above, all minority interest in subsidiaries were purchased by the
Company during 1998. All significant intercompany transactions and balances have
been eliminated.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.

RESTRICTED CASH

In connection with the purchase of the treasury stock by the Company during
1998, the Company is required to maintain cash in escrow for payment to the
buyers of the convertible preferred stock if claims arise in connection with the
purchase and to the sellers of the treasury shares to the extent the escrow is
not subject to such claims. The cash is held in escrow until the 30th day
following the delivery of the Company's 1999 audited financial statements to the
purchasers. The restricted cash balance is offset by a long term payable to
either the buyers of the convertible preferred stock, if so claimed, or to the
sellers of the treasury stock when the escrow agreement terminates.

PROPERTY AND EQUIPMENT

Depreciation is calculated using an accelerated method over 39 years for
buildings, 5 to 10 years for equipment and software and the life of the lease
for all leasehold improvements. Expenditures for maintenance and repairs are
charged to expense as incurred, whereas expenditures for renewals and
betterments are capitalized.

F-7
<PAGE> 78
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SOFTWARE DEVELOPMENT COSTS

Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After such time, any
additional costs are capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Capitalized software
development costs are amortized on a straight-line basis over three years.

INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist primarily of the excess of purchase
price over the fair value of the identifiable assets acquired for the minority
share of Insurance purchased during 1998 and debt issuance costs associated with
the bank debt acquired during 1998. The excess of the purchase price over the
fair value of unidentifiable assets acquired (goodwill) is being amortized on a
straight-line basis over a period of 20 years. Debt issuance costs are being
amortized on a straight-line basis over the respective terms of the bank loans.

REVENUE RECOGNITION

The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 97-2, Software
Revenue Recognition ("SOP 97-2"). Further, the Company has adopted the
provisions of SOP 98-4 ("Software Revenue Recognition"), which supercedes and
clarifies certain provisions of SOP 97-2.

Software Licenses

The Company licenses its software under automatically renewing agreements,
which allows the licensees use of the software for the term of the agreement and
each renewal period. The fee charged for this license is specifically stated in
the contract and is not inclusive of any postcontract customer support. The
agreement does not allow for cancellation during the term of the agreement;
therefore, the entire fee is non-refundable and is recognized at the time a
contract is signed and executed and the software has been mailed.

The original license agreement also includes a fee for postcontract
customer support (PCS), which must be renewed annually. This fee covers all
customer training costs, marketing assistance, phone support, and any and all
software enhancements and upgrades. The Company defers the entire amount of this
fee and recognizes it over the twelve-month period in which the PCS services are
provided.

Royalties

The Company's license agreements are structured in a manner that provides
for a continuing royalty to be paid for all receivables purchased by customers.
These royalties are recognized as earned based on the volume of receivables
purchased by customers.

F-8
<PAGE> 79
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maintenance and Other

Maintenance revenue is deferred and recognized over the period in which PCS
services are provided. Insurance's, Medical's and Capital's revenues are
recognized as the services are performed.

INCOME TAXES

During 1996 and 1997 and through August 7, 1998, the Company was an S
Corporation, which resulted in all federal tax liability flowing through to the
stockholders. On August 7, 1998 the Company converted to a C Corporation,
therefore income earned from that date through December 31, 1998 is subject to
federal income taxes. The income tax provisions recorded in both 1996 and 1997
and through August 7, 1998 in the accompanying financial statements are for
state income taxes.

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
fiscal years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.

CONCENTRATION OF REVENUES

Substantially all of the Company's revenues are generated from financial
institutions who in turn provide cash management services to small and medium
size operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

To meet the reporting requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company calculates the fair value of
financial instruments at quoted market prices. At December 31, 1998, there were
no material differences in the book values of the Company's financial
instruments and their related fair values.

LONG-LIVED ASSETS

The Company utilizes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of, to periodically
evaluate the carrying value of its properties and other long-lived assets in
relation to the future undiscounted cash flows of the related assets to assess
recoverability.

F-9
<PAGE> 80
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE INCOME

During 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires that the changes in the amounts of certain items,
including gains and losses on certain securities, be shown in the financial
statements. The Company adopted the provisions of SFAS No. 130 on January 1,
1998.

SEGMENT DISCLOSURES

During 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards for
the method that business enterprises report information about operating segments
in annual and interim financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic area
and major customers. The Company operates in one industry segment, banking
services, and accordingly, the adoption of SFAS No. 131 had no impact on the
Company's financial statement disclosures.

RECLASSIFICATION

Certain reclassifications have been made to the 1996 and 1997 financial
statements to conform to the 1998 presentation.

2. RECAPITALIZATION

On August 7, 1998, the Company completed a series of transactions
effectively resulting in a recapitalization of the Company. A summary of the
transactions is as follows:
- The Company purchased 9,927,502 (49.5%) shares of the Company's common
stock then outstanding for $138,492,931 ($13.95 per share), which
includes acquisition costs of approximately $152,000. The common stock
was immediately retired. In accordance with generally accepted
accounting principles, the entire consideration paid has been
reflected as cost of the common stock (which had an estimated fair
market value of $9.88 per share prior to the issuance of the debt) and
has been reflected as a reduction of paid-in-capital and undistributed
earnings as of the recapitalization date.
- The Company acquired term loan debt from a bank in the amount of
$93,429,311, net of debt issuance costs of $1,570,689. (Note 5)
- The Company issued 5,624,404 shares of Series A Convertible Preferred
Stock for $10.67 per share, or $60,000,000. Each share of convertible
preferred was originally convertible into one share of common stock,
but now, as a result of the split of the common stock, is convertible
into two shares of common stock. This split effectively adjusted the
issuance price to $5.34 per share. The Company determined that the
adjusted issuance price per share of $5.34 was the fair market value
of the Company's common stock after the issuance of the debt. Costs
associated with the issuance of these shares approximated $322,000 and
have been netted against additional paid-in capital in the
accompanying consolidated financial statements. (Note 8)
- The Company acquired the minority interests of Insurance for
$4,500,000, which resulted in approximately $4,100,000 of goodwill
being recorded.

F-10
<PAGE> 81
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Taking into consideration the above events, the Company also adjusted the
exercise prices for all stock options outstanding as of August 7, 1998. The
adjusted exercise prices meet the criteria set forth in Emerging Issues Task
Force 90-9, therefore the repricing of the options did not result in a new
measurement date and no additional compensation expense has been recorded in the
accompanying consolidated financial statements. Furthermore, the Company's Board
of Directors approved a special bonus to employees totaling approximately
$10,000,000, which is included in Recapitalization charges in the accompanying
consolidated statement of operations. Also included in Recapitalization charges
are fees paid for various services performed relating to the recapitalization,
including investment banking, legal and accounting services, which amounted to
approximately $3,800,000.

3. PROPERTY AND EQUIPMENT

Property and equipment are classified as follows:

<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Building.............................................. $5,650,950 $ 5,826,015
Land.................................................. 1,968,000 1,968,000
Purchased software.................................... 602,599 1,204,244
Leasehold improvements................................ 167,685 174,640
Furniture and equipment............................... 2,978,325 4,095,475
---------- -----------
11,367,559 13,268,374
Less accumulated depreciation....................... (1,688,453) (2,812,787)
---------- -----------
$9,679,106 $10,455,587
========== ===========
</TABLE>

4. INTANGIBLE AND OTHER ASSETS

Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $3,000 and
$86,152................................................. $17,000 $4,046,171
Debt issuance costs, net of accumulated amortization of
$111,010................................................ -- 1,758,239
Other, net................................................ 40,309 116,320
------- ----------
$57,309 $5,920,730
======= ==========
</TABLE>

5. SHORT-TERM BORROWINGS

The Company has a revolving credit facility agreement in place with a bank
that allows for the Company to draw up to a maximum of $15,000,000. The facility
matures August 7, 2004. The interest rate is based on the Eurodollar or prime
rate plus a margin (7.78125% at December 31, 1998). As of December 31, 1998
there were no amounts drawn against this facility. See Note 6 for additional
information.

F-11
<PAGE> 82
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DESCRIPTION 1997 1998
- ----------- ---------- -----------
<S> <C> <C>
Term Loan A with a bank, principal due quarterly
beginning December 31, 1998; interest due monthly at
the Eurodollar or bank prime rate plus a margin
(7.78125% at December 31, 1998); matures August 7,
2004................................................ $ -- $39,250,000
Term Loan B with a bank, principal due quarterly
beginning December 31, 1998; interest due monthly at
the Eurodollar or bank prime plus a margin (8.03125%
at December 31, 1998); matures August 7, 2006....... -- 54,875,000
Note payable with a bank, interest payable monthly at
LIBOR plus 1.60%, retired in 1998................... 4,184,000 --
---------- -----------
4,184,000 94,125,000
Less current portion................................ (105,723) (3,750,000)
---------- -----------
$4,078,277 $90,375,000
========== ===========
</TABLE>

Term Loans A and B and the revolving credit facility are secured by
substantially all assets of the Company and its subsidiaries. All three debt
instruments include certain restrictive financial covenants related to maximum
capital expenditures, minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA"), ratio of consolidated debt to EBITDA, interest coverage
ratio and fixed coverage ratio. As of December 31, 1998, the Company was in
compliance with these covenants.

The debt agreement prohibits the Company from declaring and paying any
dividends during the respective terms of the loans.

The interest margin for the term loans above is determined by the lender
based on the ratio of consolidated debt to EBITDA.

Future maturities of long-term debt are due as follows:

<TABLE>
<S> <C>
1999........................................................ $ 3,750,000
2000........................................................ 5,000,000
2001........................................................ 7,000,000
2002........................................................ 8,750,000
2003........................................................ 9,750,000
Thereafter.................................................. 59,875,000
-----------
$94,125,000
===========
</TABLE>

F-12
<PAGE> 83
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INCOME TAXES

Income tax expense (benefit) consisted of the following for the three years
ended December 31, 1998:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Current state income tax expense............. $582,038 $743,448 $ 450,957
Conversion from S Corp to C Corp status...... -- -- (1,053,581)
Deferred tax benefit......................... -- -- (1,982,285)
-------- -------- -----------
Income tax expense (benefit), net............ $582,038 $743,448 $(2,584,909)
======== ======== ===========
</TABLE>

For the first seven months of 1998, the Company, as a S Corp, had income
before taxes of approximately $7,300,000 for which a state tax provision of
$450,957 was recorded. At the time of conversion from an S Corp to a C Corp, the
Company recorded a net deferred tax asset of approximately $1,054,000 for the
temporary differences that existed as of the conversion date. For the last five
months of 1998, the Company, as a C Corp, had a taxable loss of approximately
$5,300,000, resulting in an income tax benefit of approximately $1,982,000. A
reconciliation of the tax benefit from the U.S. Federal statutory rate to the
effective rate for the C Corp period ended December 31, 1998 is as follows:

<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Tax benefit at U.S. Federal statutory rate.................. $(3,263,938)
State tax benefit........................................... (279,766)
Expenses not deductible..................................... 1,561,419
-----------
$(1,982,285)
===========
</TABLE>

All tax provisions for 1996, 1997 and the first seven months of 1998 were
state income tax provisions.

Significant components of the Company's deferred tax liabilities and
assets, using a tax rate of 38% at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
1998
----------
<S> <C>
Current assets (liabilities):
Reserves on assets........................................ $ (131,956)
Liabilities not yet deductible............................ 1,235,705
----------
Net current assets................................ 1,103,749
----------
Noncurrent assets (liabilities):
Net operating loss carryforwards.......................... 1,942,757
Other..................................................... (10,640)
----------
Net noncurrent asset.............................. 1,932,117
----------
Total net deferred tax asset...................... $3,035,866
==========
</TABLE>

Net operating loss carryforwards of approximately $5,113,000 expire in
2018.

In accordance with SFAS 109, management has evaluated the need for a
valuation allowance for the Company's deferred tax assets. Based on expected
future earnings, management believes that deferred tax assets are realizable,
and therefore no valuation allowance has been provided.

F-13
<PAGE> 84
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. CONVERTIBLE PREFERRED STOCK

On August 7, 1998 the Company sold 5,624,404 shares of Series A Convertible
Preferred Stock for a total of $60,000,000. The preferred stock is entitled to
dividends, in preference to the holders of any and all other classes of capital
stock of the Company, at a rate of $.96 per share of preferred stock per annum
commencing on the date of issuance.

The Series A Convertible Preferred Stock, in the event of any liquidation,
dissolution or winding up of the Company, contains a liquidation preference over
all other capital stock of the Company equal to the greater of $10.6678 per
preferred stock share plus any accumulated but unpaid dividends or the fair
market value redemption price as determined by the Board of Directors.

Beginning in 2003 and annually thereafter through 2005, the holders of not
less than two-thirds of the voting power of the Convertible Preferred Stock may
elect to require the Company to redeem up to one-third of the Convertible
Preferred Stock in each period for an amount equal to the face amount of the
preferred or convertible stock. For Convertible Preferred Stock redeemed in
2005, the amount required to be paid by the Company is the higher of the market
value as defined or face amount. Prior to 2003, the preferred stock is not
redeemable at the option of the holder, except under certain extraordinary
transactions, including a merger or consolidation of the Company, the sale or
transfer of all or substantially all of the properties and assets of the
Company, any purchase by any party other than the existing stockholders that
results in a party owning a majority of the voting power immediately after such
purchase, the redemption or repurchase of shares representing a majority of the
voting power of the outstanding shares of capital stock of the Company or a
public offering not constituting a qualified public offering.

The Series A Convertible Preferred Stock is convertible to common stock on
a one share for one share basis (prior to the stock split described in Note 15)
at the option of the preferred stockholders at any time, upon the written
election of the stockholders, without the payment of any additional
consideration. Subsequent to the common stock split described in Note 15, the
Series A Convertible Preferred Stock is convertible to common stock on a one
share of preferred for two shares of common basis. The common stock conversion
rate is subject to adjustment from time to time as outlined in the Company's
Certificate of Incorporation ("Certificate"). In the event of the Company's
first underwritten qualified offering to the public (listed for trading on
either the New York Stock Exchange or the Nasdaq National Market) at a
designated offering price and yielding a minimum net proceeds pursuant to an
effective registration statement under the Securities Act of 1933, each share of
Series A Convertible Preferred Stock shall be automatically converted, without
the payment of any additional consideration or any accumulated but undeclared
dividends, into shares of common stock. Subsequent to conversion of the
preferred stock, there is no liquidation preference.

In the event that any public offering of the Company's common stock does
not meet the minimum offering price or net proceed amounts as defined in the
Certificate, the Company intends to obtain a commitment from each preferred
stockholder to convert the preferred stock to common stock prior to the
consummation of the public offering.

F-14
<PAGE> 85
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. DIVIDENDS

The common stock dividend amounts declared in 1996, 1997 and 1998 are
included in the consolidated statements of stockholders' equity in the years
declared. All respective amounts declared during the calendar years 1996, 1997
and 1998 were paid during that year. The 1998 preferred stock dividend of
$2,174,564 is recorded as a payable in the accompanying consolidated balance
sheet.

10. EMPLOYEE STOCK OPTION PLAN

As of December 31, 1998, the Board of Directors had granted nonqualified
stock options to certain key employees. All options, if not exercised or
otherwise specified, expire after 10 years and cannot be sold or transferred to
any other party. All options granted, unless otherwise specified, require a five
year vesting period from the date of grant. If an employee is terminated or
leaves the Company prior to the options being vested, the options are forfeited
and must be returned to the Company. All stock options granted are accounted for
in accordance with Accounting Principles Board ("APB") Opinion No. 25., which
requires that compensation cost be measured by the difference between the quoted
market price of the stock at the date of grant or award and the option price.

A summary of the status of the Company's stock options is as follows for
the three years ended December 31, 1998:

<TABLE>
<CAPTION>
1996
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 421,000 $0.415
Granted............................................. 366,000 1.53
Exercised........................................... -- --
Canceled............................................ -- --
------- ------
Outstanding at end of period.......................... 787,000 $ 0.93
======= ======
Exercisable......................................... 70,000 $ 0.33
======= ======
</TABLE>

<TABLE>
<CAPTION>
1997
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 787,000 $0.93
Granted............................................. 586,000 2.06
Exercised........................................... -- --
Canceled............................................ (25,000) 0.965
--------- ------
Outstanding at end of period.......................... 1,348,000 $1.42
========= ======
Exercisable........................................... 70,000 $0.33
========= ======
</TABLE>

F-15
<PAGE> 86
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1998
--------------------------
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of period.................... 1,348,000 $ 1.42
Granted.......................................... 474,000 5.34
Exercised........................................ -- --
Canceled......................................... (36,000) 1.06
--------- ------
Outstanding at end of period.......................... 1,786,000 $ 2.46
========= ======
Exercisable........................................... 70,000 $ 0.33
========= ======
</TABLE>

The Company has not recorded compensation expense relating to these
options, as in the opinion of the Board of Directors and management, the
Company's common stock had a market value as of the date of grant that
approximated the respective exercise prices above.

As discussed above, the Company accounts for all options using APB No. 25,
however all 1996 through 1998 options are subject to the disclosure requirements
of SFAS No. 123. SFAS No. 123 requires that compensation expense, related to
options granted, be calculated based on the fair value of the options as of the
date of grant. The fair value calculations take into account the exercise prices
and expected lives of the options, the current price of the underlying stock,
its expected volatility, the expected dividends on the stock, and the current
risk-free interest rate for the expected life of the option. Under SFAS No. 123,
the fair value of the 1996, 1997 and 1998 options at the date of grant was
approximately $0.89, $1.125 and $1.595 per share, respectively. The fair value
was calculated using a risk-free rate of 6.065%, 5.75% and 4.45% for 1996, 1997
and 1998, respectively, and an expected life of the options of eight years. Had
the Company adopted SFAS 123 to account for such options, the Company's pro
forma net income and earnings per share would be as follows:

<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
stockholders........................... $8,564,431 $13,150,680 $(1,882,125)
Earnings per share:
Basic.................................. $ 0.43 $ 0.66 $ (0.12)
========== =========== ===========
Diluted................................ $ 0.42 $ 0.64 $ (0.12)
========== =========== ===========
</TABLE>

11. NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income (loss) by the weighted average number of common and common equivalent
shares outstanding during the fiscal year, which includes the additional
dilution related to conversion of stock options as computed under the treasury
stock method. Neither the outstanding stock options nor the Series A Convertible
Preferred Stock have been included in the adjusted weighted average common
shares outstanding for 1998 as the effects of conversion are antidilutive.

F-16
<PAGE> 87
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents information necessary to calculate earnings
per share for the three years ended December 31, 1998:

<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
stockholders.......................... $ 8,605,431 $13,273,680 $(1,665,125)
=========== =========== ===========
Weighted average common shares
outstanding........................... 20,055,558 20,055,558 15,919,100
Plus additional shares from common stock
equivalent shares:
Options............................... 249,118 372,076 --
----------- ----------- -----------
Adjusted weighted average common shares
outstanding........................... 20,304,676 20,427,634 15,919,100
=========== =========== ===========
</TABLE>

As mentioned in Note 7, the Company converted from an S Corp to a C Corp on
August 7, 1998. The following pro forma amounts present the basic earnings per
share and diluted earnings per share as if the Company had been a C Corp for all
three years ended December 31, 1998:

<TABLE>
<CAPTION>
(PRO FORMA)
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss) available to common
stockholders.......................... $ 8,605,431 $13,273,680 $(1,665,125)
Additional tax provision................ (3,071,275) (4,733,305) (3,451,778)
----------- ----------- -----------
Pro forma net income (loss) available
to common stockholders............. $ 5,534,156 $ 8,540,375 $(5,116,903)
=========== =========== ===========
Basic earnings (loss) per share......... $ 0.28 $ 0.43 $ (0.32)
=========== =========== ===========
Diluted earnings (loss) per share....... $ 0.27 $ 0.42 $ (0.32)
=========== =========== ===========
</TABLE>

12. COMMITMENTS AND CONTINGENCIES

The Company leases office space and office equipment under various
operating lease agreements. Rent expense for the years ended December 31, 1996,
1997 and 1998 totaled approximately $475,000, $370,000 and $379,000,
respectively, and is included in general and administrative expense in the
consolidated statement of operations.

As of December 31, 1998, the future minimum lease payments relating to the
operating lease obligations are as follows:

F-17
<PAGE> 88
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company is also subject to various legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position of the Company.

13. EMPLOYEE SAVINGS PLAN

The Company has an employee savings plan, the Private Business, Inc. 401(k)
Profit Sharing Plan ("the Plan"), which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The Company matches contributions ($.50, $.50 and $1 in 1996, 1997
and 1998, respectively, for every $1 contributed by employees) up to a maximum
of $500, $750 and $1,000 per employee per year for 1996, 1997 and 1998,
respectively, and may, at its discretion, make additional contributions to the
plan. Employees are eligible for participation beginning with the quarter
immediately following one year of service. Total contributions made by the
Company to the plan were $44,754, $105,767 and $151,858 in 1996, 1997 and 1998,
respectively, and is included in the general and administrative expense in the
consolidated statements of operations.

14. RELATED PARTY TRANSACTIONS

Prior to 1999, the Company performed various management and administration
functions for Board Member, Inc.; Madison Land; Maryland Farms Land, LLC;
Maryland Farms South, LLC; Private Business Partners, Inc.; Careers, Inc.;
Discount Brokerage Services, Inc.; Senior Achievement; and Imagic Corporation,
which are owned by some of the principal stockholders of the Company. The
Company charges a monthly management fee, which is equal to a percentage of
certain Company employees' salaries for these services. These charges totaled
approximately $55,000, $74,000 and $180,000 for 1996, 1997 and 1998,
respectively and have been netted against general and administrative expenses in
the accompanying statements of operations.

The Company entered into two promissory note agreements dated February 7,
1994 and June 15, 1994 for $50,000 and $15,000, respectively, with A.R. Systems,
Inc. ("A.R. Systems") and Monty E. Strecker, the sole stockholder of A.R.
Systems and a former employee of the Company. The terms of the notes call for
quarterly principal and interest payments beginning January 1 and July 1, 1995,
respectively, and ending on February 1 and April 1, 1999, respectively.
Outstanding principal on the notes totaled $37,946, $19,911 and $7,474 at
December 31, 1996, 1997 and 1998, respectively. The Company has also entered
into an option agreement dated February 7, 1994 with A.R. Systems and Monty E.
Strecker, which gives the Company the exclusive right to purchase A.R. Systems
for a term of five years from the date of the agreement. The agreement is
nonbinding to the Company and the formula for calculating the purchase price is
explicitly stated in the agreement. As of December 31, 1998, the Company has not
exercised this option.

The Company leases office space from Madison Land Co., which is owned by
some of the principal stockholders of the Company. Effective December 1, 1997,
there is a formal lease agreement between the two parties for rental payments of
$75,000 and a term of one year. Total rent paid to Madison Land Co. was
approximately $75,000, $43,000 and $75,000 for 1996, 1997 and 1998,
respectively.

F-18
<PAGE> 89
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 1996 and 1997, Board Member, Inc. owed the Company
$111,384 and $148,262, respectively for payables processed and paid by the
Company, which are reimbursed by Board Member, Inc. as funds are available. As
of December 31, 1998, the Company owed Board Member, Inc. $34,462, relating to
an overpayment made by Board Member, Inc. to the Company. This amount is
included in Accounts receivable -- other in the accompanying consolidated
balance sheet.

During 1996, the Company financed the start-up of Careers, Inc., which is
owned by some of the principal stockholders of the Company. As of December 31,
1997 and 1998, respectively, Careers, Inc. owed the Company $41,728 and $803
related to payables processed and paid by the Company which is included in
Accounts receivable -- other in the accompanying consolidated balance sheet.

During 1996, the Company purchased land from Private Business Partners,
Inc., which is owned by some of the principal stockholders of the Company. The
purchase price was $1,963,000.

During 1997, the Company financed the start-up of Imagic Corporation, which
is owned by some of the principal stockholders of the Company. As of December
31, 1997 and 1998, respectively, Imagic Corporation owed the Company $53,265 and
$2,712.

15. STOCK SPLIT SUBSEQUENT TO DECEMBER 31, 1998

On May 14, 1999, the Board of Directors of the Company approved a 2-for-1
common stock split in the form of a stock dividend. The stock split is
contingent upon the successful completion of an initial public offering. All
shares and per share amounts have been retroactively restated for all periods
presented to reflect this stock split.

F-19
<PAGE> 90

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND MARCH 31, 1999

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 285,370 $ 35,065
Accounts receivable -- trade, net of allowance for
doubtful accounts of $60,000 and $85,000,
respectively............................................ 5,527,200 5,125,137
Accounts receivable -- other.............................. 151,528 225,219
Deferred tax asset........................................ 1,103,749 828,032
Other current assets...................................... 903,356 1,154,227
------------- -------------
Total current assets............................... 7,971,203 7,367,680
------------- -------------
PROPERTY AND EQUIPMENT, NET................................. 10,455,587 10,631,844
OTHER ASSETS:
Restricted cash........................................... 5,000,000 5,000,000
Note receivable........................................... 7,474 --
Software development costs, net........................... 309,061 298,469
Deferred tax asset........................................ 1,932,117 1,831,683
Intangible and other assets, net.......................... 5,920,730 5,774,432
------------- -------------
Total other assets................................. 13,169,382 12,904,584
------------- -------------
Total assets....................................... $ 31,596,172 $ 30,904,108
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ -- $ 3,000,000
Accounts payable.......................................... 2,448,759 1,703,607
Accrued liabilities....................................... 5,754,453 3,259,513
Dividends payable......................................... 2,174,564 3,524,420
Deferred revenue.......................................... 1,677,239 1,504,019
Current portion of long-term debt......................... 3,750,000 4,000,000
------------- -------------
Total current liabilities.......................... 15,805,015 16,991,559
------------- -------------
OTHER LONG-TERM PAYABLE..................................... 5,000,000 5,000,000
LONG TERM DEBT, net of current portion...................... 90,375,000 89,250,000
------------- -------------
Total liabilities.................................. 111,180,015 111,241,559
------------- -------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Series A Convertible, no par
value; 5,624,404 authorized, issued and outstanding....... 59,707,207 59,724,734
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par value; 23,920,910 shares authorized
and 10,128,056 shares issued and outstanding,
respectively............................................ -- --
Additional paid-in capital................................ (130,797,604) (130,797,604)
Accumulated deficit....................................... (8,493,446) (9,264,581)
------------- -------------
Total stockholders' deficit........................ (139,291,050) (140,062,185)
------------- -------------
Total liabilities and stockholders' equity......... $ 31,596,172 $ 30,904,108
============= =============
</TABLE>

F-20
<PAGE> 91

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
REVENUES:
Software license.......................................... $ 749,497 $ 730,780
Royalties................................................. 9,766,912 10,429,785
Maintenance and other..................................... 763,506 1,249,644
----------- -----------
Total revenues.................................... 11,279,914 12,410,209
OPERATING EXPENSES:
General and administrative................................ 3,442,158 3,380,609
Selling and marketing..................................... 4,995,234 5,652,887
Research and development.................................. 196,402 195,228
Amortization.............................................. 80,985 231,207
Other operating........................................... 35,256 77,790
Recapitalization charges.................................. -- --
----------- -----------
Total operating expenses.......................... 8,750,034 9,537,721
----------- -----------
OPERATING INCOME............................................ 2,529,880 2,872,488
OTHER EXPENSES:
Interest expense.......................................... 57,643 1,900,089
Minority interest......................................... 10,814 --
----------- -----------
Total other expenses.............................. 68,457 1,900,089
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 2,461,423 972,399
Income tax provision (benefit).............................. 135,880 376,151
----------- -----------
NET INCOME.................................................. 2,325,543 596,248
Preferred stock dividends and accretion..................... -- (1,367,383)
----------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS.......... $ 2,325,543 $ (771,135)
=========== ===========
EARNINGS (LOSS) PER SHARE:
Basic..................................................... $ 0.12 $ (0.08)
=========== ===========
Diluted................................................... $ 0.11 $ (0.08)
=========== ===========
PRO FORMA INFORMATION ASSUMING CONVERSION TO C CORP
Net income (loss) available to common stockholders........ $ 1,475,241
===========
Basic..................................................... $ 0.07
===========
Diluted................................................... $ 0.07
===========
</TABLE>

F-21
<PAGE> 92

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,325,543 $ 596,248
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 401,661 657,034
Deferred taxes............................................ -- 376,151
Minority interest......................................... 10,814 --
Changes in assets and liabilities:
Accounts receivable..................................... 463,165 402,063
Other current assets.................................... (304,834) (324,502)
Other noncurrent assets................................. -- --
Accounts payable........................................ 153,633 (745,150)
Accrued liabilities..................................... (1,986,025) (2,494,940)
Deferred revenue........................................ (418,265) (173,220)
----------- -----------
Net cash provided by (used in) operating
activities....................................... 645,692 (1,706,316)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (242,093) (602,084)
Software development costs................................ (53,750) (74,379)
Payments received on notes receivable..................... -- 7,474
----------- -----------
Net cash used in investing activities.............. (295,843) (668,989)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings....................... -- 3,000,000
Repayments on long-term debt.............................. (35,050) (875,000)
Dividends on common stock................................. (3,132,507) --
----------- -----------
Net cash provided by (used in) financing
activities....................................... (3,167,557) 2,125,000
----------- -----------
NET DECREASE IN CASH........................................ (2,817,708) (250,305)
CASH at beginning of year................................... 4,815,720 285,370
----------- -----------
CASH at end of the period................................... $ 1,998,012 $ 35,065
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes during period.............. $ 458,500 $ --
=========== ===========
Cash payments of interest during period................... $ 65,289 $ 1,900,089
=========== ===========
SUPPLEMENTAL NONCASH DISCLOSURES:
Dividends accrued on preferred stock...................... $ -- $ 1,349,856
=========== ===========
</TABLE>

F-22
<PAGE> 93

PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheet as of March 31, 1999 and the consolidated
statements of operations and cash flows for the periods ended March 31, 1998 and
March 31, 1999 have been prepared by the Company in accordance with the
accounting policies described in its annual financial statements for the year
ended December 31, 1998 and should be read in conjunction with the notes
thereto.

In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position at
March 31, 1999 and results of operations and changes in cash flows for all
periods presented have been made. The results of operations for the period ended
March 31, 1999 are not necessarily indicative of the operating results for the
full year.

2. NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income by the weighted average number of common and common equivalent shares
outstanding during the year, which includes the additional dilution related to
conversion of stock options as computed under the treasury stock method for the
three months ended March 31, 1998. Neither the outstanding stock options nor the
Series A Convertible Preferred Stock have been included in the adjusted weighted
average common shares outstanding for the three months ended March 31, 1999, as
the effects of conversion are antidilutive. All share and per share amounts have
been calculated taking into consideration the 2-for-1 common stock split in May
1999.

The following table presents information necessary to calculate earnings
per share for the three months ended March 31, 1998 and 1999:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1999
----------- -----------
<S> <C> <C>
Net income (loss) available to common stockholders....... $ 2,325,543 $ (771,135)
=========== ===========
Weighted average common shares outstanding............... 20,055,558 10,128,056
Plus additional shares from common stock equivalent
shares:
Options................................................ 801,038 --
----------- -----------
Adjusted weighted average common shares outstanding...... 20,856,596 10,128,056
=========== ===========
</TABLE>

F-23
<PAGE> 94
PRIVATE BUSINESS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. EMPLOYEE STOCK OPTION PLAN

On April 14, 1999, the Board of Directors of the Company approved the 1999
employee stock option plan. The 1999 stock option plan increased the pool of
common stock reserved for issuance under this plan and all other option and
stock purchase plans to a maximum of four million common shares. Additionally,
the Board of Directors authorized the grant of 550,700 stock options to be
effective upon completion of the Company's initial public offering with an
exercise price equal to the initial public offering price. On May 14, 1999, the
Board of Directors of the Company granted an additional 950,000 stock options to
be effective upon completion of the Company's initial public offering with an
exercise price equal to the initial public offering price. These options vest
over forty-eight months and expire ten years from the date of grant.

F-24
<PAGE> 95

- ------------------------------------------------------
- ------------------------------------------------------

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THE PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Forward-Looking Statements.......... 6
Risk Factors........................ 6
Use of Proceeds..................... 12
Dividend Policy..................... 12
Capitalization...................... 13
Dilution............................ 14
Selected Consolidated Financial
Data.............................. 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 17
Business............................ 30
Management.......................... 41
Principal Stockholders.............. 49
Relationships and Related Party
Transactions...................... 51
Description of Capital Stock........ 55
Shares Eligible for Future Sale..... 61
Plan of Distribution................ 64
Legal Matters....................... 67
Experts............................. 67
Where You Can Find More
Information....................... 67
Index to Financial Statements....... F-1
</TABLE>

------------------

UNTIL JUNE 20, 1999 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

4,350,000 SHARES
(PRIVATE BUSINESS LOGO)
COMMON STOCK
-------------------

PROSPECTUS
-------------------
BT Alex. Brown

Lehman Brothers

Salomon Smith Barney
MAY 26, 1999

- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 96

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated costs and expenses (all of
which will be paid by Private Business) in connection with the offering
described in the registration statement.

<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 34,288
NASD Filing Fee............................................. 12,000
NASDAQ National Market Listing Fee.......................... 95,000
Printing and Engraving Expense.............................. 125,000
Legal Fees and Expenses..................................... 300,000
Auditors' Fees and Expenses................................. 125,000
Transfer Agent and Registrar Fees and Expenses.............. 11,500
Miscellaneous............................................... 22,212
--------
Total............................................. $725,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

(a) The Tennessee Business Corporation Act provides that a corporation may
indemnify any of its directors against liability incurred in connection with a
proceeding except for liability (a) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 48-18-304 of the TBCA, or (d) for any transaction from
which the director derived an improper personal benefit.

(b) Article VIII of our charter sets forth the extent to which officers or
directors of Private Business may be insured or indemnified against any
liabilities which they may incur. The general effect of this provision is that
any person made a party to any action, suit or proceeding by reason of the fact
that he or she is or was a director of Private Business will be indemnified by
Private Business against expenses (including attorney's fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding, to the fullest extent permitted
under the laws of the State of Tennessee. In addition, this provision provides
that, in Private Business's sole discretion, Private Business may, by specific
action of the board of directors, indemnify officers, employees or agents to the
same extent as a director. Private Business a policy of directors' and officers'
insurance that would generally provide the funds necessary for Private Business
to meet its obligations under its charter.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with our recapitalization, on August 7, 1998 we purchased
9,927,502 shares of our common stock for an aggregate purchase price of
$138,340,358. Immediately thereafter on August 7, 1998, we sold 5,624,404 shares
of our Series A convertible preferred stock in connection with our
recapitalization for an aggregate purchase price of $60,000,000. The purchasers
of the Series A convertible preferred stock were: TA/Advent VII, L.P., Advent
Atlantic and Pacific III, L.P., TA Investors, LLC, TA Executives LLC, Summit
Ventures V, L.P., Summit V Advisors Fund (QP), L.P., Summit V Advisors Fund,
L.P., Summit Investors III, L.P., Summit V Companion Fund, L.P., Cendant
Corporation, BT Investment Partners, Inc., The John Ryan Tyrrell Trust, The Jack
and Sandra Tyrrell Joint Revocable Trust, W. Patrick

II-1
<PAGE> 97

Ortale, III, Laura Farish, Chadwick Management Trust, Sunapee Securities, Inc.,
Squam Lake Investors III, L.P., and 1998 GPH Fund, LLC. Certain directors and
affiliates of other directors purchased an aggregate of 750,000 shares of common
stock at $8.00 per share in a private placement prior to this offering. These
shares were purchased by TA Associates Group, Summit Partners, Bill King, Tom
Black and Greg Thurman. All of these transactions were deemed to be exempt from
registration under Section 4(2) of the Securities Act as transactions not
involving a public offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- -------- -----------------------
<C> <C> <S>
*1 -- Form of Underwriting Agreement.
*3.1 -- Amended and Restated Charter of Private Business.
*3.2 -- Amended and Restated Bylaws of Private Business.
*4.1 -- Provisions of Articles of Incorporation defining the rights
of security holders. See Exhibit 3.1.
*4.2 -- Form of common stock certificate.
*5 -- Opinion of Harwell Howard Hyne Gabbert & Manner, P.C.
*10.1 -- Stock Purchase Agreement dated as of July 24, 1998.
*10.2 -- Stockholders Agreement dated as of August 7, 1998.
*10.3 -- Registration Rights Agreement dated as of August 7, 1998.
*10.4 -- Credit Agreement dated as of August 7, 1998.
*10.4.1 -- Amendment No. 1 to Credit Agreement dated as of May 5, 1999
*10.5 -- Form of Indemnification Agreement between Private Business
and each of its Officers and Directors.
*10.6 -- Form of Nonqualified Stock Option Agreement without change
of control provision.
*10.7 -- Form of Nonqualified Stock Option Agreement with change of
control provision.
*10.8 -- Private Business, Inc. 1999 Amended and Restated Stock
Option Plan.
*10.9 -- Cendant Termination and Non Competition Agreement.
*21 -- Subsidiaries of Private Business.
*23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Harwell Howard Hyne Gabbert & Manner, P.C.
(included in Exhibit 5).
*24 -- Power of Attorney (included on page II-4).
*27 -- Financial Data Schedule (FOR SEC USE ONLY).
</TABLE>

- ---------------

* Filed previously

The attachments referenced in these exhibits are not included in this
filing but are available from Private Business upon request.

II-2
<PAGE> 98

(b) The following report and schedule is filed as part of the Registration
Statement:

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>

No other schedules are required or are applicable.

ITEM 17. UNDERTAKINGS.

Private Business hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Private
Business pursuant to the foregoing provisions, or otherwise, Private Business
has been advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against these liabilities (other
than the payment by Private Business of expenses incurred or paid by a director,
officer or controlling person of Private Business in the successful defense of
any action, suit or proceeding) is asserted against Private Business by the
director, officer or controlling person in connection with the securities being
registered, Private Business will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of the issue.

Private Business hereby undertakes that:

1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Private Business pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 99

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Private
Business has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Brentwood, State of Tennessee, on May 26, 1999.

PRIVATE BUSINESS, INC.

By: /s/ JERRY L. COVER
------------------------------------
Principal Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board May 26, 1999
- --------------------------------------------------------
William B. King

/s/ JERRY L. COVER President (Principal May 26, 1999
- -------------------------------------------------------- Executive Officer)
Jerry L. Cover

/s/ FRED P. READ Vice President, Chief May 26, 1999
- -------------------------------------------------------- Financial Officer
Fred P. Read (Principal Financial and
Accounting Officer)

Director May , 1999
- --------------------------------------------------------
Thomas L. Black

* Director May 26, 1999
- --------------------------------------------------------
Gregory A. Thurman

* Director May 26, 1999
- --------------------------------------------------------
Brian J. Conway

* Director May 26, 1999
- --------------------------------------------------------
Bruce R. Evans

* Director May 26, 1999
- --------------------------------------------------------
Gary W. Cage
</TABLE>

*By: /s/ FRED P. READ
---------------------------------
Fred P. Read
Attorney-in-fact

II-4
<PAGE> 100

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Private Business, Inc.:

We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Private Business, Inc. and subsidiaries
for the three years ended December 31, 1998 included in the Form S-1 and have
issued our report thereon dated March 17, 1999 except for note 15 as to which
the date is May 14, 1999. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed under Item 14(a)(ii) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth herein in relation to the basic consolidated financial statements taken as
a whole.

ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 17, 1999

S-1
<PAGE> 101

SCHEDULE II
PRIVATE BUSINESS, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO COSTS
BEGINNING OF AND DEDUCTIONS BALANCE AT
PERIOD EXPENSES(1) (CHARGE OFFS)(1) END OF PERIOD
------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts...... $60,000 $ -- $ -- $60,000
======= ======= ======= =======
Year ended December 31, 1997:
Allowance for doubtful accounts...... $ 0 $60,000 $ -- $60,000
======= ======= ======= =======
Year ended December 31, 1996:
Allowance for doubtful accounts...... $ 0 $ -- $ -- $ 0
======= ======= ======= =======
</TABLE>

- ---------------

(1) Additions to the allowance for doubtful accounts are included in general and
administrative expense. All deductions or charge offs are charged against
the allowance for doubtful accounts.

S-2