Attached files
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EX-99.1 - Lightyear Network Solutions, Inc. | v179183_ex99-1.htm |
EX-16.1 - Lightyear Network Solutions, Inc. | v179183_ex16-1.htm |
EX-99.2 - Lightyear Network Solutions, Inc. | v179183_ex99-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date of
report (Date of earliest event reported): February 12,
2010
LIBRA
ALLIANCE CORPORATION
(Exact
name of registrant as specified in Charter)
Nevada
|
000-32451
|
91-1829866
|
||
(State
or other jurisdiction of
incorporation
or organization)
|
(Commission
File No.)
|
(IRS
Employee
Identification
No.)
|
1901
Eastpoint Parkway
Louisville,
Kentucky 40223
(Address
of Principal Executive Offices)
502-244-6666
(Issuer
Telephone number)
2157
S. Lincoln Street
Salt
Lake City, Utah 84106
(Address
of Former Principal Executive Offices)
Check the
appropriate box below if the Form 8-K/A filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
|
o
Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|
|
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|
|
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|
|
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
|
Explanatory
Note
This Current Report on Form 8-K/A is
being filed for the purpose of updating financial statements which were filed as
exhibits to the Registrant’s Current Report on Form 8-K which was dated February
12, 2010, and was filed with the SEC on February 19, 2010 (the “Original Filing”).
The Original Filing included audited consolidated financial statements of
Lightyear Network Solutions, LLC, a Kentucky limited liability company, a
business acquired by the Registrant, for the fiscal years ended December 31,
2008 and 2007, and unaudited consolidated financial statements of Lightyear
Network Solutions, LLC for the nine month periods ended September 30, 2009 and
2008. This Current Report on Form 8-K/A includes audited consolidated financial
statements of Lightyear Network Solutions, LLC, for the fiscal years ended
December 31, 2009 and 2008. The Original Filing also included Unaudited Pro
Forma Condensed Combined Financial Statements of the Registrant and Lightyear
Network Solutions, LLC, for the fiscal year ended December 31, 2008 and as of
and for the nine month period ended September 30, 2009. This Current Report on
Form 8-K/A includes Unaudited Pro Forma Condensed Combined Financial Statements
of the Registrant and Lightyear Network Solutions, LLC, as of and for the fiscal
year ended December 31, 2009. In this Current Report on Form 8-K/A, the
disclosures in Item 2.01 under the heading “Financial Information – Management
Discussion and Analysis and Results of Operation” has been updated to include a
comparison of the results of operations for the fiscal year ended December 31,
2009 as compared to the fiscal year ended December 31, 2008, and the section
entitled “Executive Compensation” has been updated to include information for
the years ended December 31, 2009 and 2008. In this Current Report on Form
8-K/A, Item 4.01 is updated to include disclosure concerning the dismissal of
the Registrant’s former auditor. Except as specifically noted above, this
Current Report on Form 8-K/A does not amend or modify other items or disclosures
in the Original Filing, and does not purport to provide a general update or
discussion of any other developments subsequent to the Original
Filing.
Forward
Looking Statements
This
Current Report on Form 8-K/A and other reports filed by Registrant from time to
time with the Securities and Exchange Commission (collectively the “Filings”) contain or
may contain forward looking statements and information that are based upon
beliefs of, and information currently available to, Registrant’s management as
well as estimates and assumptions made by Registrant’s management. When used in
the filings the words “anticipate,” “believe,” “estimate,” “expect,” “future,”
“intend,” “plan” or the negative of these terms and similar expressions as they
relate to Registrant or Registrant’s management identify forward looking
statements. Such statements reflect the current view of Registrant with respect
to future events and are subject to risks, uncertainties, assumptions and other
factors (including the risks contained in the section of this report entitled
“Risk Factors”)
relating to Registrant’s industry, Registrant’s operations and results of
operations and any businesses that may be acquired by Registrant. Should one or
more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended or planned.
Although
Registrant believes that the expectations reflected in the forward looking
statements are reasonable, Registrant cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law,
including the securities laws of the United States, Registrant does not intend
to update any of the forward-looking statements to conform these statements to
actual results. The following discussion should be read in conjunction with
Registrant’s pro forma financial statements and the related notes that will be
filed herein.
Item 1.01 Entry
into a Material Definitive Agreement.
On
February 12, 2010, Libra Alliance Corporation, a Nevada corporation (“Libra Alliance Corp.”
or “Libra”),
entered into a master transaction agreement (the “Master Transaction
Agreement”) with LY Holdings, LLC (“LYH”), a Kentucky
limited liability company, and holders of $5,149,980 of LYH
convertible notes (the “LYH Debtholders”) who
joined in the Master Transaction Agreement through a joinder provision in
various securities contribution agreements (collectively, the “Contribution
Agreements,” and individually, a “Contribution
Agreement”). A copy of the Master Transaction Agreement is
included as Exhibit
2.1 to this Current Report on Form 8-K/A and is incorporated herein by
reference. The terms of the Master Transaction Agreement are
described in more detail in Item 2.01, below.
1
Also on
February 12, 2010, pursuant to the Master Transaction Agreement, Libra entered
into the Contribution Agreements with the LYH Debtholders and a securities
exchange agreement (the “Securities Exchange
Agreement”) with LYH. A form of Contribution Agreement and a
copy of the Securities Exchange Agreement are included as Exhibits 2.2 and 2.3,
respectively, to this Current Report on Form 8-K/A and are incorporated herein
by reference. The terms of the Contribution Agreements and the
Securities Exchange Agreement are described in more detail in Item 2.01,
below.
Also,
upon the closing of the Securities Exchange Agreement, on February 12, 2010,
Libra assumed J. Sherman Henderson’s employment agreement from LYH, and
Henderson was named Chief Executive Officer and President and appointed as a
director of Libra as of that date. Mr. Henderson’s employment
agreement is included as Exhibit 10.1 to this Current Report on Form
8-K/A.
Item 2.01 Completion
of Acquisition or Disposition of Assets.
MASTER
TRANSACTION AGREEMENT
On
February 12, 2010, LYH, Libra and the LYH Debtholders entered into the Master
Transaction Agreement, whereby, through various agreements and instruments
described in this Current Report on Form 8-K/A, they agreed to engage in a
transaction that is intended to qualify as a tax-free unified exchange of
property for stock under Section 351 of the Internal Revenue Code of
1986.
For
purposes of this Current Report on Form 8-K/A, the “Exchange Transaction”
is comprised of: (1) a securities exchange (the “Securities
Exchange”), whereby, pursuant to the Securities Exchange
Agreement, LYH has exchanged its 100% membership interest (the “Lightyear Equity”) in
Lightyear Network Solutions, LLC (“Lightyear”), a
Kentucky limited liability company, for 10,000,000 shares of common stock
(“Libra Common
Stock”) and the right to receive 9,500,000 shares of preferred stock
(“Libra Convertible
Preferred Stock”) of Libra Alliance Corp., and (2) a securities
contribution (the “Contribution”)
whereby, pursuant to the Contribution Agreements, the LYH Debtholders have
exchanged LYH promissory notes in the aggregate principal amount of
$5,149,980 (the “LYH Notes”) for
3,242,533 shares of Libra Common Stock. The term “Libra Convertible Preferred
Stock” refers to the preferred stock of Libra after the amendment of
Libra’s Articles of Incorporation (the “Articles”), as set
forth below, and not to any existing preferred stock of Libra or of
Lightyear. Libra’s current Articles are attached to this Current
Report on Form 8-K/A as Exhibit 3.1.
Securities
Exchange Agreement
On
February 12, 2010, Libra and LYH entered into the Securities Exchange Agreement,
which provided for the exchange of the Lightyear Equity by LYH for shares of
Libra Common Stock and of Libra Convertible Preferred Stock.
Pursuant
to the Securities Exchange Agreement, Libra issued shares of Libra Common Stock
to LYH and covenanted to issue 9,500,000 shares of Libra Convertible Preferred
Stock (the “Libra
Convertible Preferred Shares”) upon amendment of the
Articles.
On
February 25, 2010, LYH, the stockholder of Libra holding the requisite number of
shares to approve such actions, executed a written consent (the “LYH Consent”) to
amend the Articles (as amended, the “Amended Articles”) to
effect the following actions: (i) to authorize and designate a new
class of preferred stock with rights, preferences and privileges as outlined in
the section of this Current Report on Form 8-K/A entitled, “Description of
Securities – Preferred Stock”; (ii) to increase the number of authorized shares
of common stock to 70,000,000; and (iii) to change the name of Libra
to “Lightyear Network Solutions, Inc.” For all purposes herein, Libra
Alliance Corp. after such amendment will be referred to as
“New
Lightyear,” and “Libra Common Stock” will be referred to as “New Lightyear Common
Stock.”
On March
23, 2010, Libra filed an Information Statement (the “Information
Statement”) on Schedule 14C with the SEC and delivered this Information
Statement to each of its shareholders of record as of February 25, 2010
announcing that, pursuant to the Written Consent, it intended to file the
Amended Articles. Libra expects to file the Amended Articles and to issue the
Libra Convertible Preferred Shares during the second quarter of
2010.
2
After the
Amended Articles have become effective, pursuant to the Securities Exchange
Agreement, New Lightyear will issue the Libra Convertible Preferred Shares to
LYH. LYH will then own approximately 69% of the Libra Common Stock on
a fully-diluted, as-converted basis.
Securities
Modification Agreement
Immediately
before the closing of the Exchange Transaction, LYH and the LYH Debtholders
entered into agreements for the modification (or, in certain cases, rescission
of the sale of) and exchange of certain securities held by the LYH Debtholders
(the “Securities
Modification Agreements”) for the LYH Notes that were then contributed to
Libra in exchange for Libra common stock. After the execution of the
Securities Modification Agreements, the LYH Notes were modified to provide for a
maturity date of December 31, 2011 and an interest rate of five percent (5%) per
annum and to remove the previously existing conversion and guaranty
features. These modifications became effective on the execution of
the Contribution Agreements.
Contribution
Agreement
On
February 12, 2010, Libra and the LYH Debtholders entered into the Contribution
Agreements, which provided for the contribution by the LYH Debtholders of the
LYH Notes to Libra. In exchange for the LYH Notes, Libra issued an
aggregate of 3,242,533 shares of Libra Common Stock to the LYH
Debtholders. The LYH Debtholders are expected to be the holders of
approximately 11.5% of Libra Common Stock on a fully diluted basis after the
Amended Articles have become effective and the Libra Convertible Preferred
Shares have been issued.
EXCHANGE
TRANSACTION
Libra is
currently authorized under its Articles to issue 20,000,000 shares of Libra
Common Stock. Libra currently has no preferred stock authorized. As of March 26,
2010, there were 18,747,533 shares of Libra Common Stock issued and
outstanding.
As noted
above, the Lightyear Equity has been exchanged for shares of Libra Common Stock
and Libra Convertible Preferred Stock. After the amendment of the
Articles to authorize an aggregate of 70,000,000 shares of Libra Common Stock
and a new class of preferred stock having the rights, privileges and preferences
described in the section of this Current Report on Form 8-K/A entitled
“Description of Capital Stock – Preferred Stock” herein, the Libra Convertible
Preferred Shares will be issued to LYH.
Upon the
execution of the Securities Exchange Agreement and the Contribution Agreements,
10,000,000 shares of Libra Common Stock were issued and a covenant to issue the
Libra Convertible Preferred Shares was granted in exchange for all of the
Lightyear Equity and the LYH Notes. After the Libra Convertible
Preferred Shares are issued, there will be 9,500,000 shares of Libra Convertible
Preferred Stock issued and outstanding, which are convertible into a total of
9,500,000 shares of New Lightyear Common Stock.
Upon the execution of the Securities
Exchange Agreement, Libra will own all of the Lightyear Equity subject to the
rights of certain persons with respect to the Revenues Payments (as described in
the section of this Current Report on Form 8-K/A entitled “Certain Relationships
and Related Transactions – Letter Agreements”) and Lightyear will continue as an
operating subsidiary of Libra.
The
issuance of Libra capital stock under the Securities Exchange Agreement and the
Contribution Agreements is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”),
pursuant to Section 4(2) thereof and Regulation D promulgated thereunder. The
Libra securities will not be registered under the Securities Act and the shares
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements.
Of the
28,247,533 shares of Libra Common Stock that will be outstanding on an as
converted, fully diluted basis immediately after the closing of the Exchange
Transaction, only 5,505,000 shares will be freely tradable without restriction
under the Securities Act. The remaining shares will be “restricted
securities” as that term is defined in Rule 144 under the Securities Act which
will be freely tradable subject to applicable holding period, volume and other
limitations under Rule 144. In addition, Libra Common Stock that is issuable
upon conversion of the Libra Convertible Preferred Stock will also be eligible
to become freely tradable subject to applicable holding period, volume and other
limitations under Rule 144.
3
In
connection with the closing of the Exchange Transaction, Lightyear and Libra
filed a joint press release announcing the closing and the completion of the
Exchange Transaction, a copy of which is included as Exhibit 99.3 to this
Current Report on Form 8-K/A.
Except
for the Securities Exchange Agreement and the transactions contemplated thereby,
neither LYH, nor any of the directors or officers of LYH serving before the
consummation of the Exchange Transaction, had any material relationship with
Libra or any of Libra’s stockholders.
This
current report contains summaries of the material terms of various agreements
executed in connection with the
transactions described herein. The summaries of these agreements are subject to,
and qualified in their entirety by, reference to these agreements, all of which
are incorporated herein by reference.
BUSINESS
BUSINESS
OF LIBRA ALLIANCE CORP.
Libra
Alliance Corp. was incorporated in the state of Nevada on May 5, 1997 to become
an internet service provider for small to mid-sized
businesses. Unsuccessful in these efforts, it ceased operations in
June 1998 and has conducted no operations since.
BUSINESS
OF LIGHTYEAR
In
this discussion of the “Business of Lightyear,” unless otherwise noted or
required by the context, references to “the Company,” “us,” “we,” “our,” and similar
terms refers to New Lightyear, as defined above, which is comprised of Libra and
the operating business of Lightyear, as described above, after the consummation
of the Securities Exchange.
The
Company
Before the Securities Exchange,
Lightyear was the wholly owned operating subsidiary of LYH. LYH was
organized in 2003 for the purpose of becoming a holding company to acquire
certain assets from Lightyear Holdings, Inc. in its bankruptcy
process.
Lightyear
provides telecommunications services throughout the United States primarily
through a distribution network of authorized agents. In addition to
long distance and local service, the Company currently offers a wide array of
telecommunications products and services including internet/intranet, calling
cards, advanced data, conferencing, Voice over Internet Protocol (“VoIP”) services and
wireless services.
4
Business
History and Description
LYH’s
predecessor entity, UniDial Incorporated (“UniDial”), was
incorporated in 1993. In 2000, UniDial changed its name to Lightyear
Communications, Inc. On April 29, 2002, Lightyear Communications, Inc. (and its
parent company Lightyear Holdings, Inc.) filed for bankruptcy to
reorganize under Chapter 11 but sold its assets. In 2004, LYH
acquired the majority of the operating assets of the predecessor companies for
total consideration of approximately $37 million.
Lightyear
was created as an operating subsidiary and currently serves nearly 60,000
business and residential customers nationwide through independent authorized
agents. The Company’s carrier partners include Verizon, Qwest,
AT&T, Sprint and Level 3.
Lightyear
also operates in Puerto Rico through its wholly-owned subsidiary, Lightyear
Alliance of Puerto Rico, LLC, a Kentucky limited liability company.
Overview
of Operations
Lightyear
has two primary components to its sales and marketing operations: the
Direct Sales channel and the Agent channel.
Direct
Sales Channel
The
Direct Sales channel focuses on selling the Company’s services to residential
and small office/home office customers and currently has approximately 13,000
representatives nationwide.
Direct
Sales representatives execute a non-exclusive representative agreement with no
geographic restriction and a one-year term, renewable
annually. Representatives pay a nominal fee to be a Company
representative and are compensated based on the customers and other
representatives that they bring to Lightyear. Representative agreements contain
non-solicitation provisions designed to prevent representatives from moving
Lightyear end users to different carriers and from soliciting other Company
representatives.
Agent
Channel
The
Company’s agents range from one-person shops to large, multi-office
companies. The Agent channel is intended to use relationship sales
efforts to increase distribution of Lightyear products to the
small-to-medium-sized business market. Agents serve as telecom
consultants for their customers who often lack the budgetary means to employ
personnel to manage their telecom resources. As of March 23, 2010,
the Company had approximately 239 authorized agents.
Agents
execute agreements with Lightyear providing for them to earn one-time up-front
payments and monthly commissions based on the type of service sold and the
length of the term of the agreement. Agent agreements are non-exclusive and
contain no geographic restrictions; however, the agreements contain
non-solicitation provisions designed to prevent agents from moving Lightyear end
users to a different carrier. Agent agreements are typically for a
five-year term and are subject to termination if the agent fails to follow
Company policies and procedures or if the agent fails to satisfy a certain
revenue target.
Products
and Services
The
Company offers a broad range of telecommunications products for both residential
and business customers including:
·
|
Switched
and dedicated long distance
|
·
|
BizLocalSM
phone service
|
·
|
VoIP
|
·
|
DSL
|
·
|
Integrated
Access services
|
·
|
Frame
Relay
|
·
|
Nationwide
Internet access (dial-up and dedicated
access)
|
·
|
Web
hosting and development
services
|
·
|
Call
analysis software for customized billing
reports
|
·
|
Multimedia
conferencing services
|
·
|
Direct
Sales services for organizations who wish to sell telecom products within
a private label program
|
·
|
Wireless
telephones and comprehensive service plans offered through the Company’s
wholesale agreements.
|
5
Wireless
Services Agreements
In July
2008, the Company signed wireless wholesale agreements with Verizon Partner
Solutions (“VPS”) and ZefCom, LLC
d/b/a Telispire (“Telispire”). Under
these agreements, Lightyear customers use the Verizon Wireless
network.
The
Telispire Agreement is for a term of two years and thereafter automatically
renews for one year periods. The agreement with Telispire contains no
minimum purchase requirements. The agreement with VPS had an initial
fourteen month term and generally requires the Company to have 500 active lines
and to have purchased a minimum of $100,000 in services and equipment during the
term. In 2009, Lightyear failed to satisfy its thresholds with VPS
and is currently negotiating with VPS with respect to its threshold requirements
and to extend the terms of the agreement.
In August
2009, the Company reached an agreement with Sprint allowing the Company to sell
both pre-paid and post-paid wireless services using the Sprint
network. Under this agreement, the Company receives substantial
marketing allowances and sales credits if certain sales thresholds are
satisfied.
The
Company is currently in discussions with other wireless carriers and expects to
enter into additional wireless wholesale agreements in the
future. These additional agreements will provide Lightyear the
ability to offer a wider variety of wireless options to its current customers to
complement its current suite of telecommunications products and
services.
Verizon
Telecommunications/Digital Services Agreements
Lightyear
and its predecessor have maintained a telecommunications service agreement (the
“TSA”) and a
digital service agreement (the “DSA,” and
collectively with the TSA, the “Service Agreements”)
with Verizon (fka MCI/WorldCom) since 1994 for switched services, data services
and other associated services, including most of the products which Lightyear
provides, as listed above. Each of the Service Agreements has been
amended multiple times, primarily for the purpose of updating available calling
or usage rates, but also for purposes of changing the provisions of those
documents relating to such items as: increasing purchase minimums, including
additional products offered and extending their terms.
Modified Services
Agreements
On
November 5, 2003, as part of its bankruptcy, Lightyear Communications, Inc.,
entered into a modified services agreement (the “MSA”) with Verizon
requiring it to obtain at least 70% of its telecommunications services from
Verizon (to the extent such services are offered by Verizon) under the terms of
the Service Agreements. Lightyear has assumed the MSA. The
MSA, as amended on November 15, 2005, terminates when Lightyear has paid Verizon
$140,000,000 for services provided under the Service Agreements, beginning with
services purchased in January 2004. If Lightyear defaults under the
MSA, Verizon has the right to modify Lightyear’s rates and charges on a
prospective basis to the rates and charges generally offered to Verizon’s other
wholesale customers.
As of
December 31, 2009, total payments to Verizon under the MSA were approximately
$132,500,000.
Customers
The
Company’s primary customers are small to medium sized businesses (SMBs), often
with multiple locations with average monthly telecom billings of approximately
$500 to $1,000. In addition, the Company markets its network services
to residential customers with average billings of $50 per month, using the
Company’s long distance, calling card and VoIP services, as well as VoIP
hardware under the brand Lightyear XStream. Beginning in July 2008,
the Company began marketing its wireless telephone voice and data services to
business and residential customers in the SMB market as well as to large
enterprise customers with average monthly billings of approximately $75 per
wireless unit.
6
Vendor
Companies
The
Company works with a number of companies to provide products and services to its
customers. The Company has relationships with: Verizon, AT&T,
Level 3, Qwest, Sprint, Paetec, Embarq, Sylantro, Cisco, Complete
Communication Services (CCS), Endeavor, Adtran, Voicecom, and Acme
Packet.
Except as otherwise disclosed in this
Current Report on Form 8-K/A, our vendor agreements do
not contain material minimum purchase requirements and generally
provide that the vendor can change the rates charged upon 30 days or 60 days
notice to the Company.
Regulatory
Matters
The
Company is regulated by the FCC as a non-dominant carrier subject to regulation
under the Communications Act of 1934, as amended, with respect to its interstate
services, including the use of its local phone lines and Integrated Access
services to originate or terminate interstate long-distance calls for other
carriers. The FCC requires all telecommunications service providers, including
non-dominant carriers such as the Company, to maintain authorizations to provide
or resell domestic long distance and international services. In most states, the
Company may not begin to provide local and intrastate telecommunications
services until it obtains a certificate of public convenience and necessity from
the state public utility commission and complies with applicable state
regulations, including, in most states, the requirement to file tariffs setting
forth the Company’s terms and conditions for providing services. Several of the
states in which Lightyear operates require public utility commission approval
before the transfer of a carrier’s authority to operate within the state, the
transfer of its assets to a new entity, or a change in the control of an entity
that controls a carrier operating within the state. The FCC also prohibits
carriers from selling, assigning, or transferring control of their interstate
and international operating authorizations without its prior approval. (See
“Risk Factors -- Failure to Obtain
Approval From State Public Utility Commissions Before Completing the Transaction
Could Result in Fines, Penalties, Revocation of Authority to Provide
Telecommunications Services or Could Void the Master
Transaction”). In addition, Direct Sales channel is subject to a
number of federal and state regulations administered by the FTC and various
state agencies in the United States.
Acquisition
and Organic Growth Strategy
The
Company intends to increase its revenue and earnings via a combination of
organic and acquisition growth. The Company’s growth strategy is to
acquire multiple small to mid-sized competitors and thereby aggregate
revenue. Each series of acquisitions is expected to be followed by a
period of integration and consolidation. Potential acquisition
candidates are expected to meet specific criteria including the
following:
|
1)
|
Accretive
to earnings in the first year;
|
|
2)
|
Trained
technical staff meeting Lightyear’s internal requirements and the
requirements of Lightyear’s customers;
and,
|
|
3)
|
Strategic
locations throughout the US where Lightyear has and/or anticipates
significant demand for its service
offerings.
|
The
Company also intends to expand its revenue base from agents through creative
marketing and incentive plans and to expand its wireless business to complement
the Company’s history of selling landline services.
Competition
The
telecommunications industry is very competitive. In general, the Company
competes with national facilities-based and non-facilities based telecom service
providers, wireless and otherwise, and their pre-paid affiliates or brands,
local and regional carriers, non-facilities-based mobile virtual network
operators (MVNOs), VoIP service providers and traditional landline service
providers.
In the
wireless segment Lightyear competes with regional and national providers
including AT&T, Sprint Nextel, T-Mobile and Verizon Wireless, all of which
sell products and services to consumers in our markets.
7
Employees
As of
March 26, 2010, the Company employed 86 people on a full-time
basis. These employees are allocated among divisions as
follows:
|
·
|
Customer
service – 22 employees;
|
|
·
|
Finance,
collections, billing - 22
employees;
|
|
·
|
Sales
- 17 employees;
|
|
·
|
IT
- 9 employees;
|
|
·
|
Provisioning
- 9 employees;
|
|
·
|
Legal/HR/Admin
– 6 employees;
and,
|
|
·
|
Marketing
-1 employee.
|
No
employees are covered by a collective bargaining agreement.
Intellectual
Property
The
Company maintains various intellectual properties, including technology, trade
secrets, copyrights and trademarks in the United States. The
Lightyear name and logo are registered trademarks in the United
States.
Website
The
Company maintains a website at www.lightyear.net.
The reference to this web address does not constitute incorporation by reference
of the information contained at this site, should not be deemed to constitute a
part of this Report, and should not be relied upon in any manner whatsoever by
any potential investor.
Filing
Status
Libra Alliance Corporation has in
the past filed reports with the Securities & Exchange Commission (“SEC”) and will
continue to do so as New Lightyear. You can read and copy any
materials we file with the SEC at its Public Reference Room at 100 F Street, NW,
Washington, DC 20549. You can obtain additional information about the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains an Internet site (www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the Commission. Lightyear has
not filed reports with the SEC in the past.
PROPERTIES
We
lease approximately 75,000 square feet of an office building in Louisville,
Kentucky which serves as our corporate headquarters. We believe that
our properties are adequate and suitable for our business as presently
conducted.
LEGAL
PROCEEDINGS
The
Company is not currently subject to any material legal proceedings
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or incorporated into
this report that are not historic facts are forward-looking statements that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements. If
any of the following risks actually occurs, our business, financial condition or
results of operations could be harmed. In that case, the trading price of New
Lightyear Common Stock could decline, and shareholders may lose all or part of
their investment.
8
In
this discussion of the “Risks Related To Lightyear’s Business and Financial
Condition,” unless otherwise noted or required by the context, references to
“us,” “we,” “our,” “Lightyear” and
similar terms refer to New Lightyear, as defined above, which is comprised of
Libra and the operating business of Lightyear, as described above, after the
consummation of the Securities Exchange.
Risks
Related To Lightyear’s Business and Financial Condition:
Lightyear has Experienced Net Losses,
and May Not Be Profitable in the Future.
Lightyear’s
business has historically incurred significant losses since
inception. As of December 31, 2009, Lightyear had a members’ deficit
of approximately $25.8 million. While our plan is to reduce our losses in future
years, we may continue to incur losses in the current year and possibly
thereafter. Such losses would have an adverse effect on our
stockholders’ equity and working capital.
Because
of the various risks and uncertainties associated with our business, we are
unable to predict the extent of any future losses or when we will become
profitable, if at all. Unless we are able to
secure financing or start to become profitable, we may be forced to cease
operations or to seek insolvency protection.
To Fund Its Working Capital
Deficiency and Capital Expenditures, Lightyear Will Require a Significant Amount
of Cash, and the Ability to Generate Cash Depends on Many Factors Beyond
Lightyear’s Control.
Lightyear’s
ability to fund its working capital deficiency and capital expenditures will
depend upon future operating performance and on the ability to generate cash
flow in the future, which are subject to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond
Lightyear’s control. The business may not generate sufficient cash flow from
operations, and future borrowings may not be available in an amount sufficient
to enable Lightyear to fund its liquidity needs. If the cash flow from operating
activities is insufficient, Lightyear may take actions, such as delaying or
reducing capital expenditures, selling assets or operations or seeking debt
financing or additional equity capital. Any or all of these actions may be
insufficient to allow Lightyear to fund its capital needs. Further, Lightyear
may be unable to take any of these actions on commercially reasonable terms, or
at all. If Lightyear is unable to fund its working capital needs,
Lightyear may be forced to cease operations or to seek insolvency
protection.
Recent Disruptions in the Financial
Markets Could Affect Lightyear’s Ability to Obtain Debt or Equity Financing On
Reasonable Terms (or At All), and Have Other Adverse
Effects.
Lightyear
will need to raise significant capital to finance business expansion
activities. Its ability to raise debt or equity capital in the
public or private markets could be impaired by various factors. For example,
U.S. credit markets have in the past 18 months experienced significant
dislocations and liquidity disruptions which have caused the spreads on
prospective debt financings to widen considerably. These circumstances have
materially impacted liquidity in the debt markets, making financing terms for
borrowers less attractive, and in certain cases have resulted in the
unavailability of certain types of debt financing. Continued uncertainty in the
credit markets may negatively impact the ability to access debt financing. These
events in the credit markets have also had an adverse effect on other financial
markets in the U.S., which may make it more difficult or costly to raise capital
through the issuance of other equity securities. Any of these risks
could impair Lightyear’s ability to fund operations or limit its ability to
expand its business, which could have a material adverse effect on financial
results.
Lightyear’s
Revenues for VoIP and Wireless Services are Subject to Letter Agreements Which
are Likely to Reduce Lightyear’s Profitability
In consideration of their lending funds
to LYH for investment in its VoIP and wireless services products, LYH and
Lightyear executed letter agreements with each of the Lightyear directors (or an
entity which they control) (the “Lenders”) providing
for, in addition to principal and interest payments on LYH’s accompanying notes,
an amount each month equal to 4.0% of the gross commissionable monthly revenue
from the sales of VoIP service offerings and 3.0% of the gross commissionable
monthly revenue from the sales of wireless service
offerings. The wireless letter agreements have a term of ten
years, from 2008, and the VoIP letter agreements have a term of ten years, from
2004, unless such agreements are terminated early due to a sale of all or
substantially all of LYH. Upon an early termination event, Lightyear
would be obligated to pay the respective Lender a termination fee in the amount
of the sum of the payments under each contract for the immediately preceding
twelve full months.
9
Immediately
before the closing of the Exchange Transaction, LYH, Lightyear and each of the
Lenders entered into a modification agreement, pursuant to which the
wireless and VoIP letter agreements were modified to: release and discharge LYH
from all obligations under such agreements; acknowledge the release of Lightyear
from the duty to pay payments under the agreements for 2009; state that the
Exchange Transaction does not constitute a sale transaction triggering a
termination payment; and, state the parties’ intent that, after closing the
Exchange Transaction, the parties will negotiate in good faith for purchase the
letter agreements from the Lenders. Such a purchase, or the failure
of such a purchase, may have an adverse impact on the market price of New
Lightyear Common Stock.
The
Company Has Historically Generated a Large Part of its Wireless Revenue from its
Relationship with Telispire and Its Wireless Growth Prospects Depend on
Continuing a Satisfactory Relationship with Telispire.
Lightyear’s
relationship with Telispire accounted for a majority of the Company’s wireless
revenues for the year ended December 31, 2009. The growth that the Company
expects from its wireless business is a significant part of its overall business
plan. The loss of revenues that are derived from our relationship
with Telispire, or any event, occurrence or development which adversely affects
the Company’s relationship with Telispire, would materially harm the Company’s
business and growth prospects.
Lightyear May Not Be Successful in
Increasing Its Customer Base Which Would Negatively Affect Its Business Plans
and Financial Outlook.
Lightyear’s
growth generally reflects seasonal trends in customer activity, promotional
activity, competition in the telecommunications market, pace of new product
launches, and varying national economic conditions. Lightyear’s current business
plans assume that it will increase its customer base over time, providing
Lightyear with increased economies of scale. If Lightyear is unable to attract
and retain a growing customer base, its current business plans and financial
outlook may be harmed.
Entities
controlled by our director and Chief Executive Officer, J. Sherman Henderson,
and our director, W. Brent Rice, have pledged shares equating to 40%
of our direct parent’s securities as collateral for a loan.
LANJK,
LLC, a Kentucky limited liability company which is 100% owned by Judy Henderson,
the wife of our director and Chief Executive Officer, J. Sherman Henderson, and
which is managed by Mr. Henderson, has pledged a 30% equity interest of our
direct parent, LYH, as collateral for a loan (the “Sullivan Loan”), the
proceeds of which were used by LYH for working capital and other general capital
purposes. The creditor on the Sullivan Loan is Chris T. Sullivan,
also a director of Lightyear. Upon the occurrence of an event of default, Mr.
Sullivan would be entitled to declare the loan immediately due and payable and
enforce on the collateral.
Rice-LY,
LLC, a Kentucky limited liability company, which is managed by W. Brent Rice,
also a Lightyear director, has pledged a 10% equity interest in LYH as
collateral for the Sullivan Loan.
SullivanLY,
LLC, a Nevada limited liability company controlled by Mr. Sullivan, currently
owns 30% of the equity of LYH. If, pursuant to an event of default,
Mr. Sullivan declared the Sullivan Loan immediately due and payable, Lightyear’s
management believes that LYH may not currently be able to obtain the funds to
pay the outstanding principal and interest thereon. In that event,
Mr. Sullivan could foreclose on the collateral and would then control 70% of
LYH. Lightyear’s management cannot predict how such a change in
control would affect Lightyear or the value of New Lightyear Common
Stock.
10
Business Could Be Adversely Affected
By General Economic Conditions; If Lightyear Experiences Low Rates of Customer
Acquisition or High Rates of Customer Turnover, Its Ability to Become Profitable
Will Decrease.
Business
could be adversely affected in a number of ways by general economic conditions,
including interest rates, consumer credit conditions, unemployment and other
macro-economic factors. The recession that began in the last quarter of 2007 may
also affect the Company’s ability to gain new customers or the ability of
existing customers to pay for their service. In addition, Lightyear’s rate of
customer acquisition and turnover may be affected by other factors, including
the size of its calling areas, network performance and reliability issues,
handset or service offerings (including the ability of customers to
cost-effectively roam onto other wireless networks), customer care concerns,
phone number portability, and other competitive factors. A high rate of customer
turnover or low rate of new customer acquisition would reduce revenues and
increase the total marketing expenditures required to attract the minimum number
of customers required to sustain the business plan which, in turn, could have a
material adverse effect on the business, financial condition and results of
operations.
In
September 2009 one of Lightyear’s largest customers, Southeast Telephone, Inc.,
filed for Chapter 11 bankruptcy protection. Southeast Telephone owed
Lightyear approximately $355,000 at the time of such filing and it is unclear
what amount, if any, Lightyear will receive with respect to this pre-petition
claim. Lightyear continues to provide services to Southeast
Telephone, and has obtained a deposit from Southeast Telephone for such
services.
Increasing Competition Could Have a
Material Adverse Effect on Demand for the Products and Services Offered by the
Company.
The
telecommunications industry is very competitive. In general, Lightyear competes
with national facilities-based wireless providers and their prepaid affiliates
or brands, local and regional carriers, non-facilities-based mobile virtual
network operators, VoIP service providers and traditional landline service
providers.
Many of
these competitors often have greater name and brand recognition, access to
greater amounts of capital and established relationships with a larger base of
current and potential customers. Because of their size and bargaining power,
larger competitors may be able to purchase equipment, supplies and services at
lower prices than Lightyear can.
These
competitors may also offer potential customers more features and options in
their service plans than those currently provided by Lightyear, as well as new
technologies and/or alternative delivery plans.
These
competitive offerings could adversely affect Lightyear’s ability to maintain
pricing and increase or maintain market penetration and may have a material
adverse effect on financial results.
Failure
to Keep Pace with Rapidly Changing Markets for Wireless Communications would
Significantly Harm the Company’s Business.
The
technology and markets for wireless communications services change
rapidly. The Company’s success depends, in part, on its ability to
respond and adapt to change. The Company cannot guarantee that it
will be able to compete effectively under, or adjust its contemplated plan of
development to meet, changing market conditions. The Company cannot
guarantee that it will be able to implement its strategy or that its strategy
will be successful in these rapidly evolving markets. The markets for
wireless communications services are also marked by the continuous introduction
of new products and services and increased capacity for services similar to
those the Company provides. Technological advances may also increase
the efficiency of existing products or services. If a technology
becomes available that is more cost-effective or creates a superior product, the
Company may be unable to access this technology or finance the necessary
substantial capital expenditures that may be required. The Company’s
technology may be rendered less profitable or less viable by existing, proposed
or as yet undeveloped technologies. The Company cannot guarantee that
it will have the financial and other resources available to compete effectively
against companies possessing such technologies. The Company cannot guarantee
that it can adapt to technological changes or offer products or services on a
timely basis to establish or maintain a competitive position.
11
If Lightyear Is Unable to Manage
Planned Growth, Its Operations Could Be Adversely Impacted.
Lightyear
has experienced substantial growth in a relatively short period of time, and it
expects to continue to experience growth in the future in existing and new
markets. The management of such growth will require, among other things,
continued development of financial and management controls and management
information systems, stringent control of costs and handset inventories,
diligent management of network infrastructure and its growth, increased spending
associated with marketing activities and acquisition of new customers, the
ability to attract and retain qualified management personnel and the training of
new personnel. In addition, continued growth will eventually require the
expansion of billing, customer care and sales systems and platforms, which will
require additional capital expenditures and may divert the time and attention of
management personnel who oversee any such expansion. Furthermore, the
implementation of any such systems or platforms, including the transition to
such systems or platforms from existing infrastructure, could result in
unpredictable technological or other difficulties. Failure to successfully
manage expected growth and development, to enhance processes and management
systems or to timely and adequately resolve any such difficulties could have a
material adverse effect on Lightyear’s business, financial condition and results
of operations.
The Loss of Key Personnel and
Difficulty Attracting and Retaining Qualified Personnel Could Harm The
Business.
It is
believed that Lightyear’s success depends heavily on the contributions of its
employees and on attracting, motivating and retaining officers and other
management and technical personnel. If they are unable to attract and retain the
qualified employees that they need, the business may be harmed. The loss of key
individuals in the future may have a material adverse impact on Lightyear’s
ability to effectively manage and operate its business.
Risks Associated With Wireless
Handsets Could Pose Product Liability, Health and Safety Risks That Could
Adversely Affect Its Wireless Business.
Lightyear
does not manufacture the handsets or other equipment that it sells and generally
relies on its suppliers to provide it with safe equipment. Lightyear’s suppliers
are required by applicable law to manufacture their handsets to meet certain
governmentally imposed safety criteria. However, even if the handsets it sells
meet the regulatory safety criteria, Lightyear could be held liable, along with
the equipment manufacturers and suppliers, for any harm caused by products it
sells if such products are later found to have design or manufacturing defects.
Lightyear generally has indemnification agreements with the manufacturers who
supply it with handsets to protect it from direct losses associated with product
liability, but it cannot guarantee that it will be fully protected against all
losses associated with a product that is found to be defective.
Media
reports have suggested that the use of wireless handsets may be linked to
various health concerns, including cancer, and may interfere with various
electronic medical devices, including hearing aids and pacemakers. Certain class
action lawsuits have been filed in the industry claiming damages for alleged
health problems arising from the use of wireless handsets. In addition, interest
groups have requested that the FCC investigate claims that wireless technologies
pose health concerns and cause interference with airbags, hearing aids and other
medical devices. The media has also reported incidents of handset battery
malfunction, including reports of batteries that have overheated. Malfunctions
have caused at least one major handset manufacturer to recall certain batteries
used in its handsets, including batteries in a handset sold by Lightyear and
other wireless providers.
Concerns
over radio frequency emissions and defective products may discourage the use of
wireless handsets, which could decrease demand for Lightyear’s wireless
services. In addition, if one or more Lightyear customers were harmed by a
defective product provided to them by the manufacturer and subsequently sold in
connection with its services, Lightyear’s ability to add and maintain customers
for Lightyear service could be materially adversely affected by negative public
reactions.
There are
also some safety risks associated with the use of wireless handsets while
driving. Concerns over these safety risks and the effect of any legislation that
has been and may be adopted in response to these risks could limit Lightyear’s
ability to sell wireless service.
12
Lightyear Relies Heavily on Third
Parties to Provide Specialized Services, so that a Failure by Such Parties to
Provide the Agreed Upon Services Could Materially Adversely Affect the Business,
Results of Operations and Financial Condition.
Lightyear
depends heavily on suppliers and contractors with specialized expertise in order
to efficiently operate its business. If key suppliers, contractors or
third-party agents fail to comply with their contracts, fail to meet performance
expectations or refuse or are unable to supply Lightyear in the future, business
could be severely disrupted. Because of the costs and time lags that can be
associated with transitioning from one supplier to another, business could be
substantially disrupted if Lightyear were required to replace the products or
services of one or more major suppliers with products or services from another
source, especially if the replacement became necessary on short notice. Any such
disruption could have a material adverse affect on Lightyear’s business, results
of operations and financial condition.
System Failures Could Result in
Higher Churn, Reduced Revenue and Increased Costs, and Could Harm Lightyear’s
Reputation.
Lightyear’s
technical infrastructure (including functions such as service activation,
billing and customer care) is vulnerable to damage or interruption from
technology failures, power loss, floods, windstorms, fires, human error,
terrorism, intentional wrongdoing, or similar events. Unanticipated problems at
its facilities, system failures, hardware or software failures, computer viruses
or hacker attacks could affect the quality of services and cause network service
interruptions. If any of the above events were to occur, Lightyear could
experience higher churn, reduced revenues and increased costs, any of which
could harm its reputation and have a material adverse effect on
business.
Lightyear and Its Suppliers May Be
Subject to Claims of Infringement Regarding Telecommunications Technologies That
Are Protected By Patents and Other Intellectual Property
Rights.
Telecommunications
technologies are protected by a wide array of patents and other intellectual
property rights. As a result, third parties may assert infringement claims
against Lightyear or its suppliers from time to time based on general business
operations, the equipment, software or services that are used or provided, or
the specific operation of Lightyear’s wireless networks. Lightyear
generally has indemnification agreements with the manufacturers, licensors and
suppliers who provide it with the equipment, software and technology that it
uses in its business to protect it against possible infringement claims, but
Lightyear cannot guarantee that it will be fully protected against all losses
associated with infringement claims. Lightyear’s suppliers may be subject to
infringement claims that could prevent or make it more expensive for them to
supply Lightyear with the products and services required to run Lightyear’s
business.
If Lightyear Experiences High Rates
of Credit Card, Subscription or Dealer Fraud, Its Ability to Generate Cash Flow
Will Decrease.
Lightyear’s
operating costs can increase substantially as a result of customer credit card,
subscription or dealer fraud. Lightyear has implemented a number of strategies
and processes to detect and prevent efforts to defraud it, and it believes that
its efforts will substantially reduce these types of fraud. However,
if its strategies are not successful in detecting and controlling fraud in the
future, the resulting loss of revenue or increased expenses could have a
material adverse impact on Lightyear’s financial condition and results of
operations.
Officers,
Directors and Affiliated Entities Have Substantial Influence over Lightyear’s
Affairs, and Ownership of Lightyear’s Direct Parent Is Highly
Concentrated.
Lightyear’s
directors and entities affiliated with its directors in the aggregate
beneficially own a majority of the equity of Lightyear. These individuals have
direct influence over all matters requiring approval by Lightyear’s
shareholders. These individuals will be able to influence the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of Lightyear’s assets and other matters. This concentration of
ownership could have the effect of delaying, deferring or preventing a change in
control or impeding a merger or consolidation, takeover or other business
combination.
13
Federal
and State Telecommunications Regulations May Limit Lightyear’s Business
Flexibility and Increase Costs.
Lightyear
is regulated by the FCC as a non-dominant carrier subject to regulation under
the Communications Act of 1934, as amended, with respect to its interstate
services, including the use of its local phone lines and Integrated Access
services to originate or terminate interstate long-distance calls for other
carriers. The FCC requires all telecommunications service providers, including
non-dominant carriers such as Lightyear, to maintain authorizations to provide
or resell domestic long distance and international services. The FCC generally
has the power to modify or terminate a carrier’s authority to provide domestic
long distance or international services for failure to comply with federal laws
or FCC regulations and may impose fines or other penalties for violations. In
addition, the FCC maintains jurisdiction to act upon complaints filed against
any telecommunications service provider for failure to comply with statutory or
regulatory obligations.
In most
states, Lightyear may not begin to provide local and intrastate
telecommunications services until it obtains a certificate of public convenience
and necessity from the state public utility commission and complies with
applicable state regulations, including, in most states, the requirement to file
tariffs setting forth the Company’s terms and conditions for providing services.
Certificates of authority can be conditioned, modified, canceled, terminated or
revoked by state regulatory authorities for a carrier’s failure to comply with
state laws or rules, regulations and policies of state regulatory authorities.
State utility commissions generally have authority to supervise
telecommunications service providers in their states and to enforce state
utility laws and regulations. Fines or other penalties also may be imposed for
violations.
Both the
FCC and the state public utility commissions have the legal authority to
regulate Lightyear’s prices for telecommunications services within their
respective jurisdictions. In practice, because the services Lightyear offers
generally are competitive, pricing is usually not restricted by regulators.
However, the FCC and several states have adopted rules prohibiting Lightyear
from increasing its prices for some services above the levels charged by the
incumbent local telephone companies for the same services.
Both the
FCC and the state public utility commissions typically require Lightyear to file
periodic reports, pay various regulatory fees and assessments, and comply with
regulations governing service quality, billing, consumer protection and other
similar issues. Because complying with these regulations can be costly and
burdensome, the imposition of new regulations by the FCC or in a particular
state may adversely affect the profitability of Lightyear’s
services.
Several
of the states in which Lightyear operates require public utility commission
approval before the transfer of a carrier’s authority to operate within the
state, the transfer of its assets to a new entity, or a change in the control of
an entity that controls a carrier operating within the state. The FCC also
prohibits carriers from selling, assigning, or transferring control of their
interstate and international operating authorizations without its prior
approval. Some states also regulate a carrier’s issuance of securities,
incurrence of debt, or pledges of security in support of such debt. These
requirements can delay, and increase the cost to complete, various financing
transactions, including future stock or debt offerings, the sale of part or all
of the regulated business, or the acquisition of assets and other entities to be
used in the regulated business. The Company contemplates that
consummation of the Exchange Transaction will require approval by the FCC and
the public utility commissions in some states.
The
regulatory framework under which Lightyear operates is subject to change by new
federal or state legislation, regulatory agency decisions, and court rulings.
Changes in regulation could affect Lightyear’s ability to raise or lower prices,
to introduce new services, or to enter new markets, as well as affecting the
cost of the underlying services that Lightyear resells and the prices for
regulated services offered by larger carriers against which Lightyear competes.
Also, compliance with changes in regulation may increase Lightyear’s cost of
operations. Any of these factors may affect Lightyear’s profit margins in ways
that are impossible to predict.
14
Lightyear
relies on other carriers to provide it with critical parts of its network under
a regulatory framework that may change.
Lightyear
does not own its own network; rather, it purchases services and facilities from
other telecommunications carriers to resell to its customers. In some cases,
Lightyear depends on existing laws and regulations that require incumbent local
exchange carriers to provide particular services and facilities to competitive
carriers and that control the prices that the incumbent carriers may charge for
these services. Regulatory developments may reduce the extent to which incumbent
carriers are required to lease these network facilities to Lightyear or may
permit incumbent carriers to increase the prices they charge for such lines or
impose unacceptable terms and conditions. Changes in law or regulation could
limit or terminate Lightyear’s affordable access to the network components it
needs to provide voice and data services.
Failure
to Obtain Approval From State Public Utility Commissions Before Completing the
Transaction Could Result in Civil and Criminal Fines, Penalties, Revocation of
Authority to Provide Telecommunications Services or Could Void the Exchange
Transaction
The
Federal Communications Commission (FCC) and certain state laws and rules require
that regulated telecommunications utilities such as Lightyear provide notice to
or obtain prior approval of the FCC or applicable state public utility
commission or similar state regulatory agency (State PUC) before completing a
direct or indirect transfer of control, which in some states is defined as a
transfer of as little as ten percent of the company’s ownership or a corporate
restructuring that results in a change in the regulated utility’s direct or
indirect holding company. We will comply with the post-closing notice
obligations imposed by the FCC on this type of transaction and have also
notified the State PUCs where we operate of the Exchange Transaction but we have
not sought or obtained prior approval from any State PUC. Should a
State PUC find that approval was required to complete the Exchange Transaction,
we may not be successful in obtaining such approvals following completion of the
Exchange Transaction. Failure to have obtained such approval before
closing could also result in imposition of fines on the Company and, although
not generally assessed for such violations, could also result in revocation of
the Company’s authorization to provide telecommunications services in the state
or that transactions completed without the prior approval of the State PUC are
void or in other cases voidable by the State PUC.
Failure
to Comply with Laws or Regulations Could Result in Fines and Harm Lightyear’s
Financial Condition.
The FCC
has established a universal service subsidy regime known as the “Universal
Service Fund,” which provides subsidies for the provision of telecommunications
and information services to rural and other high-cost areas. Providers of
interstate telecommunications services such as Lightyear must pay contributions
that fund these subsidies. The FCC currently assesses Universal Service Fund
contributions based on a percentage of each telecommunications provider’s
projected interstate and international telecommunications gross revenue from
sales to end users. Carriers are permitted to pass through their Universal
Service Fund contribution assessment to their customers in a manner consistent
with FCC billing regulations. The FCC also imposes other periodic fees based on
revenue on carriers like Lightyear.
The FCC
is addressing ways to revise the manner in which carriers are required to make
contributions to the Universal Service Fund. The proposals pending
before the FCC related to Universal Service Fund reform are expected to generate
considerable debate and their outcome is not predictable. In addition, various
states maintain, or are in the process of implementing, their own universal
service programs. Rising universal service obligations may increase Lightyear’s
overall costs. Further, if the FCC were to determine that Lightyear has not
properly reported its gross revenues from telecommunication services or has not
paid all universal service contributions for which it is liable, Lightyear could
be subject to substantial penalties and fines.
In
July 2008, the Enforcement Bureau of the FCC notified Lightyear that it was
investigating allegations that Lightyear may have violated certain FCC rules
related to the payment of regulatory fees since January
2005. Lightyear responded to the data request in September 2008 and
provided information concerning Lightyear’s Universal Service Fund contributions
and other regulatory fees. Lightyear has not received a response from
the FCC. Lightyear believes that it has paid all applicable regulatory
fees.
15
Federal regulations protect the privacy
of certain subscriber data that telecommunications carriers such as Lightyear
acquire in the course of providing their services. This information is referred
to as “Customer Proprietary Network Information,” or “CPNI,” and includes
information related to the quantity, technological configuration, type,
destination and the amount of use of a communications service. FCC rules require
all telecommunications carriers to adopt safeguards to prevent unauthorized
release of customer information and impose restrictions on the use of CPNI for
marketing purposes. Federal regulations also require Lightyear to provide
certain technical capabilities in its network, including its VoIP services, to
enable law enforcement agencies to monitor communications using its services
when authorized by a subpoena or other court order. If Lightyear is unable to
comply with a law enforcement agency's request for network access, or for
specific information about communications using its services, due to its failure
to maintain the required technical capabilities, it could be subject to FCC
enforcement action and potential financial penalties.
Lightyear is also required to comply
with various other FCC regulations affecting its services, such as rules
prescribing the manner and form of its bills. A violation of any of these
regulatory requirements by Lightyear could subject it to significant fines or
other regulatory penalties, up to and including the revocation of its ability to
provide services as a telecommunications carrier.
Lightyear’s
E-911 VoIP Calling Services May Expose it to Significant Liability.
Lightyear’s
E-911 calling service for its VoIP services is different, in significant
respects, from the emergency calling services offered by traditional wireline
telephone companies. In each case, those differences may cause significant
delays, or even failures, in callers’ receipt of the emergency assistance they
need.
The FCC
has issued several orders and regulations since 2005 requiring VoIP providers to
ensure their customers receive emergency services and E-911
services. Lightyear utilizes a nationally recognized third-party
provider to furnish emergency services and E-911 services to its VoIP customers
and Lightyear believes that it is in compliance will all applicable orders and
regulations related to providing emergency services and E-911 services. However,
failure to comply with FCC regulations requiring provision of E-911 emergency
calling could subject Lightyear to fines and penalties, including disconnection
of our service to certain customers and prohibitions on marketing of our
services and accepting new customers in certain areas.
Traditional
wireline telephone companies route emergency calls over a dedicated
infrastructure directly to an emergency services dispatcher at the Public Safety
Answering Point (PSAP) in the caller’s area. Generally, the dispatcher
automatically receives the caller’s phone number and actual location
information. In certain circumstances with Lightyear’s E-911 service, the
dispatcher may not receive the caller’s information. In addition, the
only location information that Lightyear’s E-911 service can transmit to a
dispatcher at a PSAP is the information that the customers have registered with
Lightyear. A customer’s registered location may be different from the customer’s
actual location at the time of the call because customers can use their
Lightyear VoIP devices to make calls almost anywhere a broadband connection is
available.
Delays
that Lightyear customers encounter when making emergency services calls and any
inability of the answering point to automatically recognize the caller’s
location or telephone number can have devastating consequences. Some traditional
phone companies also may be unable to provide the precise location or the
caller’s telephone number when their customers place emergency calls. However,
traditional phone companies are covered by legislation exempting them from
liability for failures of emergency calling services and the Company is not.
This liability could be significant.
Inability
to Retain Existing Independent Agents and Representatives and to Recruit
Additional Agents and Representatives Could Result in Flat or Decreasing
Revenue.
Lightyear
distributes almost all of its products through independent agents and
representatives and it depends on them to generate virtually all of Lightyear’s
revenue. Agents and representatives that have committed time and effort to build
a sales organization will generally stay for longer periods. There is
a high rate of turnover among Lightyear’s representatives which is
characteristic of the Direct Sales business. As a result, in order to maintain
sales and increase sales in the future, Lightyear needs to continue to retain
existing agents and representatives and recruit additional agents and
representatives to increase Lightyear’s revenue.
16
Lightyear
has experienced periodic declines in both active agents and representatives in
the past. The number and productivity of Lightyear’s agents and representatives
also depends on several additional factors, including:
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Any
adverse publicity regarding Lightyear, its services, its distribution
channel, or its competitors;
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A
lack of interest in, or the technical failure of, existing or new
products;
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·
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The
public’s perception of Lightyear’s agents and
representatives;
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·
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The
public’s perception of the direct selling business in
general;
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·
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Lightyear’s
actions to enforce its policies and
procedures;
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|
·
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Any
regulatory actions or charges against Lightyear or others in the industry;
and
|
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·
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General
economic and business conditions.
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Improper Agent or Representative
Actions in Violation of Laws or Regulations Could Harm Lightyear’s Business.
Agent and
representative activities in Lightyear’s existing markets that violate
governmental laws or regulations could result in governmental actions against
Lightyear in markets where it operates, which would harm Lightyear’s
business. Lightyear’s agents and representatives are not employees
and act independently of Lightyear. Lightyear implements strict policies and
procedures to ensure its agents and representatives will comply with legal
requirements. However, given the size of Lightyear’s agent and representative
force, Lightyear does experience problems with agents and representatives from
time to time, which could result in a material adverse effect on Lightyear’s
business and results of operations.
Changes
to Lightyear’s Compensation Arrangements with its Agents and Distributors Could
Harm Agent and Representative Productivity.
Lightyear
modifies components of its compensation plan from time to time in an attempt to
keep its compensation plan competitive and attractive to existing and potential
agents and representatives, to address changing market dynamics, to provide
incentives to agents and representatives that Lightyear believes will help grow
the business, and to address other business needs. Because of the size of
Lightyear’s agent and representative force and the complexity of Lightyear’s
compensation plans, it is difficult to predict whether such changes will achieve
their desired results.
Adverse Publicity Could Harm
Lightyear’s Business and Reputation.
The size
of Lightyear’s distribution force and the results of Lightyear’s operations can
be particularly impacted by adverse publicity regarding Lightyear, the nature of
Lightyear’s agent and representative network, Lightyear’s products or the
actions of Lightyear’s agents or representatives. Specifically, Lightyear is
susceptible to adverse publicity concerning:
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·
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Suspicions
about the legality and ethics of network
marketing;
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·
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Regulatory
investigations of Lightyear or its
competitors;
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·
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The
actions of Lightyear’s current or former agents or representatives;
and
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·
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Public
perceptions of direct selling business
generally.
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17
Failure
of Lightyear’s Network Marketing Program to Comply with Laws and Regulations in
One or More Markets Could Prevent Lightyear from Conducting its
Business in those Markets.
Lightyear’s
direct sales/network marketing program is subject to a number of federal and
state regulations administered by the FTC and various state agencies in the
United States. Lightyear is subject to the risk that, in one or more markets,
its direct sales/network marketing program could be found not to be in
compliance with applicable law or regulations. Regulations applicable to network
marketing organizations generally are directed at preventing fraudulent or
deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by
ensuring that product sales ultimately are made to consumers and that
advancement within an organization is based on sales of the organization’s
products rather than investments in the organization or other non-retail
sales-related criteria. The regulatory requirements concerning network marketing
programs do not include “bright line” rules and are inherently fact-based, and
thus, even in jurisdictions where Lightyear believes that its network marketing
program is in full compliance with applicable laws or regulations governing
network marketing systems, Lightyear is subject to the risk that these laws or
regulations or the enforcement or interpretation of these laws and regulations
by governmental agencies or courts can change. The failure of Lightyear’s
network marketing program to comply with current or newly adopted regulations
could negatively impact Lightyear’s business in a particular market or in
general.
Lightyear
is also subject to the risk of private party challenges to the legality of its
network marketing program. The multi-level marketing programs of other companies
have been successfully challenged in the past, resulting in monetary damages and
injunctive relief.
Lightyear
May Be Held Responsible for Taxes and Assessments Relating to the Activities of
Its Agents and Representatives.
Lightyear’s
agents and representatives are subject to taxation, and in some instances,
legislation or governmental agencies impose an obligation on Lightyear to
collect taxes, such as value added taxes, and to maintain appropriate records.
In addition, Lightyear is subject to the risk in some jurisdictions of being
responsible for social security and similar taxes with respect to Lightyear’s
agents and representatives. If local laws and regulations or the interpretation
of local laws and regulations change to require Lightyear to treat its
independent agents and representatives as employees, or if Lightyear’s agents or
representatives are deemed by local regulatory authorities in one or more of the
jurisdictions in which Lightyear operates to be employees rather than
independent contractors under existing laws and interpretations, Lightyear may
be held responsible for social security and related taxes in those
jurisdictions, plus any related assessments and penalties, which could harm
Lightyear’s financial condition and operating results.
Current
Insurance May Not Provide Adequate Levels of Coverage Against
Claims.
Lightyear
currently maintains insurance customary for businesses of its size and type.
However, there are types of losses Lightyear may incur that cannot be insured
against or that Lightyear believes is not economically reasonable to insure.
Such damages could have a material adverse effect on Lightyear’s business and
results of operations.
Risks
Relating To Ownership of New Lightyear Common Stock
There
May Not Be a Public Market for New Lightyear Common Stock; Restrictions on
Resale.
Before
the Securities Exchange there was no public trading market for New Lightyear
Common Stock. A trading market may never develop in New Lightyear
Common Stock. Investors must be prepared to bear the economic risk of
holding the securities for an indefinite period of time.
18
The
price of New Lightyear Common Stock may fluctuate significantly.
Stock of public companies can
experience extreme price and volume fluctuations. These fluctuations often have
been unrelated or out of proportion to the operating performance of such
companies. Lightyear expects its stock price to be similarly volatile. These
broad market fluctuations may continue and could harm Lightyear’s stock price.
Any negative change in the public’s perception of the prospects of Lightyear or
companies in Lightyear’s industry could also depress Lightyear’s stock price,
regardless of Lightyear’s actual results. Factors affecting the
trading price of Lightyear’s common stock may include:
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Ø
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variations
in operating results;
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Ø
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announcements
of technological innovations, new products or product enhancements,
strategic alliances or significant agreements by Lightyear or by
competitors;
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Ø
|
recruitment
or departure of key personnel;
|
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Ø
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litigation,
legislation, regulation or technological developments that adversely
affect Lightyear’s business; and
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Ø
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market
conditions in Lightyear’s industry, the industries of its customers and
the economy as a whole.
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Further,
the stock market in general, and securities of microcap companies in particular,
can experience extreme price and volume fluctuations. Continued market
fluctuations could result in extreme volatility in the price of New Lightyear
Common Stock, which could cause a decline in the value of New Lightyear Common
Stock. You should also be aware that price volatility might be worse if
the trading volume of New Lightyear Common Stock is low.
Shares
eligible for future sale may adversely affect the market price of our Common
Stock.
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of Common Stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act, subject
to certain limitations. Any substantial sale of New Lightyear Common Stock
pursuant to Rule 144 may have an adverse effect on the market price of New
Lightyear Common Stock.
New
Lightyear Common Stock may be subject to Penny Stock Rules, which could affect
trading.
Broker-dealer practices in
connection with transactions in “penny stocks” are regulated by certain rules
adopted by the SEC. Penny stocks generally are equity securities with
a price of less than $5.00, subject to exceptions. The rules require that a
broker-dealer, before a transaction in a penny stock not otherwise exempt from
the rules, deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction and monthly
account statements showing the market value of each penny stock held in the
customer’s account. In addition, the rules generally require that
before a transaction in a penny stock the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser’s written agreement to the
transaction. These disclosure requirements may have the effect of
reducing the liquidity of penny stocks. If New Lightyear Common Stock
becomes subject to the penny stock rules, holders of New Lightyear Common Stock
or other Lightyear securities may find it more difficult to sell their
securities.
The market price of New Lightyear
Common Stock is uncertain.
Before the Securities Exchange there
was no public trading market for New Lightyear Common Stock. We cannot predict
the prices at which New Lightyear Common Stock will trade. The price
per share implied in the Securities Exchange transaction was determined through
negotiations with Libra Alliance Corp. and it may not bear any relationship to
the market price at which New Lightyear Common Stock will trade after the
Securities Exchange or to any other established criteria of its
value. It is possible that in some future period Lightyear’s
operating results may be below the expectations of public market analysts and
investors and, as a result of these and other factors, the price of New
Lightyear Common Stock may fall.
19
If
Lightyear fails to maintain the adequacy of our internal control, our ability to
provide accurate financial statements and comply with the requirements of the
Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price
to decrease substantially.
Because Lightyear operated as a
private company without public reporting obligations before the Securities
Exchange, Lightyear had limited personnel and resources to apply to the
development of the external reporting and compliance obligations that would be
required of a public company. Lightyear has taken and will continue to
take measures to address and improve its financial reporting and compliance
capabilities and it is in the process of instituting changes to satisfy its
obligations in connection with joining a public company, when and as such
requirements become applicable to it. Before taking these
measures, Lightyear did not believe it had the resources and capabilities to do
so. Lightyear plans to obtain additional financial and accounting resources to
support and enhance its ability to meet the requirements of being a public
company. Lightyear will need to continue to improve its financial and managerial
controls, reporting systems and procedures, and documentation thereof. If
Lightyear’s financial and managerial controls, reporting systems or procedures
fail, it may not be able to provide accurate financial statements on a timely
basis or comply with the Sarbanes-Oxley Act of 2002. Any failure of Lightyear’s
internal controls or its ability to provide accurate financial statements could
cause the trading price of New Lightyear Common Stock to decrease
substantially.
FINANCIAL
INFORMATION
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and
analysis of the results of operations and financial condition of Lightyear for
the years ended December 31, 2009 and 2008 should be read in conjunction with
our financial statements and the notes to those financial statements that are
included elsewhere in this Current Report on Form 8-K/A. References in
this Management’s Discussion and Analysis of Financial Condition and Results of
Operations to “us,” “we,” “our,” and similar
terms refer to Lightyear. References to LYH refer to our parent, LY
Holdings, LLC. This discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties, such as plans,
objectives, expectations and intentions. Actual results and the timing of events
could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors. Words such as “anticipate,”
“estimate,” “plan,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”
“may,” “will,” “should,” “could,” and similar expressions are used to identify
forward-looking statements.
Overview
Lightyear
provides telecommunications services throughout the United States primarily
through a distribution network of authorized agents. In addition to
long distance and local service, we currently offer a wide array of
telecommunications products and services including internet/intranet, calling
cards, advanced data, conferencing, VoIP services and wireless
services.
Lightyear
intends to increase its revenue and earnings via a combination of organic and
acquisition growth. Our growth strategy is to acquire multiple small
to mid-sized competitors and thereby aggregate revenue. Each series
of acquisitions will be followed by a period of integration and
consolidation. Potential acquisition candidates are expected to meet
specific criteria including the following:
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Accretive
to earnings in the first year;
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·
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Trained
technical staff meeting Lightyear’s internal requirements and the
requirements of Lightyear’s customers;
and,
|
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·
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Strategic
locations throughout the US where Lightyear has and/or anticipates
significant demand for its service
offerings.
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20
We also
intend to expand our revenue base from agents through creative marketing and
incentive plans, new carrier partnerships and to enhance our wireless, VoIP and
enhanced data products to complement our history of selling landline
services.
Revenues
Revenues
consist primarily of sales of telecommunications products and services including
long distance and local service, internet/intranet, calling cards, conferencing
services, VoIP services and wireless telephone sales and services.
Gross
Profit
Gross
profit represents revenues, less the cost of revenues incurred to provide
services to our customers. Cost of revenues consist primarily of
carrier access fees, network costs and usage fees associated with providing our
wholesale telecommunications services.
Operating
Expenses
Operating
expenses include commission expense which consists of monthly payments to agents
based on a percentage of the monthly billings and upfront payments to agents at
the time the customer was acquired. Operating expenses also include
selling, general and administrative expenses which consist of salaries and
benefits, advertising, marketing and promotion, rent associated with our office
space, professional fees, travel and entertainment, and other
costs.
Other
Income (Expense)
Interest
income represents interest earned on advances to agents and deposits with our
carriers. Interest expense primarily represents interest associated
with our debt obligations to LYH, which arose as a result of financings
conducted by LYH in order to fund our operations. Amortization of
deferred financing costs represents the charging off of the costs associated
with LYH’s convertible note and warrant offering over the term of the notes, or
until they are converted, whichever is earlier. Amortization of debt discount
represents the charging off of the value of the conversion option of the notes
and the related warrants over the term of the notes, or until they are
converted, whichever is earlier. Change in fair value of derivative liabilities
represents the mark-to-market of the value of LYH’s derivative liabilities
(various warrants and conversion options).
Results
of Operations
Recent
Developments
See
“Recent Developments” in the “Liquidity and Capital Resources”
section.
Comparison
of Years Ended December 31, 2009 and 2008
Revenues
Revenues
for the years ended December 31, 2009 and 2008 were approximately $55.4 million
and $57.4 million, respectively, a decrease of $2.0 million or 4%.
Voice revenues decreased $3.1 million or 12%, to $23.0 million from $26.1
million. Local service revenues decreased $2.0 million or 19%, to $8.7 million
from $10.7 million. The decrease in voice and local revenues is primarily
due to many small and medium business customers moving to integrated solutions
that combine voice, local and data into one VoIP solution for a much lower
cost. Also many residential customers are abandoning their local lines and
moving to wireless only service. VoIP revenues decreased $1.2 million or
20%, to $4.7 million from $5.9 million. While business VoIP revenues are
up, our residential VoIP revenues are down, due to a shift in sales focus from
VoIP to wireless service. Data revenues decreased $0.8 million or
14%, to $4.8 million from $5.6 million, due to the loss of a large frame relay
customer. Wireless revenues increased $6.0 million or 823%, to $6.7
million from $0.7 million, due to the rollout of our wireless product in late
2009.
21
Gross Profit
Cost of
revenues for the years ended December 31, 2009 and 2008, amounted to
approximately $36.9 million (67% of revenues) and $36.8 million (64% of
revenues), respectively, an increase of $0.1 million or less than
1%. Cost of revenues as a percentage of revenues rose slightly due to
increased market pressures on the pricing of our products.
Operating
Expenses
Commission
expenses decreased $1.6 million to $5.3 million (10% of revenues) from $6.9
million (12% of revenues). Commission expenses as a percentage of
revenue were lower for 2009 due to a decline in sales of higher commission
products and waivers of 2009 override payments to the members of LYH related to
VoIP and wireless revenues. Depreciation and amortization expense
decreased by $0.3 million or 45%, to $0.5 million from $0.8 million, due to the
fact that most intangible assets with finite lives were fully amortized as of
March 2009. Bad debt expense increased by $3.0 million or 353% to
$3.8 million from $0.8 million, as a result of significant
uncollectible receivables associated with the launch of our post paid wireless
product, which ultimately resulted in our shifting our focus to a prepaid
product. Selling, general and administrative expenses decreased by
$0.3 million or 2% to $12.7 million from $13.0 million.
Other
Income (Expense)
Interest income decreased $0.1 million
or 57%, to $0.1 million from $0.2 million, due to a one-time interest
reimbursement in 2008. Interest expense decreased $0.2 million or
57%, to $1.9 million from $2.1 million, due to a decline in the average prime
rate during the period, partially offset by increased
borrowings. LYH’s 2009 convertible note and warrant offering to
finance our operating activities resulted in $0.2 million of expense associated
with amortization of deferred financing costs and $0.3 million of expense
associated with amortization of debt discount being recorded on our books, plus
$0.3 million of income associated with the mark-to-market of LYH’s derivative
liabilities associated with the conversion options and warrants in that
financing.
Liquidity
and Capital Resources
Recent
Developments
Commencing
in May and November of 2009, LYH raised aggregate gross proceeds of
approximately $5.1 million from offerings of convertible notes and
warrants. The net proceeds (after various financing costs and
repayment of certain obligations) from these financings were downstreamed to
Lightyear in order to fund operations.
On February 12, 2010, LYH entered into
a master transaction agreement (the “Exchange Agreement”)
with Libra Alliance Corporation, a public company (“Libra”), and holders
of LYH’s convertible promissory notes. LYH has agreed to contribute
its interest in Lightyear to Libra, in exchange for a combination of 10,000,000
shares of common stock and 9,500,000 shares of preferred stock in
Libra. In addition, LYH’s convertible note holders agreed
to contribute their modified notes to Libra in exchange for an aggregate of
3,242,533 shares of common stock of Libra. As of March 26, 2010,
there were 18,747,533 shares of Libra common stock outstanding.
Pursuant
to the Exchange Transaction, the convertible note holders agreed to modify their
notes (or, in certain cases, rescind the sales of such notes) to: (1) waive and
delete the conversion features of the convertible notes; (2) waive any interest
accrued and modify the interest provisions to provide for a five percent
interest rate; (3) release the guaranty of Lightyear; (4) waive the events of
default defined in the convertible notes; (5) extend the maturity date of the
modified notes to December 31, 2011; and, (6) terminate the warrants and the
rights to obtain warrants that were issued concurrently with the convertible
notes.
Separately,
in December 2009, Lightyear entered into a short term revolving secured
factoring agreement to provide an advance of up to $500,000. Our
advances were repaid in full and this arrangement was cancelled effective
February 8, 2010.
22
On March
17, 2010, Lightyear Network Solutions, LLC (“Lightyear”), the wholly owned
subsidiary of Libra Alliance Corporation (the "Company") entered into a
$1,000,000 secured promissory note (the "Note") with First Savings Bank, F.S.B.
(the “Bank”), of Clarksville, Indiana. Amounts available under the
Note are for general corporate purposes. As of March 26, 2010,
Lightyear has borrowed $500,000 under the Note.
Under the Note, which will mature on
March 30, 2011, Lightyear may borrow up to the full principal amount of the
Note, from time to time, through June 16, 2010. Borrowings under the
Note will bear interest at a rate equal to the Prime Rate, as reported in the
Wall Street Journal, plus 4.0%, but the rate will never be less than
7.25%. Lightyear must make monthly payments of accrued but unpaid
interest through June 30, 2010. Thereafter, Lightyear must make
monthly payments of accrued but unpaid interest plus monthly principal payments
in the amount of $111,112, unless and until the outstanding principal balance of
the Note is paid in full. In addition to the payment described
hereinabove, Lightyear must apply to the payment of the principal balance of the
Note, fifty percent (50%) of all net proceeds, if any, in excess of $1,000,000
and up to $2,000,000 from the sale of equity securities of the Company, unless
and until the outstanding principal balance of the Note is paid in
full.
Borrowings
under the Note will be secured by a first priority perfected security interest
in all tangible and intangible assets of the Company, including Lightyear’s
lockbox account and its operating account, and by the personal guaranties of J.
Sherman Henderson III, and Ronald L. Carmicle. Mr. Henderson is President, Chief
Executive Officer and a director of the Company. Mr. Carmicle is a
director of the Company.
Overview
Since
Lightyear began operations in 2004, we have incurred significant operating
losses. As of December 31, 2009, Lightyear had an accumulated member’s deficit
of approximately $25.8 million. As a result, Lightyear has always closely
monitored its cash balances and operating costs in order to maintain an adequate
level of cash.
Historically,
Lightyear’s working capital has come from LYH and sometimes from operations.
Commencing in May and November of 2009, LYH conducted private placements of
convertible notes and warrants which generated gross proceeds of $5.1 million
with the net proceeds being provided to Lightyear. In connection with
the merger with Libra, Lightyear’s debt and interest obligations to LYH were
extinguished.
The
Company’s growth plans include a combination of organic and acquisition
growth. The Company’s acquisition strategy is to acquire multiple
small to mid-sized competitors and thereby aggregate
revenue. Lightyear is currently investigating the capital markets for
additional financings in order to help fund such acquisitions.
We have
instituted cost reductions, raised our customer credit requirements, and
increased our efforts to increase revenues through targeted promotions; all
toward the goal of achieving positive cash flow from operations with the coming
twelve months.
Years
Ended December 31, 2009 and 2008
Operating
Activities
Net cash used in operating activities
was $2.0 million for the year ended December 31, 2009 compared to $0.7 million
for the year ended December 31, 2008. The 2009 amount was primarily
due to a $4.0 increase in gross accounts receivable and a $1.1 million cash loss
from operations, partially offset by a $2.1 million increase in accounts payable
and a $1.3 million increase in interest payable to LYH. The 2008
amount was primarily due to a $1.1 million cash loss from operations and a $1.0
decrease in other liabilities, partially offset by a $0.6 million increase in
accounts payable, a $0.5 million increase in interest payable to LYH and a $0.4
million decrease in other assets.
Investing Activities
Net cash used in investing activities
was $0.1 million for the year ended December 31, 2009 compared to $0.3 million
for the year ended December 31, 2008. During both periods, the usage
of cash was primarily related to the purchase of property and
equipment.
23
Financing Activities
Net cash provided by financing
activities was $2.1 million for the year ended December 31, 2009 compared to $0.3 million
for the year ended December 31, 2008. The 2009 amount was primarily
due to $3.0 million of net proceeds received by Lightyear after LYH’s issuance
of convertible notes and warrants, plus $0.5 million of short-term financing
proceeds, partially offset by repayments of loans payable to LYH of $1.0 million
and costs associated with the convertible note and warrant offering of $0.3
million. The 2008 amount was primarily due to $0.9 million of
proceeds from LYH financing, partially offset by $0.5 million of repayments to
LYH.
Off-Balance
Sheet Arrangements
As of
December 31, 2009, the Company has provided irrevocable standby letters of
credit, aggregating approximately $125,000 to five states and one vendor, which
automatically renew for terms not longer than one year, unless notified
otherwise. As of December 31, 2009, these letters of credit had not been
drawn upon.
Critical
Accounting Estimates and Judgments
Estimates
The preparation of consolidated
financial statements in accordance with accounting principles generally accepted
in the United States of America requires our 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Our
significant estimates include the reserves related to receivables, plus the
recoverability and useful lives of long lived assets.
Principles of
Consolidation
The balance sheet, results of
operations and cash flows of our wholly-owned subsidiary, (which has limited
activity), Lightyear Alliance of Puerto Rico, LLC, have been included in
our consolidated financial statements. All intercompany accounts and
transactions have been eliminated.
Accounts Receivable
We have established an allowance for
doubtful accounts sufficient to cover probable and reasonably estimable
losses. The allowance for doubtful accounts considers a number of
factors, including collection experience, current economic trends, estimates of
forecasted write-offs, aging of the accounts receivable portfolios, industry
norms, regulatory decisions and other factors. Our policy is to fully
reserve all accounts that are 180-days past due. Accounts are written
off after use of a collection agency is deemed to be no longer
useful.
Property and Equipment
Property and equipment is recorded at
cost less accumulated depreciation and amortization. Depreciation and
amortization is computed on a straight-line basis over the estimated useful
lives of the assets. Improvements to leased assets or fixtures are amortized
over their estimated useful lives or lease period, whichever is shorter. Leased
property meeting certain criteria is capitalized and the present value of the
related payments is recorded as a liability. Depreciation of capitalized leased
assets is computed on the straight-line method over the term of the lease. Upon
retirement or other disposition of these assets, the costs and related
accumulated depreciation and amortization of these assets are removed from the
accounts and the resulting gains or losses are reflected in the consolidated
results of operations. Expenditures for maintenance and repairs are charged to
operations as incurred. Renewals and betterments are capitalized.
24
Intangible Assets
Intangible assets with definite lives
are recorded at cost less accumulated amortization. Amortization is
computed on a straight-line basis over the lives of the intangible assets. We
recognize certain intangible assets acquired in acquisitions, primarily
goodwill, proprietary technology, trade names, covenants not to compete,
customer relationships, agent relationships and VoIP licenses.
Impairment of Long-Lived
Assets
We have reviewed the carrying value of
goodwill, intangibles and other long-lived assets for impairment at least
annually or whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by comparing the carrying amount of the asset or asset group
to the undiscounted cash flows that the asset or asset group is expected to
generate. If the undiscounted cash flows of such assets are less than the
carrying amount, the impairment to be recognized is measured by the amount by
which the carrying amount of the property, if any, exceeds its fair market
value.
Inventories
We maintain inventories consisting of
wireless telephones and telecommunications equipment which are available for
sale. Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method. The Company continually analyzes
its slow-moving, excess and obsolete inventories. Products that are
determined to be obsolete are written down to net realizable value.
Revenue Recognition
Telecommunications services income such
as access revenue and usage revenue are recognized on the accrual basis as
services are provided. In general, access revenue is billed one month in advance
and is recognized when earned. Wireless handheld devices are sold at a discount
when bundled with a long-term wireless service contract. We recognize the
equipment revenue and associated costs when title has passed and the equipment
has been accepted by the customer. We provide administrative and support
services to its agents and pays commissions based on revenues from the agents’
accounts. Amounts invoiced to customers in advance of services are reflected as
deferred revenues.
Recognition of agent fees and interest
income on the related notes receivable is limited to amounts recognizable under
the cost-recovery method on an individual agent basis.
In addition, we have the right to
offset commissions earned with uncollectible accounts receivable attributed to a
specific agent or with past due notes receivable payments, up to certain
specified percentages of such uncollectible accounts receivable and up to 100
percent of past due notes receivable payments. We believe our
allowances for doubtful accounts and notes receivable, combined with our ability
to offset agents’ commissions, are adequate to provide for uncollectible
receivables.
Cost of revenue represents primarily
the direct costs associated with the cost of transmitting and terminating
traffic on other carriers’ facilities.
Commissions paid to acquire customer
call traffic are expensed in the period when associated call revenues are
recognized.
25
Income Taxes
Lightyear is organized as a partnership
for income tax purposes. No income tax liability or benefit has been included in
the consolidated financial statements since our taxable income or loss passes
through to, and is reportable by, the members of LYH, individually. Lightyear is
subject to certain state and local taxes. Effective January 1, 2009,
we adopted accounting guidance which clarifies the accounting for uncertainty in
income taxes recognized in our consolidated financial statements and prescribes
a recognition threshold and measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The guidance also provides direction on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The adoption of these provisions did not have a
material impact on our consolidated financial position and results of
operations.
Derivative Liabilities
We are recording amortization of debt
discount, amortization of deferred financing costs and change in fair value of
derivative warrants as a result of derivative liabilities being recorded on the
books and records of LYH which relate to debt obligations it shares with LYH.
LYH’s derivative liabilities consist of embedded derivatives associated with
convertible promissory notes and warrants, where the conversion feature is not
fixed. The accounting treatment of derivative liabilities requires that LYH
record the derivatives at their fair values as of the inception date and at each
subsequent balance sheet date. Any change in fair value will be recorded as
non-operating, non-cash income or expense on our books at each reporting date.
We utilized an expected volatility figure based on a review of the historical
volatilities, over a period of time, equivalent to the expected life of these
convertible promissory notes and warrants, of similarly positioned public
companies within our industry.
We are
recording amortization of deferred financing costs as a result of cash costs
incurred and derivative liabilities on the books of LYH. Deferred financing
costs resulted from LYH’s financing activities. These costs are being amortized
over the term of the related debt.
DIRECTORS
AND EXECUTIVE OFFICERS
In
this discussion of “Directors and Executive Officers,” unless otherwise noted or
required by the context, references to “the Company,” “us,” “we,” “our,” “Lightyear” and
similar terms refer to New Lightyear, as defined above, which is comprised of
Libra and the operating business of Lightyear, as described above, after the
consummation of the Securities Exchange.
Before
the closing of the Securities Exchange Agreement, April Erickson and Anthony S.
Clayton served as directors of the Company. Upon closing of the
Securities Exchange Agreement, Anthony S. Clayton resigned as a director of
Libra and J. Sherman Henderson III was appointed to serve as a
director. On March 4, 2010, 10 days after we filed an information
statement on Schedule 14f-1 pursuant to Section 14 of the Securities Exchange
Act of 1934 (the “Exchange Act”) and
the transmission of the information statement to all holders of record of Libra
Common Stock: the resignation of April Erickson as a director became effective;
the number of directors was increased to five; and Chris T. Sullivan, Ronald L.
Carmicle, W. Brent Rice, and Rigdon O. Dees III were appointed as directors
until the next annual meeting of shareholders or until the director’s earlier
death, resignation or removal.
The directors and executive officers
of Lightyear and their respective ages, positions and biographical information
are set forth below. Our executive officers are chosen by the board of
directors and serve at its discretion. There
are no existing family relationships between or among any of our executive
officers or directors.
26
Name
|
Age
|
Position Held
|
Director/Officer Since
|
|||
J.
Sherman Henderson III
|
67
|
Director,
President and Chief Executive Officer
|
February
12, 2010
|
|||
Chris
T. Sullivan
|
62
|
Director
|
March
4, 2010
|
|||
W.
Brent Rice
|
56
|
Director
|
March
4, 2010
|
|||
Ronald
L. Carmicle
|
61
|
Director
|
March
4, 2010
|
|||
Rigdon
O .Dees III
|
60
|
Director
|
March
4, 2010
|
|||
Elaine
G. Bush
|
53
|
Chief
Financial Officer
|
February
12, 2010
|
|||
Stephen
M. Lochmueller
|
57
|
Chief
Operating Officer
|
February
12, 2010
|
|||
John
J. Greive
|
44
|
Vice
President of Regulatory Affairs and General Counsel
|
February
12, 2010
|
The board
of directors has determined that none of the directors are considered
independent. The board of directors has adopted the NASDAQ rules
regarding director independence which define persons as “independent” who are
neither officers nor employees of the company and have no relationships that, in
the opinion of the board, would interfere with the exercise of independent
judgment in carrying out their responsibilities as directors.
Directors
J. Sherman “Sherm” Henderson
III
Sherm Henderson has been a director of
LYH and President and Chief Executive Officer of Lightyear since 2004 and serves
in those same capacities with Lightyear. Mr. Henderson has more
than 36 years of business experience, including company ownership, sales,
marketing and management. His experience in the telecommunications industry
began in 1986 when he oversaw Charter Network, a long-distance carrier serving
the Midwestern United States. Mr. Henderson founded UniDial in 1993
and just finished serving his sixth term as chairman of COMPTEL, the
leading telecom industry association comprised of more than 400 member
companies. Mr. Henderson is a graduate of Florida State University,
with a B.A. degree in Business Administration. Mr. Henderson is also
a director of Beacon Enterprise Solutions Group, Inc. and serves on that
company’s compensation committee.
In 2000,
UniDial changed its name to Lightyear Communications, Inc. On April 29, 2002,
Lightyear Communications, Inc. (and its parent company Lightyear Holdings,
Inc.) filed for
bankruptcy to reorganize under Chapter 11 but sold its assets. In
2004, LYH acquired the majority of the operating assets of the predecessor
companies for total consideration of approximately $37 million.
Mr. Henderson brings to the Board
extensive experience in the telecommunications industry. Also, his intimate
knowledge of the Company allows him to provide a unique understanding of Company
operations to the Board.
27
Chris T. Sullivan
Chris T. Sullivan has been a director
of LYH since 2004 and serves in that capacity with Lightyear. Mr.
Sullivan is a founder of the Outback Steakhouse restaurant company which opened
its first store in 1988 and, until 2007 served as CEO and Chairman of the Board
of OSI Restaurant Partners, Inc. Mr. Sullivan is currently employed
by KHI Holdings LLC and MVP Holdings LLC. Both companies are
privately owned, and Mr. Sullivan serves on the boards of both. Mr.
Sullivan is a graduate of the University of Kentucky with a degree in Business
and Economics.
Mr. Sullivan brings to the Board
entrepreneurial success. As a founder and former chairman of Outback
Steakhouse, Mr. Sullivan provides to the Board an entrepreneurial spirit and
strong business acumen.
W. Brent Rice
W. Brent Rice has been a director of
LYH since 2003 and serves in that capacity with Lightyear. Mr. Rice
is an attorney, a long-time partner in the firm of McBrayer, McGinnis, Leslie
and Kirkland in Lexington, Kentucky, and a real estate developer. His
practice is concentrated in business law, utility law, sports and entertainment,
and governmental relations. Mr. Rice received his undergraduate
degree from the University of Kentucky and his law degree from the University of
Louisville Law School.
Mr. Rice’s legal background brings a
different perspective to the Board. His expertise in business and
utility law provides the Board important governance and regulatory
experience.
Ronald L. Carmicle
Ronald L. Carmicle has been a director
of LYH since 2004 and serves in that capacity with Lightyear. Mr.
Carmicle has been the President of River City Development Corporation for over
30 years. River City specializes in the construction and installation
of brick, concrete block, limestone and architectural precast. Mr.
Carmicle currently serves as Chairman of Central Bank of Jefferson County,
Chairman of Construction Training Institute, Vice Chair of the Kentucky State
Fair Board, and Board Member of Daniel Pitino Foundation. Mr.
Carmicle is a graduate of Western Kentucky University.
Mr. Carmicle brings extensive
leadership experience as an executive and a director of a private
company. He also provides the Board with his experience gained as a
director of several non-profit companies.
Rigdon O. “Rick” Dees III
Rick Dees has been a director of LYH
since 2004 and serves in that capacity with Lightyear. Mr. Dees is a
world renowned radio and comedic performer. His internationally syndicated
radio show, the Rick Dees Weekly Top 40, is heard each weekend by more than 70
million people around the world. Mr. Dees also currently hosts a morning
radio show in Southern California. Mr. Dees has garnered many accolades,
including a Grammy Award nomination, Billboard Radio Personality of the Year ten
years in a row, the Marconi Award, the National Radio Hall of Fame, and his
induction into the National Association of Broadcasters’ Hall of Fame. Mr.
Dees graduated from the University of North Carolina at Chapel Hill with a
bachelor’s degree in Radio, TV and Motion Pictures, and is an inductee in the
North Carolina Broadcast Hall of Fame.
Mr. Dees brings a wealth of diverse
knowledge to the Board. Mr. Dees’ experience as both an entertainer
and business person provides the Board with a unique leadership
perspective.
Executive
Officers
J. Sherman “Sherm” Henderson III –
Chief Executive Officer and President
See biographical information in the
section of this Current Report on Form 8-K/A entitled, “Directors,”
above.
28
Elaine G. Bush - Chief Financial
Officer
Elaine Bush has been Lightyear’s Chief
Financial Officer since its inception and remains in that position at
Lightyear. Ms. Bush began her career with UniDial in 1993 as a
consultant setting up the company’s accounting system and department. In 1996,
she joined the company as Controller. Ms. Bush is a Certified Public Accountant
with over 25 years of experience. Ms. Bush has operated her own accounting
consultancy and held positions of progressive responsibilities at other
companies. She received her B.S. in Accounting at the University of
Louisville.
Stephen M. Lochmueller – Chief
Operating Officer
Stephen Lochmueller has been Chief
Operating Officer of Lightyear since 2009 and remains in that position at
Lightyear. Mr. Lochmueller has more than 30 years of
entrepreneurial business experience. His management and leadership skills
include startups, multi-channel distribution, P & L, turnarounds and
executive level oversight. His entry into the telecommunications industry began
in 1985 when he joined McCaw Cellular as a General Manager. In late 1992, Mr.
Lochmueller was appointed as the Commonwealth of Kentucky’s Technology &
Communications Liaison to state agencies by then governor Brereton
Jones. In late 1993, Mr. Lochmueller became Vice-President of Horizon
Cellular until he was recruited to be an Area General Manager for startup Nextel
Partners. In the early 2000s, Mr. Lochmueller served as Regional Vice President
for Leap Wireless, a spin-off of Qualcomm. Mr. Lochmueller is a graduate of the
University of Kentucky with a BGS degree.
John J. Greive - Vice President of
Regulatory Affairs & General Counsel
John Greive has been Vice President of
Regulatory Affairs and General Counsel of Lightyear since its inception and
remains in that position at Lightyear. Mr. Greive also serves as Lightyear’s
Corporate Secretary. Before joining UniDial in 1996, he was a partner at
Chandler, Saksefski & Greive and worked as an associate in the corporate
section of a mid-sized law firm in Louisville. Mr. Greive has remained with the
Lightyear entities since 1996. Mr. Greive received his B.S. in Mathematics from
Bellarmine University and his Juris Doctor from the University of
Louisville.
29
EXECUTIVE
COMPENSATION
In
this discussion of “Executive Compensation,” unless otherwise noted or required
by the context, references to “ the Company ,” “ us ,” “ we ,” “ our ,” “
Lightyear ” and similar terms refer to New Lightyear, as defined above, which is
comprised of Libra and the operating business of Lightyear, as described above,
after the consummation of the Securities Exchange.
Executive
Officer Compensation
Lightyear’s CEO and President, J.
Sherman Henderson III, had an employment agreement with Lightyear Network
Solutions, LLC which has been assumed by Libra. The terms of
Mr. Henderson’s employment agreement are outlined below.
Ms. Bush’s annual salary for the
year ended December 31, 2009 was $129,600 (reduced from $144,000 on July 19,
2009). Ms. Bush’s annual salary for the year ended December 31, 2008
was $144,000.
Mr. Lochmueller’s current annual
salary is $180,000. Mr. Lochmueller was hired as Chief Operating
Officer of Lightyear on September 1, 2009.
Mr. Greive’s annual salary for the
year ended December 31, 2009 was $117,900 (reduced from $131,000 on July 19,
2009 Mr. Greive’s annual salary for the year ended December 31, 2008 was
$131,000 (increased from $125,000 on April 8, 2008).
John S. “Josh” Henderson, IV
formerly served as Lightyear’s Senior Vice President of Sales and
Marketing. Mr. Henderson’s salary for the year ended December 31,
2008 was $134,400. Mr. Henderson’s salary was decreased to $120,960
on July 19, 2009, and he separated from employment with Lightyear on a mutually
agreed basis on October 9, 2009.
Retirement
or Change of Control Arrangements
Other
than the severance provisions of Mr. Henderson’s employment agreement described
below, we have not entered into any contract, agreement, plan or arrangement,
written or unwritten, that provides for payments to a named executive officer at
or in connection with the resignation, retirement or other termination of a
named executive officer, of a change in control of Libra or a change in the
named executive officer’s responsibilities following a change in
control.
Pledged
Securities
Pursuant
to the Master Note, as defined herein, LYH has pledged all of its shares of
Libra Common Stock and of Libra Convertible Preferred Stock as a subordinated
security interest in its obligations under the Master Note.
Rice-LY Ventures, LLC, a Kentucky
limited liability company managed by W. Brent Rice, has pledged 1,250,000
shares, a 10% beneficial interest, of LYH as collateral on an $8,000,000 loan
made to LYH by Chris T. Sullivan, a member of LYH.
LANJK, LLC, a Kentucky limited
liability company managed by J. Sherman Henderson III and wholly owned by Judy
Henderson, Mr. Henderson’s wife, has pledged 3,750,000 shares, a 30% beneficial
interest, of LYH as collateral on an $8,000,000 loan made to LYH by Chris T.
Sullivan.
30
Summary
Compensation Table
The
following Summary Compensation Table indicates the cash and non-cash
compensation earned during the years ended 2009 and 2008 by the Executive
Officers from Lightyear Network Solutions, LLC:
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||
J.
Sherman Henderson III,
|
2009
|
$ | 343,615 | $ | 0 | $ | 60,375 | (1)(2)(3) | $ | 403,990 | ||||||||
President,
CEO
|
2008
|
$ | 360,000 | $ | 0 | $ | 58,477 | (1)(2)(3) | $ | 418,477 | ||||||||
Elaine
G. Bush,
Chief
Financial Officer
|
2009
|
$ | 138,294 | $ | 0 | $ | 0 | $ | 138,924 | |||||||||
2008
|
$ | 144,000 | $ | 11,280 | $ | 0 | $ | 155,280 | ||||||||||
Stephen
M. Lochmueller,(4)
Chief
Operating Officer
|
2009
|
$ | 48,461 | $ | 0 | $ | 0 | $ | 48,461 | |||||||||
2008
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
John
J. Greive,
Vice
President of Regulatory
|
2009
|
$ | 125,458 | $ | 0 | $ | 2,262 | (3) | $ | 127,720 | ||||||||
Affairs/General
Counsel
|
2008
|
$ | 129,384 | $ | 8,460 | $ | 5,175 | (3) | $ | 143,020 | ||||||||
Josh
Henderson,
Sr.
Vice President, Sales and
|
2009
|
$ | 105,452 | $ | 0 | $ | 129,042 | (5) | $ | 234,494 | ||||||||
Marketing
|
2008
|
$ | 130,523 | $ | 11,794 | $ | 67,273 | (5) | $ | 209,590 |
(1)
|
Includes
an automobile allowance of $13,690 per
year.
|
(2)
|
Includes
$39,828 and $35,587 for
life insurance paid for 2009 and 2008,
respectively.
|
(3)
|
Includes
matching Company contribution for 401(k)
plan.
|
(4)
|
Mr.
Lochmueller was hired September 1,
2009.
|
(5)
|
Monies
were paid to Rover One, LLC through its Direct Sales Agreement with
Lightyear as explained in more detail in the section of this Current
Report on Form 8-K/A entitled “Certain Relationships and Related
Transactions-Josh Henderson.”
|
Outstanding
Equity Awards at Fiscal Year-End
No equity was awarded by either Libra
Alliance Corp. or Lightyear during the years 2009 or 2008 and no equity awards
were outstanding on December 31, 2009 or 2008.
Directors'
Compensation
The following table summarizes
compensation paid to non-employee directors of Lightyear for 2009 and
2008.
Director
Compensation Table
Name
|
Year
|
Fees
Earned
or
Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred Compensation Earnings
|
All
Other Compensation
($)
|
Total
($)
|
||||||||||||||||||||||
Ron
Carmicle
|
2009
|
$ | 10,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 10,000 | |||||||||||||||
2008
|
$ | 10,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 10,000 |
Lightyear has agreed to pay Ron
Carmicle $1,500 per board meeting for a total amount of compensation of not less
than $10,000 per year.
31
Employment
Agreements
J. Sherman Henderson III
Under the
2003 Employment Agreement between J. Sherman Henderson III and Lightyear, a copy
of which is attached to this Current Report on Form 8-K/A as Exhibit 10.1, Mr.
Henderson is to receive an annual salary of $450,000 and certain benefits
(including the use of an automobile and life insurance, as well as participation
in the Company’s executive benefit plans). However, pursuant to a
letter (the “Waiver
Letter”) from Mr. Henderson to Lightyear, attached to this Current Report
on Form 8-K/A as Addendum No. 1 to Exhibit 10.1, Mr. Henderson has agreed to
salary reductions in January 2008, July 2009 and December 2009, resulting in an
annual base salary for 2010 of $294,000. Also, pursuant to the Waiver
Letter, Mr. Henderson has waived any back pay which may have resulted from his
reduction in salary.
Mr.
Henderson’s employment agreement initially expired on December 31, 2008 but
contains a provision automatically renewing for successive one-year
terms. The current term began on January 1, 2010. While
the agreement contemplates that Mr. Henderson would be eligible for bonuses
calculated in accordance with the achievement of certain revenue targets, no
bonus plan is currently in place for Mr. Henderson. Mr. Henderson
will receive continuation of his salary for an eighteen month severance period
in the event of his termination for reasons other than death or cause, or, in
the event of his disability, a severance amount equal to his salary multiplied
by the greater of (i) two or (ii) the number of years remaining in his
employment term.
401(k)
Plan
Lightyear maintains a profit-sharing
plan qualified under Section 401(k) of the Internal Revenue Code. The
Company may make discretionary matching contributions to the profit-sharing
plan, subject to certain limitations.
Other
Compensation
We provide our named executive
officers with medical, life, dental and vision insurance coverage consistent
with that provided to our other employees except that such executive officers
receive additional life insurance coverage. Mr. Henderson’s
employment agreement provides for $6,000,000 in life insurance of which Mr.
Henderson’s family or trusts may be the beneficiary.
32
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following tables set forth
information as of March 26, 2010 regarding beneficial ownership of Lightyear and
of LYH by the following groups: (i) each of our directors, (ii) each of our
named executive officers, (iii) all of our directors and named executive
officers as a group, and (iv) each stockholder known by us to be the beneficial
owner of more than 5% of the outstanding shares of our common
stock. Immediately before the Securities Exchange, none of our
directors and executive officers was the beneficial owner of any capital stock
of Libra.
The shares of Libra Common Stock
indicated as being owned by LYH in the following table include both shares of
Libra Common Stock directly owned and the right to receive shares of Libra
Convertible Preferred Stock pursuant to the Securities Exchange
Agreement. Each share of Libra Convertible Preferred Stock will be
entitled to the number of votes equal to the number of shares of Libra Common
Stock into which such holder’s shares of Libra Convertible Preferred Stock could
be converted, with the holders of the Libra Convertible Preferred Stock and the
Libra Common Stock voting together as a single class.
We have determined that none of our
directors or executive officers will be deemed individually to beneficially own
any shares of Libra Common Stock under Rule 13d-3 of the Exchange Act. For
investor information purposes, the table below includes the ownership positions
of our directors and executive officers in both Lightyear and LYH.
LYH may be deemed to be a "parent" of
the Company as such term is defined in the rules promulgated under the Exchange
Act. LYH's sole business currently is to hold shares of Lightyear.
The
Company
|
LYH
|
|||||||||||||||
Directors
and Executive Officers
|
Number
of
Shares
|
Parent
Ownership
(%)
|
Number
of
Shares
|
Parent
Ownership
(%)
|
||||||||||||
J.
Sherman Henderson, III (1)
|
- | 0 | % | 6,250,000 | 50 | % | ||||||||||
Chris
T. Sullivan (2)
|
- | 0 | % | 3,733,750 | 30 | % | ||||||||||
Brent
Rice (3)
|
- | 0 | % | 1,250,000 | 10 | % | ||||||||||
Ron
Carmicle
|
- | 0 | % | - | 0 | % | ||||||||||
Rigdon
Dees (4)
|
- | 0 | % | 1,000,000 | 8 | % | ||||||||||
Elaine
G. Bush
|
- | 0 | % | - | 0 | % | ||||||||||
Stephen
M. Lochmueller
|
- | 0 | % | - | 0 | % | ||||||||||
John
Greive
|
- | 0 | % | - | 0 | % | ||||||||||
Total
|
- | 0 | % | 12,333,750 | 98 | % |
The
Company
|
LYH
|
|||||||||||||||
5%
Beneficial Owners
|
Number
of
Shares
|
Parent
Ownership
(%)
|
Number
of
Shares
|
Parent
Ownership
(%)
|
||||||||||||
LY
Holdings, LLC
|
19,500,000 | 69 | % | - | 0 | % | ||||||||||
Total
|
19,500,000 | 69 | % | - | 0 | % |
(1)
|
Includes
6,250,000 units held by LANJK, LLC (a limited liability company in which
Judy Henderson, Mr. Henderson’s wife, owns 100% of the equity and which is
managed by Mr. Henderson)
|
(2)
|
Includes
3,733,750 units held by SullivanLY, LLC (a limited liability company
managed by Mr. Sullivan)
|
(3)
|
Includes
1,250,000 units held by Rice-LY Ventures, LLC (a limited liability company
managed by Mr. Rice)
|
(4)
|
Includes
1,000,000 units held by Telemix Investments, LLC (a limited liability
company managed by Mr. Dees)
|
33
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
This
section describes transactions with Lightyear that have occurred since the
beginning of the last fiscal year or are proposed with respect to which a
director or executive officer of Libra, a beneficial owner of more than 5% of
any class of the securities of Lightyear, or any member of the immediate
families of the foregoing persons had or will have a direct or indirect material
interest.
Lightyear
has not adopted policies and procedures for the review, approval, or
ratification of related party transactions; however, the Lightyear Board will
consider adopting such policies and procedures as are necessary and advisable in
the future to facilitate the management of Lightyear’s business.
U.S.
Fiber
J.
Sherman Henderson owns an indirect interest in a Lightyear agency by the name of
U.S. Fiber. U.S. Fiber has a standard Lightyear agent agreement and
it earned approximately $26,000 and $41,000 in commissions from Lightyear in
2009 and 2008, respectively.
Henderson
Life Insurance Policy
Pursuant
to J. Sherman Henderson’s Employment Agreement, the Company provides him with
life insurance coverage consisting of $3,000,000 under a whole life insurance
policy and $3,000,000 under a term life insurance policy. The Company also
maintains $5,000,000 in key man life insurance with the Company listed as the
beneficiary. The proceeds from the key man life insurance have been
assigned to Chris T. Sullivan as collateral for a debt owed by LYH.
Letter
Agreements
Wireless
In
consideration of their lending funds to LYH in July 2008, LYH and Lightyear
executed agreements (the “Wireless Letter
Agreements”) to pay each of the New Lightyear directors (or an entity
which they control) (the “Lenders”), in
addition to principal and interest payments on the accompanying notes, an amount
each month equal to a certain percentage of the gross commissionable monthly
revenue from the sales of wireless service offerings (the “Wireless Revenue
Payments”). The Wireless Letter Agreements have a term
of ten years unless terminated early due to a sale of all or substantially all
of LYH. Upon an early termination event, Lightyear would be obligated
to pay the respective Lender a termination fee in the amount of the sum of the
Wireless Revenue Payments for the immediately preceding twelve full
months. See the below schedule for amounts earned in 2009, none of
which has been paid.
A form of
Wireless Letter Agreement is attached to this Current Report on Form 8-K/A as
Exhibit 10.2.
Lender
|
Wireless
Percentage
|
Wireless
Revenue Payments
earned
– 2009
|
||||||
LANJK,
LLC
|
1.00 | % | $ | 26,490.69 | ||||
CTS
Equities*
|
0.50 | % | $ | 13,245.34 | ||||
Rice
Realty Company**
|
0.50 | % | $ | 13,245.34 | ||||
Rigdon
O. Dees III
|
0.50 | % | $ | 13,245.34 | ||||
Ronald
Carmicle
|
0.50 | % | $ | 13,245.34 |
*
|
CTS
Equities Limited Partnership is a Florida limited partnership of which
Chris T. Sullivan is the general
manager.
|
**
|
Rice
Realty Company, LLC is a Kentucky limited liability company owned and
managed by W. Brent Rice’s wife and two adult
children
|
34
VoIP
In
consideration of their lending funds to LYH in July 2004, LYH and Lightyear
executed agreements (the “VoIP Letter
Agreements.” and collectively with the Wireless Letter Agreements, the
“Letter
Agreements”) to pay each of the Lenders, in addition to principal and
interest payments on the accompanying notes, an amount each month equal to a
certain percentage of the gross commissionable monthly revenue from the sales of
products and services generated from VoIP (the “VoIP Revenue
Payments,” and collectively with the Wireless Revenue Payments, the
“Revenue
Payments”). The VoIP Letter Agreements have a term of
ten years unless terminated early due to a sale of all or substantially all of
LYH. Upon an early termination event, Lightyear would be obligated to
pay the respective Lender a termination fee in the amount of the sum of the VoIP
Revenue Payments for the immediately preceding twelve full
months. See the below schedule for amounts earned in 2009, none of which has been
paid.
A form of
VoIP Letter Agreement is attached to this Current Report on Form 8-K/A as
Exhibit 10.3.
Lender
|
VoIP
Percentage
|
VoIP
Revenue
Payments
earned
– 2009
|
||||||
LANJK,
LLC
|
0.50 | % | $ | 12,713.65 | ||||
CTS
Equities
|
0.50 | % | $ | 12,713.65 | ||||
Rice
Realty Company
|
0.50 | % | $ | 12,713.65 | ||||
Rigdon
O. Dees III
|
2.00 | % | $ | 50,854.56 | ||||
Ronald
Carmicle
|
0.50 | % | $ | 12,713.65 |
Modification
Agreements
Immediately
before the closing of the Exchange Transaction, LYH, Lightyear and each of the
Lenders entered into the First Modification to Letter Agreements, pursuant
to which the Letter Agreements were modified to: release and discharge LYH from
all obligations under the Letter Agreements; acknowledge the release of
Lightyear from the duty to pay Revenue Payments for 2009; and state that the
Exchange Transaction does not constitute a sale transaction. After
closing the Exchange Transaction, the Company intends to enter into good faith
negotiations for the purchase of the Letter Agreements.
LYH
Note
As
described above, pursuant to the Contribution, the LYH Debtholders contributed
the LYH Notes to the Company for 3,242,533 shares of Libra Common
Stock. For purposes of simplifying the obligations of LYH under this
transaction, the Company and LYH have agreed to combine the obligations under
the contributed LYH Notes into a master promissory note (the “Master Note,” attached to this
Current Report on Form 8-K/A as Exhibit 10.5), in the principal amount of
$5,149,980 and otherwise on the same terms as the LYH Notes.
Josh
Henderson
Since
2008, Josh Henderson, son of J. Sherman Henderson III, has maintained a
representative position in the Direct Selling channel through an entity he
controls by the name of Rover One, LLC. Rover One, LLC earned
$129,042 in commissions from Lightyear in 2009 and $67,273 in commissions from
Lightyear in 2008.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Libra
Common Stock is traded on the OTC.BB under the symbol “LBAL.OB”. There is
currently no established trading market for the Libra Common
Stock. As of March 26, 2010, Libra had 73 holders of record of Libra
Common Stock. Upon issuance of the Libra Convertible Preferred
Shares, LYH will be the only holder of Libra Convertible Preferred
Stock.
35
Transfer
Agent and Registrar
Standard
Registrar & Transfer Company, Inc. is the transfer agent and registrar of
Libra Common Stock.
Dividend
Policy
Libra
Alliance Corp. has not paid any cash dividends on its common stock to
date. Lightyear does not anticipate declaring or paying any
dividends on its common stock in the foreseeable future. Lightyear
anticipates that for the foreseeable future, Lightyear will follow a policy of
retaining earnings, if any, in order to finance the expansion and development of
its business. Payment of dividends will be within the discretion of Lightyear’s
board of directors and will depend upon earnings, capital requirements, and
operating and financial condition, among other factors.
RECENT
SALES OF UNREGISTERED SECURITIES
Reference
is made to Item 3.02 of this Current Report on Form 8-K/Afor a description
of recent sales of unregistered securities, which is hereby incorporated by
reference.
DESCRIPTION
OF CAPITAL STOCK
In
this discussion of the “Description of Capital Stock,” unless otherwise noted or
required by the context, references to “the Company,” “us,” “we,” “our,” and similar
terms refers to New Lightyear, as defined above, which is comprised of Libra and
the operating business of Lightyear, as described above, after the consummation
of the Securities Exchange.
Libra
Alliance Corp. is currently authorized under its Articles of Incorporation to
issue 20,000,000 shares of Libra Common Stock, par value $0.001 per
share. The authorization will increase to 70,000,000 shares in the
second quarter of 2010 upon the effectiveness of Libra’s Amended Articles of
Incorporation.
As of
March 26, 2010, there were 18,747,533 shares of Libra Common Stock issued and
outstanding.
In the
Securities Exchange, Libra agreed to issue 10,000,000 shares of Libra Common
Stock and 9,500,000 shares of preferred stock to LYH in exchange for all of the
outstanding equity in Lightyear. In addition, certain existing Libra
shareholders agreed to cancel approximately 895,000 of their outstanding shares
of Company Common Stock. Finally, pursuant to the Securities Contribution
Agreement, Libra agreed to issue 3,242,533 shares of Libra Common Stock to LYH's
Convertible Debtholders in exchange for the contribution of approximately
$5,150,000 of Modified Notes.
Pursuant
to the Securities Exchange Agreement and the LYH Consent, Libra’s Articles of
Incorporation will be amended to authorize a new series of preferred stock,
which will have the rights, privileges and preferences described in the
subsection entitled “Preferred Stock,” below. This preferred stock is
referred to as “Libra
Convertible Preferred Stock” throughout this Current Report on Form
8-K/A.
The
following descriptions of Libra Alliance Corp. capital stock are only summaries
and do not purport to be complete and are subject to and qualified by the
Articles of Incorporation, Libra’s Bylaws, and by the provisions of the
applicable corporate laws of the State of Nevada. Libra’s Bylaws are attached to
this Current Report on Form 8-K/A as Exhibit 3.2.
Common
Stock
Holders
of Libra Common Stock are entitled to one vote for each share held of record on
all matters submitted to a vote of the stockholders. Libra may pay
dividends at such time and to the extent declared by the board of directors in
accordance with Nevada corporate law. Libra Common Stock has no
preemptive or other subscription rights, and there are no conversion rights or
redemption or sinking fund provisions with respect to such shares. All
outstanding shares of Libra Common Stock are fully paid and non-assessable. To
the extent that additional shares of Libra Common Stock may be issued in the
future, the relative interests of the then existing stockholders may be diluted.
The rights, preferences and privileges of Libra Common Stock will be subject to
the rights, preferences and privileges of Libra Convertible Preferred Stock, as
described below.
36
Preferred
Stock
Before
the Securities Exchange, Libra had had no preferred stock authorized by its
Articles of Incorporation. After the Securities Exchange, Libra’s
Articles of Incorporation will be amended to authorize 9,500,000 shares of Libra
Convertible Preferred Stock. Each share of Libra Convertible
Preferred Stock will have the following rights, preferences and privileges,
including:
Stated Value
The stated value (“Stated Value”) of
Libra Convertible Preferred Stock will be $2.00 per share.
Dividends
The holders of Libra Convertible
Preferred Stock will be entitled to receive dividends at the rate of 5% of the
aggregate Stated Value of Libra Convertible Preferred Stock held by them per
annum, which shall accrue and be payable when, as and if declared by
the board of directors. If the Company fails to pay dividends on Libra Stock on
a quarterly basis, the dividend payment rate will increase to 8% per
annum with respect to dividends previously accrued and unpaid and any
future dividend payments, until such time as all accrued dividends have been
paid and distributed, at which time the rate of 5% per annum shall
resume.
Conversion
Libra Convertible Preferred Stock
will be convertible at any time or from time to time, in whole or in part, at
the option of the holder, into shares of Libra Common Stock (the “Conversion Shares”)
by multiplying the number of shares of Libra Convertible Preferred Stock being
converted by the Applicable Conversion Rate. The “Applicable Conversion
Rate” means the quotient obtained by dividing the Stated Value by the
then-current Optional Conversion Price. The “Optional Conversion
Price” will initially be equal to the Stated Value, and thereafter will
be adjusted as set forth below.
Holders of Libra Convertible Preferred
Stock will be required to convert Libra Convertible Preferred Stock into shares
of Libra Common Stock upon any of the following events:
|
·
|
An
underwritten or registered direct secondary public offering for not less
than $40 million of gross proceeds (a “Qualifying Secondary”) and the
Conversion Shares are (a) registered for resale, and (b) not subject to
any lock-up or other restriction on transfer following the 180th day from
closing of the Qualifying
Secondary;
|
|
·
|
Libra
Common Stock has for 20 consecutive trading days (a) closed at a price
equal to not less than 200% of the then Optional Conversion Price and (b)
traded not less than 500,000 shares per day;
or
|
|
·
|
Conversion
of at least 50% of the amount of Libra Convertible Preferred Stock
originally issued.
|
Adjustment
of the Optional Conversion Price
The Optional Conversion Price will be
adjusted ratably for all stock splits, stock dividends, reclassifications, or
similar events.
Liquidation Preference
In the event of a winding up,
dissolution or liquidation of Lightyear, or upon a Change of Control
transaction, the holders of the Libra Convertible Preferred Stock will receive
an amount per share equal to the greater of: (i) the Stated Value and any
accrued but unpaid dividends thereon; or (ii) the amount that would be received
by each share of Libra Common Stock, assuming the conversion of all outstanding
Libra Convertible Preferred Stock into Libra Common Stock before such occurrence
(the “Liquidation
Preference Amount”). A “Change of Control”
transaction (or series of related transactions) is a sale or transfer of all or
substantially all of the assets or equity of Lightyear, a merger or
consolidation or other acquisition transaction in which the shareholders of
Lightyear immediately preceding the transaction hold less than 50% of the shares
(calculated on an as-converted, fully diluted basis) of Lightyear immediately
after the transaction.
37
Voting Rights
On all matters submitted to the
stockholders for a vote, each holder of Libra Convertible Preferred
Stock will be entitled to the number of votes equal to the number of shares
of Libra Common Stock into which such holder’s shares
of Libra Convertible Preferred Stock could be converted into, with
the holders of the Libra Convertible Preferred Stock and
the Libra Common Stock voting together as a single
class.
Board Representation
For so long as at least 50% of
the Libra Convertible Preferred Stock originally issued is
outstanding, the Preferred Stockholders will be entitled to elect a majority of
the members of Lightyear’s board of directors.
Veto Rights
For so long as at least 50% of the
Libra Convertible Preferred Stock originally issued is outstanding, Lightyear
will not without the affirmative vote or written consent of holders of more than
50% of the then outstanding shares of Libra Convertible Preferred Stock voting
as a separate class:
·
|
Declare
or pay dividends to the holders of Libra Common Stock without paying, in
addition to dividends owed to Libra Convertible Preferred Stock, the
amount which the Preferred Stockholders would have received had their
Libra Convertible Preferred Stock been converted into Conversion Shares at
the Optional Conversion Price immediately before the record date for the
payment of such dividends.
|
·
|
Issue
any additional preferred stock ranking senior in right of liquidation to
the Libra Convertible Preferred
Stock.
|
·
|
Sell,
transfer, pledge or otherwise encumber any of Lightyear’s
assets.
|
·
|
Issue
any debt, secured or unsecured, of any kind in excess of the amount
outstanding as of February 12,
2010.
|
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Section 78.7502
of the Nevada Revised Statutes authorizes a court to award, or a corporation’s
board of directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit indemnification for liabilities, including
reimbursement for expenses incurred, arising under the Securities Act. This
indemnification may, however, be unenforceable as against public
policy.
As
permitted by Nevada law, the Articles of Incorporation of Libra
include:
|
·
|
a
provision that eliminates the personal liability of our directors and
officers for monetary damages for any action taken or failure to take any
action, as a director, except for acts or omissions that involve
intentional misconduct, fraud or a knowing violation of law;
and
|
|
·
|
a
provision which indemnifies our directors and officers, past, present and
future, against all costs, expenses and liabilities, including the amounts
of judgments, amounts paid in compromise settlements and amounts paid for
services of counsel and other related expenses which may be incurred by or
imposed on him in connection with any claim, action, suit, proceeding,
investigation or inquiry hereafter made, instituted or threatened in which
the director or officer may be involved as a party or otherwise by reason
of any past or future action taken or authorized and approved by him or
any omission to act as such officer or director, at the time if the
incurring or imposition of such costs, expenses or liabilities, except
such costs, expenses or liabilities as will relate to matters as to which
he shall in such action, suit or proceeding, be finally adjudged to be
liable by any reason of his negligence or willful misconduct toward the
Corporation or such other Corporation in the performance of his duties as
such officer or director, in the absence of final adjudication of the
existence of such liability, the board of directors and each officer and
director may conclusively rely upon an opinion of legal counsel selected
by or in the manner designed by the board of
directors.
|
38
As
permitted by Nevada law, the Bylaws of Libra provide:
|
·
|
Indemnification of
Directors. Unless otherwise provided in the Articles of
Incorporation, the corporation shall indemnify any individual made a party
to a proceeding because the individual is or was a director of the
corporation, against liability incurred in the proceeding, but only if
such indemnification is both (i) determined permissible and (ii)
authorized, as such are defined as
follows:
|
|
o
|
Determination of
Authorization. The corporation shall not indemnify a director under
this Section unless:
|
|
§
|
a
determination has been made in accordance with the procedures set forth in
the Nevada Revised Statutes that the director met the standard of conduct
set forth below, and
|
|
§
|
payment
has been authorized in accordance with the procedures set forth in the
Nevada Revised Statutes based on a conclusion that the expenses are
reasonable, the corporation has the financial ability to make the payment,
and the financial resources of the corporation should be devoted to this
use rather than some other use by the
corporation.
|
|
o
|
Standard of
Conduct. The director or officer shall demonstrate
that:
|
|
§
|
he
or she conducted himself in good faith;
and
|
|
§
|
he
or she reasonably believed:
|
|
·
|
in
the case of conduct in his official capacity with the corporation, that
his conduct was in its best
interests;
|
|
o
|
in
all other cases, that his conduct was at least not opposed to its best
interests; and
|
|
o
|
in
the case of any criminal proceeding, he or she had no reasonable cause to
believe his conduct was unlawful.
|
|
·
|
Indemnification in
Derivative Actions Limited. Indemnification permitted under the
Bylaws in connection with a proceeding by or in the right of the
corporation is limited to reasonable expenses incurred in connection with
the proceeding.
|
|
·
|
Limitation on
Indemnification. The corporation shall not indemnify a director
under the Bylaws:
|
|
o
|
in
connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation;
or
|
39
|
o
|
in
connection with any other proceeding charging improper personal benefit to
the director, whether or not involving action in his or her official
capacity, in which he or she was adjudged liable on the basis that
personal benefit was improperly received by the
director.
|
|
·
|
Advance of Expenses
for Directors. If a determination is made following the procedures
of the Statutes, that the director has met the following requirements, and
if an authorization of payment is made following the procedures and
standards set forth in the Nevada Revised Statutes, then unless otherwise
provided in the articles of incorporation, the corporation shall pay for
or reimburse the reasonable expenses incurred by a director who is a party
to a proceeding in advance of final disposition of the proceeding,
if:
|
|
o
|
the
director furnishes the corporation a written affirmation of his good faith
belief that he has met the standard of conduct described in this
section;
|
|
o
|
the
director furnishes the corporation a written undertaking, executed
personally or on his behalf, to repay the advance if it is ultimately
determined that he did not meet the standard of
conduct;
|
|
o
|
a
determination is made that the facts then known to those making the
determination would not preclude indemnification under the Bylaws or the
Nevada Revised Statutes.
|
|
·
|
Indemnification of
Officers, Agents and Employees Who Are Not Directors. Unless
otherwise provided in the articles of incorporation, the board of
directors may indemnify and advance expenses to any officer, employee, or
agent of the corporation, who is not a director of the corporation, to the
same extent as to a director, or to any greater extent consistent with
public policy, as determined by the general or specific actions of the
board of directors.
|
|
·
|
Insurance. By
action of the board of directors, notwithstanding any interest of the
directors in such action, the corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer,
employee, fiduciary or agent of the corporation, against any liability
asserted against or incurred by such person in that capacity or arising
from such person's status as a director, officer, employee, fiduciary, or
agent, whether or not the corporation would have the power to indemnify
such person under the applicable provisions of the Nevada Revised
Statutes.
|
FINANCIAL
STATEMENTS
Lightyear’s audited consolidated
financial statements as of and for the years ended December 31, 2009 and 2008
are attached to this Current Report on Form 8-K/A as Exhibit
99.1. Libra’s unaudited pro forma condensed combined financial
statements as of and for the year ended December 31, 2009 are attached to this
Current Report on Form 8-K/A as Exhibit 99.2.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Please refer to Item 4.01 of this
Current Report on Form 8-K/A, incorporated herein by reference, for information
regarding changes in and disagreements with accountants on accounting and
financial disclosures.
40
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by
reference certain information we file with them, which means that we can
disclose important information by referring you to those
documents. The information incorporated by reference is considered to
be a part of this Current Report on Form 8-K/A. We incorporate by
reference Libra’s Annual Report on Form 10-K for the fiscal year ended December
31, 2009, which was filed on March 31, 2010.
You may request copies of the
reports listed above at no cost by telephoning us at (502) 244-6666 or by
writing us at the following address:
Libra
Alliance Corporation
1901
Eastpoint Parkway
Louisville,
Kentucky 40223
Attention:
John Greive
Item
2.03 Creation of a Direct Financial Obligation.
On February 12, 2010, pursuant to
the Securities Exchange, Libra Alliance Corporation assumed the obligations of
Lightyear under the Letter Agreements as such are described in greater detail in
the section of Item 2.01 of this Current Report on Form 8-K/A, entitled “Certain
Relationships and Related Transactions,” which is incorporated herein by
reference.
Item 3.02 Unregistered
Sales of Equity Securities.
Pursuant
to the Securities Exchange Agreement as such is described in Item 2.01 of this
Current Report on Form 8-K/A, which is incorporated herein by reference, on
February 12, 2010, Libra Alliance Corp. issued 10,000,000 shares of Libra Common
Stock and covenanted to issue 9,500,000 shares of Libra Convertible Preferred
Stock to LYH in exchange for the Lightyear Equity.
The
issuance of 10,000,000 shares of Libra Common
Stock and the covenant to issue 9,500,000 shares of Libra Convertible Preferred
Stock in exchange for the Lightyear Equity are exempt from registration under
the Securities Act, pursuant to Section 4(2) thereof and Rule 506 of Regulation
D promulgated thereunder. Libra Alliance Corp. made this
determination based on the representations of Lightyear and LYH
that less than thirty-five (35) of the LYH members were not
“accredited investors” within the meaning of Rule 501 of Regulation D
promulgated under the Securities Act, and that such persons were acquiring the
Libra Common Stock and Libra Convertible Preferred Stock for investment purposes
for their own respective accounts and not as nominees or agents, and with a view
to resale or distribution thereof, and that said persons understood that the
shares of Libra Common Stock and Libra Convertible Preferred Stock may not be
offered or sold in the United States unless they are registered under the
Securities Act, or an exemption from the registration requirements of the
Securities Act is available. No registration statement covering these
securities has been filed with the SEC or with any state securities commission
in respect of the Securities Exchange.
Pursuant
to the Contribution Agreements as such are defined in Item 2.01 of this Current
Report on Form 8-K/A, which is incorporated herein by reference, on February 12,
2010, Libra Alliance Corp. issued 3,242,533 shares of Libra Common
Stock to the LYH Debtholders in exchange for the LYH Notes.
The issuance of 3,242,533 shares of Libra Common
Stock in exchange for the LYH Notes is exempt from registration under the
Securities Act, pursuant to Section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder. Libra Alliance Corp. made this determination
based on the representations of the LYH Debtholders that each of them was an
“accredited investor” within the meaning of Rule 501 of Regulation D promulgated
under the Securities Act, and that each LYH Debtholder was acquiring the Libra
Common Stock for investment purposes for his or her own respective account and
not as nominee or agent, and with a view to resale or distribution thereof, and
that each LYH Debtholder understood that the shares of Libra Common Stock may
not be offered or sold in the United States unless they are registered under the
Securities Act, or an exemption from the registration requirements of the
Securities Act is available. No registration statement covering these
securities has been filed with the SEC or with any state securities commission
in respect of the Securities Exchange.
41
Item
4.01 Registrant’s Certifying
Accountant
On March 31, 2010, Libra Alliance
Corp. dismissed Chisholm, Bierwolf, Nilson & Morrill LLC (“Chisholm”) as its
independent registered public accounting firm. Chisholm had been
previously engaged as the principal independent registered public accounting
firm to audit the financial statements of Libra Alliance Corp. From
February 12, 2010 through March 31, 2010, Chisholm remained engaged by us solely
to complete its audit of the Company’s financial statements for the fiscal year
ended December 31, 2009.
On February 19, 2010, we engaged Marcum
LLP as our principal independent registered public accounting firm to audit the
financial statements of Lightyear for the fiscal year ended December 31, 2009,
and to perform procedures related to the financial statements included in
Current Reports on Form 8-K.
The decision to dismiss Chisholm upon
completion of the Company’s December 31, 2009 audit and engage Marcum were
approved by the Board of Directors after the consummation of the Securities
Exchange on February 12, 2010.
During the two most recent fiscal years
and the subsequent interim period through March 31, 2010, the date of dismissal,
Chisholm audited the Company’s financial statements, and its reports for each of
the two years were modified as to the uncertainty of our continuing as a going
concern. There were no disagreements with, or adverse opinions or
disclaimers of opinions on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of Chisholm would have caused it to make
reference to the subject matter of the disagreement(s) in connection with its
reports. There were no items described in Item 304(a)(1)(iv)(B) of Regulation
S-K to disclose during the two most recent fiscal years and the subsequent
interim period through March 31, 2010, the date of dismissal.
New Lightyear has made the contents of
this Form 8-K/A available to Chisholm and requested it to furnish a letter to
the SEC as to whether Chisholm agrees or disagrees with, or wishes to clarify
the expression of its views set forth herein. A copy of Chisholm’s
letter to the SEC is included as Exhibit 16.1 to this Form 8-K/A.
Other than in connection with the
engagement of Marcum LLP, during its most recent fiscal year and the subsequent
interim period prior to February 12, 2010, Libra Alliance Corp. did not consult
Marcum regarding either: (i) the application of accounting principles
to a specified transaction, completed or proposed, or the type of audit opinion
that might be rendered on its financial statements, and neither a written report
was provided to the Company nor oral advice provided that Marcum concluded was
an important factor considered by the Company in reaching a decision as to an
accounting, auditing or financial reporting issue; or (ii) any matter
that was either the subject of a disagreement as defined in Item 304(a)(1)(iv)
of Regulation S-K or
the related instructions thereto or a “reportable event” as described in Item
304(a)(1)(v) of Regulation S-K .
Item
5.01 Changes in Control of Registrant.
The
following transactions are explained more fully in Items 2.01 of this Current
Report on Form 8-K/A, which is incorporated herein by reference.
On
February 12, 2010, the execution of the Securities Exchange Agreement, which is
included as Exhibit 2.2 to this Current Report on Form 8-K/A and incorporated
herein by reference, resulted in the change in control of Libra. Pursuant to the Securities
Exchange Agreement, Libra issued 10,000,000 shares of Libra Common Stock and
covenanted to issue 9,500,000 shares of Libra Convertible Preferred Stock to
LYH. At the closing of the Securities Exchange Agreement, LYH owned
53.3% of Libra on a fully diluted basis. When the Amended Articles become
effective and the Libra Convertible Preferred Shares are issued, LYH will own
69% of Libra on a fully diluted, as converted, basis.
On
February 12, 2010, April Erickson resigned as President of Libra and Anthony S.
Clayton resigned as Secretary and Treasurer of Libra. The board of directors
appointed J. Sherman Henderson III to serve as Chief Executive Officer and other
persons to serve as executive officers.
42
On
February 11, 2010, the board of directors passed a resolution; (1) increasing
the number of directors to five; (2) accepting the resignations of April
Erickson and Anthony S. Clayton as directors; and, (3) appointing the following
persons to serve as members of the board of directors: J. Sherman Henderson III,
Chris T. Sullivan, Ron Carmicle, Brent Rice, and Rick Dees. The
resignation of Clayton and the appointment of Henderson took effect on February
12, 2010. The resignation of Erickson and appointments of Sullivan,
Carmicle, Rice and Dees took effect on March 4, 2010.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
Reference
is made to the disclosures set forth under Items 2.01 and 5.01 of this Current
Report on Form 8-K/A, which disclosures regarding the resignation and
appointment of the directors and officers in connection with the Securities
Exchange are incorporated herein by reference.
Item
5.06 Change in Shell Company Status.
Immediately
before the closing of the Securities Exchange, Libra Alliance Corp. was a “shell
company” (as such term is defined in Rule 12b-2 under the Exchange
Act). As a result of the Securities Exchange, Libra Alliance Corp.
took on the business of Lightyear, with Lightyear’s extensive
operations. Consequently, Libra Alliance Corp. believes that the
Securities Exchange has caused it to cease to be a shell company. For
information about the Securities Exchange, please see the information set forth
above under Item 2.01 of this Current Report on Form 8-K/A, which information is
incorporated herein by reference. The Securities Exchange Agreement
is filed as Exhibit 2.2 to this Current Report on Form 8-K/A.
Item
9.01 Financial Statement and Exhibits.
(a)
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Lightyear’s
audited consolidated financial statements as of and for the years ended December
31, 2009 and 2008 are attached to this Current Report on Form 8-K/A as Exhibit
99.1.
(b) PRO
FORMA FINANCIAL INFORMATION.
43
Libra’s
unaudited pro forma condensed combined financial statements as of and for the
year ended December 31, 2009 are attached to this Current Report on Form 8-K/A
as Exhibit 99.2.
(c) EXHIBITS
EXHIBIT
INDEX
2.1
|
Master
Transaction Agreement by and between LY Holdings, LLC, Libra Alliance
Corporation and various debtholders of LY Holdings, LLC dated as of
February 12, 2010.*
|
|
2.2
|
Securities
Exchange Agreement by and between LY Holdings, LLC and Libra Alliance
Corporation dated as of February 12, 2010.*
|
|
2.3
|
Form
of Securities Contribution Agreements by and between Libra Alliance
Corporation and various debtholders of LY Holdings, LLC dated as of
February 12, 2010.*
|
|
3.1
|
Articles
of Incorporation of Libra Alliance Corporation incorporated by reference
to Exhibit 3.1 to the Form 10-SB filed on March 15,
2001.
|
|
3.2
|
Bylaws
of Libra Alliance Corporation incorporated by reference to Exhibit 3.2 to
the Form 10-SB filed on March 15, 2001.
|
|
10.1
|
Employment
Agreement between LY Holdings, LLC (f/k/a LY Acquisition LLC) and J.
Sherman Henderson III dated as of July 30, 2003 (as assumed by Libra
Alliance Corporation).*
|
|
10.2
|
Form
of Wireless Letter Agreement.*
|
|
10.3
|
Form
of VoIP Letter Agreement.*
|
|
10.4
|
First
Modification to Letter Agreements.*
|
|
10.5
|
Promissory
note of LY Holdings, LLC to Libra Alliance
Corporation.*
|
|
16.1
|
Letter
of Chisholm, Bierwolf, Nilson & Morrill LLP.
|
|
99.1
|
Lightyear
Network Solutions, LLC and Subsidiary’s Audited Consolidated Financial
Statements as of and for the years ended December 31, 2009 and
2008.
|
|
99.2
|
Libra
Alliance Corporation’s Unaudited Pro Forma Condensed Combined Financial
Statements as of and for the year ended December 31,
2009.
|
|
99.3
|
Joint
Press Release of Libra Alliance Corporation and Lightyear Network
Solutions, LLC.*
|
*
|
Previously
filed with our Current Report on Form 8-K filed on February 19,
2010.
|
44
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Report on Form 8-K/A to be signed on its behalf by the
undersigned hereunto duly authorized.
LIBRA
ALLIANCE CORP.
|
|||
Date:
March 31, 2010
|
By:
|
/s/ J. Sherman Henderson III | |
J.
Sherman Henderson III
Chief
Executive Officer
|
Date:
March 31, 2010
|
By:
|
/s/ Elaine G. Bush | |
Elaine
G. Bush
Chief
Financial Officer
|
|||
45