SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT
(“Agreement”) is made and entered into as of the 29th day of April, 2010,
by and among (i) LY HOLDINGS,
LLC, a Kentucky limited liability company (“LYH”), (ii) LIGHTYEAR NETWORK SOLUTIONS,
LLC, a Kentucky limited liability company (“LNS”), (iii) XXXXX XXXXXXXX, an individual
resident of Nevada (“Xxxxxxxx”), (iv) LANJK, LLC, a Kentucky limited
liability company (“LANJK”), (v) RICE REALTY COMPANY, LLC, a
Kentucky limited liability company (“RRC”), (vi) XXXXXX X. XXXX, III, an
individual resident of California (“Xxxx”), (vii) CTS EQUITIES LIMITED
PARTNERSHIP, a Nevada limited partnership (“CTS”), and (viii) XXX XXXXXXXX, an individual
resident of Kentucky (“Xxxxxxxx,” collectively with LANJK, RRC, Xxxx, and CTS,
the (“Letter Agreement Holders”).
RECITALS:
X. Xxxxxxxx
Note.
1. Pursuant
to that certain Fifth Amended and Restated Commercial Note dated February 11,
2010, made by LYH payable to Xxxxxxxx in the face principal amount of Eight
Million and 00/100 Dollars ($8,000,000) (the “Xxxxxxxx Note”), Xxxxxxxx has made
a loan to LYH, which has a current outstanding principal balance as of the date
of this Agreement of Seven Million Seven Hundred Fifty Thousand and No/100
Dollars ($7,750,000).
2. Pursuant
to that certain Commercial Note dated December 30, 2004, made by Xxxxxxxx
payable to Fifth Third Bank in the fact principal amount of Ten Million and
00/100 Dollars ($10,000,000) (the “Fifth Third Note”), Fifth Third has made a
loan to Xxxxxxxx. The Fifth Third Note will mature on July 1,
2010. Xxxxxxxx desires to obtain Fifth Third’s forbearance, or an
extension of twelve to eighteen months, on the Fifth Third Note and the parties
are negotiating in good faith.
3. Xxxxxxxx
indicated to LYH that he will not refinance or renew the Xxxxxxxx Loan when it
reaches maturity on July 1, 2010, but will instead require LYH to pay the
Xxxxxxxx Note in full. If Xxxxxxxx did require the Xxxxxxxx Note to
be paid in full and LYH did not make a full payment, Xxxxxxxx would likely
foreclose on the LYH assets securing the Xxxxxxxx Loan, including without
limitation the membership interests held by certain of the members of
LYH.
B. Letter Agreements / Rights
to Override Payments.
1. VoIP Letter
Agreements. Pursuant to the terms of that certain Loan
Agreement dated July 30, 2004, as amended, by and among LNS, LYH, and the Letter
Agreement Holders, LNS obtained from the Letter Agreement Holdings the following
term loans: (i) a loan from Xxxx in the amount of $400,000.00, (ii) a loan from
RRC in the amount of $150,000.00, (iii) a loan from Xxxxxxxx in the amount of
$150,000.00, (iv) a loan from LANJK in the amount of $150,000.00, and (v) a loan
from CTS in the amount of $150,000.00 (collectively, the “VoIP
Loans”).
Pursuant
to, and in consideration for, the VoIP Loans, each Letter Agreement Holder
entered into a separate Letter Agreement with LNS and LYH (the “VoIP Letter
Agreements”). Pursuant to the VoIP Letter Agreements, LNS and LYH
collectively agreed to pay each Letter Agreement Holder a certain percentage of
the Monthly Revenue (as defined in the VoIP Letter Agreements) from sales of
products and services generated from Voice over Internet Protocol Technology,
all as more fully set forth in the VoIP Letter Agreements (the “VoIP Revenue
Payments”).
2. Wireless Letter
Agreements. LYH and LNS also obtained from the Letter
Agreement Holders additional loans pursuant to and as evidenced by the following
term notes: (i) Term Note dated July 1, 2008 payable to Xxxx in the original
principal amount of $150,000.00, (ii) Term Note dated July 1, 2008 payable to
RRC in the original principal amount of $150,000.00, (iii) Term Note dated July
1, 2008 payable to Xxxxxxxx in the original principal amount of $150,000.00,
(iv) Term Note dated July 1, 2008 payable to LANJK in the original principal
amount of $300,000.00 and (v) Term Note dated July 1, 2008 payable to CTS in the
original principal amount of $150,000.00 (collectively, the “Wireless Loans”;
collectively with the VoIP Loans, the “Loans”).
Pursuant
to, and in consideration for, the Wireless Loans, each Letter Agreement Holder
entered into a separate Letter Agreement with LNS and LYH (the “Wireless Letter
Agreements,” collectively with the VoIP Letter Agreements, the “Letter
Agreements”). Pursuant to the Wireless Letter Agreements, LNS and LYH
collectively agreed to pay each Letter Agreement Holder a certain percentage of
the Monthly Revenue (as defined in the Wireless Letter Agreements) from the
sales of wireless service offerings (excluding equipment and accessories), all
as more fully set forth in the Wireless Letter Agreements (the “Wireless Revenue
Payments”; collectively with the VoIP Revenue Payments, the “Revenue
Payments”).
3. On
February 12, 2010, Libra Alliance Corporation (“Libra”) acquired LNS pursuant to
a securities exchange agreement (the “Exchange Agreement”) by and among Libra
and LYH (the “Exchange”). As part of the Exchange, Libra issued
10,000,000 shares of common stock and 9,500,000 shares of preferred stock to
LYH. After the Exchange, LYH owns 69.0% of Libra’s stock on an
as-converted, fully diluted basis.
Immediately
prior to closing the Exchange, Libra, LYH, LNS and the Letter Agreement Holders
expected to close a purchase of the Letter Agreements by Libra and LNS (the
“Override Purchase Plan”). Although the Override Repurchase Plan was
not fully consummated, LNS, LYH and the Letter Agreement Holders did enter into
that certain First Modification to Letter Agreements dated February 11, 2010
(the “Modification Agreement”). Pursuant to the Modification
Agreement, among other things, LNS and the Letter Agreement Holders released LYH
from any and all obligations under the Letter Agreements, including without
limitation, any obligation to make any Revenue Payments to any of the Letter
Agreement Holders, and LNS agreed to remain liable for its obligations under the
Letter Agreements, as modified.
LNS and
Libra did not close on the purchase of the Letter Agreements from the Letter
Agreement Holders. Thus, LNS is currently obligated to make Revenue
Payments to each of the Letter Agreement Holders pursuant to the Letter
Agreements. LNS desires to limit its obligation to make Revenue
Payments under the Letter Agreements.
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C.
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Settlement of Xxxxxxxx
Claims; Purchase of Xxxxxxxx Note by LNS; Grant of Security Interest in
and Option to Purchase Letter
Agreements.
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LYH’s
obligation to Xxxxxxxx is maturing. If LYH fails to pay this debt or
otherwise reach a forbearance agreement, Xxxxxxxx may foreclose on liens in his
favor, including the membership interest pledges securing the debt with shares
in LYH held by certain of the Letter Agreement Holders. This action
would result in Xxxxxxxx owning the majority of membership interests in LYH and
otherwise entitling Xxxxxxxx to control Libra and LNS.
LNS and
the Letter Agreement Holders have determined that it is in their respective best
interests to take steps to cause Xxxxxxxx to forbear from foreclosing on liens
in his favor. LNS and the Letter Agreement Holders acknowledge that
preventing Xxxxxxxx from taking action to foreclose on his liens will preserve
the likelihood of receiving payment on debt owed to each of them and further
preserve each Letter Agreement Holder’s economic investment in
LYH. Moreover, LNS acknowledges that LYH made payments to Xxxxxxxx
after the parties reached an understanding in principal and prior to the
execution of this Agreement, which advances on behalf of LNS it now intends to
reimburse.
To induce
Xxxxxxxx to forbear from foreclosing on liens in his favor, LYH, LNS and the
Letter Agreement Holders have agreed to a settlement of Xxxxxxxx’x claims
pursuant to which: (1) LNS will purchase and assume the Xxxxxxxx Note from
Xxxxxxxx in exchange for the Settlement Amount and (2) LYH will be indebted to
LNS pursuant to and in the amount of the Xxxxxxxx Note. To induce LNS
to purchase Xxxxxxxx’x rights under the Xxxxxxxx Note, the Letter Agreement
Holders will (a) grant LNS security interests in the Letter Agreements to secure
payment by LYH of the Xxxxxxxx Note to LNS, and (b) give LNS an option pursuant
to which LNS may purchase the Letter Agreements. LNS is willing to
enter into this Agreement because the security interest in the Letter Agreements
affords LNS the possibility of discontinuing its obligation to make override
revenue payments to the Letter Agreement Holders and the option provides LNS
with the ability to determine its maximum potential liability under the Letter
Agreements.
NOW, THEREFORE, in consideration of the
mutual covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of all of which is hereby
acknowledged, the parties do hereby agree as follows:
1. Effect of the
Foregoing. All of the foregoing are a part of this Agreement
and are not mere recitals.
2. Settlement.
(a). Purchase and Assumption of
Xxxxxxxx Note. LNS hereby purchases and assumes any and all of
Xxxxxxxx’x rights and obligations under and in connection with the Xxxxxxxx
Note.
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(b). Settlement
Payment. In exchange for the purchase of the Xxxxxxxx Note,
LNS shall pay to Xxxxxxxx the sum of Seven Million Seven Hundred Fifty Thousand
and No/100 Dollars ($7,750,000) (the “Settlement Payment”), which amount shall
be paid as follows: (a) $250,000 contemporaneous with the execution of this
Agreement in immediately available funds payable to Fifth Third as directed by
Xxxxxxxx at Closing, (b) on July 1, 2010, and on the first day of each quarter
year thereafter until and including the Maturity Date (as defined below),
$250,000 plus accrued and unpaid interest payable to Fifth Third as directed by
Xxxxxxxx (the “Quarterly Payments”), and (c) on the Maturity Date, the
then-outstanding principal amount plus accrued and unpaid interest (the “Final
Payment,” collectively with the Quarterly Payments, the “Deferred
Payment”). If all such sums are not paid and satisfied in full by the
Maturity Date, any sums remaining due shall thereafter bear interest at the
Default Rate (as defined below). For purposes of this Agreement,
“Maturity Date” shall mean the sooner of (i) July 1, 2011, or (ii) the maturity
date of the Fifth Third Note.
LNS
intends to prepay the Deferred Payment from subsequent fund raising or
operations to the extent it is able. LNS may prepay the Deferred
Payment in whole or in part at any time, without premium or
penalty. Any partial prepayment shall be applied first to accrued
interest due and owing on the Deferred Payment, with the balance being applied
to principal. Provided, however, no partial prepayment shall postpone
the due date of any installment of principal or interest due on the Deferred
Payment unless and until the Deferred Payment is paid in full.
In
addition to the Settlement Payment, at Closing LNS shall reimburse LYH for
advances made by LYH on behalf of Xxxxxxxx after the parties reached a
settlement in principal but prior to the execution of this Agreement in the
amount of Two Hundred Sixty Thousand and No/100 Dollars ($260,000).
(c). Notwithstanding
the foregoing, LNS shall not be required to pay any installment of the Deferred
Payment when due if the payment of such installment would cause LNS to be unable
to pay its other creditors, as determined by LNS in its sole, reasonable
discretion and LNS provides written notice to Xxxxxxxx that it is withholding
payment; provided, however, that LNS must pay any withheld payment(s) to
Xxxxxxxx not more than two (2) days after LNS has sufficient funds to make such
payment(s) and pay its other creditors as its debts to such other creditors
become due.
Interest
on the Deferred Payment shall bear interest from the date hereof until the
outstanding principal balance of the Deferred Payment, all accrued but unpaid
interest thereon and all other charges, fees or expenses hereunder have been
repaid to Xxxxxxxx in full at a rate equal to (a) the rate charged to
Xxxxxxxx by Fifth Third pursuant to the Fifth Third Note; plus (b) (i)
three percent (3%) per annum on all amounts owed hereunder up to Seven Million
Dollars ($7,000,000.00) and (ii) six percent (6%) per annum on all amounts owed
hereunder in excess of Seven Million Dollars ($7,000,000.00); provided, however,
that (x) except in the case of an Event of Default, in no event shall the
rate of interest charged hereunder exceed ten percent (10%) per annum, and
(y) if the debt evidenced by the Fifth Third Note is retired (and not
refinanced), the rate of interest charged hereunder until paid in full shall be
equal to the rate of interest charged hereunder on the business day immediately
preceding the date that the debt evidenced by the Fifth Third Note was retired
(the “Interest Rate”). Interest shall be computed on the basis of the
actual number of days elapsed in a year of 365 days. In the event of
a default by LNS with respect to the payment of the Deferred Payment, if such
default is not cured prior to the expiration of any applicable cure period,
Xxxxxxxx may, in his sole discretion, determine that all of the Deferred Payment
owing to Xxxxxxxx shall bear interest at the a rate of Five and 00/100 percent
(5.00%) per annum above the Interest Rate (hereinafter referred to as the
“Default Rate”). If LNS fails to make any payment due under this
Agreement within two (2) days of the date it is due, the LNS shall pay a late
charge of five percent (5%) of the amount of the overdue
payment.
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The
occurrence of any of the following shall constitute an “Event of Default” under
this Section 1(b): (i) the Deferred Payment, or any part thereof, shall not be
paid in full within two (2) business days after such payment becomes due
hereunder (whether by lapse of time, acceleration of maturity, or otherwise),
(ii) LNS fails to comply with any term, condition, requirement, or covenant set
forth in Section 2(b), (iii) LNS has withheld two (2) or more payments
under Section 2(c) in successive quarters and Xxxxxxxx has reasonable grounds to
believe that the creditworthiness of LNS has become unsatisfactory, or (iv)
Fifth Third declares an event of default under the Fifth Third
Note. Upon the occurrence of an Event of Default, Xxxxxxxx shall
deliver written notice to LNS indicating the claimed default and giving LNS five
(5) business days to cure such Event of Default. If LNS fails to cure
any Event of Default prior to the expiration of the cure period, Xxxxxxxx may
(i) declare the outstanding balance of the Deferred Payment, together with
accrued interest thereon, to be at once due and payable, or (ii) declare this
Agreement to be void. If Xxxxxxxx avoids the Agreement pursuant to
this Section 2(b), the Xxxxxxxx Note shall revert to Xxxxxxxx, LNS will have no
further obligation to make any payments to Xxxxxxxx whether for amounts withheld
or to become due, and the payments Xxxxxxxx received from LNS hereunder shall be
credited against the Xxxxxxxx Note.
3. Continuation of LYH’s
Liability. The purchase of the Xxxxxxxx Note by LNS shall have
no effect on the obligations of LYH thereunder. LYH shall be and
remain absolutely, fully, irrevocably, and unconditionally liable to LNS for any
and all obligations under the Xxxxxxxx Note.
4. Continuation of UCC Security
Interests and Other Liens. The Xxxxxxxx Note is secured by
certain UCC security interests and other liens (collectively, the “Liens”) in
favor of Xxxxxxxx securing the Xxxxxxxx Note. Xxxxxxxx, the grantors
of any such security interests, and LYH shall execute and deliver to LNS any and
all documents to confirm the continuation of the first and prior Liens of LNS to
secure the Xxxxxxxx Note.
5. Security Interest in the
Letter Agreements. To induce LNS to purchase the Xxxxxxxx
Note, and without such inducement LNS would not purchase the Xxxxxxxx Note, the
Letter Agreement Holders grant to LNS a security interest in all of its rights,
title and interests in and to the Letter Agreements and the “Proceeds,” as that
term is defined in the UCC (including insurance Proceeds), products of any sale,
exchange, collection or other disposition of the Letter Agreements or any part
thereof, and all Accessions thereto. The security interest granted by
the Letter Agreement Holders hereby secures the payment and performance of all
of the following Secured Obligations: all loans, advances, debts,
liabilities, obligations, covenants and duties owing to LNS from LYH of any kind
or nature, present or future, evidenced by the Xxxxxxxx Note. LNS,
its successors and assigns, shall hold the security interests created hereby
upon the terms of this Agreement, and this Agreement shall continue until the
Xxxxxxxx Note has been paid in full.
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6. Option. The
Letter Agreement Holders hereb grants to LNS the exclusive option to purchase
the Letter Agreements upon the terms, covenants and conditions set forth herein
(the “Option”).
(a). Term and Manner of
Exercise. LNS may exercise the Option at any time during the
period commencing on the date of this Agreement and terminating at 11:59 p.m. on
May 1, 2012 (the “Option Period”) by giving written notice thereof to all, but
not less than all, of the Letter Agreement Holders at the business address of
each such Letter Agreement Holder on file with LNS.
(b). Option Purchase
Price. If the Option is exercised by LNS, the purchase price
for the Letter Agreements (the “Purchase Price”) shall be Eight Million and
No/100 Dollars ($8,000,000.00). On the Option Closing Date (as
defined herein), LNS shall pay the Purchase Price to the Letter Agreement
Holders as follows:
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(i).
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LANJK
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$ | 1,714,285.72 | ||
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(ii).
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RRC
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$ | 1,142,857.14 | ||
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(iii).
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Xxxx
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$ | 2,857,142.86 | ||
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(iv).
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CTS
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$ | 1,142,857.14 | ||
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(v).
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Xxxxxxxx
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$ | 1,142,857.14 |
(c). Closing;
Costs. The closing of the option shall be held on a date to be
selected by LNS, which date shall not be later than thirty (30) days after the
date on which LNS exercises this Option (the “Option Closing
Date”). If the Option Closing Date is a Saturday, Sunday or holiday,
the next following business day shall be deemed to be the Option Closing
Date. The closing shall be held at a time and place mutually agreed upon by
LNS and the Letter Agreement Holders. Each party shall bear any and
all of its own expenses in connection with the exercise of the
Option.
7. Representations, Warranties
and
Covenants. Each of the parties to this
Agreement represents, warrants and covenants, as of the date hereof, as
follows:
(a). Each
party hereto has the requisite power and authority to enter into this
Agreement. The execution and delivery hereof and the performance by
each party hereto of his or its obligations hereunder will not violate or
constitute an event of default under the terms and provisions of any agreement,
document or instrument to which any such party is a party or by which any such
party is bound;
(b). This
Agreement is a valid and binding obligation of each party hereto;
(c). To
the best of each party’s knowledge as of the date hereof, each party is in full
compliance with all applicable laws and any other local, municipal, regional,
state or federal requirements and no party hereto has received actual notice
from any governmental authority that he or it is not in full compliance with all
applicable laws and any other local, municipal, regional, state or federal
requirements;
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(d). The
Letter Agreement Holders have not granted any option or any other rights to
acquire the Letter Agreements, other than as set forth in this
Agreement;
(e). So
long as the Option remains in effect, each Letter Agreement Holder will take no
action, or fail to take any required action, that would prohibit him or it or it
from complying with the obligations hereunder or that would cause any of the
representations or warranties hereunder to be untrue as of the date hereof or at
any future date;
(f). So
long as the Option remains in effect, each Letter Agreement Holder will not
grant any liens on any Letter Agreement, or sell or otherwise transfer any
Letter Agreement.
8. Miscellaneous. This
Agreement constitutes the entire understanding between the parties with respect
to the subject matter hereof and supersedes all prior or contemporaneous
agreements in regard thereto. This Agreement cannot be amended except
by an agreement in writing signed by authorized representatives of all parties
and specifically referring to this Agreement. The paragraph headings
set forth herein are for convenience only and do not constitute a substantive
part of this Agreement. This Agreement shall be
governed by and construed under the laws of the Commonwealth of Kentucky,
without regard to conflicts of law principles. If any
provision of this Agreement shall be determined to be illegal or unenforceable
by any Court of law or any competent governmental or other authority, the
remaining provisions shall be severable and enforceable in accordance with their
terms.
9. Notice. All
notices, demands, requests, consents or approvals and other communications
required or permitted hereunder will be in writing, and, to the extent required
by applicable law, will comply with the requirements of the Uniform Commercial
Code then in effect, and will be addressed to such party at the address on file
with LYH or to such other address as any party may give to the other in writing
for such purpose. All such communications, if personally delivered,
will be conclusively deemed to have been received by a party hereto and to be
effective when so delivered, or if sent by telex, facsimile or telegraphic
means, on the day on which transmitted, or if sent by overnight courier service,
on the day after deposit thereof with such service, or if sent by certified or
registered mail, on the third business day after the day on which deposited in
the mail.
10. Binding
Effect. This Agreement is binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns.
11. Counterparts. This
Agreement may be executed in several counterparts, each of which shall be an
original and all of which together shall constitute but one and the same
instrument.
[SPACE
INTENTIONALLY BLANK; SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the
parties have executed this Agreement as of the day and date first above
written.
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LY
HOLDINGS, LLC
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By:
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/s/ J. Xxxxxxx Xxxxxxxxx
III
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Its:
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Chief Executive Officer
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LIGHTYEAR
NETWORK SOLUTIONS, LLC
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By:
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/s/ J. Xxxxxxx Xxxxxxxxx
III
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Its:
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Chief Executive Officer
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/s/ Xxxxx Xxxxxxxx
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XXXXX
XXXXXXXX
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LANJK,
LLC
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By:
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/s/ J. Xxxxxxx Xxxxxxxxx
III
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Its:
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Manager
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RICE
REALTY COMPANY, LLC
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By:
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/s/ W. Xxxxx Xxxx
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Its:
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Member
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S-1
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/s/ Xxxxxx X. Xxxx, III
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XXXXXX
X. XXXX, III
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CTS
EQUITIES LIMITED PARTNERSHIP
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By:
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/s/ Xxxxx Xxxxxxxx
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Its:
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General Partner
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/s/ Xxxxxx
Xxxxxxxx
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XXX
XXXXXXXX
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S-2
