Execs Explain Lightyear-Wherify Pairing

Wednesday’s announcement that Lightyear Network Solutions LLC, a reseller and facilities-based VoIP provider, would merge with Wherify Wireless Inc., a developer of wireless location solutions and services for GPS-enabled devices, raised questions about the possible synergies of this unlikely match-up.

Sherm Henderson, CEO of Lightyear, told PHONE+ the pairing is “a likely match-up” when you consider his company’s recent deal with Verizon Partner Solutions to resell wireless services. He said it will give Lightyear a great advantage to have the Wherify application in the Lightyear mobile phones.

Wherify began in 1998 as an MVNO using Broadpoint Inc. its underlying network and providing a location-based wrist-band called the GPS Locator for Kids and, later, a GPS phone called the Wherifone. The company has been looking to transition away from the resale model to become a location-based software company, according to CEO Vince Sheeran. The Lightyear transaction is part of its plan to do that.

In an earlier step, Wherify entered into a licensing agreement with SOS GPS Holdings LLC in December 2007 giving it the right to manufacture the current version of Wherify’s Wherifone GSM-based, GPS locator phone as well as distribution rights to the current version of the Wherifone product and to future versions SOS develops. Under agreement, SOS pays Wherify a license fee of $1 million to use the Wherify location-based services platform for units they sell and pay Wherify a monthly per subscriber fee. The term of the license agreement is five years and may be renewed by SOS for subsequent five year terms for a nominal fee. The license agreement provides that SOS must sell a minimum of 50,000 units per year.

Lightyear hopes to license the Wherify application platform to other mobile service providers and handset manufacturers under a similar model wherein it continues to receive a service fee. Wherify’s platform enables them to develop a variety of location-based services applications in the areas of enterprise employee mobility service management, mobile social networking, personal safety, mobile community search and mobile shopping.

Sheeran will become the senior vice president of location-based services at Lightyear, and will be driving that business. He said the existing applications are consumer-based, e.g. a child locator, but a business application, Lightguard, is in alpha testing. He expects it to be available in early 2009. Lightguard is designed to integration LBS with Microsoft Outlook to help companies with scheduling, performance monitoring and employee safety. As one example, Lightguard could be used by a home health care service to ensure that employees were on time to patient appointments and that they are going safely from one location to another. A service like Lightguard could add $10 a month to every phone subscription, increasing total potential ARPU.

To support this business Lightyear is keeping all eight of Wherify’s employees. That includes Sheeran and his engineering department – a stripped down staff Sheeran assembled while looking for an investment partner to aid its transition from MVNO to software company. The Wherify staff will remain in San Mateo, Calif., where the company was based.

Another plus in the transaction, which is expected to close in September, is that it will make Lightyear a publicly traded company. Wherify trades on OTC as WFYW. The company will change its name and ticker once the transaction is closed. It has not been decided if and when the Wherify name will be used.

The advantage for Lightyear is access to capital for growth and it gives present Lightyear investors liquidity.

The merger is conditioned on obtaining a minimum of $15 million in new equity capital, the restructuring of existing debt, and the conversion of Wherify’s Series A and Series B preferred stock. Under the agreement, $2.5 million of the new equity capital is anticipated to be used to retire approximately $18 million of Wherify’s current unsecured liabilities. An additional $2.5 million of the new capital is anticipated to be used to restructure Wherify’s secured debt with Yorkville Associates. Upon completion of the merger and financing, Wherify and its subsidiaries will collectively retain approximately $2.5 million of secured debt with Yorkville and approximately $17.5 million of existing long-term Lightyear debt. In addition, Yorkville will no longer retain any conversion features but will remain secured by certain current Wherify assets. Wherify anticipates that net working capital from the financing will be approximately $6.5 million.

Lightyear reports it is a $65 million company. Wherify recorded $1.2 million in revenue at the end of 2007.

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