<PAGE> 1
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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
LCI INTERNATIONAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
LCI International Worldwide Telecommunications
March 25, 1997
Dear Stockholder:
It is a pleasure to invite you to attend the annual meeting of stockholders
of LCI International, Inc. which will be held at The Ritz-Carlton Hotel, 1700
Tysons Boulevard, McLean, Virginia on Tuesday, May 6, 1997, at 10:30 a.m.
Meeting registration will begin at 9:30 a.m. and a Continental breakfast will be
available.
The Notice and Proxy Statement that follow describe the business to come
before the meeting. Management will report on current operations and there will
be an opportunity for discussion concerning the Company and its activities.
Your vote is very important. Whether or not you plan to be present at the
meeting, and regardless of the number of shares you own, please sign and return
your proxy card in the enclosed envelope to ensure that your shares will be
represented and voted at the meeting. If you do plan to be present at the
meeting and wish to vote in person, you may withdraw your proxy at that time.
I hope you can attend and look forward to personally meeting you on May
6th.
Sincerely,
/s/ H. Brian Thompson
H. BRIAN THOMPSON
Chairman and Chief Executive Officer
8180 Greensboro Drive - McLean, VA 22102 - 800-296-0220 - Fax:
703-442-9624
<PAGE> 3
LOGO
LCI INTERNATIONAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 6, 1997
To the Stockholders of
LCI INTERNATIONAL, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders (the
"Meeting") of LCI International, Inc. (the "Company") will be held at The
Ritz-Carlton Hotel, 1700 Tysons Boulevard, McLean, Virginia, on Tuesday, May 6,
1997, at 10:30 a.m. (local time), with registration beginning at 9:30 a.m., for
the following purposes:
1. To elect two directors to serve for a three-year term until the
annual meeting of stockholders held in the year 2000.
2. To approve the 1997/1998 LCI International, Inc. Stock Option Plan.
3. To approve the Executive Incentive Compensation Plan.
4. To ratify the selection by the Board of Directors of Arthur Andersen
LLP as the independent public accountants for the Company.
5. To transact such other business as may properly come before the
Meeting.
The Board of Directors has fixed the close of business on March 10, 1997 as
the record date for the purpose of determining stockholders entitled to notice
of and to vote at the Meeting or any postponement or adjournment thereof.
In order to assure a quorum, it is important that stockholders who do not
expect to attend the Meeting in person complete, sign, date and promptly return
the enclosed proxy in the accompanying envelope.
By Order of the Board of Directors,
LOGO
JAMES D. HEFLINGER
Secretary
McLean, Virginia
March 25, 1997
<PAGE> 4
LCI INTERNATIONAL, INC.
8180 GREENSBORO DRIVE
MCLEAN, VIRGINIA 22102
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of LCI
International, Inc. (the "Company") for use at the 1997 annual meeting of
stockholders (the "Meeting") to be held at The Ritz-Carlton Hotel, 1700 Tysons
Boulevard, McLean, Virginia, on Tuesday, May 6, 1997, at 10:30 a.m. (local
time), and at any postponement or adjournment thereof. The enclosed proxy,
properly executed and received by the Secretary of the Company prior to the
Meeting, and not revoked, will be voted in accordance with the directions
thereon. If no directions are indicated, the persons named in the proxy
solicited by the Board of Directors of the Company intend to vote: (i) for each
nominee for election as a director, (ii) for approval of the 1997/1998 LCI
International, Inc. Stock Option Plan, (iii) for approval of the Executive
Incentive Compensation Plan, and (iv) for approval of the selection of Arthur
Andersen LLP as the independent public accountants for the Company for 1997.
If any other matter should be presented at the Meeting upon which a vote
properly may be taken, the shares represented by the proxy will be voted with
respect thereto at the discretion of the person or persons holding such proxy.
Proxies may be revoked by stockholders at any time prior to the voting of the
proxy by written notice to the Secretary of the Company, by submitting a new
proxy to the Secretary of the Company, or by personal ballot at the Meeting.
Attendance at the Meeting shall not have the effect of revoking a proxy unless
the stockholder so attending shall, in writing, so notify the Secretary of the
Meeting at any time prior to the voting of the proxy.
As of the close of business on March 10, 1997, the record date for
determining stockholders entitled to vote at the Meeting, the Company had issued
and outstanding 77,920,698 shares of its Common Stock (the "Common Shares").
Each Common Share is entitled to one vote at the Meeting. The first date on
which this proxy statement and the enclosed form of proxy are being sent to the
Company's stockholders is on or about March 25, 1997.
A listing of stockholders entitled to vote at the Meeting will be available
for inspection by any stockholder ten days prior to the date of the Meeting
between the hours of 8:00 a.m. and 5:00 p.m. at the offices of the Company
located at 8180 Greensboro Drive, McLean, Virginia.
The presence, in person or by proxy, of a majority of the outstanding
Common Shares is required for a quorum for the transaction of business at the
Meeting, but if a quorum should not be present, the Meeting may be adjourned
from time to time until a quorum is obtained.
The Common Shares are traded on the New York Stock Exchange, Inc. ("NYSE").
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of seven members.
At the Meeting, two directors will be elected to hold office for a three-year
term until the annual meeting of stockholders held in the year 2000, and until
their successors have been elected and qualified. If any nominee shall, prior to
the Meeting, become unavailable for election as a director, the persons named in
the accompanying form of proxy will vote for an alternative nominee, if any, in
their discretion as may be recommended by the Board of Directors, or the Board
of Directors may reduce the number of directors to eliminate the vacancy.
1
<PAGE> 5
INFORMATION AS TO NOMINEES FOR ELECTION AS DIRECTORS
The respective ages, positions with the Company, business experience and
directorships in other companies of the nominees for election as directors are
set forth below, which information has been furnished by such directors to the
Company.
William F. Connell, 58, is Chairman and Chief Executive Officer of Connell
Limited Partnership, a Boston, Massachusetts-based company comprised of six
divisions primarily involved in metals recycling and the manufacture of
industrial products. Prior to forming Connell Limited Partnership in 1987, Mr.
Connell served as Chairman and Chief Executive Officer of Avondale Industries
beginning in 1985, and held an executive position for 17 years with Ogden
Corporation. Mr. Connell is a director of Bank of Boston Corporation, Boston
Edison Company, Harcourt General, Inc., and North American Mortgage Company. Mr.
Connell has been a director of the Company since October 1996.
Julius W. Erving, II, 47, has been President of The Erving Group, Inc., a
marketing and public relations firm, since 1979. Mr. Erving serves on the board
of directors of the New York State Sports Commission, Philadelphia Coca-Cola
Bottling Company and Converse Inc. Mr. Erving has been a director of the Company
since December 1996.
INFORMATION AS TO DIRECTORS CONTINUING IN OFFICE
The respective ages, positions with the Company, business experience and
directorships in other companies of the directors of the Company continuing in
office are set forth below, which information has been furnished by such
directors to the Company.
Douglas M. Karp, 41, has been a Managing Director of E.M. Warburg, Pincus &
Co., LLC ("EMW LLC"), which provides specialized financial advisory and
counseling services, and its predecessor, E.M. Warburg, Pincus & Co., Inc.
("EMW"), since May 1991. Prior to joining EMW, Mr. Karp held several positions
at Salomon Brothers Inc., including Managing Director from January 1990 through
May 1991, Director from January 1989 through December 1989, and Vice President
from October 1986 through December 1988. Mr. Karp serves on the Board of
Directors as a nominee of Warburg, Pincus Capital Company, L.P. ("WPCC"), a
significant stockholder of the Company. Mr. Karp also serves as a director of
TresCom International, Inc. and TV Filme, Inc. Mr. Karp has been a director of
the Company since February 1993.
George M. Perrin, 51, has been Chairman of the Board of Paging Network,
Inc. ("PageNet"), a wireless messaging company, since 1993. From 1981 until
1992, Mr. Perrin served as President and Chief Executive Officer of PageNet.
Prior to founding PageNet, Mr. Perrin was the President of Zip-Call, Inc., and
held executive positions with Genecom, Inc. and Telocator Network of America.
Mr. Perrin has been a director of the Company since July 1994.
H. Brian Thompson, 58, has been Chairman of the Board of Directors and
Chief Executive Officer of the Company and its subsidiaries since July 1991. Mr.
Thompson previously served as Executive Vice President of MCI Communications
Corporation ("MCI"). Mr. Thompson is a director of Comcast UK Cable Partners
Limited, Golden Books Family Entertainment, Inc. and Microdyne Corporation. Mr.
Thompson also serves as Chairman of the Competitive Telecommunications
Association and is a member of the Listed Company Advisory Committee to the NYSE
Board of Directors.
John L. Vogelstein, 62, has been Vice Chairman of EMW LLC and EMW since
1982 and Vice Chairman and President since 1994. Prior thereto, he was an
officer and a director of EMW and its affiliates for more than five years. Mr.
Vogelstein serves on the Board of Directors as a nominee of WPCC. Mr. Vogelstein
is a director of ADVO, Inc., Aegis Group plc, Golden Books Family Entertainment,
Inc., Mattel, Inc., Value Health, Inc. and Vanstar Corporation. Mr. Vogelstein
has been a director of the Company since August 1994.
Thomas J. Wynne, 57, has been President and Chief Operating Officer of the
Company's subsidiaries since July 1991 and President and Chief Operating Officer
of the Company since April 1993. From 1977 to 1991, Mr. Wynne held several
executive positions with MCI, including President of the West Division, Vice
2
<PAGE> 6
President of Sales and Marketing for the Mid-Atlantic Division, and Vice
President for the Midwest Region. Mr. Wynne has been a director of the Company
since December 1991.
Messrs. Perrin, Vogelstein and Wynne were elected for a term that expires
at the annual meeting of stockholders in 1998. Messrs. Karp and Thompson were
elected for a term that expires at the annual meeting of stockholders in 1999.
All directors will serve until successors have been duly elected and qualified.
Vacancies may be filled by appointment through a majority vote of the remaining
directors.
Directors shall be elected by a plurality of the votes of the Common Shares
represented at the Meeting and entitled to vote on the election of directors. An
abstention from voting will be tabulated as a vote withheld in the election, but
will be included in computing the number of shares present for purposes of
determining the presence of a quorum for the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO
DIRECTORS NAMED ABOVE. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES WILL
BE VOTED FOR THIS PROPOSAL.
BOARD OF DIRECTORS' MEETINGS, COMMITTEES AND FEES
The Board of Directors has standing Audit and Compensation Committees. The
current members of the Audit Committee are Messrs. Connell and Perrin. The
current members of the Compensation Committee are Messrs. Erving, Connell, Karp
and Perrin.
The Audit Committee recommends to the Board of Directors the engagement of
the independent public accountants of the Company and reviews with the
independent public accountants the scope and results of their audits of the
Company. The Audit Committee meets with management and with the Company's
independent public accountants to review matters relating to the quality of
financial reporting and internal accounting control, including the nature,
extent and results of the audits, and otherwise maintains communications between
the Company's independent public accountants and the Board of Directors. The
Audit Committee met five times during 1996.
The Compensation Committee reviews the performance of corporate officers,
establishes overall employee compensation policies and recommends to the Board
of Directors major compensation programs. The Compensation Committee also
reviews and approves salary arrangements and other remuneration for executive
officers of the Company and is responsible for reviewing certain employee
benefit plans. The Compensation Committee met eleven times during 1996.
The Board of Directors met six times during 1996. During 1996, each
director attended at least 75% of the aggregate of (i) all Board meetings,
during the time he was a member of the Board, and (ii) all Committee meetings of
which he was a member.
Directors are reimbursed for expenses incurred in attending meetings of the
Board of Directors. In addition, directors qualifying as "Outside Directors" are
paid $1,000 for each meeting of the Board of Directors attended in person, $500
for each Board of Directors meeting participated in by conference call and $100
for each Board Committee meeting attended in person or participated in by
conference call. An Outside Director is a director who is neither (i) an
employee of the Company or any of its subsidiaries nor (ii) a person who,
through an employment relationship, by ownership of stock or partnership
interest, or through contractual relationships, is affiliated with any persons
or entities who or which in the aggregate is or are beneficial owner(s) of 4% or
more of any class of the Company's equity securities. Currently, Messrs.
Connell, Erving and Perrin qualify as Outside Directors.
Under the Non-Qualified Stock Option Plan for Directors (the "Director
Option Plan") each Outside Director will be granted an option to purchase 8,000
Common Shares at the time of becoming a director. In addition, after each annual
meeting of the stockholders, each Outside Director automatically will be granted
an option to purchase 8,000 Common Shares. As of the date of this Proxy
Statement, Mr. Perrin has been granted options to purchase 24,000 Common Shares,
and Messrs. Connell and Erving have each been granted options to purchase 8,000
Common Shares. Options to purchase a total of up to 400,000 Common Shares are
3
<PAGE> 7
authorized for grant under the Director Option Plan. The options granted under
the Director Option Plan vest immediately on the date of grant and the option
price per share is the fair market value per Common Share determined as of the
date of grant. The options granted under the Director Option Plan expire ten
years from the date of grant.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth certain information regarding the ownership
of the Common Shares of the Company as of March 10, 1997 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Shares, (ii) each of the executive officers named in the
"Summary Compensation Table," (iii) each director of the Company and (iv) all
directors and executive officers of the Company as a group. To the Company's
knowledge, except as otherwise noted, the named beneficial owner has sole voting
and investment power.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF
NAME OWNED TOTAL
- ------------------------------------------------------------------ ------------ ----------
<S> <C> <C>
Warburg, Pincus Capital Company, L.P (1).......................... 11,128,220(2) 13.4%
466 Lexington Avenue
New York, New York 10017
FMR Corp.......................................................... 7,986,300(3) 10.2%
82 Devonshire Street
Boston, Massachusetts 02109
William F. Connell................................................ 22,000(4) *
Julius W. Erving, II.............................................. 8,000(4) *
John L. Vogelstein (1)............................................ 11,317,479(5) 13.6%
Douglas M. Karp (1)............................................... 11,131,720(6) 13.4%
George M. Perrin.................................................. 34,000(4) *
H. Brian Thompson................................................. 1,938,801(4) 2.4%
Thomas J. Wynne................................................... 711,599 *
Joseph A. Lawrence................................................ 361,962 *
Marshall W. Hanno................................................. 310,513 *
Lawrence J. Bouman................................................ 71,666 *
All executive officers and directors as a group (12 persons)...... 14,792,020(7) 17.2%
</TABLE>
- ---------------
* Less than one percent.
(1) The sole general partner of Warburg, Pincus Capital Company, L.P. ("WPCC")
is Warburg, Pincus & Co., a New York general partnership ("WP"). E.M.
Warburg, Pincus & Co., LLC, a New York limited liability company ("EMW
LLC"), manages WPCC. The members of EMW LLC are substantially the same as
the partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EMW LLC and may be deemed to control both WP and EMW LLC.
WP, as the sole general partner of WPCC, has a 20% interest in the profits
of WPCC. Messrs. Vogelstein and Karp, directors of the Company, are members
of EMW LLC and general partners of WP. As such, each of Messrs. Vogelstein
and Karp may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Securities Exchange Act of 1934 (the "1934
Act")) in an indeterminate portion of the shares beneficially owned by WPCC
and WP. See Notes 5 and 6 below.
(2) Includes 5,158,556 Common Shares issuable upon the exercise of currently
exercisable warrants to purchase Common Shares which warrants are
exercisable through April 1, 2000 at an exercise price of $2.83 per share.
(3) On January 10, 1997, FMR Corp. ("FMR") notified the Company by means of a
Statement on Schedule 13G that certain of its subsidiaries or voluntary
affiliates exercised investment and voting discretion over various
investment accounts which as of December 31, 1996, held 7,986,300 shares.
Fidelity Management & Research Company, a wholly owned subsidiary of FMR, is
the beneficial owner of 6,668,700 shares with sole investment power over all
shares and no voting power. Fidelity Management Trust Company, a wholly
owned subsidiary of FMR and a bank, is the beneficial owner of 1,317,600
shares with sole voting power over 555,400 shares and sole investment power
over all shares.
(4) Includes Common Shares which the directors and named executive officers had
the right to acquire through the exercise of options as of March 10, 1997
as follows: William F. Connell -- 8,000; Julius W. Erving -- 8,000; George
M. Perrin -- 24,000; H. Brian Thompson -- 1,563,100; Thomas J. Wynne --
665,837; Joseph A. Lawrence -- 322,502; Marshall W. Hanno -- 279,722; and
Lawrence J. Bouman -- 63,333. Also includes Common Shares which the
executive officers have the right to acquire through the exercise of options
exercisable within 60 days of March 10, 1997 as follows: H. Brian Thompson
-- 37,116; Thomas J. Wynne -- 21,369; Joseph A. Lawrence -- 25,501; Marshall
W. Hanno -- 13,227; and Lawrence J. Bouman -- 8,333.
4
<PAGE> 8
(5) 189,259 of the Common Shares indicated above are owned directly by the John
L. Vogelstein Revocable Trust. Mr. Vogelstein has sole voting power and
sole investment power with respect to such shares. The remaining 11,128,220
Common Shares indicated as owned by Mr. Vogelstein are beneficially owned
by WPCC and are included because of Mr. Vogelstein's affiliation with WPPC.
Mr. Vogelstein disclaims "beneficial ownership" of these Common Shares
within the meaning of Rule 13d-3 under the 1934 Act. See Note 1 above.
(6) 3,500 of the Common Shares indicated above are owned directly by Mr. Karp.
The remaining 11,128,220 Common Shares indicated as owned by Mr. Karp are
beneficially owned by WPCC and are included because of Mr. Karp's
affiliation with WPCC. Mr. Karp disclaims "beneficial ownership" of these
Common Shares within the meaning of Rule 13d-3 under the 1934 Act. See Note
1 above.
(7) Includes or excludes, as the case may be, Common Shares set forth in the
preceding footnotes.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The information below is provided with respect to 1996 compensation for the
Company's executive officers, including the Chairman and Chief Executive Officer
("CEO").
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
ORGANIZATION AND GUIDING PRINCIPLES
The Compensation Committee of the Board of Directors, consisting of four
non-employee directors, annually evaluates and sets the base salaries for the
executive officers and administers executive incentive compensation plans and
the Company's stock option plans.
The principles which guide the Compensation Committee are:
A. Compensation should be competitive with the market in order to attract
and retain highly qualified executives;
B. Compensation should be performance-based, i.e., a significant portion of
compensation should be tied to achievement of the Company's financial
performance targets; and
C. Compensation should include significant ownership of the Company's
Common Stock in order to focus executive officers' objectives on
maximizing stockholder value.
The Compensation Committee endeavors to maximize deductibility of
compensation under Section 162(m) of the Internal Revenue Code ("Code") to the
extent practicable while maintaining competitive compensation. Section 162(m)
generally disallows a tax deduction to public companies for annual compensation
over $1 million paid to a corporation's chief executive officer and the four
other most highly compensated executive officers unless certain requirements are
met.
The Company has employment agreements with each of the named executive
officers which are described under "Employment Contracts, Termination of
Employment and Change-in-Control Arrangements" on page 8.
COMPENSATION AND COMPANY PERFORMANCE
Each year, the Compensation Committee reviews the base and incentive
compensation paid to executive officers during the previous two years and
compares that information to base and incentive compensation for comparable
officers in a peer group. For 1996, the peer group was comprised of seven
telecommunications companies with annual revenues both larger and smaller than
that of the Company (the "Peer Group"). The Compensation Committee believes the
Peer Group reflects the market in which the Company competes for executive
talent. The Compensation Committee compares the growth of revenue, certain
earnings, earnings per share and stock price for the Company and the Peer Group,
and base and incentive compensation, as well as stock option grants for
executive officers at the Company and the Peer Group, to assure that executive
compensation and option grants are competitive with the Peer Group. The
Compensation Committee also considers the executive officer's contribution to
the Company's performance and reviews the performance of the particular aspects
of the Company for which the executive officer is responsible.
Incentive compensation for all executive officers, including the CEO, was
determined quarterly based on the 1996 Executive Incentive Compensation Plan
(the "Incentive Plan"). In December 1995, the Compensa-
5
<PAGE> 9
tion Committee established certain financial performance goals and each
executive officer was assigned an Individual Incentive Target, expressed as a
percentage of base compensation. The Individual Incentive Targets represented
amounts that would be payable to the officers, ranging from no payout to a
payout of two times the Individual Incentive Target depending on actual Company
performance. Each quarter the Compensation Committee and the CEO reviewed on a
subjective basis the contributions of the other executive officers to the
Company's performance and as a result decreases or increases in the quarterly
awards were made. During the year, the Compensation Committee adjusted the
performance goals to take into account significant changes experienced by the
Company including the completion of certain acquisitions. The payouts for 1996
performance were less than the Individual Incentive Targets for each executive
officer individually and as a group.
In addition to base and incentive compensation, the Compensation Committee
also grants options for the purchase of Common Stock to executive officers. Each
year, the Compensation Committee reviews all existing options held by the
executive officers and projects their value at certain market prices over the
next three and five years using an assumed increase in the Common Stock price.
The Compensation Committee then performs the same analysis for comparable
officers in the Peer Group. Options are granted at fair market value on the date
of grant as determined in accordance with the stock option plan. Generally, 20%
of the options are exercisable on the first anniversary of the grant and 1.66%
are exercisable each month thereafter, provided employment continues.
CEO COMPENSATION
Pursuant to the Company's employment contract with the CEO, Mr. Thompson's
annual base compensation is subject to adjustment by the Board of Directors but
cannot be less than $400,000. When determining the annual base compensation and
stock option grants for the CEO, the Compensation Committee makes the Peer Group
comparisons described above and compares the performance of the Company as a
whole to its goals and objectives, including growth in revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), profitability and
stock price. In its base salary evaluation of the CEO for 1996, the Compensation
Committee compared Company results for the first three quarters of 1995 and 1994
and noted that the Company's revenues grew 41%, EBITDA grew 39%, earnings per
share grew 19% and the stock price grew 47%. The Compensation Committee also
noted the Company's performance in these areas was significantly better than
most of the companies in the Peer Group for the same period. As a result of the
foregoing analysis, Mr. Thompson's base salary for 1996 was increased from
$500,000 to $530,000, an increase of 6%, and he was granted an option
exercisable for 200,000 shares of Common Stock.
Incentive compensation for the CEO was paid quarterly based on the
Incentive Plan and adjustments authorized in certain quarters by the
Compensation Committee. Based on an Individual Incentive Target of 120% of base
salary, Mr. Thompson received quarterly Incentive Plan payments totaling 63% of
his Individual Incentive Target for 1996.
The Company also made available to Mr. Thompson certain other benefits in
1996, as described in the Summary Compensation Table on page 7, including a)
split-dollar life insurance, b) matching contributions pursuant to the Company's
Supplemental Retirement Plan for executive officers and other officers of the
Company and its subsidiaries (the "Supplemental Plan"), and c) matching
contributions pursuant to the Company's qualified 401(k) Savings Plan (the
"401(k) Plan") in accordance with matching provisions applicable to all
participants under the 401(k) Plan.
THE COMPENSATION COMMITTEE
WILLIAM F. CONNELL
(APPOINTED TO THE COMMITTEE IN
NOVEMBER 1996)
JULIUS W. ERVING, II
(APPOINTED TO THE COMMITTEE IN
DECEMBER 1996)
DOUGLAS M. KARP
GEORGE M. PERRIN
6
<PAGE> 10
SUMMARY COMPENSATION TABLE
The table below sets forth all compensation paid by the Company to each of
the named executive officers for the last three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
NAME AND --------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
H. Brian Thompson..................... 1996 530,000 403,740 200,000 30,092(2,5,6)
Chairman & Chief 1995 500,000 508,750 300,000 19,338(2,5,6)
Executive Officer 1994 460,000 368,460 240,000 7,156(2,5)
Thomas J. Wynne....................... 1996 320,000 168,480 125,000 228,864(3,5,6,7)
President & Chief 1995 305,000 232,766 200,000 29,164(3,5,6,7)
Operating Officer 1994 287,500 201,502 120,000 6,163(3,5)
Joseph A. Lawrence.................... 1996 260,000 120,675 115,000 9,385(4,5,6)
Senior Vice President -- Finance and 1995 235,000 143,478 160,000 7,403(4,5,6)
Development, and Chief Financial 1994 215,500 129,384 140,000 513(4)
Officer
Marshall W. Hanno..................... 1996 215,000 88,984 100,000 103,536(5,7)
Senior Vice President -- Sales 1995 195,000 119,058 140,000 4,500(5)
1994 180,000 108,158 60,000 3,597(5)
Lawrence J. Bouman.................... 1996 215,000 98,034 100,000 --
Senior Vice President -- Engineering, 1995 48,000(1) 29,400(1) 150,000 1,150(7)
Operations and Technology
</TABLE>
- ---------------
(1) Represents partial year; Mr. Bouman joined the Company as an executive
officer in October 1995.
(2) Includes the cost to the Company of a split-dollar life insurance policy on
the life of Mr. Thompson. See "Employment Contracts, Termination of
Employment and Change-In-Control Arrangements" on page 8. During 1996, the
Company paid a premium of $318,000 on this policy. The Company is entitled
to a refund of the cumulative annual premiums paid by it to the insurer
pursuant to the split-dollar life insurance arrangement before any benefits
are paid by the insurer to the owner or beneficiaries of the policy. The
amount of "All Other Compensation" associated with the split-dollar
insurance arrangement in 1996 is $943, representing the partial year cost of
the term life insurance component of the policy. At present, there is no
actuarial value of the benefit to Mr. Thompson of the remainder of the
premiums paid by the Company during 1996. "All Other Compensation" also
includes premiums of $3,224, $2,865 and $2,556 in 1996, 1995 and 1994,
respectively, paid by the Company on a former split-dollar life insurance
policy, the proceeds of which were payable to designated beneficiaries of
Mr. Thompson. Such policy was converted to paid-up key man life insurance
during 1996.
(3) Includes $5,500 in 1996, 1995, and 1994 for premiums paid by the Company on
a term life insurance policy, the proceeds of which are payable to
designated beneficiaries of Mr. Wynne.
(4) Includes the cost to the Company of a split-dollar life insurance policy on
the life of Mr. Lawrence. See "Employment Contracts, Termination of
Employment and Change-In-Control Arrangements" on page 8. During 1996, the
Company paid a premium of $156,000 on this policy. The Company is entitled
to a refund of the cumulative annual premiums paid by it to the insurer
pursuant to the split-dollar life insurance arrangement before any benefits
are paid by the insurer to the owner or beneficiaries of the policy. The
amount of "All Other Compensation" associated with the split-dollar
insurance arrangement in 1996 is $665, representing the partial year cost of
the term life insurance component of the policy. At present, there is no
actuarial value of the benefit to Mr. Lawrence of the remainder of the
premiums paid by the Company during 1996. "All Other Compensation" also
includes premiums of $599, $553 and $513 in 1996, 1995 and 1994
respectively, paid by the Company on a former split-dollar life insurance
policy, the proceeds of which were payable to designated beneficiaries of
Mr. Lawrence. Such policy was converted to paid-up key man life insurance
during 1996.
(5) Includes the following matching contributions made to officers' accounts in
the Company's 401(k) Plan: $1,904 in 1996, $2,108 in 1995 and $4,600 in 1994
for Mr. Thompson; $1,904 in 1996, $1,770 in 1995 and $663 in 1994 for Mr.
Wynne; $4,500 in 1996 and $4,500 in 1995 for Mr. Lawrence; $4,327 in 1996,
$4,500 in 1995 and $3,597 in 1994 for Mr. Hanno.
(6) Includes the following matching contributions made to officers' accounts in
the Company's Supplemental Plan: $13,996 in 1996 and $9,692 in 1995 for Mr.
Thompson; $7,696 in 1996 and $5,815 in 1995 for Mr. Wynne; and $3,300 in
1996 and $1,765 in 1995 for Mr. Lawrence. Also includes the following
imputed return on investment for contributions to the Supplemental Plan at
the same rate as achieved in the Company's 401(k) Plan: $10,025 in 1996 and
$4,673 in 1995 for Mr. Thompson; $1,739 in 1996 and $453 in 1995 for Mr.
Wynne; and $321 in 1996 and $585 in 1995 for Mr. Lawrence.
(7) Includes reimbursement for relocation expenses of $212,025 in 1996 and
$15,626 in 1995 for Mr. Wynne; $99,209 in 1996 for Mr. Hanno; and $1,150 in
1995 for Mr. Bouman.
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<PAGE> 11
The following table contains information concerning the grant of options
under the Company's 1995/1996 Stock Option Plan to each of the named executive
officers of the Company during the year ended December 31, 1996. No stock
appreciation rights ("SARs") were granted in 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(S)(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- -------------------------- ---------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. Brian Thompson......... 200,000 8.6% $21.19 1/5/06 $2,665,255 $6,754,281
Thomas J. Wynne........... 125,000 5.4% $21.19 1/5/06 $1,665,785 $4,221,425
Joseph A. Lawrence........ 115,000 4.9% $21.19 1/5/06 $1,532,522 $3,883,711
Marshall W. Hanno......... 100,000 4.3% $21.19 1/5/06 $1,332,628 $3,377,140
Lawrence J. Bouman........ 100,000 4.3% $21.19 1/5/06 $1,332,628 $3,377,140
</TABLE>
- ---------------
(1) 20% of these options became exercisable on January 5, 1997 and 1.66% become
exercisable each month thereafter for 48 months. Options were granted with
an exercise price at the fair market value of a Common Share determined
pursuant to the 1995/1996 Stock Option Plan on the date of grant and expire
ten years from the date of grant.
(2) The potential realizable value represents the estimated future gain in the
value of the options over their exercise price which may exist immediately
prior to the scheduled expiration date of the options. The calculation
assumes the specified compounded rates of appreciation in the per share
price of the Common Shares starting on the date of the grant and further
assumes that the options will be exercised on their expiration date. The
actual value, if any, which may be realized will depend upon the market
price of the Common Shares on the date the option is exercised.
The following table sets forth information with respect to the exercise of
options during 1996 and the options held as of December 31, 1996 by each of the
named executive officers. As of December 31, 1996, no SARs were outstanding.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
ACQUIRED UNEXERCISED OPTIONS OPTIONS AT FY-END
ON VALUE AT FY-END(#) ($)(2)
EXERCISE REALIZED -------------------------- --------------------------
(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Brian Thompson........ -- -- 1,785,984 613,484 $32,775,116 $ 5,200,675
Thomas J. Wynne.......... 87,000 $2,557,408 619,468 369,883 $10,533,304 $ 2,992,227
Joseph A. Lawrence....... 85,000 $1,872,689 277,336 352,663 $ 3,258,411 $ 2,843,349
Marshall W. Hanno........ 60,000 $1,744,355 246,495 246,760 $ 3,776,454 $ 1,763,141
Lawrence J. Bouman....... -- -- 35,000 215,000 $ 163,975 $ 582,275
</TABLE>
- ---------------
(1) The value realized is calculated by subtracting the aggregate exercise price
from the fair market value of the Common Shares as of the exercise date.
(2) Represents the difference between the closing market price of the Common
Shares at December 31, 1996 of $21.625 per share and the exercise price of
in-the-money options multiplied by the number of shares underlying the
in-the-money options.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Effective April 19, 1993, the Company and LCI International Management
Services, Inc. ("LCIM") entered into employment agreements with each of Messrs.
Thompson, Wynne and Hanno, pursuant to which each executive agreed to serve full
time in his present position. In December 1995, Mr. Thompson's employment
agreement renewed for a two-year period. In July 1995, the employment agreements
for Messrs. Wynne and Hanno each renewed for a two-year period. Effective in
October 1993, the Company and LCIM entered into an employment agreement with Mr.
Lawrence, pursuant to which Mr. Lawrence agreed to serve full time as Chief
Financial Officer. In October 1995, Mr. Lawrence's employment agreement renewed
for a two-year period. Effective October 2, 1995, LCIM entered into an
employment agreement with Mr. Bouman, pursuant to which Mr. Bouman agreed to
serve full time as Senior Vice President-Engineering,
8
<PAGE> 12
Operations and Technology. The term of the employment agreements for Messrs.
Thompson, Wynne and Hanno will automatically extend for successive two-year
periods except that any party may terminate the agreement by giving written
notice no later than 90 days prior to the end of any term. Mr. Bouman's
employment agreement will automatically renew for one two-year period, except
that either party may terminate the agreement by giving written notice at least
twelve months prior to the end of the initial term. The annual base salary under
the agreements for Messrs. Thompson, Wynne, Lawrence, Hanno and Bouman will be
set by the Board of Directors, but cannot be less than $400,000, $250,000,
$206,000, $150,000, and $200,000 respectively. In addition, each of these
executives will be eligible to receive bonus payments under the Company's
incentive plans in amounts determined by the Board of Directors. Mr. Bouman's
agreement also provides for the reimbursement of certain relocation expenses up
to $100,000.
Pursuant to these employment agreements, if the executive is terminated for
cause (as defined in the agreements) or the executive voluntarily terminates his
employment, he will receive his base salary plus any amounts due under benefit
plans or otherwise through the date of termination. If the executive's
employment is terminated without cause, he will receive (i) his base salary plus
any amounts due under benefit plans or otherwise through the date of
termination, (ii) a severance payment in an amount equal to the executive's
annual base salary, and (iii) bi-weekly payments in an amount equal to the last
such payment received by the executive prior to the date of termination for up
to one year after the termination of employment (the "Termination Payments"). In
addition, Mr. Bouman may participate in group insurance plans for one year
following any termination without cause. For executive officers other than Mr.
Bouman, if there is a material change in an executive's position or his duties
(and in the case of Mr. Lawrence, compensation or benefits) without his consent,
and the executive thereafter terminates his employment, such termination shall
be deemed to be without cause and the executive will be entitled to the rights
of an executive terminated without cause. Mr. Lawrence is entitled to receive
the Termination Payments if he resigns as a result of any material breach by the
Company of his employment agreement or his office being moved to a location
other than Dublin, Ohio or McLean, Virginia.
The employment agreements further provide that if there is a "change in
control" of the Company, all stock options granted to these executives will vest
and become immediately exercisable. "Change in control" is defined under the
employment agreements as the acquisition by any person, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) other than WPCC or
its affiliates, of more than 50% of the then outstanding voting securities of
the Company. All other employees with stock options have the same "change in
control" provision in their stock option agreements.
Pursuant to the employment agreements for Messrs. Thompson and Lawrence,
the Company has entered into split-dollar life insurance arrangements dated as
of November 1, 1996 (the "Split-Dollar Plans"). Under the Split-Dollar Plans,
the Company has agreed to pay to an insurer annual premiums on split-dollar life
insurance policies on the lives of Messrs. Thompson and Lawrence. Such
split-dollar policies are currently owned by trusts established by each of
Messrs. Thompson and Lawrence. The Company will receive a reimbursement of all
premiums before any benefits are paid by the insurer to the owner or
beneficiaries of the policies. The premiums advanced are secured through
collateral assignments of the respective policies. Until such time as the cash
surrender value of each policy exceeds the cumulative annual premiums paid by
the Company, the deficiency will be secured by notes from the respective trusts
to the Company. In 1996, the amount of these notes was $52,242 for Mr.
Thompson's trust and $18,623 for Mr. Lawrence's trust.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in 1996 were Messrs. Connell,
Erving, Karp and Perrin. James Bartlett also served as a member of the
Compensation Committee in 1996 until his resignation from the Board of Directors
in September 1996. Mr. Connell replaced Mr. Bartlett on the Committee in
November 1996. Mr. Erving was added to the Committee when he joined the Board of
Directors in December 1996. No executive officer of the Company served on any
board of directors or compensation committee of any entity other than the
Company, with which any member of the Compensation Committee is affiliated.
9
<PAGE> 13
PERFORMANCE GRAPH
The graph sets forth below the cumulative total return on the Common Shares
for the period commencing with the initial issuance of the Common Shares on May
12, 1993, and ending on December 31, 1996 as compared with the S&P 500 Index
("S&P 500") and the S&P Telecommunications Index ("S&P Telecommunications"). The
information on these indices has been provided by Georgeson & Company Inc. The
total return for the Company is based upon an initial $100 investment at the
Company's initial public offering ("IPO") price of $4.56 (split adjusted) on May
12, 1993 and the market price of $21.625 per share as of December 31, 1996. The
calculation of the cumulative total return on Common Shares does not include
reinvestment of dividends because the Company did not pay dividends during the
measurement period. The stock price performance on the following graph is not
necessarily indicative of future stock performance.
CUMULATIVE TOTAL RETURN ON THE COMMON SHARES OF
LCI INTERNATIONAL, INC.
BASED ON INVESTMENT OF $100 BEGINNING MAY 12, 1993
<TABLE>
<CAPTION>
LCI
MEASUREMENT PERIOD INTERNATIONAL, S&P TELECOMM.
(FISCAL YEAR COVERED) INC. S&P 500 INDEX
<S> <C> <C> <C>
12-MAY-93 100 100 100
DEC-93 203 107 101
DEC-94 293 108 92
DEC-95 449 149 124
DEC-96 474 183 128
</TABLE>
The total return for LCI International, Inc. is based upon an
initial $100 investment at the Company's IPO price of $4.56
(split adjusted) on May 12, 1993 and the market price of
$21.625 per share as of December 31, 1996.
10
<PAGE> 14
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons or entities who own more than 10% of the
Company's Common Shares, to file with the Securities and Exchange Commission
(the "SEC") and the NYSE initial reports of beneficial ownership and changes in
beneficial ownership of the Company's Common Shares. Such persons are also
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. To the Company's knowledge, based solely on a review of
the copies of such reports furnished to the Company as to transactions for which
reports are required, all Section 16(a) filing requirements applicable to such
individuals or entities were complied with in 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain transactions among the Company and
its directors, executive officers and certain of its current stockholders and
related persons:
REGISTRATION RIGHTS. Pursuant to certain agreements between WPCC and the
Company, and such other parties thereto, the Company has granted to WPCC certain
demand and "piggyback" registration rights. Under these agreements, the Company
has agreed to pay certain expenses of WPCC in connection with such registration
and has agreed to indemnify WPCC against certain civil liabilities, including
liability under the Securities Act of 1933, as amended (the "1933 Act").
Pursuant to an undertaking made by the Company in connection with its
acquisition of Corporate Telemanagement Group, Inc. ("CTG"), the Company granted
to certain former shareholders and warrantholders of CTG (the "CTG Registration
Rights Holders"), including Charles S. Houser, former Senior Vice
President-Corporate Telemanagement Division, members of his immediate family and
trusts established by him, certain demand and "piggyback" registration rights.
During the year ended December 31, 1996, the Company paid certain expenses
associated with a demand registration request received from the CTG Registration
Rights Holders. Such demand registration request was ultimately withdrawn by the
CTG Registration Rights Holders and the demand registration rights are no longer
effective. In connection with the piggyback registration rights, the Company has
agreed to pay certain expenses of the CTG Registration Rights Holders and has
agreed to indemnify the CTG Registration Rights Holders against certain civil
liabilities, including liability under the 1933 Act.
PROPOSAL NUMBER TWO
APPROVAL OF THE 1997/1998 LCI INTERNATIONAL, INC. STOCK OPTION PLAN
Effective February 12, 1997, the Board of Directors adopted and recommended
for stockholder approval the 1997/1998 LCI International, Inc. Stock Option Plan
(the "1997/1998 Stock Option Plan") pursuant to which the Company may grant
Incentive Stock Options ("ISOs") or Non-Qualified Options. A copy of the
1997/1998 Stock Option Plan is attached hereto as Appendix A. The following
description of this plan is qualified in its entirety by reference to Appendix A
which is hereby incorporated herein by reference as if fully set forth herein.
PLAN ADMINISTRATION
The 1997/1998 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors which will have the full authority to
administer the plan and prescribe, amend or rescind rules and regulations
related thereto. In making such determinations, the Compensation Committee may
consider the nature of the services rendered by eligible employees, their
present and potential contributions to the Company's success, and such other
factors deemed relevant by the Compensation Committee. The Compensation
Committee has the right to delegate to the Company's CEO authority to determine
the number of Common Shares subject to options, the terms and provisions of the
applicable stock option agreements granting options, and the acceleration of
vesting of outstanding options, all subject to limitations approved in
11
<PAGE> 15
writing in advance by the Compensation Committee. No stock option granted under
the 1997/1998 Stock Option Plan shall be exercisable after the expiration of ten
years from the date of its grant.
MATERIAL PROVISIONS
The total number of Common Shares subject to options under the 1997/1998
Stock Option Plan shall not exceed 3,000,000, subject to adjustment in the event
of certain changes in the Company's capitalization. Stock options may be granted
under the 1997/1998 Stock Option Plan only to employees of the Company or any of
its subsidiaries within the meaning of Section 424(f) of the Code. In addition,
no individual participant may be granted options under the plan for more than
500,000 Common Shares during any calendar year for which the plan is in effect.
The exercise price of options may not be less than the Fair Market Value, as
defined in the plan, of the Common Shares on the date the options are granted.
As of March 1, 1997, there were 2,459 employees eligible to be selected to
participate in the 1997/1998 Stock Option Plan.
TERMINATION, MODIFICATION AND AMENDMENT
The 1997/1998 Stock Option Plan shall terminate on February 12, 2007. The
plan may from time to time be terminated, modified or amended by the affirmative
vote of stockholders. Additionally, the Board may at any time terminate the plan
or from time to time make such modifications or amendments of the plan as it
deems advisable; provided, that the Board may not, without stockholder approval,
increase the maximum number of Common Shares as to which options may be granted
under the plan (except certain adjustments upon changes in capitalization) or
change the class of persons eligible to receive options.
FEDERAL INCOME TAX EFFECTS OF PLAN PARTICIPATION
Options granted under the plan to an employee of the Company will
constitute an ISO within the meaning of Section 422 of the Code, or
Non-Qualified Options as determined on the date of grant in accordance with the
Code.
INCENTIVE STOCK OPTIONS. Neither the grant nor the exercise of an ISO will
result in taxable income to the optionee or any income tax deduction to the
Company. However, the excess, if any, of the Fair Market Value of the Common
Shares acquired pursuant to such exercise over their option price is an
adjustment for the purpose of computing the alternative minimum tax, unless such
shares are disposed of in a "disqualifying disposition" (as defined below) in
the year of exercise. However, the alternative minimum tax applies only if it is
greater than a taxpayer's regular tax liability.
If an optionee makes no disposition of the Common Shares acquired on the
exercise of an ISO within the period ending the later of two years after the
date of grant of such option or one year plus one day after the date of transfer
of such shares to such optionee pursuant to such exercise, then upon disposition
of such shares:
(a) the amount, if any, realized in excess of the option price of such
shares will be treated as long term capital gain; or
(b) the amount, if any, by which such option price exceeds the amount
realized will be treated as long term capital loss; and in either event
(c) the Company will not be allowed any deduction for federal income
tax purposes with respect to the exercise of such option.
If an optionee disposes of Common Shares acquired on the exercise of an ISO
within the period described above (any disposition by the optionee within such
period being hereinafter called a "disqualifying disposition"), then upon
disposition of such shares:
(a) if the amount realized upon such disposition is equal to or
greater than the Fair Market Value of such shares at the date of exercise:
12
<PAGE> 16
(i) the amount, if any, by which such Fair Market Value exceeds the
option price of such shares will be treated as compensation taxable as
ordinary income to such optionee in the year of disposition; and
(ii) the amount, if any, realized in excess of such Fair Market
Value will be treated as long-term capital gain if such shares were held
for more than twelve months after the date of exercise and as a
short-term capital gain if such shares were held for a lesser period.
(b) if the amount realized upon a disqualifying disposition is less
than such Fair Market Value but not less than such option price, the excess
of the amount realized over such option price will be treated as
compensation taxable as ordinary income to such optionee in the year of
such disposition, unless such disposition is a transaction in which any
loss sustained would not have been recognized under the Code (such as a
sale between certain related parties), in which case the difference between
such Fair Market Value and such option price will be treated as
compensation taxable as ordinary income;
(c) if the amount realized upon a disqualifying disposition is less
than such option price, the excess of such option price over the amount
realized will be treated as a long-term capital loss if such shares were
held for more than twelve months after the date of exercise and as a
short-term capital loss if such shares were held for a lesser period,
unless such disposition is a transaction in which any loss sustained would
not have been recognized under the Code (such as a sale between certain
related parties), in which case the difference between such Fair Market
Value and such option price will be treated as compensation taxable as
ordinary income to such optionee in the year of such disposition; or
(d) if a disqualifying disposition is a gift, the difference between
such Fair Market Value and such option price will be treated as
compensation taxable as ordinary income to such optionee in the year of
such disposition.
The Company generally will be allowed a deduction for federal income tax
purposes in the year of any disqualifying disposition to the extent, if any,
that an optionee recognized compensation taxable as ordinary income. Any amount
that an optionee recognizes as compensation taxable as ordinary income will be
subject to income tax withholding by the Company.
NON-QUALIFIED STOCK OPTIONS. An optionee will not recognize any income upon
the grant of a Non-Qualified Option, but the exercise of a Non-Qualified Option
will have the following tax consequences.
(a) On the date of such exercise an optionee who at the time of
exercise is not an executive officer or director of the Company will
recognize compensation taxable as ordinary income with respect to Common
Shares acquired pursuant to such exercise, in an amount equal to the
excess, if any, of the Fair Market Value of such shares on the date of
exercise over the option price, and the holding period for such shares will
commence on such date.
(b) An optionee who at the time of exercise is an executive officer or
director of the Company will recognize compensation taxable as ordinary
income with respect to Common Shares acquired pursuant to such exercise on
the expiration date of the period during which such optionee is subject to
suit under Section 16(b) of the Exchange Act, in an amount equal to the
excess, if any, of the Fair Market Value of such shares on the date on
which such income is recognized over the option price, and the holding
period for such shares will commence on such date. However, such an
optionee may elect to recognize any compensation resulting from the
exercise of a Non-Qualified Option on the date of exercise and have such
compensation computed by reference to the Fair Market Value of the Common
Shares acquired pursuant to such exercise on such date (and thus to have
the holding period for such shares commence on such date) by filing an
election with the IRS within 30 days after exercise. If the optionee makes
such an election and later is required to forfeit the excess of the Fair
Market Value of the shares over the purchase price, pursuant to Section
16(b) of the Exchange Act, no deduction will be allowed to the optionee as
a result of such forfeiture.
(c) An optionee will not recognize any additional income by reason of
delivery of shares, rather than cash, as payment for shares acquired by
exercise of Non-Qualified Options. Under current IRS rulings,
13
<PAGE> 17
the number of shares acquired by exercise equal to the number of shares so
delivered will have a carryover basis equal to the optionee's basis in the
shares so delivered. The basis of any remaining shares will be equal to the
amount of income recognized by the optionee upon the exercise of the
option.
The amount which an optionee, who at the time of exercise is also an
employee, recognizes as compensation taxable as ordinary income will be subject
to income tax withholding by the Company. The Company will be allowed a
deduction for federal income tax purposes in the year and in the amount that an
optionee recognizes compensation taxable as ordinary income.
The tax basis of Common Shares acquired by the exercise of a Non-Qualified
Option with cash will be equal to the option price, increased by the amount, if
any, that an optionee recognizes as compensation taxable as ordinary income.
Upon the disposition of the Common Shares acquired on the exercise of a
Non-Qualified Option, an optionee will realize long-term capital gain or loss if
such shares were held for more than 12 months and short-term capital gain or
loss if such shares were held for a lesser period.
The affirmative vote of a majority of the Common Shares represented at the
Meeting and entitled to vote is required for approval of the proposal. An
abstention from voting will be tabulated as a vote withheld, but will be
included in computing the number of shares present for purposes of determining
the presence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1997/1998
LCI INTERNATIONAL, INC. STOCK OPTION PLAN. UNLESS INDICATED OTHERWISE ON THE
PROXY, THE SHARES WILL BE VOTED FOR THIS PROPOSAL.
PROPOSAL NUMBER THREE
APPROVAL OF THE EXECUTIVE INCENTIVE COMPENSATION PLAN
On February 13, 1997, the Compensation Committee of the Board of Directors
approved and recommended for stockholder approval the Executive Incentive
Compensation Plan (the "Incentive Compensation Plan"). The Incentive
Compensation Plan provides quarterly incentive awards to executive officers of
the Company, contingent upon the financial performance of the Company, to
motivate individual and corporate performance that will inure to the benefit of
the Company's stockholders. The Incentive Compensation Plan is being submitted
for stockholder approval in order to comply with the requirements of Section
162(m) of the Code for the CEO. In general, Section 162(m) disallows deductions
for compensation paid to a public corporation's top five executives, unless the
compensation is based on performance and approved by stockholders. In the event
stockholder approval of the Incentive Compensation Plan is not obtained, no
compensation will be paid to the CEO under the plan and the Compensation
Committee will consider other alternatives.
PLAN ADMINISTRATION
The Incentive Compensation Plan is administered by the Compensation
Committee of the Board of Directors and all decisions and all actions thereof
are conclusive and binding. The Compensation Committee establishes the
performance goals which must be met before awards are payable under the plan,
administers the plan in accordance with terms and conditions of the plan, and
certifies in writing prior to payment of any awards that the performance goals
for which awards are payable were in fact met.
EFFECTIVE DATE AND ELIGIBILITY
The Incentive Compensation Plan is effective January 1, 1997 and will end
on December 31, 1997. The fiscal quarters to which the plan applies are the
three-month periods ending March 31, 1997; June 30, 1997; September 30, 1997;
and December 31, 1997. Executive officers of the Company are eligible to
participate in the Incentive Compensation Plan.
14
<PAGE> 18
CALCULATION OF AWARDS
Each eligible participant is assigned an Individual Incentive Target for
the purpose of calculating awards under the Incentive Compensation Plan. The
targets are expressed as a percentage of the participant's base compensation
rate. For purposes of the Incentive Compensation Plan, neither the Individual
Incentive Target nor the base compensation rate used for the CEO may be
increased following approval of the Incentive Compensation Plan by the
Compensation Committee. The Individual Incentive Target represents the amount a
participant would receive as an award under the plan adjusted up or down
depending on actual Company financial performance during the quarter for which
the award is calculated. The adjustment for Company performance could result in
no payout or a payout up to two times the Individual Incentive Target. For all
eligible participants other than the CEO, a subjective evaluation of the
participant's contribution to the Company's performance is also completed by the
CEO and the Compensation Committee and the award may be adjusted upward or
downward as a result, provided however, in no event may a participant's award be
more than 200% of the applicable Individual Incentive Target.
FINANCIAL PERFORMANCE CRITERIA
Company financial performance is measured by comparing actual financial
results for a given quarter against the pre-determined financial performance
goals established by the Compensation Committee. Once established such goals may
not change as they apply to the CEO; however, the Compensation Committee has
discretion to change the performance goals for participants other than the CEO.
The specific financial elements used in the comparison to actual financial
results are: Revenue Growth, Selling, General and Administrative Expense
Control, EBITDA, and Earnings Per Share. The Compensation Committee authorizes
the payment of incentive awards following the end of each quarter through a
written certification that the performance goals for which incentives are
payable have been met. The Compensation Committee has the discretion to adjust
the performance goals in the event of an acquisition, disposition, corporate
restructuring, recapitalization, or other unusual event. In no event may such
adjustment increase the compensation that would otherwise be due upon attainment
of the goal. The Compensation Committee reserves the right to reduce the level
of incentives payable, at its sole discretion.
FEDERAL INCOME TAX CONSEQUENCES OF PLAN PARTICIPATION
Compensation payable under the Incentive Compensation Plan will be taxable
to participants as ordinary income (compensation) at the time of payment. The
Company will generally be entitled to a corresponding compensation deduction,
provided that the payments comply with the requirements of Section 162(m) of the
Code.
The affirmative vote of a majority of the Common Shares represented at the
Meeting and entitled to vote is required for approval of the proposal. An
abstention from voting will be tabulated as a vote withheld, but will be
included in computing the number of shares present for purposes of determining
the presence of a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EXECUTIVE
INCENTIVE COMPENSATION PLAN. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES
WILL BE VOTED FOR THIS PROPOSAL.
NEW PLAN BENEFITS UNDER THE 1997/1998 STOCK OPTION PLAN AND THE
EXECUTIVE INCENTIVE COMPENSATION PLAN
The following table sets forth the options that have been granted to date
to each of the CEO, the other named executive officers, all executive officers
as a group and all employees, other than executive officers, as a group under
the 1997/1998 Stock Option Plan. The dollar value of benefits under the
1997/1998 Stock Option Plan and the Incentive Compensation Plan is based on the
future performance of the Company and therefore not readily ascertainable. The
following table also sets forth for the CEO, the other named executive officers
and all executive officers as a group (a) the amounts that would be payable
under the Incentive
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<PAGE> 19
Compensation Plan if the quarterly payouts equaled the Individual Incentive
Targets, (the "Incentive Targets"), and (b) the maximum amounts payable under
the Incentive Compensation Plan ("Maximum").
<TABLE>
<CAPTION>
EXECUTIVE
INCENTIVE COMPENSATION
1997/1998 STOCK PLAN
OPTION PLAN ------------------------
--------------------
NUMBER OF DOLLAR VALUE ($)
SHARES ------------------------
DOLLAR UNDERLYING INCENTIVE
NAME AND POSITION VALUE OPTIONS(1) TARGETS MAXIMUM
- -------------------------------------------------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
H. Brian Thompson................................. N/A 200,000 $ 784,000 $1,568,000
Chairman & Chief Executive Officer
Thomas J. Wynne................................... N/A 125,000 $ 340,000 $ 680,000
President & Chief Operating Officer
Joseph A. Lawrence................................ N/A 115,000 $ 247,500 $ 495,000
Senior Vice President -- Finance and Development,
and Chief Financial Officer
Marshall W. Hanno................................. N/A 100,000 $ 180,000 $ 360,000
Senior Vice President -- Sales
Lawrence J. Bouman................................ N/A 100,000 $ 180,000 $ 360,000
Senior Vice President -- Engineering, Operations
and Technology
All executive officers N/A 715,000 $2,007,250 $4,014,500
as a group, including those listed above
All employees, other than N/A 1,276,900 N/A N/A
executive officers, as a group
</TABLE>
- ---------------
(1) These options have been granted under the 1997/1998 Stock Option Plan,
subject to stockholder approval. If the 1997/1998 Stock Option Plan should
not be approved by the stockholders, then the options granted above will be
effective under previously approved stock options plans. The options are
subject to vesting at 20% on February 13, 1998, and 1.66% a month for 48
months thereafter. As of March 10, 1997, no options have vested. The
exercise price is $19.31 per share.
Each of Messrs. Thompson, Wynne, Lawrence, Hanno and Bouman is entitled to
participate in the 1997/1998 Stock Option Plan and the Incentive Compensation
Plan. No current non-executive director is entitled to participate in these
plans. All employees of the Company and its subsidiaries are eligible to be
selected to participate in the 1997/1998 Stock Option Plan. The Incentive
Compensation Plan is limited to executive officers.
PROPOSAL NUMBER FOUR
RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit Committee, the Board of Directors proposes
and recommends that the stockholders ratify the selection of the firm of Arthur
Andersen LLP to serve as independent public accountants of the Company for 1997.
Unless otherwise directed by the stockholders, proxies will be voted for
approval of the selection of Arthur Andersen LLP as the independent public
accountants for the Company for 1997. A representative of Arthur Andersen LLP
will attend the Meeting, and will have an opportunity to make a statement if he
or she so desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
FOR 1997. UNLESS INDICATED OTHERWISE ON THE PROXY, THE SHARES WILL BE VOTED FOR
THIS PROPOSAL.
16
<PAGE> 20
DATE FOR SUBMISSION OF STOCKHOLDER PROPOSAL
Appropriate proposals from stockholders intended to be presented at the
1998 annual meeting must be received by the Company on or before November 25,
1997, for inclusion in the Company's proxy statement and form of proxy relating
to that meeting.
MISCELLANEOUS
The Company will bear all of the costs of the solicitation of proxies for
use at the Meeting. In addition to solicitations by mail, a number of regular
employees of the Company and of its subsidiaries may solicit proxies in person
or by telephone. The Company also has retained Georgeson & Company Inc. to aid
in the solicitation of proxies, at an estimated cost of $7,000 plus
reimbursement of reasonable out-of-pocket expenses. Banks, brokerage houses and
other institutions, nominees or fiduciaries will be requested to forward the
proxy materials to the beneficial owners of the Common Shares held of record by
such persons and entities and will be reimbursed for their reasonable expenses
incurred in connection with forwarding such material.
Stockholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy promptly, no
matter how large or how small your holdings may be.
As of the date of this Proxy Statement, management had no knowledge of any
business, other than that described herein, which will be presented for
consideration at the Meeting. In the event any other business is properly
presented at the Meeting, it is intended that the persons named in the enclosed
proxy will have authority to vote such proxy in accordance with their judgment
on such business.
By Order of the Board of Directors
JAMES D. HEFLINGER
Secretary
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<PAGE> 21
APPENDIX A
1997/1998 LCI INTERNATIONAL, INC. STOCK OPTION PLAN
1. PURPOSES.
The 1997/1998 LCI International, Inc. Stock Option Plan (the "Plan") is
intended to attract and retain the best available personnel for positions of
substantial responsibility with LCI International, Inc., a Delaware corporation
(the "Company"), LCI International Management Services, Inc. ("LCI"), or any
other subsidiary corporations of the Company, and to provide additional
incentive to such persons to exert their maximum efforts toward the success of
the Company and its subsidiary corporations. The above aims will be effectuated
through the granting of certain stock options ("Options"). Under the Plan, the
Company may grant "incentive stock options" ("ISOs") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
Options which are not intended to be ISOs ("Non-Qualified Options").
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by a committee (the "Committee") consisting
of at least two persons, appointed by the Board of Directors of the Company (the
"Board of Directors"), each of whom shall be a "non-employee director" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act"). The Committee may exercise the power and authority vested in
the Board of Directors under the Plan. In administering the Plan, the Committee
shall follow any general guidelines not inconsistent with the Plan established
by the Board of Directors and may adopt rules and regulations for carrying out
the Plan. Within the limits of the express provisions of the Plan, the Committee
shall have the authority, in its discretion, to take the following actions under
the Plan:
(a) to determine the individuals to whom, and the time or times at
which, Options to purchase the Company's shares of common stock, par value
$.01 per share ("Common Shares"), shall be granted, the number of Common
Shares to be subject to each Option and whether such Options shall be ISOs
or Non-Qualified Options;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(d) to determine the terms and provisions of the respective stock
option agreements granting Options, including the date or dates upon which
Options shall become exercisable, which terms need not be identical;
(e) to accelerate the vesting of any outstanding Options;
(f) to delegate to the Company's Chief Executive Officer authority to
take all action described under Sections 2(a), (d) and (e) of the Plan
subject to limitations to be approved in writing in advance by the
Committee; and
(g) to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan. In making such
determinations, the Committee may take into account the nature of the
services rendered by such individuals, their present and potential
contributions to the Company's success, and such other factors as the
Committee, in its discretion, shall deem relevant. An individual to whom an
option has been granted under the Plan is referred to herein as an
"Optionee." The Committee's determinations on the matters referred to in
this Section 2 shall be conclusive.
3. SHARES SUBJECT TO THE PLAN.
The total number of Common Shares which shall be subject to Options granted
under the Plan shall not exceed 3,000,000 subject to adjustment as provided in
Section 7 hereof. The Company shall at all times while the Plan is in force
reserve such number of Common Shares as will be sufficient to satisfy the
requirements of outstanding Options. The Common Shares to be issued upon
exercise of Options shall be authorized and unissued or reacquired Common Shares
held in treasury. The unexercised portion of any expired, terminated
18
<PAGE> 22
or canceled Option shall again be available for the grant of Options under the
Plan. In addition, in no event shall any one person be granted options for more
than 500,000 Common Shares during any calendar year for which the Plan is in
effect, subject to adjustment as provided in Section 7 hereof.
4. ELIGIBILITY.
(a) Options may be granted under the Plan only to employees of the Company,
LCI or to employees of any other "subsidiary corporation" (a "Subsidiary") of
the Company within the meaning of Section 424(f) of the Code. The term
"Company," when used in context of an Optionee's employment, shall be deemed to
include Subsidiaries of the Company.
(b) Nothing contained in the Plan shall be construed to limit the right of
the Company to grant stock options otherwise than under the Plan for proper
corporate purposes.
5. TERMS OF OPTIONS.
The terms of each Option granted under the Plan shall be determined by the
Committee consistent with the provisions of the Plan, including the following:
(a) The purchase price of the Common Shares subject to each Option
shall be fixed by the Committee, in its discretion, at the time such Option
is granted; provided that such purchase price may not be less than the Fair
Market Value (as determined in accordance with Section 5(h) hereof) of the
Common Shares as of the date of grant.
(b) The dates on which each Option (or portion thereof) shall be
exercisable shall be fixed by the Committee, in its discretion, at the time
such Option is granted.
(c) The expiration of each Option shall be fixed by the Committee, in
its discretion, at the time such Option is granted. No Option shall be
exercisable after the expiration of ten (10) years from the date of its
grant and each Option shall be subject to earlier termination as determined
by the Committee, in its discretion, at the time such Option is granted.
(d) The exercise period following death, disability and termination of
employment shall be determined by the Committee, in its discretion, at the
time the option is granted.
(e) Options shall be exercised by the delivery to the Company at its
principal office or at such other address as may be established by the
Committee (Attention: Corporate Treasurer) of written notice of the number
of Common Shares with respect to which the Option is being exercised
accompanied by payment in full of the purchase price of such shares. Unless
otherwise determined by the Committee at the time of grant, payment for
such shares may be made (i) in cash, (ii) by certified check or bank
cashier's check payable to the order of the Company in the amount of such
purchase price, (iii) by delivery to the Company of Common Shares held by
the Optionee for at least six months having a Fair Market Value equal to
such purchase price, (iv) by irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds
necessary to pay such purchase price and to sell the Common Shares to be
issued upon exercise of the Option and deliver the cash proceeds less
commissions and brokerage fees to the Optionee or to deliver the remaining
Common Shares to the Optionee, or (v) by any combination of the methods or
payment described in (i) through (iv) above.
(f) An Optionee shall not have any of the rights of a shareholder with
respect to the Common Shares subject to his or her Option until such shares
are issued to him or her upon the exercise of his or her Option.
(g) Options shall not be transferable, except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code, and may be exercised during the lifetime of
the Optionee only by him or her. No Option granted under the Plan shall be
subject to execution, attachment or other process.
19
<PAGE> 23
(h) For purposes of the Plan, the Fair Market Value of Common Shares
as of any date shall be deemed to be the mean between the highest and
lowest sale prices reported on the New York Stock Exchange ("NYSE"), or the
principal national securities exchange on which such Common Shares are
listed and traded on the immediately preceding date, or, if there is no
such sale on that date, then on the last preceding date on which such a
sale was reported. If the Common Shares are not quoted on the NYSE, or
listed on an exchange, or representative quotes are not otherwise
available, the Fair Market Value of the Common Shares shall mean the amount
determined by the Committee to be the Fair Market Value based upon a good
faith attempt to value the Common Shares accurately.
6. SPECIAL PROVISIONS APPLICABLE TO ISOS.
The following special provisions shall be applicable to ISOs granted under
the Plan.
(a) No ISOs shall be granted under the Plan after ten (10) years from the
earlier of (i) the date the Plan is adopted, or (ii) the date the Plan is
approved by the shareholders of the Company.
(b) ISOs may not be granted to a person who owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company,
any of its Subsidiaries, or any "parent corporation" (a "Parent") of the Company
within the meaning of Section 424(e) of the Code.
(c) If the aggregate Fair Market Value of the Common Shares with respect to
which ISOs are exercisable for the first time by any Optionee during a calendar
year (under all plans of the Company and its Parents and Subsidiaries) exceeds
$100,000, such ISOs shall be treated, to the extent of such excess, as Non-
Qualified Options. For purposes of the preceding sentence, the Fair Market Value
of the Common Shares shall be determined at the time the ISOs covering such
shares were granted.
(d) Without prior written notice to the Company, no Common Shares acquired
by an Optionee upon exercise of an ISO granted hereunder may be disposed of by
the Optionee within two (2) years from the date such ISO was granted, nor within
one (1) year after the transfer of such Common Shares to the Optionee; provided,
however, that a transfer to a trustee, receiver, or other fiduciary in any
insolvent proceeding, as described in Section 422(c)(3) of the Code shall not be
deemed to be such a disposition. If Section 422 of the Code is amended during
the term of this Plan, the Committee may modify this Plan consistently with such
amendment.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding Common Shares are changed by reason
of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the
like, or dividends payable in Common Shares, an appropriate adjustment shall be
made by the Committee in the aggregate number of shares available under the
Plan, the maximum number of shares which may be granted to any one person during
any calendar year, and in the number of shares and price per share subject to
outstanding Options. If the Company shall be reorganized, consolidated, or
merged with another corporation, or if all or substantially all of the assets of
the Company shall be sold or exchanged, an Optionee shall at the time of
issuance of the stock under such corporate event be entitled to receive upon the
exercise of his Option the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon the occurrence or any such corporate event as if he had been, immediately
prior to such event, the holder of the number of Common Shares covered by his
Option.
(b) Any adjustment under this Section 7 in the number of Common Shares
subject to Options shall apply proportionately to only the unexercised portion
of any Option granted hereunder. If fractions of a share would result from any
such adjustment, the adjustment shall be revised to the next lower whole number
of shares.
8. FURTHER CONDITIONS OF EXERCISE.
(a) Unless prior to the exercise of an Option, the Common Shares issuable
upon such exercise are the subject of a registration statement filed with the
Securities and Exchange Commission pursuant to the
20
<PAGE> 24
Securities Act of 1933, as amended (the "Securities Act"), and there is then in
effect a prospectus meeting the requirements of Section 10(a)(3) of the
Securities Act, the notice of exercise with respect to such Option shall be
accompanied by a representation or agreement of the Optionee to the Company to
the effect that such shares are being acquired for investment only and not with
a view to the resale or distribution thereof, or such other documentation as may
be required by the Company, unless, in the opinion of counsel to the Company,
such representation, agreement or documentation is not necessary to comply with
the Securities Act.
(b) Anything in subparagraph (a) of this Section 8 to the contrary
notwithstanding, the Company shall not be obligated to issue or sell any Common
Shares until they have been listed on each securities exchange on which the
Common Shares may then be listed and until and unless, in the opinion of counsel
to the Company, the Company may issue such shares pursuant to the qualification
of an effective registration statement, or an exemption from registration, under
such state and federal laws, rules or regulations as such counsel may deem
applicable. The Company shall use reasonable efforts to effect such listing,
qualification and registration, as the case may be.
9. TERMINATION, MODIFICATION AND AMENDMENT.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the date of its adoption by the Board of
Directors, and no Option shall be granted after termination of the Plan. Any
Option outstanding at the termination date shall remain outstanding until it
either has expired or been exercised.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
the capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time terminate the
Plan or from time to time make such modifications or amendments of the Plan as
it may deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of the holders of a majority of the
outstanding shares of the capital stock of the Company entitled to vote thereon,
increase (except as provided in Section 7) the maximum number of Common Shares
as to which Options may be granted under the Plan or change the class of persons
eligible to receive ISOs under the Plan.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by any Options without consent of the affected
Optionee.
10. EFFECTIVENESS OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors of
the Company, subject to the approval by the shareholders of the Company. Options
may be granted under the Plan prior to receipt of such approval, provided that,
in the event such approval is not obtained, the Plan and all Options granted
under the Plan shall be null and void and of no force and effect.
11. NOT A CONTRACT OF EMPLOYMENT.
Nothing contained in the Plan or in any stock option agreement executed
pursuant hereto shall be deemed to confer upon any Optionee any right to remain
in the employ of the Company or subsidiary corporation.
12. GOVERNING LAW.
The Plan shall be governed by the laws of the State of Delaware without
reference to principles of conflict of law.
21
<PAGE> 25
13. WITHHOLDING.
As a condition to the exercise of any Option, the Committee may require
that an Optionee satisfy, through withholding from other compensation or
otherwise, the full amount of all federal, state and local income and other
taxes required to be withheld in connection with such exercise.
14. APPROVED LEAVES OF ABSENCE.
In the case of an Optionee on an approved leave of absence, the Committee
may, if it determines that to do so would be in the best interests of the
Company, provide in a specific case for continuation of the Options held by such
Optionee during such leave of absence; such continuation to be in such terms and
conditions as the Committee determines to be appropriate, except that in no
event shall an option be exercisable after ten (10) years from the date it is
granted.
22
<PAGE> 26
LCI INTERNATIONAL, INC. AND SUBSIDIARIES
EXECUTIVE INCENTIVE COMPENSATION PLAN
PURPOSE OF THE PLAN
The Corporate Incentive Compensation Plan has been established to support LCI's
objective of being a leader in the telecommunications industry, and a Company
that stresses high quality products and services, superior customer service,
and a good return on its stockholders investment. The Plan provides quarterly
incentive awards to Executive Officers of the Company, contingent upon the
financial performance of the Company, to motivate individual and corporate
performance that will inure to the benefit of LCI's shareholders.
The Plan, as it applies to the Chief Executive Officer ("CEO"), is intended to
comply with Section 162(m) of the Internal Revenue Code. Any Plan provision
which is determined to be in conflict with this Code section shall be null and
void.
PLAN ADMINISTRATION
The Executive Incentive Compensation Plan is administered by the Compensation
Committee of the Board of Directors. The Committee establishes the performance
goals which must be met before awards are payable under this Plan, administers
the Plan in accordance with terms and conditions of the Plan, and certifies
prior to payment of any awards that the performance goals for which awards are
payable were, in fact, met.
EFFECTIVE DATE
The fiscal quarters to which this Plan applies are the three month periods
ending March 31, June 30, September 30, and December 31.
ELIGIBILITY
The Chairman and CEO, the President and Chief Operating Officer, the Senior
Vice President and Chief Financial Officer, the Senior Vice President of Sales,
and executives in comparable positions with LCI International, Inc. are
eligible to participate in the executive Incentive Compensation Plan.
To be eligible to receive an incentive award during any given fiscal quarter,
a participant must be in an eligible position during that fiscal quarter and
remain in an eligible position until the date the awards for that fiscal
quarter are paid.
Participants who assume an eligible position after the beginning of a fiscal
quarter will be eligible to participate in the Plan during that quarter. Their
Individual Incentive Target will be pro-rated, however, to reflect the actual
number of days in that position during the quarter vs the total number of
available work days in the quarter.
Participants who leave the Company, either on a voluntary or involuntary basis,
prior to the date awards are paid will cease to be eligible to participate in
the Plan on the effective date of their termination of employment.
<PAGE> 27
CALCULATION OF AWARDS
Each eligible participant is assigned as Individual Incentive target for the
purpose of calculating awards under the Corporate Incentive Compensation Plan.
The targets are based on the participant's base compensation rate. The
Individual Incentive Target represents the amount a participant would receive
as an award under the Plan for the quarter if all the Company financial
performance requirements are met. The actual award amount may be higher or
lower than this amount depending on actual Comapany financial performance during
the quarter for which the award is calculated. For the purposes of this Plan,
neither the Individual Incentive Target nor the base compensation rate of the
Chief Executive Officer may be increased after the approval of this Plan by
the Compensation Committee.
Company financial performance is measured by comparing actual financial results
for a given quarter against the financial performance goals established by the
Compensation Committee prior to the beginning of that fiscal quarter. Such goals
shall not change, as this Plan applies to the CEO. The specific financial
elements used in this comparison are: Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA); Revenue Growth; Sales, General and
Administrative Expense Controls (SG&A); and Earnings Per Share (EPS). EBITDA
accounts for 40% of overall company performance. Revenue Growth accounts for
20%, SG&A controls account for 20% and EPS accounts for the remaining 20%. The
Compensation Committee authorizes the payment of incentive awards following the
end of each quarter, and cerifies that the performance targets for which
incentives are payable have been met.
The Compensation Committee shall have discretion to adjust the performance
goals in the event of an acquisition, disposition, corporate restructuring,
recapitalization, or other unusual event experienced by the Company. In no
event, however, may such adjustments increase the amount of compensation
payable that would otherwise be due upon attainment of the goal.
The award level based on Company financial performance may range from 0% to
200% depending on actual results. For participants other than the CEO, after
the award level is calculated, the Compensation Committee and the CEO
subjectively evaluate such participant's contribution to the Company's
performance and the award may be adjusted upward or downward as a result
provided however, in no event shall a participant's award be more than 200% of
the applicable incentive target. The Compensation Committee reserves the right
to reduce the level of incentives payable for all participants, at their sole
discretion.
AWARD PAYMENTS
Awards shall be paid as soon as practicable following the end of the fiscal
quarter for which awards are payable.
OTHER INFORMATION
The establishment of the Corporate Incentive Compensation Plan, the payment of
any award, or any action of the Compensation Committee in connection with the
Plan shall not be held or construed to confer upon any participant any legal
right to be continued in the employ of the Company.
Any decision made or action taken by the Compensation Committee in connection
with the construction, administration, interpretation and effect of the Plan
shall be within the absolute discretion of the Compensation Committee and shall
be conclusive and binding upon all persons.
This Plan may be terminated, suspended, withdrawn, amended or modified in whole
or in part at any time.
No member of the Board of Directors or Compensation Committee shall be liable
for any act or action hereunder, whether of commission or omission, taken by
any other member, officer, agent or participant, except in circumstances
involving bad faith, for anything done or omitted to be done, by
himself/herself.
2
<PAGE> 28
[LOGO]LCI International(R)
ADMISSION TICKET
Please Retain for Admittance
This ticket is not transferable
[LCI LOGO]
LCI INTERNATIONAL, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
--------------------------
==========================
TUESDAY, MAY 6, 1997
10:30 A.M.
THE RITZ-CARLTON HOTEL
1700 TYSONS BOULEVARD
McLEAN, VIRGINIA
LCI INTERNATIONAL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE DIRECTORS OF LCI INTERNATIONAL, INC.
IN CONNECTION WITH ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 6, 1997
The undersigned stockholder of LCI International, Inc. (the "Company")
hereby appoints H. Brian Thompson, Joseph A. Lawrence and James D. Heflinger,
or any of them, the true and lawful attorneys, agents and proxies of the
undersigned, with full power of substitution to vote all the shares of the
Company's common stock, par value $.01 per share, which the undersigned may be
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held on May 6, 1997 (the "Meeting"), and at any adjournment or postponement of
such meeting with all powers which the undersigned would possess if personally
present, for the following purposes.
LCI INTERNATIONAL, INC. RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
NOMINEES AND THE PROPOSALS LISTED BELOW.
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS--To elect each of William F. Connell and Julius W.
Erving, II as a Director of the Company to serve until the Company's annual
meeting held in the year 2000 and until their successors are elected and
qualified.
[ ] FOR each nominee (except as indicated to the contrary) [ ] WITHHOLD AUTHORITY
(Instruction: To withhold authority to vote for any individual nominee, write that nominee's name in the space provided below.)
-------------------------------------------------------------------------------------------------------------------------------
2. APPROVAL OF THE 1997/1998 STOCK OPTION PLAN--To approve the 1997/1998 LCI International, Inc. Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE EXECUTIVE INCENTIVE COMPENSATION PLAN--To approve the Executive Incentive Compensation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS--To ratify the selection of the firm of Arthur Andersen LLP to serve as
independent accountants of the Company in 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. OTHER--In their discretion upon such other matters, including withholding a quorum, if necessary, as may properly come before the
Meeting.
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
[LCI LOGO]
LCI International, Inc.
c/o Corporate Trust Services
Mail Drop 1090F5
38 Fountain Square Plaza
Cincinnati, OH 45263
ADMISSION TICKET
PLEASE RETAIN FOR ADMITTANCE
This ticket is not transferable
DIRECTIONS TO:
The Ritz-Carlton
1700 Tysons Boulevard
McLean, Virginia 22102
(703) 506-4300
FROM DALLAS INTERNATIONAL AIRPORT (12 MILES): TAKE THE DALLAS TOLL
ROAD (ROUTE 387) EAST TO EXIT 17 (SPRING HILL ROAD). TURN RIGHT ONTO
SPRING HILL ROAD, WHICH WILL BECOME INTERNATIONAL DRIVE. GO TO THE
THIRD LIGHT AND TURN LEFT ONTO TYSONS BOULEVARD. THE HOTEL IS ON
THE RIGHT AT 1700.
FROM NATIONAL AIRPORT (14 MILES): TAKE ROUTE 233 WEST AND THEN ROUTE
1 NORTH. TAKE THE LEFT LANE AND SWITCH OVER TO ROUTE 110 NORTH. GO
TWO MILES AND TAKE I-66 WEST EIGHT MILES TO EXIT 66-B (LEESBURG
PLAZA WEST/TYSONS CORNER). FOLLOW LEESBURG PLAZA WEST TO TYSONS
[MAP] CORNER (ABOUT 2 MILES). AS YOU ENTER TYSONS CORNER, TURN RIGHT ONTO
INTERNATIONAL DRIVE. GO TO THE FIFTH LIGHT AND TURN RIGHT ONTO
TYSONS BOULEVARD. THE HOTEL IS ON THE RIGHT AT 1700.
FROM DOWNTOWN WASHINGTON, D.C., CONSTITUTION AVENUE WEST-BOUND WILL
LEAD TO I-66. CROSS THE POTOMAC RIVER VIA T. ROOSEVELT MEMORIAL
BRIDGE AND TAKE I-66 WEST. CONTINUE FOR EIGHT MILES TO EXIT 66-B
(LEESBURG PLAZA WEST/TYSONS CORNER). FOLLOW LEESBURG PLAZA WEST TO
TYSONS CORNER (ABOUT 2 MILES). AS YOU ENTER TYSONS CORNER, TURN
RIGHT ONTO INTERNATIONAL DRIVE. GO TO THE FIFTH LIGHT AND TURN RIGHT
fold and detach here ONTO TYSONS BOULEVARD. THE HOTEL IS ON THE RIGHT AT 1700.
- ------------------------------------------------------------------------------------------------------------------------------------
This Proxy will be voted as directed or, if no direction is indicated, will be voted FOR the election of the directors
and the approval of the proposals described above.
Dated: ____________________ , 1997
__________________________________
(Signature of Stockholder)
__________________________________
(Signature of Stockholder)
__________________________________
(Title or Company)
PLEASE SIGN YOUR NAME EXACTLY AS IT
APPEARS ON YOUR STOCK CERTIFICATE(S).
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN OR
CORPORATE EXECUTOR, PLEASE GIVE YOUR
TITLE AS SUCH. FOR JOINT ACCOUNTS, ALL
CO-OWNERS SHOULD SIGN. PLEASE MARK,
SIGN, DATE AND MAIL THIS PROXY IN THE
ENVELOPE PROVIDED.
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