<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS SUPPLEMENT
AND PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No. 33-96186
SUBJECT TO COMPLETION, DATED JUNE 11, 1997
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 10, 1997)
$300,000,000
[LOGO]
% SENIOR NOTES DUE JUNE , 2007
------------------
INTEREST PAYABLE JUNE AND DECEMBER
---------------------
The Notes will mature on June , 2007. Interest on the Notes is payable
semi-annually on June and December of each year, beginning December ,
1997. The Notes may not be redeemed prior to maturity and are not subject to any
sinking fund.
As of May 31, 1997, the Company had outstanding aggregate indebtedness of
$247.2 million that would have ranked PARI PASSU with the Notes and no
outstanding debt to which the Notes would have ranked senior in right of
payment. In addition, the Notes will be structurally subordinated to all
existing and future liabilities, including trade payables, of the Company's
subsidiaries.
The Notes will be represented by one or more Global Securities registered in
the name of The Depository Trust Company, as depository.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
<S> <C> <C> <C>
Per Note................................................. % % %
Total.................................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from June , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $ .
------------------------
The Notes offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the Notes will be
made through the facilities of The Depository Trust Company on or about June ,
1997.
------------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
<PAGE>
June , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES FOLLOWING THE PRICING OF THE
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE NOTES OR FOR THE PURPOSE OF
MAINTAINING THE PRICE OF THE NOTES. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING."
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Prospectus Supplement, the Prospectus and the periodic filings under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of LCI
International, Inc. ("LCI" or the "Company") contain forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). These forward-looking statements express the beliefs and expectations of
management regarding LCI's future results and performance and include, without
limitation, the following: statements concerning the Company's future outlook;
the Company's plans to enter the local service market; the effect of Federal
Communications Commission and judicial rulings pertaining to the
Telecommunications Act of 1996 (the "Telecommunications Act"), local service
competition and Regional Bell Operating Companies ("RBOC") entry into the long
distance market; the impact of marketplace competition on pricing strategies and
rates; expected revenue growth; the cost reduction strategies and opportunities
to expand the Company's network which may allow for increased gross margin; the
expected savings from the Company's Accounts Receivable Securitization Program
(the "Securitization Program"); funding of capital expenditures and operations;
the Company's beliefs regarding a catastrophic service failure; and other
similar expressions concerning matters that are not historical facts.
Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results,
performance and/or achievements of the Company to differ materially from any
expected future results, performance or achievements, expressed or implied by
the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements and any such statement is qualified
by reference to the following cautionary statements. In connection with the safe
harbor provisions of the Reform Act, the Company's management is hereby
identifying important factors that could cause actual results to differ
materially from management's expectations, including, without limitation, the
following: increased levels of competition in the telecommunications industry,
including RBOC entry into the interLATA long distance industry and the related
impact on pricing; the adoption and application of rules and regulations
relating to implementation of the Telecommunications Act; the ability to
negotiate appropriate local service agreements with local exchange carriers; and
other risks described from time to time in the Company's periodic filings with
the Securities and Exchange Commission (the "Commission") under the Exchange
Act. The Company is not required to publicly release any changes to these
forward-looking statements for events occurring after the date hereof or to
reflect other unanticipated events.
S-2
<PAGE>
THE COMPANY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN THE COMPANY'S PERIODIC REPORTS FILED UNDER THE EXCHANGE
ACT INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS UNDER THE
CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
LCI International, Inc. ("LCI" or the "Company") is a rapidly growing
facilities-based telecommunications carrier that provides a broad range of
domestic and international telecommunications service offerings, including long
distance, data and local services. The Company targets all market segments--
commercial, residential and wholesale--and sells through a variety of channels,
including an internal sales force and external channels such as multi-level
marketing programs, affinity programs, third party distributors and agents and
selective advertising. The Company serves its customers primarily through owned
and leased digital fiber optic facilities, including switches strategically
located throughout the U.S. For the twelve months ended March 31, 1997, the
Company generated revenue and EBITDA of $1.2 billion and $221 million,
respectively.
The Company's services include basic switched long distance, accessible via
"1 plus" dialing or dialing a five-digit access code, and a variety of long
distance services for larger customers available through switched or dedicated
lines. The Company seeks to attract and retain a wide range of commercial,
wholesale and residential customers through the introduction of new services, as
well as continued provision of high quality service at competitive prices.
Although the Company provides long distance services to a wide range of market
segments, the Company does not seek to compete with every service offered by the
Company's competitors.
The Company focuses on differentiating LCI through SIMPLE, FAIR AND
INEXPENSIVE-SM- telecommunications services which provide residential customers
with competitive and easy-to-understand rates that primarily vary based on
whether a call is placed during or after business hours and not by the distance
of a call. Calls for long distance services are primarily billed based on an
initial charge with additional charges for usage based on six-second increments.
The Company does not attach any complex conditions to its residential services,
such as minimum monthly usage or requiring customers to sign up other customers
to earn full discounts. An additional element is added to this strategy for
commercial customers, where LCI also focuses on offering a full complement of
high quality, competitively priced services to small, medium-sized and large
customers including calling card services, "800 services," audioconferencing and
specialized high-volume data transmission services. The Company's strategic
direction is supported by growth through expansion in sales offices and network
operating facilities, sales agent and distributor relationships, service
offerings to each market segment and selective acquisitions. This approach is
dependent on maintaining efficient, low cost operations in order to preserve
pricing flexibility and operating margins.
As part of LCI's objective to provide a broad array of telecommunications
services to its customers, the Company recently began offering local service on
a resale basis and has extended its SIMPLE, FAIR AND INEXPENSIVE marketing
approach to its local service offerings. Through the Company's Simply Direct-SM-
service offering, LCI's local service customers receive simplified rates, direct
dialing for local and long distance service, 24-hour customer service and
combined billing for local and long distance services. As of May 31, 1997, the
Company had obtained authority to provide local service in 26 states and the
District of Columbia, with applications to provide local service pending in 22
states. Currently, the Company offers local service in 22 markets in 10 states.
The Company's nationwide long distance network consists of 11 supernode
switches and owned and leased digital fiber optic transmission facilities.
Within the central Midwest region of the United States, the Company operates a
1,400 route-mile network. In February 1997, the Company entered into an
agreement with IXC Communications for an additional 3,100 route-miles to
supplement its current network. Delivery and acceptance of these facilities are
expected to occur beginning in the second half of 1997. The Company believes
that its strategy to develop and expand its owned network will significantly
increase capacity, reduce transmission costs and provide greater control of the
network, including the ability to swap its unused fiber optic facilities for
capacity on other carriers' routes.
S-3
<PAGE>
USE OF PROCEEDS
The net proceeds from the offering of the Notes, estimated to be $296.7
million, will be used to repay the outstanding indebtedness under the Company's
$700 million revolving credit agreement (the "Credit Agreement"), for possible
acquisitions and for working capital and general corporate purposes. As of May
31, 1997, the Company had outstanding $215.0 million under the Credit Agreement
bearing interest at 6.27%. The Credit Agreement, which matures in March 2001,
will remain in place and the Company may borrow thereunder from time to time in
the future. The Company reviews and considers possible acquisitions on an
ongoing basis; however, it has no present understandings, commitments or
agreements, with respect to any acquisition.
CAPITALIZATION
The following table sets forth at March 31, 1997, the (i) actual
capitalization of the Company, and (ii) capitalization of the Company as
adjusted to give effect to the sale of the Notes offered hereby and the
application of the estimated net proceeds therefrom after deducting the
estimated underwriting discount and other estimated offering expenses. See "Use
of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and related notes
incorporated by reference herein.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Long-Term Debt
Credit Agreement and Other Long-Term Debt(A)......................... $ 229.6 $ 14.6
Capital Lease Obligations............................................ 12.6 12.6
Notes................................................................ -- 300.0
--------- -----------
Total Debt......................................................... $ 242.2 $ 327.2
--------- -----------
Shareowners' Equity.................................................... 456.1 456.1
--------- -----------
Total Capitalization............................................... $ 698.3 $ 783.3
--------- -----------
--------- -----------
Total Debt/Total Capitalization........................................ 34.7% 41.8%
</TABLE>
- ------------------------------
(A) Other Long-Term Debt represents amounts outstanding under the Company's $50
million discretionary lines of credit. At March 31, 1997, the Company had
outstanding $14.6 million under these lines of credit. The outstanding
balance is reflected in long-term debt due to current availability under the
Credit Agreement.
S-4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below are consolidated financial and other data with respect to
the Company for each of the five years in the period ended December 31, 1996.
The Statement of Operations and Balance Sheet Data are derived from the
consolidated financial statements of the Company, which have been audited by
Arthur Andersen LLP, independent public accountants. All information set forth
below should be read in conjunction with the information and audited
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in the
Company's Annual Report on Form 10-K, as amended, for the year ended December
31, 1996 incorporated by reference herein. The consolidated financial data and
other data for the three-month periods ended March 31, 1997 and 1996 are
unaudited and, in the opinion of the Company's management, include all
adjustments necessary for a fair presentation of such information. Such
unaudited information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
other information and the unaudited condensed consolidated financial statements
contained in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1997 incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1997 1996 1996 1995 1994(A) 1993(A) 1992(A)
--------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT SWITCHED REVENUE PER MOU)
STATEMENT OF OPERATIONS DATA
Revenues....................................... $ 314.7 $ 250.6 $ 1,103.0 $ 672.9 $ 464.0 $ 341.2 $ 260.5
Operating Expenses............................. 273.8 219.4 959.5 590.3 413.1 320.0 267.0
Operating Income (Loss)........................ 40.9 31.2 143.5 82.6 50.9 21.2 (6.5)
Interest Expense, Net.......................... 4.5(B) 7.4 28.8 16.3 8.8 23.3 32.7
Income (Loss) Before
Extraordinary Items.......................... 20.5 15.3 74.8 50.8 6.8 (2.6) (41.7)
Net Income (Loss).............................. 20.5 15.3 74.8 50.8 6.8 (10.9) (41.7)
Income (Loss) on
Common Stock................................. $ 20.5 $ 13.9 $ 72.0 $ 45.1 $ 1.0 $ (13.0) $ (46.9)
BALANCE SHEET DATA
Total Assets................................... $ 976.8 $ 906.6 $ 950.0 $ 773.4 $ 469.7 $ 359.8 $ 323.6
Long-Term Debt and
Capital Lease Obligations.................... 242.2 382.9 235.8 274.7 144.8 84.3 255.9
Redeemable Preferred Stock..................... -- -- -- -- -- -- 4.1
Shareowners' Equity (Deficit).................. $ 456.1 $ 360.5 $ 430.8 $ 344.8 $ 201.7 $ 195.3 $ (38.0)
OTHER DATA
Minutes of Use (MOUs).......................... 2,509.3 1,810.0 8,159.1 4,862.6 3,288.4 2,270.4 1,677.2
Switched Revenue per MOU....................... $ 0.1159 $ 0.1262 $ 0.1245 $ 0.1236 $ 0.1226 $ 0.1273 $ 0.1263
EBITDA(C)...................................... $ 59.6 $ 45.3 $ 207.0 $ 126.6 $ 87.0 $ 67.6 $ 50.3
EBITDA Margin(D)............................... 18.9% 18.1% 18.8% 18.8% 18.8% 19.8% 19.3%
Capital Expenditures........................... $ 40.9 $ 29.6 $ 144.3 $ 97.3 $ 66.0 $ 24.1 $ 13.4
Pre-Tax Interest Coverage(E)................... 6.34 4.17 4.99 5.12 n/m n/m n/m
Total Debt/Total Capitalization................ 34.7% 51.5% 35.4% 44.3% 41.8% 30.2% 115.3%
</TABLE>
- ------------------------
(A) Includes write-off of assets, loss contingency expenses and restructuring
charges of $62.5, $13.8, and $24.4 for the years ended December 31, 1994,
1993 and 1992, respectively.
(B) Does not reflect $1.9 million of costs related to the sale of accounts
receivable pursuant to the Securitization Program (the "Securitization
Program Costs").
(C) Earnings before interest, income taxes, depreciation and amortization
(EBITDA) excludes nonrecurring charges discussed in note (A) above. The
Company uses EBITDA as an operational measure of its ability to fund growth
and manage expansion. EBITDA should not be considered (i) as an alternative
to net income, (ii) as an indicator of operating performance or cash flows
generated by operating, investing or financing activities, or (iii) as a
measure of liquidity.
(D) EBITDA margin is calculated as EBITDA divided by revenue.
(E) Pre-tax interest coverage is calculated as net income (loss) before
extraordinary items plus income tax expense, net interest expense, and the
Securitization Program Costs, divided by net interest expense and the
Securitization Program Costs. The Securitization Program began in the third
quarter of 1996.
S-5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The following are the consolidated ratios of earnings to fixed charges and
the deficiency in earnings to cover fixed charges (coverage deficiency), where
applicable, for the three-month periods ended March 31, 1997 and 1996 and each
of the years in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges.............. 6.89 3.95 4.49 4.60 n/m n/m n/m
Coverage deficiency in earnings to cover fixed
charges (in thousands)........................ -- -- -- -- $ 17,156 $ 1,660 $ 42,043
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, income
before income taxes plus fixed charges has been divided by fixed charges. Fixed
charges consist principally of interest expense, capitalized interest expense,
and that portion of rentals representative of an interest factor (estimated at
33.3%). Earnings were inadequate to cover fixed charges for each of the years in
the three-year period ended December 31, 1994.
S-6
<PAGE>
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE SENIOR SECURITIES SET
FORTH IN THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE.
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN HAVE THE RESPECTIVE MEANINGS
ASCRIBED TO THEM IN THE ACCOMPANYING PROSPECTUS AND THE INDENTURE.
The Notes offered hereby are limited to an aggregate principal amount of
$300,000,000 and will be issued under an Indenture, dated as of June , 1997
(the "Indenture"), between the Company and First Trust National Association, as
trustee (the "Trustee"). The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Provisions of the
Indenture are more fully described under "Description of Debt Securities"
commencing on page 7 of the accompanying Prospectus. The following summary of
the Notes is qualified in its entirety by reference to the Indenture, the Notes
and the Trust Indenture Act.
The Notes are Senior Securities as described in the accompanying Prospectus
and will rank PARI PASSU with all other unsecured and unsubordinated
indebtedness of the Company, including indebtedness under the Credit Agreement
and the discretionary lines of credit. In addition, the Notes will be
structurally subordinated to all existing and future liabilities, including
trade payables, of the Company's subsidiaries. The Notes will not be guaranteed
by any of the Guarantors, as defined in the accompanying Prospectus. Each Note
will bear interest from June , 1997, at the rate per annum shown on the front
cover of this Prospectus Supplement, payable semi-annually on June and
December of each year, commencing December , 1997, and at maturity. Interest
on each Note will be computed on the basis of a 360-day year of twelve 30-day
months. Payments of interest and principal on the Notes will be made in United
States dollars to the person in whose name the Note is registered at the close
of business on the last day of the month preceding such interest payment date.
The Notes will mature on June , 2007. The Notes may not be redeemed prior to
maturity and will not be subject to any sinking fund.
The Notes will be subject to defeasance as described in "Description of Debt
Securities--Provisions Applicable to Both Senior and Subordinated
Indentures--Defeasance and Covenant Defeasance" in the accompanying Prospectus.
Principal of, and interest on, the Notes will be payable at the office or agency
of the Company maintained for such purposes in New York, New York. Notes may be
surrendered for registration of transfer or exchange, and notices or demands to
or upon the Company in respect of such Notes and the Indenture may be made, at
such office or agency. The Indenture does not contain any covenants or other
provisions that are specifically intended to afford holders of the Notes special
protection in the event of a leveraged reorganization, restructuring or similar
transaction involving the Company that may adversely affect holders of the
Notes.
COVENANTS
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may, without the consent of the holders of any outstanding
Notes, consolidate with, or merge with or into any Person or convey or transfer
all or substantially all of its assets to any Person, provided that (a) either
the Company shall be the continuing entity, or the successor entity (if other
than the Company) formed by or resulting from any consolidation or merger or
which shall have received the transfer of the assets expressly assumes the
Company's obligations to pay principal of, and interest on, all of the Notes and
the due and punctual performance and observance of all of the covenants and
conditions contained in the Indenture; and (b) immediately after giving effect
to the transaction and treating any indebtedness that becomes an obligation of
the Company or any subsidiary thereof as a result thereof as having been
incurred by the Company or the subsidiary at the time of the transaction, no
Event of Default under the Indenture, and no event which, after notice or the
lapse of time, or both, would become an Event of Default, shall have occurred
and be continuing.
S-7
<PAGE>
LIMITATION ON LIENS
The Indenture will contain a covenant that the Company will not, nor will it
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any mortgage, security interest, pledge, lien or other encumbrance (herein
referred to as "mortgage" or "mortgages") upon any Principal Property (as
defined below) of the Company or any Restricted Subsidiary, whether owned at the
date of the Indenture or thereafter acquired, unless the Company will (or will
cause the Restricted Subsidiary to) secure the outstanding Notes and, if the
Company elects, any other obligations of the Company ranking on a parity with
the Notes, equally and ratably with the indebtedness or obligations secured by
such mortgage, for so long as such other indebtedness or obligation shall be so
secured. The foregoing restriction will not apply to: (i) mortgages on any
assets acquired, constructed or improved after the date of the Indenture or
existing mortgages on property acquired after the date of the Indenture,
provided that (a) such mortgages have been created solely to secure, finance,
refinance or refund the cost of the acquisition, construction or improvement of
such assets and (b) such mortgages exist at the time of or within 270 days after
the time such assets are acquired, constructed or improved and put in service;
(ii) mortgages existing on the date of the Indenture; (iii) existing mortgages
on any property acquired from a Person which is consolidated with or merged
into, or substantially all of the assets of which are acquired by, the Company
or a Restricted Subsidiary so long as such mortgages are limited to the assets
so acquired; (iv) mortgages on property of any corporation existing at the time
it becomes a Restricted Subsidiary so long as such mortgages are limited to the
assets of such Restricted Subsidiary; (v) mortgages securing indebtedness owed
by a Restricted Subsidiary to the Company or to another Restricted Subsidiary;
(vi) mortgages or deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business, including the reimbursement of any letter of
credit obtained in the ordinary course of business for any purposes for which
the granting of a mortgage would be permitted; (vii) mortgages securing Capital
Lease Obligations, provided that (a) such mortgages attach solely to the
property so acquired and (b) such mortgages attach to the property within 270
days after the time such property is acquired and put in service; (viii)
mortgages on portions of the Principal Property granted in connection with the
grant by the Company or any Restricted Subsidiary of the right to use such
portions of the Principal Property; (ix) mortgages on property to secure loans
maturing not more than one year from the date of the creation thereof; (x)
certain other mortgages not related to the borrowing of money; and (xi)
extensions, renewals or replacements of the foregoing.
Notwithstanding the foregoing restrictions, the Company may, and may permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
mortgage that would otherwise be subject to such restrictions without equally
and ratably securing the Notes issued under the Indenture provided that the
aggregate amount of all indebtedness then outstanding secured by such mortgages
plus the Attributable Debt (generally defined as the discounted present value of
net rental payments) associated with Sale and Leaseback Transactions (as
discussed below) existing at such time (other than Sale and Leaseback
Transactions the proceeds of which have been or will be applied as set forth in
clause (iii) or (iv) under "Limitation on Sale and Leaseback Transactions"
below, and other than Sale and Leaseback Transactions in which the property
involved would have been permitted to be mortgaged under clause (i) above), does
not exceed 15% of the Consolidated Net Tangible Assets prior to the time such
mortgage was created, incurred or assumed.
"Principal Property" means the Company's owned digital fiber optic network
and all of the Company's and its Restricted Subsidiaries' assets relating to the
operation of such network, which consist of outside plant and buildings,
transmission, distribution and switching facilities and install and other
related costs, as such terms are characterized in the notes to Company's
consolidated financial statements for the year ended December 31, 1996.
"Capital Lease Obligations" means indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of
S-8
<PAGE>
such indebtedness shall be the capitalized amount of such obligations determined
in accordance with GAAP. For purposes of this covenant, a Capital Lease
Obligation shall be deemed secured by a mortgage on the property being leased.
"Consolidated Net Tangible Assets" means the consolidated total assets of
the Company and its Subsidiaries as reflected in the Company's most recent
balance sheet prepared in accordance with GAAP less (i) current liabilities
(excluding current maturities of long-term debt and Capital Lease Obligations)
and (ii) goodwill, trademarks, patents and minority interests of others.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date of determination, unless stated otherwise.
"Restricted Subsidiary" means any Subsidiary if, at the end of the most
recent fiscal quarter of the Company, the aggregate amount, determined in
accordance with GAAP consistently applied, of securities of, loans and advances
to, and other investments in, such subsidiary held by the Company and its other
subsidiaries exceeded 10% of the Company's Consolidated Net Tangible Assets.
"Subsidiary" means a corporation, a majority of the outstanding voting stock
of which is owned, directly or indirectly, by the Company or by one or more
other Subsidiaries, or by the Company and one or more other Subsidiaries.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture will contain a covenant that the Company will not, nor will it
permit any Restricted Subsidiary, to enter into any arrangement with any Person
providing for the leasing to the Company or any Restricted Subsidiary of any
Principal Property (except for temporary leases for a term, including renewals,
of not more than three years and except for leases between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries) which has been or is
to be sold by the Company or such Restricted Subsidiary to such Person unless
either (i) the Company or such Restricted Subsidiary would be entitled to
create, incur, assume or suffer to exist a mortgage (as such term is used above
in "Limitations on Liens") on such Principal Property without securing the Notes
issued under the Indenture; (ii) the Attributable Debt associated therewith
would be an amount permitted under "Limitation on Liens" above; (iii) the
Company or such Restricted Subsidiary applies an amount equal to the fair value
of such Principal Property to the retirement of the Notes or certain long-term
indebtedness of the Company or a Restricted Subsidiary, as the case may be; or
(iv) the Company or such Restricted Subsidiary enters into a bona fide
commitment to expend for the acquisition or improvement of a Principal Property
an amount at least equal to the fair value of such property.
EVENTS OF DEFAULT
The Indenture will provide that the following events are "Events of Default"
with respect to the Notes issued thereunder: (a) default for 30 days in the
payment of any installment of interest on any Notes; (b) default in the payment
of principal of any Notes when due and payable, (c) certain events of default
resulting in the acceleration of the maturity of indebtedness aggregating in
excess of $25,000,000 under any mortgages, indentures (including the Indenture)
or instruments under which the Company may have issued, or by which there may
have been secured or evidenced, any other indebtedness of the Company, but only
if such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (d) default in the performance, or breach, of any other covenant or
warranty of the Company contained in the Indenture (other than a covenant
included in the applicable Indenture solely for the benefit of a series of debt
securities issued thereunder other than the series), continuing for 60 days
after written notice as provided in the Indenture; and (e) certain events of
bankruptcy, insolvency or reorganization or court appointment of a receiver,
liquidator or trustee affecting the Company.
S-9
<PAGE>
GLOBAL SECURITIES
The Notes will be represented by one or more global securities, registered
in the name of a nominee of The Depository Trust Company ("DTC"), as depository
(each, a "Registered Global Security"). The provisions set forth under
"Description of Debt Securities--Provisions Applicable to Both Senior and
Subordinated Indentures--Book-Entry Debt Securities" in the accompanying
Prospectus will be applicable to the Notes. Accordingly, ownership of interests
in such Registered Global Securities will be shown on, and the transfer thereof
will be effected only through, records maintained by DTC or its nominee for the
Notes and on the records of participants. Except as otherwise described under
"Description of Debt Securities--Provisions Applicable to Both Senior and
Subordinated Indentures--Book-Entry Debt Securities" in the accompanying
Prospectus, owners of beneficial interests in the Registered Global Securities
will not be entitled to receive Notes in definitive form and will not be
considered the holders of Notes.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Notes are registered as the owners of such Notes for
the purpose of receiving payment of the principal of, and interest on, such
Notes and for all other purposes whatsoever. Therefore, neither the Company, the
Trustee nor any paying agent has any direct responsibility or liability for the
payment of principal of, or interest on, the Notes to owners of beneficial
interests in the Registered Global Securities. DTC has advised the Company and
the Trustee that its current practice is, upon receipt of any payment of
principal or interest, to credit the accounts of the participants with such
payment in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the Registered Global Securities as shown in
the records of DTC. Payments by participants and indirect participants to
owners of beneficial interests in the Registered Global Securities will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of the
participants or indirect participants.
SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal and interest will be made by the
Company in immediately available funds. The Notes will trade in DTC's Same-Day
Funds Settlement System until maturity, and secondary market trading in the
Notes will therefore be required by DTC to settle in immediately available
funds.
S-10
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
dated as of June , 1997 (the "Underwriting Agreement"), by and among the
Company and the Underwriters named below (the "Underwriters"), the Company has
agreed to sell to each of the Underwriters, and each of the Underwriters has
agreed to purchase, the principal amount of Notes set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ------------------------------------------------------------------------------ --------------
<S> <C>
Lehman Brothers Inc........................................................... $
Goldman, Sachs & Co. .........................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................
NationsBanc Capital Markets, Inc..............................................
--------------
Total......................................................................... $ 300,000,000
--------------
--------------
</TABLE>
The Company has been advised that the Underwriters propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of % of the principal amount. The Underwriters
may allow and such dealers may reallow a concession not in excess of % of the
principal amount to certain other dealers. After the initial public offering,
the public offering price and such concessions may be changed.
In connection with the offering, the rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Notes. Such transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with
the offering (I.E., if they sell a larger principal amount of the Notes than is
set forth in the cover page of this Prospectus Supplement), the Underwriters may
reduce that short position by purchasing Notes in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases.
None of the Underwriters makes any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of the Notes. In addition, none of the Underwriters makes any
representation that the Underwriters will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
Certain of the Underwriters and/or certain of their affiliates perform
investment banking and/or commercial banking services for, and/or engage in
general financing and banking transactions with, the Company and certain of its
affiliates from time to time in the ordinary course of their business and may
provide such services and engage in such transactions with the Company and its
affiliates in the future. NationsBank of Texas, N.A., an affiliate of
NationsBanc Capital Markets, Inc., acts as Managing Agent, Administrative Agent
and a lender under the Credit Agreement.
This offering is being made pursuant to the provisions of Section 2710(c)(8)
of the Conduct Rules of the National Association of Securities Dealers, Inc.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
and to contribute to payments the Underwriters may be required to make in
respect thereof.
S-11
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the Notes, including
with respect to the legality of the Notes offered hereby, will be passed upon
for the Company by Willkie Farr & Gallagher, New York, New York and for the
Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
S-12
<PAGE>
PROSPECTUS
$300,000,000
LCI INTERNATIONAL, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
LCI International, Inc. (the "Company") may offer from time to time, in one
or more classes or series (a) unsecured debt securities (the "Debt Securities")
which may be either senior ("Senior Securities") or subordinated ("Subordinated
Securities"), (b) shares of its Preferred Stock, par value $.01 per share (the
"Preferred Stock"), (c) shares of its Common Stock, par value $.01 per share
(the "Common Stock"), and (d) warrants or other rights to purchase Common Stock
or Preferred Stock (the "Warrants"), with an aggregate initial public offering
price of up to $300,000,000 (or the equivalent in foreign denominated currency,
composite currency or currencies or currency units based on or relating to
foreign currencies) on terms to be determined at the time or times of offering.
The Debt Securities, Preferred Stock, Common Stock and Warrants (collectively,
the "Securities") may be offered, separately or together, in separate classes or
series, in amounts, at prices and on terms to be set forth in a supplement to
this Prospectus (a "Prospectus Supplement").
Certain terms of the Securities in respect of which this Prospectus is being
delivered, such as, (i) in the case of Debt Securities, the specific
designation, ranking, priority, aggregate principal amount, currency or
currencies, denominations, maturity, premium or discount, if any, interest rate,
time of payment of interest, terms for redemption at the option of the Company
or repayment at the option of the holder, terms for sinking fund payments, terms
for conversion or exchange and form and any other terms in connection with the
offer and sale of Debt Securities; (ii) in the case of Common Stock and
Preferred Stock, the specific title, number of shares, dividend, liquidation,
conversion or exchange, voting and any other rights in connection with the offer
and sale of the Common Stock and Preferred Stock; (iii) in the case of Warrants,
the duration, offering price, exercise price, exercise dates and detachability
and any other terms in connection with the offer and sale of the Warrants; and
(iv) in the case of any Security, the net proceeds, initial public offering
price and any other terms will be set forth in the applicable Prospectus
Supplement. Debt Securities may be guaranteed by certain of the Company's wholly
owned subsidiaries, including LCI International Management Services, Inc., LCI
International Telecom Corp., LCI International SC, Inc. and LCI International of
Virginia, Inc. (the "Guarantors"). Any Debt Securities that are guaranteed will
be fully and unconditionally guaranteed, jointly and severally, by the
Guarantors. The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to the Securities and any listing on a securities exchange of the
Securities covered by such Prospectus Supplement.
The Securities may be sold by the Company through underwriters or dealers,
through agents, directly to purchasers, or through a combination of any such
methods of sale. If any agents, dealers or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of the Prospectus Supplement describing the method and terms of the
offering of such class or series of Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 10, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at 450 Fifth Street, NW, Washington, D.C. 20549, and at the following
regional offices of the Commission: 7 World Trade Center, Suite 1300, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, NW, Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site
(http://www.sec.gov) containing these reports, proxy statements and other
information. The Common Stock is listed on the New York Stock Exchange, and
these records and other information can also be inspected at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all exhibits and amendments, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Securities, reference is made to the Registration Statement,
including the exhibits and schedules. The Registration Statement may be
inspected, without charge, at the Commission's principal office at 450 Fifth
Street, NW, Washington, D.C. 20549, and also at the regional offices of the
Commission listed above. Copies of such material may also be obtained from the
Commission upon the payment of prescribed rates. The Registration Statement may
also be accessed from the Commission's World Wide Web site listed above.
Statements contained in the Prospectus as to any contracts, agreements or
other documents filed as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is hereby made to the copy
of such contract, agreement or other document filed as an exhibit to the
Registration Statement for a full statement of the provisions thereof, and each
such statement in the Prospectus is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are hereby incorporated by reference into this
Prospectus:
(a) the Company's Annual Report on Form 10-K for the year ended December
31, 1995;
(b) the Company's Proxy Statement relating to the Annual Meeting of
Stockholders held on May 7, 1996;
(c) the Company's Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1996, June 30, 1996 (as amended by the Form 10-Q/A
filed on February 20, 1997) and September 30, 1996;
(d) the Company's Current Reports on Form 8-K dated August 22, 1995 (as
amended by the Form 8-K/A filed on October 6, 1995), December 17, 1995, June
3, 1996 and January 22, 1997; and
(e) the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under the Exchange Act
and any amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Securities offered
2
<PAGE>
hereby shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing such documents (provided, however, that
the information referred to in item 402(a)(8) of Regulation S-K of the
Commission shall not be deemed specifically incorporated by reference herein).
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference in this Prospectus (other than exhibits and
schedules thereto, unless such exhibits or schedules are specifically
incorporated by reference into the information that this Prospectus
incorporates). Written or oral requests for copies of these documents should be
directed to LCI International, Inc., c/o LCI International Management Services,
Inc., 4650 Lakehurst Court, Dublin, Ohio 43016, Attention: James D. Heflinger
(telephone: (614) 798-6000).
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS SUPPLEMENT, AND IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT.
NEITHER THIS PROSPECTUS NOR ANY APPLICABLE PROSPECTUS SUPPLEMENT SHALL
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
3
<PAGE>
THE COMPANY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN THE COMPANY'S PERIODIC REPORTS FILED UNDER THE EXCHANGE
ACT INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS UNDER THE
CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
LCI International, Inc. ("LCI" or the "Company") is a facilities-based long
distance telecommunications carrier that provides domestic and international
telecommunications service offerings in all market segments: commercial,
residential and wholesale. The Company serves its customers primarily through
owned and leased digital fiber optic facilities, including switches
strategically located throughout the U.S.
The Company provides a broad array of long distance telecommunications
services to its customers, which include residential, small, medium-sized and
large businesses, national accounts, other carriers, government agencies and
academic institutions. The Company's switched services include basic long
distance, accessible via "1 plus" dialing or dialing a five digit access code,
and a variety of long distance services for larger customers available through
switched or dedicated lines. The Company seeks to attract and retain a wide
range of commercial, wholesale and residential customers through introduction of
new services, as well as continued provision of high quality service at
competitive prices. Although the Company provides long distance services to a
wide range of market segments, the Company does not seek to compete with every
service offered by the Company's competitors.
The Company focuses on differentiating LCI through SIMPLE, FAIR AND
INEXPENSIVE telecommunications services which provide residential customers with
competitive and easy-to-understand rates that primarily vary based on whether a
call is placed during or after business hours and not by the distance of a call.
The Company does not attach any complex conditions to its residential services,
such as minimum monthly usage or requiring customers to sign up other customers
to earn full discounts. An additional element is added to this strategy for
commercial customers, where LCI also focuses on offering a full complement of
high quality, competitively priced services to small, medium-sized and large
customers including calling card services, "800 services," audioconferencing and
specialized high-volume data transmission services. The Company's strategic
direction is supported by growth through expansion in sales offices and network
operating facilities, sales agent and distributor relationships, service
offerings to each market segment and selective acquisitions. This approach is
dependent on maintaining efficient, low cost operations in order to preserve
pricing flexibility and operating margins.
The Company is also involved in state regulatory proceedings in various
states to secure approval to resell local service, which would enable the
Company to provide combined local and long distance services to existing and
prospective customers. The local service industry is estimated to be a $95
billion market. The Company believes that it has significant opportunities in
this industry. As of February 28, 1997, the Company had received approval to
resell local services in 21 states and the District of Columbia and had
applications for local service authority pending in seven other states. The
Company expects to pursue applications for and obtain approval to resell local
services in additional states.
The Company provides service to its customers through digital fiber optic
facilities which are owned and leased. Collectively, these facilities constitute
the Company's "network." The Company has agreements with certain interexchange
carriers, local exchange carriers and third party vendors to lease facilities
for originating, terminating and transport services. Certain of these agreements
require the Company to maintain minimum monthly and/or annual billings based on
usage. The third party carriers include WorldCom Network Services, Inc. d/b/a
WilTel, Sprint Corporation and MCI Telecommunications Corp. In addition, the
Company uses services provided by each Regional Bell Operating Company ("RBOC"),
GTE Telephone Operating Companies and other smaller local exchange carriers. The
Company currently has one significant contract with a particular third party
carrier. Subject to the ability of such carrier to meet LCI's operational
requirements, the Company is obligated to use this carrier for a significant
percentage of the services that the Company provides through its leased
facilities. The amounts payable under that
4
<PAGE>
contract, however, represent less than 10% of the Company's revenue on an annual
basis. The Company has engineered its network to minimize the impact on its
customers of a service failure and has established contingency plans to reroute
traffic as quickly as possible if a service failure by a third party carrier
should occur. Although most service failures that the Company has experienced
have been corrected in a relatively short time period, a catastrophic service
failure could interrupt the provision of service by both the Company and its
competitors for a lengthy time period. The restoration period for a catastrophic
service failure cannot be reasonably determined. The Company has not, however,
experienced a catastrophic service failure in its history.
LCI, a Delaware corporation, was incorporated in 1988 and is a holding
company. The Company's operations are conducted through its wholly owned
subsidiaries. The Company's principal executive offices are located at 8180
Greensboro Drive, Suite 800, McLean, Virginia 22102 (telephone number (703)
442-0220). The Company maintains a home page on the World Wide Web located at
http://www.lci.com. Information contained in the Company's World Wide Web site
shall not be deemed part of this Prospectus. As used in this Prospectus,
references to "LCI" and the "Company" refer to LCI and its wholly owned
subsidiaries, unless otherwise indicated or the context otherwise requires.
The following wholly owned subsidiaries of LCI may be Guarantors of Debt
Securities:
LCI International Management Services, Inc., a Delaware corporation
("LCIM"), was incorporated in 1984. LCIM is a subsidiary of LCI and owns the
network and certain other facilities used in providing long distance service.
LCIM also provides management facilities and services to its affiliated
companies.
LCI International Telecom Corp., a Delaware corporation ("LCIT"), was
incorporated in 1983. LCIT is a subsidiary of LCIM and provides long distance
service on a national and international basis. LCIT's principal assets are its
customer list, equipment, accounts receivable and goodwill.
LCI International SC, Inc., a Delaware corporation ("LCISC"), was
incorporated in 1995. LCISC is a subsidiary of LCI and provides customer service
to LCI customers. LCISC's principal assets are office equipment.
LCI International of Virginia, Inc., a Virginia corporation ("LCIVA"), was
incorporated in 1997. LCIVA is a subsidiary of LCIT and will provide local
telecommunications service in the State of Virginia. LCIVA's principal assets
will be its accounts receivable.
The executive offices for these subsidiaries are located at 8180 Greensboro
Drive, Suite 800, McLean, Virginia 22102 (telephone number (703) 442-0220).
All executive officers and directors of the Guarantors are officers and/or
directors of LCI.
USE OF PROCEEDS
Any Prospectus Supplement will contain a detailed description of the use of
proceeds from the sale of the Securities offered thereby. Except as otherwise
provided in the applicable Prospectus Supplement, net proceeds from the sale of
the Securities offered hereby will be used for repayment of indebtedness,
acquisitions, working capital and general corporate purposes.
5
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following are the consolidated ratios of earnings to fixed charges,
earnings to combined fixed charges and preferred stock dividends and the
deficiency in earnings to cover fixed charges and preferred stock dividends
(coverage deficiency), where applicable, for the nine-month periods ended
September 30, 1996 and 1995 and each of the years in the five-year period ended
December 31, 1995:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..................... 4.33 4.61 4.60 n/m n/m n/m n/m
Ratio of earnings to combined fixed charges and
preferred stock dividends............................ 3.68 3.18 3.27 n/m n/m n/m n/m
Coverage deficiency in earnings to cover fixed charges
(in thousands)....................................... -- -- -- $ 17,156 $ 1,660 $ 42,043 $ 28,276
Coverage deficiency in earnings to cover combined fixed
charges and preferred stock dividends (in
thousands)........................................... -- -- -- $ 22,906 $ 3,868 $ 47,270 $ 33,105
</TABLE>
For purposes of computing the ratio of earnings to fixed charges, income
before income taxes plus fixed charges has been divided by fixed charges. For
purposes of computing the ratio of earnings to combined fixed charges and
preferred stock dividends, income before income taxes plus fixed charges has
been divided by fixed charges and the amount of pre-tax earnings required to
cover preferred stock dividends. As discussed below under "Description of
Outstanding Capital Stock," the Company effected a redemption of its 5%
Cumulative Convertible Exchangeable Preferred Stock ("Convertible Exchangeable
Preferred Stock") on September 3, 1996. Fixed charges consist principally of
interest expense, capitalized interest expense, and that portion of rentals
representative of an interest factor (estimated at 33.3%). The pre-tax earnings
required to cover preferred stock dividends have been computed by dividing
preferred stock dividends by one minus the effective income tax rate except in
those years when the Company experienced a negative effective income tax rate.
Earnings were inadequate to cover fixed charges and combined fixed charges and
preferred stock dividends for each of the years in the four-year period ended
December 31, 1994.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any Prospectus Supplement may
relate. The particular terms of the Debt Securities being offered and the extent
to which such general provisions may apply will be set forth in the applicable
Indenture or in one or more indentures supplemental thereto and described in a
Prospectus Supplement relating to such Debt Securities. The forms of the Senior
Indenture (as defined herein) and the Subordinated Indenture (as defined herein)
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
The Debt Securities will be direct, unsecured obligations of the Company and
may be either Senior Securities or Subordinated Securities. The Debt Securities
will be issued under one or more indentures. Senior Securities and Subordinated
Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company, the Guarantors and a trustee (each, a "Trustee"), and substantially in
the form that has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part, subject to such amendments or supplements as
may be adopted from time to time. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
hereinafter referred to collectively as the "Indentures." The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and the applicable Prospectus Supplement. Capitalized terms used and
not defined herein shall have the meanings assigned to them in the applicable
Indenture.
The Second Amended and Restated Credit Agreement, dated as of February 14,
1996, by and among LCI, as Borrower, the Lenders referred to therein, First
Union National Bank of North Carolina as Managing Agent and Credit Agent and
NationsBank of Texas, N.A., as Managing Agent and Administrative Agent, as
amended (the "Credit Agreement"), limits the amount and type of debt which the
Company and its subsidiaries may incur or guarantee and restricts the ability of
the Company and its subsidiaries to incur liens, prepay, redeem or repurchase
certain debt, capital stock or other ownership interests and restricts the
Company's ability to convert preferred stock to debt.
PROVISIONS APPLICABLE TO BOTH SENIOR AND SUBORDINATED INDENTURES
GENERAL
The indebtedness represented by the Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Indebtedness of the Company as described under "Subordinated Indenture
Provisions -- Subordination." The particular terms of the Debt Securities
offered by a Prospectus Supplement and any applicable United States federal
income tax considerations will be described in the applicable Prospectus
Supplement, along with any applicable modifications or additions to the general
terms of the Debt Securities as described herein and in the applicable
Indenture. Accordingly, for a description of the terms of any series of Debt
Securities, reference must be made to both the Prospectus Supplement relating
thereto and the description of the Debt Securities set forth in this Prospectus.
The Debt Securities to be offered by this Prospectus will be limited to the
amounts described on the cover page of this Prospectus. The Indentures, however,
do not limit the amount of Debt Securities that can be issued thereunder and
provide that Debt Securities of any series may be issued thereunder up to the
aggregate principal amount authorized from time to time by the Company. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of the series, for issuance of additional Debt Securities
of the series.
7
<PAGE>
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities and a successor Trustee may be
appointed to act with respect to the series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and except as otherwise indicated herein, any action described herein to be
taken by such Trustee may be taken by such Trustee with respect to, and only
with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities are
Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount) at which
such Debt Securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) If convertible or exchangeable in whole or in part into or for Common
Stock, Preferred Stock or other Debt Securities, the terms on which such Debt
Securities are convertible or exchangeable, including the initial conversion or
exchange price or rate (or method of determining the same), the portion that is
convertible or exchangeable, the conversion or exchange period and any other
conversion or exchange provision;
(5) The date or dates, or the method for determining the date or dates, on
which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which the rate or rates will be determined, at which such Debt Securities will
bear interest;
(7) The date or dates, or the method for determining the date or dates, from
which any such interest will accrue, the dates on which any such interest will
be payable, the record dates for the interest payment dates, or the method by
which the dates will be determined, the persons to whom the interest will be
payable and the basis upon which interest will be calculated;
(8) The place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion or registration of transfer or
exchange and where notices or demands to or upon the Company in respect of such
Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities may,
pursuant to any optional or mandatory redemption provisions, be redeemed, in
whole or in part, at the option of the Company, if the Company is to have such
an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or at
the option of a holder thereof, and the period or periods within which or the
date or dates on which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, in whole or in part, pursuant to such obligation;
8
<PAGE>
(11) If other than U.S. dollars, the Currency or Currencies in which such
Debt Securities are denominated and payable, which may be a foreign Currency or
units of two or more foreign Currencies or a composite Currency or Currencies,
and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if any) or
interest, if any, on such Debt Securities may be determined with reference to an
index, formula or other method (which index, formula or method may, but need
not, be based on a Currency, Currencies, Currency unit or units or composite
Currency or Currencies) and the manner in which the amounts will be determined;
(13) Whether such Debt Securities will be issued in certificated or
book-entry form and, if so, the identity of the depository for such Debt
Securities;
(14) Whether such Debt Securities will be in Registered or Bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in Bearer form, the denominations thereof if
other than $5,000 and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable Indenture, or any
modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events of
default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to such
Debt Securities, and any change in the right of any Trustee or any of the
holders to declare the principal amount of any of such Debt Securities due and
payable;
(18) If other than the applicable Trustee, the identity of each security
registrar and/or paying agent;
(19) The date which any Bearer Securities of a series and any temporary Debt
Security issued in global form representing Securities of a series will be dated
if other than the date of original issuance of the first Debt Security of the
series to be issued;
(20) The Person to whom any interest on any Registered Security of the
series will be payable, if other than the Person in whose name such Registered
Security is registered at the close of business on the Regular Record Date for
such interest, the manner in which, or the person to whom, any interest on any
Bearer Security of the series will be payable, if otherwise than upon
presentation and surrender of the coupons appertaining thereto as they severally
mature, and the extent to which, or the manner in which, any interest payable on
a temporary Debt Security issued in global form will be paid if other than in
the manner provided in the applicable Indenture;
(21) If such Debt Securities are to be issuable in definitive form (whether
upon original issue or upon exchange of a temporary Debt Security of such
series) only upon receipt of certain certificates or other documents or
satisfaction of other conditions, the form and/or terms of such certificates,
documents or conditions;
(22) The provisions, if any, granting special rights to the holders of such
Debt Securities upon the occurrence of such events as may be specified; and
(23) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
these cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
9
<PAGE>
The Debt Securities will be obligations exclusively of the Company. Since
the operations of the Company are conducted through its subsidiaries, the cash
flow and the consequent ability to service debt, including the Debt Securities,
of the Company, are wholly dependent upon the earnings of its subsidiaries and
the distribution of those earnings to, or upon loans or other payments of funds
by those subsidiaries to, the Company. The subsidiaries are separate and
distinct legal entities and, except for the Guarantees (as defined below) of the
Guarantors, if applicable, have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Debt Securities or to make any funds available
therefor, whether by dividends, loans or other payments. In addition, the
payment of dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or contractual restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Debt Securities to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any valid security interests in the assets of such subsidiary
and any indebtedness of such subsidiary senior to that held by the Company.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company.
However, the general provisions of the Senior Indenture do provide that neither
the Company nor any Restricted Subsidiary (as defined below) will subject
certain of its property or assets to any mortgage or other encumbrance unless
the Indenture Securities issued thereunder are secured equally and ratably with
or prior to such other indebtedness thereby secured. See "Senior Indenture
Provisions -- Limitation on Liens" and "Senior Indenture Provisions --
Limitation on Sale and Leaseback Transactions." Reference is made to the
applicable Prospectus Supplement for information with respect to any deletions
from, modifications of or additions to the events of default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
Under the Indentures, the Company has the ability to issue Debt Securities
with terms different from those of Debt Securities previously issued thereunder
and, without the consent of the holders thereof, to issue additional amounts of
a series of Debt Securities (with different dates for payments, different rates
of interest and in different currencies or currency), in an aggregate principal
amount determined by the Company. The applicable Debt Securities referred to on
the cover page of this Prospectus and any additional debt securities issued
under an Indenture are herein collectively referred to, when a single Trustee is
acting for all debt securities issued under such Indenture, as the "Indenture
Securities." Each Indenture also provides that there may be more than one
Trustee thereunder, each with respect to one or more different series of
Indenture Securities. See also "Resignation of Trustee" herein. At a time when
two or more Trustees are acting under either Indenture, each with respect to
only certain series, the term "Indenture Securities," as used herein, will mean
the one or more series with respect to which each respective Trustee is acting.
In the event that there is more than one Trustee under either Indenture, the
powers and trust obligations of each Trustee as described herein will extend
only to the one or more series of Indenture Securities for which it is Trustee.
If two or more Trustees are acting under either Indenture, then the Indenture
Securities for which each Trustee is acting would in effect be treated as if
issued under separate indentures.
GUARANTEES
The Debt Securities may be fully and unconditionally, and jointly and
severally, guaranteed as to the payment of principal (and premium, if any) and
interest, if any, by the Guarantors pursuant to guarantees
10
<PAGE>
(the "Guarantees"). Certain regulatory approvals may be required prior to LCIT
and LCIVA becoming Guarantors of any Debt Securities.
As wholly owned subsidiaries of the Company, the Guarantors are subject to
control by the Company with respect to their financing activities, the
disposition of their assets and otherwise. The Indentures will contain no
restriction on the ability of the Guarantors to transfer their assets to the
Company, by dividend or otherwise, or on the ability of the Company to dispose
of or encumber the Guarantors' assets to finance or satisfy obligations of the
Company, except to the extent limited by the covenants described in "Limitations
on Liens" and "Limitations on Sale and Leaseback Transactions" herein.
Accordingly, there can be no assurance that the Guarantors would have sufficient
assets available to satisfy any claim of the holders of the Debt Securities
under the Guarantees. Although the Company has no present intent to transfer by
dividend or otherwise, dispose of, or otherwise encumber the assets of the
Guarantors to finance or satisfy obligations of the Company, the Guarantors may
from time to time transfer, dispose of or encumber their assets as permitted by
the Indentures.
The Guarantors will consist of certain wholly owned subsidiaries of the
Company. The Guarantees will be full, unconditional, joint and several.
Commencing with the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996, condensed combined financial information of the
Guarantors have been included in the notes to the Company's quarterly and annual
financial statements. These financial statements are incorporated herein by
reference.
In addition, various laws, including laws relating to fraudulent
conveyances, enacted for the protection of creditors may be utilized to
challenge the Guarantees to the extent that any of the Guarantors did not
receive fair consideration or reasonably equivalent value for the Guarantees. To
the extent that the Guarantees were voided or held unenforceable as a fraudulent
conveyance or otherwise, the holders of the Debt Securities would cease to be
creditors of the applicable Guarantors, and would be creditors solely of the
Company. In such event, the claims of the holders of the Debt Securities against
the assets of the applicable Guarantors would be subject, to such extent, to the
prior payment of all liabilities of such Guarantors.
CONVERSION AND EXCHANGE
If any Debt Securities will, by their terms, be convertible into or
exchangeable for Common Stock, Preferred Stock or other Debt Securities, the
Prospectus Supplement relating thereto will set forth the terms and conditions
of such conversion or exchange, including the conversion price or exchange ratio
(or the method of calculating the same), the conversion or exchange period (or
the method of determining the same), whether conversion or exchange will be
mandatory or at the option of the holder or the Company, provisions for
adjustment of the conversion price or the exchange ratio and provisions
affecting conversion or exchange in the event of the redemption of such Debt
Securities. Such terms may also include provisions under which the number of
shares of Common Stock, shares of Preferred Stock or the number or amount of
other Debt Securities to be received by the holders of such Debt Securities upon
such conversion or exchange would be calculated according to the market price of
the Common Stock, Preferred Stock or such other Debt Securities as of a time
stated in the Prospectus Supplement.
PAYMENT AND PAYING AGENTS
Unless otherwise provided in the applicable Prospectus Supplement, the Place
of Payment for a series issuable solely as Registered Securities will be The
City of New York, and the Company will initially designate the office of the
Trustee under the Senior Indenture (the "Senior Trustee") and the office of the
Trustee under the Subordinated Indenture (the "Subordinated Trustee"),
respectively for this purpose. Notwithstanding the foregoing, at the option of
the Company, interest, if any, may be paid on Registered Securities (i) by check
mailed to the address of the Person entitled thereto as such Person's address
appears in the Security Register or (ii) by wire transfer to an account located
in the United States maintained by the Person entitled thereto as specified in
the Security Register. Unless otherwise provided
11
<PAGE>
in the applicable Prospectus Supplement, payment of any installment of interest
on Registered Securities will be made to the Person in whose name such
Registered Security is registered at the close of business on the Regular Record
Date for such interest.
The Company may from time to time designate additional offices or agencies,
approve a change in the location of any office or agency and, except as provided
above, rescind the designation of any office or agency.
Unless otherwise provided in the applicable Prospectus Supplement, all
payments of principal of (and premium, if any) and interest, if any, on any Debt
Security that is payable in a Currency other than U.S. dollars will be made in
U.S. dollars in the event that such Currency (i) is a currency, and it ceases to
be used both by the government of the country that issued the currency and by a
central bank or other public institution of or within the international banking
community for the settlement of transactions, (ii) is the European Currency Unit
("ECU"), and it ceases to be used both within the European Monetary System and
for the settlement of transactions by public institutions of or within the
European Communities or (iii) is any other currency unit (or composite currency)
other than the ECU, and it ceases to be used for the purposes for which it was
established.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default for 30
days in the payment of any installment of interest on any Debt Security of the
series; (b) default in the payment of principal of (or premium, if any, on) any
Debt Security of the series when due and payable, (c) default in the deposit of
any sinking fund payment as required for any Debt Security of the series; (d)
default in the performance, or breach, of any other covenant or warranty of the
Company contained in the applicable Indenture (other than a covenant included in
the applicable Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than the series), continuing for 60 days after written
notice as provided in the applicable Indenture; (e) certain events of
bankruptcy, insolvency or reorganization or court appointment of a receiver,
liquidator or trustee affecting the Company and (f) any other event of default
provided with respect to a particular series of Debt Securities.
Each Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default thereunder, give to the holders of Debt Securities
notice of all uncured defaults known to it; provided that, except in the case of
default in the payment of the principal of (or premium, if any) or interest, if
any, on any of the Debt Securities or in the payment of any sinking fund
installment, the Trustee may withhold notice to the holders of Debt Securities
if in good faith it determines that the withholding of such notice is the
interest of the holders of the Debt Securities.
If an Event of Default with respect to Debt Securities of a series has
occurred and is continuing, the applicable Trustee or the holders of not less
than 25% in principal amount of outstanding Debt Securities of that series may
declare the principal amount (or, if any Debt Securities of that series are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal amount as may be specified in the terms thereof) of all of the Debt
Securities of that series due and payable immediately.
Subject to the provisions of the applicable Indenture relating to the duties
of the Trustee thereunder, in case an Event of Default with respect to Debt
Securities of a series has occurred and is continuing, that the Trustee is under
no obligation to exercise any of its rights or powers under such Indenture at
the request, order or direction of the applicable holders of Debt Securities of
that series, unless such holders have offered such Trustee reasonable indemnity
against the expenses and liabilities which might be incurred by it in compliance
with such request. Subject to such provisions for the indemnification of the
applicable Trustee, the holders of a majority in principal amount of the
outstanding Debt Securities of such series will have the right to direct the
time, method and place of conducting any proceeding for any remedy
12
<PAGE>
available to such Trustee, or exercising any trust or power conferred on such
Trustee with respect to the Debt Securities of that series.
The holders of not less than a majority in principal amount of the
outstanding Debt Securities of a series may, on behalf of the holders of all
Debt Securities of such series and any related coupons, waive any past default
under the applicable Indenture with respect to such series and its consequences,
except a default (i) in the payment of the principal of (or premium, if any) or
interest, if any, on any Debt Security of such series or (ii) in respect of a
covenant or provision that cannot be modified or amended without the consent of
the holder of each outstanding Debt Security of such series affected thereby.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate from the principal executive officer, principal
financial officer or principal accounting officer as to such officer's knowledge
of the Company's compliance with all conditions and covenants under each
Indenture.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may, without the consent of the holders of any outstanding Debt
Securities, consolidate with, or merge with or into any Person or convey or
transfer all or substantially all of its assets to any Person, provided that (a)
either the Company shall be the continuing entity, or the successor entity (if
other than the Company) formed by or resulting from any consolidation or merger
or which shall have received the transfer of the assets expressly assumes the
Company's obligations to pay principal of (and premium, if any) and interest on
all of the Debt Securities and the due and punctual performance and observance
of all of the covenants and conditions contained in each Indenture; and (b)
immediately after giving effect to the transaction and treating any indebtedness
that becomes an obligation of the Company or any subsidiary thereof as a result
thereof as having been incurred by the Company or the subsidiary at the time of
the transaction, no event of default under the applicable Indenture, and no
event which, after notice or the lapse of time, or both, would become an event
of default, shall have occurred and be continuing. In addition, under the Senior
Indenture, no such consolidation, merger or transfer may be made if as a result
thereof any property or assets of the Company or a subsidiary would become
subject to any mortgage or other encumbrance, unless either (i) such mortgage or
other encumbrance could be created pursuant to such Indenture without equally
and ratably securing the Senior Securities issued under such Indenture or (ii)
such Senior Securities are secured equally and ratably with or prior to the debt
secured by such mortgage or other encumbrance.
MODIFICATION OF THE INDENTURES
Modifications of and amendments to an Indenture may be made by the Company
and the Trustee thereunder without the consent of any holder for any of the
following purposes: (i) to evidence the succession of another Person to the
Company as obligor under such Indenture; (ii) to add to the covenants of the
Company for the benefit of the holders of all or any series of Indenture
Securities issued thereunder and any related coupons or to surrender any right
or power conferred upon the Company thereunder; (iii) to add Events of Default
for the benefit of the holders of all or any series of Indenture Securities;
(iv) to add or change any provisions of such Indenture to facilitate the
issuance of, or to liberalize certain terms of, Bearer Securities; (v) to change
or eliminate any provisions of such Indenture, provided that any such change or
elimination will become effective only when there are no such Indenture
Securities outstanding of any series created prior thereto which are entitled to
the benefit of such provisions; (vi) in the case of the Senior Securities, to
secure the Indenture Securities under the Senior Indenture; (vii) to establish
the form or terms of Indenture Securities of any series and any related coupons,
including any provisions and procedures relating to conversion or exchange;
(viii) to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under such Indenture by more than
one Trustee; (ix) to cure any ambiguity, defect or inconsistency in such
Indenture, provided such action does not adversely affect the interests of
holders of Indenture Securities of a series issued thereunder or any related
coupons in any material respect; or (x) to supplement any of the provisions of
13
<PAGE>
such Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of Indenture Securities thereunder, provided that such
action shall not adversely affect the interests of the holders of any such
Indenture Securities and any related coupons or of any other series of Indenture
Securities in any material respect.
Modifications of and amendments to an Indenture will be permitted to be made
with the consent of the holders of not less than a majority in principal amount
of all outstanding Indenture Securities issued under the Indenture affected by
such modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the holder of each Indenture Security
affected thereby, (i) change the Stated Maturity of the principal of (or
premium, if any, on) or any installment of principal of or interest on any such
Indenture Security; (ii) reduce the principal amount of, the rate of interest on
or in respect of, or any premium payable upon the redemption of, any such
Indenture Security; (iii) change any obligation of the Company to pay Additional
Amounts in respect of any such Indenture Security; (iv) reduce the portion of
the principal of an Original Issue Discount Security or Indexed Security that
would be due and payable upon a declaration of acceleration of the Maturity
thereof or provable in bankruptcy; (v) adversely affect any right of repayment
at the option of the holder of any such Indenture Security; (vi) change the
place or currency of payment of principal of, or any premium or interest on, any
such Indenture Security; (vii) impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof; (viii)
adversely affect any right to convert or exchange any such Indenture Security as
may be provided pursuant to such Indenture; (ix) reduce the percentage in
principal amount of such outstanding Indenture Securities (or of such
outstanding Indenture Securities of any series, as the case may be), the consent
of whose holders is required to amend or waive compliance with certain
provisions of such Indenture or to waive certain defaults thereunder; (x) reduce
the voting or quorum requirements; or (xi) modify any of the provisions relating
to supplemental indentures requiring the consent of holders, relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase the percentage of such outstanding Indenture Securities required for
such actions or to provide that certain other provisions of such Indenture
cannot be modified or waived without the consent of the holder of each
outstanding Indenture Security affected thereby.
In addition, under the Subordinated Indenture, no modification or amendment
thereof may, without the consent of the holder of each outstanding Subordinated
Security affected thereby, modify any of the provisions of such Indenture
relating to the subordination of the Subordinated Securities in a manner adverse
to the holders thereof and no such modification or amendment may adversely
affect the rights of any holder of Senior Indebtedness with respect to the
payment of Senior Indebtedness prior to the Subordinated Securities in certain
circumstances (described under the caption "Subordinated Indenture Provisions --
Subordination") without the consent of such holder of Senior Indebtedness.
The holders of a majority in aggregate principal amount of outstanding
Indenture Securities have the right to waive compliance by the Company with
certain covenants in the applicable Indenture.
SATISFACTION AND DISCHARGE
An Indenture will cease to be of further effect with respect to any series
of Debt Securities when
(1) either
(A) all Debt Securities of such series theretofore authenticated and
delivered and all coupons, if any, appertaining thereto (other than certain
Debt Securities and coupons) have been delivered to the Trustee for
cancellation; or
(B) all Debt Securities of such series and, in the case of (i) or (ii)
below, any coupons appertaining thereto not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year, or
14
<PAGE>
(iii) if redeemable at the option of the Company, are to be called
for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the
name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose an amount in the Currency in which the Debt Securities of such
series are payable, sufficient to pay and discharge the entire indebtedness on
such Debt Securities and such coupons not theretofore delivered to the Trustee
for cancellation, for principal (and premium, if any) and interest, if any, to
the date of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable with
respect to the Debt Securities of such series; and
(3) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent in the Indenture
relating to the satisfaction and discharge of the Indenture as to such series
have been complied with.
DEFEASANCE AND COVENANT DEFEASANCE
The Company may elect either (i) to defease and be discharged from any and
all obligations with respect to such Debt Securities and coupons (except for the
obligations to register the transfer or exchange of such Debt Securities and
coupons; to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities and coupons; to maintain one or more offices or agencies in respect
of such Debt Securities and coupons; to hold moneys for payment in trust; and to
pay Additional Amounts, if any) ("defeasance") or (ii) to be released (a) in the
case of any such Debt Securities that are Senior Securities, from its
obligations described under "Senior Indenture Provisions -- Limitation on Liens"
and "Senior Indenture Provisions -- Limitation on Sale and Leaseback
Transactions" or (b) in the case of any such Debt Securities (whether they are
Senior or Subordinated Securities), if so provided in the applicable Prospectus
Supplement, from its obligations with respect to any other covenant relating to
such Debt Securities and, in the case of either (a) or (b) above, any omission
to comply with such obligations will not constitute a default or an Event of
Default with respect to such Debt Securities and coupons ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee (or other qualifying trustee), in trust, of (1) an amount
(in the Currency or Currencies in which such Debt Securities and coupons are
then specified as payable at Stated Maturity), (2) Government Obligations
applicable to such Debt Securities and coupons (with such applicability being
determined on the basis of the Currency in which such Debt Securities are then
specified as payable at Stated Maturity) that, through the payment of principal
and interest in accordance with their terms, will provide money in an amount, or
(3) a combination thereof, sufficient to pay the principal of (and premium, if
any) and interest, if any, on such Debt Securities and coupons, and any
mandatory sinking fund or analogous payments thereon, on the scheduled due dates
therefor.
Such a trust may only be established if, among other things, the Company has
delivered to the applicable Trustee an Opinion of Counsel to the effect that the
holders of such Debt Securities and related coupons to be defeased will not
recognize income, gain or loss for United States federal income tax purposes as
a result of such defeasance or covenant defeasance and will be subject to United
States federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such defeasance or covenant defeasance
had not occurred, and such Opinion of Counsel, in the case of defeasance under
clause (i) above, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable United States federal income tax law
occurring after the date of the applicable Indenture.
15
<PAGE>
BOOK-ENTRY DEBT SECURITIES
Debt Securities of a series may be issued in whole or in part in global form
that will be deposited with, or on behalf of, a depository identified in the
Prospectus Supplement. Global securities may be issued in either registered or
bearer form and in either temporary or permanent form (as defined below). Unless
otherwise provided in the Prospectus Supplement, Debt Securities that are
represented by a global security will be issued in denominations of $1,000 and
any integral multiple thereof, and will be issued in registered form only,
without coupons (each, a "Registered Global Security"). Payments of principal of
(and premium, if any) and interest, if any, on Debt Securities represented by a
Registered Global Security will be made by the Company to the applicable Trustee
and then by such Trustee to the depository.
The Company anticipates that any Registered Global Securities will be
deposited with, or on behalf of, The Depository Trust Company ("DTC"), New York,
New York, that such Registered Global Securities will be registered in the name
of DTC's nominee, and that the following provisions will apply to the depository
arrangements with respect to any such Registered Global Securities. Additional
or differing terms of the depository arrangements will be described in the
applicable Prospectus Supplement.
So long as DTC or its nominee is the registered owner of a Registered Global
Security, DTC or its nominee, as the case may be, will be considered the sole
holder of the Debt Securities represented by such Registered Global Security for
all purposes under the applicable Indenture. In addition, as the sole holder of
the Debt Securities, DTC or its nominee will be the only entity with the right
to sue the Company under the TIA for nonpayment of principal (or premium, if
any) or interest, if any, on the Debt Securities. Owners of beneficial interests
in Debt Securities must rely on the procedures of the depository arrangements
with respect to such nonpayments. Except as provided below, owners of beneficial
interests in a Registered Global Security will not be entitled to have Debt
Securities represented by such Registered Global Security registered in their
names, will not receive or be entitled to receive physical delivery of Debt
Securities in certificated form and will not be considered the owners or holders
thereof under the applicable Indenture. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
certificated forms; accordingly, such laws may limit the transferability of
beneficial interests in a Registered Global Security.
If DTC is at any time unwilling or unable to continue as depository and a
successor depository is not appointed by the Company within 90 days following
notice to the Company or the Company determines, in its sole discretion, not to
have any Debt Securities represented by one or more Registered Global
Securities, then the Company will issue individual Debt Securities in
certificated form in exchange for beneficial interests in such Registered Global
Securities. In any such instance, an owner of a beneficial interest in a
Registered Global Security will be entitled to physical delivery of individual
Debt Securities in certificated form of like tenor and rank, equal in principal
amount to such beneficial interest and to have such Debt Securities in
certificated form registered in its name.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully registered Debt Security
certificate is issued with respect to each $200 million of principal amount of
the Debt Securities of a series, and additional certificates will be issued with
respect to any remaining principal amount of such series.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited
16
<PAGE>
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations ("Direct
Participants"). DTC is owned by a number of its Direct Participants and by the
New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written confirmation
from DTC of its purchase, but such Beneficial Owner is expected to receive a
written confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of ownership
interests in Debt Securities are accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners do not
receive certificates representing their ownership interests in Debt Securities,
except in the event that use of the book-entry system for the Debt Securities is
discontinued.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's partnership nominee, Cede & Co. The deposit of the Debt
Securities with DTC and their registration in the name of Cede & Co. effects no
change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Debt Securities; DTC records reflect only the identity of the
Direct Participants to whose accounts Debt Securities are credited, which may or
may not be the Beneficial Owners. The Participants remain responsible for
keeping account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy")
to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Debt Securities are credited on the record date (identified
on a list attached to the Omnibus Proxy).
Payment of principal (and premium, if any) and interest, if any, on the Debt
Securities will be made to DTC. DTC's practice is to credit Direct Participants'
accounts on the payable date in accordance with their respective holdings as
shown on DTC's records unless DTC has reason to believe that it will not receive
payment on the payable date. Payments by Participants to Beneficial Owners will
be governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such Participant and not of
DTC, the Paying Agent or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Company or the Paying Agent, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
17
<PAGE>
DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the Paying Agent. Under such circumstances, in the event that a
successor securities depository is not appointed, Debt Security certificates are
required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Unless stated otherwise in the applicable Prospectus Supplement, the
underwriters or agents with respect to a series of Debt Securities issued as
Registered Global Securities will be Direct Participants in DTC.
None of the Company, any underwriter or agent, the applicable Trustee or any
applicable Paying Agent will have any responsibility or liability for any aspect
of the records relating to, or payments made on account of beneficial interests
in a Registered Global Security, or for maintaining, supervising or reviewing
any records relating to such beneficial interests.
AUTHENTICATION AND DELIVERY
At any time and from time to time after the execution and delivery of an
Indenture, the Trustee thereunder will, upon delivery to such Trustee of Debt
Securities of any series, executed by the Company, together with a written order
of the Company, authenticate and deliver such Debt Securities in accordance with
such Company order. Each Registered Security will be dated the date of its
authentication and each Bearer Security will be dated as of the date specified
in the applicable Prospectus Supplement.
A Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Debt Securities. An authenticating agent may authenticate Debt
Securities whenever the Trustee may do so.
CERTAIN DEFINITIONS
"Additional Amounts" means any additional amounts which are required by a
Security or by or pursuant to a resolution of the Board of Directors, under
circumstances specified therein, to be paid by the Company in respect of certain
taxes imposed on certain holders and which are owing to such holders.
"Bearer Security" means any Security established pursuant to the Senior
Indenture or the Subordinated Indenture which is payable to bearer.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Currency" means any currency or currencies, composite currency or currency
unit or currency units, including, without limitation, the ECU, issued by the
government of one or more countries or by any reorganized confederation or
association of such governments.
"Government Obligations" means securities which are (i) direct obligations
of the United States or the government which issued the foreign Currency in
which the Debt Securities of that series are payable, for the payment of which
its full faith and credit is pledged, or (ii) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of the United States
or the government which issued such foreign Currency, as the case may be, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States or such other government, which, in either case,
are not callable or redeemable at the option of the issuer thereof. Such term
also includes a depository receipt
18
<PAGE>
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the holder
of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from the amount received by such custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligations evidenced by such depository receipt.
"Indexed Security" means a Security as to which all or certain interest
payments and/or the principal amount payable at maturity are determined by
reference to prices, changes in prices, or differences between prices, of
securities, Currencies, intangibles, goods, articles or commodities or by such
other objective price, economic or other measures as are specified in the
applicable Prospectus Supplement.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (or premium, if any) or interest, if any, on any Securities or
coupons on behalf of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" when used with respect to the Securities of or within any
series, means the place or places where the principal of (and premium, if any)
and interest, if any, on such Securities are payable as specified and as
contemplated by the Senior Indenture or the Subordinated Indenture.
"Redemption Date," when used with respect to any Security to be redeemed, in
whole or in part, means the date fixed for such redemption by or pursuant to the
Senior Indenture or the Subordinated Indenture, as applicable.
"Registered Security" shall mean any Security which is registered in the
security register.
"Special Record Date" for the payment of any defaulted interest on the
Registered Securities of or within any series means a date fixed by the Senior
Trustee or Subordinated Trustee, as applicable.
"Stated Maturity" when used with respect to any Security or any installment
of principal thereof or interest thereon, means the date specified in such
Security or a coupon representing such installment of interest as the fixed date
on which the principal of such Security or such installment of principal or
interest is due and payable, as such date may be extended pursuant to the
provisions of the Senior Indenture or the Subordinated Indenture, as applicable.
SENIOR INDENTURE PROVISIONS
LIMITATION ON LIENS
Except as may otherwise be provided in the applicable Prospectus Supplement,
the Senior Indenture will contain a covenant that the Company will not, nor will
it permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any mortgage, security interest, pledge, lien or other encumbrance (herein
referred to as "mortgage" or "mortgages") upon any Principal Property (as
defined below) of the Company or any Restricted Subsidiary or any shares of
stock or indebtedness of any Restricted Subsidiary, whether owned at the date of
such Indenture or thereafter acquired, without effectively securing the
Indenture Securities issued under the Senior Indenture equally and ratably with
or prior to such indebtedness. The foregoing restriction will not apply to: (i)
mortgages on any assets acquired, constructed or improved after the date of the
Senior Indenture or existing mortgages on property acquired after the date of
such Indenture if such mortgages have been created to secure, finance, refinance
or refund the cost of the acquisition of such assets; (ii) mortgages existing on
the date of the Senior Indenture; (iii) existing mortgages on any property,
shares of stock or indebtedness acquired from a corporation which is
consolidated with or merged into, or substantially all of the assets of which
are acquired by, the Company or a Restricted Subsidiary so long as such
mortgages are limited to the assets so acquired; (iv) mortgages on property of
any corporation existing at the time it becomes a Restricted Subsidiary so long
as such
19
<PAGE>
mortgages are limited to the assets of such Restricted Subsidiary; (v) mortgages
securing indebtedness owed by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary; (vi) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business; (vii) sales of receivables
that are reflected as secured indebtedness; (viii) certain other liens not
related to the borrowing of money; and (ix) extensions, renewals or replacements
of the foregoing.
Notwithstanding the foregoing restrictions, the Company may, and may permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
mortgage that would otherwise be subject to such restrictions without equally
and ratably securing the Indenture Securities issued under the Senior Indenture
provided that the aggregate amount of all indebtedness then outstanding secured
by such mortgages plus the Attributable Debt (generally defined as the
discounted present value of net rental payments) associated with Sale and
Leaseback Transactions existing at such time (other than Sale and Leaseback
Transactions the proceeds of which have been or will be applied as set forth in
clause (iii) or (iv) under "Limitation on Sale and Leaseback Transactions"
below, and other than Sale and Leaseback Transactions in which the property
involved would have been permitted to be mortgaged under clause (i) above), does
not exceed the greater of $50,000,000 and 10% of the total shareowners' equity
(including preferred stock) of the Company as shown on the audited consolidated
balance sheet contained in the latest annual report to stockholders of the
Company.
The term "Principal Property" is defined in the Senior Indenture as the
Company's owned digital fiber optic network.
The term "Restricted Subsidiary," unless indicated otherwise in the
applicable Prospectus Supplement, is defined in the Senior Indenture to mean,
any Subsidiary whose total assets or consolidated revenue is equal to or greater
than 5% of the consolidated total assets or consolidated revenues, as the case
may be, of the Company and the Subsidiaries as of the date of the latest
available consolidated financial statements of the Company.
The term "Subsidiary" is defined in the Senior Indenture to mean a
corporation a majority of the outstanding voting stock of which is owned,
directly or indirectly, by the Company or by one or more other Subsidiaries, or
by the Company and one or more other Subsidiaries.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Except as otherwise may be provided in the applicable Prospectus Supplement,
the Senior Indenture will contain a covenant that the Company will not nor will
it permit any Restricted Subsidiary to enter into any arrangement with any
Person providing for the leasing to the Company or any Restricted Subsidiary of
any Principal Property (except for temporary leases for a term, including
renewals, of not more than three years and except for leases between the Company
and a Restricted Subsidiary or between Restricted Subsidiary) which has been or
is to be sold by the Company or such Restricted Subsidiary to such Person unless
the net proceeds are at least equal to the fair value (as determined by the
Board of Directors) of such property and either (i) the Company or such
Restricted Subsidiary would be entitled to incur indebtedness secured by a
mortgage on such Principal Property without securing the Indenture Securities
issued under the Senior Indenture under clause (i) of the first paragraph under
"Limitation on Liens" above; (ii) the Attributable Debt associated therewith
would be an amount permitted under the second paragraph under "Limitation on
Liens" above; (iii) the Company applies an amount equal to the fair value of
such Principal Property to the retirement of Indenture Securities or certain
long-term indebtedness of the Company or a Restricted Subsidiary, as the case
may be; or (iv) the Company enters in to a bona fide commitment to expend for
the acquisition or improvement of a Principal Property an amount at least equal
to the fair value of such property.
20
<PAGE>
SUBORDINATED INDENTURE PROVISIONS
SUBORDINATION
The Subordinated Securities, will be subordinated and subject, to the extent
and in the manner set forth in the Subordinated Indenture and the applicable
Prospectus Supplement, in right of payment to the prior payment in full of all
Senior Indebtedness (as defined in the Subordinated Indenture).
Upon any distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization, the payment of the principal of (and premium,
if any) and interest, if any, on Subordinated Securities is to be subordinated
to the extent provided in the Subordinated Indenture in right of payment to the
prior payment in full of all Senior Indebtedness, but the obligation of the
Company to make payment of principal (and premium, if any) or interest, if any,
on Subordinated Securities will not otherwise be affected.
No payment may be made, either directly or indirectly, by or on behalf of
the Company, in cash, property or securities on account of principal of
(premium, if any), interest on or other fees, costs and expenses and amounts
accrued or incurred in connection with, the Subordinated Securities, or to
purchase, redeem, retire, exchange, defease, or otherwise acquire any of the
Subordinated Securities for cash, property or securities, or on account of the
redemption or defeasance provisions or any other provision of the Subordinated
Indenture providing for the acquisition or retirement of the Subordinated
Securities (i) upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, unless and until all principal thereof (premium, if
any) and interest thereon and all other fees, costs, expenses and other amounts
accrued or incurred pursuant to the terms thereof, shall first be paid in full
or waived, or (ii) in the event that the Company defaults in the payment of any
principal of (premium, if any), interest on or other fees, costs or expenses and
amounts accrued or incurred or owing pursuant to the terms of any Senior
Indebtedness when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise, unless and until such
default shall have been cured or waived or shall have ceased to exist.
Upon the occurrence of an event of default with respect to any Senior
Indebtedness, as such event of default is defined therein, permitting the
holders to accelerate the maturity thereof (other than a default in payment of
the principal of (premium, if any) and interest on or other fees, costs,
expenses or amounts accrued or incurred pursuant to the terms of such Senior
Indebtedness) and, upon written notice thereof given to the Company and the
Trustee by one or more holders of such Senior Indebtedness or their
representative ("Default Notice"), then, unless and until such default has been
cured or waived or has ceased to exist or the Trustee receives notice from such
holder or holders of Senior Indebtedness (or such representative) terminating
the Blockage Period (as defined below), no payment may be made, either directly
or indirectly, by or on behalf of the Company, in cash, property or securities,
with respect to the principal of (premium, if any), interest, if any on, or
other fees, costs, expenses and other amounts accrued or incurred in connection
with, the Subordinated Securities or to purchase, redeem, retire, exchange,
defease or otherwise acquire any of the Subordinated Securities including on
account of the redemption or defeasance provisions or any other provision set
forth in the Subordinated Indenture providing for the acquisition or retirement
of the Subordinated Securities; PROVIDED, HOWEVER, that if such Senior
Indebtedness has not been accelerated or become the subject of judicial
proceedings within 179 days after the delivery of such Default Notice (the
"Blockage Period"), then, subject to the paragraph above relating to the
distribution of the Company's assets upon dissolution, winding up, liquidation
or reorganization, the Company will resume making any and all required payments
in respect of the Securities. At the expiration of such Blockage Period the
Company will, subject to the paragraph above relating to the distribution of the
Company's assets upon dissolution, winding up, liquidation or reorganization,
promptly pay to the Trustee all sums not paid during such Blockage Period as a
result of this provision. Notwithstanding the foregoing, (i) not more than one
Default Notice may be given within a period of 360 consecutive days, (ii) no
event of default which existed or was continuing on the date of any Default
Notice may be made the
21
<PAGE>
basis for the giving of a subsequent Default Notice, (iii) if the Company or the
Trustee receives any Default Notice, a similar notice relating to or arising out
of the same default or facts giving rise to such default (whether or not such
default is on the same issue of Senior Indebtedness) will not be effective for
purposes of this provision and (iv) no Default Notice may be given by a holder
or holders of less $5,000,000 principal amount of Senior Indebtedness.
In the event that, notwithstanding the foregoing, any such payment by the
Company is received by the Subordinated Trustee or the holders of any of the
Subordinated Securities before all Senior Indebtedness is paid in full, such
payment or distribution will be paid over to the holders of such Senior
Indebtedness or on their behalf for application to the payment of all such
Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been
paid in full, after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness. Subject to the payment in full of all
Senior Indebtedness upon such distribution of assets of the Company, the holders
of the Subordinated Securities will be subrogated to the rights of the holders
of the Senior Indebtedness to the extent of payments made to the holders of such
Senior Indebtedness out of the distributive share of the Subordinated
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain general creditors of the Company may recover
more, ratably, than holders of the Subordinated Securities. The Subordinated
Indenture provides that the subordination provisions thereof will not apply to
money and securities held in trust pursuant to the defeasance provisions of the
Subordinated Indenture.
Senior Indebtedness is defined in the Subordinated Indenture to include the
principal of (and premium, if any) and unpaid interest on (i) indebtedness of
the Company (including indebtedness of others guaranteed by the Company),
whether outstanding on the date of the Subordinated Indenture or thereafter
created, incurred, assumed or guaranteed, for money borrowed (other than the
Indenture Securities issued under the Subordinated Indenture), unless in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding it is provided that such indebtedness is not senior or prior in
right of payment to the Subordinated Securities and (ii) renewals, extensions,
modifications and refundings of any such indebtedness.
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated by reference will set forth the appropriate amount of
Senior Indebtedness outstanding as of a recent date.
22
<PAGE>
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following summary description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock do
not purport to be complete and are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation"), the Amended and Restated By-laws of the Company (the "By-laws")
and any applicable certificate of designations (each, a "Preferred Stock
Designation") and may be modified, supplemented or varied in the applicable
Prospectus Supplement.
The Credit Agreement restricts the Company's ability to pay dividends or
make distributions on, or to redeem, its capital stock. The Credit Agreement
provides in substance that (a) the Company may pay dividends in shares of its
capital stock or other ownership interests, (b) any subsidiary of the Company
may pay cash dividends to the Company or any other wholly owned subsidiary, (c)
as long as no Default or Event of Default (as such terms are defined in the
Credit Agreement) has occurred and is continuing, the Company may pay cash
dividends on any preferred stock the terms of which have been approved by the
managing agents under the Credit Agreement, (d) in addition to other permitted
dividends, as long as no Default or Event of Default has occurred and is
continuing, the Company and its subsidiaries may pay cash dividends on shares of
their capital stock or other ownership interests in an aggregate amount not
exceeding $10,000,000 in any fiscal year, (e) as long as no Default or Event of
Default has occurred and is continuing, the Company and its subsidiaries may
make additional cash distributions with the prior written approval of the
managing agents and the lenders holding 66 2/3% of the outstanding debt under
the Credit Agreement, and (f) the Company may redeem shares of its capital stock
not exceeding in the aggregate $100,000,000 during the term of the Credit
Agreement.
The Company may issue up to 10,400,000 shares of Preferred Stock.
TERMS
Subject to the limitations prescribed by the Certificate of Incorporation,
the Board of Directors is authorized to fix the number of shares constituting
each series of Preferred Stock and the designations, preferences, conversion,
exchange or other rights, participations, voting powers, options, restrictions,
limitations, special rights or relations, limitations as to dividends,
qualifications, terms and conditions of redemption and such other subjects or
matters as may be fixed by resolution of the Board of Directors. The Preferred
Stock will, when issued, be fully paid and nonassessable and will have no
preemptive rights.
Reference is made to the applicable Prospectus Supplement relating to the
shares of Preferred Stock offered thereby for specific terms, including: (i) the
title and stated value of such Preferred Stock; (ii) the number of shares of
such Preferred Stock offered, the liquidation preference per share and the
offering price of such Preferred Stock; (iii) the relative ranking and
preferences of such Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company; (iv) the
dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation
thereof applicable to such Preferred Stock; (v) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into or
exchangeable for shares of Common Stock or other Securities, including the
conversion or exchange price (or manner of calculation thereof); (vi) the
provision for redemption, if applicable, of such Preferred Stock; (vii) the
voting rights, if any, for such Preferred Stock; (viii) any listing of such
Preferred Stock on any securities exchange; (ix) any other specific terms,
preferences, rights, limitations or restrictions of such Preferred Stock; (x) a
discussion of United States federal income tax considerations applicable to such
Preferred Stock; and (xi) any limitations on issuance of any series of Preferred
Stock ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company.
23
<PAGE>
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock and to all other equity securities ranking
junior to such Preferred Stock ("Junior Stock"), (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock, and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of Preferred Stock of each series will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of assets of
the Company legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend will be payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company and specified in the applicable Prospectus
Supplement.
Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of
Preferred Stock for which dividends are noncumulative, then the holders of such
series of Preferred Stock will have no right to receive a dividend in respect of
the dividend period ending on such dividend payment date, and the Company will
have no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
The Company may not (i) declare or pay dividends (except in shares of Junior
Stock) or make any other distributions on any Junior Stock, or (ii) purchase,
redeem or otherwise acquire Junior Stock or set aside funds for such purpose, if
there are arrearages in dividends or failure in the payment of the Company's
sinking fund or redemption obligations on any of its Preferred Stock and, in the
case of (i) above, if dividends in full for the current quarterly dividend
period have not been paid or declared on any of its Preferred Stock.
Dividends in full may not be declared or paid or set apart for payment on
any series of Preferred Stock unless (i) there are no arrearages in dividends
for any past quarterly dividend periods on any series of Preferred Stock and
(ii) to the extent that such dividends are cumulative, dividends in full for the
current quarterly dividend period have been declared or paid on all Preferred
Stock. Any dividends declared or paid when dividends are not so declared, paid
or set apart in full will be shared ratably by the holders of all series of
Preferred Stock in proportion to such respective arrearages and undeclared and
unpaid current quarterly cumulative dividends. No interest, or sum of money in
lieu of interest, will be payable in respect of any dividend payment or payments
that may be in arrears.
CONVERSION AND EXCHANGE
If the Preferred Stock will be convertible into or exchangeable for Common
Stock or other Securities, the applicable Prospectus Supplement will set forth
the terms and conditions of such conversion or exchange, including the
conversion price or exchange ratio (or the method of calculating the same), the
conversion or exchange period (or the method of determining the same), whether
conversion or exchange will be mandatory or at the option of the holder or the
Company, the events requiring an adjustment of the conversion price or the
exchange ratio and provisions affecting conversion or exchange in the event of
the redemption of such Preferred Stock. Such terms may also include provisions
under which the number of
24
<PAGE>
shares of Common Stock or the number or amount of other Securities to be
received by the holders of such Preferred Stock upon such conversion or exchange
would be calculated according to the market price of the Common Stock or such
other Securities as of a time stated in such Prospectus Supplement.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of the Preferred Stock
will be entitled to receive out of assets of the Company available for
distribution to stockholders, before any distribution of assets is made to
holders of any Junior Stock, liquidating distributions in the amount set forth
in the Prospectus Supplement plus all accrued and unpaid dividends. If, upon any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the amounts payable with respect to the Preferred Stock are not paid in full,
the holders of Preferred Stock of each series will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of the Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company. A consolidation or merger of the Company
with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Company will not be deemed to be a
liquidation, dissolution or winding up of the Company.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be redeemable in whole or in part at the option of the Company, at the
times and at the redemption prices set forth therein.
If dividends on any series of Preferred Stock are in arrears or the Company
has failed to fulfill its sinking fund or redemption obligations with respect to
any series of Preferred Stock, the Company may not purchase or redeem any shares
of Preferred Stock or any other capital stock ranking on a parity with the
Preferred Stock as to dividends or upon liquidation, nor permit any subsidiary
to do so, without in either case the consent of the holders of at least
two-thirds of all shares of Preferred Stock then outstanding; provided, however,
that (i) to meet its purchase, retirement or sinking fund obligations with
respect to any series of Preferred Stock, the Company may use shares of such
Preferred Stock acquired prior to such arrearages or failure of payment and then
held as treasury stock and (ii) the Company may complete the purchase or
redemption of shares of Preferred Stock for which a contract was entered into
for any purchase, retirement or sinking fund purposes prior to such arrearages
or failure of payment.
VOTING RIGHTS
Holders of shares of Preferred Stock will not have any voting rights, except
as set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
the equivalent of six quarterly dividends (whether or not consecutive), the
holders of such shares of Preferred Stock (voting separately as a class with all
other series of Preferred Stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors of the Company until all dividends that were accrued and
unpaid shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such case, the entire Board of
Directors of the Company will be increased by two directors. Upon any
termination of such rights to vote for directors, the term of office of all
directors so elected shall terminate.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of two-thirds of the shares of each
series of Preferred Stock outstanding at the time, (i) authorize or create, or
increase the authorized or issued amount of, any class or series of capital
stock ranking prior to such series
25
<PAGE>
of Preferred Stock with respect to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up or reclassify any
authorized capital stock of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares, or (ii) amend, alter or repeal the provisions
of the Certificate of Incorporation or Preferred Stock Designation for such
series of Preferred Stock, whether by merger, consolidation or otherwise, so as
to affect adversely any right, preference, privilege or voting power of such
series of Preferred Stock or the holders thereof.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
TRANSFER AGENT AND REGISTRAR
The transfer agent for each series of Preferred Stock will be set forth in
the applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
The following summary description of the Common Stock sets forth certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate. The statements below describing the Common Stock do not
purport to be complete and are in all respects subject to and qualified in their
entirety by reference to the Company's Certificate of Incorporation and By-laws.
All shares of Common Stock currently outstanding are fully paid and
nonassessable. The Common Stock to be issued hereunder will, when issued, be
fully paid and nonassessable. The holders of Common Stock are entitled to one
vote per share on all matters voted on by stockholders, including elections of
directors, and, except as otherwise required by law or as provided in any
Preferred Stock Designation, the holders of such shares exclusively possess all
voting power. The Certificate of Incorporation does not provide for cumulative
voting in the election of directors.
Subject to any preferential rights of any outstanding series of Preferred
Stock, the holders of Common Stock are entitled to such distributions as may be
declared from time to time by the Board of Directors from funds legally
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. Holders of
Common Stock are not entitled to any preemptive rights. See "Description of
Preferred Stock" for a discussion of certain restrictions contained in the
Credit Agreement.
The Transfer Agent for the Common Stock is Fifth Third Bank.
26
<PAGE>
DESCRIPTION OF OUTSTANDING CAPITAL STOCK
Under the Company's Certificate of Incorporation, the total number of shares
of all classes of capital stock that the Company has authority to issue is
315,000,000 shares, consisting of 300,000,000 shares of Common Stock and
15,000,000 shares of Preferred Stock (of which 10,400,000 shares of Preferred
Stock may be issued). At January 31, 1997, the Company had outstanding
77,561,762 shares of Common Stock and no shares of Preferred Stock. The
Company's Common Stock is listed on the New York Stock Exchange under the symbol
"LCI." The Company's 5% Cumulative Convertible Exchangeable Preferred Stock was
retired through conversions and redemptions during 1996.
WARRANTS
Under the terms of a note purchase agreement dated as of March 31, 1993, the
Company issued Warrants (the "1993 Warrants") to purchase an aggregate of
5,408,900 shares of Common Stock, of which 1993 Warrants to purchase 5,162,776
shares of Common Stock were outstanding as of January 31, 1997. The 1993
Warrants are exercisable through April 1, 2000 at an exercise price of $2.83 per
share. The exercise price may be adjusted in certain circumstances to prevent
dilution of the number of shares of Common Stock purchasable upon exercise of
the 1993 Warrants.
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation classifies the Board of Directors into
three classes. The term of Class I directors expires at the annual meeting of
stockholders in 1997, the term of Class II directors expires at the annual
meeting of stockholders in 1998 and the term of Class III directors expires at
the annual meeting of the stockholders in 1999. The classification of directors
of the Company's Board of Directors will have the effect of making it more
difficult to change the composition of the Board of Directors. At least two
annual meetings of stockholders, instead of one, generally will be required to
effect a change in the majority of the Board of Directors. In addition, the
provision in the Certificate of Incorporation establishing a classified Board of
Directors may only be amended by the affirmative vote of at least 66 2/3% of the
issued and outstanding voting stock of the Company.
REMOVAL OF DIRECTORS
Under the Delaware General Corporation Law ("DGCL"), unless a company's
certificate of incorporation otherwise provides, directors on a classified board
of directors may be removed by stockholders only for cause. The Company's
Certificate of Incorporation does not contain any such provision and therefore a
director on the Board of Directors may be removed by the stockholders only for
cause.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the DGCL prohibits certain Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, or (iii) on or after such date the
business combination is approved by the board and by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. A Delaware corporation may "opt out" from the
application of Section 203 of the DGCL through a provision in its certificate of
incorporation. The Company's Certificate of Incorporation has no such provision
and the Company has not "opted out" from the application of Section 203.
27
<PAGE>
STOCKHOLDER RIGHTS PLAN
In connection with the adoption of a Stockholder Rights Plan in January
1997, the Company's Board of Directors declared a dividend distribution of one
right (a "Right") for each share of Common Stock, payable to stockholders of
record on January 22, 1997, and attached to shares of Common Stock issued
thereafter until the occurrence of certain events set forth in the Stockholder
Rights Plan. Each Right, when exercisable, entitles the registered holder to
purchase from the Company one one-thousandth of a share of Junior Participating
Preferred Stock, par value $.01 per share (the "Junior Participating Preferred
Stock"), at an exercise price of $100 or to purchase a number of shares of
Common Stock having a market value equal to twice such exercise price. The
Rights automatically trade with the Common Stock until a person or group of
persons acquires beneficial ownership of 15% or more (or 20% or more in the case
of certain institutional investors) of the Common Stock or commences a tender or
exchange offer the consummation of which would result in the ownership of 15% or
more (or 20% or more in the case of the certain institutional investors) of the
Common Stock. Upon the occurrence of either of these events the Rights will
trade separately from the Common Stock. The Rights become exercisable only if a
person or group of persons acquires 15% or more (or 20% or more in the case of
certain institutional investors) of the Common Stock. Rights owned by such
person or group, however, will not become exercisable. In addition, if after the
Rights become exercisable the Company is acquired by merger or consolidation
pursuant to which the Company is not the surviving corporation or in connection
with which outstanding shares of Common Stock are exchanged for securities of
another entity, or the Company disposes of 50% or more of its consolidated
assets or earning power, the Rights, other than those owned by the acquiring
person and its affiliates and associates, become exercisable for that number of
shares of Common Stock of the acquiring company having a market value equal to
twice the exercise price. The Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right at any time prior to (i) a date on which
there has been public disclosure that a person or entity has acquired 15% or
more (or 20% or more in the case of certain institutional investors) of the
Common Stock or (ii) January 22, 2007, the expiration date of the Rights.
The Stockholder Rights Plan is designed to encourage any person or entity
interested in acquiring the Company to negotiate with the Board of Directors by
enabling the existing stockholders to substantially dilute the acquiror's equity
interest by exercising the Rights. The Rights expire on January 22, 2007, unless
extended or earlier redeemed.
In connection with the Stockholder Rights Plan, the Company reserved for
issuance 500,000 shares of Junior Participating Preferred Stock. The Junior
Participating Preferred Stock will only be issued in the event Rights issued
pursuant to the Stockholder Rights Plan are exercised for shares of Junior
Participating Preferred Stock. Holders of shares of Junior Participating
Preferred Stock have a preference over holders of Common Stock in the payment of
dividends and upon any distributions. Each share of Junior Participating
Preferred Stock would entitle the holder thereof to 1,000 votes on all matters
submitted to a vote of the stockholders and would vote together with the holders
of Common Stock as one class. Each share of Junior Participating Preferred Stock
would also be entitled to a minimum preferential quarterly dividend payment
equal to the greater of $100 per share and 1,000 times any quarterly dividend
declared per share of Common Stock. In the event dividends on the Junior
Participating Preferred Stock are in arrears in an amount equal to six quarterly
dividends, the holders of the Junior Participating Preferred Stock obtain
special rights pertaining to the election of directors. Additionally, while any
dividends or distributions on the Junior Participating Preferred Stock are in
arrears, the Company's right to make distributions on or redeem shares of any
stock ranking on a parity with or junior to the Junior Participating Preferred
Stock is restricted. In the event of the liquidation, dissolution or winding up
of the Company, the holders of the shares of Junior Participating Preferred
Stock would receive all accrued and unpaid dividends plus a $1,000 preference
per share In the event of any consolidation, merger, share exchange or other
similar transaction by the Company, each share of Junior Participating Preferred
Stock would be exchanged or changed into an amount per share equal to 1,000
times the aggregate amount of stock, securities, cash and/or property into which
each share of Common Stock is changed or exchanged. The shares of Junior
Participating Preferred Stock would not be redeemable and would rank junior to
all series of any other class of Preferred Stock issued from time to time.
28
<PAGE>
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Stock or Preferred
Stock. Warrants may be issued independently or together with any other
Securities offered by any Prospectus Supplement and may be attached to or
separate from such Securities. Each series of Warrants will be issued under a
separate warrant agreement (each, a "Warrant Agreement") to be entered into
between the Company and a warrant agent specified in the applicable Prospectus
Supplement (the "Warrant Agent"). The Warrant Agent will act solely as an agent
of the Company in connection with the Warrants of such series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreements will be set forth in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (i) the title of such Warrants; (ii) the aggregate
number of such Warrants; (iii) the price or prices at which such Warrants will
be issued; (iv) the number of shares of Common Stock or Preferred Stock
purchasable upon exercise of such Warrants; (v) the designation and terms of the
other Securities with which such Warrants are issued and the number of such
Warrants issued with each such Security; (vi) the date, if any, on and after
which such Warrants and related Securities will be separately transferable;
(vii) the price at which each share of Common Stock or Preferred Stock
purchasable upon exercise of such Warrants may be purchased; (viii) the date on
which the right to exercise such Warrants will commence and the date on which
such right will expire; (ix) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (x) information with respect to
book-entry procedures, if any; (xi) a discussion of certain United States
federal income tax considerations; and (xii) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
The Company has no Warrants outstanding other than the 1993 Warrants. See
"Description of Outstanding Capital Stock -- Warrants."
PLAN OF DISTRIBUTION
The Company may sell the Securities offered hereby (i) through underwriters
or dealers; (ii) through agents; (iii) directly to purchasers; or (iv) through a
combination of any such methods of sale. Any such underwriter, dealer or agent
may be deemed to be an underwriter within the meaning of the Securities Act. The
Prospectus Supplement relating to the Securities will set forth their offering
terms, including the name or names of any underwriter, dealers or agents, the
purchase price of the Securities and the proceeds to the Company from such sale,
any underwriting discounts, commissions and other items constituting
compensation to underwriters, dealer or agents, any initial public offering
price, any discounts or concessions allowed or reallowed or paid by underwriters
or dealers to other dealers, and any securities exchanges on which the
Securities may be listed.
If underwriters or dealers are used in the sale, the Securities will be
acquired by the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, at a fixed price or prices, which
may be changed, or at market prices prevailing at the time of sale, or at prices
related to such prevailing market prices, or at negotiated prices. The
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more of
such firms. Unless otherwise set forth in a Prospectus Supplement, the
obligations of underwriters or dealers to purchase the Securities will be
subject to certain conditions precedent and the underwriters or dealers will be
obligated to purchase all the Securities offered if any are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid by underwriters or dealers to other dealers may be changed
from time to time.
29
<PAGE>
Securities may be sold directly by the Company or through agents designated
by the Company from time to time. Any agent involved in the offer or sale of the
Securities in respect of which this Prospectus is delivered will be named, and
any commissions payable by the Company to such agent will be set forth, in the
Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment.
Underwriters, dealers and agents may be entitled under agreements entered
into with the Company to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
by the Company to payments they may be required to make in respect thereof. The
terms and conditions of such indemnification will be described in the applicable
Prospectus Supplement. Underwriters, dealers and agents may be customers of,
engage in transactions with, or perform services for the Company in the ordinary
course of business.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street,
New York, New York.
EXPERTS
The audited financial statements and schedules of LCI International, Inc.,
included or incorporated by reference in the Company's Annual Report on Form
10-K, and incorporated by reference in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements of Corporate Telemanagement Group, Inc. and
subsidiaries as of December 31, 1994 and 1993, and for the years then ended,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the 1993 financial statements refers to a restatement of certain
amounts in the 1993 financial statements.
The financial statements of Teledial America, Inc. (dba US Signal
Corporation) incorporated by reference in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report incorporated herein by reference, and
are incorporated herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
30
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statement Regarding Forward-Looking
Information.................................... S-2
The Company...................................... S-3
Use of Proceeds.................................. S-4
Capitalization................................... S-4
Selected Consolidated Financial Data............. S-5
Ratio of Earnings to Fixed Charges............... S-6
Description of Notes............................. S-7
Underwriting..................................... S-11
Legal Matters.................................... S-12
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
The Company...................................... 4
Use of Proceeds.................................. 5
Ratio of Earnings to Fixed Charges and to
Combined Fixed Charges and Preferred Stock
Dividends...................................... 6
Description of Debt Securities................... 7
Description of Preferred Stock................... 23
Description of Common Stock...................... 26
Description of Outstanding Capital Stock......... 27
Description of Warrants.......................... 29
Plan of Distribution............................. 29
Legal Matters.................................... 30
Experts.......................................... 30
</TABLE>
$300,000,000
[LOGO]
% SENIOR NOTES DUE JUNE , 2007
--------------------------------
PROSPECTUS SUPPLEMENT
JUNE , 1997
--------------------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL
MARKETS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
