AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LCI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 4813 13-3498232
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
8180 GREENSBORO DRIVE
SUITE 800
MCLEAN, VIRGINIA 22102
(703) 442-0220
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LEE M. WEINER, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
LCI INTERNATIONAL, INC.
8180 GREENSBORO DRIVE
SUITE 800
MCLEAN, VIRGINIA 22102
(703) 442-0220
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
PETER S. KOLEVZON, ESQ. JOSEPH A. HOFFMAN, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL J. DAVID WASHBURN, ESQ.
919 THIRD AVENUE ARTER & HADDEN
NEW YORK, NEW YORK 10022 1717 MAIN STREET, SUITE 4100
DALLAS, TEXAS 75201
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective and
all other conditions to the merger contemplated by the Agreement and Plan of
Merger, dated September 17, 1997, described in the Joint Proxy
Statement/Prospectus included in the Registration Statement have been satisfied
or waived.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
Common Stock, par value $0.01 per share(1)....... 16,515,025(2) N/A 354,594,113(3) $107,500(3)
(1) With attached rights to purchase additional shares of the Registrant's
Common Stock in certain circumstances.
(2) The exact number of shares of the Registrant's Common Stock issuable
pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), dated
September 17, 1997, among the Registrant, LCI Acquisition Corp. and USLD
Communications Corp. ("USLD") will be calculated based on the average
closing trading price of the Registrant's Common Stock prior to the
consummation of the transactions contemplated by the Merger Agreement. The
Registrant does not expect the number of shares actually issued to exceed
the number indicated.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rules 457 (c) and (f) promulgated under the Securities Act of 1933, as
amended, on the basis of (i) a maximum of 17,836,726 shares of common stock
of USLD to be converted in the Merger and (ii) the average of the high and
low sales prices of the USLD common stock on the Nasdaq Stock Market's
National Market on September 30, 1997 ($19.88).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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[LCI LOGO] [USLD LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of LCI International, Inc. and USLD Communications
Corp. have agreed upon a merger of LCI and USLD and are seeking your vote for
this important transaction.
If the merger is effected, USLD will become a subsidiary of LCI and
stockholders of USLD will become LCI stockholders. LCI is the sixth largest
long-distance carrier in the United States and provides a wide array of
worldwide voice and data transmission services to businesses, residential
customers and other carriers through its fiber-optic network. USLD is a
communications company offering an integrated group of communications services,
including direct dial long-distance, and local services, prepaid calling cards,
travel cards, Internet access, data transmission and calling center services. By
combining the two companies, LCI and USLD expect to enhance long-term value for
their stockholders. In addition, the merger will give stockholders of USLD the
opportunity to participate in a combined enterprise which will have greater
financial, technical and marketing resources and is expected to produce a
stronger competitor, both domestically and internationally, than USLD would be
on a stand-alone basis.
Stockholders of USLD are being asked, at a special meeting of USLD
stockholders, to approve and adopt the merger and the merger agreement relating
to the merger. You can find the full text of the merger agreement at the back of
this document in Annex A. In the merger, stockholders of USLD will receive LCI
shares in exchange for their shares of USLD stock. The exchange ratio, which is
the fraction of an LCI share you will receive for each share of USLD stock, will
depend on the average trading price for LCI shares over a designated period of
time prior to the merger. Interested parties may call toll free 1-800-XXX-XXXX
at any time after December , 1997 for current information on the exchange ratio.
According to the rules and regulations of the New York Stock Exchange, where
the shares of LCI are traded, LCI must obtain the approval of the LCI
stockholders in the event that LCI is required to issue 20% or more of its
outstanding shares in the merger. As the exact exchange ratio will be calculated
only a few days prior to the merger, the Board of Directors of LCI has decided
to call a special meeting of LCI stockholders to authorize the issuance of the
LCI shares in the merger in the event that such shares are 20% or more of LCI's
outstanding shares at such time. If it is evident that the authorization of the
LCI stockholders to issue the LCI shares in the merger is not required, the
special meeting of LCI stockholders may be cancelled. As there can be no
assurances as to whether the LCI special meeting will or will not be required,
you are asked to assume that the meeting will be held and act accordingly.
Whether or not you plan to attend a meeting, please take the time to vote on
the proposal(s) submitted to stockholders by completing and mailing the enclosed
proxy card to us. If you sign, date and mail your proxy card without indicating
how you wish to vote, your proxy will be counted as a vote in favor of the
proposal(s). YOUR VOTE IS VERY IMPORTANT.
The dates, times and places of the meetings are:
For USLD stockholders:
December ______, 1997
10:00 a.m., Central time
____________________
San Antonio, Texas ______
For LCI stockholders:
December ______, 1997
10:00 a.m., Eastern time
____________________
____________________
This document provides you with detailed information about the proposed
merger. In addition, you may obtain information about LCI and USLD from
documents that LCI and USLD have filed with the Securities and Exchange
Commission. We encourage you to read this entire document carefully.
USLD stockholders who have any questions about the merger should contact
____________, 1-800-XXX-XXXX. LCI stockholders who have any questions about the
merger should contact ____________, 1-800-XXX-XXXX.
H. Brian Thompson Larry M. James
Chairman and Chief Executive Officer Chairman, Chief Executive Officer and President
LCI International, Inc. USLD Communications Corp.
SEE "CERTAIN CONSIDERATIONS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
MATTERS WHICH SHOULD BE CONSIDERED BY STOCKHOLDERS WITH RESPECT TO THE
TRANSACTIONS TO BE CONSIDERED AT THE SPECIAL MEETINGS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY
BE AMENDED. THE SECURITIES TO BE ISSUED IN THE MERGER MAY NOT BE SOLD UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Joint Proxy Statement/Prospectus dated November __, 1997 and first mailed to
stockholders ____________, 1997.
LCI INTERNATIONAL, INC.
8180 GREENSBORO DRIVE, SUITE 800
MCLEAN, VA 22102
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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To our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of LCI International, Inc. ("LCI") will be held at 10:00 a.m., Eastern
time, on December __, 1997 at ________________________ to approve the issuance
of the shares of Common Stock, par value $.01 per share, of LCI in connection
with the merger of USLD Communications Corp. with LCI Acquisition Corp., a
wholly owned subsidiary of LCI.
Only holders of LCI Common Stock of record at the close of business on
November __, 1997 are entitled to notice of and to vote at the Special Meeting
or any adjournment or postponement thereof.
By Order of the Board of Directors
James D. Heflinger,
SECRETARY
November __, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE RETURN ENVELOPE
PROVIDED TO BE RECEIVED NO LATER THAN DECEMBER __, 1997. IN ORDER TO AVOID THE
ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
USLD COMMUNICATIONS CORP.
9311 SAN PEDRO, SUITE 100
SAN ANTONIO, TX 78216
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of USLD Communications Corp. ("USLD") will be held at 10:00 a.m.,
Central time, on December __, 1997 at ________________________________________
to approve the merger of USLD with LCI Acquisition Corp., a wholly owned
subsidiary of LCI International, Inc., a Delaware corporation, and to approve
and adopt the Agreement and Plan of Merger (the "Merger Agreement") relating
thereto.
A copy of the Merger Agreement is set forth as Annex A to the Joint Proxy
Statement/Prospectus accompanying this notice.
Only holders of USLD Common Stock of record at the close of business on
November __, 1997 are entitled to notice of and to vote at the Special Meeting
or any adjournment or postponement thereof. The stock transfer books will not be
closed. A list of stockholders entitled to vote at the Special Meeting will be
available for examination at the offices of USLD for ten days prior to the
Special Meeting.
By Order of the Board of Directors,
W. Audie Long,
CORPORATE SECRETARY
San Antonio, Texas
November __, 1997
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE RETURN ENVELOPE
PROVIDED TO BE RECEIVED NO LATER THAN DECEMBER __, 1997. IN ORDER TO AVOID THE
ADDITIONAL EXPENSE TO THE COMPANY OF FURTHER SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING IN YOUR PROXY PROMPTLY.
TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE LCI/USLD MERGER............................................................
SUMMARY....................................................................................................
The Companies............................................................................................
The Meeting..............................................................................................
Reasons for the Merger...................................................................................
Recommendations to Stockholders..........................................................................
The Merger...............................................................................................
Certain Considerations...................................................................................
Summary Selected Financial Data for LCI and USLD.........................................................
CERTAIN CONSIDERATIONS.....................................................................................
USLD SPECIAL MEETING.......................................................................................
Time, Place and Purpose of the USLD Special Meeting......................................................
Record Date; Voting Rights; Proxies......................................................................
Solicitation of Proxies..................................................................................
Quorum...................................................................................................
Required Vote............................................................................................
1998 Annual Meeting......................................................................................
LCI SPECIAL MEETING........................................................................................
Purpose of the LCI Special Meeting.......................................................................
Record Date; Voting Rights; Proxies......................................................................
Solicitation of Proxies..................................................................................
Quorum...................................................................................................
Required Vote............................................................................................
THE MERGER.................................................................................................
General..................................................................................................
Effective Time...........................................................................................
Conversion of Shares; Procedures for Exchange of Certificates............................................
Background of the Merger.................................................................................
Recommendation of the Board of Directors of USLD; Reasons of USLD for the Merger.........................
Opinion of USLD's Financial Advisor......................................................................
Recommendation of the Board of Directors of LCI; Reasons of LCI for the Merger...........................
Opinion of LCI's Financial Advisor.......................................................................
Cautionary Statement Concerning Forward-Looking Statements...............................................
Interests of Certain Persons in the Merger...............................................................
Certain United States Federal Income Tax Consequences....................................................
Anticipated Accounting Treatment.........................................................................
Effect on Stock Plans and Agreements and Warrants........................................................
Certain Legal Matters....................................................................................
Federal Securities Law Consequences......................................................................
Stock Exchange Listing...................................................................................
Dividends................................................................................................
Absence of Appraisal Rights..............................................................................
USLD Rights Agreement....................................................................................
Termination Fee..........................................................................................
THE MERGER AGREEMENT.......................................................................................
Terms of the Merger......................................................................................
Exchange of Certificates.................................................................................
i
PAGE
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Representations and Warranties...........................................................................
Conduct of Business Pending the Merger...................................................................
Additional Agreements....................................................................................
Conditions to the Merger.................................................................................
Termination..............................................................................................
Termination Fee..........................................................................................
Other Fees and Expenses..................................................................................
Amendment and Waiver.....................................................................................
Closing and Closing Date.................................................................................
COMPARATIVE PER SHARE PRICES AND DIVIDENDS.................................................................
LCI......................................................................................................
USLD.....................................................................................................
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION...............................................
BUSINESS OF LCI............................................................................................
BUSINESS OF USLD...........................................................................................
Direct Dial Long-distance Services.......................................................................
Operator Services........................................................................................
Local Services...........................................................................................
Spin-off of Billing Information Concepts Corp. ..........................................................
DESCRIPTION OF CAPITAL STOCK OF LCI........................................................................
Common Stock.............................................................................................
Preferred Stock..........................................................................................
Warrants.................................................................................................
Stockholder Rights Plan..................................................................................
Stock Exchange Listing...................................................................................
COMPARISON OF STOCKHOLDER RIGHTS...........................................................................
Authorized Capital.......................................................................................
Board of Directors.......................................................................................
Removal of Directors.....................................................................................
Compromise or Amendment with Creditors or Stockholders...................................................
Actions of Stockholders Without a Meeting................................................................
Officers.................................................................................................
Annual Statement.........................................................................................
Amendment of Charter and Bylaws..........................................................................
Indemnification of Directors and Officers................................................................
Section 203 of the Delaware General Corporation Law......................................................
LEGAL MATTERS..............................................................................................
EXPERTS....................................................................................................
WHERE TO FIND MORE INFORMATION.............................................................................
LIST OF DEFINED TERMS......................................................................................
ANNEXES
ANNEX A--Agreement and Plan of Merger
ANNEX B--Opinion of ABN AMRO Chicago Corporation
ANNEX C--Opinion of Lehman Brothers
ii
QUESTIONS AND ANSWERS
ABOUT THE LCI/USLD MERGER
Q: WHY HAVE USLD COMMUNICATIONS CORP. AND LCI
INTERNATIONAL, INC. PROPOSED THAT USLD BE
ACQUIRED IN A MERGER BY LCI?
A: USLD is a communications company offering an
integrated group of communications services,
including direct dial long-distance and local
services, prepaid calling cards, travel cards,
Internet access, data transmission and calling
center services. LCI is the nation's sixth
largest long-distance carrier (based upon
presubscribed telephone lines as reported by
the Federal Communications Commission) and
provides a wide array of worldwide voice and
data transmission services to businesses,
residential customers and other carriers
through its fiber-optic network.
For the two companies, the merger is an
attractive strategic combination which should
benefit from synergies and cost savings. For
USLD stockholders, the merger will improve
stockholder value by providing stockholders
with a premium over historic market value for
their shares and improve stockholder liquidity
by providing stockholders with shares of an
actively-traded NYSE listed company. The
merger will also provide the USLD stockholders
with the opportunity to participate, as
holders of LCI Common Stock, in a combined
enterprise which will have greater resources
and is expected to produce a stronger
competitor than USLD would be on a stand-alone
basis.
For a more detailed discussion of the reasons
for the merger, see "The
Merger--Recommendation of the Board of
Directors of LCI; Reasons of LCI for the
Merger;" and "--Recommendation of the Board of
Directors of USLD; Reasons of USLD for the
Merger." Achieving the anticipated benefits of
the merger is subject to certain risks, as
discussed under "Certain Considerations" and
"The Merger--Cautionary Statement Concerning
Forward-Looking Statements."
Q: WHAT WILL HAPPEN TO THE STOCK OF USLD IN THE
MERGER?
A: In the merger, USLD stockholders will receive
shares of LCI in exchange for their shares of
USLD stock. The exchange ratio will depend on
the average trading price of LCI stock over a
designated period of time prior to the merger,
as described below. Cash will be paid instead
of the distribution of fractional shares of
LCI.
Q: HOW IS THE EXCHANGE RATIO OF LCI SHARES FOR
USLD SHARES DETERMINED?
A: The exchange ratio has been designed to give
USLD stockholders $20.00 in value of LCI
shares for each of their USLD shares, subject
to certain exceptions. The value of the LCI
shares for this purpose is deemed to be the
average daily trading price of the LCI shares
on the New York Stock Exchange over the twenty
trading days ending December , 1997 (unless
consummation of the merger is delayed more
than three trading days after the USLD special
stockholders' meeting, in which case such
twenty-day period shall end two trading days
prior to the closing of the merger).
- If the average daily trading price for LCI
shares is between $21.60 and $26.40, the
exchange ratio will be set between .9259
and .7576 so that USLD stockholders will
receive LCI shares having a value of $20.00
(based upon the average daily trading
price) for each share of USLD stock.
- If the average daily trading price for LCI
shares is greater than $26.40, the exchange
ratio will be set at .7576, so that the
value to be received by USLD stockholders
for each share of USLD stock (based upon
the average daily trading price) will
increase above $20.00 as the average daily
trading price increases above $26.40 per
share.
- If the average daily trading price for LCI
shares is less than $21.60, the exchange
ratio will be set at .9259, so that the
value to be received by USLD stockholders
for each share of USLD stock (based upon
the average daily trading price) will
decrease below $20.00 as the average daily
trading price decreases below $21.60 per
share.
- If, however, the average daily trading
price for LCI shares is less than $20.40,
either USLD or LCI can terminate the merger
agreement unless LCI agrees to an exchange
ratio so that the value of LCI shares
received by USLD stockholders for each USLD
share is at least $18.90. If the average
daily trading price for LCI shares is
calculated after the USLD special
stockholders' meeting because consummation
of the merger is delayed more than three
trading days, USLD will not have the right
to terminate the merger agreement if the
average daily trading price for LCI shares
is less than $20.40.
1
The average daily trading price for LCI shares on the New York
Stock Exchange for the twenty trading days ended September 30,
1997 was $24.70. Accordingly, should the average daily trading
price actually used in calculating the exchange ratio equal this
price, the exchange ratio would be .8096 and USLD stockholders
would receive $20.00 in value (based on such average daily
trading price) for each share of USLD stock.
Q: HOW WILL STOCKHOLDERS KNOW WHAT THE ACTUAL
EXCHANGE RATIO IS?
A: Interested parties can call toll free
1-800-XXX-XXXX at any time after December ,
1997 for the average daily trading price of
LCI shares for the preceding twenty trading
days and the exchange ratio that would be in
effect based on that average daily trading
price. The actual average daily trading price
and the actual exchange ratio will be
calculated after the close of business on
December , 1997 and may be obtained by calling
the toll-free number after that date. If
consummation of the merger is delayed more
than three days after the USLD special
stockholders' meeting, interested parties will
be able to call the same number for updated
average daily trading price and exchange ratio
information.
Q: WHEN WILL THE MERGER TAKE EFFECT?
A: LCI and USLD expect that the merger will
become effective promptly after the
stockholders of USLD approve the merger and
the merger agreement and, if necessary, after
the stockholders of LCI approve the issuance
of the LCI shares in the merger, provided that
the necessary regulatory approvals for the
merger have been obtained. The stockholder
meetings of both USLD and LCI are scheduled
for December , 1997.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER FOR THE STOCKHOLDERS OF USLD?
A: The receipt of LCI shares in the merger
generally will be tax free to the stockholders
of USLD; however, a stockholder may be
required to pay taxes on cash received in lieu
of a fractional share of LCI. For a detailed
discussion of the tax consequences of the
merger, see "Certain Considerations" and "The
Merger--Certain United States Federal Income
Tax Consequences."
Q: WILL STOCKHOLDERS HAVE APPRAISAL RIGHTS?
A: No. Stockholders of USLD will not have any
appraisal rights as a result of the merger.
Q: WHAT SHOULD STOCKHOLDERS DO NOW?
A: Stockholders should mail their signed and
dated proxy card in the enclosed envelope, as
soon as possible, so that their shares will be
represented at the USLD or LCI special
stockholders' meeting. The Board of Directors
of USLD unanimously recommends that USLD
stockholders vote in favor of the merger. The
Board of Directors of LCI unanimously
recommends that LCI stockholders vote in favor
of the issuance of the LCI shares in the
merger. After the merger is completed,
stockholders of USLD will receive written
instructions for exchanging their share
certificates. Stockholders should continue to
hold their share certificates until they
receive such instructions and should not send
their certificates to LCI until then.
Q: CAN STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY
HAVE MAILED IN A SIGNED PROXY CARD?
A: Yes. Stockholders can change their vote in one
of three ways at any time before their proxies
are used. First, stockholders can revoke their
proxies by written notice. Second,
stockholders can complete new, later-dated
proxy cards. Third, stockholders can attend
the special stockholders' meeting and vote in
person.
Q: HOW ARE SHARES HELD IN A BROKER'S NAME VOTED?
A: Brokers will vote shares nominally held in
their name (or in what is commonly called
"street name") only if the beneficial
stockholder provides the broker with written
instructions on how to vote. Absent such
instructions, these shares will not be voted.
Stockholders are urged to instruct their
brokers in writing to vote shares held in
street name for the merger and the issuance of
the LCI shares in the merger.
Q: WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS?
A: USLD stockholders who have questions about the
merger should call at 1-800-XXX-XXXX. LCI
stockholders who have questions about the
merger should call at 1-800-XXX-XXXX.
2
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH YOU HAVE BEEN REFERRED. SEE "WHERE TO
FIND MORE INFORMATION." FOR A TABLE OF THE DEFINED TERMS USED IN THIS SUMMARY
AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, SEE PAGE ______.
THE COMPANIES
USLD COMMUNICATIONS CORP.
9311 San Pedro, Suite 100
San Antonio, Texas 78216
(210) 525-9009
USLD Communications Corp. was domesticated in Delaware in 1987. USLD is a
communications company offering an integrated group of communications services,
including direct dial long-distance and local services, prepaid calling cards,
travel cards, Internet access, data transmission and calling center services.
For further information on the business of USLD, see "Business of USLD."
LCI INTERNATIONAL, INC.
8180 Greensboro Drive, Suite 800
McLean, Virginia 22102
(703) 442-0220
LCI International, Inc, was incorporated in Delaware in 1988. LCI is the
sixth largest long-distance carrier in the United States based upon
presubscribed telephone lines as reported by the Federal Communications
Commission. LCI provides a wide array of worldwide voice and data transmission
services to businesses, residential customers and other carriers through its
fiber-optic network. LCI also currently provides local telephone service to
commercial customers in 28 U.S. markets. For further information on the
businesses of LCI, see "Business of LCI."
THE MEETINGS
The meetings of the USLD stockholders, and, if required, the LCI
stockholders will be held on December __, 1997.
The record date for USLD stockholders entitled to receive notice of and to
vote at the USLD Special Meeting is November __, 1997. On that date there were
________ shares of USLD Common Stock outstanding.
The record date for stockholders of LCI entitled to receive notice of and to
vote at the LCI Special Meeting is November __, 1997. On that date there were
________ shares of LCI Common Stock outstanding. The LCI Special Meeting may be
cancelled if it is determined that less than 20% of the outstanding shares of
LCI will be issued in the Merger.
REASONS FOR THE MERGER
For the two companies, the Merger is an attractive strategic combination
which should benefit from synergies and cost savings. For LCI, the Merger
presents an opportunity consistent with its acquisition strategy of seeking
acquisitions that provide for strategic geographic expansion into new markets,
enhance its network and technology base and which are likely to be accretive to
earnings. For USLD stockholders, the Merger will, among other things, provide
the opportunity to (i) receive LCI Common Stock in a tax-free exchange valued at
a premium over the pre-announcement market price for their shares of USLD and
(ii) participate in a combined enterprise that is expected to have greater
financial, technical and marketing resources and be a stronger competitor in the
communications industry, both domestically and internationally, than USLD would
be on a stand-alone basis.
To review the reasons for the Merger in greater detail, see "The
Merger--Recommendation of the Board of Directors of LCI; Reasons of LCI for the
Merger;" and "--Recommendation of the Board of Directors of USLD; Reasons of
USLD for the Merger."
RECOMMENDATIONS TO STOCKHOLDERS
TO USLD STOCKHOLDERS:
The USLD Board of Directors believes that the Merger is fair to and in the
best interests of USLD and the USLD stockholders and unanimously recommends that
stockholders vote FOR the proposal to approve and adopt the Merger and the
Merger Agreement.
3
TO LCI STOCKHOLDERS:
The LCI Board of Directors believes that the issuance of the LCI Common
Stock in the Merger is in the best interests of LCI and the LCI stockholders and
unanimously recommends that stockholders vote FOR the proposal to authorize the
issuance of the LCI Common Stock in the Merger.
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. YOU SHOULD READ THE MERGER AGREEMENT, AS IT IS THE LEGAL
DOCUMENT WHICH GOVERNS THE MERGER.
CONSEQUENCES OF THE MERGER
In the Merger, USLD will merge with a subsidiary of LCI. As a result, USLD
will become a wholly owned subsidiary of LCI, and the former stockholders of
USLD will become stockholders of LCI.
WHAT USLD STOCKHOLDERS WILL RECEIVE IN THE MERGER
In the Merger, USLD stockholders will receive shares of LCI Common Stock in
exchange for their shares of USLD Common Stock. The Exchange Ratio will depend
on the average daily trading price of LCI Common Stock over the twenty trading
days ending three trading days prior to the date of the USLD Special Meeting
(unless consummation of the Merger is delayed more than three trading days after
the USLD Special Meeting, in which case such twenty-day period shall end two
days prior to the Closing) (the "Average Stock Price"). If the Average Stock
Price is between $21.60 and $26.40, the Exchange Ratio will be set between .9259
and .7576 shares of LCI Common Stock for each share of USLD Common Stock so that
the product of the Average Stock Price and the Exchange Ratio is equal to
$20.00. If the Average Stock Price is more than $26.40, the Exchange Ratio will
be fixed at .7576. If the Average Stock Price is less than $21.60, the Exchange
Ratio will be fixed at .9259. If the Average Stock Price is less than $20.40,
either USLD (subject to the following sentence) or LCI may terminate the Merger
Agreement unless LCI agrees to an Exchange Ratio so that the product of the
Exchange Ratio and the Average Stock Price is at least equal to $18.90. If the
Average Stock Price is calculated after the USLD Special Meeting, USLD will not
have the right to terminate the Merger Agreement if the Average Stock Price is
less than $20.40. The average daily trading price of LCI Common Stock on the New
York Stock Exchange for the twenty trading days ended September 30, 1997 was
$24.70 (the "September 30 Average Stock Price"). Assuming an Average Stock Price
equal to the September 30 Average Stock Price, the Exchange Ratio would be
.8096. Cash will be paid in lieu of the distribution of fractional shares of LCI
Common Stock. For more detailed information, see "The Merger Agreement--Terms of
the Merger." Interested parties may call toll free 1-800-XXX-XXXX at any time
after December __, 1997 for current information on the Average Stock Price and
the Exchange Ratio.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization under the United
States Internal Revenue Code of 1986, as amended. Stockholders of USLD generally
should not have any taxable gain or loss for U.S. federal income tax purposes
upon receipt of LCI Common Stock in the Merger; however, a stockholder may be
required to pay taxes on cash received in lieu of a fractional share of LCI
Common Stock.
For further details, see "Certain Considerations" and "The Merger--Certain
United States Federal Income Tax Consequences."
THE PROPOSALS
The USLD stockholders are being asked to approve the Merger and the Merger
Agreement. THE USLD BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT USLD
STOCKHOLDERS VOTE IN FAVOR OF THE MERGER AND THE MERGER AGREEMENT.
The LCI stockholders are being asked to approve the issuance of the shares
of LCI Common Stock in the Merger. This approval is required only in the event
that the LCI Common Stock to be issued in the Merger will equal 20% or more of
the outstanding shares of LCI Common Stock at the Effective Time. THE LCI BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT LCI STOCKHOLDERS VOTE IN FAVOR OF THE
LCI SHARE ISSUANCE PROPOSAL.
4
STOCKHOLDER VOTE REQUIRED
The favorable vote of a majority of the outstanding shares of USLD Common
Stock is required to approve the Merger and the Merger Agreement. IF YOU FAIL TO
RETURN YOUR PROXY CARD, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE MERGER
(UNLESS YOU APPEAR IN PERSON AT THE USLD SPECIAL MEETING AND VOTE FOR THE
MERGER). The favorable vote of a majority of the shares of LCI Common Stock
voting at the LCI Special Meeting is required to approve the LCI Share Issuance
Proposal. In addition, the NYSE requires a majority of the outstanding shares of
LCI Common Stock to vote on the LCI Share Issuance Proposal.
As of the USLD Record Date, the percentage of outstanding shares of USLD
Common Stock entitled to vote held by USLD directors, executive officers and
their respective affiliates, was ___% or ______ shares of USLD Common Stock,
inclusive of exercisable stock options. As of the LCI Record Date, the
percentage of currently outstanding shares of LCI Common Stock entitled to vote
held by LCI directors, executive officers and their respective affiliates was
___% or ______ shares of LCI Common Stock, inclusive of exercisable stock
options.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the USLD Board of Directors in favor of
the Merger, USLD stockholders should be aware that members of the Board of
Directors and management of USLD will receive certain benefits as a result of
the Merger that will be in addition to benefits received by stockholders
generally. For further details, see "The Merger--Interests of Certain Persons in
the Merger."
CONDITIONS OF THE MERGER
The consummation of the Merger depends upon satisfaction of a number of
conditions, including the following:
(1) approval and adoption of the Merger and the Merger Agreement by the
stockholders of USLD and, if required, the approval by the stockholders of LCI
of the LCI Share Issuance Proposal;
(2) listing on the New York Stock Exchange of the shares of LCI Common Stock
to be issued in the Merger;
(3) receipt of any required regulatory approvals;
(4) absence of governmental action prohibiting the Merger or requiring LCI
to dispose of or hold separate any material portion of its business or assets;
(5) absence of any law that makes the Merger illegal;
(6) receipt by LCI and USLD of the written opinion of the other's respective
counsel as to certain customary corporate and legal matters relating to the
other;
(7) receipt by LCI and USLD of the written opinion of their respective
counsel that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code; and
(8) the Merger shall be accounted for as a pooling of interests.
These conditions may be waived by the party entitled to the benefits of the
conditions. For further details, see "The Merger Agreement--Conditions to the
Merger."
TERMINATION OF THE MERGER AGREEMENT
Either USLD or LCI may terminate the Merger Agreement if:
(1) the Merger is not completed by February 28, 1998 (provided that this
right to terminate the Merger Agreement shall not be available to (i) any party
whose failure to fulfill any obligation under the Merger Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date or (ii) LCI in the event that a Material LCI Transaction has been the cause
of or resulted in the failure of the Merger to occur on or before such date);
(2) a court or governmental agency permanently prohibits the Merger;
(3) the stockholders of USLD do not approve the Merger and the Merger
Agreement or the stockholders of LCI, if required, do not approve the LCI Share
Issuance Proposal at their respective Special Meetings;
5
(4) the stockholders of USLD do not approve
the Merger and the Merger Agreement or the stockholders of LCI, if required, do
not approve the LCI Share Issuance Proposal, by February 28, 1998; PROVIDED,
HOWEVER, that in the event that a Material LCI Transaction prevents holding the
USLD Special Meeting or the LCI Special Meeting, as the case may be, by February
28, 1998, the February 28, 1998 date shall be extended until the earlier of (x)
the 45th consecutive day that the Registration Statement is effective and (y)
December 31, 1998;
(5) the other party breaches its representations, warranties or obligations
under the Merger Agreement and that breach cannot be remedied;
(6) the Board of Directors of USLD adversely modifies its approval of the
Merger or the Merger Agreement, but USLD may terminate under these circumstances
only if the Board's modification is in keeping with its fiduciary obligations to
its stockholders as set forth in the Merger Agreement; or
(7) subject to the right of LCI to prevent termination by agreeing to a
modification in the Exchange Ratio, if the Average Stock Price for LCI Common
Stock is less than $20.40, but USLD may not terminate under these circumstances
if the Average Stock Price is calculated after the USLD Special Meeting.
For further details, see "The Merger Agreement--Termination."
TERMINATION FEE
USLD is required to pay a termination fee to LCI of $11 million if the
Merger Agreement is terminated under certain circumstances. LCI is required to
pay a termination fee of $11 million to USLD if the Merger Agreement is
terminated under certain other circumstances.
For further details, see "The Merger Agreement--Termination--Termination
Fee."
REGULATORY APPROVALS
LCI and USLD have given each other a commitment to use their reasonable best
efforts to take whatever actions are required to obtain necessary regulatory
approvals.
The Hart-Scott-Rodino statute prohibits LCI and USLD from completing the
Merger until they have furnished certain information and materials to the
Antitrust Division of the U.S. Department of Justice and the Federal Trade
Commission and a required waiting period has expired. This waiting period will
expire on ___________, 1997 unless extended by the Antitrust Division or the
FTC. The Antitrust Division and the FTC have the authority to challenge the
Merger on antitrust grounds before or after the Merger is completed. Each state
and country where either LCI or USLD has operations also may review the Merger
under such jurisdiction's antitrust law.
The Merger also requires the approval of the Federal Communications
Commission and of various state regulatory authorities in the jurisdictions
where USLD and LCI operate.
ANTICIPATED ACCOUNTING TREATMENT
LCI and USLD expect the Merger to qualify as a pooling of interests for
accounting purposes, which means that the companies will be treated as if they
had always been combined for accounting and financial reporting purposes. Each
company must receive an opinion from its independent accounting firm regarding
qualification of the Merger as a pooling of interests for accounting purposes.
Pooling of interests accounting treatment of the Merger is a condition to the
consummation of the Merger. See "The Merger--Anticipated Accounting Treatment."
OPINIONS OF FINANCIAL ADVISORS
ABN AMRO Chicago Corporation delivered its opinion to the Board of Directors
of USLD on September 17, 1997 to the effect that, as of the date thereof, the
Exchange Ratio pursuant to the Merger Agreement is fair to the holders of USLD
Common Stock from a financial point of view.
The full text of the written opinion of ABN AMRO Chicago Corporation, which
sets forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Annex B and is
incorporated herein by reference. HOLDERS OF SHARES OF USLD COMMON STOCK ARE
URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--
Opinion of USLD's Financial Advisor."
Lehman Brothers delivered its written opinion to LCI on September 17, 1997
to the effect that, as
6
of the date thereof, the consideration to be paid by LCI in the Merger is fair
to LCI from a financial point of view.
The full text of the written opinion of Lehman Brothers, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex C and is incorporated
herein by reference. HOLDERS OF SHARES OF LCI COMMON STOCK ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "The Merger--Opinion of LCI's
Financial Advisor."
ABSENCE OF APPRAISAL RIGHTS
USLD stockholders do not have appraisal rights in connection with the
Merger. See "The Merger--Appraisal Rights."
COMPARATIVE PER SHARE MARKET PRICE INFORMATION; LISTING
LCI Common Stock is listed on the New York Stock Exchange. USLD Common Stock
is listed on the Nasdaq Stock Market's National Market. The New York Stock
Exchange closing price per share for the LCI Common Stock was $24 1/16 on
September 17, 1997, the last full trading day prior to the public announcement
of the proposed Merger. On November __, 1997, the closing price per share of LCI
Common Stock on the New York Stock Exchange was $_________. The closing price
per share on the Nasdaq Stock Market's National Market of the USLD Common Stock
was $18 1/8 on September 17, 1997 and $_________ on November ______, 1997.
Application will be made to list the shares of LCI Common Stock issuable in
the Merger on the New York Stock Exchange.
CERTAIN CONSIDERATIONS
For a discussion of certain considerations with respect to the approval of
the Merger and the Merger Agreement by the USLD stockholders and of the LCI
Share Issuance Proposal by the LCI stockholders, please carefully review the
information beginning on page 12.
7
SUMMARY SELECTED FINANCIAL DATA FOR LCI AND USLD
The following information is being provided to assist in analyzing the
financial aspects of the Merger. The information for LCI has been derived from
LCI's audited consolidated financial statements for the years ended December 31,
1992 through 1996 and from LCI's unaudited financial statements for the six
months ended June 30, 1997. The information for USLD has been derived from
USLD's audited financial statements for the fiscal years ended September 30,
1994 through 1996, from USLD's books and records for the fiscal years ended
September 30, 1992 and 1993 and from USLD's unaudited financial statements for
the nine months ended June 30, 1997. The information is only a summary. The
information should be read in conjunction with the historical financial
statements and related notes and management's discussions and analysis thereof
contained in the annual, quarterly and other reports filed by LCI and USLD with
the Securities and Exchange Commission. See "Where to Find More Information."
SELECTED LCI HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
AT OR FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------------------------
1996 1995 1994(A) 1993(A) 1992(A)
AT OR FOR THE ---------- --------- --------- --------- ---------
SIX MONTHS
ENDED JUNE 30,
1997
------------------
(UNAUDITED)
INCOME STATEMENT DATA:
Revenues................................... $ 653.0 $ 1,103.0 $ 672.9 $ 464.0 $ 341.2 $ 260.5
Income (loss) from continuing operations... $ 41.9 $ 74.8 $ 50.8 $ 6.8 $ (2.6) $ (41.7)
Income (loss) from continuing operations
per common share (B)..................... $ 0.49 $ 0.86 $ 0.62 $ 0.02 $ (0.10) $ (1.33)
Cash dividends declared per common share... -- -- -- -- -- --
Shares used in computing income (loss) from
continuing operations per common share... 85.6 87.3 82.1 66.7 47.2 31.4
BALANCE SHEET DATA:
Book value per common share................ $ 5.64 $ 4.93 $ 4.20 $ 3.02 $ 4.14 $ (1.21)
Total assets............................... $ 1,134.5 $ 950.0 $ 773.4 $ 469.7 $ 359.8 $ 323.6
Long-term debt............................. $ 378.9 $ 235.8 $ 274.7 $ 144.8 $ 84.3 $ 255.9
Stockholders' equity (deficit)............. $ 483.2 $ 430.8 $ 344.8 $ 201.7 $ 195.3 $ (38.0)
- ------------------------
(A) Includes write-off of assets, loss contingency expenses and restructuring
charges of $62.5 in 1994, $13.8 in 1993, and $24.4 in 1992.
(B) Income (loss) from continuing operations per common share are presented on a
fully diluted basis.
8
SELECTED USLD HISTORICAL FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
AT OR FOR THE YEAR ENDED
AT OR FOR THE SEPTEMBER 30,
NINE MONTHS -----------------------------------------------------
ENDED JUNE 30, 1997(A) 1996(B) 1995 1994 1993 1992
---------------------- --------- --------- --------- --------- ---------
(UNAUDITED)
INCOME STATEMENT DATA:
Revenues............................... $ 162.0 $ 180.3 $ 144.1 $ 117.5 $ 80.1 $ 48.1
Income (loss) from continuing
operations........................... $ 3.7 $ (13.7) $ (2.1) $ (2.5) $ (1.3) $ (1.8)
Income (loss) from continuing
operations per common share.......... $ 0.22 $ (0.89) $ (0.14) $ (0.18) $ (0.10) $ (0.16)
Cash dividends declared per common
share................................ -- -- -- -- -- --
Shares used in computing income (loss)
from continuing operations per common
share................................ 16.5 15.4 14.5 14.1 12.1 11.5
BALANCE SHEET DATA:
Book value per common share............ $ 4.15 $ 3.78 $ 4.67 $ 3.50 $ 3.15 $ 0.91
Total assets........................... $ 116.6 $ 99.2 $ 86.0 $ 79.4 $ 64.8 $ 36.6
Long-term debt......................... $ 11.1 $ 10.1 $ 12.3 $ 12.9 $ 9.0 $ 12.5
Stockholders' equity................... $ 68.4 $ 58.3 $ 68.1 $ 49.2 $ 38.1 $ 10.5
- ------------------------
(A) Income from continuing operations includes a non-recurring special charge of
$1.2 associated with former Chairman's separation from USLD.
(B) Loss from continuing operations includes costs and restructuring charges of
$15.8 incurred in connection with the Billing Distribution.
9
SELECTED LCI AND USLD
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the pooling of interests method of accounting,
after giving effect to the pro forma adjustments and assumptions described in
the accompanying notes. These unaudited pro forma combined condensed financial
statements have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto and the
managements' discussions and analyses thereof of LCI and USLD which are
incorporated by reference in this Joint Proxy Statement/ Prospectus. USLD's
current fiscal year end is September 30; however, for pro forma purposes, USLD's
financial statements have been conformed to LCI's fiscal year end of December
31.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had occurred on the dates
indicated below, nor is it necessarily indicative of the future operating
results or financial position of the merged companies. The unaudited pro forma
information does not include the impact of cost synergies between the two
companies expected after the Merger. LCI estimates the combined results will be
accretive to earnings within 12 months after the consummation of the Merger. As
a result of the Merger, LCI expects to exchange approximately 15.8 million
shares of LCI Common Stock for the approximately 19.5 million shares of USLD
Common Stock, assuming all USLD Stock Options and USLD Warrants are exercised
and assuming an Exchange Ratio equal to .8096 based on the September 30 Average
Stock Price.
The unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on June 30, 1997, combining the balance sheets of
LCI and USLD at June 30, 1997. The unaudited Pro Forma Combined Condensed
Statements of Income give effect to the Merger as if it had occurred at the
beginning of the earliest period presented, combining the results of LCI and
USLD for each year in the three-year period ended December 31, 1996, and for the
six-month period ended June 30, 1997.
FOR THE YEAR ENDED
DECEMBER 31,
FOR THE SIX MONTHS --------------------------------
ENDED JUNE 30, 1997 1996 1995 1994
------------------- ---------- --------- ---------
INCOME STATEMENT DATA:
Revenues................................................. $ 766.2 $ 1,292.4 $ 823.7 $ 589.5
Cost of services......................................... 458.5 766.4 495.3 351.9
---------- ---------- --------- ---------
Gross margin............................................. 307.7 526.0 328.4 237.6
Selling, general and administrative expenses............. 174.1 305.0 193.2 142.3
Non-recurring special charge............................. 1.2 -- -- --
Direct spin-off costs.................................... -- 13.0 -- --
Restructuring charges.................................... -- 2.8 -- --
Depreciation and amortization............................ 44.2 75.2 54.4 44.9
---------- ---------- --------- ---------
Operating income......................................... 88.2 130.0 80.8 50.4
Other expense (income), net.............................. 0.5 (0.1) (0.8) 59.6
Interest expense, net.................................... 13.7 29.2 17.1 9.9
Income tax expense (benefit)............................. 29.6 37.8 16.0 (24.5)
---------- ---------- --------- ---------
Income from continuing operations........................ $ 44.4 $ 63.1 $ 48.5 $ 5.4
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Income (loss) from continuing operations per common
share:
Primary.............................................. $ 0.45 $ 0.63 $ 0.52 $ (0.01)
Fully diluted........................................ $ 0.45 $ 0.63 $ 0.52 $ (0.01)
Shares used in computing income from continuing
operations per common share:
Primary.............................................. 99.0 100.0 92.9 76.9
Fully diluted........................................ 99.1 100.1 94.1 78.2
AS OF JUNE 30,
1997
-------------------
BALANCE SHEET DATA:
Book value per common share.............................. $ 5.25
Total assets............................................. $ 1,231.1
Long-term debt........................................... $ 390.1
Stockholders' equity..................................... $ 519.9
10
COMPARATIVE PER SHARE INFORMATION
Summarized below is the per share information for LCI and USLD on an
historical, pro forma combined, and equivalent basis. The USLD per share
equivalents are calculated by multiplying the unaudited pro forma combined per
share amounts by an Exchange Ratio of .8096 (which ratio assumes an Average
Stock Price equal to the September 30 Average Stock Price).
LCI AND
USLD USLD
LCI USLD UNAUDITED EQUIVALENT
HISTORICAL HISTORICAL PRO FORMA PRO FORMA PER
PER SHARE DATA PER SHARE DATA PER SHARE DATA SHARE DATA
--------------- --------------- --------------- ---------------
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 1997
Income from continuing operations per common
share (A)...................................... $ 0.49 $ 0.15 $ 0.45 $ 0.36
Cash dividends declared per common share......... -- -- -- --
Book value per common share...................... $ 5.64 $ 4.11 $ 5.25 $ 4.25
AT OR FOR THE YEAR ENDED DECEMBER 31, 1996
Income (loss) from continuing operations per
common share:
Primary...................................... $ 0.86 $ (0.75) $ 0.63 $ 0.51
Fully diluted................................ $ 0.86 $ (0.74) $ 0.63 $ 0.51
Cash dividends declared per common share......... -- -- -- --
Book value per common share...................... $ 4.93 $ 3.78 -- --
AT OR FOR THE YEAR ENDED DECEMBER 31, 1995
Income (loss) from continuing operations per
common share:
Primary...................................... $ 0.63 $ (0.16) $ 0.52 $ 0.42
Fully diluted................................ $ 0.62 $ (0.15) $ 0.52 $ 0.42
Cash dividends declared per common share......... -- -- -- --
Book value per common share...................... $ 4.20 $ 4.83 -- --
AT OR FOR THE YEAR ENDED DECEMBER 31, 1994
Income (loss) from continuing operations per
common share (A)............................... $ 0.02 $ (0.10) $ (0.01) $ (0.01)
Cash dividends declared per common share......... -- -- -- --
Book value per common share...................... $ 3.02 $ 3.70 -- --
- ------------------------
(A) The primary and fully diluted income from continuing operations per share on
an historical, pro forma combined, and equivalent basis are the same.
11
CERTAIN CONSIDERATIONS
Stockholders of USLD, in considering whether to approve the Merger and the
Merger Agreement on which they are being asked to vote at the USLD Special
Meeting, and stockholders of LCI, in the event that they are required to approve
the LCI Share Issuance Proposal at the LCI Special Meeting, should consider
carefully the following considerations, as well as other information included
and/or incorporated by reference in this Joint Proxy Statement/Prospectus.
Certain statements set forth below constitute forward-looking statements within
the meaning of the Reform Act. See "The Merger--Cautionary Statement Concerning
Forward-Looking Statements."
ADJUSTABLE EXCHANGE RATIO. USLD stockholders should be aware that the
Average Stock Price will be determined on the basis of the average daily trading
prices of LCI Common Stock over the twenty trading days ending three trading
days prior to the date of the USLD Special Meeting. The calculation of the
Exchange Ratio is designed so that USLD stockholders will receive $20.00 in
value of LCI Common Stock (as determined by the Average Stock Price) for each
share of USLD Common Stock converted in the Merger if the Average Stock Price is
equal to or greater than $21.60 but less than or equal to $26.40. If the Average
Stock Price is more than $26.40, the Exchange Ratio will be fixed at .7576 and
USLD stockholders will receive LCI Common Stock having a value of more than
$20.00 per share of USLD Common Stock (as determined by the Average Stock
Price). If the Average Stock Price is less than $21.60, the Exchange Ratio will
be equal to .9259 and USLD stockholders will receive LCI Common Stock having a
value of less than $20.00 per share of USLD Common Stock (as determined by the
Average Stock Price). However, if the Average Stock Price is less than $20.40,
USLD, subject to the next sentence, and LCI may terminate the Merger Agreement
unless LCI agrees to exchange LCI Common Stock having a value of at least $18.90
per share of USLD Common Stock. In the event that the Closing of the Merger is
delayed more than three trading days after the date of the USLD Special Meeting,
the Exchange Ratio will be recalculated based on the twenty-trading-day period
ending two trading days prior to the Closing Date, and USLD will no longer be
entitled to terminate the Merger Agreement on this basis. Thus, if the price of
LCI Common Stock declines after the USLD Special Meeting, unless a condition to
the obligations of USLD or LCI to consummate the Merger is not met, the Merger
is expected to be consummated and USLD stockholders may receive a fraction of a
share of LCI Common Stock having a value on the date the Merger is consummated
of less than $18.90 per share of USLD Common Stock. It is possible that the
Closing of the Merger may be delayed after the USLD Special Meeting because
certain regulatory approvals have not been obtained, or for other reasons, and
the price of LCI Common Stock may change based upon changes in the business,
operations and prospects of LCI, general market and economic conditions,
regulatory considerations and other factors beyond the control of USLD or LCI.
The price of LCI Common Stock at the Effective Time could be higher or lower
than the price of the LCI Common Stock on the day before the proposed Merger was
publicly announced ($24 1/16), the day before this Joint Proxy Statement/
Prospectus was printed ($______) or the Average Stock Price. Interested parties
are urged to obtain current market quotations for LCI Common Stock and USLD
Common Stock and to call 1-800-XXX-XXXX at any time after December __, 1997 for
current information regarding the Average Stock Price and the Exchange Ratio.
TAX TREATMENT. The Merger is intended to be treated as a reorganization
within the meaning of Section 368 of the Code, and generally tax free to the
stockholders of USLD. It is a condition to the obligations of USLD and LCI to
consummate the Merger that they receive opinions from their respective counsel
that the Merger will be treated as a reorganization. In rendering their
opinions, counsel to USLD and LCI will rely upon certain representations of USLD
and LCI, made as of the Effective Time. If such representations are untrue,
incorrect or incomplete, the Merger may not be treated as a reorganization
within the meaning of Section 368 of the Code and the receipt in the Merger by
USLD stockholders of LCI Common Stock may be taxable. See "The Merger--Certain
United States Federal Income Tax Consequences."
12
INTEGRATION; POTENTIALLY DILUTIVE EFFECT OF THE MERGER ON LCI'S
EARNINGS. The Merger involves the integration of two companies that have
previously operated independently. No assurance can be given that LCI will
integrate the operations of USLD without encountering difficulties or that the
expected benefits from such integration will be realized. In addition, there can
be no assurance that LCI will realize the expected synergies of the Merger.
Consequently, although LCI expects that the Merger will be accretive to earnings
within 12 months of the Closing, this expectation is subject to the risks that
LCI will not achieve the benefits anticipated from a successful integration of
the businesses of the two companies and that the expected synergies of the
Merger will not be realized.
HISTORICAL PERFORMANCE NO INDICATION. The historical share and earnings
performances of LCI and USLD are not necessarily indicative of LCI's future
share price or earnings results.
TELECOMMUNICATIONS INDUSTRY. The telecommunications industry is capital
intensive, intensely competitive and subject to extensive regulation by federal,
state and foreign regulatory authorities. Recently, the telecommunications
industry has experienced significant consolidation, and that trend seems to be
continuing. As a result of such consolidation, LCI and USLD face increasing
competition from fewer, but significantly larger, providers of
telecommunications services. Legislation passed in early 1996 further enhanced
the competitive environment in which LCI and USLD compete. The
Telecommunications Reform Act of 1996 allows the former regional Bell operating
companies ("RBOCs"), to provide long-distance telecommunications services
outside of their regional operating areas and will allow the RBOCs to provide
long-distance telecommunications services within their operating regions when
certain criteria intended to foster competition for local services within their
region have been satisfied. The major competitors of USLD and LCI presently
consist of AT&T, MCI, Sprint, WorldCom and others with substantially larger
financial and other resources. In the near future competitors also are likely to
include the incumbent local exchange carriers, which also have substantially
larger financial and other resources than LCI and USLD together with long
established customer relationships. While the Telecommunications Reform Act of
1996 also permits long-distance telecommunications providers, such as LCI and
USLD, to provide local telecommunications services in competition with the local
exchange carriers, it may prove difficult to compete effectively with these
carriers in their markets, and there can be no assurance that LCI, after the
Merger, will be able to compete successfully in the market for local services.
13
USLD SPECIAL MEETING
TIME, PLACE AND PURPOSE OF THE USLD SPECIAL MEETING
At the special meeting (the "USLD Special Meeting") of the stockholders of
USLD Communications Corp., a Delaware corporation ("USLD"), holders of USLD
common stock, par value $.01 per share (the "USLD Common Stock"), will consider
and vote upon a proposal to approve and adopt the merger (the "Merger") of USLD
with LCI Acquisition Corp. ("Merger Sub"), a Delaware subsidiary of LCI
International, Inc., a Delaware corporation ("LCI"), and the Agreement and Plan
of Merger (the "Merger Agreement"), dated September 17, 1997, among LCI, Merger
Sub and USLD, providing for the Merger.
The USLD Special Meeting will be held at , San Antonio,
Texas on December , 1997, starting at a.m. Central time.
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies from the holders of USLD Common Stock for use at the
USLD Special Meeting. The Board of Directors of USLD has unanimously approved
the Merger and the Merger Agreement and recommends that USLD stockholders vote
FOR approval and adoption of the Merger and the Merger Agreement. See "The
Merger--Background of the Merger," "--Recommendation of the Board of Directors
of USLD; Reasons of USLD for the Merger" and "--Interests of Certain Persons in
the Merger."
RECORD DATE; VOTING RIGHTS; PROXIES
The USLD Board of Directors has fixed the close of business on November ,
1997 as the record date (the "USLD Record Date") for determining holders
entitled to notice of and to vote at the USLD Special Meeting. Only holders of
record of shares of USLD Common Stock on the USLD Record Date are entitled to
notice of and to vote at the USLD Special Meeting.
As of the USLD Record Date, there were shares of USLD Common
Stock issued and outstanding, each of which entitles its holder to one vote. All
shares of USLD Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED,
SUCH SHARES OF USLD COMMON STOCK WILL BE VOTED IN FAVOR OF APPROVAL AND ADOPTION
OF THE MERGER AND THE MERGER AGREEMENT. A stockholder who has given a proxy may
revoke it at any time prior to its exercise by giving written notice of
revocation to the Corporate Secretary of USLD, by signing and returning a
later-dated proxy or by voting in person at the USLD Special Meeting. However,
mere attendance at the USLD Special Meeting will not in and of itself have the
effect of revoking the proxy.
If a stockholder is a participant in the USLD Employee Stock Purchase Plan
(the "USLD ESPP") or owns, on the USLD Record Date, shares of USLD Common Stock
under the USLD 401(k) Retirement Plan (the "USLD 401(k) Plan"), a proxy card
representing the number of shares in such participant's plan account and voting
instructions for such shares will be sent separately to each such stockholder.
Shares of USLD Common Stock in the USLD ESPP and the USLD 401(k) Plan cannot be
voted unless these proxy cards are signed and returned.
Votes cast by proxy or in person at the USLD Special Meeting will be
tabulated by the election judge appointed for the meeting, who will determine
whether or not a quorum is present. The election judge will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but because the affirmative vote of a majority of the
outstanding shares of USLD Common Stock is required to approve and adopt the
Merger and the Merger Agreement, abstentions will have the effect of votes
against the Merger and the Merger Agreement. Similarly, if a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will be considered as present and
entitled to vote for quorum purposes but will have the effect of votes against
the matters presented.
14
SOLICITATION OF PROXIES
USLD will bear its own cost of solicitation of proxies. Brokerage houses,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names.
USLD has retained D. F. King & Co. to aid in the solicitation of proxies and
to verify certain records related to the solicitation at a fee of $5,500 plus
expenses. To the extent necessary in order to ensure sufficient representation
at the USLD Special Meeting, USLD may request by telephone or telegram the
return of proxy cards. The extent to which this will be necessary depends
entirely upon how promptly proxy cards are returned. Stockholders are urged to
send in their proxies without delay.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of USLD Common Stock as of the
USLD Record Date is necessary to constitute a quorum at the USLD Special
Meeting.
REQUIRED VOTE
The approval and adoption of the Merger and the Merger Agreement require the
affirmative vote of the holders of a majority of the issued and outstanding
shares of USLD Common Stock. In certain circumstances, including if USLD
stockholders fail to approve the Merger and the Merger Agreement at the USLD
Special Meeting (unless the average of the closing prices of LCI Common Stock on
the NYSE for the three trading days immediately prior to the USLD Special
Meeting is less than $20.40), USLD will be obligated to pay to LCI a termination
fee of $11 million. See "The Merger Agreement--Termination-- Termination Fee."
As of the USLD Record Date, the percentage of outstanding shares of USLD
Common Stock entitled to vote held by USLD directors, executive officers and
their respective affiliates was % or shares of USLD Common Stock,
inclusive of exercisable stock options.
1998 ANNUAL MEETING OF STOCKHOLDERS
USLD will hold a 1998 Annual Meeting of Stockholders only if the Merger is
not consummated prior to the date thereof. In the event of such a meeting, any
stockholder proposals intended to be presented thereat shall have been received
by USLD at its principal executive offices at 9311 San Pedro, Suite 100, San
Antonio, Texas 78216, by September 19, 1997.
THE MATTERS TO BE CONSIDERED AT THE USLD SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF USLD. ACCORDINGLY, USLD STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
15
LCI SPECIAL MEETING
PURPOSE OF THE LCI SPECIAL MEETING
According to the rules and regulations of the New York Stock Exchange (the
"NYSE") where the shares of LCI Common Stock are traded, LCI must obtain the
approval of the LCI stockholders in the event that LCI is required to issue 20%
or more of its outstanding shares of LCI Common Stock in the Merger. Because the
exact Exchange Ratio will be calculated only a few days prior to the Merger, the
Board of Directors of LCI has decided to call a Special Meeting of LCI
stockholders (the "LCI Special Meeting" and together with the USLD Special
Meeting, the "Special Meetings") to consider and vote upon a proposal (the "LCI
Share Issuance Proposal") to authorize the issuance of the shares of LCI Common
Stock in the Merger in the event that such shares are 20% or more of the LCI
Common Stock outstanding at the Effective Time. If it is evident that the
authorization of the LCI stockholders to issue the LCI Common Stock in the
Merger is not required by the NYSE, the LCI Special Meeting may be cancelled. As
there can be no assurances as to whether the LCI Special Meeting will be
cancelled, LCI stockholders are asked to assume that the LCI Special Meeting
will be held.
The Board of Directors of LCI has unanimously approved the LCI Share
Issuance Proposal and recommends that LCI stockholders vote FOR approval of the
LCI Share Issuance Proposal. See "The Merger--Recommendation of the Board of
Directors of LCI; Reasons of LCI for the Merger."
RECORD DATE; VOTING RIGHTS; PROXIES
The LCI Board of Directors has fixed the close of business on November ,
1997 as the record date (the "LCI Record Date") for determining holders entitled
to notice of and to vote at the LCI Special Meeting.
As of the LCI Record Date, there were shares of LCI common stock,
par value $.01 per share (the "LCI Common Stock"), issued and outstanding, each
of which entitles its holder to one vote. All shares of LCI Common Stock
represented by properly executed proxies will, unless such proxies have been
previously revoked, be voted in accordance with the instructions indicated in
such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF LCI COMMON STOCK
WILL BE VOTED IN FAVOR OF APPROVAL OF THE LCI SHARE ISSUANCE PROPOSAL. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of revocation to the Secretary of LCI, by
signing and returning a later-dated proxy or by voting in person at the LCI
Special Meeting. However, mere attendance at the LCI Special Meeting will not in
and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the LCI Special Meeting will be
tabulated by the election inspectors appointed for the meeting, who will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present to vote for purposes of determining the
presence of a quorum but will have the effect of votes against any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will be considered as present for quorum
purposes but as unvoted with respect to the matters presented.
SOLICITATION OF PROXIES
LCI will bear its own cost of solicitation of proxies. Brokerage houses,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of stock held in
their names.
LCI has retained to aid in the solicitation of proxies
and to verify certain records related to the solicitation at a fee of $
plus certain expenses.
16
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of LCI Common Stock as of the LCI
Record Date is necessary to constitute a quorum at the LCI Special Meeting.
REQUIRED VOTE
The approval of the LCI Share Issuance Proposal requires the affirmative
vote of the holders of a majority of the shares of LCI Common Stock voting at
the LCI Special Meeting. In addition, the NYSE requires a majority of the
outstanding shares of LCI Common Stock to vote on the LCI Share Issuance
Proposal. In certain circumstances, including if LCI stockholders fail to
approve the LCI Share Issuance Proposal at the LCI Special Meeting, if such
approval is required, LCI will be obligated to pay USLD a termination fee of $11
million. See "The Merger Agreement--Termination--Termination Fee."
As of the LCI Record Date, the percentage of currently outstanding shares of
LCI Common Stock entitled to vote held by LCI directors, executive officers and
their respective affiliates was % or shares of LCI Common Stock, inclusive of
exercisable stock options.
THE MATTERS TO BE CONSIDERED AT THE LCI SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF LCI. ACCORDINGLY, LCI STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
17
THE MERGER
This section of the Joint Proxy Statement/Prospectus as well as the next
section of the Joint Proxy Statement/Prospectus entitled "The Merger Agreement"
describe certain aspects of the proposed Merger. The following discussion is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Annex A to this Joint Proxy Statement/Prospectus, and to the other
agreements and documents that are discussed herein, which are filed as exhibits
to the Registration Statement of which this Joint Proxy Statement/Prospectus
forms a part. All stockholders are urged to read the Merger Agreement in its
entirety.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
required approval of the USLD stockholders, and if required, of the LCI
stockholders, is obtained and all other conditions to the Merger are either
satisfied or waived. Upon consummation of the Merger, Merger Sub will be merged
with and into USLD, and USLD will become a wholly owned subsidiary of LCI.
Pursuant to the Merger Agreement, each outstanding share of USLD Common
Stock will be converted into a fraction of a share of LCI Common Stock. The
exchange ratio (the "Exchange Ratio") of LCI Common Stock receivable in the
Merger for each share of USLD Common Stock will depend on the Average Stock
Price of LCI Common Stock, as described under "The Merger Agreement--Terms of
the Merger." If the Average Stock Price is between $21.60 and $26.40, the
Exchange Ratio will be set between .9259 and .7576 shares of LCI Common Stock
for each share of USLD Common Stock so that the product of the Average Stock
Price and the Exchange Ratio is equal to $20.00. If the Average Stock Price is
more than $26.40, the Exchange Ratio will be fixed at .7576. If the Average
Stock Price is less than $21.60, the Exchange Ratio will be fixed at .9259. If,
however, the Average Stock Price is less than $20.40, either USLD (subject to
the following sentence) or LCI may terminate the Merger Agreement unless LCI
agrees to an Exchange Ratio such that the product of the Exchange Ratio and the
Average Stock Price is at least equal to $18.90. If the Average Stock Price is
calculated after the USLD Special Meeting, USLD will not have the right to
terminate the Merger Agreement if the Average Stock Price is less than $20.40.
Assuming an Average Stock Price equal to the September 30 Average Stock Price,
the Exchange Ratio would be .8096. Cash will be paid in lieu of the distribution
of fractional shares of LCI Common Stock. For more detailed information, see
"The Merger Agreement--Terms of the Merger."
Based upon the number of shares of USLD Common Stock outstanding on
September 30, 1997, and assuming the exercise of all USLD Stock Options and USLD
Warrants expected to be outstanding as of the Effective Time and an Exchange
Ratio of .8096 (which ratio assumes the Average Stock Price is equal to the
September 30 Average Stock Price), approximately 15,767,000 shares of LCI Common
Stock would be issued in the Merger. On this basis and based upon the
capitalization of LCI and USLD at September 30, 1997, the stockholders of USLD
would own approximately 16.7% of the outstanding shares of LCI Common Stock
following consummation of the Merger. The maximum number of shares of LCI Common
Stock that may be issued in the Merger assuming instead an Exchange Ratio of
.9259 (the highest Exchange Ratio provided for in the Merger Agreement, except
for any ratio agreed to by LCI in order to prevent termination of the Merger
Agreement), would be approximately 18,032,000 shares of LCI Common Stock,
representing approximately 18.7% of the outstanding LCI Common Stock following
consummation of the Merger.
EFFECTIVE TIME
As promptly as practicable after the satisfaction or waiver of the
conditions to the Merger set forth in the Merger Agreement, the parties will
file a Certificate of Merger with the Secretary of State of the State of
Delaware (the "Certificate of Merger"). The effective time of the Merger (the
"Effective Time") will occur upon the filing of the Certificate of Merger. The
Merger Agreement may be terminated by either
18
party if the Merger has not been consummated on or before February 28, 1998
(provided that this right to terminate the Merger Agreement shall not be
available (i) to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of the Merger
to occur on or before such date or (ii) to LCI in the event that a Material LCI
Transaction has been the cause of or resulted in the failure of the Merger to
occur on or before such date). The Merger Agreement also may be terminated under
certain other circumstances. See "The Merger Agreement--Conduct of Business
Pending the Merger," "--Conditions to the Merger," and "--Termination."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of USLD Common Stock into the right to receive LCI Common
Stock will occur automatically at the Effective Time.
As soon as practicable after the Effective Time, a transmittal letter will
be mailed by the Exchange Agent to each USLD stockholder informing stockholders
of the procedures to follow in forwarding stock certificates representing USLD
Common Stock to the Exchange Agent. Upon receipt of a stockholder's USLD stock
certificates, the Exchange Agent will deliver certificates for full shares of
LCI Common Stock to such stockholder and cash in lieu of fractional shares
pursuant to the terms of the Merger Agreement and in accordance with the
transmittal letter, together with any dividends or other distributions to which
such stockholder is entitled.
If any issuance of shares of LCI Common Stock in exchange for shares of USLD
Common Stock is to be made to a person other than the USLD stockholder in whose
name the certificate is registered at the Effective Time, it will be a condition
of such exchange that the certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the USLD stockholder
requesting such issuance either pay any transfer or other tax required or
establish to the satisfaction of LCI that such tax has been paid or is not
payable.
After the Effective Time, there will be no further transfers of USLD Common
Stock on the stock transfer books of USLD. If a certificate representing USLD
Common Stock is presented for transfer, it will be cancelled and a certificate
representing the appropriate number of full shares of LCI Common Stock and cash
in lieu of fractional shares together with any dividends and distributions will
be issued in exchange therefor.
After the Effective Time and until surrendered, shares of USLD Common Stock
will be deemed for all corporate purposes, other than the payment of dividends
and distributions, to evidence ownership of the number of full shares of LCI
Common Stock into which such shares of USLD Common Stock were converted at the
Effective Time. No dividends or other distributions, if any, payable to holders
of LCI Common Stock will be paid to the holders of any certificates for shares
of USLD Common Stock until such certificates are surrendered. Upon surrender of
such certificates, all such declared dividends and distributions which shall
have become payable with respect to such LCI Common Stock in respect of a record
date after the Effective Time will be paid to the holder of record of the full
shares of LCI Common Stock represented by the certificate issued in exchange
therefor, without interest. See "The Merger Agreement-- Exchange of
Certificates."
USLD STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE
AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. USLD STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
BACKGROUND OF THE MERGER
Both LCI and USLD have active acquisition programs designed to identify,
review and evaluate potential business combinations, corporate acquisition
and/or strategic alliances and other significant
19
corporate transactions involving participants in the telecommunications
industry. During the course of the last five years, LCI has completed 8
acquisitions and USLD has completed 12 acquisitions.
During 1994 and 1995, certain representatives of LCI and former
representatives of USLD engaged in discussions regarding strategic alliances
generally. These discussions did not result in any agreement between the
parties.
On October 7, 1996, Thomas J. Wynne, LCI's President and Chief Operating
Officer, and Joseph A. Lawrence, LCI's Executive Vice President and Chief
Financial Officer, approached Larry M. James, USLD's Chief Executive Officer,
President and current Chairman of the Board, at an industry conference about the
possibility of a potential strategic business combination between LCI and USLD.
At the conclusion of this brief meeting, Mr. James indicated a general interest
in exploring such a transaction.
On October 29, 1996, Phillip J. Storin, USLD's Senior Vice President, Chief
Financial Officer and Corporate Treasurer, received a letter from John Taylor,
Senior Vice President of LCI, stating LCI's interest in pursuing a strategic
business combination with USLD. This letter requested that USLD provide certain
information and documentation for management of LCI to review. Further
discussions of a general nature took place in November and December 1996. On
January 8, 1997, LCI and USLD entered into a customary confidentiality
agreement, and a preliminary due diligence review was commenced by LCI.
Over the next several months, LCI evaluated the information it received from
USLD and concluded that USLD could be a good strategic fit with LCI primarily
due to the geographic market served by USLD and the potential for significant
synergies and cost savings. Accordingly, on March 21, 1997, at the request of
LCI, representatives of USLD and LCI met in San Antonio, Texas to discuss a
potential business combination involving the two companies. During the meeting,
the representatives of both companies discussed whether a strategic combination
of LCI and USLD might be feasible, each other's businesses, the business impact
of a potential strategic combination, integration issues that such a combination
would present and the most appropriate structure for a possible transaction. It
was agreed at that time that a stock-for-stock merger would be the most
appropriate structure and that discussions regarding value should be deferred
until the parties had assembled sufficient information to enable each other to
further evaluate the financial and operational effects of a possible
combination. In attendance for LCI were Mr. Lawrence and Matthew D. Wald,
Director of Corporate Development. Present for USLD were Messrs. James and
Storin; Parris H. Holmes, Jr., then Chairman of the Board; W. Audie Long,
General Counsel, Senior Vice President-Legal and Regulatory Affairs and
Corporate Secretary; Stan G. Masters, Senior Vice President-Sales; and James S.
Speirs, Senior Vice President--Network Operations and Chief Technology Officer.
As a result of this meeting, the parties concluded that there was sufficient
mutual interest to discuss further the possibility of a transaction. On March
28, 1997, representatives of USLD and LCI met in San Antonio, Texas to discuss
further the possible synergies that could be obtained by a combination of the
two companies.
On April 27, 1997, the Board of Directors of USLD held a meeting by
teleconference wherein the Board and management discussed various strategic
issues, including continued consolidation in the telecommunications industry. In
this context, USLD management discussed with the Board matters relating to a
potential merger with LCI. At this time, the Board of Directors concurred with
Mr. Holmes's decision to commence discussions with H. Brian Thompson, LCI's
Chairman and Chief Executive Officer, regarding a preliminary range of values
and other terms of a potential transaction.
On May 14, 1997, Mr. Holmes and Mr. Thompson met in Chicago to discuss a
potential transaction and a preliminary range of values for USLD in a merger of
the two companies. At the close of the meeting, each of the parties concluded
that an agreement between USLD and LCI could not be reached due to the
significant disparity between the parties with respect to an acceptable value
range and other terms of a potential transaction. Further, the parties mutually
agreed that further merger discussions would prove fruitless and, as a result,
all merger discussions terminated. On May 31, 1997, Mr. Storin confirmed with
Mr. Lawrence by correspondence that merger discussions had been terminated and
requested the return of
20
all materials supplied by USLD in connection with LCI's preliminary due
diligence. LCI returned all such materials by the middle of June 1997.
On August 21, 1997, at the request of LCI, Mr. Lawrence met with Mr. James
and, citing USLD's financial performance and LCI's plans to expand into USLD's
principal territory, expressed LCI's renewed interest in resuming discussions
between the two companies. At the conclusion of this meeting, Mr. James
indicated to Mr. Lawrence that in order for discussions to commence, the USLD
Board would require, among other things, a range of values appreciably more
favorable to the stockholders of USLD than that previously proposed by LCI.
On August 26, 1997, senior management and the Executive Committee of the
Board of Directors of USLD met separately to discuss the implications of a
possible transaction with LCI. In light of the previous dealings with LCI and
due to the lack of a formal offer, the Executive Committee resolved to continue
to actively pursue other strategic initiatives, including acquiring other
telecommunications companies.
On August 28, 1997, the entire Board of Directors of USLD met with USLD's
senior vice presidents to discuss the status of USLD's efforts to acquire other
companies and to update the Board regarding developments concerning LCI. At this
meeting, the Board authorized Mr. James to proceed with discussions with LCI and
to take all other actions incidental thereto, if and when LCI came forward with
a range of values significantly in excess of the range previously proposed by
LCI. Mr. James discussed his plans to engage AACC to assist with a potential
transaction with LCI.
On September 4, 1997, USLD retained AACC to be its exclusive financial
advisor and requested AACC to begin to analyze a potential combination with LCI.
AACC has regularly provided financial advisory services to USLD over the past
several years, and thus has substantial knowledge of the business, operations
and management of USLD and the telecommunications industry generally. AACC also
was retained to provide a fairness opinion should one be needed.
On September 5, 1997, Mr. Lawrence called Mr. James to express LCI's
interest in moving forward with a potential merger with USLD on the basis of a
range of values significantly in excess of the range previously proposed by LCI.
It was agreed that the value and the resulting exchange ratio would be the
subject of further discussion after the conclusion of satisfactory due diligence
reviews by both parties.
On September 8, 1997, a first draft of the Merger Agreement was provided by
Kramer, Levin, Naftalis & Frankel, legal counsel for LCI, to Arter & Hadden,
legal counsel for USLD. From September 9, 1997 through September 17, 1997,
representatives of LCI and USLD and their respective advisors negotiated the
terms of an acceptable merger agreement, including significant negotiations
regarding provisions to protect the value to be received by USLD stockholders,
representations regarding the business of USLD to be made by USLD, provisions
restricting USLD from soliciting other offers or merger proposals (subject to
USLD's fiduciary duties to its stockholders) and termination rights and
associated fees.
On September 9, 1997, approximately 10 representatives of LCI gathered in
San Antonio to meet with USLD management so that both parties could conduct
further analyses regarding a potential transaction. As part of their respective
due diligence reviews, each party reviewed public and non-public documents and
information of the other party, held numerous meetings and discussions regarding
possible terms and issues involved in a proposed merger and heard presentations
by representatives of the other party concerning, among other things, business
strategies. Due diligence was conducted during the period from September 9, 1997
through September 17, 1997 in San Antonio.
On September 10, 1997, the Board of Directors of LCI met to assess the terms
of a potential transaction. At the meeting, Mr. Lawrence made a detailed
presentation to the LCI Board of Directors on the key elements of the proposed
transaction. After full discussion, the LCI Board of Directors approved basic
terms for the Merger and authorized the transaction on such terms. The Board
appointed a Committee of the Board, consisting of Mr. Thompson and Douglas Karp,
to approve the final terms of the transaction. See "--Recommendation of the
Board of Directors of LCI; Reasons of LCI for the Merger."
21
On September 15 and 16, 1997, Messrs. Thompson and Karp reviewed the final
terms of the transaction and authorized the acquisition of USLD on such terms.
On September 17, 1997, Lehman Brothers delivered its opinion to LCI that the
consideration to be paid by LCI in the Merger is fair to LCI from a financial
point of view. See "Opinion of LCI's Financial Advisor."
On the morning of September 17, 1997, Mr. Lawrence telephoned Mr. James with
a proposal for LCI to merge with USLD at an exchange ratio designed to provide
$20 in value for each share of USLD Common Stock and subject to the other
provisions of the proposed Merger Agreement.
Early in the afternoon on September 17, 1997, the Board of Directors of USLD
met to review the proposed transaction and the terms of the Merger Agreement.
Copies of the Merger Agreement had been provided to each of the members of the
Board of Directors prior to the meeting. At the meeting, USLD management, AACC
and Arter & Hadden each made detailed presentations to the USLD Board on key
elements of the proposed transaction. During this meeting, AACC delivered its
opinion that, as of such date and based upon the assumptions made, matters
considered and limits of review as set forth in such opinion, the transaction
contemplated by the Merger Agreement was fair to the stockholders of USLD from a
financial point of view. After discussing and considering the terms of the
proposed transaction, the USLD Board voted to approve the Merger and adopt the
Merger Agreement. See "--Recommendation of the Board of Directors of USLD;
Reasons of USLD for the Merger" and "--Opinion of USLD's Financial Advisor."
After the close of the financial markets on September 17, 1997, the Merger
Agreement in the form attached as Annex A hereto was executed by the respective
parties. On the morning of September 18, 1997, prior to the opening of the
financial markets, LCI issued a press release announcing the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF USLD; REASONS OF USLD FOR THE MERGER
The USLD Board of Directors believes that the Merger offers USLD and its
stockholders an exceptional opportunity to create a combined organization that
will be a leader in the telecommunications industry. The Board of Directors of
USLD has unanimously approved the Merger and the Merger Agreement, has
unanimously determined that the Merger is fair to and in the best interests of
USLD and its stockholders and unanimously recommends that holders of shares of
USLD Common Stock vote FOR approval and adoption of the Merger and the Merger
Agreement.
At the meeting held on September 17, 1997, the USLD Board of Directors, with
the assistance of AACC and its legal advisors, considered and discussed the
terms of the Merger and reviewed various business, financial and legal
considerations relating thereto. In reaching its decision to approve the Merger
and the Merger Agreement and to recommend that USLD's stockholders vote to
approve and adopt the Merger and the Merger Agreement, USLD's Board of Directors
considered, among other things, the following factors: (i) the opportunity for
USLD stockholders to receive LCI Common Stock in a tax-free exchange valued at a
premium over the market price for shares of USLD Common Stock prevailing prior
to the public announcement of the Merger; (ii) information with respect to the
financial condition, results of operations, business and growth prospects of
USLD and LCI, on both an historical and estimated prospective basis, and current
industry, economic and market conditions, including the financial analysis and
presentations of AACC; (iii) the changing regulatory environment in the domestic
telecommunications industry, including potential entry of the RBOCs into the
long-distance telecommunications marketplace and consolidation trends; (iv) the
historical market prices and recent trading patterns of USLD Common Stock and
LCI Common Stock and market prices, recent trading patterns and financial data
relating to other companies engaged in the same business as USLD; (v) the
opportunity for USLD stockholders to participate, as holders of LCI Common
Stock, in a combined enterprise which will have greater financial, technical and
marketing resources and is expected to produce a stronger competitor in the
communications industry, both domestically and internationally, than would USLD
would be on a stand-alone basis; (vi) the high degree of compatibility and
geographic fit of the businesses of LCI and USLD, which would
22
provide the holders of USLD Common Stock with a significant continuing interest
in the communications industry and would continue to provide career
opportunities and employment for many of the employees of USLD; (vii) the
potential for operational and financial synergies as a result of the integration
of the resources of the two companies; (viii) the recommendation of the
management of USLD that the Merger be approved; (ix) the opinion of AACC to the
USLD Board of Directors on September 17, 1997 to the effect that as of such date
the Exchange Ratio pursuant to the Merger Agreement is fair to the holders of
USLD Common Stock from a financial point of view (see "--Opinion of USLD's
Financial Advisor"); (x) the larger public float and trading volume of shares of
LCI Common Stock compared to the public float and trading volume of shares of
USLD Common Stock, which should provide USLD's stockholders with greater
liquidity in their investment; (xi) the structure of the transaction and the
terms of the Merger Agreement, which were the result of arms-length negotiations
between LCI and USLD, including the terms of the Merger Agreement that permit
the Board of Directors of USLD, in the exercise of its fiduciary duties and
subject to certain conditions, to respond to inquiries from, to provide
information to, and negotiate with, a third party making an unsolicited proposal
to acquire USLD and to terminate the Merger Agreement if the Board of Directors
of USLD determines to recommend an alternative business combination transaction;
and (xii) alternatives to the Merger that might be available to USLD and its
stockholders.
The foregoing discussion of the information and factors considered and given
weight by the USLD Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the USLD Board of Directors found that each of the foregoing factors
supported its recommendation and conclusions and the Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. In addition,
individual members of the USLD Board of Directors may have given different
weights to different factors. For a discussion of the interests of certain
members of USLD's management and USLD's Board of Directors in the Merger, see
"--Interests of Certain Persons in the Merger."
THE USLD BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF USLD
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AND THE MERGER
AGREEMENT.
OPINION OF USLD'S FINANCIAL ADVISOR
USLD retained ABN AMRO Chicago Corporation ("AACC") to act as its financial
advisor and to render an opinion to the Board of Directors of USLD as to the
fairness, from a financial point of view, of the Exchange Ratio to be received
by the holders of USLD Common Stock in the Merger.
On September 17, 1997, in connection with the evaluation of the proposal
from LCI by the Board of Directors of USLD, AACC rendered an opinion that, as of
such date, and subject to certain assumptions, factors and limitations set forth
in such written opinion as described below, the Exchange Ratio to be received by
USLD stockholders is fair to such stockholders from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF AACC DATED SEPTEMBER 17, 1997, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX B TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY FOR
INFORMATION WITH RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS
CONSIDERED BY AACC IN RENDERING SUCH OPINION. AACC'S OPINION WAS PREPARED FOR
THE USLD BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO TO THE HOLDERS OF USLD COMMON STOCK. THE AACC OPINION DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY USLD STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE
WITH RESPECT TO THE PROPOSED MERGER. THE SUMMARY OF THE OPINION OF AACC SET
FORTH IN THIS JOINT PROXY STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with its opinion, AACC has reviewed the Merger Agreement and
certain related documents and held discussions with certain senior officers and
other representatives and advisors of USLD and certain senior officers and other
representatives of LCI concerning the businesses, operations
23
and prospects of USLD and LCI. AACC examined certain publicly available business
and financial information relating to USLD and LCI as well as certain financial
data and other data for USLD and certain financial information and other data
related to LCI which were provided to or otherwise discussed with AACC by the
respective managements of USLD and LCI. AACC reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to: (i) current and
historical market prices and trading volumes of USLD Common Stock and LCI Common
Stock; (ii) the respective companies' financial and other operating data; and
(iii) the capitalization and financial condition of USLD and LCI. AACC also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which AACC considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations AACC considered relevant in evaluating those of USLD and LCI.
In rendering its opinion, AACC has assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by it and it did
not make or obtain or assume any responsibility for independent verification of
such information. In addition, AACC did not make an independent evaluation or
appraisal of the assets and liabilities of USLD or LCI or any of their
respective subsidiaries. With respect to the financial data, AACC has assumed
that it has been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of USLD and LCI as to the
future financial performance of USLD or LCI, as the case may be. AACC has
assumed that the Merger will be consummated in accordance with the terms of the
Merger Agreement, including among other things, that the Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles and as a tax-free reorganization for federal income tax purposes.
AACC is not expressing any opinion in the event that the Average Stock Price is
less than $20.40 and the Exchange Ratio has not been adjusted so that the
Exchange Ratio is equal to $18.90 divided by the Average Stock Price. AACC also
is not expressing any opinion as to what the value of LCI Common Stock actually
will be when issued to USLD's stockholders pursuant to the Merger or the price
at which LCI Common Stock will trade subsequent to the Merger. In connection
with the preparation of its opinion, AACC was not authorized by USLD or the
Board of Directors of USLD to solicit, nor has AACC solicited, third-party
indications of interest for the acquisition of all or any part of USLD.
The following is a summary of the material financial analyses AACC utilized
in connection with providing its written opinion to the Board of Directors of
USLD on September 17, 1997. The summary of the analyses does not purport to be a
complete description of the analyses underlying AACC's opinion.
(A) STOCK TRADING HISTORY. AACC reviewed the performance of the trading
price and volume of USLD Common Stock for the period from the date of the
Billing Distribution through September 15, 1997. This examination indicated
that during this period, the trading price of USLD Common Stock ranged from
$4.38 per share to $18.00 per share. AACC also reviewed the performance of
the trading price and volume of LCI Common Stock for the period from
September 9, 1994 through September 15, 1997. This examination indicated
that during this period, the trading price of LCI Common Stock, adjusted for
LCI's stock dividend in September 1995, ranged from $9.13 per share to
$36.75 per share. In addition, this examination showed that during the
52-week period ending September 15, 1997, the trading price of LCI Common
Stock ranged from $15.38 per share to $35.63 per share.
(B) IMPLIED MULTIPLE AND PREMIUM ANALYSIS. AACC calculated certain
valuation multiples implied by the terms of the Merger Agreement based on a
per share value for each share of USLD Common Stock of $20.00. AACC
performed this same analysis based on a per share value for each share of
USLD Common Stock of $18.90, the value at which USLD could, under certain
circumstances, terminate the Merger pursuant to the terms of the Merger
Agreement. AACC calculated that the total equity value as a multiple of
USLD's latest twelve months' ("LTM") net income, projected fiscal 1997 net
income, and projected fiscal 1998 net income was 58.8x, 48.8x, and 31.7x,
respectively, based on a per share value of $20.00, and 55.6x, 46.1x, and
30.0x, respectively, based on a per share value of $18.90. AACC also
calculated that the total enterprise value (defined to be total equity value
plus
24
total debt less cash and cash equivalents, also referred to as total market
capitalization) as a multiple of USLD's LTM earnings before interest and
taxes ("EBIT"), LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA"), LTM sales, and run rate of sales (defined as sales
for the latest reported quarter multiplied by four) was 41.7x, 18.3x, 1.78x,
and 1.57x, respectively, based on a per share value of $20.00, and 39.3x,
17.3x, 1.68x, and 1.48x, respectively, based on a per share value of $18.90.
AACC calculated the percentage premium implied by the terms of the
Merger Agreement based on a per share value for each share of USLD Common
Stock of $20.00 relative to the market price of USLD Common Stock one week,
four weeks and one year prior to the announcement of the Merger. AACC
performed this same analysis based on a per share value for each share of
USLD Common Stock of $18.90, the value at which USLD could terminate the
Merger pursuant to the terms of the Merger Agreement. AACC calculated that
the percentage premium to the market price of USLD Common Stock one week,
four weeks and one year prior to the announcement of the Merger was 24.0%,
40.4% and 119.2%, respectively, based on a per share value of $20.00, and
17.1%, 32.6% and 106.9%, respectively, based on a per share value of $18.90.
(C) DISCOUNTED CASH FLOW ANALYSIS. AACC performed a discounted cash flow
analysis of USLD based on estimates of projected financial performance
prepared by USLD's management for the fiscal years 1998 to 2002. AACC
calculated a range of present values of the sum of (i) USLD's estimated free
cash flows for the fiscal years ending 1998 through 2002 using discount
rates ranging from 13.0% to 17.0% and (ii) the estimated terminal value in
fiscal year 2002 based on a multiple of USLD's EBITDA in fiscal 2002 ranging
from 8.0x to 10.0x and discounted at rates ranging from 13.0% to 17.0%.
Using the foregoing discounted cash flows and terminal values, AACC
calculated the equity value per share of USLD Common Stock to range from
$17.52 to $21.74.
(D) COMPARABLE PUBLIC COMPANY ANALYSIS. AACC compared certain financial
and operating information for USLD to the corresponding financial and
operating information of the following group of selected long-distance
telecommunications services companies (the "Comparable Companies"): ACC
Corp., Excel Communications Inc., Frontier Corp., WorldCom Inc. and LCI.
AACC analyzed, among other things, the market price per share of common
stock of each Comparable Company and USLD as a multiple of LTM EPS,
estimated calendar 1997 earnings per share ("EPS"), and estimated calendar
1998 EPS (estimates provided by Zacks Investment Research); and the total
market capitalization as a multiple of LTM EBIT, LTM EBITDA, LTM sales, and
run rate of sales. For the Comparable Companies (excluding outliers), an
analysis of market price per share as a multiple of LTM EPS yielded a range
of 18.4x to 25.3x with a median of 19.7x; an analysis of market price per
share as a multiple of estimated 1997 EPS yielded a range of 18.1x to 23.8x
with a median of 21.4x; an analysis of market price per share as a multiple
of estimated 1998 EPS yielded a range of 14.0x to 21.2x with a median of
17.9x; an analysis of total market capitalization as a multiple of LTM EBIT
yielded a range of 11.1x to 14.1x with a median of 13.2x; an analysis of
total market capitalization as a multiple of LTM EBITDA yielded a range of
8.4x to 10.5x with a median of 9.7x; an analysis of total market
capitalization as a multiple of LTM sales yielded a range of 1.73x to 1.92x
with a median of 1.79x; an analysis of total market capitalization as a
multiple of run rate of sales yielded a range of 1.61x to 1.97x with a
median of 1.76x. Based on this analysis and applying the median multiples to
USLD's historical and estimated financial results, AACC estimated the
implied value per share of USLD Common Stock to range from $6.00 to $18.40.
(E) COMPARABLE TRANSACTIONS ANALYSIS. AACC analyzed certain information
relating to the following selected comparable transactions in the
long-distance telecommunications industry (the "Comparable Transactions"):
Advanced Telecommunications Corp./LDDS Communications Inc., IDB
Communications Group Inc./LDDS Communications Inc., ALC Communications
Corp./Frontier Corp., Corporate Telemanagement Group Inc./LCI, Schneider
Communications, Inc./Frontier Corp., and MCI Communications Corp./British
Telecommunications PLC (pending). Such analysis indicated that
25
for the Comparable Transactions (excluding outliers), total equity value as
a multiple of LTM net income ranged from 19.1x to 31.7x with a median of
26.6x, total enterprise value as a multiple of LTM EBIT ranged from 12.4x to
19.6x with a median of 15.2x, total enterprise value as a multiple of LTM
EBITDA ranged from 6.8x to 14.1x with a median of 10.6x, total enterprise
value as a multiple of LTM sales ranged from 1.48x to 2.58x with a median of
1.86x, and total enterprise value as a multiple of run rate of sales ranged
from 1.46x to 2.14x with a median of 1.57x. Based on this analysis and
applying the median multiples to USLD's historical and estimated financial
results, AACC estimated the implied value per share of USLD Common Stock to
range from $6.98 to $17.01.
(F) PREMIUM ANALYSIS. AACC analyzed the percentage premiums offered in
stock-for-stock mergers of $200 million to $600 million in size from January
1, 1996 through September 15, 1997. AACC calculated the premium offered
relative to the market price one week, four weeks and one year prior to the
announcement date of each transaction. The analysis indicated that the
median percentage premium one week, four weeks and one year prior to
announcement was 22.2%, 30.1% and 54.2%, respectively. Based on this
analysis and applying the median premiums to the market price of USLD Common
Stock one week, four weeks and one year prior to the announcement of the
Merger, AACC estimated the implied value per share of USLD Common Stock to
range from $14.07 to $19.71.
(G) CONTRIBUTION ANALYSIS. AACC analyzed and compared the respective
contribution to revenue, EBITDA, EBIT and net income of USLD and LCI to the
combined companies for the twelve month periods ended or ending June 30,
1997, December 31, 1997, and December 31, 1998. This analysis did not take
into account any synergies realizable by the combined companies subsequent
to the Merger. This analysis indicated that USLD would contribute between
14.7% and 15.7% to combined revenue, between 8.1% and 9.5% to combined
EBITDA, between 5.3% and 9.0% to combined EBIT, and between 6.2% and 9.9% to
combined net income. According to the terms of the Merger and assuming an
Average Stock Price of $24.00 for LCI Common Stock, AACC calculated that
existing stockholders of USLD would own approximately 14.9% of the combined
companies.
(H) PRO FORMA ANALYSIS. AACC prepared pro forma analyses of the
financial impact of the Merger, assuming an Exchange Ratio of 0.833 and
various levels of potential operating synergies. Based on such analyses,
AACC calculated that the proposed Merger would be accretive to LCI's 1998
EPS assuming annual operating synergies of at least $15 million.
(I) STOCK PRICE ANALYSIS. AACC calculated the present value of a share
of USLD Common Stock assuming various growth rates applied to estimated
fiscal year 1997 EPS. EPS multiples ranging from 17.5x to 22.5x were applied
to estimated fiscal year 2002 EPS, and then discounted at rates ranging from
13.0% to 17.0%. Based on this analysis AACC estimated the present value of
USLD Common Stock to range from $12.84 to $16.77.
(J) HISTORICAL EXCHANGE RATIO ANALYSIS. AACC analyzed the historical
ratio of the market price per share of USLD Common Stock to the market price
per share of LCI Common Stock for the period from August 5, 1996, through
September 15, 1997, and compared the historical ratio to the Exchange Ratio.
The analysis indicated that the historical ratio ranged from 0.14 to 0.80
during this period.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to practical analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying AACC's opinion. In arriving at its fairness determination, AACC
considered the results of all such analyses. No company or transaction used in
the above analyses as a comparison is identical to USLD or LCI or the Merger.
The analyses were prepared solely for purposes of AACC's opinion provided to the
Board of Directors of USLD as to the fairness of the Exchange Ratio to be
received by the holders of USLD Common Stock pursuant to the Merger Agreement
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon
26
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of USLD, LCI, AACC or any other person assumes
responsibility if future results are materially different from those forecast.
USLD selected AACC as its financial advisor because AACC is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger and because it is familiar with USLD and its
business. AACC, as part of its investment banking business, is continually
engaged in the valuation of businesses in connection with mergers and
acquisitions, as well as initial and secondary offerings of securities and
valuations for other purposes. AACC has provided, in the past, investment
banking services for USLD and has received usual and customary compensation for
such services. AACC acted as financial advisor to USLD in connection with the
Billing Distribution and received a fee of approximately $2.5 million therefor.
In the ordinary course of AACC's business, AACC and its affiliates may actively
trade securities of USLD and LCI for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Pursuant to a letter agreement dated September 4, 1997 (the "Engagement
Letter"), USLD engaged AACC to act as its financial advisor in connection with
the Merger. Pursuant to the terms of the Engagement Letter, USLD has paid AACC a
$50,000 retainer fee and an additional $300,000 upon rendering of the fairness
opinion. Pursuant to the terms of the Engagement Letter, USLD will pay AACC, on
the Closing Date, cash compensation equal to three-quarters of one percent
(0.75%) of the transaction value, less amounts paid previously under the
Engagement Letter. Further, USLD has agreed to reimburse AACC for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify AACC against
certain liabilities, including certain liabilities under the federal securities
laws.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF LCI; REASONS OF LCI FOR THE MERGER
The Board of Directors of LCI has unanimously approved the Merger and the
Merger Agreement, has unanimously determined that the Merger is fair to and in
the best interests of LCI and its stockholders and unanimously recommends that
holders of shares of LCI Common Stock vote FOR approval of the LCI Share
Issuance Proposal.
The LCI Board of Directors believes that the Merger presents an opportunity
consistent with its acquisition strategy of seeking acquisition targets that
provide for strategic geographic expansion into new markets and enhance the LCI
network and technology base and which are likely to be accretive to earnings. In
reaching its determination to approve the Merger and the Merger Agreement, the
LCI Board of Directors considered a number of factors, including (i) the
recommendation of LCI management that the Merger is in the best interests of LCI
and is likely to be accretive to earnings within the next 12 months; (ii) the
expectation that prior to the execution of the Merger Agreement, LCI will
receive the opinion of Lehman Brothers, LCI's financial advisor, that the
consideration to be paid by LCI in the Merger is fair to LCI from a financial
point of view; (iii) the realization of synergies from the expertise of both
USLD and LCI in operator services, including USLD's expertise in the hospitality
industry; (iv) the combination of the services provided by USLD with the
complementary services provided by LCI; (v) enabling LCI to broaden its customer
base for its existing services to include the USLD customer base and expand
LCI's services into Texas and the West Coast, regions in which LCI does not have
a significant presence; (vi) the combination of the direct and alternate sales
channels of both companies to permit broader geographic coverage and expand
accessibility of markets and the expansion of LCI's sales efforts in Texas and
the West Coast; (vii) the reduction of certain USLD corporate costs, possible
elimination of excess or redundant facilities and increased utilization of LCI's
network, including LCI's new fiber-optic system from Dallas to the West Coast;
and (viii) USLD's entrance into the local services market, primarily in Texas.
27
The foregoing discussion of the information and factors considered and given
weight by the LCI Board of Directors is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the LCI Board of Directors did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the LCI Board
of Directors may have given different weights to different factors.
THE LCI BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF LCI
COMMON STOCK VOTE FOR APPROVAL OF THE LCI SHARE ISSUANCE PROPOSAL.
OPINION OF LCI'S FINANCIAL ADVISOR
[TO COME]
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that are subject to risks
and uncertainties. Such forward-looking statements recite expectations for the
businesses of LCI and USLD and the markets for their respective products and
services. These include, for example, statements of managements' plans and
objectives, forecasts of market trends, and discussions regarding synergies and
cost savings of LCI after the Effective Time. Such statements may be found in
this Joint Proxy Statement/Prospectus under "Questions and Answers about the
LCI/USLD Merger," "Summary," "Certain Considerations," "--Background of the
Merger," "--Recommendation of the Board of Director's of LCI; Reasons of LCI for
the Merger," "-- Recommendation of the Board of Director's of USLD; Reasons of
USLD for the Merger," "Opinion of LCI's Financial Advisor" and "Opinion of
USLD's Financial Advisor." Forward-looking statements also include any other
statements in this document that are preceded by, followed by or otherwise
include the words "believes," "expects," "anticipates," "intends," "estimates,"
"should" or similar expressions. For all such statements, LCI and USLD claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All
forward-looking statements are subject to known and unknown risks, uncertainties
and contingencies, many of which are beyond the control of LCI and USLD, which
may cause actual results, performance or achievements to differ materially from
anticipated results, performance or achievements. Factors that might affect
forward-looking statements include overall economic and business conditions, the
demand for products and services of LCI after the Effective Time, competitive
factors in the telecommunications industry, the ability to achieve expected
synergies, the regulations of federal and state authorities concerning
telecommunications and changes in the laws affecting LCI after the Effective
Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the USLD Board of Directors that the
USLD stockholders approve the Merger and the Merger Agreement, USLD stockholders
should be aware that certain directors and officers of USLD have interests in
the Merger in addition to their interests solely as stockholders of USLD, as
described below. The USLD Board of Directors was aware of these interests when
it considered and approved the Merger and the Merger Agreement.
EXECUTIVE EMPLOYMENT AGREEMENTS. USLD entered into Employment Agreements
with the following executive officers (collectively, the "Executive Officers")
effective as of the dates indicated: Larry M. James, Chairman of the Board,
Chief Executive Officer and President of USLD (August 1, 1997); W. Audie Long,
Senior Vice President, General Counsel and Corporate Secretary of USLD (August
1, 1997); and Phillip J. Storin, Senior Vice President, Chief Financial Officer
and Corporate Treasurer of USLD (January 1, 1997) (collectively, the "Executive
Employment Agreements"). Pursuant to the terms of the Executive Employment
Agreements, the respective Executive Officer will be entitled to receive certain
28
severance benefits described below if within one year of the Effective Time (i)
such Executive Officer is terminated by the Surviving Corporation, or (ii) such
Executive Officer is assigned any duties inconsistent in any respect with such
Executive Officer's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any action by LCI or
the Surviving Corporation which results in a diminution in such position,
authority, duties or responsibilities; (iii) the compensation or other benefits
payable to the Executive Officer is reduced; or (iv) such Executive Officer is
required to be based outside the Bexar County, Texas area. If triggered, the
severance payments payable under the Executive Employment Agreements would be as
follows: Mr. James--$975,000; Mr. Long--$380,000; and Mr. Storin--$320,000. The
Executive Employment Agreements also provide for certain non-competition
restrictions on the Executive Officer upon such Executive Officer's termination
of employment. The Executive Employment Agreements with Messrs. James and Long
also provide for additional payments to make the respective Executive Officer
whole for certain excise taxes payable under the Code.
At the request of LCI and effective as of the Effective Time, the Executive
Officers have entered into the following agreements. Messrs. James and Storin
have entered into amended and restated employment agreements with USLD, the
terms of which provide, among other things, (i) that such Executive Officer is
entitled to, and shall receive, the respective severance payments described
above; (ii) longer non-competition restrictions following termination of the
Executive Officer than provided for in such Executive Officer's original
Executive Employment Agreement; and (iii) restrictions on the solicitation of
the Surviving Corporation's employees or customers following the termination of
the Executive Officer (which restrictions were not contained in such Executive
Officer's original Executive Employment Agreement). Mr. James's monthly salary
shall decrease from $27,000 to $17,000 and Mr. Storin's monthly salary shall
continue at $13,333 monthly, in each case for a six-month term of employment.
Mr. Long has entered into an agreement with LCI which provides that (i) LCI will
take such action at the Effective Time to cause the payment of the severance
compensation described above and (ii) Mr. Long will receive $500 per month for a
30-month period as consideration for certain non-competition and
non-solicitation restrictions on Mr. Long's activities.
Merger Sub also has entered into Employment Agreements with James S. Speirs,
Senior Vice President--Network Operations and Chief Technology Officer, Stan G.
Masters, Senior Vice President-- Sales and David S. Horne, Vice President--Human
Resources to be effective at the Effective Time. Pursuant to these agreements
(i) an annual salary of $160,000, $140,000 and $120,000 is payable to Messrs.
Speirs, Masters and Horne, respectively, (ii) a hiring bonus equivalent to one
year's salary is payable to each such employee within ten days of the Effective
Time, and (iii) an option to acquire 10,000, 20,000 and 10,000 shares of LCI
Common Stock, respectively, will be granted to such employees under the terms of
the applicable LCI stock option plan. The initial term of employment for Messrs.
Speirs and Horne is one year, and Mr. Masters has an initial term of two years,
in each case terminable thereafter upon 120 days' notice. Each of these
agreements also imposes certain non-competition and non-solicitation
restrictions on the activities of these employees.
STOCK OPTIONS AND RESTRICTED STOCK. The Merger Agreement provides that, at
the Effective Time, each USLD Stock Option granted by USLD to purchase shares of
USLD Common Stock which is outstanding and unexercised shall be assumed by LCI
and converted into an option to purchase LCI Common Stock in such amount and at
such exercise price as is provided below and otherwise having the same terms and
conditions as are in effect immediately prior to the Effective Time. The number
of shares of LCI Common Stock to be subject to the new option will be equal to
the number of shares that the holder of such USLD Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time (whether or not such option was
in fact exercisable). The exercise price per share of LCI Common Stock under the
new option will be equal to (x) the aggregate exercise price for USLD Common
Stock purchasable pursuant to such USLD Stock Option divided by (y) the number
of shares of LCI Common Stock deemed purchasable pursuant to such USLD Stock
Option.
29
Pursuant to the USLD Stock Option Plans, the Merger will result in each USLD
Stock Option, whether or not fully vested, becoming fully vested and
exercisable. Any USLD Stock Option not exercised will be assumed and converted
into an immediately exercisable option to purchase LCI Common Stock on the terms
described above. In addition, pursuant to the terms of USLD's distribution of
the common stock of its wholly owned subsidiary, Billing Information Concepts
Corp., to the USLD stockholders effective August 2, 1996, Billing granted, under
its 1996 Employee Comprehensive Stock Plan and 1996 Non-Employee Director Plan,
options to purchase Billing Common Stock to each holder of an outstanding option
to purchase shares of USLD Common Stock under the USLD Stock Option Plans. The
Billing options were granted on the basis of an option exercisable for one share
of Billing Common Stock for every one share of USLD Common Stock subject to the
outstanding USLD options. Each Billing option agreement provides that the Merger
will result in each Billing option held by USLD employees, whether or not fully
vested, becoming fully vested and exercisable. Billing options held by Billing
employees will be unaffected by the Merger. See "Business of USLD--Spin-off of
Billing Information Concepts Corp."
The following table sets forth certain information with respect to the
number of vested options and the acceleration of exercisability of options for
(i) each of USLD's executive officers, (ii) the non-employee directors of USLD
and (iii) all executive officers and directors of USLD as a group, in each case
as of the date of this Joint Proxy Statement/Prospectus.
30
NUMBER OF UNVESTED
WEIGHTED AVERAGE EXERCISE
USLD/BILLING
OPTIONS AT NOVEMBER , 1997
NUMBER OF VESTED USLD/
PRICE
PER SHARE OF VESTED AND
WHICH
BILLING OPTIONS BECOME EXERCISABLE AT THE
AT NOVEMBER , 1997 UNVESTED
USLD/BILLING OPTIONS
EFFECTIVE TIME
---------------------------- ---------------------------- ----------------------------
NAME USLD BILLING USLD BILLING USLD BILLING
- -------------------------------------- ------ ------ ------ ------ ------ ------
Larry M. James........................
W. Audie Long.........................
James S. Speirs.......................
Phillip J. Storin.....................
Stan G. Masters.......................
Charles E. Amato......................
Gary D. Becker........................
F. Gardner Parker.....................
L. Lowry Mays.........................
All executive officers and directors
as a group ( persons)...............
VALUE AT NOVEMBER , 1997 OF ALL USLD/
BILLING OPTIONS EXERCISABLE AT EFFECTIVE
TIME (1)
-------------------------------------------
NAME USLD BILLING TOTAL
- -------------------------------------- ------ ------ -----
Larry M. James........................
W. Audie Long.........................
James S. Speirs.......................
Phillip J. Storin.....................
Stan G. Masters.......................
Charles E. Amato......................
Gary D. Becker........................
F. Gardner Parker.....................
L. Lowry Mays.........................
All executive officers and directors
as a group ( persons)...............
- ------------------------
(1) Value is based upon the closing sale price for USLD Common Stock or Billing
Common Stock, as the case may be, on November __, 1997 less the weighted
average exercise price per share of vested and unvested options. For a more
recent quote of the closing price of the USLD Common Stock, see "Comparative
Per Share Market Price and Dividend Information--USLD."
In addition, the forfeiture provisions set forth in the individual
restricted stock agreements entered into with certain officers of USLD pursuant
to USLD's 1995 Employee Restricted Stock Plan and the restricted stock
agreements entered into with certain non-employee directors of USLD will lapse
at the Effective Time, as provided in such agreements.
The following table sets forth certain information with respect to the
number of restricted shares which have vested and the acceleration of vesting of
restricted shares for (i) each of USLD's executive officers, (ii) the
non-employee directors of USLD and (iii) all executive officers and directors of
USLD as a group, in each case, as of the date of this Joint Proxy
Statement/Prospectus.
NUMBER OF UNVESTED
NUMBER OF VESTED USLD RESTRICTED SHARES VALUE AT NOVEMBER ,
USLD RESTRICTED AT NOVEMBER , 1997 1997 OF ALL
SHARES AT WHICH VEST AT THE RESTRICTED SHARES AT
NAME NOVEMBER , 1997 EFFECTIVE TIME EFFECTIVE TIME (1)
- ------------------------------------------------ ----------------- ---------------------- --------------------
Larry M. James..................................
W. Audie Long...................................
James S. Speirs.................................
Phillip J. Storin...............................
Stan G. Masters.................................
Charles E. Amato................................
Gary D. Becker..................................
F. Gardner Parker...............................
L. Lowry Mays...................................
All executive officers and directors as a group
( persons)...............................
- ------------------------
(1) Value is based upon the closing sale price for USLD Common Stock on November
__, 1997. For a more recent quote of the closing price of the USLD Common
Stock, see "Comparative Per Share Market Price and Dividend
Information--USLD."
31
INDEMNIFICATION. The Merger Agreement provides that, after the Effective
Time, the Surviving Corporation shall, to the fullest extent permitted under
applicable law or under the Surviving Corporation's Certificate of Incorporation
or Bylaws, indemnify and hold harmless each present and former director,
officer, employee or agent of USLD or any of its subsidiaries against any costs
or expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation (i) arising out of the
transactions contemplated by the Merger Agreement or (ii) otherwise with respect
to any acts or omissions occurring at or prior to the Effective Time, to the
same extent as provided in USLD's Certificate of Incorporation or Bylaws or any
applicable contract or agreement as in effect on the date of the Merger
Agreement, in each case for a period of six years after the Effective Time. The
Merger Agreement also provides that, for a period of six years after the
Effective Time, LCI will cause the Surviving Corporation to maintain in effect,
if available, directors' and officers' liability insurance covering those
persons who are currently covered by USLD's directors' and officers' liability
insurance policy on terms comparable to those applicable to directors and
officers of USLD as of the date of the Merger Agreement; PROVIDED, HOWEVER, that
in no event shall the Surviving Corporation be required to expend in excess of
300% of the annual premium currently paid by USLD for such coverage; and
PROVIDED FURTHER, that if the premium for such coverage exceeds such amount, LCI
or the Surviving Corporation shall purchase a policy with the greatest coverage
available for 300% of such annual premium.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
It is a condition to the obligations of USLD and LCI to consummate the
Merger that USLD receive an opinion from Arter & Hadden, counsel for USLD, and
that LCI receive an opinion from Kramer, Levin, Naftalis & Frankel, counsel for
LCI, in form and substance reasonably satisfactory to each of them to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"). Such opinions will be based upon facts existing
at the Effective Time and, in rendering the opinions of counsel referred to in
this section, such counsel will rely upon representations, made as of the
Effective Time, by USLD and LCI, which counsel will assume to be true, correct
and complete, including representations as to the intent of the historic
stockholders of USLD to retain ownership of the LCI Common Stock which they
receive in the Merger. If such representations are untrue, incorrect or
incomplete, the opinions could be adversely affected. No ruling has been or will
be sought from the Internal Revenue Service (the "IRS") as to the United States
federal income tax consequences of the Merger, and the opinions of counsel set
forth herein are not binding upon the IRS or any court.
Subject to the limitations and qualifications referred to herein, Arter &
Hadden, counsel to USLD, is of the opinion as to the matters set forth in
numbered paragraphs 1, 2 and 3 below, and Kramer, Levin, Naftalis & Frankel,
counsel to LCI, is of the opinion as to the matters set forth in numbered
paragraph 4 below.
1. Except as provided below, no gain or loss will be recognized by a USLD
stockholder upon the exchange of his or her USLD Common Stock for LCI Common
Stock. A USLD stockholder who receives cash proceeds in lieu of a fractional
share interest in LCI Common Stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated to the fractional
share interest. Such gain or loss will constitute capital gain or loss if such
stockholder's USLD Common Stock is held as a capital asset at the Effective Time
and will be long-term capital gain or loss if shares of USLD Common Stock have
been held for more than one year at the Effective Time. An individual USLD
stockholder's long-term capital gain will be taxed at the lowest applicable rate
if such stockholder held the shares of USLD Common Stock for more than 18 months
at the Effective Time.
2. The tax basis of the LCI Common Stock received by a USLD stockholder will
be the same as such stockholder's tax basis in the USLD Common Stock surrendered
in exchange therefor, decreased by the tax basis allocated to any fractional
share interest exchanged for cash.
32
3. The holding period of the LCI Common Stock received by a USLD stockholder
will include the period during which the USLD Common Stock surrendered in
exchange therefor was held (provided that such USLD Common Stock was held by
such USLD stockholder as a capital asset at the Effective Time).
4. No gain or loss will be recognized by USLD, LCI or Merger Sub as a result
of the Merger.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL OF THE MERGER AND THE MERGER
AGREEMENT OR THE LCI SHARE ISSUANCE PROPOSAL. THE DISCUSSION DOES NOT ADDRESS
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES THAT MAY BE RELEVANT TO USLD
STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS,
SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS AND STOCKHOLDERS WHO ACQUIRED USLD
COMMON STOCK PURSUANT TO THE EXERCISE OF STOCK OPTIONS OR OTHERWISE AS
COMPENSATION, NOR DOES IT ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCALITY OR FOREIGN JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE,
TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS
AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. USLD
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of LCI and USLD will be carried forward to the combined
corporation at their recorded amounts, subject to any adjustments required to
conform the accounting policies of the companies; income of the combined
corporation will include income of LCI and USLD for the entire fiscal year in
which the Merger occurs; and the reported income of the separate corporations
for prior periods will be combined and restated as income of the combined
corporation.
The Merger Agreement provides that pooling of interests accounting treatment
of the Merger and receipt of an opinion from Arthur Andersen LLP, independent
certified public accountants to USLD and LCI, regarding the qualification of the
Merger as a pooling of interests for accounting purposes are conditions to the
consummation of the Merger.
EFFECT ON STOCK PLANS AND AGREEMENTS AND WARRANTS
At the Effective Time, each then outstanding stock option (collectively, the
"USLD Stock Options") granted under the USLD Communications Corp. 1990 Employee
Stock Option Plan, as amended, the USLD Communications Corp. 1993 Non-Employee
Director Plan, as amended, or any other stock option plan or agreement of USLD
(collectively, the "USLD Stock Option Plans"), whether or not then vested, and
each then outstanding warrant to purchase shares of USLD Common Stock
(collectively, the "USLD Warrants"), will be assumed by LCI and will constitute
an option or warrant, as the case may be, to acquire, on the same terms and
conditions as were applicable under such USLD Stock Option or USLD Warrant prior
to the Effective Time, the number of shares of LCI Common Stock as the holder of
such USLD Stock Option or USLD Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised such USLD Stock Option or USLD
Warrant in full immediately prior to the
33
Effective Time (whether or not such USLD Stock Option or USLD Warrant was in
fact exercisable). The exercise price per share of LCI Common Stock will be
equal to (x) the aggregate exercise price for USLD Common Stock otherwise
purchasable pursuant to such USLD Stock Option or USLD Warrant, as the case may
be, divided by (y) the aggregate number of shares of LCI Common Stock
purchasable after the Effective Time pursuant to the USLD Stock Option or USLD
Warrant. Upon exercise of a USLD Stock Option or USLD Warrant following the
Effective Time, fractional shares of LCI Common Stock will not be issued and
holders of USLD Stock Options and USLD Warrants instead will be paid a cash
amount based on the closing price per share of LCI Common Stock on the NYSE on
the trading day immediately preceding the date of exercise.
Pursuant to the terms of the Merger Agreement, the shares of LCI Common
Stock issuable upon exercise of the USLD Stock Options are to be registered
under the Securities Act as soon as practicable after the Effective Time. In
addition, LCI has agreed to enter into a registration rights agreement
containing customary terms and conditions with certain holders of USLD Warrants
with respect to the resale by such holders of the shares of LCI Common Stock
acquired upon exercise of the USLD Warrants after the Effective Time.
As of November __, 1997, there were outstanding USLD Stock Options and USLD
Warrants to acquire an aggregate of ______ shares of USLD Common Stock. See "The
Merger Agreement--Terms of the Merger--Assumption of Outstanding Stock Options
and Warrants."
In addition, the forfeiture provisions set forth in the individual
restricted stock agreements entered into pursuant to USLD's 1995 Employee
Restricted Stock Plan and restricted stock agreements entered into with certain
non-employee directors of USLD will lapse, as provided in such agreements. As of
November __, 1997, there were outstanding _______ restricted shares of USLD
Common Stock.
USLD is required to cause the ending date of the then-current offering
period under the USLD ESPP to be prior to the Effective Time in accordance with
the terms of such plan (the "Final Purchase Date"); PROVIDED that such change in
the offering period shall be conditioned upon the consummation of the Merger. On
the Final Purchase Date, USLD shall apply the funds credited as of such date
within each participant's payroll withholding account to the purchase of whole
shares of USLD Common Stock in accordance with the terms of such plan.
Employees of USLD as of the Effective Time shall be permitted to participate
in LCI's Employee Stock Purchase Plan commencing on the first enrollment date of
such plan following the Effective Time, subject to the eligibility provisions of
such plan (with employees receiving credit, for purposes of such eligibility
provisions, for service with USLD, LCI or Merger Sub).
CERTAIN LEGAL MATTERS
LCI and USLD have given each other a commitment to use their reasonable best
efforts to take whatever actions are required to obtain necessary regulatory
approvals. See "The Merger Agreement-- Additional Agreements."
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), prohibits LCI and USLD from completing the Merger until they have
furnished certain information and materials to the Federal Trade Commission (the
"FTC") and the Antitrust Division of the U.S. Department of Justice (the
"Antitrust Division") and a required waiting period has expired. Pursuant to the
requirements of the HSR Act, LCI and USLD have each filed a Notification and
Report Form for review under the HSR Act with the FTC and the Antitrust
Division, and the waiting period will expire on _________, 1997 unless otherwise
extended or terminated by the FTC or the Antitrust Division .
Even after the HSR Act waiting period has expired or been terminated, the
FTC or the Antitrust Division could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking
divestiture of substantial assets of LCI or USLD. Consummation of the Merger
34
is conditioned upon, among other things, the absence of any pending or
threatened governmental proceeding or any judgment, decree or order of any
governmental authority or court or any other legal restraint that would prevent
the consummation of the Merger or require LCI to dispose of or hold separate any
material portion of its business or assets, including business or assets of
USLD. See "The Merger--Conditions to the Merger."
LCI does not believe that consummation of the Merger will result in a
violation of any applicable antitrust laws. However, there can be no assurance
that a challenge to the Merger on antitrust grounds will not be made or, if such
a challenge is made, of the result.
The Merger also requires the approval of the Federal Communications
Commission and of various state regulatory authorities in the jurisdictions
where USLD and LCI operate.
FEDERAL SECURITIES LAW CONSEQUENCES
All LCI Common Stock issued in connection with the Merger will be freely
transferable, except that any LCI Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act of
1933, as amended (the "Securities Act")) of USLD prior to the Merger may be sold
by them only in transactions permitted by the resale provisions of Rule 145
under the Securities Act, or as otherwise permitted under the Securities Act.
Persons who may be deemed to be affiliates of USLD generally include individuals
or entities that control, are controlled by, or are under common control with,
USLD and may include certain officers and directors of USLD.
In general, under Rule 145, for one year following the Effective Time, a
USLD affiliate (together with certain related persons) would be entitled to sell
LCI Common Stock acquired in connection with the Merger only through unsolicited
"broker transactions" or in transactions directly with a "market maker," as such
terms are defined in Rule 144. Additionally, the number of shares to be sold by
an affiliate (together with certain related persons and certain persons acting
in concert) within any three-month period for purposes of Rule 145 may not
exceed the greater of 1% of the outstanding LCI Common Stock or the average
weekly trading volume of such stock during the four calendar weeks preceding
such sale. Rule 145 would only be available, however, if LCI remained current
with its informational filings with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). After the end of one year from the Effective Time, a USLD
affiliate would be able to sell LCI Common Stock received in the Merger without
such manner-of-sale or volume limitations provided that LCI was current with its
Exchange Act informational filings and such person was not then an affiliate of
LCI. Two years after the Effective Time, an affiliate of USLD would be able to
sell such LCI Common Stock without any restrictions so long as such person had
not been an affiliate of LCI for at least three months prior thereto.
USLD has agreed to use its best efforts to cause its affiliates to agree in
writing that they will comply with Rule 145 and that they will not sell USLD
Common Stock or LCI Common Stock at a time that would prevent the Merger from
qualifying as a pooling of interests for financial accounting purposes.
STOCK EXCHANGE LISTING
LCI has agreed to cause the LCI Common Stock to be issued in the Merger and
upon exercise of the USLD Stock Options and USLD Warrants to be listed, upon
official notice of issuance, on the NYSE prior to the Effective Time.
DIVIDENDS
LCI has not declared any dividends on its shares of LCI Common Stock and
USLD has declared only the Billing Distribution with respect to its shares of
USLD Common Stock. USLD is not permitted under the terms of the Merger Agreement
to declare, set aside, make or pay any dividend or other distribution in
35
respect of its capital stock during the period from the date of the Merger
Agreement until the earlier of the termination of the Merger Agreement and the
Effective Time.
ABSENCE OF APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), the holders of USLD
Common Stock are not entitled to any appraisal rights with respect to the
Merger.
USLD RIGHTS AGREEMENT
Effective September 17, 1997, USLD entered into Amendment No. 1 to the
Rights Agreement dated April 12, 1996 by and between USLD and U.S. Trust Company
of Texas, N.A., to specifically exclude the Merger therefrom.
TERMINATION FEE
USLD has agreed to pay LCI a fee of $11 million if the Merger Agreement is
terminated under certain circumstances. LCI has agreed to pay USLD a fee of $11
million if the Merger Agreement is terminated under certain other circumstances.
See "The Merger Agreement--Termination--Termination Fee."
The fee payable under certain circumstances by USLD to LCI is intended,
among other things, to compensate LCI for its costs, including lost opportunity
costs, if the Merger is not consummated as a result of certain actions or
inactions by USLD or its stockholders. Such fee may have the effect of
increasing the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. The fee also may have the effect of
discouraging persons who might now or prior to the consummation of the Merger be
interested in acquiring all or a significant interest in USLD from considering
or proposing such an acquisition by increasing the costs of any such
acquisition. The fee payable by LCI to USLD is intended, among other things, to
compensate USLD for its costs, including lost opportunity costs, if the Merger
is not consummated as a result of certain actions or inactions by LCI or its
stockholders.
THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Joint Proxy Statement/Prospectus
as Annex A and incorporated herein by reference.
The Merger Agreement among LCI, Merger Sub and USLD was executed on
September 17, 1997.
TERMS OF THE MERGER
THE MERGER. At the Effective Time, and subject to and upon the terms and
conditions of the Merger Agreement and the DGCL, Merger Sub will be merged with
and into USLD, the separate corporate existence of Merger Sub will cease, and
USLD will continue as the surviving corporation ("Surviving Corporation").
EFFECTIVE TIME. As promptly as practicable after (and in any event within
one business day thereafter) the satisfaction or waiver of the conditions set
forth in the Merger Agreement, LCI and USLD have agreed to cause the Merger to
be consummated by filing the Certificate of Merger with the Secretary of State
of the State of Delaware (the time of such filing being the Effective Time).
CERTIFICATE OF INCORPORATION AND BYLAWS. The Merger Agreement provides that
the USLD Restated Certificate of Incorporation and the USLD Bylaws, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and Bylaws of the Surviving Corporation, except that (i)
provisions related to the nature of USLD's business or USLD's purposes to be
conducted or promoted shall be
36
deleted and restated such that the Surviving Corporation may engage in any
lawful act or activity for which corporations may be organized under the DGCL
and (ii) provisions related to the composition of USLD's Board of Directors will
be deleted and replaced such that the Surviving Corporation's Board of Directors
shall consist of not fewer than three members, all of a single class, with the
exact number to be fixed from time to time by resolutions of the Board of
Directors.
DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
and the officers of USLD immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation.
CONVERSION OF USLD COMMON STOCK IN THE MERGER. At the Effective Time, each
share of USLD Common Stock issued and outstanding immediately prior to the
Effective Time (excluding treasury shares and shares held by LCI, Merger Sub or
any subsidiary of USLD or LCI immediately prior to the Effective Time) will be
converted into the right to receive validly issued, fully paid and nonassessable
shares of LCI Common Stock in the applicable Exchange Ratio as follows:
- If the Average Stock Price is greater than or equal to $21.60 but less
than or equal to $26.40, the Exchange Ratio will equal $20.00 divided by
the Average Stock Price.
- If the Average Stock Price is more than $26.40, the Exchange Ratio will
be .7576.
- Except as provided immediately below, if the Average Stock Price is less
than $21.60, the Exchange Ratio will be .9259.
- If, however, the Average Stock Price is less than $20.40 and USLD and LCI
deliver their respective notices specified in clause (viii)(1) under
"--Termination--Conditions to Termination," the Exchange Ratio will be
equal to $18.90 divided by the Average Stock Price (or such higher ratio
as specified in LCI's notice).
"Average Stock Price" means the average of the Daily Per Share Prices for
the twenty consecutive trading days ending on the third trading day prior to the
USLD Special Meeting; except that, if the Closing Date occurs more than three
trading days after the USLD Special Meeting, such consecutive trading days shall
end on the second trading day prior to the Closing Date. "Daily Per Share Price"
for any trading day means the weighted average of the per share selling prices
of LCI Common Stock as reported in the NYSE Composite Transactions for that day;
except that, if the LCI Common Stock does not trade on any day in such period,
the Daily Per Share Price for such day means the average of the closing bid and
asked prices of LCI Common Stock on such day.
ASSUMPTION OF OUTSTANDING STOCK OPTIONS AND WARRANTS. At the Effective
Time, each outstanding USLD Stock Option will be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable to such USLD
Stock Option prior to the Effective Time, the number of shares of LCI Common
Stock as the holder of such USLD Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such option in full
immediately prior to the Effective Time (whether or not such option was in fact
exercisable), at a price per share equal to (x) the aggregate exercise price for
USLD Common Stock purchasable pursuant to such USLD Stock Option divided by (y)
the number of shares of LCI Common Stock deemed purchasable pursuant to such
USLD Stock Option. The number of shares of LCI Common Stock that may be
purchased upon exercise of any such USLD Stock Option shall not include any
fractional share and, upon exercise of the USLD Stock Option, a cash payment
will be made for any fractional share based upon the Closing Price of a share of
LCI Common Stock on the trading day immediately preceding the date of exercise.
"Closing Price" means, on any day, the last reported sale price per share of LCI
Common Stock on the NYSE.
The shares of LCI Common Stock issuable upon exercise of the USLD Stock
Options are to be registered under the Securities Act as soon as practicable
after the Effective Time, and LCI will use its best
37
efforts to maintain the effectiveness of such registration for so long as the
USLD Stock Options remain outstanding.
At the Effective Time, each USLD Warrant shall be assumed by LCI and deemed
to constitute a warrant to acquire, on the same terms and conditions as were
applicable under such USLD Warrant prior to the Effective Time, the number of
shares of LCI Common Stock as the holder of such USLD Warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such USLD
Warrant in full immediately prior to the Effective Time (not taking into account
whether or not such warrant was in fact exercisable) at a price per share equal
to (x) the aggregate exercise price for USLD Common Stock otherwise purchasable
pursuant to such USLD Warrant divided by (y) the number of shares of LCI Common
Stock deemed purchasable pursuant to such USLD Warrant. The number of shares of
LCI Common Stock that may be purchased upon exercise of any such USLD Warrant
shall not include any fractional share and, upon exercise of such Warrant, a
cash payment will be made for any fractional share based upon the Closing Price
of a share of LCI Common Stock on the trading day immediately preceding the date
of exercise.
FRACTIONAL SHARES. No certificates or scrip representing fractional shares
of LCI Common Stock will be issued in connection with the Merger. In lieu of any
such fractional share, each USLD stockholder who would otherwise have been
entitled to a fractional share of LCI Common Stock will be paid an amount equal
to such fraction multiplied by the Closing Price on the date of the Effective
Time.
EXCHANGE OF CERTIFICATES
EXCHANGE AGENT. At or prior to the Effective Time, LCI and USLD will
jointly appoint a bank or trust company (the "Exchange Agent") to act as
exchange agent for the Merger.
EXCHANGE PROCEDURES. As soon as reasonably practicable after the Effective
Time, LCI will instruct the Exchange Agent to mail to each holder of record of
USLD Common Stock a letter of transmittal and instructions to effect the
surrender of the certificates representing USLD Common Stock in exchange for
certificates evidencing LCI Common Stock. Upon surrender of a certificate
representing USLD Common Stock for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions, the holder of such
certificate will be entitled to receive in exchange (i) certificates evidencing
that number of whole shares of LCI Common Stock which such holder has the right
to receive in the Merger, (ii) any dividends or other distributions on the LCI
Common Stock declared or made after the Effective Time to which such holder is
entitled, and (iii) cash in respect of fractional shares of LCI Common Stock as
provided above (the LCI Common Stock, dividends, distributions and cash being,
collectively, the "Merger Consideration"), and the certificate so surrendered
will be canceled. In the event of a transfer of ownership of shares of USLD
Common Stock which is not registered in the transfer records of USLD as of the
Effective Time, LCI Common Stock, dividends and distributions may be issued and
paid to a transferee if the certificate evidencing such shares is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until so surrendered, each outstanding certificate that, prior to the
Effective Time, represented shares of USLD Common Stock will be deemed from and
after the Effective Time, for all corporate purposes, to evidence the ownership
of the number of whole shares of LCI Common Stock into which such shares of USLD
Common Stock shall have been so converted.
38
DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of LCI Common Stock will be paid to the holder of any unsurrendered certificate
representing shares of USLD Common Stock. Subject to applicable law, following
surrender of any certificate formerly representing shares of USLD Common Stock,
there will be paid to the record holder of the certificates representing LCI
Common Stock issued in exchange, without interest, at the time of surrender, the
amount of dividends or other distributions with a record date after the
Effective Time previously payable with respect to such LCI Common Stock.
TRANSFERS OF OWNERSHIP. If any certificate for shares of LCI Common Stock
is to be issued in a name other than that in which the USLD certificate
surrendered in exchange therefor is registered, it will be required that the
USLD certificate so surrendered be properly endorsed and otherwise in proper
form for transfer. The Person requesting such exchange must pay to LCI any
transfer or other taxes required by reason of the issuance of a certificate for
shares of LCI Common Stock in any name other than that of the registered holder
of the certificate surrendered, or establish to the satisfaction of LCI that
such tax has been paid or is not payable.
ESCHEAT AND WITHHOLDING. Neither LCI, Merger Sub nor USLD shall be liable
to any holder of USLD Common Stock for any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. LCI or the Exchange Agent shall be entitled to deduct and withhold
from the Merger Consideration paid to any USLD stockholder such amounts as LCI
or the Exchange Agent is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or foreign
tax law.
LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any USLD certificates
have been lost, stolen or destroyed, the Exchange Agent will issue LCI Common
Stock in exchange for such lost, stolen or destroyed certificates upon the
making of an affidavit of that fact by the owner of such certificates. However,
LCI may, in its discretion, require the holder of such lost, stolen or destroyed
certificates to deliver a bond in a reasonable sum as indemnity against any
claim that may be made against LCI or the Exchange Agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
USLD STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF USLD COMMON STOCK. USLD
STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR SHARES TO THE
EXCHANGE AGENT PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
USLD, in respect of itself and its significant subsidiaries, and of LCI, in
respect of itself and its significant subsidiaries, relating, among other
things, to the following matters (which representations and warranties are
subject, in certain cases, to specified exceptions): (i) corporate organization,
standing, qualification and similar corporate matters; (ii) capitalization;
(iii) subsidiaries; (iv) the absence of any commitments to issue capital stock;
(v) the authorization, execution, delivery and enforceability of the Merger
Agreement; (vi) governmental or regulatory approvals and filings required to
consummate the Merger or to prevent the termination of governmental or
regulatory licenses or permits or the loss of business, by reason of the Merger,
except as could not reasonably be expected to have a material adverse effect on
the business, assets or financial condition of USLD or LCI, as the case may be
(a "Material Adverse Effect"); (vii) the absence of conflict of the Merger
Agreement with charter documents, laws or agreements and required consents for
the execution and delivery of the Merger Agreement, except as could not
reasonably be expected to have a Material Adverse Effect; (viii) reports and
other documents filed with the Commission and the absence of material
misstatements in the information contained therein; (ix) the fair presentation
of certain financial
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statements delivered to the other party in accordance with generally accepted
accounting principles and the absence of undisclosed liabilities that could
reasonably be expected to have a Material Adverse Effect; (x) certain other
financial representations of USLD related to material special promotions,
discounts and other incentives; (xi) the conduct of business in the ordinary
course and the absence of certain changes or events since the beginning of the
current fiscal year, of USLD or LCI, respectively, including the occurrence of a
Material Adverse Effect; (xii) payment of taxes and certain other tax matters;
(xiii) relations with employees and sales agents; (xiv) employee benefit
matters; (xv) title to properties; (xvi) compliance with laws and the absence of
litigation that could reasonably be expected to have a Material Adverse Effect;
(xvii) brokers, finders and investment bankers; (xviii) ownership, rights to use
and absence of violations or claims in respect of intellectual property; (xix)
maintenance of insurance by USLD; (xx) contracts; (xxi) the validity and
standing of any required permits and authorizations; (xxii) compliance with
environmental laws; (xxiii) stock or asset acquisitions by USLD; (xxiv) the
maintenance of books and records; (xxv) USLD's relationships or transactions
with affiliates; (xxvi) the absence of actions that could reasonably be expected
to prevent the Merger from being accounted for as a pooling of interests;
(xxvii) LCI's purpose in forming Merger Sub and the absence of liabilities,
obligations and business activities of or by Merger Sub, other than as
contemplated by the Merger Agreement; and (xxviii) the absence of any material
untrue statements in the Registration Statement and this Joint Proxy
Statement/Prospectus.
CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS BY USLD. The Merger Agreement provides that, prior to
the Effective Time, unless LCI otherwise agrees in writing, USLD will conduct
its business and cause the businesses of its subsidiaries to be conducted only
in the ordinary course of business and in a manner consistent with past
practice; and USLD will use reasonable commercial efforts to preserve
substantially intact the business organization of USLD and its subsidiaries, to
keep available the services of the present officers, employees and consultants
of USLD and its subsidiaries and to preserve the present relationships of USLD
and its subsidiaries with customers, suppliers and other persons with which USLD
or any of its subsidiaries has significant business relations. Except as
contemplated by the Merger Agreement, neither USLD nor any of its subsidiaries
will (i) amend USLD's Certificate of Incorporation or Bylaws; (ii) issue, sell,
pledge, dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of capital stock of any class, or
rights of any kind to acquire any shares of capital stock, or any other
ownership interest in USLD, any of its subsidiaries or affiliates; (iii) sell,
pledge, dispose of or encumber assets of USLD or any of its subsidiaries outside
the ordinary course of business; (iv) (1) declare or pay any dividend or other
distribution, (2) split, combine or reclassify any of its capital stock or issue
or authorize or propose the issuance of any other securities in respect of or in
substitution for shares of its capital stock, or (3) amend the terms of purchase
or otherwise acquire, or permit any subsidiary to purchase or otherwise acquire,
any of its securities or any securities of its subsidiaries; (v) (1) acquire any
corporation, partnership or other business organization or division; (2) incur
any material indebtedness for borrowed money or issue any debt securities or
assume, guarantee, endorse or otherwise become responsible for, the obligations
of any person, or make any loans or advances, except in the ordinary course of
business consistent with past practice; or (3) authorize any capital
expenditures or purchases of fixed assets other than in the ordinary course of
business consistent with prior practice and in the aggregate less than
$10,000,000 prior to December 31, 1997 and $18,000,000 prior to March 31, 1998;
(vi) make any change in the rate of compensation or other remuneration payable,
or pay or agree or promise to pay, any bonus, extra compensation, pension,
severance or vacation pay, to any director, officer, employee, salesman,
distributor or agent of USLD or any of its subsidiaries, or make any increase or
commitment to increase any employee benefits, adopt or make any commitment to
adopt any additional employee benefit plan or make any contribution, other than
regularly scheduled contributions, to any employee benefit plan; (vii) make any
material change to accounting policies or procedures except as required by the
Commission, the Financial Accounting Standards Board or generally accepted
accounting principles ("GAAP"); (viii) make any material tax election
inconsistent with past practice or settle or compromise any material tax
liability or
40
agree to an extension of a statute of limitations; (ix) satisfy any claims,
liabilities or obligations that are individually or in the aggregate material to
USLD and its subsidiaries; (x) take any action to delist a security of USLD from
any securities exchange; (xi) recommend or take any action to adopt a plan of
dissolution or liquidation with respect to USLD or any of its subsidiaries; or
(xii) take, or agree to take, any of the foregoing actions, or any actions which
would make any of the representations or warranties of USLD contained in the
Merger Agreement untrue or incorrect or prevent USLD from performing its
covenants under the Merger Agreement.
NO SOLICITATION. The Merger Agreement provides that USLD will not, directly
or indirectly, (i) solicit, engage in discussions or negotiate with any person
or take any other action intended or designed to facilitate the efforts of any
person, other than LCI, relating to the possible acquisition of USLD or any of
its subsidiaries or any material portion of its or their capital stock or assets
(an "Alternative Acquisition"); (ii) provide information with respect to USLD or
any of its subsidiaries to any person, other than LCI, relating to a possible
Alternative Acquisition; (iii) enter into an agreement with any person, other
than LCI, providing for a possible Alternative Acquisition; or (iv) make or
authorize any statement, recommendation or solicitation in support of any
possible Alternative Acquisition by any person, other than by LCI.
The prohibitions described above do not apply, subject to the observance of
certain notice, confidentiality and other requirements, to certain discussions
and negotiations relating to an Alternative Acquisition (i) that the Board of
Directors of USLD has determined, in good faith, is more favorable to the
stockholders of USLD, from a financial point of view, than the terms of the
Merger; (ii) with a third party that the Board of Directors of USLD has
determined is financially capable of consummating such transaction; and (iii)
that the USLD Board concludes that it should consider in order to fulfill its
fiduciary duties to the stockholders of USLD.
USLD will not accept or enter into any agreement concerning an Alternative
Acquisition for a period of not less than 48 hours after LCI's receipt of a
notice of the material terms of any proposal of an Alternative Acquisition. Upon
compliance with the foregoing provisions, USLD will be entitled to (i) change
its recommendation concerning the Merger and (ii) enter into an agreement with
any third party concerning an Alternative Acquisition provided that USLD
immediately makes payment in full to LCI of the termination fee described below.
See "--Termination--Termination Fee."
CONDUCT OF BUSINESS BY LCI. The Merger Agreement provides that, prior to
the Effective Time, unless USLD otherwise agrees in writing, LCI will conduct
its business, and cause the businesses of its subsidiaries to be conducted, in
the ordinary course of business and consistent with past practice, except for
actions taken by LCI or its subsidiaries in order to facilitate the negotiation
and execution of the Merger Agreement and the consummation of the transactions
contemplated thereunder, which actions would not breach any of LCI's or Merger
Sub's representations, warranties, covenants and agreements therein, and except
as contemplated by the Merger Agreement, LCI will not (i) amend LCI's
Certificate of Incorporation or Bylaws, (ii) declare or pay any cash dividend or
other distribution, (iii) take any action to delist a security of LCI from any
securities exchange, (iv) recommend or take any action to adopt a plan of
dissolution or liquidation with respect to LCI or any of its subsidiaries, or
(v) take or agree in writing or otherwise to take any action which would make
any of the representations or warranties of LCI or Merger Sub contained in the
Merger Agreement untrue or incorrect or prevent LCI or Merger Sub from
performing its covenants under the Merger Agreement.
MATERIAL LCI TRANSACTION. The Merger Agreement provides that LCI is not
prevented from engaging in any discussions or entering into or consummating any
agreements or other arrangements with respect to (i) the sale of all or
substantially all of the LCI's capital stock or assets; (ii) any material
strategic alliance; or (iii) the material acquisition of any corporation,
partnership or other business organization or division thereof ((i), (ii) and
(iii) each a "Material LCI Transaction"), and no such actions by LCI or any of
its subsidiaries with respect to a Material LCI Transaction shall constitute a
breach of any representation,
41
warranty, covenant or agreement of LCI or Merger Sub under the Merger Agreement.
After the Joint Proxy Statement/Prospectus has been mailed to the stockholders
of USLD and prior to the then-scheduled date of the USLD Special Meeting, LCI
has agreed not to initiate any discussions with respect to any Material LCI
Transaction, although LCI may respond to any such discussions initiated by any
third party that is not an affiliate of LCI.
ADDITIONAL AGREEMENTS
ACCESS TO INFORMATION; CONFIDENTIALITY. The Merger Agreement provides that,
upon reasonable notice and subject to any other agreement by which USLD or LCI
is bound, USLD and LCI each will afford to the representatives of the other,
reasonable access, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
USLD and LCI each will furnish promptly to the other all information concerning
its business, properties and personnel as such other party may reasonably
request, and each will make available to the other the appropriate individuals
for discussion of the other's business, properties and personnel as either LCI
or USLD may reasonably request. Each party has agreed to keep such information
confidential.
CONSENTS; APPROVALS. USLD and LCI have agreed to use their reasonable best
efforts to obtain all consents, waivers, approvals, authorizations or orders,
and USLD and LCI will make all filings required, in connection with the
authorization, execution and delivery of the Merger Agreement and the
consummation by them of the transactions contemplated thereby.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the
Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain the provisions with respect to indemnification set forth in the
Certificate of Incorporation and Bylaws of USLD, which will not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of individuals
who at the Effective Time were directors, officers, employees or agents of USLD,
unless such modification is required by law.
After the Effective Time, the Surviving Corporation will, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
Certificate of Incorporation or Bylaws, indemnify and hold harmless each present
and former director, officer or employee of USLD or any of its subsidiaries
against any costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages, liabilities and amounts paid in settlement in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, (i) arising out of or
pertaining to the transactions contemplated by the Merger Agreement or (ii)
otherwise with respect to any acts or omissions occurring at or prior to the
Effective Time, to the same extent as provided in USLD's Certificate of
Incorporation or Bylaws or any applicable contract or agreement as in effect on
the date of the Merger Agreement, in each case for a period of six years after
the Effective Time.
For a period of six years after the Effective Time, LCI will cause the
Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by USLD's directors' and officers' liability insurance policy on terms
comparable to those now applicable to directors and officers of USLD, except
that in no event shall the Surviving Corporation be required to expend in excess
of 300% of the annual premium currently paid by USLD for such coverage, and if
the premium for such coverage exceeds such amount, LCI or the Surviving
Corporation will purchase a policy with the greatest coverage available for 300%
of such annual premium.
NOTIFICATION OF CERTAIN MATTERS. USLD and LCI have agreed to give the other
prompt notice of the occurrence or non-occurrence of any event which would be
likely to cause any representation or warranty of the notifying party contained
in the Merger Agreement to be materially untrue or inaccurate, or any failure of
the notifying party materially to comply with any covenant, condition or
agreement in the Merger Agreement.
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FURTHER ACTION/TAX TREATMENT. Each of the parties to the Merger Agreement
has agreed to use all commercially reasonable efforts to take, or cause to be
taken, all actions and do other things reasonably necessary, proper or advisable
to consummate as promptly as practicable the transactions contemplated by the
Merger Agreement, to obtain in a timely manner all necessary waivers, consents
and approvals and to effect all necessary registrations and filings, and
otherwise to satisfy or cause to be satisfied all conditions precedent to its
obligations under the Merger Agreement, except that LCI is under no obligation
to agree to divest, abandon, license or take similar action with respect to any
assets. In addition, each of the parties has agreed to use its commercially
reasonable efforts to cause the Merger to qualify as a reorganization under the
provisions of Section 368 of the Code, and will not (both before and after
consummation of the Merger) take any actions which to its knowledge could
reasonably be expected to prevent the Merger from so qualifying.
LISTING OF LCI COMMON STOCK. The Merger Agreement provides that LCI will
use its best efforts to cause the LCI Common Stock to be issued in the Merger
and upon exercise of the USLD Stock Options and USLD Warrants to be listed, upon
official notice of issuance, on the NYSE prior to the Effective Time.
ACCOUNTANT'S LETTERS. Upon reasonable notice from the other, USLD will use
its best efforts to cause Arthur Andersen LLP to deliver to LCI, and LCI will
use its best efforts to cause Arthur Andersen LLP to deliver to USLD, a letter
covering such matters as are requested by LCI or USLD, as the case may be, and
as are customarily addressed in accountant's "comfort" letters.
POOLING ACCOUNTING TREATMENT. Each of LCI and USLD has agreed not to take
any action that would reasonably be expected to adversely affect the ability of
LCI to treat the Merger as a pooling of interests, and each of LCI and USLD has
further agreed to use its commercially reasonable efforts to take such action as
may be reasonably required to negate the impact of any past actions which, to
its knowledge, could reasonably be expected to adversely impact the ability of
LCI to treat the Merger as a pooling of interests.
CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER. The respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(i) STOCKHOLDER APPROVAL. The Merger Agreement and the Merger shall have
been approved by the requisite vote of the stockholders of USLD, and the LCI
Share Issuance Proposal shall have been approved by the requisite vote of
the stockholders of LCI, if required;
(ii) LISTING. The LCI Common Stock issuable in the Merger shall have
been authorized for listing on the NYSE, upon official notice of issuance;
(iii) HART-SCOTT-RODINO APPROVAL. All waiting periods applicable to the
consummation of the Merger under the HSR Act shall have expired or
terminated;
(iv) GOVERNMENTAL ACTIONS. There shall not have been instituted, pending
or threatened any proceeding or inquiry by any governmental authority or
administrative agency, nor shall there be in effect any other legal
restraint, in either case, preventing or seeking to prevent LCI from
exercising all material rights and privileges pertaining to its ownership of
the Surviving Corporation or the ownership or operation by LCI or any of its
subsidiaries of the business or assets of LCI or any of its subsidiaries, or
compelling or seeking to compel LCI or any of its subsidiaries to dispose of
or hold separate all or any material portion of the business or assets of
LCI or any of its subsidiaries, as a result of the Merger or the
transactions contemplated by the Merger Agreement;
(v) ILLEGALITY. No statute, rule, regulation or order shall be enacted
or deemed applicable to the Merger which makes the consummation of the
Merger illegal;
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(vi) TAX OPINIONS. USLD and LCI shall have received written opinions of
Arter & Hadden and Kramer, Levin, Naftalis & Frankel, respectively, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the
Code; and
(vii) POOLING. The Merger shall be accounted for as a pooling of
interests.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF LCI AND MERGER SUB. The obligations
of LCI and Merger Sub to effect the Merger are also subject to the following
conditions: (i) the representations and warranties of USLD contained in the
Merger Agreement shall be true and correct in all respects on and as of the
Effective Time, except (1) for changes contemplated by the Merger Agreement, (2)
for those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date), or (3)
where the failure to be true and correct could not reasonably be expected to
have a Material Adverse Effect; (ii) USLD shall have performed or complied in
all material respects with all agreements and covenants required by the Merger
Agreement; (iii) all material consents, waivers, approvals, authorizations or
orders required to be obtained, and all material filings required to be made, by
USLD for the authorization, execution and delivery of the Merger Agreement, the
consummation by it of the transactions contemplated thereby and the continuation
in full force and effect of any and all material rights, documents, agreements
or instruments of USLD shall have been obtained and made by USLD, except where
the failure to receive such consents, etc. would not reasonably be expected to
have a Material Adverse Effect on the Surviving Corporation or LCI; and (iv) LCI
shall have received an opinion of Arthur Andersen LLP in form and substance
reasonably satisfactory to LCI, regarding the qualification of the Merger as to
pooling of interests for accounting purposes; and (v) LCI shall have received
from each person who is identified as an "affiliate" of USLD an agreement to
comply with restrictions on such affiliates pursuant to Rule 145 under the
Securities Act and under pooling of interests accounting treatment.
ADDITIONAL CONDITIONS TO OBLIGATION OF USLD. The obligation of USLD to
effect the Merger is also subject to the following conditions: (i) the
representations and warranties of LCI and Merger Sub contained in the Merger
Agreement shall be true and correct in all respects on and as of the Effective
Time, except (1) for changes contemplated by the Merger Agreement, (2) for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date), or (3) where the
failure to be true and correct could not reasonably be expected to have a
Material Adverse Effect; (ii) LCI and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
the Merger Agreement; and (iii) all material consents, waivers, approvals,
authorizations or orders required to be obtained, and all material filings
required to be made, by LCI and Merger Sub for the authorization, execution and
delivery of the Merger Agreement, the consummation by them of the transactions
contemplated thereby and the continuation in full force and effect of any and
all material rights, documents, agreements or instruments of LCI shall have been
obtained and made by LCI and Merger Sub, except where the failure to receive
such consents, etc. would not reasonably be expected to have a Material Adverse
Effect on the Surviving Corporation or LCI, and except where LCI has requested
USLD to take such reasonable actions, including the transfer of assets and the
execution of management agreements or similar arrangements with affiliates of
USLD, where, as a result of the consummation of such actions, the failure to
receive such consents, etc. would not have a Material Adverse Effect on the
Surviving Corporation or LCI.
TERMINATION
CONDITIONS TO TERMINATION. The Merger Agreement may be terminated at any
time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of USLD or LCI:
(i) by mutual written consent duly authorized by the Boards of Directors
of LCI and USLD; or
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(ii) by either LCI or USLD if the Merger shall not have been consummated
by February 28, 1998 (provided that any party whose failure to fulfill any
obligation under the Merger Agreement shall have prevented consummation of
the Merger by such date, or LCI in the event that a Material LCI Transaction
has been the cause of the failure of the Merger to occur on or before such
date, cannot terminate the Merger Agreement pursuant to this clause); or
(iii) by either LCI or USLD if a nonappealable final order, decree or
ruling or other action has the effect of permanently restraining, enjoining
or otherwise prohibiting the Merger (provided that the right to terminate
the Merger Agreement under this clause will not be available to any party
who has not complied with its obligations under "Additional
Agreements--Further Action/Tax Treatment" above, and such non-compliance
materially contributed to the issuance of any such order, decree or ruling
or the taking of such action); or
(iv) by LCI or USLD, if (1) subject to clause (3) below, (x) the
requisite vote of the stockholders of USLD shall not have been obtained by
February 28, 1998, or (y) if required, the requisite vote of the
stockholders of LCI shall not have been obtained by February 28, 1998, (2)
(x) the stockholders of USLD shall not have approved the Merger and the
Merger Agreement at the USLD Special Meeting, or (y) if required, the
stockholders of LCI shall not have approved the LCI Share Issuance Proposal
at the LCI Special Meeting, or (3) in the event that a Material LCI
Transaction prevents holding the USLD Special Meeting or the LCI Special
Meeting, as the case may be, by February 28, 1998, (x) the requisite vote of
the stockholders of USLD shall not have been obtained by the earlier of (i)
the 45th consecutive day that the Registration Statement is effective and
(ii) December 31, 1998, or (y) if required, the requisite vote of the
stockholders of LCI shall not have been obtained by the earlier of (i) the
45th consecutive day that the Registration Statement is effective and (ii)
December 31, 1998; or
(v) by USLD or LCI, if the Board of Directors of USLD shall withdraw or
change its approval of the Merger Agreement or the Merger in a manner
adverse to LCI or Merger Sub or shall have resolved to do so in compliance
with its fiduciary obligation (after consultation with independent counsel);
or
(vi) by LCI or USLD, (1) if any representation or warranty of USLD or
LCI and Merger Sub, respectively, set forth in the Merger Agreement shall be
untrue when made, except where the failure to be correct will not have a
Material Adverse Effect on the representing party (a "Terminating
Misrepresentation"), or (2) upon a breach of any covenant or agreement on
the part of USLD or LCI, respectively, set forth in the Merger Agreement,
except where the covenant has been breached in only an immaterial respect (a
"Terminating Breach"). However, if such Terminating Misrepresentation or
Terminating Breach is curable prior to the Closing Date by USLD or LCI, as
the case may be, through the exercise of its commercially reasonable efforts
and for so long as USLD or LCI, as the case may be, continues to exercise
such commercially reasonable efforts, neither LCI nor USLD, respectively,
may terminate the Merger Agreement under this clause; or
(vii) by LCI, if any representation or warranty of USLD shall have become
untrue by the Closing Date, except where the failure to be correct will not
have a Material Adverse Effect on USLD (a "USLD Terminating Change"), or by
USLD, if any representation or warranty of LCI or Merger Sub shall have
become untrue by the Closing Date, except where the failure to be correct
will not have a Material Adverse Effect on LCI (an "LCI Terminating Change,"
and together with a USLD Terminating Change, a "Terminating Change"), in
either case other than by reason of a Terminating Breach. However, if such
Terminating Change is curable prior to the Closing Date by USLD or LCI, as
the case may be, through exercise of its commercially reasonable efforts and
for so long as USLD or LCI, as the case may be, continues to exercise such
commercially reasonable efforts, LCI or USLD, respectively, may not
terminate the Merger Agreement under this clause; or
(viii) (1) by USLD, if (x) the Average Stock Price for the twenty
consecutive trading days ending on the third trading day prior to the USLD
Special Meeting is less than $20.40, (y) on or before the
45
second trading day prior to the date of the USLD Special Meeting, USLD
delivers to LCI written notice of its intention, subject to the following
clause (z), to terminate the Merger Agreement, and (z) LCI has not agreed by
notice to USLD in writing on or before one trading day prior to the date of
the USLD Special Meeting to an Exchange Ratio at least equal to $18.90
divided by the Average Stock Price; and in the event LCI delivers its notice
specified in the foregoing clause (z), USLD shall not have the right to
terminate the Merger Agreement pursuant to this provision; or (2) by LCI, if
the Average Stock Price is less than $20.40.
TERMINATION FEE
The Merger Agreement provides that USLD will pay LCI a fee of $11 million
upon the occurrence of any of the following events:
(i) the termination of the Merger Agreement as a result of the failure
to receive the requisite vote for approval of the Merger and the Merger
Agreement by the stockholders of USLD by February 28, 1998 or, in the event
a Material LCI Transaction prevents holding the USLD Special Meeting by
February 28, 1998, by the 45th consecutive day that the Registration
Statement is effective; PROVIDED THAT in either such case, such failure to
obtain the requisite vote is the result of a Terminating Misrepresentation
by USLD or a Terminating Breach by USLD; or
(ii) the termination of the Merger Agreement as a result of the failure
to receive the requisite vote for approval of the Merger and the Merger
Agreement by the stockholders of USLD at the USLD Special Meeting, PROVIDED
THAT the average of the closing prices (or the average of the closing bid
and asked prices for any day on which the LCI Common Stock does not trade)
of the LCI Common Stock on the NYSE for the three trading days immediately
prior to the USLD Special Meeting is not below $20.40; or
(iii) the termination of the Merger Agreement pursuant to clause (v)
under "Conditions to Termination" above; or
(iv) the termination of the Merger Agreement for any reason other than a
Terminating Breach by LCI, a Terminating Misrepresentation by LCI, a
Terminating Change or pursuant to clauses (i), (iii), (iv)(1)(y), (2)(y) or
(3)(y)(i) of clause (viii) under "Conditions to Termination" above, and USLD
enters into an agreement with a third party within six months of the date of
the termination of the Merger Agreement relating to the possible acquisition
of USLD or any of its subsidiaries or any material portion of its or their
capital stock or assets.
LCI shall pay USLD a fee of $11 million upon the occurrence of any of the
following events:
(i) the termination of the Merger Agreement as a result of the failure
to receive, if required, the requisite vote for approval of the LCI Share
Issuance Proposal by the stockholders of LCI by February 28, 1998 or, in the
event a Material LCI Transaction prevents holding the LCI Special Meeting by
February 28, 1998, the 45th consecutive day that the Registration Statement
is effective, PROVIDED THAT in either such case, such failure to obtain the
requisite vote is the result of a Terminating Misrepresentation by LCI or a
Terminating Breach by LCI; or
(ii) the termination of the Merger Agreement as a result of the failure
to receive, if required, the approval of the LCI Share Issuance Proposal by
the stockholders of LCI at the LCI Special Meeting.
Upon termination of the Merger Agreement by either LCI or USLD, the
respective parties may seek any and all remedies available under applicable law.
The fee payable under the foregoing clauses shall be paid within one
business day after a demand for payment following the occurrence of the event
requiring such payment; PROVIDED, HOWEVER, that in no event will a party be
required to pay such fee to the other if, immediately prior to the termination
of the Merger
46
Agreement, the party to receive the fee was in material breach of its
obligations under the Merger Agreement.
OTHER FEES AND EXPENSES
Except as set forth above, all fees and expenses incurred in connection with
the Merger Agreement and the Merger will be paid by the party incurring such
expenses, whether or not the Merger is consummated. LCI and USLD have agreed to
share equally all filing fees and printing expenses incurred in connection with
the printing and filing of this Joint Proxy Statement/Prospectus and the
Registration Statement.
AMENDMENT AND WAIVER
The Merger Agreement may be amended in writing by the parties by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Effective Time. After approval of the Merger by the stockholders of USLD,
no amendment may be made which by law requires further approval by such
stockholders without such further approval.
At any time prior to the Effective Time, any party to the Merger Agreement
may, with respect to any other party, extend the time for the performance of any
of the obligations or other acts, waive any inaccuracies in the representations
and warranties contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement, or waive compliance with any of the agreements
or conditions contained in the Merger Agreement. Any such extension or waiver
will be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
CLOSING AND CLOSING DATE
The closing under the Merger Agreement (the "Closing") will take place on or
as promptly as practicable (an in any event within two business days) after
satisfaction or waiver of the conditons to the Merger. See "--Conditions to the
Merger." The day on which the closing takes place is called the "Closing Date."
47
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
LCI
LCI Common Stock is listed and traded on the NYSE. The following table sets
forth the high and low sales prices per share of LCI Common Stock as reported in
the NYSE Composite Transaction Tape for the quarterly periods presented below
which have been adjusted for the September 1995 two-for-one stock split effected
in the form of a stock dividend. LCI has not paid cash dividends on shares of
LCI Common Stock.
HIGH LOW
-------- ---------
1995:
First quarter............................................................................... $ 13 1/4 $ 10
Second quarter.............................................................................. 16 5/8 12
Third quarter............................................................................... 20 11/16 15
Fourth quarter.............................................................................. 20 1/2 16
1996:
First quarter............................................................................... 26 1/8 21
Second quarter.............................................................................. 32 1/2 23
Third quarter............................................................................... 36 3/4 27
Fourth quarter.............................................................................. 35 1/8 19
1997:
First quarter............................................................................... 23 5/8 16
Second quarter.............................................................................. 24 1/2 15
Third quarter............................................................................... 27 1/16 19
Fourth quarter (through November , 1997)...............................................
1995:
First quarter............................................................................... 3/16
Second quarter.............................................................................. 3/16
Third quarter............................................................................... 7/16
Fourth quarter.............................................................................. 3/8
1996:
First quarter............................................................................... 1/8
Second quarter..............................................................................
Third quarter...............................................................................
Fourth quarter.............................................................................. 1/8
1997:
First quarter............................................................................... 1/2
Second quarter.............................................................................. 3/8
Third quarter............................................................................... 9/16
Fourth quarter (through November , 1997)...............................................
On September 17, 1997, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing price per share of LCI Common
Stock, as reported in the NYSE Composite Transaction Tape, was $24 1/16. On
November __, 1997, the most recent date for which prices were available prior to
printing this Joint Proxy Statement/Prospectus, the closing price per share of
LCI Common Stock as reported in the NYSE Composite Transaction Tape was
$_________. Stockholders are urged to obtain current market quotations.
48
USLD
USLD Common Stock is listed and traded on the Nasdaq Stock Market's National
Market (the "Nasdaq National Market"). The following table sets forth the high
and low sales prices per share of USLD Common Stock on the Nasdaq National
Market for the quarterly periods presented below. USLD has not paid cash
dividends on shares of USLD Common Stock. All price quotations represent prices
between dealers, without retail mark-ups, mark-downs or commissions and may not
represent actual transactions.
HIGH LOW
------- ---------
Fiscal 1995:
First quarter................................................................................. 12 3/4 9
Second quarter................................................................................ 16 11
Third quarter................................................................................. 17 7/8 14
Fourth quarter................................................................................ 17 3/4 14
Fiscal 1996:
First quarter................................................................................. 15 1/8 10
Second quarter................................................................................ 20 1/2 13
Third quarter................................................................................. 41 1/8 19
Fourth quarter (July 1 through August 1)(1)................................................... 39 3/8 25
Fourth quarter (August 2 through September 30)(1)............................................. 10 4
Fiscal 1997:
First quarter................................................................................. 10 1/8 7
Second quarter................................................................................ 12 7/8 7
Third quarter................................................................................. 17 1/4 10
Fourth quarter................................................................................ 20 1/8 13
Fiscal 1998:
First quarter (through November , 1997).......................................................
Fiscal 1995:
First quarter................................................................................. 1/4
Second quarter................................................................................ 1/2
Third quarter................................................................................. 1/2
Fourth quarter................................................................................ 1/2
Fiscal 1996:
First quarter................................................................................. 7/8
Second quarter................................................................................
Third quarter................................................................................. 5/8
Fourth quarter (July 1 through August 1)(1)................................................... 1/2
Fourth quarter (August 2 through September 30)(1)............................................. 3/8
Fiscal 1997:
First quarter................................................................................. 1/2
Second quarter................................................................................ 7/8
Third quarter................................................................................. 1/4
Fourth quarter................................................................................
Fiscal 1998:
First quarter (through November , 1997).......................................................
- ------------------------------
(1) USLD completed the Billing Distribution on August 2, 1996. See "Business of
USLD--Spin-Off of Billing Information Concepts Corp." The average stock
price for the first 10 business days after the distribution date was $6.77
for USLD and $19.36 for Billing.
On September 17, 1997, the last trading day prior to announcement of the
execution of the Merger Agreement, the closing price per share of USLD Common
Stock as reported in the Nasdaq National Market was $18 1/8. On November __,
1997, the most recent date for which prices were available prior to printing
this Joint Proxy Statement/Prospectus, the closing price per share of USLD
Common Stock as reported in the Nasdaq National Market was $ _________.
Stockholders are urged to obtain current market quotations.
Under the terms of the Merger Agreement, USLD is not permitted to declare,
set aside, make or pay any dividend or distribution in respect of its capital
stock from the date of the Merger Agreement until the earlier of the termination
of the Merger Agreement and the Effective Time.
INTERESTED PARTIES ARE URGED TO CALL 1-800-XXX-XXXX AT ANY TIME AFTER
DECEMBER __, 1997 FOR CURRENT INFORMATION REGARDING THE AVERAGE STOCK PRICE AND
THE EXCHANGE RATIO.
49
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the Merger using the pooling of interests method of accounting,
after giving effect to the pro forma adjustments and assumptions described in
the accompanying notes. These unaudited pro forma combined condensed financial
statements have been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto and the
managements' discussions and analyses thereof of LCI and USLD which are
incorporated by reference in this Joint Proxy Statement/ Prospectus. USLD's
current fiscal year end is September 30; however, for pro forma purposes USLD's
financial statements have been conformed to LCI's fiscal year end of December
31.
The unaudited pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had occurred on the dates
indicated below, nor is it necessarily indicative of the future operating
results or financial position of the merged companies. The unaudited pro forma
information does not include the impact of cost synergies between the two
companies expected after the Merger. LCI estimates the combined results will be
accretive to earnings within 12 months after the consummation of the Merger. As
a result of the Merger, LCI expects to exchange approximately 15.8 million
shares of LCI Common Stock for the approximately 19.5 million shares of USLD
Common Stock, assuming all USLD Stock Options and USLD Warrants are exercised
and assuming an Exchange Ratio equal to .8096 based on the September 30 Average
Stock Price.
The unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
Merger as if it had occurred on June 30, 1997, combining the balance sheets of
LCI and USLD at June 30, 1997. The unaudited Pro Forma Combined Condensed
Statements of Income give effect to the Merger as if it had occurred at the
beginning of the earliest period presented, combining the results of LCI and
USLD for each year in the three-year period ended December 31, 1996, and for the
six-month period ended June 30, 1997.
50
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN MILLIONS)
MERGER
LCI USLD ADJUSTMENTS AFTER MERGER
--------- --------- ------------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 30.2 $ 8.2 $ 38.4
Trade accounts receivable, net.............................. 142.8 47.6 190.4
Current deferred tax assets, net............................ 37.2 -- 37.2
Prepaids and other.......................................... 20.3 6.8 27.1
--------- --------- ------------
Total current assets...................................... 230.5 62.6 293.1
--------- --------- ------------
Property and equipment
Fiber optic network......................................... 408.9 62.1 (9.8) 2(b 461.2
Technology platform, equipment and building leases.......... 185.5 1.6 (1.6) 2(b 185.5
Less-accumulated depreciation and amortization.............. (172.7) (35.3) (208.0)
--------- --------- ------------
421.7 28.4 438.7
Property and equipment under construction................... 83.3 5.1 (5.1) 2(b 83.3
--------- --------- ------------
Total property and equipment, net......................... 505.0 33.5 522.0
--------- --------- ------------
Other assets
Excess of cost over net assets acquired, net................ 346.6 13.4 360.0
Other, net.................................................. 52.4 7.1 (3.5) 2(b 56.0
--------- --------- ------------
Total other assets........................................ 399.0 20.5 416.0
--------- --------- ------------
Total assets.............................................. $ 1,134.5 $ 116.6 $ 1,231.1
--------- --------- ------------
--------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 20.0 $ 8.9 $ 28.9
Facility costs accrued and payable.......................... 115.5 14.8 130.3
Accrued expenses and other.................................. 57.5 8.0 11.7 2(b 77.2
--------- --------- ------------
Total current liabilities................................. 193.0 31.7 236.4
--------- --------- ------------
Long-term debt and capital lease obligations.................. 378.9 11.2 390.1
--------- --------- ------------
Other liabilities and deferred credits........................ 79.4 5.3 84.7
--------- --------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock............................................. -- -- --
Common stock................................................ 0.8 0.2 -- 2(a 1.0
Treasury stock.............................................. -- (2.0) 2.0 2(a --
Paid-in capital............................................. 437.7 61.5 (1.3) 2 )(b 497.9
Retained earnings........................................... 44.7 8.7 (32.4) 2(b 21.0
--------- --------- ------ ------------
Total stockholders' equity................................ 483.2 68.4 519.9
--------- --------- ------------
Total liabilities and stockholders' equity................ $ 1,134.5 $ 116.6 $ 1,231.1
--------- --------- ------------
--------- --------- ------------
See accompanying notes to unaudited pro forma combined condensed financial
statements.
51
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
MERGER
LCI USLD ADJUSTMENTS AFTER MERGER
--------- --------- --------------- -------------
Revenues....................................................... $ 653.0 $ 113.2 $ 766.2
Cost of services............................................... 383.0 75.5 458.5
--------- --------- ------
Gross margin................................................... 270.0 37.7 307.7
Selling, general and administrative expenses................... 147.8 26.3 174.1
Non-recurring special charge................................... -- 1.2 1.2
Depreciation and amortization.................................. 38.7 5.5 44.2
--------- --------- ------
Operating income............................................... 83.5 4.7 88.2
Other expense (income), net.................................... 0.6 (0.1) 0.5
Interest expense, net.......................................... 13.1 0.6 13.7
Income tax expense............................................. 27.9 1.7 29.6
--------- --------- ------
Income from continuing operations.............................. $ 41.9 $ 2.5 $ 44.4
--------- --------- ------
--------- --------- ------
Income from continuing operations per common share:
Primary...................................................... $ 0.49 $ 0.15 $ 0.45
Fully diluted................................................ $ 0.49 $ 0.15 $ 0.45
Shares used in computing income from continuing operations per
common share:
Primary...................................................... 85.6 16.6 (3.2)(1) 99.0
Fully diluted................................................ 85.6 16.7 (3.2)(1) 99.1
See accompanying notes to unaudited pro forma combined condensed financial
statements.
52
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
MERGER
LCI USLD ADJUSTMENTS AFTER MERGER
--------- --------- --------------- ------------
Revenues..................................................... $ 1,103.0 $ 189.4 $ 1,292.4
Cost of services............................................. 642.3 124.1 766.4
--------- --------- ------------
Gross margin................................................. 460.7 65.3 526.0
Selling, general and administrative expenses................. 253.7 51.3 305.0
Direct spin-off costs........................................ -- 13.0 13.0
Restructuring charges........................................ -- 2.8 2.8
Depreciation and amortization................................ 63.5 11.7 75.2
--------- --------- ------------
Operating income (loss)...................................... 143.5 (13.5) 130.0
Other (income) expenses, net................................. (0.3) 0.2 (0.1)
Interest expense, net........................................ 28.8 0.4 29.2
Income tax expense (benefit)................................. 40.2 (2.4) 37.8
--------- --------- ------------
Income (loss) from continuing operations..................... $ 74.8 $ (11.7) $ 63.1
--------- --------- ------------
--------- --------- ------------
Income (loss) from continuing operations per common share:
Primary.................................................. $ 0.86 $ (0.75) $ 0.63
Fully diluted............................................ $ 0.86 $ (0.74) $ 0.63
Shares used in computing income (loss) from continuing
operations per common share:
Primary.................................................. 87.3 15.7 (3.0)(1) 100.0
Fully diluted............................................ 87.3 15.8 (3.0)(1) 100.1
See accompanying notes to unaudited pro forma combined condensed financial
statements.
53
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
MERGER
LCI USLD ADJUSTMENTS AFTER MERGER
--------- --------- ------------- -------------
Revenues.......................................................... $ 672.9 $ 150.8 $ 823.7
Cost of services.................................................. 396.2 99.1 495.3
--------- --------- ------
Gross margin...................................................... 276.7 51.7 328.4
Selling, general and administrative expenses...................... 150.1 43.1 193.2
Depreciation and amortization..................................... 44.0 10.4 54.4
--------- --------- ------
Operating income (loss)........................................... 82.6 (1.8) 80.8
Other (income) expense, net....................................... (0.9) 0.1 (0.8)
Interest expense, net............................................. 16.3 0.8 17.1
Income tax expense (benefit)...................................... 16.4 (0.4) 16.0
--------- --------- ------
Income (loss) from continuing operations.......................... $ 50.8 (2.3) $ 48.5
--------- --------- ------
--------- --------- ------
Income (loss) from continuing operations per common share:
Primary....................................................... $ 0.63 $ (0.16) $ 0.52
Fully diluted................................................. $ 0.62 $ (0.15) $ 0.52
Shares used in computing income (loss) from continuing operations
per common share:
Primary....................................................... 81.0 14.7 (2.8)(1) 92.9
Fully diluted................................................. 82.1 14.8 (2.8)(1) 94.1
See accompanying notes to unaudited pro forma combined condensed financial
statements.
54
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS, EXCEPT FOR PER SHARE DATA)
MERGER
LCI USLD ADJUSTMENTS AFTER MERGER
--------- --------- ------------- -------------
Revenues.......................................................... $ 464.0 $ 125.5 $ 589.5
Cost of services.................................................. 274.3 77.6 351.9
--------- --------- ------
Gross margin...................................................... 189.7 47.9 237.6
Selling, general and administrative expenses...................... 102.7 39.6 142.3
Depreciation and amortization..................................... 36.1 8.8 44.9
--------- --------- ------
Operating income (loss)........................................... 50.9 (0.5) 50.4
Other expense (income), net....................................... 59.8 (0.2) 59.6
Interest expense, net............................................. 8.8 1.1 9.9
Income tax (benefit) expense...................................... (24.5) -- (24.5)
--------- --------- ------
Income (loss) from continuing operations.......................... $ 6.8 $ (1.4) $ 5.4
--------- --------- ------
--------- --------- ------
Income (loss) from continuing operations
per common share:
Primary....................................................... $ 0.02 $ (0.10) $ (0.01)
Fully diluted................................................. $ 0.02 $ (0.10) $ (0.01)
Shares used in computing income (loss) from continuing operations
per common share:
Primary....................................................... 65.5 14.1 (2.7)(1) 76.9
Fully diluted................................................. 66.7 14.2 (2.7)(1) 78.2
See accompanying notes to unaudited pro forma combined condensed financial
statements.
55
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1--EXCHANGE RATIO
Pursuant to the terms of the Merger Agreement, each outstanding share of
USLD Common Stock will be converted into a fraction of a share of LCI Common
Stock pursuant to an Exchange Ratio based upon the Average Stock Price. The
exchange ratio used to compute the weighted average shares outstanding and per
share amounts in the accompanying unaudited pro forma combined condensed
financial statements assumes the Average Stock Price equals the September 30
Average Stock Price.
NOTE 2--PRO FORMA ADJUSTMENTS
(a) A pro forma adjustment has been made to reflect the issuance of shares
assuming the exchange ratio stated in Note 1 above, in accordance with the
Merger Agreement, and the cancellation of USLD treasury stock.
(b) As a result of the Merger, the merged companies will incur certain
transition costs, currently estimated between $40 million to $60 million
(pretax), in connection with consummating the Merger and integrating the
operations of LCI and USLD. These transition costs consist principally of
professional services, investment banking and registration fees, as well as
costs associated with the elimination and consolidation of duplicate facilities
and employee severance and relocation costs resulting from the Merger.
Transition costs of $32.4 million net of estimated tax benefit ($50 million
is the mid-point of the estimated pretax range) have been reflected as an
increase to Accrued expenses and other current liabilities, a reduction of
assets related to duplicate facilities, and a reduction in retained earnings in
the unaudited Pro Forma Combined Condensed Balance Sheet as of June 30, 1997.
NOTE 3--INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE
Income (loss) from continuing operations per common share is computed after
considering dividends on LCI's Preferred Stock which was issued in August 1993
and converted to common stock in 1996. For 1996 and 1995, the weighted average
number of common shares includes the assumed conversion of Preferred Stock into
approximately 12.1 million shares of LCI Common Stock. In 1994 the assumed
conversion of the Preferred Stock was anti-dilutive to the earnings per common
share calculation. The preferred dividends in 1994 were $5.8 million.
NOTE 4--MATERIAL TRANSACTIONS
On a combined basis, there were no material transactions between LCI and
USLD during any period presented.
56
BUSINESS OF LCI
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN LCI'S PERIODIC REPORTS FILED UNDER THE EXCHANGE ACT
INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS THEREIN UNDER THE
CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." SEE "WHERE TO FIND MORE INFORMATION."
LCI is a facilities-based long-distance telecommunications carrier that
provides domestic and international telecommunications service offerings in all
market segments: commercial, residential and wholesale. LCI serves its customers
primarily through owned and leased digital fiber optic facilities, including
switches strategically located throughout the U.S.
LCI 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. LCI'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. LCI 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 LCI provides long-distance services to a wide range of market segments,
LCI does not seek to compete with every service offered by LCI's competitors.
LCI 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. 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," audio-conferencing and specialized high-volume data
transmission services. LCI'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.
LCI is also involved in state regulatory proceedings in various states to
secure approval to resell local service, which would enable LCI 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. LCI believes
that it has significant opportunities in this industry. As of October 6, 1997,
LCI had received approval to resell local services in 33 states and the District
of Columbia and had applications for local service authority pending in 14 other
states. LCI expects to pursue applications for and obtain approval to resell
local services in additional states.
LCI provides service to its customers through digital fiber optic facilities
which are owned and leased. Collectively, these facilities constitute LCI's
"network." LCI 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 LCI 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, LCI uses services
provided by each RBOC, GTE Telephone Operating Companies and other smaller local
exchange carriers. LCI currently has one significant contract with a particular
third party carrier. Subject to the ability of such carrier to meet LCI's
operational requirements, LCI is obligated to use this carrier for a significant
percentage of the services that LCI provides through its leased facilities. The
amounts payable under that contract, however, represent less than 10% of LCI's
revenue on an annual basis. LCI 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
57
that LCI has experienced have been corrected in a relatively short time period,
a catastrophic service failure could interrupt the provision of service by both
LCI and its competitors for a lengthy time period. The restoration period for a
catastrophic service failure cannot be reasonably determined. LCI has not,
however, experienced a catastrophic service failure in its history.
LCI, a Delaware corporation, was incorporated in 1988 and is a holding
company. LCI's operations are conducted through its wholly owned subsidiaries.
BUSINESS OF USLD
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
DISCUSSIONS SET FORTH IN USLD'S PERIODIC REPORTS FILED UNDER THE EXCHANGE ACT
INCORPORATED HEREIN BY REFERENCE, INCLUDING THE DISCUSSIONS THEREIN UNDER THE
CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." SEE "WHERE TO FIND MORE INFORMATION."
USLD is a communications company offering an integrated group of
communications services, including direct dial long-distance and local services,
prepaid calling cards, travel cards, Internet access, data transmission and
calling center services. From fiscal 1991 through fiscal 1996, USLD's revenues
increased at a compounded annual rate of 60%, totaling $180.3 million for the
fiscal year ended September 30,1996. Revenues were $162.0 million for the first
nine months of fiscal 1997.
USLD, a Delaware corporation, was domesticated in 1987 and is a holding
company. USLD's operations are conducted through its wholly owned subsidiaries.
DIRECT DIAL LONG-DISTANCE SERVICES
USLD currently provides direct dial long-distance services to small and
medium-sized commercial customers and, to a lesser extent, residential customer
accounts. USLD was authorized to provide direct dial long-distance services to
customers in 48 states at June 30, 1997. However, USLD focuses its direct sales
efforts in the West Coast, Pacific Northwest, Southwest and Southeast regions of
the United States to take advantage of network efficiencies. In addition to its
basic "one-plus" service, USLD provides inbound 800/888 service, travel and
prepaid calling card services, private line services, data transmission
services, wholesale carrier services and other customer-specific products.
USLD began offering direct dial long-distance services following its entry
into the direct dial long-distance business in August 1991 through the
acquisition of three related direct dial long-distance companies in Texas. At
June 30, 1997, USLD serviced approximately 75,400 commercial and residential
customer accounts. USLD carried an average of 139.8 million minutes per month of
long-distance traffic during the fiscal quarter ended June 30, 1997, as compared
to 106.3 million, 62.7 million and 45.7 million during the fiscal quarters ended
September 30, 1996, 1995 and 1994, respectively. In the nine-month-period ended
June 30, 1997 and in fiscal year 1996, 1995 and 1994, USLD had $120.4 million,
$119.4 million, $84.5 million and $62.8 million, respectively, in direct dial
long-distance revenues, comprising 74%, 66%, 59% and 53% of total operating
revenues in each period, respectively.
USLD's direct dial long-distance personnel are located throughout USLD's
service area and are responsible for marketing to commercial accounts. In
addition to its own sales force, USLD markets its direct dial long-distance
services through authorized agents, other carriers and affinity organizations
(strategic partnerships). USLD currently has an exclusive marketing agreement
with Nolan Ryan, formerly a player with the Texas Rangers-Registered Trademark-
professional baseball team and a potential hall of fame candidate, who acts as
USLD's spokesman for its products and services and whose picture appears in
USLD's advertisements and product literature, including prepaid calling cards.
USLD employs digital switching equipment at USLD's switching centers in
Houston, Texas; Waco, Texas; Seattle, Washington; Los Angeles, California and
Atlanta, Georgia, USLD's newest facility. USLD believes that its use of a
digital fiber-optic network is particularly advantageous in marketing both its
voice
58
and data transmission services. USLD also designs redundant and diverse routes
to each major service area to ensure service availability.
OPERATOR SERVICES
USLD provides operator assisted services for private pay telephones, hotels,
motels, university dormitories and hospitals. USLD's operator services are
accessed when calls requiring operator assistance and/or alternate billing
options are placed from customer locations. Such services involve the use of
live and automated operators to receive, validate and complete the calls. USLD
processes collect, third-party, person-to-person and calling card calls and,
generally, shares a percentage of call revenues with its customers.
USLD owns and operates its own operator center in San Antonio, Texas, which
employed 227 operators and support staff at June 30, 1997. USLD provides live
and automated operator services 24 hours per day, 365 days per year, and
features multi-lingual operators versed in Spanish, French, German, Japanese and
a variety of other languages. USLD maintains a sophisticated emergency call
handling system that enables its operator to access police, fire and other
emergency agencies within the jurisdiction of the telephone from which the call
is placed. USLD utilizes its own transmission facilities when possible or
contracts to use facilities of other long-distance network providers as
necessary.
At June 30, 1997, USLD provided operator services to approximately 140,600
hotel, motel, hospital and dormitory rooms. In addition, at June 30, 1997, USLD
had service contracts with private pay telephone owners covering approximately
64,700 pay telephones. USLD carried an average of 6.2 million monthly minutes of
operator services traffic during the third quarter of fiscal 1997, as compared
to 7.6 million, 8.3 million and 9.1 million average monthly minutes during the
fourth quarters of fiscal 1996, 1995 and 1994, respectively. USLD's operator
services revenues amounted to $40.9 million in the first nine months of fiscal
1997 compared to $60.9 million, $59.6 million and $54.7 million in fiscal 1996,
1995 and 1994, respectively.
Management of USLD believes that there are approximately 125 operator
services providers competing within the long-distance communications industry.
AT&T continues to dominate the operator services market, supplying operator
services for traffic originating from both the hospitality and pay telephone
industries. Additionally, MCI and Sprint provide operator services and are
considered by management of USLD to be major competitors.
USLD markets its operator services nationally through the combined effort of
regional sales representatives based in Illinois, Texas, Florida and California
and a network of agents. USLD's corporate sales force focuses on larger
accounts, such as hotel management companies, multi-unit franchises, hospital
chains, large private pay telephone companies and universities. USLD's agents
market USLD's operator services on a nationwide basis. USLD customizes its
communications services to provide, among other things, individualized reports
and specialized call branding to customers.
LOCAL SERVICES
The Telecommunications Reform Act of 1996 provides for certain significant
changes to the regulatory market structure of the domestic telecommunications
industry. For example, competitive telecommunications providers such as USLD now
are permitted to offer local telephone services in competition with the
incumbent local exchange companies throughout most areas in each state. USLD,
therefore, can offer local services either by reselling services over the
network of the incumbent local exchange carrier or over its own network and
facilities, or any combination of the two.
USLD has entered into resale agreements with three RBOCs covering 15 states
and interconnection agreements with two RBOCs covering six states which allow
USLD to resell and offer facilities-based services, respectively. USLD expects
to expand its revenue per customer in certain geographic markets and
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expects to obtain new customers who cannot otherwise combine the provision of
their local and long-distance service under one carrier. Revenues from inception
of local services in February 1997 through June 30, 1997 were $707,000. As of
September 30, 1997, USLD provided local services on a resale basis to over
15,000 lines. The vast majority of these lines are pay telephone lines located
in Southwestern Bell exchanges within the State of Texas. In July 1997, USLD
installed a local switch in San Antonio, Texas. This switch has been initially
installed to handle 6,000 separate subscriber lines; however the switch can be
expanded to handle 200,000 subscriber lines.
SPIN-OFF OF BILLING INFORMATION CONCEPTS CORP.
On July 10, 1996, USLD's Board of Directors approved a plan to distribute
(the "Billing Distribution") all of the common stock ("Billing Common Stock") of
its wholly owned subsidiary, Billing Information Concepts Corp. ("Billing"), to
its stockholders of record on July 29, 1996. As a result of the Billing
Distribution, Billing now owns and operates, as a public company distinct from
USLD, substantially all of the billing clearinghouse and information management
services business previously operated by USLD. Certain directors and executive
officers of USLD resigned in connection with the Billing Distribution to accept
positions with Billing. Remaining directors and executive officers of USLD,
together with previous employees of USLD, received certain stock options to
acquire shares of Billing Common Stock in connection with the Billing
Distribution. The consummation of the Merger will cause the unvested portion of
those options to vest and become exercisable. See "The Merger--Interests of
Certain Persons in the Merger." The Billing Distribution was tax-free for
federal income tax purposes to the stockholders of USLD, and USLD did not
recognize income, gain or loss as a result of the Billing Distribution, except
for direct spin-off costs. The Billing Distribution was completed on August 2,
1996.
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DESCRIPTION OF CAPITAL STOCK OF LCI
Under LCI's Certificate of Incorporation, the total number of shares of all
classes of capital stock that LCI has authority to issue is 315,000,000 shares,
consisting of 300,000,000 shares of LCI Common Stock and 15,000,000 shares of
Preferred Stock (the "Preferred Stock") (of which 10,400,000 shares of Preferred
Stock may be issued). At September 30, 1997, LCI had outstanding 78,631,603
shares of LCI Common Stock and no shares of Preferred Stock. LCI's Common Stock
is listed on the New York Stock Exchange under the symbol "LCI." LCI's 5%
Cumulative Convertible Exchangeable Preferred Stock was retired through
conversions and redemptions during 1996.
COMMON STOCK
The following summary description of the LCI Common Stock sets forth certain
general terms and provisions of the LCI Common Stock to which this Joint Proxy
Statement/Prospectus relates. The statements below describing the LCI Common
Stock do not purport to be complete and are in all respects subject to and
qualified in their entirety by reference to LCI's Certificate of Incorporation
and Bylaws.
All shares of LCI Common Stock currently outstanding are fully paid and
nonassessable. The LCI Common Stock to be issued in the Merger will, when
issued, be fully paid and nonassessable. The holders of LCI 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 certificates of designation or other form of amendment to LCI's
Certificate of Incorporation with respect to the Preferred Stock, 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 LCI 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 LCI available for distribution to such holders. Holders of LCI Common
Stock are not entitled to any preemptive rights, and the LCI Common Stock is not
convertible into any other shares of capital stock of LCI.
The Transfer Agent for the LCI Common Stock is Fifth Third Bank, Cincinnati,
Ohio.
PREFERRED STOCK
Under the LCI Certificate of Incorporation, the LCI Board of Directors, in
its sole discretion, may designate and issue one or more series of Preferred
Stock from the authorized and unissued Preferred Stock. Subject to limitations
imposed by the DGCL, LCI's Certificate of Incorporation or LCI's Bylaws, the
Board of Directors may determine (i) the title and stated value of such
Preferred Stock; (ii) the liquidation preference per share 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 LCI Common Stock or other
LCI securities, including the conversion or exchange price (or manner of
calculation thereof); (vi) the provision for redemption 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; and (ix) any other specific
terms, preferences, rights, limitations or restrictions of such Preferred Stock.
Of the 10,400,000 shares of Preferred Stock available for issuance, 500,000
shares of Preferred Stock have been reserved for issuance and designated Junior
Participating Preferred Stock in connection with LCI's Stockholder Rights Plan.
See "--Stockholder Rights Plan."
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WARRANTS
Under the terms of a note purchase agreement dated as of March 31, 1993, LCI
issued Warrants (the "1993 LCI Warrants") to purchase an aggregate of 5,408,900
shares of LCI Common Stock, of which 1993 LCI Warrants to purchase 5,158,556
shares of LCI Common Stock were outstanding as of September 30, 1997. The 1993
LCI 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 LCI Common Stock purchasable upon
exercise of the 1993 LCI Warrants.
STOCKHOLDER RIGHTS PLAN
In connection with the adoption of a Stockholder Rights Plan in January
1997, LCI's Board of Directors declared a dividend distribution of one right (a
"Right") for each share of LCI Common Stock, payable to stockholders of record
on January 22, 1997, and attached to shares of LCI 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 LCI 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 LCI
Common Stock having a market value equal to twice such exercise price. The
Rights automatically trade with the LCI 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 LCI 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 LCI Common Stock. Upon the occurrence of either of these
events the Rights will trade separately from the LCI 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 LCI Common
Stock. Rights owned by such person or group, however, will not become
exercisable. In addition, if after the Rights become exercisable LCI is acquired
by merger or consolidation pursuant to which LCI is not the surviving
corporation or in connection with which outstanding shares of LCI Common Stock
are exchanged for securities of another entity, or LCI 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 LCI Common Stock of the acquiring company having a
market value equal to twice the exercise price. LCI 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 LCI 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 LCI 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, LCI reserved for issuance
500,000 shares of Junior Participating Preferred Stock. The Junior Participating
Preferred Stock will be issued only 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 LCI 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 LCI Common Stock as
one class. Each share of Junior Participating Preferred Stock also would 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 LCI 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
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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, LCI'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 LCI, 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 LCI, 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 LCI 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.
The Rights and the Stockholder Rights Plan are unaffected by the Merger.
STOCK EXCHANGE LISTING
The LCI Common Stock is listed on the NYSE. It is a condition to the Merger
that the LCI Common Stock issuable in the Merger be approved for listing on the
NYSE at or prior to the Effective Time, subject to official notice of issuance.
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COMPARISON OF STOCKHOLDER RIGHTS
Both LCI and USLD are incorporated under the laws of the State of Delaware
and, accordingly, the rights of the stockholders of LCI and USLD are governed by
the DGCL. The rights of the stockholders of LCI and USLD are also governed by
their respective Certificates of Incorporation and Bylaws. In accordance with
the Merger Agreement, at the Effective Time, USLD stockholders will become LCI
stockholders and, as such, their rights will be governed by LCI's Amended and
Restated Certificate of Incorporation (the "LCI Certificate of Incorporation")
and Amended and Restated Bylaws (the "LCI Bylaws"). Although it is not practical
to compare all the differences between USLD's Restated Certificate of
Incorporation, as amended (the "USLD Certificate of Incorporation"), and Bylaws,
as amended (the "USLD Bylaws"), with the LCI Certificate of Incorporation and
LCI Bylaws, the following is a summary of certain material differences which may
affect the rights of USLD stockholders. This summary is qualified in its
entirety by reference to the full text of such documents, copies of which are
incorporated by reference in this Joint Proxy Statement/Prospectus.
AUTHORIZED CAPITAL
The total number of authorized shares of capital stock of USLD is
60,000,000, consisting of 50,000,000 shares of USLD Common Stock and 10,000,000
shares of preferred stock, par value $.01 per share (the "USLD Preferred
Stock"). The authorized capital of LCI is as set forth under "Description of
Capital Stock of LCI." As of the LCI Record Date, and shares of USLD
Common Stock and LCI Common Stock, respectively, were issued and outstanding.
BOARD OF DIRECTORS
The USLD Bylaws provide that the number of directors shall be not less than
three nor more than 15, the exact number of directors within such limits to be
determined by the USLD Board or the stockholders of USLD at an annual meeting.
Currently, the USLD Board consists of five members. The LCI Certificate of
Incorporation provides that the number of directors shall be not less than
three, with the exact number of directors to be determined by the LCI Board.
Currently, the LCI Board consists of 8 members. Each of LCI and USLD has
provided for the classification of the Board of Directors such that the whole
Board is divided into three classes with each class of directors being elected
to serve for three years. With respect to LCI, the term of Class I directors
expires at the annual meeting of stockholders in 2000, 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 stockholders in 1999. The
classification of members of LCI's Board of Directors will have the effect of
making it more difficult to change the composition of the Board of Directors of
LCI. 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 of
LCI. In addition, the provisions of the LCI Certificate of Incorporation
establishing a classified Board of Directors may be amended only by the
affirmative vote of at least 66 2/3% of the issued and outstanding voting stock
of LCI.
REMOVAL OF DIRECTORS
The USLD Certificate does not contain any provision with respect to the
removal of USLD directors. Accordingly, because the USLD Board is classified as
provided above, the DGCL provides that the members of the Board of Directors of
USLD may be removed only for cause by the holders of a majority of the shares
then entitled to vote at an election of directors. Upon consummation of the
Merger, the USLD Certificate of Incorporation will be amended to delete the
classification provisions. Under the LCI Certificate of Incorporation, a
director can be removed only for cause by the affirmative vote of a majority of
the outstanding shares of LCI Common Stock. Amendment of the specific provisions
of the LCI Certificate of Incorporation relating to the removal of directors for
cause requires an affirmative vote of at least 66 2/3% of the shares entitled to
vote generally in the election of directors.
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COMPROMISE OR ARRANGEMENT WITH CREDITORS OR STOCKHOLDERS
As permitted by the DGCL, the LCI Certificate of Incorporation has provided
that a Delaware court of equitable jurisdiction may, upon application of LCI,
its creditors or stockholders or certain receivers or trustees appointed for the
benefit of LCI, order a meeting of LCI creditors and/or stockholders for the
purpose of considering and voting upon any proposed compromise or arrangement
between LCI on the one hand and its creditors and/or stockholders on the other.
If a majority in number representing three-fourths in value of the affected
creditors and/or stockholders agrees to the proposed compromise or arrangement
and to any reorganization resulting therefrom, and if the court approves, the
transaction shall be binding on all affected creditors and/or stockholders as
well as LCI for all purposes. The USLD Certificate of Incorporation does not
contain a provision of like tenor.
ACTIONS OF STOCKHOLDERS WITHOUT A MEETING
Pursuant to the Bylaws of each of USLD and LCI, any action required or
permitted to be taken at any meeting of the stockholders may be taken without a
meeting, without prior written notice and without a vote, if the written consent
of the minimum number of votes that would be necessary to authorize or take such
action at a meeting is obtained. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous consent shall be given to those
stockholders who have not consented in writing thereto.
The LCI Bylaws provide that any stockholder of record seeking to have the
stockholders of LCI authorize or take corporate action by written consent must
request in writing that the Corporate Secretary of LCI fix a record date for
determining the stockholders entitled to consent to such action. The USLD Bylaws
do not contain such a restriction on the stockholders' ability to execute
written consents.
OFFICERS
The LCI Bylaws specifically provide that the Chairman of the Board and the
Chief Executive Officer shall be directors of LCI and that should either of them
cease to be a director, he shall simultaneously therewith cease to be such
officer. The USLD Bylaws do not contain a similar provision.
ANNUAL STATEMENT
The USLD Bylaws provide that the Board of Directors shall present at each
Annual Meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of USLD. Although the DGCL provides certain inspection rights to
stockholders of LCI, the LCI Bylaws do not contain any specific requirement that
the Board of Directors provide an annual statement.
AMENDMENT OF CHARTER AND BYLAWS
Section 242 of the DGCL provides that stockholders may amend their
corporation's certificate of incorporation if a majority of the outstanding
stock entitled to vote thereon, and a majority of the outstanding stock of each
class entitled to vote thereon as a class, has been voted in favor of the
amendment. The DGCL also provides that after a corporation has received any
payment for its stock, the power to adopt, amend or repeal bylaws resides with
the stockholders entitled to vote. A corporation may, however, grant to its
board of directors in its certificate of incorporation concurrent power to
adopt, amend or repeal bylaws. Each of LCI and USLD has granted such power to
their respective boards of directors.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In the case of an
action brought by or in the right of a corporation, the corporation may
indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless the court in which such action or suit was brought or, the Delaware Court
of Chancery determines that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. Each of the USLD Bylaws and the LCI Bylaws provide that
its respective officers, directors, employees and agents shall be indemnified to
the full extent authorized by the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, agents or persons controlling LCI
pursuant to the foregoing provisions, LCI has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
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. Neither USLD's Certificate of Incorporation nor LCI's Certificate
of Incorporation has any such provision, and neither USLD nor LCI has "opted
out" from the application of Section 203.
LEGAL MATTERS
The legality of the LCI Common Stock to be issued to USLD stockholders
pursuant to the Merger and certain other legal matters in connection with the
Merger will be passed upon by Kramer, Levin, Naftalis & Frankel, New York, New
York, counsel to LCI. Certain legal matters in connection with the Merger will
be passed upon for USLD by Arter & Hadden, Dallas, Texas.
EXPERTS
The audited consolidated financial statements and schedules of LCI, included
or incorporated by reference in LCI's Annual Report on Form 10-K, and
incorporated by reference in this Joint Proxy Statement/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
66
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 in this Joint Proxy Statement/Prospectus 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 Joint Proxy Statement/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.
The audited consolidated financial statements and schedules of USLD included
in USLD's Annual Report on Form 10-K, and incorporated by reference in this
Joint Proxy Statement/Prospectus and elsewhere in this 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 giving said reports.
WHERE TO FIND MORE INFORMATION
LCI and USLD file annual, quarterly and special reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information filed by LCI and USLD at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. The filings of LCI and USLD with the Commission are also
available to the public from commercial document retrieval services and at the
web site maintained by the Commission at "http:// www.sec.gov."
LCI filed a Registration Statement on Form S-4 (the "Registration
Statement") to register with the Commission the LCI Common Stock to be issued to
USLD stockholders in the Merger. This Joint Proxy Statement/Prospectus is a part
of that Registration Statement and constitutes a prospectus of LCI in addition
to being a proxy statement of USLD and LCI. As allowed by Commission rules, this
Joint Proxy Statement/Prospectus does not contain all of the information
contained in the Registration Statement or the exhibits to the Registration
Statement.
The Commission allows LCI and USLD to "incorporate by reference" information
into this Joint Proxy Statement/Prospectus, which means that they can disclose
important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
deemed to be part of this Joint Proxy Statement/Prospectus, except for any
information superseded by information in this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates by reference the documents
set forth below that LCI and USLD have previously filed with the Commission.
These documents contain important information about LCI and USLD.
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LCI COMMISSION FILINGS (FILE NO.
0-21602) PERIOD
- --------------------------------------- ---------------------------------------------------------
Annual Report on Form 10-K Year Ended December 31, 1996
Quarterly Reports on Form 10-Q Quarters Ended March 31, 1997 and June 30, 1997
Quarterly Report on Form 10-Q/A Quarter Ended March 31, 1997
Current Reports on Form 8-K Filed on September 23, 1997
The description of the LCI Common Stock
set forth in the Registration
Statement on Form 8-A filed under the
Exchange Act and any amendments or
reports filed for the purpose of
updating such description.
USLD COMMISSION FILINGS (FILE NO. 0-18195) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
Annual Report on Form 10-K Year Ended September 30, 1996
Quarterly Reports on Form 10-Q Quarters Ended December 31, 1996,
March 31, 1997 and June 30, 1997
Current Report on Form 8-K Filed on September 23, 1997
LCI and USLD also are incorporating by reference additional documents that
they file with the Commission between the date of this Joint Proxy
Statement/Prospectus and the date of the Special Meetings.
LCI has supplied all information contained or incorporated by reference in
this Joint Proxy Statement/Prospectus relating to LCI, and USLD has supplied all
such information relating to USLD.
If you are a stockholder, LCI and USLD may have sent you some of the
documents incorporated by reference, but you can obtain any of them through LCI,
USLD or the Commission. Documents incorporated by reference are available from
LCI and USLD without charge. Exhibits to the documents will not be sent,
however, unless those exhibits have specifically been incorporated by reference
as exhibits in this Joint Proxy Statement/Prospectus. Stockholders may obtain
documents incorporated by reference in this Joint Proxy Statement/Prospectus by
requesting them in writing or by telephone from the appropriate party at the
following address:
LCI International, Inc. USLD Communications Corp.
8180 Greensboro Drive 9311 San Pedro
Suite 800 Suite 100
McLean, Virginia 22102 San Antonio, Texas 78216
(703) 442-0220 (210) 525-9009
Att: Investor Relations Att: General Counsel
If you would like to request documents from LCI or USLD, please do so by
December , 1997 to receive them before the Special Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER OR THE
LCI SHARE ISSUANCE PROPOSAL. NEITHER LCI NOR USLD HAS AUTHORIZED ANYONE TO
PROVIDE YOU WITH ANY INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DATED NOVEMBER , 1997. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THE JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH
DATE, AND NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO
STOCKHOLDERS NOR THE ISSUANCE OF LCI COMMON STOCK IN THE MERGER SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
68
LIST OF DEFINED TERMS
DEFINED TERM PAGE NO.
- -------------------------------------------------------------------------------------------------------- -----------
1993 LCI Warrants.......................................................................................
AACC....................................................................................................
Alternative Acquisition.................................................................................
Antitrust Division......................................................................................
Average Stock Price.....................................................................................
Billing.................................................................................................
Billing Common Stock....................................................................................
Billing Distribution....................................................................................
Certificate of Merger...................................................................................
Closing.................................................................................................
Closing Date............................................................................................
Closing Price...........................................................................................
Code....................................................................................................
Commission..............................................................................................
Comparable Companies....................................................................................
Comparable Transactions.................................................................................
Daily Per Share Price...................................................................................
DGCL....................................................................................................
EBIT....................................................................................................
EBITDA..................................................................................................
Effective Time..........................................................................................
Engagement Letter.......................................................................................
EPS.....................................................................................................
Exchange Act............................................................................................
Exchange Agent..........................................................................................
Exchange Ratio..........................................................................................
Executive Employment Agreements.........................................................................
Executive Officers......................................................................................
Final Purchase Date.....................................................................................
FTC.....................................................................................................
GAAP....................................................................................................
HSR Act.................................................................................................
IRS.....................................................................................................
Junior Participating Preferred Stock....................................................................
LCI.....................................................................................................
LCI Bylaws..............................................................................................
LCI Certificate of Incorporation........................................................................
LCI Common Stock........................................................................................
LCI Record Date.........................................................................................
LCI Share Issuance Proposal.............................................................................
LCI Special Meeting.....................................................................................
LCI Terminating Change..................................................................................
LTM.....................................................................................................
Material Adverse Effect.................................................................................
Material LCI Transaction................................................................................
Merger..................................................................................................
Merger Agreement........................................................................................
Merger Consideration....................................................................................
Merger Sub..............................................................................................
Nasdaq National Market..................................................................................
DEFINED TERM PAGE NO.
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NYSE....................................................................................................
pooling of interests....................................................................................
Preferred Stock.........................................................................................
RBOC....................................................................................................
Reform Act..............................................................................................
Registration Statement..................................................................................
Right...................................................................................................
Securities Act..........................................................................................
September 30 Average Stock Price........................................................................
Special Meetings........................................................................................
Surviving Corporation...................................................................................
Terminating Breach......................................................................................
Terminating Change......................................................................................
Terminating Misrepresentation...........................................................................
USLD 401(k) Plan........................................................................................
USLD....................................................................................................
USLD Bylaws.............................................................................................
USLD Certificate of Incorporation.......................................................................
USLD Common Stock.......................................................................................
USLD ESPP...............................................................................................
USLD Preferred Stock....................................................................................
USLD Record Date........................................................................................
USLD Rights Agreement...................................................................................
USLD Special Meeting....................................................................................
USLD Stock Options......................................................................................
USLD Stock Option Plans.................................................................................
USLD Terminating Change.................................................................................
USLD Warrants...........................................................................................
ANNEXES
ANNEX A: AGREEMENT AND PLAN OF MERGER
ANNEX B: OPINION OF ABN AMRO CHICAGO CORPORATION
ANNEX C: OPINION OF LEHMAN BROTHERS
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LCI INTERNATIONAL, INC.
LCI ACQUISITION CORP.
AND
USLD COMMUNICATIONS CORP.
Dated as of September 17, 1997
TABLE OF CONTENTS
PAGE
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ARTICLE I
THE MERGER
SECTION 1.1 The Merger........................................................................... A-2
SECTION 1.2 Effective Time....................................................................... A-2
SECTION 1.3 Effect of the Merger................................................................. A-2
SECTION 1.4 Certificate of Incorporation; Bylaws................................................. A-2
SECTION 1.5 Directors and Officers............................................................... A-3
SECTION 1.6 Effect on Capital Stock.............................................................. A-3
SECTION 1.7 Exchange of Certificates............................................................. A-6
SECTION 1.8 Stock Transfer Books................................................................. A-8
SECTION 1.9 No Further Ownership Rights in Company Common Stock.................................. A-8
SECTION 1.10 Lost, Stolen or Destroyed Certificates............................................... A-8
SECTION 1.11 Tax and Accounting Consequences...................................................... A-8
SECTION 1.12 Taking of Necessary Action; Further Action........................................... A-8
SECTION 1.13 Material Adverse Effect.............................................................. A-8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.1 Corporate Organization............................................................... A-9
SECTION 2.2 Capitalization....................................................................... A-9
SECTION 2.3 Subsidiaries......................................................................... A-10
SECTION 2.4 No Commitments to Issue Capital Stock................................................ A-10
SECTION 2.5 Authorization; Execution and Delivery................................................ A-11
SECTION 2.6 Governmental Approvals and Filings................................................... A-11
SECTION 2.7 No Conflict.......................................................................... A-11
SECTION 2.8 SEC Filings.......................................................................... A-12
SECTION 2.9 Financial Statements; Absence of Undisclosed Liabilities; Receivables................ A-12
SECTION 2.10 Certain Other Financial Representations.............................................. A-13
SECTION 2.11 Absence of Changes................................................................... A-14
SECTION 2.12 Tax Matters.......................................................................... A-15
SECTION 2.13 Relations with Employees and Sales Agents............................................ A-16
SECTION 2.14 Benefit Plans........................................................................ A-17
SECTION 2.15 Title to Properties.................................................................. A-19
SECTION 2.16 Compliance with Laws; Legal Proceedings.............................................. A-19
SECTION 2.17 Brokers.............................................................................. A-19
SECTION 2.18 Intellectual Property................................................................ A-20
SECTION 2.19 Insurance............................................................................ A-20
SECTION 2.20 Contracts; etc....................................................................... A-21
SECTION 2.21 Permits, Authorizations, etc......................................................... A-22
SECTION 2.22 Environmental Matters................................................................ A-22
SECTION 2.23 Company Acquisitions................................................................. A-23
SECTION 2.24 Books and Records.................................................................... A-24
SECTION 2.25 Interested Party Transactions........................................................ A-24
SECTION 2.26 Opinion of Financial Advisor......................................................... A-24
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PAGE
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SECTION 2.27 Pooling Matters...................................................................... A-24
SECTION 2.28 Registration Statement; Joint Proxy Statement/Prospectus............................. A-24
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
SECTION 3.1 Corporate Organization............................................................... A-25
SECTION 3.2 Capitalization....................................................................... A-25
SECTION 3.3 Subsidiaries......................................................................... A-26
SECTION 3.4 No Commitments to Issue Capital Stock................................................ A-26
SECTION 3.5 Authorization; Execution and Delivery................................................ A-26
SECTION 3.6 Governmental Approvals and Filings................................................... A-27
SECTION 3.7 No Conflict.......................................................................... A-27
SECTION 3.8 SEC Filings.......................................................................... A-27
SECTION 3.9 Financial Statements; Absence of Undisclosed Liabilities; Receivables................ A-28
SECTION 3.10 Absence of Changes................................................................... A-29
SECTION 3.11 Tax Matters.......................................................................... A-29
SECTION 3.12 Relations with Employees and Sales Agents............................................ A-31
SECTION 3.13 Benefit Plans........................................................................ A-31
SECTION 3.14 Title to Properties.................................................................. A-32
SECTION 3.15 Compliance with Laws; Legal Proceedings.............................................. A-32
SECTION 3.16 Brokers.............................................................................. A-33
SECTION 3.17 Intellectual Property................................................................ A-33
SECTION 3.18 Contracts; etc....................................................................... A-34
SECTION 3.19 Permits, Authorizations, etc......................................................... A-34
SECTION 3.20 Environmental Matters................................................................ A-34
SECTION 3.21 Books and Records.................................................................... A-35
SECTION 3.22 Pooling Matters...................................................................... A-35
SECTION 3.23 Registration Statement; Joint Proxy Statement/Prospectus............................. A-35
SECTION 3.24 Ownership of Merger Sub; No Prior Activities......................................... A-36
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger................................ A-36
SECTION 4.2 No Solicitation...................................................................... A-38
SECTION 4.3 Conduct of Business by Parent Pending the Merger..................................... A-40
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Joint Proxy Statement/Prospectus; Registration Statement............................. A-41
SECTION 5.2 Company Stockholders Meeting......................................................... A-41
SECTION 5.3 Parent Stockholders Meeting.......................................................... A-42
SECTION 5.4 Access to Information; Confidentiality............................................... A-42
SECTION 5.5 Consents; Approvals.................................................................. A-42
SECTION 5.6 Agreements with Respect to Affiliates................................................ A-43
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PAGE
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SECTION 5.7 Indemnification and Insurance........................................................ A-43
SECTION 5.8 Notification of Certain Matters...................................................... A-44
SECTION 5.9 Further Action/Tax Treatment......................................................... A-45
SECTION 5.10 Public Announcements; Communications with Employees.................................. A-45
SECTION 5.11 Listing of Parent Common Stock....................................................... A-45
SECTION 5.12 Conveyance Taxes..................................................................... A-45
SECTION 5.13 Accountant's Letters................................................................. A-46
SECTION 5.14 Pooling Accounting Treatment......................................................... A-46
SECTION 5.15 Rights Agreement..................................................................... A-46
SECTION 5.16 Delivery of Certain Reports.......................................................... A-46
SECTION 5.17 Receipt of Acknowledgments........................................................... A-47
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.......................... A-47
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger Sub........................ A-48
SECTION 6.3 Additional Conditions to Obligation of the Company................................... A-49
ARTICLE VII
TERMINATION
SECTION 7.1 Termination.......................................................................... A-50
SECTION 7.2 Effect of Termination................................................................ A-52
SECTION 7.3 Fees and Expenses.................................................................... A-52
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 Effectiveness of Representations, Warranties and Agreements.......................... A-54
SECTION 8.2 Notices.............................................................................. A-54
SECTION 8.3 Certain Definitions.................................................................. A-55
SECTION 8.4 Amendment............................................................................ A-56
SECTION 8.5 Waiver............................................................................... A-56
SECTION 8.6 Headings; Construction............................................................... A-56
SECTION 8.7 Severability......................................................................... A-57
SECTION 8.8 Entire Agreement..................................................................... A-57
SECTION 8.9 Assignment; Merger Sub............................................................... A-57
SECTION 8.10 Parties in Interest.................................................................. A-57
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative................................ A-58
SECTION 8.12 Governing Law........................................................................ A-58
SECTION 8.13 Counterparts......................................................................... A-58
SECTION 8.14 WAIVER OF JURY TRIAL................................................................. A-58
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 17, 1997 (this
"Agreement"), among LCI INTERNATIONAL, INC., a Delaware corporation ("Parent"),
LCI ACQUISITION CORP., a Delaware corporation and a direct, wholly-owned
subsidiary of Parent ("Merger Sub"), and USLD COMMUNICATIONS CORP., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to cause Merger Sub to merge with and into
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "Merger")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"), and upon the
terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder;
WHEREAS, Parent, Merger Sub and the Company intend that the Merger be
accounted for as a pooling-of-interests for financial reporting purposes; and
WHEREAS, pursuant to the Merger, each outstanding share (a "Share") of the
Company's Common Stock, par value $0.01 per share (together with the preferred
stock purchase right associated therewith, the "Company Common Stock"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7(b)), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. (a) Effective Time. At the Effective Time (as
defined in Section 1.2), and subject to and upon the terms and conditions of
this Agreement and the DGCL, Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall cease, and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing under this Agreement (the "Closing") will take place on
or as promptly as practicable (and in any event within two Business Days) after
satisfaction or waiver of the conditions set forth in Article VI at the offices
of Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York,
unless another date, time or place is agreed to in writing by the parties
hereto. The day in which the Closing takes place is called the "Closing Date."
SECTION 1.2 EFFECTIVE TIME. On the Closing Date or as promptly as
practicable thereafter (and in any event within one Business Day thereafter),
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger as contemplated by the DGCL (the "Certificate of Merger"),
together with any required related certificates, with the Secretary of State of
the State of Delaware, in such
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form as required by, and executed in accordance with the relevant provisions of,
the DGCL (the time of such filing being the "Effective Time").
SECTION 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 CERTIFICATE OF INCORPORATION; BYLAWS. (a) Certificate of
Incorporation. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time the Certificate of Incorporation of the Company, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by the DGCL and such Certificate of Incorporation; provided, however, that
Section 3 thereof shall be amended and restated in its entirety to provide that
the Surviving Corporation may engage in any lawful act or activity for which
corporations may be organized under the DGCL.
(b) Bylaws. The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by the DGCL, the Certificate of Incorporation of
the Surviving Corporation and such Bylaws; provided, however, that Article III,
Section 3.01 thereof shall be amended and restated in its entirety to provide
that the Surviving Corporation's Board shall consist of not less than three
members, all of a single class, with the exact number to be fixed from time to
time by resolution of the Board of Directors.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding immediately
prior to the Effective Time (excluding any Shares to be canceled pursuant to
Section 1.6(b)) shall be cancelled and extinguished and automatically converted,
subject to Section 1.6(f), into the right to receive validly issued, fully paid
and nonassessable shares of Common Stock, par value $0.01, of Parent (together
with the preferred stock purchase rights associated therewith, the "Parent
Common Stock") in the applicable ratio (the "Exchange Ratio") as follows:
- If the Average Stock Price (as hereinafter defined) is greater than or
equal to $21.60 but less than or equal to $26.40, the Exchange Ratio shall
be equal to $20.00 divided by the Average Stock Price.
- If the Average Stock Price is more than $26.40, the Exchange Ratio shall
be equal to .7576.
- Except as provided in the following paragraph, if the Average Stock Price
is less than $21.60, the Exchange Ratio shall be equal to .9259.
- If the Average Stock Price is less than $20.40 and the Company and Parent
deliver their respective notices specified in Section 7.1(i), the Exchange
Ratio shall be equal to $18.90 divided by the Average Stock Price (or such
higher ratio as specified in Parent's notice).
Capitalized terms used in this section have the following meanings:
A-2
"Average Stock Price" means the average of the Daily Per Share Prices for
the twenty (20) consecutive trading days ending on the third trading day prior
to the Company Stockholders Meeting (as defined in Section 2.28); provided,
however, that, except with respect to Section 7.1(i), if the Closing Date occurs
more than three trading days after the Company Stockholders Meeting, such
consecutive trading days shall end on the second trading day prior to the
Closing Date.
"Daily Per Share Price" for any trading day means the weighted average of
the per share selling prices on the New York Stock Exchange, Inc. (the "NYSE")
of Parent Common Stock (as reported in the NYSE Composite Transactions) for that
day; provided, however, that if the Parent Common Stock does not trade on any
day in such period, the Daily Per Share Price for such day means the average of
the closing bid and asked prices of Parent Common Stock on such day.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Assumption of Outstanding Stock Options and Warrants. (i) Each option
outstanding at the Effective Time to purchase shares of Company Common Stock (a
"Stock Option") granted under the USLD Communications Corp. 1990 Employee Stock
Option Plan, as amended, the USLD Communications Corp. 1993 Non-Employee
Director Plan, as amended, or any other stock plan or agreement of the Company,
which by its terms is not extinguished in the Merger (collectively, the "Company
Stock Option Plans"), shall be assumed by Parent and deemed to constitute an
option to acquire, on the same terms and conditions mutatis mutandis as were
applicable under such Stock Option prior to the Effective Time, the number of
shares of Parent Common Stock as the holder of such Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time (not taking into account whether
or not such option was in fact exercisable) at a price per share equal to (x)
the aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of shares of Parent
Common Stock deemed purchasable pursuant to such Stock Option; provided,
however, that the number of shares of Parent Common Stock that may be purchased
upon exercise of any such Stock Option shall not include any fractional share
and, upon exercise of the Stock Option, a cash payment shall be made for any
fractional share based upon the Closing Price (as hereinafter defined) of a
share of Parent Common Stock on the trading day immediately preceding the date
of exercise. "Closing Price" shall mean, on any day, the last reported sale
price of one share of Parent Common Stock on the NYSE. Within three Business
Days after the Effective Time, Parent shall cause to be delivered to each holder
of an outstanding Stock Option an appropriate notice setting forth such holder's
rights pursuant thereto, and such Stock Option shall continue in effect on the
same terms and conditions. Parent shall comply with the terms of the Company
Stock Option Plans pursuant to which the Stock Options were granted from and
after the Effective Time.
(ii) At the Effective Time, each warrant to purchase shares of Company
Common Stock (a "Warrant"), shall be assumed by Parent and deemed to constitute
a warrant to acquire, on the same terms and conditions mutatis mutandis as were
applicable under such Warrant prior to the Effective Time, the number of shares
of Parent Common Stock as the holder of such Warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such Warrant in full
immediately prior to the Effective Time (not taking into account whether or not
such Warrant was in fact exercisable) at a price per share equal to (x) the
aggregate exercise price for Company Common Stock otherwise purchasable pursuant
to such Warrant divided by (y) the number of shares of Parent Common Stock
deemed purchasable pursuant to such Warrant; provided, however, that the number
of shares of Parent Common Stock that may be purchased upon exercise of any such
Warrant shall not include any fractional share and, upon exercise of such
Warrant, a cash payment shall be made for any fractional share based upon the
A-3
Closing Price (as hereinafter defined) of a share of Parent Common Stock on the
trading day immediately preceding the date of exercise.
(iii) Parent shall cause to be taken all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Stock Options and Warrants in accordance with this
Section 1.6(c). Within three Business Days after the Effective Time, Parent
shall cause the Parent Common Stock subject to Stock Options to be registered
under the Securities Act of 1933, as amended and the rules of the Securities and
Exchange Commission (the "SEC") thereunder (the "Securities Act"), pursuant to a
registration statement on Form S-8 (or any successor or other appropriate
forms), and shall use its best efforts to cause the effectiveness of such
registration statement (and the current status of the prospectus or prospectuses
contained therein) to be maintained for so long as the Stock Options remain
outstanding.
(iv) The Company shall take such action as is necessary to cause the ending
date of the then current offering period under its Employee Stock Purchase Plan
(as such term is defined in Section 2.14 of the Company Disclosure Schedule) to
be prior to the Effective Time and on such date as is determined in accordance
with the terms of such plan (the "Final Purchase Date"); provided, that, such
change in the offering period shall be conditioned upon the consummation of the
Merger. On the Final Purchase Date, the Company shall apply the funds credited
as of such date under such Employee Stock Purchase Plan within each
participant's payroll withholding account to the purchase of whole shares of
Company Common Stock in accordance with the terms of such Employee Stock
Purchase Plan.
(v) Employees of the Company as of the Effective Time shall be permitted to
participate in the Parent's Employee Stock Purchase Plan commencing on the first
enrollment date of such plan following the Effective Time, subject to the
eligibility provisions of such plan (with employees receiving credit, for
purposes of such eligibility provisions, for service with the Company or
Parent).
(d) Capital Stock of Merger Sub. The one share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for 16,590,336 validly issued, fully
paid and nonassessable shares of common stock, $0.01 par value, of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be appropriately
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Parent Common Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No certificates or scrip representing less than one
share of Parent Common Stock shall be issued upon the surrender for exchange of
a certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
to a fraction of a share of Parent Common Stock upon surrender of Certificates
for exchange shall be paid upon such surrender cash (without interest) in an
amount equal to such fraction multiplied by the Closing Price of Parent Common
Stock on the date of the Effective Time.
SECTION 1.7 EXCHANGE OF CERTIFICATES. (a) Exchange Agent. Parent shall
cause to be supplied, to or for such bank or trust company as shall be mutually
designated by the Company and Parent (the "Exchange Agent"), in trust for the
benefit of the holders of Company Common Stock, for exchange in accordance with
this Section 1.7, through the Exchange Agent, certificates evidencing the shares
of Parent Common Stock issuable pursuant to Section 1.6 in exchange for
outstanding Shares and the cash to be paid in lieu of fractional shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass,
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only upon proper delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify),
and (ii) instructions to effect the surrender of the Certificates in exchange
for the certificates evidencing shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) certificates evidencing that number
of whole shares of Parent Common Stock which such holder has the right to
receive in accordance with the Exchange Ratio in respect of the Shares formerly
evidenced by such Certificate, (B) any dividends or other distributions to which
such holder is entitled pursuant to Section 1.7(c), and (C) cash in respect of
fractional shares as provided in Section 1.6(f) (the shares of Parent Common
Stock and cash being, collectively, the "Merger Consideration"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company as of the Effective Time, shares of Parent Common Stock,
dividends, distributions and cash in respect of fractional shares may be issued
and paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.7(b) and by evidence that any applicable stock transfer taxes have been paid.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Shares will be deemed from and after the Effective Time, for
all corporate purposes, other than the payment of dividends and, subject to
Section 1.6(f), to evidence the ownership of the number of whole shares of
Parent Common Stock, and cash in respect of fractional shares, into which such
Shares shall have been converted pursuant to the provisions hereof.
(c) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of Parent Common Stock payable to stockholders of record as of a date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock they are entitled to receive
pursuant to the provisions hereof until the holder of such Certificate shall
surrender such Certificate pursuant to Section 1.7(b). Subject to applicable
law, following surrender of any such Certificate, there shall be paid to the
record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the time of such
surrender, the amount of dividends or other distributions payable to
stockholders of record as of a date after the Effective Time and theretofore
paid with respect to such whole shares of Parent Common Stock.
(d) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the Person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(e) No Liability. Neither Parent, Merger Sub nor the Company shall be liable
to any holder of Company Common Stock for any Merger Consideration delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange Agent,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding was made by Parent or the Exchange Agent.
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SECTION 1.8 STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificate, upon the
making of an affidavit of that fact by the holder thereof, such shares of Parent
Common Stock as may be required pursuant to Section 1.6; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificate alleged to have been lost, stolen or destroyed.
SECTION 1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of section 368 of the Code, and (ii) subject to applicable accounting
standards, qualify for accounting treatment as a pooling of interests. The
parties hereto hereby adopt this Agreement as a "plan of reorganization" within
the meaning of sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
SECTION 1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
SECTION 1.13 MATERIAL ADVERSE EFFECT. When used in connection with the
Company or any of its Subsidiaries or Parent or any of its Subsidiaries, as the
case may be, the term "Material Adverse Effect" means any change, effect or
circumstance that is or is reasonably likely to be materially adverse to the
business, operations, assets (including intangible assets), condition (financial
or otherwise), liabilities or results of operations of the Company and its
Subsidiaries or Parent and its Subsidiaries, as the case may be, in each case
taken as a whole, other than such changes, effects or circumstances that affect
generally providers of telecommunications services similar to the Company or
Parent, as the case may be.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered by the Company
to Parent (the "Company Disclosure Schedule"):
SECTION 2.1 CORPORATE ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, operate and
lease its properties and assets as and where the same are owned,
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operated or leased and to conduct its business as it is now being conducted. The
Company is in good standing and duly qualified or licensed as a foreign
corporation to do business in those jurisdictions listed in Section 2.1 of the
Company Disclosure Schedule, such jurisdictions being the only jurisdictions in
which the location of the property and assets owned, operated or leased by the
Company or the nature of the business conducted by the Company makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed would not reasonably be expected to have a Material
Adverse Effect. The Company has heretofore delivered to the Purchaser complete
and correct copies of the Company's Certificate of Incorporation and Bylaws, as
amended to and as in effect on the date hereof.
SECTION 2.2 CAPITALIZATION. (a) The authorized capital stock of the
Company consists of 50,000,000 shares of Company Common Stock and 10,000,000
shares of preferred stock, par value $0.01 per share ("Company Preferred
Stock"). As of the date hereof, 16,590,336 shares of Company Common Stock and no
shares of Company Preferred Stock are issued and outstanding.
(b) All outstanding shares of Company Common Stock are validly issued and
outstanding, fully paid and nonassessable, and, except as set forth in the
Company's Certificate of Incorporation, there are no preemptive or similar
rights in respect of the Company Common Stock. All shares of Company Common
Stock issuable upon the exercise of Stock Options and Warrants will, when issued
in accordance therewith, be validly issued, fully paid and nonassessable. All
outstanding shares of Company Common Stock issued since July 1, 1994 were issued
in compliance in all material respects with all requirements of all applicable
federal and state securities laws.
(c) Section 2.2 of the Company Disclosure Schedule sets forth a complete and
correct list of (i) all Stock Options, and (ii) all Warrants, indicating as to
each holder thereof, the number of shares of Company Common Stock subject
thereto and the exercisability, exercise price and termination date therefor.
SECTION 2.3 SUBSIDIARIES. (a) Except for the Subsidiaries listed in Section
2.3(a) of the Company Disclosure Schedule, there are no entities 20% or more of
whose outstanding voting securities or other equity interests are owned,
directly or indirectly through one or more intermediaries, by the Company. Each
Subsidiary of the Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation (which
jurisdiction is indicated in Section 2.3(a) of the Company Disclosure Schedule)
and has all requisite corporate power and authority to own, operate and lease
its properties and assets as and where the same are owned, operated or leased by
such Subsidiary and to conduct its business as it is now being conducted. Each
Subsidiary is in good standing and duly qualified or licensed as a foreign
corporation to do business in each of the jurisdictions in which the location of
the property and assets owned, operated or leased by such Subsidiary or the
nature of the business conducted by such Subsidiary makes such qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not reasonably be expected to have a Material Adverse Effect. The Company
has heretofore delivered to Parent complete and correct copies of each of its
Subsidiaries' certificate of incorporation and bylaws (or similar organizational
document), in each case as amended to and as in effect on the date hereof.
(b) Section 2.3 of the Company Disclosure Schedule sets forth the authorized
capital stock of each Subsidiary of the Company, the number of outstanding
shares of each class of such capital stock and the Company's (or, in the case of
Subsidiaries indirectly owned by the Company, a specified Subsidiary's)
ownership of each such class. The Company or such Subsidiary has good and valid
title to all such shares free and clear of all mortgages, pledges, claims,
liens, security interests or other restrictions or encumbrances of any kind or
nature whatsoever ("Encumbrances"). All of the outstanding shares of capital
stock of each Subsidiary of the Company are validly issued, fully paid and
nonassessable, and there are no preemptive or similar rights in respect of any
shares of capital stock of any Subsidiary, other than preemptive rights held
solely by the Company. All of the outstanding shares of each Subsidiary of the
Company were issued in compliance in all material respects with all requirements
of all applicable federal
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and state securities laws. Except as set forth in Section 2.3(b) of the Company
Disclosure Schedule, neither the Company nor any Subsidiary of the Company owns
any capital stock of or other equity interest of any kind or nature in any
Person.
SECTION 2.4 NO COMMITMENTS TO ISSUE CAPITAL STOCK. Except for the Stock
Options and the Warrants and as set forth in Section 2.4 of the Company
Disclosure Schedule, there are no outstanding options, warrants, calls,
convertible securities or other rights, agreements, commitments or other
instruments pursuant to which the Company or any of its Subsidiaries is or may
become obligated to authorize, issue or transfer any shares of its capital stock
or any other equity interest. Except as set forth in Section 2.4 of the Company
Disclosure Schedule, there are no agreements or understandings in effect among
any of the stockholders of the Company or any such Subsidiary or with any other
Person and by which the Company or any such Subsidiary is bound with respect to
the voting, transfer, disposition or registration under the Securities Act of
any shares of capital stock of the Company or any of its Subsidiaries.
SECTION 2.5 AUTHORIZATION; EXECUTION AND DELIVERY. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and, subject to obtaining any necessary stockholder approval of the Agreement,
to carry out its obligations hereunder. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Company, except that the Company's
stockholders are required to approve and adopt this Agreement. This Agreement
has been duly executed and delivered by the Company and, subject to such
stockholder approval and, assuming the due authorization, execution and delivery
by the other parties hereto, constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy laws and similar
laws affecting creditor's rights generally and (ii) general principles of
equity, regardless of whether asserted in a proceeding in equity or at law.
SECTION 2.6 GOVERNMENTAL APPROVALS AND FILINGS. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing or registration with, any governmental or regulatory
authority is required in order (a) to permit the Company to consummate the
Merger or perform its obligations under this Agreement, or (b) to prevent the
termination of, or materially and adversely affect, any governmental right,
privilege, authority, franchise, license, permit or certificate of the Company
or any of its Subsidiaries to provide its services or carry on its business
("Governmental Licenses"), or to prevent any material loss or disadvantage to
the Company's business, by reason of the Merger, except for (i) filing and
recording of the Certificate of Merger as required by the DGCL, (ii) filings and
other required submissions under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (iii) such other consents,
authorizations, filing, approvals and registrations (other than Governmental
Licenses relating to the provision of telecommunication services) which if not
made or obtained would not reasonably be expected to have a Material Adverse
Effect, and (iv) as set forth in Section 2.6 of the Company Disclosure Schedule.
SECTION 2.7 NO CONFLICT. Subject to compliance with the Governmental
Licenses described in Section 2.6 of the Company Disclosure Schedule and
obtaining the other consents and waivers that are set forth and described in
Section 2.7 of the Company Disclosure Schedule (the "Private Consents"), neither
the execution, delivery and performance of this Agreement by the Company, nor
the consummation by the Company of the transactions contemplated hereby, will
(i) conflict with, or result in a breach or violation of, any provision of the
certificate of incorporation (or similar organizational document) or bylaws of
the Company or any of its Subsidiaries; (ii) conflict with, result in a breach
or violation of, give rise to a default, or result in the acceleration of
performance, or permit the acceleration or performance, under (whether or not
after the giving of notice or lapse of time or both) any Encumbrance, note,
bond, indenture, guaranty, lease, license, agreement or other instrument, writ,
injunction, order, judgment or decree to which the Company or any of its
Subsidiaries or any of their respective properties or assets is subject; (iii)
give rise to
A-8
a declaration or imposition of any Encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries; or (iv) impair the Company's
business or adversely affect any Governmental License necessary to enable the
Company and its Subsidiaries to carry on their business as presently conducted,
except, in the case of clauses (ii), (iii) or (iv), for any conflict, breach,
violation, default, acceleration, declaration, imposition or impairment that
would not reasonably be expected to have a Material Adverse Effect.
SECTION 2.8 SEC FILINGS. (a) The Company has filed all forms, reports and
documents required to be filed with the SEC since October 1, 1993 and has made
available to Parent (i) its Annual Reports on Form 10-K for the fiscal years
ended September 30, 1994, 1995 and 1996; (ii) its Quarterly Reports on Form 10-Q
for the quarterly periods ended December 31, 1996, March 31, 1997 and June 30,
1997; (iii) all proxy statements relating to the Company's meetings of
stockholders (whether annual or special) held since October 1, 1993; (iv) all
other reports or registration statements (other than Reports on Form 10-Q not
referred to in clause (ii) above or on Form 8-K filed before October 1, 1996)
filed by the Company with the SEC since October 1, 1993; and (v) all amendments,
supplements, exhibits and documents incorporated by reference to all such
reports and registration statements filed by the Company with the SEC
(collectively, the "Company SEC Reports"). Except as disclosed in Section 2.8 of
the Company Disclosure Schedule, the Company SEC Reports (i) were prepared in
accordance, and complied as of their respective dates in all material respects,
with the requirements of the Securities Act or the Securities Exchange Act of
1934, as amended and the SEC's rules thereunder (the "Exchange Act"), as the
case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Company has filed with the SEC as exhibits to the
Company SEC Reports all agreements, contracts and other documents or instruments
required to be so filed, and such exhibits are correct and complete copies of
such agreements, contracts and other documents or instruments. None of the
Company's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
SECTION 2.9 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES;
RECEIVABLES. (a) The Company has heretofore delivered to Parent complete and
correct copies of the following financial statements (the "Company Financial
Statements"), all of which have been prepared from the books and records of the
Company and its Subsidiaries in accordance with generally accepted accounting
principles ("GAAP") consistently applied and maintained throughout the periods
indicated (except as may be indicated in the notes thereto and except that the
unaudited Company Financial Statements may not include all notes thereto
required by GAAP) and fairly present in all material respects the financial
condition of the Company and its Subsidiaries at their respective dates and the
results of their operations and cash flows for the periods covered thereby,
except that unaudited interim results were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount:
(i) audited consolidated balance sheets at September 30, 1995 and September
30, 1996 and audited consolidated statements of income, cash flows and
stockholders' equity of the Company and its Subsidiaries for the fiscal years
then ended, audited by Arthur Andersen LLP, independent certified public
accountants; and
(ii) unaudited consolidated balance sheet (the "Company Interim Balance
Sheet") of the Company and its Subsidiaries at June 30, 1997 (the "Company
Interim Balance Sheet Date") and consolidated statements of income and cash
flows for the three and nine months then ended.
Such statements of income do not contain any material item of special or
nonrecurring revenue or income or any material item of revenue or income not
earned in the ordinary course of business, except as expressly specified
therein.
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(b) Except as and to the extent reflected or reserved against on the Company
Interim Balance Sheet, and except for liabilities which will not have a Material
Adverse Effect, neither the Company nor any of its Subsidiaries had, as of the
Company Interim Balance Sheet Date, any liabilities, debts or obligations
(whether absolute, accrued, contingent or otherwise) of any nature that would be
required as of such date to have been included on a balance sheet prepared in
accordance with GAAP. Since the Company Interim Balance Sheet Date, neither the
Company nor any of its Subsidiaries has incurred or suffered to exist any
liability, debt or obligation (whether absolute, accrued, contingent or
otherwise), except liabilities, debt and obligations incurred in the ordinary
course of business, consistent with past practice, none of which will have a
Material Adverse Effect.
(c) All receivables of the Company and its Subsidiaries (including accounts
receivable, loans receivable and advances) which are reflected in the Company
Interim Balance Sheet, and all such receivables which have arisen thereafter and
prior to the Effective Time, have arisen or will have arisen only from bona fide
transactions in the ordinary course of business, the carrying value of such
receivables approximate their fair market values, and adequate reserves for the
Company's receivables have been established in accordance with prior practice
and GAAP.
SECTION 2.10 CERTAIN OTHER FINANCIAL REPRESENTATIONS. (a) Except as set
forth in Section 2.10(a) of the Company Disclosure Schedule, the Company has not
since October 1, 1996 provided any material special promotions, discounts or
other incentives to its employees, agents, distributors or customers in
connection with the solicitation of new orders for service provided by the
Company or any Subsidiary, nor has any customer pre-paid any material amount for
services to be provided by the Company or any Subsidiary in the future, except
in connection with the purchasing of debit cards.
(b) To the Company's Knowledge, the Company and its Subsidiaries have paid
or fully provided for all access charges properly payable to local exchange
carriers for access facilities and have properly reported its percentage of
interstate use ("PIU") to such carriers, except where the failure to do so would
not result in a material liability of the Company or its Subsidiaries. As of the
date hereof, to the Company's Knowledge, the Company and its Subsidiaries do not
have, and at the Closing the Company and its Subsidiaries will not have, any
material liability on account of PIU.
SECTION 2.11 ABSENCE OF CHANGES. Except as set forth in Section 2.11 of
the Company Disclosure Schedule or the Company SEC Reports, since October 1,
1996 the Company and its Subsidiaries have conducted their respective businesses
only in the ordinary course and neither the Company nor any of its Subsidiaries
has:
(a) other than certain of the Stock Options and Warrants as set forth in
Section 2.4 or 2.11 of the Company Disclosure Schedule, issued or sold or
authorized for issuance or sale, or granted any options or made other agreements
of the type referred to in Section 2.4 with respect to, any shares of its
capital stock or any other of its securities, or altered any term of any of its
outstanding securities or made any change in its outstanding shares of capital
stock or other ownership interests or its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise or redeemed, purchased or
otherwise acquired any of its or its parent's capital stock; provided, however,
the Company contemplates effecting the conversions set forth in Section 1.6;
(b) terminated or received any notice of termination of any material
contract, lease, license or other agreement or any Governmental License, or
suffered any damage, destruction or loss (whether or not covered by insurance)
that would reasonably be expected to have a Material Adverse Effect;
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(c) made any change in the rate of compensation, commission, bonus or other
remuneration payable, or paid or agreed or orally promised to pay, conditionally
or otherwise, any bonus, extra compensation, pension or severance or vacation
pay, to any director or officer, or any material such change to any employee of
the Company or any of its Subsidiaries, except in any case in the ordinary
course of business consistent with prior practice or as required in accordance
with the agreements described in Section 2.13(b), or plans disclosed in Section
2.14(a) of the Company Disclosure Schedule that were in effect as of October 1,
1996;
(d) made any increase in or commitment to increase any employee benefits,
adopted or made any commitment to adopt any additional employee benefit plan or
made any contribution, other than regularly scheduled contributions, to any
Employee Benefit Plan, as defined in Section 2.14(a);
(e) changed any accounting practices, policies or procedures utilized in the
preparation of the Company Financial Statements, except as required by GAAP, the
SEC, the Financial Accounting Standards Board or as otherwise set forth in the
Company SEC Reports;
(f) suffered any change, event or condition that, in any case or in the
aggregate, has had or is reasonably likely to result in a Material Adverse
Effect; or
(g) entered into any agreement or made any commitment to take any of the
types of action described in subparagraphs (a) through (f) of this Section 2.11.
SECTION 2.12 TAX MATTERS. (a) For purposes of this Agreement, "Tax" or
"Taxes" shall mean taxes, fees, levies, duties, tariffs, imposts and
governmental impositions or charges of any kind in the nature of (or similar to)
taxes, payable to any federal, state, local or foreign taxing authority,
including (without limitation) (i) income, franchise, profits, gross receipts,
ad valorem, net worth, value added, sales, use, service, real or personal
property, special assessments, capital stock, license, payroll, withholding,
employment, social security, workers' compensation, unemployment compensation,
utility, severance, production, excise, stamp, occupation, premiums, windfall
profits, transfer and gains taxes, and (ii) interest, penalties, additional
taxes and additions to tax imposed with respect thereto; and "Tax Returns" shall
mean returns, reports, and information statements with respect to Taxes required
to be filed with the Internal Revenue Service (the "IRS") or any other taxing
authority, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns, including returns required in connection with
any Employee Benefit Plan (as defined in Section 2.14(a)).
(b) The Company on behalf of itself and all of its Subsidiaries hereby
represents that, other than as disclosed in Section 2.12(b) of the Company
Disclosure Schedule or the Company SEC Reports: The Company and its Subsidiaries
have timely filed all United States federal income Tax Returns and all other
material Tax Returns required to be filed by them. All such Tax Returns are
complete and correct in all material respects (except to the extent a reserve
has been established as reflected in the Company Interim Balance Sheet). The
Company and its Subsidiaries have timely paid and discharged all Taxes due in
connection with or with respect to the periods or transactions covered by such
Tax Returns and have paid all other Taxes as are due, except such as are being
contested in good faith by appropriate proceedings (to the extent that any such
proceedings are required), and there are no other Taxes that would be due if
asserted by a taxing authority, except with respect to which the Company is
maintaining reserves unless the failure to do so would not have a Material
Adverse Effect. Except as does not involve or would not result in liability to
the Company or any of its Subsidiaries that would have a Material Adverse
Effect, (i) there are no tax liens on any assets of the Company or any of its
Subsidiaries; (ii) neither the Company nor any of its Subsidiaries has granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any Tax; (iii) no unpaid (or unreserved)
deficiencies for Taxes have been claimed, proposed or assessed by any taxing or
other governmental authority with respect to the Company or any of its
Subsidiaries; (iv) there are no pending or, to the Company's Knowledge,
threatened audits, investigations or claims for or relating to any liability in
respect of Taxes of the Company or any of its Subsidiaries; and (v) neither the
Company nor any of its Subsidiaries has requested any extension of time
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within which to file any currently unfiled Tax Returns. The accruals and
reserves for Taxes (including deferred taxes) reflected in the Company Interim
Balance Sheet are in all material respects adequate to cover all Taxes accruable
through the date thereof (including Taxes being contested) in accordance with
GAAP.
(c) The Company on behalf of itself and all its Subsidiaries hereby
represents that, other than as disclosed in Section 2.12(c) of the Company
Disclosure Schedule or the Company SEC Reports, and other than with respect to
items the inaccuracy of which would not have a Material Adverse Effect: (i)
neither the Company nor any of its Subsidiaries is obligated under any agreement
with respect to industrial development bonds or other obligations with respect
to which the excludability from gross income of the holder for federal or state
income tax purposes could be affected by the transactions contemplated
hereunder; (ii) neither the Company nor any of its Subsidiaries is, or has been,
a United States real property holding corporation (as defined in section
897(c)(2) of the Code) during the applicable period specified in section
897(c)(1)(A)(ii) of the Code; (iii) neither the Company nor any of its
Subsidiaries has filed or been included in a combined, consolidated or unitary
return (or substantial equivalent thereof) of any Person other than the Company
and its Subsidiaries; (iv) neither the Company nor any of its Subsidiaries is
liable for Taxes of any Person other than the Company and its Subsidiaries, or
currently under any contractual obligation to indemnify any Person with respect
to Taxes, or a party to any tax sharing agreement or any other agreement
providing for payments by the Company or any of its Subsidiaries with respect to
Taxes; (v) except entities the beneficial ownership of which is wholly owned by
the Company and/or its Subsidiaries, neither the Company nor any of its
Subsidiaries is a party to any joint venture, partnership or other arrangement
or contract which could be treated as a partnership for United States federal
income tax purposes; (vi) neither the Company nor any of its Subsidiaries is a
party to any agreement, contract, arrangement or plan that would result (taking
into account the transactions contemplated by this Agreement), separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of section 280G of the Code; (vii) the prices for any property or
services (or for the use of property) provided by the Company or any of its
Subsidiaries to any other Subsidiary or to the Company have been arm's length
prices determined using a method permitted by the Treasury Regulations under
section 482 of the Code; (viii) neither the Company nor any of its Subsidiaries
is a "consenting corporation" under section 341(f) of the Code or any
corresponding provision of state, local or foreign law; (ix) neither the Company
nor any of its Subsidiaries has made an election or is required to treat any of
its assets as owned by another Person for federal income tax purposes or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of section 168 of the Code (or any corresponding provision of state, local or
foreign law); and (x) the Company is not an investment company within the
meaning of section 368(a)(2)(F)(iii) of the Code.
SECTION 2.13 RELATIONS WITH EMPLOYEES AND SALES AGENTS. (a) Except as set
forth in Section 2.13(a) of the Company Disclosure Schedule:
(i) No collective bargaining agreement with respect to the business of the
Company or any of its Subsidiaries is currently in effect or being negotiated.
Neither the Company nor any of its Subsidiaries has any obligation to negotiate
any such collective bargaining agreement.
(ii) There are no strikes or work stoppages pending or, to the Company's
Knowledge, threatened with respect to the employees of the Company or any of its
Subsidiaries, nor has any such strike or work stoppage occurred or, to the
Company's Knowledge, been threatened since October 1, 1994. There is no
representation claim or petition or complaint pending before the National Labor
Relations Board or any state or local labor agency and, to the Company's
Knowledge, no question concerning representation has been raised or threatened
since October 1, 1994 respecting the employees of the Company or any of its
Subsidiaries.
(iii) To the Company's Knowledge, no charges with respect to or relating to
the business of the Company or any its Subsidiaries are pending before the Equal
Employment Opportunity Commission, or
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any state or local agency responsible for the prevention of unlawful employment
practices, which would reasonably be expected to have a Material Adverse Effect.
(b) Section 2.13(b) of the Company Disclosure Schedule contains a complete
and correct list of all material current employment, management or other
consulting agreements with any Persons employed or retained by the Company or
any of its Subsidiaries (including independent consultants and commission
agents), complete and correct copies of which have been delivered to Parent,
except that, with respect to agreements with commission agents, complete and
correct copies of all forms of agreements used by the Company have been
delivered to Parent. All of the Company's agreements with commission agents are
substantially similar to such forms of agreements.
SECTION 2.14 BENEFIT PLANS. (a) Section 2.14(a) of the Company Disclosure
Schedule sets forth with respect to all current employees a full and complete
list of all executive compensation, deferred compensation, stock ownership,
stock purchase, stock option, restricted stock, performance share, bonus and
other incentive plans, pension, profit sharing, savings, thrift or retirement
plans, employee stock ownership plans, life, health, dental and disability
plans, vacation, severance pay, sick leave, dependent care, cafeteria and
tuition reimbursement plans, and any other "employee benefit plans" within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently maintained by the Company or any of its Subsidiaries or
with respect to which the Company or any of its Subsidiaries may have any
liability or obligation (direct, indirect, contingent or otherwise) to any
employee, former employee, director or former director (or any of their
dependents or beneficiaries) of the Company or any of its Subsidiaries or to any
governmental entity (individually, an "Employee Benefit Plan" and collectively,
the "Employee Benefit Plans"). There have been delivered to Parent or its
counsel complete and correct copies of all written Employee Benefit Plans.
(b) No Employee Benefit Plan is, a "defined benefit plan" within the meaning
of section 3(35) of ERISA to which ERISA applies and neither the Company nor any
of its Subsidiaries has any liability with respect to any such plan. Neither the
Company nor any of its Subsidiaries has ever contributed to, or withdrawn in a
complete or partial withdrawal from, any multiemployer plan (within the meaning
of Subtitle E of Title IV of ERISA) or incurred contingent liability under
section 4204 of ERISA. No Employee Benefit Plan provides for medical or health
benefits (through insurance or otherwise) to individuals other than current
employees of the Company or any of its Subsidiaries (or spouses and dependents
of such employees), except to the extent necessary to comply with "Applicable
Benefits Law" (including section 4980B of the Code). "Applicable Benefits Law"
refers to the legal requirements imposed upon employee benefit plans by the
United States or any political subdivision thereof (including COBRA and any
requirements enforced by the IRS with respect to employee benefit plans intended
to confer tax benefits on the Company, any of its Subsidiaries, any of their
respective employees, or any trust maintained in connection with such Employee
Benefit Plan).
(c) Each Employee Benefit Plan (and each related trust, insurance contract
and fund) is in compliance in all material respects in form and in operation
with all applicable requirements of Applicable Benefits Law (including ERISA and
the Code), and is being administered in all material respects in accordance with
all relevant plan documents to the extent consistent with Applicable Benefits
Law. There has been no prohibited transaction with respect to any Employee
Benefit Plan which would result in the imposition of any material unpaid excise
tax. To the Company's Knowledge, no Employee Benefit Plan is under investigation
or audit by the Department of Labor or Internal Revenue Service other than as
part of a routine tax audit of the Company. There are no legal actions or suits
pending or, to the Company's Knowledge, threatened against or with respect to
any Employee Benefit Plan or the assets of any such Employee Benefit Plan or
against any fiduciary of any such Employee Benefit Plan and the Company has no
Knowledge of any facts that could give rise to any such actions. There has been
full compliance in all material respects with the notice and continuation
requirements of section 4980B of the Code applicable to any Employee Benefit
Plan.
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(d) Except to the extent set forth in Section 2.14(d) of the Company
Disclosure Schedule, no provision of any Employee Benefit Plan becomes effective
in the event of a change in control of the employer maintaining such Employee
Benefit Plan; neither the Company nor any of its Subsidiaries has agreed to the
creation of any new employee benefit plan or, with respect to any existing
Employee Benefit Plan, any increase in benefits or change in employee coverage
which would materially increase the expense of maintaining such Employee Benefit
Plan; no provision of any Employee Benefit Plan prohibits the employer
maintaining it from amending or terminating such Employee Benefit Plan at any
time and to the fullest extent that law permits. Except to the extent set forth
in Section 2.14(d) of the Company Disclosure Schedule, the consummation of the
Merger or any other transaction contemplated by this Agreement, in and of
itself, will not result in an increase in the amount of compensation or benefits
or accelerate the vesting or timing of payment of any benefits or compensation
payable under any Employee Benefit Plan in respect of any employee of the
Company or any of its Subsidiaries; and no employee or former employee of the
Company or any of its Subsidiaries will be entitled to any severance benefits
under the terms of any Employee Benefit Plan solely by reason of the
consummation of the Merger or any other transaction contemplated by this
Agreement.
(e) At no time since the organization of the Company or any of its
Subsidiaries has any entity (other than the Company, any such Subsidiary or
Billing Information Concepts Corp., or any Subsidiary of Billing Information
Concepts Corp.) been an "ERISA affiliate" of the Company, any such Subsidiary,
or both. "ERISA affiliate" means any trade or business, whether or not
incorporated, which together with the Company or any such Subsidiary, is or was
at any time during such period treated as a "single employer" within the meaning
of section 414(b), (c), (m) or (o) of the Code or a part of the same "controlled
group" as the Company or any such Subsidiary within the meaning of section 4001
of ERISA. The aggregate number of leased employees (within the meaning of
section 414(n) or (o) of the Code) of the Company and its Subsidiaries does not
exceed 10% of the aggregate number of employees of the Company and its
Subsidiaries.
(f) All actions required to be taken on behalf of any Employee Benefit Plan
that is a stockholder of the Company, in order to effectuate the Merger or the
other transactions contemplated by this Agreement, shall have been duly
authorized by the appropriate fiduciaries of such Employee Benefit Plan, and
shall comply with the terms of such Employee Benefit Plan, ERISA and other
applicable laws.
SECTION 2.15 TITLE TO PROPERTIES. Except as set forth in the Company SEC
Reports or Section 2.15 of the Company Disclosure Schedule, the Company and each
of its Subsidiaries have good and indefeasible title to all of their properties
and assets, free and clear of all Encumbrances, except liens for taxes not yet
due and payable and such Encumbrances or other imperfections of title, if any,
as do not materially detract from the value of or interfere with the present use
of the property affected thereby or which would not reasonably be expected to
have a Material Adverse Effect, and except for Encumbrances which secure
indebtedness reflected in the Company Interim Balance Sheet.
SECTION 2.16 COMPLIANCE WITH LAWS; LEGAL PROCEEDINGS. (a) Neither the
Company nor any of its Subsidiaries is in violation of, or in default with
respect to, any applicable statute, regulation, ordinance, writ, injunction,
order, judgment, decree or any Governmental License which violation or default
would reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in the Company SEC Reports or Section 2.16(b) of the
Company Disclosure Schedule, there is no order, writ, injunction, judgment or
decree outstanding and no legal, administrative, arbitration or other
governmental proceeding or investigation pending or, to the Company's Knowledge,
threatened, and there are no claims (including unasserted claims of which the
Company has Knowledge) against or relating to the Company or any of its
Subsidiaries or any of their respective properties, assets or businesses that
would reasonably be expected to have a Material Adverse Effect.
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SECTION 2.17 BROKERS. Except for ABN AMRO Chicago Corporation ("AACC"), no
broker, finder or investment advisor acted directly or indirectly as such for
the Company, any Subsidiary of the Company or, to the Company's Knowledge, any
stockholder of the Company in connection with this Agreement or the Merger, and
no broker, finder, investment advisor or other Person is entitled to any fee or
other commission, or other remuneration, in respect thereof based in any way on
any action, agreement, arrangement or understanding taken or made by or on
behalf of the Company, any Subsidiary of the Company or, to the Company's
Knowledge, any stockholder of the Company. The Company has heretofore furnished
to Parent a complete and correct copy of the agreement between AACC and the
Company pursuant to which such firm would be entitled to any payment relating to
the transactions contemplated hereunder.
SECTION 2.18 INTELLECTUAL PROPERTY. (a) The Company and/or each of its
Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are used in the business of the Company and its Subsidiaries as currently
conducted, except as would not reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Section 2.18(b) of the Company Disclosure
Schedule or the Company SEC Reports or as would not reasonably be expected to
have a Material Adverse Effect: (i) The Company is not, nor will it be as a
result of the execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any patents, trademarks, service marks or copyrights owned
by others ("Company Third-Party Intellectual Property Rights"); (ii) No claims
with respect to the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names and any applications therefor
owned by the Company or any of its Subsidiaries (the "Company Intellectual
Property Rights"), any trade secret material to the Company, or Company Third
Party Intellectual Property Rights to the extent arising out of any use,
reproduction or distribution of Company Third Party Intellectual Property Rights
by or through the Company or any of its Subsidiaries, are currently pending or,
to the Company's Knowledge, have been threatened by any Person; or (iii) The
Company has no Knowledge of any valid grounds for any bona fide claims (1) to
the effect that the sale, licensing or use of any product or service as now
sold, licensed or used, or proposed for sale, license or use, by the Company or
any of its Subsidiaries infringes on any copyright, patent, trademark, service
mark or trade secret; (2) against the use by the Company or any of its
Subsidiaries, of any trademarks, trade names, trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the business of the Company or any of its Subsidiaries as currently
conducted or as proposed to be conducted; (3) challenging the ownership,
validity or effectiveness of any of the Company Intellectual Property Rights or
other trade secret material to the Company; or (4) challenging the license or
legally enforceable right to use of Company Third Party Intellectual Rights by
the Company or any of its Subsidiaries.
(c) To the Company's Knowledge, there is no material unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company or any of its Subsidiaries.
SECTION 2.19 INSURANCE. The Company has heretofore provided Parent with
true, complete and correct copies of all material fire and casualty, general
liability, business interruption, product liability and other insurance policies
maintained by the Company and its Subsidiaries. Neither the Company nor any of
its Subsidiaries has, since October 1, 1994, been denied or had revoked or
rescinded any policy of insurance.
SECTION 2.20 CONTRACTS; ETC. (a) Set forth in Section 2.20 of the Company
Disclosure Schedule is a complete and correct list of each of the following
agreements, leases and other instruments to which the
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Company or any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries or their respective properties or assets are bound:
(i) each service or other similar type of agreement under which services are
provided by any other Person to the Company or any of its Subsidiaries which
provides for a material change in the cost to the Company or its Subsidiaries of
such services or the type thereof as a result of the transactions contemplated
hereunder;
(ii) each operating lease (as lessor, lessee, sublessor or sublessee) of any
real or tangible personal property or assets that is material to the Company and
its Subsidiaries taken as a whole which provides for a material change in the
payments made or received by the Company or its Subsidiaries, as the case may
be, as a result of the transactions contemplated hereunder;
(iii) each agreement under which services are provided by the Company or any
of its Subsidiaries to any material customer which provides for a material
decrease in the fees charged to such customer or a material increase in the type
or kind of services to be provided by the Company or its Subsidiaries without a
corresponding and appropriate increase in the payments to be received by the
Company or its Subsidiaries, as the case may be, as a result of the transactions
contemplated hereunder;
(iv) any other material agreement, lease and other instrument to which the
Company or any of its Subsidiaries are a party or by which they are bound, which
provides for a material change in the terms thereof as a result of the
transactions contemplated hereunder;
(v) each agreement (including capital leases) under which any money has been
or may be borrowed or loaned (other than loans to customers made in the ordinary
course of business consistent with past practice) or any note, bond, indenture
or other evidence of indebtedness (other than trade payables) has been issued or
assumed (other than those under which there remain no ongoing obligations of the
Company or any of its Subsidiaries), and each guaranty of any evidence of
indebtedness or other obligation, or of the net worth, of any Person (other than
endorsements for the purpose of collection in the ordinary course of business);
and
(vi) any agreement or other undertaking that restricts, in any material
respect, the Company or any of its Subsidiaries from providing any
telecommunications services, engaging in any telecommunications business in any
territory or hiring any employees.
A complete and correct copy of each written agreement, lease or other type
of document required to be disclosed pursuant to this Section 2.20(a) has been
delivered to Parent.
(b) Each agreement, lease or other type of document required to be filed as
an exhibit to the Company's SEC Reports to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties or assets are bound, except for those contracts, the
loss of which would not reasonably be expected to have a Material Adverse Effect
(collectively, the "Company Contracts"), is valid, binding and in full force and
effect and is enforceable by the Company or such Subsidiary in accordance with
its terms. Neither the Company nor any such Subsidiary is (with or without the
lapse of time or the giving of notice, or both) in breach of or in default under
any of the Company Contracts, and, to the Company's Knowledge, no other party to
any of the Company Contracts is (with or without the lapse of time or the giving
of notice, or both) in breach of or in default under any of the Company
Contracts, where such breach or default would reasonably be expected to have a
Material Adverse Effect. No existing or completed agreement to which the Company
or any of its Subsidiaries is a party is subject to renegotiation with any
governmental body.
SECTION 2.21 PERMITS, AUTHORIZATIONS, ETC. All Governmental Licenses and
each other material approval, authorization, consent, license, certificate of
public convenience, order or other permit of all governmental agencies, whether
federal, state, local or foreign, necessary to enable the Company and its
Subsidiaries to own, operate and lease their properties and assets as and where
such properties and assets
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are owned, leased or operated and to provide service and carry on their business
as presently provided and conducted (collectively, the "Company Permits") or
required to permit the continued conduct of such business following the Merger
in the manner conducted on the date of this Agreement are valid and in good
standing with the issuing agencies and not subject to any proceedings for
suspension, modification or revocation, except for such Company Permits which
would not reasonably be expected to have a Material Adverse Effect.
SECTION 2.22 ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement,
the capitalized terms defined below shall have the meanings ascribed to them
below.
(i) "Environmental Law(s)" means all federal, state or local law (including
common law), statute, ordinance, rule, regulation, code, or other
requirement relating to the environment, natural resources, or public or
employee health and safety and includes, but is not limited to the
Comprehensive Environmental Response Compensation and Liability Act
("CERCLA"), 42 U.S.C. Section 9601 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., The Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.,
the Clean Water Act, 33 U.S.C. Section Section 1251 et seq., the Clean
Air Act, 33 U.S.C. Section 2601 et seq., the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq., the Oil Pollution Act of 1990, 33
U.S.C. Section 2701 et seq., and the Occupational Safety and Health Act,
29 U.S.C. Section 651 et seq., as such laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and all
analogous state or local statutes and any applicable transfer statutes.
(ii) "Environmental Permits" means all approvals, authorizations, consents,
permits, licenses, registrations and certificates required by any
applicable Environmental Law.
(iii) "Hazardous Substance(s)" means, without limitation, any flammable
explosives, radioactive materials, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products (including
but not limited to waste petroleum and petroleum products), methane,
hazardous materials, hazardous wastes, pollutants, contaminants and
hazardous or toxic substances, as defined in or regulated under any
applicable Environmental Laws.
(iv) "Release" means any past or present spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing of a Hazardous Substance into the Environment.
(b) The Company and each Subsidiary of the Company has obtained all
Environmental Permits that are required for the lawful operation of its business
except for such Environmental Permits the failure of which to obtain would not
reasonably be expected to have a Material Adverse Effect. The Company and its
Subsidiaries (i) are in compliance with all terms and conditions of their
Environmental Permits and of any applicable Environmental Law, except for such
failure to be in compliance that would not reasonably be expected to have
Material Adverse Effect, and (ii) have not received written notice of any
material violation by or material claim against the Company or any such
Subsidiary under any Environmental Law.
(c) There have been no Releases, or threatened Releases of any Hazardous
Substances into, on or under any of the properties owned or operated (or
formerly owned or operated) by the Company or any such Subsidiary, in any case
in such a way as to create any liability (including the costs of investigation
and remediation) under any applicable Environmental Law that would reasonably be
expected to have a Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries has been identified as a
potentially responsible party at any federal or state National Priority List
("Superfund") site.
SECTION 2.23 COMPANY ACQUISITIONS. Section 2.23 of the Company Disclosure
Schedule hereto contains a complete and correct list of all agreements
("Acquisition Agreements") executed by the Company or any of its Subsidiaries
since October 1, 1996 pursuant to which the Company or any of its
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Subsidiaries has acquired or agreed to acquire all or any part of the stock or
assets (including any customer list) of any Person. A complete and correct copy
of each of the Acquisition Agreements has been delivered to Parent. Neither the
Company nor any such Subsidiary has any further material obligation or liability
under any of the Acquisition Agreements or as a result of the transactions
provided for therein, except as described in reasonable detail in Section 2.23
of the Company Disclosure Schedule.
SECTION 2.24 BOOKS AND RECORDS. All accounts, books, ledgers and official
and other records prepared and kept by the Company and its Subsidiaries have
been kept and completed in all material respects, and there are no material
inaccuracies or discrepancies contained or reflected therein.
SECTION 2.25 INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
2.25 of the Company Disclosure Schedule or the Company SEC Reports, since
October 1, 1996 no event has occurred that would be required to be reported as a
Certain Relationship or Related Transaction, pursuant to Item 404 of Regulation
S-K promulgated by the SEC.
SECTION 2.26 OPINION OF FINANCIAL ADVISOR. The Company has been advised by
its financial advisor, AACC, to the effect that in its opinion, as of the date
hereof, the Exchange Ratio is fair from a financial point of view to the holders
of Shares.
SECTION 2.27 POOLING MATTERS. The Company has provided to the Company's
independent accountants all information concerning actions taken or agreed to be
taken by the Company or any of its Affiliates on or before the date of this
Agreement that could reasonably be expected to adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests. The Company has provided to Parent a letter from the
Company's independent public accountants to the effect that, after review, such
accountants know of no reason relating to the Company that should prevent the
Parent from accounting for the Merger as a pooling of interests.
SECTION 2.28 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS. The
information supplied by the Company with respect to the Company and its
Subsidiaries and their respective officers, directors, stockholders and other
Affiliates (collectively, the "Company Information") for inclusion in the
Registration Statement (as defined in Section 3.23) shall not at the time the
Registration Statement is declared effective by the SEC contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company
Information supplied by the Company for inclusion in the joint proxy
statement/prospectus to be sent to the stockholders of the Company in connection
with the meeting of the stockholders of the Company to consider the Merger (the
"Company Stockholders Meeting") and, if required, to the stockholders of the
Parent in connection with the meeting of the stockholders of the Parent (the
"Parent Stockholders Meeting" and, together with the Company Stockholders
Meeting, the "Stockholders Meetings") to consider the Parent Common Stock
Issuance (as defined in Section 5.3) (such joint proxy statement/prospectus as
amended or supplemented is referred to herein as the "Joint Proxy
Statement/Prospectus") will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, or at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meetings which has become false
or misleading. If at any time prior to the Effective Time any event relating to
the Company or its Subsidiaries or any of their respective officers, directors,
stockholders or other Affiliates should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/ Prospectus, the Company shall promptly
inform Parent. The Joint Proxy Statement/Prospectus shall comply in all material
respects with the requirements of the Securities Act and the Exchange Act.
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Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Merger Sub which is
contained or incorporated by reference in, or furnished in connection with the
preparation of, the Registration Statement or the Joint Proxy Statement/
Prospectus.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, hereby represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered by Parent to the Company (the "Parent Disclosure Schedule"):
SECTION 3.1 CORPORATE ORGANIZATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, operate and
lease its properties and assets as and where the same are owned, operated or
leased and to conduct its business as it is now being conducted. Parent is in
good standing and duly qualified or licensed as a foreign corporation to do
business in those jurisdictions in which the location of the property and assets
owned, operated or leased by Parent or the nature of the business conducted by
Parent makes such qualification or licensing necessary, except where the failure
to be so qualified or licensed would not reasonably be expected to have a
Material Adverse Effect. Parent has heretofore delivered to the Company complete
and correct copies of Parent's Certificate of Incorporation and Bylaws, as
amended to and as in effect on the date hereof.
SECTION 3.2 CAPITALIZATION. (a) The authorized capital stock of Parent
consists of 300,000,000 shares of Parent Common Stock and 15,000,000 shares of
preferred stock, par value $0.01 per share ("Parent Preferred Stock"). As of the
date hereof, 78,554,214 shares of Parent Common Stock and no shares of Parent
Preferred Stock are issued and outstanding.
(b) All outstanding shares of Parent Common Stock are validly issued and
outstanding, fully paid and nonassessable, and, except as set forth in Parent's
Certificate of Incorporation, there are no preemptive or similar rights in
respect of Parent Common Stock. All outstanding shares of Parent Common Stock
issued since July 1, 1994 were issued in compliance in all material respects
with all requirements of all applicable federal and state securities laws.
SECTION 3.3 SUBSIDIARIES. (a) The Subsidiaries of Parent listed in the
exhibits to Parent's SEC Reports (as defined in Section 3.8) constitute the only
material Subsidiaries of Parent. Each Subsidiary of Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, operate and lease its properties and assets as and where the
same are owned, operated or leased by such Subsidiary and to conduct its
business as it is now being conducted. Each such Subsidiary is in good standing
and duly qualified or licensed as a foreign corporation to do business in each
of the jurisdictions in which the location of the property and assets owned,
operated or leased by such Subsidiary or the nature of the business conducted by
such Subsidiary makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed would not reasonably be expected to
have a Material Adverse Effect.
(b) Parent or a Subsidiary of Parent has good and valid title to all shares
of each such Subsidiary owned by Parent or another Subsidiary of Parent, free
and clear of all Encumbrances. All of the outstanding shares of capital stock of
each Subsidiary of Parent are validly issued, fully paid and nonassessable, and
there are no preemptive or similar rights in respect of any shares of capital
stock of any such Subsidiary. All of the outstanding shares of each Subsidiary
of Parent were issued in compliance with all requirements of all applicable
federal and state securities laws. Except as set forth in Section 3.3(b) of
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the Parent Disclosure Schedule, neither the Parent nor any Subsidiary of the
Parent owns any capital stock of or other equity interest of any kind or nature
in any Person.
SECTION 3.4 NO COMMITMENTS TO ISSUE CAPITAL STOCK. Other than pursuant to
this Agreement and except for the stock options and warrants set forth in
Section 3.4 of the Parent Disclosure Schedule and in this Agreement, there are
no outstanding options, warrants, calls, convertible securities or other rights,
agreements, commitments or other instruments pursuant to which Parent or any of
its Subsidiaries is or may become obligated to authorize, issue or transfer any
shares of its capital stock or any other equity interest.
SECTION 3.5 AUTHORIZATION; EXECUTION AND DELIVERY. Parent and Merger Sub
each has all requisite corporate power and authority to execute and deliver and,
subject to obtaining any necessary stockholder approval with respect to the
transactions contemplated hereunder, perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by Parent
and Merger Sub and the consummation by Parent or Merger Sub of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of Parent and Merger Sub, except that the stockholders' of Parent
may be required to approve the Parent Common Stock Issuance. This Agreement has
been duly executed and delivered by Parent and Merger Sub and, subject to such
stockholder approval and assuming the due authorization, execution and delivery
by the other parties hereto, constitutes the legal, valid and binding obligation
of Parent and Merger Sub, enforceable against Parent and Merger Sub in
accordance with its terms, except as such enforceability may be limited by (i)
bankruptcy laws and similar laws affecting creditor's rights generally and (ii)
general principles of equity, regardless of whether asserted in a proceeding in
equity or at law. The shares of Parent Common Stock to be issued as part of the
Merger Consideration and upon the exercise of the Stock Options and Warrants
have been duly reserved and authorized for issuance upon consummation of the
Merger, and when issued pursuant to and in accordance with this Agreement or
such Stock Option or Warrants will be duly authorized, validly issued, fully
paid and nonassessable shares of Parent Common Stock.
SECTION 3.6 GOVERNMENTAL APPROVALS AND FILINGS. No approval,
authorization, consent, license, clearance or order of, declaration or
notification to, or filing or registration with, any governmental or regulatory
authority is required in order (a) to permit Parent or Merger Sub to consummate
the Merger or perform its obligations under this Agreement, or (b) to prevent
the termination of, or materially and adversely affect, any Governmental License
of Parent or any of its Subsidiaries to provide its services or carry on its
business, or to prevent any material loss or disadvantage to Parent's business,
by reason of the Merger, except for (i) filing and recording of the Certificate
of Merger as required by the DGCL, (ii) filings and other required submissions
under the HSR Act, (iii) such other consents, authorizations, filing, approvals
and registrations which if not made would not reasonably be expected to have a
Material Adverse Effect, and (iv) as set forth in Section 3.6 of the Parent
Disclosure Schedule.
SECTION 3.7 NO CONFLICT. Subject to compliance with any Governmental
Licenses described in Section 3.6 of the Parent Disclosure Schedule and
obtaining the consents and waivers that are set forth and described in Section
3.7 of the Parent Disclosure Schedule (the "Private Consents"), neither the
execution, delivery and performance of this Agreement by Parent or Merger Sub,
nor the consummation by Parent or Merger Sub of the transactions contemplated
hereby, will (i) conflict with, or result in a breach or violation of, any
provision of the certificate of incorporation (or similar organizational
document) or bylaws of Parent or any of its Subsidiaries; (ii) conflict with,
result in a breach or violation of, give rise to a default, or result in the
acceleration of performance, or permit the acceleration or performance, under
(whether or not after the giving of notice or lapse of time or both) any
Encumbrance, note, bond, indenture, guaranty, lease, license, agreement or other
instrument, writ, injunction, order, judgment or decree to which Parent or any
of its Subsidiaries or any of their respective properties or assets is subject;
(iii) give rise to a declaration or imposition of any Encumbrance upon any of
the properties or assets of Parent or any of its Subsidiaries; or (iv) impair
Parent's business or adversely affect any Governmental License necessary to
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enable Parent and its Subsidiaries to carry on their business as presently
conducted, except, in the cases of clauses (ii), (iii) or (iv), for any
conflict, breach, violation, default, acceleration, declaration, imposition or
impairment that would not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.8 SEC FILINGS. (a) The Parent has filed all forms, reports and
documents required to be filed with the SEC since January 1, 1994 and has made
available to the Company (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1994, 1995 and 1996; (ii) its Quarterly Reports on Form
10-Q for the quarterly periods ended March 31, 1997 and June 30, 1997; (iii) all
proxy statements relating to Parent's meetings of stockholders (whether annual
or special) held since January 1, 1994; (iv) all other reports or registration
statements (other than Reports on Form 10-Q not referred to in clause (ii) above
or on Form 8-K filed before January 1, 1997) filed by Parent with the SEC since
January 1, 1994; and (v) all amendments, supplements, exhibits and documents
incorporated therein by reference to all such reports and registration
statements filed by Parent with the SEC (collectively, the "Parent SEC
Reports"). Except as disclosed in Section 3.8 of the Parent Disclosure Schedule,
the Parent SEC Reports (i) were prepared in accordance, and complied as of their
respective dates in all material respects, with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. Parent has filed
with the SEC as exhibits to the Parent SEC Reports all agreements, contracts and
other documents or instruments required to be so filed, and such exhibits are
correct and complete copies of such agreements, contracts and other documents or
instruments. None of Parent's Subsidiaries is required to file any forms,
reports or other documents with the SEC.
SECTION 3.9 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES;
RECEIVABLES. (a) Parent has heretofore delivered to the Company complete and
correct copies of the following financial statements (collectively, the "Parent
Financial Statements"), all of which have been prepared from the books and
records of Parent and its Subsidiaries in accordance with GAAP consistently
applied and maintained throughout the periods indicated (except as may be
indicated in the notes thereto and except that the unaudited Parent Financial
Statements may not include all notes thereto required by GAAP) and fairly
present in all material respects the financial condition of Parent and its
Subsidiaries as at their respective dates and the results of their operations
and cash flows for the periods covered thereby, except that unaudited interim
results were or are subject to normal and recurring year-end adjustments which
were not or are not expected to be material in amount:
(i) audited consolidated balance sheets at December 31, 1995 and December
31, 1996 and audited consolidated statements of income, cash flows and
stockholders' equity of Parent and its Subsidiaries for the fiscal years
then ended, audited by Arthur Andersen LLP, independent certified public
accountants; and
(ii) unaudited consolidated balance sheet (the "Parent Interim Balance
Sheet") of Parent and its Subsidiaries as at June 30, 1997 (the "Parent
Interim Balance Sheet Date") and consolidated statements of income and
cash flows for the three and six months then ended.
Such statements of income do not contain any material item of special or
nonrecurring revenue or income or any material item of revenue or income not
earned in the ordinary course of business, except as expressly specified
therein.
(b) Except as and to the extent reflected or reserved against on the Parent
Interim Balance Sheet, and except for liabilities which will not have a Material
Adverse Effect, neither Parent nor any of its Subsidiaries had, as of the Parent
Interim Balance Sheet Date, any liabilities, debts or obligations (whether
absolute, accrued, contingent or otherwise) of any nature that would be required
as of such date to have been included on a balance sheet prepared in accordance
with GAAP. Since the Parent Interim Balance
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Sheet Date, neither Parent nor any of its Subsidiaries has incurred or suffered
to exist any liability, debt or obligation (whether absolute, accrued,
contingent or otherwise), except liabilities, debt and obligations incurred in
the ordinary course of business, consistent with past practice, none of which
will have a Material Adverse Effect.
(c) Except as set forth in Section 3.9 of the Parent Disclosure Schedule,
all receivables of the Parent and its Subsidiaries (including accounts
receivable, loans receivable and advances) which are reflected in the Parent
Interim Balance Sheet, and all such receivables which have arisen thereafter and
prior to the Effective Time, have arisen or will have arisen only from bona fide
transactions in the ordinary course of business, the carrying value of such
receivables approximate their fair market values and adequate reserves for
Parent's receivables have been established in accordance with prior practice and
GAAP.
SECTION 3.10 ABSENCE OF CHANGES. Except as set forth in Section 3.10 of
the Parent Disclosure Schedule or the Parent SEC Reports, since January 1, 1997,
Parent and its Subsidiaries have conducted their respective businesses only in
the ordinary course, and neither Parent nor any of its Subsidiaries has:
(a) terminated or received any notice of termination of any material
contract, lease, license or other agreement or any Governmental License, or
suffered any damage, destruction or loss (whether or not covered by insurance)
that would reasonably be expected to have a Material Adverse Effect;
(b) changed any accounting practices, policies or procedures utilized in the
preparation of the Parent Financial Statements, except as required by GAAP, the
SEC, the Financial Accounting Standards Board or as otherwise set forth in the
Parent SEC Reports;
(c) suffered any change, event or condition that, in any case or in the
aggregate, has had or is reasonably likely to result in a Material Adverse
Effect; or
(d) entered into any agreement or made any commitment to take any of the
types of action described in subparagraphs (a) through (c) of this Section 3.10.
SECTION 3.11 TAX MATTERS. (a) Parent on behalf of itself and all of its
Subsidiaries hereby represents that, other than as disclosed in Section 3.11(a)
of the Parent Disclosure Schedule or the Parent SEC Reports, Parent and its
Subsidiaries have timely filed all United States federal income Tax Returns and
all other material Tax Returns required to be filed by them. All such Tax
Returns are complete and correct in all material respects (except to the extent
a reserve has been established as reflected in the Parent Interim Balance
Sheet). Parent and its Subsidiaries have timely paid and discharged all Taxes
due in connection with or with respect to the periods or transactions covered by
such Tax Returns and have paid all other Taxes as are due, except such as are
being contested in good faith by appropriate proceedings (to the extent that any
such proceedings are required), and there are no other Taxes that would be due
if asserted by a taxing authority, except with respect to which Parent is
maintaining reserves unless the failure to do so would not have a Material
Adverse Effect. Except as does not involve or would not result in liability to
Parent or any of its Subsidiaries that would have a Material Adverse Effect, (i)
there are no tax liens on any assets of Parent or any of its Subsidiaries; (ii)
neither Parent nor any of its Subsidiaries has granted any waiver of any statute
of limitations with respect to, or any extension of a period for the assessment
of, any Tax; (iii) no unpaid (or unreserved) deficiencies for Taxes have been
claimed, proposed or assessed by any taxing or other governmental authority with
respect to Parent or any of its Subsidiaries; (iv) there are no pending or, the
Parent's Knowledge, threatened audits, investigations or claims for or relating
to any liability in respect of Taxes of Parent or any of its Subsidiaries; and
(v) neither Parent nor any of its Subsidiaries has requested any extension of
time within which to file any currently unfiled Tax Returns. The accruals and
reserves for Taxes (including deferred taxes) reflected in the Parent Interim
Balance Sheet are in all material respects adequate to cover all Taxes accruable
through the date thereof (including Taxes being contested) in accordance with
GAAP.
(b) Parent on behalf of itself and all its Subsidiaries hereby represents
that, other than as disclosed in Section 3.11(b) of the Parent Disclosure
Schedule or the Parent SEC Reports, and other than with respect
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to items the inaccuracy of which would not have a Material Adverse Effect: (i)
neither Parent nor any of its Subsidiaries is obligated under any agreement with
respect to industrial development bonds or other obligations with respect to
which the excludability from gross income of the holder for federal or state
income tax purposes could be affected by the transactions contemplated
hereunder; (ii) neither Parent nor any of its Subsidiaries is, or has been, a
United States real property holding corporation (as defined in section 897(c)(2)
of the Code) during the applicable period specified in section 897(c)(1)(A)(ii)
of the Code; (iii) neither Parent nor any of its Subsidiaries has filed or been
included in a combined, consolidated or unitary return (or substantial
equivalent thereof) of any Person other than Parent and its Subsidiaries; (iv)
neither Parent nor any of its Subsidiaries is liable for Taxes of any Person
other than Parent and its Subsidiaries, or currently under any contractual
obligation to indemnify any Person with respect to Taxes, or a party to any tax
sharing agreement or any other agreement providing for payments by Parent or any
of its Subsidiaries with respect to Taxes; (v) except entities the beneficial
ownership of which is wholly owned by Parent and/or its Subsidiaries, neither
Parent nor any of its Subsidiaries is a party to any joint venture, partnership
or other arrangement or contract which could be treated as a partnership for
United States federal income tax purposes; (vi) neither Parent nor any of its
Subsidiaries is a party to any agreement, contract, arrangement or plan that
would result (taking into account the transactions contemplated by this
Agreement), separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of section 280G of the Code; (vii) the
prices for any property or services (or for the use of property) provided by
Parent or any of its Subsidiaries to any other Subsidiary or to the Parent have
been arm's length prices determined using a method permitted by the Treasury
Regulations under section 482 of the Code; (viii) neither Parent nor any of its
Subsidiaries is a "consenting corporation" under section 341(f) of the Code or
any corresponding provision of state, local or foreign law; (ix) neither Parent
nor any of its Subsidiaries has made an election or is required to treat any of
its assets as owned by another Person for federal income tax purposes or as
tax-exempt bond financed property or tax-exempt use property within the meaning
of section 168 of the Code (or any corresponding provision of state, local or
foreign law); and (x) Parent is not an investment company within the meaning of
section 368(a)(2)(F)(iii) of the Code.
SECTION 3.12 RELATIONS WITH EMPLOYEES AND SALES AGENTS. (a) Except as set
forth in Section 3.12 of the Parent Disclosure Schedule:
(a) No collective bargaining agreement with respect to the business of
Parent or any of its Subsidiaries is currently in effect or being negotiated.
Neither Parent nor any of its Subsidiaries has any obligation to negotiate any
such collective bargaining agreement.
(b) There are no strikes or work stoppages pending or, to Parent's
Knowledge, threatened with respect to the employees of Parent or any of its
Subsidiaries, nor has any such strike or work stoppage occurred or, to Parent's
Knowledge, been threatened since January 1, 1995. There is no representation
claim or petition or complaint pending before the National Labor Relations Board
or any state or local labor agency and, to Parent's Knowledge, no question
concerning representation has been raised or threatened since January 1, 1995
respecting the employees of Parent or any of its Subsidiaries.
(c) To Parent's Knowledge, no charges with respect to or relating to the
business of Parent or any its Subsidiaries are pending before the Equal
Employment Opportunity Commission, or any state or local agency responsible for
the prevention of unlawful employment practices, which would reasonably be
expected to have a Material Adverse Effect.
SECTION 3.13 BENEFIT PLANS. (a) Complete and correct copies of all
material written Employee Benefit Plans of Parent and its Subsidiaries have been
filed as exhibits to the Parent's SEC Reports.
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(b) No Employee Benefit Plan of Parent or any of its Subsidiaries is, and no
material employee benefit plan formerly maintained by Parent and/or any of its
Subsidiaries was, a "defined benefit plan" within the meaning of section 3(35)
of ERISA to which ERISA applies. Neither the Parent nor any of its Subsidiaries
has ever contributed to, or withdrawn in a complete or partial withdrawal from,
any multiemployer plan (within the meaning of Subtitle E of Title IV of ERISA)
or incurred contingent liability under section 4204 of ERISA.
(c) Each Employee Benefit Plan of Parent and its Subsidiaries (and each
related trust, insurance contract and fund) is in compliance in all material
respects in form and in operation with all applicable requirements of Applicable
Benefits Law (including ERISA and the Code), and is being administered in all
material respects in accordance with all relevant plan documents to the extent
consistent with Applicable Benefits Law. There has been no prohibited
transaction with respect to any Employee Benefit Plan of Parent or any of its
Subsidiaries which would result in the imposition of any material unpaid excise
tax. No Employee Benefit Plan of Parent or any of its Subsidiaries is under
investigation or audit by the Department of Labor or Internal Revenue Service
other than as part of a routine tax audit of Parent. There are no legal actions
or suits pending or, to Parent's Knowledge, threatened against any Employee
Benefit Plan of Parent or any of its Subsidiaries or the assets of any such
Employee Benefit Plan or against any fiduciary of any such Employee Benefit Plan
and Parent has no Knowledge of any facts that could give rise to any such
actions. There has been full compliance in all material respects with the notice
and continuation requirements of section 4980B of the Code applicable to any
Employee Benefit Plan of Parent and its Subsidiaries.
(d) The consummation of the Merger or any other transaction contemplated by
this Agreement, in and of itself, will not result in a material increase in the
amount of compensation or benefits or accelerate the vesting or timing of
payment of any benefits or compensation payable under any Employee Benefit Plan
in respect of any employee of Parent or any of its Subsidiaries.
(e) At no time since the organization of Parent or any of its Subsidiaries
has any entity (other than Parent or any such Subsidiary) been an "ERISA
affiliate" of Parent, any such Subsidiary, or both.
SECTION 3.14 TITLE TO PROPERTIES. Except as set forth in the Parent SEC
Reports or Section 3.14 of the Parent Disclosure Schedule, Parent and each of
its Subsidiaries have good and indefeasible title to all of their properties and
assets, free and clear of all Encumbrances, except liens for taxes not yet due
and payable and such Encumbrances or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property affected thereby or which would not reasonably be expected to have
a Material Adverse Effect, and except for Encumbrances which secure indebtedness
reflected in the Parent Interim Balance Sheet.
SECTION 3.15 COMPLIANCE WITH LAWS; LEGAL PROCEEDINGS. (a) Neither Parent
nor any of its Subsidiaries is in violation of, or in default with respect to,
any applicable statute, regulation, ordinance, writ, injunction, order,
judgment, decree or any Governmental License which violation or default would
reasonably be expected to have a Material Adverse Effect.
(b) Except as set forth in the Parent SEC Reports or Section 3.15(b) of the
Parent Disclosure Schedule, there is no order, writ, injunction, judgment or
decree outstanding and no legal, administrative, arbitration or other
governmental proceeding or investigation pending or, to Parent's Knowledge,
threatened, and there are no claims (including unasserted claims of which Parent
has Knowledge) against or relating to Parent or any of its Subsidiaries or any
of their respective properties, assets or businesses that would reasonably be
expected to have a Material Adverse Effect.
SECTION 3.16 BROKERS. Except for Lehman Brothers, no broker, finder or
investment advisor acted directly or indirectly as such for Parent, any
Subsidiary of Parent or, to Parent's Knowledge, any stockholder of Parent in
connection with this Agreement or the Merger, and no broker, finder, investment
advisor or other Person is entitled to any fee or other commission, or other
remuneration, in respect
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thereof based in any way on any action, agreement, arrangement or understanding
taken or made by or on behalf of Parent, any Subsidiary of Parent or, to
Parent's Knowledge, any stockholder of the Parent.
SECTION 3.17 INTELLECTUAL PROPERTY. (a) Parent and/or each of its
Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, technology, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are used in the business of Parent and its Subsidiaries as currently
conducted, except as would not reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed in Section 3.17(b) of the Parent Disclosure Schedule
or the Parent SEC Reports or as would not reasonably be expected to have a
Material Adverse Effect: (i) Parent is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any licenses, sublicenses and other agreements as to
which Parent is a party and pursuant to which Parent is authorized to use any
patents, trademarks, service marks or copyrights owned by others ("Parent
Third-Party Intellectual Property Rights"); (ii) No claims with respect to the
patents, registered and material unregistered trademarks and service marks,
registered copyrights, trade names and any applications therefor owned by Parent
or any of its Subsidiaries ("Parent Intellectual Property Rights"), any trade
secret material to Parent, or Parent Third Party Intellectual Property Rights to
the extent arising out of any use, reproduction or distribution of Parent Third
Party Intellectual Property Rights by or through Parent or any of its
Subsidiaries, are currently pending or, to Parent's Knowledge, have been
threatened by any Person; or (iii) Parent has no Knowledge of any valid grounds
for any bona fide claims (1) to the effect that the sale, licensing or use of
any product or service as now sold, licensed or used, or proposed for sale,
license or use, by Parent or any of its Subsidiaries infringes on any copyright,
patent, trademark, service mark or trade secret; (2) against the use by Parent
or any of its Subsidiaries of any trademarks, trade names, trade secrets,
copyrights, patents, technology, know-how or computer software programs and
applications used in the business of Parent or any of its Subsidiaries as
currently conducted or as proposed to be conducted; (3) challenging the
ownership, validity or effectiveness of any of Parent Intellectual Property
Rights or other trade secret material to Parent; or (4) challenging the license
or legally enforceable right to use of Parent Third Party Intellectual Rights by
Parent or any of its Subsidiaries.
(c) To Parent's Knowledge, there is no material unauthorized use,
infringement or misappropriation of any of Parent Intellectual Property Rights
by any third party, including any employee or former employee of the Parent or
any of its Subsidiaries.
SECTION 3.18 CONTRACTS; ETC. (a) Each agreement, lease or other type of
document required to be filed as an exhibit to the Parent's SEC Reports to which
Parent or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or their respective properties or assets are bound, except for
those contracts, the loss of which would not reasonably be expected to have a
Material Adverse Effect (collectively, the "Parent Contracts"), is valid,
binding and in full force and effect and is enforceable by Parent or such
Subsidiary in accordance with its terms. Neither Parent nor any such Subsidiary
is (with or without the lapse of time or the giving of notice, or both) in
breach of or in default under any of the Parent Contracts, and, to Parent's
Knowledge, no other party to any of the Parent Contracts is (with or without the
lapse of time or the giving of notice, or both) in breach of or in default under
any of the Parent Contracts, where such breach or default would reasonably be
expected to have a Material Adverse Effect. No existing or completed agreement
to which Parent or any of its Subsidiaries is a party is subject to
renegotiation with any governmental body.
SECTION 3.19 PERMITS, AUTHORIZATIONS, ETC. All Governmental Licenses and
each other material approval, authorization, consent, license, certificate of
public convenience, order or other permit of all governmental agencies, whether
federal, state, local or foreign, necessary to enable Parent and its
Subsidiaries to own, operate and lease their properties and assets as and where
such properties and assets
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are owned, leased or operated and to provide service and carry on their business
as presently provided and conducted or required to permit the continued conduct
of such business following the Merger in the manner conducted on the date of
this Agreement (collectively, the "Parent Permits") are valid and in good
standing with the issuing agencies and not subject to any proceedings for
suspension, modification or revocation, except for such Parent Permits which
would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.20 ENVIRONMENTAL MATTERS. (a) Parent and each Subsidiary of
Parent has obtained all Environmental Permits that are required for the lawful
operation of its business except for such Environmental Permits the failure of
which to obtain would not reasonably be expected to have a Material Adverse
Effect. Parent and its Subsidiaries (i) are in compliance with all terms and
conditions of their Environmental Permits and are in compliance with and not in
default under any applicable Environmental Law, except for such failure to be in
compliance that would not reasonably be expected to have Material Adverse
Effect, and (ii) have not received written notice of any material violation by
or material claim against Parent or any such Subsidiary under any Environmental
Law.
(b) There have been no Releases or threatened Releases of any Hazardous
Substances (i) into, on or under any of the properties owned or operated (or
formerly owned or operated) by Parent or any such Subsidiary in such a way as to
create any liability (including the costs of investigation or remediation) under
any applicable Environmental Law that would reasonably be expected to have a
Material Adverse Effect.
(c) Neither the Parent or its Subsidiaries have been identified as a
potentially responsible party at any federal or stated National Priority List
("superfund") site.
SECTION 3.21 BOOKS AND RECORDS. All accounts, books, ledgers and official
and other records prepared and kept by Parent and its Subsidiaries have been
kept and completed in all material respects, and there are no material
inaccuracies or discrepancies contained or reflected therein.
SECTION 3.22 POOLING MATTERS. Parent has provided to Parent's independent
accountants all information concerning actions taken or agreed to be taken by
Parent or any of its Affiliates on or before the date of this Agreement that
could reasonably be expected to adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests. Parent has provided Company a letter from Parent's independent
public accountants to the effect that, after review, such accountants know of no
reason relating to the Parent that should prevent the Parent from accounting for
the Merger as a pooling of interests.
SECTION 3.23 REGISTRATION STATEMENT; JOINT PROXY
STATEMENT/PROSPECTUS. Subject to the accuracy of the representations of the
Company in Section 2.28, the registration statement (the "Registration
Statement") pursuant to which the Parent Common Stock to be issued in the Merger
will be registered with the SEC shall not at the time the Registration Statement
is declared effective by the SEC contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The information supplied by Parent in
writing specifically for inclusion in the Joint Proxy Statement/Prospectus will
not, on the date the Joint Proxy Statement/Prospectus (or any amendment thereof
or supplement thereto) is first mailed to stockholders, at the time of the
Stockholders Meetings, or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which they are made, not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Stockholders Meetings which has become false or misleading. If at any time prior
to the Effective Time any event relating to Parent or any of its Subsidiaries or
any of their respective officers, directors, stockholders or
A-26
Affiliates should be discovered by Parent which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Parent shall promptly inform the Company. The Joint Proxy
Statement/Prospectus shall comply in all material respects with the requirements
of the Securities Act and the Exchange Act. Notwithstanding the foregoing,
Parent makes no representation or warranty with respect to any Company
Information which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Registration Statement or the Joint
Proxy Statement/Prospectus.
SECTION 3.24 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. (a) Merger Sub
is a direct, wholly-owned subsidiary of Parent and was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, expect for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and except for this Agreement
and any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, the Company covenants
and agrees that, unless Parent shall otherwise agree in writing, the Company
shall conduct its business and shall cause the businesses of its Subsidiaries to
be conducted only in, and the Company and its Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice, other than actions taken by the Company or its Subsidiaries
in order to facilitate the negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereunder which actions would not
breach any of the Company's representations, warranties, covenants or agreements
herein; and the Company shall use reasonable commercial efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the present officers, employees,
agents, distributors and consultants of the Company and its Subsidiaries and to
preserve the present relationships of the Company and its Subsidiaries with
customers, suppliers and other Persons with which the Company or any of its
Subsidiaries has significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, neither the Company nor
any of its Subsidiaries shall, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent:
(a) amend or otherwise change the Company's Certificate of Incorporation or
Bylaws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock of any
class, or any options, warrants, convertible securities or other rights of any
kind to acquire any shares of capital stock, or any other ownership interest
(including, without limitation, any phantom interest) in the Company or any of
its Subsidiaries or Affiliates (except for the issuance of shares of Company
Common Stock issuable upon the exercise of the Warrants or Stock Options, which
Warrants and Stock Options are outstanding on the date hereof or pursuant to the
Company's Employee Stock Purchase Plan);
(c) sell, pledge, dispose of or encumber any assets of the Company or any of
its Subsidiaries (except for sales, pledges, dispositions and encumbrances of
assets in the ordinary course of business);
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(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned Subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, or permit any Subsidiary
to purchase, repurchase, redeem or otherwise acquire, any of its securities or
any securities of its Subsidiaries, including, without limitation, shares of
Company Common Stock or any option, warrant or right, directly or indirectly, to
acquire shares of Company Common Stock;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any material indebtedness for borrowed money, except for
borrowings and reborrowing under the Company's existing credit facilities or
issue any debt securities or assume, guarantee (other than guarantees of bank
debt of the Company's Subsidiaries under existing credit facilities entered into
in the ordinary course of business); (iii) endorse or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
material loans or advances, except for endorsements, accommodations, loans or
advancements in the ordinary course of business consistent with prior practice;
(iv) authorize any capital expenditures or purchases of fixed assets other than
in the ordinary course of business consistent with prior practice and in the
aggregate less than $10,000,000 prior to December 31, 1997 and $18,000,000 prior
to March 31, 1998; or (v) enter into or amend any contract, agreement,
commitment or arrangement to effect any of the matters prohibited by this
Section 4.1(e);
(f) make any change in the rate of compensation, commission, bonus or other
remuneration payable, or pay or agree or promise to pay, conditionally or
otherwise, any bonus, extra compensation, pension or severance or vacation pay,
to any director, officer, employee, salesman, distributor or agent of the
Company or any of its Subsidiaries except in the ordinary course of business
consistent with prior practice or as currently scheduled for various officers of
the Company beginning October 1, 1997 as required by such officers' employment
agreements, correct and complete copies of which agreements have heretofore been
delivered by the Company to Parent, or make any increase in or commitment to
increase any employee benefits, adopt or make any commitment to adopt any
additional employee benefit plan or make any contribution, other than regularly
scheduled contributions, to any Employee Benefit Plan;
(g) take any action to change accounting practices, policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable or collection of accounts receivable) except as
required by the SEC, the Financial Accounting Standards Board or GAAP;
(h) make any material tax election inconsistent with past practice or settle
or compromise any material federal, state, local or foreign Tax liability or
agree to an extension of a statute of limitations, except to the extent the
amount of any such settlement has been reserved for in the financial statements
contained in the Company SEC Reports filed with the SEC prior to the date of
this Agreement and except as described in Section 4.1(h) of the Company
Disclosure Schedule;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) that are individually or in the
aggregate material to the Company and its Subsidiaries, other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities reflected or reserved against in the Company
Financial Statements or incurred thereafter in the ordinary course of business
and consistent with past practice;
(j) take any action to delist a security of the Company from any securities
exchange;
(k) recommend or take any action to adopt a plan of dissolution or
liquidation with respect to the Company or any of its Subsidiaries; or
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(l) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (k) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect in any material respect or prevent the Company
from performing or cause the Company not to perform in all material respects its
covenants herein.
SECTION 4.2 NO SOLICITATION. (a) Upon execution of this Agreement, the
Company does not have, or shall immediately terminate any discussions with, any
third party concerning an Alternative Acquisition (as defined below). From and
after the date of this Agreement until the earlier of the Effective Time or the
termination of this Agreement in accordance with its terms, the Company shall
not, and shall not permit any officer, director, employee, investment banker or
other agent of the Company or any Subsidiary of the Company to, directly or
indirectly, (i) solicit, engage in discussions or negotiate with any Person
(whether such discussions or negotiations are initiated by the Company or
otherwise) or take any other action intended or designed to facilitate the
efforts of any Person, other than Parent, relating to the possible acquisition
of the Company or any of its Subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets (with any such efforts by any such Person,
including a firm proposal to make such an acquisition, to be referred to as an
"Alternative Acquisition"), (ii) provide information with respect to the Company
or any of its Subsidiaries to any Person, other than Parent, relating to a
possible Alternative Acquisition by any Person, other than Parent, (iii) enter
into an agreement with any person, other than Parent, providing for a possible
Alternative Acquisition, or (iv) make or authorize any statement, recommendation
or solicitation in support of any possible Alternative Acquisition by any
Person, other than by Parent.
(b) Notwithstanding the foregoing, the restrictions set forth in Section
4.2(a) shall not prevent the Board of Directors of the Company (or its agents
pursuant to its instructions) from taking any of the following actions: (i)
furnishing information concerning the Company and its business, properties and
assets to any third party or (ii) engaging in discussions or negotiating with
such third party concerning an Alternative Acquisition, in either such case
provided that all of the following events shall have occurred: (1) such third
party is not an Affiliate of the Company and has made a written, bona fide
proposal to the Board of Directors of the Company to acquire the Company (which
proposal may be conditional) through an Alternative Acquisition which proposal
identifies a price or range of values to be paid for all of the outstanding
securities (including Stock Options and Warrants) or substantially all of the
assets of the Company, and if consummated, based on the advice of the Company's
investment bankers, the Board of Directors of the Company has determined, in
good faith, is more favorable to the stockholders of the Company, from a
financial point of view, than the terms of the Merger (a "Superior Proposal");
(2) the Company's Board of Directors has determined, based on the advice of its
investment bankers, that such third party is financially capable of consummating
such Superior Proposal; (3) the Board of Directors of the Company shall have
determined, after consultation with its outside legal counsel, that, the
fiduciary duties of the Board of Directors of the Company require the Company to
furnish information to and negotiate with such third party; and (4) Parent shall
have been notified in writing of such Alternative Acquisition, including all of
its terms and conditions, and shall have been given copies of such proposal.
Furthermore, nothing contained in this Agreement shall prevent the Company from
taking any position with respect to an Alternative Acquisition pursuant to Rules
14d-9 and 14e-2 under the Exchange Act which is consistent with the advice of
counsel concerning the fiduciary duties of the Board of Directors of the Company
under applicable law with respect to a tender offer commenced by a third party
other than an Affiliate of the Company.
(c) Notwithstanding the foregoing, the Company shall not provide any
non-public information to such third party unless (i) it has prior to or
contemporaneously therewith provided such information to Parent or Parent's
representatives; and (ii) the Company provides such non-public information
pursuant to a nondisclosure agreement with terms which are at least as
restrictive as the nondisclosure agreement heretofore entered into between
Parent and the Company.
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(d) In addition to the foregoing, the Company shall not accept or enter into
any agreement concerning an Alternative Acquisition for a period of not less
than 48 hours after Parent's receipt of a notice of the material terms of such
proposal of an Alternative Acquisition. Upon compliance with all of the
foregoing provisions of this Section 4.2, the Company shall be entitled to (i)
change its recommendation concerning the Merger, and (ii) enter into an
agreement with such third party concerning an Alternative Acquisition provided
that the Company shall immediately make payment in full to Parent of the Fee as
defined in Section 7.3 below.
(e) the Company shall ensure that the officers and directors of the Company
and its Subsidiaries and any investment banker or other financial advisor or
representative retained by the Company or any Subsidiary of the Company are
aware of the restrictions described in this Section 4.2.
(f) the Company shall be entitled to provide copies of this Section 4.2 to
third parties who on an entirely unsolicited basis after the date hereof,
contact the Company concerning an Alternative Acquisition; provided that Parent
shall concurrently be notified of such contact and the delivery of such copy.
SECTION 4.3 CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and agrees
that, unless the Company shall otherwise agree in writing, Parent shall conduct
its business, and cause the businesses of its Subsidiaries to be conducted only
in, and Parent and its Subsidiaries shall not take any action except in, the
ordinary course of business and consistent with past practice, except for
actions taken by Parent or its Subsidiaries in order to facilitate the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereunder which actions would not breach any of
Parent's or Merger Sub's representations, warranties, covenants and agreements
herein, and shall not directly or indirectly do, or propose to do, any of the
following without the prior written consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or
Bylaws;
(b) declare, set aside, make or pay any cash dividend or other
distribution in respect of any of its capital stock, except that a wholly
owned Subsidiary of Parent may declare and pay a dividend to its parent;
(c) take any action to delist a security of Parent from any securities
exchange;
(d) recommend or take any action to adopt a plan of dissolution or
liquidation with respect to Parent or any of its Subsidiaries; or
(e) take or agree in writing or otherwise to take any action described
in Sections 4.3(a) through (d) above or any action which would make any of
the representations or warranties of Parent or Merger Sub contained in this
Agreement untrue or incorrect or prevent Parent or Merger Sub from
performing or cause Parent or Merger Sub not to perform its covenants
herein.
Nothing in this Section 4.3 or any other provision of this Agreement shall
prevent Parent from engaging in any discussions or entering into or consummating
any agreements or other arrangements with respect to (i) the sale of all or
substantially all of the Parent's capital stock or assets, (ii) any material
strategic alliance or (iii) the material acquisition (by merger, consolidation
or acquisition of stock or assets or otherwise) of any corporation, partnership
or other business organization or division thereof ((i), (ii) and (iii) each a
"Material Parent Transaction") and no such actions by Parent or any of its
Subsidiaries with respect to a Material Parent Transaction shall constitute a
breach of any representation, warranty, covenant or agreement of Parent or
Merger Sub herein; provided, however, that after the Joint Proxy
Statement/Prospectus has been mailed to the stockholders of the Company and
prior to the then scheduled date of the Company Stockholders Meeting, Parent
will not initiate any discussions with respect to any Material Parent
Transaction, it being understood and agreed that nothing in this proviso shall
in any way
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affect Parent's right to respond to any such discussions initiated by any third
party who is not an Affiliate of the Parent.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 JOINT PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, and after the
furnishing by the Company and Parent of all information required to be contained
therein, which respective information each of Parent and Company covenant to use
their best efforts as promptly as possible following the date hereof to so
furnish, the Company and Parent shall file with the SEC a Registration Statement
on Form S-4 (or on such other form as shall be appropriate), which shall include
the Joint Proxy Statement/Prospectus relating to the adoption of this Agreement
and, consistent with Section 4.2, approval of the transactions contemplated
hereby by the stockholders of the Company and Parent pursuant to this Agreement,
and shall use all reasonable efforts to cause the Registration Statement to
become effective as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Boards of Directors
of the Company in favor of the Merger and of Parent in favor of the Parent
Common Stock Issuance, and such recommendations shall not be withdrawn modified
or changed in a manner adverse to Parent or Merger Sub or the Company,
respectively, subject to the last sentence of Section 5.2.
SECTION 5.2 COMPANY STOCKHOLDERS MEETING. The Company shall call the
Company Stockholders Meeting as promptly as practicable for the purpose of
voting upon the approval of the Merger, and the Company shall use its reasonable
best efforts to hold the Company Stockholders Meeting as soon as practicable
after the date on which the Registration Statement becomes effective. Unless
otherwise required under the applicable fiduciary duties of the directors of the
Company, as determined in accordance with Section 4.2, the Company shall solicit
from its stockholders proxies in favor of approval of the Merger and this
Agreement, shall take all other reasonable action necessary or advisable to
secure the vote or consent of stockholders in favor of such approval and shall
not take any action that could reasonably be expected to prevent the vote or
consent of stockholders in favor of such approval.
SECTION 5.3 PARENT STOCKHOLDERS MEETING. Parent shall call the Parent
Stockholders Meeting as promptly as practicable for the purpose of authorizing
and approving the issuance by Parent of the Parent Common Stock in the Merger,
as contemplated by this Agreement (the "Parent Common Stock Issuance") as
required by the NYSE, and if so required by the NYSE, Parent shall use its
reasonable best efforts to hold the Parent Stockholders Meeting as soon as
practicable after the date on which the Registration Statement becomes
effective. Parent shall solicit from its stockholders proxies in favor of
approval of the Parent Common Stock Issuance, shall take all other reasonable
action necessary or advisable to secure the vote or consent of stockholders in
favor of such approval, if required, and shall not take any action that could
reasonably be expected to prevent such vote or consent of stockholders in favor
of such approval.
SECTION 5.4 ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to be
released), the Company and Parent shall each (and shall cause each of their
Subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other reasonable access, during the period prior to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company and Parent each shall (and shall
cause each of their Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential in accordance with the terms of the
confidentiality letter (the "Confidentiality Letter") between Parent and the
Company.
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SECTION 5.5 CONSENTS; APPROVALS. The Company and Parent shall each in good
faith use their reasonable best efforts to obtain all consents, waivers,
approvals, authorizations or orders (including, without limitation, all United
States and foreign governmental and regulatory rulings and approvals), and the
Company and Parent shall make all filings (including, without limitation, all
filings with United States and foreign governmental or regulatory agencies)
required in connection with the authorization, execution and delivery of this
Agreement by the Company and Parent and the consummation by them of the
transactions contemplated hereby. The Company and Parent shall furnish all
information required to be included in the Joint Proxy Statement/Prospectus and
the Registration Statement or for any application or other filing to be made
pursuant to the rules and regulations of any United States or foreign
governmental body in connection with the transactions contemplated by this
Agreement.
SECTION 5.6 AGREEMENTS WITH RESPECT TO AFFILIATES. The Company shall
deliver to Parent, prior to the date the Registration Statement becomes
effective under the Securities Act, a letter (the "Affiliate Letter")
identifying all Persons who are, at the time of the Company Stockholders
Meeting, anticipated to be "Affiliates" of the Company for purposes of Rule 145
under the Securities Act ("Rule 145"), or the rules and regulations of the SEC
relating to pooling of interests accounting treatment for merger transactions
(the "Pooling Rules"). The Company shall use its reasonable best efforts to
cause each Person who is identified as an "affiliate" in the Affiliate Letter to
deliver to Parent, no less than 30 days prior to the date of the Company
Stockholders Meeting, a written agreement (an "Affiliate Agreement") in
connection with restrictions on Affiliates under Rule 145 and pooling of
interests accounting treatment, in form mutually agreeable to the Company and
Parent.
SECTION 5.7 INDEMNIFICATION AND INSURANCE. (a) The Bylaws and Certificate
of Incorporation of the Surviving Corporation shall contain the provisions with
respect to indemnification set forth in the Bylaws and Certificate of
Incorporation of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder as of the Effective
Time of individuals who at the Effective Time were directors, officers,
employees or agents of the Company or its Subsidiaries, unless such modification
is required after the Effective Time by law.
(b) The Surviving Corporation shall, to the fullest extent permitted under
applicable law or under the Surviving Corporation's Certificate of Incorporation
or Bylaws, indemnify and hold harmless each present and former director,
officer, employee or agent of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative (collectively, "Actions"), (x) arising out of or
pertaining to the transactions contemplated by this Agreement, or (y) otherwise
with respect to any acts or omissions occurring at or prior to the Effective
Time, in each case to the same extent (including any provision for the
advancement of expenses) as provided in the Company's Certificate of
Incorporation or Bylaws or any applicable contract or agreement as in effect on
the date hereof, in each case for a period of six years after the Effective
Time; provided, however, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. In the event of any such Action (whether
arising before or after the Effective Time), the Indemnified Parties shall
promptly notify the Surviving Corporation in writing, but the failure to so
notify shall not relieve the Surviving Corporation of its obligations under this
Section 5.7(b) except to the extent it is materially prejudiced by such failure,
and the Surviving Corporation shall have the right to assume the defense
thereof, including the employment of counsel reasonably satisfactory to such
Indemnified Parties. The Indemnified Parties shall have the right to employ
separate counsel in any such Action and to participate in (but not control) the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Parties unless (a) the Surviving Corporation has
agreed to pay such fees and expenses, (b) the Surviving Corporation shall have
failed to assume the defense of such Action or
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(c) the named parties to any such Action (including any impleaded parties)
include both the Surviving Corporation and the Indemnified Parties and such
Indemnified Parties shall have been reasonably advised by counsel that there may
be one or more legal defenses available to the Indemnified Parties which are in
conflict with those available to the Surviving Corporation. In the event such
Indemnified Parties employ separate counsel at the expense of the Surviving
Corporation pursuant to clauses (b) or (c) of the previous sentence, (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving Corporation; (ii) the
Indemnified Parties as a group may retain only one law firm to represent them in
each applicable jurisdiction with respect to any single Action unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties,
in which case each Indemnified Person with respect to whom such a conflict
exists (or group of such Indemnified Persons who among them have no such
conflict) may retain one separate law firm in each applicable jurisdiction;
(iii) after the Effective Time, the Surviving Corporation shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received; and (iv) the Surviving Corporation will cooperate in the defense
of any such Action. The Surviving Corporation shall not be liable for any
settlement of any such Action effected without its written consent.
(c) The Surviving Corporation shall honor and fulfill in all respects the
obligations of the Company pursuant to indemnification agreements and employment
agreements (the employee parties under such agreements being referred to as the
"Officer Employees") with the Company's directors and officers existing on the
date hereof.
(d) For a period of six years after the Effective Time, Parent shall cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those Persons who are currently covered
by the Company's directors' and officers' liability insurance policy (a correct
and complete copy of which has been made available to Parent) on terms
comparable to those now applicable to directors and officers of the Company;
provided, however, that in no event shall the Surviving Corporation be required
to expend in excess of 300% of the annual premium currently paid by the Company
for such coverage; and provided further, that if the premium for such coverage
exceeds such amount, Parent or the Surviving Corporation shall purchase a policy
with the greatest coverage available for such 300% of such annual premium.
(e) The provisions of this Section 5.7 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, the Surviving
Corporation, the Indemnified Parties and the Officer Employees, shall be binding
on all successors and assigns of the Surviving Corporation and shall be
enforceable by the Indemnified Parties and the Officer Employees.
SECTION 5.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be materially untrue or inaccurate, or (ii) any failure of the
Company, Parent or Merger Sub, as the case may be, materially to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.8 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.2(b) or 6.3(b) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.9 FURTHER ACTION/TAX TREATMENT. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement, to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary
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registrations and filings, and otherwise to satisfy or cause to be satisfied all
conditions precedent to its obligations under this Agreement. The foregoing
covenant shall not include any obligation by Parent to agree to divest, abandon,
license or take similar action with respect to any assets (tangible or
intangible) of Parent or the Company. Each of Parent, Merger Sub and the Company
shall use its commercially reasonable efforts to cause the Merger to qualify,
and will not (both before and after consummation of the Merger) take any actions
which to its Knowledge could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under the provisions of section 368 of the Code.
SECTION 5.10 PUBLIC ANNOUNCEMENTS; COMMUNICATIONS WITH EMPLOYEES. Parent
and the Company shall consult with each other before issuing any press release
with respect to the Merger or this Agreement and shall not issue any such press
release or make any such public statement without the prior consent of the other
party, which shall not be unreasonably withheld; provided, however, that a party
may, without the prior consent of the other party, issue such press release or
make such public statement as may upon the advice of counsel be required by law
or the rules and regulations of the NYSE or the Nasdaq National Market, as the
case may be, if it has used all reasonable efforts to consult with the other
party. Parent and the Company shall cooperate with each other with respect to,
and endeavor in good faith to agree in advance upon the method and content of,
all written communications to employees of the Company and its Subsidiaries, and
all oral communications to groups of employees, prior to the Effective Time.
SECTION 5.11 LISTING OF PARENT COMMON STOCK. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the Merger
and upon the exercise of the Stock Options and Warrants to be listed, upon
official notice of issuance, on the NYSE prior to the Effective Time.
SECTION 5.12 CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time and the
Surviving Corporation shall be responsible for the payment of all such taxes and
fees.
SECTION 5.13 ACCOUNTANT'S LETTERS. Upon reasonable notice from the other,
the Company shall use its best efforts to cause Arthur Andersen LLP to deliver
to Parent, and Parent shall use its best efforts to cause Arthur Andersen LLP to
deliver to the Company, a letter covering such matters as are requested by
Parent or the Company, as the case may be, and as are customarily addressed in
accountant's "comfort" letters.
SECTION 5.14 POOLING ACCOUNTING TREATMENT. Parent and the Company each
agrees not to take any action that would reasonably be expected to adversely
affect the ability of Parent to account for the business combination to be
effected by the Merger as a pooling of interests, and Parent and the Company
each agrees to use its commercially reasonable efforts to take such action as
may be reasonably required to negate the impact of any past actions by Parent,
the Company or their respective Affiliates which would reasonably be expected to
adversely impact the ability of Parent to treat the Merger as a pooling of
interests. The taking by Parent or the Company of any action prohibited by the
previous sentence, or the failure of Parent or the Company to use its
commercially reasonable efforts to take any action required by the previous
sentence, if the Merger is not able to be accounted for as a pooling of
interests because of such action or failure to take action, shall constitute a
breach of this Agreement by such party for the purposes of Section 7.1(h).
SECTION 5.15 RIGHTS AGREEMENT. Prior to the Effective Time, the Company
shall take all necessary action to (i) render rights issued pursuant to the
Rights Agreement dated April 12, 1996 by and between the Company and U.S. Trust
Company of Texas, N.A., as Rights Agent (as amended, the "Company Rights
Agreement"), inapplicable to the Merger, and (ii) ensure that (x) neither Parent
nor any of its Affiliates (as defined in the Company Rights Agreement) is an
Acquiring Person (as defined in the Company Rights
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Agreement) and (y) no Billing Distribution Date, Triggering Event or Stock
Acquisition Date (each as defined in the Company Rights Agreement) shall occur
by reason of the approval, execution or delivery of this Agreement, or the
announcement or consummation of the Merger.
SECTION 5.16 DELIVERY OF CERTAIN REPORTS. Within 30 days after the date of
this Agreement, the Company shall deliver to Parent or its counsel complete and
correct copies of all trust agreements related to any Employee Benefit Plan,
insurance and other contracts and other funding arrangements, the current
summary plan descriptions and current summaries of material modifications
relating to each Employee Benefit Plan, the most recent Form 5500's which have
been filed with any appropriate government agency with respect to each Employee
Benefit Plan, the most recent favorable determination letter issued for each
Employee Benefit Plan and related trust that is intended to satisfy the
qualification requirements of sections 401(a) and 501(a) of the Code (and the
latest IRS form 5300 or 5307, whichever is applicable, filed with the IRS for
each such Employee Benefit Plan).
SECTION 5.17 RECEIPT OF ACKNOWLEDGMENTS. The Company shall use its best
efforts to obtain prior to the Effective Time an acknowledgment in form and
substance reasonably satisfactory to Parent from all holders of Stock Options,
and shall obtain such acknowledgment from all holders of Stock Options who are
officers or directors of the Company, that such Stock Options from and after the
Effective Time are exercisable for shares of Parent Common Stock as provided in
Section 1.6(c) of this Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that
purpose and no similar proceeding in respect of the Joint Proxy
Statement/Prospectus shall have been initiated or threatened by the SEC;
(b) Stockholder Approval. The Merger and this Agreement shall have been
approved by the requisite vote of the stockholders of the Company, and the
Parent Common Stock Issuance shall have been approved by the requisite vote
of the stockholders of Parent, if required;
(c) Listing. The shares of Parent Common Stock issuable in the Merger
shall have been authorized for listing on the NYSE upon official notice of
issuance;
(d) HSR Act. All waiting periods applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated;
(e) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other
inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction,
domestic or foreign, nor shall there be in effect any judgment, decree or
order of any governmental authority, administrative agency or court of
competent jurisdiction, or any other legal restraint (i) preventing or
seeking to prevent consummation of the Merger, (ii) prohibiting or seeking
to prohibit or limiting or seeking to limit Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of its
Subsidiaries of all or a material portion of the business or assets of
Parent or any of its Subsidiaries (including the Surviving Corporation or
any of its
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Subsidiaries), or (iii) compelling or seeking to compel Parent or any of its
Subsidiaries to dispose of or hold separate all or any material portion of
the business or assets of Parent or any of its Subsidiaries (including the
Surviving Corporation and its Subsidiaries), as a result of the Merger or
the transactions contemplated by this Agreement;
(f) Illegality. No statute, rule, regulation or order shall be enacted,
entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal;
(g) Opinions of Counsel. The Company shall have received the written
opinion of Kramer, Levin, Naftalis & Frankel, in form reasonably
satisfactory to the Company, as to certain customary corporate and legal
matters relating to Parent, Merger Sub, the Merger, this Agreement and the
transactions contemplated hereby. Parent and Merger Sub shall have received
the written opinion of Arter & Hadden, in form reasonably satisfactory to
Parent, as to certain customary corporate and legal matters relating to the
Company, the Merger, this Agreement and the transactions contemplated
hereby; and
(h) Tax Opinions. The Company shall have received a written opinion of
Arter & Hadden, and Parent shall have received a written opinion of Kramer,
Levin, Naftalis & Frankel, in form and substance reasonably satisfactory to
each of them to the effect that the Merger will constitute a reorganization
within the meaning of section 368 of the Code. Each party agrees to make all
reasonable representations and covenants in connection with the rendering of
such opinions.
(i) Pooling. The Merger shall be accounted for as a pooling of
interests.
SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
respects on and as of the Effective Time with the same force and effect as
if made on and as of the Effective Time, except for (i) changes contemplated
by this Agreement, (ii) those representations and warranties which address
matters only as of a particular date (which shall have been true and correct
as of such date, subject to clause (iii)), or (iii) where the failure to be
true and correct would not reasonably be expected to have a Material Adverse
Effect, and Parent and Merger Sub shall have received a certificate to such
effect signed by the Chief Executive Officer and Chief Financial Officer of
the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
dated as of the Effective Time to such effect signed by the Chief Executive
Officer and Chief Financial Officer of the Company;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all material filings
required to be made, by the Company for the authorization, execution and
delivery of this Agreement, the consummation by it of the transactions
contemplated hereby and the continuation in full force and effect of any and
all material rights, documents, agreements or instruments of the Company
shall have been obtained and made by the Company, except where the failure
to receive such consents, waivers, approvals, authorizations or orders or
make such filings would not reasonably be expected to have a Material
Adverse Effect on the Surviving Corporation or Parent;
(d) Opinion of Accountant. Parent shall have received an opinion of
Arthur Andersen LLP, independent certified public accountants, regarding the
qualification of the Merger as a pooling of interests for accounting
purposes, and Company shall have received an opinion of Arthur Andersen LLP,
independent certified public accountants, regarding the qualification of the
Merger as a pooling
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of interests for accounting purposes. Such opinions shall be in form and
substance reasonably satisfactory to Parent; and
(e) Affiliate Agreements. Parent shall have received from each Person
who is identified in the Affiliate Letter as an "affiliate" of the Company,
an Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect.
(f) Agreements with Warrant Holders. Parent shall have received from
each Warrant holder and from the holders of Stock Options to purchase at
least 2.5 million shares of Company Common Stock an acknowledgement in form
and substance reasonably satisfactory to Parent that such Warrant and Stock
Options from and after the Effective Time are exercisable for shares of
Parent Common Stock as provided in section 1.6(c) of this Agreement.
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all respects on and as of the Effective Time with the same force
and effect as if made on and as of the Effective Time, except for (i)
changes contemplated by this Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date, subject to clause (iii)), or
(iii) where the failure to be true and correct would not reasonably be
expected to have a Material Adverse Effect, and the Company shall have
received a certificate to such effect signed by the Chief Financial Officer
of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate dated as of the Effective Time to such effect signed by the
President and Chief Financial Officer of Parent; and
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all material filings
required to be made, by Parent or Merger Sub for the authorization,
execution and delivery of this Agreement, the consummation by them of the
transactions contemplated hereby and the continuation in full force and
effect of any and all material rights, documents, agreements or instruments
of Parent shall have been obtained and made by Parent and Merger Sub, except
where the failure to receive such consents, waivers, approvals,
authorizations or orders or make such filings would not be reasonably be
expected to have a Material Adverse Effect on the Surviving Corporation or
Parent, and except where Parent has requested the Company to take such
reasonable actions, including the transfer of assets and the execution of
management agreements or similar arrangements with Affiliates of the
Company, where, as a result of the consummation of such actions, the failure
to receive such consents, waivers, approvals, authorizations or orders would
not have a Material Adverse Effect on the Surviving Corporation or Parent.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
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(b) by either Parent or the Company if the Merger shall not have been
consummated by February 28, 1998 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available (i) to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date or (ii) to Parent in the event that a Material Parent Transaction has
been the cause of or resulted in the failure of the Merger to occur on or
before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a nonappealable final order, decree or ruling or taken any other
action having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger (provided that the right to terminate this Agreement
under this Section 7.1(c) shall not be available to any party who has not
complied with its obligations under Section 5.9 and such noncompliance
materially contributed to the issuance of any such order, decree or ruling
or the taking of such action); or
(d) by either Parent or the Company if:
(i) subject to clause (iii) below, (x) the requisite vote of the
stockholders of the Company shall not have been obtained by February 28,
1998, or (y) if required, the requisite vote of the stockholders of
Parent shall not have been obtained by February 28, 1998;
(ii) (x) the stockholders of the Company shall not have approved the
Merger and this Agreement at the Company Stockholders Meeting or (y) if
required, the stockholders of Parent shall not have approved the Parent
Common Stock Issuance at the Parent Stockholders Meeting;
(iii) in the event that a Material Parent Transaction prevents
holding the Company Stockholders Meeting or the Parent Stockholders
Meeting, as the case may be, by February 28, 1998, (x) the requisite vote
of the stockholders of the Company shall not have been obtained by the
earlier of (1) the 45th consecutive day that the Registration Statement
is effective and (2) December 31, 1998 or (y) if required, the requisite
vote of the stockholders of Parent shall not have been obtained by the
earlier of (1) the 45th consecutive day that the Registration Statement
is effective and (2) December 31, 1998; or
(e) by the Company or Parent, if the Board of Directors of the Company
shall withdraw, modify or change its approval of this Agreement or the
Merger in a manner adverse to Parent or Merger Sub or shall have resolved to
do so, in each case in compliance with the provisions of Section 4.2; or
(f) by Parent or the Company if any representation or warranty of the
Company, or Parent and Merger Sub, respectively, set forth in this Agreement
shall be untrue when made, such that the conditions set forth in Sections
6.2(a) or 6.3(a), as the case may be, would not be satisfied (a "Terminating
Misrepresentation"); provided, however, that, if such Terminating
Misrepresentation is curable prior to the Closing Date by the Company or
Parent, as the case may be, through the exercise of its commercially
reasonable efforts and for so long as the Company or Parent, as the case may
be, continues to exercise such commercially reasonable efforts, neither
Parent nor the Company, respectively, may terminate this Agreement under
this Section 7.1(f); or
(g) by Parent if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.2(a) would
not be satisfied (a "Company Terminating Change"), or by the Company if any
representation or warranty of Parent and Merger Sub shall have become untrue
such that the condition set forth in Section 6.3(a) would not be satisfied
(a "Parent Terminating Change" and together with a Company Terminating
Change, a "Terminating Change"), in either case other than by reason of a
Terminating Breach (as hereinafter defined); provided, however, that if any
such Terminating Change is curable prior to Closing Date by the Company or
Parent, as the case may be, through the exercise of its commercially
reasonable efforts, and for so long as the Company or Parent, as the case
may be, continues to exercise such commercially reasonable
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efforts, neither Parent nor the Company, respectively, may terminate this
Agreement under this Section 7.1(g); or
(h) by Parent or the Company upon a breach of any covenant or agreement
on the part of the Company or Parent, respectively, set forth in this
Agreement, such that the conditions set forth in Sections 6.2(b) or 6.3(b),
as the case may be, would not be satisfied (a "Terminating Breach");
provided, however, that, if such Terminating Breach is curable prior to the
Closing Date by the Company or Parent, as the case may be, through the
exercise of its commercially reasonable efforts and for so long as the
Company or Parent, as the case may be, continues to exercise such
commercially reasonable efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 7.1(h); or
(i) by the Company, if (x) the Average Stock Price for the twenty (20)
consecutive trading days ending on the third trading day prior to the
Company Stockholders Meeting is less than $20.40, (y) on or before the
second trading day prior to the date of the Company Stockholders Meeting,
the Company delivers to Parent written notice of its intention, subject to
the following clause (z), to terminate this Agreement, and (z) Parent has
not agreed by notice to the Company in writing on or before one trading day
prior to the date of the Company Stockholders Meeting to an Exchange Ratio
at least equal to $18.90 divided by the Average Stock Price. In the event
Parent delivers its notice specified in clause (z) of this Section 7.1(i),
the Company shall not have the right to terminate this Agreement pursuant to
this Section 7.1(i); or
(j) by Parent, if the Average Stock Price is less than $20.40.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or of any of its
Affiliates, directors, officers or stockholders except (i) as set forth in
Section 7.3 and Section 8.1, and (ii) nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 7.3 FEES AND EXPENSES. (a) Except as set forth in this Section
7.3, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all SEC filing fees and printing
expenses incurred in connection with the printing and filing of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $11,000,000 upon (i) the
termination of this Agreement pursuant to Section 7.1(d)(i)(x) or Section
7.1(d)(iii)(x)(1), provided that in either such case, such failure to obtain the
requisite vote is the result of a Terminating Misrepresentation by the Company
or a Terminating Breach by the Company, (ii) the termination of this Agreement
pursuant to Section 7.1(d)(ii)(x), provided, the average of the closing prices
(or the average of the closing bid and asked prices for any day on which the
Parent Common Stock does not trade) of the Parent Common Stock on the NYSE for
the three trading days immediately prior to the Company Stockholders Meeting is
not below $20.40, (iii) the termination of this Agreement pursuant to Section
7.1(e) or (iv) the termination of this Agreement for any reason other than a
Terminating Breach by Parent, a Terminating Misrepresentation by Parent, a
Terminating Change or pursuant to Section 7.1(a), Section 7.1(c), Section
7.1(d)(i)(y), (ii)(y) or (iii)(y)(1), Section 7.1(i) or Section 7.1(j), and the
Company enters into an agreement with a third party within six months of the
date of the termination of this Agreement relating to the possible acquisition
of the Company or any of its Subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise) or any material portion of its
or their capital stock or assets.
(c) Parent shall pay the Company a fee of $11,000,000 upon (i) the
termination of this Agreement pursuant to Section 7.1(d)(i)(y) or Section
7.1(d)(iii)(y)(1), provided that in either such case, such failure
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to obtain the requisite vote is the result of a Terminating Misrepresentation by
Parent or a Terminating Breach by Parent or (ii) the termination of this
Agreement pursuant to Section 7.1(d)(ii)(y).
(d) Upon termination of this Agreement by either Parent or the Company, the
respective parties hereto may seek any and all remedies available to it under
applicable law.
(e) The fee payable pursuant to Section 7.3(b) or 7.3(c) shall be paid
within one Business Day after a demand for payment following the occurrence of
any of the events described in Section 7.3(b) or Section 7.3(c); provided,
however, that, in no event shall the Company or Parent, as the case may be, be
required to pay such fee to the other party, if, immediately prior to the
termination of this Agreement, the party entitled to receive such fee was in
material breach of its obligations under this Agreement.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. (a) Except as otherwise provided in this Section 8.1, the
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any Person controlling any such
party or any of their officers, directors or representatives, whether prior to
or after the execution of this Agreement. The representations, warranties and
agreements in this Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Section 7.1, as the case may be,
except that the covenants and agreements set forth in Article I and Section 5.7
or 7.2 shall survive the Effective Time and those set forth in Section 7.3 shall
survive such termination. The Confidentiality Letter shall survive termination
of this Agreement as provided therein.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent. Disclosure of
any matter in the Company Disclosure Schedule or the Parent Disclosure Schedule
shall not be deemed an admission that such matter is material.
SECTION 8.2 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number (or to such other Person's attention) for a party as shall be
specified by like notice):
(a) If to Parent or Merger Sub:
LCI International, Inc.
8180 Greensboro Drive
Suite 800
McLean, VA 22102
Telecopier No.: (703)714-1750
Telephone No.: (703) 848-4446
Attention: Lee M. Weiner, Esq.
Vice President and General Counsel
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With a copy to:
(a) Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attention: Peter S. Kolevzon, Esq.
(b) If to the Company:
USLD Communications Corp.
9311 San Pedro, Suite 100
San Antonio, TX 78216
Telecopier No.: (210) 525-0389
Telephone No.: (210) 525-9009
Attention: W. Audie Long, Esq.
General Counsel
With a copy to:
Arter & Hadden
1717 Main Street, Suite 4100
Dallas, Texas 75201
Telecopier No.: (214) 741-7139
Telephone No.: (214) 761-4779
Attention: Joseph A. Hoffman, Esq.
SECTION 8.3 CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "Affiliates" means a Person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned Person;
(b) "Business Day" means any day other than a day on which banks in New
York are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "Knowledge" means the actual knowledge of the directors and
executive officers of such Person and its significant Subsidiaries who are
listed in Section 8.3 of the Company Disclosure Schedule, with respect to
the Company and its Subsidiaries, and Section 8.3 of the Parent Disclosure
Schedule, with respect to Parent and its Subsidiaries.
(e) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization other
entity or group (as defined in Section 13(d)(3) of the Exchange Act); and
(f) "Subsidiary" or "Subsidiaries" of the Company, the Surviving
Corporation, Parent or any other Person means any significant corporation,
partnership, limited liability company, or other legal entity of which the
Company, the Surviving Corporation, Parent or such other Person, as the case
may be (either alone or through or together with any other Subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 8.4 AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however,
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that, after approval of the Merger and this Agreement by the stockholders of the
Company, no amendment may be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.5 WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.6 HEADINGS; CONSTRUCTION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement (a) words
denoting the singular include the plural and vice versa, (b) "it" or "its" or
words denoting any gender include all genders, (c) the word "including" shall
mean "including without limitation," whether or not expressed, (d) any reference
to a statute shall mean the statute and any regulations thereunder in force as
of the date of this Agreement or the Effective Time, as applicable, unless
otherwise expressly provided, (e) any reference herein to a Section, Article or
Schedule refers to a Section or Article of or a Schedule to this Agreement,
unless otherwise stated, (f) when calculating the period of time within or
following which any act is to be done or steps taken, the date which is the
reference day in calculating such period shall be excluded and if the last day
of such period is not a Business Day, then the period shall end on the next day
which is a Business Day, and (g) any reference to a party's "best efforts" or
"commercially reasonable efforts" or like or similar phrases shall not include
any obligation of such party to pay, or guarantee the payment of, money or other
consideration to any third party or to agree to the imposition on such party or
its Affiliates of any condition reasonably considered by such party to be
materially burdensome to such party or its Affiliates.
SECTION 8.7 SEVERABILITY. (a) If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent reasonably
possible.
(b) The Company and Parent agree that the fees provided in Sections 7.3(b)
and 7.3(c) are fair and reasonable in the circumstances. If a court of competent
jurisdiction shall nonetheless, by a final, non-appealable judgment, determine
that the amount of any such fee exceeds the maximum amount permitted by law,
then the amount of such fee shall be reduced to the maximum amount permitted by
law in the circumstances, as determined by such court of competent jurisdiction.
SECTION 8.8 ENTIRE AGREEMENT. This Agreement, together with any written
agreements relating to the transactions contemplated hereby entered into
contemporaneously with this Agreement, constitutes the entire agreement and
supersedes all prior agreements and undertakings (other than the Confidentiality
Letter), both written and oral, among the parties, or any of them, with respect
to the subject matter hereof, except as otherwise expressly provided herein.
SECTION 8.9 ASSIGNMENT; MERGER SUB. This Agreement shall not be assigned
by operation of law or otherwise, except that all or any of the rights of Merger
Sub hereunder may be assigned to any direct, wholly-owned Subsidiary of Parent
provided that no such assignment shall relieve the assigning party of its
obligations hereunder. Parent guarantees the full and punctual performance by
Merger Sub of all the obligations hereunder of Merger Sub or any such assignees.
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SECTION 8.10 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.7 (which is intended to be for the benefit of the Indemnified Parties
and Officer Employees and may be enforced by such Indemnified Parties and
Officer Employees).
SECTION 8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, covenant or
agreement herein, nor shall any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
SECTION 8.12 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
SECTION 8.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14 WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY, AND EACH INDEMNIFIED PARTY AND OFFICER EMPLOYEE, HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
LCI INTERNATIONAL, INC.
By /s/ H. BRIAN THOMPSON
-----------------------------------
H. Brian Thompson
Chairman of the Board and
Chief Executive Officer
LCI ACQUISITION CORP.
By /s/ H. BRIAN THOMPSON
-----------------------------------
H. Brian Thompson
Chairman of the Board and
Chief Executive Officer
USLD COMMUNICATIONS CORP.
By /s/ LARRY M. JAMES
-----------------------------------
Larry M. James
Chairman of the Board,
Chief Executive Officer and
President
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ANNEX B
[AACC OPINION]
[TO COME]
ANNEX C
OPINION OF LCI'S FINANCIAL ADVISOR
Lehman Brothers acted as financial advisor to LCI in connection with the
Merger with USLD and delivered a written opinion to the LCI Board dated
September 17, 1997 (such written opinion, the "Lehman Opinion"), to the effect
that, as of the date of the Lehman Opinion, and based on and subject to the
assumptions, limitations and qualifications set forth therein, from a financial
point of view, Exchange Ratio was fair to LCI.
THE FULL TEXT OF LEHMAN BROTHERS' WRITTEN OPINION IS ATTACHED AS ANNEX C
TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. LCI STOCKHOLDERS SHOULD READ THE LEHMAN OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND OTHER MATTERS CONSIDERED.
No limitations were imposed by LCI on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion. Lehman Brothers was not requested to and did not make
any recommendation to the LCI Board as to the form or amount of the
consideration to be paid to holders of USLD Common Stock, which was
determined through arm's-length negotiations between the parties. In arriving
at its opinion, Lehman Brothers did not ascribe a specific range of values to
USLD or LCI, but rather made its determination as to the fairness, from a
financial point of view to LCI, of the consideration to be paid to holders of
USLD Common Stock in the Merger on the basis of the financial and comparative
analyses described below. Lehman Brothers' opinion is for the use and benefit
of the LCI Board and was rendered to the LCI Board in connection with its
consideration of the Merger. Lehman Brothers' opinion is not intended to be
and does not constitute a recommendation to any stockholder of LCI as to how
such stockholder should vote with respect to the LCI Share Issuance Proposal.
Lehman Brothers was not requested to opine as to, and its opinion does not
address, LCI's underlying business decision to proceed with or effect the
Merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1) the
Merger Agreement and the specific terms of the Merger, (2) such publicly
available information concerning LCI and USLD that Lehman Brothers believed to
be relevant to its analysis, (3) financial and operating information with
respect to the business, operations and prospects of LCI furnished to Lehman
Brothers by LCI, (4) financial and operating information with respect to the
business, operations and prospects of USLD furnished to Lehman Brothers by USLD
and by LCI, (5) a trading history of LCI's Common Stock from September 1, 1996
and a comparison of that trading history with those of other companies that
Lehman Brothers deemed relevant, (6) a trading history of USLD's Common Stock
from September 1, 1996 and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant, (7) a comparison of the
historical financial results and present financial condition of LCI with those
of other companies that Lehman Brothers deemed relevant, (8) a comparison of the
historical financial results and present financial condition of USLD with those
of other companies that Lehman Brothers deemed relevant, (9) third party
research analysts' quarterly and annual earnings estimates and recommendations
for LCI and for USLD, (10) the potential pro forma financial effects of the
Merger, including the cost savings and operating synergies expected by
management of LCI to result from a combination of the businesses of LCI and
USLD, and (11) a comparison of the financial terms of the Merger with the
financial terms of certain other transactions that Lehman Brothers deemed
relevant. In
C-1
addition, Lehman Brothers had discussions with the managements of LCI and of
USLD concerning their respective businesses, operations, assets, financial
conditions and prospects and the potential strategic benefits of the Merger and
undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of management of LCI
that they are not aware of any facts that would make such information inaccurate
or misleading. With respect to the financial projections of LCI and USLD
following the consummation of the Merger, upon advice of LCI, Lehman Brothers
assumed that such projections were reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of LCI or
USLD, as the case may be, as to the future financial performance of LCI and USLD
(including, without limitation, the cost savings and operating synergies
expected to result from a combination of the businesses of LCI and USLD), and
that LCI and USLD would, following the Merger, perform substantially in
accordance with such projections. In arriving at its opinion, Lehman Brothers
did not make or obtain any evaluations or appraisals of the assets or
liabilities of LCI or of USLD. Lehman Brothers' opinion necessarily is based
upon market, economic and other conditions as they existed on, and could be
evaluated as of, the date of its opinion.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, Lehman
Brothers compared the financial performance and stock market valuation of USLD
with the following companies which were selected based on general business,
operating and financial characteristics representative of long distance
telecommunications companies: ACC Corporation, Excel Communications, Inc.,
Frontier Corporation, LCI International, Inc., MidCom Communications, Inc. and
Tel-Save Holdings, Inc. (the "Comparable Public Companies"). Lehman Brothers
calculated the median multiples for the Comparable Public Companies for the
equity market value plus net indebtedness, preferred stock and minority
interests ("Firm Value") to latest twelve months revenue and Firm Value to
estimated 1997 and 1998 revenues. The median multiples were 1.9x, 1.6x and 1.4x,
respectively. The range of multiples was from 1.7x to 4.2x, 1.4x to 3.7x and
0.7x to 2.1x, respectively. These compared to public market trading multiples of
1.6x, 1.4x and 1.0x for USLD. Additionally, Lehman Brothers calculated the
median multiples for the Comparable Public Companies for Firm Value to estimated
1997 and 1998 earnings before interest taxes depreciation and amortization
("EBITDA"). The median multiples were 9.3x and 7.6x, respectively. The range of
multiples was from 8.8x to 19.4x and 7.1x to 7.9x, respectively. These compared
to public market trading multiples of 13.0x and 9.5x for USLD. The ratios for
USLD and the Comparable Public Companies are based on public financial
statements dated December 31, 1996 and/or June 30, 1997, closing stock market
prices on September 12, 1997, and the most recent third party equity research
reports available to Lehman Brothers on September 12, 1997 that contained
revenue and EBITDA projections.
Lehman Brothers noted that all of the foregoing multiples, except for Firm
Value to estimated 1998 EBITDA, were within the range of multiples for the
Comparable Public Companies. However, because of the inherent differences
between the businesses, operations and prospects of USLD and the businesses,
operations and prospects of the Comparable Public Companies, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on the
C-2
quantitative results of the analysis, and accordingly also made qualitative
judgments concerning differences between the characteristics of USLD and the
Comparable Public Companies that would affect the public trading values of USLD
and the Comparable Public Companies.
TRANSACTION PREMIUM ANALYSIS. Lehman Brothers calculated the percentage
premium to be paid to USLD's shareholders relative to the closing market price
of the USLD Common Stock one day, one week and four weeks prior to September 15,
1997 (the "Transaction Premium"). The Transaction Premium to be paid in the
Merger is 11.9%, 29.0% and 35.6%, respectively, based on a value of $20.00 in
LCI Common Stock to be received by holders of USLD's Common Stock pursuant to
the terms of the Merger and a closing market price of USLD Common Stock of
$17.88 on September 12, 1997. Lehman Brothers compared the Transaction Premium
to be paid in the Merger to the transaction premium paid over the acquired
company's closing market price on one day, one week and four weeks prior to the
announcement of other merger or acquisition transactions. The following
transactions were selected based the business of the acquired company, the size
of the transaction and the form of consideration, among other factors
(identified by acquiror/acquiree): American Radio Systems, Inc./EZ
Communications Corporation, Excel Communications Inc./Telco Communications
Group, Inc., Blackstone Capital Partners/CommNet Cellular, Inc., Price
Communications Corporation/Palmer Wireless, Inc., GTE Corporation/BBN
Corporation, Hearst Broadcasting Group, Inc./Argyle Television, Inc., Elsevier
Science, Inc./MDL Information Systems, Inc., PacifiCorp Holdings, Inc./TPC
Corporation, Clear Channel Communications, Inc./Heftel Broadcasting Corporation,
Metrocall, Inc./A+ Network, Inc., K-III Communications Corporation/Westcott
Communications, Inc., Metromedia International Group, Inc./Alliance Corporation,
NBC Corporation/Outlet Communications, Inc., Renaissance Communications
Corporation/Outlet Communications, Inc., and Arch Communications Group, Inc./USA
Mobile Communications Holdings, Inc. (the "Comparable Transaction Premiums").
The median of the Comparable Transaction Premiums was 43.3%, 43.8% and 56.4%,
respectively. Lehman Brothers noted that the Transaction Premiums were below the
median of the Comparable Transaction Premiums.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information, Lehman
Brothers reviewed certain terms and financial characteristics of ten long
distance telecommunications company merger or acquisition transactions which
Lehman Brothers deemed to be comparable to the Merger. The transactions
considered by Lehman Brothers in its analysis consisted of (identified by
acquiror/acquiree): Frontier Corporation/ALC Communications Corporation, LDDS
Communications, Inc./Williams Telecommunications Group, Inc. (WilTel Network
Services), LDDS Communications, Inc./IDB Communications Group, Inc., LDDS
Communications, Inc./Resurgens Communications Group, Inc., MidCom
Communications, Inc. /Phoenix Network, Inc., Excel Communications, Inc./Telco
Communications Group, Inc., LCI International, Inc./Teledial America, Inc.,
Frontier Corporation/Schneider Communications, Inc., LCI International,
Inc./Corporate Telemanagement Group, Inc., and Sprint Corporation/Call-Net, Inc.
(the "Comparable Transactions"). The median for the Comparable Transactions for
the Firm Value (using the transaction price for equity market value) to latest
twelve months revenue and EBITDA multiple was 2.2x and 14.4x, respectively. The
range of multiples was from 1.2x to 2.9x and 6.6x to 32.9x, respectively. This
compared to a transaction multiple of 1.5x and 14.6x, respectively, for the
Merger based on the consideration described in the Merger Agreement.
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Lehman Brothers noted that for each of the foregoing multiples, the
transaction multiples for the Merger were within the range of multiples for the
Comparable Transactions. However, because the reasons for and the circumstances
surrounding each of the Comparable Transactions analyzed were specific to each
transaction and because of the inherent differences in the businesses,
operations and prospects of LCI and USLD and the businesses, operations and
prospects of the acquired companies included in the Comparable Transactions,
Lehman Brothers believed that it was inappropriate to, and therefore did not,
rely solely on the quantitative results of the analysis, and accordingly also
made qualitative judgments concerning differences between the characteristics of
these transactions and the Merger that would affect the acquisition values of
USLD and such acquired companies. In particular, Lehman Brothers considered the
level of cost savings and operating synergies available to the acquiror in each
transaction.
DISCOUNTED CASH FLOW ANALYSIS OF USLD. Lehman Brothers calculated the present
value of the future streams of after-tax cash flows that USLD could be expected
to produce over a ten and one-quarter year period. The analysis utilized
financial and operating information relating to the business, operations and
prospects of USLD provided by LCI's management and relied on certain assumptions
with respect to USLD's future business and operations. After-tax cash flows for
the ten and one-quarter year period beginning on October 1, 1997 and ending on
December 31, 2007 were calculated as unlevered after-tax earnings plus
amortization and depreciation less net changes in non-cash, non-debt working
capital and capital expenditures. Lehman Brothers calculated terminal values for
USLD in 2007 by applying to projected EBITDA a range of multiples of 7x to 9x.
Lehman Brothers' determination of the appropriate range of multiples was based
on an assessment of forward EBITDA trading multiples in the current market of
the Comparable Public Companies and on Lehman Brothers' general experience in
valuations of companies. The cash flow streams and terminal values were then
discounted to present values using a range of discount rates of 11% to 13%,
which were chosen based on several assumptions regarding factors such as the
inflation rate, interest rates, the inherent business risk in USLD's business,
and the cost of capital of USLD.
LCI management provided Lehman Brothers with a set of projections
reflecting LCI management's current expectations for USLD's business
including estimates for cost savings that could be realized through the
Merger (the "LCI Case Projections"). Additionally, Lehman Brothers used a set
of projections based on USLD management's and research analysts' current
expectations for USLD's business (the "USLD/Analysts Case Projections").
Lehman Brothers performed discounted cash flow analyses and generated per
share equity value ranges based on the two sets of projections. The LCI Case
Projections generated a per share value range of $21.14 to $28.25. The
USLD/Analysts Case Projections generated a per share value range of $17.67 to
$25.63.
PRO FORMA MERGER ANALYSIS. Using LCI management's financial projections for
1998 with respect to LCI and the LCI Case Projections for 1998 with respect to
USLD, including estimates as to potential cost savings and operating synergies
anticipated to result from the Merger prepared by LCI's management, and making
such other assumptions as required, Lehman Brothers compared LCI's estimated EPS
for calendar year 1998 both on a stand-alone basis and assuming consummation of
the Merger. These estimates assume that each share of USLD Common Stock will be
exchanged for consideration as described in the Merger Agreement. Based upon the
assumptions and estimates relied upon and including potential cost savings and
C-4
operating synergies expected to result from a combination of the businesses,
Lehman Brothers noted that the Merger would result in EPS accretion for current
holders of LCI Common Stock of 5.1% in 1998.
The summary set forth above does not purport to be a complete description of
the analyses performed by Lehman Brothers, but describes in summary form the
principal elements of the analyses performed in connection with the delivery of
its opinion to the LCI Board. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial and comparative analysis and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Lehman Brothers did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of LCI and
USLD. Any estimates contained in these analyses are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
Lehman Brothers is an internationally recognized investment banking firm and,
as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The LCI Board selected Lehman
Brothers because of its expertise, reputation and familiarity with LCI in
particular and the telecommunications industry in general and because its
investment banking professionals have substantial experience in transactions
similar to the Merger.
As compensation for its services in connection with the Merger, LCI has
agreed to pay Lehman Brothers a fee for acting as financial advisor in
connection with the Merger, including rendering its opinion. This fee includes:
(i) a $100,000 retainer which was paid upon signing of the engagement letter
agreement between LCI and Lehman Brothers dated September 15, 1997, (ii) an
additional fee of $650,000 payable upon the rendering of the opinion. In
addition, LCI has agreed to reimburse Lehman Brothers for reasonable
out-of-pocket expenses incurred in connection with the Merger and to indemnify
Lehman Brothers and certain related persons for certain liabilities that may
arise out of its engagement by LCI and the rendering of its opinion.
In the ordinary course of its business, Lehman Brothers may actively trade in
LCI Common Stock and USLD Common Stock for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short position
in such securities.
C-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that:
(a) a corporation may indemnify any person who was or is threatened to be
made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation) by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may be against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided that he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful;
(b) a corporation may indemnify officers and directors in an action by or in
the right of the corporation to procure a judgment in its favor under the same
conditions, except that no indemnification is permitted unless the Court of
Chancery (or the Court in which such suit or action was brought) finds, upon
application, in view of all of the circumstances, that such person is fairly and
reasonably entitled to indemnity for such expenses which the court may deem
proper;
(c) where an officer or director is successful on the merits or otherwise in
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) that he actually and reasonably
incurred in connection therewith;
(d) any indemnification set forth above shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the officer, director, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
above, and such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders;
(e) the indemnification of any officer or director of a corporation
continues after such person has ceased to be an officer or director and inures
to the benefit of such person's heirs, executors and administrators;
(f) exclusive of any other rights to which an officer or director may be
entitled under a corporation's bylaws, by agreement, vote or otherwise;
(g) expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as described above.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate; and
(h) a corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director,officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
II-1
Article X of the Registrant's Amended and Restated Certificate of
Incorporation reads as follows:
1. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
2. (a) Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") (including an action by or in the
right of the Corporation), by reason of the fact that he is or was serving as a
director or officer of the Corporation (or is or was serving at the request of
the Corporation in a similar capacity with another entity, including employee
benefit plans), shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law. This
indemnification will cover all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and settlement amounts)
reasonably incurred by the director or officer in connection with a proceeding.
All such indemnification shall continue as to a director or officer who has
ceased to be a director or officer and shall continue to the benefit of such
director's or officer's heirs, executors and administrators. Except as provided
in paragraph (b) hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such director or officer
only if such proceeding was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred by this Section shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"). If the Delaware General
Corporation Law requires, an advancement of expenses incurred by a director in
his capacity as a director or an officer in his capacity as an officer shall be
made only upon delivery to the Corporation of an undertaking by such director or
officer to repay all amounts so advanced if it is ultimately determined by final
judicial decision that such director or officer is not entitled to be
indemnified for such expenses under this Section or otherwise (hereinafter an
"undertaking").
(b) If a claim under paragraph (a) of this Section is not paid in full by
the Corporation within ninety days after receipt of a written claim, the
director or officer may bring suit against the Corporation to recover the unpaid
amount. (In the case of a claim for advancement of expenses, the applicable
period will be twenty days.) If successful in any such suit, the director or
officer will also be entitled to be paid the expense of prosecuting such suit.
In an suit brought by the director or officer to enforce a right to
indemnification hereunder (but not in a suit brought by the director or officer
to enforce a right to an advancement of expenses) it shall be a defense that the
director or officer has not met the applicable standard of conduct under the
Delaware General Corporation Law. In any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, it shall be
entitled to recover such expenses upon a final adjudication that the director or
officer has not met the applicable standard of conduct set forth in the Delaware
General Corporation Law. Neither the failure of the Board of Directors of the
Corporation to determine prior to the commencement of such suit that the
director or officer has met the applicable standard of conduct for
indemnification set forth in the Delaware General Corporation Law, nor an actual
determination by the Board of Directors of the Corporation that the director or
officer has not met such applicable standard of conduct, shall create a
presumption that the director or officer has not met such applicable standard of
conduct or, in the case of such a suit brought by the director or officer, be a
defense to such suit. In any suit brought by the director or officer to enforce
a right hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the
II-2
burden of proving that the director or officer is not entitled to be indemnified
or to such advancement of expenses under this Section or otherwise shall be on
the Corporation.
(c) The rights to indemnification and to the advancement of expenses
conferred in this Section will not be exclusive of any other right which any
person may have or hereafter acquires under any statute, this Amended and
Restated Certificate of Incorporation, by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or other
entity against any expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person under the Delaware General
Corporation Law.
(e) The Corporation may, if authorized by the Board of Directors, grant
rights to indemnification and to the advancement of expenses to any employee or
agent of the Corporation to the same extent as for directors and officers of the
Corporation. The Company maintains a directors' and officers' liability
insurance policy. John L. Vogelstein and Douglas M. Karp, nominees of Warburg,
Pincus Capital Company, L.P. ("Warburg") to the Company's Board of Directors,
are entitled to indemnification by Warburg for liabilities incurred as a result
of their service as directors of the Company.
ITEM 21. EXHIBITS
2.1 -- Agreement and Plan of Merger, dated September 17, 1997, by and among LCI
International, Inc., LCI Acquisition Corp. and USLD Communications Corp.
(included as Annex A to the Joint Proxy Statement/Prospectus which forms a part
of this Registration Statement)
3.1 -- Certificate of Incorporation of the Registrant (previously filed as an Exhibit to
Registrant's Form 10-K for the year ended December 31, 1996 (the "1996 10-K"))
3.2 -- Bylaws of the Registrant (previously filed as an Exhibit to the 1996 10-K)
4.1 -- Rights Agreement between Registrant and Fifth Third Bank, N.A. dated as of
January 22, 1997 (previously filed as an Exhibit to Registrant's Registration
Statement Form 8-A dated 1997)
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel regarding the legality of the LCI
Common Stock to be issued to the USLD stockholders**
8.1 -- Tax Opinion of Kramer, Levin, Naftalis & Frankel**
8.2 -- Tax Opinion of Arter & Hadden**
23.1 -- Consent of Arthur Andersen LLP* (Washington, D.C.)*
23.2 -- Consent of KPMG Peat Marwick, LLP*
23.3 -- Consent of BDO Seidman, LLP*
23.4 -- Consent of Arthur Andersen LLP (San Antonio)
23.5 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in Exhibit 5.1 and
Exhibit 8.1)**
23.6 -- Consent of Arter & Hadden (contained in Exhibit 8.2)**
23.7 -- Consent of ABN AMRO Chicago Corporation (to be contained in Annex B to the Joint
Proxy Statement/Prospectus which forms a part of this Registration Statement)**
23.8 -- Consent of Lehman Brothers (to be contained in Annex C to the Joint Proxy
Statement/ Prospectus which forms a part of this Registration Statement)**
24.1 -- Power of Attorney (contained on the signature page hereto)*
99.1 -- Form of Proxy of Registrant*
99.2 -- Form of Proxy of USLD Communications Corp.*
- ------------------------
* Filed herewith
** To be filed by amendment
II-3
ITEM 22. UNDERTAKINGS
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The Registrant undertakes that prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of McLean, Commonwealth of Virginia, on the 7th day of
October 1997.
LCI INTERNATIONAL, INC.
By: /s/ H. BRIAN THOMPSON
-----------------------------------------
Name: H. Brian Thompson
Title: Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints H. BRIAN THOMPSON AND JOSEPH A. LAWRENCE, and each of them, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement (including all pre-effective and
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorneys-in-fact and agents, and each of them,
full power and authority to do and bperform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on October 7th,
1997 in the capacities indicated below.
SIGNATURE TITLE
- ------------------------------ --------------------------
Chairman of the Board,
/s/ H. BRIAN THOMPSON Chief Executive Officer
- ------------------------------ and Director (Principal
H. Brian Thompson Executive Officer)
/s/ RICHARD E. CAVANAGH
- ------------------------------ Director
Richard E. Cavanagh
/s/ WILLIAM F. CONNELL
- ------------------------------ Director
William F. Connell
/s/ JULIUS W. ERVING, II
- ------------------------------ Director
Julius W. Erving, II
/s/ DOUGLAS M. KARP
- ------------------------------ Director
Douglas M. Karp
Chief Financial Officer
/s/ JOSEPH A. LAWRENCE and Executive Vice
- ------------------------------ President (Principal
Joseph A. Lawrence Financial and Accounting
Officer)
/s/ GEORGE M. PERRIN
- ------------------------------ Director
George M. Perrin
/s/ JOHN L. VOGELSTEIN
- ------------------------------ Director
John L. Vogelstein
/s/ THOMAS J. WYNNE
- ------------------------------ Director, President and
Thomas J. Wynne Chief Operating Officer
II-5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------
2.1 -- Agreement and Plan of Merger, dated September 17, 1997, by and among LCI International, Inc., LCI
Acquisition Corp. and USLD Communications Corp. (included as Annex A to the Joint Proxy
Statement/Prospectus which forms a part of this Registration Statement)
3.1 -- Certificate of Incorporation of the Registrant (previously filed as an Exhibit to Registrant's Form
10-K for the year ended December 31, 1996 (the "1996 10-K"))
3.2 -- Bylaws of the Registrant (previously filed as an Exhibit to the 1996 10-K)
4.1 -- Rights Agreement between Registrant and Fifth Third Bank, N.A. dated as of January 22, 1997
(previously filed as an Exhibit to Registrant's Registration Statement Form 8-A dated 1997)
5.1 -- Opinion of Kramer, Levin, Naftalis & Frankel regarding the legality of the LCI Common Stock to be
issued to the USLD stockholders**
8.1 -- Tax Opinion of Kramer, Levin, Naftalis & Frankel**
8.2 -- Tax Opinion of Arter & Hadden**
23.1 -- Consent of Arthur Andersen LLP* (Washington, D.C.)*
23.2 -- Consent of KPMG Peat Marwick, LLP*
23.3 -- Consent of BDO Seidman, LLP*
23.4 -- Consent of Arthur Andersen LLP (San Antonio)
23.5 -- Consent of Kramer, Levin, Naftalis & Frankel (to be contained in Exhibit 5.1 and Exhibit 8.1)**
23.6 -- Consent of Arter & Hadden (contained in Exhibit 8.2)**
23.7 -- Consent of ABN AMRO Chicago Corporation (to be contained in Annex B to the Joint Proxy
Statement/Prospectus which forms a part of this Registration Statement)**
23.8 -- Consent of Lehman Brothers (to be contained in Annex C to the Joint Proxy Statement/ Prospectus which
forms a part of this Registration Statement)**
24.1 -- Power of Attorney (contained on the signature page hereto)*
99.1 -- Form of Proxy of Registrant*
99.2 -- Form of Proxy of USLD Communications Corp.*
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* Filed herewith
** To be filed by amendment