xargs substition of more than one argument

I don't know of an xargs option which will do that, but you can achieve something similar with an invocation of bash -c:

$ echo -e "line 1\nline    2\nline 3" | xargs bash -c 'echo "${@}" DONE' _
line 1 line 2 line 3 DONE

Note that xargs does not provide the lines as arguments, even if you specify -L. You might want to use -d to specify that new-line separates items (gnu xargs only, I believe). Contrast the following:

$ echo -e "line 1\nline    2\nline 3" |
  xargs bash -c 'printf "<%s>\n" "${@}" DONE' _
<line>
<1>
<line>
<2>
<line>
<3>
<DONE>

$ echo -e "line 1\nline    2\nline 3" |
  xargs -d\\n bash -c 'printf "<%s>\n" "${@}" DONE' _
<line 1>
<line    2>
<line 3>
<DONE>

Convert newlines into \nul terminators, then use xargs -0

$ echo -ne 'line 1\nline 2\nline 3\n' | tr '\n' '\0' | xargs -0 -Ix echo x DONE
line 1 DONE
line 2 DONE
line 3 DONE