SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
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by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
LUMINANT WORLDWIDE CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Donald S. Perkins Luminant Worldwide Corporation
Chairman of the Board of Directors 13737 Noel Road, Suite 1400
Dallas, Texas 75240
[LOGO]
May 8, 2001
Dear Stockholder:
On behalf of the Board of Directors and employees of Luminant Worldwide
Corporation, I cordially invite you to attend the 2001 Annual Meeting of
Luminant Worldwide Corporation's stockholders. We will be holding the Annual
Meeting on Friday, June 8, 2001 at 2:00 p.m. Eastern Time at 285 Madison Avenue,
New York, New York.
Enclosed with this letter is a Notice of the Annual Meeting, a Proxy
Statement, a proxy card, and a return envelope. Both the Notice of Annual
Meeting and the Proxy Statement provide details of the business that we will
conduct at the Annual Meeting and other information about Luminant Worldwide
Corporation.
Whether or not you plan to attend the Annual Meeting, please sign, date and
promptly return the proxy card in the enclosed prepaid return envelope, or vote
your proxy via the Internet or by telephone as described on page 2 of the Proxy
Statement. Your shares will be voted at the Annual Meeting in accordance with
your proxy instructions. Of course, if you attend the Annual Meeting you may
vote in person. If you plan to attend the meeting, please mark the appropriate
box on the enclosed proxy card.
Sincerely,
/s/ Donald S. Perkins
Donald S. Perkins
Chairman of the Board of Directors
LUMINANT WORLDWIDE CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Friday, June 8, 2001
Place: 285 Madison Ave.
New York, New York
May 8, 2001
Dear Stockholders:
At the 2001 Annual Meeting, we will ask you to:
- Elect nine directors;
- Ratify the selection of Arthur Andersen, LLP as our independent
accountants for the fiscal year ending December 31, 2001; and
- Transact any other business that is properly presented at the Annual
Meeting.
You will be able to vote your shares at the Annual Meeting if you were a
stockholder of record at the close of business on April 10, 2001.
By Order of the Board of Directors:
Thomas G. Bevivino
SECRETARY
YOUR VOTE IS IMPORTANT
Please indicate your vote on the enclosed proxy card and return it in the
enclosed envelope or vote your proxy via the Internet or by telephone as soon as
possible, even if you plan to attend the meeting. If you attend the meeting, you
will be able to revoke your proxy and vote in person. If you have any questions
about voting your shares, please contact:
Thomas G. Bevivino, 13737 Noel Rd., Suite 1400, Dallas, Texas 75240,
telephone number (972) 581-6256
LUMINANT WORLDWIDE CORPORATION
13737 NOEL ROAD, SUITE #1400
DALLAS, TEXAS 75240
May 8, 2001
PROXY STATEMENT FOR ANNUAL MEETING
This Proxy Statement provides information that you should read before you
vote on the proposals that will be presented to you at the 2001 Annual Meeting
(the "Annual Meeting") of the stockholders of Luminant Worldwide Corporation.
The 2001 Annual Meeting will be held on Friday, June 8, 2001 at 2:00 p.m.
Eastern Time at 285 Madison Avenue, New York, New York. Unless the context
requires otherwise, all references in this Proxy Statement to the "Company,"
"Luminant," "us," "we" and "our" refer to Luminant Worldwide Corporation and its
subsidiaries. Except as otherwise indicated, all share and per-share data has
been adjusted to reflect a 16,653-for-one stock split we completed on
September 14, 1999.
This Proxy Statement provides detailed information about the Annual Meeting,
the proposals you will be asked to vote on at the Annual Meeting, and other
relevant information.
On or about May 8, 2001, we began mailing information to people who,
according to our records, owned shares of our common stock at the close of
business on April 10, 2001.
TABLE OF CONTENTS
INFORMATION ABOUT THE 2001 ANNUAL MEETING AND VOTING........ 1
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
ITEM 1: ELECTION OF DIRECTORS............................. 3
ITEM 2: RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS............................................. 3
STOCK OWNERSHIP............................................. 4
EXECUTIVE COMPENSATION AND RELATED MANNERS.................. 8
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 22
OTHER INFORMATION........................................... 25
APPENDIX A: LUMINANT WORLDWIDE CORPORATION AUDIT COMMITTEE
CHARTER................................................... A-1
INFORMATION ABOUT THE 2001 ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The Annual Meeting will be held on Friday, June 8, 2001 at 2:00 p.m. Eastern
Time at 285 Madison Avenue, New York, New York. On or about May 8, 2001 we began
mailing this Proxy Statement to people who, according to our records, owned
shares of our common stock at the close of business on April 10, 2001.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because our Board of Directors is
seeking a proxy to vote your shares at the Annual Meeting. This Proxy Statement
is intended to assist you in deciding how to vote your shares.
Luminant is paying the cost of requesting these proxies, estimated at
approximately $7,000 in the aggregate. Our directors, officers and employees may
request proxies in person or by telephone, mail, telecopy or letter. Such
persons will receive no additional compensation for such services, but we will
reimburse them for their reasonable out-of-pocket expenses. We will also provide
copies of proxy materials to fiduciaries, custodians, nominees and brokerage
houses for forwarding to beneficial owners of our common stock, and we will
reimburse them as well for their reasonable out-of-pocket expenses.
RECORD DATE AND QUORUM
The record date for the Annual Meeting was April 10, 2001. If you held
shares of our common stock as of the record date, you may attend and vote at the
Annual Meeting. On the record date, 27,865,288 shares of our common stock were
issued and outstanding. Each share of our common stock is entitled to one vote
at the Annual Meeting, except that 875,248 shares of our common stock held by
Young & Rubicam, Inc. are designated "non-voting common stock" and are not
entitled to vote at the Annual Meeting.
A "quorum" must be present at the Annual Meeting to transact business. A
quorum will be present if a majority of the outstanding shares of the Company's
common stock entitled to vote generally in the election of directors are
represented at the Annual Meeting either in person by the holders of the shares
or by proxy. If a quorum is not present, a vote cannot occur.
If you indicate on a proxy or ballot that you abstain from voting or that
your shares are not to be voted on a particular proposal, your shares will not
be counted as having been voted on that proposal, but those shares will be
counted as in attendance at the Annual Meeting for purposes of determining a
quorum. Broker non-votes (i.e., proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a matter with respect to which brokers or
nominees do not have discretionary power to vote) will also be counted as shares
that are represented at the Annual Meeting for quorum purposes. If you hold your
shares with a broker and you do not tell your broker how to vote, your broker
has the authority to vote on all of the proposals scheduled to be presented at
the Annual Meeting.
VOTING YOUR SHARES
You have one vote for each share of Luminant common stock (excluding
non-voting common stock) that you owned of record at the close of business on
April 10, 2001. The number of shares you own (and may vote at the Annual
Meeting) is listed on the enclosed proxy card. You may not cumulate your votes
in voting for directors.
You may vote your shares at the Annual Meeting either in person or by proxy.
To vote in person, you must attend the Annual Meeting and obtain and submit a
ballot. Ballots for voting in person will be available at the Annual Meeting. To
vote by proxy, you must complete and return the enclosed proxy card or vote your
proxy via the Internet or by telephone as described below. By completing and
returning the proxy card, you will be directing the persons designated on the
proxy card to vote your shares at the Annual Meeting in accordance with the
instructions you give on the proxy card.
If you decide to vote by proxy, your proxy card will be valid only if you
sign, date and return it before the Annual Meeting. If you complete the proxy
card except for the voting instructions, then your shares will be voted FOR the
proposed election of directors and FOR ratification of the selection of Arthur
Andersen LLP as the independent accountants of Luminant for the 2001 fiscal
year.
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers Internet voting options.
This program is different than the program provided by American Stock
Transfer & Trust Company for shares registered in the name of the stockholder.
If your shares are held in an account with a broker or bank participating in the
ADP Investor Communication Services program, you may vote those shares via the
Internet at ADP Investor Communication Services' voting web site as specified in
your voting materials.
Stockholders with shares registered directly with American Stock Transfer &
Trust Company may vote telephonically by calling American Stock Transfer & Trust
Company at 1-800-776-9437 or vote via the Internet at www.voteproxy.com.
Submitting your proxy via the Internet or by telephone will not affect your
right to vote in person should you decide to attend the Annual Meeting. The
Internet voting procedures are designed to authenticate stockholders'
identities, to allow stockholders to give their voting instructions and to
confirm that stockholders' instructions have been recorded properly.
Stockholders voting via the Internet or by telephone should understand that
there may be costs associated with electronic access, such as usage charges from
Internet access providers and telephone companies, that must be borne by the
stockholder. If you vote via the Internet or by telephone, please do not return
a signed proxy card.
REVOKING YOUR PROXY
If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in any one of three ways:
- You may notify the Secretary of Luminant in writing that you wish to
revoke your proxy.
- You may submit a later dated proxy by the Internet, telephone or mail.
- You may attend the Annual Meeting and vote. Merely attending the Annual
Meeting will not by itself revoke a proxy; you must obtain a ballot and
vote your shares to revoke the proxy.
VOTE REQUIRED FOR APPROVAL
PROPOSAL 1: ELECTION OF NINE The nine nominees for director who receive the most votes
DIRECTORS will be elected. If you indicate "withhold authority to
vote" for a particular nominee on your proxy card, your vote
will not count either for or against the nominee.
PROPOSAL 2: RATIFICATION OF Ratification of the selection of our independent accountants
SELECTION OF INDEPENDENT requires the affirmative vote of a majority of the votes
ACCOUNTANTS cast at the Annual Meeting. If you abstain from voting, it
has the same effect as if you voted against this proposal.
ADDITIONAL INFORMATION ABOUT LUMINANT
We are mailing our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as amended, including consolidated financial statements, to
all stockholders entitled to vote at the Annual Meeting together with this Proxy
Statement. The Annual Report on Form 10-K, as amended, does not constitute a
part of the proxy solicitation material.
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PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
We will present the following two proposals at the Annual Meeting. We do not
expect anyone to present any other proposals. If anyone validly presents any
other proposal, we will use your proxy to vote on those proposals as we believe
appropriate.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE
DIRECTOR NOMINEES AND FOR EACH OF THE OTHER PROPOSALS.
ITEM 1: ELECTION OF DIRECTORS
Holders of proxies solicited by this proxy statement will vote the proxies
received by them as directed on the proxy card or, if there is no direction on
the proxy card, for the Board of Director nominees listed below. Nominees for
election to our Board of Directors are:
Randolph L. Austin
James R. Corey
Michael J. Dolan
Michael H. Jordan
Jerry K. Pearlman
Donald S. Perkins
John M. Richman
Richard M. Scruggs
George P. Stamas
Each director will be elected to serve for a one-year term, or thereafter
until his replacement is elected and qualified or until his earlier resignation
or removal. Each of the nine nominees is presently a member of the Board of
Directors and has indicated a willingness to serve as a director if re-elected.
More detailed information about each of the nominees is available below.
As of the date of this Proxy Statement, we are not aware that any nominee
for our Board of Directors would be unable to or would decline to serve if
elected. If any of the nominees cannot or will not serve for any reason (which
we do not anticipate), our Board of Directors may designate a substitute nominee
or nominees. If a substitute is nominated, we will vote all valid proxies for
the election of the substitute nominee or nominees. Our Board of Directors may
also decide to leave the seat or seats open until a suitable candidate or
candidates are located, or it may decide to reduce the size of the Board of
Directors. Proxies for the Annual Meeting may not be voted for more than nine
nominees.
ITEM 2: RATIFICATION OF ARTHUR ANDERSEN LLP
AS INDEPENDENT ACCOUNTANTS
We are requesting that you ratify our Board's selection of Arthur Andersen
LLP as our independent accountants for 2001.
Although the selection of independent accountants does not require
ratification, we are submitting this proposal to you because we believe this
matter is significant enough to warrant your participation. If you do not ratify
the appointment of Arthur Andersen LLP, our Board of Directors, after review by
the Audit Committee, will consider the appointment of other independent
accountants. Representatives from Arthur Andersen are expected to be available
at the Annual Meeting to answer your questions and make a statement if they
desire.
AUDIT FEES
The aggregate fees billed by Arthur Andersen LLP for professional services
rendered for the audit of Luminant's annual financial statements for the fiscal
year ended December 31, 2000 and for the
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reviews of the financial statements included in Luminant's Quarterly Reports on
Form 10-Q for that fiscal year were approximately $625,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Arthur Andersen LLP billed no fees for professional services rendered to
Luminant for information technology services relating to financial information
systems design and implementation for the fiscal year ended December 31, 2000.
ALL OTHER FEES
Arthur Andersen LLP billed approximately $575,000 for management consulting
services, tax services, and 401K plan review services rendered to Luminant for
the fiscal year ended December 31, 2000.
STOCK OWNERSHIP
The table below shows the number and percentage of outstanding shares of our
common stock beneficially owned as of April 10, 2001 by:
- all persons known by us to own beneficially more than 5% of Luminant's
common stock;
- each director and named executive officer; and
- all directors and executive officers as a group.
The table set forth below does not contain information with respect to
Messrs. Pearlman and Richman, who were appointed directors of Luminant on
May 4, 2001. On May 4, 2001, each of Messrs. Pearlman and Richman received
options to purchase 50,000 shares of Luminant common stock at an exercise price
of $1.37 per share, the closing price of Luminant common stock on May 4, 2001 as
reported on the Nasdaq National Market System. These options become exercisable
with respect to one-sixth of the underlying shares beginning six months after
the date of grant, and as to an additional one-sixth every following six months.
In addition, as of the date of this proxy statement, Mr. Richman owns 19,776
shares of Luminant common stock, and the John M. Richman Trust Irrevocable Trust
Dated 10/21/77 (the "Richman Trust"), of which Mr. Richman is a trustee, holds
25,000 shares of
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Luminant common stock. Mr. Richman disclaims beneficial ownership of the shares
held by the Richman Trust. Each of Messrs. Pearlman and Richman beneficially
owns less than one percent of the outstanding shares of Luminant common stock as
of the date of this proxy statement.
NUMBER OF SHARES
OF BENEFICIALLY PERCENT OF COMMON
NAME OF BENEFICIAL OWNER(1) OWNED(2) STOCK(%)(2)(3)
- --------------------------- ---------------- ------------------
Young & Rubicam....................................... 7,385,393(4) 26.50%
James R. Corey GRAT dated July 9, 1999................ 1,492,283(5) 5.36%
Randolph L. Austin.................................... 15,552(6) *
Thomas G. Bevivino.................................... 56,851(7) *
James R. Corey........................................ 3,092,703(8) 9.99%
Michael J. Dolan...................................... 21,052(9) *
Michael H. Jordan..................................... 132,733(10) *
Guillermo G. Marmol................................... 1,422,094(11) 4.86%
Donald S. Perkins..................................... 64,828(12) *
K. David Quackenbush.................................. 55,374(13) *
Richard M. Scruggs.................................... 940,118(14) 3.37%
Michael E. Smith...................................... 77,404(15) *
George P. Stamas...................................... 27,552(16) *
Michael R. Alsup...................................... 1,432,917(17) 5.14%
Scott A. Williamson................................... 145,599(18) *
Morris W. Markel...................................... 527,691(19) 1.89%
All directors and executive officers as a group (10
persons)............................................ 4,484,167(20) 15.63%
- ------------------------
* An asterisk (*) indicates ownership of less than one percent (1%) of the
outstanding common stock.
(1) Unless otherwise indicated, the address for our 5% or greater stockholders
is c/o Luminant Worldwide Corporation, 13737 Noel Road, Suite 1400, Dallas,
Texas 75240-7367.
(2) We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. In determining the number of shares
beneficially owned by a person and the percentage ownership of that person,
we include shares of common stock subject to options or warrants held by
that person that are currently exercisable or exercisable within 60 days
after April 10, 2001. We do not consider these shares outstanding in
computing the percentage ownership of any other person, however. To our
knowledge, the persons named in the table below have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as otherwise indicated below.
(3) The percentage of beneficial ownership for each stockholder is based on
27,865,288 shares of common stock outstanding as of April 10, 2001.
(4) Such information as to beneficial ownership is derived from a Report on
Schedule 13G filed by Young & Rubicam, Inc. on February 14, 2000. Includes
875,248 shares of non-voting common stock and 1,800,000 shares of common
stock subject to a currently exercisable option. Young & Rubicam, Inc.
maintains its principal business address at 285 Madison Avenue, New York,
New York 10017.
(5) Such information as to beneficial ownership is derived from a Report on
Schedule 13D/A filed on December 13, 2000. The James R. Corey GRAT dated
July 9, 1999 (the "GRAT") may be entitled to additional contingent
consideration under the terms of the acquisition agreement by which we
acquired Potomac Partners Management Consultants LLC in September 1999. The
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number of shares of common stock that could be issued as payment of
additional contingent consideration are not now determinable and no
assumptions regarding those issuances have been included in the table
above. James R. Corey, our President and Chief Executive Officer, is
trustee of the GRAT.
(6) Includes 15,052 shares underlying options as to which Mr. Austin has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Also includes 500 shares owned by I-Hatch LLC. Mr. Austin is a managing
principal and has one-third ownership of I-Hatch LLC, and therefore may be
deemed to be a beneficial owner of the shares held by I-Hatch LLC.
(7) Includes 55,051 shares underlying options as to which Mr. Bevivino has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Also includes 800 shares owned by Vincente V. Bevivino, Mr. Bevivino's son.
Mr. Bevivino may be deemed a beneficial owner of the shares owned by his
son.
(8) Such information as to beneficial ownership is derived from a Report on
Schedule 13D/A filed on December 13, 2000. Includes 1,492,283 shares of
common stock held by the Corey GRAT, which Mr. Corey may be deemed to
beneficially own by virtue of his position as trustee of the GRAT.
Mr. Corey may be entitled to additional contingent consideration under the
terms of the acquisition agreement by which we acquired Potomac Partners
Management Consultants LLC, of which Mr. Corey was a member, in
September 1999. The number of shares of common stock that could be issued
as payment of additional contingent consideration are not now determinable
and no assumptions regarding those issuances have been included in the
table above. Includes 5,910 shares underlying options as to which
Mr. Corey has the right to acquire beneficial ownership within 60 days
after April 10, 2001. On September 21, 2000, Mr. Corey acquired from the
Company debentures immediately convertible into 800,000 shares of Company
common stock and warrants immediately exercisable for 183,150 shares of
Company common stock. Among other terms applicable to these securities,
Mr. Corey cannot exercise or convert these debentures or warrants to the
extent Mr. Corey and his affiliates would, as a result of the exercise or
conversion, own more than 9.999% of the then-outstanding shares of our
common stock. Mr. Corey may waive this restriction, but only upon not less
than 61 days prior notice to us. As a result, the number of shares of
common stock shown in the table above as beneficially owned by Mr. Corey
only includes the number of shares of common stock underlying these
convertible debentures and warrants that would not cause his beneficial
ownership of our common stock to exceed 9.999% of the total number of
shares of our common stock outstanding on April 10, 2001. As such, the
number of shares of our common stock shown in the table above as
beneficially owned excludes 496,327 shares underlying convertible
debentures and warrants that Mr. Corey has the right to acquire subject to
the 9.999% restriction.
(9) Includes 15,052 shares underlying options as to which Mr. Dolan has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Does not include any shares beneficially owned by Young & Rubicam, Inc., of
which Mr. Dolan is Chairman and Chief Executive Officer. Mr. Dolan has
assigned to Young & Rubicam the net proceeds received by him in connection
with any exercise of options we grant to him for serving on our Board and
sale by him of the underlying shares.
(10) Includes 75,053 shares underlying options as to which Mr. Jordan has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Does not include any shares beneficially owned by Young & Rubicam, Inc.,
of which Mr. Jordan is a director.
(11) Since Mr. Marmol is no longer employed with the Company, the information
presented is based solely on the Company's information and belief as to
Mr. Marmol's beneficial ownership. Includes 1,422,094 shares underlying
options as to which Mr. Marmol has the right to acquire beneficial
ownership within 60 days after April 10, 2001.
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(12) Includes 15,052 shares underlying options as to which Mr. Perkins has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Mr. Perkins may be entitled to additional contingent consideration under
the terms of the acquisition agreement by which we acquired Potomac
Partners Management Consultants LLC, of which Mr. Perkins was a member, in
September 1999. The number of shares of common stock that could be issued
as payment of additional contingent consideration are not now determinable
and no assumptions regarding those issuances have been included in the
table above.
(13) Includes 30,938 shares underlying options as to which Mr. Quackenbush has
the right to acquire beneficial ownership within 60 days after April 10,
2001.
(14) Includes 54,309 shares underlying options as to which Mr. Scruggs has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
Includes 639,109 shares held jointly with Mr. Scruggs' spouse, Cynthia K.
Scruggs, 30,000 shares held by Cynthia K. Scruggs, 10,000 shares held by
the Julia Katerina Scruggs 1999 GST Trust, of which Mr. Scruggs' daughter,
Julia Katerina Scruggs, is the sole beneficiary and Mr. Scruggs' brother,
David Scruggs, is the sole trustee, 10,000 shares held by the Heather
Christine Scruggs 1999 GST Trust, of which Mr. Scruggs' daughter, Heather
Christine Scruggs, is the sole beneficiary and Mr. Scruggs' brother, David
Scruggs, is the sole trustee, 600 shares held by Mr. Scruggs as custodian
for his daughter under the Uniform Gifts to Minors Act, and 150,000 shares
held by RSCS Holdings LTD. Mr. Scruggs is the sole member of RS Resources
LLC, which is a general partner of RSCS Holdings LTD, and therefore
Mr. Scruggs may be deemed a beneficial owner of the shares held by RSCS
Holdings LTD. Mr. Scruggs disclaims beneficial ownership of the securities
described in the next preceding sentence, and this disclosure should not
be deemed an admission that Mr. Scruggs is the beneficial owner of such
securities for any purpose.
(15) Includes 35,937 shares underlying options as to which Mr. Smith has the
right to acquire beneficial ownership within 60 days after April 10, 2001.
(16) Includes 27,552 shares as to which Mr. Stamas has the right to acquire
beneficial ownership within 60 days after April 10, 2001.
(17) Based on information set forth in a Report on Schedule 13G filed on
October 20, 2000. Includes 122,910 shares held by the 1996 Alsup Issue
Trusts, which Mr. Alsup has the option to acquire. Includes 4,734 shares
underlying options as to which Mr. Alsup has the right to acquire
beneficial ownership within 60 days after April 10, 2001.
(18) Includes 38,752 shares underlying options as to which Mr. Williamson has
the right to acquire beneficial ownership within 60 days after April 10,
2001.
(19) Since Mr. Markel is no longer employed with the Company, the information
presented is based solely on the Company's information and belief as to
Mr. Markel's beneficial ownership. Includes 25,477 shares held by the
Joseph H. Markel Charitable Trust DTD, of which Mr. Markel is a trustee.
(20) See footnotes 6-10 and 12-16.
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EXECUTIVE COMPENSATION AND RELATED MATTERS
Set forth below is certain information relating to the Company's executive
officers and directors. The information set forth is as of May 5, 2001 unless
otherwise indicated.
NAME AGE POSITION DIRECTOR SINCE
- ---- -------- --------------------------------------- --------------
Donald S. Perkins(1)(2)................... 74 Chairman of the Board of Directors(3) 1999
Randolph L. Austin(1)(2).................. 36 Director 1999
Thomas G. Bevivino........................ 45 Chief Financial Officer and Secretary --
James R. Corey............................ 47 President, Chief Executive Officer and 1999
Director
Michael J. Dolan(2)....................... 57 Director 1999
Michael H. Jordan(2)...................... 64 Director(3) 1999
Jerry K. Pearlman(1)(2)................... 62 Director 2001(4)
K. David Quackenbush, Jr.................. 39 Chief Operating Officer --
John M. Richman(1)(2)..................... 73 Director 2001(4)
Richard M. Scruggs........................ 45 Vice Chairman, Executive Vice President 1999
of Corporate Development and Director
Michael E. Smith.......................... 44 Executive Vice President of Strategy --
Services
George P. Stamas(5)....................... 49 Director 1999
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) On May 4, 2001, Mr. Jordan retired as Chairman and the Board elected
Mr. Perkins as our new Chairman. Mr. Jordan remains on the Board of
Directors.
(4) One seat on the Board was vacated when Guillermo G. Marmol resigned as Chief
Executive Officer and director in September 2000. In addition, on May 4,
2001, the Board increased the size of the Board from eight to nine. On
May 4, 2001, the Board appointed Messrs. Pearlman and Richman to fill the
vacancies caused by Mr. Marmol's resignation and by the increase in the size
of the Board.
(5) Non-voting member of Compensation Committee.
DONALD S. PERKINS has served as our Chairman since May 2001, and has been a
director since November 1999. From 1953 through June 1983, Mr. Perkins served in
various positions with Jewel Companies, Inc., a diversified retailer, including
service as Chairman of the Board and Chief Executive Officer from 1970 to 1980
and as Chairman of the Executive Committee from 1980 until his retirement in
1983. From 1959 through the present, Mr. Perkins has served on the Boards of
Directors of various public, private and non-profit institutions, including past
service on the Board of Directors of each of American Telephone & Telegraph
Company, Eastman Kodak Company, Firestone Tire & Rubber, Kmart Corporation,
Lucent Technologies Inc. and Time Warner Inc. Mr. Perkins is currently a member
of the Board of Directors of each of AON Corporation, Nanophase Technologies
Corporation and LaSalle Hotel Properties.
RANDOLPH L. AUSTIN has been a director since the closing of our initial
public offering in September 1999. From January 1999 until present, Mr. Austin
has also been an advisor to Bertelsmann Ventures. From January 1998 to
December 1998, Mr. Austin was President and Chief Executive Officer
8
of BOL, Bertelsmann Online, Bertelsmann's global electronic commerce business.
From November 1995 to December 1997, Mr. Austin held various positions with
Prodigy, Inc., his last position being Senior Vice President, Sales & Business
Development. From September 1990 to November 1995, Mr. Austin served in various
capacities, including Senior Engagement Manager, at McKinsey & Company, Inc.
THOMAS G. BEVIVINO has been our Chief Financial Officer and Secretary since
December 1999 and served as our Vice President of Finance from July 1999 until
December 1999. From March 1999 until July 1999, Mr. Bevivino performed financial
and accounting services for us through ARC Group LLC, his specialist financial
advisory and transactions support firm. From June 1986 to June 1988,
Mr. Bevivino served as a staff accountant at Kreischer Miller & Co., an
accounting, auditing and financial advisory firm. After receiving his CPA in
June 1988, Mr. Bevivino served as a Senior Accountant at Kreischer Miller from
June 1988 to August 1990. From August 1990 to December 1991, Mr. Bevivino served
as the corporate controller of Realen Homes, a real estate developer. In
December 1991, Mr. Bevivino rejoined Kreischer Miller where he worked until
March 1999, departing as a Senior Engagement Manager. Mr. Bevivino is a member
of the American Institute of Certified Public Accountants and the Pennsylvania
Institute of Certified Public Accountants.
JAMES R. COREY has been our Chief Executive Officer since September 2000 and
our President and a director since the closing of our initial public offering in
September 1999. Mr. Corey also served as our Chief Operating Officer from the
closing of our initial public offering until December 2000. Mr. Corey served as
Managing Director of Potomac Partners from September 1997 until September 1999.
Prior to joining Potomac Partners, Mr. Corey served as Co-Chief Operating
Officer of AT&T Solutions and Managing Partner of their Consulting Division from
June 1995 until September 1997. From June 1994 to June 1995, Mr. Corey served as
President of the Worldwide Services Organization of Unisys Corporation. From
December 1989 until June 1994 Mr. Corey was a partner in the Los Angeles office
of McKinsey & Company, Inc. Previously, Mr. Corey was a Partner at Andersen
Consulting in Chicago.
MICHAEL J. DOLAN has been a director since the closing of our initial public
offering in September 1999. Since July 1996, Mr. Dolan has also served as Vice
Chairman, Chief Financial Officer and a director of Young & Rubicam Inc., an
international marketing and communications services firm. From August 1991 to
July 1996, Mr. Dolan was President and Chief Executive Officer of the joint
venture, Snack Ventures Europe, between PepsiCo Foods International and General
Mills.
MICHAEL H. JORDAN has been a director since the closing of our initial
public offering in September 1999. He also served as our Chairman from the
closing of our initial public offering in September 1999 until May 2001, and has
served as an advisor to us since January 1, 1999. Mr. Jordan retired in
December 1998 as Chairman and Chief Executive Officer of CBS Corporation,
formerly Westinghouse Electric Corporation, positions he held since June 1993.
Prior to joining Westinghouse, he was a principal with the investment firm of
Clayton, Dubilier & Rice, Inc. from September 1992 through June 1993. From 1974
until 1992, Mr. Jordan held various management positions at PepsiCo, Inc., his
last position being Chief Executive Officer of PepsiCo International. From 1964
to 1974, Mr. Jordan held various positions, including Partner at McKinsey &
Company, Inc., an international management consulting firm. Mr. Jordan is also a
member of the Boards of Directors of Aetna, Inc., Dell Computer Corp. and
Marketwatch.com. Mr. Jordan is a member of the President's Export Council,
Chairman of the U.S.-Japan Business Council, Chairman of The College Fund/UNCF
and Chairman of the Policy Board of the Americans for the Arts.
JERRY K. PEARLMAN has been a director since May 2001. From 1971 through
1995, Mr. Pearlman served in various capacities with Zenith Electronics
Corporation, including as Chief Executive Officer from June 1983 to June 1995
and as Chairman from June 1984 to November 1995. From September 1996 through the
present, Mr. Pearlman has served as a director of Ryerson-Tull, Inc., a steel
and
9
metals service center and distributor, and from April 1999 through the present,
as a director of Nanophase Technologies Corporation, a firm that engineers and
manufactures nanocrystalline materials. In addition, from 1984 through the
present, he has served as a director of Smurfit-Stone Container Corporation, a
corrugated paper and box maker. Mr. Pearlman also serves as a member of the
executive committee for Northwestern University and as a director of Evanston
Northwestern Healthcare. He is also a retired director of First Chicago
Corporation.
K. DAVID QUACKENBUSH, JR. has served as our Chief Operating Officer since
March 2001. Mr. Quackenbush served as our Executive Vice President of
Implementation Services from October 2000 until March 2001, served as Managing
Director, Central Region from January 2000 until September 2000 and has led our
Central Region since November 1999. From July 1998 until November 1999,
Mr. Quackenbush served as Principal in charge of the Houston and Energy Business
Units of Align, one of the eight companies acquired by Luminant simultaneously
with our initial public offering. From August 1993 until July 1998,
Mr. Quackenbush was Director of Per-Se Technologies, a provider of software and
information system services to the healthcare industry.
JOHN M. RICHMAN has been a director since May 2001. Mr. Richman has served
as a Trustee of Archstone Communities since July 1998. He served as counsel to
the law firm of Wachtell, Lipton, Rosen & Katz from January 1990 to
October 1996, and from April 1997 to present. Mr. Richman is a retired director
of R.R. Donnelley & Sons Company, and served as Acting Chairman and Chief
Executive Officer of that company from October 1996 to April 1997. He served as
Chairman and CEO of Kraft Foods from 1979 until 1989 and was a Vice Chairman of
Philip Morris Companies from 1989 to 1990. Prior to 1979, Mr. Richman served as
Senior Vice President-Administration and General Counsel of Kraft Foods. He
currently serves as a director of Evanston Northwestern Healthcare, Chicago
Council on Foreign Relations and Lyric Opera of Chicago, and as a Life Trustee
of the Chicago Symphony Orchestra and Northwestern University. Mr. Richman is
also a retired director of BankAmerica Corporation, Bank of America National
Trust and Savings Association and USX Corporation.
RICHARD M. SCRUGGS has been our Vice Chairman and a director since the
closing of our initial public offering in September 1999, and has served as our
Executive Vice President of Corporate Development since September 2000.
Mr. Scruggs also served as our Executive Vice President of Client Development
from September 1999 through September 2000. Mr. Scruggs served as President,
Chief Executive Officer and Chairman of the Board of Align from October 1996
until September 1999. From January 1996 until October 1996, Mr. Scruggs served
as Chief Operating Officer of Rothwell Systems, which was later purchased by
Perot Systems, Inc. From May 1990 until January 1996, Mr. Scruggs served in a
variety of capacities at BSG Alliance/IT, including Managing Director of
Business Development and Managing Director of the Houston office. BSG
Alliance/IT is a firm specializing in client server systems integration.
MICHAEL E. SMITH has served as our Executive Vice President of Strategy
Services since October 2000, served as our Managing Director, Strategy since
February 2000 and has led the strategy practice since September 1999. From
January 1996 until September 1999, Mr. Smith served as a Vice President of
Mercer Management Consulting, a corporate strategy consulting firm. From
January 1991 until January 1996, Mr. Smith served as a Vice President for Visa
International, a full-service payment card provider.
GEORGE P. STAMAS has been a director since May 1999. Since January 2000,
Mr. Stamas has served as a Vice Chair of Deutsche Banc Alex. Brown, an
investment bank. From April 1996 through January 2000, Mr. Stamas was a partner
with the law firm of Wilmer, Cutler & Pickering and now serves as a consultant
to Wilmer, Cutler & Pickering. From 1983 until April 1996, Mr. Stamas was a
partner at Piper & Marbury L.L.P. Mr. Stamas is general counsel to and a limited
partner of, the Baltimore Orioles baseball team. Mr. Stamas also serves on the
Board of Directors of FTI Consulting, Inc., a
10
provider of litigation support services, Aether Systems Inc., a provider of
wireless data services, and Metrocall, Inc., a provider of messaging services.
Our Board of Directors consists of nine directors, which number may be
changed by the Board of Directors. On May 4, 2001, the Board increased the size
of the Board from eight to nine and appointed Messrs. Pearlman and Richman to
fill the two vacancies that then existed on the Board. Mr. Dolan was appointed
to our Board of Directors pursuant to an agreement between us and Young &
Rubicam. If the size of the Board is increased to eleven or more, Young &
Rubicam will have the right to nominate an additional director to our Board.
Messrs. Corey and Scruggs were appointed to our Board of Directors pursuant to
the agreements by which we acquired Potomac Partners Management Consulting, LLC
and Align Solutions Corp., respectively, two of the eight businesses we acquired
in connection with our initial public offering (we will refer to these eight
businesses in this Proxy Statement as the "eight companies" or "eight
businesses").
Our Board of Directors met eight times during 2000. Each of the current
directors attended, either in person or by telephone, at least 75% of the
aggregate number of meetings of the Board of Directors and meetings of the
committees of the Board of Directors on which such director served.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
Our Board of Directors has established an Audit Committee comprised solely
of independent directors (as defined in Rule 4200(a)(14) of the National
Association of Securities Dealers' listing standards), consisting of
Messrs. Austin, Pearlman, Perkins, and Richman, with Mr. Austin serving as
chairman of the Audit Committee. Messrs. Pearlman and Richman were appointed to
the Audit Committee when they were appointed to the Board of Directors on
May 4, 2001. The Board has adopted a written charter under which the Audit
Committee operates. A copy of the current charter is attached to this proxy
statement as Annex A. The responsibilities of the Audit Committee include:
(1) recommending to our board of directors the independent public
accountants to conduct the annual audit of our books and records;
(2) reviewing the proposed scope of the audit;
(3) approving the audit fees to be paid;
(4) reviewing accounting and financial controls with the independent
public accountants and our financial and accounting staff; and
(5) reviewing and approving transactions between us and our directors,
officers and affiliates.
The Audit Committee met once during 2000.
COMPENSATION COMMITTEE
Our Board of Directors has also established a Compensation Committee
comprised solely of non-employee directors, consisting of Messrs. Austin, Dolan,
Jordan, Pearlman, Perkins, Richman and Stamas. Mr. Stamas is a non-voting member
of the compensation committee. Messrs. Pearlman and Richman were appointed to
the Compensation Committee when they were appointed to the Board of Directors on
May 4, 2001. The Compensation Committee (1) provides a general review of our
compensation plans to ensure that they meet corporate objectives and
(2) administers our stock plans. When compensation is not determined under the
terms of an employment agreement, the Compensation Committee will: determine the
compensation of senior executive officers (such as the Chief Executive Officer
and Chief Financial Officer); determine the compensation for other officers or
delegate such determination to the Chief Executive Officer; grant options, stock
or other equity interests under our
11
stock option or other equity-based incentive plans; and administer those plans
and, where such plans specify, our other employee benefit plans. The
Compensation Committee met ten times during 2000.
DIRECTOR COMPENSATION
Directors who are also our employees do not receive additional compensation
for serving as directors. Upon joining the Board of Directors, non-employee
directors receive an option to purchase 9,000 shares of common stock under our
long-term incentive plan at an exercise price equal to the market value per
share of common stock on the date of grant. In addition, under our long-term
incentive plan, each non-employee director is granted an annual option to
purchase 6,000 shares at each annual meeting of our stockholders at which the
director is re-elected or remains a director. Each of these options has an
exercise price equal to the market value per share of common stock on the date
of grant. A director who receives formula options can generally exercise them
beginning six months after receipt, as to one-sixth of the shares and as to an
additional one-sixth every following six months. Directors are also reimbursed
for out-of-pocket expenses incurred in attending meetings of the Board of
Directors or committees of the Board of Directors, in their capacity as
directors. Directors may also receive additional, discretionary option grants,
upon joining the Board of Directors and thereafter.
The following table describes all option grants, including both formula
grants and discretionary grants, made to our non-employee directors during the
fiscal year ended December 31, 2000. With respect to each specific grant of
options described below, (1) one-sixth of the options granted are exercisable
beginning six months after the date of grant and an additional one-sixth of the
options granted are exercisable every following six months, and (2) each of the
options granted expires on the tenth anniversary of the applicable grant date.
NUMBER OF SHARES
OF COMMON STOCK
UNDERLYING
NAME GRANT DATE EXERCISE PRICE OPTIONS GRANTED
- ---- ---------- -------------- ----------------
Randolph L. Austin................................... 3/15/00 $18.375/share 6,000
7/05/00 $ 8.50/share 1,320
11/30/00 $ .9375/share 50,000
Michael J. Dolan..................................... 3/15/00 $18.375/share 6,000
7/05/00 $ 8.50/share 1,320
11/30/00 $ .9375/share 50,000
Michael H. Jordan.................................... 3/15/00 $18.375/share 6,000
7/05/00 $ 8.50/share 1,320
11/30/00 $ .9375/share 50,000
Donald S. Perkins.................................... 3/15/00 $18.375/share 6,000
7/05/00 $ 8.50/share 1,320
11/30/00 $ .9375/share 50,000
George P. Stamas..................................... 3/15/00 $18.375/share 6,000
7/05/00 $ 8.50/share 1,320
11/30/00 $ .9375/share 50,000
Mr. Dolan, who is Chairman and Chief Executive Officer of Young & Rubicam,
has agreed to serve on our Board of Directors at the request of Young & Rubicam.
Mr. Dolan has assigned to Young & Rubicam the net proceeds received by him in
connection with any exercise of options we grant to him for serving on our Board
of Directors and sale by him of the underlying shares.
12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of Luminant's Board of Directors consists solely
of seven non-employee directors, of whom one is a non-voting member.
Messrs. Pearlman and Richman were appointed members of the Compensation
Committee when they were appointed to the Board of Directors on May 4, 2001.
Their names are not included beneath this report because they did not
participate in the deliberations concerning compensation for the year 2000.
The Compensation Committee is responsible for determining all compensation
paid or awarded to Luminant's key executive officers for periods after Luminant
became a public company. The following sections on Philosophy, Base Salary, Cash
Bonus and Stock Options describe the framework, which have guided or will guide
the Compensation Committee regarding decisions not covered by the executive
officers' employment agreements.
PHILOSOPHY. The Compensation Committee's goal is to recruit and retain an
executive team of superior talent. To do so, the Committee attempts to offer
competitive and fair compensation that rewards executives for exceptional
performance and holds them accountable for Luminant's performance. Particular
objective factors that the Committee believes are important in assessing
performance include growth in the number of customers for Luminant's services;
growth in revenue, earnings before interest expense, taxes, depreciation, and
amortization; and earnings per share.
In establishing appropriate levels for base salary, the Compensation
Committee will consider the market for senior executives of public companies in
businesses comparable to Luminant's, based on their own business experience. The
Committee will also consider the particular officer's overall contributions to
Luminant over the past year and since its inception. Annual performance bonuses
are based on the Compensation Committee's evaluation of the executive's
performance in achieving several specified annual goals. Option grants are
designed to reward an executive officer for his overall contribution to Luminant
and to serve as an incentive to achieve Luminant's goal of increasing
shareholder value.
Executive officers' compensation consists primarily of three components:
(i) base salary, (ii) cash bonus, and (iii) stock options.
BASE SALARY. The Committee will establish base salaries after considering a
variety of factors that determine an executive's value to Luminant, including
the individual's knowledge, experience, and accomplishments and the level of
responsibility assumed. The Committee also will set base salaries at levels it
considers necessary to retain key employees.
CASH BONUS. The Committee will determine the cash bonus of the executive
officers on an annual basis. Cash bonuses are based on many factors which
include, but are not limited to, the Committee's overall qualitative evaluation
of the performance and accomplishments of each executive officer for the year,
the company's performance, cash requirements, market conditions, economic
factors, service capacity, expected growth, and financial performance.
STOCK OPTIONS. The Committee believes achievement of Luminant's goals may
be fostered by a stock option program that is tailored to employees who
significantly enhance Luminant's value. Accordingly, during the fiscal year
ended December 31, 2000, the Committee or the Board granted employees options to
purchase 9,202,712 shares of Common Stock. Named executive officers received
options with respect to 1,360,485 shares of Common Stock.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr. James R. Corey is one of
Luminant's largest stockholders. His financial well being is therefore directly
tied to Luminant's performance as reflected in the price per share of Common
Stock. For his services as Luminant's Chief Executive Officer, the Committee, in
2000, authorized an increase in Mr. Corey's base salary from $275,000 to
$300,000 subject to discussions with Mr. Corey as to whether any portion of such
salary should be paid in options. In 2000, the Committee authorized the Company
to grant Mr. Corey options to purchase
13
23,460 shares of the Company's common stock. In doing so, the Committee
considered the successful completion of Luminant's restructuring plan and the
continuing progress in developing new opportunities for Luminant with existing
and prospective clients.
Mr. Guillermo Marmol, who ceased to be the Chief Executive Officer as of
September 26, 2000, received severance and acceleration of option exercisability
on an agreed basis in accordance with his pre-existing employment agreement.
COMPENSATION DEDUCTION LIMIT. The Securities and Exchange Commission
requires that this report comment on Luminant's policy with respect to a special
rule under the tax laws, section 162(m) of the Internal Revenue Code. That
section limits, with exceptions described below, the compensation that a
corporation can deduct for payments to a chief executive officer and the four
other most highly compensated executive officers to $1 million per officer per
year. A company can deduct compensation (including from exercising options) in
excess of $1 million if it pays the compensation under a plan that its
shareholders approve and that is performance-related. Option exercises are
typically deductible under such a plan if granted with exercise prices at or
above the market price when granted or if grandfathered because granted before
the public offering. The Committee's policy with respect to the compensation
deduction limit is to make every reasonable effort to ensure that compensation
likely to be received by a senior executive is deductible under section 162(m),
while at the same time giving Company executives incentives to stay with and
enhance Luminant's value. The Committee believes, however, that compensation
exceeding the $1 million deduction limit should not be ruled out where such
compensation is justified based on the executive's value to Luminant and its
shareholders. The Committee believes that no executive compensation expenses
paid in 2000 will be non-deductible under section 162(m).
This Report should not be considered incorporated by reference in any
document previously or subsequently filed with the Securities and Exchange
Commission that incorporates by reference all or any portion of this proxy
statement, unless the report is specifically incorporated by reference.
Randolph L. Austin
Michael J. Dolan
Michael H. Jordan
Donald S. Perkins
George P. Stamas
AUDIT COMMITTEE REPORT
The Audit Committee's purpose is to assist the Board of Directors in its
oversight of Luminant's internal controls and financial statements and the audit
process. The Board of Directors, in its business judgment, has determined that
all members of the Committee are "independent," as required by applicable
listing standards of the National Association of Securities Dealers. Each of the
members of the Audit Committee is financially literate, and at least one member
has accounting or related financial management experience. The Committee
operates pursuant to a written charter that was adopted by the Board on May 22,
2000. A copy of the current charter is attached to this proxy statement as Annex
A.
Management is responsible for the preparation, presentation and integrity of
Luminant's financial statements, accounting and financial reporting principles
and internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The independent
auditors, Arthur Andersen LLP, are responsible for performing an independent
audit of the consolidated financial statements in accordance with generally
accepted auditing standards and for issuing a report thereon.
In performing its oversight role, the Audit Committee has considered and
discussed the audited financial statements with management and the independent
auditors. The Committee has also discussed
14
with the independent auditors the matters required to be discussed by Statement
on Auditing Standards No. 61, Communication with Audit Committees, as currently
in effect. The Committee has received the written disclosures and the letter
from the independent auditors required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as currently in effect.
The Committee has also considered whether the provision of information
technology consulting services relating to financial information systems design
and implementation and other non-audit services by the independent auditors is
compatible with maintaining the auditors' independence and has discussed with
the auditors the auditors' independence.
Based on the reports and discussions described in this Report, and subject
to the limitations on the role and responsibilities of the Committee referred to
below and in the charter, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in Luminant's Annual
Report on Form 10-K for the fiscal year ended December 31, 2000, for filing with
the Securities and Exchange Commission.
The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Committee rely without independent verification on the information provided
to them and on the representations made by management and the independent
auditors. Accordingly, the Audit Committee's oversight does not provide an
independent basis to determine that management has maintained appropriate
accounting and financial reporting principles or appropriate internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. Furthermore, the Audit Committee's
considerations and discussions referred to above do not assure that the audit of
Luminant's financial statements has been carried out in accordance with
generally accepted auditing standards, that the financial statements are
presented in accordance with generally accepted accounting principles or that
Arthur Andersen LLP is in fact "independent."
This Report should not be considered incorporated by reference in any
document previously or subsequently filed with the Securities and Exchange
Commission that incorporates by reference all or any portion of this proxy
statement, unless the report is specifically incorporated by reference.
Messrs. Pearlman and Richman were appointed to the Audit Committee when they
were appointed to the Board of Directors on May 4, 2001. Messrs. Pearlman and
Richman's names do not appear beneath this report because they did not
participate in the audit committee deliberations described above.
Respectfully submitted on May 8, 2001 by the members of the Audit Committee
of the Board of Directors:
Randolph L. Austin, Chairman
Donald S. Perkins
EXECUTIVE COMPENSATION
We were founded in August 1998, did not conduct any operations in 1998 and,
accordingly, did not pay any compensation to our executive officers for the year
ended December 31, 1998. The following table summarizes the compensation paid to
or earned by our Chief Executive Officer, another individual who served as our
Chief Executive Officer during part of 2000, our four other most highly
compensated executive officers who were serving as executive officers as of
December 31, 2000 and whose salary and bonus for services rendered in all
capacities to Luminant for the fiscal year ended December 31, 2000 exceeded
$100,000, and two additional individuals for whom disclosure would have been
provided as one of Luminant's most highly compensated executive officers but for
the fact that such individual was no longer serving as an executive officer as
of December 31, 2000. We will use the term "named executive officers" to refer
to these people elsewhere in this proxy statement.
15
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION
---------------------------------------------- --------------------------
AWARDS
--------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING
NAME & PRINCIPAL SALARY BONUS COMPENSATION STOCK OPTIONS/SARS
POSITION YEAR ($) ($) ($) AWARD(S) (#)
- ---------------- -------- -------- -------- ------------- ---------- -------------
James R. Corey, ............... 2000 222,407 -- --(2) -- 23,460
PRESIDENT & CHIEF EXECUTIVE 1999 76,313 34,375 -- --
OFFICER(3)
Richard M. Scruggs, ........... 2000 258,333 -- --(2) -- 261,970
VICE CHAIRMAN & EXECUTIVE VICE 1999 61,016 26,000 -- 50,934(4)
PRESIDENT OF CORPORATE
DEVELOPMENT(4)
Thomas G. Bevivino, ........... 2000 213,358 -- -- -- 229,815
CHIEF FINANCIAL OFFICER & 1999 57,788 101,063 80,000(5) -- 60,000
SECRETARY(5)
Michael E. Smith, ............. 2000 260,000 110,000 (2) -- 264,630
EXECUTIVE VICE PRESIDENT OF
STRATEGY SERVICES(6)
K. David Quackenbush, ......... 2000 287,500 -- (2) -- 263,970
CHIEF OPERATING OFFICER(7)
Guillermo G. Marmol, .......... 2000 200,850 -- --(2) -- 28,200
FORMER CHIEF EXECUTIVE 1999 112,692 125,000 -- 1,195,115
OFFICER(8)
Scott A. Williamson, .......... 2000 245,000 -- (2) -- 261,970
VICE PRESIDENT OF ENABLING
SOLUTIONS(9)
Morris W. Markel, ............. 2000 239,583 -- (2) -- 26,470
FORMER MANAGING DIRECTOR OF
EASTERN REGION(10)
LONG-TERM COMPENSATION
-------------------------
PAYOUTS
-------------------------
LONG-
TERM
INCENTIVE
PLAN ALL OTHER
NAME & PRINCIPAL PAYOUTS COMPENSATION
POSITION ($) ($)
- ---------------- --------- -------------
James R. Corey, ............... -- --
PRESIDENT & CHIEF EXECUTIVE -- --
OFFICER(3)
Richard M. Scruggs, ........... -- --
VICE CHAIRMAN & EXECUTIVE VICE -- 372
PRESIDENT OF CORPORATE
DEVELOPMENT(4)
Thomas G. Bevivino, ........... -- --
CHIEF FINANCIAL OFFICER & -- --
SECRETARY(5)
Michael E. Smith, ............. -- --
EXECUTIVE VICE PRESIDENT OF
STRATEGY SERVICES(6)
K. David Quackenbush, ......... -- --
CHIEF OPERATING OFFICER(7)
Guillermo G. Marmol, .......... -- 87,361
FORMER CHIEF EXECUTIVE -- --
OFFICER(8)
Scott A. Williamson, .......... -- --
VICE PRESIDENT OF ENABLING
SOLUTIONS(9)
Morris W. Markel, ............. -- 10,417
FORMER MANAGING DIRECTOR OF
EASTERN REGION(10)
- ------------------------------
(1) Amounts shown reflect compensation earned in the period presented, although
payments earned in prior periods may have been paid in the period presented
and compensation earned in the period presented may have been paid in a
subsequent period.
(2) The amount does not equal or exceed the lesser of $50,000 or 10% of
compensation.
(3) Prior to September 1999, Mr. Corey was a Managing Director and owner of
Potomac Partners Management Consulting LLC. Upon our acquisition of Potomac
Partners Management Consulting in September 1999, Mr. Corey was appointed
our President and Chief Operating Officer. Mr. Corey was also appointed our
Chief Executive Officer in September 2000.
(4) Prior to September 1999, Mr. Scruggs was President, Chief Executive
Officer, Chairman of the Board and an owner of Align Solutions Corp. Upon
our acquisition of Align Solutions Corp. in September 1999, Mr. Scruggs was
appointed Vice Chairman and Executive Vice President of Client Development.
The number of securities under the heading "Securities Underlying
Options/SARS" represents the number of Luminant shares underlying options
issued to Mr. Scruggs in 1999 to replace options he held in Align Solutions
Corp. at the time of acquisition by Luminant. The amount set forth in the
column titled "All Other Compensation" represents premiums paid by Luminant
in 1999 for life insurance policies held by Mr. Scruggs.
(5) Mr. Bevivino performed financial advisory and consulting services for us
from March 1999 until June 1999, when he was appointed our Vice President
of Finance. Mr. Bevivino served as our Vice President of Finance from
June 1999 until December 1999, when he was appointed our Chief Financial
Officer and Secretary. The amounts set forth for Mr. Bevivino for 1999 in
the columns titled "Salary" and "Bonus" reflect all amounts paid to
Mr. Bevivino for his services to Luminant as a Vice President of Finance,
Chief Financial Officer and Secretary during 1999. The amount set forth for
Mr. Bevivino for 1999 in the column titled "Other Annual Compensation"
reflects amounts paid to Mr. Bevivino during 1999 as a result of financial
advisory and consulting services provided to Luminant by ARC Group LLC, a
firm in which Mr. Bevivino held a 50% ownership interest.
16
(6) Mr. Smith was appointed Executive Vice President of Strategy Services in
February 2000.
(7) Mr. Quackenbush was appointed Executive Vice President of Implementation
Services in February 2000 and was appointed Chief Operating Officer in
March 2001.
(8) Mr. Marmol served as our Chief Executive Officer from August 1998 until
September 2000. The amount set forth in the column titled "All Other
Compensation" represents severance payments, payments for accrued vacation,
and health insurance premiums paid by Luminant during 2000. Mr. Marmol is
entitled to additional severance amounts as described in "--Severance
Agreements" below.
(9) Mr. Williamson was appointed Managing Director of the Western Region in
February 2000. The Managing Director position was removed from the
executive officer level as part of Luminant's September 2000 restructuring.
Accordingly, Mr. Williamson was no longer an executive officer after
September 2000. Mr. Williamson is currently Vice President of Enabling
Solutions.
(10) Mr. Markel was appointed Managing Director of the Eastern Region in
February 2000. Mr. Markel terminated his employment with Luminant in
December 2000. The amount set forth in the column titled "All Other
Compensation" represents severance payments paid by Luminant during 2000.
Mr. Markel is entitled to additional severance amounts as described in
"--Severance Agreements" below.
EMPLOYMENT AGREEMENTS
As of September 16, 1999, we entered into an employment agreement with James
R. Corey, our Chief Executive Officer and President, for the period through
September 16, 2002. Mr. Corey currently receives an annual salary of $300,000
plus a bonus of up to the same amount. Mr. Corey receives the same benefits as
our other employees and will be eligible to receive options under Luminant's
long-term incentive plan. Upon a change of control of Luminant, all of
Mr. Corey's options will become immediately exercisable. We may terminate
Mr. Corey's agreement for cause or upon death or disability. Cause includes a
material breach of Mr. Corey's obligations or Mr. Corey's gross negligence,
conviction for, or plea of no contest to, a charge of commission of a felony, a
breach by Mr. Corey of his non-compete or confidentiality agreement, or if
Mr. Corey interfered with our relationship with any client, supplier or other
person. Mr. Corey may terminate his employment with us with or without good
reason. Good reason means if we materially violate the employment agreement or
if we relocate his primary office by more than 35 miles from Herndon, Virginia.
If Mr. Corey resigns or we terminate his employment with or without cause or
because of death or disability, we will pay Mr. Corey any unpaid portion of his
salary pro-rated through the date of actual termination, reimburse business
expenses, pay accrued vacation and pay health insurance premiums for that
period. In addition, if we terminate Mr. Corey's employment without cause or he
resigns for good reason, Mr. Corey will receive a severance payment equal to his
base salary for a period of 18 months following the termination, the pro rata
share of the bonus for the year of his termination, continuation of his benefits
and acceleration of the next sixth of his options. Mr. Corey is subject to
covenants intended to bar his competition and solicitation of clients or
employees during his employment and for one year after his employment ends for
any reason.
As of September 16, 1999, we entered into an employment agreement with
Richard M. Scruggs, our Vice Chairman and Executive Vice President of Corporate
Development, for the period through September 16, 2002. Mr. Scruggs currently
receives an annual salary of $290,000 plus a bonus of up to the same amount.
Mr. Scruggs receives the same benefits as our other employees and will be
eligible to receive options under Luminant's long-term incentive plan. Upon a
change of control of Luminant, all of Mr. Scruggs's options will become
immediately exercisable. We may terminate Mr. Scruggs's agreement for cause or
upon death or disability. Cause includes a material breach of Mr. Scruggs's
obligations or Mr. Scruggs's gross negligence, conviction for, or plea of no
contest to, a charge of commission of a felony, a breach by Mr. Scruggs of his
non-compete or confidentiality agreement, or if Mr. Scruggs interfered with our
relationship with any client, supplier or other person. Mr. Scruggs may
terminate his employment with us with or without good reason. Good reason means
if we materially violate the employment agreement or if we relocate his primary
office by more than 35 miles from Harris County,
17
Texas. If Mr. Scruggs resigns or we terminate his employment with or without
cause or because of death or disability, we will pay Mr. Scruggs any unpaid
portion of his salary pro-rated through the date of actual termination,
reimburse business expenses, pay accrued vacation and pay health insurance
premiums for that period. In addition, if we terminate Mr. Scruggs's employment
without cause or he resigns for good reason, Mr. Scruggs will receive a
severance payment equal to his base salary for a period of 18 months following
the termination, the pro rata share of the bonus for the year of his
termination, continuation of his benefits and acceleration of the next sixth of
his options. Mr. Scruggs is subject to covenants intended to bar his competition
and solicitation of clients or employees during his employment and for one year
after his employment ends for any reason.
As of June 28, 1999, we entered into an employment agreement with Thomas G.
Bevivino, our Chief Financial Officer and Secretary, for the period through
June 28, 2002. Mr. Bevivino currently receives an annual salary of $287,000 plus
a bonus of up to the same amount. Under the agreement, in connection with our
initial public offering we granted Mr. Bevivino options to acquire 60,000 shares
of common stock under our long-term incentive plan, exercisable at the initial
public offering price of $18.00 per share. The options become exercisable in
sixths every sixth months after the date we granted them and will remain
exercisable for up to 10 years after the date of the grant. Mr. Bevivino will
receive the same benefits as our other employees and will be eligible to receive
options under Luminant's long-term incentive plan. We may terminate
Mr. Bevivino's agreement with or without cause or upon death or disability.
Cause includes a material breach of Mr. Bevivino's obligations or
Mr. Bevivino's gross negligence, conviction for, or plea of no contest to, a
charge of commission of a felony, a breach by Mr. Bevivino of his non-compete or
confidentiality agreement, or if Mr. Bevivino interfered with our relationship
with any client, supplier or other person. Mr. Bevivino may terminate his
employment with us with or without good reason. Good reason means if we
materially violate the employment agreement. If Mr. Bevivino resigns or we
terminate his employment with or without cause or because of death or
disability, we will pay Mr. Bevivino any unpaid portion of his salary pro-rated
through the date of actual termination, reimburse business expenses, pay accrued
vacation and pay health insurance premiums for that period. In addition, if we
terminate Mr. Bevivino's employment without cause or he resigns for good reason,
Mr. Bevivino will receive a severance payment equal to his base salary for a
period of 18 months following the termination and the pro rata share of the
bonus for the year of his termination, continuation of his benefits and
acceleration of the next sixth of his options. Mr. Bevivino is subject to
covenants intended to bar his competition and solicitation of clients or
employees during his employment and for one year after his employment ends for
any reason.
As of September 16, 1999, we entered into an employment agreement with
Michael E. Smith, our Executive Vice President of Strategy Services, for the
period through September 16, 2002. Mr. Smith currently receives an annual salary
of $290,000 plus a bonus of up to the same amount. Mr. Smith will receive the
same benefits as our other employees and will be eligible to receive options
under Luminant's long-term incentive plan. We may terminate Mr. Smith's
agreement for cause or upon death or disability. Cause includes a material
breach of Mr. Smith's obligations or Mr. Smith's gross negligence, conviction
for, or plea of no contest to, a charge of commission of a felony, a breach by
Mr. Smith of his non-compete or confidentiality agreement, or if Mr. Smith
interfered with our relationship with any client, supplier or other person.
Mr. Smith may terminate his employment with us with or without good reason. Good
reason means if we materially violate the employment agreement or if we relocate
his primary office by more than 35 miles from his primary office as of
December 31, 1998. If Mr. Smith resigns or we terminate his employment with or
without cause or because of death or disability, we will pay Mr. Smith any
unpaid portion of his salary pro-rated through the date of actual termination,
reimburse business expenses, pay accrued vacation and pay health insurance
premiums for that period. In addition, if we terminate Mr. Smith's employment
without cause or he resigns for good reason, Mr. Smith will receive a severance
payment equal to his base salary for a period of 18 months following the
termination, the pro rata share of the bonus for the year of his termination,
continuation of his benefits and acceleration of the next sixth of his options.
Mr. Smith is subject to covenants intended to
18
bar his competition and solicitation of clients or employees during his
employment and for one year after his employment ends for any reason.
As of September 16, 1999, we entered into an employment agreement with K.
David Quackenbush, our Chief Operating Officer, for the period through
September 16, 2002. Mr. Quackenbush currently receives an annual salary of
$400,000 plus a bonus of up to forty percent of that amount. Mr. Quackenbush
will receive the same benefits as our other employees and will be eligible to
receive options under Luminant's long-term incentive plan. We may terminate
Mr. Quackenbush's agreement for cause or upon death or disability. Cause
includes a material breach of Mr. Quackenbush's obligations or
Mr. Quackenbush's gross negligence, conviction for, or plea of no contest to, a
charge of commission of a felony, a breach by Mr. Quackenbush of his non-compete
or confidentiality agreement, or if Mr. Quackenbush interfered with our
relationship with any client, supplier or other person. Mr. Quackenbush may
terminate his employment with us with or without good reason. Good reason means
if we materially violate the employment agreement or if we relocate his primary
office outside of Harris County, Texas and the surrounding counties. If
Mr. Quackenbush resigns or we terminate his employment with or without cause or
because of death or disability, we will pay Mr. Quackenbush any unpaid portion
of his salary pro-rated through the date of actual termination, reimburse
business expenses, pay accrued vacation and pay health insurance premiums for
that period. In addition, if we terminate Mr. Quackenbush's employment without
cause or he resigns for good reason, Mr. Quackenbush will receive a severance
payment equal to his base salary for a period of 18 months following the
termination, the pro rata share of the bonus for the year of his termination,
continuation of his benefits and acceleration of the next sixth of his options.
Mr. Quackenbush is subject to covenants intended to bar his competition and
solicitation of clients or employees during his employment and for one year
after his employment ends for any reason.
SEVERANCE AGREEMENTS
Mr. Marmol served as our Chief Executive Officer and director until his
resignation from both capacities in September 2000. Mr. Marmol was party to an
employment agreement with us during his tenure as our Chief Executive Officer
and entered into a severance agreement with us upon termination of his
employment with us. Under the severance agreement, Mr. Marmol is receiving
monthly payments of $27,500 from November 1, 2000 through December 31, 2001 and
bonuses of $330,000 on each of February 28, 2001 and 2002. His outstanding
options (including those exercisable at the initial public offering price plus
those exercisable at the market price on the date of each subsequent grant)
became fully exercisable and will remain exercisable until October 2003.
Mr. Marmol is subject to covenants intended to bar his competition through
December 2001 and solicitation of clients or employees through December 2002.
Mr. Markel served as our Managing Director of the Eastern Region until his
resignation in December 2000. As per the employment agreement Mr. Markel had
entered into with us, he is receiving monthly severance payments of $20,833 from
December 2000 through September 2001.
19
OPTION GRANTS
The following table provides information on options granted to the named
executive officers during 2000:
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED(#) FISCAL YEAR(1) ($/SHARE) DATE PRESENT VALUE(2)
- ---- ------------ -------------- ----------- ---------- ----------------
James R. Corey............... 12,000(3) 0.13% $18.375 3/15/10 $159,600
11,460(3) 0.12% $ 8.50 7/05/10 $ 72,083
Richard M. Scruggs........... 9,000(3) 0.10% $18.375 3/15/10 $119,700
2,970(3) 0.03% $ 8.50 7/05/10 $ 18,681
250,000(4) 2.72% $0.9375 11/30/10 $180,000
Thomas G. Bevivino........... 15,000(3) 0.16% $ 35.56 1/14/10 $385,650
5,500(3) 0.06% $18.375 3/15/10 $ 73,150
9,315(3) 0.10% $ 8.50 7/05/10 $ 58,591
200,000(5) 2.17% $0.9375 11/30/10 $144,000
Michael E. Smith............. 11,000(3) 0.12% $18.375 3/15/10 $146,300
3,630(3) 0.04% $ 8.50 7/05/10 $ 22,833
250,000(4) 2.72% $0.9375 11/30/10 $180,000
K. David Quackenbush......... 9,000(3) 0.10% $18.375 3/15/10 $119,700
2,000(3) 0.02% $ 11.03 6/05/10 $ 16,160
2,970(3) 0.03% $ 8.50 7/05/10 $ 18,681
250,000(4) 2.72% $0.9375 11/30/10 $180,000
Guillermo G. Marmol.......... 15,000(6) 0.16% $18.375 10/31/03 $199,500
13,200(6) 0.14% $ 8.50 10/31/03 $ 83,028
Scott A. Williamson.......... 9,000(3) 0.10% $18.375 3/15/10 $119,700
2,970(3) 0.03% $ 8.50 7/05/10 $ 18,681
250,000(4) 2.72% $0.9375 11/30/10 $180,000
Morris W. Markel............. 13,000(7) 0.14% $18.375 3/15/01(7) $172,900
500(7) 0.01% $ 8.06 3/15/01(7) $ 2,905
2,970(7) 0.03% $ 8.50 3/15/01(7) $ 18,681
10,000(7) 0.11% $0.9375 3/15/01(7) $ 7,200
- ------------------------
(1) The percentages in the table above are based on options to purchase
9,202,712 shares of common stock granted under our stock option plan in the
year ended December 31, 2000 to our employees.
(2) In the table above, the value of options granted is based on a Black-Scholes
pricing model with a weighted average volatility of 121.41%, a risk-free
rate of return of 5.71%, a dividend yield of 0%, and exercise of options
five years from date of grant. The actual value, if any, that an executive
officer may realize will depend on the excess of the market price over the
exercise price on the date the option is exercised so there is no assurance
that the value realized by an executive officer will be at or near the value
estimated by the Black-Scholes model, which is based on assumptions as to
the variables of stock price to volatility, future dividend yield and
interest rate. For an estimate of the impact of all stock option grants on
Luminant's financial results using the Black-Scholes valuation method, see
Note 12 in the Notes to Consolidated Financial Statements in the
20
Luminant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, as amended.
(3) One-sixth of the options granted become exercisable six months after the
date of grant and an additional one-sixth of the options granted become
exercisable every following six months.
(4) Approximately 16,666 of the options granted become exercisable six months
after the date of grant and approximately 16,666 of the options granted
become exercisable every following six months. 150,000 of the options
granted become exercisable on November 30, 2003.
(5) One-sixth of the options granted become exercisable six months after the
date of grant and an additional one-sixth of the options granted become
exercisable every following six months. 100,000 of the options granted
become exercisable on November 30, 2003.
(6) 100% of options granted became excercisable on October 31, 2000, per a
severance agreement entered into with Mr. Marmol. For details of this
agreement, please refer to "--Severance Agreements."
(7) Mr. Markel left Luminant's employment effective December 15, 2000. At such
time, all of Mr. Markel's options which were then exercisable or which would
have become exercisable within six months of such date, became immediately
exercisable, for a 90 day period ending March 15, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FISCAL YEAR-END STOCK
OPTION VALUES
The following table sets forth for each of the named executive officers
certain information concerning options exercised during the fiscal year ended
December 31, 2000 and the number of shares subject to both exercisable and
unexercisable stock options as of that date. The table also shows values for
unexercised "in-the-money" options as of December 31, 2000.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
SHARES UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT
ACQUIRED ON VALUE DECEMBER 31, 2000 DECEMBER 31, 2000
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE(#)(1) EXERCISABLE/UNEXERCISABLE($)2)
- ---- ------------ ----------- ------------------------------- ------------------------------
James R. Corey............ -- -- 2,000/21,460 $0/$0
Richard M. Scruggs........ -- -- 26,887/286,017 $6,862/$3,180
Thomas G. Bevivino........ -- -- 23,416/266,399 $0/$0
Michael E. Smith.......... -- -- 11,833/282,797 $0/$0
K. David Quackenbush...... 3,000 $22,433(3) 8,320/276,813 $0/$0
Guillermo G. Marmol....... -- -- 1,422,094/0 $0/$0
Scott A. Williamson....... -- -- 13,832/278,789 $2,439/$3,310
Morris W. Markel.......... -- -- 6,660/0 $0/$0
- --------------------------
(1) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of
Luminant's common stock on December 31, 2000.
(2) Includes only "in-the-money" options as of December 31, 2000. Value is based
on the closing price of Luminant's common stock on the Nasdaq National
Market on December 31, 2000 ($0.813) minus the per-share exercise price,
multiplied by the number of shares issuable upon exercise of the option.
(3) Based on the fair market value of Luminant's common stock as represented by
the closing price of Luminant's common stock on the Nasdaq National Market
on the exercise date, minus the per-share exercise price, multiplied by the
number of shares acquired. The closing price of Luminant's common stock on
September 5, 2000, the exercise date, was $8.563 per share.
21
LIMITATION OF LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
As the Delaware General Corporation Law permits, we have included in our
certificate of incorporation a provision to eliminate the personal liability of
our directors for or with respect to any acts or omissions in the performance
the director's duties as a director. In addition, our charter and bylaws provide
that we must indemnify our officers and directors to the full extent permitted
by the Delaware General Corporation Law subject to specific exceptions,
including circumstances in which indemnification would be discretionary under
applicable law. We are also required to advance expenses to our officers and
directors as incurred in connection with proceedings against them for which they
may be indemnified. At present, we are not aware of any pending or threatened
litigation or proceeding involving any of our directors, officers, employees or
agents in which we would be required or permitted to indemnify them. We believe
that these charter provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 2000, the Compensation Committee of the
Board of Directors consisted of Messrs. Austin, Dolan, Jordan, Perkins and
Stamas. None of these members of the Compensation Committee has ever been an
officer or employee of Luminant. No interlocking relationship exists or has
existed between any of these members of the Compensation Committee or any other
member of our Board of Directors and any members of the board of directors or
compensation committee of any other company.
George P. Stamas, a director of Luminant, and a non-voting member of the
Compensation Committee, serves as a Vice Chair of Deutsche Banc Alex. Brown, an
investment bank that provides administrative and consulting services to
Luminant.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
ACQUISITION OF THE EIGHT COMPANIES
Simultaneously with the closing of our initial public offering, we acquired
by merger all of the issued and outstanding stock and interests of eight
companies, except that we accomplished the acquisition of Brand Dialogue-New
York by an asset purchase (we refer to these companies in this proxy statement
as the "eight companies"). In addition to the consideration paid at the closing
of the acquisitions, the owners of the eight companies received the right to
earn contingent payments as described below. The consideration paid for the
eight companies was determined through arm's-length negotiations between
Luminant Worldwide Corporation and the representatives of the eight companies.
In determining how much consideration to pay for the eight companies, we
considered, among other factors, the historical operating results, the net
worth, the liabilities and indebtedness and the future prospects of each of the
eight companies. Independent counsel represented each of the eight companies in
the negotiation of the terms and conditions by which they were acquired.
In March 2000, we issued approximately $47.2 million in contingent
consideration to the former owners of five of the eight companies as a result of
the operations of the individual companies during the period from July 1, 1999
through December 31, 1999, including approximately $0.06 million in cash and
1,661,392 shares of common stock. Except as set forth in the next paragraph, we
owe no additional contingent consideration to the former owners of the eight
companies under the terms of the acquisition agreements by which we acquired the
eight companies.
Certain former owners of one of the eight companies, Potomac Partners
Management Consulting, LLC, are still eligible to receive additional contingent
consideration through June 30, 2002, based upon the amount of certain types of
revenues we receive from a particular client. During the period from
22
July 1, 1999 through December 31, 1999, the amount earned by these former owners
resulting from the aforementioned revenues totaled approximately $170,000. On
May 10, 2000, we issued an aggregate of 14,645 shares in payment of this
contingent consideration. During the period from January 1, 2000 through
December 31, 2000, the amount of contingent consideration earned by these former
owners totaled approximately $3.3 million, payable no later than thirty days
after completion of our audit for the fiscal year 2000. We currently intend to
pay all of the contingent consideration earned during the aforementioned period
in shares of Luminant common stock. The number of shares to be issued will be
determined based on the average trading price of our common stock during the
thirty-day period preceding issuance of the shares.
James R. Corey, our President and Chief Executive Officer and a director,
was a Managing Director and an owner of Potomac Partners. In addition to the
consideration paid to Mr. Corey at the closing of the acquisitions, he received
the right to receive contingent consideration as described above. In
March 2000, Mr. Corey and one of his affiliates received an aggregate of 286,979
shares, valued at $8,140,639, as contingent consideration based on the financial
performance of Potomac Partners from July 1, 1999 through December 31, 1999. In
May 2000, Mr. Corey and one of his affiliates received an aggregate of 6,835
shares, valued at $79,414, as contingent consideration based on revenues
received by us from a particular client during the period from July 1, 1999
through December 31, 1999. The contingent consideration Mr. Corey and this
affiliate will earn in connection with the contingent consideration based on the
revenues we received from this client during the period from January 1, 2000
through December 31, 2000 has not yet been determined. This contingent
consideration is payable no later than thirty days after completion of our audit
for the fiscal year 2000. Under the terms of the acquisition agreement by which
we acquired Potomac Partners, Mr. Corey was also appointed to our board of
directors and received registration rights with respect to the shares of common
stock he received in exchange for his interest in Potomac Partners.
Donald S. Perkins, our Chairman, was also an owner of Potomac Partners. In
addition to the consideration paid to Mr. Perkins at the closing of the
acquisitions, he received the right to receive contingent consideration, as
described above. In March 2000, Mr. Perkins received 2,829 shares, valued at
$80,249, as contingent consideration based on the financial performance of
Potomac Partners from July 1, 1999 through December 31, 1999. In May 2000,
Mr. Perkins received 67 shares, valued at $783, as contingent consideration
based on revenues received by us from a particular client during the period from
July 1, 1999 through December 31, 1999. The contingent consideration
Mr. Perkins will earn in connection with the contingent consideration based on
the revenues we received from this client during the period from January 1, 2000
through December 31, 2000 has not yet been determined. This contingent
consideration is payable no later than thirty days after completion of our audit
for the fiscal year 2000. Under the terms of the acquisition agreement by which
we acquired Potomac Partners, Mr. Perkins received registration rights with
respect to the shares of common stock he received in exchange for his interest
in Potomac Partners. In November 2000, we registered 19,776 shares of common
stock for Mr. Perkins under the Securities Act of 1933, as amended, pursuant to
this agreement.
John M. Richman, a director, was also an owner of Potomac Partners. In
addition to the consideration paid to Mr. Richman at the closing of the
acquisitions, he received the right to receive contingent consideration, as
described above. In March 2000, Mr. Richman received 2,829 shares, valued at
$80,249, as contingent consideration based on the financial performance of
Potomac Partners from July 1, 1999 through December 31, 1999. In May 2000,
Mr. Richman received 67 shares, valued at $783, as contingent consideration
based on revenues received by us from a particular client during the period from
July 1, 1999 through December 31, 1999. The contingent consideration
Mr. Richman will earn in connection with the contingent consideration based on
the revenues we received from this client during the period from January 1, 2000
through December 31, 2000 has not yet been determined. This contingent
consideration is payable no later than thirty days after completion of our audit
for the
23
fiscal year 2000. Under the terms of the acquisition agreement by which we
acquired Potomac Partners, Mr. Richman received registration rights with respect
to the shares of common stock he received in exchange for his interest in
Potomac Partners. In November 2000, we registered 19,776 shares of common stock
for Mr. Richman under the Securities Act of 1933, as amended, pursuant to this
agreement.
Richard M. Scruggs, our Vice Chairman, Executive Vice President of Corporate
Development and a director, was President, Chief Executive Officer and Chairman
of the Board and an owner of Align Solutions Corp., one of the eight companies
we acquired simultaneously with our initial public offering. In March 2000,
Mr. Scruggs received 12,426 shares, valued at $352,483, as contingent
consideration based on the financial performance of Align from July 1, 1999
through December 31, 1999. Under the terms of the acquisition agreement by which
we acquired Align, Mr. Scruggs was also appointed to our board of directors and
received registration rights with respect to the shares of common stock he
received in exchange for his interest in Align. In November 2000, we registered
639,109 shares of common stock for Mr. Scruggs under the Securities Act of 1933,
as amended, pursuant to this agreement.
Under the terms of the acquisition agreements by which we acquired the eight
companies, the former owners of the eight companies, including Messrs. Corey,
Scruggs, Perkins and Richman, have the right to cause us to register under the
Securities Act of 1933 any shares of Luminant common stock which they received
pursuant to the acquisition agreements, whenever we propose to register under
the Securities Act of 1933 any shares of common stock for our own or another's
account in a public offering, other than:
- any shelf registration of shares of common stock to be used as
consideration for acquisitions of additional businesses;
- registrations relating to employee benefits plans; and
- registrations relating to rights offerings made to our stockholders.
We have agreed to pay all costs of this registration (other than
underwriting discounts) and to keep the registration effective for at least
120 days, or whatever shorter period may be required to sell the registered
shares.
YOUNG & RUBICAM, INC.
Simultaneously with the closing of our initial public offering, we acquired
assets of Brand Dialogue-New York, a division of Young & Rubicam, Inc. In
March 2000, Young & Rubicam received 558,032 shares of common stock as
contingent consideration based on the financial performance of Brand
Dialogue-New York from July 1, 1999 through December 31, 1999.
As of April 10, 2001, Young & Rubicam beneficially owned approximately
26.50% of our outstanding common stock. Michael J. Dolan became a director of
Luminant upon the closing of our initial public offering under the terms of our
acquisition agreement with Young & Rubicam. Mr. Dolan is Chairman and Chief
Executive Officer of Young & Rubicam.
Upon the closing of our initial public offering we entered into a Transition
Services Agreement with Young & Rubicam under which Young & Rubicam granted us a
license to use, for a term not to exceed 12 months, office space used by Brand
Dialogue-New York prior to our initial public offering. Young & Rubicam also
provided us with specified services including accounting and administrative
services in connection with our use of this space. Effective April 2001, the
Transition Services Agreement was terminated. Fees paid to Young & Rubicam for
the leased space and the provision of specified services in 2000 were $613,307.
24
OTHER TRANSACTIONS
We have entered into employment agreements with each of Messrs. Corey,
Bevivino, Scruggs, Smith and Quackenbush. For the details of these agreements,
please refer to "Employment Agreements."
Mr. Alsup, a greater than 5% shareholder, is employed by Luminant. During
2000, he was paid $171,400 and was granted options to purchase 9,823 shares of
common stock. Mr. Alsup currently earns an annual salary of $157,000 and is
eligible for participation in the Luminant bonus program.
In October 2000 we entered into a severance agreement with Mr. Marmol. For
details of this agreement, please refer to "--Severance Agreements."
George P. Stamas, a director of Luminant, and a member of the Compensation
Committee, serves as a Vice Chair of Deutsche Banc Alex. Brown, an investment
bank that provides administrative and consulting services to Luminant.
OTHER INFORMATION
STOCK PERFORMANCE
The following graph compares total stockholder return on our common stock
with the cumulative total return of the Nasdaq Market Index and the cumulative
return of the peer group described in footnote (1) below for the period from
September 16, 1999, the date that Luminant's common stock began trading on the
Nasdaq National Market following our initial public offering, through
December 31, 2000, the end of our most recent fiscal year. The graph plots the
growth in value of an initial $100 investment over the indicated time period,
assuming the reinvestment of dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG LUMINANT WORLDWIDE
CORPORATION, NASDAQ MARKET INDEX AND PEER GROUP INDEX(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
LUMINANT WORLDWIDE CORP. PEER GROUP INDEX NASDAQ MARKET INDEX
9/16/99 $100.00 $100.00 $100.00
9/30/99 $116.59 $104.89 $100.00
12/31/99 $172.51 $229.35 $147.69
3/31/00 $63.03 $158.48 $168.04
6/30/00 $33.89 $119.97 $144.54
9/30/00 $11.26 $68.93 $133.38
12/31/00 $3.08 $17.24 $89.63
- ------------------------
(1) The peer group is composed of the following companies that we compete with
on a worldwide basis in the internet professional services industry: Braun
Consulting, Inc., Cambridge Technology Partners, iXL Enterprises, Inc.,
Marchfirst, Inc., Proxicom, Inc., Razorfish, Inc., Sapient Corp., Scient
Corp., U.S. Interactive, Inc., and Viant Corp.
25
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF OUR PREVIOUS OR
FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE THIS PROXY STATEMENT OR
FUTURE FILINGS MADE BY THE COMPANY UNDER THOSE STATUTES, THE COMPENSATION
COMMITTEE REPORT, THE AUDIT COMMITTEE REPORT AND THE STOCK PERFORMANCE GRAPH ARE
NOT DEEMED FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND SHALL NOT BE
DEEMED INCORPORATED BY REFERENCE INTO ANY OF THOSE PRIOR FILINGS OR INTO ANY
FUTURE FILINGS MADE BY US UNDER THOSE STATUTES.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors and executive officers, and persons who own more than ten percent
(10%) of our common stock, file with the SEC initial reports of ownership and
reports of changes in ownership of our common stock. Our officers, directors and
greater-than-ten-percent stockholders are required to furnish us with copies of
all Section 16(a) reports they file.
Based solely on our review of the Section 16(a) reports furnished to us and
written representations that no other reports were required, we believe that our
directors, officers and greater-than-ten-percent stockholders reported all
transactions in Luminant common stock and options on a timely basis during the
fiscal year ended December 31, 2000, except that (1) Mr. Dolan failed to file a
Form 4 for one transaction (in 1999) in which he acquired shares of common
stock, (2) Mr. Jordan failed to file Form 4s for two transactions (including one
in 1999) in which he beneficially acquired shares of common stock, and one
transaction in which his wife disposed of shares of common stock,
(3) Mr. Perkins did not file a Form 4 on a timely basis for one transaction in
which he acquired shares of common stock, (4) Mr. Bevivino failed to file a
Form 4 for two transactions (in 1999) in which he and his son acquired shares of
common stock, (5) Mr. Corey did not file a Form 4 on a timely basis for one
transaction in which he acquired shares of common stock, (6) Mr. Quackenbush did
not file a Form 4 on a timely basis for one transaction in which he acquired
shares of common stock, and did not file a Form 4 for one transaction in which
he acquired options to purchase common stock, one transaction in which he
acquired common stock through an option exercise, and one transaction in which
he disposed of shares of common stock, (7) Mr. Smith did not file a Form 3 on a
timely basis upon becoming an executive officer of Luminant and did not file a
Form 4 on a timely basis for one transaction in which he acquired shares of
common stock, and (8) Messrs. Morris Markel and Scott Williamson, each of whom
served as an executive officer during part of 2000, each failed to file a
Form 3 on a timely basis upon becoming an executive officer of Luminant and did
not file a Form 4 on a timely basis for one transaction in which such person
acquired shares of common stock. Each of the reports described above have
subsequently been filed.
PROPOSALS FOR THE 2002 ANNUAL MEETING
If you want to include a proposal in the proxy statement for Luminant's 2002
Annual Meeting, please send the proposal to us at 13737 Noel Road, Suite 1400,
Dallas, Texas 75240, Attention: Thomas G. Bevivino, Secretary. Proposals must be
received on or before January 7, 2002 to be included in next year's proxy
statement. Please note that proposals must comply with all of the requirements
of Rule 14a-8 under the Securities Exchange Act of 1934, as well as the
requirements of our certificate of incorporation and bylaws. Under Rule 14a-4 as
promulgated under the Securities Exchange Act of 1934, we will be able to use
proxies given to us for the 2002 Annual Meeting to vote for or against any
stockholder proposal submitted other than pursuant to Rule 14a-8 at our
discretion unless the proposal is submitted to us on or before 90 days before
next year's annual meeting.
26
OTHER MATTERS
Although our management is not aware of any other matters that may come
before the Annual Meeting, if any such matters should be presented, the persons
named in the accompanying proxy card intend to vote such proxy in accordance
with their best judgment.
You may obtain a copy of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2000, as amended, at no cost by writing to Thomas G.
Bevivino, Secretary, Luminant Worldwide Corporation, 13737 Noel Road, Suite
1400, Dallas, Texas 75240.
By Order of the Board of Directors
[/S/ DONALD S. PERKINS]
Donald S. Perkins
Chairman of the Board
May 8, 2001
27
APPENDIX A
ADOPTED MAY 22, 2000
LUMINANT WORLDWIDE CORPORATION
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
1. MISSION STATEMENT. The Audit Committee is appointed by the Board of
Directors (the "Board") of Luminant Worldwide Corporation (the "Company") to
assist the Board in monitoring (1) the integrity of the financial statements of
the Company, (2) the Company's compliance with legal and regulatory
requirements, and (3) the independence and performance of the Company's internal
and external auditors.
2. SIZE OF COMMITTEE. The Audit Committee shall consist of no less than
three (3) and no more than six (6) members.
3. QUALIFICATIONS. Each of the members of the Audit Committee shall meet
the independence and experience requirements of the National Association of
Securities Dealers.
4. MEETINGS. The Audit Committee shall meet at such times and from time to
time as the Audit Committee deems appropriate. The Audit Committee shall report
to the Board at the first regular Board meeting following each such meeting of
the Audit Committee. Members of the Audit Committee may participate in a meeting
of the Audit Committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
5. APPOINTMENT AND TENURE. The members of the Audit Committee shall be
appointed by the Board and shall serve for a term of one year or until their
respective successors are duly appointed by the Board, subject to earlier death,
resignation or removal from the Audit Committee or the Board. The chairman of
the Audit Committee shall be designated by the Board and shall serve for a one
year term or until his or her respective successor is duly appointed by the
Board, subject to earlier death, resignation or removal from the Audit Committee
or the Board.
6. RESPONSIBILITIES. The duties of the Audit Committee shall include the
following:
a. REVIEW PROCEDURES
(i) Submit this Charter and any amendments to this Charter to the
Board for approval, periodically review and reassess the adequacy of this
Charter, and publish this Charter as required in accordance with SEC
regulations.
(ii) Discuss with the Company's financial management and independent
auditors the adequacy and effectiveness of the Company's financial
reporting processes and controls.
(iii) Discuss with the Company's financial management and independent
auditors any significant financial risk exposures faced by the Company
and assess management's plans for monitoring and controlling such risk
exposures.
(iv) Review with the Company's financial management and the
independent auditors the company's quarterly financial results prior to
the release of quarterly earnings.
(v) Review material changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditors or by
the Company's internal auditors or financial management.
A-1
b. INDEPENDENT AUDITORS
(i) Evaluate the performance of the independent auditors hired by the
Company and, if so determined by the Audit Committee, recommend to the
Board the replacement of the independent auditors. The independent
auditors are ultimately accountable to the Audit Committee and the Board.
(ii) Review and discuss with the financial management of the Company
and the independent auditors the scope of the proposed audit for each
fiscal year of the Company and the proposed audit procedures.
(iii) Review with the financial management of the Company and the
independent auditors the annual audited financial statements of the
Company prior to filing or distribution, including without limitation any
comments or recommendations of the independent auditors and the matters
required to be discussed in accordance with AICPA Statement on Auditing
Standards SAS 61.
(iv) Approve the fees and expenses and all other significant
compensation to be paid to the independent auditors.
(v) Receive periodic reports from the independent auditor regarding
such auditor's independence and if so determined by the Audit Committee,
recommend that the Board take appropriate action to ensure the
independence of the independent auditors.
c. INTERNAL AUDIT DEPARTMENT AND LEGAL COMPLIANCE
(i) Review the scope of the activities of the Company's internal
audit department, including the proposed audit plans for the coming year.
(ii) Review and discuss with the Company's internal audit department
the significant findings of the Company's internal audit department for
each fiscal year.
(iii) On at least an annual basis, review with the Company's counsel
and compliance officer any legal matters that may have a material impact
on the Company's financial statements, the Company's compliance with
applicable laws and regulations, and any material inquiries received from
regulators or governmental agencies.
d. OTHER AUDIT COMMITTEE RESPONSIBILITIES
(i) Annually prepare a report to shareholders to be included in the
Company's annual proxy statement, as required by the Securities and
Exchange Commission.
(ii) Periodically self-assess the performance of the Audit Committee.
(iii) Review annually the Company's policies and procedures, as well
as audit results associated with, directors' and officers expense
accounts and perquisites.
7. LIMITATIONS ON RESPONSIBILITIES. While the Audit Committee has the
responsibilities and powers set forth in this Charter, it is not the duty of the
Audit Committee to plan or conduct audits or to determine that the Company's
financial statements are complete and accurate and are in accordance with
generally accepted accounting principles, each of which are the responsibility
of the management of the Company and of the independent auditors.
8. MISCELLANEOUS. The Audit Committee may also undertake such additional
activities consistent with the certificate of incorporation and bylaws of the
Company, and with applicable law, as the Audit Committee may from time to time
determine. The Audit Committee may retain independent counsel, accountants or
other advisers to assist it in the conduct of any investigation.
A-2
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
LUMINANT WORLDWIDE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
The undersigned stockholder(s) of Luminant Worldwide Corporation (the
"Company") hereby appoint(s) Messrs. James R. Corey and Thomas G. Bevivino, and
each of them singly, as proxies, each with full power of substitution, for and
in the name of the undersigned at the Annual Meeting of stockholders of the
Company to be held on Friday, June 8, 2001, and at any and all adjournments
thereof, to vote all common shares of said Company held of record by the
undersigned on April 10, 2001, as if the undersigned were present and voting the
shares.
[SEE REVERSE SIDE]
ANNUAL MEETING OF STOCKHOLDERS OF
LUMINANT WORLDWIDE CORPORATION
JUNE 8, 2001
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS ______________.
[X] Please mark your votes
as in this example.
Luminant's Board of Directors recommends a vote "FOR" Proposals 1 and 2.
Election of Directors Nominees:
Randolph L. Austin, James R. Corey, Michael J. Dolan, Michael H. Jordan,
Jerry K. Pearlman, Donald S. Perkins, John M. Richman, Richard M. Scruggs, and
George P. Stamas
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Ratification of
Directors. [ ] [ ] appointment of [ ] [ ] [ ]
independent
auditors
(See reverse.)
To withhold authority to vote
for any individual nominee or
nominees, mark the "FOR" box
above and write the name of any
such nominee below.
If this card is properly executed, shares will be voted in the manner
directed herein by the undersigned. If no direction is made, shares will be
voted FOR each nominee named in Proposal 1 and FOR Proposal 2, and in
accordance with the discretion of the proxies' on such other business that may
properly come before the meeting, to the extent permitted by law.
Please sign exactly as name appears
to the left. Joint owners should
each sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as
such.
Signatures(s) Date ____________, 2001
_____________________________________
_____________________________________
________________________________________________________________________________