<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TRO LEARNING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
DEAR STOCKHOLDERS:
Our directors and officers join me in extending a cordial invitation to
attend the Annual Meeting of Stockholders of TRO Learning, Inc., a Delaware
corporation, at 9:00 a.m. (CDT) on Tuesday, April 6, 1999, at the Hyatt
Regency Minneapolis, 1300 Nicollet Mall, Minneapolis, Minnesota 55403.
The matters to be considered at the meeting are described in the accompanying
Proxy Statement. Regardless of your plans for attending in person, it is
important that your shares be represented at the meeting. Therefore, please
complete, sign, date and return the enclosed proxy card. This will enable
you to vote on the business to be transacted whether or not you attend the
meeting.
Our Annual Report, including financial statements for the fiscal year 1998,
is being mailed with this letter.
The continuing interest of the stockholders in the business of the Company is
gratefully acknowledged and we hope many will attend the meeting.
Sincerely,
William R. Roach
Chairman of the Board, President and
Chief Executive Officer
February 19, 1999
<PAGE>
TRO LEARNING, INC.
POPLAR CREEK OFFICE PLAZA
1721 MOON LAKE BOULEVARD, SUITE 555
HOFFMAN ESTATES, IL 60194
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 6, 1999
To Our Stockholders:
The Annual Meeting of Stockholders of TRO Learning, Inc. ("the Company") will be
held at 9:00 a.m. (CDT) on Tuesday, April 6, 1999, at the Hyatt Regency
Minneapolis, 1300 Nicollet Mall, Minneapolis, Minnesota 55403 for the purpose of
considering and voting on the following matters:
1. To elect two directors to the Board of Directors.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending October 31, 1999.
3. To consider and act upon any other matters that may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on January 29, 1999, will
be entitled to receive notice of and to vote at the meeting or any adjournment
thereof.
Your attention is directed to the accompanying Proxy Statement. Whether or not
you plan to attend the meeting in person, you are urged to complete, sign, date
and return the enclosed proxy card. If you attend the meeting and wish to vote
in person, you may withdraw your proxy and vote your shares personally.
BY THE ORDER OF THE BOARD OF DIRECTORS,
Patricia A. Hlavacek
Corporate Secretary
February 19, 1999
<PAGE>
TRO LEARNING, INC.
POPLAR CREEK OFFICE PLAZA
1721 MOON LAKE BOULEVARD, SUITE 555
HOFFMAN ESTATES, IL 60194
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by the Board of Directors of the Company for use at the Annual
Meeting of Stockholders to be held on April 6, 1999, at 9:00 a.m. (Central
Time) at the Hyatt Regency Minneapolis, 1300 Nicollet Mall, Minneapolis,
Minnesota 55403, and at any adjournment thereof, for the purpose set forth in
the Notice of Annual Meeting of Stockholders.
Shares of Common Stock represented by proxies in the form solicited will be
voted in the manner directed by the stockholder. If no direction is made,
the proxy will be voted for the election of the nominees for director named
in this Proxy Statement and for the ratification of the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors. A
stockholder may revoke his or her proxy at any time before it is voted by
delivering to an officer of the Company a written notice of termination of
the proxy's authority, by filing with an officer of the Company another proxy
bearing a later date, or by appearing and voting at the meeting. This Proxy
Statement and the form of proxy enclosed are being mailed on or about
February 23, 1999.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting, and the
number of stockholders present in person or by proxy will determine whether
or not a quorum is present. If a broker indicates on the proxy that it does
not have discretionary authority as to certain shares to vote on a particular
matter, those shares will not be considered as present and entitled to vote
by the inspectors of election with respect to that matter.
Only the holders of the Company's Common Stock whose names appear of record
on the Company's books at the close of business on January 29, 1999 will be
entitled to vote at the Annual Meeting. At the close of business on January
29, 1999, a total of 6,445,832 shares of Common Stock were outstanding. Each
stockholder of Common Stock is entitled to one vote for each share held.
There is no right to cumulate voting as to any matter.
A stockholder may, with respect to the election of directors, (i) vote "FOR"
the election of all named director nominees, (ii) "WITHHOLD" authority to
vote for all named director nominees or (iii) vote "FOR" the election of all
named director nominees other than any nominee with respect to whom the
stockholder withholds authority to vote by so indicating in the appropriate
space on the proxy card. A stockholder may, with respect to the proposal to
ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors, (i) vote "FOR" such proposal, (ii) vote "AGAINST" such
proposal or (iii) "ABSTAIN" from voting on such proposal.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company, who will receive no extra
compensation for their services, may solicit proxies by telephone,
telecopier, or personal calls.
A COPY OF THE COMPANY'S ANNUAL REPORT FOR THE YEAR ENDED OCTOBER 31, 1998 IS
BEING FURNISHED TO EACH STOCKHOLDER WITH THIS PROXY STATEMENT. A COPY OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 1998 WILL
BE PROVIDED WITHOUT CHARGE TO EACH RECIPIENT HEREOF UPON WRITTEN REQUEST
DIRECTED TO JOHN MURRAY, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER, TRO LEARNING, INC., 4660 WEST 77TH STREET, EDINA, MINNESOTA 55435.
1
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors consists of six (6) persons and is divided into three
classes, each of whose members serves for a staggered three-year term. The
terms of the Class III Directors expire with this Annual Meeting of
Stockholders. Each of the nominees for Class III Director, if elected, will
serve three years until the 2002 Annual Meeting of Stockholders and until a
successor has been elected and qualified. The current Class I and II
Directors will continue in office until the 2000 and 2001 Annual Meetings,
respectively.
Directors will be elected at the Annual Meeting by a plurality of the votes
cast at the meeting by the holders of the shares entitled to vote in the
election represented in person or by proxy. Thus, assuming a quorum is
present, the two persons receiving the greatest number of votes will be
elected to serve as members of the Board of Directors. Accordingly,
abstentions and non-votes with respect to the election of directors will not
affect the outcome of the election of directors. If any of the nominees
should be unable or unwilling to serve as a director, an event that is not
anticipated, the proxies will be voted for substitute nominees designated by
the Board of Directors. The following sets forth information as to each of
the nominees for election and each director continuing in office.
NOMINEES FOR DIRECTORS
Class III - Nominees to Serve Until
2002 Annual Meeting
JACK R. BORSTING, PH.D., age 70, has served as a director of the Company
since March 1993. From January 1994 to the present, he has served as the E.
Morgan Stanley Professor of Business Administration at the University of
Southern California. Dr. Borsting is also currently the Executive Director
for the Center for Telecommunications Management at the University of
Southern California. From 1988 to January 1994, he was Dean and Professor of
Business Administration at the University of Southern California, Los
Angeles. Dr. Borsting is currently a director of Northrop Grumman, Whitman
Education Group, and Bristol Retail Systems.
TONY J. CHRISTIANSON, age 46, has served as a director of the Company since
its formation in 1989. Mr. Christianson is Co-Chairman of Cherry Tree & Co.,
LLC ("Cherry Tree"), a private venture capital firm focused on health and
education enterprises. Cherry Tree is a principal stockholder of the
Company. Mr. Christianson was a founder of Cherry Tree in 1980 and is
currently on the Board of Directors of Fourth Shift Corporation, Peoples
Educational Holdings, Inc. and Transport Corp. of America.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 1.
Unless otherwise indicated, proxies solicited by the Board of Directors will
be voted for the two Class III nominees of the Board of Directors named above.
DIRECTORS CONTINUING IN OFFICE
Class I - Serving Until 2000 Annual Meeting
WILLIAM R. ROACH, age 58, has been Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since its formation in
1989. Prior to founding the Company, from 1987 to 1988 Mr. Roach was
President and Chief Executive Officer of Applied Learning International, Inc.
("ALI"), a training and education company and successor to Advanced Systems
Inc. ("ASI"), and a director and Senior Vice President of ALI's parent,
National Education Corporation ("NEC"). NEC is a training and education
company. From 1981 to 1987, Mr. Roach was the Chief Executive Officer of
ASI, a New York Stock Exchange listed training and education company which
was acquired by NEC in 1987. After leaving ALI in 1988, Mr. Roach led a
group of investors in pursuing an acquisition in the field of training and
education.
JOHN L. KRAKAUER, age 57, a private investor and consultant, has been a
director of the Company since January 1993. From June 1989 to March 1995,
Mr. Krakauer served as Executive Vice President of HealthCare COMPARE Corp.,
a medical cost management company. From May 1994 to March 1995, he served as
a director, and from July 1994 to December 1994, he served as interim
President and Chief Executive Officer of Cardiac Alliance, Inc., a home
health care company specializing in cardiac care.
2
<PAGE>
Class II - Serving Until 2001 Annual Meeting
MAJOR GENERAL VERNON B. LEWIS, JR. (USA RET), age 68, has been a director of
the Company since January 1993. From 1989 to the present, he has served as
Chief Executive Officer, a member of the Board of Directors, and one of the
founders of Military Professional Resources, Inc., a military training
company. He previously served as Chief Executive Officer and Chairman of the
Board of Cypress International, a defense systems international marketing
company, from 1978 to 1989.
JOHN PATIENCE, age 51, has served as a director of the Company since its
formation in 1989. Mr. Patience is currently a General Partner with Crabtree
Partners, which invests capital and its management talent in technology based
businesses that are in a growth phase of development. From 1988 to 1995, Mr.
Patience was a General Partner of Marquette Venture Partners, LP, a private
venture capital firm. Mr. Patience is currently a director of Ventana
Medical Systems, Inc. and Stericycle, Inc.
DIRECTOR COMPENSATION
Directors who are not employees or affiliates of the Company are paid a
$1,000 fee for attendance at each Board meeting. Committee Chairs receive
$750 and Committee members receive $500 for each Committee meeting attended.
Directors who are employees or affiliates of the Company receive no
additional compensation for their services as directors of the Company.
Directors who are not employees or affiliates of the Company are eligible to
receive grants of stock options. Eligible directors received options on
April 16, 1998, to acquire an aggregate of 20,000 shares of the Company's
Common Stock. The exercise price of these options is $9.94 per share (being
the fair market value of the Company's stock on the date of grant). These
options vest ratably over three years beginning one year from the date of
grant and expire ten years following the date of grant.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has an Audit Committee consisting of
Messrs. Patience (Chair), Borsting and Krakauer, and a Compensation Committee
consisting of Messrs. Christianson (Chair), Borsting and Krakauer. The
Company has no standing Nomination Committee; rather, the entire Board of
Directors performs the functions which would otherwise be delegated to such
committee.
During the year ended October 31, 1998, the Board of Directors held nine
meetings. Each of the Company's current directors attended all of the
meetings of the Board and Committees of which they were members, except for
Mr. Patience who did not attend one Board meeting. In addition to the
meetings, the Board passed several resolutions during 1998 by written consent.
The Audit Committee met once in fiscal 1998. The Audit Committee reviews the
results and scope of the audit and other services provided by the Company's
independent auditors and recommends the appointment of independent auditors
to the Board of Directors.
The Compensation Committee met twice in fiscal 1998. The Compensation
Committee administers and makes awards under the Company's stock option and
stock incentive plans and also studies and recommends the implementation of
all compensation programs for directors and officers of the Company.
3
<PAGE>
PROPOSAL 2. APPOINTMENT OF AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers LLP as
independent auditors for the Company for the fiscal year ending October 31,
1999. A proposal to ratify this appointment will be presented at the Annual
Meeting. PricewaterhouseCoopers LLP was appointed in 1992 to examine the
Company's financial statements. Representatives from PricewaterhouseCoopers
LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they desire to do so, and will be
available to respond to appropriate questions from stockholders.
If a quorum is present, in order to approve the proposal to ratify the
appointment of PricewaterhouseCoopers LLP as the Company's independent
auditors, a majority of the shares present in person or by proxy at the
Annual Meeting and entitled to vote on such proposal must vote in favor of
it. Accordingly, abstentions will have the same effect as votes against and
non-votes will reduce the number of shares considered present and entitled to
vote on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL 2. If
the appointment of PricewaterhouseCoopers LLP as the Company's independent
auditors is not ratified by the stockholders, the Board of Directors is not
obligated to appoint other auditors, but the Board of Directors will give
consideration to such unfavorable vote.
OTHER MATTERS
The Board of Directors of the Company knows of no other matters which may
come before the meeting. However, if any matters other than those referred
to above should properly come before the meeting calling for a vote of the
stockholders, it is the intention of the persons named in the accompanying
proxy card to vote on such matters in accordance with their best judgment.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a stockholder to be presented at the next Annual Meeting must
be received at the Company's principal executive offices, Poplar Creek Office
Plaza, 1721 Moon Lake Boulevard, Suite 555, Hoffman Estates, Illinois 60194
not later than October 29, 1999.
BY THE ORDER OF THE BOARD OF DIRECTORS
Patricia A. Hlavacek
Corporate Secretary
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information relating to
compensation paid to, or accrued by the Company on behalf of, the Company's
Chief Executive Officer and the other four most highly compensated executive
officers of the Company as of October 31, 1998 (the "Named Officers"). The
years 1998, 1997 and 1996 refer to the fiscal years ended October 31, 1998,
1997 and 1996, respectively.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ($) AWARDS
--------------------------------------------- ---------------------
SECURITIES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION AT 10/31/98 YEAR SALARY BONUS (1) OPTIONS (#) (2) COMPENSATION ($)
- -------------------------------------- -------------- -------------- -------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C>
William R. Roach, 1998 225,000 -- -- 12,480 (3)
President and 1997 225,865 -- -- 12,480 (3)
Chief Executive Officer 1996 227,116 -- 50,000 12,480 (3)
- -----------------------------------------------------------------------------------------------------------------------------------
John Murray, 1998 140,000 -- 60,000 --
Executive Vice President and 1997 123,984 -- 8,000 --
Chief Financial Officer 1996 103,716 35,052 10,000 36,121 (4)
- -----------------------------------------------------------------------------------------------------------------------------------
G. Thomas Ahern, 1998 122,367 64,334 30,000 --
Senior Vice President, 1997 95,365 104,628 8,000 --
Sales and Marketing 1996 95,846 97,831 13,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Wellesley R. Foshay, Ph.D., 1998 140,000 -- 20,000 --
Vice President, Instructional Design 1997 128,769 -- 6,000 --
and Cognitive Learning 1996 126,040 -- 10,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
David H. LePage 1998 130,000 -- 20,000 --
Vice President, Support 1997 120,346 -- 6,000 --
Services and Distribution 1996 115,965 -- 10,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes sales commissions and bonuses.
(2) None of the Named Officers has been granted stock appreciation rights
("SARs"), or holds shares of restricted stock which are subject to
performance-based conditions on vesting.
(3) Amount consists of premiums paid by the Company for term life insurance (of
which the Company is not the beneficiary).
(4) Amount includes value of car allowance and health insurance premiums paid
by the Company and contributions made by the Company to a retirement
savings plan. For 1996, amount also includes $27,945 for relocation
expenses.
5
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to grants of stock options to
the Named Officers during fiscal 1998. No SARs were granted to the Named
Officers in fiscal 1998, and none of the Named Officers held SARs as of October
31, 1998.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE AT
TOTAL ASSUMED ANNUAL RATES OF STOCK
NUMBER OF OPTIONS PRICE APPRECIATION FOR OPTION
SECURITIES GRANTED TO TERM ($) (2)
UNDERLYING OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ----------------------------------
NAME GRANTED (#) (1) IN FISCAL 1998 ($/SHARE) DATE 5% 10%
- -------------------- -------------------- ---------------- --------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
William R. Roach -- -- -- -- -- --
John Murray 60,000 21 7.31 9/23/08 714,676 1,138,006
G. Thomas Ahern 30,000 11 7.31 9/23/08 357,339 569,004
Wellesley R. Foshay 20,000 7 7.31 9/23/08 238,225 379,336
David H. LePage 20,000 7 7.31 9/23/08 238,225 379,336
</TABLE>
(1) All options granted in fiscal 1998 were granted at 100% of the fair market
value of the Company's stock on the date of grant. Options vest ratably
over a three-year period beginning one year from the date of grant and
expire ten years following the date of grant.
(2) Assumes appreciation in value from the date of grant to the end of the
option term at the indicated rate. The dollar amounts under these columns
are the result of calculations at the 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table provides information relating to exercises of stock options
during fiscal 1998 and holdings of unexercised stock options at October 31, 1998
by the Company's Named Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
HELD AT IN-THE-MONEY OPTIONS AT
VALUE OCTOBER 31, 1998 (#) OCTOBER 31, 1998 ($) (1)
SHARES ACQUIRED ON REALIZED ($) -------------------------------- -----------------------------------
NAME EXERCISE (#) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- -------------------- --------------- -------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
William R. Roach -- -- 322,400 10,000 -- --
John Murray -- -- 23,534 68,666 6,000 3,750
G. Thomas Ahern -- -- 47,887 39,667 89,641 1,875
Wellesley R. Foshay -- -- 20,822 27,332 14,207 1,250
David H. LePage -- -- 35,432 27,332 117,060 1,250
</TABLE>
(1) Aggregate market value on exercise date or October 31, 1998, as
appropriate, less aggregate exercise price.
6
<PAGE>
OTHER COMPENSATION ARRANGEMENTS
William R. Roach, the Company's Chief Executive Officer has entered into a
Severance and Non-Competition Agreement (the "Severance Agreement") with the
Company. Mr. Roach's Severance Agreement provides for two years salary and
benefits upon termination without cause or resignation after a material adverse
change or reduction in position or responsibilities, and precludes employment in
any capacity, during or for two years after termination of employment with the
Company, in any business or activity competitive with the Company's principal
businesses. The total amount payable by the Company under this agreement is
approximately $450,000.
The other Named Officers have each entered into an Employment Security Agreement
("Employment Agreement") with the Company. If there is a change in control of
the Company, the Employment Agreement provides for a lump sum cash payment to
the Named Officer as long as the Named Officer is still employed by the Company.
In addition, within twelve months after a change in control, if the Named
Officer's employment is terminated without good cause or the Named Officer
should voluntarily terminate such employment with good reason, the Employment
Agreement provides for severance payments equal to 12-18 months of current
compensation. The following sets forth the potential cash payments to the Named
Officers:
<TABLE>
<CAPTION>
LUMP SUM
PAYMENT SEVERANCE PAYMENTS SEVERANCE PERIOD
------------------- -------------------- -------------------
<S> <C> <C> <C>
John Murray $140,000 $210,000 18 months
G. Thomas Ahern 140,000 210,000 18 months
Wellesley R. Foshay 140,000 140,000 12 months
David H. LePage 130,000 130,000 12 months
------------------- --------------------
------------------- --------------------
$550,000 $690,000
------------------- --------------------
------------------- --------------------
</TABLE>
Additionally, four other executive officers of the Company have entered into an
Employment Agreement with the Company with potential cash payments in excess of
$100,000 each.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1998 were Messrs.
Christianson, Borsting, and Krakauer. No members of the Compensation Committee
are employees or executive officers of the Company. None of the Company's
directors or executive officers is a director or executive officer of any other
company that has a director or executive officer who is also a director of the
Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is submitted by Messrs. Christianson, Borsting and Krakauer in their
capacity as the Board of Directors' Compensation Committee and addresses the
Company's compensation policies for fiscal 1998 as they affected the Chief
Executive Officer ("the CEO") and the other executive officers of the Company
(including the Named Officers).
Compensation Philosophy
The Company's compensation philosophy, as developed under the supervision of the
Compensation Committee, is highly incentive oriented, particularly for executive
officers. The goals of the executive compensation program are to attract,
retain, and reward executive officers who contribute to the success of the
Company. Compensation opportunities are aligned with the Company's business
objectives. The compensation programs are designed to motivate executive
officers to meet annual corporate performance goals and enhance long-term
stockholder value.
In designing and administering the individual elements of the executive
compensation program, the Committee strives to balance short and long-term
incentive objectives and use prudent judgment in establishing performance
criteria, evaluating performance, and determining incentive awards.
7
<PAGE>
Overview of Executive Compensation Policy
The executive compensation program is designed to be closely linked to corporate
performance and returns to stockholders. Accordingly, the Company has developed
an overall compensation strategy and specific compensation plans that tie a
significant portion of executive compensation to the Company's success in
meeting specified performance goals. The overall objectives of this strategy
are to motivate the CEO and executive officers to achieve the goals inherent in
the Company's business strategy, to link executive and stockholder interests
through equity-based plans to maintain a high quality core of executives, and
finally, to provide a compensation package that recognizes individual
contributions, as well as overall business results.
The Compensation Committee receives the recommendations of the CEO for the
compensation to be paid to executive officers, including the Named Officers, and
after due deliberation determines the compensation of such executive officers
and the CEO. This process is designed to ensure consistency throughout the
executive compensation program. The key elements of the Company's executive
compensation program consist of base salary, annual cash incentive compensation
for the sales executives, and stock option incentives.
The Compensation Committee believes the CEO's compensation should be heavily
influenced by Company performance, including the achievement of long-term
strategic objectives, profitable growth, and increased stockholder value.
Therefore, although there is necessarily some subjectivity in setting the CEO's
base salary, major elements of the compensation package are directly tied to
Company performance. The CEO's annual salary was approximately $225,000 in
fiscal 1998. The CEO did not receive any stock option grants in fiscal 1998.
The Compensation Committee's policies with respect to each of the compensation
program elements are discussed below. In addition, while the elements of
compensation described below are considered separately, the Compensation
Committee takes into account the full compensation package provided by the
Company, including group health and life insurance and participation in the
Company's 401(k) Plan.
Base Salaries
Salaries for executive officers are determined by evaluating the
responsibilities of the position held and the experience of the individual, as
well as their contribution to the achievement of Company goals. The Committee
believes that the Company generally establishes relatively conservative
executive officer base salaries. These base salaries are reviewed annually by
the Committee in view of overall Company performance and may be adjusted to
reflect changes in responsibilities and the executive's personal contribution to
corporate performance.
Annual Cash Incentive Compensation
The annual incentive portion of the sales executive compensation program
provides for sales commissions and bonuses. Commissions are based on revenues
and bonuses are based on the achievement of pre-established annual goals.
Stock Option Incentives
Stock options provide executives with the opportunity to build an equity
interest in the Company and to share in the appreciation of the value of the
Company's stock. Stock options are granted at the fair market value of the
stock on the date of the grant, are subject to vesting over time, and only have
future value for the executives if the stock price appreciates from the date of
grant. Factors influencing stock option grants to executive officers include
the performance of the Company, the relative levels of responsibility,
contributions to the business of the Company, and competitiveness with other
growth-oriented companies. Stock options granted to executive officers are
approved by the Committee.
Benefits
Benefits offered to executive officers are largely those that are offered to the
general employee population, such as group health and life insurance coverage
and participation in the Company's 401(k) Plan. In addition,
8
<PAGE>
the CEO is provided with supplemental life insurance. These benefits are not
tied directly to corporate performance.
The Compensation Committee believes that the Company's executive compensation
policies and programs serve the interests of the Company and its stockholders.
THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS
Tony Christianson, Chair
Jack R. Borsting
John L. Krakauer
9
<PAGE>
STOCK PERFORMANCE GRAPH
In accordance with Securities and Exchange Commission regulations, the following
performance graph compares the cumulative total stockholder return on the
Company's Common Stock to the cumulative total return on the NASDAQ Composite
Index and the weighted average return of a peer group (described below) for the
five years ended October 31, 1998, assuming an initial investment of $100 and
the reinvestment of all dividends.
The peer group consists of companies with training and education operations.
Although the businesses of these companies include operations outside of the
training and education industry, and/or serve markets different than those of
the Company, the Company believes the selection of these companies for
comparison purposes is reasonable.
CBT Group PLC ("CBT") and Computer Learning Centers ("CLC") are new members of
the peer group with this Proxy Statement, joining Apollo Group ("Apollo"). The
other companies in the previous peer group, Broderbund Software ("Broderbund")
and The Learning Company ("TLC"), were acquired during 1998. Broderbund was
acquired by TLC and its stock is no longer independently traded. TLC was
subsequently acquired by Mattel, and Mattel is not considered a peer for this
comparison. Since CBT, CLC, and Apollo have not been publicly traded for the
entire five-year period, these companies are included in the graph as of October
31, 1995 through October 31, 1998. The peer group prior to October 31, 1995
consists of Broderbund and TLC.
[GRAPHIC]
<TABLE>
<CAPTION>
10/31/93 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
TRO Learning $100.0 $75.0 $87.5 $197.2 $83.3 $81.9
Peer Group 100.0 109.5 43.9 53.5 79.5 54.6
NASDAQ Comp. 100.0 99.8 133.0 156.8 204.5 227.3
</TABLE>
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 29, 1999 information about the
ownership of Common Stock of the Company by each stockholder who is known by the
Company to own beneficially more than 5% of its outstanding Common Stock.
Except as otherwise indicated, the stockholders listed in the table have sole
voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS (1)
---------------------------------------------------- ------------------------------ ----------------------------
<S> <C> <C>
William R. Roach (2) 1,243,433 19%
Poplar Creek Office Plaza
1721 Moon Lake Boulevard
Suite 555
Hoffman Estates, Illinois 60194
Cherry Tree & Co. LLC 668,330 10%
Centennial Lakes Office Park
7601 France Avenue South, Suite 225
Edina, MN 55435
</TABLE>
(1) Percent of class calculation is based on the number of shares of the
Company's Common Stock outstanding as of January 29, 1999.
(2) Excludes an aggregate of 42,128 shares of Common Stock held of record
by the adult children of William R. Roach, and 147,609 shares held of
record by a family limited partnership, over which Mr. Roach maintains
voting authority but disclaims beneficial ownership. Includes 332,400
shares subject to currently exercisable options and options which
become exercisable within 60 days of January 29, 1999 (together
"currently exercisable options").
The following table sets forth, as of January 29, 1999, information about the
beneficial ownership of Common Stock of the Company by each director, each Named
Officer, and by all directors and all executive officers as a group. Except as
otherwise indicated, the stockholders listed in the following table have sole
voting and investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
DIRECTORS AND NUMBER OF SHARES
EXECUTIVE OFFICERS BENEFICIALLY OWNED (1) PERCENT OF CLASS (2)
--------------------------------------------------- ---------------------------------- ----------------------
<S> <C> <C>
G. Thomas Ahern (3) 61,308 1%
Jack R. Borsting (4) 18,167 *
Tony J. Christianson (5) 668,330 10%
Wellesley R. Foshay (6) 37,372 1%
John L. Krakauer (7) 85,167 1%
David H. LePage (8) 49,580 1%
Vernon B. Lewis, Jr. (4) 39,617 1%
John Murray (9) 31,327 *
John Patience (10) 51,179 1%
William R. Roach (11) 1,243,433 19%
All directors and executive officers as a group
(14 individuals) (5)(12) 2,329,287 33%
</TABLE>
* Less than 1%
11
<PAGE>
(1) Under regulations of the Securities and Exchange Commission, persons who
own or have the power to vote or dispose of shares, either alone or jointly
with others, are deemed to be the beneficial owners of such shares. Such
persons are also deemed to be the beneficial owners of shares beneficially
owned by certain family members.
(2) Shares subject to currently exercisable options are considered outstanding
for the purpose of determining the percent of class held by the holder of
such option or warrant, but not for the purpose of computing the percentage
held by others. For the purpose of computing these percentages, the number
of shares outstanding as of January 29, 1999 was 6,445,832, excluding
currently exercisable options.
(3) Includes 50,554 shares subject to currently exercisable options.
(4) Includes 13,667 shares subject to currently exercisable options.
(5) Includes 668,330 shares held of record by Cherry Tree & Co. LLC as to which
Mr. Christianson (an affiliate of Cherry Tree) disclaims beneficial
ownership.
(6) Includes 22,487 shares subject to currently exercisable options.
(7) Includes 5,167 shares subject to currently exercisable options.
(8) Includes 37,097 shares subject to currently exercisable options.
(9) Includes 25,200 shares subject to currently exercisable options.
(10) Includes 1,667 shares subject to currently exercisable options.
(11) Excludes an aggregate of 42,128 shares of Common Stock held of record by
the adult children of William R. Roach, and 147,609 shares held of record
by a family limited partnership, of which Mr. Roach maintains voting
authority but disclaims beneficial ownership. Includes 332,400 shares
subject to currently exercisable options.
(12) Includes 535,385 shares subject to currently exercisable options.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors, and persons who beneficially own more than ten percent (10%) of
the Company's Common Stock, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission ("SEC").
Executive officers, directors, and greater than ten percent (10%) beneficial
owners are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors, the
Company believes that all Section 16(a) filing requirements applicable to its
executive officers and directors were complied with during its fiscal year 1998.
12
<PAGE>
TRO LEARNING, INC.
ANNUAL MEETING OF STOCKHOLDERS, APRIL 6, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of TRO Learning, Inc. ("the Company") does hereby
acknowledge receipt of Notice of said Annual Meeting and the accompanying Proxy
Statement and does hereby constitute and appoint William R. Roach and John
Murray, or either of them, with full power of substitution, to vote all shares
of stock of the Company that the undersigned stockholder is entitled to vote, as
fully as the undersigned could do if personally present, at the Annual Meeting
of Stockholders of the Company to be held on April 6, 1999 at 9:00 a.m. (CDT),
at the Hyatt Regency Minneapolis, 1300 Nicollet Mall, Minneapolis, Minnesota
55403, and any adjournment thereof, as indicated on the reverse side of this
card.
/ / Check here for address change. / / Check here if you plan to attend
the meeting.
New Address: __________________________
_________________________________________
_________________________________________
<PAGE>
TRO LEARNING, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. -
This proxy, when properly executed, shall be voted in accordance with the
instructions given and, in the absence of such instructions, shall be voted for
the nominees listed in Proposal 1 and in favor of Proposal 2. If other business
is presented at said meeting, this proxy shall be voted on those matters in
accordance with the best judgment of the named proxies.
<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
<S> <C> <C> <C>
1. ELECTION OF CLASS III DIRECTORS: ALL FOR ALL
Jack R. Borsting, Ph.D. and
Tony J. Christianson 0 0
</TABLE>
FOR ALL EXCEPT THOSE WHOSE NAME(s) APPEAR BELOW:
______________________________________________
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
2. Ratification of the appointment of 0 0 0
PricewaterhouseCoopers LLP as the
Company's independent auditors
for the upcoming year.
</TABLE>
3. In their discretion upon such other matters as may properly come
before the meeting and any adjournments or postponements thereof.
PLEASE COMPLETE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR MAILING IN
THE UNITED STATES.
Dated : ____________________________________________________, 1999
Signature(s) _____________________________________________________
_______________________________________________________________
IMPORTANT: PLEASE DATE THIS PROXY AND SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS PROXY. IF SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
FOLD AND DETACH HERE
ANNUAL MEETING
OF
TRO LEARNING, INC.
TUESDAY, APRIL 6, 1999
9:00 A.M. (CDT)
HYATT REGENCY MINNEAPOLIS
1300 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55403
