<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 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:
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[TRO LEARNING, INC. LOGO]
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. (CST) on Thursday, March 30, 2000, 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 1999, 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,
/s/ William R. Roach
William R. Roach
Chairman of the Board and
Chief Executive Officer
February 15, 2000
TRO Learning, Inc.
Poplar Creek Office Plaza
1721 Moon Lake Boulevard, Suite 555
Hoffman Estates, Illinois 60194
Telephone (847) 781-7800, Fax (847) 781-7835
<PAGE> 3
[TRO LEARNING, INC. LOGO]
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 MARCH 30, 2000
To Our Stockholders:
The Annual Meeting of Stockholders of TRO Learning, Inc. (the "Company") will be
held at 9:00 a.m. (CST) on Thursday, March 30, 2000, 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 approve an amendment to the Company's Certificate of Incorporation
to effectuate a name change.
3. To approve the TRO Learning, Inc. 2000 Stock Incentive Plan.
4. To approve the TRO Learning, Inc. 2000 Non-Employee Directors Stock
Option Plan.
5. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending October 31, 2000.
6. 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 25, 2000 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,
/s/ Patricia A. Hlavacek
Patricia A. Hlavacek
Corporate Secretary
February 15, 2000
<PAGE> 4
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 March 30, 2000, at 9:00 a.m. (CST), 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.
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 25, 2000 will be
entitled to vote at the Annual Meeting. At the close of business on January 25,
2000, a total of 6,916,802 shares of Common Stock were outstanding. Each holder
of Common Stock is entitled to one vote for each share held. There is no right
to cumulate voting as to any matter.
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.
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 proposals to approve the
amendment to the Company's Certificate of Incorporation to effectuate a name
change, to approve the TRO Learning, Inc. 2000 Stock Incentive Plan and 2000
Non-Employee Directors Stock Option Plan, and 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.
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 all named director nominees and "FOR"
the proposals to approve the amendment to the Company's Certificate of
Incorporation to effectuate a name change, to approve the TRO Learning, Inc.
2000 Stock Incentive Plan and 2000 Non-Employee Directors Stock Option Plan, and
to ratify 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 17, 2000.
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, 1999 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, 1999 WILL BE
PROVIDED WITHOUT CHARGE TO EACH RECIPIENT HEREOF UPON WRITTEN REQUEST DIRECTED
TO JOHN MURRAY, PRESIDENT AND CHIEF OPERATING OFFICER, TRO LEARNING, INC., 4660
WEST 77TH STREET, EDINA, MINNESOTA 55435.
<PAGE> 5
PROPOSAL 1.
ELECTION OF DIRECTORS
The Board of Directors consists of seven persons and is divided into three
classes, each of whose members serves for a staggered three-year term. The terms
of the Class I Directors expire with this Annual Meeting of Stockholders. Each
of the nominees for Class I Director, if elected, will serve three years until
the 2003 Annual Meeting of Stockholders and until a successor has been elected
and qualified. The current Class II and III Directors will continue in office
until the 2001 and 2002 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 I - Nominees to Serve Until 2003 Annual Meeting
WILLIAM R. ROACH, age 59, has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since its formation in 1989. He also served as
President of the Company until January 2000. 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"). 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 58, 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.
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 I nominees of the Board of Directors named above.
DIRECTORS CONTINUING IN OFFICE
Class II - Serving Until 2001 Annual Meeting
MAJOR GENERAL VERNON B. LEWIS, JR. (USA RET), age 69, has been a Director of the
Company since January 1993. Mr. Lewis is one of the founders of Military
Professional Resources, Inc. ("MPRI"), a military training company. He is
currently Chairman of the Board of Directors of MPRI. From 1989 to 1998, he
served as Chief Executive Officer and a member of the Board of Directors of
MPRI. From 1978 to 1989, Mr. Lewis
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served as Chief Executive Officer and Chairman of the Board of Directors of
Cypress International, a defense systems marketing company.
JOHN PATIENCE, age 52, 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 with Marquette Venture Partners, LP, a private
venture capital firm. Mr. Patience is currently a Director of Ventana Medical
Systems, Inc. and Stericycle, Inc.
JOHN MURRAY, age 44, was elected to the Board of Directors on January 31, 2000.
He is currently President, Chief Operating Officer, and Acting Chief Financial
Officer of the Company. Mr. Murray joined the Company in 1989 as Managing
Director of the Company's United Kingdom subsidiary. From 1991 to 1994, he was
Vice President, Eastern Aviation Sales & Operations, and from November 1994 to
March 1996, he was Vice President, Aviation Sales & Operations. From April 1996
to October 1997, Mr. Murray served as Vice President, Product Development, and
from October 1997 to October 1998, he served as Senior Vice President,
Operations. From October 1998 to January 2000, he was Senior Vice President and
Chief Financial Officer.
Class III - Serving Until 2002 Annual Meeting
JACK R. BORSTING, PH.D., age 71, 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 of 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 and Whitman Education Group.
TONY J. CHRISTIANSON, age 47, has served as a Director of the Company since its
formation in 1989. Mr. Christianson is a Managing Partner of Cherry Tree
Investments, Inc. ("Cherry Tree"), a private equity investment firm focused on
education businesses, application service providers, and IT services companies.
Mr. Christianson was a founder of Cherry Tree in 1980 and is currently on the
Board of Directors of Fourth Shift Corporation, Fair, Isaac & Company, Inc., and
Peoples Educational Holdings, Inc.
DIRECTOR COMPENSATION
Directors who are not employees or affiliates of the Company receive $1,000 for
attendance at each Board meeting. Directors also receive $1,000 for the first
telephonic Board meeting with no additional compensation for any additional
telephonic Board meetings during the year. Committee Chairs receive $750 and
Committee members receive $500 for attendance at each Committee meeting.
Committee Chairs also receive $750 and Committee members also receive $500 for
the first telephonic Committee meeting with no additional compensation for any
additional telephonic Committee meetings during the year.
Directors who are not employees or affiliates of the Company are eligible to
receive grants of stock options. Eligible directors received options on April 6,
1999, to acquire an aggregate of 20,000 shares of the Company's Common Stock.
The exercise price of these options is $5.75 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.
Directors who are employees or affiliates of the Company receive no additional
compensation for their services as directors of the Company.
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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 Christianson, and a Compensation
Committee consisting of Messrs. Krakauer (Chair), Christianson and Lewis. The
Company has no standing Nomination Committee; rather, the entire Board of
Directors performs the functions that would otherwise be delegated to such
committee.
The Board of Directors held four meetings in fiscal 1999. In addition, the Board
passed several resolutions during fiscal 1999 by written consent.
The Audit Committee met once in fiscal 1999. 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 1999. 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.
During fiscal 1999, each of the Company's current directors attended all of the
meetings of the Board and Committees of which they were members.
PROPOSAL 2.
TO APPROVE AN AMENDMENT TO CERTIFICATE
OF INCORPORATION TO EFFECTUATE A NAME CHANGE
On January 5, 2000, the Company announced its intent to change its name to PLATO
in order to capitalize on the strength of the PLATO(R) brand name in the markets
it serves. Due to increased focus placed on the PLATO name resulting from a
brand strategy campaign, it became apparent that existing and potential customer
recognition of the PLATO name was substantially heightened. As a result, the
Company determined it would be in its best interests to change its name to
further capitalize on this familiarity and association with PLATO products and
services to attract future business. In addition to the name change for the
public entity (TRO Learning Inc.), the Company has determined it would be in its
best interests to also change the name of its wholly-owned business operations
entity (The Roach Organization, Inc.) at the same time to PLATO, Inc. Both
entities are served by the same Board of Directors. By approving this proposal,
the stockholders will authorize the Board to amend the Certificate of
Incorporation of TRO Learning, Inc. to reflect the name change. The amendment to
the Certificate of Incorporation will take the following form:
TRO Learning, Inc.
"Article I hereby amended to read as follows:
Article I
The name of the corporation is PLATO Learning, Inc."
Management expects formal implementation of the name change with the Delaware
Secretary of State to be completed no later than May 15, 2000, after stockholder
approval. However, transitional uses of the names "TRO Learning" and "The Roach
Organization" may continue for several months in order to minimize the risk of
both vendor and customer confusion. There will be no adverse tax consequences
associated with this name change. Implementation costs during fiscal year 2000
are not expected to be material. Even if this proposal is not approved by the
stockholders, the Company expects to continue to utilize the name PLATO (to
which it
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owns trademark rights) as its brand name, to promote the products and services
delivered under this name, and to change the name of The Roach Organization,
Inc. to PLATO, Inc.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" Proposal 2.
Unless otherwise indicated, proxies solicited by the Board of Directors will be
voted to change the name of the corporation.
PROPOSAL 3.
APPROVAL OF THE TRO LEARNING, INC.
2000 STOCK INCENTIVE PLAN
The Board of Directors has determined that, in order to give the Company the
ongoing flexibility to attract and retain the management and employee talent
necessary for the Company's continued success, the types of incentive
compensation awards that can be granted to selected managers and employees and
the number of shares of the Company's Common Stock that may be issued or
transferred pursuant to such awards should be increased from present levels.
Currently, the 1997 Employee Plan allows the Company to grant incentive awards
in the form of stock options, stock appreciation rights, stock and cash. Options
to purchase up to 600,000 shares of the Company's Common Stock can be granted
under this plan. Of that number, approximately 101,500 shares remain available
for grant under new stock options as of January 31, 2000.
The proposed 2000 Employee Plan would also allow the Company to grant incentive
awards in the form of stock options, stock appreciation rights, stock and cash.
The 2000 Employee Plan authorizes 700,000 shares of the Company's Common Stock
to be issuable or transferable pursuant to awards.
While the Board of Directors recognizes the potential dilutive effect of
compensatory stock awards, it also recognizes the significant motivational and
performance benefits that are achieved from making such awards. The Board of
Directors selected 700,000 shares for the 2000 Employee Plan considering (1)
such number would be sufficient to provide shares for potential awards for at
least the next several years, and (2) the potential dilutive effect as of
January 31, 2000 of the 2000 Employee Plan, the 2000 Director Plan and the
number of options remaining unissued under the Company's other stock option
plans is approximately 11%.
The affirmative vote of a majority in interest of the stockholders present in
person or by proxy at the Annual Meeting and entitled to vote will be required
to approve the 2000 Employee Plan, a quorum being present.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 3.
Unless otherwise indicated, proxies solicited by the Board of Directors will be
voted for the approval of the 2000 Employee Plan.
TRO LEARNING, INC. 2000 STOCK INCENTIVE PLAN (THE "2000 EMPLOYEE PLAN")
Note that the 2000 Employee Plan has been approved by the Board of
Directors and will be voted upon by the stockholders at the Annual
Meeting. The operation of the plan is wholly contingent upon the
approval of the plan by the stockholders.
Summary. A summary of the 2000 Employee Plan is set forth below. The summary is
qualified in its entirety by reference to the full text of the 2000 Employee
Plan, which is attached to this Proxy Statement as Appendix A.
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The primary purposes of the 2000 Employee Plan are to promote the long-term
success of the Company and its stockholders by strengthening the Company's
ability to attract and retain highly competent employees to serve as officers
and in other key roles and to provide a means to encourage stock ownership and
proprietary interest in the Company. Grant of awards under this plan is
consistent with the Company's goals of providing total employee compensation
that is competitive in the marketplace recognizing meaningful differences in
individual performance, fostering teamwork and offering the opportunity to earn
above-average rewards when merited by individual and corporate performance. Any
employee of (1) the Company, (2) any entity that is directly or indirectly
controlled by the Company, or (3) any entity in which the Company has a
significant equity interest, may be recommended by the Compensation Committee
for approval by the Board of Directors to receive one or more awards under the
2000 Employee Plan. As of January 31, 2000, the Company and its subsidiaries had
315 full-time employees.
Under the 2000 Employee Plan, participants may receive stock options, stock
appreciation rights ("SARs") or stock awards, as discussed in greater detail
below. The Compensation Committee will generally recommend to the Board of
Directors, for approval by the Board, the type or types of awards to be made to
each participant; however, all awards to the Chief Executive Officer of the
Company will be approved by the Compensation Committee in its sole discretion.
Awards may be granted singly, in combination, or in tandem. Awards also may be
made in combination or in tandem with, in replacement of, as alternatives to, or
as the payment for grants or rights under any other employee or compensation
plan of the Company, including the plan of any acquired entity. "Fair Market
Value" for all awards granted under the 2000 Employee Plan is defined generally
as the closing price of a share of the Company's Common Stock on the NASDAQ
National Market System for the date in question.
The performance criteria that may be used by the Compensation Committee in
granting awards under the 2000 Employee Plan include achievement of strategic
objectives, profitable growth, individual employee performance, or overall
Company performance, where such goals may be stated in absolute terms or
relative to comparable companies.
Stock Options. A stock option represents a right to purchase a specified number
of shares of the Company's Common Stock during a specified period as recommended
to the Board by the Compensation Committee. The purchase price per share for
each stock option may not be less than 100% of Fair Market Value on the date of
grant, subject to certain exceptions. A stock option may be in the form of an
incentive stock option ("ISO") which complies with Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or a nonqualified stock option.
The shares covered by a stock option may be purchased by (1) cash payment; (2)
tendering (or attesting to ownership) shares of the Company's Common Stock; (3)
third-party exercise transactions; or (4) any combination of these methods.
SARs. A stock appreciation right ("SAR") generally represents a right to receive
payment, in cash and/or shares of the Company's Common Stock, equal to the
excess of the Fair Market Value of a specified number of shares of the Company's
Common Stock on the date the SAR is exercised over the Fair Market Value of such
shares on the date the SAR was granted, as set forth in the applicable award
agreement.
Stock Awards. A stock award represents an award made or denominated in shares of
the Company's Common Stock or units equivalent in value to shares of the
Company's Common Stock. All or part of any stock award may be subject to
conditions and restrictions established by the Compensation Committee and set
forth in the award agreement, which may include, but are not limited to,
continuous service with the Company and/or the achievement of performance goals.
The Compensation Committee may provide that any awards under the 2000 Employee
Plan earn dividends or dividend equivalents. Such dividends or dividend
equivalents may be paid currently or may be credited to a
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participant's account. Any crediting of dividends or dividend equivalents may be
made subject to such restrictions and conditions as the Committee may establish,
including reinvestment in additional shares or share equivalents.
The aggregate number of shares of the Company's Common Stock which may be
transferred to participants under the 2000 Employee Plan is 700,000. The
aggregate number of shares of the Company's Common Stock that may be covered by
awards granted to any single individual under the 2000 Employee Plan may not
exceed 75,000 shares per fiscal year of the Company. Any or all of the shares
under the 2000 Employee Plan may be granted in the form of ISOs.
In the event of a stock dividend, stock split or other change affecting the
shares or share price of Common Stock, all shares of Common Stock available for
issuance and outstanding under previously granted awards may be adjusted in an
equitable manner as determined by the Compensation Committee.
Payment of awards may be in the form of cash, shares of the Company's Stock,
other awards or combinations thereof as the Compensation Committee shall
determine at the time of the grant, and with such restrictions as it may impose.
The Compensation Committee also may require or permit participants to elect to
defer the issuance of shares or the settlement of awards in cash under such
rules and procedures as it may establish under the 2000 Employee Plan. It also
may provide that deferred settlements include the payment or crediting of
interest on the deferral amounts, or the payment or crediting of dividend
equivalents where amounts are denominated in share equivalents.
Awards granted under the 2000 Employee Plan shall not be transferable or
assignable other than: (1) by will or the laws of descent and distribution; (2)
by gift or other transfer of an award to any trust or estate in which the
original award recipient or such recipient's spouse or other immediate relative
has a substantial beneficial interest, or to a spouse or other immediate
relative, provided that such transfer is permitted by Rule 16b-3 under the
Exchange Act as in effect when such transfer occurs and the Board of Directors
does not rescind this provision prior to such transfer; or (3) pursuant to a
qualified domestic relations order (as defined by the Code).
Federal Income Tax Consequences. In general, under the Code as presently in
effect, a participant will not be deemed to receive any income for federal
income tax purposes at the time an option or SAR is granted or a restricted
stock award is made, nor will the Company be entitled to a tax deduction at that
time. However, when any part of an option or SAR is exercised, when restrictions
on restricted stock lapse, or when unrestricted stock award is made, the federal
income tax consequences may be summarized as follows:
1. In the case of an exercise of a non-qualified option, the participant
will recognize ordinary income in an amount equal to the difference between
the option price and the Fair Market Value of the Company's Common Stock on
the exercise date.
2. In the case of an exercise of a SAR, the participant will recognize
ordinary income on the exercise date in an amount equal to any cash and
unrestricted Common Stock received, at Fair Market Value on the exercise
date.
3. In the case of an exercise of an option or SAR payable in restricted
stock, or in the case of an award of restricted stock, the immediate federal
income tax effect for the recipient will depend on the nature of the
restrictions. Generally, the value of the Company's Common Stock will not be
taxable to the recipient as ordinary income until the year in which his or
her interest in the stock is freely transferable or is no longer subject to
a substantial risk of forfeiture. However, the recipient may elect to
recognize income when the stock is received, rather than when his or her
interest in the stock is
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freely transferable or is no longer subject to a substantial risk of
forfeiture. If the recipient makes this election, the amount taxed to the
recipient as ordinary income is determined as of the date of receipt of the
restricted stock.
4. In the case of an ISO there is no tax liability at the time of exercise.
However, the excess of the Fair Market Value of the Company's Common Stock
on the exercise date over the option price is included in the participant's
income for purposes of the alternative minimum tax. If no disposition of the
ISO stock is made before the later of one year from the date of exercise or
two years from the date the ISO is granted, the participant will realize a
long-term capital gain or loss upon a sale of the stock equal to the
difference between the option price and the sale price. If the stock is not
held for the required period, ordinary income tax treatment will generally
apply to the amount of any gain at sale or exercise, whichever is less, and
the balance of any gain or loss will be treated as capital gain or loss
(long-term or short-term, depending on whether the shares have been held for
more than one year).
5. Upon the exercise of a non-qualified option or SAR, the award of stock,
or the recognition of income on restricted stock, the Company will generally
be allowed an income tax deduction equal to the ordinary income recognized
by the employee. The Company does not receive an income tax deduction as a
result of the exercise of an ISO, provided that the ISO stock is held for
the required period as described above. When a cash payment is made pursuant
to the award, the recipient will recognize the amount of the cash payment as
ordinary income, and the Company will generally be entitled to a deduction
in the same amount.
6. The Company may not deduct compensation of more that $1,000,000 that is
paid in a taxable year to certain "covered employees" as defined in Section
162(m) of the Code. The deduction limit, however, does not apply to certain
types of compensation, including qualified performance-based compensation.
The Company believes that compensation attributable to awards granted under
the 2000 Employee Plan is qualified performance-based compensation and
therefore not subject to the deduction limit.
Administration of the 2000 Employee Plan. The 2000 Employee Plan will be
administered by the Compensation Committee, which has broad and exclusive
authority to administer and interpret the 2000 Employee Plan and its provisions,
as it deems necessary and appropriate. All decisions made by the Compensation
Committee are final and binding on all persons affected by such decisions.
The 2000 Employee Plan may be amended by the Compensation Committee as it deems
necessary or appropriate, except that any amendment for which stockholder
approval is required for the Plan to continue to comply with the requirements of
Section 162(m) of the Code must be approved by affirmative vote of the
stockholders in the manner described in the following paragraph prior to
becoming effective.
The 2000 Employee Plan will become effective on the date it is approved by the
affirmative vote of the holders of a majority of the stockholders present or
represented, and entitled to a vote, at the Annual Meeting.
New Plan Benefits. No benefits or amounts have been allocated under the 2000
Employee Plan; nor are any such benefits or amounts now determinable. For
comparison purposes, please refer to the grants and awards that were made in
fiscal year 1999 under the 1997 Employee Plan, as shown in the 1999 stock option
grants table on page 13. In addition to the data shown in that table, in 1999,
148,250 stock options were granted to all current elected officers as a group
and 119,050 stock options were granted to all other employees as a group. The
1997 Employee Plan, like the 2000 Employee Plan, does not allow awards to
non-employee Directors.
8
<PAGE> 12
PROPOSAL 4.
APPROVAL OF THE TRO LEARNING, INC.
2000 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board of Directors has determined that, in order to give the Company the
ongoing flexibility to attract and retain the non-employee director talent
necessary for the Company's continued success, the number of shares of the
Company's Common Stock that are issued pursuant to stock option awards should be
increased from present levels.
The proposed 2000 Director Plan authorizes up to 200,000 shares to be issued
under stock option grants to non-employee Directors.
The Board of Directors selected 200,000 shares for the 2000 Director Plan
considering (1) such number would be sufficient to provide shares for potential
awards for at least the next several years; and (2) the potential dilutive
effect as of January 31, 2000 of the 2000 Director Plan, the 2000 Employee Plan
and the number of options remaining unissued under the Company's other stock
option plans is approximately 11%.
The affirmative vote of a majority in interest of the stockholders present in
person or by proxy at the Annual Meeting and entitled to vote will be required
to approve the 2000 Director Plan, a quorum being present.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSAL 4.
Unless otherwise indicated, proxies solicited by the Board of Directors will be
voted for the approval of the 2000 Director Plan.
TRO LEARNING, INC. 2000 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN (THE "2000
Director Plan")
Note that the 2000 Director Plan has been approved by the Board of
Directors and will be voted upon at the Annual Meeting. The operation of
the plan is wholly contingent upon the approval of the plan by the
stockholders.
Summary. A summary of the 2000 Director Plan is set forth below. The summary is
qualified in its entirety by reference to the full text of the 2000 Director
Plan, which is attached to this Proxy Statement as Appendix B.
Awards. The 2000 Director Plan provides that any non-employee Director may be
granted one or more nonqualified stock options under the plan. As of January 31,
2000, the Company had five non-employee Directors.
Stock options under the 2000 Director Plan may be approved by the Board of
Directors or the Compensation Committee. The aggregate number of shares of the
Company's Common Stock which may be transferred to participants under the 2000
Director Plan is 200,000.
The exercise price of options granted under the 2000 Director Plan will be the
Fair Market Value of the Company's Common Stock on the date of grant. "Fair
Market Value" for all options granted under the 2000 Director Plan is defined as
the closing price of a share of the Company's Common Stock on the NASDAQ
National Market System for the date in question. Each option granted under the
plan vests in accordance with the schedule approved by the Board of Directors or
the Compensation Committee. Vesting can only occur so long as the non-employee
Director remains in continuous service from the grant date through the vesting
date. Each option terminates ten years from the date of grant. In the event that
the holder ceases service as a Director: (1) upon termination for any reason,
the holder shall have the right to exercise all vested options under the Plan at
any time through the original term of the option, if the holder served for five
years or more;
9
<PAGE> 13
(2) if the holder served for less than five years, the holder shall have the
right to exercise all vested options under the Plan for one year after the
holder ceases service as a Director as a result of death or disability; and (3)
if the holder served for less than five years, the holder shall have the right
to exercise all vested options under the Plan for 90 days after the holder
ceases service as a Director for any reason other than death or disability.
Other Terms. Other features of options granted under the 2000 Director Plan,
including the federal income tax consequences thereof, are analogous to those
described for options granted under the 2000 Employee Plan, which description
can be found under the heading "Proposal 3. Approval of the TRO Learning, Inc.
2000 Stock Incentive Plan" on page 5.
New Plan Benefits. The grant of any stock options under the 2000 Director Plan
is subject to stockholder approval of the Plan at the Annual Meeting. Only
non-employee Directors may receive stock options under the 2000 Director Plan.
PROPOSAL 5.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed PricewaterhouseCoopers LLP as independent
auditors for the Company for the fiscal year ending October 31, 2000. A proposal
to ratify this appointment will be presented at the Annual Meeting.
PricewaterhouseCoopers LLP was first appointed in 1992 to examine the Company's
financial statements. A representative from PricewaterhouseCoopers LLP is
expected to be present at the Annual Meeting, will have an opportunity to make a
statement if so desired, 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 5.
Unless otherwise indicated, proxies solicited by the Board of Directors will be
voted to ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors. If the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP, the Board of Directors is not obligated to appoint
other auditors, but the Board of Directors will give consideration to such
unfavorable vote.
10
<PAGE> 14
OTHER MATTERS
The Board of Directors of the Company knows of no other matters that 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 31, 2000.
BY THE ORDER OF THE BOARD OF DIRECTORS,
/s/ PATRICIA A. HLAVACEK
Patricia A. Hlavacek
Corporate Secretary
11
<PAGE> 15
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, 1999 (together the "Named Officers").
The years 1999, 1998 and 1997 refer to the fiscal years ended October 31, 1999,
1998, and 1997, respectively.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ($) AWARDS
--------------------------------------- ------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL UNDERLYING COMPENSATION
POSITION AT 10/31/99 YEAR SALARY BONUS (1) OPTIONS (#) (2) ($)
- - -------------------------------------- ------------ ------------ ----------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
William R. Roach, 1999 225,000 --- 48,000 12,480 (3)
President and 1998 225,000 --- --- 12,480 (3)
Chief Executive Officer (4) 1997 225,865 --- --- 12,480 (3)
- - ----------------------------------------------------------------------------------------------------------------------
John Murray, 1999 175,000 100,000 24,000 ---
Executive Vice President and 1998 140,000 --- 60,000 ---
Chief Financial Officer (4) 1997 123,984 --- 8,000 ---
- - ----------------------------------------------------------------------------------------------------------------------
G. Thomas Ahern, 1999 140,000 48,733 19,000 ---
Senior Vice President, 1998 122,367 64,334 30,000 ---
Sales and Marketing 1997 95,365 104,628 8,000 ---
- - ----------------------------------------------------------------------------------------------------------------------
Wellesley R. Foshay, Ph.D., 1999 140,000 --- 12,000 ---
Vice President, Instructional
Design 1998 140,000 --- 20,000 ---
and Cognitive Learning 1997 128,769 --- 6,000 ---
- - ----------------------------------------------------------------------------------------------------------------------
David H. LePage 1999 130,000 --- 14,000 ---
Vice President, Support 1998 130,000 --- 20,000 ---
Services and Distribution 1997 120,346 --- 6,000 ---
- - ----------------------------------------------------------------------------------------------------------------------
</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) In January 2000, the Company announced the promotion of John Murray to
President and Chief Operating Officer, as well as Acting Chief
Financial Officer. William R. Roach continues as Chairman of the Board
of Directors and Chief Executive Officer.
12
<PAGE> 16
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information relating to grants of stock options to
the Named Officers during fiscal 1999. No SARs were granted to the Named
Officers in fiscal 1999, and none of the Named Officers held SARs as of October
31, 1999.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM ($) (2)
UNDERLYING EMPLOYEES EXERCISE ---------------------------
OPTIONS GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) (1) 1999 ($/SHARE) DATE 5% 10%
----------------------- ----------------- ------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
William R. Roach 24,000 9.0% 9.00 12/10/08 351,841 560,250
24,000 9.0% 6.75 9/17/09 263,882 420,185
--------------------------------------------------------------------------------------------------------------------
John Murray 12,000 4.5% 9.00 12/10/08 175,921 280,125
12,000 4.5% 6.75 9/17/09 131,941 210,093
--------------------------------------------------------------------------------------------------------------------
G. Thomas Ahern 9,000 3.4% 9.00 12/10/08 131,941 210,093
10,000 3.7% 6.75 9/17/09 109,950 175,078
--------------------------------------------------------------------------------------------------------------------
Wellesley R. Foshay 6,000 2.2% 9.00 12/10/08 87,961 140,061
6,000 2.2% 6.75 9/17/09 65,969 105,050
--------------------------------------------------------------------------------------------------------------------
David H. LePage 7,000 2.6% 9.00 12/10/08 102,621 163,406
7,000 2.6% 6.75 9/17/09 76,967 122,557
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options granted in fiscal 1999 were granted at 100% of the fair
market value of the Company's Common 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 1999 and holdings of unexercised stock options at October 31, 1999
by the Company's Named Officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
VALUE OCTOBER 31, 1999 (#) OCTOBER 31, 1999 ($) (1)
---------------------------- -----------------------------
SHARES ACQUIRED REALIZED
NAME ON EXERCISE (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------- ----------------- ------------ ------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William R. Roach --- --- 332,400 48,000 --- ---
John Murray --- --- 49,534 66,666 1,876 ---
G. Thomas Ahern --- --- 64,888 41,666 53,755 ---
Wellesley R. Foshay --- --- 32,820 27,334 7,498 ---
David H. LePage --- --- 47,430 29,334 77,090 ---
</TABLE>
(1) Aggregate market value on exercise date or October 31, 1999, as appropriate,
less aggregate exercise price.
13
<PAGE> 17
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 to 24 months of current
compensation. The following sets forth the potential cash payments to the Named
Officers:
<TABLE>
<CAPTION>
LUMP SUM SEVERANCE
PAYMENT PAYMENTS SEVERANCE PERIOD
----------------- ---------------- -----------------
<S> <C> <C> <C>
John Murray $200,000 $400,000 24 months
G. Thomas Ahern 140,000 210,000 18 months
Wellesley R. Foshay 147,000 147,000 12 months
David H. LePage 136,500 136,500 12 months
======== ========
$623,500 $893,500
======== ========
</TABLE>
Additionally, two other executive officers of the Company have each entered into
an Employment Agreement with the Company with potential cash payments of
$100,000 or more.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1999 were Messrs.
Krakauer, Christianson, and Lewis. None of the Compensation Committee members
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. Krakauer, Christianson, and Lewis in their
capacity as the Board of Directors' Compensation Committee and addresses the
Company's compensation policies for fiscal 1999 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.
14
<PAGE> 18
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.
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,
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 1999. The CEO's stock option incentive grants in fiscal 1999 resulted
from the achievement of fiscal 1998 revenue and earnings growth objectives and
certain strategic growth objectives and were granted on December 10, 1998 and
September 17, 1999 at fair market value.
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 cash incentive portion of the 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.
15
<PAGE> 19
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.
Stock option incentive grants to the CEO and the other Named Officers in fiscal
1999 resulted from the achievement of fiscal 1998 revenue and earnings growth
objectives and certain strategic growth objectives and were granted on December
10, 1998 and September 17, 1999 at fair market value.
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, 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
John L. Krakauer, Chair
Tony J. Christianson
Maj. Gen. Vernon B. Lewis, Jr. (USA Ret.)
16
<PAGE> 20
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, 1999, 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.
The peer group consists of CBT Group PLC ("CBT"), Computer Learning Centers,
Inc. ("CLC"), and Apollo Group, Inc. ("Apollo"). Since CBT, CLC, and Apollo have
not been publicly traded for the entire five-year period, these companies are
included in the peer group as of October 31, 1995 through October 31, 1999. The
peer group prior to October 31, 1995 consists of Broderbund Software, Inc.
("Broderbund") and The Learning Company, Inc. ("TLC"). Broderbund was acquired
by TLC in 1998 and its stock is no longer independently traded. Mattel, Inc.
subsequently acquired TLC and Mattel is not considered a peer for this
comparison.
[GRAPH]
<TABLE>
<CAPTION>
10/31/1994 10/31/1995 10/31/1996 10/31/1997 10/31/1998 10/31/1999
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TRO Learning $100.0 $116.7 $263.0 $111.1 $109.3 $78.7
Peer Group 100.0 40.1 48.9 72.6 49.9 43.4
NASDAQ Comp. 100.0 133.3 157.1 205.0 227.8 381.5
</TABLE>
17
<PAGE> 21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 25, 2000 information about the
beneficial 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 (1) Percent of Class (2)
------------------------------------------------- --------------------------- ------------------------
<S> <C> <C> <C>
William R. Roach (3) 1,169,770 17%
Poplar Creek Office Plaza
1721 Moon Lake Boulevard
Suite 555
Hoffman Estates, Illinois 60194
Cherry Tree & Co. LLC 558,305 8%
Centennial Lakes Office Park
7601 France Avenue South, Suite 225
Edina, Minnesota 55435
KA Investments LDC (4) 500,825 7%
c/o Deephaven Capital Management LLC
1712 Hopkins Crossroads
Minnetonka, Minnesota 55305
</TABLE>
The following table sets forth, as of January 25, 2000, 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
Named Officers Beneficially Owned (1) Percent of Class (2)
-------------------------------------------- ---------------------------- -----------------------
<S> <C> <C>
G. Thomas Ahern (5) 81,851 1%
Jack R. Borsting (6) 21,500 *
Tony J. Christianson (7) 558,305 8%
Wellesley R. Foshay (8) 49,705 1%
John L. Krakauer (9) 88,500 1%
David H. LePage (10) 57,246 1%
Vernon B. Lewis, Jr. (6) 42,950 1%
John Murray (11) 63,661 1%
John Patience (12) 54,512 1%
William R. Roach (3) 1,169,770 17%
All directors and executive officers as a
group (14 individuals) (7)(13) 2,260,056 33%
</TABLE>
* Less than 1%
(1) The number of shares beneficially owned includes (a) actual shares of the
Company's Common Stock, (b) shares subject to currently exercisable options
and options which become exercisable within 60 days of January 25, 2000
(together "currently exercisable options"), and (c) shares subject to
conversion of
18
<PAGE> 22
the Company's Series C Convertible Redeemable Preferred Stock (the "Series
C Preferred"). 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 and conversion of the
Series C Preferred are considered outstanding for the purpose of
determining the percent of class held by the holder of such options or
securities, but not for the purpose of computing the percentage held by
others. For the purpose of computing these percentages, the number of
shares of the Company's Common Stock outstanding as of January 25, 2000 was
6,916,802.
(3) 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 340,400 shares
subject to currently exercisable options.
(4) Includes 500,825 shares subject to conversion of the holder's Series C
Preferred. The number of shares of Common Stock that would be received upon
an assumed conversion as of January 25, 2000 was calculated pursuant to the
terms of the Series C Preferred. Certain conversion restrictions exist,
however, that prevent a Series C Preferred holder from beneficially owning
more than 4.999% of the Company's outstanding Common Stock, without giving
proper notice to the Company.
(5) Includes 67,888 shares subject to currently exercisable options.
(6) Includes 17,000 shares subject to currently exercisable options.
(7) Includes 548,360 shares held of record by Cherry Tree & Co. LLC as to which
Mr. Christianson (an affiliate of Cherry Tree) disclaims beneficial
ownership.
(8) Includes 33,566 shares subject to currently exercisable options.
(9) Includes 8,500 shares subject to currently exercisable options.
(10) Includes 49,763 shares subject to currently exercisable options.
(11) Includes 53,534 shares subject to currently exercisable options.
(12) Includes 5,000 shares subject to currently exercisable options.
(13) Includes 654,379 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 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 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 1999.
19
<PAGE> 23
APPENDIX A
TRO LEARNING, INC.
2000 STOCK INCENTIVE PLAN
- - --------------------------------------------------------------------------------
1. Purpose. The TRO Learning, Inc. 2000 Stock Incentive Plan (the "Plan") is
intended to promote the long-term success of TRO Learning, Inc. (the "Company")
and its stockholders by strengthening the Company's ability to attract and
retain highly competent managers and other selected employees and to provide a
means to encourage stock ownership and proprietary interest in the Company. The
Plan is intended to provide participants with stock-based incentive compensation
which is not subject to the deduction limitation rules prescribed under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and should
be construed to the extent possible as providing for remuneration which is
"performance-based compensation" within the meaning of Section 162(m) of the
Code and the regulations promulgated thereunder.
2. Term. The Plan shall become effective upon its ratification and approval by
the affirmative vote of the holders of a majority of the securities of the
Company present or represented, and entitled to vote at a meeting of
stockholders of the Company, and shall terminate at the close of business on the
tenth anniversary of such approval date unless terminated earlier under Section
14. After termination of the Plan, no future awards may be granted, but
previously granted awards shall remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of the Plan.
3. Plan Administration. A committee (the "Compensation Committee") appointed by
the Board of Directors of the Company (the "Board") shall be responsible for
administering the Plan. The Compensation Committee shall be comprised of two or
more nonemployee members of the Board who shall qualify as outside Directors to
administer the Plan as contemplated by (1) Rule 16b-3 under the Securities and
Exchange Act of 1934 (the "Exchange Act") or any successor rules; and (2)
Section 162(m) of the Code. Except as otherwise provided in the Plan, the
Compensation Committee shall have full and exclusive power to interpret the Plan
and to adopt such rules, regulations and guidelines for carrying out the Plan as
it may deem necessary or proper, and such power shall be executed in the best
interests of the Company and in keeping with the objectives of the Plan. The
interpretation and construction of any provision of the Plan or any option or
right granted hereunder and all determinations by the Compensation Committee in
each case shall be final, binding and conclusive with respect to all interested
parties.
4. Eligibility. Any employee of the Company shall be eligible to receive one or
more awards under the Plan. "Company" includes any entity that is directly or
indirectly controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Compensation Committee.
5. Shares of Common Stock Subject to the Plan. Subject to the provisions of
Section 6 of the Plan, the aggregate number of shares of Common Stock, $.01 par
value, of the Company ("Stock") which may be transferred to participants under
the Plan shall be 700,000, and the aggregate number of shares of Stock that may
be covered by awards granted to any single individual under the Plan shall not
exceed 75,000 shares per fiscal year of the Company. Any or all of such shares
may be granted in the form of incentive stock options ("ISOs") intended to
comply with Section 422 of the Code.
Shares subject to awards under the Plan which expire, terminate, or are canceled
prior to exercise or, in the case of awards granted under Section 8.3, do not
vest, shall thereafter be available for the granting of other awards. Shares
which have been exchanged by a participant as full or partial payment to the
Company in connection with any award under the Plan also shall thereafter be
available for the granting of other awards. In instances where a stock
appreciation right ("SAR") or other award is settled in cash, the shares covered
by such award shall remain available for issuance under the Plan. Likewise, the
payment of cash dividends and
20
<PAGE> 24
dividend equivalents paid in cash in conjunction with outstanding awards shall
not be counted against the shares available for issuance. Any shares that are
issued by the Company, and any awards that are granted through the assumption
of, or in substitution for, outstanding awards previously granted by an acquired
entity shall not be counted against the shares available for issuance under the
Plan.
Any shares of Stock issued under the Plan may consist in whole or in part of
authorized and unissued shares or of treasury shares, and no fractional shares
shall be issued under the Plan. Cash may be paid in lieu of any fractional
shares in settlements of awards under the Plan.
6. Adjustments. In the event of any stock dividend, stock split, combination or
exchange of shares, merger, consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting shares of Stock or share price, such
proportionate adjustments, if any, as the Compensation Committee in its
discretion may deem appropriate to reflect such change shall be made with
respect to (1) the aggregate number of shares of Stock that may be issued under
the Plan; (2) each outstanding award made under the Plan; and (3) the exercise
price per share for any outstanding stock options, SARs or similar awards under
the Plan.
7. Fair Market Value. "Fair Market Value," for all purposes of the Plan, shall
mean the closing price of a share of Stock on the NASDAQ National Market System
for the date in question. If no sales of shares were made on such date, the
closing price of a share as reported for the preceding day on which a sale of
shares occurred shall be used.
8. Awards. Except as otherwise provided in this Section 8, the Compensation
Committee shall recommend to the Board the type or types of award(s) to be made
to each participant and the number of shares of Stock subject to each such
award, and any other terms, conditions and limitations applicable to such award,
and the Board shall grant awards under the Plan after considering such
recommendations. Awards may be granted singly, in combination or in tandem.
Awards also may be made in combination or in tandem with, in replacement of, as
alternatives to or as the payment form for grants or rights under any other
compensation plan or individual contract or agreement of the Company including
those of any acquired entity. The types of awards that may be granted under the
Plan are:
8.1 Stock Options. A stock option is a right to purchase a specified number
of shares of Stock during a specified period. The purchase price per share
for each stock option shall be not less than 100% of Fair Market Value on the
date of grant, except if a stock option is granted retroactively in tandem
with or as a substitution for a SAR, the exercise price may be no lower than
the Fair Market Value of a share as set forth in award agreements for such
tandem or replaced SAR. A stock option may be in the form of an ISO which
complies with Section 422 of the Code. The price at which shares may be
purchased under a stock option shall be paid in full by the optionee at the
time of the exercise in cash or such other method permitted by the
Compensation Committee, including (1) tendering shares; (2) authorizing a
third party to sell the shares (or a sufficient portion thereof) acquired
upon exercise of a stock option and assigning the delivery to the Company of
a sufficient amount of the sale proceeds to pay for all the shares acquired
through such exercise; or (3) any combination of the above.
8.2 SARs. A SAR is a right to receive a payment, in cash and/or shares, equal
to the excess of the Fair Market Value of a specified number of shares of
Stock on the date the SAR is exercised over the Fair Market Value on the date
the SAR was granted as set forth in the applicable award agreement; except
that if a SAR is granted retroactively in tandem with or in substitution for
a stock option, the designated Fair Market Value set forth in the award
agreement shall be no lower than the Fair Market Value of a share for such
tandem or replaced stock option.
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<PAGE> 25
8.3 Stock Awards. A stock award is a grant made or denominated in shares or
units equivalent in value to shares. All or part of any stock award may be
subject to conditions and restrictions as set forth in the applicable award
agreement, which may be based on continuous service with the Company or the
achievement of performance goals related to profits, profit growth,
profit-related return ratios, cash flow or total stockholder return, where
such goals may be stated in absolute terms or relative to comparable
companies.
Notwithstanding the foregoing, the Compensation Committee shall have full and
exclusive authority to determine the type or types of awards to be made to the
Chief Executive Officer of the Company, the number of shares subject to each
such award and any other terms, conditions and limitations applicable to such
awards.
9. Dividends and Dividend Equivalents. Any awards under the Plan may earn
dividends or dividend equivalents as set forth in the applicable award
agreement. Such dividends or dividend equivalents may be paid currently or may
be credited to a participant's account. Any crediting of dividends or dividend
equivalents may be subject to such restrictions and conditions may be
established in the applicable award agreement, including reinvestment in
additional shares or share equivalents.
10. Deferrals and Settlements. Payment of awards may be in the form of cash,
stock, other awards or combinations thereof as shall be determined at the time
of grant, and with such restrictions as may be imposed in the award agreement.
The Compensation Committee also may require or permit participants to elect to
defer the issuance of shares or the settlement of awards in cash under such
rules and procedures as it may establish under the Plan. It also may provide
that deferred settlements include the payment or crediting of interest on the
deferral amounts, or the payment or crediting of dividend equivalents where the
deferral amounts are denominated in shares.
11. Transferability and Exercisability. Awards granted under the Plan shall not
be transferable or assignable other than (1) by will or the laws of descent and
distribution; (2) by gift or other transfer of an award to any trust or estate
in which the original award recipient or such recipient's spouse or other
immediate relative has a substantial beneficial interest, or to a spouse or
other immediate relative, provided that any such transfer is permitted by Rule
16b-3 under the Exchange Act as in effect when such transfer occurs and the
Board does not rescind this provision prior to such transfer; or (3) pursuant to
a domestic relations order (as defined by the Code). However, any award so
transferred shall continue to be subject to all the terms and conditions
contained in the instrument evidencing such award.
12. Award Agreements. Awards under the Plan shall be evidenced by agreements as
approved by the Compensation Committee that set forth the terms, conditions and
limitations for each award, which may include the term of an award (except that
in no event shall the term of any ISO exceed a period of ten years from the date
of its grant), the provisions applicable in the event the participant's
employment terminates, and the Compensation Committee's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any award.
The Compensation Committee need not require the execution of any such agreement,
in which case acceptance of the award by the participant shall constitute
agreement to the terms of the award.
13. Acceleration and Settlement of Awards. The Compensation Committee shall have
the discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change of control of the Company, as defined by
the Compensation Committee, to provide for the acceleration of vesting and for
settlement, including cash payment of an award granted under the Plan, upon or
immediately before the effectiveness of such event. However, the granting of
awards under the Plan shall in no way affect the right of the Company to adjust,
reclassify, reorganize or otherwise change its capital or business structure, or
to merge, consolidate, dissolve, liquidate, sell or transfer all or any portion
of its businesses or assets.
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<PAGE> 26
14. Plan Amendment. The Plan may be amended by the Compensation Committee as it
deems necessary or appropriate to better achieve the purposes of the Plan,
except that no such amendment shall be made without the approval of the
Company's stockholders which would increase the number of shares available for
issuance in accordance with Sections 5 and 6 of the Plan, or cause the Plan not
to comply with Section 162(m) of the Code. The Board may suspend the Plan or
terminate the Plan at any time; provided, that no such action shall adversely
affect any outstanding benefit. Any shares authorized under Section 5 (or any
amendment thereof) with respect to which no Award is granted prior to
termination of the Plan, or with respect to which an Award is terminated,
forfeited or canceled after termination of the Plan, shall automatically be
transferred to any subsequent stock incentive plan for employees of the Company.
15. Tax Withholding. The Company shall have the right to deduct from any
settlement of an award made under the Plan, including the delivery or vesting of
shares, a sufficient amount to cover withholding of any federal, state or local
taxes required by law, or to take such other action as may be necessary to
satisfy any such withholding obligations. The Compensation Committee may, in its
discretion and subject to such rules as it may adopt, permit participants to use
shares to satisfy required tax withholding and such shares shall be valued at
the Fair Market Value as of the settlement date of the applicable award.
16. Registration of Shares. Notwithstanding any other provision of the Plan, the
Company shall not be obligated to offer or sell any shares unless such shares
are at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") and the offer and sale
of such shares are otherwise in compliance with all applicable federal and state
securities laws and the requirements of any stock exchange or similar agency on
which the Company's securities may then be listed or quoted. The Company shall
have no obligation to register the shares under the federal securities laws or
take any other steps as may be necessary to enable the shares to be offered and
sold under federal or other securities laws. Prior to receiving shares a Plan
participant may be required to furnish representations or undertakings deemed
appropriate by the Company to enable the offer and sale of the shares or
subsequent transfers of any interest in such shares to comply with the
Securities Act and other applicable securities laws. Certificates evidencing
shares shall bear any legend required by, or useful for the purposes of
compliance with, applicable securities laws, this Plan or award agreements.
17. Other Benefit and Compensation Programs. Unless otherwise specifically
determined by the Compensation Committee, settlements of awards received by
participants under the Plan shall not be deemed a part of a participant's
regular, recurring compensation for purposes of calculating payments or benefits
from any Company benefit plan or severance program. Further, the Company may
adopt other compensation programs, plans or arrangements as it deems appropriate
or necessary.
18. Unfunded Plan. Unless otherwise determined by the Compensation Committee,
the Plan shall be unfunded and shall not create (or be construed to create) a
trust or a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or other person. To the
extent any person holds any rights by virtue of an award granted under the Plan,
such rights shall be no greater than the rights of an unsecured general creditor
of the Company.
19. Use of Proceeds. The cash proceeds received by the Company from the issuance
of shares pursuant to awards under the Plan shall constitute general funds of
the Company.
20. Regulatory Approvals. The implementation of the Plan, the granting of any
award under the Plan, and the issuance of shares upon the exercise or settlement
of any award shall be subject to the Company's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the awards granted under it or the shares issued pursuant to it.
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<PAGE> 27
21. Employment Rights. The Plan does not constitute a contract of employment and
participation in the Plan will not give a participant the right to continue in
the employ of the Company on a full-time, part-time or any other basis.
Participation in the Plan will not give any participant any right or claim to
any benefit under the Plan, unless such right or claim has specifically accrued
under the terms of the Plan.
22. Governing Law. The validity, construction and effect of the Plan and any
actions taken or relating to the Plan shall be determined in accordance with the
laws of the State of Illinois and applicable federal law.
23. Successors and Assigns. The Plan shall be binding on all successors and
assigns of a participant, including, without limitation, the estate of such
participant and the executor, administrator or trustee of such estate, or
any receiver or trustee in bankruptcy or representative of the participant's
creditors.
APPENDIX B
TRO LEARNING, INC.
2000 NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
- - --------------------------------------------------------------------------------
1. Purpose. The purpose of the TRO Learning, Inc. 2000 Nonemployee Directors
Stock Option Plan (the "Plan") is to attract and retain highly qualified people
who are not employees of TRO Learning, Inc. (the "Company") or any of its
subsidiaries to serve as Nonemployee Directors of the Company, and to encourage
Nonemployee Directors to own shares of the Company's Common Stock, $.01 par
value (the "Stock").
2. Administration. Grants of Options under the Plan shall be made in the manner
provided in Section 5. All questions of interpretation of the Plan or of any
options issued hereunder shall be determined by a committee (the "Compensation
Committee") consisting of two or more members appointed by the Board of
Directors of the Company (the "Board").
3. Eligibility. Only a member of the Board who is not an employee of the Company
or any of its subsidiaries (a "Nonemployee Director") shall be eligible to
participate in the Plan.
4. Shares Available for Options.
4.1. Available Shares. "Option" shall mean an option granted under the
provisions of Section 5 of this Plan to purchase Stock. "Date of Grant" shall
mean the date of grant of an Option. The Company intends that Options shall
constitute nonqualified stock options (and not incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code")). Subject to adjustment under Section 4.2, Options may be
granted under the Plan in respect of a maximum of 200,000 shares of Stock.
Shares subject to an Option that expires or terminates unexercised shall
again be available for Options hereunder to the extent of such expiration or
termination. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
4.2. Adjustments. In the event of any stock dividend, stock split,
recapitalization, reorganization, merger, consolidation, combination or
exchanges of shares, or any other similar change affecting the Stock, an
appropriate adjustment to reflect any such change shall be made in the total
number and class of shares for which Options may be granted and the number
and class of shares and the price per share of any Option theretofore granted
to the extent unexercised. Such adjustment shall be as determined by the
Compensation Committee; provided that any such computation shall be rounded
to the nearest whole share and no such modification shall require the
issuance of fractional shares.
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<PAGE> 28
5. Stock Options. Each Option granted under the Plan shall be approved by the
entire Board or the Compensation Committee, and evidenced by a written agreement
in such form as the Compensation Committee shall approve, and shall be subject
to Section 4 and the following terms and conditions:
5.1. Terms and Conditions. The exercise price for each share of Stock
subject to the Option shall be the Fair Market Value of a share of Stock on
the Date of Grant of such Option, and the Option shall become exercisable
according to the schedule approved by the Board (or the Compensation
Committee) and set forth in the Option agreement. Except as otherwise
provided in Section 5.3, each Option shall terminate ten years from the
Date of Grant.
5.2. Exercise of Options. An option, or portion thereof, shall be exercised
by delivery of a written notice of exercise to the Secretary of the Company
and payment of the full purchase price (the "Exercise Price") for the
shares being purchased pursuant to the Option. The Exercise Price may be
paid either (1) in cash, (2) in shares of Stock already owned by the
Nonemployee Director who is granted an Option (including any other person
entitled to exercise the Option, the "Optionee") and to which the Optionee
has good title, free and clear of all liens and encumbrances, or partly in
cash and partly in such shares of Stock, (3) by authorizing the Company to
retain whole shares of Stock which would otherwise be issuable upon
exercise of the Option having a fair market value determined as of the date
of exercise, (4) in cash submitted by a broker-dealer to whom the Optionee
has submitted an irrevocable notice of exercise, or (5) a combination of
(1), (2) and (3); provided that the method of paying the Exercise Price
shall be in compliance with Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations
thereunder. The value of shares delivered in payment of the Exercise Price
shall be their Fair Market Value as of the date of exercise of the Option.
Payments in cash may be made by the delivery of a check payable to the
order of the Company. Subject to Section 6, upon receipt of notice and
payment, the Company shall promptly issue and deliver to the Optionee (or
other person entitled to exercise the Option) a certificate or certificates
for the number of shares as to which the exercise is made. An Option may
not be exercised for fractional shares of Stock.
5.3. Termination of Service. If the initial grantee of the Option (the
"Grantee") terminates service as a Director of the Company for any reason
after serving at least five years, the Option shall, to the extent vested,
continue to be exercisable until it terminates in accordance with Section
5.1. If the Grantee terminates service as a Director of the Company after
service for less than five years, the Option shall, to the extent vested,
continue to be exercisable until it terminates in accordance with Section
5.1 or, if earlier, (1) one year after the Grantee terminates service as a
result of death or disability; or (2) 90 days after the Grantee terminates
service for any reason other than death or disability. Any portion of an
Option which is not vested upon termination of service as a Director of the
Company for any reason shall be forfeited. The rights of the Nonemployee
Director may be exercised by such Director's guardian or legal
representative in the case of disability or death.
5.4. Fair Market Value. "Fair Market Value," for all purposes under the
Plan, shall mean the closing price of a share of Stock on the NASDAQ
National Market System for the date in question. If no sales of shares of
Stock were made on such date, the closing price of a share of Stock as
reported for the preceding day on which a sale of shares of Stock occurred
shall be used.
6. Tax Withholding. The Company shall be entitled, if necessary or desirable,
to withhold from any Optionee from any amounts due and payable by the Company to
such Optionee (or secure payment from such Optionee in lieu of withholding) the
amount of any withholding or other tax due from the Optionee with respect to any
shares of Stock issuable under the Plan. The Optionee may satisfy any
withholding tax obligation by (1) a cash payment to the Company; (2) delivery of
previously-owned shares of Stock and to
25
<PAGE> 29
which the Optionee has good title, free and clear of all liens and encumbrances;
or (3) by authorizing the Company to retain shares of Stock which would
otherwise be issuable upon exercise of the Option.
7. Transferability and Exercisability. Options granted under the Plan shall
not be transferable or assignable other than (1) by will or the laws of descent
and distribution; (2) by gift or other transfer to any trust or estate in which
the original option recipient or such recipient's spouse or other immediate
relative has a substantial beneficial interest, or to a spouse or other
immediate relative, provided that any such transfer is permitted by Rule 16b-3
of the Exchange Act as in effect when such transfer occurs and the Board does
not rescind this provision prior to such transfer; or (3) pursuant to a domestic
relations order (as defined by the Code). However, any Option so transferred
shall continue to be subject to all the terms and conditions contained in the
instrument evidencing such Option.
If so permitted by the Compensation Committee, an Optionee may designate a
beneficiary or beneficiaries to exercise the rights of the Optionee and receive
any distribution under the Plan upon the death of the Optionee.
8. Legal Requirements. Notwithstanding any other provision of the Plan, the
Company shall not be obligated to offer or sell any shares of Stock upon
exercise of an Option unless the shares to be issued upon such exercise are at
that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act") and the offer and sale
of such shares are otherwise in compliance with all applicable federal and state
securities laws and the requirements of any stock exchange or similar agency on
which the Company's securities may then be listed or quoted. The Company shall
have no obligation to register the securities covered by this Plan under the
federal securities laws or take any other steps as may be necessary to enable
the securities covered by this Plan to be offered and sold under federal or
other securities laws. Upon exercising all or any portion of an Option, an
Optionee may be required to furnish representations or undertakings deemed
appropriate by the Company to enable the offer and sale of the shares of Stock
upon exercise of the Option or subsequent transfers of any interest in such
shares to comply with the Securities Act and other applicable securities laws.
Certificates evidencing shares of Stock issued pursuant to Options shall bear
any legend required by, or useful for the purposes of compliance with,
applicable securities laws, this Plan or the agreements evidencing the Options.
It is the intention of the Company that the Plan comply in all respects with
Rule 16b-3 promulgated under Section 16(b) of the Exchange Act. Therefore, if
any Plan provision should be found to not be in compliance with Rule 16b-3, that
provision shall be deemed null and void, and in all events the Plan shall be
construed in favor of its meeting the requirements of Rule 16b-3.
9. Effective Date; Duration; Suspension and Amendment. The Plan shall become
effective upon approval by the Board and the shareholders of the Company. The
Plan shall terminate automatically on the tenth anniversary of the effective
date unless terminated earlier by the Board. The Board may suspend the Plan at
any time. The Board may amend or terminate the Plan at any time, but such
amendment or termination shall not affect Options already granted and such
Options shall remain in full force and effect as if the Plan had not been
terminated. No shares of Stock shall be issued or sold under this Plan after the
termination of the Plan, except upon exercise of Options granted before
termination. Any shares of Stock authorized under Section 4 of the Plan (or any
amendment thereof) with respect to which an Option is not granted prior to
termination of the Plan, or with respect to which an Option is terminated,
forfeited or canceled after termination of the Plan, shall automatically be
transferred to any subsequent stock option plan for Nonemployee Directors of the
Company.
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<PAGE> 30
10. Limitation of Rights. Neither the Plan nor the granting of any Option
hereunder shall constitute an agreement or understanding that the Company will
retain a Nonemployee Director for any period of time or at any particular rate
of compensation. The holder of an Option shall not thereby have any rights as a
stockholder until the holder receives shares of Stock upon exercise of such
Option.
11. Unfunded Plan. Unless otherwise determined by the Compensation Committee,
the Plan shall be unfunded and shall not create (or be construed to create) a
trust or a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any Optionee or other person. To the extent
any person holds any rights by virtue of an Option granted under the Plan, such
rights shall be no greater than the rights of an unsecured general creditor of
the Company.
12. Governing Law. The validity, construction and effect of the Plan and any
actions taken or relating to the Plan shall be determined in accordance with the
laws of the State of Illinois and applicable federal law.
27
<PAGE> 31
PROXY TRO LEARNING, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS, MARCH 30, 2000
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 March 30, 2000 at 9:00 a.m. (CST),
at the Hyatt Regency Minneapolis, 1300 Nicollet Mall, Minneapolis, Minnesota
55403, and any adjournment thereof, as indicated on the reverse side of this
card.
<TABLE>
<S> <C> <C>
[ ] Check here for address change. PLEASE COMPLETE, SIGN AND MAIL THIS
PROXY PROMPTLY IN THE ENCLOSED
New Address: ENVELOPE. NO POSTAGE IS REQUIRED FOR
------------------------------------------------- MAILING IN THE UNITED STATES.
- - --------------------------------------------------------------
- - --------------------------------------------------------------
</TABLE>
(Continued and to be signed on reverse side.)
<PAGE> 32
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 Proposals 2, 3, 4 and 5. 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>
<S><C> <C> <C> <C> <C> <C> <C> <C>
Withhold For All
For All All Except For Against Abstain
1. Election of Class I Directors: / / / / / / 2. To approve an / / / / / /
Nominees: 01 William R. Roach and amendment to
02 John L. Krakauer Certificate of
Incorporation to
effectuate a name
change.
For Against Abstain
For All Except Those Name(s) Written Below 3. To approve the TRO / / / / / /
Learning, Inc. 2000
-------------------------------------------------- Stock Incentive
Plan.
For Against Abstain
4. To approve the TRO / / / / / /
Learning, Inc. 2000
Non-Employee
Directors Stock
Option Plan.
For Against Abstain
5. Ratification of the / / / / / /
appointment of
PricewaterhouseCoopers
LLP as the Company's
independent auditors
for the upcoming year.
In their discretion upon such other matters as may
properly come before the meeting and any adjournments
or postponements thereof
Check here if you plan to / /
attend the meeting
Dated: , 2000
----------------------
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.
</TABLE>
/\ FOLD AND DETACH HERE /\
ANNUAL MEETING
OF
TRO LEARNING, INC.
THURSDAY, MARCH 30, 2000
9:00 A.M. (CST)
HYATT REGENCY MINNEAPOLIS
1300 NICOLLET MALL
MINNEAPOLIS, MINNESOTA 55403
