<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
RTW, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
MAY 15, 1997
Notice is hereby given that the Annual Meeting of Shareholders of RTW, Inc.
will be held at Hotel Sofitel, 5601 West 78th Street, Bloomington, MN 55439, on
May 15, 1997 at 3:00 p.m., local time, for the following purposes:
1. To elect two directors to hold office for a term of three years or until
their successors are elected.
2. To approve certain amendments to the RTW, Inc. 1994 Stock Plan.
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
The Board of Directors has fixed April 7, 1997 as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
[SIGNATURE]
Alfred L. LaTendresse, SECRETARY
Bloomington, Minnesota
April 10, 1997
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO ATTEND
IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE
IN PERSON IF THEY SO DESIRE. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE COMPANY.
<PAGE>
[LOGO]
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished to the shareholders of RTW, Inc. (the
"Company") in connection with the solicitation of proxies by the Board of
Directors of the Company to be voted at the Annual Meeting of Shareholders to be
held on May 15, 1997 or any adjournment or adjournments thereof. The cost of
this solicitation will be borne by the Company. In addition to solicitation by
mail, officers, directors and employees of the Company may solicit proxies by
telephone, telegraph or in person. The Company may also request banks and
brokers to solicit their customers who have a beneficial interest in the
Company's common stock registered in the names of nominees and will reimburse
such banks and brokers for their reasonable out-of-pocket expenses.
Any proxy may be revoked at any time before it is voted by receipt of a
proxy properly signed and dated subsequent to an earlier proxy, or by revocation
of a written proxy by request in person at the Annual Meeting; if not so
revoked, the shares represented by such proxy will be voted. The Company's
principal offices are located at 8500 Normandale Lake Boulevard, Suite 1400,
Bloomington, MN 55437, and its telephone number is (612) 893-0403. The mailing
of this proxy statement to shareholders of the Company commenced on or about
April 15, 1997.
A total of 11,820,931 shares of common stock, no par value, will be entitled
to vote at the meeting. Each share of common stock is entitled to one vote. Only
shareholders of record at the close of business on April 7, 1997 will be
entitled to vote at the meeting. The presence in person or by proxy of the
holders of a majority of the shares entitled to vote at the Annual Meeting of
Shareholders constitutes a quorum for the transaction of business.
Under Minnesota law, each item of business properly presented at a meeting
of shareholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. If the shares present and
entitled to vote on that item of business would not constitute a quorum for the
transaction of business at the meeting, however, then the item must be approved
by a majority of the voting power of the minimum number of shares that would
constitute such a quorum. Votes cast by proxy or in person at the Annual Meeting
of Shareholders will determine whether or not a quorum is present. Abstentions
will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but as not voted for purposes of
determining the approval of the matter submitted to the shareholders for a vote.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
1
<PAGE>
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS
AND MANAGEMENT
The following table includes information as of April 1, 1997 concerning the
beneficial ownership of common stock of the Company by (i) the only shareholders
known to the Company to hold more than five percent of the common stock of the
Company, (ii) each of the directors of the Company, (iii) each Named Executive
Officer listed in the Summary Compensation Table, and (iv) all officers and
directors of the Company as a group. Unless otherwise indicated, all beneficial
owners have sole voting and investment power over the shares held.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE
NAME OWNED(1) OWNED
- ---------------------------------------------------------------------- -------------------- -------------
<S> <C> <C>
David C. Prosser
8500 Normandale Lake Boulevard, Suite 1400
Bloomington, MN 55437............................................... 2,278,333(2)(3) 19.3%
The Kaufmann Fund, Inc.
140 East 45th Street, 43rd Floor
New York, New York 10017............................................ 1,000,000(4) 8.5%
John W. Prosser
6358 Oxbow Bend
Chanhassen, MN 55317................................................ 883,617(5)(6) 7.5%
Pamela Prosser Snyder
90 Clay Cliff Drive
Tonka Bay, MN 55331................................................. 843,217(7) 7.1%
Thomas Prosser
10131 Phaeton Drive
Eden Prairie, MN 55347.............................................. 806,867(8) 6.8%
Daniel F. Prosser
1 Riverway, Suite 1470
Houston, TX 77056................................................... 761,367(9) 6.4%
Polly J. Wolner
1560 East Orchard Beach Lane
Rice Lake, WI 54868................................................. 737,867(5)(10) 6.2%
J. Alexander Fjelstad, III
8500 Normandale Lake Boulevard, Suite 1400
Bloomington, MN 55437............................................... 736,075(2)(11) 6.0%
Vina L. Marquart...................................................... 301,138(2) 2.6%
Alfred L. LaTendresse................................................. 266,993(2)(12) 2.3%
Steven M. Rothschild.................................................. 50,500 *
Mark E. Hegman........................................................ 29,500 *
David N. Clinton...................................................... 19,027 *
William A. Cooper..................................................... 15,063 *
All Executive Officers and
Directors as a Group (9 persons).................................... 3,214,693(2) 26.3%
</TABLE>
- ------------------------
* Indicates ownership of less than one percent.
(1) Includes options to purchase the following number of shares which are or
will become exercisable within 60 days of April 1, 1997: Mr. Prosser, 150
shares; Mr. Fjelstad, 363,500 shares;
2
<PAGE>
Mr. LaTendresse, 35,775 shares; Ms. Marquart, 150 shares; Mr. Clinton,
15,150 shares; Mr. Cooper, 3,000 shares; Mr. Hegman, 3,000 shares; Mr.
Rothschild, 3,000 shares; all officers and directors as a group, 423,725
shares.
(2) Includes 164,018 shares held by the RTW, Inc. Employee Stock Ownership Plan
for which Messrs. Prosser, Fjelstad, LaTendresse, and Ms. Marquart all serve
as trustees. The trustees disclaim any beneficial ownership except for
8,628, 8,628, 7,875, and 7,667 shares, allocated to the accounts of Messrs.
Prosser, Fjelstad, LaTendresse, and Ms. Marquart, respectively.
(3) Includes 44,500 shares owned by the David C. Prosser 1995 Unitrust and
157,700 shares owned by the David C. Prosser 1996 Unitrust. Mr. Prosser has
sole voting and dispositive power with respect to the shares held by the
Trusts.
(4) Based on a Schedule 13G dated February 19, 1997 filed with the Securities
and Exchange Commission.
(5) Includes (i) 63,450 shares owned by Polly Jane Wolner Children's Trust and
(ii) 11,550 shares owned by Polly J. Wolner 1994 Irrevocable Trust for which
John W. Prosser acts as trustee. John W. Prosser and Ms. Wolner disclaim any
beneficial ownership for shares held by these trusts.
(6) Includes 247,367 shares held by the John W. Prosser Irrevocable Trust.
(7) Includes 247,367 shares held by the Pamela Prosser Snyder Irrevocable
Trust.
(8) Includes 247,367 shares held by the Thomas Prosser Irrevocable Trust.
(9) Includes 247,367 shares held by the Daniel F. Prosser Irrevocable Trust.
(10) Includes 247,367 shares held by the Polly J. Wolner Irrevocable Trust.
(11) Includes 19,980 shares held by irrevocable trusts for the benefit of Mr.
Fjelstad's minor children, with respect to which Mr. Fjelstad disclaims
beneficial ownership.
(12) Includes 33,000 shares owned by Mr. LaTendresse's wife and 10,500 shares
held by irrevocable trusts for Mr. LaTendresse's minor children, with
respect to which Mr. LaTendresse disclaims beneficial ownership.
PROPOSAL ONE--ELECTION OF DIRECTORS
Pursuant to the terms of the Amended Articles of Incorporation, directors
are divided into three classes, with the term of one class expiring each year.
As the term of each class expires, the successors to the directors in that class
will be elected for a term of three years. The terms of Messrs. Fjelstad and
Cooper expire at the 1997 Annual Meeting of Shareholders, the terms of Messrs.
Prosser and Rothschild expire at the 1998 Annual Meeting of Shareholders and the
term of Mr. Hegman expires at the 1999 Annual Meeting of Shareholders. Vacancies
on the Board of Directors and newly created directorships can be filled by vote
of a majority of the directors then in office.
Two directors will be elected at the Annual Meeting to serve until the 2000
Annual Meeting of Shareholders or until a successor is elected. The Board of
Directors has nominated for election the persons named below. The nominees are
currently directors and have been previously elected by the shareholders. It is
intended that proxies will be voted for the named nominees. Information about
the nominees and the other directors filling unexpired terms is set forth below.
Unless otherwise indicated, the nominees and each continuing director has been
engaged in his present occupation as set forth below, or has been an officer
with the organization indicated, for more than five years. The Board of
Directors believes that the nominees named below will be able to serve, but
should the nominees be unable to serve as directors, the persons named in the
proxies have advised that they will vote for the election of such substitute
nominees as the Board of Directors may propose.
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR YEAR CURRENT
NAME AND AGE AND OTHER DIRECTORSHIPS SINCE TERM EXPIRES
- ----------------------------------- ---------------------------------------------------- ----------- ---------------
<S> <C> <C> <C>
NOMINEES PROPOSED FOR ELECTION FOR TERM EXPIRING IN 2000
J. Alexander Fjelstad, III (45) Chief Operating Officer--Marketing and Underwriting; 1989 1997
Director of the Company.
William A. Cooper (53) Director of the Company; Chairman of the Board and 1995 1997
Chief Executive Officer of TCF Financial
Corporation; Member of the Board of America's
Community Bankers; Member of the Minnesota
Business Partnership and The Center of the
American Experiment.
DIRECTORS SERVING UNEXPIRED TERMS
David C. Prosser (72) Chairman, President and Chief Executive Officer of 1983 1998
the Company since its formation in 1983.
Steven M. Rothschild (51) Director of the Company, Founder, President and 1995 1998
Chief Executive Officer of Twin Cities RISE!;
Director of three companies, the College of St.
Benedict and the not-for-profit Minnesota Public
Radio; Executive Fellow at the University of St.
Thomas School of Business in Minneapolis,
Minnesota; former Executive Vice President of
General Mills, Inc.
Mark E. Hegman (55) Director of the Company; Principal of Peninsula 1995 1999
Investments, Inc.; Director of various
not-for-profit organizations including the
Minneapolis Area Red Cross; prior to 1995, owner
and President of Minnesota Store Equipment Co.
</TABLE>
The Board of Directors met four times during fiscal year 1996. Each director
attended more than 75% of the meetings of the Board of Directors and Board
committees on which he served.
The Compensation Committee, which is currently comprised of Messrs. Cooper,
Hegman and Rothschild, met four times during fiscal year 1996. The Compensation
Committee is responsible for management of compensation matters, including
recommendations to the Board of Directors on compensation arrangements for
officers and incentive compensation for employees of the Company.
The Audit Committee, which is currently comprised of Messrs. Cooper, Hegman
and Rothschild, met four times during fiscal year 1996. The Audit Committee
supervises the financial affairs of the Company and generally reviews the scope
and results of the audit and other services provided by the Company's
independent accountants and reports the results of its review to the full Board
and to management.
The Company does not have a nominating committee. However, the Company's
Bylaws provide that a notice of proposed shareholder nominations for the
election of directors must be timely given in writing to the Secretary of the
Company prior to the meeting at which directors are to be elected. To be timely,
the notice must be given by such shareholder to the Secretary of the Company not
less than 60 days nor more than 90 days prior to a meeting date corresponding to
the previous year's Annual Meeting. The notice to the Company from a shareholder
who intends to nominate a person at the
4
<PAGE>
meeting for election as a director must contain certain information about such
shareholder and the person(s) nominated by such shareholder, including, among
other things, the name and address of record of such shareholder, a
representation that the shareholder is entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting, the name, age, business
and residence addresses and principal occupation of each nominee, such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee(s), and the consent of each
nominee to serve as a director if so elected. The Company may also require any
proposed nominee to furnish other information reasonably required by the Company
to determine the proposed nominee's eligibility to serve as director. If the
presiding officer of a meeting of shareholders determines that a person was not
nominated in accordance with the foregoing procedure, such person will not be
eligible for election as a director.
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31, 1996,
1995 and 1994, the cash compensation paid by the Company, as well as certain
other compensation paid or accrued to those years, to David C. Prosser, the
Company's President and Chief Executive Officer, and to each of the four other
most highly compensated executive officers of the Company in office at the end
of fiscal year 1996, whose total cash compensation exceeded $100,000 during
fiscal year 1996 (together with Mr. Prosser, the "Named Executive Officers") in
all capacities in which they served:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS (#) COMPENSATION(2)
- ---------------------------------- --------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
David C. Prosser 1996 $ 448,128 $ 186,466 None $ 46,777
President and Chief 1995 371,278 251,604 150 91,793
Executive Officer 1994 349,891 244,540 None 71,783
J. Alexander Fjelstad, III 1996 217,812 35,652 None 15,626
Chief Operating Officer-- 1995 184,187 65,523 150 17,571
Marketing and Underwriting 1994 165,251 15,960 None 12,826
Vina L. Marquart 1996 119,167 9,817 None 10,068
Chief Operating Officer-- 1995 107,500 7,555 150 10,326
Operations 1994 98,075 9,691 None 9,166
Alfred L. LaTendresse 1996 140,425 18,167 37,500 2,931
Chief Financial Officer, 1995 115,775 41,186 37,650 13,155
Secretary and Treasurer 1994 105,625 10,308 None 10,034
David N. Clinton 1996 113,967 6,300 None --
Vice President, Chief 1995 108,010 7,629 150 4,675
Information Officer 1994 44,527 577 37,500 --
</TABLE>
- ------------------------
(1) Bonuses for 1996 include (i) $23,941, $11,652, $9,817, $7,467 and $6,300
paid to Mr. Prosser, Mr. Fjelstad, Ms. Marquart, Mr. LaTendresse and Mr.
Clinton, respectively; under bonus programs under which all employees are
eligible to participate and (ii) $162,525, $24,000 and $10,700 paid in 1996
to Mr. Prosser, Mr. Fjelstad and Mr. LaTendresse, under a discretionary
bonus program based on 1995 operating results.
Bonuses for 1995 include (i) $26,604, $13,023, $7,555, $8,186 and $7,629
paid to Mr. Prosser, Mr. Fjelstad, Ms. Marquart, Mr. LaTendresse and Mr.
Clinton, respectively; under bonus programs under which all employees are
eligible to participate and (ii) $225,000, $52,500 and $33,000 paid in 1995
to Mr. Prosser, Mr. Fjelstad and Mr. LaTendresse, under a discretionary
bonus program based on 1994 operating results.
Bonuses for 1994 include (i) $34,540, $15,960, $10,308, $9,691 and $577 paid
to Mr. Prosser, Mr. Fjelstad, Ms. Marquart, Mr. LaTendresse and Mr. Clinton,
respectively, under bonus programs under which all employees are eligible to
participate and (ii) $210,000 paid in 1994 to Mr. Prosser under a
discretionary bonus program based on 1993 operating results.
6
<PAGE>
(2) All other compensation for 1996 includes matching 401(k) contributions of
$1,089, $956 and $2,106 for Mr. Fjelstad, Ms. Marquart and Mr. LaTendresse,
respectively and life insurance premiums of $26,529 paid by the Company on
behalf of Mr. Prosser.
All other compensation for 1995 includes ESOP contributions of $13,501,
$13,501, $9,676, $10,421 and $2,457 for Mr. Prosser, Mr. Fjelstad, Ms.
Marquart, Mr. LaTendresse and Mr. Clinton, respectively; matching 401(k)
contributions of $921, $924 and $1,737 for Mr. Fjelstad, Ms. Marquart and
Mr. LaTendresse, respectively and life insurance premiums of $43,485 paid by
the Company on behalf of Mr. Prosser.
All other compensation for 1994 includes ESOP contributions of $12,000,
$12,000, $7,844 and $8,450 for Mr. Prosser, Mr. Fjelstad, Ms. Marquart and
Mr. LaTendresse respectively; matching 401(k) contributions of $826, $1,322
and $1,584 for Mr. Fjelstad, Ms. Marquart and Mr. LaTendresse, respectively
and life insurance premiums of $59,783 paid by the Company on behalf of Mr.
Prosser.
STOCK OPTIONS
The following table summarizes option grants under the Company's 1994 Stock
Plan made during the fiscal year ended December 31, 1996 to the Named Executive
Officers:
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
INDIVIDUAL GRANTS RATES OF STOCK PRICE
---------------------------------------------- APPRECIATION FOR
% OF TOTAL OPTION TERM(1)
OPTIONS OPTIONS EXERCISE EXPIRATION --------------------------
NAME GRANTED GRANTED PRICE DATE 5% 10%
- --------------------------------------- --------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Prosser....................... None -- -- -- -- --
J. Alexander Fjelstad, III............. None -- -- -- -- --
Alfred L. LaTendresse.................. 37,500 62.5% $ 19.33 1/25/2006 $ 455,870 $ 1,155,264
Vina L. Marquart....................... None -- -- -- --
David N. Clinton....................... None -- -- -- --
</TABLE>
- ------------------------
(1) Potential realized values shown above represent the potential gains based
upon annual compound price appreciation of 5% and 10% from the date of grant
through the full option term. The actual value realized, if any, on stock
option exercises will be dependent on overall market conditions and the
future performance of the Company and its common stock. There is no
assurance that the actual value realized will approximate the amounts
reflected in this table.
7
<PAGE>
The following table summarizes option exercises during the fiscal year ended
December 31, 1996 by the Named Executive Officers, and the value of their
unexercised options at December 31, 1996:
AGGREGATED OPTION EXERCISES
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996(2)
ACQUIRED ON VALUE -------------------------- ----------------------------
NAME EXERCISE (#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Prosser............... -- -- 150 -- $ 1,456 $ --
J. Alexander Fjelstad, III..... 49,000 $ 1,242,625 363,650 -- 5,953,768 --
Alfred L. LaTendresse.......... -- -- 18,900 56,250 183,425 181,969
Vina L. Marquart............... -- -- 150 -- 1,456 --
David N. Clinton............... -- -- 7,650 30,000 119,243 471,150
</TABLE>
- ------------------------
(1) Value realized is calculated by determining the difference between the fair
market value of the shares underlying the options at exercise and the
exercise price of the options.
(2) Value of unexercised options is calculated by determining the difference
between the fair market value of the shares underlying the options at
December 31, 1996 and the exercise price of the options. Fair market value
was determined based on a per share price of $18.375, which is the closing
price for the Company's common stock on December 31, 1996, the last trading
day in the Company's fiscal year.
BOARD COMPENSATION COMMITTEE REPORT
This is a report of the Compensation Committee of the Board of Directors of
the Company. This report shall not be deemed incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934
and shall not otherwise deemed to be filed under either such Act.
COMPENSATION PHILOSOPHY.
The philosophy of the Company is to provide competitive levels of
compensation that are consistent with the Company's annual and long-term
performance goals, recognize individual initiative and achievements and assist
the Company in attracting and retaining qualified executives.
BASE SALARY.
Executive base salary is reviewed annually and adjustments, if any, are
based upon levels of responsibility, experience, external pay practices and the
rate of inflation. The salaries of the Company's top three executives, David C.
Prosser, J. Alexander Fjelstad III and Alfred L. LaTendresse were increased
early in 1996 based upon achievements during 1995, including successful
completion of the Company's initial public offering. In addition, the
Compensation Committee recommended increasing the compensation of the Company's
officers in 1997 based upon the Company's continued growth in revenues and net
income in 1996, including a 38.9 percent growth in premiums earned and a 27.3
percent growth in net income.
CASH BONUSES.
Bonuses are awarded to executive officers in consideration of contributions
to the Company and the Company's overall performance. The Company had an
incentive bonus program in 1996 under which all employees, including executive
officers, earned a monthly bonus based on the Company's achievement of premiums
in force and income levels. The amount of these bonuses is set forth in the
Summary Compensation Table. In addition, the Company's Board of Directors has in
the past paid
8
<PAGE>
discretionary bonuses based on the previous year's operating results. For the
year ended December 31, 1995, the Compensation Committee proposed and the Board
of Directors adopted discretionary bonuses of $162,525 to Mr. Prosser; $24,000
to Mr. Fjelstad, and $10,700 to Mr. LaTendresse. These bonuses were paid to the
executive officers in April 1996. The justification for recommendation of the
bonuses included (i) successful completion of the Company's initial public
offering in April 1995; (ii) continued strong performance of the Company
resulting in a more than doubling of the Company's Common Stock since completion
of the initial public offering; (iii) the Company opening its Missouri office
for business nine months prior to schedule; (iv) the Company achieving
profitability in the Colorado market earlier than planned and (v) an overall
outstanding year of revenue and profit both in the Company. No discretionary
bonuses will be paid in 1997 to the Named Executive Officers based on the
operating results for the year ended December 31, 1996.
STOCK OPTIONS.
The Company's Stock Plan includes executive officers. Stock options are
generally granted to executive officers at the time they are elected. The
Compensation Committee has adopted the position that stock ownership by
management and stock-based performance compensation arrangements are beneficial
in aligning management and shareholder's interest in enhancing shareholder
value.
During 1996, the Board of Directors granted an option to Mr. LaTendresse for
37,500 shares. The option to Mr. LaTendresse was granted in part for his
performance in managing the Company's internal systems as it achieved its
growth. In addition, the Board of Directors noted that Mr. LaTendresse's equity
ownership was less than that of the other principal executive officers.
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Company entered into a five-year Employment and Salary Continuation
Agreement (the "Agreement") with Mr. Prosser in November 1993. Under the
Agreement, Mr. Prosser agreed to serve as President and Chief Executive Officer
of the Company for a base salary. The salary was set at $470,000 during 1996.
The Board of Directors increased Mr. Prosser's salary to $520,032 during 1997
including an adjustment equal to the premiums under an insurance policy under
which the Company ceased making payments in 1997. Mr. Prosser's salary was
increased in 1997, primarily for the strong performance of the Company in 1996,
including the factors specified under "Base Salary" above. The Agreement
provides that Mr. Prosser's salary is to be increased each year by a minimum of
a cost of living adjustment. In addition to his base salary, Mr. Prosser
receives bonuses, reimbursements and fringe benefits otherwise available to
executive officers of RTW, lease and insurance for the use of an automobile and
health and dental insurance. Under this Agreement, RTW agreed to indemnify Mr.
Prosser with respect to his actions on behalf of and while in the course of
employment with RTW. In the event of Mr. Prosser's disability, RTW is obligated
to continue to pay his then current base salary, bonuses consistent with other
executive officers of RTW for the remaining term of the Agreement. In the event
of Mr. Prosser's death, this Agreement shall terminate immediately, and no
further compensation shall be accrued and payable.
BOARD ACTION.
All recommendations of the Compensation Committee other than stock option
grants have been or are subject to Board of Director approval.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
MARK E. HEGMAN WILLIAM A. COOPER STEVEN M. ROTHSCHILD
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
common stock of the Company since the initial public offering on April 18, 1995
with the cumulative total return of The
9
<PAGE>
Nasdaq Stock Market and the Nasdaq Health Service Stocks over the same period
(assuming the investment of $100 in each on April 18, 1995, and the reinvestment
of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
The Nasdaq Stock Market Nasdaq Health Service Stocks RTW, Inc.
<S> <C> <C> <C>
4/18/95 $100 $100 $100
6/30/95 113 88 140
9/29/95 127 103 213
12/29/95 129 119 202
3/29/96 135 124 285
6/28/96 146 135 363
9/30/96 151 135 333
12/31/96 158 119 212
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
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4/18/95 6/30/95 9/29/95 12/29/95 3/29/96 6/28/96 9/30/96 12/31/96
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
RTW, Inc...................... 100 140 213 202 285 363 333 212
The Nasdaq Stock Market....... 100 113 127 129 135 146 151 158
Nasdaq Health Service
Stocks...................... 100 88 103 119 124 135 135 119
</TABLE>
COMPENSATION OF DIRECTORS
Non-employee directors received $500 for each meeting attended in 1996. In
January 1995, non-employee directors, Messrs. Cooper, Hegman and Rothschild,
were each granted an option to purchase 7,500 shares of Common Stock under the
RTW, Inc. 1994 Stock Plan, exercisable at a price equal to the public offering
price in the Company's initial public offering, vesting in equal increments over
a period of five years and expiring in January 2005. Directors who are employees
of the Company receive no additional compensation for serving as directors.
Under the Board of Directors' current composition, only Messrs. Cooper, Hegman
and Rothschild are entitled to receive compensation for serving on the Board of
Directors.
EMPLOYMENT AGREEMENTS
The Company entered into a five-year Employment and Salary Continuation
Agreement (the "Agreement") with Mr. Prosser in November 1993. The terms of this
agreement are described under the Board Compensation Committee Report.
Mr. Fjelstad entered into an employment contract with the Company in August
1989 pursuant to which Mr. Fjelstad agreed to serve as Vice-President and
Director of RTW for a base salary, currently $239,400 per year. Under Mr.
Fjelstad's employment contract, RTW has agreed to indemnify Mr. Fjelstad for any
loss or expense from serving as a director. In addition to his base salary, Mr.
Fjelstad was granted an option to purchase 375,000 shares of Common Stock at
$0.013 per share, exercisable immediately, and became entitled to receive
benefits and be reimbursed for expenses in a manner consistent with those
provided other officers of the Company. Mr. Fjelstad's compensation is reviewed
annually.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. These
insiders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file, including
Forms 3, 4 and 5. To the Company's knowledge, all insiders of the Company filed
all reports in a timely manner, except for J. Alexander Fjelstad and Vina L.
Marquart who each reported one transaction late.
PROPOSAL TWO--APPROVAL OF AMENDMENTS TO THE COMPANY'S 1994 STOCK PLAN
GENERAL INFORMATION
On June 29, 1994, the Company's Board of Directors adopted the RTW, Inc.
1994 Stock Plan (the "Stock Plan"). The purpose of the Stock Plan is to attract
and retain executives and other key employees, directors and consultants, as
well as to reward such persons who contribute to the achievement of the
Company's success, by giving them a proprietary interest in the Company. The
Stock Plan authorizes the granting of stock options, stock appreciation rights
("SARs"), restricted stock and deferred stock awards.
AMENDMENTS TO THE STOCK PLAN
The Company is submitting, for shareholder approval, amendments to the Stock
Plan (i) to increase the number of shares of common stock reserved for issuance
under the Stock Plan from 375,000 shares to 1,500,000 shares, and (ii) to limit
to 500,000 shares the number of options that can be granted to any one person in
one fiscal year.
The Stock Plan currently authorizes the issuance of 375,000 shares of common
stock pursuant to awards granted under the Stock Plan. The Board of Directors
has amended the Stock Plan, subject to shareholder approval, to increase the
total number of shares available under the Stock Plan to 1,500,000 shares. There
were outstanding on April 1, 1997, options to purchase 326,625 shares under the
Stock Plan and 6,600 shares had been purchased through exercise of options
granted under the Stock Plan. The Board of Directors has deemed it prudent to
increase the shares available for grants under the Stock Plan to facilitate
future awards under the Stock Plan.
The Company has also added a provision to the Stock Plan that provides that
the Company may not, in any one fiscal year, grant options and SAR's to purchase
more than 500,000 shares to any one person under the Stock Plan. The new
provision is designed to ensure that the Stock Plan complies with Section 162(m)
of the Internal Revenue Code, which limits the deductibility of certain
executive compensation over $1.0 million per year unless certain conditions are
met.
Pursuant to the authority granted to the Board of Directors under the Stock
Plan, the Board of Directors has also amended the Stock Plan to comply with the
new Rule 16b-3, established by the Securities and Exchange Commission, and
Section 162(m) of the Internal Revenue Code. These other amendments include the
clarification that the Stock Plan may be administered by the entire Board of
Directors or by a committee (the "Committee") of at least two directors who all
meet the definition of a "non-employee director" under Rule 16b-3 and the
definition of an "outside director" under Section 162(m), and that members of
the Board of Directors are eligible to receive awards under the Stock Plan other
than the automatic option grant to directors for service on the Board.
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The Stock Plan is summarized below:
ELIGIBILITY.
Officers, other key employees of the Company and any subsidiaries, members
of the Board of Directors and consultants are eligible to be granted stock
options, SARs, restricted stock or deferred stock under the Stock Plan.
Currently, all employees, all directors and one consultant are eligible to
participate in the Stock Plan. The Board of Directors, or the Committee, selects
optionees and participants and determines the number of shares, the price, the
term and the vesting provisions for each award.
STOCK OPTIONS.
The Stock Plan permits the granting of two types of options: (i) Incentive
Stock Options, which are intended to qualify under Section 422 of the Internal
Revenue Code, and (ii) Non-Qualified Stock Options. No Incentive Stock Option
may be granted under the Stock Plan after June 12, 2004. The option price of an
Incentive Stock Option may not be less than 100% of the fair market value of the
Company's common stock on the date of grant, and the exercise price of a
Non-Qualified Option may not be less than 85% of the fair market value on the
date of grant. If an employee owns more than 10% of the combined voting power of
the Company's outstanding voting stock, the option price shall be no less than
110% of the fair market value on the date of grant. The closing price of the
Company's common stock on the Nasdaq National Market System on April 1, 1997 was
$8.00.
The term of each option is established by the Committee, but shall not
exceed 10 years (five years in the event of an optionee who owns more than 10%
of the combined voting power of the Company's outstanding voting stock). Each
option will become exercisable at such time and on such conditions as determined
by the Committee. Each Member of the Board of Directors who is not an employee
of the Company is automatically granted, on the date such director is first
elected to the Board, a Non-Qualified Option to purchase 7,500 shares of common
stock at an option price equal to the fair market value on the date grant. The
term of each such option is ten years and the options become exercisable as to
20% of the total shares after each consecutive year following the date of grant.
STOCK APPRECIATION RIGHTS.
A stock appreciation right ("SAR") is a right given to a person in
conjunction with a stock option. The SAR enables the option holder to elect to
receive the difference between the option exercise price and the market price of
the stock in cash or stock, or a combination of both. The option holder
surrenders the option to the Company and receives the "gain" in cash or stock.
As of the date of this Proxy, no SARs have been granted under the Stock Plan.
RESTRICTED STOCK.
The Board of Directors (or the Committee) may issue shares of restricted
stock to participants in the Stock Plan which are conditioned upon the
achievement of specified performance goals. The recipient of an award of
restricted stock has no rights with respect to the stock unless and until the
recipient has achieved those goals. As of the date of this Proxy, no restricted
stock has been issued under the Stock Plan.
DEFERRED STOCK.
Similar to restricted stock, deferred stock awards may be issued under the
Stock Plan which are conditioned upon the attainment of specified performance
goals. The provisions of deferred stock awards and restricted stock awards need
not be the same with respect to each recipient. As of the date of this Proxy, no
deferred stock has been issued under the Stock Plan.
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FEDERAL INCOME TAX CONSEQUENCES
An optionee will not realize taxable income upon either the granting or
exercise of an Incentive Stock Option. However, upon exercise of the Incentive
Stock Option, the amount by which the fair market value of any shares exercised
exceeds the option price is an item of tax preference for purposes of the
alternative minimum tax. Upon the sale of such stock, the optionee will
generally be taxed at long-term capital gain rates if the stock has been held
for at least two years from the date of the option grant and at least one year
after the stock was purchased. If the applicable holding periods are not
satisfied, then any gain realized in connection with the disposition of such
stock will generally be taxable as compensation income in the year in which the
disposition occurred, to the extent of the difference between the fair market
value of such stock on the date of exercise and the option exercise price. The
balance of any gain will be characterized as capital gain. The Company is
entitled to a tax deduction to the extent, and at the time, that the participant
realizes compensation income.
An optionee also will not realize taxable compensation income upon the grant
of a Non-Qualified Stock Option. When an optionee exercises a Non-Qualified
Stock Option, he or she realizes taxable compensation income at that time equal
to the difference between the aggregate option price and the fair market value
of the stock on the date of exercise. Upon the disposal of stock acquired
pursuant to a Non-Qualified Option, the optionee's basis for determining taxable
gain or loss will be the sum of the option price paid for the stock plus any
related compensation income recognized by the optionee, and such gain or loss
will be long-term or short-term capital gain or loss depending on whether the
optionee has held the shares for more than one year.
The grant of restricted stock and deferred stock will not result in
immediate income for the participant or a deduction for the Company for federal
income tax purposes, assuming the shares are not transferable and subject to
restrictions creating a "substantial risk of forfeiture," as intended by the
Company. If the shares are transferable or there are no such restrictions or
deferral periods, the participant will generally realize compensation income
upon receipt of the award. Otherwise, any participant generally will realize
taxable compensation income when any such restriction or deferral period lapses.
The amount of such income will be the value of the common stock on that date,
less any amount paid for the shares. Dividends paid on the common stock and
received by the participant during the restricted period or deferral period
would also be taxable compensation income to the participant. In any event, the
Company will be entitled to a tax deduction to the extent, and at the time, that
the participant realizes compensation income. A participant may elect, under
Section 83(b) of the Internal Revenue Code, to be taxed on the value of the
stock at the time of award. If this election is made, the fair market value of
the stock at the time of the award is taxable to the participant as compensation
income and the Company is entitled to a corresponding deduction.
REGISTRATION WITH SEC
The Company has filed a Registration Statement covering the original 375,000
shares offered under the Stock Plan with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended. If Proposal Two is adopted,
the Company intends to file a similar Registration Statement covering the
1,125,000 additional shares available for issuance under the Stock Plan.
VOTE REQUIRED
Shareholder approval of the amendments to the Stock Plan requires the
affirmative vote by the holders of a majority of shares of common stock
represented at the Annual Meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENTS AS SET FORTH IN PROPOSAL TWO.
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CERTAIN TRANSACTIONS
In 1991 and 1992, the Company issued an aggregate of $1,449,648 in a private
placement of Series 1991A and Series 1991B Notes. The Series 1991B Notes
included warrants to purchase 68,675 shares of the Company's Common Stock at an
exercise price of $.80 per share which was equal to fair market value; 13,290
warrants remained outstanding at December 31, 1995 and were exercised in their
entirety during 1996. David C. Prosser, the Company's President and Chief
Executive Officer, purchased $200,000 principal amount of RTW's Series 1991A
Notes and J. Alexander Fjelstad, II, the father of the Company's Chief Operating
Officer - Marketing and Underwriting, purchased $26,000 principal amount of
Series 1991A Notes and $74,266 principal amount of Series 1991B Notes and
related warrants. Mr. Prosser received interest payments of $11,250, $20,250 and
$29,250 on these notes in 1996, 1995 and 1994, respectively, and Mr. Fjelstad
received interest payments of $4,712, $8,481 and $12,250 on these notes in 1996,
1995 and 1994, respectively. In addition, Ms. Marquart purchased $40,000
principal amount of Series 1991B Notes, and related warrants. Ms. Marquart
received interest payments of $1,750, $3,150 and $4,550 in 1996, 1995 and 1994,
respectfully. The Series 1991A and Series 1991B Notes were paid in full in
December 1996.
J. Alexander Fjelstad, II, the father of the Company's Chief Operating
Officer - Marketing and Underwriting, was President and co-owner of Business
Insurance Brokers through all of 1995 and part of 1996. Business Insurance
Brokers accounted for approximately $4.3 million and $4.2 million of the
Company's premiums in force at year end 1996 and 1995, respectively. The Company
believes that the terms of transactions with and commissions paid to Business
Insurance Brokers are no more favorable than those of the Company's other
insurance agencies.
ANNUAL REPORT
An Annual Report of the Company setting forth the Company's activities and
containing financial statements of the Company for the fiscal year ended
December 31, 1996 accompanies this Notice of Annual Meeting and proxy
solicitation material.
The accounting firm of Deloitte & Touche, LLP served as independent auditors
for the Company for the years ended December 31, 1996, 1995 and 1994. The
Company has selected Deloitte & Touche, LLP to serve as independent auditors for
the Company for the fiscal year ended December 31, 1997. The Company expects
that a representative from Deloitte & Touche, LLP will attend the Annual Meeting
and be available to respond to appropriate shareholder questions.
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders of a company, after timely notice to the company, to present
proposals for shareholder action in the company's proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by company action in accordance
with the proxy rules. The RTW, Inc. 1998 Annual Meeting of Shareholders is
expected to be held during the third week of May 1998, and proxy materials in
connection with that meeting are expected to be mailed during the second week of
April 1998. Shareholder proposals prepared in accordance with the proxy rules
must be received by the Company on or before December 15, 1997.
GENERAL
The Board of Directors of the Company knows of no matters other than the
foregoing to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event that any additional matters should be
presented.
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Shareholders may receive without charge a copy of the Company's Annual
Report on Form 10-K, including financial statements and schedules thereto, as
filed with the Securities and Exchange Commission, by writing to: RTW, Inc.,
P.O. Box 39327, Bloomington, Minnesota 55439, Attention: Investor Relations, or
by calling the Company at (612) 893-3740.
By the Order of the Board of Directors
[LOGO]
Alfred L. LaTendresse, SECRETARY
15
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AMENDED
RTW, INC.
1994 STOCK PLAN
<PAGE>
SECTION CONTENTS PAGE
- ------- ----
1. General Purpose of Plan; Definitions ............................1
2. Administration ..................................................3
3. Stock Subject to Plan ...........................................4
4. Eligibility .....................................................4
5. Stock Options ...................................................5
6. Stock Appreciation Rights .......................................8
7. Restricted Stock ................................................9
8. Deferred Stock Awards ..........................................10
9. Transfer, Leave of Absence, etc. ...............................11
10. Amendments and Termination .....................................12
11. Unfunded Status of Plan ........................................12
12. General Provisions .............................................12
13. Effective Date of Plan .........................................13
<PAGE>
AMENDED
RTW, INC.
1994 STOCK PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Amended RTW, Inc. 1994 Stock Plan (the
"Plan"). The purpose of the Plan is to enable RTW, Inc. (the "Company") and its
Subsidiaries to retain and attract executives and other key employees, directors
and consultants who contribute to the Company's success by their ability,
ingenuity and industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "BOARD" means the Board of Directors of the Company as it may be
comprised from time to time.
b. "CAUSE" means a felony conviction of a participant or the failure of a
participant to contest prosecution for a felony, willful misconduct,
dishonesty or intentional violation of a statute, rule or regulation,
any of which, in the judgment of the Company, is harmful to the
business or reputation of the Company.
c. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
d. "COMMITTEE" means the Committee referred to in Section 2 of the Plan.
e. "CONSULTANT" means any person performing services for the Company or
any Parent Corporation or Subsidiary of the Company and who is not an
employee of the Company or any Parent Corporation or Subsidiary of the
Company.
f. "COMPANY" means RTW, Inc., a corporation organized under the laws of
the State of Minnesota (or any successor corporation).
g. "DEFERRED STOCK" means an award made pursuant to Section 8 below of
the right to receive stock at the end of a specified deferral period.
h. "DISABILITY" means permanent and total disability as determined by the
Committee.
i. "EARLY RETIREMENT" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company and
any Subsidiary or Parent Corporation of the Company.
j. "FAIR MARKET VALUE" of Stock on any given date shall be determined by
the Committee as follows: (a) if the Stock is listed for trading on
one or more national securities exchanges, or is traded on the Nasdaq
Stock Market, the last reported sales price on the principal such
exchange or the Nasdaq Stock Market on the date in question, or if
such Stock shall not
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have been traded on such principal exchange on such date, the last
reported sales price on such principal exchange or the Nasdaq Stock
Market on the first day prior thereto on which such Stock was so
traded; or (b) if the Stock is not listed for trading on a national
securities exchange or the Nasdaq Stock Market, but is traded in the
over-the-counter market, including the Nasdaq System, closing bid
price for such Stock on the date in question, or if there is no such
bid price for such Stock on such date, the closing bid price on the
first day prior thereto on which such price existed; or (c) if neither
(a) or (b) is applicable, by any means fair and reasonable by the
Committee, which determination shall be final and binding on all
parties.
k. "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
l. "NON-EMPLOYEE DIRECTOR" means a "Non-Employee Director" within the
meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934.
m. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
n. "NORMAL RETIREMENT" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on or
after age 60.
o. "OUTSIDE DIRECTOR" means a Director who: (a) is not a current employee
of the Company or any member of an affiliated group which includes the
Company; (b) is not a former employee of the Company who receives
compensation for prior services (other than benefits under a tax-
qualified retirement plan) during the taxable year; (c) has not been
an officer of the Company; (d) does not receive remuneration from the
Company, either directly or indirectly, in any capacity other than as
a director, except as otherwise permitted under Code Section 162(m)
and regulations thereunder. For this purpose, remuneration includes
any payment in exchange for good or services. This definition shall
be further governed by the provisions of Code Section 162(m) and
regulations promulgated thereunder.
p. "PARENT CORPORATION" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if each of
the corporations (other than the Company) owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
q. "RESTRICTED STOCK" means an award of shares of Stock that are subject
to restrictions under Section 7 below.
r. "RETIREMENT" means Normal Retirement or Early Retirement.
s. "STOCK" means the Common Stock of the Company.
t. "STOCK APPRECIATION RIGHT" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all or a
portion of a Stock Option in exchange for an amount equal to the
difference between (i) Fair Market Value, as of the date such Stock
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Option or such portion thereof is surrendered, of the shares of Stock
covered by such Stock Option or such portion thereof, and (ii) the
aggregate exercise price of such Stock Option or such portion thereof.
u. "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
v. "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in the
chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or by a Committee
appointed by the Board of Directors, consisting of not less than two Directors,
all of whom shall be Outside Directors and Non-Employee Directors, and who shall
serve at the pleasure of the Board. Any or all of the functions of the
Committee specified in the Plan may be exercised by the Board, unless the Plan
specifically states otherwise.
The Committee shall have the power and authority to grant to eligible
employees, members of the Board of Directors, or Consultants, pursuant to the
terms of the Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii)
Restricted Stock, or (iv) Deferred Stock awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries and other eligible persons to whom Stock
Options, Stock Appreciation Rights, Restricted Stock and/or
Deferred Stock awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock and/or Deferred Stock awards, or a combination
of the foregoing, are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but
not limited to, any restriction on any Stock Option or other
award and/or the shares of Stock relating thereto); and
(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the
election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate to
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executive officers of the Company the authority to exercise the powers specified
in (i), (ii), (iii), (iv), and (v) above with respect to persons who are not
executive officers of the Company.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be 1,500,000 shares.(1) Such shares may consist, in whole
or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that have
been optioned cease to be subject to Stock Options, or if any shares subject to
any Restricted Stock or Deferred Stock award granted hereunder are forfeited or
such award otherwise terminates without a payment being made to the participant,
such shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Option.
SECTION 4. ELIGIBILITY.
Officers, other key employees of the Company and Subsidiaries, Directors
and Consultants who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and its Subsidiaries are
eligible to be granted Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards under the Plan. The optionees and participants
under the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award.
Notwithstanding the foregoing, no person may, during any fiscal year of the
Company, receive grants of Stock Options and Stock Appreciation Rights under
this Plan which, in the aggregate, exceed 500,000 shares.
- --------------------
(1)When adopted, the Plan reserved 50,000 shares. The Company effected a 5-for-
1 stock split on February 2, 1995 and a subsequent 3-for-2 stock split on May
17, 1996, resulting in 375,000 shares being reserved. On January 23, 1997, the
Board of Directors increased the number of shares reserved to 1,500,000 shares.
4
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SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive
Stock Options shall be granted under the Plan after June 12, 2004.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Option as an
Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) OPTION PRICE. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under a
Non-Qualified Stock Option be less than 85% of the Fair Market Value of the
Stock on the date of the grant of the option or, in the case of an Incentive
Stock Option, less than 100% of such Fair Market Value. If an employee owns
or is deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation or Subsidiary and an
Incentive Stock Option is granted to such employee, the option price shall be
no less than 110% of the Fair Market Value of the Stock on the date the option
is granted.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding anything contained in the Plan to the contrary, the
Committee may, in its discretion, extend or vary the term of any Stock Option or
any installment thereof, whether or not the
5
<PAGE>
optionee is then employed by the Company, if such action is deemed to be in the
best interests of the Company. Notwithstanding anything contained in the Plan
to the contrary, in the event of the sale by the Company of substantially all of
its assets and the consequent discontinuance of its business, or in the event of
a merger, exchange, consolidation or liquidation of the Company, the Board
shall, in its sole discretion, in connection with the Board's adoption of the
plan for sale, merger, exchange, consolidation or liquidation, provide for one
or more of the following: (i) the acceleration of the exercisability of any or
all outstanding Stock Options; (ii) the complete termination of this Plan and
cancellation of outstanding Stock Options not exercised prior to a date
specified by the Board (which date shall give optionees a reasonable period of
time in which to exercise vested options prior to the effectiveness of such
sale, merger, exchange, consolidation or liquidation); and (iii) the continuance
of the Plan with respect to the exercise of options which were outstanding as of
the date of adoption by the Board of such plan for sale, merger, exchange,
consolidation or liquidation and provide to optionees holding such options the
right to exercise their respective options as to an equivalent number of shares
of stock of the corporation succeeding the Company by reason of such sale,
merger, exchange, consolidation or liquidation. The grant of an option pursuant
to the Plan shall not limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by check,
or by any other form of legal consideration deemed sufficient by the Committee
and consistent with the Plan's purpose and applicable law, including promissory
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of Stock
already owned by the optionee (which have been owned for more than six months on
the date of surrender) or, in the case of the exercise of a Non-Qualified Stock
Option, by delivery of Restricted Stock or Deferred Stock subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised, as determined by the Committee), provided,
however, that, in the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares may be authorized only at the time
the option is granted, and provided further that in the event payment is made in
the form of shares of Restricted Stock or a Deferred Stock award, the optionee
will receive a portion of the option shares in the form of, and in an amount
equal to, the Restricted Stock or Deferred Stock award tendered as payment by
the optionee. If the terms of an option so permit, an optionee may elect to pay
all or part of the option exercise price by having the Company withhold from the
shares of Stock that would otherwise be issued upon exercise that number of
shares of Stock having a Fair Market Value equal to the aggregate option
exercise price for the shares with respect to which such election is made. No
shares of Stock shall be issued until full payment therefor has been made. An
optionee shall generally have the rights to dividends and other rights of a
shareholder with respect to shares subject to the option when the optionee has
given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in paragraph (a) of Section
12.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
6
<PAGE>
(f) TERMINATION BY DEATH. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable,
by the legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period of three years from the date of
such death or until the expiration of the stated term of the option, whichever
period is shorter.
(g) TERMINATION BY REASON OF DISABILITY. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability,
but may not be exercised after one year from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after one year from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter.
In the event of termination of employment by reason of Retirement, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, the option will thereafter
be treated as a Non-Qualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that, if the optionee is involuntarily
terminated without Cause by the Company and any Subsidiary or Parent
Corporation, the option may be exercised to the extent it was exercisable at
such termination for the lesser of three months or the balance of the option's
term.
(j) ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) DIRECTORS WHO ARE NOT EMPLOYEES. Each person serving as a member of
the Board of Directors who is not an employee of the Company shall, as of the
date of the meeting in which such director is first elected to the Board of
Directors, automatically be granted an Option to purchase 7,500 shares (2) of
Stock at an option price per share equal to 100% of the Fair Market Value of a
share of Stock on such date. All such Options shall be designated as Non-
Qualified Options and shall be subject to the same terms and provisions as are
then in effect with respect to the granting of Non-Qualified Options to officers
and by employees of the Company, except that (i) the term of each such Option
shall be ten
- --------------------
(2)When adopted, the Plan authorized a formula grant of 1,000 shares. As a
result of the 5-for-1 stock split on February 2, 1995 and the subsequent 3-for-2
stock split on May 17, 1996, the current formula grant to directors is for 7,500
shares.
7
<PAGE>
years, which term shall not expire upon the termination of service as a
director, and (ii) the Option shall become exercisable as to 20% of the total
shares subject to the Option after each consecutive one-year period following
the date of grant. Subject to the foregoing, all provisions of this Plan not
inconsistent with the foregoing shall apply to Options granted under this
Section 5(k).
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with paragraph (b) of this Section 6, by surrendering the applicable portion of
the related Stock Option. Upon such exercise and surrender, the optionee shall
be entitled to receive an amount determined in the manner prescribed in
paragraph (b) of this Section 6. Stock Options which have been so surrendered,
in whole or in part, shall no longer be exercisable to the extent the related
Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash or
shares of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related
option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under
Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth
in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued or
issuable under the Stock Appreciation Right at the time of exercise based
on the value of the Stock Appreciation Right at such time.
8
<PAGE>
(v) A Stock Appreciation Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of
such Option.
SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers, key employees, members of the Board of Directors and
Consultants of the Company and Subsidiaries to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the time or times within which such awards may be subject to
forfeiture, and all other conditions of the awards. The Committee may also
condition the grant of Restricted Stock upon the attainment of specified
performance goals. The provisions of Restricted Stock awards need not be the
same with respect to each recipient.
(b) AWARDS AND CERTIFICATES. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in respect
of shares of Restricted Stock awarded under the Plan. Such certificate
shall be registered in the name of the participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Amended RTW, Inc. 1994 Stock Plan and an Agreement
entered into between the registered owner and RTW, Inc. Copies of
such Plan and Agreement are on file in the offices of RTW, Inc., 8500
Normandale Lake Boulevard, Minneapolis, MN 55437."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. In no event shall the Restriction Period be less than one (1) year.
Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a shareholder of the Company, including the right to vote
the shares and the right to receive any cash dividends. The Committee,
9
<PAGE>
in its sole discretion, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested in
additional shares of Restricted Stock (to the extent shares are available
under Section 3 and subject to paragraph (f) of Section 12). Certificates
for shares of unrestricted Stock shall be delivered to the grantee promptly
after, and only after, the period of forfeiture shall have expired without
forfeiture in respect of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and paragraph
(c)(iv) of this Section 7, upon termination of employment for any reason
during the Restriction Period, all shares still subject to restriction
shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect to
such participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, in the event of the sale by the
Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, exchange,
consolidation or liquidation of the Company, the Board shall, in its sole
discretion, in connection with the Board's adoption of the plan for sale,
merger, exchange, consolidation or liquidation, provide for one or more of
the following with respect to Restricted Stock Awards that are, on such
date, still subject to a Restriction Period: (i) the removal of the
restrictions on any or all outstanding Restricted Stock Awards; (ii) the
complete termination of this Plan and forfeiture of outstanding Restricted
Stock Awards prior to a date specified by the Board; and (iii) the
continuance of the Plan with respect to the Restricted Stock Award which
were outstanding as of the date of adoption by the Board of such plan for
sale, merger, exchange, consolidation or liquidation and provide to
participants holding Restricted Stock Awards the right to an equivalent
number of restricted shares of stock of the corporation succeeding the
Company by reason of such sale, merger, exchange, consolidation or
liquidation. The grant of a Restricted Stock Award pursuant to the Plan
shall not limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, exchange or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
SECTION 8. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, key employees, members of the Board of Directors and Consultants
of the Company and Subsidiaries to whom and the time or times at which Deferred
Stock shall be awarded, the number of Shares of Deferred Stock to be awarded to
any participant or group of participants, the duration of the period (the
"Deferral Period") during which, and the conditions under which, receipt of the
Stock will be deferred, and the terms and conditions of the award in addition to
those contained in paragraph (b) of this Section 8. The Committee may also
condition the grant of Deferred Stock upon the attainment of specified
performance goals. The provisions of Deferred Stock awards need not be the same
with respect to each recipient.
10
<PAGE>
(b) TERMS AND CONDITIONS.
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. In no event shall the
Deferral Period be less than one (1) year. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred Stock
award will be paid to the participant currently or deferred and deemed to
be reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole
discretion.
(iii) Subject to the provisions of the award agreement and paragraph
(b)(iv) of this Section 8, upon termination of employment for any reason
during the Deferral Period for a given award, the Deferred Stock in
question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause) including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of the participant's Deferred
Stock.
(v) A participant may elect to further defer receipt of the award for
a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period
for a Deferred Stock award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of, a
Deferred Stock agreement executed by the Company and the participant.
SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or from
one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or such longer period as
the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in writing
by the Committee, but only if the employee's right to reemployment is guaranteed
either by a statute or by contract, and
11
<PAGE>
provided that, in the case of any leave of absence, the employee returns to work
within 30 days after the end of such leave.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Restricted Stock or other
Stock-based award theretofore granted, without the optionee's or participant's
consent, or (ii) which without the approval of the stockholders of the Company
would cause the Plan to no longer comply with Rule 16b-3 under the Securities
Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock Options for
previously granted options, including previously granted options having higher
option prices.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the obligations created
under the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
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<PAGE>
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to a repurchase right in favor of the Company, pursuant
to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee may, at the time
of the grant of an award under the Plan, provide the Company with the right to
repurchase, or require the forfeiture of, shares of Stock acquired pursuant to
the Plan by any participant who, at any time within two years after termination
of employment with the Company, directly or indirectly competes with, or is
employed by a competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible if the Committee (or the Company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the Stock present and entitled to vote at a meeting of
the Company's shareholders.
13
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<PAGE>
[LOGO]
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 15, 1997
The undersigned hereby appoints David C. Prosser, J. Alexander Fjelstad III
and Alfred L. LaTendresse, or any one or more of them, proxies with full power
of substitution to vote in their discretion cumulatively all shares of stock of
RTW, Inc. of record in the name of the undersigned at the close of business on
April 7, 1997, at the Annual Meeting of Shareholders to be held on May 15, 1997,
or at any adjournment or adjournments, hereby revoking all former proxies.
<TABLE>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS:
/ / FOR the nominee listed below / / WITHHOLD AUTHORITY
to vote for the nominee listed below
J. Alexander Fjelstad III William H. Cooper
To withhold authority for a nominee, strike a line through such nominee's name
--------------------------------------------------------------------------------------------
2. APPROVAL OF CERTAIN AMENDMENTS TO THE RTW. INC. 1994 STOCK PLAN.
/ / For / / Against / / Abstain
--------------------------------------------------------------------------------------------
3. IN THEIR DISCRETION UPON ANY OTHER MATTERS COMING BEFORE THE MEETING.
</TABLE>
<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED ON PROPOSALS (1) AND (2)
IN ACCORDANCE WITH THE SPECIFICATIONS MADE AND "FOR" SUCH PROPOSALS IF THERE IS
NO SPECIFICATION.
DATED: _____________ , 1997
___________________________
___________________________
PLEASE SIGN NAME(S) EXACTLY
AS SHOWN AT LEFT. WHEN
SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, GIVE FULL TITLE
AS SUCH; WHEN SHARES HAVE
BEEN ISSUED IN NAMES OF TWO
OR MORE PERSONS, ALL SHOULD
SIGN.
