<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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 21, 1998
Notice is hereby given that the Annual Meeting of Shareholders of RTW, Inc.
will be held at Hotel Sofitel, 5601 West 78th Street, Bloomington, Minnesota
55439, on May 21, 1998 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 an amendment of the Company's Articles of Incorporation and
Bylaws to provide that the number of directors of the Company shall be no
less than Three and no more than Twelve.
3. To amend the RTW, Inc. 1995 Employee Stock Purchase Plan to increase by
125,000 the number of shares authorized under the plan.
4. 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 10, 1998 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 21, 1998
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. ("RTW" or
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 21, 1998 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 21, 1998.
A total of 11,907,973 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 10, 1998 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, 1998 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 executive
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>
ACQUIRABLE
WITHIN 60 SHARES HELD PERCENTAGE
NAME COMMON STOCK DAYS(1) BY ESOP(2) TOTAL OWNED
- -------------------------------------------- ------------------ ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
David C. Prosser
8500 Normandale Lake Boulevard
Suite 1400
Bloomington, MN 55437..................... 2,115,725(3) 2,150 7,360 2,125,235 17.8%
The Kaufmann Fund, Inc.
140 East 45th Street, 43rd Floor
New York, NY 10017........................ 1,295,400(4) -- -- 1,295,400 10.9%
John W. Prosser
6358 Oxbow Bend
Chanhassen, MN 55317...................... 863,617(5)(8) -- -- 863,617 7.3%
Thomas C. Prosser
10131 Phaeton Drive
Eden Prairie, MN 55347.................... 812,630(6)(7)(9) -- -- 812,630 6.8%
Pamela Prosser Snyder
90 Clay Cliff Drive
Tonka Bay, MN 55331....................... 780,762(6)(10) -- -- 780,762 6.6%
Polly J. Wolner
1560 East Orchard Beach Lane
Rice Lake, WI 54868....................... 776,200(5)(11) -- -- 776,200 6.5%
Daniel F. Prosser
1 Riverway, Suite 1470
Houston, TX 77056......................... 612,002(12) -- -- 612,002 5.1%
J. Alexander Fjelstad, III.................. 208,557(13) 340,650 8,920 558,127 4.6%
Vina L. Marquart............................ 135,243 2,150 158,496 295,889 2.5%
Carl B. Lehmann............................. 9,300 125,000 158,496 292,796 2.4%
Alfred L. LaTendresse....................... 67,498(14) 54,650 158,496 280,644 2.3%
Daniel R. Haag.............................. 2,150 2,500 158,496 163,146 1.4%
Steven M. Rothschild........................ 47,500 4,500 -- 52,000 *
Mark E. Hegman.............................. 26,500 4,500 -- 31,000 *
William A. Cooper........................... 12,063 4,500 -- 16,563 *
All Executive Officers and Directors as a
Group (10 persons)........................ 2,624,536 540,600 158,496 3,323,632 26.7%
</TABLE>
- ------------------------
* Indicates ownership of less than one percent.
2
<PAGE>
(1) Includes options to purchase shares which are or will become exercisable
within 60 days of April 1, 1998.
(2) Includes 158,496 shares held by the RTW, Inc. Employee Stock Ownership Plan
for which Ms. Marquart and Messrs. Lehmann, LaTendresse and Haag all serve
as trustees. The trustees disclaim any beneficial ownership except for
7,899, 8,148 and 5 shares, allocated to the accounts of Ms. Marquart and
Messrs. LaTendresse and Haag, respectively.
(3) Includes 37,448 shares owned by the David C. Prosser 1995 Unitrust, 116,085
shares owned by the David C. Prosser 1996 Unitrust, and 451,135 shares owned
by the David C. Prosser 1997 Unitrust. Mr. Prosser has sole voting and
dispositive power with respect to the shares held by the Trusts. Also
includes 100,000 shares owned by the David C. and Margaret F. Prosser
Foundation of which Mr. Prosser is President and for which he serves as
trustee.
(4) Based on a Schedule 13G dated February 17, 1998 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 22,228 shares held in trust for Thomas C. Prosser's four children
for which Pamela Prosser Snyder acts as trustee. Thomas C. Prosser and
Pamela Prosser Snyder disclaim any beneficial ownership for shares held by
these trusts.
(7) Includes 10,000 shares held by the Urban Tree Research Foundation for which
Thomas C. Prosser serves as President.
(8) Includes 247,367 shares held by the John W. Prosser Irrevocable Trust.
(9) Includes 247,367 shares held by the Thomas C. Prosser Irrevocable Trust.
(10) Includes 202,384 shares held by the Pamela Prosser Snyder Irrevocable
Trust.
(11) Includes 247,200 shares held by the Polly J. Wolner Irrevocable Trust.
(12) Includes 247,367 shares held by the Daniel F. Prosser Irrevocable Trust.
(13) 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.
(14) 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 Company's 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. Prosser and
Rothschild expire at the 1998 Annual Meeting of Shareholders, the terms of
Messrs. Lehmann and Hegman expire at the 1999 Annual Meeting of Shareholders,
and the terms of Messrs. Fjelstad and Cooper expire at the 2000 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 2001
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
3
<PAGE>
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.
<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 TERMS EXPIRING IN 2001:
David C. Prosser (73) Chairman of the Board; Former President and Chief 1983 1998
Executive Officer of the Company since its
formation in 1983 until January 1998.
Steven M. Rothschild (52) 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.
DIRECTORS SERVING UNEXPIRED TERMS:
Carl B. Lehmann (44) Director of the Company; President and Chief 1997 1999
Executive Officer of the Company since January 15,
1998; President of the Stored Value Group, a
division of American Express Travel Related
Services, Inc. from 1993 to 1997; Member of the
Board of Trustees for Westminster College, Salt
Lake City, Utah.
Mark E. Hegman (56) 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.
J. Alexander Fjelstad, III (46) Director of the Company; Head of sales and marketing 1989 2000
for self-insured products of the Company; Former
Chief Operating Officer--Marketing and
Underwriting.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR YEAR CURRENT
NAME AND AGE AND OTHER DIRECTORSHIPS SINCE TERM EXPIRES
- ----------------------------------- ---------------------------------------------------- ----------- ---------------
<S> <C> <C> <C>
William A. Cooper (54) Director of the Company; Chairman of the Board and 1995 2000
Chief Executive Officer of TCF Financial
Corporation; Member of the Minnesota Business
Partnership and The Center of the American
Experiment; Chairman of the Minnesota Republican
Party.
</TABLE>
The Board of Directors met six times during fiscal year 1997. 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 1997. 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 six times during fiscal year 1997. 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 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, 1997,
1996 and 1995, 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 in 1997, and to each of the four
other most highly compensated executive officers of the Company in office at the
end of fiscal year 1997, whose total cash compensation exceeded $100,000 during
fiscal year 1997 (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 1997 $ 517,822 $ 4,575 10,000 $ 21,630
President and Chief 1996 448,128 186,466 None 46,777
Executive Officer 1995 371,278 251,604 150 91,793
J. Alexander Fjelstad, III 1997 239,400 2,219 10,000 13,969
Chief Operating Officer-- 1996 217,812 35,652 None 15,626
Marketing and Underwriting 1995 184,187 65,523 150 17,571
Vina L. Marquart 1997 136,600 1,178 10,000 6,740
Chief Operating Officer-- 1996 119,167 9,817 None 10,068
Operations 1995 107,500 7,555 150 10,326
Alfred L. LaTendresse 1997 155,400 1,441 10,000 7,214
Chief Financial Officer, 1996 140,425 18,167 37,500 2,931
Secretary and Treasurer 1995 115,775 41,186 37,650 13,155
Daniel R. Haag 1997 122,229 1,071 7,500 1,863
Vice President, Human 1996 56,250 550 5,000 413
Resources 1995 -- -- -- --
</TABLE>
- ------------------------
(1) Bonuses for 1997 include (i) $4,575, $2,219, $1,178, $1,441 and $1,071 paid
to Mr. Prosser, Mr. Fjelstad, Ms. Marquart, Mr. LaTendresse and Mr. Haag,
respectively, under bonus programs under which all employees are eligible to
participate.
Bonuses for 1996 include (i) $23,941, $11,652, $9,817, $7,467 and $550 paid
to Mr. Prosser, Mr. Fjelstad, Ms. Marquart, Mr. LaTendresse and Mr. Haag,
respectively under bonus programs under which all employees are eligible to
participate and (ii) $162,525, $24,000 and $10,700 paid to Mr. Prosser, Mr.
Fjelstad and Mr. LaTendresse, under executive incentive programs in 1996
based on 1995 operating results.
Bonuses for 1995 include (i) $26,604, $13,023, $7,555 and $8,186 paid to Mr.
Prosser, Mr. Fjelstad, Ms. Marquart and Mr. LaTendresse, respectively under
bonus programs under which all employees are eligible to participate and
(ii) $225,000, $52,500 and $33,000 paid to Mr. Prosser, Mr. Fjelstad and Mr.
LaTendresse, under executive incentive programs in 1995 based on 1994
operating results.
6
<PAGE>
(2) All other compensation for 1997 includes ESOP contributions of $4,500,
$4,500, $3,575, $4,213 and $29 for Mr. Prosser, Mr. Fjelstad, Ms. Marquart,
Mr. LaTendresse and Mr. Haag, respectively and matching 401(k) contributions
of $2,107, $2,125, $2,331 and $1,834 for Mr. Fjelstad, Ms. Marquart, Mr.
LaTendresse and Mr. Haag, respectively.
All other compensation for 1996 includes matching 401(k) contributions of
$1,089, $956, $2,106 and $413 for Mr. Fjelstad, Ms. Marquart, Mr.
LaTendresse and Mr. Haag, 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 and $10,421 for Mr. Prosser, Mr. Fjelstad, Ms.
Marquart and Mr. LaTendresse, 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.
STOCK OPTIONS
The following table summarizes option grants under the Company's 1994 Stock
Plan made during the fiscal year ended December 31, 1997 to the Named Executive
Officers:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
-------------------------------------------------- RATES OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
OPTIONS GRANTED OPTION TERM(1)
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED 1997 PRICE DATE 5% 10%
- ---------------------------------------- --------- --------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
David C. Prosser........................ 10,000 8.9% $ 11.83 2/14/2007 $ 74,367 $ 188,460
J. Alexander Fjelstad, III.............. 10,000 8.9% 10.75 2/14/2007 67,606 171,327
Vina L. Marquart........................ 10,000 8.9% 10.75 2/14/2007 67,606 171,327
Alfred L. LaTendresse................... 10,000 8.9% 10.75 2/14/2007 67,606 171,327
Daniel R. Haag.......................... 7,500 6.7% 10.75 2/14/2007 50,705 128,495
</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, 1997 by the Named Executive Officers, and the value of their
unexercised options at December 31, 1997:
AGGREGATED OPTION EXERCISES
AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
SHARES -------------------------- ----------------------------
ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME EXERCISE (#) REALIZED SHARES SHARES SHARES SHARES
- ------------------------------- ----------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David C. Prosser............... -- -- 150 10,000 $ -- $ --
J. Alexander Fjelstad, III..... -- -- 363,650 10,000 1,454,000 --
Vina L. Marquart............... -- -- 150 10,000 -- --
Alfred L. LaTendresse.......... -- -- 35,775 49,375 -- --
Daniel R. Haag................. -- -- 1,000 11,500 -- --
</TABLE>
- ------------------------
(1) Value of unexercised options is calculated by determining the difference
between the fair market value of the shares underlying the options at
December 31, 1997 and the exercise price of the options. Fair market value
was determined based on a per share price of $6.00, which is the closing
price for the Company's common stock on December 31, 1997, 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 be 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 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. In addition, the Compensation Committee
recommended increasing the compensation of the Company's officers in 1998 to
adjust the salaries to market rates.
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 1997 under which all employees, including executive
officers, earned, based on position, a quarterly or annual 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 discretionary bonuses based on
the previous year's operating results. No
8
<PAGE>
discretionary bonuses were paid to the Named Executive Officers in 1997 based on
the results of the year ended December 31, 1996, or will be paid in 1998 based
on the results of the year ended December 31, 1997.
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 shareholders' interest in enhancing shareholder
value.
During 1997, the Board of Directors granted options to Mr. Prosser, Mr.
Fjelstad, Ms. Marquart and Mr. LaTendresse for 10,000 shares and granted an
option to Mr. Haag for 7,500 shares. These options were granted, in part, for
the officers performance in managing the Company's internal systems and as
incentive for the Company's long-term performance.
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Company entered into a five-year Employment and Salary Continuation
Agreement (the "Agreement") with Mr. Prosser beginning in November 1993 and
ending in November 1998. 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 $520,032 during 1997. Mr. Prosser's salary was increased in
1997 from $470,000 in 1996, primarily for the strong performance of the Company
in 1996, including the factors specified under "Base Salary" above. No further
adjustment was made in 1998. 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
the 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 due.
Mr. Prosser resigned as President and Chief Executive Officer in January 1998 in
connection with the Company's hiring of Mr. Lehmann discussed below.
BOARD ACTION.
All recommendations of the Compensation Committee 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
9
<PAGE>
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 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>
RTW, INC. THE NASDAQ STOCK MARKET NASDAQ HEALTH SERVICE STOCKS
<S> <C> <C> <C>
4/18/95 $100 $100 $100
6/30/95 140 113 88
12/29/95 202 129 119
6/28/96 363 146 135
12/31/96 212 158 119
6/30/97 92 177 125
12/31/97 69 194 122
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
--------------------------------------------------------------------
4/18/95 6/30/95 12/29/95 6/28/96 12/31/96 6/30/97 12/31/97
------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
RTW, Inc...................... 100 140 202 363 212 92 69
The Nasdaq Stock Market....... 100 113 129 146 158 177 194
Nasdaq Health Service
Stocks...................... 100 88 119 135 119 125 122
</TABLE>
COMPENSATION OF DIRECTORS
Non-employee directors received $500 for each meeting attended in 1997 and
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 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 above under "Board Compensation Committee Report".
The Company entered into a three-year Employment Agreement with Mr. Lehmann
in November 1997. Under the Agreement, Mr. Lehmann agreed to serve as President
and Chief Executive Officer beginning January 15, 1998 for a base salary of
$400,000, subject to review annually for increase by the Company's Board of
Directors. In addition to base salary, Mr. Lehmann is eligible for bonuses, and
receives fringe benefits including a $1,000,000 term life insurance policy and
an additional payment sufficient to reimburse him for a long-term disability
policy paying monthly benefits of
10
<PAGE>
$5,000. Additionally, the Company granted Mr. Lehmann an option to purchase
500,000 shares under the Company's 1994 Stock Option Plan at a price of $6.75
per share. The Company also provides Mr. Lehmann with health, dental, life and
disability insurance consistent with that provided other officers. Under this
agreement, RTW agreed to indemnify Mr. Lehmann with respect to his actions on
behalf of and while in the course of employment with RTW. In the event of
termination without cause or resignation for good reason, RTW is obligated to
continue to pay his then-current base salary and bonuses for the remaining term
of the agreement or twelve months, whichever is shorter.
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, $239,400 in 1997. 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 resigned his position as an officer in
January 1998 but continued his employment with RTW.
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 1997 reports in a timely manner.
PROPOSAL TWO--APPROVAL OF AN AMENDMENT OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS TO PROVIDE THAT THE NUMBER OF DIRECTORS OF THE COMPANY
SHALL BE NO LESS THAN THREE AND NO MORE THAN TWELVE
The Company's Articles of Incorporation and Bylaws currently provide that
the business and affairs of the Company shall be managed by the Board of
Directors of the Company consisting of not less than three or not more than
seven directors. The Company currently has six persons serving as directors.
The Company believes that it may be appropriate to expand the number of
directors in the future in order to bring additional strength and diversity to
the board. Although the Company is currently able to elect one additional person
to the board without shareholder approval, the Company believes that it is in
the long-term interest of the Company to have the flexibility to add additional
persons. Under the proposed amendment, the Company would have the flexibility to
add one or more qualified individuals to the Company's Board of Directors
without calling a special meeting of shareholders or otherwise seeking
shareholder approval. The Company has not decided to add any particular
individuals to the Board of Directors at this time and does not anticipate doing
so prior to the Annual Meeting. Under the Company's Articles and Bylaws, the
Board of Directors has the ability to increase the number of directors up to the
maximum number of directors authorized by the Articles and Bylaws and elect
additional directors to fill vacancies arising in this manner. Any such new
director may serve for a term of up to three years without shareholder approval.
VOTE REQUIRED
The affirmative vote of the holders of Common Stock present and entitled to
vote at the meeting are necessary to approve Proposal Two. If not otherwise
specified, properly executed proxies will be voted in favor of the amendment of
the Company's Articles and Bylaws to provide that the number of directors of the
Company shall be no less than three and no more than twelve.
11
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE AMENDMENT AS SET FORTH IN PROPOSAL TWO.
PROPOSAL THREE--APPROVAL OF AN AMENDMENT TO THE 1995 EMPLOYEE STOCK PURCHASE
PLAN TO INCREASE THE SHARES AUTHORIZED UNDER THE PLAN
GENERAL INFORMATION
In 1995, the Board of Directors of the Company adopted the RTW, Inc. 1995
Employee Stock Purchase Plan (the "Purchase Plan") and authorized the issuance
of 75,000 shares under the Plan (as adjusted for the Company's May 1996
three-for-two stock split). Under the terms of the Purchase Plan, all employees
of the Company are eligible to participate, other than employees who have been
with the Company less than two weeks and employees who own five percent (5%) or
more of the Company's common stock.
Eligible employees elect to participate in the Purchase Plan through payroll
deductions limited to 10% of a participant's base pay for each phase, typically
one year, of the Purchase Plan. Any employee of the Company who has completed at
least two weeks of service prior to the "Commencement Date" of a phase of the
Purchase Plan is eligible to participate. As of each Commencement Date of a
phase, any eligible employee who elects to participate is granted an option for
as many full shares as he or she will be able to purchase through the payroll
deduction procedure. The option price for employees who participate is the lower
of (i) 85% of the fair market value of the shares on the Commencement Date of
the phase, or (ii) 85% of the fair market value of the shares on the
"Termination Date" of the phase, which is approximately one year after the
Commencement Date. Exercise of the option occurs automatically on the
Termination Date of the phase of the Purchase Plan, unless a participant has
given written notice prior to such date as to an election not to exercise.
The Purchase Plan is intended to qualify as an "Employee Stock Purchase
Plan" within the meaning of Section 423 of the Internal Revenue Code of 1954. If
the Purchase Plan so qualifies, employees exercising options would not have a
taxable transaction on exercise. In order for the employee participants to have
such qualified tax treatment with respect to the additional 125,000 proposed
hereby, this amendment to the Purchase Plan must be approved by the Company's
shareholders.
The Company believes that the participation by employees in the Purchase
Plan increases employee ownership in the Company and has provided an incentive
to the Company's employees to align their interest with those of the Company's
shareholders.
AMENDMENT TO THE PURCHASE PLAN
As of April 20, 1998, the Company has issued approximately 53,000 shares
under the Plan and has estimated options outstanding to purchase approximately
46,800 additional shares in the current phase for which the Termination Date is
April 15, 1999. The Board of Directors has approved an increase of 125,000
shares in the Plan and recommends shareholder approval of this amendment.
REGISTRATION WITH SEC
The Company has filed a Registration Statement covering the offering of the
shares under the 1995 Employee Stock Purchase Plan with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended. If
Proposal Three is adopted, the Company intends to file a similar Registration
Statement covering the 125,000 additional shares available for issuance under
the 1995 Employee Stock Purchase Plan.
12
<PAGE>
VOTE REQUIRED
Shareholder approval of the amendments to the 1995 Employee Stock Purchase
Plan requires the affirmative vote of 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 AMENDMENT AS SET FORTH IN PROPOSAL THREE.
ANNUAL REPORT
An Annual Report of the Company setting forth the Company's activities and
containing consolidated financial statements of the Company for the fiscal year
ended December 31, 1997 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, 1997, 1996 and 1995. The
Company has selected Deloitte & Touche LLP to serve as independent auditors for
the Company for the fiscal year ended December 31, 1998. 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. 1999 Annual Meeting of Shareholders is
expected to be held during the third week of May 1999, and proxy materials in
connection with that meeting are expected to be mailed during the second week of
April 1999. Shareholder proposals prepared in accordance with the proxy rules
must be received by the Company on or before December 15, 1998.
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.
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
[SIGNATURE]
Alfred L. LaTendresse, SECRETARY
13
<PAGE>
[LOGO]
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 1998
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 10, 1998, at the Annual Meeting of Shareholders to be held on May 21,
1998, or at any adjournment or adjournments, hereby revoking all former proxies.
<TABLE>
<S> <C> <C> <C> <C>
1. ELECTION OF DIRECTORS:
/ / FOR all the nominees listed below / / WITHHOLD AUTHORITY
except as marked to the contrary below to vote for the nominees listed below
David C. Prosser Steven M. Rothschild
To withhold authority for a nominee, strike a line through such nominee's name
-----------------------------------------------------------------------------------------------------------
2. APPROVAL OF AN AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION AND BY-LAWS TO PROVIDE THAT THE NUMBER
OF DIRECTORS OF THE COMPANY SHALL BE NO LESS THAN THREE AND NO MORE THAN TWELVE:
/ / For / / Against / / Abstain
-----------------------------------------------------------------------------------------------------------
3. APPROVAL OF AN AMENDMENT TO INCREASE BY 125,000 THE SHARES AUTHORIZED UNDER THE RTW, INC. 1995 EMPLOYEE
STOCK PURCHASE PLAN:
/ / For / / Against / / Abstain
-----------------------------------------------------------------------------------------------------------
4. 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, 2 AND 3
IN ACCORDANCE WITH THE SPECIFICATIONS MADE AND "FOR" SUCH PROPOSALS IF THERE IS
NO SPECIFICATION.
DATED: ________________ , 1998
______________________________
______________________________
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.
