<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 27, 1999
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 27, 1999 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, 1999 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
/s/ Tim C. Chan
Tim C. Chan, SECRETARY
Bloomington, Minnesota
April 27, 1999
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 27, 1999 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 27, 1999.
A total of 12,285,430 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, 1999 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, 1999 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...................... 1,511,057(3) 4,150 7,360 1,522,567 12.4%
The Kaufmann Fund, Inc.
140 East 45th Street, 43rd Floor
New York, NY 10017......................... 1,312,000(4) -- -- 1,312,000 10.7%
John W. Prosser
6358 Oxbow Bend
Chanhassen, MN 55317....................... 866,500(5)(8) -- -- 866,500 7.1%
Pamela Prosser Snyder
90 Clay Cliff Drive
Tonka Bay, MN 55331........................ 754,152(6)(9) -- -- 754,152 6.1%
Thomas C. Prosser
10131 Phaeton Drive
Eden Prairie, MN 55347..................... 749,630(6)(7) 10) -- -- 749,630 6.1%
Polly J. Wolner
1560 East Orchard Beach Lane
Rice Lake, WI 54868........................ 747,050(5)(11) -- -- 747,050 6.1%
J. Alexander Fjelstad, III................... 528,557(12) -- 8,920 537,477 4.4%
Carl B. Lehmann.............................. 28,300 250,000 -- 278,300 2.2%
Daniel R. Haag............................... 2,150 11,666 145,810 159,626 1.3%
Tim C. Chan.................................. 2,000 -- 145,810 147,810 1.2%
Alfred L. LaTendresse........................ 69,066(13) 57,500 8,148 137,714 1.1%
Steven M. Rothschild......................... 47,500 6,000 -- 53,500 *
Mark E. Hegman............................... 26,500 6,000 -- 32,500 *
Marguerite K. Downey......................... -- 6,666 -- 6,666 *
David R. Hubers.............................. -- -- -- -- *
All Executive Officers and Directors as a
Group (11 persons)......................... 2,146,064 284,482 145,810 2,576,356 20.5%
</TABLE>
- ------------------------
* Indicates ownership of less than one percent.
2
<PAGE>
(1) Includes options to purchase shares that are or will become exercisable
within 60 days of April 1, 1999.
(2) Includes 145,810 shares held by the RTW, Inc. Employee Stock Ownership Plan
for which Messrs. Chan and Haag serve as trustees. The trustees disclaim any
beneficial ownership except for 5 shares allocated to the account of Mr.
Haag.
(3) 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 and 16,600 shares purchased by the fund subsequent
to the filing.
(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 202,384 shares held by the Pamela Prosser Snyder Irrevocable
Trust.
(10) Includes 247,367 shares held by the Thomas C. Prosser Irrevocable Trust.
(11) Includes 247,050 shares held by the Polly J. Wolner Irrevocable Trust.
(12) 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.
(13) 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. Lehmann and
Hegman expire at the 1999 Annual Meeting of Shareholders, the term of Mr.
Fjelstad expires at the 2000 Annual Meeting of Shareholders, and the terms of
Messrs. Prosser, Hubers and Rothschild expire at the 2001 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 2002
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. Mr. Hegman was previously elected as a director by the
Company's shareholders. Mr. Lehmann was elected by the Company's Board of
Directors in November 1997. 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 have 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
3
<PAGE>
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 2002:
Carl B. Lehmann (45) President and Chief Executive Officer of the 1997 1999
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 (57) 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.
DIRECTORS SERVING UNEXPIRED TERMS:
J. Alexander Fjelstad, III (47) Director of the Company; Chairman, President and 1989 2000
CEO for HeadWater Systems; Former Chief Operating
Officer-- Marketing and Underwriting for the
Company.
David C. Prosser (74) Chairman of the Board, Former President and Chief 1983 2001
Executive Officer of the Company since its
formation in 1983 until January 1998.
David R. Hubers (56) Director of the Company; President and Chief 1998 2001
Executive Officer of American Express Financial
Advisors, Inc.; Director of the Investment
Company Institute, Carlson School of Management,
the Minnesota Business Partnership, Fairview
Hospitals and the United Way.
Steven M. Rothschild (53) Director of the Company, Founder, President and 1995 2001
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.
</TABLE>
4
<PAGE>
The Board of Directors met seven times during 1998. 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. Hegman,
Hubers and Rothschild, met six times during 1998. 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. Hegman, Hubers
and Rothschild, met four times during 1998. 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 the 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, 1998,
1997 and 1996, 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 Chairman of the Board (who also served as Chief Executive Officer from
January 1, 1998 to January 14, 1999), Carl B. Lehmann, the Company's President
and Chief Executive Officer, each of the other most highly compensated executive
officers of the Company in office at the end of fiscal year 1998 whose total
cash compensation exceeded $100,000 during fiscal year 1998, and a former
executive officer whose total cash compensation exceeded $100,000 during fiscal
year 1998, (together with Mr. Prosser and Mr. Lehmann, 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............................. 1998 $520,032 $ -- None $ 11,458
Chairman of the Board 1997 517,822 4,575 10,000 21,630
1996 448,128 186,466 None 46,777
Carl B. Lehmann.............................. 1998 384,856 -- 42,855 136,844
President and Chief 1997 -- -- 457,145 --
Executive Officer 1996 -- -- None --
Alfred L. LaTendresse........................ 1998 160,000 80,000 20,000 2,400
Former Chief Financial Officer, 1997 155,400 1,441 10,000 7,214
Secretary and Treasurer 1996 140,425 18,167 37,500 2,931
Tim C. Chan.................................. 1998 105,037 25,000 200,000 4,834
Chief Financial Officer, 1997 -- -- -- --
Secretary and Treasurer 1996 -- -- -- --
Marguerite K. Downey......................... 1998 135,000 -- 80,000 1,689
Vice President, Information Systems 1997 8,693 10,000 -- --
1996 -- -- -- --
Daniel R. Haag............................... 1998 135,000 -- 80,000 2,025
Vice President, Human Resources 1997 122,229 1,071 7,500 1,863
1996 56,250 550 5,000 413
</TABLE>
- --------------------------
(1) Bonuses for 1998 include $80,000 paid to Mr. LaTendresse in severance and
$25,000 paid to Mr. Chan as a sign-on incentive.
Bonuses for 1997 include (i) $4,575, $1,441 and $1,071 paid to Mr. Prosser,
Mr. LaTendresse and Mr. Haag, respectively, under bonus programs under which
all employees are eligible to participate and (ii) a $10,000 sign-on
incentive paid to Ms. Downey.
Bonuses for 1996 include (i) $23,941, $7,467 and $550 paid to Mr. Prosser,
Mr. LaTendresse and Mr. Haag, respectively under bonus programs under which
all employees are eligible to participate and (ii) $162,525 and $10,700 paid
to Mr. Prosser and Mr. LaTendresse, respectively, under executive incentive
programs in 1996 based on 1995 operating results.
(2) All other compensation for 1998 includes moving costs of $76,710 and $3,258
paid to Mr. Lehmann and Mr. Chan, respectively, consulting fees of $56,000
paid to Mr. Lehmann for his work prior to his employment with the Company
and matching 401(k) contributions of $2,400, $2,400, $1,576, $1,689 and
$2,025 for Mr. Lehmann, Mr. LaTendresse, Mr. Chan, Ms. Downey and Mr. Haag,
respectively.
6
<PAGE>
All other compensation for 1997 includes ESOP contributions of $4,500,
$4,213 and $29 for Mr. Prosser, Mr. LaTendresse and Mr. Haag, respectively
and matching 401(k) contributions of $2,331 and $1,834 for Mr. LaTendresse
and Mr. Haag, respectively.
All other compensation for 1996 includes matching 401(k) contributions of
$413 for Mr. Haag, respectively and life insurance premiums of $26,529 paid
by the Company on behalf of Mr. Prosser.
7
<PAGE>
STOCK OPTIONS
The following table summarizes option grants under the Company's 1994 Stock
Plan made during the fiscal year ended December 31, 1998 to the Named Executive
Officers:
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
INDIVIDUAL GRANTS OF
-------------------------------------------------- STOCK PRICE APPRECIATION
% OF TOTAL FOR OPTION TERM (1)
OPTIONS OPTIONS EXERCISE EXPIRATION ------------------------
NAME GRANTED GRANTED PRICE DATE 5% 10%
- -------------------------------------------- --------- ------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David C. Prosser............................ -- -- $ -- -- $ -- $ --
Carl B. Lehmann............................. 42,855 4.4% 7.000 1/15/2008 188,659 478,099
Alfred L. LaTendresse....................... 20,000 2.1% 7.000 1/28/2008 88,045 223,124
Tim C. Chan................................. 200,000 20.5% 5.813 7/31/2008 731,153 1,852,885
Marguerite K. Downey........................ 20,000 2.1% 7.000 1/28/2008 88,045 223,124
Marguerite K. Downey........................ 60,000 6.2% 7.625 7/22/2008 287,719 729,137
Daniel R. Haag.............................. 20,000 2.1% 7.000 1/28/2008 88,045 223,124
Daniel R. Haag.............................. 60,000 6.2% 7.625 7/22/2008 287,719 729,137
</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.
The following table summarizes option exercises during the fiscal year ended
December 31, 1998 by the Named Executive Officers, and the value of their
unexercised options at December 31, 1998:
AGGREGATED OPTION EXERCISES
AND OPTION VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(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.................. -- -- 2,150 8,000 $ -- $ --
Carl B. Lehmann................... -- -- 250,000 250,000 -- --
Alfred L. LaTendresse............. -- -- 57,500 -- -- --
Tim C. Chan....................... -- -- -- 200,000 -- 112,500
Marguerite K. Downey.............. -- -- -- 80,000 -- --
Daniel R. Haag.................... -- -- 3,500 89,000 -- --
</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, 1998 and the exercise price of the options. Fair market value
was determined based on a per share price of $6.375, which is the closing
price for the Company's common stock on December 31, 1998, the last trading
day in the Company's fiscal year.
7
<PAGE>
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. No adjustments were made in 1998 to the base salaries of any
of the Named Executive Officers currently employed by the Company.
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 1998 under which all employees, including executive
officers, were eligible for a monthly bonus based on the Company's achievement
of premiums in force and income levels. No bonuses were paid to the Named
Executive Officers under this program. In addition, the Company's Board of
Directors has in the past paid discretionary bonuses based on the previous
year's operating results. No discretionary bonuses were paid to the Named
Executive Officers in 1998 based on the results of the year ended December 31,
1997, or will be paid in 1999 based on the results of the year ended December
31, 1998.
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' interests in enhancing shareholder
value. The Compensation Committee granted the options listed in the Summary
Compensation Table to bring the ownership levels of members of management to a
level that the Company believes appropriate give their responsibilities in the
Company. Mr. Lehmann's option grant for 42,855 shares resulted from the
re-issuance as an incentive stock option an option originally granted to him in
November 1997. The option had an original price of $6.75.
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Company entered into a three-year Employment Agreement (the "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, 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 $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
8
<PAGE>
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 greater.
The Board made no adjustment to Mr. Lehmann's compensation in 1998, but
increased Mr. Lehmann's base salary by 4.0 percent effective January 1, 1999,
reflecting Mr. Lehmann's accomplishments in 1998, including assembling a new
management team and successfully negotiating a new reinsurance arrangement that
the Company believes strengthened its financial position.
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 DAVID R. HUBERS 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 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 89
12/29/95 202 128 120
6/28/96 363 145 136
12/31/96 212 158 120
6/30/97 92 177 125
12/31/97 69 194 122
6/30/98 89 233 122
12/31/98 74 272 105
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDING
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4/18/95 6/30/95 12/29/95 6/28/96 12/31/96 6/30/97
----------- ----------- ----------- ----------- ----------- -----------
RTW, Inc.................................. 100 140 202 363 212 92
The Nasdaq Stock Market................... 100 113 128 145 158 177
Nasdaq Health Service Stocks.............. 100 89 120 136 120 125
<CAPTION>
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12/31/97 6/30/98 12/31/98
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RTW, Inc.................................. 69 89 74
The Nasdaq Stock Market................... 194 233 272
Nasdaq Health Service Stocks.............. 122 122 105
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COMPENSATION OF DIRECTORS
Non-employee directors received $500 for each meeting attended in 1998 and
1997. In January 1995, non-employee directors, Messrs. 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
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price in the Company's initial public offering, vesting in equal increments over
a period of five years and expiring in January 2005. Additionally, in July 1998,
non-employee directors, Messrs. Hegman, Hubers and Rothschild, were each granted
options to purchase 10,000 shares of Common Stock under the 1994 Stock Plan,
exercisable at $7.625, the closing price on the date of grant, vesting in equal
increments over a period of three years and expiring in July 2008. These options
are subject to shareholder approval. See Proposal Two. Directors who are
employees of the Company receive no additional compensation for serving as
directors. Under the Board of Directors' current composition, only Messrs.
Hegman, Hubers and Rothschild are entitled to receive compensation for serving
on the Board of Directors.
EMPLOYMENT AGREEMENTS
The Company entered into a three-year Employment and Salary Continuation
Agreement (the "Agreement") with Mr. Lehmann in November 1997. The terms of this
agreement are described under the Board Compensation Committee Report.
In January 1999, the Company entered into an agreement with Mr. Prosser for
the continuation of his employment with the Company for a period of up to 12
months after December 31, 1998. Under this agreement, Mr. Prosser receives a
salary of $25,000 per month and is eligible to participate in the Company's
benefit programs. This agreement with Mr. Prosser may be terminated by the
Company or by Mr. Prosser at any time upon 14 days notice.
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 Mr. Prosser who failed to file one
report in a timely manner.
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 1,500,000 shares to 2,000,000 shares and (ii) to
provide for the granting of options to persons other than employees serving as
directors of the Company.
The Stock Plan currently authorizes the issuance of 1,500,000 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 2,000,000
shares. As of April 1, 1999, 70,500 shares had been purchased through exercise
of options granted under the Stock Plan and options to purchase 1,587,096 shares
were outstanding under the Stock Plan. The
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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 Board of Directors has also adopted, subject to shareholder approval, an
amendment to the Stock Plan to provide that each person serving as a member of
the Board of Directors on July 22, 1998 who was not an employee of the Company
or any subsidiary was granted a non-qualified stock option to purchase 10,000
shares of common stock at a price of $7.625, the closing price on that date. In
addition, each person who is first elected as a director after July 22, 1998 and
who is not a an employee of the Company or any subsidiary will be granted a
stock option to purchase 10,000 shares at fair market value on the date the
person is elected as a director. Messrs. Hegman, Hubers and Rothschild were each
granted options to purchase 10,000 shares of common stock pursuant to this
provision. These options vest over a three-year period beginning one year from
the date of grant and remain outstanding for ten years. Any vested portion of
any options will expire one year from the date of the after of the person's
termination as a director.
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, 1999 was
$4.81.
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.
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
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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.
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 offering of the
shares 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 500,000
additional shares available for issuance under the Stock Plan.
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VOTE REQUIRED
Shareholder approval of the amendments to the Stock 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 TWO.
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, 1998 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, 1998, 1997 and 1996. The
Company has selected Deloitte & Touche LLP to serve as independent auditors for
the Company for the fiscal year ended December 31, 1999. 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
Securities and Exchange Commission (SEC) Rule 14a-8 permits shareholders of
a company, after timely notice to the company, to present proposals for
shareholder action in the company's proxy statement if the 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 SEC
proxy rules. The RTW, Inc. 2000 Annual Meeting of Shareholders is expected to be
held on or about May 25, 2000. Proxy materials for that meeting are expected to
be mailed on or April 18, 2000. Under SEC Rule 14a-8, shareholder proposals to
be included in the RTW, Inc. proxy statement for that meeting must be received
by RTW, Inc. on or before December 21, 1999. Additionally, if RTW, Inc. receives
notice of a shareholder proposal after March 6, 2000, the proposal will be
considered untimely pursuant to SEC Rules 14a-4 and 14a-5(e) and the persons
named in proxies solicited by the Board of Directors of RTW, Inc. for its 2000
Annual Meeting of Shareholders may exercise discretionary voting power with
respect to the proposal.
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 390327, Bloomington, Minnesota 55439, Attention: Investor Relations, or
by calling the Company at (612) 893-3740.
By the Order of the Board of Directors
/s/ Tim C. Chan
Tim C. Chan, SECRETARY
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[LOGO]
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1999
The undersigned hereby appoints David C. Prosser, Carl B. Lehmann and Tim C.
Chan, 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, 1999, at the
Annual Meeting of Shareholders to be held on May 27, 1999, or at any adjournment
or adjournments, hereby revoking all former proxies.
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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
Carl B. Lehmann Mark E. Hegman
To withhold authority for a nominee, strike a line through such nominee's name
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2. APPROVAL OF CERTAIN AMENDMENTS TO THE RTW. INC. 1994 STOCK PLAN:
/ / For / / Against / / Abstain
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3. IN THEIR DISCRETION UPON ANY OTHER MATTERS COMING BEFORE THE MEETING.
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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: ________________ , 1999
______________________________
______________________________
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.
