<PAGE>
                                                                    EXHIBIT 10.1


                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of December 13, 2001, between RTW, INC., a Minnesota corporation (the
"Company"), and DAVID C. PROSSER ("Employee").

         The Company and Employee are desirous of setting forth the terms and
conditions of the employment by the Company of Employee.

         In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties intending to be legally
bound do hereby agree as follows:

         1. TERM. Subject to the terms and conditions hereof, the Company agrees
to employ Employee and Employee agrees to serve the Company for a period of one
(1) year beginning on the date hereof and terminating on December 13, 2002 (the
"Expiration Date").

         2. SERVICES TO BE RENDERED BY EMPLOYEE. Employee agrees to serve the
Company as Chairman of the Board and as a special consultant. Employee shall
perform such duties and exercise such powers as from time to time may be
assigned to him consistent with his position, knowledge and experience, either
orally or in writing, by the Board of Directors of the Company or by the Chief
Executive Officer, and shall carry out his duties under the ultimate general
direction and control of the Board of Directors. In his capacity as Chairman of
the Board and special consultant, Employee shall perform all reasonable acts
customarily associated with such position, or necessary or desirable to protect
and advance the best interests of the Company, together with such other
reasonable duties as may be determined and assigned to him by the Board of
Directors or the Chief Executive Officer. Employee shall perform such acts and
carry out such duties, and shall in other respects serve the Company, faithfully
and to the best of his ability.

         3. TIME TO BE DEVOTED BY EMPLOYEE. Employee agrees to devote
substantially all of his business time, attention, efforts and abilities to the
business of the Company and to use his best efforts to promote the interests of
the Company. Employee confirms that he has no business interests of any kind
which will require a significant portion of his business time other than his
employment by the Company.




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         4. COMPENSATION PAYABLE TO EMPLOYEE. During the term hereof, the
Company shall pay to Employee a salary at the rate of Two Hundred Fifty Thousand
Dollars ($250,000) per annum (the "Annual Salary"), payable in semi-monthly
installments. Of this amount, the sum of $30,000 shall be allocated to
Employee's services as Chairman of the Board and $220,000 shall be allocated to
consulting services to be performed by Employee. Employee shall further be
entitled to receive such increases in Annual Salary and such bonuses as may be
approved from time to time by the Company. Any increases in Annual Salary or
bonuses shall be awarded solely within the discretion of the Board of Directors.

         5. EXPENSES. The Company shall reimburse Employee for the reasonable
amount of hotel, travel, entertainment and other expenses necessarily incurred
by Employee in the discharge of his duties hereunder, in accordance with the
Company's normal practice.

         6. EXECUTIVE BENEFITS. Employee shall be entitled to participate in all
formal retirement, insurance, hospitalization and disability plans that are in
existence or may be adopted by the Company, provided that Employee is eligible
by the terms thereof to participate therein. Employee shall be entitled to take
four (4) weeks of vacation during each full year of employment.

         7. STOCK OPTION.

                  7.1. Grant. The Company shall grant Employee a non-qualified
stock option to purchase up to 200,000 shares of the Company's Common Stock (the
"Option"). The per share price to be paid by Employee upon exercise of the
Option shall be 110% of the closing sale price for the Company's Common Stock on
the date of grant, as reported by NASDAQ.

                  7.2. Vesting. The Option shall become exercisable in five (5)
equal installments of 40,000 shares of the Company's Common Stock ("Option
Installment") as follows: (i) the first Option Installment shall be immediately
exercisable as of the date hereof, and (ii) four (4) additional Option
Installments shall vest upon the first, second, third and fourth anniversary of
this Agreement, provided that this Agreement is renewed for successive terms
beyond the Expiration Date upon mutually agreeable terms. Any portion of the
Option which remains unvested at the time of any expiration or termination of
this Agreement shall lapse.

                  7.3. Exercise Period. The Option shall become void and expire
as to all unexercised Option shares on February 6, 2007.



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                  7.4. Exchange. As long as this Agreement remains in effect,
Employee may request that the Company grant Employee up to the maximum number of
incentive stock options ("ISOs") that may be issued to Employee under the
Company's Amended 1994 Stock Plan and applicable law, provided that a like
number of Option shares shall be surrendered by Employee for cancellation. Such
ISOs shall be exercisable at the same times and during the same periods as the
Option and otherwise shall have substantially identical provisions to the
Option, except to the extent contrary to applicable law.

         8. TERMINATION.

                  8.1. Death. Employee's employment hereunder shall terminate
upon his death.

                  8.2. Incapacity. If in the reasonable judgment of the Company,
as a result of Employee's incapacity due to physical or mental illness or
otherwise, Employee shall for three (3) months during the term of this Agreement
have been unable to perform satisfactorily all of his duties hereunder on a
substantially full-time basis, or in the event a qualified physician reasonably
certifies that Employee is permanently incapacitated, the Company may terminate
Employee's employment hereunder by notice to Employee.

                  8.3. Cause. The Company may terminate Employee's employment
hereunder for Cause. For the purposes of this Agreement, the Company shall have
"Cause" to terminate Employee's employment hereunder upon Employee's (i) refusal
or neglect to perform and discharge his duties and responsibilities hereunder;
(ii) gross misconduct that is injurious to the Company; (iii) fraud,
embezzlement or other act of dishonesty of Employee with respect to the Company;
(iv) conviction of, or plea of guilty or nolo contendere entered by Employee to,
a felony or crime involving moral turpitude or which conviction or plea is
likely to have a material adverse effect upon the Company or upon Executive's
ability to perform his duties hereunder; (v) willful or prolonged absence from
work by Employee (other than by reason of disability due to physical or mental
illness); or (vi) willful commission of acts or making of false statements by
Employee which reflect adversely, in material respects, upon the Company or its
business, customers or other employees.

                  8.4. Without Cause. The Company may, notwithstanding any other
grounds for termination set forth in this Section 8, terminate Employee at any
time without Cause.



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                  8.5. Voluntary Termination by Employee. The Employee may
voluntarily terminate Employee's employment with the Company for any reason.

                  8.6. Date of Termination. The term "Date of Termination" shall
mean the earlier of (i) the Expiration Date, or (ii) if Employee's employment is
terminated (A) by his death, the date of his death, or (B) for any other reason,
the date on which notice of termination is given either to Employee by the
Company or to the Company by Employee.

         9. COMPENSATION UPON TERMINATION.

                  9.1. Death or Incapacity. If Employee's employment shall be
terminated by reason of his death or incapacity, the Company shall pay to
Employee or to his estate the monthly installments of his Annual Salary until
three (3) months after the Date of Termination.

                  9.2. Cause or Voluntary Termination of Employment. If the
Company shall terminate Employee's employment for Cause or if Employee
voluntarily terminates his employment, the Company shall have no further
obligations to Employee and Employee shall have no further obligations to
Company after the Date of Termination.

                  9.3. Without Cause. If the Company shall terminate Employee's
employment without Cause, the Company shall be obligated to pay Employee his
Annual Salary and to continue providing benefits until the Expiration Date.

         10. CONFIDENTIALITY. Employee agrees while in the employ of the Company
(otherwise than in the performance of his duties hereunder) and thereafter not
to, directly or indirectly, make use of, or divulge to any person, firm,
corporation, entity or business organization, and to use his best efforts to
prevent the publication or disclosure of, any confidential or proprietary
information concerning the business, accounts or finances of, or any of the
methods of doing business used by, the Company or its affiliates or of the
dealings, transactions or affairs of the Company or its affiliates or any of
their respective customers which have or which may have come to is knowledge
during his employment by the Company.

         11. NOTICES. All notices under this Agreement shall be in writing and
shall be effective either (i) when delivered in person at the address set forth
below, or (ii) three (3) business days after deposit in a sealed envelope in the
United States Mail, postage prepaid, by registered or certified mail, return
receipt requested, addressed to the recipient as set forth below, whichever is
earlier.



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                           All notices to the Company shall be sent to:

                           RTW, Inc.
                           8500 Normandale Lake Boulevard
                           Minneapolis, MN 55439
                           Attn: Chief Executive Officer

                           All notices to Employee shall be sent to:

                           David C. Prosser
                           20645 Radisson Road
                           Excelsior, MN 55331

         Such addresses may be changed by notice given in accordance with this
Section 11.

         12. MISCELLANEOUS. This Agreement may not be changed nor may any
provision hereof be waived except by an instrument in writing duly signed by the
party to be charged. This Agreement shall be interpreted, governed and
controlled by the internal laws of the State of Minnesota, without reference to
principles of conflict of law. This Agreement shall terminate in the event of
the liquidation and winding up of the business of the Company but shall continue
in effect in the event of the merger or sale of the Company into or to another
entity or the transfer of substantially all of the assets of the Company to
another entity. The provisions of Section 10 hereof shall survive any
termination of this Agreement.


                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]


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         IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.

COMPANY:                                          EMPLOYEE:

RTW, INC.


By  /s/ J. ALEXANDER FJELSTAD III                 /s/  DAVID C. PROSSER
   ---------------------------------              ------------------------------
      J. Alexander Fjelstad III                   David C. Prosser
        President and Chief
         Executive Officer



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                                   RTW, INC.
                      NON-QUALIFIED STOCK OPTION AGREEMENT



         THIS OPTION AGREEMENT is made as of the 6th day of February, 2002,
between RTW, Inc., a Minnesota corporation (the "Company"), and DAVID C. PROSSER
(the "Optionee").

         WHEREAS, the Optionee has agreed to become employed by the Company as
of December 13, 2001 (the "Employment Date") as its Chairman of the Board and
special consultant under a written Employment Agreement, dated the same date
(the "Employment Agreement"); and

         WHEREAS, the Company desires to grant to the Optionee options to
purchase shares of its common stock, no par value (the "Common Stock") in
consideration for his services as an executive employee; and

         WHEREAS, the Company desires, by affording the Optionee an opportunity
to purchase its Common Stock as hereinafter provided, to carry out the purpose
of the Amended 1994 Stock Plan of the Company approved by its shareholders (the
"Plan");

         NOW, THEREFORE, the parties hereby agree as follows:

         1. GRANT OF OPTION. The Company hereby grants to the Optionee the right
and option (hereinafter called the "Option") to purchase from the Company all or
any part of an aggregate amount of up to 200,000 shares of the Common Stock of
the Company (the "Option Shares") on the terms and conditions herein set forth.
If the Optionee elects, pursuant to the terms of Section 7.4 of his Employment
Agreement, to reduce the number of options to purchase shares granted hereunder
for options to purchase shares that qualify as Incentive Stock Options under
Internal Revenue Code Section 422, then and in that event, the Optionee shall
surrender for cancellation under this Option that number of shares equal to the
number of shares to which he is granted under the Incentive Stock Option without
regard to the exercise price of the shares of each option. Other than the
reduction in the number of shares subject to this Option, the cancellation of
shares shall not affect any other term or condition of this Option.

         2. PURCHASE PRICE. The purchase price of the Option Shares shall be
$1.21 per share, which shall be 110% of the closing price on the date of grant.

         3. TERM OF OPTION. The term of the Option shall be for a period of five
(5) years from the Employment Date, subject to earlier termination as
hereinafter provided.

         4. EXERCISE OF OPTION. Thereafter, subject to the terms and conditions
hereof, the Option may be exercised as follows:

<PAGE>







                  (a) From the Employment Date, the Option may be exercised as
         to 40,000 shares.

                  (b) From and after 12 months from the Employment Date, the
         Option may be exercised as to an additional 40,000 shares.

                  (c) From and after 24 months from the Employment Date, the
         Option may be exercised as to an additional 40,000 shares.

                  (d) From and after 36 months from the Employment Date, the
         Option may be exercised as to an additional 40,000 shares.

                  (e) From and after 48 months from the Employment Date, the
         Option may be exercised as to an additional 40,000 shares.

         5. NON-TRANSFERABILITY. The Option shall not be transferable otherwise
than by will or the laws of descent and distribution, and the Option may be
exercised, during the lifetime of the Optionee, only by the Optionee.

         6. TERMINATION OF EMPLOYMENT. If, after the date the Optionee commences
employment pursuant to the terms of the Employment Agreement, the Optionee's
employment with the Company shall be terminated other than (x) by the Company
for Cause (as defined in Section 8.3 of the Employment Agreement) or (y) by the
Optionee prior to the Expiration Date of the Optionee's Employment Agreement (as
defined in Section 1 of the Employment Agreement), the Option shall be
exercisable in full as to all the Option Shares that have vested as set forth in
Section 4 hereof and shall lapse as to all Option Shares that have not vested.
The Option may be exercised by the Optionee, his legal representative, or, in
the case of death, by the person to whom the Option is transferred by will or
the applicable laws of descent and distribution for a period that shall extend
to and shall expire immediately upon the earlier of the expiration of the term
specified in Section 3 hereof or the date specified below:

                  (a) In the event of the death of Optionee, three (3) years
         from the date of death; or

                  (b) In the event of termination of employment as a result of
         Optionee's disability, one (1) year from the date of the disability; or

                  (c) In the event of termination of employment by the Company,
         other than for Cause, one (1) year from the date of the Optionee's
         termination of employment.

         7. TERMINATION OF EMPLOYMENT FOR CAUSE OR VOLUNTARILY BY OPTIONEE. If
(x) the Option shall be terminated for Cause (as defined in the Employment
Agreement) or (y) Optionee shall voluntarily terminate his employment prior to
the Expiration Date of his Employment Agreement, any unexercised Option shall
terminate immediately upon such termination of employment. So long as the
Optionee


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shall continue to be an employee of the Company or one or more of its
subsidiaries, the Option shall not be affected by any change of duties or
position. Nothing in this Option Agreement shall confer upon the Optionee any
right to continue in the employ of the Company or of any of its subsidiaries or
interfere in any way with the rights of the Company or any subsidiary to
terminate the employment of the Optionee at any time.

         8. ACCELERATION IN EVENT OF CHANGE IN CONTROL. Notwithstanding the
provisions of Section 4, in the event of a Change in Control (as defined in this
Section 8), the Option shall become exercisable in full as to all the Option
Shares covered thereby and will remain exercisable for the full term of the
Option, without regard to any installment exercise or vesting provisions and
regardless of whether the Optionee remains in the employ or service of the
Company. In addition, if a Change in Control of the Company occurs, the
Committee (as defined in the Plan), in its sole discretion and without the
consent of the Optionee, may determine that the Optionee will receive, with
respect to some or all of the Option Shares, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the fair market value of such Option Shares immediately prior to the effective
date of such Change in Control of the Company over the option exercise price per
share of this Option. For purposes of this Agreement, "fair market value" shall
be established in the manner set forth in the Plan.

                  (a) "Change in Control" shall mean a change in control which
         would be required to be reported in response to Item 6(e) on Schedule
         14A of Regulation 14A promulgated under the Securities Exchange Act of
         1934, as amended (the "Exchange Act"), whether or not the Company is
         then subject to such reporting requirement, including, without
         limitation, if:

                           (1) Any "person" (as such term is used in Sections
                  13(d) and 14(d) of the Exchange Act), other than a person that
                  beneficially owns five percent (5%) or more of the Company's
                  Common Stock as of the date immediately prior to the effective
                  date of the Company's initial public offering, becomes a
                  "beneficial owner" (as defined in Rule 13d-3 under the
                  Exchange Act), directly or indirectly, of securities of the
                  Company representing 30% or more of the combined voting power
                  of the Company's then outstanding securities; or

                           (2) The Incumbent Directors cease for any reason to
                  constitute at least a majority of the Board of Directors. The
                  term, "Incumbent Directors," shall mean those individuals who
                  are members of the Board of Directors on the effective date of
                  this Agreement and any individual who subsequently becomes a
                  member of the Board of Directors whose election or nomination
                  for election by the Company's shareholders was approved by a
                  vote of at least a majority of the then Incumbent Directors.

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<PAGE>





                  (b) "Change in Control" shall also mean the commencement of
         any insolvency proceeding by or against the Company, including the
         appointment of a receiver.

                  (c) Notwithstanding anything in this Section 8 to the
         contrary, if, with respect to the Optionee, acceleration of the vesting
         of this Option or the payment of cash in exchange for all or part of
         this Option as provided above (which acceleration or payment could be
         deemed a "payment" within the meaning of Section 280G(b)(2) of the
         Internal Revenue Code, as amended (the "Code")), together with any
         other payments which the Optionee has the right to receive from the
         Company or any corporation which is a member of an "affiliated group"
         (as defined in Section 1504(a) of the Code without regard to Section
         1504(b) of the Code) of which the Company is a member, would constitute
         a "parachute payment" (as defined in Section 280G(b)(2) of the Code),
         the payments to the Optionee as set forth in this Agreement will be
         reduced to the largest amount as will result in no portion of such
         payments being subject to the excise tax imposed by Section 4999 of the
         Code.

         9. METHOD OF EXERCISING OPTION. Subject to the terms and conditions of
this Option Agreement, the Option may be exercised by written notice to the
Board of Directors of the Company at the principal office of the Company. Such
notice shall state the election to exercise the Option and the number of shares
in respect of which it is being exercised, and shall be signed by the person so
exercising the Option. Such notice shall be accompanied by payment of the full
purchase price of such shares, which payment shall be made in cash or by check
or bank draft payable to the Company, or, provided such form of payment does not
result in a charge to earnings of the Company for financial accounting purposes,
by delivery of shares of Common Stock of the Company with a fair market value
equal to the purchase price or by a combination of cash and such shares, whose
fair market value shall equal the purchase price. For purposes of this
Agreement, the "fair market value" of the Common Stock of the Company shall be
established in the manner set forth in the Plan. In the event the Option shall
be exercised by any person other than the Optionee, such notice shall be
accompanied by appropriate proof of such right of such person to exercise the
Option.

         10. OPTION PLAN. This Option is subject to certain additional terms and
conditions set forth in the Amended 1994 Stock Plan pursuant to which this
Option has been issued. A copy of the Plan is on file with the Secretary of the
Company and by acceptance hereof Optionee agrees to and accepts this Option
subject to the terms of the Plan. Any capitalized terms in this Agreement that
are not defined herein shall have the meaning set forth in the Plan.

         11. DISPUTES. As a condition of the granting of the Option herein
granted, the Optionee agrees, for the Optionee and the Optionee's personal
representatives, that any dispute or disagreement which may arise under or as a
result of or pursuant to this Agreement, shall be determined by the Company, in
its sole discretion, and that any



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interpretation by the Company of the terms of this Agreement shall be final,
binding and conclusive.

         12. BINDING EFFECT. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.



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<PAGE>







         IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the date and year first above written.


                                        /s/ David C. Prosser
                                        ----------------------------------------
                                        David C. Prosser
                                        Optionee



                                        RTW, INC.



                                        By /s/ J. Alexander Fjelstad, III
                                          --------------------------------------
                                            Its  Chief Exceuctive Officer
                                               ---------------------------------





















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