BERLITZ INTERNATIONAL INC, DEF 14A, 1997-05-13

BERLITZ INTERNATIONAL INC
DEF 14A, 1997-05-13
EDUCATIONAL SERVICES

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<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12

Berlitz International, Inc.
(Name of Registrant as Specified in its Charter)

Berlitz International, Inc.
(Name of Person Filing Proxy Statement)

Payment of Filing Fee (Check appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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(1):

----------------------------------------------------------------------------

4) Proposed maximum aggregate value of transaction:

----------------------------------------------------------------------------

(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.

/ / 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 No.:

3) Filing Party:

4) Date Filed:
<PAGE>
[LOGO]

May 14, 1997

Dear Shareholder:

You are cordially invited to attend the 1997 annual meeting of shareholders
that will be held on Tuesday, June 3, 1997 at 10:00 a.m. in Princeton, New
Jersey.

The Notice and Proxy Statement on the following pages contains details
concerning the business to come before the meeting. Management will report on
current operations and there will be an opportunity for discussion concerning
Berlitz International, Inc. and its activities. Please sign and return your
proxy card in the enclosed envelope to ensure that your shares will be
represented and voted at the meeting even if you cannot attend. You are urged to
sign and return the enclosed proxy card even if you plan to attend the meeting.

I look forward to personally greeting all shareholders who are able to
attend.

/s/ Soichiro Fukutake
Soichiro Fukutake
CHAIRMAN
<PAGE>
[LOGO]

NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 3, 1997

Notice is hereby given that the 1997 annual meeting of shareholders (the
"Meeting") of Berlitz International, Inc. (the "Company") will be held at the
Berlitz International, Inc. corporate headquarters, 400 Alexander Park,
Princeton, New Jersey 08540 on Tuesday, June 3, 1997 at 10:00 a.m. local time
for the following purposes:

1. To elect five directors to serve for two-year terms until the 1999
annual meeting of shareholders;

2. To approve the 1996 Stock Option Plan;

3. To ratify the selection by the Board of Directors of the Company of
Deloitte & Touche LLP, independent accountants, to audit the Company's
consolidated financial statements for 1997; and

4. To transact such other business as may properly come before the
Meeting in connection with the foregoing or otherwise.

The Board of Directors has fixed the close of business on May 9, 1997 as the
record date for the purpose of determining shareholders entitled to notice of
and to vote at the Meeting or any postponement or adjournment thereof. A list of
such shareholders will be open to the examination of any shareholder during
regular business hours for a period of ten days prior to the meeting at the
offices of the Company at 400 Alexander Park, Princeton, New Jersey, 08540.

In order to assure a quorum, it is important that the shareholders who do
not expect to attend the Meeting in person fill in, sign, date and return the
enclosed proxy in the accompanying envelope.

By order of the Board of Directors

/s/ Robert C. Hendon, Jr.
Robert C. Hendon, Jr.

SECRETARY

Princeton, New Jersey

May 14, 1997
<PAGE>
BERLITZ INTERNATIONAL, INC.
400 ALEXANDER PARK
PRINCETON, NEW JERSEY 08540

PROXY STATEMENT
1997 ANNUAL MEETING OF SHAREHOLDERS
JUNE 3, 1997

The enclosed proxy is solicited by the Board of Directors of Berlitz
International, Inc. (the "Company") for use at the 1997 annual meeting of
shareholders (the "Meeting") to be held at the Company's corporate headquarters
at 400 Alexander Park, Princeton, New Jersey 08540 on Tuesday, June 3, 1997, at
10:00 a.m. local time, and at any postponement or adjournment thereof. The
enclosed proxy, properly executed and received by the Company prior to the
Meeting, and not revoked, will be voted in accordance with the directions
thereon; and if no directions are indicated, the proxy will be voted for each
nominee for election as a director, for approval of the 1996 Stock Option Plan
and for approval of the selection of Deloitte & Touche LLP as independent
accountants for the Company for 1997. If any other matter should be presented at
the Meeting upon which a vote may properly be taken, the shares represented by
the proxy will be voted with respect thereto at the discretion of the person or
persons holding such proxy. Proxies may be revoked by shareholders at any time
prior to the voting of the proxy by written notice to the Company, by submitting
a new proxy or by personal ballot at the Meeting.

As of the close of business on May 9, 1997, the record date for determining
shareholders entitled to vote at the Meeting, the Company had outstanding
9,406,013 shares of its $.10 par value common stock (the "Common"). Each share
of Common outstanding is entitled to one vote at the Meeting. The first date on
which this Proxy Statement and the enclosed form of proxy are being sent to the
Company's shareholders is on or about May 14, 1997.

ELECTION OF DIRECTORS

The Board of Directors of the Company presently consists of ten members
divided into two classes. At the Meeting, five directors will be elected to hold
office for two-year terms until the 1999 annual meeting of shareholders, and
until their successors have been elected and qualified or until their earlier
death, resignation or removal. The proxy will be voted in accordance with the
directions thereon or, if no directions are indicated, for election of the five
directors named below whose election has been proposed and recommended by the
Board of Directors. If any nominee shall, prior to the Meeting, become
unavailable for election as a director, the persons named in the accompanying
form of proxy will vote, in their discretion, for a nominee, if any, as may be
recommended by the Board of Directors, or the Board of Directors may, in their
discretion, reduce the number of directors to eliminate the vacancy.

INFORMATION AS TO OFFICERS AND NOMINEES FOR ELECTION AS DIRECTORS

The respective ages, positions with the Company, business experience,
directorships in other companies and Board committee memberships of the nominees
for election and the continuing incumbent directors are set forth below, as of
March 1, 1997. All nominees are currently directors of the Company. There is no
family relationship between any of the directors of the Company.
<PAGE>
NOMINEES FOR DIRECTOR TO BE ELECTED FOR TERMS TO EXPIRE IN 1999

SOICHIRO FUKUTAKE, 51

Mr. Fukutake has served as Chairman of the Board of the Company since
February 1993. Mr. Fukutake joined Benesse Corporation ("Benesse") (formerly
Fukutake Publishing Co., Ltd., and currently a publicly-held company since
October 1995 and the beneficial owner of 6,985,338 shares of Common subsequent
to the closing date for the FHAI Share Purchase (hereinafter defined)) in 1973,
and since May 1986 has served as its President and Representative Director. He
also serves on the Board of Directors of a number of companies, private
foundations and associations in Japan. Mr. Fukutake became a Director of the
Company in February 1993. He is currently a member of the Executive Committee.

MANUEL FERNANDEZ, 60

Mr. Fernandez has served as Executive Vice President and Chief Operating
Officer, Worldwide Language Instruction of the Company since January 1, 1995.
Prior thereto, he was Executive Vice President, Language Services of the Company
from September 1993 to January 1995. He previously served as Vice President,
European Operations of the Company and its predecessor, Berlitz Languages, Inc.
("Berlitz Languages") from January 1983 to September 1993. Mr. Fernandez was
first employed by Berlitz Languages in 1963 and served in various positions
until becoming a Vice President in 1983. Mr. Fernandez has served as a Director
of the Company since July 1993. He is currently a member of the Executive
Committee.

ROBERT MINSKY, 52

Mr. Minsky has served as Executive Vice President and Chief Operating
Officer, Translations and Publishing of the Company since January 1, 1995. Prior
thereto, he served as Executive Vice President, Translations of the Company from
October 1, 1993 to January 1995, and as Chief Financial Officer of the Company
from November 1990 to January 1995. From November 1990 to October 1993, he also
served as a Vice President of the Company. Mr. Minsky has served as a Director
of the Company since April 1991. He is currently a member of the Executive
Committee.

SUSUMU KOJIMA, 54

Mr. Kojima has served as Executive Vice President, Asia Division of the
Company since January 1, 1996. Prior thereto, he served as Executive Vice
President, Corporate Planning from September 1993 to December 1995, and as
Senior Vice President, Corporate Planning of the Company from February 1993 to
September 1993. Mr. Kojima has served as a Director of Benesse since March 1993.
Prior to that, he was Joint General Manager of the Business Development
Department of The Industrial Bank of Japan, Limited ("I.B.J.") from June 1991 to
February 1993. Between November 1987 and June 1991, he served as Senior Deputy
General Manager, Industrial Research Department of I.B.J. after having served as
Chief Representative of I.B.J.'s Washington Representative Office from September
1983. Mr. Kojima was elected as a Director of the Company in February 1993. He
is currently a member of the Executive Committee.

ARITOSHI SOEJIMA, 70

Mr. Soejima served as Senior Counselor of Benesse from December 1980 until
his appointment as a member of the Disinterested Directors and Compensation
Committees of the Company. From 1950 to

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1981, Mr. Soejima served in various positions with the Japanese government
(including the Ministry of Finance) and multilateral financial institutions
(including the World Bank and International Monetary Fund). Mr. Soejima also
currently serves as Chairman of Osaka, Tokyo Bay, Nagoya Hilton Company, Ltd.,
and Director and Counselor of Capital International Company, Ltd. and as special
advisor to the Board of Directors of the Nippon Fire & Marine Insurance Company,
Ltd. In addition, he serves on the Board of Directors of a number of companies,
private foundations and associations in Japan. Mr. Soejima became a Director of
the Company in February 1993. He is currently a member of the Audit Committee,
the Compensation Committee and the Disinterested Directors Committee.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE FIVE
DIRECTORS NAMED ABOVE.

INCUMBENT DIRECTORS--TERMS EXPIRE IN 1998

HIROMASA YOKOI, 57

Mr. Yokoi was elected Vice Chairman of the Board and Chief Executive Officer
of the Company in February 1993 and additionally was elected President effective
on August 31, 1993. Mr. Yokoi has served as a director of Benesse since June
1992 and Director for Berlitz and North American Sector since April 1994. Prior
to that, he served as General Manager of the Overseas Operations Division
(formerly the International Division) of Benesse from October 1990 to March 1994
and as General Manager of the President's Office of Benesse from July 1990 to
September 1990. Mr. Yokoi also serves on the Board of Directors of La Petite
Academy and serves on its compensation committee. Mr. Yokoi has served as a
Director of the Company since January 1991. He is currently a member of the
Executive Committee.

HENRY D. JAMES, 59

Mr. James has served as Executive Vice President and Chief Financial Officer
of the Company since November 21, 1995, and as its Vice President and Chief
Financial Officer from January 1995 to November 1995. He previously served as
Vice President and Controller of the Company and its predecessor, Berlitz
Languages, since 1981. Mr. James joined Berlitz Languages in 1977 and served as
Controller with that company prior to 1981. Mr. James has served as a Director
of the Company since November 1995.

EDWARD G. NELSON, 65

Since January 1985, Mr. Nelson has served as Chairman and President of
Nelson Capital Corporation. From 1983 to 1985, he was Chairman and Chief
Executive Officer of Commerce Union Corporation. He also serves on the Board of
Directors of ClinTrials, Inc., Osborn Communications Corporation, Central
Parking System and Advocat, Inc. He is a trustee of Vanderbilt University. Mr.
Nelson became a Director of the Company in February 1993. He is currently a
member of the Audit Committee, the Compensation Committee and the Disinterested
Directors Committee.

ROBERT L. PURDUM, 61

Mr. Purdum is the retired Chairman of the Board of Armco, Inc. and currently
is an independent consultant and partner with American Industrial Partners, a
private investment company with offices in New York and San Francisco. During
his Armco career, he served in various positions since first joining Armco in
1962, including Chairman and Chief Executive Officer (November 1990 to December
1993),

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President and Chief Executive Officer (April 1990 to November 1990), President
(October 1986 to April 1990), Chief Operating Officer (February 1985 to October
1986) and Chief Executive Officer-Steel Group (November 1982 to February 1985).
Mr. Purdum has also served on the Board of Directors of Holophane Corporation
since 1994. In addition, he has been a member of the Board of Trustees of GMI
Engineering and Management Institute since 1991 and is chairman of their
Investment Committee. Mr. Purdum has served as a Director of the Company since
August 1994. He is currently a member of the Audit Committee, the Compensation
Committee and the Disinterested Directors Committee.

KAZUO YAMAKAWA, 57

Mr. Yamakawa has served as a Director of Benesse and has supervised its
General Administration and Accounting Departments since June 1995. He also has
served as General Manager of Benesse's Accounting Department since January 1996.
Since joining Benesse in April 1995, he served as Counselor until June 1995.
Prior to that, Mr. Yamakawa served in various positions with The Shokochukin
Bank, including Director (April 1993 to March 1995), General Manager of its
Tokyo branch (April 1993 to March 1995), General Manager of its International
Department (October 1991 to March 1993) and General Manager of its New York
Branch (April 1988 to September 1991). Mr. Yamakawa became a Director of the
Company in May 1996.

1996 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND FEES

During 1996, the Board of Directors of the Company met in person four times,
participated in one telephonic meeting and took no actions by unanimous written
consent.

In 1996, the Board of Directors had standing Executive, Audit, Disinterested
Directors, and Compensation Committees. The Company does not have a standing
Nominating Committee.

The Executive Committee, during the intervals between meetings of the Board
of Directors, may, with certain exceptions, exercise the powers of the Board of
Directors. The Executive Committee did not meet during 1996.

The Audit Committee recommends to the Board of Directors the engagement of
the independent auditors of the Company and reviews with the independent
auditors the scope and results of the Company's audits. The Audit Committee
reviews the terms of all agreements between the Company and its affiliates. The
Audit Committee meets with management and with the Company's internal auditors
and independent auditors to review matters relating to the quality of financial
reporting and internal accounting control, including the nature, extent and
results of their audits, and otherwise maintains communications between the
Company's independent auditors and the Board of Directors. The Audit Committee
met four times during 1996.

The Disinterested Directors Committee reviews and monitors all matters
affecting the relationship between the Company and Benesse and its affiliates.
During 1996, the Disinterested Directors Committee met in person two times and
participated in one telephonic meeting.

The Compensation Committee reviews performance of corporate officers,
establishes overall employee compensation policies and recommends to the Board
of Directors major compensation programs. The Compensation Committee also
reviews and approves salary arrangements and other remuneration for executive
officers of the Company and is responsible for review of certain employee
benefit plans. The Compensation Committee oversees and approves grants of stock
options and other stock-based

4
<PAGE>
awards pursuant to the 1989 and 1996 Stock Option Plans (individually, the "1989
Stock Option Plan" and the "1996 Stock Option Plan", and collectively, the
"Stock Option Plans") and the Company's Non-Employee Directors' Stock Plan (the
"Directors' Stock Plan"). The Committee also administers the 1993 Short-Term
Executive Incentive Compensation Plan (the "Short-Term Incentive Plan"), and the
1996 New Long-Term Executive Incentive Compensation Plan (the " New LTIP"),
which replaced the 1993 Long-Term Executive Incentive Compensation Plan (the
"Old LTIP"), and approves awards and discretionary bonuses under these plans. No
member of the Compensation Committee is eligible to participate in the Stock
Option Plans or the Short-Term Incentive Plan. During 1996, the Compensation
Committee met four times and participated in telephonic meetings one time.

The Company's standard retainer payable to each director who is not an
employee of the Company or any of its affiliates is $30,000 per annum plus
expenses, with an additional $2,000 for each Committee meeting attended in
person and $1,000 for each meeting participated in by telephone. No fees are
paid for actions taken by unanimous written consent. Only those directors who
are also full-time employees of the Company or any of its affiliates are
eligible to participate in the health benefit plan maintained by the Company.
Directors employed by the Company or any of its affiliates receive no
compensation in consideration of their duties as directors. The outside
directors earned an aggregate of approximately $146,000 as cash compensation for
their services during 1996.

The Company has entered into indemnification agreements with each director
pursuant to which the Company agreed to pay any amount such director becomes
obligated to pay as a result of any claims made against such director because of
any alleged act, omission, neglect or breach of duty which he commits while
acting in his capacity as a director and solely because of his being a director,
subject to limitations imposed by the New York Business Corporation Law
("NYBCL").

5
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth the number of outstanding shares of Common
beneficially owned as of March 1, 1997 (unless otherwise noted) by each
director, nominee, the Company's chief executive officer during the fiscal year
ended December 31, 1996, the four most highly compensated executive officers of
the Company at December 31, 1996 and all officers and directors as a group who
served at December 31, 1996. If not mentioned by name, no individual in the
categories described above beneficially owned any shares of Common as of March
1, 1997. No security set forth in the third column of the following table
reflects an amount as to which the beneficial owner has joint voting or
investment power.

<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
TITLE OF NAME OF BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS(4)
- ------------ ------------------------------------------------------------------------ ---------- -----------
<S> <C> <C> <C>
Common Soichiro Fukutake....................................................... 6,985,338(1) 72.34%
Common Manuel Fernandez........................................................ 8,745 *
Common Robert Minsky........................................................... 2,857 *
Common Henry D. James.......................................................... 7,672 *
Common Edward G. Nelson........................................................ 1,500(2) *
Common Robert L. Purdum........................................................ 2,000 *
Common All Officers and Directors as a Group 7,027,746(3) 72.78%
(14 in number)..........................................................
</TABLE>

To the best of registrant's knowledge, there are no events of delinquent
filing requiring disclosure under Item 405 of Regulation S-K.

- ------------------------

(1) Soichiro Fukutake is the President, Representative Director and principal
shareholder of Benesse Corporation, which is the beneficial owner of these
shares of Common. See "Security Ownership of Certain Beneficial Owners." The
ownership amount is presented as of May 14, 1997, the anticipated closing
date for the FHAI Share Purchase (hereinafter defined).

(2) An additional 1,000 shares of Common, for which Mr. Nelson has disclaimed
ownership, are owned by Mr. Nelson's wife.

(3) Includes the anticipated share ownership of Benesse Corporation at May 14,
1997.

(4) Computed based on 9,656,013 Common shares outstanding. See "Security
Ownership of Certain Beneficial Owners."

* Less than 1%

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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth the ownership by each person or group known
by the Company to own beneficially more than 5% of Common:

<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS(3)
- ------------ -------------------------------------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Common Benesse Corporation (1)................................................... 6,985,338 72.34%
3-17-17 Minamigata
Okayama-shi 700, Japan

Common Dimensional Fund Advisors, Inc (2)........................................ 507,672 5.26%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>

- ------------------------

(1) Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
April 1, 1995.

On April 17, 1997, the Disinterested Directors Committee of the Company's
Board of Directors approved the sale of 250,000 shares of Common to Fukutake
Holding (America) Inc. ("FHAI"), a wholly owned subsidiary of Benesse. The
sale is expected to be consummated on or about May 14, 1997. See "Certain
Relationships and Related Transactions." Following the consummation of this
transaction, 6,972,138 shares of Common will be held by FHAI, and 13,200
shares of Common will be held directly by Benesse. Soichiro Fukutake is the
President, Representative Director and principal shareholder of Benesse.

(2) This information is taken from the Schedule 13G, dated February 5, 1997,
filed by Dimensional Fund Advisors, Inc. ("Dimensional") with the Securities
and Exchange Commission. Dimensional, a registered investment advisor, is
deemed to have beneficial ownership of these 507,672 shares of Common at
December 31, 1996, all of which are held in portfolios of DFA Investment
Dimensions Group, Inc., a registered open-end investment company, or in
series of the DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and DFA Participation Group Trust, investment vehicles
for qualified employee benefit plans, all of which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.

(3) Computed based on 9,656,013 Common shares outstanding immediately subsequent
to the sale of 250,000 shares of Common to FHAI.

On April 4, 1996, the Company consummated the purchase of 627,000 shares of
Common from Maxwell Communication Corporation, plc (In Administration) ("Maxwell
Communication") at a price of $9 per share. These shares were previously held in
escrow pursuant to an Escrow Agreement among the Company, Maxwell Communication
and IBJ Schroder Bank & Trust Company, and subject to a Stock Purchase Agreement
between the Company and Maxwell Communication. These shares were placed into
treasury by the Company. 250,000 of these shares were used for sale to FHAI (see
Note 1 above), and it is currently anticipated that 377,000 of these shares will
be reserved for use under the 1996 Stock Option Plan (see "Approval of the 1996
Stock Option Plan").

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<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following Summary Compensation Table sets forth the compensation awarded
to, earned by or paid to the Chief Executive Officer ("CEO") and certain
executive officers (collectively, the "Named Executive Officers") during the
fiscal years ended December 31, 1996, 1995 and 1994 for services rendered in all
capacities to the Company and its subsidiaries.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (3)
------------------------------------- ---------------
OTHER AWARDS OF
ANNUAL OPTIONS/ ALL OTHER
NAME AND SALARY BONUS COMPENSATION SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (2) (#) (4) ($) (5)
- ------------------------------------------ --------- --------- --------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>

Hiromasa Yokoi............................ 1996 480,000 84,000 60,469 None 9,750
Vice Chairman of the Board, 1995 444,800 180,000 55,200 None 9,750
CEO and President 1994 404,320 161,700 39,000 None 9,750

Manuel Fernandez.......................... 1996 240,000 40,900 990 None 9,750
Executive Vice President and Chief 1995 224,800 51,000 1,312 None 9,750
Operating Officer, Worldwide Language 1994 207,200 72,500 20,978 None 9,750
Instruction

Robert Minsky............................. 1996 240,000 10,000 874 None 9,750
Executive Vice President and Chief 1995 227,900 80,000 None None 9,750
Operating Officer, Translations and 1994 207,200 46,600 None None 9,750
Publishing

Susumu Kojima............................. 1996 225,000 8,700 65,000 None None
Executive Vice President, Asia Division 1995 210,000 25,200 42,000 42,000 None 9,750
1994 200,000 45,000 None 9,500

Henry D. James (1)........................ 1996 210,000 32,000 771 None 9,750
Executive Vice President and Chief 1995 182,300 51,000 None None 9,750
Financial Officer 1994 168,000 78,800 None None 9,750
</TABLE>

- ------------------------

(1) Mr. James' 1996 percentage increase in base salary was due in part to the
additional responsibilities he assumed as a result of his promotion to
Executive Vice President.

(2) Other Annual Compensation for Mr. Yokoi and Mr. Kojima primarily represents
monthly housing allowances. For Mr. Fernandez, this column includes
relocation expense reimbursements of $19,795 in 1994.

(3) The column designated by the SEC to report Long-Term Incentive Plan Payouts
has been excluded because no payouts have been made in 1994, 1995 or 1996
under the Company's long-term incentive plans, as discussed in the
Compensation Committee report under "Long-Term Executive Incentive
Compensation Plan".

The column designated by the SEC to report Restricted Stock Awards has been
excluded because the Company made no awards of restricted stock to the Named
Executive Officers during any portion of fiscal years 1996, 1995 or 1994.
There were no Common restricted shares outstanding at December 31, 1996.

(4) The Company has not granted stock options or SARs to any of the Named
Executive Officers during fiscal years 1996, 1995 or 1994. There have been
no exercises of options or SARs for the fiscal year 1996, and at December
31, 1996, there were no options or SARs outstanding.

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<PAGE>
(5) The amounts reported in this column for the fiscal year 1996 include a
contribution of $4,500 made by the Company for the account of each Named
Executive Officer pursuant to the thrift portion (the "401(k) Plan") of the
Berlitz Retirement Savings Plan (the "Retirement Savings Plan"). The amounts
reported also include a contribution of $5,250 made by the Company for the
account of each Named Executive Officer pursuant to the retirement portion
(the "Pension Plan") of the Retirement Savings Plan.

PENSION PLAN TABLE

The Company's Supplemental Executive Retirement Plan ("SERP"), effective
January 1, 1996, is a defined benefit plan which currently provides retirement
income/disability retirement benefits, retiree medical benefits and death
benefits to certain designated executives and their designated beneficiaries.
The following table shows the estimated annual retirement income/disability
retirement benefits (assuming payments made on the normal life annuity) payable
upon retirement at age 60 to a participant in specified compensation and years
of service classifications.

<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------
<S> <C> <C> <C> <C>
INITIAL
PARTICIPANT
(HEREINAFTER
DEFINED) ALL OTHER PARTICIPANTS
----------- ---------------------------------
COMPENSATION 5 OR MORE 5 10 15 OR MORE
- -------------------------------------------------- ----------- --------- --------- -----------
$100,000.......................................... $ 30,000 $ 10,000 $ 20,000 $ 30,000
150,000.......................................... 45,000 15,000 30,000 45,000
200,000.......................................... 60,000 20,000 40,000 60,000
250,000.......................................... 75,000 25,000 50,000 75,000
300,000.......................................... 90,000 30,000 60,000 90,000
400,000.......................................... 120,000 40,000 80,000 120,000
550,000.......................................... 165,000 55,000 110,000 165,000
750,000.......................................... 225,000 75,000 150,000 225,000
</TABLE>

Under the SERP, monthly benefits are available to any participant who
retires at age 60 or above, with at least 5 years of service with the Company.
The retirement income/disability retirement benefits are based on a percentage
of an average monthly salary (calculated on the base salary and short-term
bonuses paid over the last 36 months of employment) and will be paid to the
retired participant for life, with 50% of such benefit paid to the participant's
surviving spouse for life upon the retired participant's death. Such percentage
for participants designated as of January 1, 1996 ("Initial Participants") is
30%. For future participants, such percentage will be 2% (or such other
percentage as the Board of Directors may determine) multiplied by years of
service, not to exceed 30%. The Company will also provide each retired
participant and their surviving spouse with medical coverage for both of their
lives. If a participant with at least 5 years of service dies before retirement,
the participant's designated beneficiary will receive, in lieu of the
above-mentioned benefits, a one-time payment equal to the participant's base
salary projected to age 65 at a 4% annual increase. Awards under the SERP are
not subject to deduction for Social Security or other offset amounts, except to
the extent of any disability benefits payable under the Company's long-term
disability insurance policy. The Company intends to fund the SERP through a
combination of funds generated from operations and life insurance policies on
the participants.

The Named Executive Officers, all of whom are Initial Participants, will
each have at least 5 years of service at age 60. The compensation covered under
the SERP for each of the Named Executive Officers is shown under the "Salary"
and "Bonus" columns of the Summary Compensation Table.

9
<PAGE>
Mr. Fukutake, the Chairman of the Board, was previously a participant in the
SERP. Since he does not receive a salary from the Company, the SERP benefits
were based on an imputed salary determined by the Company's Board of Directors.
On April 17, 1997, the Disinterested Directors and Compensation Committees of
the Company's Board of Directors approved the issuance on June 30, 1997 of
50,000 non-qualified stock options to Mr. Fukutake, in exchange for the
relinquishment of all future benefits under the SERP. See "Approval of 1996
Stock Option Plan."

LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1996

The following awards were made pursuant to the New LTIP (hereinafter
defined), which completely replaced the Old LTIP (hereinafter defined). See the
"Compensation Committee Report" for a further description.

<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLANS
-----------------------------------
<S> <C> <C> <C> <C> <C>
PERFORMANCE
PERIOD
NUMBER OF UNTIL THRESHOLD TARGET MAXIMUM
NAME UNITS(#) PAYOUT ($)(1) ($) ($)
- ----------------------------------------------------- ----------- ----------- ----------- --------- -----------
Hiromasa Yokoi....................................... 882,223 12/31/98 441,112 441,112 882,223
Manuel Fernandez..................................... 330,834 12/31/98 165,417 165,417 330,834
Robert Minsky........................................ 330,834 12/31/98 165,417 165,417 330,834
Susumu Kojima........................................ 310,432 12/31/98 155,216 155,216 310,432
Henry D. James....................................... 230,481 12/31/98 115,241 115,241 230,481
</TABLE>

- ------------------------

(1) Assumes that minimum revenues and earnings goals are met. Should such goals
not be met, no payments will be made.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS

The Company has a severance agreement with Robert Minsky which provides that
if Mr. Minsky is terminated other than for cause, he is to be paid one year's
severance at his then current annual base salary plus a prorated amount of the
award under the Company's Short-Term Incentive Plan to which he would have been
entitled for such year and the continuation of certain other benefits.

The Company is a party to indemnification agreements with each director and
executive officer pursuant to which the Company agrees to pay, subject to
limitations imposed by the NYBCL, any amount such director or executive officer
becomes obligated to pay as a result of any claims made against such director or
executive officer because of any alleged act or omission or neglect or breach of
duty which he commits while acting in his capacity as a director or executive
officer, as the case may be.

COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1996

The Compensation Committee of the Board of Directors reviews and determines
the compensation of the Company's executive officers. It also reviews and
approves any employment, severance or similar agreements for executive officers.
The Committee determines the amount, if any, of the Company's contributions
pursuant to the Retirement Savings Plan, and oversees and approves grants of
stock options and other stock-based awards pursuant to the Stock Option Plans
and the Directors' Stock Plan. The Committee also administers the Short-Term
Incentive Plan and the New LTIP (which has replaced the Old LTIP) and approves
awards and discretionary bonuses under each of such plans.

10
<PAGE>
The Company seeks to compensate executive officers at levels competitive
with other companies with similar annual revenues and to provide incentives for
superior individual and corporate performance. Salaries are set to correspond to
the mid-range of salaries paid by competitive companies. In setting
compensation, the Company compares itself with companies with similar annual
revenues rather than with industry peers because the Company is the only
publicly-held language instruction company.

The key components of executive officer compensation are base salary, cash
bonuses, and awards pursuant to incentive-based plans. The Committee attempts to
combine these components in such a way to attract, motivate and retain key
executives critical to the long-term success of the Company. A discussion of the
various components of executive compensation for the fiscal year 1996 follows.

BASE SALARY

Each executive officer receives a base salary, with the potential for annual
salary increases based largely on merit from prior annual performance.

The proposed annual compensation of Company employees was discussed at two
Compensation Committee meetings, one held in each of 1995 and 1996. Base salary
recommendations were made by management of the Company for the Committee to
approve. After review and consideration by the Committee of management's
recommendations, the Committee approved base salary adjustments for executive
officers considering individual and Company performance. Such adjustments
averaged 8.9% and 3.3% for 1996 and 1997, respectively. The criteria used to
evaluate Company performance were sales and earnings figures, and return on
equity. The Committee believes that all such criteria were accorded equal
weight.

BONUSES

In 1993, the Committee approved the Short-Term Incentive Plan, commencing
with the 1993 calendar year, pursuant to which each executive officer is
eligible for an annual bonus based upon the officer's present employment
position, individual performance, and, through 1994, the total Company's
performance compared to earnings goals. In 1995, the Committee amended the
Short-Term Incentive Plan so that Division Vice Presidents would receive 1995
and subsequent years' awards based on 60% of divisional performance and 40% of
total Company performance. The Committee believes that individual performance
and Company performance are given approximately equal weight. The Short-Term
Incentive Plan also permits the Committee to award discretionary cash awards to
employees, who may or may not be participants under the Short-Term Incentive
Plan, subject to those terms and conditions as the Committee shall determine in
its sole discretion.

At its March 1997 meeting, the Committee approved, after discussion, 1996
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that accrued for 1996 ranged up to 24.4% of each executive officer's base
salary. The Committee also approved a discretionary special bonus proposal for
certain executive officers, recommended by management based upon exceptional
individual performance. Such special bonuses that accrued for 1996 for such
executive officers ranged from 2.1% to 4.2% of their total salary.

STOCK OPTIONS AND RESTRICTED STOCK

The 1989 Stock Option Plan provides for the award of stock options,
restricted stock and other stock-based awards to senior management of the
Company. Grants under this plan are intended to provide

11
<PAGE>
executives with the promise of longer-term rewards which appreciate in value
with favorable future performance of the Company. In determining grants of stock
options and restricted stock, the Compensation Committee reviews individual
performance and Company performance. The criteria used to evaluate Company
performance include sales and earnings figures, and return on equity. The
Committee believes that all such criteria are accorded equal weight. The
Committee did not approve, and the Company did not make, any grants of stock
options, restricted stock, or any other stock-based award under the 1989 Stock
Option Plan in 1996, and there are no outstanding option grants under this plan.

In September 1996, the Company adopted, subject to shareholder approval, the
1996 Stock Option Plan, which, together with the New LTIP (hereinafter
discussed), replaces the Company's Old LTIP. See "Approval of 1996 Stock Option
Plan" for further discussion.

LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLANS

In 1993, the Committee approved the Old LTIP, effective January 1, 1994,
pursuant to which the Chairman of the Board, officers and certain key employees
were eligible to receive, for each performance unit granted to the individual by
the Committee, cash awards based on Company performance and common stock price
results over a five year period ending on December 31, 1998. The plan was
instituted to, among other things, provide executives with a direct economic
interest in meeting long-term business objectives. Performance units were
granted by the Committee to each participant in its discretion. Criteria used to
evaluate Company performance were earnings and sales figures. For each
performance unit granted by the Committee, each participant was to receive a
cash award based on Company performance and the Company's common stock price
results from January 1, 1994 through December 31, 1998. The Old LTIP also
contained provisions governing such awards in the event of a change of control
of the Company or a "going private" transaction with Benesse or its affiliates.

In September 1996, the Committee adopted the New LTIP, which together with
the 1996 Stock Option Plan, replaces the Old LTIP. The New LTIP provides for
potential cash awards in 1999 to key executive employees and the Chairman of the
Board of the Company if certain sales and earnings goals are met for the year
ended December 31, 1998. Common stock price does not have an impact on potential
awards, which may not exceed $5.0 million in the aggregate. While the New LTIP's
minimum threshold for potential awards is lower than under the Old LTIP, the Old
LTIP did not contain a limitation on maximum awards.

OTHER COMPENSATION

The executive officers also are eligible to participate in the Pension Plan.
The Pension Plan provides for the Company to make regular contributions based on
salaries of eligible employees. During 1996, the Compensation Committee
determined that the Company would contribute 3.5% of eligible employees'
respective base salary to the Pension Plan. During 1996, the Compensation
Committee also determined that matching contributions by the Company would be
provided under the 401(k) Plan to all domestic employees up to a maximum of 3%
of the employee's salary.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Hiromasa Yokoi's base salary for 1996 was $480,000, and he also earned a
bonus of $84,000 for 1996 under the Short-Term Incentive Plan. The Compensation
Committee approved and ratified the compensation paid to Mr. Yokoi for fiscal
year 1996 based on Mr. Yokoi's business experience and

12
<PAGE>
familiarity with the Company, and his responsibilities to guide, among other
things, the Company's daily affairs and the Company's long-term strategic plan
in a global marketplace. The Company's 1996 performance was taken into
consideration in determining Mr. Yokoi's 1996 compensation package. The
Committee believes that Mr. Yokoi's 1996 compensation package was in line with
compensation packages of chief executive officers of other companies with
similar annual revenues.

TAX LEGISLATION

The Committee has reviewed regulations issued by the U.S. Internal Revenue
Service which limit deductions for certain compensation in excess of $1 million
annually paid to executive officers of public companies. Based on present levels
of compensation, the Company does not anticipate the loss of deductibility for
any compensation paid over the next year.

COMPENSATION COMMITTEE MEMBERSHIP

During 1996, the Compensation Committee consisted of Edward G. Nelson,
Robert L. Purdum and Aritoshi Soejima. All of the views expressed by the
Compensation Committee in 1996 may not have been the views of each member of the
Compensation Committee individually. However, all decisions affecting
compensation were approved by all of the members of the Compensation Committee.

Compensation Committee for Fiscal Year 1996

Edward G. Nelson

Robert L. Purdum

Aritoshi Soejima

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As discussed above, during 1996 and at March 1, 1997, the Compensation
Committee consisted of Edward G. Nelson, Robert L. Purdum and Aritoshi Soejima.
None of these committee members were officers of the Company or any of its
subsidiaries during 1996 or any previous year.

Mr. Fukutake serves as the Chairman of the Board of the Company. In addition
to his role in presiding over board meetings, Mr. Fukutake is actively involved
in creating and monitoring strategies for the Company's global growth. In
consideration of the significant time and effort spent by Mr. Fukutake in
monitoring long-term strategies for the Company, apart from his duties as
Chairman of the Board, the Compensation Committee (with Mr. Fukutake absent),
upon recommendation of management and after discussion, approved at various
meetings the following: i) in 1993, the inclusion of Mr. Fukutake as a
participant in the Long-Term Incentive Plan; ii) in 1995, the inclusion of Mr.
Fukutake as a participant in the SERP and the granting of additional performance
units to Mr. Fukutake under the Long-Term Incentive Plan; iii) in 1996, the
inclusion of Mr. Fukutake in the 1996 Stock Option Plan; and iv) in 1997, the
issuance of an additional 50,000 options under the 1996 Stock Option Plan to Mr.
Fukutake in exchange for his complete relinquishment of benefits under the SERP.

Aritoshi Soejima previously served as an advisor to Benesse. He resigned
such position prior to his appointment as a Disinterested Director and a member
of the Compensation Committee.

13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Kazuo Yamakawa currently serves as the Benesse nominee on the Board of
Directors of the Company pursuant to the acquisition by Benesse in January 1991
of a 20% interest in Berlitz Japan, Inc. ("Berlitz-Japan"), a subsidiary of the
Company.

On December 9, 1992, the Company and Benesse entered into a merger agreement
pursuant to which Benesse agreed to acquire, through a merger of the Company
with an indirect wholly owned U.S. subsidiary of Benesse (the "Merger"),
approximately 6.7 million shares of the Common. Subsequent to the Merger, public
shareholders of the Company held the remaining outstanding Common. Mr. Soichiro
Fukutake is the President, Representative Director and principal shareholder of
Benesse.

In September 1994, the Company borrowed $20.0 million from a U.S. subsidiary
of Benesse, as evidenced by a subordinated promissory note (the "U.S. Note")
bearing interest at a rate of 6.93% per annum. In 1994, Berlitz-Japan also
borrowed Y1.0 billion (approximately $10.1 million) from Benesse as evidenced by
an interest-free subordinated promissory note (the "Japan Note"). In March 1996,
the Company received the proceeds of a $6.0 million subordinated promissory note
payable to a U.S. subsidiary of Benesse (the "FHAI Note"), bearing interest at a
rate of the six month LIBOR plus 1% per annum, reset semi-annually. Such notes,
(collectively, the "Benesse Notes") mature on the earlier of June 30, 2003 or
twelve months from the date that all payment obligations under a bank term loan
and senior notes established in connection with the Merger (the "Acquisition
Debt Facilities") have been satisfied. To the extent that interest payments on
the U.S. or FHAI Notes are not permitted while any amounts remain outstanding
under the Acquisition Debt Facilities, such accrued interest will roll over
semiannually into the note principal. The Company recorded $1.8 million in
interest expense on the Benesse Notes in 1996.

The Benesse Notes rank PARI PASSU with one another and are subordinate in
rights of payment to debt under the Acquisition Debt Facilities, including the
currency coupon swap agreements. Payment obligations under the U.S. Note are
guaranteed by the Company and its significant U.S. subsidiaries, subject to
senior guarantees of the Acquisition Debt Facilities. The Company and its
significant U.S. subsidiaries have also executed a guarantee of payment
obligations under the Japan Note, effective as of the day following the date
upon which all payment obligations under the Acquisition Debt Facilities are
satisfied.

The Company and Benesse maintain a joint Directors and Officers ("D&O")
insurance policy covering acts by directors and officers of both Benesse and the
Company. Consequently, the premium on the D&O policy is allocated 60% to Benesse
and 40% to the Company, except for, commencing in 1997, the premium for entity
coverage which benefits the Company only and is allocated 100% to the Company,
resulting in a total D&O allocation of 57% to Benesse and 43% to the Company.
Since May 1995, the Company has also maintained a stand-alone Employment
Practices Liability ("EPL") insurance policy covering the Company, its officers
and directors (including the Benesse directors who are also directors of the
Company). The premium on the EPL policy is allocated 30% to Benesse and 70% to
the Company.

The Company and Benesse participated in certain other joint business
arrangements during 1996, in the ordinary course of business, including the
following: i) pursuant to an extended industrial block contract renewed in 1996
for a prepayment of Y10.0 million (approximately $90,000), Berlitz-Japan
provided lessons to Benesse at an industrial lesson rate which was approximately
20% below the rate charged for individual instruction; ii) pursuant to a
services agreement, Benesse periodically offered its customers language and
homestay programs arranged and operated by the Company's specialty instruction

14
<PAGE>
program, Berlitz Study Abroad-Registered Trademark-; and iii) Benesse also
periodically offered its customers language study and homestay programs arranged
and operated by Berlitz on Campus-TM-, another of the Company's specialty
instruction programs.

On April 29, 1997, the Company and FHAI signed a definitive contract whereby
the Company agreed to sell to FHAI 250,000 shares of Common (the "FHAI Share
Purchase") at $24.44 per share, the average market price for the ten days ending
on April 29, 1997. This transaction is anticipated to be consummated by May 14,
1997. The Company will use 250,000 of its treasury shares to complete this
transaction, which is a private placement exempt from registration under the
Securities Act of 1933. It is expected that proceeds of the sale will be used
for general corporate purposes. Following this private placement, Benesse will
beneficially own 6,985,338 shares, or 72.34%, of the 9,656,013 shares of Common
then outstanding.

Management believes that the Company has entered into all such agreements on
terms no less favorable than it would have received in an arms-length
transaction with independent third parties. Each of the transactions with
Benesse and its subsidiaries entered into after the Merger was approved by the
Disinterested Directors Committee.

15
<PAGE>
PERFORMANCE GRAPHS

The following graphs set forth the Company's total shareholder return as
compared to the S&P 400 Industrial Index and two peer groups (described below)
over a five-year period, beginning on December 31, 1991, and effectively ending
on December 31, 1996. The total shareholder return assumes $100 invested at the
beginning of the period in the Company's common stock, the S&P 400 Industrial
Index and the peer group indices. It also assumes reinvestment of all dividends.

As the Company is the only publicly-held language instruction company, there
are no directly comparable companies. The two closest industry groups to the
Company are education companies and educational publishers. Therefore, the
Company has created an index of selected publicly-held companies in each of
these two industries. These indices have been plotted against the Company's
total shareholder return and the S&P 400 Industrial Index. The companies
included in the education companies index are Flightsafety International, which
sells primarily flight training materials, and National Education Corporation,
which sells primarily technical and vocational training materials. The companies
included in the educational publishing index are Houghton Mifflin, John Wiley &
Sons and McGraw-Hill, Inc. While none of these companies are directly comparable
to the Company, the Company believes they come under either the same broad
rubric of education-related activities as the Company, in the case of the
education companies index, or educational publishers, in the case of the
educational publishing index.
COMPARISON OF STOCK PRICES
BERLITZ INTERNATIONAL, INC., THE S&P 400 INDUSTRIAL INDEX
AND SELECTED EDUCATION COMPANIES

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
BERLITZ S&P 400 INDEX EDUCATIONAL PUBLISHING COMPANIES
<S> <C> <C> <C>
1991 100 100 100
1992 111 103 89
1993 70 110 73
1994 66 111 80
1995 84 146 105
1996 105 177 115
</TABLE>

- ------------------------

(1) As a result of the Merger, each share of the Company's common stock
outstanding prior to the Merger ("Old Common") was converted into the right
to receive i) $19.50, ii) 0.165 share of Common, iii) $1.48, representing
the net proceeds from the disposition of the Company's claims on promissory
notes from Maxwell Communication and certain of its affiliates (the "Maxwell
Notes"), and iv) $0.01, representing consideration paid for the redemption
of each Right under the Shareholders Rights Agreement. Immediately following
the Merger, 10,033,013 shares of Common were outstanding. Prior to the
Merger, 19,075,584 shares of Old Common were outstanding.

16
<PAGE>
COMPARISON OF STOCK PRICES
BERLITZ INTERNATIONAL, INC., THE S & P 400 INDUSTRIAL INDEX,
AND SELECTED EDUCATIONAL PUBLISHING COMPANIES

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
BERLITZ S&P 400 INDEX EDUCATIONAL PUBLISHING COMPANIES
<S> <C> <C> <C>
1991 100 100 100
1992 111 103 113
1993 70 110 127
1994 66 111 127
1995 84 146 159
1996 105 177 173
</TABLE>

- ------------------------

APPROVAL OF THE 1996 STOCK OPTION PLAN

DESCRIPTION OF THE 1996 STOCK OPTION PLAN

The 1996 Stock Option Plan (hereinafter referred to as the "Plan") has been
established for the purpose of providing an equity-based incentive to maintain
and enhance the performance and profitability of the Company. The Plan is
effective as of September 16, 1996, subject to approval by the Company's
shareholders. Together with the Company's New LTIP, the Plan replaces the
Company's Old LTIP. Set forth below is a summary of the Plan. This summary is
not complete and is qualified in its entirety by the terms of the Plan.

The Plan authorizes the issuance of non-qualified stock options to
directors, officers and key employees of the Company. (See "New Plan Benefits").
Subject to adjustments upon changes in capitalization, the total number of
shares for which options may be granted is 377,000 (increased from 300,000 in a
preliminary version) and no employee may be granted options for more than
125,000 shares in any one

17
<PAGE>
calendar year. Shares subject to issuance under the Plan may be authorized and
unissued or treasury shares of the Company's common stock. The Company plans to
reserve 377,000 of its treasury shares for use under the Plan.

Options granted under the Plan are evidenced by written agreements ("Plan
Agreements"). Unless otherwise provided for under a Plan Agreement: i) options
granted on or prior to June 30, 1997 will become fully exercisable on January 1,
1999 (but may not be exercised prior to that date); ii) all other options
granted will become fully exercisable on the third anniversary of the date of
grant (but may not be exercised prior to that date); iii) all options, once
exercisable, shall remain fully exercisable through the day prior to the seventh
anniversary of the date of grant, at which point they expire; and iv)
unexercised options shall expire upon the grantee's termination of service with
the Company, except for terminations due to death, disability, retirement after
age 60, or termination by the Company other than for Cause (as defined in the
Plan). If a grantee's service terminates by reason of death, disability,
retirement after age 60, or if a grantee's service is terminated by the Company
other than for Cause, options may be exercised notwithstanding such termination
of employment until the date on which such options terminate or expire in
accordance with the terms of the Plan and the Plan Agreement.

The Plan is administered by the Compensation Committee of the Company's
Board of Directors. It is intended that the Compensation Committee shall be (i)
"non-employee directors" within the meaning of Rule 16b-3 of the Exchange Act
(hereinafter defined) and (ii) "outside directors" within the meaning of Section
162(m) of the Code (hereinafter defined). Subject to the terms of the Plan, the
Compensation Committee will have authority to determine when and to whom to make
grants under the Plan, the number of shares to be covered by the grants, the
types and terms of options, and the exercise price of options and to prescribe,
amend and rescind rules and regulations relating to the Plan. The Compensation
Committee may, in its discretion, with the grantee's consent, cancel any award
under the Plan and issue a new award in substitution therefor. In addition, the
Plan provides that upon a change in control (as defined in the Plan), the
Compensation Committee, in its discretion, may accelerate the exercisability of
any outstanding options, provide for cash payment to the option grantees (which
payment may be deferred by the Compensation Committee until the Expiration Date
(as defined in the Plan)), or require any acquiring or successor corporation to
assume the option or provide benefits of equivalent value to the option
grantees.

The Company's Board of Directors may amend, alter, suspend, discontinue or
terminate the Plan at any time, provided that no such modification shall be made
without shareholder approval if such approval is necessary to comply with any
tax or regulatory requirement. In addition, the Compensation Committee may waive
any conditions or rights under, amend any terms of, or alter, suspend,
discontinue, cancel or terminate any option, provided that no such modification
that would impair the rights of any grantee or beneficiary of an outstanding
option shall be effective without the consent of the person to whom such award
was made.

NEW PLAN BENEFITS

Subject to shareholder approval of the 1996 Stock Option Plan, the Company
has agreed to grant 327,200 options on June 30, 1997 at an exercise price equal
to the closing price of the Company's common stock on the New York Stock
Exchange on the date of grant. On May 9, 1997, the latest date for which
information is available, the closing price of the Company's common stock was
$23.50. The following table provides information with respect to the proposed
option grants to the Named Executive Officers and other participants in the
plan.

18
<PAGE>
1996 STOCK OPTION PLAN

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
NAME PRINCIPAL POSITION OPTIONS
- ------------------------------ -------------------------------------------------------------- -----------------

<S> <C> <C>
Hiromasa Yokoi................ Vice Chairman of the Board, 45,720
CEO and President

Manuel Fernandez.............. Executive Vice President and Chief Operating Officer, 19,800
Worldwide Language Instruction

Robert Minsky................. Executive Vice President and Chief Operating Officer, 19,800
Translations and Publishing

Susumu Kojima................. Executive Vice President, Asia Division 17,820

Henry D. James................ Executive Vice President and Chief Financial Officer 17,820
</TABLE>

<TABLE>
<S> <C>
All executive officers as a group (9 in number)............................. 181,920

Non-executive director...................................................... 100,250

Non-executive officer employee group (5 in number).......................... 45,030

Total participants (15 in number)........................................... 327,200
</TABLE>

The non-executive director referred to in the preceding table is Soichiro
Fukutake, Chairman of the Board of Directors. 50,000 of Mr. Fukutake's options
have been approved for grant in exchange for the complete relinquishment by Mr.
Fukutake of all benefits under the SERP. These 50,000 options are not
exerciseable prior to January 1, 1999, and expire on January 1, 2000.

FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE 1996 STOCK OPTION PLAN

The following is a summary of the Federal income tax consequences of the
grant and exercise of options awarded under the Plan, and the disposition of
shares purchased pursuant to the exercise of such stock options. This summary is
intended to reflect the current provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and the regulations thereunder. This summary is not
intended to be a complete statement of applicable law, nor does it address state
and local tax considerations.

All options granted under the Plan are intended to be "nonqualified" stock
options ("NSOs") subject to Section 83 of the Code and are not entitled to
special tax treatment under Section 422 of the Code. No income will be realized
by an optionee upon grant of an NSO. Upon exercise of an NSO, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitation on
deductibility under sections 280G and 162(m) of the Code of compensation paid to
executives designated in these sections. The optionee's tax basis in the
underlying shares acquired by exercise of an NSO will equal the exercise price
plus the amount taxable as compensation to the optionee. Upon sale of the shares
received by the optionee upon exercise of the NSO, any gain or loss is generally
long-term or short-term capital gain or loss, depending on the holding period.
The optionee's holding period for shares acquired pursuant to the exercise of an
NSO will begin on the date of exercise of such option.

19
<PAGE>
Pursuant to currently applicable rules under section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the grant of an option
(and not its exercise) to a person who is subject to the reporting and
short-swing profit provisions under section 16 of the Exchange Act (a "Section
16 Person") begins the six-month period of potential short-swing liability. The
taxable event for the exercise of an option that has been outstanding at least
six months ordinarily will be the date of exercise. If an option is exercised by
a Section 16 Person within six months after the date of grant, however, taxation
ordinarily will be deferred until the date which is six months after the date of
grant, unless the person has filed a timely election pursuant to section 83(b)
of the Code to be taxed on the date of exercise. Pursuant to a recent amendment
to the rules under Section 16(b) of the Exchange Act, the six-month period of
potential short-swing liability may be eliminated if the option grant (i) is
approved in advance by the Company's board of directors (or a committee
comprised solely of two or more non-employee directors) or (ii) approved in
advance, or subsequently ratified by the Company's shareholders no later than
the next annual meeting of shareholders. Consequently, the taxable event for the
exercise of an option that satisfies either of the conditions described in
clauses (i) or (ii) above will be the date of exercise.

The payment by an optionee of the exercise price, in full or in part, with
previously acquired shares will not affect the tax treatment of the exercise
described above. No gain or loss generally will be recognized by the optionee
upon the surrender of the previously acquired shares to the Company, and shares
received by the optionee, equal in number to the previously surrendered shares,
will have the same tax basis as the shares surrendered to the Company and will
have a holding period that includes the holding period of the shares
surrendered. The value of shares received by the optionee in excess of the
number of shares surrendered to the Company will be taxable to the optionee.
Such additional shares will have a tax basis equal to the fair market value of
such additional shares as of the date ordinary income is recognized, and will
have a holding period that begins on the date ordinary income is recognized.

The foregoing constitutes a brief summary of the principal Federal income
tax consequences of the transactions based on current Federal income tax laws.
This summary is not intended to be exhaustive and does not describe state, local
or foreign tax consequences. Grantees in the Plan are urged to consult their own
tax advisors with respect to the consequences of their participation in the
Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE COMPANY'S
1996 STOCK OPTION PLAN.

RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS

On March 11, 1997, upon recommendation of the Audit Committee, the Board of
Directors selected Deloitte & Touche LLP to serve as independent accountants of
the Company for 1997. The Board of Directors proposes and recommends that the
shareholders ratify the selection of the firm of Deloitte & Touche LLP to serve
as independent accountants of the Company for 1997. Deloitte & Touche LLP has
served as the Company's independent accountants since 1993.

Unless otherwise directed by the shareholders, proxies will be voted for
approval of the selection of Deloitte & Touche LLP to audit the Company's
consolidated financial statements for the current year. A representative of
Deloitte & Touche LLP will attend the Meeting, and will have an opportunity to
make a statement if he or she so desires and to respond to appropriate
questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT ACCOUNTANTS FOR
1997.

20
<PAGE>
VOTE REQUIRED

Under the NYBCL, approval of each nominee for director requires the
affirmative vote of a plurality of the shares of Common represented and entitled
to be voted at the Meeting.

The vote occurring at the Meeting will be overseen by an inspector. The
inspector's duties include determining the number of shares represented at the
Meeting, counting all votes and ballots and certifying the determination of the
number of shares represented and the outcome of the balloting. The aggregate
number of votes entitled to be cast by all shareholders present in person or
represented by proxy at the Meeting will be counted for purposes of determining
the minimum number of affirmative votes required for the election of directors
and for the ratification of appointment of auditors. Thus, an abstention from
voting will have the same effect as a vote against matters that are to be voted
on at the Meeting.

SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS

Appropriate proposals from shareholders intending to be present at the 1998
annual meeting of shareholders must be received by the Company for inclusion in
the Company's Proxy Statement and form of proxy relating to that meeting on or
before December 31, 1997.

MISCELLANEOUS

The Company will bear all of the costs of the solicitation of proxies for
use at the Meeting. In addition to the use of the mails, proxies may be
solicited by a personal interview, telephone and telegram by directors, officers
and employees of the Company, who will undertake such activities without
additional compensation. Banks, brokerage houses and other institutions,
nominees or fiduciaries will be requested to forward the proxy materials to the
beneficial owners of the shares of Common held of record by such persons and
entities and will be reimbursed for their reasonable expenses incurred in
connection with forwarding such materials.

Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy promptly, no
matter how large or how small your holdings may be.

At the date of this Proxy Statement, management has no knowledge of any
business, other than that described herein, which will be presented for
consideration at the Meeting. In the event any other business is properly
presented at the Meeting, it is intended that the persons named in the enclosed
proxy will have authority to vote such proxy in accordance with their judgment
on such business.

The information required under Item 401 of Regulation S-K with respect to
executive officers of the Company is incorporated by reference herein to the
section entitled "Executive Officers and Directors of the Registrant" set forth
in part I of the Company's Form 10-K.

THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
FINANCIAL STATEMENT AND SCHEDULES THERETO, WILL BE MAILED UPON ORAL OR WRITTEN
REQUEST, WITHOUT CHARGE, TO ANY SHAREHOLDER OF THE COMPANY. ALL SUCH REQUESTS
SHOULD BE DIRECTED TO ROBERT C. HENDON, JR., COMPANY SECRETARY, BERLITZ
INTERNATIONAL, INC., 400 ALEXANDER PARK, PRINCETON, NEW JERSEY, 08540, (609)
514-9650.

<PAGE>

Exhibit 99.1

BERLITZ INTERNATIONAL, INC.

STOCK OPTION PLAN

<PAGE>

TABLE OF CONTENTS

PAGE
ARTICLE 1 GENERAL.........................................................1
1.1 Purpose..............................................................1
1.2 Definitions of Certain Terms.........................................1
1.3 Administration.......................................................3
1.4 Persons Eligible for Awards..........................................3
1.5 Types of Awards Under Plan...........................................4
1.6 Shares Available for Awards..........................................4
1.7 Agreements Evidencing Awards.........................................4

ARTICLE 2 OPTIONS.........................................................5
2.1 Grant of Options.....................................................5
2.2 Exercisability of Options............................................5
2.3 Method of Exercise...................................................6
2.4 Default Rules Concerning Termination of Service......................7
2.5 Term of Options. ...................................................7

ARTICLE 3 MISCELLANEOUS...................................................8
3.1 Amendment of the Plan; Modification of Awards........................8
3.2 Restrictions.........................................................8
3.3 Nontransferability...................................................9
3.4 Withholding Taxes....................................................9
3.5 Adjustments Upon Changes in Capitalization...........................9
3.6 Right of Discharge Reserved.........................................10
3.7 No Rights as a Stockholder..........................................10
3.8 Nature of Payments..................................................10
3.9 Non-Uniform Determinations..........................................11
3.10 Other Payments or Awards............................................11
3.11 Severability........................................................11
3.12 Section Headings....................................................11
3.13 Effective Date......................................................11
3.14 Expiration Date.....................................................12
3.15 Governing Law.......................................................12

<PAGE>

BERLITZ INTERNATIONAL, INC.
STOCK OPTION PLAN

ARTICLE 1

GENERAL

1.1 PURPOSE.
--------

The purpose of this Berlitz International, Inc. Stock Option Plan (the
"Plan") is to provide for certain officers, directors and key personnel of
Berlitz International, Inc. (the "Company") and certain of its Affiliates an
equity-based incentive to maintain and enhance the performance and profitability
of the Company. It is the further purpose of this Plan to permit the granting
of awards that will constitute qualified performance-based compensation for
certain executive officers, as described in section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations promulgated
thereunder.

1.2 DEFINITIONS OF CERTAIN TERMS.
-----------------------------

(a) "Affiliate" means any person or entity which, at the time of
reference, directly, or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, the Company.

(b) "Board" means the Board of Directors of the Company.

(c) "Cause" means (i) serious and repeated willful misconduct in
respect of a grantee's duties which has resulted in material, economic damages
to the Company or any Affiliate, and, to the extent such misconduct is
susceptible to being cured, such misconduct continues for thirty days following
written notice to the grantee by the Company detailing such misconduct, (ii) the
final, unappealable conviction in a court of law of any crime or offense (A) for
which the grantee is imprisoned for a term of six months or more or (B) that
involves the commission of fraud or theft against, or embezzlement from, the
Company or any Affiliate, or (iii) chronic alcoholism or abuse of controlled
substances.

(d) "Change of Control" means the happening of any of the
following:

(i) A change of control of a nature that would be required
to be reported in response to any form or report to the Securities and Exchange
Commission or any stock exchange on which any of the Company's equity

<PAGE>
2

securities are listed that requires the reporting of a change in control of the
Company; or

(ii) A majority of the members of the Board in office prior
to the happening of any event determines in its sole discretion that as a result
of such event there has been a Change of Control;

PROVIDED, HOWEVER, that a Change of Control shall not include a Going Private
Transaction (as defined below).

(e) "Committee" means the Compensation Committee of the Board, as
constituted from time to time or such other committee as may be designated by
the Board from time to time. Notwithstanding the foregoing, the Board may, in
its sole discretion, at any time and from time to time, resolve to administer
the Plan; in such event, the term Committee as used herein shall be deemed to
mean the Board.

(f) "Common Stock" means the shares of common stock of the
Company, par value $.10 per share, and any other shares into which such common
stock shall thereafter be changed by reason of a recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.

(g) "Effective Date" shall have the meaning set forth in
Section 3.13 hereof.

(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(i) "Expiration Date" means the date the Plan expires, as set
forth in Section 3.13 hereof.

(j) "Fair Market Value" as of any determination date and in
respect of any share of Common Stock shall be the mean between the high and low
sales prices of a share of Common Stock as reported on the New York Stock
Exchange on such determination date if shares of Common Stock are then trading
on such exchange or if not, then such mean on such other stock exchange on which
shares of Common Stock are principally trading on such determination date. If
no shares of Common Stock are trading on such determination date, the Fair
Market Value shall be determined by reference to the next preceding date on
which such shares were trading or shall be determined by the Committee in its
sole discretion. In no event shall the fair market value of any share of Common
Stock be less than its par value.

(k) "Going Private Transaction" means when Benesse Corporation,
together with any of its Affiliates, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act) directly or indirectly, of securities

<PAGE>
3

of the Company representing 90 percent or more of the combined voting power of
the Company's then outstanding securities.

(l) "Option" means a right to purchase shares from the Company
that is granted pursuant to Article 2 of the Plan.

(m) "Option Exercise Price" means the amount payable by the
grantee to the Company in connection with the exercise of an Option.

1.3 ADMINISTRATION.
---------------

(a) The Plan shall be administered by the Committee. It is
intended that the members of the Committee shall be (i) "non-employee directors"
within the meaning of Rule 16b-3 and (ii) "outside directors" (within the
meaning of Code section 162(m)), to the extent Rule 16b-3 and Code
section 162(m), respectively, are applicable to the Company. However, the mere
fact that a Committee member may fail to qualify as an outside director or
non-employee director will not invalidate any award that is otherwise validly
made under the Plan.

(b) The Committee shall have the authority (i) to exercise all of
the powers granted to it under the Plan, (ii) to construe, interpret and
implement the Plan and any Plan agreements executed pursuant to the Plan, (iii)
to prescribe, amend and rescind rules relating to the Plan, (iv) to make any
determination necessary or advisable in administering the Plan and (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan.

(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.

1.4 PERSONS ELIGIBLE FOR AWARDS.
----------------------------

Awards under the Plan may be made to such directors (whether or not
employees), officers and other key personnel of the Company or an Affiliate as
the Committee shall from time to time in its sole discretion select.

1.5 TYPES OF AWARDS UNDER PLAN.
---------------------------

Awards under the Plan will be made in the form of Options. All
Options granted pursuant to the Plan shall be "non-qualified" stock options
subject to the provisions of Code section 83, and shall not be "incentive stock
options" within the meaning of Code section 422, all as more fully set forth in
Article 2.

<PAGE>
4

1.6 SHARES AVAILABLE FOR AWARDS.
----------------------------

(a) Subject to Section 3.5 (relating to adjustments upon changes
in capitalization), as of any date the total number of shares of Common Stock
with respect to which Options may be granted under the Plan, shall be the excess
of 377,000 shares, over the sum of (i) the number of shares of Common Stock
subject to outstanding Options and (ii) the number of shares in respect of which
Options have been exercised. In accordance with (and without limitation upon)
the preceding sentence, awards may be granted in respect of shares covered by
previously-granted awards that have expired, terminated or been canceled for any
reason whatsoever (other than by reason of exercise).

(b) Shares of Common Stock that shall be subject to issuance
pursuant to the Plan shall be authorized and unissued or treasury shares of
Common Stock.

(c) Without limiting the generality of the foregoing, the
Committee may, with the grantee's consent, cancel any Option under the Plan and
issue a new Option in substitution therefor upon such terms as the Committee may
in its sole discretion determine, provided that the substituted Option shall
satisfy all applicable Plan requirements as of the date such substituted Option
is granted. The foregoing is not intended to prevent or limit the Committee's
authority to make equitable adjustments to Options upon the occurrence of
certain events as herein provided, including without limitation, adjustments
pursuant to Section 3.5.

1.7 AGREEMENTS EVIDENCING AWARDS.
-----------------------------

(a) Options granted under the Plan shall be evidenced by written
agreements. Any such written agreement shall (i) contain such provisions not
inconsistent with the terms of the Plan as the Committee may in its sole
discretion deem necessary or desirable and (ii) be referred to herein as "Plan
agreements."

(b) Each Plan agreement shall set forth the number of shares of
Common Stock subject to the Option granted thereby and the Option Exercise Price
payable in connection with the Option.

ARTICLE 2

OPTIONS

2.1 GRANT OF OPTIONS.
-----------------

The Committee may grant Options to purchase shares of Common Stock in
such amounts and subject to such terms and conditions as the Committee shall
from time to time in its sole discretion determine, subject to the terms of the

<PAGE>
5

Plan. In no event may an employee be granted Options with respect to more than
125,000 shares of Common Stock in any one calendar year.

2.2 EXERCISABILITY OF OPTIONS.
--------------------------

(a) GENERAL RULE. Subject to the other provisions of the Plan,
each Plan agreement shall set forth the period during which, and the conditions
subject to which, the Option evidenced thereby shall be exercisable, as
determined by the Committee in its sole discretion.

(b) DEFAULT RULE. Unless an applicable Plan agreement otherwise
provides and subject to the other provisions of the Plan:

(i) no Option shall be exercisable prior to (i)
for grants made on the Effective Date, January 1, 1999 and (ii) for all
other grants, the third anniversary of the date of grant;

(ii) each Option shall become fully (100%)
exercisable on (i) for grants made on the Effective Date, January 1, 1999
and (ii) for all other grants, the third anniversary of the date of grant;
and

(iii) each Option shall remain fully exercisable
through the day prior to the seventh anniversary of the date of the grant,
after which such Option shall terminate and cease to be exercisable.

(c) PARTIAL EXERCISE PERMITTED. Unless an applicable Plan
agreement otherwise provides, an Option granted under the Plan may be exercised
from time to time as to all or part of the full number of shares as to which
such Option shall then be exercisable.

(d) NOTICE OF EXERCISE; EXERCISE DATE.
----------------------------------

(i) An Option shall be exercisable by the filing of a
written notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion prescribe, and by
payment of the Option Exercise Price in accordance with Section 2.3(b).

(ii) Unless the applicable Plan agreement otherwise provides
or the Committee in its sole discretion otherwise determines, the date of
exercise of an Option shall be the date the Company receives such written
notice of exercise accompanied by payment of the Option Exercise Price in
accordance with Section 2.3.

<PAGE>
6

(e) CHANGE IN CONTROL. Notwithstanding any other provision of
the Plan to the contrary, upon a Change of Control, the Committee may, in its
sole discretion:

(i) provide that any acquiring or successor corporation
will assume the Option, to the extent then outstanding, or substitute an
equivalent Option or other benefit of equivalent value;

(ii) accelerate the exercisability of all or a portion of
any outstanding Option, in which case the Committee may also accelerate the
termination date of the Option to a date no earlier than 30 days following
the acceleration of exercisability; and/or

(iii) provide for a cash payment to the grantee equal to
the excess, if any, of the Fair Market Value of the shares covered by the
Option on the date of the Change of Control OVER the Option Exercise Price.
If a cash payment is made to a grantee pursuant to this Section, the
Committee may hold such amounts until the Expiration Date and such amounts
will be credited with interest each June 30 and December 31 until paid, at
the lesser of (i) an annual rate, compounded daily, for each calendar year
equal to the prime rate set by the Federal Reserve Bank of New York on
January 1 of that year, or (ii) ten percent (10%) per annum, compounded
daily.

2.3 METHOD OF EXERCISE.
-------------------

(a) TENDER DUE UPON NOTICE OF EXERCISE. Unless the applicable
Plan agreement otherwise provides or the Committee in its sole discretion
otherwise determines, any written notice of exercise of an Option shall be
accompanied by payment of the Option Exercise Price for the shares being
purchased, and the grantee shall have no right to receive shares of Common Stock
with respect to an Option exercise prior to such payment.

(b) MANNER OF PAYMENT. Payment of the Option Exercise Price
shall be made in any combination of the following:

(i) by certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the Committee); or

(ii) with the consent of the Committee in its sole
discretion, by personal check (subject to collection), which may in the
Committee's discretion be deemed conditional; or

(iii) by delivery of shares held by the grantee for at
least six months (or such other period as the Committee may determine)

<PAGE>
7

having a Fair Market Value (determined as of the date of such delivery by the
grantee) equal to all or a portion of the Option Exercise Price.

Subject to such rules as may be established by the Committee, payment
may be deemed to be satisfied if the grantee authorizes a broker or selling
agent to pay all or a portion of the Exercise Price to the Company by delivery
to the Company of an assignment of a sufficient amount of the proceeds from the
sale of shares acquired upon exercise by the grantee.

(c) ISSUANCE OF SHARES. As soon as practicable after receipt of
full payment, the Company shall, subject to the provisions of Section 3.2,
deliver to the grantee one or more certificates for the shares of Common Stock
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.

2.4 DEFAULT RULES CONCERNING TERMINATION OF SERVICE. Subject to the
other provisions of the Plan, and unless an applicable Plan agreement otherwise
provides:

(a) GENERAL RULE. All Options granted to an employee which are
not exercisable upon termination of service shall immediately terminate and
expire upon such termination of service for any reason, except as provided in
subparagraph (b) below.

(b) TERMINATION DUE TO DEATH, DISABILITY OR TERMINATION BY THE
COMPANY OTHER THAN FOR CAUSE. If a grantee's service terminates by reason of
his death or disability, or if a grantee's service with the Company is
terminated by the Company other than for Cause, the Options granted to such
grantee may be exercised in accordance with Section 2.2 hereof, notwithstanding
such termination of employment, until the date on which such Options terminate
or expire in accordance with the terms of the Plan (other than this Section 2.4)
and the Plan agreement.

2.5 TERM OF OPTIONS. Notwithstanding anything to the contrary
herein, no Options shall be exercisable after seven years from the date of
grant.

<PAGE>
8

ARTICLE 3

MISCELLANEOUS

3.1 AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.
----------------------------------------------

(a) PLAN AMENDMENTS AND TERMINATION. The Board may, without
stockholder approval, amend, suspend, discontinue or terminate the Plan or any
portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without shareholder
approval if such approval is necessary to comply with any tax or regulatory
requirement (including any approval requirement which is a prerequisite for
exemptive relief under Rule 16b-3, to the extent Section 16 of the Exchange Act
is applicable to the Company and any requirement of any securities exchange on
which the Company's shares are listed).

(b) MODIFICATION OF AWARDS. The Committee may waive any
conditions or rights under, amend any terms of, or alter, suspend, discontinue,
cancel or terminate, any Option theretofore granted, provided that unless
otherwise provided for herein any such action by the Committee that would impair
the rights of any grantee or beneficiary of any outstanding Option shall not be
effective without the consent of the affected person.

3.2 RESTRICTIONS.
-------------

(a) CONSENT REQUIREMENTS. If the Committee shall at any time
determine that any Consent (as hereinafter defined) is necessary or desirable as
a condition of, or in connection with, the granting of any Option under the
Plan, the acquisition, issuance or purchase of shares or other rights hereunder
or the taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee.

(b) CONSENT DEFINED. The term "Consent" as used herein with
respect to any Plan Action means (i) any and all listings, registrations or
qualifications in respect thereof upon any securities exchange or other
self-regulatory organization or under any federal, state, local or foreign law,
rule or regulation, (ii) the expiration, elimination or satisfaction of any
prohibitions, restrictions or limitations under any federal, state or local law,
rule or regulation or the rules of any securities exchange or other
self-regulatory organization, (iii) any and all written agreements and
representations by the grantee with respect to the disposition of shares, or
with respect to any other matter, which the Committee shall deem necessary or
desirable to comply with the terms of any such listing, registration or
qualification or to obtain an exemption from the requirement that any such
listing,

<PAGE>
9

qualification or registration be made and (iv) any and all consents, clearances
and approvals in respect of a Plan Action by any governmental or other
regulatory bodies or any parties to any loan agreements or other contractual
obligations of the Company or any Affiliate.

(c) RESTRICTION ON DISPOSITION. Unless an applicable Plan
agreement otherwise provides, a grantee may not sell or otherwise transfer
within any thirty-day period more than one-third of the total number of shares
subject to any Option granted to such grantee, unless otherwise determined by
the Committee.

3.3 NONTRANSFERABILITY.
-------------------

No Option granted to any grantee under the Plan shall be assignable or
transferable by the grantee other than by will or by the laws of descent and
distribution. During the lifetime of the grantee, all rights with respect to
any Option granted to the grantee under the Plan shall be exercisable only by
him.

3.4 WITHHOLDING TAXES.
------------------

(a) Whenever under the Plan shares of Common Stock are to be
delivered pursuant to an Option, the Committee may require as a condition of
delivery that the grantee remit an amount sufficient to satisfy all federal,
state and other governmental withholding tax requirements related thereto.
Whenever amounts are to be paid in cash under the Plan, the Company may, as a
condition of its payment, deduct therefrom, or from any salary or other payments
due to the grantee, an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto or to the delivery of
any shares of Common Stock under the Plan.

(b) Without limiting the generality of the foregoing, (i) a
grantee may elect to satisfy all or part of the foregoing withholding
requirements by delivery of shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
Fair Market Value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld and (ii) the Committee may
permit any such delivery to be made by withholding shares of Common Stock from
the shares otherwise issuable pursuant to the award giving rise to the tax
withholding obligation (in which event the date of delivery shall be deemed the
date such award was exercised).

3.5 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
-------------------------------------------

If and to the extent specified by the Committee, the number of shares
of Common Stock which may be issued pursuant to Options under the Plan, the
number of shares of Common Stock subject to outstanding Options and the Option
Exercise Price of outstanding Options shall be appropriately adjusted (as the

<PAGE>
10

Committee may determine) for any change in the number of issued shares of Common
Stock resulting from the subdivision or combination of shares of Common Stock or
other capital adjustments, or the payment of a stock dividend after the
effective date of the Plan, or other change in such shares of Common Stock, in
each case effected without receipt of consideration by the Company; provided
that any awards covering fractional shares of Common Stock resulting from any
such adjustment shall be eliminated. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.

3.6 RIGHT OF DISCHARGE RESERVED.
----------------------------

Nothing in the Plan or in any Plan agreement shall confer upon any
person the right to continue in the service of the Company or an Affiliate or
affect any right which the Company or an Affiliate may have to terminate the
service of such person.

3.7 NO RIGHTS AS A STOCKHOLDER.
---------------------------

No grantee or other person shall have any of the rights of a
stockholder of the Company with respect to shares subject to an Option until the
issuance of a stock certificate to him for such shares. Except as otherwise
provided in Section 3.5, no adjustment shall be made for dividends,
distributions or other rights (whether ordinary or extraordinary, and whether in
cash, securities or other property) for which the record date is prior to the
date such stock certificate is issued.

3.8 NATURE OF PAYMENTS.
-------------------

(a) Any and all awards or payments hereunder shall be granted,
issued, delivered or paid, as the case may be, in consideration of services
performed for the Company or for its Affiliates by the grantee.

(b) All such awards and payments shall be considered special
incentive payments to the grantee and shall not, unless otherwise determined by
the Committee, be taken into account in computing the grantee's salary or
compensation for the purposes of determining any benefits under (i) any pension,
retirement, life insurance or other benefit plan of the Company or any Affiliate
or (ii) any employment or similar agreement between the Company or any Affiliate
and the grantee.

(c) By accepting an award under the Plan, the grantee shall
thereby waive any claim to continued exercise of an award or to damages or
severance entitlement related to non-continuation of the award beyond the period
provided herein or in the applicable Plan agreement, notwithstanding any
contrary

<PAGE>
11

provision in any written employment or similar contract with the grantee,
whether any such contract is executed before or after the grant date of the
award.

3.9 NON-UNIFORM DETERMINATIONS.
---------------------------

The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee
shall be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (a) the persons to receive awards under the Plan and (b) the terms and
provisions of awards under the Plan.

3.10 OTHER PAYMENTS OR AWARDS.
-------------------------

Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company, any Affiliate or the Committee from making any award or
payment to any person under any other plan, arrangement or understanding,
whether now existing or hereafter in effect.

3.11 SEVERABILITY.
-------------

If any provision of the Plan is or becomes or is deemed to be invalid,
illegal or unenforceable in any jurisdiction or as to any person or Option, or
would disqualify the Plan or any Option under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to the
applicable laws, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan such
provision will be stricken as to such jurisdiction, person or Option and the
remainder of the Plan shall remain in full force and effect.

3.12 SECTION HEADINGS.
-----------------

The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of said
sections.

3.13 EFFECTIVE DATE.
---------------

The Plan is effective as of September 16, 1996 (the "Effective
Date"), subject to approval by the holders of a majority of the Company's voting
stock and entitled to vote at the first stockholders meeting thereafter. Prior
to such stockholder approval, any Options granted under the Plan shall not be
exercisable.

<PAGE>
12

3.14 EXPIRATION DATE.
----------------

The Plan shall expire on September 15, 2003 (the "Expiration Date")
and no Options shall thereafter be granted under the Plan. Any Options granted
before the Expiration Date shall continue to be exercisable (pursuant to the
terms of the Plan) thereafter.

3.15 GOVERNING LAW.

-------------

The Plan shall be governed by the laws of the State of New York
applicable to agreements made and to be performed entirely within such state.