<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:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-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/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
[October ], 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders that
will be held on [November ], 1998 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. 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.
Soichiro Fukutake
Chairman
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [NOVEMBER ,] 1998
Notice is hereby given that a special meeting of shareholders (the
"Meeting") of Berlitz International, Inc. (the "Company") will be held at the
Company's corporate headquarters, 400 Alexander Park, Princeton, New Jersey
08540 on [November ], 1998 at 10:00 a.m. local time to approve the issuance of
convertible debentures, $155 million aggregate principal amount, to Apollo
Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (collectively,
"Apollo") and Benesse Holdings International, Inc. ("BHI").
The Board of Directors has fixed the close of business on [October ], 1998
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
Robert C. Hendon, Jr.
Secretary
Princeton, New Jersey
[October ], 1998
<PAGE>
BERLITZ INTERNATIONAL, INC.
400 ALEXANDER PARK
PRINCETON, NEW JERSEY 08540
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
[NOVEMBER ], 1998
The enclosed proxy is solicited by the Board of Directors of Berlitz
International, Inc. (the "Company") for use at a special meeting of shareholders
(the "Meeting") to be held at the Company's corporate headquarters, 400
Alexander Park, Princeton, New Jersey 08540 on [November ], 1998, 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 approval of the issuance
of convertible debentures to Apollo Investment Fund IV, L.P. and Apollo Overseas
Partners IV, L.P. (collectively, "Apollo"), both private investment funds, and
to Benesse Holdings International, Inc. ("BHI"), a wholly-owned U.S. subsidiary
of Benesse Corporation ("Benesse") (the beneficial owner of 6,985,338 shares of
the Company's Common Stock). 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 [October , 1998], the record date for
determining shareholders entitled to vote at the Meeting, the Company had
outstanding [9,529,788] shares of its $.10 par value common stock (the "Common
Stock"). Each share of Common Stock outstanding is entitled to one vote. 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 [October , 1998].
APPROVAL OF THE ISSUANCE OF CONVERTIBLE DEBENTURES TO APOLLO AND BHI
The Company has agreed to issue, subject to shareholder approval and certain
other conditions, $155 million aggregate principal amount of convertible
debentures in a private placement, as follows:
a) $100 million aggregate principal amount of convertible debentures,
Series A (the "Apollo Debentures") to Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P., (collectively, "Apollo"); and
b) $55 million aggregate principal amount of convertible debentures, Series
B (the "Benesse Debentures") to Benesse Holdings International, Inc.
("BHI"), a wholly-owned U.S. subsidiary of Benesse.
The proceeds of this issuance will be used to retire existing funded
indebtedness of the Company and for general corporate purposes. See "Outstanding
Indebtedness". Set forth below is a summary of the proposed terms of the
convertible debentures. This summary is not complete and is qualified in its
entirety by the terms of separate Purchase, Investors, and Registration Rights
Agreements by and between the Company and Apollo or Apollo Management IV, L.P.
("Apollo Management") on behalf of Apollo, and the Company and BHI, and by a
Voting Agreement by and between Benesse and Apollo Management, copies of which
have been filed as exhibits to the Company's Form 8-K filing dated October 9,
1998.
GENERAL
The Apollo Debentures and the Benesse Debentures (collectively, the
"Convertible Debentures") will mature on the twelfth anniversary from the date
of original issuance (the "Issue Date"); such maturity is currently anticipated
to be in November 2010. Interest is payable semi-annually at a per annum rate of
5%. The Convertible Debentures are junior in right of payment to the Company's
Senior Obligations (if any), but senior to all classes of common or preferred
stock of the Company. The Convertible Debentures are convertible at any time at
the option of the holder, in part or in whole, into shares of the Company's
common stock at a conversion price (the "Conversion Price") of $33.05 per share,
subject to anti-dilution related adjustments to offset the effects of stock
dividends and other changes in equity. Such Conversion
<PAGE>
Price reflects a 25% premium to the average closing price of the Company's
common stock on the New York Stock Exchange, as reported in the Wall Street
Journal, for the 10 trading days prior to and including October 2, 1998, the
effective date of the Purchase Agreements. On October 2, 1998, the closing price
of the Company's common stock was $26.25 per share.
OPTIONAL REDEMPTION
If, for the 30 trading days following the third anniversary of the Issue
Date, the average closing price of the Company's common stock exceeds 120% of
the Conversion Price, the Company may redeem the Convertible Debentures in
whole, but not in part, at par. If, during this same period, the average closing
price of the Company's common stock does not exceed 120% of the Conversion
Price, the Company may redeem the Convertible Debentures in whole, but not in
part, for the total consideration as set forth below (expressed as a percentage
of the principal amount of the Convertible Debentures):
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- ---------------------------------------------------------------------------- -----------------
<S> <C>
3rd Anniversary to 4th Anniversary.......................................... 104.0%
4th Anniversary to 5th Anniversary.......................................... 102.0%
Following 5th Anniversary................................................... 100.0%
</TABLE>
In either case, such redemption may occur at any time after the 60th trading
day following the third anniversary of the Issue Date, and is subject to the
holder's right to first convert into common stock.
REGISTRATION RIGHTS
Pursuant to separate Registration Rights Agreements, the holders of shares
of common stock issued upon conversion of the Convertible Debentures each shall
have certain "piggyback" registration rights with respect to certain common
stock registration statements filed by the Company. In addition, the holders of
the Apollo Debentures shall have two demand registration rights and the holders
of the Benesse Debentures shall have one demand registration right for any
common stock issued upon conversion of the Convertible Debentures, such rights
to be exercisable on and after the second anniversary of the Issue Date. Such
demand registration rights are exercisable only by a majority of the respective
holders. The Company shall have the right to delay any demand registration for
up to 120 days if it would substantially interfere with any material transaction
being considered at the time of the request.
EXCHANGE PROVISION
If the average closing price of the Company's common stock does not exceed
the Conversion Price during the 30 trading days immediately preceding the third
anniversary of the Issue Date, Apollo and BHI may elect to exchange the
Convertible Debentures, in whole, into non-convertible fixed rate debt (the
"Fixed Rate Debentures"), pursuant to the procedures hereinafter described (upon
completion for each, an "Exchange"). BHI's exchange rights are contingent upon
Apollo electing to effect its Exchange. The Fixed Rate Debentures would have a
principal amount equal to the principal amount then outstanding on the
Convertible Debentures so exchanged, would have interest payable semi-annually
in cash and would mature seven years from the date of the Exchange.
If applicable, Apollo may exercise its option to receive Fixed Rate
Debentures (an "Exchange Option") by written notice delivered to the Company no
later than 10 trading days after the third anniversary of the Issue Date. Upon
receipt of such notice, the Company, at its cost, will select and retain one or
more nationally recognized investment or commercial banking institutions (the
"Financial Institution") (to be reasonably agreed to by Apollo) to determine two
alternative market interest rates that accurately price the Fixed Rate
Debentures at par. One such rate, applicable if Apollo exercises its Exchange
Option but BHI does not exercise its Exchange Option, would be subject to a cap
of the applicable U.S. treasury rate + 5% (not to exceed 13%). The other rate,
applicable if both Apollo and BHI
2
<PAGE>
exercise their Exchange Option, would be subject to a cap of the applicable U.S.
treasury rate + 7% (not to exceed 14%). These interest rates would further be
determined by several factors, including but not limited to, the Company's
credit at the time, the redemption features of the Fixed Rate Debentures, the
ranking of the debt, and the seven-year maturity of the debt. Furthermore, if
the interest rate becomes limited by the cap, the Fixed Rate Debentures shall be
senior debt, unless the Company waives the limitations of the interest rate cap.
Otherwise, the Fixed Rate Debentures may be senior, senior subordinated or
subordinated debt. Upon determination of the interest rates, Apollo shall
irrevocably decide whether to proceed with its Exchange or retain the Apollo
Debentures.
If Apollo has exercised its Exchange Option, BHI may exercise its option to
receive Fixed Rate Debentures by delivering a written notice of exercise to the
Company no later than 10 trading days following receipt of notice of the
election by Apollo. Upon determination of the interest rate, as previously
described, BHI may irrevocably elect to proceed with its Exchange, but only if
Apollo has elected to proceed with Apollo's Exchange and such election by BHI is
made within 10 days of receipt of notice of the election by Apollo.
If only Apollo proceeds with its Exchange, the Company, no later than 150
days from the third anniversary of the Issue Date, shall either (i) redeem all
of the Apollo Debentures at par or (ii) deliver the Fixed Rate Debentures to
Apollo. If both Apollo and BHI proceed with their Exchanges, the Company, no
later than 150 days from the third anniversary of the Issue Date, shall either
(i) redeem all of the Convertible Debentures at par or (ii) deliver Fixed Rate
Debentures to both Apollo and BHI.
If issued, the Fixed Rate Debentures shall provide that following the third
anniversary of the Exchange, the Company may, in whole, but not in part, redeem
the Fixed Rate Debentures at a redemption price set forth below (expressed as a
percentage of the principal amount):
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
- --------------------------------------------------------------- -----------------------------
<S> <C>
3rd Anniversary to 4th Anniversary............................. 100% + (interest rate / 2)
4th Anniversary to 5th Anniversary............................. 100% + (interest rate / 4)
Following 5th Anniversary...................................... 100%
</TABLE>
Furthermore, upon Exchange, the following will occur:
(i) the Convertible Debentures will forfeit all rights to convert into
common stock of the Company;
(ii) Apollo will forfeit all rights to board membership (hereinafter
described);
(iii) Apollo will forfeit all voting rights (hereinafter described), which
will be replaced in the Fixed Rate Debenture agreement with standard ("market")
debt covenants (as recommended by the Financial Institution); and
(iv) the ranking of the Fixed Rate Debentures will be determined by the
Company after consultation with investment or commercial banking advisors, but
in any case will rank senior to all classes of common or preferred stock of the
Company.
CHANGE OF CONTROL
Prior to the third anniversary of the Issue Date, if Benesse sells 80% or
more of the shares of Berlitz common stock owned directly or indirectly by it on
the Issue Date, the Company shall be required to make an offer to repurchase for
cash: i) the Apollo Debentures at a value equal to 110% of the principal amount
then outstanding; and ii) the Benesse Debentures at a value equal to 101% of the
principal amount then outstanding. In addition, if at any time on or after the
Issue Date a change of control occurs but Benesse sells less than 80% of its
shares, or if Benesse sells 80% of its shares on or after the third anniversary
of the Issue Date, the Company shall be required to make an offer to repurchase
for cash the Convertible Debentures (but not the Fixed Rate Debentures if the
Exchange has occurred), at a value equal to 101% of
3
<PAGE>
the principal amount of the Convertible Debentures. Change of control means: a)
any transaction after which a person or group, other than Benesse or its
affiliates, owns or controls more than 50% of the outstanding voting securities
in the aggregate, or b) a change in a majority of persons constituting the
Company's Board of Directors in any twelve month period (other than by reason of
planned retirement).
BOARD SEATS
As long as Apollo Management, through its funds, owns at least 50% of the
aggregate amount of common shares issued and issuable upon conversion of the
Apollo Debentures (the "Apollo Convertible Shares"), Apollo Management shall be
entitled to two board seats on the Company's Board, which shall be increased
from 10 to 12 members. (As discussed further under "Certain Relationships and
Related Transactions", the Company's Board of Directors has approved the
selection of Mr. Antony P. Ressler and Mr. Laurence M. Berg to serve as Apollo
Management's initial Board designees, effective as of the Issue Date of the
Apollo Debentures.) If Apollo Management, through its funds, owns at least 25%
but less than 50% of the Apollo Convertible Shares, Apollo Management shall be
entitled to one seat on an 11 member board. If Apollo elects to receive the
Fixed Rate Debentures or Apollo Management, through its funds, owns less than
25% of the Apollo Convertible Shares, Apollo Management shall no longer be
entitled to representation on the Company's board. As long as Apollo Management
is entitled to board representation, its director designees shall receive the
same compensation and indemnification as the Company's other outside directors.
VOTING RIGHTS
Pursuant to the Investors Agreement, Apollo Management will have voting
rights, at the board level, whereby the approval of at least one of the Apollo
Management designees (each an "Investor Director") to the Company's Board of
Directors will be required at a Board meeting before the Company may take any of
the following actions:
(i) mergers, acquisitions or asset transfers exceeding $50 million in value
per transaction;
(ii) any new transaction between the Company and a non-subsidiary affiliate
over $5 million in value; provided that the following are exempt from
Apollo Management's voting rights: a) transactions substantially
similar to certain prior related party transactions identified in a
supplemental schedule to the Investors Agreement, and b) the Company's
repurchase of Benesse's interest in Berlitz Japan, in whole or in part,
as long as the purchase price and the terms of the repurchase are
approved by the Disinterested Directors Committee of the Company's
Board, the Board of Directors, and Apollo Management;
(iii) the addition of indebtedness senior in right of payment to the Apollo
Debentures exceeding $50 million in the aggregate over time; provided,
however, that a) the approval of an Investor Director shall not be
required for indebtedness to finance one or more related acquisitions
in which the aggregate value of the consideration paid in all such
related acquisitions does not exceed $50 million in any twelve month
period or $100 million in the aggregate over time, and b) if one of the
Investor Directors votes in favor of a transaction proposed pursuant to
paragraphs (i) and (ii) above, no approval of an Investor Director is
needed for the addition of debt in connection with such transaction;
(iv) dividends and other payments on securities junior to the Apollo
Debentures exceeding in the aggregate, in any twelve month period, the
lesser of $5 million or 50% of the Company's net income;
(v) the issuance of any equity securities, unless at the time of such
issuance the Company's common stock price reflects a compound annual
growth rate of 10% from the Conversion Price; and
(vi) the voluntary filing for liquidation by the Company.
4
<PAGE>
These voting rights will expire on the earlier of: a) five years from the
Issue Date; b) the date on which Apollo Management's ownership in the Company is
less than 10% on a fully diluted basis (assuming conversion of the Convertible
Debentures but excluding dilution that would occur if Benesse directly or
indirectly acquires additional equity in the Company other than upon conversion
of the Benesse Debentures); or c) if the Exchange occurs.
TRANSFERABILITY
Apollo or BHI may transfer their interest in the Convertible Debentures or
their converted common stock, but any transferee is not entitled to board seats,
to voting rights at the board level, to participate in a sale of the Company, or
to exercise any right to exchange Convertible Debentures into Fixed Rate
Debentures.
With respect to the Apollo Debentures only:
(i) during the first year following the Issue Date, the Company may veto the
transfer for any reason;
(ii) during the second and third years after the Issue Date, the Company may
veto the transfer on reasonable grounds; and
(iii) Apollo may not transfer its interest a) to certain parties identified
in supplemental schedules to the Investors Agreement, or b) if the
Company's Board of Directors determines that such a transfer is to a
person in certain competitive business lines and such transfer involves
more than 1% of the outstanding common shares of the Company.
The Fixed Rate Debentures are not subject to restrictions on transfer.
COVENANTS
The Convertible Debentures are subject to standard affirmative covenants,
including financial and other informational reporting, compliance with laws,
maintenance of insurance, maintenance of properties, payment of taxes, and
preservation of corporate existence. Negative covenants that the Convertible
Debentures are subject to include prohibitions on certain mergers,
consolidations and asset transfers, forbearance from restrictions on rights of
holders to convert or exchange the Convertible Debentures, and, in the case of
the Apollo Debentures, forbearance from amending certain understandings between
the Company, Berlitz Japan and Benesse if such amendments would have a
materially adverse effect or would grant additional rights, provided however,
that Benesse will be permitted to sell its interest in Berlitz Japan, in whole
or in part, to the Company if the purchase price and repurchase terms are
approved by the Disinterested Directors Committee of the Company's Board of
Directors, the Company's Board of Directors, and Apollo.
DEFAULT
Subject to any applicable grace periods and/or required notice, events of
default include: the nonpayment of principal or interest due on the Convertible
Debentures or the Fixed Rate Debentures; the nonperformance or noncompliance
with any terms under the applicable Purchase Agreement; any false or materially
incorrect representations made in the applicable Purchase Agreement; payment
default on any other indebtedness outstanding in an aggregate principal amount
of at least $25 million; judgments in excess of $10 million; insolvency,
bankruptcy and similar proceedings; and certain transactions with respect to
ERISA employee benefit plans that have a material adverse effect.
In general, in the event of insolvency, bankruptcy, or similar proceedings,
outstanding principal and interest on the Convertible Debentures or the Fixed
Rate Debentures automatically become immediately due and payable. If any other
events of default occur, any holder or holders of 50% or more of the Convertible
Debentures or Fixed Rate Debentures may declare all of the Convertible
Debentures or Fixed
5
<PAGE>
Rate Debentures immediately due and payable. In addition, any holder affected by
a payment default may declare its debentures immediately due and payable. Such
declarations may be rescinded by the holders upon payment of all past due
amounts and interest from the default date at a rate 2% above the stated rate of
the debenture, and if all events of default have been cured. The Company also
must pay the costs and expenses incurred by the holders in the enforcement of
their default rights, including reasonable attorney's fees. All remedies upon
default are subject to the rights of any senior obligations.
VOTING AGREEMENT
Pursuant to a separate Voting Agreement between Benesse and Apollo
Management, Benesse has agreed to cause BHI to vote BHI's shares of the
Company's common stock, at the Meeting, in favor of the issuance of the
Convertible Debentures. Furthermore, at every shareholders' meeting of the
Company at which such matters are considered, Benessse has agreed to vote in
favor of the directors designated by Apollo Management to the Company's Board of
Directors pursuant to Apollo Management's right to designate such directors as
described in this proxy statement. Finally, Apollo Management has been granted
certain "tag-along rights". Under these rights, if BHI sells 50% or more of the
Benesse Debentures or 80% or more of the 6,985,338 shares of Berlitz common
stock it beneficially owns, Apollo Management has the right to sell, upon the
same terms, a proportionate amount of the Apollo Debentures or the shares
issuable or issued upon conversion of the Apollo Debentures, as the case may be.
OUTSTANDING INDEBTEDNESS
The proceeds from the issuance of the Convertible Debentures and the BHI
Note (hereinafter defined and discussed; see "Certain Relationships and Related
Transactions") will be used to repay in full all outstanding indebtedness
pursuant to the Company's existing bank credit agreement and existing Benesse
Notes (hereinafter defined; see "Certain Relationships and Related
Transactions").
OTHER MATTERS
- If the Company intends to pursue a sale of the Company, substantially all
of its assets, or 80% or more of the shares held directly or indirectly by
Benesse, Apollo Management will have certain rights to be involved in the
process, including the right to be given notice of such intent, the right
to reasonably approve a nationally recognized investment bank retained by
the Company to conduct the process, and the right to receive regular
status reports.
- Apollo and BHI will be reimbursed for their out-of-pocket transaction
related expenses up to $500,000 and $100,000, respectively, if the
transaction closes or if the transaction does not close due to actions of
the Company and, in the case of the Apollo expense reimbursement, BHI.
- The Company shall at all times reserve out of its authorized but unissued
common stock the full number of shares then issuable upon the conversion
of all outstanding Convertible Debentures.
- Apollo has the option to proceed with closing on the issuance of the
Apollo Debentures, independent of whether BHI proceeds with closing on the
issuance of the Benesse Debentures. BHI has a reciprocal option. In the
event that a closing occurs only for the Apollo Debentures or the Benesse
Debentures, the Company would repay only a portion of its long-term bank
indebtedness.
- Shareholder approval of the proposed issuance of the Convertible
Debentures is required under the applicable Rules of the New York Stock
Exchange. See "Vote Required". Obtaining such approval is a condition to
the closing of the sale and issuance of the Convertible Debentures.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ISSUANCE OF
CONVERTIBLE DEBENTURES TO APOLLO AND BHI.
6
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of outstanding shares of the
Company's Common Stock beneficially owned as of October 1, 1998 by each
director, the Company's chief executive officer during the fiscal year ended
December 31, 1997, the four other most highly compensated executive officers of
the Company at December 31, 1997 and all officers and directors as a group who
served at December 31, 1997. If not mentioned by name, no individual in the
categories described above beneficially owned any shares of Common Stock as of
October 1, 1998. 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
NAME OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------------ ------------------------------------------ ----------- -----------
<S> <C> <C> <C>
Common Stock.............................. Soichiro Fukutake 6,985,338(1) 73.30%
Common Stock.............................. Hiromasa Yokoi 500 *
Common Stock.............................. Manuel Fernandez 8,745 *
Common Stock.............................. Robert Minsky 2,857 *
Common Stock.............................. Henry D. James 7,672 *
Common Stock.............................. Edward G. Nelson 1,500(2) *
Common Stock.............................. Robert L. Purdum 2,000 *
Common Stock.............................. All Officers and Directors as a Group (15 7,028,246 73.75%
in number)
</TABLE>
In connection with the contemplated convertible debenture private placement
(see "Approval of the Issuance of Convertible Debentures to Apollo and BHI"), an
additional 4,689,863 shares of Common Stock would be issuable upon conversion,
based on a conversion price of $33.05. Benesse would beneficially own 1,664,145
of these shares, which together with its other beneficial holdings, would
represent approximately 61% of the total Common Stock then outstanding upon
conversion of all Convertible Debentures. Apollo, which would be represented on
the Company's Board of Directors by two designees, would own 3,025,718 of the
shares issuable upon conversion, or approximately 21% of the total Common Stock
then outstanding upon conversion of all Convertible Debentures. In the event
that Apollo converted all Apollo Debentures but Benesse did not convert any
Benesse Debentures, Apollo would own approximately 24% of the total Common Stock
then outstanding. Alternatively, in the event that Benesse converted all Benesse
Debentures but Apollo did not convert any Apollo Debentures, Benesse would own
approximately 77% of the total Common Stock then outstanding.
To the best of the Company's knowledge, there are no events of delinquent
filing requiring disclosure under Item 405 of Regulation S-K, except that BHI
did not timely file a Form 4 with respect to its acquisition of 250,000 shares
of common stock in April 1997 (BHI has since filed a Form 4 with respect to the
acquisition of such shares.).
- ------------------------
(1) Represents shares owned by Benesse Corporation and by its wholly owned
subsidiary Benesse Holdings International, Inc. Soichiro Fukutake is the
President, Representative Director and principal shareholder of Benesse
Corporation. Consequently, Mr. Fukutake could be deemed to be in ultimate
control of Benesse and the beneficial owner of these shares. See "Security
Ownership of Certain Beneficial Owners."
(2) An additional 1,000 shares of Common Stock, for which Mr. Nelson has
beneficial disclaimed ownership, are owned by Mr. Nelson's wife.
* Less than 1%
7
<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 the Company's Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------------------------------------- -------------------------------------------- ---------- -----------
<S> <C> <C> <C>
Common Stock................................ Benesse Corporation(1) 6,985,338 73.30%
3-17-17 Minamigata
Okayama-shi 700, Japan
Common Stock................................ Dimensional Fund Advisors, Inc.(2) 508,672 5.34%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
</TABLE>
See "Security Ownership of Management" for a discussion of beneficial
ownership by Benesse and Apollo of shares issuable upon conversion under the
contemplated convertible debenture private placement.
- ------------------------
(1) Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
April 1, 1995. As of October 1, 1998, 6,972,138 shares of Common Stock are
held by Benesse Holdings International, Inc., a wholly owned subsidiary of
Benesse, and 13,200 shares of Common Stock are held directly by Benesse.
Soichiro Fukutake is the President, Representative Director and principal
shareholder of Benesse. See "Security Ownership of Management".
(2) This information is taken from the Schedule 13G, dated February 9, 1998,
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 508,672 shares of Common Stock
at December 31, 1997, 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.
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 Company's Common Stock. Additionally, on
April 29, 1997, the Company agreed to sell to Benesse Holdings International,
Inc. (formerly Fukutake Holdings (America), Inc.), a wholly owned subsidiary of
Benesse, 250,000 shares of the Company's Common Stock at $24.44 per share, the
average market price for the ten days ended on April 29, 1997. This private
placement exempt from registration under the Securities Act of 1933 was closed
on May 12, 1997. Following this private placement, Benesse beneficially owned
6,985,338 shares, which represents 73.3%, of the 9,529,788 shares of Common
Stock outstanding at December 31, 1997. Public shareholders of the Company held
the remaining outstanding Common Stock. Mr. Soichiro Fukutake is the President,
Representative Director and principal shareholder of Benesse. See "Security
Ownership of Management."
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
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annum. Berlitz-Japan also borrowed Yen 1.0 billion (approximately $10.1 million
at September 1994) from Benesse as evidenced by an interest-free subordinated
promissory note (the "Japan Note"). In March 1996, the Company received the
proceeds of an additional $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 the Company's
August 28, 1997 credit agreement (the "Bank Facility") 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 Bank Facility, such accrued
interest rolls over semiannually into the note principal. At June 30, 1998, the
Benesse Notes had an aggregate balance of $39.9 million.
The Benesse Notes rank PARI PASSU with one another and are subordinate in
rights of payment to debt under the Bank Facility, including certain 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 Bank Facility. 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 Bank Facility are satisfied.
In conjunction with the contemplated convertible debenture private placement
previously discussed under "Approval of the Issuance of Convertible Debentures
to Apollo and BHI", it is expected that the Company's obligations under the Bank
Facility and the Benesse Notes will be satisfied in full with the proceeds from
the sale of the Convertible Debentures and the proposed loan from BHI
hereinafter discussed. BHI has signed a commitment letter whereby it has agreed,
contingent upon the closing of the Convertible Debenture transaction, to loan
the Company $50 million, evidenced by a 12-year fixed-rate subordinated
promissory note (the "BHI Note"), bearing interest at 5.9% for the first five
years and, thereafter, at a renegotiated rate approximating LIBOR plus a margin
based on the Company's then existing leverage. Interest would be payable
semi-annually in cash on June 30 and December 30, while principal repayment
would be deferred until maturity. The BHI Note includes standard covenants
similar to the Benesse Debentures, including compliance with laws, maintenance
of insurance, maintenance of properties, payment of taxes, preservation of
corporate existence, prohibition on certain mergers, and rights of inspection.
In addition, in the event of a change in control, the BHI Note provides for
redemption by the Company, at the option of BHI, at a price equal to 101% of the
note's principal amount.
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, in 1997, the premium for entity coverage, which
benefited the Company only, was allocated 100% to the Company, resulting in a
total D&O allocation of 57% to Benesse and 43% to the Company for 1997. 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 1997, in the ordinary course of business, including the
following:
- Pursuant to extended industrial block contracts dated July 24, 1997 and
August 6, 1996, Berlitz-Japan provided lessons to Benesse at its standard
rate for prepaid industrial lessons which was approximately 20% below the
rate charged for individual instruction. Revenues under these contracts
aggregated 27,950,000 Yen (approximately $231,000 at an average 1997
exchange rate of Yen 121.13).
- The Company's subsidiary, Berlitz Franchising Corporation, entered into a
standard franchise agreement dated July 30, 1997 with the Okayama Language
Center, Inc., a corporation formed by
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Benesse and the Okayama Institute of Languages, the latter being
controlled by Mr. Fukutake's sister-in-law.
- On June 30, 1997, the Company granted 100,250 stock options to Mr.
Fukutake at an exercise price of $24.9375, equal to the closing price of
the Company's common stock on the New York Stock Exchange on the date of
grant. 50,000 of these options had been granted in exchange for the
complete relinquishment by Mr. Fukutake of all benefits under the
Company's Supplemental Executive Retirement Plan ("SERP").
- Pursuant to a services agreement, Benesse periodically offered its
customers language and homestay programs arranged and operated by the
Company's specialty instruction program, Berlitz Study
Abroad-Registered Trademark-. Benesse also periodically offered its
customers language study and homestay programs arranged and operated by
Berlitz on Campus-Registered Trademark-, another of the Company's
specialty instruction programs. The Company and Benesse also participated
in certain other joint business arrangements in the ordinary course of
business, none of which had a material effect on the financial statements.
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 entered into after the Merger was approved by the Disinterested
Directors Committee.
As previously discussed under "Approval of the Issuance of Convertible
Debentures to Apollo and BHI", the Company's Board of Directors has approved the
appointment of Mr. Antony P. Ressler and Mr. Laurence M. Berg to serve as Apollo
Management's designees on the Company's Board pursuant to the Investors
Agreement with Apollo Management.
Mr. Ressler, age 38, is a senior partner at Apollo Management and one of its
founding principals in 1990. Prior to 1990, Mr. Ressler served as a Senior Vice
President in the Investment Banking Division of Drexel Burnham Lambert
Incorporated. Mr. Ressler serves on several boards of directors including:
Allied Waste Industries, Inc.; Dominick's Supermarkets, Inc.; Family
Restaurants, Inc.; United International Holdings, Inc.; and Vail Resorts, Inc.
Mr. Ressler is also the Vice Chairman of LEARN (the Los Angeles Education
Alliance for Reform Now), the largest public school reform movement in the
United States, and a member of the Executive Committee of the board of directors
of the Jonsson Comprehensive Cancer Center at the UCLA Medical Center. Mr.
Ressler has also served on the board of the Los Angeles Chapter of Cities in
Schools, a national organization focused on drop-out prevention and the Capital
Campaign Committee for the Los Angeles Child Guidance Clinic, a clinic for
emotionally disturbed children aged 18 months to 21 years. Mr. Ressler received
his B.S.F.S. from Georgetown University's School of Foreign Service and received
his MBA from Columbia University Graduate School of Business. Mr. Ressler has
been approved to serve on the Company's Board of Directors until the Company's
1999 annual shareholders' meeting.
Mr. Berg, age 32, has been associated with Apollo Management since 1992 and
a partner since 1995. Prior thereto, Mr. Berg was a member of the Mergers and
Acquisitions Department of Drexel Burnham Lambert Incorporated. Mr. Berg is a
director of Continental Graphics Holdings, Inc., CWT Specialty Stores and
Mariner Post Acute Network, Inc. Mr. Berg received his MBA from the Harvard
Business School and received his BS in economics from the University of
Pennsylvania's Wharton School of Business. Mr. Berg has been approved to serve
on the Company's Board of Directors until the Company's 2000 annual
shareholders' meeting.
VOTE REQUIRED
Under the New York Stock Exchange Rules, approval of the issuance of
convertible debentures requires the affirmative vote of a majority of the shares
of Common Stock represented and entitled to be voted at the Meeting.
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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 approval of the
issuance of Convertible Debentures. Thus, an abstention from voting will have
the same effect as a vote against such approval.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS
Appropriate proposals from shareholders intending to be present at the 1999
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, 1998.
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.
Representatives of Deloitte & Touche LLP, the Company's principal
accountants for the current year and the most recently completed fiscal year,
will not be present at the Meeting.
The following information is incorporated by reference herein:
- The financial statements, schedules and supplemental data thereto included
in the Company's 1997 annual report on Form 10-K under Item 8.
- The Management Discussion and Analysis included in the Company's 1997 Form
10-K under Item 7.
- The Company's quarterly reports on Form 10-Q for the periods ended March
31, 1998, June 30, 1998 and September 30, 1998.
- The Company's Form 8-K dated October 9, 1998.
A copy of any of the documents incorporated by reference herein, except for
the exhibits to such documents, 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.
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TRANSMITTAL LETTER
October 19, 1998
Securities and Exchange Commission
Judiciary Plaza
4501 Fifth Street, N.W.
Washington, DC 20549-1004
Re: Preliminary Proxy Statement for Special Meeting of Shareholders of
Berlitz International, Inc.
Gentlemen:
Enclosed for filing with the Securities and Exchange Commission, pursuant to
Section 14(a) of the Securities and Exchange Act of 1934, is a preliminary proxy
statement for a special meeting of shareholders of Berlitz International, Inc.
to approve the issuance of convertible debentures. Shareholder approval of the
issuance of the convertible debentures is required under the applicable rules of
the New York Stock Exchange.
Please feel free to contact the following individuals with any comments that
you may have:
<TABLE>
<S> <C>
Jay Dubiner Paul, Weiss, Rifkind, Wharton & Garrison
Tel (212) 373-3004
Fax (212) 373-2670
Robert C. Hendon, Jr. General Counsel and Secretary of Berlitz
Tel (609) 514-3032
Fax (609) 514-9670
</TABLE>
Sincerely,
Ron Stark
Director of Accounting
