<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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/ / 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,
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<PAGE>
May 15, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 annual meeting of shareholders
that will be held on Tuesday, June 2, 1998 at 10:00 a.m. in New York, New York.
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.
[LOGO]
Soichiro Fukutake
CHAIRMAN
<PAGE>
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 2, 1998
Notice is hereby given that the 1998 annual meeting of shareholders (the
"Meeting") of Berlitz International, Inc. (the "Company") will be held at the
Rihga Royal Hotel, 151 West 54th St., New York, New York 10019 on Tuesday, June
2, 1998 at 10:00 a.m. local time for the following purposes:
1. To elect five directors to serve for two-year terms until the 2000
annual meeting of shareholders, and to elect one director to serve until
the 1999 annual meeting of shareholders;
2. To approve the increase of the number of shares authorized under the
1996 Stock Option Plan from 377,000 to 503,225 shares;
2. 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 1998; 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 8, 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
[LOGO]
Robert C. Hendon, Jr.
SECRETARY
Princeton, New Jersey
May 15, 1998
<PAGE>
BERLITZ INTERNATIONAL, INC.
400 ALEXANDER PARK
PRINCETON, NEW JERSEY 08540
PROXY STATEMENT
1998 ANNUAL MEETING OF SHAREHOLDERS
JUNE 2, 1998
The enclosed proxy is solicited by the Board of Directors of Berlitz
International, Inc. (the "Company") for use at the 1998 annual meeting of
shareholders (the "Meeting") to be held at the Rihga Royal Hotel, 151 West 54th
St., New York, New York 10019 on Tuesday, June 2, 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 each nominee for election
as a director, for approval of the increase of the number of shares authorized
under the 1996 Stock Option Plan, and for approval of the selection of Deloitte
& Touche LLP as independent accountants for the Company for 1998. 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 8, 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"). 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 15, 1998.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of ten members
divided into two classes. At the Meeting, one director will be elected to hold
office until the 1999 annual meeting of shareholders as successor to a retiring
director, and five directors will be elected to hold office for two-year terms
until the 2000 annual meeting of shareholders. All such directors shall hold
office for their designated term, or 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 six 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 2, 1998. All nominees, except for Mr. Takuro Isoda, 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 2000
HIROMASA YOKOI, 58
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 Corporation
("Benesse") (formerly Fukutake Publishing Co., Ltd., and currently a
publicly-held company and the beneficial owner of 6,985,338 shares of Common)
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 and the Nominating Committee.
HENRY D. JAMES, 60
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, Inc. ("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, 66
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, the Disinterested
Directors Committee and the Nominating Committee.
ROBERT L. PURDUM, 62
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 located 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),
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 is a member of the Board of Trustees of Kettering
University. 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, the Disinterested Directors Committee and the Nominating Committee.
KAZUO YAMAKAWA, 58
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
2
<PAGE>
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.
TAKURO ISODA, 62
Mr. Isoda has been nominated by the Nominating Committee of the Board of
Directors to succeed Mr. Aritoshi Soejima, who will be retiring as a Director of
the Company. Mr. Isoda has served as Chairman of Nippon Investment & Finance Co.
Ltd. since June 1994, and previously served as its President from January 1990
to May 1994. Prior thereto, Mr. Isoda served in various positions with Daiwa
Securities since first joining that company in 1959, including, most recently,
Chairman & CEO of Daiwa Securities of America, Inc., New York (January 1985 to
January 1990), and Senior Managing Director of Daiwa Securities Co., Ltd., Tokyo
(December 1988 to January 1990). Mr. Isoda currently serves on the boards of the
New Business Conference, Tokyo (as Director); The Japan Academic Society for
Venture and Entrepreneur, Tokyo (as Director); and Americans for Indian
Opportunity, New Mexico (as International Advisor). Mr. Isoda has been nominated
to be 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 SIX DIRECTORS
NAMED ABOVE.
INCUMBENT DIRECTORS--TERMS EXPIRE IN 1999 (UNLESS OTHERWISE NOTED)
SOICHIRO FUKUTAKE, 52
Mr. Fukutake has served as Chairman of the Board of the Company since
February 1993. Mr. Fukutake joined Benesse 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 and the Nominating Committee.
MANUEL FERNANDEZ, 61
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, from
January 1983 to September 1993. Mr. Fernandez was first employed by Berlitz
Languages in 1963 and served in various positions until becoming 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, 53
Mr. Minsky has served as Executive Vice President, Corporate Planning and
Marketing of the Company since August 1, 1997. Prior thereto, he served as
Executive Vice President and Chief Operating Officer, Translations and
Publishing of the Company from January 1, 1995 to December 31, 1997, 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 Vice
President. Mr. Minsky has served as a Director of the Company since April 1991.
He is currently a member of the Executive Committee.
3
<PAGE>
SUSUMU KOJIMA, 55
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, 71
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 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 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
served, until his retirement on March 24, 1998, as Chairman of Osaka, Tokyo Bay,
Nagoya Hilton Company, Ltd. Further, Mr. Soejima 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. Mr.
Soejima is currently a member of the Audit Committee, the Compensation Committee
and the Disinterested Directors Committee. Mr. Soejima will retire from the
Board effective upon the election of his successor at the 1998 Annual Meeting of
Shareholders.
1997 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND FEES
During 1997, the Board of Directors of the Company met in person four times,
participated in two telephonic meetings and took two actions by unanimous
written consent.
In 1997, the Board of Directors had standing Executive, Audit, Disinterested
Directors, and Compensation Committees, as well as a Special ELS Acquisition
Committee. Effective December 9, 1997, the Company created 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 1997.
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 three times during 1997.
The Disinterested Directors Committee reviews and monitors all matters
affecting the relationship between the Company and Benesse Corporation
("Benesse") and its affiliates. During 1997, the Disinterested Directors
Committee met in person two times, participated in one telephonic meeting, and
took action by unanimous written consent 2 times.
4
<PAGE>
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 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, except for a special grant on December 9, 1997 of 500 options to each
Director. During 1997, the Compensation Committee met two times and participated
in telephonic meetings one time.
The Special ELS Acquisition Committee was formed for the purpose of
independently reviewing and monitoring all matters related to the acquisition of
ELS Educational Services, Inc. and the related refinancing of the Company's
long-term debt. During 1997, the Special ELS Acquisition Committee participated
in two telephonic meetings.
The Nominating Committee was formed to nominate Directors and to consider
possible successors to senior executives.
The Company's standard retainer payable to each director who is not an
employee of the Company or any of its affiliates was increased from $30,000 per
annum in 1997 to $35,000 per annum in 1998, 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 $143,000
as cash compensation for their services during 1997.
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 2, 1998 by each director, nominee, the Company's
chief executive officer during the fiscal year ended December 31, 1997, the four
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 as of March 2, 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
TITLE OF NAME OF BENEFICIAL PERCENT
CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------- --------------------------------------------------------------------- -------------- ---------
<S> <C> <C> <C>
Common Soichiro Fukutake 6,985,338(1) 73.30%
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 (15 in number) 7,027,746 73.75%
</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."
(2) An additional 1,000 shares of Common, for which Mr. Nelson has disclaimed
ownership, are owned by Mr. Nelson's wife.
- - Less than 1%
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
- ------------- ------------------------------------------------------------------------- -------------- -----------
<S> <C> <C> <C>
Common Benesse Corporation 3-17-17 Minamigata Okayama-shi 700, Japan 6,985,338(1) 73.30%
Common Dimensional Fund Advisors, Inc 1299 Ocean Avenue, 11th Floor Santa 508,672(2) 5.34%
Monica, CA 90401
</TABLE>
- ------------------------
(1) Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
April 1, 1995. As of March 2, 1998, 6,972,138 shares of Common are held by
Fukutake Holdings (America), Inc., a wholly owned subsidiary of Benesse, and
13,200 shares of Common are held directly by Benesse. Soichiro Fukutake is
the President, Representative Director and principal shareholder of Benesse.
6
<PAGE>
(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 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.
7
<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, 1997, 1996 and 1995 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)
- ----------------------------------------------- --------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi................................. 1997 1996 499,052 202,200 65,730 60,469 46,220 None 10,390 9,750
Vice Chairman of the Board, 1995 480,000 84,000 55,200 None 9,750
CEO and President 444,800 180,000
Manuel Fernandez............................... 1997 1996 251,908 65,000 23,671 990 20,300 None 10,400 9,750
Executive Vice President and 1995 240,000 40,900 1,312 None 9,750
Chief Operating Officer, 224,800 51,000
Worldwide Language Instruction
Robert Minsky.................................. 1997 1996 240,000 35,000 926 874 None 20,300 None 10,400 9,750
Executive Vice President and 1995 240,000 10,000 None 9,750
Chief Operating Officer, 227,900 80,000
Translations and Publishing
Susumu Kojima.................................. 1997 1996 229,500 -- 65,000 65,000 18,320 None None None
Executive Vice President, 1995 225,000 8,700 42,000 None 9,750
Asia Division 210,000 25,200
Henry D. James (1)............................. 1997 1996 218,335 75,300 826 771 None 20,300 None 10,334 9,750
Executive Vice President and 1995 210,000 32,000 None 9,750
Chief Financial Officer 182,300 51,000
</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 $22,600 in 1997.
(3) The column designated by the SEC to report Long-Term Incentive Plan Payouts
has been excluded because no payouts have been made in 1995, 1996 or 1997
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 1995, 1996 or 1997. There were no Common restricted shares
outstanding at December 31, 1997.
8
<PAGE>
(4) The amounts reported in this column for the fiscal year 1997 include a
contribution of approximately $4,800 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 approximately
$5,600 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
------------------------------------------------
INITIAL
PARTICIPANT
(HEREINAFTER
DEFINED) ALL OTHER PARTICIPANTS
----------- -----------------------------------
COMPENSATION 5 OR MORE 5 10 15 OR MORE
- ------------------------------------------------ ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
$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.
OPTION/SAR GRANTS IN FISCAL YEAR 1997
The following awards were made pursuant to the 1996 Stock Option Plan
(hereinafter defined). See the "Compensation Committee Report" for a further
description.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL GRANT
UNDERLYING OPTIONS DATE
OPTIONS GRANTED TO EXERCISE PRESENT
GRANT GRANTED EMPLOYEES IN PRICE EXPIRATION VALUE ($)
NAME DATE (#) FISCAL YEAR ($/SH) DATE (1)
- ----------------------------------------------- --------- ----------- --------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi 6/30/97 45,720 500 12.24% $ 24.9375 6/29/04 $ 336,956
12/9/97 0.13 26.5625 12/8/04 4,215
Manuel Fernandez 6/30/97 19,800 500 5.30 0.13 24.9375 6/29/04 145,926
12/9/97 26.5625 12/8/04 4,215
Robert Minsky 6/30/97 19,800 500 5.30 0.13 24.9375 6/29/04 145,926
12/9/97 26.5625 12/8/04 4,215
Susumu Kojima 6/30/97 17,820 500 4.77 0.13 24.9375 6/29/04 131,333
12/9/97 26.5625 12/8/04 4,215
Henry D. James 6/30/97 17,820 4.77 0.66 24.9375 6/29/04 131,333
12/9/97 2,480 26.5625 12/8/04 20,906
</TABLE>
- ------------------------
(1) The fair value of each option grant during 1997, as set forth in the
following table, is estimated on the date of grant using the Black-Scholes
option pricing model, with the following assumptions:
<TABLE>
<CAPTION>
JUNE 1997 DECEMBER
GRANT 1997 GRANT
----------- -------------
<S> <C> <C>
Weighted average assumptions used to estimate fair value:
Dividend yield...................................................... 0.00% 0.00%
Expected volatility................................................. 22.00% 21.00%
Risk free interest rate............................................. 6.08% 5.88%
Expected lives in years............................................. 4.25 5.0
Fair value of each option granted..................................... $ 7.37 $ 8.43
</TABLE>
10
<PAGE>
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 1997
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.
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 1997 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
Compensation Committee meetings held in 1997 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 3.3% for each of 1997 and 1998. 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
11
<PAGE>
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 February 1998 meeting, the Committee approved, after discussion, 1997
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that accrued for 1997 ranged up to 41% 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 1997 for such executive
officers ranged from 2.6% to 10% 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 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
which was obtained in 1997, the 1996 Stock Option Plan, which, together with the
New LTIP (hereinafter discussed), replaced the Company's then existing Old LTIP.
The 1996 Stock Option Plan authorizes the issuance of options to directors and
key executive employees of the Company. The total number of shares for which
options may be granted is 377,000. The Company granted 327,200 of these options
on June 30, 1997 at an exercise price of $24.9375 and 49,120 options on December
9, 1997 at an exercise price of $26.5625. Such exercise prices were based on the
closing market price of the Company's Common on the New York Stock Exchange on
the date of grant.
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 during 1998 and the Company's common
stock price on 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, replaced 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 impact potential awards,
which may not
12
<PAGE>
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 1997, pursuant to the plan documents, the
Company continued to contribute 3.5% of eligible employees' respective base
salary to the Pension Plan. During 1997, the Company also continued to provide
matching contributions 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 1997 was $499,000, and he also earned a
bonus of $202,200 for 1997 under the Short-Term Incentive Plan. The Compensation
Committee approved and ratified the compensation paid to Mr. Yokoi for fiscal
year 1997 based on Mr. Yokoi's business experience and 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 1997 performance was taken into consideration in
determining Mr. Yokoi's 1997 compensation package. The Committee believes that
Mr. Yokoi's 1997 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 1997, the Compensation Committee consisted of Edward G. Nelson,
Robert L. Purdum and Aritoshi Soejima. All of the views expressed by the
Compensation Committee in 1997 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 1997
Edward G. Nelson
Robert L. Purdum
Aritoshi Soejima
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, during 1997 and at March 2, 1998, 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 1997 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 the following
at various meetings held in 1993, 1995, 1996 and 1997: i) the 1993
13
<PAGE>
inclusion of Mr. Fukutake as a participant in the Long-Term Incentive Plan; ii)
the 1995 inclusion of Mr. Fukutake as a participant in the SERP and the 1995
granting of additional performance units to Mr. Fukutake under the Long-Term
Incentive Plan; iii) the 1996 inclusion of Mr. Fukutake in the 1996 Stock Option
Plan; and iv) the 1997 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.
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. Additionally, on April 29, 1997,
the Company agreed to sell to Fukutake Holdings (America), Inc., a wholly owned
subsidiary of Benesse, 250,000 shares of the Company's Common 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 outstanding at December 31, 1997. 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. 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 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 will roll over semiannually into the note
principal. The Company recorded $2.1 million in interest expense on the Benesse
Notes in 1997.
The Benesse Notes rank PARI PASSU with one another and are subordinate in
rights of payment to debt under the Bank Facility, 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 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.
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, in 1997, the premium for entity coverage
which benefited the Company only and 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
14
<PAGE>
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 Y121.13).
- - 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 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.
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 a peer group index (described
below) over a five-year period, beginning on December 31, 1992, and ending on
December 31, 1997. 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 index. It also assumes reinvestment of all dividends.
As the Company is the only publicly-held language instruction company, there
are no directly comparable companies. Therefore, the Company has created a peer
group index of selected publicly-held companies in the educational services and
educational publishing industries. The companies included in this peer group
are: ITT Educational Services, Inc. (a leading proprietary provider of technical
post secondary degree programs in the U.S.); Education Management Corporation
(among the largest providers of proprietary post-secondary education in the U.S.
offering degree and non-degree programs in the areas of design, media arts,
culinary arts, fashion and paralegal studies); and three educational publishing
companies: 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.
ITT Educational Services, Inc. has been publicly traded since December 1994,
and Education Management Corporation has been publicly traded since October
1996. For purposes of creating the peer group index, these two companies have
been given a market capitalization weighting of zero for those periods prior to
their initial public trading dates.
ITT Educational Services, Inc. and Education Management Corporation replace
Flightsafety International and National Education Corporation, two companies
which were included in the Company's peer group in prior years, but which are no
longer publicly traded in 1997.
16
<PAGE>
COMPARISON OF STOCK PRICES
BERLITZ INTERNATIONAL, INC., THE S&P 400 INDUSTRIAL INDEX
AND PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INDEXED SHARE PRICES
<S> <C> <C> <C>
Berlitz S&P 400 Index Peer Group Index
1992 $100 $100 $100
1993 $63(1) $106 $111
1994 $59 $108 $107
1995 $75 $142 $137
1996 $93 $171 $141
1997 $121 $221 $225
</TABLE>
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Berlitz.................................................. $ 100 $ 63(1) $ 59 $ 75 $ 93 $ 121
S & P 400 Index.......................................... $ 100 $ 106 $ 108 $ 142 $ 171 $ 221
Peer Group Index......................................... $ 100 $ 111 $ 107 $ 137 $ 141 $ 225
</TABLE>
- ------------------------
(1) As a result of the Merger (hereinafter defined), 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 new common stock of
the Company ("Common"), iii) $1.48, representing the net proceeds from the
disposition of the Company's claims on promissory notes from Maxwell
Communications and certain of its affiliates (the "Maxwell Notes"), and iv)
$0.01, representing consideration paid for the redemption of each right
under a shareholders rights agreement (the "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.
17
<PAGE>
APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES AUTHORIZED
UNDER THE COMPANY'S 1996 STOCK OPTION PLAN
DESCRIPTION OF THE 1996 STOCK OPTION PLAN
The 1996 Stock Option Plan (hereinafter referred to as the "Plan"), which
was approved by the Company's shareholders at the 1997 Annual Meeting of
Shareholders, authorizes the issuance of non-qualified stock options to
directors, officers and key employees of the Company. (See "Outstanding Plan
Benefits"). On February 25, 1998, the Compensation Committee of the Company's
Board of Directors authorized an increase in the total number of shares for
which options may be granted to 503,225 shares, subject to changes in
capitalization. This increase of 126,225 shares from the 377,000 shares approved
in 1997 is subject to shareholder approval. There have been no other
modifications to the Plan.
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.
Under the Plan, no employee may be granted options for more than 125,000
shares in any one 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 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, 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, 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
"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.
18
<PAGE>
OUTSTANDING PLAN BENEFITS
The following table provides information with respect to outstanding option
grants to the Named Executive Officers and other participants in the Plan as of
May 15, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
1996 STOCK OPTION PLAN UNDERLYING
NAME PRINCIPAL POSITION OPTIONS
- --------------------------------- ------------------------------------------------------------------ -----------
<S> <C> <C>
Hiromasa Yokoi Vice Chairman of the Board, CEO and President 46,220
Manuel Fernandez Executive Vice President and Chief Operating Officer, Worldwide 20,300
Language Instruction
Robert Minsky Executive Vice President, Corporate Planning and Marketing 20,300
Susumu Kojima Executive Vice President, Asia Division 18,320
Henry D. James Executive Vice President and Chief Financial Officer 20,300
All executive officers as a group (13 in number) 216,740
Non-executive director group (5 in number) 102,750
Non-executive officer employee group (5 in number) 43,460
Total participants (108 in number) 373,390
</TABLE>
Included with the non-executive director group is Soichiro Fukutake,
Chairman of the Board of Directors. 50,000 of Mr. Fukutake's 100,750 options
have been granted 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 under the Plan are intended to be "nonqualified" stock options
("NSOs") subject to Section 83 of the Code and are 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.
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
19
<PAGE>
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 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 AN INCREASE IN
THE NUMBER OF SHARES AUTHORIZED UNDER THE COMPANY'S 1996 STOCK OPTION PLAN FROM
377,000 TO 503,225.
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
On February 25, 1998, upon recommendation of the Audit Committee, the Board
of Directors selected Deloitte & Touche LLP to serve as independent accountants
of the Company for 1998. 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 1998. 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 1998.
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
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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 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.
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 1997 annual report on Form 10-K. The financial
statements and schedules thereto included in the Company's 1997 annual report on
Form 10-K are incorporated by reference herein.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 1997, 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.
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