<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 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 the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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 Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
May 7, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 annual meeting of shareholders
that will be held on Tuesday, June 8, 1999 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>
[LOGO]
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 8, 1999
Notice is hereby given that the 1999 annual meeting of shareholders (the
"Meeting") of Berlitz International, Inc. (the "Company") will be held at the
Rihga Royal Hotel, 151 West 54(th) St., New York, New York 10019 on Tuesday,
June 8, 1999 at 10:00 a.m. local time for the following purposes:
1. To elect two directors to serve one-year terms until the 2000 annual meeting
of shareholders and to elect six directors to serve two-year terms until the
2001 annual meeting of shareholders;
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 1999; and
3. To approve the adoption of the Company's 1999 Long Term Executive Incentive
Compensation Plan;
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 6, 1999 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 7, 1999
<PAGE>
BERLITZ INTERNATIONAL, INC.
400 Alexander Park
Princeton, New Jersey 08540
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 1999
The enclosed proxy is solicited by the Board of Directors of Berlitz
International, Inc. (the "Company") for use at the 1999 annual meeting of
shareholders (the "Meeting") to be held at the Rihga Royal Hotel, 151 West
54(th) St., New York, New York 10019 on Tuesday, June 8, 1999, 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 selection of Deloitte & Touche LLP as
independent accountants for the Company for 1999, and for approval of the
adoption of the 1999 Long Term Incentive Plan (the "1999 LTIP"). 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 6, 1999, 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 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 7, 1999.
ELECTION OF DIRECTORS
The Board of Directors of the Company, which was expanded effective as of
March 11, 1999 in connection with the issuance of convertible debentures to two
affiliates of Apollo Advisors, L.P. ("Apollo"), presently consists of twelve
members divided into two classes. At the Meeting, two directors will be elected
to hold office until the 2000 annual meeting of shareholders, one of whom will
be elected as successor to a retiring director, and six directors will be
elected to hold office for two-year terms until the 2001 annual meeting of
shareholders. All directors 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 eight
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.
INFORMATION AS TO NOMINEES FOR ELECTION AS DIRECTORS AND AS TO INCUMBENT
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, 1999. All nominees, except for Mr. Sugiyama, 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 2001 (EXCEPT FOR MR.
RESSLER AND MR. SUGIYAMA, WHO ARE TO BE ELECTED FOR TERMS TO EXPIRE IN 2000)
SOICHIRO FUKUTAKE, 53
Mr. Fukutake has served as Chairman of the Board of the Company since
February 1993. Mr. Fukutake joined Benesse Corporation ("Benesse") in 1973, and
since May 1986 has served as its President and Representative Director. Benesse,
formerly Fukutake Publishing Co., Ltd., is a publicly-held company that is the
beneficial owner of 6,985,338 shares of outstanding Common Stock and 1,664,145
shares of Common Stock which would be issuable upon conversion of $55 million in
convertible debentures. See "Security Ownership of Management and Others." Mr.
Fukutake 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.
ROBERT MINSKY, 54
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.
MAKOTO OBARA, 55
Mr. Obara joined Berlitz as Executive Vice President on January 1, 1999, and
was elected Chief Operating Officer, Worldwide Language Services (as successor
to Mr. Manuel Fernandez, who retired) effective March 31, 1999. From March 1998
to January 1999, Mr. Obara served as President and Chief Executive Officer of
Benesse Holdings International, Inc. From 1985 to February 1998, Mr. Obara
served as Vice President of Citibank/Citicorp, Private Banking (1992 to 1998);
Vice President and Senior Banker, Citicorp Venture Capital (1989 to 1991); Vice
President and Senior Banker, World Corporation Group of Citibank/Citicorp (1987
to 1989); and Vice President and Executive Director, Citibank/Citicorp Mexico
(1985 to 1987). From 1978 to 1985, Mr. Obara held positions of Section Manager
and Deputy General Manager with the Mitsubishi Corporation. He currently serves
on the Board of Directors of Technology Educational Network, and Benesse
Holdings International, Inc. On March 2, 1999, Mr. Obara was elected to the
Company's Board of Directors as the successor to Mr. Fernandez.
JAMES LEWIS, 41
Mr. Lewis has served as Executive Vice President and Chief Operating
Officer, Worldwide Translation Services, since January 1, 1999, prior to which
he was Vice President, Worldwide Translations since September 1, 1997.
Previously, Mr. Lewis most recently served in a number of executive level
positions with Globalink, Inc., including President and Director (1995 to 1997)
and Vice President, Worldwide Sales and Marketing (1995); Vice President,
Marketing of MAXM Systems Corporation (1994 to 1995); and Vice President,
International Operations, Landmark Systems Corporation (1992 to 1994). During
the period of 1983 to 1992, Mr. Lewis held a number of management positions with
Ashton-Tate Corporation, and Peter Norton Computing. On March 2, 1999, Mr. Lewis
was elected to the Company's Board of Directors as the successor to Mr. Susumu
Kojima.
LAURENCE M. BERG, 32
Mr. Berg has been associated with Apollo 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.
2
<PAGE>
Mr. Berg is a director of Continental Graphics Holdings, Inc.; Mariner Post
Acute Network, Inc.; and Rent-A-Center, 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 became a Director of the
Company on March 11, 1999.
TAKURO ISODA, 63
Mr. Isoda has served as a Senior Advisor for Nippon Investment & Finance Co.
Ltd. since July 1998, and previously served as its Chairman from June 1994 and
its President from January 1990 to May 1994. Prior to that, Mr. Isoda served in
various positions with Daiwa Securities since first joining the 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);
Webster Communications Corporation Plc., Wiltshire, UK (as an Advisor); and
Americans for Indian Opportunity, New Mexico (as an International Advisor). Mr.
Isoda has served as a Director of the Company since June 1998. He is currently a
member of the Audit Committee, the Compensation Committee, and the Disinterested
Directors Committee.
ANTONY P. RESSLER, 38
Mr. Ressler is a senior partner at Apollo (and one of its founding
principals in 1990). Apollo, together with its affiliates (including Apollo
Management IV, L.P.), act as managing general partner of Apollo Investment Fund,
L.P., AIF II, L.P., Apollo Investment Fund III, L.P. and Apollo Investment Fund
IV, L.P., which are private securities investment funds, and of Lim Advisors,
L.P., which acts as financial advisor to and representative for certain
institutional investors with respect to securities investments. 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.; Koo Koo Roo Enterprises,
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 dropout 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 became a Director
of the Company on March 11, 1999.
NAOTO SUGIYAMA, 41
Mr. Sugiyama has been nominated by the Nominating Committee of the Board of
Directors to succeed Mr. Kazuo Yamakawa, who will be retiring as a Director of
the Company. Mr. Sugiyama has served as General Manager of Benesse's Finance
Department since January 1998. Mr. Sugiyama has served in various other
positions with Benesse since first joining in January 1993, including as its
Deputy General Manager of Account Department (January 1997 to December 1997),
its Senior Manager of Account Department (January 1995 to December 1996) and its
Manager of Account Department (January 1993 to December 1994). From 1981 to
1992, Mr. Sugiyama served in various positions with The Sanwa Bank, Ltd.,
including Senior Manager of its Capital Market Department (April 1992 to
December 1992) and Senior Manager of its Brussels Branch (April 1991 to March
1992).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE EIGHT
DIRECTORS NAMED ABOVE.
3
<PAGE>
INCUMBENT DIRECTORS--TERMS EXPIRE IN 2000 (UNLESS OTHERWISE NOTED)
HIROMASA YOKOI, 59
Mr. Yokoi was elected Vice Chairman of the Board and Chief Executive Officer
of the Company in February 1993 and additionally was elected President effective
on August 31, 1993. Mr. Yokoi has served as a director of Benesse since June
1992 and its 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, 61
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. He is
currently a member of the Executive Committee.
EDWARD G. NELSON, 67
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 Research, Inc., 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, 63
Mr. Purdum is the retired Chairman of the Board of Armco, Inc. and currently
is a 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. 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, 59
Mr. Yamakawa has served as Director of Benesse Corporation and has
supervised its General Administration and Accounting Departments since June
1995. He also has served as General Manager of Benesse's Accounting Department
since January 1996. Since joining Benesse in April 1995, he served as Counselor
until June 1995. Prior to that, Mr. Yamakawa served in various positions with
The Shokochukin Bank, including Director (April 1993 to March 1995), General
Manager of its Tokyo Branch (April 1993 to March 1995), General Manager of the
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. Mr. Yamakawa will retire from the Board effective
upon the election of his successor at the 1999 Annual Meeting of Shareholders.
4
<PAGE>
1998 BOARD OF DIRECTORS MEETINGS, COMMITTEES AND FEES
During 1998, the Board of Directors of the Company met in person three
times, participated in one telephonic meeting and took action by unanimous
consent once.
In 1998, the Board of Directors had standing Executive, Audit, Disinterested
Directors, Compensation, and Nominating Committees.
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 1998.
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 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 1998.
The Disinterested Directors Committee reviews and monitors all matters
affecting the relationship between the Company and Benesse Corporation
("Benesse") and its affiliates. During 1998, the Disinterested Directors
Committee met in person once, participated in two telephonic meetings, and acted
by unanimous consent twice.
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 "1996 LTIP"), which replaced the 1993 Long-Term Executive
Incentive Compensation Plan (the "1993 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 1998, the Compensation Committee met two times.
The Nominating Committee nominates Directors and considers possible
successors to senior executives. During 1998, the Nominating Committee met once,
and took action by unanimous consent twice.
The Company's standard retainer payable to each director who is not an
employee of the Company or any of its affiliates is $35,000 per annum, plus
expenses, with an additional $2,000 for each Committee meeting attended in
person and $1,000 for each meeting participated in by telephone. No fees are
paid for actions taken by unanimous written consent. Only those directors who
are also full-time employees of the Company or any of its affiliates are
eligible to participate in the health benefit plan maintained by the Company.
Directors employed by the Company or any of its affiliates receive no
compensation in consideration of their duties as directors. The outside
directors earned an aggregate of approximately $155,000 as cash compensation for
their services during 1998.
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 and percentage of shares of Common
Stock beneficially owned as of March 12, 1999 by each director, nominee, the
Named Executive Officers, and all officers and directors as a group. If not
mentioned by name, no individual in the categories described above beneficially
owned any shares of Common Stock as of March 12, 1999. 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
BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- --------------------------------------------- ---------- ---------
<S> <C> <C> <C>
Common Soichiro Fukutake............................ 8,749,733(1) 60.15%(8)
Common Hiromasa Yokoi............................... 47,720(2) *
Common Manuel Fernandez............................. 28,545(3) *
Common Robert Minsky................................ 22,657(4) *
Common Henry D. James............................... 25,492(5) *
Common James Lewis.................................. 1,200 *
Common Edward G. Nelson............................. 1,500(6) *
Common Robert L. Purdum............................. 2,000 *
Common Antony Ressler............................... --(7) *
Common Laurence Berg................................ --(7) *
Common All Officers and Directors as a Group
(21 in number)............................... 8,985,046 61.77%(8)
</TABLE>
- ------------------------
(1) This amount includes: a) 6,985,338 shares of outstanding Common Stock
beneficially owned by Benesse and its subsidiary, Benesse Holdings
International ("BHI"); b) 1,664,145 shares of Common Stock which would be
issuable upon conversion of $55 million in convertible debentures (the
"Benesse Debentures") held by BHI; and c) 100,250 shares of Common Stock
which would be issuable under currently exercisable stock options held by
Mr. Fukutake. Mr. Fukutake is the President, Representative Director and
principal shareholder of Benesse. Consequently, he could be deemed to be in
ultimate control of Benesse and the beneficial owner of shares that it
beneficially owns. See "Security Ownership of Certain Beneficial Owners."
(2) Includes options to purchase 45,720 shares which are currently exercisable.
(3) Includes options to purchase 19,800 shares which are currently exercisable.
(4) Includes options to purchase 19,800 shares which are currently exercisable.
(5) Includes options to purchase 17,820 shares which are currently exercisable.
(6) An additional 1,000 shares of Common Stock, for which Mr. Nelson has
disclaimed ownership, are owned by Mr. Nelson's wife.
(7) Does not include 3,025,718 shares of Common Stock which would be issuable
upon conversion of $100 million in convertible debentures (the "Apollo
Debentures") held by two affiliates of Apollo. The beneficial ownership of
these shares is disclaimed by each of Mr. Ressler and Mr. Berg, whose
relationships with Apollo are described under "Executive Officers and
Directors of the Registrant".
(8) Assumes conversion of all convertible debentures held by Apollo and Benesse.
In the event that Apollo converted all of the Apollo Debentures but Benesse
did not convert any of the Benesse Debentures, Apollo would own
approximately 24% of the total Common Stock then outstanding. Alternatively,
in the event that Benesse converted all of the Benesse Debentures but Apollo
did not
6
<PAGE>
convert any of the Apollo Debentures, Benesse would own approximately 77% of
the total Common Stock then outstanding.
* Less than 1%
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
Benesse Holdings International, Inc. ("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.)
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 Stock:
<TABLE>
<CAPTION>
PERCENT
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- --------------------------------------------- --------- ---------
<S> <C> <C> <C>
Common Benesse Corporation(1)....................... 8,749,733 60.15%(3)
3-17-17 Minamigata
Okayama-shi 700, Japan
Common Apollo Advisors, L.P.(2)..................... 3,025,718 20.80%(3)
1999 Avenue of the Stars
Los Angeles, CA 90067
</TABLE>
- ------------------------
(1) Fukutake Publishing Co., Ltd. changed its name to Benesse Corporation on
April 1, 1995. As of March 12, 1999, 6,972,138 shares of outstanding Common
Stock are held by a BHI, a wholly owned subsidiary of Benesse, and 13,200
shares of outstanding Common Stock are held directly by Benesse. In
addition, 1,664,145 shares of Common Stock would be issuable upon conversion
of the Benesse Debentures held by BHI. An additional 100,250 shares of
Common Stock would be issuable under upon exercise of currently exercisable
stock options held by Mr. Fukutake. Soichiro Fukutake is the President,
Representative Director and principal shareholder of Benesse.
(2) Represents 3,025,718 shares of Common Stock which would be issuable upon
conversion of the Apollo Debentures held by two affiliates of Apollo.
(3) Assumes conversion of all convertible debentures held by Apollo and Benesse.
In the event that Apollo converted all of the Apollo Debentures but Benesse
did not convert any of the Benesse Debentures, Apollo would own
approximately 24% of the total Common Stock then outstanding. Alternatively,
in the event that Benesse converted all of the Benesse Debentures but Apollo
did not convert any of the Apollo Debentures, Benesse would own
approximately 77% of the total Common Stock then outstanding.
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, 1998, 1997 and 1996 for services rendered in all
capacities to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION (3)
----------------------------------- ------------------------
OTHER AWARDS OF
ANNUAL OPTIONS/ LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#) ($) ($)(4)
- ------------------------------------ --------- --------- --------- ------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hiromasa Yokoi...................... 1998 523,912 186,700 65,724 None 530,000 10,400
Vice Chairman of the Board, 1997 499,052 202,200 65,730 46,220 None 10,390
CEO and President 1996 480,000 84,000 60,469 None None 9,750
Manuel Fernandez.................... 1998 259,512 55,500 1,165 None 200,000 10,400
Executive Vice President and Chief 1997 251,908 65,000 23,671 20,300 None 10,400
Operating Officer, Worldwide 1996 240,000 40,900 990 None None 9,750
Language Instruction
Robert Minsky....................... 1998 247,117 52,800 979 None 200,000 10,400
Executive Vice President, 1997 240,000 35,000 926 20,300 None 10,400
Corporate Planning and Marketing 1996 240,000 10,000 874 None None 9,750
Henry D. James...................... 1998 234,809 69,800 894 None 186,000 10,400
Executive Vice President and Chief 1997 218,335 75,300 826 20,300 None 10,334
Financial Officer 1996 210,000 32,000 771 None None 9,750
James Lewis (1)..................... 1998 229,449 82,600 9,677 10,000 None 4,281
Vice President, Worldwide 1997 72,692 33,800 124,911 5,120 None None
Translations 1996 -- -- -- -- -- --
</TABLE>
- ------------------------
(1) Mr. Lewis' employment with the Company commenced on September 2, 1997.
(2) Other Annual Compensation for Mr. Yokoi primarily represents monthly housing
allowances. For Mr. Fernandez, this column includes relocation expense
reimbursements of $22,600 in 1997. For Mr. Lewis, this column represents
relocation expense reimbursements.
(3) The column designated by the SEC to report Restricted Stock Awards has been
excluded because the Company made no awards of restricted stock to the Named
Executive Officers during any portion of fiscal years 1996, 1997 or 1998.
There were no Common Stock restricted shares outstanding at December 31,
1998.
(4) The amounts reported in this column for 1998 include a contribution of up to
$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 up to $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 provides retirement
income/disability retirement benefits, retiree medical
8
<PAGE>
benefits and death benefits to the Chairman of the Board(1), 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 ALL OTHER PARTICIPANTS
DEFINED) ----------------------------------
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(2)) 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.
In 1998, the Company established an irrevocable grantor trust (the "Trust")
and contributed life insurance policies and annuity contracts on the SERP
participants to the Trust. Subject to the claims of the Company's general
creditors in the event of the Company's insolvency, the Trust's principal and
income shall be held therein until paid to the SERP participants in such manner
and at such times as specified in the SERP. It is the intention of the Company
that the Trust constitutes an unfunded arrangement and does not affect the
status of the SERP as an unfunded plan. Included within "Other assets" on the
Company's Consolidated Balance Sheet at December 31, 1998 is $2.5 million held
in the Trust.
The Named Executive Officers, all of whom are Initial Participants except
for Mr. Lewis, will each have at least 5 years of service at age 60. The
compensation covered under the SERP for each of the
- ------------------------
(1) The Chairman relinquished all benefits under the SERP in exchange for the
grant of 50,000 options on June 30, 1997 under the Company's 1996 Stock
Option Plan.
(2) In the case of the Chairman of the Board, who does not receive a salary from
the Company, the SERP benefits were based on an imputed salary determined by
the Company's Board of Directors.
9
<PAGE>
Named Executive Officers is shown under the "Salary" and "Bonus" columns of the
Summary Compensation Table.
OPTION/SAR GRANTS IN FISCAL YEAR 1998
The following awards were made pursuant to the 1996 Stock Option Plan
(hereinafter defined). See the "Compensation Committee Report" for a further
description.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANT DATE
OPTIONS GRANTED TO EXERCISE PRESENT
GRANT GRANTED EMPLOYEES IN PRICE EXPIRATION VALUE
NAME DATE (#) FISCAL YEAR ($/SH) DATE ($)(1)
- ---------------------------------------------- --------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
James Lewis................................... 12/4/98 10,000 38.85% $ 30.00 12/3/05 $ 82,900
</TABLE>
- ------------------------
(1) The fair value of each option grant during 1998, 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>
WEIGHTED AVERAGE ASSUMPTIONS
USED TO ESTIMATE FAIR VALUE:
- -------------------------------------------------------------------------------------
<S> <C>
Dividend yield....................................................................... 0.00%
Expected volatility.................................................................. 20.00%
Risk free interest rate.............................................................. 4.31%
Expected lives in years.............................................................. 5.00
Fair value of each option granted.................................................... $ 8.29
</TABLE>
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 also has a severance agreement with James Lewis which provides
that if Mr. Lewis is terminated other than for cause, he is to be paid 15 months
of 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. He also would receive a one-time relocation payment
equal to that which he received when joining the Company.
Due to his long service with the Company (36 years), Berlitz has agreed to
pay Mr. Fernandez a special monthly retirement benefit, commencing on his
retirement, equal to 10% of his average monthly salary and short-term incentive
payments during the 36 months preceding his retirement. This special payment is
in addition to the SERP payments payable to Mr. Fernandez and will continue
until Mr. Fernandez' death, after which one half of the special retirement
benefit will be paid to Mr. Fernandez' wife until her death. In addition, the
Company has agreed to pay Mr. Fernandez consulting fees totaling $180,000 for
consulting or advisory services as requested by the Company to be rendered by
Mr. Fernandez through December 31, 2000. The Company has also agreed to pay Mr.
Fernandez reasonable moving expenses to relocate to his retirement home in
Florida.
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.
10
<PAGE>
COMPENSATION COMMITTEE REPORT FOR FISCAL YEAR 1998
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 1996 LTIP (which has replaced the 1993 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 1998 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 for the 1998 and 1999
calendar years was discussed at Compensation Committee meetings held in 1997 and
1998. 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 1.8% and 3.3% for 1999 and 1998, respectively. The criteria
used to evaluate Company performance were sales and earnings figures, and return
on equity. The Committee believes that all such criteria were accorded equal
weight.
BONUSES
In 1993, the Committee approved the Short-Term Incentive Plan, commencing
with the 1993 calendar year, pursuant to which each executive officer is
eligible for an annual bonus based upon the officer's present employment
position, individual performance, and, through 1994, the total Company's
performance compared to earnings goals. In 1995, the Committee amended the
Short-Term Incentive Plan so that Division Vice Presidents would receive 1995
and subsequent years' awards based on 60% of divisional performance and 40% of
total Company performance. The Committee believes that individual performance
and Company performance are given approximately equal weight. The Short-Term
Incentive Plan also permits the Committee to award discretionary cash awards to
employees, who may or may not be participants under the Short-Term Incentive
Plan, subject to those terms and conditions as the Committee shall determine in
its sole discretion.
At its March 1999 meeting, the Committee approved, after discussion, 1998
bonuses for executive officers under the Short-Term Incentive Plan. Such bonuses
that were accrued for 1998 ranged up to 42% (and averaged 24%) 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 were accrued for
1998 were not material.
11
<PAGE>
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 1998, 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
1996 LTIP (hereinafter discussed), replaced the Company's then existing 1993
LTIP. The 1996 Stock Option Plan, as amended, authorizes the issuance of a
maximum of 503,225 options to directors and key executive employees of the
Company. The Company granted 327,200 of these options on June 30, 1997 at an
exercise price of $24.9375, 46,190 options on December 9, 1997 at an exercise
price of $26.5625, and 25,740 options on December 4, 1998 at an exercise price
of $30.00. Such exercise prices were based on the closing market price of the
Company's Common Stock on the New York Stock Exchange on the date of grant.
LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLANS
In 1993, the Committee approved the 1993 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 1993 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 1996 LTIP, which together with
the 1996 Stock Option Plan, replaced the 1993 LTIP. The 1996 LTIP provided 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 were met for the year
ended December 31, 1998. Common Stock price did not impact potential awards,
which could not exceed $5.0 million in the aggregate. While the 1996 LTIP's
minimum threshold for potential awards was lower than under the 1993 LTIP, the
1993 LTIP did not contain a limitation on maximum awards.
At its March 1999 meeting, the Committee approved, after discussion, the
issuance of $2.9 million in awards under the 1996 LTIP.
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 1998, pursuant to the plan documents, the
Company continued to contribute 3.5% of eligible employees' respective base
salary to the Pension Plan. During 1998, 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.
12
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
Hiromasa Yokoi's base salary for 1998 was approximately $524,000, and he
also earned a bonus of $186,700 for 1998 under the Short-Term Incentive Plan.
The Compensation Committee approved and ratified the compensation paid to Mr.
Yokoi for fiscal year 1998 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 1998 performance was taken into
consideration in determining Mr. Yokoi's 1998 compensation package. The
Committee believes that Mr. Yokoi's 1998 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 1998, the Compensation Committee consisted of Edward G. Nelson,
Robert L. Purdum and, from June 2, 1998, Takuro Isoda. Mr. Isoda's predecessor,
Aritoshi Soejima, retired on June 2, 1998. All of the views expressed by the
Compensation Committee in 1998 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 1998
Edward G. Nelson
Robert L. Purdum
Takuro Isoda
13
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, during 1998, the Compensation Committee consisted of
Edward G. Nelson, Robert L. Purdum and, from June 2, 1998, Takuro Isoda. Mr.
Isoda's predecessor, Aritoshi Soejima, retired on June 2, 1998. None of these
committee members were officers of the Company or any of its subsidiaries during
1998 or any previous year.
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.
Soichiro 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 and 1999: i) the inclusion
in 1993 of Mr. Fukutake as a participant in the 1993 LTIP; ii) the inclusion in
1995 of Mr. Fukutake as a participant in the SERP and the granting in 1995 of
additional performance units to Mr. Fukutake under the 1993 LTIP; iii) the
inclusion in 1996 of Mr. Fukutake in the 1996 Stock Option Plan; iv) the
issuance in 1997 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; and v) the grant of shares of Common Stock to Mr. Fukutake in
lieu of his participation in the 1999 LTIP.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Kazuo Yamakawa currently serves, and Naoto Sugiyama will serve, 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 Stock. Additionally, on April 29,
1997, the Company agreed to sell to BHI (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, 1998. Public
shareholders of the Company held the remaining outstanding Common Stock.
Soichiro Fukutake is the President, Representative Director and principal
shareholder of Benesse. 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").
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") provided for
maturity 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") had been satisfied. To the extent that interest
14
<PAGE>
payments on the U.S. or FHAI Notes were not permitted while any amounts remained
outstanding under the Bank Facility, such accrued interest rolled over
semiannually into the note principal. The Company recorded $2.2 million in
interest expense on the Benesse Notes in 1998.
The Benesse Notes ranked PARI PASSU with one another and were subordinate in
rights of payment to debt under the Bank Facility, including the currency coupon
swap agreements. Payment obligations under the U.S. Note were 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 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.
On March 11, 1999 (the "Issue Date"), the Company's shareholders approved
the issuance of, and the Company issued, $155 million aggregate principal amount
of 12-year convertible debentures (the "Convertible Debentures") in a private
placement, pursuant to definitive investment agreements (the "Investment
Agreements") dated as of October 2, 1998. Such debentures were issued as
follows: a) $100 million aggregate principal (the "Apollo Debentures") to two
affiliates of Apollo Management IV, L.P. ("Apollo"), a private investment firm;
and b) $55 million aggregate principal (the "Benesse Debentures") to BHI. In a
separate transaction, on March 11, 1999, BHI loaned $50 million to the Company,
evidenced by a 12-year fixed rate subordinated promissory note (the "BHI Note").
The Company has used the proceeds from the sale of the Convertible Debentures,
as well as proceeds from the BHI Note issuance, to repay in full all outstanding
indebtedness pursuant to the Company's existing Bank Facility and Benesse Notes,
and for general corporate purposes. Assuming conversion of all of the debentures
issued in the transaction, Apollo will own approximately 20% of the outstanding
Common Stock of Berlitz and BHI will own approximately 60%.
The Convertible Debentures bear interest at 5% per annum, payable
semi-annually. Principal amounts outstanding under such debentures are not due
until March 2011, and the Company is not required to establish a bond sinking
fund for repayment of this principal.
The Convertible Debentures are convertible at any time into shares of the
Company's Common Stock at a 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. The Company will, at all times, reserve out of its
authorized but unissued Common Stock the full number of shares then issuable
upon conversion of all outstanding Convertible Debentures.
The Apollo Debentures and Benesse Debentures each independently provide for
optional redemption by the Company, in whole but not in part, anytime after 3
years and 2 months. If the average closing price of the Company's Common Stock
for the 30 trading days following the third anniversary of the Issue Date
exceeds $39.66 per share, the Company may redeem at par. Otherwise, if the
Convertible Debentures are redeemed, the Company shall pay a redemption premium,
expressed as a percentage of outstanding principal, as follows: a) 4% for
redemptions occurring in the fourth year after issue; b) 2% for redemptions
occurring in the fifth year after issue; and c) 0% for redemptions occurring
thereafter. All such redemptions are subject to the holders' rights to first
convert into Common Stock.
The Convertible Debentures also allow Apollo and BHI to elect to exchange
their convertible debentures, in whole, into non-convertible, 7-year fixed rate
debt (the "Fixed Rate Debentures"). Such election may only be made if the
average closing price of the Common Stock during the 30 trading days immediately
preceding the third anniversary of the Issue Date does not exceed $33.05.
Furthermore, BHI may only effect an exchange if Apollo does so. Upon the
determination, by an independent financial institution, of fixed interest rates
that accurately price the Fixed Rate Debentures at par under specified
circumstances at the time of the exchange, Apollo and BHI shall irrevocably
decide whether to proceed with their exchanges. If only Apollo proceeds with
such an exchange, the Company, no later than 150 days from the third anniversary
of the Issue Date, must either a) redeem all of the Apollo Debentures at par, or
b) deliver the Fixed Rate Debentures to Apollo. If both Apollo and BHI proceed
with their exchanges, the
15
<PAGE>
Company, within the same 150 day period, shall either a) redeem both the Apollo
and Benesse Debentures, or b) deliver the Fixed Rate Debentures to both Apollo
and BHI.
Principal amounts outstanding under the Fixed Rate Debentures would not be
payable until maturity, while interest payments would be made semi-annually. The
Fixed Rate Debentures interest rate is subject to a cap of a) the applicable
U.S. treasury rate + 5% (not to exceed 13%) if only Apollo receives Fixed Rate
Debentures, or b) the applicable U.S. treasury rate + 7% (not to exceed 14%) if
both Apollo and BHI receives Fixed Rate Debentures. The Fixed Rate Debentures
may be redeemed by the Company after the third anniversary of their issue upon
payment of principal amounts of the Fixed Rate Debentures and the following
redemption premiums, expressed as a percentage of the outstanding principal
amount: a) one half of the per annum interest rate for redemptions occurring in
the fourth year after issue; b) one quarter of the per annum interest rate for
redemptions occurring in the fifth year after issue; and c) no premium for
redemptions occurring thereafter.
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, as defined in the Investment Agreements, 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) at a value equal to 101% of the principal amount
of the Convertible Debentures.
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, Inc. and Benesse.
The Investment Agreements include a number of other provisions, including:
a) the granting of certain demand and piggyback registration rights to the
holders of the Convertible Debentures; b) the granting of a certain number of
board seats to Apollo on the Company's Board of Directors; c) the granting of
approval rights to Apollo, at the Company's Board level, over certain
transactions; and d) certain restrictions on the transferability of the Apollo
Debentures.
The BHI Note bears interest for the first five years at 5.2% per annum, and,
thereafter, at a renegotiated fixed rate approximating LIBOR plus a margin based
on the Company's then existing leverage. Interest would be payable semiannually
in cash while principal repayment would be deferred until maturity. The BHI Note
includes standard covenants similar to those included in the Benesse Debentures.
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 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 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.
16
<PAGE>
The Company and Benesse participated in certain other joint business
arrangements during 1998, in the ordinary course of business, including the
following:
- Pursuant to extended industrial block contracts, 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 23.7 million Yen
(approximately $180,500 at an average 1998 exchange rate of Y131.06).
- The Company's subsidiary, Berlitz Franchising Corporation, is party to 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.
- Berlitz-Japan entered into an advisory agreement, dated April 1, 1998,
with Shinken Ad Co. Ltd. (owned 25% by Benesse) under which Shinken Ad Co.
Ltd. provides advisory services to Berlitz-Japan for an annual fee of 10
million Yen (approximately $75,000 based on the exchange rate in effect on
April 1, 1998).
- 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.
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, 1993, and ending on
December 31, 1998. 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 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.
17
<PAGE>
ITT Educational Services, Inc. and Education Management Corporation replace
Flightsafety International and National Education Corporation, two companies
which were formerly included in the Company's peer group, but which were no
longer publicly traded beginning in 1997.
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>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C>
Berlitz $100 $95 $120 $149 $194 $211
S&P 400 Index $100 $101 $134 $161 $208 $274
Peer Group Index $100 $107 $128 $221 $273 $406
</TABLE>
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
On March 2, 1999, upon recommendation of the Audit Committee, the Board of
Directors selected Deloitte & Touche LLP to serve as independent accountants of
the Company for 1999. 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 1999. 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
1999.
18
<PAGE>
APPROVAL OF THE ADOPTION OF THE COMPANY'S 1999 LONG TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
The 1999 Long Term Executive Incentive Compensation Plan (hereinafter
referred to as the "1999 LTIP") provides for potential cash awards to be paid to
senior management in 2002 if certain revenue, earnings and cash flow targets are
achieved for the three year period from 1999 to 2001 (the "Performance Period").
The 1999 LTIP is intended to be an unfunded plan, and the Company is not
required to establish any fund or segregate any assets for payments under it.
The purposes of the 1999 LTIP are to: (a) attract, motivate and retain executive
personnel of outstanding ability; (b) focus the attention of executive
management prospectively on achievement of sustained long-term results over the
three year period from 1999 to 2001; (c) foster management's attention on
overall corporate performance; and (d) provide executives with a direct economic
interest in the attainment of demanding long-term business objectives.
Initial participants in the 1999 LTIP shall be all employees of the Company
on January 1, 1999 having a title of Vice President or higher (that is, grades 1
through 3 of the Company's management structure), except for Mr. Fernandez, who
retired as Executive Vice President, Chief Operating Officer, Worldwide Language
Instruction, on March 31, 1999. Each participant shall be entitled to a
potential award (the "Participant Payout"), payable in 2002 unless deferred by
the participant, equal to the sum of the Plan Year Payout Amounts (hereinafter
defined) for each of the calendar years 1999, 2000 and 2001 (each, a "Plan
Year"). The Plan Year Payout Amount shall be the product of (i) the
participant's annual base salary in effect at the end of the Plan Year, (ii) the
Grade Level Multipler (see Table 1) for such participant on the last day of such
Plan Year, and (iii) the Total Performance Multipler (hereinafter defined) for
such Plan Year. For employees who become participants after January 1, 1999,
their Participant Payout shall be multiplied by a fraction, the numerator of
which is the number of months such employee was a participant in the 1999 LTIP
during the Performance Period and the denominator of which is 36.
The Grade Level Multiplier is defined as follows:
TABLE 1:
<TABLE>
<CAPTION>
GRADE LEVEL GRADE LEVEL MULTIPLIER
- ------------------------------------------------------------------------------------------- -----------------------
<S> <C>
1 (C.E.O.)................................................................................. 50%
2 (Executive Vice President and Senior Vice President)..................................... 35%
3 (Vice President)......................................................................... 20%
</TABLE>
19
<PAGE>
The Total Performance Multiplier is the sum of the Sales Performance
Multiplier, the EBITA(1) Performance Multiplier and the Free Cash Flow(2)
Performance Multiplier, each of which are further defined as follows:
- The Sales Performance Multiplier(3) is determined as follows:
(a) A fraction (the numerator of which is amount by which the percentage
of actual sales to that year's target sales exceeds 90% and the
denominator of which is 30%) is multiplied by 150%;
(b) The result in (a) is added to 50%;
(c) The result in (b) is multiplied by a weighting factor of 30%.
Target sales are $475 million, $516 million, and $566 million for 1999,
2000 and 2001, respectively.
- The EBITA Performance Multiplier(3) is determined as follows:
(a) A fraction (the numerator of which is amount by which the percentage
of actual EBITA to that year's target EBITA exceeds 90% and the
denominator of which is 30%) is multiplied by 150%;
(b) The result in (a) is added to 50%;
(c) The result in (b) is multiplied by a weighting factor of 50%.
Target EBITA is $40 million, $51 million, and $60 million for 1999, 2000
and 2001, respectively.
- The Free Cash Flow Performance Multiplier(4) is determined as follows:
(a) A fraction (the numerator of which is amount by which the percentage
of actual Free Cash Flow to that year's target Free Cash Flow exceeds 50%
and the denominator of which is 100%) is multiplied by 150%:
(b) The result in (a) is added to 50%;
(c) The result in (b) is multiplied by a weighting factor of 20%.
Target Free Cash Flow is $2 million, $12 million, and $11 million for
1999, 2000 and 2001, respectively.
The Total Performance Multiplier can range from a minimum of 0% to a maximum
of 200%.
- ------------------------
(1) EBITA as used herein is defined as sales less cost of services and products
sold, and selling, general and administrative expenses. It is calculated
using amounts determined in accordance with U.S. generally accepted
accounting principles ("U.S.GAAP"). EBITA is not a defined term under U.S.
GAAP and is not indicative of operating income or cash flows from operations
as determined under U.S. GAAP.
(2) Free Cash Flow is defined as cash flow from operating activities (as defined
under U.S. GAAP) minus capital expenditures.
(3) In any Plan Year, if actual Sales or EBITA results are less than 90% of that
year's target, the related Sales Performance Multiplier or EBITA Performance
Multiplier shall be deemed to be zero for that year. In addition, actual
results are capped at a maximum of 120% of the target for purposes of
calculating the Sales Performance Multiplier or EBITA Performance
Multiplier.
(4) In any Plan Year, if actual Free Cash Flow results are less than 50% of that
year's target, the Free Cash Flows Performance Multiplier shall be deemed to
be zero for that year. In addition, actual results are capped at a maximum
of 150% of the target for purposes of calculating the Free Cash Flow
Performance Multiplier.
20
<PAGE>
If, prior to December 31, 2001, a participant dies, becomes disabled,
retires on or after age 60, is transferred to the employ of an affiliate, or if
a participant's employment is terminated by the Company other than for cause,
the Participant Payout shall be multiplied by a fraction, the numerator of which
is the number of months the participant was employed in Grades 1 through 3 since
January 1, 1999, and the denominator of which is 36. A participant who
voluntarily terminates his employment on or prior to December 31, 2001 (other
than due to retirement on or after age 60) or a participant whose employment is
terminated for cause at any time prior to payment of any award shall forfeit any
right to receive a Participant Payout.
The 1999 LTIP shall be administered by the Compensation Committee of the
Company's Board of Directors. The Compensation Committee may amend or alter the
1999 LTIP, but no amendment or alteration shall be made that would (i) impair
the rights of any participant without the participant's consent or (ii) cause
compensation payable under the 1999 LTIP to fail to satisfy the requirements of
Section 162(m) of the Internal Revenue Code. In the event of a change in
control, the Compensation Committee may provide for each of the participants to
receive a Participant Payout immediately prior to the change of control.
NEW PLAN BENEFITS
The following table provides information with respect to potential plan
benefits to the Named Executive Officers and other participants in the 1999 LTIP
as of May 1, 1999. The Participant Payout is calculated assuming a 4% salary
increase per year (using 1999 as the base year) and a Total Performance
Multiplier of 100% for each of the 1999, 2000 and 2001 plan years.
<TABLE>
<CAPTION>
PARTICIPANT
NAME 1999 LTIP PRINCIPAL POSITION PAYOUT
- ------------------ -------------------------------------------------------------------------------- ------------
<S> <C> <C>
Hiromasa Yokoi Vice Chairman of the Board,..................................................... $ 835,000
CEO and President
Makoto Obara Executive Vice President and.................................................... 306,000
Chief Operating Officer,
Worldwide Language Services
Robert Minsky Executive Vice President,....................................................... 277,000
Corporate Planning and Marketing
Henry D. James Executive Vice President and.................................................... 273,000
Chief Financial Officer
James Lewis Executive Vice President and.................................................... 273,000
Chief Operating Officer,
Worldwide Translation Services
All executive officers as a group (13 in number).................................................... $ 3,100,000
Non-executive officer employee group (5 in number).................................................. 500,000
------------
Total participants (18 in number)................................................................... $ 3,600,000
------------
------------
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ADOPTION
OF THE 1999 LONG TERM EXECUTIVE INCENTIVE COMPENSATION PLAN.
Soichiro Fukutake, Chairman of the Board of Directors, will not participate
in the 1999 LTIP. However, in lieu of his participation, Mr. Fukutake will
receive awards of shares of Common Stock in each of 1999, 2000 and 2001. Mr.
Fukutake's Common Stock awards are based on an imputed annual salary of $145,000
(determined by the Company's Board of Directors) divided by the average closing
price of the Common Stock for the 10 trading days commencing March 31 in each of
1999, 2000 and 2001, rounded to the nearest 100 shares. Mr. Fukutake's Common
Stock award for 1999 will be 6,500 shares.
21
<PAGE>
VOTE REQUIRED
Under the NYBCL, approval of each nominee for director requires the
affirmative vote of a plurality of the shares of Common Stock represented and
entitled to be voted at the Meeting.
The vote occurring at the Meeting will be overseen by an inspector. The
inspector's duties include determining the number of shares represented at the
Meeting, counting all votes and ballots and certifying the determination of the
number of shares represented and the outcome of the balloting. The aggregate
number of votes entitled to be cast by all shareholders present in person or
represented by proxy at the Meeting will be counted for purposes of determining
the minimum number of affirmative votes required for the election of directors
and for the ratification of appointment of auditors. Thus, an abstention from
voting will have the same effect as a vote against matters that are to be voted
on at the Meeting.
SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS
Appropriate proposals from shareholders intending to be present at the 2000
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, 1999.
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 Stock held of record by such persons
and entities and will be reimbursed for their reasonable expenses incurred in
connection with forwarding such materials.
Shareholders who do not expect to attend in person are urged to sign, date
and return the enclosed proxy in the envelope provided. In order to avoid
unnecessary expense, we ask your cooperation in mailing your proxy promptly, no
matter how large or how small your holdings may be.
At the date of this Proxy Statement, management has no knowledge of any
business, other than that described herein, which will be presented for
consideration at the Meeting. In the event any other business is properly
presented at the Meeting, it is intended that the persons named in the enclosed
proxy will have authority to vote such proxy in accordance with their judgment
on such business.
The information required under Item 401 of Regulation S-K with respect to
executive officers of the Company is incorporated by reference herein to the
section entitled "Executive Officers and Directors of the Registrant" set forth
in part I of the Company's Form 10-K/A. The financial statements and schedules
thereto included in the Company's 1998 annual report on Form 10-K/A under Item 8
are incorporated by reference herein.
THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE FINANCIAL STATEMENT AND SCHEDULES THERETO BUT NOT INCLUDING
EXHIBITS 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.
22
<PAGE>
APPENDIX A TO SCHEDULE 14A
BERLITZ INTERNATIONAL, INC.
1999
LONG TERM
EXECUTIVE INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE.
The purpose of this Plan is to promote the interests of the Company by (a)
attracting, motivating and retaining executive personnel of outstanding ability;
(b) focusing the attention of executive management prospectively on achievement
of sustained long term results over the 3-year period from 1999-2001; (c)
fostering management's attention on overall corporate performance and thereby
promoting cooperation and teamwork among management of the operating units; and
(d) providing executives with a direct economic interest in the attainment of
demanding long term business objectives.
SECTION 2. DEFINITIONS.
As used in this Plan, the following capitalized terms shall have the
following meanings:
(a) "AFFILIATE" shall mean any entity controlling, controlled by or under
common control with, the Company.
(b) "AMORTIZATION" shall mean amortization of goodwill.
(c) "BOARD OF DIRECTORS" shall mean the board of directors of the Company,
as constituted from time to time.
(d) "CAUSE" shall mean (i) serious and repeated willful misconduct in
respect of a Participant's duties which has resulted in material, economic
damages to the Company or any Subsidiary, and, to the extent such misconduct is
susceptible to being cured, such misconduct continues for thirty days following
written notice to the Participant by the Company detailing such misconduct, (ii)
the final, unappealable conviction in a court of law of any crime or offense (A)
for which the Participant is imprisoned for a term of six months or more or (B)
that involves the commission of fraud or theft against, or embezzlement from,
the Company or any Subsidiary, or (iii) chronic alcoholism or abuse of
controlled substances.
(e) "CHANGE OF CONTROL" shall mean the happening of any of the following:
(i) A change of control of a nature that would be required to be
reported in response to any form or report to the Securities and Exchange
Commission or any stock exchange on which any of the Company's equity
securities are listed that requires the reporting of a change in control of
the Company; or
(ii) A majority of the members of the Board in office prior to the
happening of any event determines in its sole discretion that as a result of
such event there has been a Change of Control;
PROVIDED, HOWEVER, that a Change of Control shall not include a transaction
whereby Benesse Corporation, together with any of its Affiliates, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) directly
or indirectly, of securities of the Company representing 90 percent or more of
the combined voting power of the Company's then outstanding securities.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" shall mean the Compensation Committee of the Board of
Directors, as constituted from time to time.
(h) "COMPANY" shall mean Berlitz International, Inc., a New York
corporation.
A-1
<PAGE>
(i) "EBITA" shall mean sales less cost of services and products sold and
selling and general and administrative expenses for the year then ending (and
before any accrual for any payments under the Plan).
(j) "EBITA TARGET" shall mean (i) $40,000,000 for the 1999 Plan Year, (ii)
$51,000,000 for the 2000 Plan Year, and (iii) $60,000,000 for the 2001 Plan
Year.
(k) "EBITA WEIGHT FACTOR" shall mean fifty percent (50%).
(l) "EARNINGS" shall mean net earnings from continuing operations of the
Company and its Subsidiaries and before the cumulative effect of accounting
charges and extraordinary items.
(m) "EFFECTIVE DATE" shall mean January 1, 1999.
(n) "EMPLOYEE" shall mean a regular full-time employee of the Company or any
of its Subsidiaries.
(o) "FREE CASH FLOW" shall mean cash flow from operating activities minus
capital expenditures.
(p) "FREE CASH FLOW TARGET" shall mean (i) $2,000,000 for the 1999 Plan
Year, (ii) $12,000,000 for the 2000 Plan Year, and (iii) $11,000,000 for the
2001 Plan Year.
(q) "FREE CASH FLOW WEIGHT FACTOR" shall mean twenty percent (20%).
(r) "GRADES 1-3" shall mean those employment positions of the Company or a
Subsidiary thereof categorized by "Employment Grades", as the Committee may
determine in its sole discretion.
(s) "GRADE LEVEL MULTIPLIER" shall mean (i) fifty percent (50%) for
Participants who are in Grade 1 on the last day of the Plan Year (or if not an
Employee on the last day of the Plan Year, the last day of the Participant's
employment with the Company), (ii) thirty-five percent (35%) for Participants
who are in Grade 2 on the last day of the Plan Year (or if not an Employee on
the last day of the Plan Year, the last day of the Participant's employment with
the Company), and (iii) twenty percent (20%) for Participants who are in Grade 3
on the last day of the Plan Year (or if not an Employee on the last day of the
Plan Year, the last day of the Participant's employment with the Company).
(t) "MATURITY DATE" shall mean December 31, 2001.
(u) "PARTICIPANT" shall mean those Employees designated to participate in
the Plan pursuant to Section 3 hereof.
(v) "PARTICIPANT PAYOUT" shall mean the amount payable to a participant
hereunder as determined pursuant to Section 4(a). If applicable, the Participant
Payout for any given Participant shall be pro-rated in the manner specified in
Section 4(a) or 6.
(w) "PERFORMANCE TERM" shall mean January 1, 1999 through December 31, 2001.
(x) "PLAN" shall mean this 1999 Long Term Executive Incentive Compensation
Plan, as may be amended from time to time.
(y) "PLAN YEAR" shall mean the calendar year.
(z) "SALES" shall mean sales of the Company and its Subsidiaries for the
year then ended in accordance with the Company's revenue recognition policies
and generally accepted accounting principles.
(aa) "SALES TARGET" shall mean (i) $475,000,000 for the 1999 Plan Year, (ii)
$516,000,000 for the 2000 Plan Year, and (iii) $566,000,000 for the 2001 Plan
Year.
(bb) "SALES WEIGHT FACTOR" shall mean thirty percent (30%).
(cc) "SUBSIDIARY" shall mean any entity of which the Company owns, directly
or indirectly, securities or other interests of such entity possessing 50% or
more of the total combined voting power.
A-2
<PAGE>
SECTION 3. ELIGIBILITY.
Participants in the Plan shall consist of all Employees in Grades 1-3 on the
Effective Date, whose names are listed on Exhibit A hereto. Persons who become
Employees in Grades 1-3 after the Effective Date shall become a Participant on
the date they become an Employee in Grades 1-3. The names of such Participants
shall be set forth on Exhibit A hereto, which may be amended from time to time
to reflect the addition or deletion of Participants, in accordance with the
terms set forth herein.
SECTION 4. INCENTIVE AWARDS.
Awards to Participants under the Plan are potential awards that are based on
the achievement of certain EBITA, Sales and Free Cash Flow goals during the
Performance Term.
(a) PARTICIPANT PAYOUT. Subject to the other provisions of the Plan, each
Participant under the Plan shall be entitled to a Participant Payout which shall
be the sum of the Participant's Plan Year Payout Amount (as defined below) for
each of the Plan Years during the Performance Term, subject to pro-ration as set
forth below and in Section 6. The Participant's Plan Year Payout Amount for each
such Plan Year shall be the product of (i) the Participant's annual base salary
rate in effect at the end of such Plan Year, (ii) the Grade Level Multiplier for
such Participant in such Plan Year, and (iii) the Total Performance Multiplier
for such Plan Year, as described in Section 4(b). For the purpose of clause (i)
of the preceding sentence, (a) the annual base salary of any Participant whose
full time employment with the Company terminates as the result of such
Participant's death, disability, termination by the Company other than for
Cause, transfer to an Affiliate or retirement on or after age 60 shall be such
Participant's annual base salary at the time of such termination, and (b) the
annual base salary with respect to any Plan Year during the Performance Period
of any Participant who becomes a Participant after the end of such Plan Year,
shall be the Participant's base salary in effect at the end of the next
succeeding Plan Year during which the Participant is participating in the Plan.
The Participant Payout shall be paid at the time and in the manner set forth
in Section 5 below. For participants who are Participants during only a portion
of the Performance Period as a result of becoming a Participant after the
Effective Date, their Participant Payout shall be multiplied by a fraction, the
numerator of which is the number of months such Participant was a Participant in
the Plan during the Performance Period and the denominator of which is 36.
(b) TOTAL PERFORMANCE MULTIPLIER. In each Plan Year, the Total Performance
Multiplier shall equal the sum of (i) the EBITA Performance Multiplier, (ii) the
Sales Performance Multiplier and (iii) the Free Cash Flow Performance Multiplier
for such Plan Year:
(i) SALES PERFORMANCE MULTIPLIER.
For each Plan Year, the Sales Performance Multiplier shall equal (i) the
sum of the following: (a) the product of (1) a fraction, the numerator of
which is the amount by which actual Sales in such Plan Year OVER the Sales
Target for such Plan Year exceeds 90% and the denominator of which is 30%,
MULTIPLIED BY (2) 150%, plus (b) 50% MULTIPLIED BY (ii) the Sales Weight
Factor; PROVIDED, HOWEVER, that if actual Sales is less than 90% of the
Sales Target for such Plan Year the Sales Performance Multiplier shall equal
zero and actual Sales shall be capped at a maximum of 120% of the Sales
Target for purposes of calculating the Sales Performance Multiplier;
(ii) EBITA PERFORMANCE MULTIPLIER.
For each Plan Year, the EBITA Performance Multiplier shall equal (i) the
sum of the following (a) the product of (1) a fraction, the numerator of
which is the amount by which Actual EBITA in such Plan Year OVER the EBITA
Target in such Plan Year exceeds 90% and the denominator of which is 30%
MULTIPLIED by (2) 150% plus (b) 50%; MULTIPLIED BY (ii) the EBITA Weight
Factor; PROVIDED, HOWEVER, that if actual EBITA is less than 90% of the
EBITA Target for such Plan Year the EBITA
A-3
<PAGE>
Performance Multiplier shall equal zero and actual EBITA shall be capped at
120% of the EBITA Target for purposes of calculating the EBITA Performance
Multiplier; and
(iii) FREE CASH FLOW PERFORMANCE MULTIPLIER.
For each Plan Year, the Free Cash Flow Performance Multiplier shall
equal (i) the sum of the following (a) the product of (1) a fraction, the
numerator of which is the amount by which Actual Free Cash Flow in such Plan
Year OVER the Free Cash Flow Target in such Plan Year exceeds 50% and the
denominator of which is 100%, MULTIPLIED BY (2) 150%, plus (b) 50%
MULTIPLIED BY (ii) the Free Cash Flow Weight Factor; PROVIDED, HOWEVER, that
if actual Free Cash Flow is less than 50% of the Free Cash Flow Target for
such Plan Year the Free Cash Flow Performance Multiplier shall equal zero
and actual Free Cash Flow shall be capped at a maximum of 150% of the Free
Cash Flow Target for purposes of calculating the Free Cash Flow Performance
Multiplier.
SECTION 5. FORM AND TIME OF DETERMINATION OF AWARD PAYMENTS.
Except as otherwise provided for in this Section 5 or Section 7, a
Participant Payout shall be paid to the Participant following the Maturity Date
but not later than 30 days after the date of the opinion of the Company's
independent auditors certifying the Company's financial results for the 2001
calendar year (the "Payout Date"), unless, prior to December 31, 2000, such
Participant otherwise irrevocably elects to have all or a portion of his
Participant Payout paid at a later date not earlier than one year after, and not
later than five years after, the Payout Date (the "Deferred Payout Date"). If a
Participant elects to have all or a portion of his Participant Payout deferred
pursuant to the foregoing sentence, the deferred amount of his Participant
Payout shall be credited with interest from the Payout Date until the Deferred
Payout Date at the Prime Rate set by the Federal Reserve Bank of New York on the
Payout Date, adjusted semi-annually as of each June 30 and December 31.
SECTION 6. DEATH, DISABILITY, RETIREMENT, TRANSFER AND TERMINATION OF
EMPLOYMENT.
(a) DEATH, DISABILITY, RETIREMENT, AFFILIATE TRANSFER, OR TERMINATION
WITHOUT CAUSE. If prior to the Maturity Date, a Participant dies, becomes
disabled, retires on or after age 60, or if a Participant's employment is
terminated by the Company prior to such date other than for Cause, or if a
Participant is transferred to the employ of an Affiliate (other than a
Subsidiary), a pro rata portion of the award payment to which such Participant
would have become entitled hereunder shall be paid to the Participant in
accordance with the terms of this Plan. Such pro rata portion shall bear the
same ratio to the total Participant Payout as the number of months such
Participant was employed in Grades 1-3 between the Effective Date and the end of
the month in which such termination of employment or transfer occurs bears to
36. In the event the Participant's employment is terminated by the Company other
than for Cause, the Participant shall forfeit his or her award payment hereunder
if, before the award payment is made, such Participant violates a non-compete
provision in any applicable employment agreement.
(b) VOLUNTARY TERMINATION OR TERMINATION FOR CAUSE. A Participant who
voluntarily terminates his employment on or prior to the Maturity Date (other
than due to retirement on or after age 60) or a Participant whose employment is
terminated for Cause at any time prior to payment of any award hereunder shall
forfeit any right to receive any award payment. Any Participant who voluntarily
terminates his employment after the Maturity Date, but before the payment of any
award amount to which such Participant is otherwise entitled hereunder, shall be
paid such award amount in accordance with the other provisions of this Plan. It
is expressly understood that none of the events described in Section 6(a) above
shall be deemed a voluntary termination by such Participant pursuant to this
Section 6(b).
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SECTION 7. CHANGE OF CONTROL.
In the event of a Change of Control, the Committee may provide for each of
the Participants to receive a Participant Payout immediately prior to such
Change of Control. In the event the Committee provides for such payment and
actual EBITA, Sales and Free Cash Flow in any Plan Year during the Performance
Period is not determinable or is less than the EBITA, Sales or Free Cash Flow
Target for such year, then such Participant Payout shall be determined as if
actual EBITA, Sales and Free Cash Flow for each such Plan Year was equal to the
EBITA, Sales and Free Cash Flow Targets for such Plan Year.
SECTION 8. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall have
full power and authority to interpret and to construe the Plan, and all such
interpretations as well as all determinations made by the Committee pursuant to
the powers vested in it hereunder shall be conclusive and binding on all persons
having any interest in the Plan or in any awards granted hereunder.
SECTION 9. AMENDMENTS.
The Committee may amend or alter the Plan, but no amendment or alteration
shall be made that shall impair the rights of any Participant hereunder without
the Participant's consent or that shall cause the compensation payable under the
Plan to fail to satisfy the requirements of Section 162(m) of the Code.
SECTION 10. MISCELLANEOUS.
(a) NO RIGHT TO AWARDS OR CONTINUED EMPLOYMENT. No Employee shall have any
claim or right to be granted an award under the Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any Employee any right to be
retained in the employ of the Company or a Subsidiary thereof.
(b) UNFUNDED PLAN. This Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any award under the Plan.
(c) TAXES. The Company or any Subsidiary shall have the right to deduct
from all awards paid under the Plan any federal, state or local taxes required
by law to be withheld with respect to such payments.
(d) DETERMINATION OF EBITA, SALES AND FREE CASH FLOW. In determining
EBITA, Sales and Free Cash Flow for purposes of this Plan, (i) the operations of
any company or business acquired during the period on or after January 1, 1999
and on or before the Maturity Date along with any income or expense relating to
such acquisition, will be included, and (ii) in the case of any company or
business divested during the period on or after January 1, 1999 and on or before
the Maturity Date, the results of the operations until divestiture and the gain
or loss resulting upon such divestiture shall be included for the period on or
after the Effective Date and on or before the Maturity Date, along with any
income or expense relating to such divestiture.
(e) NON-TRANSFERABILITY. No award made hereunder may be assigned, pledged
or transferred, except, in the event of death of a Participant, by will or the
laws of descent and distribution, and any attempt to assign, pledge or transfer
such rights shall be void.
(f) RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, profit
sharing, group insurance or other benefit plan of the Company or any of its
Subsidiaries.
(g) GOVERNING LAW. This Plan shall be governed by and construed in
accordance with laws of the State of New York applicable to agreements made and
to be performed entirely within such state (without regard to any conflict of
law provisions that might indicate the applicability of any other laws).
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(h) SUCCESSORS AND ASSIGNS. This Plan and the obligations hereunder shall
be binding upon and inure to the benefit of any successors in interest to the
business of the Company and may be assigned to any company which acquires
substantially all the business operations or assets of the Company provided that
such successor assumes the obligations hereunder.
SECTION 11. EFFECTIVE DATE.
This Plan shall become effective as of the Effective Date, subject to
approval by the shareholders of the Company.
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EXHIBIT A
The initial Participants in the Berlitz International, Inc. 1999 Long Term
Executive Incentive Compensation Plan are as follows:
Hiromasa Yokoi
James Lewis
Makoto Obara
Henry James
Robert Minsky
Anthony Tedesco
Robert C. Hendon, Jr.
Ellen Adler
Jose Alvarino
Mark Harris
Brian Kelly
Susumu Kojima
Wolfgang Wiedeler
Alistair Gatoff
Frank Garton
Dave Horn
Lionel Mellet
Michael Strumpen-Darrie
