-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vj8gh73pnY6tAdqBkFyP/G9ympn5xj1pVq7lkDhkPqWdrxxfwzo4WBX7SdqV8E7v CXaLws5l2tx3R+lgHhVRAA== 0000215419-01-500007.txt : 20020410 0000215419-01-500007.hdr.sgml : 20020410 ACCESSION NUMBER: 0000215419-01-500007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHECKPOINT SYSTEMS INC CENTRAL INDEX KEY: 0000215419 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 221895850 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11257 FILM NUMBER: 1789876 BUSINESS ADDRESS: STREET 1: 101 WOLF DR STREET 2: P O 188 CITY: THOROFARE STATE: NJ ZIP: 08086 BUSINESS PHONE: 6096481800 10-Q 1 qdoc.txt 3RD QUARTER FORM 10-Q FOR PE 09/30/2001 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------ Commission file number 1-11257 ----------------------------------------------------- Checkpoint Systems, Inc. - ---------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 22-1895850 -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 Wolf Drive P.O. Box 188 Thorofare, New Jersey 08086 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (856) 848-1800 --------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- APPLICABLE ONLY TO CORPORATE ISSUERS: As of October 22, 2001, there were 31,661,280 shares of the Common Stock outstanding. CHECKPOINT SYSTEMS, INC. FORM 10-Q INDEX Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statement of Shareholders' Equity 5 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22 INDEX TO EXHIBITS 23 CHECKPOINT SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS Sept. 30, Dec. 31, 2001 2000 -------- -------- (Unaudited) ASSETS (Thousands) CURRENT ASSETS Cash and cash equivalents $ 47,685 $ 28,121 Accounts receivable, net of allowances of $12,710,000 and $12,427,000 153,980 176,479 Inventories, net 107,434 122,267 Other current assets 26,207 35,620 Deferred income taxes 7,349 8,668 ------- ------- Total current assets 342,655 371,155 REVENUE EQUIPMENT ON OPERATING LEASE, net 12,901 21,744 PROPERTY, PLANT AND EQUIPMENT, net 115,483 123,417 GOODWILL, net 240,762 245,241 OTHER INTANGIBLES, net 70,465 78,070 OTHER ASSETS 31,245 32,378 ------- ------- TOTAL ASSETS $813,511 $872,005 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings and current portion of long-term debt $ 39,650 $ 38,070 Accounts payable 33,865 41,996 Accrued compensation and related taxes 16,156 16,862 Income taxes 22,011 30,793 Unearned revenues 25,381 26,354 Restructuring reserve 8,201 17,707 Other current liabilities 45,577 46,299 ------- ------- Total current liabilities 190,841 218,081 LONG-TERM DEBT, LESS CURRENT MATURITIES 184,979 227,011 CONVERTIBLE SUBORDINATED DEBENTURES 120,000 120,000 OTHER LONG-TERM LIABILITIES 55,716 57,953 DEFERRED INCOME TAXES 9,960 10,734 MINORITY INTEREST 662 547 SHAREHOLDERS' EQUITY Preferred stock, no par value, authorized 500,000 shares, none issued Common Stock, par value $.10 per share, 3,801 3,664 Authorized 100,000,000 shares, issued 38,012,780 and 36,642,740 Additional capital 245,944 234,407 Retained earnings 122,550 108,458 Common stock in treasury, at cost, 6,359,200 shares (64,410) (64,410) Accumulated other comprehensive loss (56,532) (44,440) ------- ------- TOTAL SHAREHOLDERS' EQUITY 251,353 237,679 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $813,511 $872,005 ======= ======= See accompanying notes to Consolidated Financial Statements CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter Nine Months (13 weeks) Ended (39 weeks) Ended -------------------- -------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 ------- -------- ------- -------- (Thousands, except per share amounts) Net revenues $155,322 $171,225(1) $481,232 $502,540(1) Cost of revenues 92,560 99,642(1) 285,000 295,312(1) ------- ------- ------- ------- Gross Profit 62,762 71,583 196,232 207,228 Selling, general and administrative expenses 50,074 54,264 157,167 172,495 Integration expenses - 3,084 - 8,662 ------- ------- ------- ------- Operating income 12,688 14,235 39,065 26,071 Interest income 589 863 2,099 3,393 Interest expense 5,261 6,088 17,090 17,980 Other (loss)/income, net (767) (278) (787) (2,288) ------- ------- ------- ------- Earnings before income taxes 7,249 8,732 23,287 9,196 Income taxes 2,827 3,493 9,082 3,678 Minority interest (61) (31) (113) 2 ------- ------- ------- ------- Earnings before cumulative effect of change in accounting principle $ 4,361 $ 5,208 $14,092 $ 5,520 ======= ======= ======= ======= Cumulative effect of change in accounting principle - - - (5,020) ------- ------- ------- ------- Net earnings $ 4,361 $ 5,208 $14,092 $ 500 ======= ======= ======= ======= Earnings per share before cumulative effect of change in accounting principle: Basic $ .14 $ .17 $ .45 $ .18 ====== ====== ====== ====== Diluted $ .14 $ .17 $ .44 $ .18 ====== ====== ====== ====== Net earnings per share: Basic $ .14 $ .17 $ .45 $ .02 ====== ====== ====== ====== Diluted $ .14 $ .17 $ .44 $ .02 ====== ====== ====== ====== (1) Amounts have been reclassified to conform with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs. See accompanying notes to Consolidated Financial Statements CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Nine Months(39 Weeks) Ended Sept. 30, 2001 ----------------------------------------------------- Accumu- lated Other Addit- Compre- Common ional Retained hensive Treasury Stock Capital Earnings (Loss) Stock Total ------ ------- -------- ------ -------- ----- (Thousands) Balance, December 31, 2000 $3,664 $234,407 $108,458 $(44,440) $(64,410) $237,679 (Common shares: issued 36,642,740 reacquired 6,359,200) Net earnings 14,092 14,092 Exercise of stock options 137 11,537 11,674 (1,370,040 shares) Foreign currency translation adjustment (12,092) (12,092) ------ -------- -------- --------- --------- -------- Balance, September 30, 2001 $3,801 $245,944 $122,550 $(56,532) $(64,410) $251,353 ====== ======== ======== ========= ========= ======== (Common shares: issued 38,012,780 reacquired 6,359,200) See accompanying notes to Consolidated Financial Statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Quarter Nine Months (13 weeks) Ended (39 weeks) Ended -------------------- -------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- -------- -------- -------- (Thousands) Net earnings $ 4,361 $ 5,208 $ 14,092 $ 500 Foreign currency translation adjustment, net of tax 7,947 (4,131) (12,092) (7,193) ------ ----- ------ ----- Comprehensive income/(loss) $ 12,308 $ 1,077 $ 2,000 $ (6,693) ====== ===== ====== ===== See accompanying notes to Consolidated Financial Statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months(39 Weeks) Ended -------------------------- Sept. 30, Sept. 24, 2001 2000 -------- -------- (Thousands) Cash flows from operating activities: Net earnings $ 14,092 $ 500 Adjustments to reconcile net earnings to net cash provided by operating activities: Revenue equipment under operating lease 989 (2,081) Long-term customer contracts (3,599) 6,757 Depreciation and amortization 33,017 36,530 (Increase)/decrease in current assets net of the effects of acquired companies: Accounts receivable 15,912 (2,559) Inventories 11,934 (22,287) Other current assets 6,749 (10,401) Increase/(decrease) in current liabilities net of the effects of acquired companies: Accounts payable (8,512) (694) Accrued compensation and related taxes (881) (8,379) Income taxes (5,304) (8,878) Unearned revenues 3,424 8,743 Restructuring reserve (8,908) (15,619) Other current liabilities 2,473 14,425 ------- ------- Net cash provided/(used) by operating activities 61,386 (3,943) ------- ------- Cash flows from investing activities: Acquisition of property, plant and equipment (7,551) (10,642) Acquisitions, net of cash acquired (13,486) - Other investing activities 1,343 (5,929) ------- ------- Net cash used in investing activities (19,694) (16,571) ------- ------- Cash flows from financing activities: Proceeds from stock issuances 11,674 364 Proceeds of debt 6,686 379 Payment of debt (39,926) (30,836) ------- ------- Net cash used in financing activities (21,566) (30,093) ------- ------- Effect of foreign currency rate fluctuations on cash and cash equivalents (562) (3,856) ------- ------- Net increase/(decrease) in cash and cash equivalents 19,564 (54,463) Cash and cash equivalents: Beginning of period 28,121 87,718 ------- ------- End of period $ 47,685 $ 33,255 ======= ======= See accompanying notes to Consolidated Financial Statements. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF ACCOUNTING The consolidated financial statements include the accounts of Checkpoint Systems, Inc. and its majority-owned subsidiaries ("Company"). All inter-company transactions are eliminated in consolidation. The consolidated financial statements and related notes are unaudited and do not contain all disclosures required by generally accepted accounting principles. Refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for the most recent disclosure of the Company's accounting policies. The consolidated financial statements include all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company's financial position at September 30, 2001 and December 31, 2000 and its results of operations and changes in cash flows for the thirty-nine week periods ended September 30, 2001 and September 24, 2000. Certain reclassifications have been made to the 2000 financial statements and related footnotes to conform to the 2001 presentation. 2. INVENTORIES September 30, December 31, 2001 2000 ------------ ------------ (Thousands) Raw materials $ 10,793 $ 10,921 Work in process 5,622 6,819 Finished goods 91,019 104,527 ------- ------- $107,434 $122,267 ======= ======= Inventories are stated at the lower of cost (first-in, first-out method) or market. Cost includes material, labor and applicable overhead. 3. INCOME TAXES Income taxes are provided for on an interim basis at an estimated effective annual tax rate. The Company's net earnings generated by the operations of its Puerto Rico subsidiary are exempt from Federal income taxes under Section 936 of the Internal Revenue Code (as amended under the Small Business Job Protection Act of 1996) and substantially exempt from Puerto Rico income taxes. Under current law, this exemption from Federal income tax will remain in effect through 2001, will be subject to certain limits during the years 2002 through 2005, and will be eliminated thereafter. Under Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", deferred tax liabilities and assets are determined based on the difference between financial statement and tax basis of assets and liabilities using enacted statutory tax rates in effect at the balance sheet date. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 4. PER SHARE DATA The following data shows the amounts used in computing earnings per share and the effect on income and the weighted average number of shares of dilutive potential common stock: Quarter Nine Months (13 weeks) Ended (39 weeks) Ended -------------------- -------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- -------- -------- -------- (Thousands, except per share amounts) BASIC EARNINGS PER SHARE: Earnings before cumulative effect of change in accounting principle $ 4,361 $ 5,208 $ 14,092 $ 5,520 ======== ======== ======== ======== Net earnings $ 4,361 $ 5,208 $ 14,092 $ 500 ======== ======== ======== ======== Average common stock outstanding 31,654 30,211 31,064 30,203 Basic earnings per share before cumulative effect of change in accounting principle $ .14 $ .17 $ .45 $ .18 ======== ======== ======== ======== Basic earnings per share $ .14 $ .17 $ .45 $ .02 ======== ======== ======== ======== CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Quarter Nine Months (13 weeks) Ended (39 weeks) Ended -------------------- -------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- -------- -------- -------- (Thousands, except per share amounts) DILUTED EARNINGS PER SHARE: Earnings before cumulative effect of change in accounting principle available for common stock and diluted securities $ 5,322 $ 6,153 $ 16,974 $ 5,520 ======== ======== ======== ======== Net earnings available for common stock and diluted securities $ 5,322 $ 6,153 $ 16,974 $ 500(1) ======== ======== ======== ======== Average common stock outstanding 31,654 30,211 31,064 30,203 Additional common shares resulting from stock options 666 360 611 439 resulting from convertible debentures 6,528 6,528 6,528 - -------- -------- -------- -------- Average common stock and dilutive stock outstanding 38,848 37,099 38,203 30,642(1) Diluted earnings per share before cumulative effect of change in accounting principle $ .14 $ .17 $ .44 $ .18 ======== ======== ======== ======== Dilutive earnings per share $ .14 $ .17 $ .44 $ .02 ======== ======== ======== ======== (1) Conversion of the subordinated debentures is not included in the above calculation as the conversion price is anti-dilutive. 5. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes for the thirteen and thirty-nine week periods ended September 30, 2001, and September 24, 2000 were as follows: Quarter Nine Months (13 weeks) Ended (39 weeks) Ended ---------------------- --------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- -------- -------- -------- (Thousands) Interest $ 3,758 $ 6,674 $ 15,144 $ 16,807 Income Taxes $ 199 $ 469 $ 12,732 $ 12,091 CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 6. ACQUISITION OF A.W. PRINTING, INC. On January 9, 2001, the Company acquired A.W. Printing, Inc., a leading provider of high quality tags, labels and packaging products for the apparel industry. The acquisition was a cash transaction valued at approximately $13 million. The acquisition was accounted for under the purchase method. The results of the operations are included in the consolidated financial statements since the date of acquisition. The purchase price plus direct acquisition costs have been allocated on the basis of estimated fair value at the date of acquisition, pending final determination of the fair value of certain acquired assets and liabilities. 7. PROVISION FOR RESTRUCTURING Accrual Cash Accrual at Charged Increase Payments at Beginning to in (and Exchange Sept. 30, of 2001 Earnings Goodwill Rate Changes) 2001 --------- -------- -------- ------------ ------- (Thousands) Severance and other employee related charges $11,756 $ - $ - $ (8,142) $ 3,614 Lease termination costs 5,951 - - (1,364) 4,587 ------- ------- ------- -------- ------- $17,707 $ - $ - $ (9,506) $ 8,201 ======= ======= ======= ======== ======= The provision for restructuring was established in 1999, and updated in 2000, primarily for the severance and lease termination costs related to the acquisition of Meto AG in December 1999. At the end of the third quarter 2001, 546 of the 586 planned employee terminations had been completed and substantially all of the office/warehouses included in the restructuring plan had been vacated. Termination benefits are being paid out over a period of 1 to 24 months after termination. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8. BUSINESS SEGMENTS Quarter Nine Months (13 weeks) Ended (39 weeks) Ended ---------------------- --------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- --------- -------- --------- (Thousands) Business segment net revenue: Security $ 93,535 $106,165(1) $285,116 $302,846(1) Labeling Services 31,915 35,195(1) 103,855 107,400(1) Retail Merchandising 29,872 29,865(1) 92,261 92,294(1) ------- ------- ------- ------- Total $155,322 $171,225 $481,232 $502,540 ======== ======= ======= ======= Business segment gross profit: Security $ 37,247 $ 44,522 $114,992 $123,290 Labeling Services 9,426 10,464 30,932 $ 33,245 Retail Merchandising 16,089 16,597 50,308 50,693 ------- ------- ------- ------- Total $ 62,762 $ 71,583 $196,232 $207,228 ======= ======= ======= ======= (1) Amounts have been reclassified to conform with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs. 9. ADOPTION OF SFAS 133 In 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes a new model for the accounting and reporting of derivative and hedging transactions. The statement amends a number of existing standards and, as amended by SFAS No. 138, became effective for fiscal years beginning after June 15, 2000. As required, the Company adopted this standard as of January 1, 2001. This standard requires that all derivative instruments be reported on the balance sheet at fair value. For instruments designated as fair value hedges, changes in the fair value of the instrument will largely be offset on the income statement by changes in the fair value of the hedge item. For instruments designated as cash flow hedges, the effective portion of the hedge is reported in other comprehensive income until it is assigned to earnings in the same period in which the hedged item has an impact on earnings. For instruments designated as a hedge of net investment in foreign operating units not using the US dollar as its functional currency, changes in the fair value of the instrument will be offset in other comprehensive income to the extent that they are effective as economic hedges. Changes in the fair value of derivative instruments, including embedded derivatives, that are not designated as a hedge will be recorded each period in current earnings along with any ineffective portion of hedges. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The Company's adoption of SFAS No. 133 on January 1, 2001 did not change management's risk policies and practices. In compliance with the standard, the Company continues to record changes in value on the statement of operations. The Company's major market risk exposures are movements in foreign currency exchange and interest rates. The Company's policy generally is to hedge major foreign currency exposures through foreign exchange forward contracts. These contracts are entered into with major financial institutions thereby minimizing the risk of credit loss. The Company's policy is to manage interest rates through the use of various interest rate caps and swaps. The Company does not hold or issue derivative financial instruments for speculative or trading purposes. The Company is subject to other foreign exchange market risk exposure as a result of non-financial instrument anticipated foreign currency cash flows which are difficult to reasonably predict. The Company enters into currency exchange forward contracts to hedge short-term receivables from its foreign sales subsidiaries which are denominated in currencies other than the US dollar. The terms of the currency exchange forward contracts are rarely more than one year. The Company also entered into a range forward option in Euros, which provides the Company with limited protection against exchange rate volatility for converting Euros into US dollars. Unrealized and realized gains and losses on these contracts and options are included in other (loss)/income, net. Counter-parties to these contracts are major financial institutions, and credit loss from counter-party non-performance is not anticipated. In connection with the Company's floating rate debt under the senior collateralized multi-currency credit facility, the Company purchased interest rate caps to reduce the risk of significant Euro interest rate increases. The fair value and premiums paid for the instruments were not material. The interest rate caps are marked to market and the changes recorded in earnings. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 10. NEW ACCOUNTING PRONOUNCEMENTS AND OTHER STANDARDS In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. In accordance with SEC Staff Accounting Bulletin No. 101, the Company changed its accounting method for recognizing revenue on the sale of equipment where post-shipment obligations exist. Previously, the Company recognized revenue for equipment when title transferred, generally upon shipment. Beginning with the first quarter of year 2000, the Company began recognizing revenue when installation is complete or other post- shipment obligations have been satisfied. During the first quarter of 2000, the cumulative effect of the change in accounting method was a non-cash reduction in net earnings of $5.0 million, net of income tax benefit of $2.7 million or $0.16 per diluted share. The Emerging Issues Task Force (EITF) of the FASB reached consensus in 2000 on EITF 00-10, Accounting for Shipping and Handling Fees and Costs. This new accounting guidance was effective for the fourth quarter of 2000 and relates primarily to the classification of certain costs in the Company's Consolidated Statements of Operations with restatements of prior reporting required. The Company has reclassified a total of $1.0 million and $2.9 million for the third quarter and nine-months ended September 30, 2000 , respectively, in shipping and handling fees to net revenues from cost of revenues as a result of adopting this standard. The EITF reached a consensus in 2000 on Issue 00-14, Accounting for Certain Sales Incentives. The standard addresses the income statement classification of certain selling costs. Prior period restatements are required. In April 2001, the EITF reached a consensus to defer the effective date to quarters beginning after December 15, 2001. The Company does not expect the standard to result in a material reclassification in any period. In June 2001, the FASB approved the issuance of Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations and Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. For the Company, these statements will become generally effective December 31, 2001, although business combinations initiated after July 1, 2001 are subject to the non-amortization and purchase accounting provisions. The Company has not completed its evaluation of the impact of these new pronouncements on its financial statements. The FASB issued Statement of Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset Retirement Obligations on August 15, 2001 and Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of Long-Lived Assets on October 3, 2001. The statements become effective for the Company on December 30, 2002 and December 31, 2001 respectively. The effects of these pronouncements on the Company's financial statements are currently being assessed. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information relating to Forward-Looking Statements This report includes forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Except for historical matters, the matters discussed are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, that reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The following risk factors, among other possible factors, could cause actual results to differ materially from historical or anticipated results: (1) changes in international business conditions; (2) foreign currency exchange rate and interest rate fluctuations; (3) lower than anticipated demand by retailers and other customers for the Company's products, particularly in the current economic environment; (4) slower commitments of retail customers to chain-wide installations and/or source tagging adoption or expansion; (5) possible increases in per unit product manufacturing costs due to less than full utilization of manufacturing capacity as a result of slowing economic conditions or other factors; (6) the Company's ability to provide and market innovative and cost-effective products; (7) competitive pricing pressures causing profit erosion; (8) the availability and pricing of component parts and raw materials; (9) possible increases in the payment time for receivables, as a result of economic conditions or other market factors; (10) changes in regulations or standards applicable to the Company's products; and (11) unanticipated liabilities or expenses. More information about potential factors that could affect the Company's business and financial results is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, and the Company's other Securities and Exchange Commission filings. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - --------------------- The table below reflects sales and operating income for the quarter and nine months ended September 30, 2001 and September 24, 2000. Quarter Nine Months (13 weeks) Ended (39 weeks) Ended -------------------- --------------------- Sept. 30, Sept. 24, Sept. 30, Sept. 24, 2001 2000 2001 2000 -------- -------- -------- -------- (In Thousands) Net revenues $155,322 $171,225(1) $481,232 $502,540(1) Cost of revenues 92,560 99,642(1) 285,000 295,312(1) -------- -------- -------- -------- Gross profit 62,762 71,583 196,232 207,228 Selling, general and administrative expenses 50,074 54,264 157,167 172,495 -------- -------- -------- -------- Operating income before integration expenses 12,688 17,319 39,065 34,733 Integration expenses - 3,084 - 8,662 -------- -------- -------- -------- Operating income after integration expenses $ 12,688 $ 14,235 $ 39,065 $ 26,071 ======== ======== ======== ======== (1) Amounts have been reclassified to conform with Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs. The discussion that follows speaks to the comparisons in the above table through operating income before integration expenses. The integration expenses included above consist primarily of consulting, legal and marketing costs incurred in connection with integrating Meto/Checkpoint operations. Comparisons of all other income and expense items refer to the Consolidated Statements of Operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Third Quarter 2001 Compared to Third Quarter 2000 - --------------------------------------------------- Net Revenues Net revenues for the third quarter of 2001 decreased $15.9 million (or 9.3%) over the third quarter of 2000 (from $171.2 million to $155.3 million). Excluding the impact of foreign exchange of approximately $1.9 million, net revenues decreased 8.2% over the comparable 2000 quarter. The decrease in revenue was caused by lower sales volumes in the United States labeling services business and in South America due to a further deterioration in economic conditions in the third quarter of 2001. Cost of Revenues Cost of revenues decreased approximately $7.0 million (or 7.0%) over the third quarter of 2000 (from $99.6 million to $92.6 million). As a percentage of net revenues, cost of revenues increased from 58.2% to 59.6%. The increase in the Company's cost of revenues as a percentage of sales is attributable to negative manufacturing variances of approximately $1.6 million following the Company's effort to decrease inventory levels by reducing manufacturing production schedules. Selling, General and Administrative Expenses SG&A expenses decreased $4.2 million (or 7.7%) over the third quarter of 2000 (from $54.3 million to $50.1 million). As a percentage of net revenues, SG&A expenses increased from 31.7% to 32.2%. The increased percentage is a result of decreased net revenues while certain SG&A costs remained fixed. Other (Loss)/Income, net Other (loss)/income, net represented a net foreign exchange loss of $0.8 million and $0.3 million for the third quarter of 2001 and of 2000, respectively. Interest Expense and Interest Income Interest expense for the third quarter of 2001 decreased $0.8 million from the comparable quarter in 2000 (from $6.1 million to $5.3 million) due to debt repayment and declining Euro interest rates. Interest income for the third quarter of 2001 decreased by $0.3 million from the comparable quarter in 2000 (from $0.9 million to $0.6 million). Income Taxes The effective tax rate for the third quarter of 2001 was 39.0%. The effective tax rate during the third quarter of 2000 was 40.0%. The lower tax rate reflects the improvement in the profitability of the foreign subsidiaries in 2001, which results in less non-benefited losses. Net Earnings Net earnings for the third quarter were $4.4 million or $.14 per diluted share. Net earnings for the third quarter of 2000 before integration expenses were $7.1 million or $.22 per diluted share. Including integration expenses, net earnings for the third quarter of 2000 were $5.2 million or $.17 per diluted share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) First Nine Months 2001 compared to First Nine Months 2000 - ------------------------------------------------------------- Net Revenues Net revenues for the first nine months of 2001 decreased $21.3 million (or 4.2%) over the first nine months of 2000 (from $502.5 million to $481.2 million). Excluding the impact of foreign exchange of approximately $18.3 million, net revenues decreased 0.6% over the first nine months of 2000. The decrease in revenue was caused by further weakening in the retail and apparel industries during the quarter that impacted sales volume at our United States labeling services business. Also, slowing economic conditions in South America affected revenue and profit contributions from that region. Cost of Revenues Cost of revenues decreased approximately $10.3 million (or 3.5%) over the first nine months of 2000 (from $295.3 million to $285.0 million). As a percentage of net revenues, cost of revenues increased from 58.8% to 59.2%. The increase in the Company's cost of revenues as a percentage of sales is attributable to an increase in negative manufacturing variances of approximately $4.5 million following the Company's effort to decrease inventory levels by reducing manufacturing production schedules. This was partially offset by a reduction in field service costs. Selling, General and Administrative Expenses SG&A expenses decreased $15.3 million (or 8.9%) over the first nine months of 2000 (from $172.5 million to $157.2 million). As a percentage of net revenues, SG&A expenses decreased from 34.3% to 32.7%. The reduction is a result of the integration of the Meto operations and cost saving measures carried out in the fourth quarter of 2000. Included in the first nine months of 2001 is $1.6 million of pre-tax charges related to the exit of certain business segments in Belgium as well as costs associated with executive management changes that were implemented in the first quarter of 2001. Other (Loss)/Income, net Other (loss)/income, net represented a net foreign exchange loss of $0.8 million and $2.3 million for the first nine months of 2001 and of 2000, respectively. Interest Expense and Interest Income Interest expense for the first nine months of 2001 decreased $0.9 million from the comparable period in 2000 (from $18.0 million to $17.1 million) due primarily to debt repayment. Interest income for the first nine months of 2001 decreased by $1.3 million from the comparable period in 2000 (from $3.4 million to $2.1 million). Income Taxes The effective tax rate for the first nine months of 2001 was 39.0%. The effective tax rate during the first nine months of 2000 was 40.0%. The lower tax rate reflects the improvement in the profitability of the foreign subsidiaries in 2001, which results in less non-benefited losses. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Cumulative Effect Of Change In Accounting Principle In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. The SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in the financial statements. In accordance with SEC Staff Accounting Bulletin No. 101, the Company changed its accounting method for recognizing revenue on the sale of equipment where post-shipment obligations exist. Previously, the Company recognized revenue for equipment when title transferred, generally upon shipment. Beginning with the first quarter of year 2000, the Company began recognizing revenue when installation is complete or other post- shipment obligations have been satisfied. During the first quarter of 2000, the cumulative effect of the change in accounting method was a non-cash reduction in net earnings of $5.0 million, net of income tax benefit of $2.7 million, or $0.16 per diluted share. Net Earnings Net earnings for the first nine months of 2001 were $14.1 million or $.44 per diluted share. Net earnings for the first nine months of 2000 before integration expenses and cumulative effect of change in accounting principle were $10.7 million or $.35 per diluted share. Including integration expenses and the cumulative effect of change in accounting principle, net earnings for the first nine months of 2000 were $0.5 million or $.02 per diluted share. Exposure to International Operations Approximately 63% of the Company's sales are made in currencies other than U.S. dollars. Sales denominated in currencies other than U.S. dollars increase the Company's potential exposure to currency fluctuations which can affect results. Management cannot predict, with any degree of certainty, changes in currency exchange rates and therefore, the future impact that such changes may have on its operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) FINANCIAL CONDITION - ------------------- Liquidity and Capital Resources The Company's liquidity needs have related to, and are expected to continue to relate to, capital investments, acquisitions and working capital requirements. The Company has met its liquidity needs over the last three years primarily through funds provided by long-term borrowings and through cash generated from operations. The Company believes that cash provided from operating activities and funding available under its current credit agreements, should be adequate for its presently foreseeable working capital and capital investment requirements. The Company's operating activities generated approximately $61.4 million during the first nine months of 2001 and used approximately $3.9 million in the same period in 2000. This change from the prior year was primarily attributable to the improvement in earnings and the reduction in accounts receivable, inventories, and restructuring costs. Included in cash flow from operations for the first nine months of 2001 were $10.0 million of tax payments related to the satisfaction of a legacy Meto German tax liability and $8.9 million of restructuring liability payments. In December 1999, the Company completed the acquisition of Meto AG. In connection with the acquisition, the Company entered into a new $425 million six and one-half year senior collateralized multi-currency credit facility with a consortium of twenty-one banks led by the Company's principal lending bank. The credit facility, which expires on March 31, 2006, includes a $275 million equivalent multi-currency term note and a $150 million equivalent multi-currency revolving line of credit. Interest rates on the new facility reset quarterly and are based on the Eurocurrency base rate plus an applicable margin. At September 30, 2001, 195.4 million Euro (approximately $177.8 million) and $9.5 million were outstanding under the term loan. The outstanding borrowings under the revolving line of credit facility were 2.23 billion Japanese Yen (approximately $18.6 million). On March 15, 2001, the $150 million revolving line of credit was reduced at the Company's request to $100 million. The Company has never paid a cash dividend (except for a nominal cash distribution in April 1997, to redeem the rights outstanding under the Company's 1988 Shareholders' Rights Plan). The Company does not anticipate paying any cash dividend in the near future and is limited by existing covenants in the Company's debt instruments with regard to paying dividends. Management believes that its anticipated cash needs for the foreseeable future can be funded from cash and cash equivalents on hand, the availability under the $100 million revolving credit facility, and cash generated from future operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Capital Expenditures The Company's capital expenditures during the first nine months of fiscal 2001 totaled $7.6 million compared to $10.6 million during the first nine months of fiscal 2000. The higher expenditures during 2000 were primarily a result of an increased investment in the Company's global IT infrastructure combined with an investment in manufacturing equipment located in Puerto Rico. The Company anticipates its capital expenditures to approximate $10 million in 2001. Exposure to International Operations The Company manufactures product in the US, the Caribbean, Europe and Asia Pacific for both the local marketplace and for export to its foreign subsidiaries. The subsidiaries, in turn, sell these products to customers in their respective geographic areas of operation, generally in local currencies. This method of sale and resale gives rise to the risk of gains or losses as a result of currency exchange rate fluctuations. In order to reduce the Company's exposure resulting from currency fluctuations, the Company has been selectively purchasing currency exchange forward contracts on a regular basis. These contracts guarantee a predetermined exchange rate at the time the contract is purchased. This allows the Company to shift the risk, whether positive or negative, of currency fluctuations from the date of the contract to a third party. As of September 30, 2001, the Company had currency exchange forward contracts totaling approximately $20.5 million. The contracts are in the various local currencies covering primarily the Company's Western European operations along with the Company's Canadian and Australian operations. Historically, the Company has not purchased currency exchange forward contracts for its operations in South America and the Asia Pacific region. The Company will continue to evaluate the use of currency options in order to reduce the impact that exchange rate fluctuations have on the Company's net earnings from sales made by the Company's international operations. The combination of forward exchange contracts and currency options should reduce the Company's risks associated with significant exchange rate fluctuations. OTHER MATTERS - ------------- In June 2001, the FASB approved the issuance of Statement of Financial Accounting Standards No. 141 (SFAS 141), Business Combinations and Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. For the Company, these statements will become generally effective December 31, 2001, although business combinations initiated after July 1, 2001 are subject to the non-amortization and purchase accounting provisions. While the Company has not completed its evaluation of the impact of these new pronouncements on its financial statements, it is expected that future earnings will benefit by approximately $10 million to $12 million due to the cessation of amortization of both goodwill and intangible assets related to assembled workforce. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes to the market risks as disclosed in item 7a of the Company's Annual Report on Form 10-K filed for the year ending December 31, 2000, which is incorporated herein by reference. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits 10(iii)A. Employment Agreement with Michael E. Smith First Amendment to Employment Agreement with Michael E. Smith Second Amendment to Employment Agreement with Michael E. Smith Third Amendment to Employment Agreement with Michael E. Smith Employment Agreement with William J. Reilly, Jr. First Amendment to Employment Agreement with William J. Reilly, Jr. Second Amendment to Employment Agreement with William J. Reilly, Jr. Third Amendment to Employment Agreement with William J. Reilly, Jr. Employment Agreement with W. Craig Burns First Amendment to Employment Agreement with W. Craig Burns Employment Agreement with Neil D. Austin Employment Agreement with Arthur W. Todd (b) Reports on Form 8-K No reports on Form 8-K have been filed during the third quarter of 2001. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHECKPOINT SYSTEMS, INC. /s/ W. Craig Burns - ----------------------- November 14, 2001 Executive Vice President, Chief Financial Officer and Treasurer /s/ Arthur W. Todd - ------------------------ November 14, 2001 Vice President, Corporate Controller and Chief Accounting Officer INDEX TO EXHIBITS ----------------- EXHIBIT DESCRIPTION - ------- ----------- EXHIBIT 10(iii)A. Employment Agreement with Michael E. Smith First Amendment to Employment Agreement with Michael E. Smith Second Amendment to Employment Agreement with Michael E. Smith Third Amendment to Employment Agreement with Michael E. Smith Employment Agreement with William J. Reilly, Jr. First Amendment to Employment Agreement with William J. Reilly, Jr. Second Amendment to Employment Agreement with William J. Reilly, Jr. Third Amendment to Employment Agreement with William J. Reilly, Jr. Employment Agreement with W. Craig Burns First Amendment to Employment Agreement with W. Craig Burns Employment Agreement with Neil D. Austin Employment Agreement with Arthur W. Todd EX-10 2 ms2.txt M SMITH FIRST AMENDMENT FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement is made as of the 1st day of July, 1997 by and between Checkpoint Systems, Inc. ("CSI") and Michael E. Smith ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995 ("Agreement"); and WHEREAS, the parties wish to amend such Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and mutual promises and covenants contained herein and intending to be legally bound thereby, the parties agree as follows: 1. Article 1. Employment and Terms is hereby extended so that the expiration date shall be for a term of two (2) years beginning July 1, 1997. 2. All other terms of the Agreement shall remain the same. IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed as of the date first above written. CHECKPOINT SYSTEMS, INC. BY: BY: ------------------ ---------------------------- - ------------------------ --------------------------- Michael E. Smith EX-10 3 ms3.txt M SMITH SECOND AMENDMENT SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement is made as of the 25th day of March, 1999 by and between Checkpoint Systems, Inc. ("CSI") and Michael E. Smith ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995 ("Agreement") which was amended on July 1, 1997; and WHEREAS, the parties wish to amend the Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and mutual promises and covenants contained herein and intending to be bound hereby, the parties agree as follows: 1. Section 1. Employment and Term is hereby extended so that the expiration date of the Term shall be July 1, 2001. 2. Subsection 5C Termination is hereby amended and restated in its entirety as follows: "If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after termination) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of the Second Amendment to this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined), the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: (a) The Executive is assigned to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI or a substantial reduction of the aforesaid duties, in each case as set forth in Exhibit A to this Employment Agreement; (b) The relocation of the Executive's office to a geographic area which is more than thirty (30) miles from the city limits of Philadelphia; (c) An adjustment of the Executive's Base Salary pursuant to Section 3 which results in a reduction in the Executive's Base Salary; or (d) The failure by CSI to obtain the assumption of the obligation to perform this Agreement by any successor entity in the Change in Control. For the purposes of this Subsection 5C, the following terms shall have the following meanings: (a) A "Change in Control" occurs upon any one of the following circumstances or events: (i) The stockholders of CSI approve a transaction or transactions (however denominated or effectuated) with another corporation or other entity ("Combination"), and immediately after such transaction(s) less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or entity will be held in the aggregate by the holders of securities entitled, immediately prior to such Combination, to vote generally in the election of directors of CSI ("Voting Stock"); (ii) The stockholders of CSI approve a consolidation (however denominated or effectuated) pursuant to a recommendation of the Board of Directors; (iii) At any time, Continuing Directors (as herein defined) shall not constitute a majority of the members of the Board of Directors ("Continuing Director" means (i) each individual who has been a director of CSI for at least twenty-four (24) consecutive months before such time and (ii) each individual who was nominated or elected to be a director of CSI by at least two-thirds of the Continuing Directors at the time of such nomination or election); (iv) The stockholders of CSI approve the sale of all or substantially all of its assets to any other corporation or other entity, and less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or other entity immediately after such transaction will be held in the aggregate by the holders of Voting Stock immediately prior to such sale; (v) Any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than twenty percent (20%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); (vi) The stockholders of CSI approve a plan of complete liquidation or dissolution of CSI; or (vii) The Board of Directors determines by a majority vote that, because of the occurrence, or the threat or imminence of the occurrence, of another event or situation with import or effects similar to the foregoing, the Executive should be entitled to the benefits of this Section. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI-sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of twenty percent (20%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership. The foregoing definition shall supersede the definition of Change in Control set forth in Subsection 5D(ii) of the Agreement. (b) The "Change in Control Severance Benefits" shall be the following: (i) the amounts of the Executive's Base Salary and Bonus which are accrued and payable through the date of the termination of the Executive's employment, which amounts will be paid within thirty (30) days after the date the Executive's employment is terminated; (ii) a lump sum payment in an amount equal to two hundred percent (200%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated; (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401K benefits (in the same manner such payments are made as of the date of the Second Amendment to this Agreement) for a period of twenty four (24) months after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and (iv) in the event that any payment or benefit provided by CSI to the Executive (whether pursuant to this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (c) A "Potential Change in Control" occurs upon any one of the following circumstances or events: (i) CSI enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) CSI or any person or entity publicly announces an intention to take or consider taking actions which, if consummated, would result in the occurrence of a Change in Control; (iii) any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than fifteen percent (15%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Potential Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI-sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of fifteen percent (15%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership." 3. Subsection 5E. The second sentence of Subsection 5E is deleted and replaced with the following: "In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after the date he leaves the employ of CSI) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable at regular intervals and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay." 4. Exhibit A is amended as set forth in Exhibit A hereto. 5. All other terms of the Agreement shall remain the same. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed as of the date first above written. CHECKPOINT SYSTEMS, INC. By:__________________________ ____________________ MICHAEL E. SMITH EXHIBIT A TO EMPLOYMENT AGREEMENT EXECUTIVE VICE PRESIDENT This position reports directly to the President and CEO. The responsibilities of this position include: Worldwide marketing Worldwide research and development Supply chain management US customer and field service Checkpoint Japan manufacturing operation Diamond Checkpoint Joint Venture CSSG Business Unit Access Control Business Unit Strategic Planning and Development EX-10 4 ms4.txt M SMITH THIRD AMENDMENT THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This THIRD AMENDMENT TO THE EMPLOYMENT AGREEMENT is made as of the 17th day of July, 2001 by and between CHECKPOINT SYSTEMS, INC. ("CSI") and MICHAEL E. SMITH ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995, as amended on July 1, 1997 and March 25, 1999 ("Agreement"); and WHEREAS, CSI has determined it is in its best interests to modify the Agreement by amending the term of employment, as well as the term of the Covenant Against Competition, so as to enable the officers of CSI to negotiate a specific transaction ("Transaction"), as defined herein; WHEREAS, CSI wishes to provide additional compensation to Executive as an incentive to agree to the extension of the term and expansion of the scope of the Covenant Against Competition, as well as to encourage Executive to facilitate the success of the Transaction; NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained herein, and intending to be bound hereby, the parties agree as follows: 1. Section 1. Employment and Term is hereby amended so that the expiration date of the term shall be extended until December 31, 2001. 2. A new Section 5 shall be added as follows and the current Section 5 shall be renumbered as Section 6, and each subsequent section shall be renumbered sequentially: In the event of a "Change in Control" as defined in subsection 6.C.(a)(vii) of the Agreement, or in the event of the occurrence of a Transaction as compensation for the extension of the term and scope of the Covenant Against Competition of the Agreement by Executive, which action is intended to facilitate the aforesaid Change of Control or Transaction, he shall be entitled to receive a Payment (as defined in the Agreement) or fee ("Success Fee") in an amount equal to (a) two hundred thousand dollars ($200,000.00) in the event that the Transaction Value (as defined below) is equal to or less than Two Hundred Ninety Six Million Dollars ($296,000,000.00); or (b) if the Transaction Value exceeds Two Hundred Ninety Six Million Dollars ($296,000,000.00), .5% of the Transaction Value up to Four Hundred Thirty Five Million Dollars ($435,000,000.00), plus .663% of the Transaction Value in excess of Four Hundred Thirty Five Million Dollars ($435,000,000.00). The aforesaid Success Fee shall be payable with respect to any Transaction, in cash, upon consummation of such Transaction. No fee payable to any other financial advisor in connection with the Transaction shall reduce or otherwise affect any fee payable to the Executive. "Transaction Value" means the aggregate amount of consideration received by CSI and/or its stockholders (treating any shares issuable upon exercise of options, warrants, or other rights of conversion as outstanding) in any Transaction, plus, without duplication, the value of any securities, cash, or other assets distributed to stockholders of CSI. If more than one Transaction is consummated, a Success Fee shall be payable with respect to each such Transaction, in cash, upon consummation thereof, and the amount of the Success Fee in respect of such Transaction after the first shall be equal to the Success Fee that would have been payable having a Transaction Value equal to the aggregate Transaction Value of such Transactions, plus all Transactions previously consummated, less the aggregate amount of all Success Fees previously paid. A Success Fee shall be due and payable as provided herein if an agreement or letter of intent has been entered into during the Term of the Agreement, even if the Transaction contemplated therein is consummated subsequent to the Term. For purposes of this Agreement, a Transaction shall be deemed to have been consummated upon the earliest of any of the following events to occur: (a) the acquisition by another person of at least a majority of the outstanding common stock of, or voting power in CSI calculated on a fully-diluted basis; (b) a merger or consolidation of CSI with another person (other than a wholly owned subsidiary of CSI, which merger or consolidation results in a shareholder of CSI having the same interest in CSI as prior to consummation of such merger or consolidation); (c) the acquisition by another person of assets of CSI representing at least a majority of CSI's book value; (d) the acquisition by CSI of at least a majority of its outstanding equity securities; (e) the consummation of any recapitalization of CSI; (f) the receipt by stockholders of CSI of any cash, securities, or other assets to be distributed in any spin-off, split-off, or other extraordinary dividend; or (g) another person or group of persons obtaining the ability to elect a majority of the directors of CSI standing for election, whether or not such election is possible (by reason of classification of directors), at the next annual meeting of CSI's stockholders and whether or not such election occurs. Executive shall be entitled to the Success Fee set forth above in the event that at any time prior to the expiration of six (6) months after the termination of the Term of Employment, a Transaction is consummated. If the consideration or other value received in any Transaction is paid in whole or in part in the form of securities or other property or assets, the value of such securities or other property or assets, for purposes of calculating the Success Fee, shall be the fair market value thereof, on the day prior to the consummation of the Transaction; provided, however, that if any such securities consist of securities with an existing public trading market, the value thereof shall be determined by the last sales prior for such securities on the last trading day thereof prior to such consummation; provided further, that if such securities do not consist of securities with an existing public trading market, or if the parties are unable to agree on a fair market value for such securities or other property or assets, the parties shall submit such issue to a panel of three arbitrators located in Philadelphia, Pennsylvania (with one arbitrator being chosen by each party hereto and the third being jointly chosen by the parties hereto) for determination in accordance with the rules of the American Arbitration Association, which determination shall be binding upon each of the parties hereto. The Board of Directors of CSI ("Board") reserves the right to direct and control the process involved in negotiating and consummating a Transaction including, but not limited to engaging consultants, advisors and investment bankers and providing them with guidelines as to the type of Transaction to be considered. Executive acknowledges that the Board has excluded from consideration any Transaction that could result in a conflict of interest between management and the Board or shareholders of CSI. Executive acknowledges that the Board has the right to terminate discussions or negotiations relating to a Transaction at any time that the Board, in its sole discretion, determines that such Transaction is not in the best interests of the shareholders of CSI or could result in a conflict of interest between management and the Board or shareholders of CSI. 3. Subsection 7.B. (as hereby renumbered) shall be deleted in its entirety and restated as follows: B. Executive agrees not to compete in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, with CSI, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during the Term of this Agreement, and for a period of five (5) years following the date of termination of employment in any geographic area worldwide in which CSI is doing business. The foregoing restriction shall not apply to competition with an immaterial line of business of CSI which shall be defined as a line of business with gross sales of less than one percent (1%) of the total sales of CSI. Executive further agrees that at any time during the term of this Agreement and for a period of five (5) years following the date of termination, he shall not solicit any employee of CSI to leave his or her employment. 4. The first full paragraph of Subsection 6.C. (as hereby renumbered) shall be deleted in its entirety and restated as follows: C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 6.A. or 6.B. above, and provided that Executive is not in violation of the provisions of Section 7 hereof, Executive shall be entitled to receive severance pay for a period of thirty (30) months thereafter consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary payable within thirty (30) days of the date of termination, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined),the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: 5. Section 6.C.(b)(ii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (ii) a lump sum payment in an amount equal to two hundred ninety-nine percent (299%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated. 6. Section 6.C.(b) (iii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) for a period of thirty (30) months (or thirty-six (36) months as the case may be) after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and 7. The first full paragraph of Section 6.E. (as hereby renumbered) shall be deleted in its entirety and restated as follows: In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a pay for period of thirty (30) months consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable within thirty (30) days of the date of termination, and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay. 8. In all other respects, not inconsistent with this Amendment, the Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. ________________ _____________________________ By: WITNESS: _______________ ___________________________ Michael E. Smith EX-10 6 br1.txt B REILLY EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT BETWEEN WILLIAM J. REILLY, JR. AND CHECKPOINT SYSTEMS, INC. THIS AGREEMENT is made as of the 1st day of July, 1995, by and between CHECKPOINT SYSTEMS, INC. a Pennsylvania corporation ("CSI"), and WILLIAM J. REILLY, JR.("Executive"). BACKGROUND CSI is involved in providing integrated security and safety solutions for retail, industrial and institutional applications worldwide, both directly and through its affiliates. Executive has agreed to accept employment with CSI as its Senior Vice President Americas' and Pacific Rim and has agreed to furnish his skills to CSI and fulfill the duties of the aforementioned position as outlined in Exhibit "A", attached hereto and made a part hereof, on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment and Term. CSI hereby employs Executive as its Senior Vice President Americas' and Pacific Rim. Executive agrees to serve CSI in such capacity, subject to the terms and conditions of this Agreement,for a term of two (2) calendar years, commencing on the date hereof (the "Term"). 2. Duties. A. During the Term, Executive shall use his best efforts to perform all duties required in furtherance of his position as outlined in Exhibit "A" or as are assigned to him from time to time by the Chief Executive Officer of CSI. B. Executive shall diligently and faithfully devote his entire time, energy, skill, and best efforts to perform his duties under this Agreement. Executive shall conduct himself at all times so as to advance the best interests of CSI, and shall not undertake or engage in any other business activity or continue or assume any other business affiliations which conflict or interfere with the performance of his services hereunder without the prior written consent of the Chief Executive Officer of CSI. 3. Compensation. CSI shall pay Executive and Executive shall accept, as his base compensation for all services rendered to CSI pursuant hereto: A. During the Term, an annual base salary of $180,000. (the "Base Salary"), payable at regular intervals in accordance with CSI's normal payroll practice, which Base Salary shall be adjusted as of January 1st during the Term hereof, effective as of the aforesaid date. The amount of such adjustment, while in the discretion of the Chief Executive Officer and the Board of Directors, shall reflect Executive's performance; and B. In addition to the Base Salary payable to Executive under Subsection 3A above, upon achieving the certain goals and objectives as defined in CSI's Bonus Pool Plan, attached hereto as Exhibit B, an incentive bonus ("Bonus") shall be paid for each year of the Term in accordance with the terms of said Bonus Pool Plan, which Bonus Pool Plan may be amended or revoked by CSI at any time during the term hereof. 4. Fringe Benefits and Other Compensation. A. During the Term, Executive shall be entitled to participate in and receive the program of executive fringe benefits, subject only to Executive's meeting or satisfying the eligibility requirements and standards therefor with regard to health, life and disability insurance benefits. Said program of executive fringe benefits may be amended or revoked by CSI at any time during the term hereof. 5. Termination. A. Executive's employment and rights to compensation hereunder shall terminate immediately if Executive voluntarily leaves the employment of CSI, except that CSI shall have the obligation to pay Executive such portion of his Base Salary provided for in Subsection 3A hereof as may be accrued but unpaid (including vacation pay) on the date Executive voluntarily leaves the employment of CSI. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive voluntarily leaves the employment of CSI, it being the understanding of the parties that in this event, the amount and payment of any accrued Bonus shall be in the sole discretion of the Board of Directors of CSI. In the event that Executive voluntarily leaves the employment of CSI, he shall provide at least thirty (30) days written notice. B. CSI may upon written notice to Executive giving the reasons therefor terminate Executive's employment and his rights to compensation hereunder for cause. As used herein, the term "cause" shall include and be limited to, the following: conviction of Executive for any felony, fraud or embezzlement or crime of moral turpitude; being held liable by a court of competent jurisdiction for sexual harrassment in violation of applicable federal, state or local laws; controlled substance abuse, alcoholism or drug addiction which interferes with or affects Executive's responsibilities to CSI or which reflects negatively upon the integrity or reputation of CSI; or Executive's breach of any of the material covenants contained in this Agreement which breach is not cured within ten (10) days of the receipt of written notice thereof by Executive. If Executive is terminated for cause as provided above, Executive's employment and rights to compensation hereunder shall terminate immediately upon receipt of written notice except that CSI shall have the obligation to pay Executive such portion of his Base Salary as may be accrued but unpaid on the date his employment is terminated. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive is terminated for cause as provided above. C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such earlier date as Executive shall obtain other employment, but in no event less than twelve (12) months after termination) consisting of payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits contemporaneous with the severance pay. D. Executive shall not be considered to have voluntarily left his employment within the meaning of Section 5A if he leaves for any of the following reasons: (i) The assignment of the Executive to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI as defined herein or a substantial reduction of the aforesaid duties or responsibilities; (ii) In the event of a "Change in Control" as defined herein, any failure of CSI to obtain the assumption of the obligation to perform this Agreement as contemplated. For purposes of this Agreement, a "Change in Control" of CSI shall be deemed to have occurred if (a) any person or entity or group thereof acting in concert (an "Acquiror") acquires from the shareholders of CSI (whether through a merger, a consolidation, or otherwise) and possesses, directly or indirectly, the power to elect or appoint or approve the appointment of a majority of the Board of Directors and does, in fact, elect or appoint or approve the appointment of the majority of the Board; or (b) such Acquiror obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (c) the shareholders of CSI approve an agreement for the sale or disposition by CSI of all or substantially all of CSI's assets to an Acquiror; E. No later than six (6) months prior to the end of the Term of this Agreement, CSI and Executive shall commence negotiations for either an extension of Term or the entering into of a new agreement. In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay equal to his Base Salary at the end of the Term, for a period of eighteen (18) months from the date he leaves the employ (or such earlier date as Executive shall obtain other employment, but in no event less than twelve (12) months after termination) of CSI. If Executive is employed for the full calendar year, and employment is terminated for any reason, other than cause as defined in Section 5B, Executive shall be entitled to receive payment from the Bonus Plan, even if such payment is payable after Executive's employment has ceased. F. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, or if this Agreement is not renewed, CSI shall provide Executive outplacement consulting services comparable to those received by senior officials of similar organizations. G. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, CSI will continue the payment of Executive's total compensation at his then current rate for a period of six (6) months following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, CSI shall have no obligation for the Base Salary or other compensation payments to Executive during the continuance of such disability or incapacity, except that CSI shall pay to Executive, based upon the portion of the calendar year that Executive was able to perform his duties prior to the disability, the pro rata portion of the Bonus that Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). Executive shall receive CSI's standard disability coverage. H. If Executive dies, all payments hereunder shall continue for a period of two (2) months after the end of the week in which Executive's death shall occur, at which point such payments shall cease and CSI shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise, except that CSI shall pay to Executive's estate or legal representation, based upon the portion of the calendar year that Executive was employed by CSI prior to his death, the prorated portion of the Bonus Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). I. CSI's obligation to make payments hereunder is purely contractual and a general obligation of CSI and the amounts payable hereunder shall not be held by CSI in a trust or segregated fund for Employee nor shall Employee have any right against CSI or any director, officer or employee of CSI, in respect of any payment hereunder other than as a general creditor of CSI. J. Upon termination of employment, all vested stock options granted under the CSI Stock Option Plan (1992) will be treated in accordance with the terms of the CSI Stock Option Plan (1992). 6. Confidentiality and Covenant Not to Compete. A. Executive covenants and agrees that he will at all times keep confidential and will not at any time, except with the prior written consent of CSI, directly or indirectly, communicate or disclose or use for his benefit or the benefit of any Person (as defined in subsection 9E hereof) except CSI, any trade secrets or confidential or proprietary information of CSI or any of its affiliates including, but not limited to, strategic planning documents, data, reports, records, plans, policies, applications, and other documents, and Executive will also use his best efforts to prevent unauthorized disclosure by others. B. Executive agrees not to compete with CSI in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during this Agreement, and for a period of two years following the date of termination of employment in the area constituting the United States, Puerto Rico and Europe. C. The parties agree that any breach by Executive of the covenants contained in this Section 6 will result in irreparable injury to CSI for which money damages could not adequately compensate CSI, and therefore, in the event of any such breach, CSI shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Executive and/or any other Person involved therein from continuing such breach. The covenants contained in this Section 6 are independent of all other covenants between Executive and CSI. D. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. E. All information, lists, data, reports, records, plans, policies, applications, and other papers, articles, and materials of any kind relating to CSI's business and obtained by Executive in the course of his association with CSI, whether developed by him or not, shall be and remain CSI's property and will be returned to CSI along with any and all copies thereof, at such time as Executive ceases to be an employee of CSI. 7. Conflict of Interest. A. Executive represents and warrants that he is not subject to any restrictions or prohibitions whatsoever, and has no interest whatsoever, contractual or otherwise, which would in any way prevent, restrict or interfere with his right and/or ability to enter into this Agreement and perform hereunder, or which would create a conflict of interest for him or for CSI. B. Executive covenants that, during the Term, he will disclose to CSI, in writing, any and all interests he may have, whether for profit or compensation or not, in any venture or activity which could interfere with his ability to perform under this Agreement or create a conflict of interest for him or for CSI. 8. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, at the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: William J. Reilly, Jr. B. If to CSI, to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attn: Chairman of the Board of Directors C. In all cases, copies to Company's Counsel: Stradley, Ronon, Stevens & Young 2600 One Commerce Square Philadelphia, Pennsylvania 19103 Attn: William R. Sasso, Esquire D. In all cases, copies to Executive's Counsel: Gould & Wilkie 1 Chase Manhattan Plaza, 58th Floor New York, New York 10005 Attn: John Gould, Esquire 9. Additional Provisions. A. This Agreement shall inure to the benefit of and be binding upon CSI and its successors and assigns and Executive, his heirs, executors, administrators and legal representatives. B. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and cannot be changed or terminated orally. This Agreement supersedes all prior and contemporaneous written or oral agreements between the parties relating to the subject matter hereof. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. C. If any provision of this Agreement shall be or shall become illegal or unenforceable in whole or in part, for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. D. No failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. E. "Person" as used herein shall mean a natural person, joint venture, corporation, partnership, trust, estate, sole proprietorship, governmental agency or authority or other juridical entity. F. This is a personal service contract and may not be assigned by Executive. This Agreement may not be assigned by CSI to any affiliate of CSI which accedes to or otherwise carries on the business of CSI, whether by merger, liquidation, consolidation or otherwise,unless the duties and responsibilities of Executive remain substantially unchanged after such assignment. G. The headings of the several sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof. H. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to its conflicts of laws principles. Subject to the provisions of Subsection 6C hereof, all unresolved claims, demands or disputes between Executive and CSI arising out of or relating to this Agreement, or the parties' respective performances hereunder, shall be subject to binding arbitration in the local Chapter in Philadelphia, Pennsylvania pursuant to the Rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement for all costs, including reasonable attorneys' fees, associated with such arbitration. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. _______________ By:________________________________ WITNESS: ______________ ___________________________________ William J. Reilly, Jr. EXHIBIT A TO EMPLOYMENT AGREEMENT SENIOR VICE PRESIDENT - AMERICA'S AND PACIFIC RIM Responsible for corporate sales activities combined with that of senior executive for sales conducted in the America's and Pacific Rim. EXHIBIT B TO EMPLOYMENT AGREEMENT ________________________________________________ CHECKPOINT SYSTEMS, INC. AMENDED AND RESTATED PROFIT INCENTIVE PLAN RESOLVED, that the Management Incentive Plan ("MIP") is amended and restated in its entirety to provide that the revised plan shall be named the Profit Incentive Plan ("PIP"). The Chief Executive Officer, President and Chief Operating Officer and all Vice Presidents will participant in the PIP. Under the PIP, no bonus pool will be created unless pre-tax, pre bonus earnings exceed 18% of the beginning balance of Shareholders Equity for the relevant year. If such earnings are attained, a bonus pool will be created and will be equal to (i) 3% of all pre-tax, pre-bonus earnings plus (ii) 6% of pre-tax, pre-bonus earnings in excess of 27% of the beginning balance of Shareholders Equity for the relevant year. Distribution of the pool, if any, will be as follows: 20% to Mr. Dowd, the Company's President, Chief Executive Officer and Chief Operating Officer; 10% to Mr. Aguilera, the Company's Senior Vice President - Manufacturing; 10% to Mr. Selfridge, the Company's Senior Vice President - Operations and Chief Financial Officer; 5% to Mr. Austin, the Company's Vice President - General Counsel and Secretary, 10% to Mr. Reilly, the Company's Senior Vice President - Americas' and Pacific Rim; 10% to Mr. Smith, the Company's Senior Vice - Marketing and Western European Operations; 5% to Mr. Farestad, the Company's Vice President - Research and Development and the remaining 30% divided among the foregoing at the discretion of the Committee. EX-10 7 br2.txt B REILLY FIRST AMENDMENT FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement is made as of the 1st day of July, 1997 by and between Checkpoint Systems, Inc. ("CSI") and William J. Reilly, Jr. ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995 ("Agreement"); and WHEREAS, the parties wish to amend such Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and mutual promises and covenants contained herein and intending to be legally bound thereby, the parties agree as follows: 1. Article 1. Employment and Terms is hereby extended so that the expiration date shall be for a term of two (2) years beginning July 1, 1997. 2. All other terms of the Agreement shall remain the same. IN WITNESS WHEREOF, the parties have caused this First Amendment to be executed as of the date first above written. CHECKPOINT SYSTEMS, INC. BY: _______________________ BY: ______________________ ____________________________ __________________________ William J. Reilly, Jr. EX-10 8 br3.txt B REILLY SECOND AMENDMENT SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement is made as of the 25th day of March, 1999 by and between Checkpoint Systems, Inc. ("CSI") and William J. Reilly, Jr. ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995 ("Agreement") which was amended on July 1, 1997; and WHEREAS, the parties wish to amend the Agreement as set forth herein; NOW THEREFORE, in consideration of the premises and mutual promises and covenants contained herein and intending to be bound hereby, the parties agree as follows: 1. Section 1. Employment and Term is hereby extended so that the expiration date of the Term shall be July 1, 2001. 2. Subsection 5C Termination is hereby amended and restated in its entirety as follows: "If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after termination) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (payable in the same manner such payments are made as of the date of the Second Amendment to this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined), the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: (a) The Executive is assigned to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI or a substantial reduction of the aforesaid duties, in each case as set forth in Exhibit A to this Employment Agreement; (b) The relocation of the Executive's office to a geographic area which is more than thirty (30) miles from the city limits of Philadelphia; (c) An adjustment of the Executive's Base Salary pursuant to Section 3 which results in a reduction in the Executive's Base Salary; or (d) The failure by CSI to obtain the assumption of the obligation to perform this Agreement by any successor entity in the Change in Control. For the purposes of this Subsection 5C, the following terms shall have the following meanings: (a) A "Change in Control" occurs upon any one of the following circumstances or events: (i) The stockholders of CSI approve a transaction or transactions (however denominated or effectuated) with another corporation or other entity ("Combination"), and immediately after such transaction(s) less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or entity will be held in the aggregate by the holders of securities entitled, immediately prior to such Combination, to vote generally in the election of directors of CSI ("Voting Stock"); (ii) The stockholders of CSI approve a consolidation (however denominated or effectuated) pursuant to a recommendation of the Board of Directors; (iii) At any time, Continuing Directors (as herein defined) shall not constitute a majority of the members of the Board of Directors ("Continuing Director" means (i) each individual who has been a director of CSI for at least twenty-four (24) consecutive months before such time and (ii) each individual who was nominated or elected to be a director of CSI by at least two-thirds of the Continuing Directors at the time of such nomination or election); (iv) The stockholders of CSI approve the sale of all or substantially all of its assets to any other corporation or other entity, and less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or other entity immediately after such transaction will be held in the aggregate by the holders of Voting Stock immediately prior to such sale; (v) Any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than twenty percent (20%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); (vi) The stockholders of CSI approve a plan of complete liquidation or dissolution of CSI; or (vii) The Board of Directors determines by a majority vote that, because of the occurrence, or the threat or imminence of the occurrence, of another event or situation with import or effects similar to the foregoing, the Executive should be entitled to the benefits of this Section. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI-sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of twenty percent (20%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership. The foregoing definition shall supersede the definition of Change in Control set forth in Subsection 5D(ii) of the Agreement. (b) The "Change in Control Severance Benefits" shall be the following: (i) the amounts of the Executive's Base Salary and Bonus which are accrued and payable through the date of the termination of the Executive's employment, which amounts will be paid within thirty (30) days after the date the Executive's employment is terminated; (ii) a lump sum payment in an amount equal to two hundred percent (200%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated; (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401K benefits (payable in the same manner such payments are made as of the date of the Second Amendment to this Agreement) for a period of twenty four (24) months after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and (iv) in the event that any payment or benefit provided by CSI to the Executive (whether pursuant to this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (c) A "Potential Change in Control" occurs upon any one of the following circumstances or events: (i) CSI enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) CSI or any person or entity publicly announces an intention to take or consider taking actions which, if consummated, would result in the occurrence of a Change in Control; (iii) any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than fifteen percent (15%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Potential Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI- sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of fifteen percent (15%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership." 3. Subsection 5E. The second sentence of Subsection 5E is deleted and replaced with the following: "In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after the date he leaves the employ of CSI) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable at regular intervals and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay." 4. Exhibit A is amended as set forth in Exhibit A hereto 5. All other terms of the Agreement shall remain the same. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be executed as of the date first above written. CHECKPOINT SYSTEMS, INC. By:__________________________ ______________________________ WILLIAM J. REILLY, JR. EXHIBIT A TO EMPLOYMENT AGREEMENT EXECUTIVE VICE PRESIDENT This position reports directly to the President and CEO. The responsibilities of this position include: Full profit and loss responsibility for Domestic (US) sales units Retail Library Full profit and loss responsibility and operations responsibility for International sales units Asia Pacific Europe and Scandanavia Latin America Canada EX-10 9 br4.txt B REILLY THIRD AMENDMENT THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT is made as of the 17th day of July, 2001 by and between CHECKPOINT SYSTEMS, INC. ("CSI") and WILLIAM J. REILLY, JR. ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated July 1, 1995, as amended on July 1, 1997 and March 25, 1999 ("Agreement"); and WHEREAS, CSI has determined it is in its best interests to modify the Agreement by amending the term of employment, as well as the term of the Covenant Against Competition, so as to enable the officers of CSI to negotiate a specific transaction ("Transaction"), as defined herein; WHEREAS, CSI wishes to provide additional compensation to Executive as an incentive to agree to the extension of the term and expansion of the scope of the Covenant Against Competition, as well as to encourage Executive to facilitate the success of the Transaction; NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained herein, and intending to be bound hereby, the parties agree as follows: 1. Section 1. Employment and Term is hereby amended so that the expiration date of the term shall be extended until December 31, 2001. 2. A new Section 5 shall be added as follows and the current Section 5 shall be renumbered as Section 6, and each subsequent section shall be renumbered sequentially: In the event of a "Change in Control" as defined in subsection 6.C.(a)(vii) of the Agreement, or in the event of the occurrence of a Transaction as compensation for the extension of the term and scope of the Covenant Against Competition of the Agreement by Executive, which action is intended to facilitate the aforesaid Change of Control or Transaction, he shall be entitled to receive a Payment (as defined in the Agreement) or fee ("Success Fee") in an amount equal to (a) two hundred thousand dollars ($200,000.00) in the event that the Transaction Value (as defined below) is equal to or less than Two Hundred Ninety Six Million Dollars ($296,000,000.00); or (b) if the Transaction Value exceeds Two Hundred Ninety Six Million Dollars ($296,000,000.00), .5% of the Transaction Value up to Four Hundred Thirty Five Million Dollars ($435,000,000.00), plus .663% of the Transaction Value in excess of Four Hundred Thirty Five Million Dollars ($435,000,000.00). The aforesaid Success Fee shall be payable with respect to any Transaction, in cash, upon consummation of such Transaction. No fee payable to any other financial advisor in connection with the Transaction shall reduce or otherwise affect any fee payable to the Executive. "Transaction Value" means the aggregate amount of consideration received by CSI and/or its stockholders (treating any shares issuable upon exercise of options, warrants, or other rights of conversion as outstanding) in any Transaction, plus, without duplication, the value of any securities, cash, or other assets distributed to stockholders of CSI. If more than one Transaction is consummated, a Success Fee shall be payable with respect to each such Transaction, in cash, upon consummation thereof, and the amount of the Success Fee in respect of such Transaction after the first shall be equal to the Success Fee that would have been payable having a Transaction Value equal to the aggregate Transaction Value of such Transactions, plus all Transactions previously consummated, less the aggregate amount of all Success Fees previously paid. A Success Fee shall be due and payable as provided herein if an agreement or letter of intent has been entered into during the Term of the Agreement, even if the Transaction contemplated therein is consummated subsequent to the Term. For purposes of this Agreement, a Transaction shall be deemed to have been consummated upon the earliest of any of the following events to occur: (a) the acquisition by another person of at least a majority of the outstanding common stock of, or voting power in CSI calculated on a fully-diluted basis; (b) a merger or consolidation of CSI with another person (other than a wholly owned subsidiary of CSI, which merger or consolidation results in a shareholder of CSI having the same interest in CSI as prior to consummation of such merger or consolidation); (c) the acquisition by another person of assets of CSI representing at least a majority of CSI's book value; (d) the acquisition by CSI of at least a majority of its outstanding equity securities; (e) the consummation of any recapitalization of CSI; (f) the receipt by stockholders of CSI of any cash, securities, or other assets to be distributed in any spin-off, split-off, or other extraordinary dividend; or (g) another person or group of persons obtaining the ability to elect a majority of the directors of CSI standing for election, whether or not such election is possible (by reason of classification of directors), at the next annual meeting of CSI's stockholders and whether or not such election occurs. Executive shall be entitled to the Success Fee set forth above in the event that at any time prior to the expiration of six (6) months after the termination of the Term of Employment, a Transaction is consummated. If the consideration or other value received in any Transaction is paid in whole or in part in the form of securities or other property or assets, the value of such securities or other property or assets, for purposes of calculating the Success Fee, shall be the fair market value thereof, on the day prior to the consummation of the Transaction; provided, however, that if any such securities consist of securities with an existing public trading market, the value thereof shall be determined by the last sales prior for such securities on the last trading day thereof prior to such consummation; provided further, that if such securities do not consist of securities with an existing public trading market, or if the parties are unable to agree on a fair market value for such securities or other property or assets, the parties shall submit such issue to a panel of three arbitrators located in Philadelphia, Pennsylvania (with one arbitrator being chosen by each party hereto and the third being jointly chosen by the parties hereto) for determination in accordance with the rules of the American Arbitration Association, which determination shall be binding upon each of the parties hereto. The Board of Directors of CSI ("Board") reserves the right to direct and control the process involved in negotiating and consummating a Transaction including, but not limited to engaging consultants, advisors and investment bankers and providing them with guidelines as to the type of Transaction to be considered. Executive acknowledges that the Board has excluded from consideration any Transaction that could result in a conflict of interest between management and the Board or shareholders of CSI. Executive acknowledges that the Board has the right to terminate discussions or negotiations relating to a Transaction at any time that the Board, in its sole discretion, determines that such Transaction is not in the best interests of the shareholders of CSI or could result in a conflict of interest between management and the Board or shareholders of CSI. 3. Subsection 7.B. (as hereby renumbered) shall be deleted in its entirety and restated as follows: B. Executive agrees not to compete in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, with CSI, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during the Term of this Agreement, and for a period of five (5) years following the date of termination of employment in any geographic area worldwide in which CSI is doing business. The foregoing restriction shall not apply to competition with an immaterial line of business of CSI which shall be defined as a line of business with gross sales of less than one percent (1%) of the total sales of CSI. Executive further agrees that at any time during the term of this Agreement and for a period of five (5) years following the date of termination, he shall not solicit any employee of CSI to leave his or her employment. 4. The first full paragraph of Subsection 6.C. (as hereby renumbered) shall be deleted in its entirety and restated as follows: C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 6.A. or 6.B. above, and provided that Executive is not in violation of the provisions of Section 7 hereof, Executive shall be entitled to receive severance pay for a period of twenty-four (24) months thereafter consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary within thirty (30) days of the date of termination, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined),the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: 5. Section 6.C.(b)(ii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (ii) a lump sum payment in an amount equal to two hundred fifty percent (250%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated. 6. Section 6.C.(b) (iii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) for a period of twenty four (24) months (or thirty (30) months as the case may be) after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and 7. The first full paragraph of Section 6.E. (as hereby renumbered) shall be deleted in its entirety and restated as follows: In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a pay for period of twenty-four (24) months consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable within thirty (30) days of the date of termination, and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay. 8. In all other respects, not inconsistent with this Amendment, the Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. ___________________________ By: ____________________ WITNESS: __________________ ____________________ William J. Reilly, Jr. EX-10 10 cb1.txt C BURNS EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT BETWEEN W. CRAIG BURNS AND CHECKPOINT SYSTEMS, INC. THIS AGREEMENT is made as of the 27 day of April, 2000, by and between CHECKPOINT SYSTEMS, INC. a Pennsylvania corporation ("CSI"), and W. CRAIG BURNS ("Executive"). BACKGROUND CSI is involved in providing integrated security and safety solutions for retail, industrial and institutional applications worldwide, both directly and through its affiliates. Executive has agreed to accept employment with CSI as its Vice President - Finance, Chief Financial Officer and Treasurer and has agreed to furnish his skills to CSI and fulfill the duties of the aforementioned position as outlined in Exhibit "A", attached hereto and made a part hereof, on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment and Term. CSI hereby employs Executive as its Vice President - - Finance, Chief Financial Officer and Treasurer. Executive agrees to serve CSI in such capacity, subject to the terms and conditions of this Agreement, for a term of two (2) calendar years, commencing on the date hereof (the "Term"). 2. Duties. A. During the Term, Executive shall use his best efforts to perform all duties required in furtherance of his position as outlined in Exhibit "A" or as are assigned to him from time to time by the Chief Executive Officer of CSI. B. Executive shall diligently and faithfully devote his entire time, energy, skill, and best efforts to perform his duties under this Agreement. Executive shall conduct himself at all times so as to advance the best interests of CSI, and shall not undertake or engage in any other business activity or continue or assume any other business affiliations which conflict or interfere with the performance of his services hereunder without the prior written consent of the Chief Executive Officer of CSI. 3. Compensation. CSI shall pay Executive and Executive shall accept, as his base compensation for all services rendered to CSI pursuant hereto: A. During the Term, an annual base salary of $200,000., (the "Base Salary"), payable at regular intervals in accordance with CSI's normal payroll practice, which Base Salary shall be adjusted as of January 1st during the Term hereof, effective as of the aforesaid date. The amount of such adjustment, while in the discretion of the Chief Executive Officer and the Board of Directors, shall reflect Executive's performance; and B. In addition to the Base Salary payable to Executive under Subsection 3A above, upon achieving the certain goals and objectives as defined in CSI's Bonus Pool Plan, attached hereto as Exhibit B, an incentive bonus ("Bonus") shall be paid for each year of the Term in accordance with the terms of said Bonus Pool Plan, which Bonus Pool Plan may be amended or revoked by CSI at any time during the term hereof. 4. Fringe Benefits and Other Compensation. A. During the Term, Executive shall be entitled to participate in and receive the program of executive fringe benefits, subject only to Executive's meeting or satisfying the eligibility requirements and standards therefor with regard to health, life and disability insurance benefits. Said program of executive fringe benefits may be amended or revoked by CSI at any time during the term hereof. 5. Termination. A. Executive's employment and rights to compensation hereunder shall terminate immediately if Executive voluntarily leaves the employment of CSI, except that CSI shall have the obligation to pay Executive such portion of his Base Salary provided for in Subsection 3A hereof as may be accrued but unpaid (including vacation pay) on the date Executive voluntarily leaves the employment of CSI. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive voluntarily leaves the employment of CSI, it being the understanding of the parties that in this event, the amount and payment of any accrued Bonus shall be in the sole discretion of the Board of Directors of CSI. In the event that Executive voluntarily leaves the employment of CSI, he shall provide at least thirty (30) days written notice. B. CSI may upon written notice to Executive giving the reasons therefor terminate Executive's employment and his rights to compensation hereunder for cause. As used herein, the term "cause" shall include and be limited to, the following: conviction of Executive for any felony, fraud or embezzlement or crime of moral turpitude; being held liable by a court of competent jurisdiction for sexual harassment in violation of applicable federal, state or local laws; controlled substance abuse, alcoholism or drug addiction which interferes with or affects Executive's responsibilities to CSI or which reflects negatively upon the integrity or reputation of CSI; or Executive's breach of any of the material covenants contained in this Agreement which breach is not cured within ten (10) days of the receipt of written notice thereof by Executive. If Executive is terminated for cause as provided above, Executive's employment and rights to compensation hereunder shall terminate immediately upon receipt of written notice except that CSI shall have the obligation to pay Executive such portion of his Base Salary as may be accrued but unpaid on the date his employment is terminated. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive is terminated for cause as provided above. C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after termination) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined), the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: (a) The Executive is assigned to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI or a substantial reduction of the aforesaid duties, in each case as set forth in Exhibit A to this Employment Agreement; (b) The relocation of the Executive's office to a geographic area which is more than thirty (30) miles from the city limits of Philadelphia; (c) An adjustment of the Executive's Base Salary pursuant to Section 3 which results in a reduction in the Executive's Base Salary; or (d) The failure by CSI to obtain the assumption of the obligation to perform this Agreement by any successor entity in the Change in Control. For the purposes of this Subsection 5C, the following terms shall have the following meanings: (a) A "Change in Control" occurs upon any one of the following circumstances or events: (i) The stockholders of CSI approve a transaction or transactions (however denominated or effectuated) with another corporation or other entity ("Combination"), and immediately after such transaction(s) less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or entity will be held in the aggregate by the holders of securities entitled, immediately prior to such Combination, to vote generally in the election of directors of CSI ("Voting Stock"); (ii) The stockholders of CSI approve a consolidation (however denominated or effectuated) pursuant to a recommendation of the Board of Directors; (iii) At any time, Continuing Directors (as herein defined) shall not constitute a majority of the members of the Board of Directors ("Continuing Director" means (i) each individual who has been a director of CSI for at least twenty-four (24) consecutive months before such time and (ii) each individual who was nominated or elected to be a director of CSI by at least two-thirds of the Continuing Directors at the time of such nomination or election); (iv) The stockholders of CSI approve the sale of all or substantially all of its assets to any other corporation or other entity, and less than eighty percent (80%) of the combined voting power of the then outstanding securities of such corporation or other entity immediately after such transaction will be held in the aggregate by the holders of Voting Stock immediately prior to such sale; (v) Any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than twenty percent (20%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); (vi) The stockholders of CSI approve a plan of complete liquidation or dissolution of CSI; or (vii) The Board of Directors determines by a majority vote that, because of the occurrence, or the threat or imminence of the occurrence, of another event or situation with import or effects similar to the foregoing, the Executive should be entitled to the benefits of this Section. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI-sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of twenty percent (20%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership. The foregoing definition shall supersede the definition of Change in Control set forth in Subsection 5D(ii) of the Agreement. (b) The "Change in Control Severance Benefits" shall be the following: (i) the amounts of the Executive's Base Salary and Bonus which are accrued and payable through the date of the termination of the Executive's employment, which amounts will be paid within thirty (30) days after the date the Executive's employment is terminated; (ii) a lump sum payment in an amount equal to two hundred percent (200%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated, (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401K benefits (in the same manner such payments are made as of the date of this Agreement) for a period of twenty four (24) months (or thirty six (36) months as the case may be) after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and (iv) in the event that any payment or benefit provided by CSI to the Executive (whether pursuant to this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed on the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. (c) A "Potential Change in Control" occurs upon any one of the following circumstances or events: (i) CSI enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) CSI or any person or entity publicly announces an intention to take or consider taking actions which, if consummated, would result in the occurrence of a Change in Control; (iii) any person or entity becomes the beneficial owner, directly or indirectly, of securities of CSI representing more than fifteen percent (15%) or more of the then outstanding shares of Voting Stock (not including in the securities beneficially owned by such person or entity any securities acquired directly from CSI or its affiliates); or (iv) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. Notwithstanding the foregoing, unless otherwise determined in a specific case by majority vote of the Board of Directors, a Potential Change in Control for purposes of this Agreement shall not be deemed to have occurred solely because (a) CSI, (b) an entity of which CSI is the direct or indirect beneficial owner of fifty percent (50%) or more of the voting securities or (c) any CSI-sponsored employee stock ownership plan or any other employee benefit plan of CSI becomes the beneficial owner of shares of Voting Stock, whether in excess of fifteen percent (15%) or otherwise, or because CSI reports that a change in control of CSI has or may have occurred or will or may occur in the future by reason of such beneficial ownership." D. Executive shall not be considered to have voluntarily left his employment within the meaning of Section 5A if he leaves for any of the following reasons: (i) The assignment of the Executive to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI as defined herein or a substantial reduction of the aforesaid duties or responsibilities; (ii) In the event of a "Change in Control" as defined herein, any failure of CSI to obtain the assumption of the obligation to perform this Agreement as contemplated. For purposes of this Agreement, a "Change in Control" of CSI shall be deemed to have occurred if (a) any person or entity or group thereof acting in concert (an "Acquiror") acquires from the shareholders of CSI (whether through a merger, a consolidation, or otherwise) and possesses, directly or indirectly, the power to elect or appoint or approve the appointment of a majority of the Board of Directors and does, in fact, elect or appoint or approve the appointment of the majority of the Board; or (b) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (c) the shareholders of CSI approve an agreement for the sale or disposition by CSI of all or substantially all of CSI's assets to an Acquirer; E. In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such shorter period ending on the date Executive obtains other employment, but in no event less than twelve (12) months after the date he leaves the employ of CSI) consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable at regular intervals and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay." F. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, or if this Agreement is not renewed, CSI shall provide Executive outplacement consulting services comparable to those received by senior officials of similar organizations. G. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, CSI will continue the payment of Executive's total compensation at his then current rate for a period of six (6) months following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, CSI shall have no obligation for the Base Salary or other compensation payments to Executive during the continuance of such disability or incapacity, except that CSI shall pay to Executive, based upon the portion of the calendar year that Executive was able to perform his duties prior to the disability, the pro rata portion of the Bonus that Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). Executive shall receive CSI's standard disability coverage. H. If Executive dies, all payments hereunder shall continue for a period of two (2) months after the end of the week in which Executive's death shall occur, at which point such payments shall cease and CSI shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise, except that CSI shall pay to Executive's estate or legal representation, based upon the portion of the calendar year that Executive was employed by CSI prior to his death, the prorated portion of the Bonus Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). I. CSI's obligation to make payments hereunder is purely contractual and a general obligation of CSI and the amounts payable hereunder shall not be held by CSI in a trust or segregated fund for Employee nor shall Employee have any right against CSI or any director, officer or employee of CSI, in respect of any payment hereunder other than as a general creditor of CSI. J. Upon termination of employment, all vested stock options granted under the CSI Stock Option Plan (1992) will be treated in accordance with the terms of the CSI Stock Option Plan (1992). 6. Confidentiality and Covenant Not to Compete. A. Executive covenants and agrees that he will at all times keep confidential and will not at any time, except with the prior written consent of CSI, directly or indirectly, communicate or disclose or use for his benefit or the benefit of any Person (as defined in subsection 9E hereof) except CSI, any trade secrets or confidential or proprietary information of CSI or any of its affiliates including, but not limited to, strategic planning documents, data, reports, records, plans, policies, applications, and other documents, and Executive will also use his best efforts to prevent unauthorized disclosure by others. B. Executive agrees not to compete with CSI in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during this Agreement, and for a period of two years following the date of termination of employment in the area constituting the United States, Puerto Rico and Europe. C. The parties agree that any breach by Executive of the covenants contained in this Section 6 will result in irreparable injury to CSI for which money damages could not adequately compensate CSI, and therefore, in the event of any such breach, CSI shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Executive and/or any other Person involved therein from continuing such breach. The covenants contained in this Section 6 are independent of all other covenants between Executive and CSI. D. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. E. All information, lists, data, reports, records, plans, policies, applications, and other papers, articles, and materials of any kind relating to CSI's business and obtained by Executive in the course of his association with CSI, whether developed by him or not, shall be and remain CSI's property and will be returned to CSI along with any and all copies thereof, at such time as Executive ceases to be an employee of CSI. 7. Conflict of Interest. A. Executive represents and warrants that he is not subject to any restrictions or prohibitions whatsoever, and has no interest whatsoever, contractual or otherwise, which would in any way prevent, restrict or interfere with his right and/or ability to enter into this Agreement and perform hereunder, or which would create a conflict of interest for him or for CSI. B. Executive covenants that, during the Term, he will disclose to CSI, in writing, any and all interests he may have, whether for profit or compensation or not, in any venture or activity which could interfere with his ability to perform under this Agreement or create a conflict of interest for him or for CSI. 8. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, at the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: W. Craig Burns B. If to CSI, to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attn: Chairman of the Board of Directors C. In all cases, copies to: Stradley, Ronon, Stevens & Young 2600 One Commerce Square Philadelphia, Pennsylvania 19103 Attn: William R. Sasso, Esquire 9. Additional Provisions. A. This Agreement shall inure to the benefit of and be binding upon CSI and its successors and assigns and Executive, his heirs, executors, administrators and legal representatives. B. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and cannot be changed or terminated orally. This Agreement supersedes all prior and contemporaneous written or oral agreements between the parties relating to the subject matter hereof. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. C. If any provision of this Agreement shall be or shall become illegal or unenforceable in whole or in part, for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. D. No failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. E. "Person" as used herein shall mean a natural person, joint venture, corporation, partnership, trust, estate, sole proprietorship, governmental agency or authority or other juridical entity. F. This is a personal service contract and may not be assigned by Executive. This Agreement may not be assigned by CSI to any affiliate of CSI which accedes to or otherwise carries on the business of CSI, whether by merger, liquidation, consolidation or otherwise, unless the duties and responsibilities of Executive remain substantially unchanged after such assignment. G. The headings of the several sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof. H. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to its conflicts of laws principles. Subject to the provisions of Subsection 6C hereof, all unresolved claims, demands or disputes between Executive and CSI arising out of or relating to this Agreement, or the parties' respective performances hereunder, shall be subject to binding arbitration in the local Chapter in Philadelphia, Pennsylvania pursuant to the Rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement for all costs, including reasonable attorneys' fees, associated with such arbitration. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. _________________________ By:________________________________ WITNESS: _________________________ ___________________________________ W. Craig Burns EXHIBIT A TO EMPLOYMENT AGREEMENT VICE PRESIDENT - FINANCE, CHIEF FINANCIAL OFFICER AND TREASURER This position reports directly to CSI's CEO and President. The following positions report directly to this position: Vice President, Corporate Controller; Director of Taxation; Director, U.S. Controller and Director of Business Analysis. The responsibilities of this position include: - - All accounting and financial functions worldwide - - All treasury functions, including investments, insurance, foreign currency hedging, and tax - - Primary contact for Wall Street analysts and institutional investors - - Merger and acquisition analysis and due diligence - - Primary contact for commercial and investment banking relationships - - Assist in operational management of all subsidiaries - - Securities and Exchange Commission reports and compliance EXHIBIT B TO EMPLOYMENT AGREEMENT CHECKPOINT SYSTEMS, INC. 1999 BONUS PLAN For 1999 the Board of Directors approved the 1999 Bonus Plan. The 1998 Bonus Plan provides for a Bonus Pool to be formed when earnings per share ("EPS") increases over a defined target. The Bonus Pool is then apportioned among four (4) groups of employees; corporate officers; vice presidents, middle management and front line employees. Each group has a targeted bonus percentage assigned which is adjusted, depending on the percentage increase or decrease over the targeted EPS growth. Other than for Messrs. Aguilera, Dowd, Reilly, Reinhold and Smith, who's bonuses are determined solely on the basis of financial performance of the Company, all participants will have a percentage of their bonuses determined by individual performance. No Bonus Pool will be formed unless 1999 EPS attains a specified level. The specified minimum target for EPS was not attained for the fiscal year 1999 and therefore no bonuses were paid. No discretionary bonuses were paid for the fiscal year 1999. EX-10 11 cb2.txt C BURNS FIRST AMENDMENT FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT is made as of the 17th day of July, 2001 by and between CHECKPOINT SYSTEMS, INC. ("CSI") and W. CRAIG BURNS ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated April 27, 2000 ("Agreement"); and WHEREAS, CSI has determined it is in its best interests to modify the Agreement by amending the term of employment, as well as the term of the Covenant Against Competition, so as to enable the officers of CSI to negotiate a specific transaction ("Transaction"), as defined herein; WHEREAS, CSI wishes to provide additional compensation to Executive as an incentive to agree to the extension of the term and expansion of the scope of the Covenant Against Competition, as well as to encourage Executive to facilitate the success of the Transaction; NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained herein, and intending to be bound hereby, the parties agree as follows: 1. Section 1. Employment and Term is hereby amended so that the expiration date of the term shall be December 31, 2001. 2. A new Section 5 shall be added as follows and the current Section 5 shall be renumbered as Section 6, and each subsequent section shall be renumbered sequentially: In the event of a "Change in Control" as defined in subsection 6.C.(a) of the Agreement, or in the event of the occurrence of a Transaction as compensation for the extension of the term and scope of the Covenant Against Competition of the Agreement by Executive, which action is intended to facilitate the aforesaid Change of Control or Transaction, he shall be entitled to receive a Payment (as defined in the Agreement) or fee ("Success Fee") in an amount equal to (a) two hundred thousand dollars ($200,000.00) in the event that the Transaction Value (as defined below) is equal to or less than Two Hundred Ninety Six Million Dollars ($296,000,000.00); or (b) if the Transaction Value exceeds Two Hundred Ninety Six Million Dollars ($296,000,000.00), .5% of the Transaction Value up to Four Hundred Thirty Five Million Dollars ($435,000,000.00), plus .663% of the Transaction Value in excess of Four Hundred Thirty Five Million Dollars ($435,000,000.00). The aforesaid Success Fee shall be payable with respect to any Transaction, in cash, upon consummation of such Transaction. No fee payable to any other financial advisor in connection with the Transaction shall reduce or otherwise affect any fee payable to the Executive. "Transaction Value" means the aggregate amount of consideration received by CSI and/or its stockholders (treating any shares issuable upon exercise of options, warrants, or other rights of conversion as outstanding) in any Transaction, plus, without duplication, the value of any securities, cash, or other assets distributed to stockholders of CSI. If more than one Transaction is consummated, a Success Fee shall be payable with respect to each such Transaction, in cash, upon consummation thereof, and the amount of the Success Fee in respect of such Transaction after the first shall be equal to the Success Fee that would have been payable having a Transaction Value equal to the aggregate Transaction Value of such Transactions, plus all Transactions previously consummated, less the aggregate amount of all Success Fees previously paid. A Success Fee shall be due and payable as provided herein if an agreement or letter of intent has been entered into during the Term of the Agreement, even if the Transaction contemplated therein is consummated subsequent to the Term. For purposes of this Agreement, a Transaction shall be deemed to have been consummated upon the earliest of any of the following events to occur: (a) the acquisition by another person of at least a majority of the outstanding common stock of, or voting power in CSI calculated on a fully-diluted basis; (b) a merger or consolidation of CSI with another person (other than a wholly owned subsidiary of CSI, which merger or consolidation results in a shareholder of CSI having the same interest in CSI as prior to consummation of such merger or consolidation); (c) the acquisition by another person of assets of CSI representing at least a majority of CSI's book value; (d) the acquisition by CSI of at least a majority of its outstanding equity securities; (e) the consummation of any recapitalization of CSI; (f) the receipt by stockholders of CSI of any cash, securities, or other assets to be distributed in any spin-off, split-off, or other extraordinary dividend; or (g) another person or group of persons obtaining the ability to elect a majority of the directors of CSI standing for election, whether or not such election is possible (by reason of classification of directors), at the next annual meeting of CSI's stockholders and whether or not such election occurs. Executive shall be entitled to the Success Fee set forth above in the event that at any time prior to the expiration of six (6) months after the termination of the Term of Employment, a Transaction is consummated. If the consideration or other value received in any Transaction is paid in whole or in part in the form of securities or other property or assets, the value of such securities or other property or assets, for purposes of calculating the Success Fee, shall be the fair market value thereof, on the day prior to the consummation of the Transaction; provided, however, that if any such securities consist of securities with an existing public trading market, the value thereof shall be determined by the last sales prior for such securities on the last trading day thereof prior to such consummation; provided further, that if such securities do not consist of securities with an existing public trading market, or if the parties are unable to agree on a fair market value for such securities or other property or assets, the parties shall submit such issue to a panel of three arbitrators located in Philadelphia, Pennsylvania (with one arbitrator being chosen by each party hereto and the third being jointly chosen by the parties hereto) for determination in accordance with the rules of the American Arbitration Association, which determination shall be binding upon each of the parties hereto. The Board of Directors of CSI ("Board") reserves the right to direct and control the process involved in negotiating and consummating a Transaction including, but not limited to engaging consultants, advisors and investment bankers and providing them with guidelines as to the type of Transaction to be considered. Executive acknowledges that the Board has excluded from consideration any Transaction that could result in a conflict of interest between management and the Board or shareholders of CSI. Executive acknowledges that the Board has the right to terminate discussions or negotiations relating to a Transaction at any time that the Board, in its sole discretion, determines that such Transaction is not in the best interests of the shareholders of CSI or could result in a conflict of interest between management and the Board or shareholders of CSI. 3. Subsection 7.B. (as hereby renumbered) shall be deleted in its entirety and restated as follows: B. Executive agrees not to compete in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, with CSI, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during the Term of this Agreement, and for a period of five (5) years following the date of termination of employment in any geographic area worldwide in which CSI is doing business. The foregoing restriction shall not apply to competition with an immaterial line of business of CSI which shall be defined as a line of business with gross sales of less than one percent (1%) of the total sales of CSI. Executive further agrees that at any time during the term of this Agreement and for a period of five (5) years following the date of termination, he shall not solicit any employee of CSI to leave his or her employment. 4. The first full paragraph of Subsection 6.C. (as hereby renumbered) shall be deleted in its entirety and restated as follows: C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 6.A. or 6.B. above, and provided that Executive is not in violation of the provisions of Section 7 hereof, Executive shall be entitled to receive severance pay for a period of twenty-four (24) months thereafter consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary payable within thirty (30) days of the date of termination, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) contemporaneously with the severance pay. If the Executive's employment with CSI terminates during the Term and after a Change in Control or Potential Change in Control (as those terms are hereinafter defined),the Executive shall be entitled to receive, in lieu of the foregoing, the Change in Control Severance Benefits (as that term is hereinafter defined). However, the Executive shall not be entitled to receive the Change in Control Severance Benefits if he voluntarily leaves the employ of CSI, other than his voluntary leaving after any of the following events occur: 5. Section 6.C.(b)(ii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (ii) a lump sum payment in an amount equal to two hundred fifty percent (250%) of the Executive's highest Base Salary in effect during the Term, which lump sum payment will be made within thirty (30) days after the date the Executive's employment is terminated. 6. Section 6.C.(b) (iii) (as hereby renumbered) shall be deleted in its entirety and restated as follows: (iii) the continuation of the Executive's health insurance benefits, life and disability insurance benefits and payments in lieu of 401(K) benefits (in the same manner such payments are made as of the date of this Agreement) for a period of twenty four (24) months (or thirty (30) months as the case may be) after the date the Executive's employment is terminated. The Executive shall continue to make such contributions with respect to such continued benefits as are required of the Executive prior to the termination of his employment; and 7. The first full paragraph of Section 6.E. (as hereby renumbered) shall be deleted in its entirety and restated as follows: In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay for a pay for period of twenty- four (24) months consisting of the payment of one hundred percent (100%) of Executive's monthly Base Salary at the end of the term payable within thirty (30) days of the date of termination, and continuation of health insurance benefits, life and disability insurance benefits and 401(K) benefits contemporaneous with the severance pay. 8. In all other respects, not inconsistent with this Amendment, the Agreement is hereby ratified and confirmed. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. ________________ By: ____________________ WITNESS: _______________________ _________________ W. Craig Burns EX-10 12 na1.txt N AUSTIN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT BETWEEN NEIL D. AUSTIN AND CHECKPOINT SYSTEMS, INC. THIS AGREEMENT is made as of the 13th day of July, 2001, by and between CHECKPOINT SYSTEMS, INC. a Pennsylvania corporation ("CSI"), and Neil D. Austin ("Executive"). BACKGROUND CSI is involved in providing integrated security and safety solutions for retail, industrial and institutional applications worldwide, both directly and through its affiliates. Executive has agreed to accept employment with CSI as its Vice President-General Counsel and Secretary and has agreed to furnish his skills to CSI and fulfill the duties of the aforementioned position as outlined in Exhibit "A", attached hereto and made a part hereof, on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment and Term. CSI hereby employs Executive as its Vice President-General Counsel and Secretary. Executive agrees to serve CSI in such capacity, subject to the terms and conditions of this Agreement, for a term of two (2) calendar years, commencing on the date hereof (the "Term"). 2. Duties. A. During the Term, Executive shall use his best efforts to perform all duties required in furtherance of his position as outlined in Exhibit "A" or as are assigned to him from time to time by the Chief Executive Officer of CSI. B. Executive shall diligently and faithfully devote his entire time, energy, skill, and best efforts to perform his duties under this Agreement. Executive shall conduct himself at all times so as to advance the best interests of CSI, and shall not undertake or engage in any other business activity or continue or assume any other business affiliations which conflict or interfere with the performance of his services hereunder without the prior written consent of the Chief Executive Officer of CSI. 3. Compensation. CSI shall pay Executive and Executive shall accept, as his base compensation for all services rendered to CSI pursuant hereto: A. During the Term, an annual base salary of $206,960., (the "Base Salary"), payable at regular intervals in accordance with CSI's normal payroll practice, which Base Salary shall be adjusted as of January 1st during the Term hereof, effective as of the aforesaid date. The amount of such adjustment, while in the discretion of the Chief Executive Officer shall reflect Executive's performance; and B. In addition to the Base Salary payable to Executive under Subsection 3A above, upon achieving the certain goals and objectives as defined in CSI's Bonus Pool Plan, attached hereto as Exhibit B, an incentive bonus ("Bonus") shall be paid for each year of the Term in accordance with the terms of said Bonus Pool Plan, which Bonus Pool Plan may be amended or revoked by CSI at any time during the term hereof. 4. Fringe Benefits and Other Compensation. A. During the Term, Executive shall be entitled to participate in and receive the program of fringe benefits applicable to all employees, subject only to Executive's meeting or satisfying the eligibility requirements and standards therefor with regard to health, life and disability insurance benefits. Said program of fringe benefits may be amended or revoked by CSI at any time during the term hereof. 5. Termination. A. Executive's employment and rights to compensation hereunder shall terminate immediately if Executive voluntarily leaves the employment of CSI, except that CSI shall have the obligation to pay Executive such portion of his Base Salary provided for in Subsection 3A hereof as may be accrued but unpaid (including vacation pay) on the date Executive voluntarily leaves the employment of CSI. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive voluntarily leaves the employment of CSI, it being the understanding of the parties that in this event, the amount and payment of any accrued Bonus shall be in the sole discretion of the Board of Directors of CSI. In the event that Executive voluntarily leaves the employment of CSI, he shall provide at least thirty (30) days written notice. B. CSI may upon written notice to Executive giving the reasons therefor terminate Executive's employment and his rights to compensation hereunder for cause. As used herein, the term "cause" shall include and be limited to, the following: conviction of Executive for any felony, fraud or embezzlement or crime of moral turpitude; being held liable by a court of competent jurisdiction for sexual harrassment in violation of applicable federal, state or local laws; controlled substance abuse, alcoholism or drug addiction which interferes with or affects Executive's responsibilities to CSI or which reflects negatively upon the integrity or reputation of CSI; or Executive's breach of any of the material covenants contained in this Agreement which breach is not cured within ten (10) days of the receipt of written notice thereof by Executive. If Executive is terminated for cause as provided above, Executive's employment and rights to compensation hereunder shall terminate immediately upon receipt of written notice except that CSI shall have the obligation to pay Executive such portion of his Base Salary as may be accrued but unpaid on the date his employment is terminated. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive is terminated for cause as provided above. C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of twelve (12) months thereafter consisting of payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits and payments in lieu of 401K benefits contemporaneous with the severance pay. D. Executive shall not be considered to have voluntarily left his employment within the meaning of Section 5A if he leaves for any of the following reasons: (i) The assignment of the Executive to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI as defined herein or a substantial reduction of the aforesaid duties or responsibilities; (ii) In the event of a "Change in Control" as defined herein, any failure of CSI to obtain the assumption of the obligation to perform this Agreement as contemplated. For purposes of this Agreement, a "Change in Control" of CSI shall be deemed to have occurred if (a) any person or entity or group thereof acting in concert (an "Acquiror") acquires from the shareholders of CSI (whether through a merger, a consolidation, or otherwise) and possesses, directly or indirectly, the power to elect or appoint or approve the appointment of a majority of the Board of Directors and does, in fact, elect or appoint or approve the appointment of the majority of the Board; or (b) such Acquiror obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (c) the shareholders of CSI approve an agreement for the sale or disposition by CSI of all or substantially all of CSI's assets to an Acquiror; (iii) In the event of a "Change in Control" as defined herein, Executive will be entitled to receive severance pay for a period of eighteen (18) months (or such shorter period ending on the date that Executive obtains other employment, but in no event less than twelve (12) months after termination) consisting of the payment of one hundred percent (100%) of Executive's base salary payable at regular intervals in accordance with CSI's normal payroll practices as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health benefits and payments in lieu of 401(K) benefits contemporaneously with the severance pay. E. No later than six (6) months prior to the end of the Term of this Agreement, CSI and Executive shall commence negotiations for either an extension of Term or the entering into of a new agreement. In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay equal to his Base Salary at the end of the Term, for a period of nine (9) months from the date he leaves the employ of CSI. If Executive is employed for the full calendar year, and employment is terminated for any reason, other than cause as defined in Section 5B, Executive shall be entitled to receive payment from the Bonus Plan, even if such payment is payable after Executive's employment has ceased. F. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, or if this Agreement is not renewed, CSI shall provide Executive outplacement consulting services comparable to those received by senior officials of similar organizations. G. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, CSI will continue the payment of Executive's total compensation at his then current rate for a period of six (6) months following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, CSI shall have no obligation for the Base Salary or other compensation payments to Executive during the continuance of such disability or incapacity, except that CSI shall pay to Executive, based upon the portion of the calendar year that Executive was able to perform his duties prior to the disability, the pro rata portion of the Bonus that Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). Executive shall receive CSI's standard disability coverage. H. If Executive dies, all payments hereunder shall continue for a period of two (2) months after the end of the week in which Executive's death shall occur, at which point such payments shall cease and CSI shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise, except that CSI shall pay to Executive's estate or legal representation, based upon the portion of the calendar year that Executive was employed by CSI prior to his death, the prorated portion of the Bonus Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). I. CSI's obligation to make payments hereunder is purely contractual and a general obligation of CSI and the amounts payable hereunder shall not be held by CSI in a trust or segregated fund for Employee nor shall Employee have any right against CSI or any director, officer or employee of CSI, in respect of any payment hereunder other than as a general creditor of CSI. J. Upon termination of employment, all vested stock options granted under the CSI Stock Option Plan (1992) will be treated in accordance with the terms of the CSI Stock Option Plan (1992). 6. Confidentiality and Covenant Not to Compete. A. Executive covenants and agrees that he will at all times keep confidential and will not at any time, except with the prior written consent of CSI, directly or indirectly, communicate or disclose or use for his benefit or the benefit of any Person (as defined in subsection 9E hereof) except CSI, any trade secrets or confidential or proprietary information of CSI or any of its affiliates including, but not limited to, strategic planning documents, data, reports, records, plans, policies, applications, and other documents, and Executive will also use his best efforts to prevent unauthorized disclosure by others. B. Executive agrees not to compete with CSI in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during this Agreement, and for a period of two years following the date of termination of employment in the area constituting the United States, Puerto Rico and Europe. C. The parties agree that any breach by Executive of the covenants contained in this Section 6 will result in irreparable injury to CSI for which money damages could not adequately compensate CSI, and therefore, in the event of any such breach, CSI shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Executive and/or any other Person involved therein from continuing such breach. The covenants contained in this Section 6 are independent of all other covenants between Executive and CSI. D. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. E. All information, lists, data, reports, records, plans, policies, applications, and other papers, articles, and materials of any kind relating to CSI's business and obtained by Executive in the course of his association with CSI, whether developed by him or not, shall be and remain CSI's property and will be returned to CSI along with any and all copies thereof, at such time as Executive ceases to be an employee of CSI. 7. Conflict of Interest. A. Executive represents and warrants that he is not subject to any restrictions or prohibitions whatsoever, and has no interest whatsoever, contractual or otherwise, which would in any way prevent, restrict or interfere with his right and/or ability to enter into this Agreement and perform hereunder, or which would create a conflict of interest for him or for CSI. B. Executive covenants that, during the Term, he will disclose to CSI, in writing, any and all interests he may have, whether for profit or compensation or not, in any venture or activity which could interfere with his ability to perform under this Agreement or create a conflict of interest for him or for CSI. 8. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, at the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: Neil D. Austin B. If to CSI, to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attn: Chairman of the Board of Directors C. In all cases, copies to: Stradley, Ronon, Stevens & Young 2600 One Commerce Square Philadelphia, Pennsylvania 19103 Attn: William R. Sasso, Esquire 9. Additional Provisions. A. This Agreement shall inure to the benefit of and be binding upon CSI and its successors and assigns and Executive, his heirs, executors, administrators and legal representatives. B. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and cannot be changed or terminated orally. This Agreement supersedes all prior and contemporaneous written or oral agreements between the parties relating to the subject matter hereof. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. C. If any provision of this Agreement shall be or shall become illegal or unenforceable in whole or in part, for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. D. No failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. E. "Person" as used herein shall mean a natural person, joint venture, corporation, partnership, trust, estate, sole proprietorship, governmental agency or authority or other juridical entity. F. This is a personal service contract and may not be assigned by Executive. This Agreement may not be assigned by CSI to any affiliate of CSI which accedes to or otherwise carries on the business of CSI, whether by merger, liquidation, consolidation or otherwise, unless the duties and responsibilities of Executive remain substantially unchanged after such assignment. G. The headings of the several sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof. H. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to its conflicts of laws principles. Subject to the provisions of Subsection 6C hereof, all unresolved claims, demands or disputes between Executive and CSI arising out of or relating to this Agreement, or the parties' respective performances hereunder, shall be subject to binding arbitration in the local Chapter in Philadelphia, Pennsylvania pursuant to the Rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement for all costs, including reasonable attorneys' fees, associated with such arbitration. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. __________________ By:________________________________ Michael E. Smith, President and Chief Executive Officer WITNESS: _______________ ____________________________ Neil D. Austin EXHIBIT A TO EMPLOYMENT AGREEMENT VICE PRESIDENT GENERAL COUNSEL AND SECRETARY Responsible for the administration of all legal affairs of the corporation and responsible for administration of corporate records and Board of Directors minutes of meetings. Duties include litigation management, selection of external counsel, corporate contracts, proxy and related SEC filings, mergers and acquisitions and matters customarily found in the corporate legal department. EXHIBIT B TO EMPLOYMENT AGREEMENT CHECKPOINT SYSTEMS, INC. 1999 BONUS PLAN For 1999 the Board of Directors approved the 1999 Bonus Plan. The 1998 Bonus Plan provides for a Bonus Pool to be formed when earnings per share ("EPS") increases over a defined target. The Bonus Pool is then apportioned among four (4) groups of employees; corporate officers; vice presidents, middle management and front line employees. Each group has a targeted bonus percentage assigned which is adjusted, depending on the percentage increase or decrease over the targeted EPS growth. Other than for Messrs. Aguilera, Dowd, Reilly, Reinhold and Smith, who's bonuses are determined solely on the basis of financial performance of the Company, all participants will have a percentage of their bonuses determined by individual performance. No Bonus Pool will be formed unless 1999 EPS attains a specified level. The specified minimum target for EPS was not attained for the fiscal year 1999 and therefore no bonuses were paid. No discretionary bonuses were paid for the fiscal year 1999. EX-10 13 at1.txt A TODD EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT BETWEEN ARTHUR W. TODD AND CHECKPOINT SYSTEMS, INC. THIS AGREEMENT is made as of the 18th day of August, 2000, by and between CHECKPOINT SYSTEMS, INC. a Pennsylvania corporation ("CSI"), and ARTHUR W. TODD ("Executive"). BACKGROUND CSI is involved in providing integrated security and safety solutions for retail, industrial and institutional applications worldwide, both directly and through its affiliates. Executive has agreed to accept employment with CSI as its Vice President, Corporate Controller and Chief Accounting Officer and has agreed to furnish his skills to CSI and fulfill the duties of the aforementioned position as outlined in Exhibit "A", attached hereto and made a part hereof, on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment and Term. CSI hereby employs Executive as its Vice President - Corporate Controller and Chief Accounting Officer. Executive agrees to serve CSI in such capacity, subject to the terms and conditions of this Agreement, for a term of two (2) calendar years, commencing on the date hereof (the "Term"). 2. Duties. A. During the Term, Executive shall use his best efforts to perform all duties required in furtherance of his position as outlined in Exhibit "A" or as are assigned to him from time to time by the Chief Financial Officer of CSI. B. Executive shall diligently and faithfully devote his entire time, energy, skill, and best efforts to perform his duties under this Agreement. Executive shall conduct himself at all times so as to advance the best interests of CSI, and shall not undertake or engage in any other business activity or continue or assume any other business affiliations which conflict or interfere with the performance of his services hereunder without the prior written consent of the Chief Financial Officer of CSI. 3. Compensation. CSI shall pay Executive and Executive shall accept, as his base compensation for all services rendered to CSI pursuant hereto: A. During the Term, an annual base salary of $145,000. (the "Base Salary"), payable at regular intervals in accordance with CSI's normal payroll practice, which Base Salary shall be adjusted as of January 1st during the Term hereof, effective as of the aforesaid date. The amount of such adjustment, while in the discretion of the Chief Executive Officer and the Board of Directors, shall reflect Executive's performance; and B. In addition to the Base Salary payable to Executive under Subsection 3A above, upon achieving the certain goals and objectives as defined in CSI's Bonus Pool Plan, attached hereto as Exhibit B, an incentive bonus ("Bonus") shall be paid for each year of the Term in accordance with the terms of said Bonus Pool Plan, which Bonus Pool Plan may be amended or revoked by CSI at any time during the term hereof. 4. Fringe Benefits and Other Compensation. A. During the Term, Executive shall be entitled to participate in and receive the program of executive fringe benefits, subject only to Executive's meeting or satisfying the eligibility requirements and standards therefor with regard to health, life and disability insurance benefits. Said program of executive fringe benefits may be amended or revoked by CSI at any time during the term hereof. 5. Termination. A. Executive's employment and rights to compensation hereunder shall terminate immediately if Executive voluntarily leaves the employment of CSI, except that CSI shall have the obligation to pay Executive such portion of his Base Salary provided for in Subsection 3A hereof as may be accrued but unpaid (including vacation pay) on the date Executive voluntarily leaves the employment of CSI. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive voluntarily leaves the employment of CSI, it being the understanding of the parties that in this event, the amount and payment of any accrued Bonus shall be in the sole discretion of the Board of Directors of CSI. In the event that Executive voluntarily leaves the employment of CSI, he shall provide at least thirty (30) days written notice. B. CSI may upon written notice to Executive giving the reasons therefor terminate Executive's employment and his rights to compensation hereunder for cause. As used herein, the term "cause" shall include and be limited to, the following: conviction of Executive for any felony, fraud or embezzlement or crime of moral turpitude; being held liable by a court of competent jurisdiction for sexual harassment in violation of applicable federal, state or local laws; controlled substance abuse, alcoholism or drug addiction which interferes with or affects Executive's responsibilities to CSI or which reflects negatively upon the integrity or reputation of CSI; or Executive's breach of any of the material covenants contained in this Agreement which breach is not cured within ten (10) days of the receipt of written notice thereof by Executive. If Executive is terminated for cause as provided above, Executive's employment and rights to compensation hereunder shall terminate immediately upon receipt of written notice except that CSI shall have the obligation to pay Executive such portion of his Base Salary as may be accrued but unpaid on the date his employment is terminated. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive is terminated for cause as provided above. C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of twelve (12) months thereafter consisting of payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits contemporaneous with the severance pay. D. Executive shall not be considered to have voluntarily left his employment within the meaning of Section 5A if he leaves for any of the following reasons: (i) The assignment of the Executive to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI as defined herein or a substantial reduction of the aforesaid duties or responsibilities; (ii) In the event of a "Change in Control" as defined herein, any failure of CSI to obtain the assumption of the obligation to perform this Agreement as contemplated. For purposes of this Agreement, a "Change in Control" of CSI shall be deemed to have occurred if (a) any person or entity or group thereof acting in concert (an " Acquirer") acquires from the shareholders of CSI (whether through a merger, a consolidation, or otherwise) and possesses, directly or indirectly, the power to elect or appoint or approve the appointment of a majority of the Board of Directors and does, in fact, elect or appoint or approve the appointment of the majority of the Board; or (b) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (c) the shareholders of CSI approve an agreement for the sale or disposition by CSI of all or substantially all of CSI's assets to an Acquirer; E. No later than six (6) months prior to the end of the Term of this Agreement, CSI and Executive shall commence negotiations for either an extension of Term or the entering into of a new agreement. In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay equal to his Base Salary at the end of the Term, for a period of twelve (12) months from the date he leaves the employ of CSI. If Executive is employed for the full calendar year, and employment is terminated for any reason, other than cause as defined in Section 5B, Executive shall be entitled to receive payment from the Bonus Plan, even if such payment is payable after Executive's employment has ceased. F. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, or if this Agreement is not renewed, CSI shall provide Executive outplacement consulting services comparable to those received by senior officials of similar organizations. G. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, CSI will continue the payment of Executive's total compensation at his then current rate for a period of six (6) months following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, CSI shall have no obligation for the Base Salary or other compensation payments to Executive during the continuance of such disability or incapacity, except that CSI shall pay to Executive, based upon the portion of the calendar year that Executive was able to perform his duties prior to the disability, the pro rata portion of the Bonus that Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). Executive shall receive CSI's standard disability coverage. H. If Executive dies, all payments hereunder shall continue for a period of two (2) months after the end of the week in which Executive's death shall occur, at which point such payments shall cease and CSI shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise, except that CSI shall pay to Executive's estate or legal representation, based upon the portion of the calendar year that Executive was employed by CSI prior to his death, the prorated portion of the Bonus Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). I. CSI's obligation to make payments hereunder is purely contractual and a general obligation of CSI and the amounts payable hereunder shall not be held by CSI in a trust or segregated fund for Employee nor shall Employee have any right against CSI or any director, officer or employee of CSI, in respect of any payment hereunder other than as a general creditor of CSI. J. Upon termination of employment, all vested stock options granted under the CSI Stock Option Plan (1992) will be treated in accordance with the terms of the CSI Stock Option Plan (1992). 6. Confidentiality and Covenant Not to Compete. A. Executive covenants and agrees that he will at all times keep confidential and will not at any time, except with the prior written consent of CSI, directly or indirectly, communicate or disclose or use for his benefit or the benefit of any Person (as defined in subsection 9E hereof) except CSI, any trade secrets or confidential or proprietary information of CSI or any of its affiliates including, but not limited to, strategic planning documents, data, reports, records, plans, policies, applications, and other documents, and Executive will also use his best efforts to prevent unauthorized disclosure by others. B. Executive agrees not to compete with CSI in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during this Agreement, and for a period of two years following the date of termination of employment in the area constituting the United States, Puerto Rico and Europe. C. The parties agree that any breach by Executive of the covenants contained in this Section 6 will result in irreparable injury to CSI for which money damages could not adequately compensate CSI, and therefore, in the event of any such breach, CSI shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Executive and/or any other Person involved therein from continuing such breach. The covenants contained in this Section 6 are independent of all other covenants between Executive and CSI. D. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. E. All information, lists, data, reports, records, plans, policies, applications, and other papers, articles, and materials of any kind relating to CSI's business and obtained by Executive in the course of his association with CSI, whether developed by him or not, shall be and remain CSI's property and will be returned to CSI along with any and all copies thereof, at such time as Executive ceases to be an employee of CSI. 7. Conflict of Interest. A. Executive represents and warrants that he is not subject to any restrictions or prohibitions whatsoever, and has no interest whatsoever, contractual or otherwise, which would in any way prevent, restrict or interfere with his right and/or ability to enter into this Agreement and perform hereunder, or which would create a conflict of interest for him or for CSI. B. Executive covenants that, during the Term, he will disclose to CSI, in writing, any and all interests he may have, whether for profit or compensation or not, in any venture or activity which could interfere with his ability to perform under this Agreement or create a conflict of interest for him or for CSI. 8. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, at the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: ARTHUR W. TODD B. If to CSI, to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attn: Chairman of the Board of Directors C. In all cases, copies to: Stradley, Ronon, Stevens & Young 2600 One Commerce Square Philadelphia, Pennsylvania 19103 Attn: William R. Sasso, Esquire 9. Additional Provisions. A. This Agreement shall inure to the benefit of and be binding upon CSI and its successors and assigns and Executive, his heirs, executors, administrators and legal representatives. B. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and cannot be changed or terminated orally. This Agreement supersedes all prior and contemporaneous written or oral agreements between the parties relating to the subject matter hereof. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. C. If any provision of this Agreement shall be or shall become illegal or unenforceable in whole or in part, for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. D. No failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. E. "Person" as used herein shall mean a natural person, joint venture, corporation, partnership, trust, estate, sole proprietorship, governmental agency or authority or other juridical entity. F. This is a personal service contract and may not be assigned by Executive. This Agreement may not be assigned by CSI to any affiliate of CSI which accedes to or otherwise carries on the business of CSI, whether by merger, liquidation, consolidation or otherwise, unless the duties and responsibilities of Executive remain substantially unchanged after such assignment. G. The headings of the several sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof. H. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to its conflicts of laws principles. Subject to the provisions of Subsection 6C hereof, all unresolved claims, demands or disputes between Executive and CSI arising out of or relating to this Agreement, or the parties' respective performances hereunder, shall be subject to binding arbitration in the local Chapter in Philadelphia, Pennsylvania pursuant to the Rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement for all costs, including reasonable attorneys' fees, associated with such arbitration. I. To the extent not covered in the above provisions, the items covered in the attached letter dated May 18, 2000 are incorporated herein, with the exception of the last sentence of the first paragraph on page two of the letter, which has been replaced by the severance provisions above, provided however, in the event the Employee voluntary resigns, and would otherwise not be entitled to severance pay as described in this Agreement, then in such case, Employee shall be paid in accordance with the last sentence of the first paragraph on Page two of the May 18 letter. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. ______________ ______________________ WITNESS: ______________ ____________________ ARTHUR W. TODD EXHIBIT A TO EMPLOYMENT AGREEMENT VICE PRESIDENT, CORPORATE CONTROLLER AND CHIEF ACCOUNTING OFFICER DUTIES AND RESPONSIBILITIES: The position reports to the Vice President - Chief Financial Officer and includes primary responsibility for the corporate controller and financial reporting functions. EXHIBIT B TO EMPLOYMENT AGREEMENT CHECKPOINT SYSTEMS, INC. 1999 BONUS PLAN For 1999 the Board of Directors approved the 1999 Bonus Plan. The 1998 Bonus Plan provides for a Bonus Pool to be formed when earnings per share ("EPS") increases over a defined target. The Bonus Pool is then apportioned among four (4) groups of employees; corporate officers; vice presidents, middle management and front line employees. Each group has a targeted bonus percentage assigned which is adjusted, depending on the percentage increase or decrease over the targeted EPS growth. Other than for Messrs. Aguilera, Dowd, Reilly, Reinhold and Smith, who's bonuses are determined solely on the basis of financial performance of the Company, all participants will have a percentage of their bonuses determined by individual performance. No Bonus Pool will be formed unless 1999 EPS attains a specified level. The specified minimum target for EPS was not attained for the fiscal year 1999 and therefore no bonuses were paid. No discretionary bonuses were paid for the fiscal year 1999. EX-10 14 ms1.txt M SMITH EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT BETWEEN MICHAEL E. SMITH AND CHECKPOINT SYSTEMS, INC. THIS AGREEMENT is made as of the 1st day of July, 1995, by and between CHECKPOINT SYSTEMS, INC. a Pennsylvania corporation ("CSI"), and MICHAEL E. SMITH("Executive"). BACKGROUND CSI is involved in providing integrated security and safety solutions for retail, industrial and institutional applications worldwide, both directly and through its affiliates. Executive has agreed to accept employment with CSI as its Senior Vice President Marketing, Alarmex and Western European Operations and has agreed to furnish his skills to CSI and fulfill the duties of the aforementioned position as outlined in Exhibit "A", attached hereto and made a part hereof, on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment and Term. CSI hereby employs Executive as its Senior Vice President, Marketing, Alarmex Division and Western European Operations. Executive agrees to serve CSI in such capacity, subject to the terms and conditions of this Agreement,for a term of two (2) calendar years, commencing on the date hereof (the "Term"). 2. Duties. A. During the Term, Executive shall use his best efforts to perform all duties required in furtherance of his position as outlined in Exhibit "A" or as are assigned to him from time to time by the Chief Executive Officer of CSI. B. Executive shall diligently and faithfully devote his entire time, energy, skill, and best efforts to perform his duties under this Agreement. Executive shall conduct himself at all times so as to advance the best interests of CSI, and shall not undertake or engage in any other business activity or continue or assume any other business affiliations which conflict or interfere with the performance of his services hereunder without the prior written consent of the Chief Executive Officer of CSI. 3. Compensation. CSI shall pay Executive and Executive shall accept, as his base compensation for all services rendered to CSI pursuant hereto: A. During the Term, an annual base salary of $170,000. (the "Base Salary"), payable at regular intervals in accordance with CSI's normal payroll practice, which Base Salary shall be adjusted as of January 1st during the Term hereof, effective as of the aforesaid date. The amount of such adjustment, while in the discretion of the Chief Executive Officer and the Board of Directors, shall reflect Executive's performance; and B. In addition to the Base Salary payable to Executive under Subsection 3A above, upon achieving the certain goals and objectives as defined in CSI's Bonus Pool Plan, attached hereto as Exhibit B, an incentive bonus ("Bonus") shall be paid for each year of the Term in accordance with the terms of said Bonus Pool Plan, which Bonus Pool Plan may be amended or revoked by CSI at any time during the term hereof. 4. Fringe Benefits and Other Compensation. A. During the Term, Executive shall be entitled to participate in and receive the program of executive fringe benefits, subject only to Executive's meeting or satisfying the eligibility requirements and standards therefor with regard to health, life and disability insurance benefits. Said program of executive fringe benefits may be amended or revoked by CSI at any time during the term hereof. 5. Termination. A. Executive's employment and rights to compensation hereunder shall terminate immediately if Executive voluntarily leaves the employment of CSI, except that CSI shall have the obligation to pay Executive such portion of his Base Salary provided for in Subsection 3A hereof as may be accrued but unpaid (including vacation pay) on the date Executive voluntarily leaves the employment of CSI. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive voluntarily leaves the employment of CSI, it being the understanding of the parties that in this event, the amount and payment of any accrued Bonus shall be in the sole discretion of the Board of Directors of CSI. In the event that Executive voluntarily leaves the employment of CSI, he shall provide at least thirty (30) days written notice. B. CSI may upon written notice to Executive giving the reasons therefor terminate Executive's employment and his rights to compensation hereunder for cause. As used herein, the term "cause" shall include and be limited to, the following: conviction of Executive for any felony, fraud or embezzlement or crime of moral turpitude; being held liable by a court of competent jurisdiction for sexual harrassment in violation of applicable federal, state or local laws; controlled substance abuse, alcoholism or drug addiction which interferes with or affects Executive's responsibilities to CSI or which reflects negatively upon the integrity or reputation of CSI; or Executive's breach of any of the material covenants contained in this Agreement which breach is not cured within ten (10) days of the receipt of written notice thereof by Executive. If Executive is terminated for cause as provided above, Executive's employment and rights to compensation hereunder shall terminate immediately upon receipt of written notice except that CSI shall have the obligation to pay Executive such portion of his Base Salary as may be accrued but unpaid on the date his employment is terminated. Executive shall have no right to receive any Bonus payments that have accrued and are payable if Executive is terminated for cause as provided above. C. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, and provided that Executive is not in violation of the provisions of Section 6 hereof, Executive shall be entitled to receive severance pay for a period of eighteen (18) months thereafter (or such earlier date as Executive shall obtain other employment, but in no event less than twelve (12) months after termination) consisting of payment of one hundred percent (100%) of Executive's monthly Base Salary payable at regular intervals in accordance with CSI's normal payroll practices, as well as any Bonus payments that are accrued and payable through the date of such termination, and continuation of health insurance benefits contemporaneous with the severance pay. D. Executive shall not be considered to have voluntarily left his employment within the meaning of Section 5A if he leaves for any of the following reasons: (i) The assignment of the Executive to any duties substantially inconsistent with his position, duties, responsibilities or status with CSI as defined herein or a substantial reduction of the aforesaid duties or responsibilities; (ii) In the event of a "Change in Control" as defined herein, any failure of CSI to obtain the assumption of the obligation to perform this Agreement as contemplated. For purposes of this Agreement, a "Change in Control" of CSI shall be deemed to have occurred if (a) any person or entity or group thereof acting in concert (an "Acquiror") acquires from the shareholders of CSI (whether through a merger, a consolidation, or otherwise) and possesses, directly or indirectly, the power to elect or appoint or approve the appointment of a majority of the Board of Directors and does, in fact, elect or appoint or approve the appointment of the majority of the Board; or (b) such Acquiror obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (c) the shareholders of CSI approve an agreement for the sale or disposition by CSI of all or substantially all of CSI's assets to an Acquiror; E. No later than six (6) months prior to the end of the Term of this Agreement, CSI and Executive shall commence negotiations for either an extension of Term or the entering into of a new agreement. In the event that the parties are unable to agree upon an extension or new agreement, and Executive leaves the employ of CSI, Executive shall be entitled to receive severance pay equal to his Base Salary at the end of the Term, for a period of eighteen (18) months from the date he leaves the employ (or such earlier date as Executive shall obtain other employment, but in no event less than twelve (12) months after termination) of CSI. If Executive is employed for the full calendar year, and employment is terminated for any reason, other than cause as defined in Section 5B, Executive shall be entitled to receive payment from the Bonus Plan, even if such payment is payable after Executive's employment has ceased. F. If Executive is terminated by CSI during the Term hereof, for reasons other than those provided in Subsections 5A or 5B above, or if this Agreement is not renewed, CSI shall provide Executive outplacement consulting services comparable to those received by senior officials of similar organizations. G. If Executive becomes unable to perform his duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness, injury or any similar cause, CSI will continue the payment of Executive's total compensation at his then current rate for a period of six (6) months following the date Executive is first unable to perform his duties due to such disability or incapacity. Thereafter, CSI shall have no obligation for the Base Salary or other compensation payments to Executive during the continuance of such disability or incapacity, except that CSI shall pay to Executive, based upon the portion of the calendar year that Executive was able to perform his duties prior to the disability, the pro rata portion of the Bonus that Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). Executive shall receive CSI's standard disability coverage. H. If Executive dies, all payments hereunder shall continue for a period of two (2) months after the end of the week in which Executive's death shall occur, at which point such payments shall cease and CSI shall have no further obligations or liabilities hereunder to Executive's estate or legal representative or otherwise, except that CSI shall pay to Executive's estate or legal representation, based upon the portion of the calendar year that Executive was employed by CSI prior to his death, the prorated portion of the Bonus Executive would have earned if he had remained in the employ of CSI for the full calendar year (payable at such time that Executive would have received such Bonus). I. CSI's obligation to make payments hereunder is purely contractual and a general obligation of CSI and the amounts payable hereunder shall not be held by CSI in a trust or segregated fund for Employee nor shall Employee have any right against CSI or any director, officer or employee of CSI, in respect of any payment hereunder other than as a general creditor of CSI. J. Upon termination of employment, all vested stock options granted under the CSI Stock Option Plan (1992) will be treated in accordance with the terms of the CSI Stock Option Plan (1992). 6. Confidentiality and Covenant Not to Compete. A. Executive covenants and agrees that he will at all times keep confidential and will not at any time, except with the prior written consent of CSI, directly or indirectly, communicate or disclose or use for his benefit or the benefit of any Person (as defined in subsection 9E hereof) except CSI, any trade secrets or confidential or proprietary information of CSI or any of its affiliates including, but not limited to, strategic planning documents, data, reports, records, plans, policies, applications, and other documents, and Executive will also use his best efforts to prevent unauthorized disclosure by others. B. Executive agrees not to compete with CSI in any manner whatsoever, as an employee, shareholder, director, creditor, joint venturer, consultant, or otherwise, or any currently existing or hereinafter created subsidiary, joint venture, or business line of CSI, at any time during this Agreement, and for a period of two years following the date of termination of employment in the area constituting the United States, Puerto Rico and Europe. C. The parties agree that any breach by Executive of the covenants contained in this Section 6 will result in irreparable injury to CSI for which money damages could not adequately compensate CSI, and therefore, in the event of any such breach, CSI shall be entitled (in addition to any other rights and remedies which it may have at law or in equity) to have an injunction issued by any competent court of equity enjoining and restraining Executive and/or any other Person involved therein from continuing such breach. The covenants contained in this Section 6 are independent of all other covenants between Executive and CSI. D. If any portion of the covenants or agreements contained herein, or the application thereof, is construed to be invalid or unenforceable, then the other portions of such covenant(s) or agreement(s) or the application thereof shall not be affected and shall be given full force and effect without regard to the invalid or unenforceable portions. E. All information, lists, data, reports, records, plans, policies, applications, and other papers, articles, and materials of any kind relating to CSI's business and obtained by Executive in the course of his association with CSI, whether developed by him or not, shall be and remain CSI's property and will be returned to CSI along with any and all copies thereof, at such time as Executive ceases to be an employee of CSI. 7. Conflict of Interest. A. Executive represents and warrants that he is not subject to any restrictions or prohibitions whatsoever, and has no interest whatsoever, contractual or otherwise, which would in any way prevent, restrict or interfere with his right and/or ability to enter into this Agreement and perform hereunder, or which would create a conflict of interest for him or for CSI. B. Executive covenants that, during the Term, he will disclose to CSI, in writing, any and all interests he may have, whether for profit or compensation or not, in any venture or activity which could interfere with his ability to perform under this Agreement or create a conflict of interest for him or for CSI. 8. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, at the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: Michael E. Smith B. If to CSI, to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attn: Chairman of the Board of Directors C. In all cases, copies to: Stradley, Ronon, Stevens & Young 2600 One Commerce Square Philadelphia, Pennsylvania 19103 Attn: William R. Sasso, Esquire 9. Additional Provisions. A. This Agreement shall inure to the benefit of and be binding upon CSI and its successors and assigns and Executive, his heirs, executors, administrators and legal representatives. B. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and cannot be changed or terminated orally. This Agreement supersedes all prior and contemporaneous written or oral agreements between the parties relating to the subject matter hereof. No modification or waiver of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. C. If any provision of this Agreement shall be or shall become illegal or unenforceable in whole or in part, for any reason whatsoever, the remaining provisions shall nevertheless be deemed valid, binding and subsisting. D. No failure on the part of any party hereto to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. E. "Person" as used herein shall mean a natural person, joint venture, corporation, partnership, trust, estate, sole proprietorship, governmental agency or authority or other juridical entity. F. This is a personal service contract and may not be assigned by Executive. This Agreement may not be assigned by CSI to any affiliate of CSI which accedes to or otherwise carries on the business of CSI, whether by merger, liquidation, consolidation or otherwise,unless the duties and responsibilities of Executive remain substantially unchanged after such assignment. G. The headings of the several sections of this Agreement have been inserted for convenience of reference only and shall in no way restrict or modify any of the terms or provisions hereof. H. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New Jersey, without regard to its conflicts of laws principles. Subject to the provisions of Subsection 6C hereof, all unresolved claims, demands or disputes between Executive and CSI arising out of or relating to this Agreement, or the parties' respective performances hereunder, shall be subject to binding arbitration in the local Chapter in Philadelphia, Pennsylvania pursuant to the Rules of the American Arbitration Association. The prevailing party shall be entitled to reimbursement for all costs, including reasonable attorneys' fees, associated with such arbitration. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date first above written. ATTEST: CHECKPOINT SYSTEMS, INC. ____________ By:________________________________ WITNESS: _______________ ________________________________ Michael E. Smith EXHIBIT A TO EMPLOYMENT AGREEMENT SENIOR VICE PRESIDENT - MARKETING AND WESTERN EUROPEAN OPERATIONS Responsible for corporate marketing activities combined with the responsibility of being the senior executive of European operations. EXHIBIT B TO EMPLOYMENT AGREEMENT ________________________________________________ CHECKPOINT SYSTEMS, INC. AMENDED AND RESTATED PROFIT INCENTIVE PLAN RESOLVED, that the Management Incentive Plan ("MIP") is amended and restated in its entirety to provide that the revised plan shall be named the Profit Incentive Plan ("PIP"). The Chief Executive Officer, President and Chief Operating Officer and all Vice Presidents will participant in the PIP. Under the PIP, no bonus pool will be created unless pre- tax, pre bonus earnings exceed 18% of the beginning balance of Shareholders Equity for the relevant year. If such earnings are attained, a bonus pool will be created and will be equal to (i) 3% of all pre-tax, pre-bonus earnings plus (ii) 6% of pre-tax, pre-bonus earnings in excess of 27% of the beginning balance of Shareholders Equity for the relevant year. Distribution of the pool, if any, will be as follows: 20% to Mr. Dowd, the Company's President, Chief Executive Officer and Chief Operating Officer; 10% to Mr. Aguilera, the Company's Senior Vice President - Manufacturing; 10% to Mr. Selfridge, the Company's Senior Vice President - Operations and Chief Financial Officer; 5% to Mr. Austin, the Company's Vice President - General Counsel and Secretary, 10% to Mr. Reilly, the Company's Senior Vice President - Americas' and Pacific Rim; 10% to Mr. Smith, the Company's Senior Vice - Marketing and Western European Operations; 5% to Mr. Farestad, the Company's Vice President - Research and Development and the remaining 30% divided among the foregoing at the discretion of the Committee. -----END PRIVACY-ENHANCED MESSAGE-----