-----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, A//xQbvFjWaOqNdtO7tiejlxGZGhVbWcU8pBpEF0HWyCgDSm3NH6wC59YbrID8gH MFN2LmQwsHnTelFflyUy4A== 0000215419-04-000046.txt : 20040513 0000215419-04-000046.hdr.sgml : 20040513 20040512174339 ACCESSION NUMBER: 0000215419-04-000046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040328 FILED AS OF DATE: 20040513 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: 04800370 BUSINESS ADDRESS: STREET 1: 101 WOLF DR STREET 2: P O 188 CITY: THOROFARE STATE: NJ ZIP: 08086 BUSINESS PHONE: 856-384-2460 MAIL ADDRESS: STREET 1: 101 WOLF DRIVE CITY: THOROFARE, STATE: NJ ZIP: 08086 10-Q 1 march041q.txt FORM 10-Q FIRST QUARTER 2004 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 28, 2004 ------------------------------------------------- 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 --- --- Indicate by check mark whether the Registrant is an accelerated filer, (as defined in Rule 12b-2 of the Act). Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: As of May 10, 2004, there were 37,571,514 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 4 Consolidated Statements of Operations 5 Consolidated Statement of Shareholders' Equity 6 Consolidated Statements of Comprehensive Income 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20-25 Item 3. Quantitative and Qualitative Disclosures about Market Risk 25 Item 4. Controls and Procedures 25 Part II. OTHER INFORMATION Item 1. Legal Proceedings 26-28 Item 6. Exhibits and Reports on Form 8-K 29 SIGNATURES 30 CHECKPOINT SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) March 28, Dec. 28, 2004 2003 -------- -------- (Restated see Note 14) ASSETS (Thousands) CURRENT ASSETS Cash and cash equivalents $ 88,170 $110,376 Accounts receivable, net of allowances of $12,744 and $12,003 136,706 137,494 Inventories 86,080 80,986 Other current assets 32,429 32,170 Deferred income taxes 12,894 13,076 -------- -------- Total current assets 356,279 374,102 REVENUE EQUIPMENT ON OPERATING LEASE, net 4,250 4,002 PROPERTY, PLANT, AND EQUIPMENT, net 98,053 100,393 GOODWILL 209,075 212,206 OTHER INTANGIBLES, net 51,371 53,446 OTHER ASSETS 26,342 29,173 -------- -------- TOTAL ASSETS $745,370 $773,322 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings and current portion of long-term debt $ 81,355 $ 79,437 Accounts payable 44,880 62,833 Accrued compensation and related taxes 32,695 36,911 Other accrued expenses 30,877 31,653 Income taxes 27,695 28,120 Unearned revenues 28,237 27,813 Restructuring reserve 9,420 10,173 Other current liabilities 16,765 20,272 -------- -------- Total current liabilities 271,924 297,212 LONG-TERM DEBT, LESS CURRENT MATURITIES 39,404 42,601 CONVERTIBLE SUBORDINATED DEBENTURES 23,329 23,753 ACCRUED PENSIONS 64,200 65,871 OTHER LONG-TERM LIABILITIES 18,183 19,588 MINORITY INTEREST 1,024 1,007 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock, no par value, authorized 500,000 shares, none issued Common Stock, par value $.10 per share, authorized 100,000,000 shares, issued 39,604,840 and 39,479,407 3,960 3,948 Additional capital 284,288 282,529 Retained earnings 98,851 93,422 Common stock in treasury, at cost, 4,612,291 shares and 4,640,631 shares (46,716) (47,003) Accumulated other comprehensive loss (13,077) (9,606) -------- -------- TOTAL SHAREHOLDERS' EQUITY 327,306 323,290 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $745,370 $773,322 ======== ======== See accompanying notes to consolidated financial statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Restated see Note 14) (Thousands, except per share data) Net revenues $180,646 $156,417 Cost of revenues 109,439 93,268 -------- -------- Gross profit 71,207 63,149 Selling, general, and administrative expenses 61,877 54,897 -------- -------- Operating income 9,330 8,252 Interest income 453 339 Interest expense 2,180 3,043 Other gain, net 56 748 -------- -------- Earnings before income taxes and minority interest 7,659 6,296 Income taxes 2,221 2,149 Minority interest 9 17 -------- -------- Net earnings $ 5,429 $ 4,130 ======== ======== Net earnings per share: Basic $ .16 $ .13 ======== ======== Diluted $ .15 $ .13 ======== ======== See accompanying notes to consolidated financial statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) Three Months (13 weeks) Ended March 28, 2004 ---------------------------------------------------- Accumu- lated Other Addit- Compre- Common ional Retained hensive Treasury Stock Capital Earnings Loss Stock Total ------ ------- -------- ------- -------- ----- (Thousands) Balance, December 28, 2003: (Common shares: issued 39,479,407 reacquired 4,640,631) As previously reported $3,948 $282,529 $ 97,693 $ (9,606) $(47,003) $327,561 Effect of Restatement (See Note 14) (4,271) (4,271) ------ -------- -------- -------- -------- -------- As restated $3,948 $282,529 $ 93,422 $ (9,606) $(47,003) $323,290 Net earnings 5,429 5,429 Exercise of stock options 12 1,759 1,771 (125,433 shares) Net gain on interest rate swap 4 4 Treasury stock issued 287 287 Foreign currency translation adjustment (3,475) (3,475) ------ -------- -------- -------- -------- -------- Balance, March 28, 2004 $3,960 $284,288 $ 98,851 $(13,077) $(46,716) $327,306 ====== ======== ======== ======== ======== ======== (Common shares: issued 39,604,840 reacquired 4,612,291) See accompanying notes to consolidated financial statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Restated See Note 14) (Thousands) Net earnings $ 5,429 $ 4,130 Net gain/(loss) on interest rate swap, net of tax 4 (45) Foreign currency translation adjustment (3,475) 4,789 -------- -------- Comprehensive income $ 1,958 $ 8,874 ======== ======== See accompanying notes to consolidated financial statements. CHECKPOINT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months (13 weeks) Ended ----------------------------- March 28, March 30, 2004 2003 -------- -------- (Restated see Note 14) (Thousands) Cash flows from operating activities: Net earnings $ 5,429 $ 4,130 Adjustments to reconcile net earnings to net cash (used)/provided by operating activities: Depreciation and amortization 6,395 7,182 (Gain)/loss on disposal of fixed assets (112) (618) (Increase)/decrease in current assets, net of the effects of acquired companies: Accounts receivable 1,069 4,882 Inventories (6,624) (3,302) Other current assets (399) (1,898) Increase/(decrease) in current liabilities, net of the effects of acquired companies: Accounts payable (17,353) (5,819) Income taxes (120) 366 Unearned revenues 792 (1,429) Restructuring reserve (696) (847) Other current and accrued liabilities (7,686) 61 -------- -------- Net cash (used)/provided by operating activities $(19,305) $ 2,708 -------- -------- Cash flows from investing activities: Acquisition of property, plant, and equipment (2,987) (5,834) Acquisitions, net of cash acquired (155) - Other investing activities 270 417 -------- -------- Net cash used in investing activities $ (2,872) $ (5,417) -------- -------- Cash flows from financing activities: Proceeds from stock issuances 1,331 339 Net change in short-term debt 2,077 2,335 Payment of long-term debt (1,930) (19,878) -------- -------- Net cash provided/(used)in financing activities $ 1,478 $(17,204) -------- -------- Effect of foreign currency rate fluctuations on cash and cash equivalents (1,507) 1,077 -------- -------- Net (decrease)in cash and cash equivalents $(22,206) $(18,836) Cash and cash equivalents: Beginning of period 110,376 54,670 -------- -------- End of period $ 88,170 $ 35,834 ======== ======== 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 in annual financial statements. Refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2003 for the most recent disclosure of the Company's accounting policies. On February 3, 2004, the Company made a $2.5 million minority investment in Goliath Solutions, a start-up developer of RFID-based technology for point-of-purchase advertising and display compliance monitoring in the grocery, chain drug, mass merchandise, and convenience store channels of trade, which is considered a variable interest entity (VIE). Management has determined that the Company is the primary beneficiary and has therefore consolidated Goliath Solutions' assets, liabilities, and results of operations in the Company's consolidated financial statements. As of March 28, 2004, the Company's investment in Goliath Solutions was approximately $2.5 million, representing the Company's maximum exposure to loss. The consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position at March 28, 2004 and December 28, 2003 and its results of operations and changes in cash flows for the thirteen week periods ended March 28, 2004 and March 30, 2003. Certain reclassifications have been made to the 2003 financial statements and related footnotes to conform to the 2004 presentation. 2. INVENTORIES March 28, December 28, 2004 2003 --------- ----------- (Thousands) Raw materials $ 10,498 $ 8,285 Work in process 4,993 3,547 Finished goods 70,589 69,154 -------- -------- $ 86,080 $ 80,986 ======== ======== Inventories are stated at the lower of cost (first-in, first-out method) or market. 3. GOODWILL AND OTHER INTANGIBLE ASSETS The Company had intangible assets with a net book value of $51.4 million and $53.4 million as of March 28, 2004 and December 28, 2003, respectively. The following table reflects the components of intangible assets as of March 28, 2004 and December 28, 2003: March 28, 2004 December 28, 2003 ---------------------- ---------------------- Amortizable Gross Gross Life Carrying Accumulated Carrying Accumulated (years) Amount Amortization Amount Amortization ----------- -------- ------------ -------- ------------ (Thousands) Customer lists 20 $30,236 $14,450 $31,020 $14,584 Trade name 30 27,645 4,326 28,226 3,763 Patents, license agreements 5 to 14 36,684 25,102 37,362 25,439 Other 3 to 6 947 263 952 328 ------- ------- ------- ------- $95,512 $44,141 $97,560 $44,114 ======= ======= ======= ======= Estimated amortization expense for 2004 and each of the five succeeding years is: (Thousands) 2004 $4,032 2005 $3,926 2006 $3,691 2007 $3,638 2008 $3,635 2009 $3,628 The changes in the carrying amount of goodwill for the three months ended March 28, 2004, are as follows: Labeling Retail Security Services Merchandising Total -------- -------- ------------- ------- (Thousands) Balance as of beginning of fiscal year 2004 (December 29, 2003) $106,095 $38,433 $67,678 $212,206 Goodwill acquired during year 593 - - 593 Exchange rate changes (2,009) (235) (1,480) (3,724) -------- ------- ------- -------- Balance as of March 28, 2004 $104,679 $38,198 $66,198 $209,075 ======== ======= ======= ======== Pursuant to SFAS 142, the Company will perform an annual assessment of the carrying value of goodwill by comparing each individual reporting unit's carrying amount of net assets, including goodwill, to their fair value during the fourth quarter of each fiscal year. Future annual assessments could result in impairment charges, which would be accounted for as an operating expense. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 4. LONG-TERM DEBT Long-term debt at March 28, 2004 and December 28, 2003 consisted of the following: March 28, December 28, 2004 2003 ------------ ----------- (Thousands) EUR 244 million variable interest rate term loan maturing in 2006 $ 43,041 $ 45,863 $100 million multi-currency variable interest rate revolving credit facility maturing in 2006 2,832 2,791 EUR 9.5 million capital lease maturing in 2021 10,391 10,733 EUR 2.7 million capital lease maturing in 2007 1,557 1,693 Other capital leases with maturities through 2006 15 27 -------- -------- Total 57,836 61,107 Less current portion 18,432 18,506 -------- -------- Total long-term portion (excluding convertible subordinated debentures) 39,404 42,601 Convertible subordinated debentures 83,232 83,753 Less called portion of convertible subordinated debentures 59,903 60,000 -------- -------- Total long-term portion $ 62,733 $ 66,354 ======== ======== At March 28, 2004, EUR 35.5 million (approximately $43.0 million) was outstanding under the multi-currency term loan. The outstanding borrowings under the revolving credit facility were JPY 300 million (approximately $2.8 million). The availability under the $100 million multi-currency revolving credit facility has been reduced by letters of credit totaling $12.2 million, primarily related to the surety bond posted in connection with ID Security Systems Canada Inc. litigation. On February 18, 2004, the Company called $60.0 million of the convertible subordinated debentures for redemption on April 13, 2004. The debentures were convertible into common stock at a conversion price of $18.375 per share. Of the called debentures, $47.2 million were converted into 2.570 million shares of the Company's common stock and $12.8 million were redeemed for cash. Prior to March 28, 2004, $0.1 million of the $47.2 million were converted into shares. In addition to the $60.0 million convertible subordinated debentures redeemed in April 2004, certain bondholders elected to convert their bonds into shares of the Company's common stock during the first quarter 2004. The principal amount of additional bonds converted into common stock was $0.4 million, which reduced the outstanding balance of the convertible debentures at March 28, 2004, to $83.2 million. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 5. 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 partially 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 is subject to certain limits during the years 2002 through 2005 and will be eliminated thereafter. Under Statement of Financial Accounting Standards No. 109 (SFAS 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. 6. 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 (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Restated see Note 14) (Thousands, except per share amounts) Basic earning per share: Net earnings $ 5,429 $ 4,130 ======== ======== Weighted average common stock outstanding 34,967 32,723 ======== ======== Basic earnings per share $ .16 $ .13 ======== ======== CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Diluted earnings per share: Net earnings $ 5,429 $ 4,130 Interest on subordinated debentures, net of tax 664 -(2) -------- -------- Net earnings available for dilutive securities $ 6,093 $ 4,130 ======== ======== Weighted average common stock outstanding 34,967 32,723 Additional common shares resulting from stock options (1) 1,064 91 Additional common shares resulting from subordinated debentures 4,538 -(2) -------- -------- Weighted average common stock and dilutive stock outstanding 40,569 32,814 ======== ======== Diluted earnings $ .15 $ .13 ======== ======== (1) Excludes approximately 440, and 2,519 anti-dilutive outstanding stock options for the first quarters of 2004 and 2003, respectively. (2) The conversion of the subordinated debentures is not included as it is anti-dilutive. 7. SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest and income taxes for the thirteen week periods ended March 28, 2004 and March 30, 2003 were as follows: Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Thousands) Interest $ 1,070 $ 1,474 Income tax payments, net $ 250 $ (1,046) CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 8. PROVISION FOR RESTRUCTURING Accrual Cash Accrual at Payments at Beginning (and Exchange March 28, of 2004 Rate Changes) 2004 --------- ------------ -------- (Thousands) Severance and other employee related charges $ 8,878 $ (679) $ 8,199 Lease termination costs 1,295 (74) 1,221 ------- ------- ------- $10,173 $ (753) $ 9,420 ======= ======= ======= At the end of the first quarter 2004, 22 of the 512 planned employee terminations, related to the 2003 restructuring, had occurred. The Company expects the terminations and restructuring actions to be completed by the end of 2005. Termination benefits are being paid out over a period of 1 to 24 months after termination. 9. PENSION BENEFITS The components of net periodic benefit cost for the thirteen week periods ended March 28, 2004 and March 30, 2003 were as follows: Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Thousands) Service cost $ 352 $ 302 Interest cost 933 793 Expected return on plan assets 1 1 Amortization of prior service cost 1 - Amortization of net (gain)/loss 29 25 ======== ======== Net benefit cost $ 1,314 $ 1,119 ======== ======== The Company expects the cash requirements for funding the pension benefits to be approximately $3.6 million during fiscal 2004, including $0.9 million which was funded during the quarter ended March 28, 2004. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 10. CONTINGENT LIABILITIES The Company is involved in certain legal and regulatory actions, all of which have arisen in the ordinary course of business, except for the matters described in the following paragraphs. Management believes it is remotely possible that the ultimate resolution of such matters will have a material adverse effect on the Company's consolidated results of operations and/or financial condition, except as described below. ID Security Systems Canada Inc. versus Checkpoint Systems, Inc. On May 24, 2002, the jury in the Civil Action No. 99-CV-577 in the United States District Court for the Eastern District of Pennsylvania, filed by plaintiff ID Security Systems Canada Inc. against Checkpoint Systems, Inc., held in favor of the Company on the plaintiff's claim for Monopolization of Commerce, but against the Company on claims of Attempted Monopolization and Conspiracy to Monopolize. In addition, the jury held against the Company on two tort claims related to tortious interference and unfair competition. Judgment was entered on the verdict in favor of the plaintiff, after trebling, in the amount of $79.2 million plus attorneys' fees and costs to be determined by the Court. On March 28, 2003, the Court issued an order which vacated the jury verdict on the antitrust claims and reduced the damages award related to tortious interference and unfair competition from $19 million to $13 million. The Company subsequently filed an additional motion to further reduce the $13 million by $2.1 million based on a prior agreement between the parties and a previous Order by the Court. The Court granted the Company's motion, and on May 20, 2003 further reduced the judgment from $13 million to $10.9 million. On the same date, the Court stayed execution of the judgment upon the posting of a bond in the amount of $11.3 million by the Company. The Company promptly posted the requisite bond and execution on the judgment in the amount of $10.9 million is now stayed. Both ID Security Systems Canada Inc. and the Company have filed appeals to the Third Circuit Court of Appeals related to the various decisions of the Court. Oral arguments for these appeals were heard on March 30, 2004. Based on input from outside legal counsel, management is of the opinion that the Judge's Order is consistent with the law as it relates to the antitrust issues, and is not consistent with the law as it relates to the tortious interference and unfair competition aspects of the case. Accordingly, no liability has been recorded for this litigation, as management believes that, at this time, it is not probable the remaining judgment will be upheld and that the reasonably possible range of the contingent liability is between zero and $80 million. Although management believes it is not likely, it is possible that the Court of Appeals could reverse the decision of the lower Court as it relates to the antitrust claims and reinstate the original judgment of $79.2 million plus attorneys' fees and costs. If the final outcome of this litigation, after all appeals have been exhausted, results in certain of the plaintiff's claims being upheld, the potential damages could be material to the Company's consolidated results of operations and/or financial condition and could cause the Company to be in default of certain bank covenants. Although management expects to be successful in the appeal process, should the appeal be unsuccessful, management anticipates that any CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) final judgment would be paid in the second half of 2004 and is of the opinion that the Company will have sufficient financial resources in the form of cash and borrowing capacity, due to the cash flow generated during the intervening period, to satisfy any judgment. Matters related to ID Security Systems Canada Inc. versus Checkpoint Systems, Inc. A certain number of follow-on purported class action suits have arisen in connection with the jury decision in the ID Security Systems Canada Inc. litigation. The purported class action complaints generally allege a claim of monopolization and are substantially based upon the same allegations as contained in the ID Security Systems Canada Inc. case (Civil Action No. 99-CV-577) as discussed below. On August 1, 2002, a civil action was filed in United States District Court for the Eastern District of Pennsylvania, designated as Civil Action No. 02-6379(ER) by plaintiff Diane Furs, Inc. t/a Diane Furs against Checkpoint Systems, Inc. and served on August 21, 2002. On August 21, 2002, a Notice of Substitution of Plaintiff and Filing of Amended Complaint was filed by the plaintiff, and the named plaintiff was changed to Medi-Care Pharmacy, Inc. On August 2, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-3730(JEI) by plaintiff Club Sports International, Inc., d/b/a Soccer CSI against Checkpoint Systems, Inc. and served on August 26, 2002. On October 2, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-4777(JBS) by plaintiff Baby Mika, Inc. against Checkpoint Systems, Inc. and served on October 7, 2002. On October 23, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-5001(JEI) by plaintiff Washington Square Pharmacy, Inc. against Checkpoint Systems, Inc. and served on November 1, 2002. On October 18, 2002, The United States District, District of New Jersey (Camden) entered an Order staying the proceedings in the Club Sports International, Inc. and Baby Mika, Inc. cases referred to above. In accordance with the Order, the Stay will also apply to the Washington Square Pharmacy, Inc. case referred to above. In addition, the Medi-Care Pharmacy, Inc. case, referred to above, will be voluntarily dismissed, and it has been re-filed in New Jersey and is included in the Stay Order. The Stay is expected to remain in place until such time as the ID Security Systems case, referred to above, is either terminated or any appeals have been exhausted in the Third Circuit Court of Appeals. On November 13, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-5319(JEI) by plaintiff 1700 Pharmacy, Inc. against Checkpoint Systems, Inc. and served on November 15, 2002. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) On December 30, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-6131(JEI) by plaintiff Medi-Care Pharmacy, Inc. against Checkpoint Systems, Inc. and served on January 3, 2003. Both the 1700 Pharmacy, Inc. case and the Medi-Care Pharmacy, Inc. case were consolidated with the previously mentioned cases and are included in the October 18, 2002 Stay Order referred to above. No liability has been recorded for any of the purported class action suits as management believes that, based on input from outside legal counsel, it is not probable that the Court of Appeals will reverse the decision of the lower Court in the ID Security Systems Canada Inc. litigation as it relates to the antitrust claims and that the lower end of the reasonably possible range of the contingent liability is zero at this time. The high end of the range cannot be estimated at this time. The following table set forth the movement in the warranty reserve: Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Thousands) Balance at the beginning of the period $4,591 $4,002 Accruals for warranties issued $ 306 $ 216 Settlement made (204) (180) Foreign currency translation adjustment (57) 73 ------ ------ Balance at the end of period $4,636 $4,111 ====== ====== CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 11. BUSINESS SEGMENTS Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Thousands) Business segment net revenues: Security $112,529 $ 92,764 Labeling Services 41,040 38,623 Retail Merchandising 27,077 25,030 -------- -------- Total $180,646 $156,417 ======== ======== Business segment gross profit: Security $ 48,017 $ 39,515 Labeling Services 10,657 11,322 Retail Merchandising 12,533 12,312 -------- -------- Total gross profit $ 71,207 $ 63,149 Operating expenses 61,877 54,897 Interest expense, net 1,727 2,704 Other gain, net 56 748 -------- -------- Earnings before income taxes and minority interest $ 7,659 $ 6,296 ======== ======== 12. STOCK OPTIONS At March 28, 2004, the Company has one stock-based employee compensation plan. Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company continues to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of grant over the amount an employee must pay to acquire the stock. Since all options were granted at market value, there is no compensation cost to be recognized. CHECKPOINT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date using the Black Scholes option pricing model prescribed under SFAS 123, the Company's net earnings/(loss) and net earnings/(loss) per share would approximate the pro-forma amounts as follows: Quarter (13 weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- (Restated see Note 14) (Thousands) Net earnings, as reported $ 5,429 $ 4,130 Total stock-based employee compensation expense determined under fair value based method, net of tax (468) (822) -------- -------- Pro-forma net earnings $ 4,961 $ 3,308 ======== ======== Net earnings per share: Basic, as reported $ .16 $ .13 ======== ======== Basic, pro-forma $ .14 $ .10 ======== ======== Diluted, as reported $ .15 $ .13 ======== ======== Diluted, pro-forma $ .14 $ .10 ======== ======== The following assumptions were used in estimating fair value of stock options: Quarter (13 Weeks) Ended ------------------------ March 28, March 30, 2004 2003 -------- -------- Dividend yields None None Expected volatility .3048 .4693 Risk-free interest rates 2.79% 1.99% Expected life (in years) 3.22 2.81 13. NEW ACCOUNTING PRONOUNCEMENTS AND OTHER STANDARDS No new accounting pronouncements and other standards material to the Company were issued in the first quarter of 2004. 14. RESTATEMENT On May 12, 2004 the Company issued a press release that it had discovered errors in the computation of its income tax expense relating to tax credits on the income from the Company's Puerto Rico operations as well as certain foreign income inclusions for U.S. tax purposes for fiscal years 2002 and 2003 and as a result will be restating its financial statements for those periods. The effect of the adjustments was to increase income tax expense, and decrease net earnings by $3.6 million in fiscal year 2002 and $0.7 million in fiscal year 2003. The Company has also restated its consolidated balance sheet at December 28, 2003 and its consolidated statement of operations for the period ended March 30, 2003 that are included in this quarterly report on Form 10-Q. In 1996, Congress revised the Section 936 credit for U.S. manufacturers doing business in Puerto Rico. The tax credits expire for fiscal years beginning after December 31, 2005. The U.S. Internal Revenue Code provides limitations on the use of the tax credits during a phase-out period for years 2002-2005. The Company made an error in computing the limitation during the phase-out period. The effects of the adjustments are summarized as follows: Previously As reported restated ---------- -------- Consolidated Balance Sheet at Dec. 28, 2003 Income taxes accrued $ 23,849 $ 28,120 Retained earnings $ 97,693 $ 93,422 Consolidated Statement of Operations for the Quarter ended March 30, 2003 Income taxes $ 2,078 $ 2,149 Net earnings $ 4,201 $ 4,130 The restatement did not have an effect on earnings per share or cash flows for the period ended March 30, 2003. 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) the development of new competitive technologies; (8) the Company's ability to maintain its intellectual property; (9) competitive pricing pressures causing profit erosion; (10) the availability and pricing of component parts and raw materials; (11) possible increases in the payment time for receivables, as a result of economic conditions or other market factors; (12) changes in regulations or standards applicable to the Company's products; (13) unanticipated liabilities or expenses; (14) adverse determinations in the ID Security Systems Canada Inc. litigation and any other pending litigation affecting the Company; and (15) the impact of adverse determinations in the ID Security Systems Canada Inc. litigation on liquidity and debt covenant compliance. 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 28, 2003, and the Company's other Securities and Exchange Commission filings. Critical Accounting Policies and Estimates - ------------------------------------------ For a discussion of the Company's critical accounting policies and estimates, see Item 7 "Management's Discussion And Analysis Of Financial Condition And Results Of Operations" in the Company's Annual Report on Form 10-K filed for the year ended December 28, 2003. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) First Quarter 2004 Compared to First Quarter 2003 - --------------------------------------------------- As discussed in Note 14 of the Financial Statements, the Company has restated its Financial Statements for the first quarter of 2003. Net Revenues Revenues for the first quarter 2004 compared to the first quarter 2003 increased by $24.2 million or 15.5% from $156.4 million to $180.6 million. Foreign currency translation had a positive impact on revenues of approximately $15.5 million or 9.9% in the first quarter of 2004 as compared to the first quarter of 2003. Security revenues increased by $19.8 million or 21.3% in the first quarter of 2004 as compared to the first quarter of 2003. Foreign currency translation had a positive impact of approximately $8.8 million. The remaining increase was primarily due to growth in the closed-circuit television (CCTV) market in the USA and the UK and in the electronic article surveillance (EAS) market in Asia Pacific, partially offset by a decline in European EAS sales. The growth in the US CCTV revenues can be primarily attributed to enhanced products and applications, as well as a focus on customer service. Labeling services revenues increased by $2.4 million or 6.3% due to the positive impact of foreign currency translation of approximately $3.3 million. The remaining decrease was primarily due to lower barcode labeling systems (BCS) revenues in Europe ($1.7 million) caused by weak retail trading and price competition and a decrease in radio frequency identification (RFID) library system revenues in the USA ($1.9 million) resulting from the timing of several large orders that were recognized in the first quarter of 2003. This was largely offset by increases in BCS revenues in the USA ($1.5 million) and Check-Net revenues in Europe ($0.9 million) and Asia Pacific ($0.4 million). Retail merchandising revenues increased by $2.0 million or 8.2%. The positive impact of foreign currency translation of approximately $3.3 million was partially offset by decreases in hand-held labeling systems (HLS) in Europe and the USA. The continuing transition from hand-held price labeling to automated barcoding and scanning by retailers caused the decline in HLS. Gross Profit Gross profit for the first quarter 2004 was $71.2 million, or 39.4% of revenues, compared to $63.1 million, or 40.4% of revenues, for the first quarter 2003. The benefit of foreign currency translation on gross profit was approximately $6.4 million in the first quarter of 2004 as compared to the first quarter of 2003. Security gross profit, as a percentage of sales, increased slightly from 42.6% in the first quarter of 2003 to 42.7% in the first quarter of 2004. Improvements in manufacturing efficiencies and the benefits of a weaker US dollar on products sourced in US dollars but sold in a different currency were largely offset by increases in EAS technology spending and in field service costs due to large roll-outs. The increase in CCTV products as a percentage of security revenue also impacted the security gross profit percentage negatively. Gross profit, as a percentage of net revenues, for labeling services declined to 26.0% in the first quarter of 2004 from 29.3% in the first quarter of 2003. Increased technology spending on RFID library products and competitive pricing pressures primarily caused the decline. The retail merchandising gross profit, as a percentage of net revenues, declined from 49.2% in the first quarter of 2003 to 46.3% in the first quarter 2004. The decrease resulted from an increase in technology spending to support the development of in-store merchandising solutions for US retailers. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Field service and installation costs for the first quarter of 2004 and 2003 were 9.6% and 9.0% of net revenues, respectively. The increase, as a percentage of net revenues, resulted from an increase in CCTV installations relative to tota net revenues. Selling, General, and Administrative Expenses SG&A expenses increased $7.0 million over the first quarter of 2003. Foreign currency translation increased SG&A expenses by approximately $5.3 million. As a percentage of net revenues, SG&A expenses decreased from 35.1% to 34.3%. Interest Expense and Interest Income Interest expense for the first quarter of 2004 decreased $0.9 million from the comparable quarter in 2003 due to debt repayment. Interest income for the first quarter of 2004 increased by $0.1 million from the comparable quarter in 2003 (from $0.3 million to $0.4 million) as a result of higher cash balances in the first quarter of 2004. Other Gain, net Other gain, net resulted from net foreign currency transaction gains of $0.1 million and $0.7 million for the first quarters of 2004 and 2003, respectively. Income Taxes The effective tax rate for the first quarter of 2004 was 29.0%. The effective tax rate for the first quarter of 2003 was 34.1%. The 2003 provision included a change in valuation allowance and an adjustment related to the filing of the 2002 US income tax return. These adjustments are not included in the 2004 estimated effective income tax rate and are the primary differences between the 2003 and 2004 effective income tax rate. Net Earnings The Company's first quarter 2004 net earnings were $5.4 million, or $0.15 per diluted share, compared to $4.1 million, or $0.13 per diluted share, in the first quarter 2003. The weighted average number of shares used in the diluted earnings per share computation were 40.6 million and 32.8 million for the first quarters of 2004 and 2003, respectively. The conversion of the subordinated debentures was not included in the first quarter of 2003 as it was anti-dilutive. Exposure to International Operations Approximately 65% 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. Restructuring The changes in the provision for restructuring are covered in Note 8 of the Consolidated Financial Statements. 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 more recently through cash generated from operations. 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. The Company's operating activities utilized approximately $19.3 million during the first three months of 2004 compared to $2.7 million generated in the same period in 2003. This change from the prior year was primarily attributable to a reduction in current liabilities of $25.1 million. At March 28, 2004, EUR 35.5 million (approximately $43.0 million) was outstanding under the multi-currency term loan. The outstanding borrowings under the revolving credit facility were JPY 300 million (approximately $2.8 million). The availability under the $100 million multi-currency revolving credit facility has been reduced by letters of credit totaling $12.2 million, primarily related to the surety bond posted in connection with ID Security Systems Canada Inc. litigation. On February 18, 2004, the Company called $60.0 million of the convertible subordinated debentures for redemption on April 13, 2004. The debentures were convertible into common stock at a conversion price of $18.375 per share. Of the called debentures, $47.2 million were converted into 2.570 million shares of the Company's common stock and $12.8 million were redeemed for cash. Prior to March 28, 2004, $0.1 million of the $47.2 million were converted into shares. In addition to the $60.0 million convertible subordinated debentures redeemed in April 2004, certain bondholders elected to convert their bonds into shares of the Company's common stock during the first quarter 2004. The principal amount of additional bonds converted into common stock was $0.4 million, which reduced the outstanding balance of the convertible debentures at March 28, 2004, to $83.2 million. 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. On May 24, 2002, the jury in the Civil Action No. 99-CV-577 in the United States District Court for the Eastern District of Pennsylvania, filed by plaintiff ID Security Systems Canada Inc. against Checkpoint Systems, Inc., held in favor of the Company on the plaintiff's claim for Monopolization of Commerce, but against the Company on claims of Attempted Monopolization and Conspiracy to Monopolize. In addition, the jury held against the Company on two tort claims related to tortious interference and unfair competition. Judgment was entered on the verdict in favor of the plaintiff, after MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) trebling, in the amount of $79.2 million plus attorneys' fees and costs to be determined by the Court. On March 28, 2003, the Court issued an order which vacated the jury verdict on the antitrust claims and reduced the damages award related to tortious interference and unfair competition from $19 million to $13 million. The Company subsequently filed an additional motion to further reduce the $13 million by $2.1 million based on a prior agreement between the parties and a previous Order by the Court. The Court granted the Company's motion, and on May 20, 2003 further reduced the judgment from $13 million to $10.9 million. On the same date, the Court stayed execution of the judgment upon the posting of a bond in the amount of $11.3 million by the Company. The Company promptly posted the requisite bond and execution on the judgment in the amount of $10.9 million is now stayed. Both ID Security Systems Canada Inc. and the Company have filed appeals to the Third Circuit Court of Appeals related to the various decisions of the Court. Oral arguments for these appeals were heard on March 30, 2004. (See Note 10 of the Consolidated Financial Statements.) Although management expects to be successful upon appeal, should the appeal be unsuccessful, management anticipates that the final judgment would be paid in the second half of 2004 and is of the opinion that the Company will have sufficient financial resources in the form of cash and borrowing capacity, due to the cash flow generated during the intervening period, to satisfy any judgment. The recording of a liability or a final judgment could cause the Company to be in default of certain bank covenants. In this event, management would pursue various alternatives, which may include, among other things, debt covenant waivers, debt covenant amendments, or refinancing of debt. While management believes it would be successful in pursuing these alternatives, there can be no assurance of success. Capital Expenditures The Company's capital expenditures during the first quarter of fiscal 2004 totaled $3.0 million compared to $5.8 million during the first quarter of fiscal 2003. The decrease in 2004 principally resulted from lower manufacturing-related investments. The Company anticipates capital expenditures to primarily upgrade technology and improve its production capabilities to approximate $14 million in 2004. Exposure to International Operations The Company manufactures products in the USA, the Caribbean, Europe, and the Asia Pacific region for both the local marketplace as well as 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 on the inter-company receivables and payables. Additionally, the sourcing of product in one currency and the sales of product in a different currency can cause gross margin fluctuations due to changes in currency exchange rates. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company selectively purchases currency forward exchange contracts to reduce the risks of currency fluctuations on short-term inter-company receivables and payables. These contracts lock in 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 March 28, 2004, the Company had currency forward exchange contracts totaling approximately $25.3 million. The contracts are in the various local currencies covering primarily the Company's Western European, Canadian, and Australian operations. Historically, the Company has not purchased currency forward exchange contracts where it is not economically efficient, specifically for its operations in South America and Asia. The Company has historically not used financial instruments to minimize its exposure to currency fluctuations on its net investments in and cash flows derived from its foreign subsidiaries. The Company has used third party borrowings in foreign currencies to hedge a portion of its net investments in and cash flows derived from its foreign subsidiaries. As the Company reduces its third party foreign currency borrowings, the effect of foreign currency fluctuations on its net investments in and cash flows derived from its foreign subsidiaries increases. OTHER MATTERS - ------------- New Accounting Pronouncements and Other Standards No new accounting pronouncements and other standards material to the Company were issued in the first quarter of 2004. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no significant changes to the market risks as disclosed in Item 7a "Quantitative And Qualitative Disclosures About Market Risk" of the Company's Annual Report on Form 10-K filed for the year ending December 28, 2003. Item 4. DISCLOSURE CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective in alerting them, on a timely basis, to material information required to be included in the Company's periodic SEC reports. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is involved in certain legal and regulatory actions, all of which have arisen in the ordinary course of business, except for the matters described in the following paragraphs. Management believes it is remotely possible that the ultimate resolution of such matters will have a material adverse effect on the Company's consolidated results of operations and/or financial condition, except as described below. ID Security Systems Canada Inc. versus Checkpoint Systems, Inc. On May 24, 2002, the jury in the Civil Action No. 99-CV-577 in the United States District Court for the Eastern District of Pennsylvania, filed by plaintiff ID Security Systems Canada Inc. against Checkpoint Systems, Inc., held in favor of the Company on the plaintiff's claim for Monopolization of Commerce, but against the Company on claims of Attempted Monopolization and Conspiracy to Monopolize. In addition, the jury held against the Company on two tort claims related to tortious interference and unfair competition. Judgment was entered on the verdict in favor of the plaintiff, after trebling, in the amount of $79.2 million plus attorneys' fees and costs to be determined by the Court. On March 28, 2003, the Court issued an order which vacated the jury verdict on the antitrust claims and reduced the damages award related to tortious interference and unfair competition from $19 million to $13 million. The Company subsequently filed an additional motion to further reduce the $13 million by $2.1 million based on a prior agreement between the parties and a previous Order by the Court. The Court granted the Company's motion, and on May 20, 2003 further reduced the judgment from $13 million to $10.9 million. On the same date, the Court stayed execution of the judgment upon the posting of a bond in the amount of $11.3 million by the Company. The Company promptly posted the requisite bond and execution on the judgment in the amount of $10.9 million is now stayed. Both ID Security Systems Canada Inc. and the Company have filed appeals to the Third Circuit Court of Appeals related to the various decisions of the Court. Oral arguments for these appeals were heard on March 30, 2004. Based on input from outside legal counsel, management is of the opinion that the Judge's Order is consistent with the law as it relates to the antitrust issues, and is not consistent with the law as it relates to the tortious interference and unfair competition aspects of the case. Accordingly, no liability has been recorded for this litigation, as management believes that, at this time, it is not probable the remaining judgment will be upheld and that the reasonably possible range of the contingent liability is between zero and $80 million. Although management believes it is not likely, it is possible that the Court of Appeals could reverse the decision of the lower Court as it relates to the antitrust claims and reinstate the original judgment of $79.2 million plus attorneys' fees and costs. If the final outcome of this litigation, after all appeals have been exhausted, results in certain of the plaintiff's claims being upheld, the potential damages could be material to the Company's consolidated results of operations and/or financial condition and could cause the Company to be in default of certain bank covenants. Although management expects to be successful in the appeal process, should the appeal be unsuccessful, management anticipates that any final judgment would be paid in the second half of 2004 and is of the opinion that the Company will have sufficient financial resources in the form of cash and borrowing capacity, due to the cash flow generated during the intervening period, to satisfy any judgment. Matters related to ID Security Systems Canada Inc. versus Checkpoint Systems, Inc. A certain number of follow-on purported class action suits have arisen in connection with the jury decision in the ID Security Systems Canada Inc. litigation. The purported class action complaints generally allege a claim of monopolization and are substantially based upon the same allegations as contained in the ID Security Systems Canada Inc. case (Civil Action No. 99-CV-577) as discussed below. On August 1, 2002, a civil action was filed in United States District Court for the Eastern District of Pennsylvania, designated as Civil Action No. 02-6379(ER) by plaintiff Diane Furs, Inc. t/a Diane Furs against Checkpoint Systems, Inc. and served on August 21, 2002. On August 21, 2002, a Notice of Substitution of Plaintiff and Filing of Amended Complaint was filed by the plaintiff, and the named plaintiff was changed to Medi-Care Pharmacy, Inc. On August 2, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-3730(JEI) by plaintiff Club Sports International, Inc., d/b/a Soccer CSI against Checkpoint Systems, Inc. and served on August 26, 2002. On October 2, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-4777(JBS) by plaintiff Baby Mika, Inc. against Checkpoint Systems, Inc. and served on October 7, 2002. On October 23, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-5001(JEI) by plaintiff Washington Square Pharmacy, Inc. against Checkpoint Systems, Inc. and served on November 1, 2002. On October 18, 2002, The United States District, District of New Jersey (Camden) entered an Order staying the proceedings in the Club Sports International, Inc. and Baby Mika, Inc. cases referred to above. In accordance with the Order, the Stay will also apply to the Washington Square Pharmacy, Inc. case referred to above. In addition, the Medi-Care Pharmacy, Inc. case, referred to above, will be voluntarily dismissed, and it has been re-filed in New Jersey and is included in the Stay Order. The Stay is expected to remain in place until such time as the ID Security Systems case, referred to above, is either terminated or any appeals have been exhausted in the Third Circuit Court of Appeals. On November 13, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-5319(JEI) by plaintiff 1700 Pharmacy, Inc. against Checkpoint Systems, Inc. and served on November 15, 2002. On December 30, 2002, a civil action was filed in the United States District Court, District of New Jersey (Camden) designated as Docket No. 02-CV-6131(JEI) by plaintiff Medi-Care Pharmacy, Inc. against Checkpoint Systems, Inc. and served on January 3, 2003. Both the 1700 Pharmacy, Inc. case and the Medi-Care Pharmacy, Inc. case were consolidated with the previously mentioned cases and are included in the October 18, 2002 Stay Order referred to above. No liability has been recorded for any of the purported class action suits as management believes that, based on input from outside legal counsel, it is not probable that the Court of Appeals will reverse the decision of the lower Court in the ID Security Systems Canada Inc. litigation as it relates to the antitrust claims and that the lower end of the reasonably possible range of the contingent liability is zero at this time. The high end of the range cannot be estimated at this time. All Tag Security S.A., et al. On April 22, 2004 the United States District Court For The Eastern District Of Pennsylvania issued an opinion granting All-Tag Security S.A. and All-Tag Security Americas, Inc.' (jointly "All-Tag") and Sensormatic Electronics Corporation's motion for summary judgment, which was filed on February 15, 2002, and ordered the case closed. Checkpoint originally filed suit on May 1, 2001, alleging that the disposable, deactivatable radio frequency security tag manufactured by All-Tag S.A. and sold by Sensormatic infringed on a patent owned by Checkpoint (US Patent No. 4,876,555). The Court determined that the US patent is invalid because the original application failed to identify a co-inventor. The original US application was filed in March 1988 and was scheduled to expire on March 15, 2008. Checkpoint acquired the patent in 1995 when it acquired Actron AG. Checkpoint is currently reviewing its options to appeal the decision. Other The Company is a plaintiff in other patent infringement suits around the world against various defendants in an effort to enforce certain of the Company's intellectual property rights. In each of these proceedings, the defendants have challenged the validity of the Company's patents. In the event the relevant patents were to be modified or invalidated, such action would diminish or eliminate the value to the Company of the relevant patent. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Employment Agreement with W. Craig Burns 10.2 Employment Agreement with John E. Davies, Jr. 10.3 First Amendment to Employment Agreement with John E. Davies, Jr. 10.4 Employment Agreement with Per Levin 10.5 Amended Employment Agreement with Per Levin 10.6 Employment Agreement with Arthur W. Todd 10.7 Employment Agreement with John R. Van Zile 31.1 Rule 13a-14(a)/15d-14(a) Certification of George W. Off, Chairman of the Board, President and Chief Executive Officer. 31.2 Rule 13a-a4(a)/15d-14(a) Certification of W. Craig Burns, Executive Vice President, Chief Financial Officer and Treasurer. 32.1 Certification pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K On April 14, 2004, the Company issued a press release announcing that the holders of $47.2 million of the $60.0 million of aggregate principal amount of its existing 5-1/4% Convertible Subordinated Debentures due 2005 ("the Notes")called for redemption on April 13, 2004, elected to convert their Notes into 2,569,797 shares of the Company's common stock at a conversion price of $18.375 per share. The shares of Company common stock issuable as a result of the conversion will be freely-tradeable, unrestricted shares. 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 May 12, 2004 - ---------------------------- W. Craig Burns Executive Vice President, Chief Financial Officer and Treasurer /s/Arthur W. Todd May 12, 2004 - ---------------------------- Arthur W. Todd Vice President, Corporate Controller and Chief Accounting Officer EX-10 2 atodd.txt ATODD AGREEMENT EMPLOYMENT AGREEMENT This is an agreement made as of January 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and Arthur W. Todd ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of $206,819.00 per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. b. Company shall reimburse Executive for one round trip coach airfare per year for Executive and Executive's immediate family to return to New Zealand. Company will pay a one-time step up each year on any annual income taxes resulting from such reimbursement. c. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. d. d. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. For benefit and employment related purposes, Executive's employment with Company started with employment at Meto, on June 9, 1986. e. e. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. f. f. Company will pay costs of relocation to New Zealand for Executive and his immediate family upon the conclusion of Executive's employment for any reason, or for his family in the event of Executive's death. Additionally, Executive will be provided with six (6) months of employment upon his return to New Zealand, at his current salary level at the time of the move. g. 3. Duties. Executive shall be employed as Vice President, Corporate Controller and Chief Accounting Officer. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (whether voluntary or involuntary) (the "Restricted Period"), Executive shall not compete in the United States or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business as such business exists on termination date; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such\ Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of twelve (12) months (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles; or (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement pursuant to Subsection 5.f above, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 1-1/2 times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1 1/2 times the Severance Payment Period at the same cost charged for employees actively employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his Base Salary through his/her last day of employment and relocation as specified in 2.(g) above. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 2.(g) and 5. (e) (i)-(iii) above. 7. All Business To Be the Property of Employer: Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's employment with Company or at any other time upon request. 5. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 6. 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 Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________________ Name: George Off Title: EXECUTIVE: ------------------------------------- Arthur W. Todd EX-10 3 jvanzile.txt J VANZILE AGREEMENT EMPLOYMENT AGREEMENT This is an agreement made as of January 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and John R. Van Zile ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of $242,579.00 per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. Pursuant to Executive's offer letter dated May 20, 2003, base salary will be increased by $25,000 prior to January 1, 2005. b. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. c. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. d. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. 3. Duties. Executive shall be employed as Senior Vice President, General Counsel and Secretary. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (whether voluntary or involuntary) (the "Restricted Period"), Executive shall not compete in the United States or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business as such business exists on termination date; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. In such event, Company's obligation to pay further compensation hereunder shall cease, except as otherwise required by law or company policy or benefit plan(s), as of the effective date of Executive's termination. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of fifteen (15) months (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period at the same cost charged for employees actively employed by the Company; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles ;or (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement pursuant to Subsection 5.f above, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 1-1/2 times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1 1/2 times the Severance Payment Period at the same cost charged for employees actively employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his/her Base Salary through his/her last day of employment. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 5. (e) (i)-(iii) above. 7. All Business To Be the Property of Employer: Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's\ employment with Company or at any other time upon request. 8. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 9. 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: John R. Van Zile B. If to Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________ Name: George Off Title: Chairman and CEO EXECUTIVE: ------------------------------ John R. Van Zile EX-10 4 jdavies1a.txt JDAVIES 1ST AMENDMENT EMPLOYMENT AGREEMENT This First Amendment to Employment Agreement is made as of this ___ day of April, 2004, by and between Checkpoint Systems, Inc. ("CSI") and John Davies ("Executive"). WHEREAS, CSI and Executive are parties to an Employment Agreement dated January 1, 2004 ("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 5. Termination of Employment is hereby amended by changing Article 5.e.(i) so that the eighteen (18) month period contained therein shall now be read as twenty-four (24) months. 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: George Off BY: ___________________ ------------------- John E. Davies, Jr. Chairman and Chief Executive Officer EX-10 5 cburns.txt C. BURNS EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT This is an agreement made as of January 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and W. Craig Burns ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of $387,048.00 per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. b. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. c. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. d. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. 3. Duties. Executive shall be employed as Executive Vice President, Chief Financial Officer and Treasurer. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (whether voluntary or involuntary) (the "Restricted Period"), Executive shall not compete in the United States or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. In such event, Company's obligation to pay further compensation hereunder shall cease, except as otherwise required by law or company policy or benefit plan(s), as of the effective date of Executive's termination. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of twenty-four (24) months (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period at the same cost charged for employees actively employed by the Company; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles; or7 (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement pursuant to Subsection 5.f. above, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 11/2times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1-1/2times the Severance Payment Period at the same cost charged for employees actively employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. i. In the event Executive's employment terminates for any reason, including death or disability, Executive will also be entitled to an accrued retention bonus in the amount of $772,254, plus a return equal to the S&P index beginning April 1, 2004. The amount is due and payable in addition to any amount payable under Sections 5 (e) or 5 (f). j. Executive will also be entitled to $350,000, which shall vest and be paid in three installments as follows: $116,667 on each of January 1, 2004 and January 1, 2005 and $116,666 on January 1, 2006. The $350,000 will be eligible for transfer into the Executive's deferred compensation account as it vests. Entitlement shall survive termination of this Agreement. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his/her Base Salary through his/her last day of employment. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 5. (e) (i)-(iii) above. 7. All Business To Be the Property of Employer: Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's employment with Company or at any other time upon request. 8. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 9. 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: B. If to Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________________ Name: George Off Title: Chairman and CEO EXECUTIVE: ------------------------------------- W. Craig Burns EX-10 6 jdavies.txt JDAVIES EMPLOYMENT AGREEMENT This is an agreement made as of January 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and John E. Davies, Jr. ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of $303,385.00 per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. b. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. c. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. d. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. 3. Duties. Executive shall be employed as Executive Vice President, General Manager Americas and Asia Pacific. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (whether voluntary or involuntary) (the "Restricted Period"), Executive shall not compete in the United States or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. In such event, Company's obligation to pay further compensation hereunder shall cease, except as otherwise required by law or company policy or benefit plan(s), as of the effective date of Executive's termination. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of eighteen (18) months (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period at the same cost charged for employees actively employed by the Company; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles; or (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement pursuant to Subsection 5.f above, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 11/2times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1-1/2 times the Severance Payment Period at the same cost charged for employees actively employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his/her Base Salary through his/her last day of employment. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 5. (e) (i)-(iii) above. 7. All Business To Be the Property of Employer: Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's employment with Company or at any other time upon request. 8. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 9. 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: John E. Davies, Jr. B. If to Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________________ Name: George Off Title: Chairman and CEO EXECUTIVE: ------------------------------------- John E. Davies, Jr. EX-10 7 plevinagree.txt P LEVIN AGREEMENT EMPLOYMENT AGREEMENT This is an agreement made as of January 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and Per Levin ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of 280,000 Euros per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. b. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. c. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. d. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. e. Executive will be paid an annual housing allowance of 16,667 Euros during the term of this Agreement. f. The Company will make an annual 38,889 Euros contribution to Executive's pension plan during the term of this Agreement. This shall be payable on a monthly basis. 3. Duties. Executive shall be employed as Executive Vice President, General Manager of Europe. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (the "Restricted Period"), Executive shall not compete in Europe or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. In such event, Company's obligation to pay further compensation hereunder shall cease, except as otherwise required by law or company policy or benefit plan(s), as of the effective date of Executive's termination. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of eighteen (18) months severance (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles; or (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement in the event of Change of Control, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 1 1/2 times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1 1/2 times the Severance Payment Period and the same cost charged for employees currently employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his/her Base Salary through his/her last day of employment. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 5. (e) (i)-(iv) above. 7. All Business To Be the Property of Employer:Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's employment with Company or at any other time upon request. 8. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 9. 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: Per Levin B. If to Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________________ Name: George Off Title: Chairman and CEO EXECUTIVE: ------------------------------------- Per Levin EX-10 8 plevin1amend.txt P LEVIN AMENDMENT AMENDED EMPLOYMENT AGREEMENT This is an agreement made as of April 1, 2004 (this "Agreement") by and between Checkpoint Systems, Inc. ("Company") and Per Levin ("Executive"). W I T N E S S E T H: WHEREAS, Company desires to employ Executive and Executive desires to be employed on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the mutual covenants and the agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Term of Employment. Company agrees to employ Executive and Executive agrees to be employed from January 1, 2004 through December 31, 2004 (the "Initial Employment Period"). The term of employment under this Agreement shall be renewed for successive one year periods upon the expiration of the Initial Employment Period (the Initial Employment Period and, if the period of employment is so extended, such successive periods of employment, are collectively referred to herein as the "Employment Period"), unless notice of termination of this Agreement is given by Company at least thirty (30) days prior to the end of the Employment Period, in which case this Agreement shall terminate at the end of the Employment Period. This Agreement may be otherwise terminated during the Employment Period only as provided in Section 5 hereof. 2. Compensation. a. Company shall pay Executive during the Employment Period a base salary of 280,000 Euros per annum (the "Base Salary"), to be paid in equal installments in accordance with the normal payroll practices of Company. b. Executive shall be eligible to participate in such bonus plan(s) of Company as may exist during the Employment Period (Bonus Plan). Company shall determine the eligibility of Executive for a bonus under the Bonus Plan in accordance with its terms. Company may amend or terminate the Bonus Plan at its sole discretion at any time. c. Executive shall be eligible at his/her election to participate in Company's employee benefit plans and to receive all fringe benefits and vacations for which his/her level and tenure of employment makes him eligible in accordance with Company's policies. d. Company shall promptly reimburse Executive for his/her ordinary and necessary business expenses incurred in the performance of his/her duties hereunder, consistent with Company's policy and practices. e. Executive will be paid an annual housing allowance of 16,667 Euros during the term of this Agreement. f. The Company will make an annual 38,889 Euros contribution to Executive's pension plan during the term of this Agreement. This shall be payable on a monthly basis. 3. Duties. Executive shall be employed as Executive Vice President, General Manager of Europe. Executive shall perform such reasonable duties relating to Company's business and operations as may from time to time be assigned to him by Company. Executive shall devote substantially all of his/her business time to his/her duties hereunder and shall, to the best of his/her ability, perform such duties in a manner that will faithfully and diligently further the lawful business and interests of Company. 4. Covenant Not to Compete: Confidentiality a. Executive covenants and agrees that during the period Executive is employed by Company, whether pursuant to this Agreement or otherwise (e.g. as an employee at will), and for a period of twelve (12) months from the date of termination of Executive's employment with the Company (the "Restricted Period"), Executive shall not compete in Europe or anywhere in the world with Company by engaging in Company's business directly for his/her own account or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor, in any entity that engages in Company's business; and b. Executive further covenants that during the Restricted Period, Executive shall not contact, solicit or accept any business (directly or indirectly, as agent, employee, consultant, representative or otherwise, or as a sole proprietor, partner or joint venturer, or by having any direct or indirect financial interest, including, without limitation, the interest of a creditor) from any present client of Company for whom Executive has provided or assisted Company in providing services while employed by Company. c. Except as required in the course of performing duties hereunder, by law, or with Company's express written consent, during the Restricted Period, Executive shall keep secret and retain in strictest confidence, and shall not disclose to anyone outside Company or use for the benefit of himself or others, any confidential matters relating to Company's business and to Company and its affiliates, including, without limitation, and to the extent confidential, trade "know-how", secrets, Client Lists (as hereinafter defined), subscription lists, pricing policies, distribution policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition plans, software programs, new personnel acquisition plans, technical processes, designs and design projects, inventions and research projects, investment strategies and techniques and other business affairs relating to Company's business and to Company and its affiliates learned by Executive heretofore or hereafter. d. During the Restricted Period, Executive shall not, directly or indirectly, (i) solicit or encourage to leave the employment or service of Company, any employee or consultant of Company, or (ii) hire or retain any employee or consultant who is employed or retained by, or who, within twelve months of any particular time, has left the employment or service of Company. e. The term "Past Client" shall mean any person or entity who within one year prior to the date of Executive's termination of employment with Company had been a customer or client of Company or of any entity affiliated with Company. f. The term "Present Client" shall mean any person or entity who on the date of Executive's termination of employment with Company is a customer or client of Company or of any entity affiliated with Company. g. The term "Potential Client" shall mean any person or entity to whom Company, on its own behalf, through any of its officers or employees, had within one year prior to the date of Executive's termination of employment with Company offered (by means of a formal presentation made in person to the Potential Client) to provide services as a client or customer. h. The terms "Client" or "Client List" when used herein shall include all Past, Present and Potential Clients as heretofore defined. i. Executive recognizes that Company does not have an adequate remedy at law to protect its rights under Section 4 of this Agreement. Executive agrees that Company shall have (i) the right to an injunction in any court of competent jurisdiction permanently enjoining Executive from a violation of Section 4 of this Agreement during the Restrictive Period (the "Restrictive Covenants"), and (ii) the right and remedy to require Executive to account for and pay over to Company all compensation, profits, monies, accruals, increments or other benefits (collectively, "Benefits") derived or received by Executive as the result of any transactions constituting a breach of any of the Restrictive Covenants, and Executive shall account for and pay over such Benefits to Company, and (iii) the right to recover any losses, liabilities or damages (including interest, penalties and reasonable attorneys' fees) arising out of or due to a breach of Section 4 of this Agreement. j. Executive recognizes and agrees in the event of a violation of the Restrictive Covenants, the period during which he shall not compete shall be extended for a period equal to the period during which he engaged in conduct constituting such violation. k. The remedies set forth in this Section shall not be mutually exclusive and any one or all may be pursued without the pursuit of one impairing or precluding the pursuit of another. The parties agree that neither shall, under any circumstances for any reason whatsoever, challenge the existence or validity of the Restrictive Covenants or this Agreement for any reason, including, without limitation, through a claim or action based upon failure of consideration or in an action for rescission or like legal or equitable claim. l. The Restrictive Covenants in this Agreement shall inure to the benefit of Company, its affiliated entities and their respective successors and assigns. 5. Termination of Employment. a. Executive's employment hereunder shall terminate upon his/her death, and Company's obligation to pay further compensation\ hereunder shall cease immediately, except that Executive's legal representative shall be entitled to receive Executive's salary for the period up to the last day of the calendar month in which his/her death occurred. b. Executive may voluntarily terminate this Agreement upon thirty (30) days notice. In such event, Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. c. Company may terminate this Agreement upon thirty (30) days notice in the event that Executive becomes unable to perform the essential functions of his/her position, with or without reasonable accommodation, due to sickness or disability. In such event, Company's obligation to pay further compensation hereunder shall cease, except as otherwise required by law or company policy or benefit plan(s), as of the effective date of Executive's termination. d. Company may terminate this Agreement at any time for "cause". For purposes of this Agreement, the term "cause" shall mean (i) Executive's willful and continued insubordination or Executive's failure or refusal to perform his/her duties hereunder after notice by Company specifically identifying the offending conduct; (ii) dishonesty in the performance of his/her duties hereunder; (iii) Executive's breach of the Restrictive Covenants in Section 4 or any other provision of this Agreement; (iv) Executive's subjection to a judgment, decree or final order of a judicial or administrative body of competent jurisdiction effectively preventing Executive from the substantial performance of his/her duties hereunder or causing substantial damage to Company or to its business reputation; and (v) Executive's conviction of a felony or a crime involving moral turpitude which, in the reasonable judgment of Company, renders Executive unfit to continue his/her office as herein described or causes substantial damage to Company or its business reputation. In the event of a termination for "cause", Company's obligation to pay further compensation hereunder shall cease as of the effective date of Executive's termination. e. In the absence of "cause" as defined in this Agreement, Company may terminate this Agreement upon thirty (30) days notice. In such event, Executive shall be entitled to receive the following: (i) the Base Salary for a period of twenty-four (24) months severance (Severance Payment Period), to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for the Severance Payment Period; f. In the event of a "Change in Control" as defined herein, Executive may terminate this Agreement upon thirty (30) days notice if, but only if, one of the following occurs: (i) Executive is assigned duties substantially inconsistent with his/her position, duties, responsibilities or status, or his/her duties are substantially reduced; or (ii) Executive's principal office is relocated more than thirty (30) miles; or (iii) Executive's Base Salary is reduced. g. If Executive is terminated or properly terminates this Agreement in the event of Change of Control, Executive shall be entitled to receive the following: (i) the Base Salary for a period equal to 1 1/2 times the Severance Payment Period, to be paid in accordance with the Company's normal payroll practices; (ii) any payment to which Executive may be entitled in accordance with the terms of any applicable Bonus Plan then existing; (iii) continued participation in Company's health care insurance plan for a period equal to 1 1/2 times the Severance Payment Period and the same cost charged for employees currently employed by the Company; h. "Change in Control" of Company shall be deemed to have occurred if (i) any person or entity or group acting in concert (an "Acquirer") acquires from the shareholders of Company (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 (ii) such Acquirer obtains the right or power to elect a substitute or replacement Board, and does, in fact, exercise such right; or (iii) the shareholders of Company approve an agreement for the sale or disposition by Company of substantially all of Company's assets to an Acquirer. 6. Notice of Termination at the End of Employment Period. a. If Executive gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, he shall have no further right to compensation or benefits, except that he shall be paid his/her Base Salary through his/her last day of employment. b. If Company gives notice of termination at the end of the Employment Period pursuant to Section 1 of this Agreement, Executive shall be entitled to receive the same compensation and benefits as specified in 5. (e) (i)-(iv) above. 7. All Business To Be the Property of Employer:Assignment of Intellectual Property a. Executive hereby grants to Company (without any separate remuneration or compensation other than that received by Executive from time to time in the course of his/her employment) Executive's entire right, title and interest throughout the world in and to all research, information, Client Lists and all technical and research data (herein sometimes called "Intellectual Property") made, conceived, developed and/or acquired by Executive solely or jointly with others during the period of his/her employment by Company. b. All business of Company developed by Executive or any other employee of Company, including, without limitation, fees, commissions, compensation, records, Clients Lists, agreements, memoranda, notes, lists, records and other documents (and all copies thereof) made or compiled by Executive or made available to Executive concerning Company's business or Company are and shall be the exclusive property of Company for its sole use and shall be delivered to Company promptly upon the termination of Executive's employment with Company or at any other time upon request. 8. Consultation on legal proceedings. Executive covenants and agrees that during the period Executive is employed by Company, and during The Restricted Period, Executive shall cooperate with Company in any legal or quasi-legal matter, such as governmental or private legal actions or litigation, investigations, or other proceedings. Company will reimburse Employee for any pre-approved costs and expenses in connection with such cooperation. 9. 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: Per Levin B. If to Company to: Checkpoint Systems, Inc. 101 Wolf Drive Thorofare, NJ 08086 Attention: Chairman of the Board of Directors 9. Assignability. This Agreement shall be assignable by Company and shall be binding upon and inure to the benefit of Company and its successors and assigns (by purchase of substantially all of the assets, by merger or otherwise). This Agreement shall not be assignable by Executive, but it shall be binding upon, and to the extent provided in Section 5, shall inure to the benefit of Executive's heirs, executors, administrators and legal representatives. 10. Entire Agreement. This Agreement contains the entire agreement between Company and Executive with respect to the subject matter hereof. 11. Waivers, Amendments and Further Agreements. Neither this Agreement nor any term or condition hereof, including, without limitation, the terms and conditions of this Section 11, may be waived, modified or amended in whole or in part as against Company or Executive except by written instrument executed by each of the parties expressly stating that it is intended to operate as a waiver, modification or amendment of this Agreement or the applicable term or condition hereof, it being understood that any action on behalf of Company under this Section 11 may be taken only with the consent of the Board of Directors of Company. Each of the parties hereto agrees to execute all such further instruments and documents and to take all such further action as the other party may reasonably require in order to effectuate the terms and purposes of this Agreement. 12. Severability. It is understood and agreed by the parties hereto that the provisions contained in this Agreement are independent of and severable from each other and the invalidity of any section or any portion thereof shall not affect the validity or hinder the enforceability of the remaining provisions of this Agreement. The parties expressly agree and declare that the time limitations and restrictions set forth in Section 4 hereof are reasonable and necessary in view of Company's business, are properly required for the adequate protection of Company's business and that in the event such time limitation is deemed to be unreasonable by the final decision of a court of competent jurisdiction, Company and Executive agree to submit to such revision or modification thereof as said court shall deem reasonable. 13. No Conflicting Obligations. Executive represents and warrants to Company that he is not now under any obligation to any person, firm or corporation, other than Company, and has no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair, in any way, his/her performance of any of the covenants or duties hereinabove set forth. 14. Survival. The covenants and agreements, including without limitation the Restrictive Covenants in Section 4 hereof and the representations and warranties contained in or made pursuant to this Agreement shall survive the expiration of this Agreement and the termination of Executive's employment hereunder. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the law of the State of New Jersey. IN WITNESS WHEREOF, the parties have executed or caused to be executed this Agreement as of the date first above written. Checkpoint Systems, Inc. By: __________________________________ Name: George Off Title: Chairman and CEO EXECUTIVE: ------------------------------------- Per Levin -----END PRIVACY-ENHANCED MESSAGE-----