Item
5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
Robert
van der Merwe Succeeds George Off as President and CEO
On
December 27, 2007, the Board of Directors of Checkpoint Systems, Inc. (the
“Company”) elected Robert (Rob) van der Merwe to the position of President and
Chief Executive Officer of the Company, effective immediately. Mr. van der
Merwe, age 55, succeeds George Off, age 60, who is discontinuing his service
as
CEO and will continue to serve as the Chairman of the Company’s Board of
Directors. As a result of this management transition, the Company expects to
record in the fourth quarter of 2007 a one-time charge of $4.2 million, or
$0.07
per [diluted] share after tax, related to compensation costs associated with
Mr.
Off’s departure.
Appointment
of Mr. van der Merwe as President and CEO
In
connection with the Board of Directors’ decision, the Company entered into an
Employment Agreement (the “Agreement”) with Mr. van der Merwe pursuant to his
appointment as President and Chief Executive Officer.
The
term
of the Agreement begins on December 27, 2007 and initially ends on December
31,
2010, after which the term of Mr. van der Merwe’s employment shall be renewed
for a two-year period ending on December 31, 2012, and thereafter for successive
one-year periods ending on December 31 each year, unless Mr. van der Merwe
or
the Company gives a notice of termination at least six months before the end
of
an employment term. Under the Agreement, Mr. van der Merwe is entitled to
receive an annual base salary of $850,000 and participate in annual incentive
compensation program(s) to be developed by the Board of Directors that will
enable Mr. van der Merwe to earn incentive compensation up to a maximum of
150%
of his base salary, subject to achievement of specified goals and objectives
identified by the Board of Directors in consultation with Mr. van der Merwe.
For
2008, Mr. van der Merwe will be entitled to a guaranteed minimum bonus equal
to
50% of his base salary.
The
Agreement also provides for a grant to Mr. van der Merwe of stock options under
which he may purchase up to 500,000 shares of the Company’s common stock as well
as a grant of 20,000 restricted stock units (the “RSUs”) with respect to the
Company’s common stock, in each case subject to terms and conditions set forth
as applicable in the Agreement, the Company’s 2004 Omnibus Incentive
Compensation Plan (the “Omnibus Plan”) and the related equity award agreements.
The stock options, which represent options issued under the Omnibus Plan
exercisable for 230,000 shares as well as an employment inducement award of
options exercisable for 270,000 shares, have an exercise price equal to $22.71
per share, the closing market price of the Company’s common stock on the date of
grant, and shall vest, subject to Mr. van der Merwe’s continued employment, as
follows: (i) 60% (300,000 shares) become exercisable on December 31,
2010; (ii) an additional 20% (100,000 shares) become exercisable on December
31,
2011; and (iii) the final 20% (100,000 shares) become exercisable on December
31, 2012. Vesting of the first 60% increment shall accelerate in the event
of
Mr. van der Merwe’s death or disability, the termination of his employment by
the Company without cause, the termination of his employment by him for good
reason, or upon a change in control of the Company on or before December 31,
2010, and vesting of the balance of the shares shall accelerate if one of the
foregoing events occurs after December 31, 2010. In addition, all shares shall
vest upon the first date on which the closing price per share of the Company’s
common stock, as reported on the New York Stock Exchange, equals or exceeds
200%
of the stock options’ exercise price. The RSUs will vest on December 31, 2010,
subject to acceleration in the event of Mr. van der Merwe’s death or disability,
the termination of his employment by the Company without cause, the termination
of his employment by him for good reason or upon a change in control of the
Company. These equity awards are governed by an Incentive Stock Option
Agreement, a Restricted Stock Unit Award Agreement and a Stock Option Agreement,
each dated December 27, 2007, between the Company and Mr. van der Merwe
(collectively, the “Award Agreements”). In addition to these equity grants, Mr.
van der Merwe will receive annual long term compensation at the discretion
of
the Board of Directors under the Omnibus Plan and existing compensation
practices, including stock options, long term incentive program (“LTIP”) awards,
restricted stock awards, stock appreciation rights (“SARs”), or other awards as
determined by the Board of Directors. For the year 2008, Mr. van der Merwe’s
annual long term compensation shall consist of 60,000 stock options and 30,000
RSUs vesting in accordance with the terms applicable to his predecessor as
CEO.
Mr.
van
der Merwe is entitled to participate in all pension plans as well as medical,
dental and other benefit plans and perquisites generally available to the
Company’s senior management and is subject to customary non-competition and
confidentiality provisions. He is also entitled to reimbursement of relocation
expenses in connection with his move to the greater Philadelphia
area.
In
the
event that Mr. van der Merwe’s employment with the Company is terminated by the
Company without cause, by him for good reason or due to the inability of the
Company and Mr. van der Merwe to reach a mutual agreement to extend the term
of
the Agreement, Mr. van der Merwe will receive, in one lump sum payment, an
amount equal to twice the sum of (i) his base salary then in effect and
(ii) the two-year average of his incentive compensation in the immediately
preceding two years, subject to additional adjustments provided in the
Agreement.
Mr.
van
der Merwe has been a member of the Company’s Board of Directors since October
25, 2007 and will continue to serve on the Company’s Board of Directors in his
new position as the Company’s CEO. Since April 2005, Mr. van der Merwe served as
President and Chief Executive Officer of Paxar Corporation, a global leader
in
providing innovative merchandising systems to retailers and apparel customers.
He became Chairman of the Board of Paxar in January 2007, and served in these
capacities until Paxar’s sale to Avery Dennison in June 2007. Prior to joining
Paxar, Mr. van der Merwe held numerous executive positions with Kimberly-Clark
Corporation from 1980 to 1987 and from 1994 to 2005, including the positions
of
Group President of Kimberly-Clark’s global consumer tissue business and Group
President of Europe, Middle East and Africa. Earlier in his career, Mr. van
der
Merwe held managerial positions in South Africa at Xerox Corporation and Colgate
Palmolive.
Resignation
of Mr. Off as President and CEO
In
connection with Mr. Off’s resignation as CEO, the Company and Mr. Off entered
into a Termination Agreement (the “Termination Agreement”) that (i) amends his
existing Amended and Restated Employment Agreement, effective as of January
1,
2006 and filed on December 12, 2005 with the Securities and Exchange Commission
as Exhibit 10.1 to the Company’s Current Report on Form 8-K (the “Original
Agreement”), with respect to the benefits payable to him in connection with his
termination for good reason and (ii) confirms his continuing role as
Chairman of the Board of Directors.
Under
the
Termination Agreement, the parties confirm that Mr. Off resigned as an employee
and officer of the Company effective December 27, 2007 and that Mr. Off’s
resignation was for good reason (as defined in the Original Agreement). Mr.
Off
shall continue to serve as Chairman of the Board of Directors of the Company
until his resignation or removal by the Board of Directors and will assist
management during the transition period following Mr. van der Merwe’s
appointment as Chief Executive Officer, provided that Mr. Off will not resign
for reasons other than physical incapacity before the earlier of December 31,
2008 or until the Board of Directors has concluded that a sufficient transition
period has elapsed. Mr. Off shall receive compensation for his services as
Chairman as determined by the Board of Directors. The Termination Agreement
also
amends Section 10(b) of the Original Agreement to provide that (i) the good
reason severance payment will not include a pro rata portion of average annual
incentive compensation; (ii) the RSUs granted on April 1, 2005 to Mr. Off
shall not vest as a result of his termination for good reason; and
(iii) the good reason severance payment shall include an additional amount,
payable no later than March 15, 2008, equal to the bonus that Mr. Off would
have
earned as the Company’s Chief Executive Officer for the current fiscal year had
he not resigned prior to the close of the fiscal year, but reduced by $400,000
so that the net 2007 bonus award will be approximately $329,000.
A
copy of
the Company’s press release regarding these events is furnished as
Exhibit 99.1 to this report.