SCHEDULE 14A
------------
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-ll(c) or Section
240.14a-12
CPAC, Inc.
(Name of Registrant as Specified In Its Charter)
Thomas J. Weldgen, Chief Financial Officer
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-ll(c)(l)(ii), 14a6(i)(1), or 14a6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11
1) Title of each class of securities to which transaction applies
2) Aggregate number of securities to which transaction applies
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:
$125.00
----------------------------------------------
[ ] Fee paid previously with Preliminary Materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-ll(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of CPAC,
Inc. will be held at the Genesee River Hotel-Restaurant and Reception Center,
134 North Main Street (Route 36), Mount Morris, New York 14510, on Wednesday,
August 9, 1995, at 11:00 A.M. E.D.T. for the following purposes:
1. To elect directors to serve until the next annual meeting of
Shareholders and until their successors are duly elected and qualified.
2. To ratify the appointment by The Board of Directors of Coopers &
Lybrand L.L.P. as independent auditors of the Company for the fiscal year ending
March 31, 1996.
3. To approve an amendment to the Company's Certificate of Incorporation
to increase the number of authorized $.01 par value common shares of the Company
from 5,000,000 authorized shares to 10,000,000 common shares with $.01 par
value.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Accompanying this notice is a Proxy and Proxy Statement. If you are unable
to be present in person, please sign and date the enclosed form of Proxy and
return it in the enclosed envelope which requires no postage. Only Shareholders
of record at the close of business on June 23, 1995 will be entitled to vote at
the Annual Meeting and any adjournments thereof. The prompt return of your
Proxy will save the expense of further communications.
By Order of The Board of Directors,
/s/ Robert Oppenheimer
--------------------------------
ROBERT OPPENHEIMER
Secretary
DATED: July 10, 1995
CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481
PROXY STATEMENT
---------------
DATE OF PROXY STATEMENT: JUNE 23, 1995
DATE OF MAILING: JULY 10, 1995
ANNUAL MEETING OF SHAREHOLDERS: AUGUST 9, 1995
THE ENCLOSED PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF CPAC, INC.
(HEREINAFTER THE "COMPANY"). Any Proxy given pursuant to such solicitation may
be revoked by the Shareholder at any time prior to the voting of the Proxy. The
signing of the form of Proxy will not preclude the Shareholder from attending
the meeting and voting in person. Shares represented by the Proxy will be voted
in accordance with the directions of the Shareholder. The directors know of no
matters to come before the meeting other than those set forth in the Proxy, but
in the event any other matter may properly be brought before the meeting, the
Proxy holders will vote the Proxies in their discretion on such matters.
All of the expenses involved in preparing and mailing this Proxy Statement
and the material enclosed herewith will be paid by the Company. The Company
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for expenses reasonably incurred by them in sending proxy material
to beneficial owners of stock.
Only record holders of the voting stock at the close of business on
June 23, 1995 are entitled to vote at the meeting. On that day 4,326,431 shares
of Common Stock, $.01 par value per share, were issued and outstanding. Each
such share is entitled to one vote at the meeting.
A copy of the Annual Report filed with the Securities and Exchange
Commission on Form 10-K may be obtained by writing CPAC, Inc., P. O. Box 175,
Leicester, New York 14481, Attention: Thomas J. Weldgen, Chief Financial
Officer.
SHAREHOLDER PROPOSALS
- ---------------------
Any proposal which a qualified Shareholder of the Company intends to
present at the 1996 Annual Meeting of Shareholders that is received by the
Company after March 12, 1996, will not be eligible for inclusion in the
Company's proxy statement and form of proxy for that meeting. To be a qualified
Shareholder, a Shareholder must have owned at least $1,000 in market value of
the Company's securities for at least one year before the date of submission of
the proposal to the Company.
PROPOSAL 1
----------
ELECTION OF DIRECTORS
---------------------
Under the By-laws of the Company, its Board of Directors is elected
annually to serve until the next annual meeting of Shareholders and until the
directors' successors are duly elected and shall qualify. Unless authority to
vote for the election of directors is withheld or the Proxy is marked to the
contrary therein, the enclosed Proxy will be voted for the election of the five
nominees named below. Messrs. Hendrickson, Isaacs, Oppenheimer, James, Jr. and
Burton are currently directors of the Company, with Messrs. Hendrickson, Isaacs,
Oppenheimer, James, Jr. and Burton having been elected at the annual meeting of
Shareholders in 1994. While management has no reason to believe that any
nominee will not be available as a candidate, should such a situation arise, the
Proxy may be voted for the election of other persons as directors. Each nominee
must receive at least a plurality of the shares of stock of the Company present
in person or by proxy and entitled to vote at the meeting.
Management recommends that the nominees listed in the following table be
elected as directors of the Company, to serve until the next annual meeting of
Shareholders and until their successors are duly elected and shall qualify. The
table sets forth certain information with respect to each nominee.
PRINCIPAL SERVED AS A
NOMINEE OCCUPATION (1) AGE DIRECTOR SINCE
------- -------------- --- --------------
Thomas N. Hendrickson President, and Chief 53 1969
(2) Executive Officer,
CPAC, Inc.
Robert C. Isaacs Senior Vice President, 55 1988
(3) CPAC, Inc.
President and Chief
Operating Officer, The
Fuller Brush Company, Inc.
Robert Oppenheimer Attorney & Partner, 66 1969
(4) Chamberlain, D'Amanda,
Oppenheimer & Greenfield
Seldon T. James, Jr. Financial Consultant 68 1972
(5)
John C. Burton Ernst & Young Professor 62 1991
(6) of Accounting and
Finance,
Graduate School of Business,
Columbia University
Notes:
- -----
(1) Each nominee has had the same principal occupation for the past five
(5) years. Robert C. Isaacs previously served as President of Trebla Chemical
Company until April 24, 1995. He was appointed President of The Fuller Brush
Company, Inc., effective October 13, 1994.
(2) Mr. Hendrickson is Chairman of the Board and Treasurer of the Company.
He is also Chairman of the Board and Chief Executive Officer of Profit Recovery
Systems, Inc., Trebla Chemical Company, Allied Diagnostic Imaging Resources,
Inc., CPAC Europe, N.V. and The Fuller Brush Company, Inc. He is Chairman of
the Board, President and Chief Executive Officer of Fotoprocesos de Venezuela
C.A. He is Chairman of the Board, President and Managing Director of CPAC
Italia, S.r.l.
(3) Mr. Isaacs is Chief Operating Officer of Trebla Chemical Company and a
director of Trebla Chemical Company, Allied Diagnostic Imaging Resources, Inc.
and The Fuller Brush Company, Inc.
(4) Mr. Oppenheimer is Secretary to the Company and is a member of the law
firm of Chamberlain, D'Amanda, Oppenheimer & Greenfield, which firm serves as
general counsel to the Company. Mr. Oppenheimer is also a director and
Secretary of Trebla Chemical Company and The Fuller Brush Company, Inc. He is
Secretary of Profit Recovery Systems, Inc., Allied Diagnostic Imaging Resources,
Inc., CPAC Europe, N.V., Fotoprocesos de Venezuela C.A. and CPAC Italia, S.r.l.
Mr. Oppenheimer receives no compensation as director or Secretary of the
Company or its subsidiaries. For the fiscal year ended March 31, 1995, Mr.
Oppenheimer's firm was paid $222,163 by the Company in legal fees for legal
services rendered to the Company and its subsidiaries.
(5) Mr. James, Jr. is a director of Profit Recovery Systems, Inc. and
Fotoprocesos de Venezuela C.A. He receives no compensation in such capacity.
(6) In addition to CPAC, Inc., Mr. Burton serves on the boards of directors
of Commerce Clearing House, Inc., Manville Corporation, Scholastic, Inc., and
Salomon Swapco, Inc. He is also a member of the Valuation Committee of E.M.
Warburg Pincus Venture Capital Funds. He is a consultant to numerous accounting
and business firms. From 1972 to 1976, Mr. Burton was Chief Accountant,
Securities and Exchange Commission. From 1976 to 1977 he was Deputy Mayor for
Finance for the City of New York. From 1982 to 1988, he was Dean of the
Graduate School of Business, Columbia University. From l991 to l994, he was a
Public Governor of the National Association of Securities Dealers, Inc. (NASD).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
- ----------------------
As of June 23, 1995, the following persons are known to the Company to be
the beneficial owners of more than five percent of the Company's $.01 common
stock, the only class of its voting securities:
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP CLASS (1)
------------------- ----------------------- ---------
Thomas N. Hendrickson 312,746 shares -- outright 7.15%(2)
5 Simmons Road ownership;
Perry, New York 14530 1,745 shares -- attributable 0.04%
from ownership by wife;
HLELT Enterprises, Inc. 360,386 shares -- outright 8.33%
c/o Turner & Boisseau, ownership
Chartered
900 Broadway
Great Bend, Kansas 67530
S. Daniel Abraham 250,000 shares -- outright 5.8%
777 S. Flagler Drive ownership
West Tower - 8th Floor
West Palm Beach, Florida 33401
Notes:
- -----
(1) These percentages do not give effect to options granted on June 13,
1990, and October 13, 1994, to the Company's investment banker.
(2) Includes 19,688 shares of the Company's common stock which are
exercisable within 60 days of June 23, 1995 under an option granted on
December 21, 1990 pursuant to the Company's 1983 Employees' Incentive Stock
Option Plan, 14,766 shares of the Company's common stock which are exercisable
within 60 days of June 23, 1995 under an option granted on June 2, 1992, 4,688
shares of the Company's common stock which are exercisable within 60 days of
June 23, 1995 under an option granted on December 8, 1993 and 9,375 shares of
the Company's common stock which are exercisable within 60 days of June 23, 1995
under an option granted on February 9, 1994 pursuant to the Company's 1991
Employees' Incentive Stock Option Plan.
DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------
As of June 23, 1995, the Company's directors and executive officers (listed
individually) and all its directors and executive officers who are Shareholders
of the Company (listed as a group below) beneficially owned shares of the
Company's common stock, the only class of its voting securities, as follows:
PERCENT OF
NAME AMOUNT BENEFICIALLY OWNED CLASS (1) (8)
---- ------------------------- -------------
Thomas N. Hendrickson, 314,491 shares (2) 7.12%
Chief Executive Officer
and Director
Robert C. Isaacs, 26,594 shares (3) 0.60%
Senior Vice President
and Director
Robert Oppenheimer, 52,500 shares 1.19%
Secretary and Director
Seldon T. James, Jr., 75,000 shares (4) 1.69%
Director
John C. Burton, 9,125 shares (5) 0.21%
Director
Thomas J. Weldgen, 20,837 shares (6) 0.47%
Chief Financial Officer
Wendy F. Clay, 9,192 shares (7) 0.21%
Executive Vice President,
CPAC Equipment Division;
Vice President of Administration
All executive officers 507,739 shares (8) (9) 11.49%
and directors
(seven persons)
Notes:
- -----
(1) These percentages do not give effect to the options granted on June 13,
1990, to the Company's investment banker.
(2) Includes 1,745 shares owned by Mr. Hendrickson's spouse. Includes
19,688 shares of the Company's common stock which may be purchased within 60
days of June 23, 1995, under an option granted on December 21, 1990, pursuant to
the Company's 1983 Employees' Incentive Stock Option Plan, 14,766 shares of the
Company's common stock which may be purchased within 60 days of June 23, 1995,
under an option granted on June 2, 1992, 4,688 shares of the Company's common
stock which may be purchased within 60 days of June 23, 1995 under an option
granted on December 8, 1993, and 9,375 shares of the Company's common stock
which may be purchased within 30 days of June 23, 1995, under an option granted
on February 9, 1994, pursuant to the Company's 1991 Employees' Incentive Stock
Option Plan.
(3) Includes 9,844 shares of the Company's common stock which may be
purchased within 60 days of June 23, 1995, under an option granted on June 2,
1992, and 3,125 shares of the Company's common stock which may be purchased
within 60 days of June 23, 1995, pursuant to the Company's 1991 Employees'
Incentive Stock Option Plan.
(4) Includes 16,250 shares owned by Mrs. Seldon T. James, Jr.
(5) Includes 6,563 shares which may be purchased within 60 days of June 23,
1995 under an option granted on June 13, 1991.
(6) Includes 15,750 shares of the Company's common stock which may be
purchased within 60 days of June 23, 1995 under an option granted on April 1,
1992 and 2,500 shares of the Company's common stock which may be purchased
within 60 days of June 23, 1995 under an option granted on December 8, 1993
pursuant to the Company's 1991 Employees' Incentive Stock Option Plan. Mr.
Weldgen, age 44, joined the Company as Chief Financial Officer of the Company on
March 2, 1992. He is also Vice President, Finance and Chief Financial Officer
of The Fuller Brush Company, Inc. and Chief Financial Officer of the Company's
other subsidiaries. Prior to joining the Company, Mr. Weldgen was Partner in
the accounting firm of Coopers & Lybrand.
(7) Includes 688 shares of the Company's common stock which may be
purchased within 60 days of June 23, 1995 under an option granted on March 9,
1988 pursuant to the Company's 1983 Employees' Incentive Stock Option Plan,
1,969 shares of the Company's common stock which may be purchased within 60 days
of June 23, 1995 under an option granted June 2, 1992 and 2,500 shares of the
Company's common stock which may be purchased within 60 days of June 23, 1995
under an option granted December 8, 1993 pursuant to the Company's 1991
Employees' Incentive Stock Option Plan. Ms. Clay was appointed Vice President,
Administration, on July 1, 1992 and was appointed Executive Vice President of
the CPAC Equipment Group on April 1, 1994. She has been with the Company since
December, 1982.
(8) Includes 20,376 shares which may be purchased within 60 days of June
23, 1995 under options granted pursuant to the Company's 1983 Employees'
Incentive Stock Option Plan. Includes 64,517 shares of the Company's common
stock which may be purchased within 60 days of June 23, 1995 under options
granted pursuant to the Company's 1991 Employees' Incentive Stock Option Plan.
Includes 6,563 shares of the Company's common stock which may be purchased
within 60 days of June 23, 1995 under an option granted on June 13, 1991.
(9) Based solely upon its review of copies of Forms 3, 4 and 5, and
amendments thereof, furnished to it for the fiscal year ended March 31, 1995,
the Company believes that, to the extent such Forms were required to be filed,
such Forms were timely filed pursuant to Section 16 of the Securities Exchange
Act of 1934, and that no director, officer and/or 10% Shareholder required to
file such Forms failed to either file them or file them in timely fashion.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
----------------------------------------------
The Board of Directors of the Company met nine times during the fiscal year
ended March 31, 1995. Each director attended, either in person or by telephonic
conference as permitted by the Company's By-laws, 100% of the total number of
such meetings and 100% of the total number of meetings of the committees of The
Board on which he served during the 1995 fiscal year. Directors of the Company
who are not officers of the Company may be compensated for attendance at
meetings and for other agreed upon consulting services rendered to the Company.
In the fiscal year ended March 31, 1995, Mr. Burton was paid $20,000 and Mr.
James, Jr. was paid $30,000, and payments in that amount will continue to Mr.
James, Jr. for the remainder of his life. In addition, the Company maintains a
corporate office in New York City which is made available to Mr. James, Jr. when
he wishes to use it.
The Audit Committee of The Board of Directors, which met once during the
fiscal year ended March 31, 1995, is composed of three directors, the majority
of whom are not officers, namely Messrs. Burton, James, Jr. and Oppenheimer.
The Audit Committee (1) annually recommends to The Board a firm of independent
public accountants for appointment as auditors of the Company; (2) reviews with
the independent auditors the scope and results of each annual audit; (3) reviews
with the independent auditors and the Company's internal financial personnel,
suggestions or recommendations made by either of them; (4) reviews with
appropriate Company officers the performance of the independent auditors and the
internal financial personnel; (5) considers the possible effect on the
independence of the independent auditors of each professional service rendered
or to be rendered by such auditors; (6) reviews with appropriate Company
officers and financial personnel, significant accounting treatments and
estimates, and approves in advance all changes to accounting principles
contemplated by such personnel; and (7) reviews and makes recommendations to The
Board of Directors regarding the Annual Report to Shareholders.
The Compensation Committee of The Board of Directors, which met once during
the fiscal year ended March 31, 1995, is composed of three directors, the
majority of whom are not officers, namely Messrs. James, Jr., Burton and
Oppenheimer. The Compensation Committee (1) reviews and makes recommendations
to The Board of Directors on employment policies, forms and levels of
compensation, including specifically, the Company's Incentive Compensation Plan
and the performance and level of compensation of the officers and top management
personnel of the Company; and (2) reviews and makes recommendations to The Board
on the operation, performance and administration of the Company's other employee
benefit plans, including the Company's 401(k) profit sharing plan.
The Executive Long-Term Stock Investment Committee of The Board of
Directors, which met once during the fiscal year ended March 31, 1995, is
composed of three directors, the majority of whom are not officers of the
Company, and all of whom are ineligible under the Company's Executive Long-Term
Stock Investment Plan, namely Messrs. James, Jr., Burton and Oppenheimer. For
further information concerning the operation of the Executive Long-Term Stock
Investment Committee and the Executive Long-Term Stock Investment Plan during
fiscal year ended March 31, 1995, see page 19 of this Proxy Statement.
There is no standing Nominating Committee of The Board of Directors, The
Board acting as a committee of the whole, serving as the Nominating Committee.
EXECUTIVE COMPENSATION
----------------------
The following table sets forth certain information for the fiscal years
ended March 31, 1995, 1994 and 1993 concerning compensation paid to or accrued
for the Chief Executive Officer and the most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
(A) (B) (C) (D) (1) (E) (2)
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------ ----- ------------
Thomas N. Hendrickson 1995 $353,904 $261,675 $5,580
President and Chief 1994 260,173 122,485 5,680
Executive Officer 1993 221,536 164,063 5,355
Robert C. Isaacs 1995 $262,904 $174,283 $5,400
Senior Vice President 1994 231,423 72,313 6,381
1993 198,231 140,813 7,123
Thomas J. Weldgen (1) 1995 $ 92,259 $55,679 $5,490
Chief Financial Officer 1994 83,905 27,346 5,559
1993 76,936 38,855 4,892
LONG-TERM COMPENSATION
----------------------
AWARDS PAYOUTS
------------------ -------
(F) (3) (4) (G) (H) (5) (I)(1)(6)(7)
(8) (9)
RESTRICTED
STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR AWARDS SARS (#) PAYOUTS COMPENSATION
- --------------------------- ---- ------ -------- ------- ------------
Thomas N. Hendrickson 1995 18,750 - - $74,078
President and Chief 1994 - 56,250 - 73,983
Executive Officer 1993 - 19,688 - 38,676
Robert C. Isaacs 1995 3,125 12,500 - $ 4,271
Senior Vice President 1994 - 12,500 - 4,814
1993 - 13,125 - 4,616
Thomas J. Weldgen 1995 937 3,750 - $ 2,780
Chief Financial 1994 - 3,750 - 2,546
Officer 1993 - 15,750 - -
Notes:
- -----
(1) See additional information on Incentive Compensation Plan, Page 18 of
the Proxy Statement.
(2) Amounts represent auto expense allowances.
(3) On April 13, 1994, the Company entered into a deferred compensation
arrangement pursuant to which the Company issued 18,750 shares (as adjusted for
the five for four stock split), to Mr. Hendrickson, which shares are subject to
forfeiture in the event certain conditions are not met. Such restrictions lapse
with respect to one fourth of the shares awarded on April 13, 1996, 1997, 1998,
and 1999, respectively.
(4) On November 18, 1994, shares were awarded to Mr. Isaacs and Mr. Weldgen
pursuant to the Executive Long-Term Stock Investment Plan. See Page 19 of the
Proxy Statement.
(5) There are no long-term incentive payouts.
(6) Amounts include matching contributions made by the Company to the
401(k) retirement plan: Mr. Hendrickson - $4,957; Mr. Isaacs - $4,271; Mr.
Weldgen - $2,780.
(7) The Company is assignee of a $50,000 life insurance policy on the life
of Mr. Hendrickson. The Company has entered into a split dollar agreement with
Mrs. Thomas N. Hendrickson. In the event of Mr. Hendrickson's death, the cash
value of the policy determined according to the agreement is payable to the
Company and the balance is payable to Mrs. Hendrickson. The Company is the
owner of the policy and pays all premiums. For the fiscal year ended March 31,
1995, the amount includible by Mr. Hendrickson in income was $560.
(8) On January 10, 1980, the Company established the terms of a salary
continuation agreement for Mr. Hendrickson, funded in part by key man ordinary
life insurance owned by and payable to the Company. The Company has purchased a
$310,000 ordinary life insurance policy on the life of Mr. Hendrickson.
Pursuant to the salary continuation agreement, if Mr. Hendrickson dies while in
the employ of the Company, his beneficiary will receive an amount equal to two
times the cash value of his key man policy as of the date of retirement. For
the fiscal year ended March 31, 1995 the premium for such policy was
approximately $6,105. The amount accrued for the salary continuation agreement
for the fiscal year ended March 31, 1995 was $6,900.
(9) On October 13, 1992, the Company entered into a Deferred Compensation
Arrangement with Mr. Hendrickson and contributed $250,000 to a Trust in order to
provide itself with a source of funds to meet its obligations thereunder. The
Arrangement calls for the payment of the principal amount contributed to the
Trust, plus earnings thereon, in ten annual payments of principal and earnings,
to Mr. Hendrickson and/or his beneficiaries in the event his service with the
Company is terminated by it prior to age 55; upon his actual retirement after
attainment of age 55; upon his actual retirement or separation from service due
to total disability or a change in control; or upon his death. Under the
Arrangement, the principal of the Trust, as well as all earnings, are subject to
the claims of the Company's general creditors in the event of the Company's
insolvency or bankruptcy and Mr. Hendrickson and/or his beneficiaries are
unsecured creditors of the Company. Mr. Oppenheimer and Mr. James, Jr. are the
Trustees of the Trust created under the Arrangement. They receive no
compensation in such capacity. The Company pays all expenses associated with
the administration and investment of the Trust. The Trust's assets are invested
with an independent investment firm. The amount accrued for the Deferred
Compensation Arrangement for the fiscal year ended March 31, 1995 was $55,556.
OPTIONS The following table sets forth the details of options granted to the
- ------- individuals listed in the Summary Compensation Table during fiscal year
1995.
<TABLE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Terms (2)<F2>
--------------------------------------------------------------- ---------------------- --
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
NAME AND PRINCIPAL OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION (3)<F3> (4)<F4>
POSITION GRANTED (1)<F1> FISCAL YEAR ($/SHARE) DATE 5% - ($) 10% - ($)
-------- ----------- ----------- --------- ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Thomas N. Hendrickson - - - - - -
President & Chief - - - - - -
Executive Officer
Robert C. Isaacs 12,500 25.6% 11.000 11/18/2004 76,000 222,600
Senior Vice President
Thomas J. Weldgen 3,750 7.7% 11.000 11/18/2004 22,800 66,800
Chief Financial Officer
Options were granted under `1994 Executive Long-Term Stock Investment Plan'' described on Page 18 of this proxy statement and may
be exercised at any time for a period of ten years from date of grants.
<FN>
NOTES TO OPTION/SAR GRANTS TABLE
<F1>
(1) Options become exercisable in cumulative annual increments of the greater of 25% or 2,500 shares beginning one year from the
date of grant.
<F2>
(2) The dollar amounts under these columns are the result of calculations at 5% and 10% rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future appreciation, if any, of the Company's stock price. No
gain to the optionees is possible without an increase in stock price appreciation, which will benefit all Shareholders
commensurately. A zero percent gain in stock appreciation will result in zero dollars for the optionee.
<F3>
(3) Represents the potential appreciation of the options, determined by assuming an annual com-pounding rate of appreciation of
5% per year over the remaining term of the grants from March 31, 1995. The compound growth rate is 51.8% for Messrs. Isaacs and
Weldgen.
<F4>
(4) Represents the potential appreciation of the options, determined by assuming an annual compounding rate of appreciation of
10% per year over the remaining term of the grants from March 31, 1995. The compound growth rate is 156% for Messrs. Isaacs and
Weldgen.
</FN>
</TABLE>
OPTIONS The following table shows the value of unexercised options.
- -------
<TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUE
----------------------------------------------------------------------------------------
<CAPTION>
Number of Securities
Underlying Unexercised In-The-Money
Options/SARs at Fiscal Options/SARs at Fiscal
Year-End (#) Year-End ($)
----------------------------- ------------------------------
SHARES
ACQUIRED ON $ VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas N. Hendrickson -0- -0- 48,517 47,109 248,508 204,152
Robert C. Isaacs -0- -0- 12,969 25,156 64,179 65,350
Thomas J. Weldgen -0- -0- 18,250 5,000 79,188 7,063
</TABLE>
<TABLE>
Details of number of shares and value of unexercised `In-The-Money'' options are as follows:
<CAPTION>
Number of Shares Total Value
-------------------------------------- ---------------------------
MARKET
OPTION PRICE PER SHARE
NAME EXERCISABLE UNEXERCISABLE PRICE 3/31/95 VALUE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----- ------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas N. Hendrickson 19,688 - $4.975 $11.25 $6.275 $ 123,542 -
14,766 4,922 6.914 11.25 4.336 64,026 $ 21,342
4,688 14,062 6.350 11.25 4.900 22,971 68,904
9,375 28,125 7.200 11.25 4.050 37,969 113,906
------------ ------------
$ 248,508 $ 204,152
============ ============
Robert C. Isaacs 9,844 3,281 $6.286 $11.25 $4.964 $ 48,866 $ 16,287
3,125 9,375 6.350 11.25 4.900 15,313 45,938
- 12,500 11.000 11.25 0.250 - 3,125
------------ ------------
$ 64,179 $ 65,350
============ ============
Thomas J. Weldgen 15,750 - $7.000 $11.25 $4.250 $ 66,938 -
2,500 1,250 6.350 11.25 4.900 12,250 $ 6,125
- 3,750 11.000 11.25 0.250 - 938
------------ ------------
$ 79,188 $ 7,063
============ ============
</TABLE>
REPORTS OF THE COMPENSATION COMMITTEE AND THE STOCK OPTION COMMITTEE
The following reports, submitted by the Compensation Committee and the
Executive Long-Term Stock Investment Committee of The Board of Directors,
provide information regarding policies and practices concerning the compensation
of the Chief Executive Officer and the other executive officers of the Company
included in the Summary Compensation Table.
COMPENSATION COMMITTEE REPORT
One function of the Compensation Committee is to review all matters
relating to the compensation of senior executives of the Company, and to make
recommendations to The Board of Directors or Executive Long-Term Stock
Investment Committee, as appropriate, for specific actions in regard to such
matters. During the fiscal year ended March 31, 1995, the Compensation
Committee was composed of Messrs. James, Jr., Burton and Oppenheimer, the
majority of whom are not officers.
COMPENSATION PHILOSOPHY
The philosophy for compensating executives of the Company is to provide a
reasonable mix of cash and equity with a significant portion of total
compensation at risk, depending upon performance of the executive and the
Company. In this way, executives are encouraged and rewarded for thinking and
acting like owners, rather than employees. An Incentive Compensation Plan was
established in 1986 and approved by The Board of Directors. This Plan has been
designed to focus the best efforts of executives on the achievement of financial
growth objectives, intended to benefit both the Company and its Shareholders.
Recognizing that it is always in the best interest of the Shareholders to
attract, retain and motivate exceptional executive talent, the Company's
components of executive compensation provide meaningful upside incentives for
superior performance and results, while clearly linking the executives' rewards
to the rewards of the Shareholders.
Base Salary. When the Incentive Compensation Plan was established, the
base salary policy was targeted at approximately 80% of the highest base salary
paid to executives in commensurate positions within similar organizations and
industries in the area. To establish these initial ranges, an analysis was
carried out by a nationally recognized executive compensation consulting firm,
based on national surveys of executive compensation for other companies within
an appropriate range of sales. Such salary information is subject to periodic
update by the Compensation Committee.
Annual Incentive Compensation. Under the Incentive Compensation Plan,
executives may be rewarded on an annual basis for achieving or exceeding
specific financial and growth target objectives, which link directly with the
current and long term growth strategy of the Company, and ultimately lead to
increased Shareholder value. At the beginning of each fiscal year, objectives
are established at the corporate, subsidiary, and individual executive levels by
the Compensation Committee. Annual cash incentive compensation targets are
fixed to allow executives to earn total cash compensation (consisting of base
salary plus annual incentive compensation payments) for successful achievement
of outstanding results.
In 1994, a new study of executive salaries and overall compensation was
completed for the Compensation Committee by a national consulting firm. The
compensation consultants recommended to the Compensation Committee that the
Incentive Compensation Plan be modified in order to provide management with
greater incentive to strive for exceptional results. The Company modified the
Incentive Compensation Plan beginning with the April 1, 1994 fiscal year. The
modifications have made it possible for the executive group to earn a larger
bonus, but only if earnings per share have increased significantly. In no case
can benefits to management in the form of incentive awards exceed the benefits
to Shareholders from the results obtained.
Long-term Non-Cash Incentives. Long-term, non-cash incentive awards are
discussed below in the Executive Long-Term Stock Investment Committee report.
COMPENSATION PRACTICE
The Compensation Committee believes that the compensation and benefits
packages afforded to the Company's executive officers are commensurate with
competitive practices for similar positions held by employees of companies of
similar size. With total compensation significantly weighted toward rewards for
sustained long-term growth, the Committee believes the Company's compensation
program is effective for providing continued incentive to pursue its aggressive
long-term growth strategies.
Federal tax legislation (IRC 162(m)) limits publicly-held companies such as
CPAC, Inc. from deducting for federal income tax purposes, compensation paid to
the Chief Executive Officer and the four highest paid officers other than the
Chief Executive Officer in excess of $1,000,000 per person in certain
situations. The tax deductibility of amounts paid by the Company to its
executive officers during the fiscal year ended March 31, 1995 was not limited
by IRC 162(m). It is also anticipated that amounts paid by the Company to its
executive officers during the fiscal year ending March 31, 1996 will not be
limited by IRC 162(m).
MR. HENDRICKSON'S 1995 CASH COMPENSATION
Mr. Hendrickson founded the Company in 1969 and has been Chief Executive
Officer and President since that time. Mr. Hendrickson was awarded incentive
compensation as shown in the Summary Compensation Table above, under the caption
"Bonus", for his performance during the fiscal year ended March 31, 1995. Under
Mr. Hendrickson's experienced management, earnings per share, after payment of
all incentive compensation payments, increased from $.67 to $.76 per share, on a
fully diluted basis, attaining 120 percent of the target established at the
beginning of the 1995 fiscal year by the Compensation Committee.
SUMMARY
In summary, the Compensation Committee believes the compensation strategy
that is now in place will provide the necessary incentives to retain and
motivate the Company's executives for the achievement of short and long term
goals which will significantly benefit Shareholders in the future.
Seldon T. James, Jr., Chairman
John C. Burton
Robert Oppenheimer
EXECUTIVE LONG-TERM STOCK INVESTMENT COMMITTEE REPORT
The Executive Long-Term Stock Investment Committee administers the
Company's Executive Long-Term Stock Investment Plan and makes all decisions
concerning stock-based incentive awards for the Company's executives and
management. During fiscal 1995, the Committee was comprised of Messrs. James,
Jr., Burton and Oppenheimer, none of whom is an employee of the Company or
eligible to receive awards under the Plan.
LONG-TERM INCENTIVE COMPENSATION PHILOSOPHY
To help insure that executives are continually focused on the longer-term
goals of the Company, equity awards are made to key executives in accordance
with the terms, conditions and restrictions of the Executive Long-Term Stock
Investment Plan which has been approved by the Shareholders. See Page 19 of the
Proxy Statement for a narrative description of the Plan.
It is believed that a principal factor influencing market price of the
Company's stock is the Company's performance as reflected in its sales,
earnings, cash flows, and other results. By granting stock awards to Company
executives, such individuals are encouraged to focus their efforts on achieving
improvements in the Company's performance.
MR. HENDRICKSON'S 1995 LONG-TERM INCENTIVE COMPENSATION
The stock awards made to Mr. Hendrickson in the fiscal year ending March
31, 1995 were determined to be reasonable and appropriate for his position and
level of expertise. These awards were designed to provide him with a continued
substantial ownership position in the Company and to closely tie his interest to
the interest of the Shareholders. Since these incentive awards will yield
meaningful income to Mr. Hendrickson only if the Company stock appreciates in
value over the coming years, they provide an incentive, in keeping with the
philosophy outlined above, for Mr. Hendrickson to achieve improvements in
Company performance that will yield solid increased Shareholder value.
Seldon T. James, Jr., Chairman
John C. Burton
Robert Oppenheimer
COMMON STOCK PERFORMANCE
- ------------------------
As part of the executive compensation presented in this Proxy Statement,
the Securities and Exchange Commission requires a five-year comparison of stock
performance for the Company with stock performance of appropriate similar
companies. The Company's common stock is traded over-the-counter in the NASDAQ
system and one appropriate comparison is with the NASDAQ U.S. Composite Index
performance. Because there is no similar single "peer company" in the NASDAQ
system with which to compare stock performance, the second index which the
Company believed most closely approximated its performance was the NASDAQ Non-
Financial Index.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
CPAC, INC.
DESCRIPTION
- -----------
In the graph, the X-axis is represented by $0 to $400, and the Y-axis is
represented by the dates 0/3/30/90 through 03/31/95. The following table shows
the points of data used to plot the Comparison of Five Year-Cumulative Total
Returns Performance Graph for CPAC, Inc.
TABLE
- -----
Company Index: CUSIP Ticker Class Sic Exchange
12614510 CPAK 3823 NASDAQ
Fiscal Year-end is 03/31/95
Market Index: Nasdaq Stock Market (US Companies)
Peer Index: Nasdaq Non-Financial Stocks
SIC 0100-5999, 7000-9999 US & Foreign
DATE COMPANY INDEX MARKET INDEX PEER INDEX
---- ------------- ------------ ----------
03/30/90 100.000 100.000 100.000
04/30/90 116.667 96.723 97.097
05/31/90 131.250 105.838 108.561
06/29/90 130.175 106.619 110.013
07/31/90 125.976 101.266 104.581
08/31/90 107.079 88.492 90.372
09/28/90 106.029 80.108 82.280
10/31/90 93.306 76.958 79.133
11/30/90 99.668 84.290 86.175
12/31/90 89.955 87.928 89.974
01/31/91 94.239 97.659 100.958
02/28/91 85.672 107.057 110.363
03/28/91 101.671 114.205 118.192
04/30/91 114.650 114.944 117.666
05/31/91 121.140 120.207 123.390
06/28/91 126.519 112.897 114.810
07/31/91 139.607 119.566 121.671
08/30/91 152.695 125.498 127.508
09/30/91 149.467 125.957 128.898
10/31/91 147.269 130.135 133.379
11/29/91 149.467 125.776 128.464
12/31/91 150.644 141.106 144.843
01/31/92 159.506 149.392 153.744
02/28/92 186.090 152.780 156.427
03/31/92 171.734 145.577 147.128
04/30/92 162.813 139.356 138.110
05/29/92 142.740 141.187 138.991
06/30/92 143.977 135.586 132.029
07/31/92 134.979 140.381 136.155
08/31/92 143.977 136.083 131.436
09/30/92 160.832 141.129 136.225
10/30/92 163.098 146.680 141.755
11/30/92 167.628 158.343 153.630
12/31/92 161.933 164.196 158.308
01/29/93 166.494 168.874 162.562
02/26/93 159.652 162.550 154.428
03/31/93 174.702 167.278 158.603
04/30/93 170.105 160.135 152.055
05/28/93 164.128 169.672 164.358
06/30/93 153.258 170.467 164.529
07/30/93 145.960 170.691 163.137
08/31/93 160.556 179.488 172.692
09/30/93 171.670 184.839 177.384
10/29/93 159.408 189.020 182.923
11/30/93 142.241 183.377 177.561
12/31/93 168.059 188.488 182.802
01/31/94 163.117 194.203 188.935
02/28/94 192.774 192.436 187.041
03/31/94 208.919 180.595 174.073
04/29/94 203.945 178.260 170.078
05/31/94 189.022 178.706 168.780
06/30/94 200.332 172.195 160.556
07/29/94 207.845 175.728 164.776
08/31/94 270.449 186.919 176.009
09/30/94 279.436 186.445 176.497
10/31/94 292.023 190.053 181.620
11/30/94 271.884 183.732 175.731
12/30/94 266.849 184.293 175.278
01/31/95 289.506 185.323 174.829
02/28/95 302.093 195.075 184.025
03/31/95 283.212 200.768 189.611
LEGEND
------
Symbol CRSP Total Returns Index for:
- ------ ----------------------------
CPAC, Inc.
- ------
..--..-- Nasdaq Stock Market (US Companies)
- --------- Nasdaq Non-Financial Stocks
SIC 0100-5999, 7000-9999 US & Foreign
03/30/90 03/28/91 03/31/92 03/31/93 03/31/94 03/31/95
-------- -------- -------- -------- -------- --------
100.0 101.7 171.7 174.7 208.9 283.2
100.0 114.2 145.6 167.3 180.6 200.8
100.0 118.2 147.1 158.6 174.1 189.6
Notes:
- -----
Assumes $100 invested on April 1, 1990, in CPAC, Inc., Common Stock, and an
identical amount in both the NASDAQ U.S. and NASDAQ Non-Financial Indices.
Total Return assumes the reinvestment of all dividends. On November 18, 1994,
The Board of Directors announced that it had discontinued its cash dividend
indefinitely.
There can be no assurance that the Company's stock performance will continue in
the future with the same or similar trends depicted in the graph above. The
Company will not make or endorse any predictions as to future stock performance.
(Copy of Performance Graph sent to Branch Chief)
INCENTIVE COMPENSATION PLAN
- ---------------------------
On June 4, 1986, the Compensation Committee of The Board recommended, and
The Board of Directors approved, the establishment of an Incentive Compensation
Plan for certain personnel who do not now receive hourly compensation,
commission payments, or other forms of incentive compensation.
After objectives and standards have been established for an employee, and
the employee is included in the Incentive Compensation Plan, the maximum
incentive bonus payable shall be dependent upon the employee's position within
the Company and shall be the following percentage of base pay:
CATEGORY PERCENT
-------- -------
Chief Executive Officer 75%
Senior Operating and Staff Executives 50% - 60%
Key Management 30% - 40%
Other Managers and Supervisors 20%
Management shall determine the category of each employee, but personnel
shall not be granted a bonus as a Senior Operating or Staff Executive without
approval of The Board of Directors.
Before including an individual in the Plan, or establishing that percentage
of compensation which the employee should receive as incentive, management will
review the incremental benefit to the corporation which results from the
employee attaining the objectives established. On an annual basis, management
will submit a review of the Plan to The Board of Directors, showing the amount
committed to the Incentive Compensation Plan for each category of employee and,
for each level of employee, the estimated incremental benefit to the
corporation.
Each employee included in the Incentive Compensation Plan shall receive the
incentive compensation payment quarterly in a check separate from his/her
regular pay, which check shall be accompanied by a written report reviewing the
employee's progress in meeting established objectives, and explaining the basis
on which his/her bonus was determined. A copy of such written report shall be
filed with the Compensation Committee.
In order to reinforce the objectives and to provide greater motivation,
incentive compensation will be paid to participants in the Plan on a quarterly
basis. Payments during the first three quarters will be equal to 50% of the
amount which management believes the employee would be entitled to as a bonus,
based upon the compensation paid to the employee through the end of the quarter,
and considering his/her performance through that date, and the likelihood the
employee and the Company will attain established objectives by the end of the
fiscal year.
The final payment of the bonus will be made as soon as practical following
completion of the independent audit for the fiscal year, and will include that
portion of the bonus withheld during the first three quarters and all of the
bonus for the fourth quarter to which the employee is determined to be entitled.
No employee will be asked to refund any bonus which has been previously paid.
No employee shall be entitled to a bonus unless employed by the corporation at
the time of distribution. Participation in the Incentive Compensation Plan
shall not be deemed to constitute a contract of employment, guaranteeing to an
employee employment for any period of time.
The Board established that management should develop objectives and
standards for the two categories labeled Key Management and Other Managers and
Supervisors.
The Board adopted a policy for the Chief Executive Officer and Senior
Operating and Staff Executives pursuant to which the entitlement to, and the
amount of, the bonus would be dependent upon the Registrant's success in
attaining budgeted profits and specified goals in earnings per share.
EXECUTIVE LONG-TERM STOCK INVESTMENT PLAN
- -----------------------------------------
On June 8, 1994, The Board of Directors adopted an Executive Long-Term
Stock Investment Plan ("Stock Investment Plan") and reserved in the aggregate,
350,000 shares for issuance thereunder. The Board also terminated the 1991
Employees' Incentive Stock Option Plan with respect to the grant of additional
options thereunder. The Shareholders approved the adoption of the Stock
Investment Plan and the reservation of 350,000 shares thereunder at the annual
meeting of Shareholders held on August 10, 1994.
The salient features of the Stock Investment Plan are as follows:
A) PURPOSES
The purposes of the Stock Investment Plan are to: (1) closely associate
the interests of the management of CPAC and its subsidiaries with the
Company's Shareholders by reinforcing the relationship between
participants' rewards and Shareholder gains; (2) provide management with
an equity ownership in the Company commensurate with Company performance,
as reflected in increased Shareholder value; (3) maintain competitive
compensation levels; and, (4) provide an incentive to management for
continuous employment with the Company.
B) ADMINISTRATION
The Stock Investment Plan is administered by a committee of two or more
directors of the Company, each of whom is a "disinterested person" under
the rules promulgated by the Securities and Exchange Commission, that is,
generally, a director who is not, during the one year period prior to
service as a member of the committee, or during such service, granted or
awarded equity securities of the Company pursuant to the Stock Investment
Plan or any other plan of the Company. Members of the committee serve
one-year terms, renewable automatically, unless terminated at the
discretion of The Board of Directors. At its meeting held June 8, 1994,
The Board appointed Seldon T. James, Jr., John C. Burton, and Robert
Oppenheimer to constitute the Executive Long-Term Stock Investment Plan
Committee (the "Committee").
The Committee is responsible for the overall administration, governance,
management and interpretation of the Stock Investment Plan, having the
authority, in its sole discretion and from time to time, to: (1) grant
options and/or stock awards in such form and number as it may determine;
(2) impose such limitations, restrictions, and conditions upon any such
option and/or stock award as the Committee deems appropriate, consistent
with the purposes of the Stock Investment Plan; and (3) interpret the
Stock Investment Plan, adopt, amend, and rescind rules and regulations
relating to the Stock Investment Plan, and make all other determinations
and take all other actions as are necessary and/or advisable for the
implementation and administration of the Stock Investment Plan.
C) ELIGIBILITY FOR PARTICIPATION
Participants in the Stock Investment Plan will be selected by the
Committee from the executive officers and other key employees of the
Company and its subsidiaries who occupy responsible managerial or
professional positions and who have the capability of making a
substantial contribution to the success of the Company. Under the terms
of the Stock Investment Plan, in selecting a participant and in
determining the form and number of options and/or stock awards, the
Committee will consider any factors it deems relevant, including the
person's functions, responsibilities, value of services to the Company
and/or its subsidiaries, as well as the individual's past and potential
contributions to the Company's profitability and sound growth.
D) TYPES OF AWARDS
Awards under the Stock Investment Plan may be in the form of any one or
more of the following: (1) Nonqualified Stock Options; (2) Incentive
Stock Options; (3) Reload Options; or (4) Restricted Performance Shares.
1. Nonqualified Stock Options
The Committee may from time to time, and subject to the
provisions of the Stock Investment Plan and such other terms
and conditions as it may prescribe, grant to any eligible
employee one or more Nonqualified Stock Options to purchase for
cash or shares the number of shares allotted by the Committee.
a. Terms and Conditions
--------------------
Nonqualified Stock Options are subject to the following terms and
conditions:
(i) Price: The exercise price, as determined by the
Committee, generally shall not be less than the fair
market value of the shares with respect to which an option
is granted at the time of the granting of the option. The
Committee, however, is explicitly authorized to grant
Nonqualified Stock Options, the exercise price of which is
less than the fair market value of the shares at the time
of grant of the option. Fair market value is the mean
between the high and the low bid prices for the Company's
stock as quoted on the NASDAQ National Market;
(ii) Term of Options: The term of each option is to be
decided by the Committee and is not subject to any
specified (e.g., five or ten) number of years. Such term
may be modified, or the Nonqualified Stock Option
terminated, at any time by mutual agreement between the
Committee and the employee;
(iii) Payment Upon Exercise: An employee granted a
Nonqualified Stock Option under the Stock Investment Plan
may pay for the Company's stock upon exercise either with
cash or with Company stock already owned by him valued at
the fair market value of the stock on the date of
exercise. Fair market value is the mean between the high
and the low bid prices for the Company's stock as quoted
on the NASDAQ National Market.
Although the Stock Investment Plan permits an employee-
shareholder to utilize previously owned Company stock to
purchase shares subject to a Nonqualified Stock Option, it
specifically prohibits the use of shares acquired as a
result of exercising an option under the Stock Investment
Plan or any other stock option plan of the Company.
b. Certain Material Restrictions
-----------------------------
Nonqualified Stock Options are subject to the following material
restrictions:
(i) Nonqualified Stock Options granted under the Stock
Investment Plan are exercisable only while the optionee is
an employee of the Company or within a three month period
immediately following his termination of employment;
(ii) Nonqualified Stock Options granted under the Stock
Investment Plan are exercisable only by the optionee and
are not assignable, transferable, or subject to any other
party acquiring rights therein;
(iii) Upon the death of an optionee prior to his complete
exercise of a Nonqualified Stock Option granted under the
Stock Investment Plan, the remaining portion of the option
may be exercised only by his estate or on behalf of any
person(s) to whom his rights pass under his Will or by
operation of law;
(iv) An optionee shall have no rights as a Shareholder
with respect to the shares subject to a Nonqualified Stock
Option, including voting rights or dividend rights, until
the Company has received full payment therefor, and has
issued a stock certificate to him representing the shares
purchased upon exercise;
(v) Shares of common stock to be issued upon the exercise
of Nonqualified Stock Options granted pursuant to the
Stock Investment Plan may not be sold, transferred,
pledged or otherwise disposed of by the optionee for a
period of six months from the date of grant of the
Nonqualified Stock Option.
2. Incentive Stock Options
The Committee may, from time to time, and subject to the
provisions of the Stock Investment Plan and such other terms
and conditions as it may prescribe, grant to any eligible
employee one or more "Incentive Stock Options" intended to
qualify under Section 422 of the Internal Revenue Code of 1986
to purchase for cash or shares the number of shares allotted by
the Committee.
a. Terms and Conditions
--------------------
Incentive Stock Options are subject to the following terms and
conditions:
(i) Price: The exercise price, as determined by the
Committee, shall not be less than the fair market value of
the shares with respect to which an Incentive Stock Option
is granted at the time of the granting of the Incentive
Stock Option. In the case of an employee owning more than
l0% of the Company's common stock, the exercise price
shall not be less than ll0% of the fair market value of
said stock at the time of grant. Fair market value is the
mean between the high and the low bid prices for the
Company's Stock as quoted on the NASDAQ National Market;
(ii) Term of Options: The term of each Incentive Stock
Option is to be decided by the Committee; however, in no
case will an Incentive Stock Option granted under the
Stock Investment Plan be exercisable after the expiration
of ten years (five years in the case of a more than l0%
Shareholder) from the date it was granted, and such term
may be modified or the Incentive Stock Option terminated
at any time by mutual agreement between the Committee and
the employee;
(iii) Payment Upon Exercise: An employee granted an
Incentive Stock Option under the Stock Investment Plan may
pay for the Company's stock either with cash or with
Company stock already owned by him, valued at the fair
45
market value of the stock on the date of exercise. Fair
market value is the mean between the high and the low bid
prices for the Company's stock as quoted on the NASDAQ
National Market.
Although the Stock Investment Plan permits an employee
Shareholder to utilize previously owned Company stock to
purchase shares subject to an Incentive Stock Option, it
specifically prohibits the use of shares obtained through
the exercise of an option under the Stock Investment Plan
or any other stock option plan of the Company.
b. Certain Material Restrictions
-----------------------------
Incentive Stock Options are subject to the same material
restrictions as govern Nonqualified Stock Options. In
addition, Incentive Stock Options are also subject to a rule
that the aggregate fair market value of stock with respect to
which Incentive Stock Options are exercisable for the first
time during any calendar year by any optionee cannot exceed
$l00,000.
3. Reload Options
Concurrently with the award of a Nonqualified Stock Option
and/or the award of an Incentive Stock Option to any eligible
employee, the Committee may grant a Reload Option to enable the
employee to purchase a number of shares for either cash or
shares. The grant of the Reload Option will become effective
upon the exercise of the underlying Nonqualified or Incentive
Stock Option if the optionee uses shares of the Company's
common stock which the optionee has held for at least twelve
months as payment for the shares acquired upon the exercise of
the underlying option. The number of Reload Options will equal
the number of shares of the Company's common stock used by the
optionee to exercise the underlying option.
The Reload Option price generally will be the fair market
value of a share of common stock on the date the grant of the
Reload Option becomes effective, that is, the date on which the
underlying option shall have been exercised. Notwithstanding
this general rule, where the exercise price of the underlying
option was less than the fair market value of the Company's
stock on the date of the underlying option's grant, the Reload
Option price may, at the Committee's discretion, reflect the
same percentage discount from the fair market value of the
Company's stock on the date of the Reload Option's
effectiveness. Fair market value per share shall be the mean
between the high and the low bid prices for the Company's
common stock as quoted on the NASDAQ National Market.
Each Reload Option granted by the Committee will constitute a
"mirror" option, that is, a Nonqualified Stock Option if
granted with respect to an underlying Nonqualified Stock
Option, or an Incentive Stock Option if granted with respect to
an underlying Incentive Stock Option. Consequently, generally,
the same terms, conditions, limitations and restrictions that
applied to the original grant of the Nonqualified or Incentive
Stock Option, as the case may be, shall govern the grant of the
"mirror" Reload Option.
4. Restricted Performance Shares
Concurrent with or subsequent to the grant of any
Nonqualified Stock Option, Incentive Stock Option or Reload
Option, the Committee may, subject to the provisions of the
Stock Investment Plan and such other terms, conditions and
restrictions as the Committee may prescribe, award to an
eligible employee one share of common stock for each aggregate
four shares granted under the Nonqualified Stock Option,
Incentive Stock Option or Reload Option, as the case may be.
Such shares shall constitute Restricted Performance Shares and
are awarded in consideration of the future performance of
substantial services to and/or on behalf of the Company and/or
its subsidiaries by such employee.
Upon issuance of Restricted Performance Shares, the employee
shall have all of the rights of a Shareholder of the Company
with respect to such Restricted Performance Shares, including
the right to vote and receive all dividends as well as all
other distributions paid or made with respect thereto.
Restricted Performance Shares awarded under the Plan may not
be sold, transferred, assigned, pledged, encumbered or
otherwise alienated or hypothecated while they are subject to
forfeiture. Restricted Performance Shares are subject to
forfeiture in the event the employee shall terminate his
service with the Company prior to the date immediately
following the last day of the option period with respect to
which such shares were awarded, unless the termination is due
to the employee's death, his permanent and total disability, or
a change in control of the Company. In the event the employee
exercises the option with respect to which the Restrict
Performance Shares were awarded, all such Restricted
Performance Shares with respect to such option are
automatically forfeited, regardless of whether or not they
would be forfeited in the circumstances described above.
Upon the expiration of the forfeiture provisions, the
Restricted Performance Shares vest and at that time may be
sold, transferred, assigned, pledged, encumbered or otherwise
alienated or hypothecated, subject to any and all applicable
federal and state securities law limitations and restrictions.
E) FEDERAL TAX CONSEQUENCES
l. Nonqualified Stock Options
Under current provisions of federal tax law, for regular as
well as for purposes of the federal alternative minimum income
tax, no gain or loss generally is recognized to the optionee
upon the grant of a Nonqualified Stock Option. In addition,
the Company will receive no business expense deduction as a
result of the grant of any such option.
For federal income tax purposes, upon the exercise of a
Nonqualified Stock Option, the difference between the exercise
price and the fair market value of the optioned shares on the
date of exercise constitutes ordinary, compensation income to
the optionee and is taxed to the optionee at normal, ordinary
tax rates, except to the extent the shares are not transferable
and are subject to a substantial risk of forfeiture. To the
extent such difference is required to be included as
compensation income by the employee, the Company is entitled to
a business expense deduction. Upon the later sale of the
optioned stock, long or short term capital gain or loss will be
recognized by the employee depending upon the holding period
(one year for long term capital gain or loss) and the extent to
which the selling price exceeds or is less than the employee's
basis in the stock. The amount of gain will be taxed at normal,
ordinary tax rates, with a maximum rate of 28% in the case of
long term capital gain.
2. Incentive Stock Options
Under current provisions of federal tax law, if the holding
periods set forth in the next sentence are observed, no income
or gain is recognized for regular income tax purposes to
optionees upon either the grant of Incentive Stock Options or
upon their exercise and upon the disposition of the shares, the
difference between the exercise price and the amount realized
upon the sale is taxed at normal, ordinary tax rates, with a
maximum rate of 28% in the case of long-term capital gain. To
attain this tax treatment, the shares must be held for a period
of two (2) years from the date of the grant of the option and
for a period of one (1) year from the date of exercise. If the
holding periods are observed, the Company usually will receive
no business expense deduction with respect to either the grant
or the exercise of Incentive Stock Options.
If the holding periods are not met, any gain that was
unrecognized at the time of the option's exercise (usually the
fair market value of the option shares on the date of exercise
over the exercise price) is included in ordinary income in the
year of the disqualifying sale. The balance of the amount
realized in such year constitutes capital gain, taxable at
ordinary income rates, with a 28% cap for long-term capital
gain. The Company is allowed a corresponding deduction for the
amount the optionee is required to include as ordinary income
in the year of sale.
For purposes of the federal alternative minimum income tax
calculation, the difference between the exercise price and the
fair market value of the shares on the date of exercise is
includible in gross income for the taxable year of exercise,
regardless of any disqualifying sale, except to the extent that
such shares are not transferable and are subject to a
substantial risk of forfeiture.
3. Restricted Performance Shares
Under current federal tax law, if property is transferred to
a person in connection with the performance of services, the
fair market value of the property received in excess of the
amount paid for the property constitutes ordinary, compensation
income on the date of receipt, unless the property is not
transferable and is subject to a substantial risk of
forfeiture. The fair market value of the property is
includible in income when such restrictions lapse. At that
time, the Company is allowed a business expense deduction equal
to the amount required to be included in income.
Under the Stock Investment Plan, when they are awarded by the
Committee, Restricted Performance Shares are not transferable
and are subject to a substantial risk of forfeiture.
Consequently, until such restrictions lapse, the fair market
51
value of such shares generally is not includible in the
recipient's income nor may the Company claim a business expense
deduction for the value of the shares awarded. Upon the lapse
of such restrictions, the fair market value of the shares at
the time the restrictions lapse is includible as ordinary,
compensation income and the Company is entitled to a business
expense deduction equal to the amount includible in the
recipient's gross income. Upon the subsequent sale of such
shares, gain or loss will be recognized, either long-term or
short-term capital gain equal to the difference between the
selling price and the taxpayer's basis, depending upon the
holding period of such shares (which includes the period during
which the restrictions apply).
F) REGISTRATION OF SHARES
The Company registered the 350,000 shares of its $.01 par value common
stock it reserved for issuance, upon the exercise of options or the award
of shares under the Stock Investment Plan, with the Securities and
Exchange Commission under the Securities Act of l933. Such registration
became effective on October 29, 1994 and remains in effect. It is
anticipated that as a result of such registration, nonaffiliates of the
Company may resell such registered securities of the Company acquired by
them under the Stock Investment Plan without federal securities law
restrictions.
G) OPTIONS AND AWARDS
The following information is provided as of the date of this Proxy
Statement, namely, June 23, 1995:
52
Options for 50,750 shares are outstanding under the Stock Investment
Plan, of which none are currently exercisable and all were granted during
the fiscal year ended March 31, 1995.
Options for 19,375 shares are outstanding under the Stock Investment
Plan for all executive officers as a group, of which none are currently
exercisable and all were granted during the fiscal year ended March 31,
1995.
The market value of the securities underlying all options under the
Stock Investment Plan was $602,656.
12,187 Restricted Performance Shares were awarded under the Stock
Investment Plan, of which none have vested and all were awarded during
the fiscal year ended March 31, 1995.
4,843 Restricted Performance Shares were awarded under the Stock
Investment Plan to all executive officers as a group, of which none have
vested and all were awarded during the fiscal year ended March 31, 1995.
The market value of Restricted Performance Shares awarded under the
Stock Investment Plan was $144,721 per share.
PRIOR INCENTIVE STOCK OPTION PLANS
- ----------------------------------
In June, 1983, The Board of Directors established the 1983 Employees'
Incentive Stock Option Plan. On June 13, 1991, The Board of Directors
terminated the 1983 Plan as to the grant of additional options thereunder and
adopted the 1991 Employees' Incentive Stock Option Plan.
53
On June 8, 1994, The Board of Directors voted to terminate the 1991 Plan as
to the grant of additional options thereunder and adopted the Executive
Long-Term Stock Investment Plan described above. The termination of the 1983
Plan and the 1991 Plan did not terminate, accelerate or otherwise affect
unexercised options outstanding thereunder.
The following information is provided as of the date of this Proxy
Statement, namely, June 23, 1995.
Options for 22,345 shares are outstanding under the 1983 Plan, all of which
are currently exercisable. Options for 20,376 shares are outstanding under the
1983 Plan for all executive officers as a group, all of which are currently
exercisable.
The market value of the securities underlying all options under the 1983
Plan was $265,347.
Options for 172,769 shares are outstanding under the 1991 Plan, of which
99,786 are currently exercisable.
Options for 126,782 shares are outstanding under the 1991 Plan for all
executive officers as a group, of which 64,517 are currently exercisable.
The market value of the securities underlying all options under the 1991
Plan was $2,051,632.
401(K) PROFIT SHARING PLAN
- --------------------------
On April 17, 1986, The Board of Directors of the Company adopted a profit
sharing plan for the benefit of all domestic employees of the Company and its
54
subsidiaries who have attained the age of twenty-one and who have one year of
service. The effective date of the Plan was May 1, 1986. The Plan constitutes
a qualified Plan under Sections 401(a) and (k) of the Internal Revenue Code and
contributions made by the Company to the Plan are deductible for federal income
tax purposes.
Under the Plan, the Company may make contributions to the Plan on behalf of
Plan participants in such amounts as The Board of Directors may in its
discretion determine. The Company also will match each contribution made by a
Plan participant, pursuant to a salary reduction agreement under Section 401(k)
of the Internal Revenue Code, for each Plan Year in an amount equal to $.50 for
each $1.00 of participant contribution. The Company's contribution will not
exceed up to a maximum of 3% of participant compensation. A participant may
contribute up to 15 % of his compensation under the salary reduction agreement
to the Plan each year. If, in any Plan Year, contributions are made to the Plan
which result in any "excess contributions" as defined by the provisions of the
Internal Revenue Code governing qualified retirement plans, then, in that event,
adjustments will be made to the maximum amount of aggregate contributions
permitted to be made to comply with such provisions.
Events that permit distribution under the Plan are generally termination of
service at normal retirement age (age 65), disability or death. A participant
is 100% vested in all of his contribution accounts upon termination of
employment due to normal retirement, death or disability. In the event of
termination of employment for any other reason, a participant is 100% vested in
any contributions he has made to the Plan and 100% vested in amounts contributed
to the Plan in the discretion of the Company's Board of Directors. With respect
to matching contributions, the vesting schedule set forth below shall apply:
COMPLETED YEARS OF SERVICE VESTED PERCENTAGE
-------------------------- -----------------
55
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 100%
On April 1, 1995, the Plan was amended to allow the employee a choice of
six different investment options for his account balances under the Plan.
Under the Plan, a participant that meets ``financial hardship''
requirements may borrow the lesser of 50% of his vested account balance or
$50,000. The minimum loan allowable is $1,000. Only one loan can be
outstanding at any time; the repayment period can vary from 1 to a maximum of 5
years, unless the loan is used by the participant to purchase a primary
residence, in which case the repayment period can be up to 10 years.
A participant may borrow the lesser of 50% of his vested account balance up
to $10,000 without proving financial hardship. The minimum loan allowable is
$1,000 and the repayment period can vary from 1 to a maximum of 3 years.
A participant who has not attained age 59-1/2 and is not totally and
permanently disabled may withdraw amounts he has contributed pursuant to his
salary reduction agreement as well as the vested amount of the employer matching
contribution made to the Plan upon a showing of financial hardship.
The normal form of benefit under the Plan is a lump sum distribution or, if
the participant elects, a distribution in periodic payments of substantially
equal amounts for a selected number of years not to exceed five.
56
For the Plan Year ended March 31, 1995, the Company and its subsidiaries
made no discretionary contribution to the Plan. The amount of matching
contributions made under the Plan for such year was $4,957 in the case of
Mr. Hendrickson, $4,271 in the case of Mr. Isaacs, $2,780 in the case of Mr.
Weldgen, and $1,866 in the case of Ms. Clay. The total for all executive
officers as a group was $13,874.
STOCK PURCHASE PROGRAM
- ----------------------
In June 1995, The Board of Directors approved a stock purchase program
whereby employees can contribute up to 10% of their total wages (to a maximum of
$5,000 per annum), through payroll deductions, to purchase the Company's $.01
par value common stock in open market transactions.
On a quarterly basis, the amount collected through payroll deductions is
used to purchase Company stock. The Company pays the broker's commission for
the purchase - if the stock is subsequently sold, the employee pays the broker's
commission.
For the fiscal year ended March 31, 1995, an average of 20 employees per
quarter purchased 2,304 shares of the Company's stock. The total cost to the
Company approximated $660. No executive officers participated in the program.
PROPOSAL 2
----------
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
---------------------------------------------------
57
The Board of Directors, acting upon the recommendation of the Audit
Committee, as previously described, has appointed, subject to ratification by
the Shareholders at the forthcoming Annual Meeting, the firm of Coopers &
Lybrand L.L.P. as independent accountants of the Company for the fiscal year
ended March 31, 1996. Coopers & Lybrand L.L.P. has at no time had any direct or
indirect financial interest in the Company or in any of its subsidiaries, nor,
other than providing certain non-audit services, any other connection with the
Company except that of independent auditors.
It is anticipated that representatives of Coopers & Lybrand L.L.P. will be
present at the annual meeting with the opportunity to make a statement if they
desire to do so and will be available to answer appropriate questions.
During the fiscal year ending March 31, 1995, the Company paid Coopers &
Lybrand L.L.P. approximately $130,000 for audit services and approximately
$101,000 for non-audit services. Non-audit services included due diligence
procedures in connection with the acquisition of The Fuller Brush Company,
foreign and domestic tax and accounting matters, assistance with various filings
with the Securities and Exchange Commission, and various state income and sales
tax issues.
This proposal requires the affirmative vote of a majority of the shares of
stock of the Company present in person or by proxy and entitled to vote at the
meeting.
Management recommends a vote for the proposal to ratify the appointment of
Coopers & Lybrand L.L.P. as independent auditors of the Company for the fiscal
year ending March 31, 1996.
58
PROPOSAL 3
----------
INCREASE IN AUTHORIZED SHARES
-----------------------------
The Certificate of Incorporation of the Company, as amended, and as in
effect, provides that the maximum number of the $.01 par value Common Stock of
the Company which the Company is authorized to issue is five million (5,000,000)
shares. Such Common Stock is the only class of stock the Company is authorized
to issue. As of the date of this Proxy Statement, 4,326,431 common shares are
issued and outstanding. In addition, options are outstanding pursuant to which
the Company may be called upon to issue 316,175 additional shares, and 299,250
shares are reserved for future option grants and/or stock awards under the
Company's Executive Long-Term Stock Investment Plan, leaving only 58,144 shares
(including Treasury shares) available for issuance and/or reissuance.
Management believes that increasing the number of authorized shares will
provide needed flexibility with respect to its acquisitions and other programs.
On June 6, 1995, The Board of Directors voted to recommend to the Shareholders
that the Company amend its Certificate of Incorporation in order to increase the
number of authorized common shares by five million (5,000,000) shares, from five
million (5,000,000) common shares with $.01 par value, to ten million
(10,000,000) common shares with $.01 par value. There is no present plan to
issue any of such newly authorized shares. Under applicable provisions of the
New York Business Corporation Law, the approval of the Shareholders is necessary
in order to so amend the Company's Certificate of Incorporation.
59
This proposal requires the affirmative vote of a majority of the shares of
stock of the Company present in person or by proxy and entitled to vote at the
meeting.
Management recommends a vote for its proposal that the Shareholders approve
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized $.01 par value Common Stock of the Company from five
million (5,000,000) authorized shares to ten million (10,000,000) authorized
shares.
CPAC, INC.
2364 LEICESTER ROAD, LEICESTER, NY 14481
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 9, 1995
The undersigned Shareholder of CPAC, Inc. hereby appoints and constitutes
Thomas N. Hendrickson and Robert Oppenheimer, and either of them, the proxy or
proxies of the undersigned, with full power of substitution and revocation, for
and in the name of the undersigned to attend the annual meeting of Shareholders
of the Company to be held at the Genesee River Hotel-Restaurant and Reception
Center, 134 North Main Street (Route 36), Mount Morris, New York 14510, on
Wednesday, August 9, 1995 at 11:00 A.M., E.D.T., and any and all adjournments of
said meeting, and to vote all shares of stock of CPAC, Inc. registered in the
name of the undersigned and entitled to vote at said meeting upon the matters
set forth below.
MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3.
60
1. ELECTION OF DIRECTORS: Election of the directors listed below to serve
until the annual meeting of Shareholders in 1996 and until their successors are
duly elected and qualified.
FOR all nominees listed below: WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) for all nominees listed below:
[ ] [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH HIS NAME IN THE LIST BELOW:
Thomas N. Hendrickson, Robert C. Isaacs, Robert Oppenheimer, Seldon T.
James, Jr., John C. Burton
2. APPOINTMENT OF AUDITORS: Ratification of the appointment of Coopers &
Lybrand L.L.P. by The Board of Directors as independent auditors for the fiscal
year ending March 31, 1996.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. AMENDMENT OF CERTIFICATE OF INCORPORATION: Approval of an amendment to the
Company's Certificate of Incorporation to increase the number of authorized $.01
par value Common Stock of the Company from 5,000,000 authorized shares to
10,000,000 authorized shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
61
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IF NO CHOICE IS SPECIFIED FOR A GIVEN PROPOSAL, THIS PROXY WILL BE
VOTED FOR THAT PROPOSAL.
Signature
DATED: , 1995 Joint owners should each sign.
------------------
Executors, administrators, trustees,
guardians, corporate officers, and
other representatives should give
title.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
62
