CPAC INC, DEF 14A, 1996-07-09

CPAC INC
DEF 14A, 1996-07-09
SPECIAL INDUSTRY MACHINERY, NEC

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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:

[ ] Preliminary Proxy Statement
[ X ] 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):

[ ] $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

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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:

------------------------------------------------

[ X ] 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.:

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3) Filing Party:

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4) Date Filed:

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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 7, 1996, at 11:00 A.M. EDT 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 its fiscal year ending
March 31, 1997.

3. To approve an increase in the number of shares of the Company's $.01
par value common stock reserved for grant under the Company's Executive Long
Term Stock Investment Plan by 600,000 common shares, from 350,000 common shares
to 950,000 common shares.

4. 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 10,000,000 authorized common shares with $.01 par value to 20,000,000
authorized common shares with $.01 par value.

5. To approve the adoption by The Board of Directors of the 1996 Non-
Employee Directors Stock Option Plan.

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 27, 1996 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

DATED: July 9, 1996 /s/ Robert Oppenheimer
--------------------------------------
ROBERT OPPENHEIMER, Secretary

CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481

PROXY STATEMENT
---------------

DATE OF PROXY STATEMENT: JUNE 27, 1996
DATE OF MAILING: JULY 9, 1996

ANNUAL MEETING OF SHAREHOLDERS: AUGUST 7, 1996

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 Annual 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.

Holders of 33 1/3% of the issued and outstanding common stock of the
Company must be present in person or by Proxy in order to establish a quorum
for the conduct of business at the Annual Meeting. Only record holders of the
common stock at the close of business on June 27, 1996, are entitled to vote at
the Annual Meeting. On that day 7,344,003 shares of common stock $.01 par value
per share, were issued and outstanding. Each such share is entitled to one vote
at the Annual 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 1997 Annual Meeting of Shareholders that is received by the
Company after February 26, 1997, 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 1995. 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 Annual 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 54 1969
(2) Executive Officer,
CPAC, Inc.

Robert C. Isaacs Senior Vice President and Chief56 1988
(3) Acquisitions Officer
CPAC, Inc.
Chief Operating Officer, The
Fuller Brush Company, Inc.

Robert Oppenheimer Attorney & Partner, 67 1969
(4) Chamberlain, D'Amanda,
Oppenheimer & Greenfield

Seldon T. James, Jr. Financial Consultant 69 1972
(5)

John C. Burton Ernst & Young Professor 63 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 Chief Operating Officer of The
Fuller Brush Company, Inc., effective October 13, 1994. He also served as
President of The Fuller Brush Company, Inc. from October 13, 1994, to March 31,
1996.

(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 the President
and a member of the Board 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. Effective April 1, 1996, Mr. Isaacs was
appointed Chief Acquisitions Officer for CPAC, 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., and CPAC Italia S.r.l. Mr. Oppenheimer receives no
compensation as director or as Secretary of the Company or its subsidiaries.
For the fiscal year ended March 31, 1996, Mr. Oppenheimer's firm was paid $
216,580 by the Company in legal fees for legal services rendered to the Company.

(5) Mr. James, Jr. is a director of Profit Recovery Systems, Inc. He
receives no compensation in such capacity.

(6) Dr. Burton serves on the boards of directors of Scholastic, Inc. and
Salomon Swapco, Inc. and previously was a board member of Commerce Clearing
House, Inc. and Manville Corporation. 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, Dr. Burton was Chief
Accountant, Securities and Exchange Commission. From 1982 to 1988, he was Dean
of the Graduate School of Business, Columbia University. From 1991 to 1994, 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 27, 1996, the following persons are known to the Company to be
the beneficial owners of more than five percent of the Company's issued and
outstanding common stock, $.01 par value, 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 380,238 shares -- outright 5.12%
5 Simmons Road ownership; (2)
Perry, New York 14530 20,431 shares -- attributable 0.27%
from ownership by spouse;

CPAC Investors, L.L.C. 1,250,000 shares-outright 16.82%
c/o Eliot Lauer, Esq. ownership;
Curtis, Mallett-Prevost, Colt
& Mosle
101 Park Avenue
New York, New York 10178

HLELT Enterprises, Inc. 450,482 shares-outright 6.06%
c/o Turner & Boisseau, Chartered ownership;
900 Broadway
Great Bend, Kansas 67530

(1) Includes all shares distributed and all adjustments required as a
result of May 15, 1996, stock split distribution. Number of shares subject to
options includes only those shares which may be purchased within sixty ( 60 )
days of June 27, 1996.

(2) Includes 24,609 shares of the Company's common stock which may be
purchased through the exercise of an option granted on June 2, 1992, 11,719
shares of the Company's common stock which may be purchased through an option
granted December 8, 1993, 23,437 shares of the Company's common stock which may
be purchased through exercise of an option granted February 9, 1994, all
pursuant to the Company's 1991 Employees' Incentive Stock Option Plan. Includes
27,500 shares of the Company's common stock which may be purchased through
exercise of an option granted February 8, 1996, pursuant to the Company's
Executive Long Term Stock Investment Plan.

DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------

As of June 27, 1996, the Company's directors and its four "named
executive officers" (listed individually below) and all its directors and
officers (listed as a group below) beneficially owned shares of the Company's
common stock, $.01 par value, the only class of its voting securities, as
follows:

NAME AMOUNT BENEFICIALLY OWNED (1) PERCENT OF CLASS
---- ----------------------------- ----------------

Thomas N. Hendrickson, 400,669 shares (2) 5.34%
Chief Executive Officer
and Director

Robert C. Isaacs, 34,413 shares (3) 0.46%
Senior Vice President
and Director

Robert Oppenheimer 65,625 shares 0.87%
Secretary and Director

Seldon T. James, Jr., 70,937 shares(4) 0.95%
Director

John C. Burton 11,406 shares 0.15%
Director

Thomas J. Weldgen, 30,607 shares (5) 0.41%
Chief Financial Officer

Wendy F. Clay, 15,550 shares (6) 0.21%
Vice President,
Administration

All executive officers 629,207 shares (7)(8) 8.39%
and directors
(seven persons)

(1) Includes all shares distributed and adjustments required as the result
of May 15, 1996 stock split distribution. Number of shares subject to options
includes only those shares which may be purchased within sixty ( 60 ) days of
June 27, 1996.

(2) Includes 20,431 shares owned by Mr. Hendrickson's spouse. Includes
24,609 shares of the Company's common stock which may be purchased through
exercise of an option granted on June 2, 1992, 11,719 shares of the Company's
common stock which may be purchased through exercise of an option granted on
December 8, 1993, 23,437 shares of the Company's common stock which may be
purchased through exercise of an option granted on February 9, 1994, pursuant to
the Company's 1991 Employees' Incentive Stock Option Plan and 27,500 shares of
the Company's common stock which may be purchased through exercise of an option
granted on February 8, 1996, pursuant to the Company's Executive Long Term Stock
Investment Plan.

(3) Includes 4,101 shares of the Company's common stock which may be
purchased through exercise of an option granted on June 2, 1992, pursuant to the
Company's 1991 Employees' Incentive Stock Option Plan, 3,906 shares of the
Company's common stock which may be purchased through exercise of an option
granted on November 18, 1994, and 22,500 shares of the Company's common stock
which may be purchased through exercise of an option granted on February 8,
1996, pursuant to the Company's Executive Long Term Stock Investment Plan.

(4) Includes 17,250 shares owned by Mrs. Seldon T. James, Jr.

(5) Includes 19,687 shares of the Company's common stock which may be
purchased through exercise of an option granted on April 1, 1992 and 3,437
shares of the Company's common stock which may be purchased through exercise of
an option granted on December 8, 1993, pursuant to the Company's 1991 Employees'
Incentive Stock Option Plan, and 2,500 shares which may be purchased through an
option granted November 18, 1994 pursuant to the Company's Executive Long Term
Stock Investment Plan. Mr. Weldgen, age 44, joined the Company as Chief
Financial Officer of the Company and its subsidiary companies on March 2, 1992.
Prior to that, Mr. Weldgen was Senior Manager with the accounting firm of
Coopers & Lybrand L.L.P. from 1987 to 1990 and a Partner in such firm from 1990
until becoming Chief Financial Officer of the Company.

(6) Includes 860 shares of the Company's common stock which may be
purchased through exercise of an option granted on March 9, 1988 pursuant to the
Company's 1983 Employees' Incentive Stock Option Plan, 2,460 shares which may be
purchased through exercise of an option granted June 2, 1992, 4,687 shares of
the Company's common stock which may be purchased through exercise of an option
granted December 8, 1993, pursuant to the Company's 1991 Employees' Incentive
Stock Option Plan and 2,500 shares of the Company's common stock which may be
purchased through exercise of an option granted November 18, 1994, pursuant to
the Company's Executive Long Term Stock Investment Plan. Ms. Clay was appointed
Vice President, Administration on July 1, 1992, and was appointed Executive Vice
President of the CPAC Equipment Division on April 1, 1994. She has been with
the Company since December, 1982.

(7) Includes 860 shares which may be purchased through exercise of
options granted pursuant to the Company's 1983 Employees' Incentive Stock Option
Plan. Includes 94,137 shares of the Company's common stock which may be
purchased through exercise of options granted pursuant to the Company's 1991
Employees' Incentive Stock Option Plan. Includes 58,906 shares of the Company's
common stock which may be purchased through exercise of options granted pursuant
to the Company's Executive Long Term Stock Investment Plan.

(8) Based upon its review of copies of Forms 3 and 4 and 5 received by it,
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 eight times during the fiscal
year ended March 31, 1996. 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 1996 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, 1996, Dr. 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 twice in fiscal
year 1996, is composed of three directors, the majority of whom are not
officers, namely Dr. Burton and Messrs. 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; (7) conducts appropriate reviews of all related
party transactions on an ongoing basis and reviews potential conflict of
interest situations where appropriate; and (8) 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 three times
in fiscal 1996, is composed of three directors, the majority of whom are not
officers, namely Mr. James, Jr., Dr. Burton and Mr. 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 three times in fiscal 1996, 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
Mr. James, Jr., Dr. Burton and Mr. 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 1996, see Page
14 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.
There are no agreements or arrangements for the nomination or appointment of any
person to The Board of Directors.

EMPLOYMENT AGREEMENT
- --------------------

Effective September 20, 1995, the Company and Mr. Hendrickson entered into
an employment agreement for a term of five years, which term is automatically
extended for an additional one year on each of the first three anniversary
dates, provided that Mr. Hendrickson is in the employ of the Company on that
date. Under the agreement, subject to the control of the Board of Directors,
Mr. Hendrickson's duties shall be those of Chief Executive Officer of CPAC, Inc.
The agreement sets forth a basic salary at an initial annual rate of $350,000
subject to increases in such base pay equal to the percent of increase given to
other senior officers of the Company, or such other percent as determined by the
Board of Directors.

In addition to his base pay, Mr. Hendrickson is automatically a participant
in the Company's Incentive Compensation Plan, as described on Page 17 of this
Proxy Statement. Mr. Hendrickson is also entitled to all rights and benefits
for which he shall be eligible under any stock option plan, bonus, participation
or extra compensation plans, pensions, group insurance or other benefits which
the Company may provide for him or for its employees generally. In the event of
his disability, his base salary shall be continued for the remainder of the
contract term in effect at the time of his disability, but he will not be
entitled to bonus for the period after his disability other than a bonus payable
at the end of the fiscal year in which he becomes disabled, prorated on the
basis of the number of days in which he was employed.

If Mr. Hendrickson is terminated by the Company other than for cause, he is
entitled to receive his base salary for the duration of the agreement, without
further extension, with annual increments equal to the percent increase given to
other senior officers of the Company; receive annually during such term a bonus
equal to the highest annual bonus received in the three fiscal years of the
Company immediately preceding his termination and be granted non-qualified stock
options at the price and for the term of the qualified options which he holds at
the date of termination, which options shall be effective upon the first date
when he can no longer exercise his qualified stock options.

EXECUTIVE COMPENSATION
----------------------

The following table sets forth certain information for the fiscal years
ended March 31, 1996, 1995, and 1994 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 1996 $354,281 $374,625 $5,705
President and Chief 1995 353,904 261,675 5,580
Executive Officer 1994 260,173 122,485 5,680

Robert C. Isaacs 1996 $306,114 $258,630 $5,525
Senior Vice President 1995 262,904 174,283 5,400
1994 231,423 72,313 6,381

Thomas J. Weldgen 1996 $104,630 $ 74,853 $4,925
Chief Financial Officer 1995 92,259 55,679 5,490
1994 83,905 27,346 5,559

Wendy F. Clay 1996 $86,756 $ 37,189 $4,925
Vice President, Administration 1995 - - -
1994 - - -

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 1996 - 137,500 - $113,805
President and Chief 1995 23,437 - - 74,078
Executive Officer 1994 - 56,250 - 73,983

Robert C. Isaacs 1996 - 131,250 - $ 4,500
Senior Vice President 1995 3,906 12,500 - 4,271
1994 - 12,500 - 4,814

Thomas J. Weldgen 1996 - 4,375 - $ 3,094
Chief Financial 1995 1,171 3,750 - 2,780
Officer 1994 - 3,750 - 2,546

Wendy F. Clay 1996 - 3,125 - $ 2,063
Vice President, Administration1995 - - - -
1994 - - - -

NOTES:
- ------
(1) See additional information on the Company's Incentive Compensation
Plan on Page 17 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 23,437 shares of the Company's
common stock ( as adjusted for each of the five for four stock splits
distributed to shareholders on January 12, 1995 and May 15, 1996 respectively )
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) These shares, as adjusted for the January 12, 1995 and May 15, 1996
stock splits, were awarded on November 18, 1994 under the Company's Executive
Long Term Stock Investment Plan. See Page 18 of this Proxy Statement.

(5) There are no Long Term incentive payouts.

(6) Amounts include matching contributions made by the Company to the
Company's 401(k) retirement plan: Mr. Hendrickson - $4,620; Mr. Isaacs - $4,500;
Mr. Weldgen - $3,094; and Ms. Clay - $2,063.

(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,
1996, the amount includible by Mr. Hendrickson in income was $610.

(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 he 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, 1996, the premium for such policy was approximately $8,615. The
amount accrued for the salary continuation agreement for the fiscal year ended
March 31, 1996, 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
Company deferred $50,000 of Mr. Hendrickson's compensation for the 1996 fiscal
year. This amount was contributed to the Trust part of which contribution was
used to purchase a $10,000 life insurance policy on the life of Mr. Hendrickson
with the Trust as the beneficiary thereof. No further premiums are due on such
policy. 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, except for the insurance policy, are invested with an independent
investment firm. The amount accrued for the Deferred Compensation Arrangement
for the fiscal year ended March 31, 1996, was $93,060.

OPTIONS The following table sets forth the details of options granted to the
- -------
individuals listed in the Summary Compensation Table during fiscal year 1996.

<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 137,500 42.5% $11.70 2/07/2006 $927,200 $2,404,300
President & Chief
Executive Officer

Robert C. Isaacs 112,500 34.8% 11.70 2/07/2006 758,600 1,967,100
Senior Vice President 18,750 5.8% 11.00 10/20/2005 134,400 325,400

Thomas J. Weldgen 4,375 1.4% 11.00 10/20/2005 31,400 75,900
Chief Financial Officer

Wendy F. Clay 3,125 1.0% 11.00 10/20/2005 22,400 54,200
Vice President,
Administration

Options were granted under "1994 Executive Long-Term Stock Investment Plan" described on Page 22 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, 1996. The compound growth rate for the February 7, 1996,
grants are 61.8% for Messrs. Hendrickson and Isaacs. The compound growth rate for the October 20, 1995, grants are 59.4% for
Messrs. Isaacs and Weldgen, and Ms. Clay.
<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, 1996. The compound growth rate for the February 7, 1996,
grants are 156% for Messrs. Hendrickson and Isaacs. The compound growth rate for the October 20, 1995, grants are 149% for
Messrs. Isaacs and Weldgen, and Ms. Clay.
</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 19,688 $162,918 59,765 35,156 $350,662 $206,243

Robert C. Isaacs 16,094 135,821 8,007 38,281 36,283 87,337

Thomas J. Weldgen 1,000 6,400 25,624 6,562 142,400 7,434

Wendy F. Clay - - 10,507 4,531 60,085 4,905
</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 3/31/96 VALUE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----- ------- ----- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas N. Hendrickson 24,609 0 $5.5315 $11.40 $5.8685 $ 144,418 $ 0
11,719 11,718 5.0804 11.40 6.3196 74,059 74,053
23,437 23,438 5.7600 11.40 5.6400 132,185 132,190
------------ -------------
$ 350,662 $ 206,243
============ =============

Robert C. Isaacs 4,101 0 $5.0289 $11.40 $6.3711 $ 26,128 $ 0
0 7,812 5.0806 11.40 6.3194 0 49,367
3,906 11,719 8.8000 11.40 2.6000 10,156 30,469
0 18,750 11.0000 11.40 .4000 0 7,500
------------ -------------
$ 36,283 $ 87,337
============ =============

Thomas J. Weldgen 19,687 0 $5.6001 $11.40 $5.7999 $ 114,183 $ 0
3,437 0 5.0807 11.40 6.3193 21,719 0
2,500 2,187 8.8009 11.40 2.5991 6,498 5,684
0 4,375 11.0000 11.40 .4000 0 1,750
------------ -------------
$ 142,400 $ 7,434
============ =============

Wendy F. Clay 860 0 $1.7511 $11.40 $9.6489 $ 8,298 $ 0
2,460 0 5.0305 11.40 6.3695 15,669 0
4,687 0 5.0805 11.40 6.3195 29,619 0
2,500 1,406 8.8006 11.40 2.5994 6,499 3,655
0 3,125 11.0000 11.40 .4000 0 1,250
------------ -------------
$ 60,085 $ 4,905
============ =============
</TABLE>

REPORTS OF THE COMPENSATION COMMITTEE AND THE EXECUTIVE LONG TERM STOCK
INVESTMENT 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 Long Term Stock Investment
Committee, as appropriate, for specific actions in regard to such matters.
During fiscal 1996, the Compensation Committee was composed of Messrs. James,
Jr., Oppenheimer and Dr. Burton, 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 overall review
was carried out by a nationally recognized executive compensation consulting
firm, based on national surveys of executive compensation for other companies
within an appropriate bank of sales. Such salary information is subject to
periodic update by the Compensation Committee.

Annual Incentive Compensation. The incentive component of the Incentive
------------------------------
Compensation Plan consists of a feature whereby executives may be rewarded 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 cash incentive
plan be modified in order to provide management with greater incentive to strive
for exceptional results. The Company modified the plan beginning with the April
1, 1994, fiscal year and the plan, as modified, continues in existence
currently. The modifications make it possible for the executive group to earn a
larger bonus, but only if earnings per share have increased significantly.

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 tax purposes, annual 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 in
fiscal 1996 will not be affected by IRC 162(m). It is also anticipated that
amounts paid by the Company to its executives in fiscal 1997 will not be
affected by IRC 162(m).

MR. HENDRICKSON'S 1996 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 fiscal 1996. Under Mr. Hendrickson's
experienced management, earnings per share, after payment of all incentive
compensation payments, increased from $.61 to $.85 per share, on a fully diluted
basis, or 110% of the maximum earnings per share target in the range
established at the beginning of the 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 equity -based incentive awards for the Company's executives and
management under the Plan. During fiscal 1996, the Committee was comprised of
Messrs. James, Jr., Oppenheimer and Dr. Burton, none of whom is an employee
of the Company or eligible to receive awards under the Plan.

LONG TERM STOCK 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 22 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 1996 LONG TERM STOCK INCENTIVE COMPENSATION

The stock awards made to Mr. Hendrickson in fiscal 1996 were determined to
be reasonable and appropriate for his position and level of expertise. The
awards were made in the form of stock options and 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 on the National Association of
Securities Dealers' National Market System (NASDAQ/NMS) 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 believes most closely
approximated its performance is 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 0/3/31/91 through 03/31/96. 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 03/31/96

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
---- ------------- ------------ ----------

03/28/91 100.000 100.000 100.000
04/30/91 112.766 100.633 99.555
05/31/91 119.149 105.252 104.403
06/28/91 124.439 98.841 97.141
07/31/91 137.312 104.693 102.946
08/30/91 150.185 109.899 107.889
09/30/91 147.010 110.303 109.063
10/31/91 144.848 113.948 112.862
11/29/91 147.010 110.124 108.704
12/31/91 148.168 123.577 122.574
01/31/92 156.884 130.807 130.110
02/28/92 183.031 133.792 132.383
03/31/92 168.912 127.462 124.512
04/30/92 160.137 121.993 116.880
05/29/92 140.394 123.574 117.627
06/30/92 141.611 118.728 111.827
07/31/92 132.760 122.927 115.323
08/31/92 141.611 119.184 111.326
09/30/92 158.189 123.629 115.383
10/30/92 160.417 128.501 120.065
11/30/92 164.873 138.723 130.128
12/31/92 159.271 143.826 134.089
01/29/93 163.758 147.929 137.692
02/26/93 157.028 142.431 130.802
03/31/93 171.831 146.550 134.335
04/30/93 167.309 140.275 128.783
05/28/93 161.430 148.659 139.201
06/30/93 150.739 149.352 139.346
07/30/93 143.561 149.487 138.164
08/31/93 157.917 157.230 146.259
09/30/93 168.848 161.896 150.233
10/29/93 156.788 165.533 154.935
11/30/93 139.903 160.570 150.383
12/31/93 165.297 165.037 154.812
01/31/94 160.436 170.050 160.003
02/28/94 189.606 168.480 158.347
03/31/94 205.486 158.119 147.380
04/29/94 200.593 156.056 143.994
05/31/94 185.915 156.438 142.884
06/30/94 197.040 150.721 135.905
07/29/94 204.428 153.830 139.473
08/31/94 266.003 163.638 148.982
09/30/94 274.843 163.196 149.383
10/31/94 287.223 166.436 153.733
11/30/94 267.415 160.919 148.768
12/30/94 262.463 161.387 148.354
01/31/95 284.747 162.302 148.010
02/28/95 297.127 170.886 155.764
03/31/95 278.557 175.944 160.645
04/28/95 272.367 181.493 165.670
05/31/95 259.986 186.186 169.608
06/30/95 315.698 201.306 184.566
07/31/95 303.318 216.087 198.088
08/31/95 334.268 220.453 200.428
09/29/95 359.029 225.537 206.121
10/31/95 365.219 224.251 203.519
11/30/95 334.268 229.497 206.703
12/29/95 349.744 228.267 204.133
01/31/96 334.268 229.316 204.529
02/29/96 343.553 238.071 213.704
03/29/96 352.839 238.828 213.612

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

03/31/91 03/31/92 03/31/93 03/31/94 03/31/95 03/31/96
-------- -------- -------- -------- -------- --------
100.0 168.9 171.8 205.5 278.6 352.8
100.0 127.5 146.6 158.1 175.9 238.8
100.0 124.5 134.3 147.4 160.6 213.6

Notes:
- -----

Assumes $100 invested on April 1, 1991, 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 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 initial
incentive bonus payable shall be dependent upon the employee's position within
the Company and shall be the following percentage of base pay:

BASE PAY
CATEGORY PERCENT
--------------------------------------------------

Chief Executive Officer 75%
Senior Operating and Staff Executives 50%-60%
Key Management 30%-40%
Other Managers and Supervisors 20%

The Board has adopted a policy for the Chief Executive Officer and certain
selected corporate executives pursuant to which the entitlement to, and the
amount of the total bonus paid, would be dependent upon the Company's success in
attaining budgeted profits and specified goals in earnings per share. Under
this policy, exceptional performance as measured by and reflected in specified
increases in earnings per share, could result in such employee earning up to
148% of that employee's base pay percent as indicated in the table above.

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 Company 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 Company.

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 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 Company 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.

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 of the Company's common stock for issuance thereunder. The Board,
at the same meeting, voted to terminate the 1991 Incentive Stock Option Plan
as 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.

For a detailed description of the Executive Long Term Stock Investment
Plan, see Page 22 of this Proxy Statement.

401(K) PROFIT SHARING PLAN
- --------------------------

On April 17, 1986, The Board of Directors adopted a profit sharing plan for
the benefit of all domestic employees of the Company and its 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 retirement 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 taxes.

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 determine,
subject to Internal Revenue Code limitations and restrictions on and the
deductibility of contributions to a qualified profit sharing plan. Subject to
similar restrictions on the amount of contributions to the section 401(k)
component of the Plan, the Company will match each contribution made by a Plan
participant, pursuant to a salary reduction agreement in effect 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"
because they exceed the amount permitted to be contributed to the Plan under the
Internal Revenue Code, adjustments will be made to reduce the amount of that
Plan Year's contributions so as to comply with such restrictions.

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 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 applies:

COMPLETED YEARS OF SERVICE VESTED PERCENTAGE
-------------------------- -----------------
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 5 years unless the loan is
used 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 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.

For the Plan Year ended March 31, 1996, 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 $4,620 in the case of Mr.
Hendrickson, $4,500 in the case of Mr. Isaacs, $3,094 in the case of Mr.
Weldgen, and $2,063 in the case of Ms. Clay. The total for all executive
officers as a group was $14,277.

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 income (to a maximum
of $5,000 per annum), through payroll deductions, to purchase the Company's $.0l
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, 1996, an average of 32 employees per
quarter purchased 2,313 shares of CPAC, Inc. common stock. The total cost to
the Company approximated $616. No executive officers participated in the
program.

PROPOSAL 2
----------

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
----------------------------------------------------

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, 1997. Coopers & Lybrand L.L.P. has at no time had any direct or
indirect financial interest in the Company or 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, 1996, the Company paid Coopers &
Lybrand L.L.P. approximately $125,000 for audit services and approximately
$57,000 for non-audit services. Non-audit services included foreign and
domestic tax and accounting matters, assistance with various filings with the
Securities and Exchange Commission, and various federal and state income tax
issues.

This proposal requires the affirmative vote of a majority of the shares of
common stock of the Company present in person or by Proxy and entitled to vote
at the Annual 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, 1997.

PROPOSAL 3
----------

INCREASE IN SHARES RESERVED UNDER EXECUTIVE
------------------------------------------
LONG TERM STOCK INVESTMENT PLAN
--------------------------------

On June 8, 1994, The Board of Directors adopted the Executive Long Term
Stock Investment Plan and reserved in the aggregate 350,000 shares of the
Company's $.01 par value common stock for issuance thereunder. The purposes of
the Executive Long Term 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.
The Plan was approved by the Company's Shareholders at the Annual Meeting of
Shareholders held on August 10, 1996.

A detailed description of the Plan is found on Page 22 of this Proxy
Statement.

On April 17, 1996, The Board of Directors voted to recommend to the
Shareholders that the Plan be amended to increase the aggregate number of the
Company's $.01 par value common stock reserved for issuance thereunder by six
hundred thousand (600,000) shares, from three hundred, fifty thousand (350,000)
shares to nine hundred, fifty thousand (950,000) shares. The recommendation is
made since, as of the date of this Proxy Statement, options and stock awards for
338,250 shares in the aggregate have been granted or made under the Plan,
leaving only 11,750 shares for which new options may be granted and/or new stock
awards may be made.

Management believes that such increase is necessary in order to provide the
Company with a sufficient number of shares to carry out the purposes of the
Plan, as approved by the Shareholders. More specifically, management believes
that the continued availability of options and awards under the Plan will
continue to provide incentive for existing personnel to enhance Shareholder
growth as well as provide additional incentives to attract and retain quality
personnel as part of the Company's ongoing growth and acquisitions program.

This Proposal requires Shareholder approval under the terms of the Plan,
certain corporate governance policies contained in the Bylaws of the National
Association of Securities Dealers, Inc. applicable to companies whose stock has
received the designation as a National Market Security and with respect to
Incentive Stock Options, applicable provisions of the Internal Revenue Code.

It is anticipated that if Shareholder approval is given to this Proposal,
the Company will cause such shares to be registered with the Securities and
Exchange Commission under the provisions of the Securities Act of 1933.

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
Annual Meeting.

Management recommends a vote for its Proposal to increase the aggregate
number of shares of the Company's $.01 par value common stock reserved for
issuance under the Company's Executive Long Term Stock Investment Plan by
600,000 shares, from 350,000 shares to 950,000 shares.

EXECUTIVE LONG TERM STOCK INVESTMENT PLAN
- -----------------------------------------

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 the Company and its subsidiaries with the
Company's Shareholders by reinforcing the relationship between participant
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 the Executive Long Term Stock
Investment Plan Committee ( the "Committee"), composed of three persons, each of
whom is a "disinterested person" under the rules promulgated by the Securities
and Exchange Commission, that is, generally, a director of the Company 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, except as awarded under a "formula"
plan, any other option or other equity based plan of the Company. For a
discussion of management's Proposal for the creation of a Non-Employee Directors
Stock Option Plan, see Page 30 of the Proxy Statement.

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 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 equity awards, the
Committee has and will continue to consider 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 will 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 the grant of the option. Fair market value is the mean
between the high and low bid prices for the Company's stock as quoted on the
NASDAQ National Market System;

(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 System.

b. Certain Material Restrictions
------------------------------

Nonqualified Stock Options are subject to the following material
restrictions:

(i) Nonqualified Stock Options are exercisable at various times
while the optionee is an employee of the Company or within specified periods
immediately following the employee's termination of employment;

(ii) Nonqualified Stock Options 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 the optionee prior to his complete
exercise of a Nonqualified Stock Option, 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 has 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 issued upon the exercise of a
Nonqualified Stock Option 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 option.

(vi) Shares obtained through the exercise of an option under the
Stock Investment Plan or any other stock option plan of the Company may not be
used to purchase shares under the Stock Investment Plan.

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,
-----
may 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 10% of the
Company's common stock, the exercise price may not be less than 110% of the fair
market value of such stock at the time of grant. See the discussion above for
the definition of fair market value.

(ii) Term of Options: While the term of each Incentive Option is
---------------
to be decided by the Committee, no Incentive Option will be granted with a term
of greater than ten years (five years in the case of a greater than 10%
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 may pay for the Company's stock either with cash or with Company's
stock already owned by him, valued at the fair market value of the stock on the
date of exercise. Fair market value is calculated in the same manner as in the
case of Nonqualified Stock Options discussed above.

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
subject to a rule under Section 422 of the Internal Revenue Code that the
aggregate fair market value of stock with respect to which an Incentive Stock
Option is exercisable for the first time during any calendar year by any
optionee cannot exceed $100,000, such value being determined on the date of the
grant of the option.

3. Reload Options

Concurrently with the award of a Nonqualified Stock Option and/or
Incentive Stock Option, the Committee may grant a Reload Option to enable the
employee to purchase a number of shares for either cash or shares. The Reload
Option becomes effective only if the employee uses common stock of the Company
owned by him for at least twelve months to purchase the shares issuable to him
upon his exercise of either the underlying Nonqualified or Incentive Stock
Option. The Reload Option is designed to replace those shares used as the
purchase price, and the number of Reload Options will equal the number of shares
of the Company's common stock used by the employee to exercise the underlying
option.

The Reload Option price generally will be the fair market value of a
share of the Company's common stock on the date 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 common
stock on the date of the underlying stock 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 shall be the mean between the high and
the low prices for the Company's common stock as quoted on the NASDAQ National
Market System.

4. Restricted Performance Shares

Concurrently 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 options 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 the Restricted Performance Shares, the employee has
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 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 terminates his service with the Company prior to the
date immediately following the last day of the option period with respect to
which the 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 Restricted Performance Shares were awarded, any Restricted Performance
Shares issued in connection with such option are automatically forfeited to the
extent of the option's exercise on a proportionate basis.

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, subject to any and all applicable
federal and state securities law restrictions.

E) FEDERAL TAX CONSEQUENCES

1. Nonqualified Stock Options

Under current provisions of federal tax law, for regular as well as
for purposes of the federal alternative minimum income tax, the grant of a
Nonqualified Stock Option is not a taxable event for the employee. In addition,
upon the grant of such an option, the Company will receive no business expense
deduction.

Upon the exercise of a Nonqualified Stock Option, the difference
between the exercise price and the fair market value of the option shares on the
date of exercise constitutes ordinary, compensation income to the optionee and
is taxed to him at normal, ordinary tax rates, except to the extent the shares
are not transferable and 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

The general rule is that no income, gain or loss is recognized for
regular income tax purposes by an optionee upon either the grant or the exercise
of an Incentive Stock Option. Upon the later sale of the shares acquired
pursuant to such an Option, long or short capital gain or loss will be
recognized by the employee to the extent the selling price exceeds or is less
than the employee's basis in the stock. The maximum tax rate on long term
capital gains is 28%.

This tax treatment is available provided the shares acquired by
exercise of the Incentive Stock Option are held by the optionee for a period of
two(2) years from the date of the grant of the Option and at least one (1) year
from the date of the Option's exercise.

As a general rule, the Company will not be entitled to an income tax
deduction with respect to either the grant or the exercise of an Incentive Stock
Option.

If either of the one year, two year holding periods just described are
not met, the difference between the fair market value of the shares and the
exercise price on the date of the Option's exercise constitutes ordinary,
compensation income to the optionee in the optionee's taxable year in which the
disqualifying disposition occurs. The balance of the amount realized in such
year constitutes capital gain, taxable at ordinary income tax 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 compensation
income in the year of the disqualifying disposition.

For purposes of the alternative minimum income tax calculation, an
Incentive Stock Option is treated as if it were a Nonqualified Stock Option.
Consequently, upon the exercise of the Incentive Stock Option, the difference
between the exercise price and the fair market value of the shares on the date
of exercise is includible as alternative minimum gross income, and made subject
to special alternative minimum income tax rates.

3. Restricted Performance Shares

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 in the taxable year 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 either of the restrictions lapse. Upon
the subsequent sale of the property, gain or loss is recognized and the gain, if
any, under current federal tax rules, is taxed at normal ordinary tax rates,
with a maximum rate of 28% for property held more than one year. The Company is
not allowed an income tax deduction until the recipient is required to include
the value of the property 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 value of such Shares generally is not includible in the
recipient's income nor may the Company claim an income tax 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 to the recipient and the Company is entitled to an
income tax deduction at that time equal to the amount includible in the
recipient's gross income. Upon the subsequent sale of the Shares by the
recipient, 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 1933. 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
shares acquired by them under the Stock Investment Plan without federal
securities laws restrictions.

G) OPTIONS AND AWARDS

The following information concerning the Stock Investment Plan is provided
as of the date of this Proxy Statement, namely, June 27, 1996, and reflects the
impact of the five for four stock split distributed to shareholders on May 15,
1996:

Options for 424,867 shares are outstanding, of which 92,807 are currently
exercisable and 323,436 were granted during the fiscal year ended March 31,
1996.

Options for 305,468 shares are outstanding for all executive officers as a
group, of which 58,906 are currently exercisable and 276,250 were granted during
the fiscal year ended March 31, 1996.

The market value of the securities underlying all options was $4,142,453.

4,062 Restricted Performance Shares were awarded under the Stock Investment
Plan during the fiscal year ended March 31, 1996, with none granted to
executive officers as a group.

19,295 Restricted Performance Shares are currently outstanding, of which
6,054 are outstanding for all executive officers as a group. None of such Shares
have vested.

The market value of Restricted Performance Shares was $188,126.

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 terminated the 1983
Plan as to the grant of additional options thereunder and adopted the 1991
Employees' Incentive Stock Option Plan.

On June 8, 1994, the Board terminated the 1991 Plan as to the grant of
additional options thereunder and adopted the Stock Investment Plan. 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 27, 1996, and reflects the impact of the five for four
stock split distributed to shareholders on May 15, 1996:

Options for 860 shares are outstanding under the 1983 Plan, all of which
are currently exercisable. Options for 860 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 $8,385.

Options for 185,089 shares are outstanding under the 1991 Plan, of which
138,215 are currently exercisable. Options for 137,105 shares are outstanding
under the 1991 Plan for all executive officers as a group, of which 94,137 are
currently exercisable.

The market value of the securities underlying all options under the 1991
Plan was $1,804,618.

PROPOSAL 4
----------

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 ten million (10,000,000)
common shares. Such common stock is the only class of stock the Company is
authorized to issue. As of the date of this Proxy Statement, namely June 27,
1996, 7,344,003 common shares are issued and outstanding. In addition, options
are outstanding pursuant to which the Company may be called upon to issue
753,006 additional shares, and 11,750 shares are reserved for future option
grants and/or stock awards under the Stock Investment Plan, leaving only
1,891,241 shares ( including Treasury shares ) available for issuance and/or
reissuance.

Management believes that an increase in the number of authorized shares is
necessary to provide needed flexibility with respect to acquisitions and other
corporate programs, including the additional 600,000 shares reserved for grant
under the Stock Investment Plan if management's proposal is approved. As of the
date of this Proxy Statement, there are no acquisitions currently pending.

On April 17, 1996, 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 ten million (10,000,000) shares, from ten million (10,000,000)
common shares with $.01 par value, to twenty million (20,000,000) common shares
with $.01 par value. While increasing the number of authorized common shares as
sought by this Proposal will have no immediate dilutive effect upon the
ownership interests of current Shareholders, the actual issuance of such newly
authorized shares may have a dilutive effect upon the ownership interests of
current Shareholders and could make it more difficult to effectuate a change in
control of the Company. Under applicable provisions of the New York State
Business Corporation Law, the approval of the Shareholders is necessary in order
to amend the Company's Certificate of Incorporation to so increase the number of
authorized common shares.

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
Annual Meeting.

Management recommends the Shareholders approve an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
common stock of the Company by ten million (10,000,000) shares, from ten million
(10,000,000 ) authorized common shares, $.01 par value to twenty million
(20,000,000) authorized common shares, $.01 par value.

PROPOSAL 5
----------

1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
----------------------------------------------

At its meeting held on April 17, 1996, the Board of Directors authorized an
independent employee benefits consulting firm to survey stock-based incentive
programs, which companies comparable to the Company maintain for non-employee
directors and to provide the Board with a recommendation. It was noted that
while the Company has long maintained stock option and stock award plans for its
key employees to tie their financial interest to continued growth in the
Company's stock, no such plan has existed for non-employee directors.

At its meeting held on June 5, 1996, the Board considered the report and
recommendation of the consulting firm and adopted, subject to the approval of
the Shareholders, the 1996 Non-Employee Directors Stock Option Plan (the "1996
Plan").

The salient features of the Plan are as follows:

A) PURPOSE

The 1996 Plan is established to attract, retain and compensate for service
as members of the Board of Directors of the Company, highly qualified
individuals who are not current or former employees of the Company and to enable
them to increase their ownership in the Company's common stock. The Plan is
designed to closely associate the financial interests of non-employee directors
with those of the Company's Shareholders by providing such directors with a
greater equity ownership in the Company and thus, reinforce non-employee
directors rewards with Shareholder gains. No non-employee director currently
has any stock options.

B) ELIGIBILITY

All members of the Board of Directors of the Company who are not current or
former employees of the Company or any of its subsidiaries are eligible to
participate in the 1996 Plan. As of the date of this Proxy Statement, the
members of the Board of Directors who are eligible to participate in the 1996
Plan are Dr. Burton and Messrs. James, Jr. and Oppenheimer. These directors
attended the June 5, 1996, Board of Directors meeting at which the 1996 Plan was
discussed but abstained from the discussion concerning the 1996 Plan and voting
upon it.

C) GRANT OF STOCK OPTIONS

Initially, under the terms of the 1996 Plan, each non-employee director is
granted, on a one-time basis for past service rendered to the Board of
Directors, an option to purchase 10,000 shares of the $.01 par value common
stock of the Company. The right to exercise the 10,000 share option in full
shall vest upon the 1996 Plan's approval by the Shareholders and the exercise
price shall be the fair market value of the Company's common stock on the date
of the Shareholders' meeting, August 7, 1996. Fair market value for this
purpose shall be the closing price for the Company's common stock on August 7,
1996 as quoted on the national Over-The-Counter (OTC) market in the NASDAQ
National Market System. The term of the option would be for a ten year period
from August 7, 1996.

On an ongoing basis, each year on the Friday immediately succeeding the
annual meeting of Shareholders, each individual elected, reelected or continuing
as a non-employee director of the Company shall automatically be granted,
without any further action of the Board of Directors or any of its Committees,
an option to purchase 3,000 shares of the Company's $.01 par value common
stock. However, if the Company's Chief Financial Officer determines, in his sole
discretion, that the Company, its management and/or members of its Board of
Directors is in possession of material, undisclosed information concerning the
Company, then the annual grant of options to non-employee directors shall be
suspended until the second day after public dissemination of such material
information and the exercise price of the option, exercisability dates and
option period shall be determined by reference to such later date.

The exercise price shall be the fair market value of the Company's common
stock on the first Friday after the annual meeting of Shareholders or such later
date as determined above. Fair market value for this purpose shall be the
closing price for the Company's common stock as quoted on the national Over-The-
Counter (OTC) market in the NASDAQ National Market System.

D) OPTION TERM, VESTING AND EXERCISE RIGHTS

The term for each 3,000 share option grant would be for a period of ten
years, commencing on the first Friday after the annual Shareholders' meeting or
such later date as determined above. With respect to each grant, the option
would vest immediately, but would be exercisable only in cumulative installments
equal to 1,000 shares per year, such that the resignation, retirement or death
of a non-employee director would not result in the loss of his ( or his heirs' )
right to exercise the option for the entire number of shares granted, in
accordance with the option's terms over its term.

E) PAYMENT FOR SHARES

In order to exercise his option, each non-employee director shall tender to
the Company full payment of the exercise price, together with an additional
amount, in cash, certified check, cashier's check or bank draft approved by the
Company, equal to the amount of any taxes required to be collected or withheld
by the Company in connection with the exercise of his stock option. Each non-
employee director may pay for the shares purchased in cash, by certified check,
cashier's check or bank draft approved by the Company. Alternatively, provided
the Board of Directors shall approve the specific transfer, he may pay for the
shares purchased by tendering to the Company other shares of the Company's
common stock owned by him, except that in no case shall shares acquired by him
pursuant to this or any other stock option plan of the Company be used as
payment for shares to be issued pursuant to the exercise of options under the
1996 Plan.

F) CERTAIN MATERIAL RESTRICTIONS

The stock options granted under the 1996 Plan are exercisable only by the
optionee and are not assignable, transferable or subject to any other party
acquiring any rights therein. Upon the death of the optionee prior to the
complete exercise of any option granted to him under the 1996 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.

An optionee has no rights as a Shareholder with respect to the shares
subject to options granted under the 1996 Plan, 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.

Shares of common stock issued upon the exercise of any option granted under
the 1996 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 option.

The shares acquired through exercise of options granted under the 1996 Plan
shall constitute "restricted stock" in the hands of the optionee and may not be
sold, transferred or otherwise disposed of for value for a period of two years
from date of exercise under Rule 144 promulgated by the Securities and Exchange
Commission. The Company anticipates registering the shares to be issued pursuant
to the exercise of options under the 1996 Plan under the Securities Act of 1933,
in which case the two year holding period would no longer be applicable.
However, each non-employee director is deemed to be an "affiliate" of the
Company and all shares owned by him, including those acquired under the 1996
Plan, are deemed to be " control " securities within the meaning of Rule 144.
Consequently, despite the registration of such shares, each non-employee
director shall still be subject to certain limitations set forth in Rule 144
restricting the number of shares he may sell in any quarterly period consistent
with the Rule.

G) ADMINISTRATION AND AMENDMENT OF 1996 PLAN

The 1996 Plan shall be administered by the Board of Directors of the
Company. The Board may terminate or amend the 1996 Plan, except that no such
termination or amendment may revoke, alter or cancel the rights of any non-
employee director with respect to options which, as of the effective date of
termination or amendment, have vested. No amendment to the 1996 Plan revising
the exercise price, term of option, option terms and conditions, eligibility for
participation or number of shares granted annually shall be made to the 1996
Plan without the approval of the Shareholders.

H) FEDERAL TAX CONSEQUENCES

The options granted pursuant to the 1996 Plan constitute " nonqualified
stock options " under applicable provisions of the Internal Revenue Code. See
Page 26 of this Proxy Statement for a discussion of the application of federal
tax law to the grant and exercise of nonqualified stock options and the later
sale of the shares acquired through exercise.

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
Annual Meeting.

Management recommends a vote for its Proposal to approve the adoption by
the Board of Directors of the 1996 Non-Employee Directors Stock Option Plan.

VOTING

Each nominee for director must receive at least a plurality of the shares
of common stock of the Company present in person or by Proxy and entitled to
vote at the Annual Meeting. Shareholders may vote for all nominees, withhold
authority to vote for all nominees or withhold authority to vote for any
individual nominee.
Each Proposal other than the election of directors requires a majority of
the total votes cast at the Annual Meeting on the Proposal ( including
abstentions ) in person or by Proxy.

BROKER NON-VOTES AND ABSTENTIONS
- --------------------------------

Broker non-votes will not be treated as votes cast or shares entitled to
vote on matters as to which the applicable rules of the National Association of
Securities Dealers, Inc. withhold the broker's authority to vote in the absence
of direction from the beneficial owner. Non-broker Shareholders who are present
in person or by Proxy and have the legal authority to vote their shares but who
abstain from voting for or against a given Proposal will adversely affect the
outcome of that Proposal.

VOTING OF PROXIES
- -----------------

The shares represented by all valid Proxies received will be voted in the
manner specified on the Proxies.

With respect to the election of directors, ANY VALID PROXY RECEIVED WHICH
IS EXECUTED BY THE SHAREHOLDER IN SUCH MANNER AS NOT TO WITHHOLD AUTHORITY TO
VOTE FOR THE ELECTION OF ALL NOMINEES OR ANY INDIVIDUAL NOMINEE SHALL BE DEEMED
TO GRANT AUTHORITY TO VOTE FOR ALL NOMINEES.

Where specified choices ( including abstentions) with respect to any given
Proposal are not indicated, THE SHARES REPRESENTED BY ALL VALID PROXIES RECEIVED
WILL BE VOTED FOR APPROVAL OF THAT PROPOSAL.

MANAGEMENT RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" PROPOSALS 1,2,3,4,
AND 5.

By Order of The Board of
Directors

/s/ Robert Oppenheimer
--------------------------------
Robert Oppenheimer, Secretary

CPAC, INC.
2364 LEICESTER ROAD, LEICESTER, NY 14481
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 7, 1996

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 7, 1996, at 11:00 A.M., EDT, 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, 3, 4, AND 5.

1. ELECTION OF DIRECTORS: Election of the directors listed below to serve
until the annual meeting of Shareholders in 1997 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, 1997.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. APPROVE INCREASE IN SHARES RESERVED UNDER EXECUTIVE LONG TERM STOCK
INVESTMENT PLAN: Approval to increase the aggregate number of shares of the
Company's $.01 par value Common Stock reserved for issuance under the Company's
Executive Long Term Stock Investment Plan from 350,000 shares to 950,000 shares.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. 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 10,000,000 authorized shares to
20,000,000 authorized shares.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. ADOPTION OF 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN: Approval of the
adoption by the Board of Directors of the 1996 Non-Employee Directors Stock
Option Plan.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IF NO CHOICE (INCLUDING ABSTENTIONS) IS SPECIFIED FOR A GIVEN
PROPOSAL, THIS PROXY WILL BE VOTED FOR THAT PROPOSAL.

----------------------------
Signature

----------------------------

DATED: , 1996 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