SCHEDULE 14A
------------
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-ll(c) or Section
240.14a-12
________________________________________________________________________________
- -------------------------------------------------------------------------------
CPAC, Inc.
(Name of Registrant as Specified In Its Charter)
_____________________________________________________________________________
- -------------------------------------------------------------------------------
Thomas J. Weldgen, Chief Financial Officer
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-ll(c)(l)(ii), 14a6(i)(1), or 14a6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a6(i)(3)[ ] Fee computed on table below per Exchange Act Rules 14a
- -6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies
________________________________________________
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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:
________________________________________________
------------------------------------------------
[ ] Fee paid previously with Preliminary Materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-ll(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
________________________________________________
------------------------------------------------
2) Form, Schedule or Registration Statement No.:
________________________________________________
3) Filing Party:
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________________________________________________
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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 11, 1999, at 11:00 A.M. E.D.T. for the following purposes:
1. To elect directors to serve until the next annual meeting of
Shareholders and until their successors are duly elected and qualified;
2. To ratify the appointment by The Board of Directors of
PricewaterhouseCoopers LLP as independent auditors of the Company for its fiscal
year ending March 31, 2000;
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 300,000 common shares, from 950,000 common shares
to 1,250,000 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
by 10,000,000 common shares, from 20,000,000 common shares to 30,000,000 common
shares.
5. To approve the grant of an option to a new director of the Company,
David P. Biehn, to purchase 15,000 shares of the Company's $.01 par value common
stock.
6. To transact any other business properly brought before the meeting or
any adjournments.
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 21, 1999 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 7, 1999
--------------------------------
ROBERT OPPENHEIMER, Secretary
<Page 1>
CPAC, INC.
2364 LEICESTER ROAD
LEICESTER, NEW YORK 14481
PROXY STATEMENT
---------------
DATE OF PROXY STATEMENT: JUNE 21, 1999
DATE OF MAILING: JULY 7, 1999
ANNUAL MEETING OF SHAREHOLDERS: AUGUST 11, 1999
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 its exercise at the Annual
Meeting by (i) giving written notice of revocation to the Vice-President,
Finance, (ii) properly submitting to the Company a duly executed Proxy bearing a
later date, or (iii) attending the Annual Meeting and voting in person.
Attendance at the Annual Meeting will not in and of itself revoke a Proxy. All
written notices of revocation and other communications with respect to
revocation of Proxies should be addressed as follows: Thomas J. Weldgen, Vice
President, Finance, 2364 Leicester Road, Leicester, New York 14481. Shares of
common stock represented by properly executed Proxies received at or prior to
the Annual Meeting and which have not been revoked will be voted in accordance
with the instructions indicated thereon. If no instructions are indicated on a
properly executed Proxy, such Proxies will be voted FOR each of the proposals
set forth in this Proxy Statement. 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 21, 1999 are entitled to vote at
the Annual Meeting. On that day 6,220,763 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 25,
Leicester, New York 14481, Attention: Thomas J. Weldgen, Vice President,
Finance.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
- ---------------------------------------------
Shareholders may present matters for consideration at the next Annual
Meeting either by having the matter included in the Company's own Proxy
Statement and listed on its Proxy Card or by conducting his or her own Proxy
solicitation. If the first alternative is elected, the Shareholder must be a
qualified Shareholder and must submit the proposal to the Company before
February 23, 2000. To be a qualified Shareholder, a Shareholder must have owned
at least $2,000 in market value of the Company's securities for at least one
year before the date of submission of the proposal to the Company. If the
second alternative is selected, management will retain discretionary authority
to vote properly executed Proxy Cards it receives on such matter unless the
Company has written notice of the intent of the Shareholder to present the
matter at the Annual Meeting and such notice is received by the Company before
May 26, 2000.
<Page 2>
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 six
nominees named below. Messrs. Hendrickson, Isaacs, Weldgen, Oppenheimer,
James, Jr. and Biehn are currently directors of the Company, with Messrs.
Hendrickson, Isaacs, Oppenheimer and James, Jr. having been elected at the
Annual Meeting of Shareholders in 1998. Mr. Weldgen and Mr. Biehn were elected
directors of the Company in accordance with applicable By-laws provisions at
regularly scheduled meetings of the Board held on October 13, 1998 and April 5,
1999, respectively. 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.
<TABLE>
<CAPTION>
PRINCIPAL SERVED AS
--------- ---------
NOMINEE OCCUPATION AGE DIRECTOR SINCE
- ------- ---------- --- --------------
<S> <C> <C> <C>
Thomas N. Hendrickson President and Chief 57 1969
(1) Executive Officer,
CPAC, Inc.
Robert C. Isaacs Senior Vice President and 59 1988
(2) Chief Operating Officer
CPAC, Inc.
Thomas J. Weldgen Vice President, Finance, 47 1998
(3) Chief Financial Officer
CPAC, Inc.
Robert Oppenheimer Attorney & Retired Senior 70 1969
(4) Partner, Chamberlain D'Amanda
Oppenheimer & Greenfield
Seldon T. James, Jr. Financial Consultant to 72 1972
(5) Corporations
David P. Biehn Retired Senior Vice President, 56 1999
(6) Eastman Kodak Company
</TABLE>
<Page 3>
NOTES:
- ------
(1) Mr. Hendrickson is Chairman of the Board and Treasurer of the Company.
He is also Chairman of the Board and Chief Executive Officer of Profit Recovery
Systems, Inc., Trebla Chemical Company, Allied Diagnostic Imaging Resources,
Inc., CPAC Europe N.V. and The Fuller Brush Company, Inc. He is Chairman of the
Board, President and Managing Director of CPAC Italia S.r.1. and CPAC Asia
Limited. He is President and Managing Director of CPAC Africa (Pty) LTD.
(2) Mr. Isaacs is a director of Trebla Chemical Company, Allied Diagnostic
Imaging Resources, Inc. and The Fuller Brush Company, Inc. He resigned as
Senior Vice President and Chief Acquisitions Officer in July, 1998 for family
reasons and rejoined the Company as Senior Vice President and Chief Operating
Officer on March 22, 1999.
(3) Mr. Weldgen joined the Company as Chief Financial Officer on March 2,
1992 and was appointed Vice President, Finance on April 5, 1998. Mr. Weldgen is
a director of CPAC Europe N.V., CPAC Italia S.r.l., CPAC Africa (Pty) LTD and
CPAC Asia Limited.
(4) Mr. Oppenheimer is Secretary to the Company and is a senior retired
partner 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., CPAC Italia S.r.l., CPAC Africa (Pty)
LTD and CPAC Asia Limited. Mr. Oppenheimer receives no compensation as director
or as Secretary of the Company or its subsidiaries. For the fiscal year ended
March 31, 1999, Mr. Oppenheimer's firm was paid $189,427.00 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. and CPAC
Asia Limited. He receives no compensation in such capacity.
(6) Mr. Biehn became a Director of the Company in April, 1999. Prior to
joining the Company, Mr. Biehn held key positions in the photo finishing,
professional, planning and marketing units of Eastman Kodak Company. From 1984
to 1989, Mr. Biehn served as General Manager of Marketing and Vice President of
Kodak, Japan. In 1991, he was named General Manager of the Professional
Photography Division, and was elected a Vice President of the company. In June
1993, Mr. Biehn was appointed General Manager of Consumer Imaging, and, in
September 1995, was elected a Senior Vice President of Kodak. He retired from
Kodak in February of 1998. A graduate of the University of Delaware, Mr. Biehn
holds a BA in history and an MBA in marketing.
<Page 4>
<TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT PRINCIPAL SHAREHOLDERS
---------------------------------
As of June 21, 1999, 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:
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) CLASS
____________________________________________________________________________________
<S> <C> <C>
Thomas N. Hendrickson 462,163 shares-outright
5 Simmons Road ownership; (2) 7.19%
Perry, New York 14530 36,764 shares attributable from
ownership by spouse .57%
Harvard Management 783,000 shares-outright
Company, Inc ownership; 12.19%
600 Atlantic Avenue
Boston, MA 02210
FMR Corporation 695,000 shares-outright
82 Devonshire Street ownership 10.82%
Boston, MA 02109
Turnco Family Partnership LLP 433,854 shares-outright
3900 Broadway ownership 6.7%
Great Bend, Kansas 67530
(1) Number of shares includes shares of the Company's common stock subject to options but only those shares which may be
purchased within sixty ( 60 ) days of June 21, 1999.
(2) Includes 23,437 shares which may be purchased through an option granted December 8, 1993 and 46,875 shares which may be
purchased through exercise of an option granted February 9, 1994 pursuant to the Company's 1991 Employees' Incentive Stock Option
Plan. Includes 110,000 shares which may be purchased through exercise of an option granted February 8, 1996, 17,250 shares which
may be purchased through exercise of an option granted on August 6, 1997 and 7,500 shares which may be purchased through exercise of
an option granted June 26, 1998, all pursuant to the Company's Executive Long Term Stock Investment Plan.
</TABLE>
<Page 5>
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
As of June 21, 1999, the Company's directors, its chief executive officer
and its five "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:
<TABLE>
<CAPTION>
NAME AMOUNT OF CLASS BENEFICIALLY OWNED(1) PERCENT
---- -------------------------------------- -------
<S> <C> <C>
Thomas N. Hendrickson, 498,927 shares (2) 7.56%
President, Chief Executive
Officer and Director
Robert C. Isaacs, 73,406 shares (3) 1.11%
Senior Vice President,
Chief Operating Officer
and Director
Thomas J. Weldgen 36,519 shares (4) .55%
Vice President, Finance,
Chief Financial Officer
and Director
Robert Oppenheimer 81,825 shares (4) 1.24%
Secretary and Director
Seldon T. James, Jr., 84,936 shares (6) 1.29%
Director
David P. Biehn no shares (7) 0%
Director
Wendy F. Clay, 27,581 shares (8) .42%
Vice President,
Administration;
President, CPAC, Inc.
Equipment Division
James W. Pembroke 20,218 shares (9) .31%
Chief Accounting Officer
All executive officers 823,412 shares (10) 12.48%
and directors
(eight persons)
</TABLE>
<Page 6>
(1) Number of shares includes shares subject to options but only those
shares which may be purchased within sixty ( 60 ) days of June 21, 1999.
(2) Includes 36,764 shares owned by Mr. Hendrickson's spouse. Includes
23,437 shares of the which may be purchased through exercise of an option
granted on December 8, 1993 and 46,875 shares 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. Includes 110,000 shares of the
Company's common stock which may be purchased through exercise of an option
granted on February 8, 1996, 17,250 shares which may be purchased through
exercise of an option granted on August 6, 1997 and 7,500 shares which may be
purchased through exercise of an option granted on June 26, 1998, all pursuant
to the Company's Executive Long Term Stock Investment Plan.
(3) Includes 2,000 shares which may be purchased through exercise of an
option granted on August 7, 1998 pursuant to the Company's NonEmployee Directors
Stock Option Plan. Includes 67,500 shares of the Company's common stock which
may be purchased through exercise of an option granted on February 8, 1996
(4) Includes 3,437 shares 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, 4,687 shares which may be purchased through an
option granted November 18, 1994, 4,375 shares which may be purchased through
exercise of an option granted October 20, 1995, 3,000 shares which may be
purchased through exercise of an option granted June 5, 1996, 5,000 shares which
may be purchased through exercise of an option granted June 24, 1997, 2,500
shares which may be purchased through exercise of an option granted April 15,
1998 and 2,500 shares which may be purchased through exercise of an option
granted June 26, 1998, all pursuant to the Company's Executive Long Term Stock
Investment Plan.
(5) Includes 10,000 shares which may be purchased through exercise of an
option granted on August 7, 1996, 3,000 shares which may be purchased through
exercise of an option granted on August 9, 1996, 3,000 shares which may be
purchased through exercise of an option granted on August 8, 1997, and 2,000
shares which may be purchased through exercise of an option granted on August 7,
1998, all pursuant to the Company's NonEmployee Directors Stock Option Plan.
(6) Includes 17,250 shares owned by Mrs. Seldon T. James, Jr. Includes
10,000 shares which may be purchased through exercise of an option granted on
August 7, 1996, 3,000 shares which may be purchased through exercise of an
option granted on August 9, 1996, 3,000 shares which may be purchased through
exercise of an option granted on August 8, 1997 and 2,000 shares which may be
purchased through exercise of an option granted on August 7, 1998, all pursuant
to the Company's NonEmployee Directors Stock Option Plan.
(7) Subject to the approval of the Shareholders as set forth in Proposal 5
to this Proxy Statement, 15,000 shares may be purchased in the future through
exercise of an option granted April 20, 1999.
(8) Includes 4,687 shares which may be purchased through exercise of an
option granted December 8, 1993 pursuant to the Company's 1991 Employees'
Incentive Stock Option Plan, 3,906 shares which may be purchased through
exercise of an option granted November 18, 1994, 3,125 shares which may be
purchased through exercise of an option granted October 20, 1995, 2,000 shares
which may be purchased through exercise of an option granted June 5, 1996, 3,000
shares which may be purchased through exercise of an option granted June 24,
1997 and 2,500 shares which may be purchased through exercise of an option
granted April 15, 1998, all pursuant to the Company's Executive Long Term Stock
Investment Plan. Ms. Clay was appointed President, of the CPAC Equipment
Division effective June 8, 1998.
<Page 7>
(9) Includes 7,031 shares which may be purchased through exercise of an
option granted October 6, 1993 pursuant to the Company's 1991 Employees'
Incentive Stock Option Plan, 1,562 shares which may be purchased through
exercise of an option granted November 18, 1994, 3,125 shares which may be
purchased through exercise of an option granted October 20, 1995, 2,000 shares
which may be purchased through exercise of an option granted June 5, 1996, 4,000
shares which may be purchased through exercise of an option granted June 24,
1997 and 2,500 shares which may be purchased through exercise of an option
granted June 26, 1998, all pursuant to the Company's Executive Long Term Stock
Investment Plan. Mr. Pembroke was named Chief Accounting Officer effective July
1, 1998.
(10) Includes 85,467 shares which may be purchased through exercise of
options granted pursuant to the Company's 1991 Employees' Incentive Stock Option
Plan. Includes 252,030 shares which may be purchased through exercise of
options granted pursuant to the Company's Executive Long Term Stock Investment
Plan. Includes 38,000 shares which may be purchased through exercise of options
granted pursuant to the Company's NonEmployee Directors Stock Option Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -------------------------------------------------------
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.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN
- ---------------------------------------
The NonEmployee Directors Stock Option Plan approved by the Shareholders
calls for the automatic grant of an option for 3,000 shares to each nonemployee
director elected at the Annual Meeting of Shareholders on the first Friday after
such Annual Meeting, at a price equal to the fair market value on such date.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
----------------------------------------------
The Board of Directors of the Company met twelve times during the fiscal
year ended March 31, 1999. For the 1999 fiscal year, each incumbent director
attended, either in person or by telephonic conference as permitted by the
Company's By-laws, over 90% of the total number of meetings held during the
period for which he was a director and 100% of the total number of meetings of
the committees of The Board on which he served during the period for which he
was a member of such committee(s). 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, 1999, Mr. James, Jr. was paid $31,000 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 two times in fiscal
year 1999, is composed of three directors, the majority of whom are not
officers, namely Messrs. Biehn, 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,
<Page 8>
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 two times
in fiscal 1999, is composed of three directors, the majority of whom are not
officers, namely Messrs. Biehn, James, Jr. 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 is composed of three directors, the majority of whom are not officers
of the Company, and all of whom are ineligible under the Company's Executive
Long Term Stock Investment Plan, namely Messrs. Biehn, James, Jr. and
Oppenheimer. For further information concerning the operation of the Executive
Long Term Stock Investment Committee and the Executive Long Term Stock
Investment Plan during fiscal 1999, see Page ___ 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 was automatically
extended for an additional one year on each of the first three anniversary
dates, provided that Mr. Hendrickson was in the employ of the Company on that
date. On June 2, 1998, the Board agreed to extend Mr. Hendrickson's employment
agreement so that the term will be automatically extended for an additional one
year on each anniversary date through September 20, 2003, provided that Mr.
Hendrickson is in the employ of the Company on each such anniversary 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
____ 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
<Page 9>
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 execise his qualified stock options.
EXECUTIVE COMPENSATION
----------------------
The following table sets forth certain information for the fiscal years
ended March 31, 1999, 1998 and 1997 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.
<TABLE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
<CAPTION>
(A) (B) (C) (D)(1) (E)(2)
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Thomas N. Hendrickson 1999 $382,212 $ - $6,300
President and Chief 1998 $370,519 $190,641 $5,880
Executive Officer 1997 $331,346 $417,638 $5,880
Robert C. Isaacs 1999 $185,000 $ - $1,900
Senior Vice President 1998 $264,881 $92,114 $4,020
and Chief Operating Officer 1997 $314,654 $289,710 $5,700
Thomas J. Weldgen 1999 $134,854 $ - $6,352
Vice President, Finance 1998 $120,288 $36,245 $6,235
and Chief Financial Officer 1997 $111,352 $81,049 $6,101
Wendy F. Clay 1999 $116,723 $2,728 $6,384
Vice President, Administration; 1998 $97,200 $23,881 $5,100
President, CPAC, Inc. Equipment 1997 $94,171 $53,798 $5,100
Division
James W. Pembroke 1999 $100,643 $ - $5,567
Chief Accounting 1998 $ - $ - $ -
Officer 1997 $ - $ - $ -
</TABLE>
<Page 10>
<TABLE>
<CAPTION>
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
- --------------------------- ---- ------ -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Thomas N. Hendrickson 1999 - 30,000 - 62,490
President and Chief 1998 - 34,500 - 68,475
Executive Officer 1997 - - - 114,225
Robert C. Isaacs 1999 - 0 - 4,800
Senior Vice President and 1998 - 25,000 - 4,750
Chief Operating Officer 1997 - - - 4,500
Thomas J. Weldgen 1999 - 17,000 - 4,800
Vice President, Finance and 1998 - 8,000 - 4,750
Chief Financial Officer 1997 - 3,000 - 4,500
Wendy F. Clay 1999 - 5,000 - 4,203
Vice President, Administration; 1998 - 3,000 - 4,430
President, CPAC, Inc. 1997 - 2,000 - 4,161
Equipment Division
James W. Pembroke 1999 7,000 - 3,676
Chief Accounting 1998 - - -
Officer 1997 - - -
</TABLE>
NOTES:
- ------
(1) See additional information on the Company's Incentive Compensation
Plan on Page ___ 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 ____ of this Proxy Statement.
<Page 11>
(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 - $4,800; Mr. Isaacs - $4,800;
Mr. Weldgen - $4,800; Ms. Clay - $4,203; and Mr. Pembroke - $3,676.
(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,
1999, the amount includible by Mr. Hendrickson in income was $790.
(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, 1999 the premium for such policy was approximately $6,100. The
amount accrued for the salary continuation agreement for the fiscal year ended
March 31, 1999 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 1999 fiscal
year. This amount was contributed to the Trust and part of this contribution
was used to continue funding a $325,000 variable, universal life insurance
policy on the life of Mr. Hendrickson with the Trust as the beneficiary thereof.
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; or upon his actual retirement or separation from service
due to total disability or his death. The Arrangement was modified by the Board
in June, 1998 to provide that all payments should be completed within five years
in the event of a change in control of the Company. 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, 1999, was
$50,000.
<Page 12>
Options The following table sets forth the details of options granted to the
--------
individuals listed in the Summary Compensation Table during fiscal year 1999.
<TABLE>
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Terms (2)
------------------------------------------------ --------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE
NAME AND PRINCIPAL OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION (3) (4)
POSITION GRANTED (1) FISCAL YEAR ($/SHARE) DATE 5% - ($) 10% -
----------------------------- ----------- -------------------- --------- ---------------- -------- -----
($)
- ---
<S> <C> <C> <C> <C> <C> <C>
Thomas N. Hendrickson 30,000 24.8% 9.94 6/26/2008 49,197 236,006
President & Chief
Executive Officer
Robert C. Isaacs 0
Senior Vice President
and Chief Operating
Officer
Thomas J. Weldgen 10,000 8.3% 11.50 4/15/2008 0 59,613
Vice President, Finance 7,000 5.8% 9.94 6/26/2008 11,479 55,068
and Chief Financial
Officer
Wendy F. Clay 5,000 4% 11.50 4/15/2008 0 29,807
Vice President
Administration;
President, CPAC, Inc.
Equipment Division
James W. Pembroke 7,000 5.8% 9.94 6/26/2008 11,479 55,068
Chief Accounting
Officer
</TABLE>
Options were granted under "Executive Long Term Stock Investment Plan" described
on Page ____ of this Proxy Statement and may be exercised at any time for a
period of ten years from date of grants.
NOTES TO OPTION/SAR GRANTS TABLE
(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.
<Page 13>
(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.
(3) Represents the potential appreciation of the options, determined by
assuming an annual compounding rate of appreciation of 5% per year over the
remaining term of the grants from March 31, 1999. The compound growth rate
for the April 15, 1998 grants is 55.4% for Mr. Weldgen and Ms. Clay. The
compound growth rate for the June 26, 1998 grants is 57.0% for Messrs.
Hendrickson, Weldgen, and Pembroke.
(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, 1999. The compound growth
rate for the April 15, 1998 grants is 136.8% for Mr. Weldgen and Ms. Clay.
The compound growth rate for the June 26, 1998 grants is 141.5% for Messrs.
Hendrickson, Weldgen, and Pembroke.
Options The following table shows information for the named executives
- -------
concerning exercises of options and SARs during fiscal 1999 and the number and
value of unexercised options and SARs held at March 31, 1999:
<TABLE>
OPTIONS/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 307,562 136,750 129,482 0
Robert C. Isaacs 3,906 20,365 67,500 - 0 0
Thomas J. Weldgen - - 17,999 22,500 7,886 0
Wendy F. Clay - - 15,242 5,500 10,754 0
James W. Pembroke - - 16,218 8,500 12,479 0
</TABLE>
NOTES TO OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
(1) Represents the difference between the option exercise price and the closing
market price for the Company's stock at March 31, 1999. The in-the-money
options at March 31, 1999, pertain to option grants at October of 1993,
December of 1993, and February of 1994, with exercise prices of $5.60,
$5.08 and 5.76, respectively. The closing market price for the Company's
stock at March 31, 1999, was $9.94.
<Page 14>
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 Executive Long Term Stock
Investment Committee, as appropriate, for specific actions in regard to such
matters. During fiscal 1999, the Compensation Committee was composed of Messrs.
James, Jr., Oppenheimer and Dr. Burton (until Dr. Burton's retirement in
October, 1998). Mr. Biehn was appointed to the Committee upon his election to
the Board in April, 1999.
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'
interests to those 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 in 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
<Page 15>
strive for exceptional results. The Company s 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 1999 will not be affected by IRC 162(m). It is also anticipated that
amounts paid by the Company to its executives in fiscal 2000 will not be
affected by IRC 162(m).
MR. HENDRICKSON'S 1999 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 1999.
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
Robert Oppenheimer
David P. Biehn
<Page 16>
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 1999, the Committee was comprised of
Messrs. James, Jr., Oppenheimer and Dr. Burton (until Dr. Burton's retirement in
October, 1998). Mr. Biehn was appointed to the Committee upon his election to
the Board in April, 1999.
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 __ 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 1999 LONG TERM STOCK INCENTIVE COMPENSATION
The stock awards made to Mr. Hendrickson in fiscal 1999 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
Robert Oppenheimer
David P. Biehn
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.
<Page 17>
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
CPAC, INC.
DESCRIPTION
- -----------
In the graph, the X-axis is represented by $0 to $280 and the Y-axis is
represented by the dates 03/31/94 through 03/31/99. 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 03/31/1999
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
---- ------------- ------------ ----------
03/31/94 100.000 100.000 100.000
04/29/94 97.619 98.701 97.702
05/31/94 90.476 98.943 96.950
06/30/94 95.890 95.324 92.215
07/29/94 99.486 97.281 94.637
08/31/94 129.451 103.483 101.091
09/30/94 133.753 103.219 101.363
10/31/94 139.778 105.246 104.315
11/30/94 130.138 101.755 100.904
12/30/94 127.728 102.040 101.006
01/31/95 138.573 102.622 100.662
02/28/95 144.598 108.050 105.851
03/31/95 135.560 111.254 109.594
04/28/95 132.548 114.759 113.529
05/31/95 126.523 117.721 116.131
06/30/95 153.635 127.261 126.727
07/31/95 147.610 136.617 136.396
08/31/95 162.672 139.388 138.185
09/29/95 174.722 142.593 141.294
10/31/95 177.735 141.771 139.848
11/30/95 162.672 145.102 142.475
12/29/95 170.204 144.330 140.783
01/31/96 162.672 145.044 141.802
02/29/96 167.191 150.566 148.092
03/29/96 171.710 151.062 147.869
04/30/96 171.710 163.591 162.197
05/31/96 184.513 171.103 170.336
06/28/96 154.388 163.389 160.891
07/31/96 154.388 148.818 144.548
08/30/96 150.623 157.157 152.643
09/30/96 171.333 169.178 164.940
10/31/96 192.044 167.308 161.931
11/29/96 207.106 177.652 171.678
<Page 18>
12/31/96 225.934 177.491 171.043
01/31/97 203.340 190.106 184.274
02/28/97 176.982 179.558 171.295
03/31/97 178.864 167.833 159.500
04/30/97 158.154 173.079 164.801
05/30/97 161.919 192.694 184.744
06/30/97 182.630 198.596 189.028
07/31/97 169.450 219.544 209.847
08/29/97 173.216 219.205 209.540
09/30/97 161.919 232.139 221.400
10/31/97 154.388 220.082 207.949
11/28/97 160.037 221.196 207.621
12/31/97 154.388 217.413 200.295
01/30/98 151.564 224.318 209.301
02/27/98 161.919 245.415 230.787
03/31/98 167.568 254.430 239.323
04/30/98 173.216 258.627 243.453
05/29/98 163.802 244.247 229.513
06/30/98 144.974 261.368 246.869
07/31/98 146.857 258.254 244.512
08/31/98 122.381 207.274 194.835
09/30/98 133.678 236.104 222.669
10/30/98 125.205 246.294 232.249
11/30/98 140.267 271.221 258.151
12/31/98 113.730 306.359 293.535
01/29/99 72.029 350.996 340.896
02/26/99 110.925 319.372 308.232
03/31/99 112.837 342.441 332.452
LEGEND
------
Symbol Total Returns Index for:
- ------ ------------------------
__..__.. CPAC, Inc.
______ Nasdaq Stock Market (US Companies)
_ _ _ _ Nasdaq Non-Financial Stocks
SIC 0100-5999, 7000-9999 US & Foreign
03/31/93 03/31/94 03/31/95 03/31/96 03/31/97 03/31/98
-------- -------- -------- -------- -------- --------
100.0 119.6 162.1 205.3 213.9 200.4
100.0 107.9 120.1 163.0 181.2 275.2
100.0 109.7 120.2 162.2 175.1 263.3
Notes:
- ------
Assumes $100 invested on April 1, 1993, in CPAC, Inc., Common Stock, and an
identical amount in both the NASDAQ U.S. and NASDAQ Non-Financial Indices. The
lines represent monthly index levels derived from compounded daily returns that
include all dividends. The indexes are reweighted daily, using the market
capitalization on the previous trading day.
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.
INCENTIVE COMPENSATION PLAN <Page 19>
- ---------------------------
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 or an employee, and
the employee is included in the Incentive Compensation Plan, the maximum
incentive bonus payable shall be dependent upon the employee's position within
the Company and shall be the following percentage of base pay:
CATEGORY PERCENT
-------------------------------------------------
Chief Executive Officer 75%
Senior Operating and Staff Executives 50%-60%
Key Management 30%-40%
Other Managers and Supervisors 20%
The Board 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 is 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
<Page 20>
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.
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%
<Page 21>
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, 1999, 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 $4,800 in the case of Mr.
Hendrickson, $4,800 in the case of Mr. Isaacs, $4,800 in the case of
Mr. Weldgen, $4,203 in the case of Ms. Clay and $3,676 in the case of Mr.
Pembroke. The total for all executive officers as a group was $22,279.
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, 1999, an average of 30 employees per
quarter purchased 2,930 shares of CPAC, Inc. common stock. The total cost to
the Company approximated $792. No executive officers participated in the
program.
<Page 22>
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 Annual Meeting, the firm of PricewaterhouseCoopers LLP
as independent accountants of the Company for the fiscal year ended March 31,
2000. PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP 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.
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
PricewaterhouseCoopers LLP as independent auditors of the Company for the fiscal
year ending March 31, 2000.
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 ("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 Stock Investment Plan was approved by the Company's
Shareholders at the Annual Meeting of Shareholders held on August 10, 1994. On
August 7, 1996, the Shareholders approved a 600,000 share increase in the number
of shares reserved under the Stock Investment Plan.
The salient features of the Stock Investment Plan are set forth on page 23
of this Proxy Statement.
On June 2, 1999 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 three
hundred thousand (300,000) shares, that is from the nine hundred fifty thousand
(950,000) shares previously reserved to one million two hundred fifty thousand
(1,250,000) shares. The recommendation is made since, as of the date of this
Proxy Statement, options and stock awards for seven hundred fifteen thousand
nine hundred and one (715,901) shares in the aggregate have
<Page 23>
been granted or made under the Plan, leaving only 234,099 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
300,000 shares, from 950,000 shares to 1,250,000 shares.
SALIENT FEATURES OF THE 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"). 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. Dr. Burton retired as a member of the Committee in
October, 1998 and David P. Biehn was appointed as a member of the Committee upon
his election to the Board in April, 1999.
<Page 24>
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/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;
<Page 25>
(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 only
while the optionee is an employee of the Company or within a three month period
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 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.
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
<Page 26>
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
<Page 27>
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 and the
extent to which the selling price exceeds or is less than the employee's basis
in the stock. The short-term rate is the same rate that is applied to a
taxpayer's ordinary income. The maximum long-term rate of 20% is generally
applicable to assets held for at least 12 months.
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, mid-term or short capital
<Page 28>
gain or loss (at the rates described above) will be recognized by the employee
to the extent the selling price exceeds or is less than the employee's basis in
the stock.
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 the short-term or long-term
rates described above. 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. The
Company is not allowed an income tax deduction until the recipient is required,
in accordance with gain or loss is recognized, the gain, if any, is taxed at
normal, ordinary tax rates, with a maximum rate of such rules, 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).
<Page 29>
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. The Company registered the 600,000
share increase with the Securities and Exchange Commission. Such registration
became effective on October 3, 1996, and remains in effect. It is anticipated
that as a result of such registrations, 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 21, 1999:
Options for 611,468 shares are outstanding, of which 399,718 are
currently exercisable and 96,000 were granted during the fiscal year ended March
31, 1999.
Options for 363,743 shares are outstanding for all executive
officers as a group, of which 252,030 are currently exercisable and 59,000 were
granted during the fiscal year ended March 31, 1999.
The market value of the securities underlying all options was
$4,662,443.
13,189 Restricted Performance Shares are currently outstanding,
of which 2,537 are outstanding for all executive officers as a group. None of
such Shares have vested.
The market value of Restricted Performance Shares was $100,566.
PRIOR INCENTIVE STOCK OPTION PLANS
- ----------------------------------
The Board of Directors established and the Shareholders at the Annual
Meeting in August, 1991 approved, 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 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 21, 1999:
Options for 104,433 shares are outstanding under the 1991 Plan, all of
which are currently exercisable. Options for 85,467 shares are outstanding
under the 1991 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 1991
Plan was $796,302.
<Page 30>
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 twenty million
(20,000,000) 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 21, 1999, ________________ ( ) common shares are issued and
outstanding. Further, options are outstanding pursuant to which the Company may
be called upon to issue additional shares, and ______________ ( )
shares are reserved for future option grants and/or stock awards under the Stock
Investment Plan. In addition, under the Shareholder Rights Plan executed by
the Board of Directors on March 19, 1999, the Company has reserved __________ (
) shares for issuance upon the happening of certain events as described in the
Rights Plan.
Consequently, there remain only _________________ ( )
shares (including Treasury shares) available for issuance and/or reissuance
without reference to the shares reserved for issuance under such Plans.
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 three hundred thousand (300,000)
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 June ___, 1999, 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 twenty million (20,000,000) common shares with $.01 par value to
thirty million (30,000,000) 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 that 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 twenty
million (20,000,000) authorized common shares, $.01 par value to thirty million
(30,000,000) authorized common shares, $.01 par value.
<Page 31>
PROPOSAL 5
----------
APPROVAL OF OPTION GRANT TO DAVID P. BIEHN
------------------------------------------
The Board of Directors of the Company granted to the Company's new
director, David P. Biehn, an option to purchase up to 15,000 shares of the
Company's $.01 par value common stock at an exercise price of $7.25 constituting
the fair market value of the Company's stock on April 20, 1999, the date of
grant. The term of the option is for a period of ten (10) years, that is from
April 20, 1999 until close of business on April 19, 2009.
Mr. Biehn's professional background and his relationship as a new director
of the Company is set forth on page ________ of this Proxy Statement.
Pursuant to the provisions of the Business Corporation Law of the State of
New York, because Mr. Biehn is a director of the Company, the grant of this
option to Mr. Biehn 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 that the Shareholders approve the grant of an option
to Mr. Biehn to purchase up to 15,000 shares of the Company's common stock at
the exercise price of $7.25 per share.
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.
<Page 32>
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
------------------------------
Robert Oppenheimer, Secretary
<Page 33>
CPAC, INC., 2364 LEICESTER ROAD, P.O. BOX 175, LEICESTER, NY 14481
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 11, 1999
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 Genesee River - Restaurant and Reception Center, 134 North
Main Street (Route 36), Mount Morris, New York 14510 on Wednesday, August 11,
1999, 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 THE YEAR 2000 AND UNTIL THEIR
SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
FOR ALL NOMINEES LISTED BELOW: (EXCEPT AS MARKED TO THE CONTRARY BELOW): [
]
WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW: [ ]
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, STRIKE A LINE THROUGH HIS NAME ON THE LIST BELOW:
THOMAS N. HENDRICKSON ROBERT C. ISAACS ROBERT OPPENHEIMER
SELDON T. JAMES, JR. THOMAS J. WELDGEN DAVID P. BIEHN
2. APPOINTMENT OF AUDITORS: RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP BY THE BOARD OF DIRECTORS AS INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING MARCH 31, 2000.
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 950,000 SHARES TO 1,250,000 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 20,000,000 AUTHORIZED SHARES TO
30,000,000 AUTHORIZED SHARES.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. TO APPROVE THE GRANT OF AN OPTION TO A NEW DIRECTOR OF THE COMPANY, DAVID
P. BIEHN, TO PURCHASE 15,000 SHARES OF THE COMPANY'S $.01 PAR VALUE COMMON
STOCK.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
CPAC, INC.
Annual Meeting Proxy - August 11, 1999
DATED:
19
- ------------------------------------------------------------------------------
99
- ------------------------------------------------------------------------------
Signature
<Page 34>
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Signature
Joint owners should each sign. Executors, trustees, guardians, corporate
officers, and other representatives should give title.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
