CPAC, Inc.'s Annual Meeting Speeches

August 13, 2003

This document contains edited transcripts of the presentations made by executives of CPAC, Inc. at its Annual Meeting held Wednesday, August 13th in Mt. Morris, NY.

The comments made at this Annual Meeting may contain forward-looking statements that are based on current expectations, estimates, and projections about the industries in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

Thomas N. Hendrickson
President and Chief Executive Officer

"Good morning everybody. Welcome to the 34th annual meeting of CPAC and the 22nd meeting CPAC became a public corporation in 1981. First I'd like to introduce the Board of Directors of CPAC… Mr. Robert Oppenheimer, who has been director since 1969; Dr. Jerry Zimmerman, a professor at the University of Rochester; Steve Carl, a new director and Chief Operating Officer of Clover Capital; and Tom Weldgen, our VP Finance and Chief Financial Officer. As usual, we'll get started with the business portion of the meeting. Mr. Oppenheimer..."

Robert Oppenheimer
Secretary, CPAC, Inc. Board of Directors

"I'm to remind you that the business portion of the meeting was to consider the reelection of Directors, the appointment of auditors, approval of amendments to corporate bylaws, and approval of a stock option for Mr. Carl as new director. You'll find the actual count on the election in our 10-Q for the September quarter. I will tell you that there were over four million shares represented in person or by proxy, and that we have a quorum here. All of the items submitted for approval were adopted by at least 90% of those voting. Mr. Weldgen will now give you the financial report."

Thomas J. Weldgen
VP Finance and Chief Financial Officer

"Thank you Bob. Good Morning everyone! This morning, we released our earnings report for our first quarter ended June 30, 2003 and we filed our Form 10-Q with the SEC. The full text of our earnings release and the tables of financial data were distributed to you a moment ago. We have copies of the 10-Q available and I encourage you to take one and read it carefully. Our Board of Directors and management are working very hard to embrace the many changes to corporate governance required by the Sarbanes-Oxley act and improved disclosure and accounting treatments required by the SEC.

"I am going to review some key points in the financial results for the quarter, and then I will highlight some additional financial information about the current conditions and outlook for the Company.

"Our sales for the quarter were $23.2 million compared to $24.6 million for the same quarter last year - a decline of 5.9%. But sales for the quarter ended March 31, 2003 were also $23.2 million, so total revenue has been flat for the most recent two quarters, continuing the depressed sales levels experienced over the last three quarters of our recent fiscal year ended March 31, 2003.

"Let me explain two factors that had impact on this quarter. The first, we view as short term in nature. On May 28, we announced our plans to combine our St. Louis, MO manufacturing plant into our Norcross, GA plant. These plans are moving forward quickly and we have already stopped manufacturing in St. Louis. This month, we will begin to physically move manufacturing equipment and we have already terminated a number of employees in connection with this restructuring. During the first quarter, we have recognized approximately $180,000 of expenses related to this plan or roughly $.02 per share. We have disclosed in our quarterly report, an estimate of approximately $1,350,000 of total costs relating to this restructuring. We anticipate annual savings of approximately $1.0 to $1.2 million after this plan is completed, primarily from the elimination of payroll and related benefits, and reduction in plant overheads. The move will also help our financial results through a more efficient usage of plant capacity.

"The second factor impacting this quarter relates to our investment in TURA AG, a German Imaging company, an investment previously disclosed in our financial reports. In April, we increased our investment in TURA. Last year we owned 19% and accounted for the investment on the cost method with no adjustments in our financial statements for the financial results of TURA. The increase now gives us a 40% ownership interest. The Generally Accepted Accounting Principles require that we change the method we used in the past to account for this investment. We must now use 'Equity' accounting, which means we will bring our percentage of the TURA results into our financial statements on a separate line item designated as 'Equity in income or loss of Affiliate'.

"In addition, the regulations required us to re-state last year's financial statements as if we had accounted for the 19% as an equity investment. Accordingly, we have recorded 19% of the TURA results for last year into our financial statements, and adjusted those results for the impacts of acquisition accounting and related allocation of purchase price to the underlying assets of TURA.

"Over the past several months, the TURA operations have also been impacted by the worldwide Imaging slowdown, and the strength of the Euro has hurt pricing for some of TURA's export markets. For the current quarter, the impact is an added expense of approximately $.02 per share. Later this morning, we will explain more about our plans for TURA and growth in our Imaging segment.

"The last page of the press release shows supplemental segment data for the Fuller Brands and Imaging segments, if you want to refer to it.

"For The Fuller Brands Segment, sales for the quarter were $14.4 million versus $15.0 million, down approximately 4.5%, primarily as a result of a decline in the Stanley Home Products' business. However, the current quarter sales are actually up when compared to our fourth quarter of the most recent fiscal year, for which we reported sales of $13.3 million. We remain committed to profitable expansion of this segment and Bob Gey will outline a number of significant growth initiatives and changes later this morning.

"In the Imaging Segment, sales for the quarter were $8.8 million, down from $9.6 million last year in the same quarter. The sales declines were largely a result of continued pricing and digital imaging impacts on the medical and dental Imaging markets, coupled with competitive pricing pressure for color Imaging products in the U.S.

"Gross profit margins in the Imaging segment were 37.8% of sales, versus 36.5% last year, but selling, administrative and engineering expenses are higher in relation to lower sales volumes. This relationship demonstrates why we are working hard to restructure the operations and reduce our excess plant capacity, headcount, and other overhead items.

"On a combined basis, we finish the quarter with $323,000 of net income or $0.07 per share. Comparing this to each of the last three quarters where we reported earnings of $0.10 per share, the primary difference is the $0.02 reduction caused by the equity accounting for our investment in TURA, and the $0.02 recognized in connection with our Imaging restructuring plan.

"This morning, the Board of Directors met and approved a dividend of $0.07 per share to holders of record at the close of business on August 22, 2003. This will be distributed on September 19, 2002. Our dividend represents an approximate 4 1/2 percent rate of return.

"Since beginning the fiscal year on April 1 with $9.9 million in cash, we invested an additional $1.3 million in TURA, expended $400,000 on new property and equipment, and retired debt of $33,000. We also distributed shareholder dividends of $346,000 and, at June 30, 2003, the Company had $8.2 million in cash, working capital of over $31.0 million, and the full $20.0 million available in our Corporate bank line of credit. We continue to have a strong balance sheet with excellent ability to leverage for growth, and a tangible book value per share of $9.16."

Wendy F. Clay
VP of Administration

"Good morning. Thank you once again for joining us, and for your interest in knowing more about what's happening at CPAC.

"Last year we introduced you to the 'Two Worlds' of CPAC, which symbolized our separate and distinct business segments - Imaging and Cleaning & Personal Care. Last year, in the Fiscal '02 annual report, we first presented strategies for each business segment. This year we expanded on that theme in the annual report by introducing you to segment management and allowing them to comment on the year and voice their direction for the future. Both senior leaders have been with the Company for over a year now and are in the process of developing their own strong management teams.

"The notion of team building leads me to talk this morning about one important initiative in corporate administration not mentioned in the annual report - that is, succession planning. And by that, of course, we mean finding and grooming the next generation of talent that will lead our Company through future challenges. In the past, CPAC has not had a uniform system in place that both evaluates employees and maps out a potential career path for them based on developing their individual skill sets. We realize how important this process is to the long term health and success of our organization, so last year we began focusing on putting a formal program in place.

"We started the process by creating a database of key employees to include their current skill sets, their education, and career aspirations. Senior management then critically reviewed each individual to provide a baseline for their development. We have now created standardized forms and specific learning or skill building plans that will be part of the new program. The intent going forward is to extend this program to all CPAC companies and to roll it down through all employee levels. Then, rather than simply serving as a succession plan for key managers, it will become a more comprehensive system for organizational development.

"In addition to a succession planning or career development program, over the last year there has been a strong focus on looking outside the organization to bring in new talent to address changing business conditions. Our markets are evolving and the challenges we face today require different competencies. As you know, we started at the top by bringing in new segment leaders who had proven skill sets in growth and profitability. They in turn are examining the capabilities of their teams to either develop or bring in the required expertise that will either launch us into new markets or develop a stronghold in our existing markets. Significant to this, in less than a year, Fuller Brands has completely replaced its senior management team to meet new market challenges head on. You'll hear more about this when Bob Gey speaks in a few minutes.

"Another example of looking outward for talent pertains specifically to the retail initiative at Fuller Brush. To gear up for doing business on a larger scale with retail stores, we needed to build competencies in marketing and sales, and in the support structures of manufacturing, purchasing, and logistics. We have brought in outside senior talent in all of these critical positions and we continue to search for additional candidates to support the growth initiatives Bob will talk about.

"In the Imaging segment, as opportunities for growth shift internationally, managers and leaders with global expertise are needed. Our strengthened partnership with TURA AG provides both depth and the competencies necessary to address the uniqueness of our overseas markets. Domestically, with markets shrinking, companies with strong manufacturing and customer service capabilities will be the survivors. The Imaging reorganization initiative allows us to utilize our best people and strongest talent to achieve manufacturing excellence, economies, and competitiveness.

"Looking across our organization today, we now have talented and experienced leadership as we continue to work on developing our bench strength within each division.

"Now on to another subject that is administered at the corporate level - our acquisition strategy. While we did not consummate a deal in FY '03, we did come closer than we have in many years, presenting several offers and entering into serious negotiations with companies whose strengths would complement ours.

"Unfortunately, the acquisition marketplace has become much more competitive with financial buyers aggressively seeking investment opportunities. These buyers are willing to accept lower projected returns on their investments just to keep their capital deployed, and so are active in the marketplace. From our perspective, with increased investor scrutiny and the new regulations on goodwill write off, we remain prudent with respect to the price we are willing to pay for any company. Are we discouraged? No, but we are committed in our resolve to find that right company or opportunity that will allow us to keep all our objectives in balance. On the bright side, as we have found in the past, while the acquisition of a business may not ultimately play out, often the process leads to strategic discussions regarding partnerships, joint ventures, or other manufacturing opportunities. We have explored several of those this year and expect to uncover more as our process and search continues.

"We still consider our acquisition program to be a strategic component for each business segment, but we will not compromise our success by overpaying for a company with synergies that may or may not materialize.

"Finally, I'd like to comment about our communications strategy. With our 'Two Worlds' approach, we created two missions, two visions, two strategies and one goal - value appreciation. To help achieve that goal, we agreed that our message had to be simplified such that it would be easier for the investment public to understand our story. Our segment leadership has developed their strategies, which they will update you on in a few moments.

"The question is: 'Has this new communication enhanced comprehension of our story?' What I can say is that, despite this challenging year, which included the goodwill write off of CTG, our stock price has remained stable. We believe that, as a result of our communication efforts, investors understand more easily the markets that we're in and how we are competing. Everyone knows that the climate today is difficult for public companies - especially those that are the size of CPAC. The disclosure and compliance regulations are more costly, more onerous, and more burdensome than ever before. It is essential that our direction and strategy be as clearly presented and defined as possible so investors feel confidence in their decisions.

"So with that, I'd like to now re-introduce to you Steve Baune who is the segment President for Imaging. You met and heard from Steve last year when he was fairly new to our organization. Steve came to us with extensive experience in Imaging from Kodak. He was also formerly the CEO of Coats - the world's largest manufacturer of threads. Steve's background with multinational companies has allowed him to focus with us on strategic worldwide Imaging opportunities for CPAC. We are truly delighted to have him as part of our team."

Steven E. Baune
President, CPAC Imaging, Worldwide

"Thanks, Wendy. It's been a year, as Wendy said, since I addressed this group among which I see many familiar faces and some new ones. I've had many pleasurable experiences and, by and large, it was a very exciting year. I'd like to cover three things with you this morning. First, we'll have a recap of last year. Next, we'll talk about a few of the things we've got going on in the U.S. and worldwide in this current year. Finally, we'll do a little prognostication and share some data captured from other industry sources. We have a bit of divergence in opinion about the health of the industry that I wanted to touch on.

"So first, relative to last year… I don't want to reiterate the numbers that Tom Weldgen went into because you've read many of those numbers yourselves, but we had a bit of a difficult time from a revenue point of view… sales were down 3%. But to add a parenthetical comment to that, although they were down 3%, it was down less than the prior two years, so our rate of decline hopefully has stopped. Also mentioned by Tom, our international business went up by 9% last year. That trend continues in the first quarter of this year which is also a positive, and we expect more and more good things from the international side of the equation.

"Unfortunately, even though six of our eight business units registered net increases in sales, the two big chemical manufacturing operations in the states were hit the hardest by the economy and also by the incursion of digital in a very mature market. And that has happened to folks at Kodak and Fuji, and in the medical and graphic arts markets, as well. We'll talk about our reaction to that in just a couple of minutes.

"I want to talk about what happened last year, and also about TURA. Tom alluded to the fact that the currency exchange basically wreaked havoc with TURA and it wasn't a 2 or 3 or 5 or even 10% challenge. The number, depending on how far you want to go back, is well into the 20% or higher range. To illustrate, a company may have 80% of its sales Euro based. Then you have this big currency swing and you have to sell those products to people, 80% of whom are buying in U.S. dollars. So all of a sudden, your price goes up by 20% to them. That's why we had a big challenge before us last year, and the same challenge is before us right now.

"One of the very positive things was accomplished with the help of some folks in Corporate Communications. When I joined the company its Imaging segment was comprised of eight different units, each of which had its own identity. For instance, a letterhead might have said 'Trebla Chemical Company' with 'a CPAC Company' in small letters underneath. In this first year, we've rebranded so all of these companies have primarily 'CPAC Imaging' as their name. We're creating brands underneath the company so that Trebla, for example, will become a CPAC Imaging brand. We're doing that around the world and making lots of progress. Even our Italian division, which has a strong existing brand franchise with Chimifoto Ornano in Italy and in its export markets, is helping out by making some modifications to their brand. What this spells out is a very nice strengthening and leveraging of our worldwide brand. We do have worldwide customers and our relationships continue to grow on a worldwide basis, alone and with TURA. I think having one face to show the world will be a big advantage for us.

"Now, to this current year, we basically have three major priorities. Number one is operational excellence. Number two is geographical expansion, and number three is maximizing the integration potential of TURA. Let's start with number one.

"Operation excellence means, primarily, making sure we're the most efficient operation we can be. In the U.S., our Trebla and Allied operations were becoming more and more efficient with more concentrated formulas requiring less and less space. Combine this with the economic problems and the digital incursion we, and other companies, are experiencing, and we just didn't need the capacity that was represented by those two plants. After exhaustive study, the Norcross plant was chosen to be the facility where we combined the operations. Very painful, but very necessary for the sake of shareholders and the remaining employees. As Tom mentioned, I believe we ceased production there last week, and in two weeks we'll be beginning chemical production in the Norcross facility for color products. We have well in excess of 16 weeks of product in inventory, and we're bringing over a little bit from Asia as well. We really don't need the Norcross plant to be in full production for awhile because we're well covered until the end of the year. We've got a good cushion and there should be no interruptions in customer service because of this move. But as I've said, it was a painful decision, but one with a short payback - basically a one-year payback, maybe a little longer - but it was absolutely the right thing to do.

"On the subject of operational excellence, we're also trying to bring all the units worldwide into more uniformity relative to their performance metrics. So we're trying to establish a set of metrics whether it applies to finished goods inventory, sales, or return on assets, you name it. We want a common set of numbers so we can look at a snapshot of the activity of the seven units that remain and review how are they doing this month - not on a one-quarter lag, but by the month - and we're making some good progress in that respect.

"The second initiative for this year, and we've made some progress on this already, involves geographic expansion in general. It's something we've been doing for quite a while. We've mentioned China, India, Russia, etc. The first thing we want to talk about right now is the big potential in China. I was there in February. Stan Gulbin, our President in Asia, has been to China several times, in fact just a few weeks ago, and I'm going again in two weeks. I hope to come back to the Board meeting in October with a presentation and recommendation. We're not going say the only thing we're interested in is buying a facility there. Certainly we're going to look at that, but we're also going to consider joint ventures, and at the possibility of renting from the Chinese government with some down payment on our part, etc. But only 20% of the households in China have cameras at all. So even if there is, as some people suggest, a jump by Asian cultures to go from no cameras directly to digital cameras, we think that a good portion of the 1.3 billion people that live in that country -- and certainly the several hundred million households -- view the traditional halide products as very attractive from a quality and price and service point of view. We're very impressed with what we see so far. We've got good reliable partners there to help us. We have to look at several other things relative to World Trade Organization. Entrance by China into that organization has influenced the finished good duties that are being charged by the government - now somewhere around 45%. If those don't persist, or they only drop to 5 -10%, some of our justification for a new plant might dissipate. But we would still want to participate in the country more aggressively, but maybe not build a manufacturing plant.

"Thirdly and finally, relative to this year, we need to put a big push on our relationship with TURA. They represent lots of potential to us relative to expanded distribution base. They broaden our portfolio and help us make the transition from a chemical company to a full portfolio company. You'll see on the display tables that TURA has many products they are helping us bring to the market, including 35mm film, TURA-branded single use cameras, private label single-use cameras, underwater cameras, multiple use cameras. We're also sourcing batteries very economically. So we can bring in a full portfolio of products, whether they be CPAC-branded, TURA-branded, or private labeled. We're looking forward to expanding that relationship with TURA - maximizing and leveraging it to derive the greatest value.

"As for our outlook for next year, I think you'll agree that we wouldn't be in this room if there weren't lots of opportunities left in the silver halide business. We've been trying to leverage those opportunities over the years with our model that has brought manufacturing overseas into Africa, Asia, Europe, etc. We've done that very well and very profitably. The next step is we're going to take that into China.

"One billion cameras are in use worldwide and another 65 million reusable cameras were sold last year. 400 million single use cameras were sold last year, making it a double-digit growth category in some countries but not all. I share the feeling of the pundits that I referred to earlier, and that is that the silver halide industry has many, many years of volume, albeit with different growth rates in different countries. We're trying to keep that business and grow our portfolio to get into digital products.

"TURA has some good digital products. We're going to experiment with possible variations of these. You may be aware of a new Kodak product… this is basically just a film camera with different packaging. The film is scanned, then written to a CD and somehow that is 'Plus Digital'. On the outside it is basically just a silver halide camera. We think we can do that also.

"This you may have seen in the Wall St. Journal. It's a Dakota digital single-use camera, and it's very interesting. This is being billed as a single-use camera but is actually a 2-megapixel $90 digital camera being sold in Wolfe Camera and Ritz Camera for $10.99. The camera is brought back, refurbished, and resold. They make their money on the prints made in a digital kiosk in retail stores. We're keeping our eye on digital opportunities and TURA can help us do that.

"Enough said on the Imaging side…I think there are lots of opportunities for us going forward, both in our traditional business and in digital opportunities that we can uncover in the future. Without further ado, I'd like to introduce Bob Gey, the President of Fuller Brands."

G. Robert Gey
President, Fuller Brands

"I'd first like to thank you for the opportunity to talk about the efforts and the results of the Fuller Brands team. The good news is, I'm your sixth speaker. The bad news is, I'm your sixth speaker.

"In Fiscal '03, Fuller Brands increased operating income 4% over last year and grew cash by $500,000 or 8% via improvements in controlling expenses and a 6-day reduction in receivables… this in an economy that continues to confound and confuse.

"We had to work through the chaotic and general distrust of business, a tough economy, a volatile political environment, residuals, and new affronts from 9/11. Suffice it to say business challenges were aplenty and it was perhaps not the best year for me to join a new company.

"However, being optimistic and seeing in Fuller Brush, initially -- and later in the Fuller Brands businesses -- great brands, quality products made in the USA, and above all CPAC leadership that has the reputation and demonstrates every day integrity and honorable dealings, I felt this was a situation ripe for change. I wanted to be a part of a successful transition to a growth enterprise.

"So, how did we do in '03… The Fuller Brands companies analyzed their respective businesses and developed executable three-year strategic business plans, and initiated major internal and acquisition growth programs. Corporately, all of the Fuller Brands segments became my accountability, and each division reorganized and restructured to position itself for growth. We also introduced 93 new or reformulated products. We are committed to deliver and always put the Company first.

"Now let's talk about specifics for each division. At Fuller Brush, sales were up 3%, and our Internet sales grew 16% to exceed $1.0 million annually. We launched a major project to evaluate the requirements for entering the professional upper end mass retail market. Additionally, Custom Brush was established as a standalone profit center with its own leader. We hired VP's of Sales & Marketing and Operations, and upgraded our manufacturing capabilities with investments in new equipment.

"Our numbers also reflect an extraordinary performance at QVC. In fact, be sure to tune in this Thursday, August 14th, at 11:00 a.m. for our next one-hour airing. We had 12 one-hour and 24 8-minute airings. In addition our relationship is broadening into QVC.com, QVC UK (which will have its first airing on September 10th), and opportunities in Germany and Japan. Four QVC kits - the Toilet Cleaner Kit, the Tile and Grout Cleaner Kit, the Fulsol Cleaner Kit and the Electrostatic Sweeper - represent 70% of our QVC sales. A total of 133,000 kits were sold last year.

"These are the key areas of concentration for FY '04: Our investigation into retail showed that Fuller can be a player in the high-end market, and we identified the key elements for success. A major piece was the redesign of our consumer goods packaging program, costing some $400,000 for the design of four-color pressure sensitive labeling and equipment for applying the labels.

"Bottles and labeling are just one step. We also need to merchandise effectively. Our concept is one of a 'cleaning center', a one-stop shop for one's cleaning needs or problems.

"Fuller's new web site is up and running with improved graphics, providing expanded customer service with online demos and options for our sales reps to maintain personal account information.

"We continue to strengthen the organization with key personnel realignments and additions as well as strategically placed capital investments, and a concentration on acquisitions or strategic alliances that make sense. We are focused on new products and an agility that will improve our speed to market. Some new product examples include: microfiber wet Swiffer-type mop with a battery operated dispenser for Fuller floor cleaner; a new disposable wipes line debuting with degreaser products; and entering a new market and increasing our competitiveness via the purchase of a new strip brush machine - an investment of a half million dollars

"For Stanley Home Products, the disappointing performance continued in FY '03. We saw sales decline $1.5 million or 11% compared to prior year, with net income 62% below prior year. To make a positive change in the direction of the business, a new President came on board a few weeks ago. Fernando Morthera has significant experience at managing and understanding the needs and requirements of a direct sales force.

"We have a new vision for Stanley's future, directed at providing solutions for any problem associated with the home environment. Hence, the tag line used with our direct sellers "Solutions for your Home - Success for you!" We recently launched myshp.com as an improvement in the way we communicate special offers, promotions, and other business news with our representatives. We now have the ability to enroll recruits on-line. There are enhanced online order and tracking capabilities and a host of efficient sales management tools. This site is also supporting ten new products recently introduced at Stanley's National Sales Convention.

"For Cleaning Technologies Group, sales declined 1.3% versus prior year, with Kmart down 14%. Traditional sales to distributors were up 3.2%. We introduced a new product line, the TRUMIX chemical dispensing system, which is making a real splash. In FY '03 it generated over $500,000 in sales, which is quite a feat in this industry.

"After further examining this business, it was concluded that a top management change was also required in this division and, as of Monday, we hired Doug Calvert as President. Doug has 25 years of commercial selling experience with companies such as Kimberly-Clark, Zep, and SC Johnson. This division has three great brands. Our new president's challenge is concentrating on channel diversification and driving orders across all lanes to level cycles, generating a consistently profitable business.

"So, where do we go from here? Our growth strategies for the segment include channel diversification - we need to spread our wings even more. Accelerated new product development to increase the speed with which we bring product to market. Cost reduction - we have a goal to eliminate $1million in costs from the segment in this fiscal year. Resource allocation - we need to continue to strengthen our infrastructure. And building enduring customer relationships - we need to do more to make the relationships stronger and longer lasting, and to exceed the expectations of our customers.

"Execution is complex and challenging. The Fuller Brands team enters 2004 with momentum and new management that will result in a significantly stronger CPAC now and in the future as we capitalize on the unlimited market opportunities before us."

Thomas N. Hendrickson
President and Chief Executive Officer

"Thank you, Bob. You've now heard from Corporate and from our Imaging and Fuller Brands segments. I'd like to comment on a few items that are important to you as shareholders.

"First is our Board of Directors. Seldon James, a director for 32 years, chose not to run for reelection this year. Seldon was a true visionary, for assisting in raising nearly 100% of the equity capital in CPAC. He will be dearly missed. He was part of the team that, in 1994, made the decision to diversify due to digital imaging. We established the 'Vision 2000' program in 1994 and then acquired The Fuller Brush Company, the Stanley Home Products license agreement, and Cleaning Technologies Group between 1994 and 1997. Seldon was an important part of these acquisitions and we will miss his advice.

"Our outside directors now have three different responsibilities. Bob Oppenheimer heads the Compensation Committee, Dr. Zimmerman is chairman of the Audit Committee, and Steve Carl is chair of the new Governance Committee. The Governance Committee is responsible for new directors and we hope to have one new outside director this year. Hopefully we will add a total of two outside directors before the end of our fiscal year in March 2004.

"I would also like to make mention of a very important focus Dr. Zimmerman has provided for us. He heads up the Audit Committee, recently focusing on the new Sarbanes-Oxley Act. Sarbanes-Oxley is something all companies must incorporate in their plans. Dr. Zimmerman took it not as a problem but as an opportunity to make the overall CPAC corporation -- the international company -- a better company for its shareholders. You can expect to see internal audit teams develop within the next year in advance of both SEC and Sarbanes-Oxley requirements. I know that Dr. Zimmerman did not anticipate the amount of time required as Chairman of the Audit Committee, so he's going to welcome new outside directors to sit on that committee with him.

"You heard about 'Two Worlds'. Last year we talked about 'two worlds' and were very excited about presenting them to you. But not everybody understands why we're presenting this type of information to the shareholders. In reality, we have a difficult story to tell. We really are in two separate businesses and shareholders and the investment community get confused on CPAC's core business. The Board of Directors and senior management decided that the best way is to make these two separate worlds as two independent operating entities. They operate now as two separate companies. The 'two worlds' are presented as a method of showing shareholders that we have the opportunity to build two businesses with both contributing to the overall objectives of CPAC in creating shareholder value.

"We have a goal of organic growth in both businesses. Organic growth requires good people. We've hired senior marketing executives to operate these two segments. Those two executives required senior marketing people in the business units. Bob Gey has brought in marketing executives to lead Stanley Home Products and Cleaning Technologies Group. CPAC will have nine subsidiaries after we consolidate Trebla into Allied operations. Each of those units now has a marketing executive at the top.

"I can say to you in absolute that neither of our two segment presidents has brought a major program to the Board of Directors for funding that has not yet been approved. Our Board doesn't look at opportunities as risks that are not going to achieve the objectives of the shareholders. Obviously we're taking risks. The acquisition of TURA is a significant risk. We see that risk as an opportunity for us to leverage all of our Imaging products into new channels of distribution. Steve Baune also has a commitment from the Board of Directors to look at China as an Imaging growth opportunity. If he shows positive return on invested capital to satisfy the Board, we will fund a China initiative. The same is true in our Fuller Brands segment for projects that would improve not only the ability to deliver better products to new markets, but also to lower the cost of our products so that we can compete with off-shore manufacture of brushes, mops, and other products. Not a single capital request has been brought to the Board of Directors where they did not review them and ultimately approve them, obviously after weighing all the risks versus the potential return."

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