SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant X
----
Filed by a Party other than the Registrant
----
Check the appropriate box:
Preliminary Proxy Statement Confidential, For Use of the
---- ---- Commission Only (as
X Definitive Proxy Statement permitted by Rule 14a-6(e)(2))
----
Definitive Additional Materials
----
Soliciting Material Under Rule 14a-12
----
CPI AEROSTRUCTURES, INC,
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
----
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
----
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
--------------------------------------------------------------------------
(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 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------
CPI AEROSTRUCTURES, INC.
200A EXECUTIVE DRIVE
EDGEWOOD, NEW YORK 11717
(631) 586-5200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 16, 2004
To the Shareholders of CPI Aerostructures, Inc.:
You are cordially invited to attend the annual meeting of shareholders of
CPI Aerostructures, Inc. to be held at the offices of our general counsel,
Graubard Miller, located at 600 Third Avenue, 32nd Floor, New York, New York
10016, on Wednesday, June 16, 2004, at 11:00 a.m., to consider and act upon the
following matters:
o To elect two Class III directors to serve for the ensuing three-year
period until their successors are elected and qualified; and
o To transact such other business as may properly come before the
meeting and any and all postponements or adjournments thereof.
Only shareholders of record at the close of business on May 5, 2004 will be
entitled to notice of, and to vote at, the meeting and any postponements or
adjournments thereof.
YOU ARE URGED TO READ THE ATTACHED PROXY STATEMENT, WHICH CONTAINS
INFORMATION RELEVANT TO THE ACTIONS TO BE TAKEN AT THE MEETING. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, YOU ARE EARNESTLY REQUESTED TO DATE, SIGN AND
RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ADDRESSED, POSTAGE-PREPAID
ENVELOPE. RETURNING A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE MEETING. YOU MAY REVOKE YOUR PROXY IF YOU SO DESIRE AT ANY TIME
BEFORE IT IS VOTED. WE WOULD GREATLY APPRECIATE THE PROMPT RETURN OF YOUR PROXY
AS THIS WILL ASSIST US IN PREPARING FOR THE MEETING.
By Order of the Board of Directors
Edward J. Fred, Secretary
Edgewood, New York
May 12, 2004
CPI AEROSTRUCTURES, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 16, 2004
----------
This proxy statement and the accompanying form of proxy is furnished to
shareholders of CPI Aerostructures, Inc. in connection with the solicitation of
proxies by our board of directors for use in voting at our annual meeting of
shareholders to be held at the offices of our general counsel, Graubard Miller,
located at 600 Third Avenue, 32nd Floor, New York, New York 10016, on Wednesday,
June 16, 2004, at 11:00 a.m., and at any and all postponements or adjournments.
This proxy statement, the accompanying notice of meeting of shareholders,
the proxy and the annual report to shareholders for the year ended December 31,
2003 are being mailed on or about May 12, 2004 to shareholders of record on May
5, 2004. We are bearing all costs of this solicitation.
WHAT MATTERS AM I VOTING ON?
You are being asked to vote on:
o To elect two Class III directors to serve for the ensuing three-year
period until their successors are elected and qualified; and
o any other business that may properly come before the meeting and any
and all postponements or adjournments.
WHO IS ENTITLED TO VOTE?
Holders of our common stock as of the close of business on May 5, 2004, the
record date, are entitled to vote at the meeting. As of that date, we had issued
and outstanding 5,350,030 shares of common stock, our only class of voting
securities outstanding. Each holder of our common stock is entitled to one vote
for each share held on the record date.
WHAT IS THE EFFECT OF GIVING A PROXY?
Proxies in the form enclosed are solicited by and on behalf of our board.
The persons named in the proxy have been designated as proxies by our board. If
you sign and return the proxy in accordance with the procedures set forth in
this proxy statement, the persons designated as proxies by the board will vote
your shares at the meeting as specified in your proxy.
If you sign and return your proxy in accordance with the procedures set
forth in this proxy statement but you do not provide any instructions as to how
your shares should be voted, your shares will be voted FOR the election of the
nominees listed below under Proposal 1.
If you give your proxy, your shares also will be voted in the discretion of
the proxies named on the proxy card with respect to any other matters properly
brought before the meeting and any postponements or adjournments. If any other
matters are properly brought before the meeting, the persons named in the proxy
will vote the proxies in accordance with their best judgment.
MAY I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
You may revoke your proxy at any time before it is exercised by:
o delivering written notification of your revocation to our secretary;
o voting in person at the meeting; or
o delivering another proxy bearing a later date.
Please note that your attendance at the meeting will not alone serve to
revoke your proxy.
WHAT IS A QUORUM?
A quorum is the minimum number of shares required to be present at the
meeting for the meeting to be properly held under our bylaws and New York law.
The presence, in person or by proxy, of a majority of the votes entitled to be
cast at the meeting will constitute a quorum at the meeting. A proxy submitted
by a shareholder may indicate that all or a portion of the shares represented by
the proxy are not being voted ("shareholder withholding") with respect to a
particular matter. Similarly, a broker may not be permitted to vote stock
("broker non-vote") held in street name on a particular matter in the absence of
instructions from the beneficial owner of the stock. The shares subject to a
proxy which are not being voted on a particular matter because of either
shareholder withholding or broker non-vote will not be considered shares present
and entitled to vote on that matter. These shares, however, may be considered
present and entitled to vote on other matters and will count for purposes of
determining the presence of a quorum if the shares are being voted with respect
to any matter at the meeting. If the proxy indicates that the shares are not
being voted on any matter at the meeting, the shares will not be counted for
purposes of determining the presence of a quorum. Abstentions are voted neither
"for" nor "against" a matter, but are counted in the determination of a quorum.
HOW MANY VOTES ARE NEEDED FOR APPROVAL OF THE ELECTION OF DIRECTORS?
The election of directors requires a plurality vote of the votes cast at
the meeting. "Plurality" means that the individuals who receive the largest
number of votes cast "FOR" are elected as directors. Consequently, any shares
not voted "FOR" a particular nominee, whether as a result of a direction of the
shareholder to withhold authority, abstentions or a broker non-vote, will not be
counted in the nominee's favor.
HOW DO I VOTE?
You may vote your shares in one of three ways: by mail, facsimile or in
person at the meeting. The prompt return of the completed proxy card vote will
assist us in preparing for the meeting. Date, sign and return the accompanying
proxy in the postage-prepaid envelope enclosed for that purpose. You can specify
your choices by marking the appropriate boxes on the proxy card. If you attend
the meeting, you may deliver your completed proxy card in person or fill out and
return a ballot that will be supplied to you.
2
If you wish to fax your proxy, please copy both the front and back of the signed
proxy and fax same to American Stock Transfer & Trust Co. at (718) 234-2287
(phone: (718) 921-8278).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table and accompanying footnotes set forth certain information as of
May 5, 2004, with respect to the ownership of our common shares by:
o each person or group who beneficially owns more than 5% of our common
shares,
o each of our directors,
o our chief executive officer and our other executive officers whose
total compensation exceeded $100,000 during the fiscal year ended
December 31, 2003, and
o all of our directors and executive officers as a group.
A person is deemed to be the beneficial owner of securities that can be
acquired by the person within 60 days from the record date upon the exercise of
warrants or options. Accordingly, common shares issuable upon exercise of
options and warrants that are currently exercisable or exercisable within 60
days of May 5, 2004 have been included in the table with respect to the
beneficial ownership of the person owning the options or warrants, but not with
respect to any other persons.
NAME AND ADDRESS SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT OF CLASS(2)
------------------- --------------------- -------------------
Arthur August(3) 704,694(4) 12.1%
Edward J. Fred(3) 403,434(5) 7.0%
Walter Paulick(3) 25,000 (6) *
Kenneth McSweeney(3) 28,334 (7) *
A. C. Providenti(3) 45,000 (8) *
Eric Rosenfeld(3) 944,334(9) 17.6%
Royce & Associates, LLC 364,900(10) 6.8%
1414 Avenue of the Americas
New York, NY 10019
All directors and executive 2,150,796(11) 34.2%
officers as a group (six persons)
------------------------------------
* Less than 1%.
(1) Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all common shares
beneficially owned by them, subject to community property laws, where
applicable.
3
(2) There are 5,350,030 shares currently issued and outstanding. Each person
beneficially owns a percentage of our outstanding common shares equal to a
fraction, the numerator of which is the number of common shares held by
such person plus the number of common shares that he can acquire within 60
days of May 5, 2004 upon the exercise or conversion of options, warrants or
convertible securities and the denominator of which is 5,350,030 (the
number of common shares currently outstanding) plus the number of shares he
can so acquire during such 60-day period.
(3) The business address of Messrs. August, Fred, Paulick, McSweeney,
Providenti and Rosenfeld is c/o CPI Aerostructures, Inc., 200A Executive
Drive, Edgewood, New York 11717.
(4) Includes 440,000 common shares that Mr. August has the right to acquire
upon exercise of options. Excludes an aggregate of 23,034 common shares and
options owned by Mr. August's adult children and step children, all of
which shares Mr. August disclaims beneficial ownership. Includes 3,000
common shares owned by Mr. August's wife.
(5) Includes 398,334 common shares that Mr. Fred has the right to acquire upon
exercise of options.
(6) Represents common shares that Mr. Paulick has the right to acquire upon
exercise of options.
(7) Includes 15,000 common shares that Mr. McSweeney has the right to acquire
upon exercise of options.
(8) Represents common shares that Mr. Providenti has the right to acquire upon
exercise of options.
(9) Represents (a) 46,000 common shares beneficially owned as joint tenants by
Mr. Rosenfeld and his wife; (b) 883,334 shares held by Crescendo Partners
II, L.P. Series L ("Crescendo Partners II"); and (c) 15,000 common shares
that Mr. Rosenfeld has the right to acquire upon exercise of options. Mr.
Rosenfeld is the senior managing member of the sole general partner of
Crescendo Partners II. Mr. Rosenfeld disclaims beneficial ownership of the
shares held by Crescendo Partners II, except to the extent of his pecuniary
interest therein.
(10) The information with respect to Royce & Associates, LLC ("Royce") is based
upon the Schedule 13G, dated January 29, 2004, filed by Royce with the
Securities and Exchange Commission.
(11) Includes an aggregate of 938,334 common shares that Messrs. August, Fred,
Paulick, McSweeney, Providenti and Rosenfeld have the right to acquire upon
exercise of outstanding options.
4
PROPOSAL 1:
ELECTION OF DIRECTORS
Our board of directors is divided into three classes with only one class of
directors being elected in each year and each class serving a three-year term.
The term of office of the first class of directors (Class I), consisting of
Kenneth McSweeney and A.C. Providenti, will expire at our annual meeting in
2005. The term of office of the second class of directors (Class II), consisting
of Walter Paulick and Eric Rosenfeld, will expire at our annual meeting in 2006.
The term of office of the third class of directors (Class III), consisting of
Arthur August and Edward J. Fred, will expire at this year's annual meeting.
Unless authority is withheld, the proxies solicited by our board of
directors will be voted "FOR" the election of Messrs. August and Fred. Our
management has no reason to believe that Messrs. August and Fred will not be
candidates or will be unable to serve. However, if either should become unable
or unwilling to serve as a director, the proxy will be voted for the election of
another person as shall be designated by the board of directors.
INFORMATION ABOUT DIRECTORS, NOMINEE AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
NAME AGE POSITION
---- --- --------
Arthur August(1) 69 Chairman of the Board of Directors
Edward J. Fred(1) 45 Chief Executive Officer, President,
acting Chief Financial Officer,
Secretary and Director
Walter Paulick(2)(3)(4) 57 Director
Kenneth McSweeney(2)(3)(4) 72 Director
A. C. Providenti(3) 66 Director
Eric Rosenfeld(1)(2)(4) 46 Director
KEY EMPLOYEE
------------
Frank Funicelli 61 Senior Vice President,
Business Development
------------------------------------------
(1) Member of strategic planning committee
(2) Member of compensation committee
(3) Member of audit committee
(4) Member of nominating committee
5
ARTHUR AUGUST, one of our founders, has been the chairman of the board of
directors since January 1980 and was our president until December 2001 and our
chief executive officer until December 2002. From 1956 to 1979, Mr. August was
employed by Grumman Corporation where he last held the position of deputy
director. Mr. August holds a certificate in Aeronautical Design from the Academy
of Aeronautics, a Bachelor of Science degree in Industrial Management from C. W.
Post College, a Masters degree in Engineering from New York University and is a
graduate of the Program for Management Development at the Harvard Graduate
School of Business.
EDWARD J. FRED has been an officer since February 1995. He was our
controller from February 1995 to April 1998, when he was appointed chief
financial officer, a position he held until June 2003. He was executive vice
president from May 2000 through December 2001 and was appointed to the position
of president in January 2002 and to the position of chief executive officer in
January 2003. He also has been our secretary and a director since January 1999
and has served as our acting chief financial officer since January 2004. For
approximately ten years prior to joining our company, Mr. Fred served in various
positions for the international division of Grumman, where he last held the
position of controller. Mr. Fred holds a Bachelor of Business Administration in
Accounting from Dowling College and an Executive Masters of Business
Administration from Hofstra University.
WALTER PAULICK has been a director since April 1992 and chairman of our
nominating committee since March 2004. Mr. Paulick is currently a self-employed
financial consultant. From 1982 to November 1992, Mr. Paulick was a vice
president of Parr Development Company, Inc., a real estate development company.
From 1980 to 1982, Mr. Paulick was employed by Key Bank, where he last held the
position of vice president. From 1971 to 1980, Mr. Paulick was a vice president
of National Westminster U.S.A. Mr. Paulick holds an associate degree in Applied
Science from Suffolk Community College and Bachelor of Business Administration
from Dowling College.
KENNETH MCSWEENEY has been a director since February 1998 and chairman of
our compensation committee since April 2003. Mr. McSweeney has been an
independent consultant to the aerospace industry since January 1995. From 1961
to 1995, Mr. McSweeney served in various management positions for Grumman, most
recently as the vice president of its Aerostructures Division and a director of
business development for the Mideast and gulf coast region. Mr. McSweeney has
extensive experience in aerostructures and logistics support products and is a
licensed professional engineer in New York State. He holds Bachelor and Master
of Science degrees in Electrical Engineering from the Polytechnic Institute of
Brooklyn and a Masters degree in Business Management from CW Post College. He
also completed the Executive Development Program at the Cornell School of
Business and Public Administration.
A. C. PROVIDENTI has been a director and chairman of our audit committee
since February 2003. Since 1984, Mr. Providenti has served as president of A.C.
Providenti & Associates, Ltd., a consulting and strategic advisory firm. From
1977 to 1984, Mr. Providenti served as senior vice president for finance and
administration and as an executive committee member for Northville Industries
Corp., a multinational petroleum storage, trading and distribution company. Mr.
Providenti holds a Bachelor's degree in Accounting from St. Francis College and
a Masters of Business Administration from Fordham University.
ERIC ROSENFELD has been a director and chairman of our strategic planning
committee since April 2003. Mr. Rosenfeld has been the president and chief
executive officer of Crescendo Partners, L.P. since 1998. Prior to forming
Crescendo Partners, Mr. Rosenfeld had been managing director at CIBC Oppenheimer
and its predecessor company Oppenheimer & Co., Inc. for fourteen years. He was
also chairman of the board of Spar Aerospace Limited from 1999 through 2001,
until its sale to L-3 Communications. Mr. Rosenfeld currently serves as a member
of the board of directors of AD OPT Technologies Inc. and Sierra Systems Group
Inc., two Canadian companies listed on the Toronto Stock Exchange. Mr. Rosenfeld
received a Masters of Business Administration from Harvard University and an
6
A.B. degree in economics from Brown University.
FRANK FUNICELLI has been with us since March 1988, serving as our Director
of Operations from 1988 to 1995, our Vice President of Operations from 1995 to
2002, our Vice President of Business Development from 2002 to December 2003 and
becoming our Senior Vice President, Business Development in January 2004. From
1977 to 1988, was employed by Fairchild Republic Company where he served as
Chief Industrial Engineer, Manufacturing Engineering Manager and Director of
Program Planning and Control. From 1966 to 1977, he was with Grumman Aerospace
where he served as Industrial Engineer, Manager of Manufacturing Planning and
Control and Program Planning and Resource Control Manager. Mr. Funicelli holds a
Bachelor of Science degree in Industrial Engineering from Pratt Institute and a
Master of Science in Management Engineering from C.W. Post College.
BOARD OF DIRECTORS COMPENSATION
We have created a compensation program for our non-employee directors.
Under this program, commencing on April 1, 2003, each such director received an
annual cash fee of $5,000 (paid quarterly) and was granted options to purchase
5,000 common shares. Effective January 1, 2004, the annual cash fee was
increased to $10,000 (payable quarterly) and the number of options was increased
to 10,000, which are granted to each such director on April 1st of each year.
Additionally, the chairman of the audit committee will be paid an additional
annual cash fee of $20,000 (payable quarterly) and be granted an additional
15,000 options and the chairman of the strategic planning committee will be paid
an additional cash fee of $10,000 payable quarterly. Our directors will continue
to be reimbursed for the reasonable expenses they incur in attending meetings.
BOARD OF DIRECTORS MEETINGS AND INFORMATION
Our board of directors held five meetings in 2003 and acted by unanimous
written consent on two occasions. All directors attended the 2003 annual
shareholder meeting. Although we do not have any formal policy regarding
director attendance at annual shareholder meetings, we attempt to schedule our
annual meetings so that all of our directors can attend. In addition, we expect
our directors to attend all board and committee meetings and to spend the time
needed and meet as frequently as necessary to properly discharge their
responsibilities. No member of our board of directors attended fewer than 75% of
the total number of meetings of the board and committees thereof upon which he
served during 2003. We have standing compensation, audit, nominating and
strategic planning committees.
COMPENSATION COMMITTEE INFORMATION
Our compensation committee is currently comprised of Messrs. McSweeney
(chairman), Paulick and Rosenfeld. The main role of the compensation committee
is to review and approve the compensation that we pay to our officers. The
compensation committee held three meetings during 2003.
STRATEGIC PLANNING COMMITTEE INFORMATION
Our strategic planning committee is currently comprised of Eric Rosenfeld
(chairman), Arthur August and Edward J. Fred. The main role of the strategic
planning committee is to evaluate and analyze strategic options for the company,
including potential merger or acquisition partners. The strategic planning
committee did not hold any meetings during 2003.
7
NOMINATING COMMITTEE INFORMATION
In March 2004, the board of directors established a nominating committee
comprised of Messrs. Paulick (chairman), McSweeney and Rosenfeld, each an
independent director under the American Stock Exchange listing standards. The
nominating committee will be responsible for overseeing the selection of persons
to be nominated to serve on our board of directors. The nominating committee
will consider persons identified by its members, management, shareholders,
investment bankers and others. The nominating committee does not yet have a
formal written charter, nor has it established any formal selection criteria for
nominees. However, the nominating committee intends to adopt a written charter
by the date of the annual meeting, which will include the criteria, if any,
established. We have not yet established a method by which shareholders may
propose to the nominating committee candidates for selection as nominees for
directors. We intend to establish such a procedure by the date of the annual
meeting.
Since the nominating committee was not formed until March 2004, it did not
meet during the fiscal year ended December 31, 2003.
AUDIT COMMITTEE INFORMATION AND REPORT
GENERAL
Our audit committee is currently comprised of Messrs. Providenti
(chairman), McSweeney and Paulick. All of the members of the audit committee are
"independent directors" and are "financially literate" as defined under the
American Stock Exchange listing standards. The current Amex listing standards
define an "independent director" generally as a person, other than an officer of
the company, who does not have a relationship with the company that would
interfere with the director's exercise of independent judgment. The Amex's
listing standards define "financially literate" as being able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement and cash flow statement.
FINANCIAL EXPERT ON AUDIT COMMITTEE
The board of directors believes that Mr. Providenti is an "audit committee
financial expert" (as defined in Regulation 228.401(e)(1)(i)(A) of Regulation
S-B). The board of directors also believes that Mr. Providenti would be
considered an "independent" director under Item 7(d)(3)(iv) of Schedule 14A of
the Securities Exchange Act of 1934.
MEETINGS AND ATTENDANCE
During the fiscal year ended December 31, 2003, the audit committee met ten
times.
8
INDEPENDENT AUDITOR'S FEES
2003 2002
---- ----
Audit Fees(1) $164,261 $127,359
Audit-Related Fees -0- -0-
Tax Fees(2) $ 29,024 $ 19,205
All Other Fees -0- -0-
-------- --------
Total $193,285 $146,564
--------------------------
(1) Represents the aggregate fees billed for professional services rendered by
our principal accountant for the audit of our annual financial statements
for the years ended December 31, 2003, and December 31, 2002 and review of
financial statements included in our quarterly reports on Form 10-QSB or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those periods. There
were no additional fees billed by our principal accountant during the years
ended December 31, 2003 and 2002.
(2) Represents the aggregate fees billed for professional services rendered by
a company aligned with our principal accountant for tax compliance, tax
advice and tax planning for the years ended December 31, 2003 and 2002.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
In accordance with Section 10A(i) of the Securities Exchange Act of 1934,
before we engage our independent accountant to render audit or non-audit
services, the engagement is approved by our audit committee. Our audit committee
approved all of the fees referred to in "Independent Auditor's Fees" above for
2003.
AUDIT COMMITTEE REPORT
According to our audit committee's written charter, which was adopted on
March 30, 2000, as amended and restated on March 26, 2003, our audit committee's
responsibilities include, among other things:
o reviewing and discussing with management and the independent auditor
the annual audited financial statements, and recommend to the board
whether the audited financial statements should be included in our
Form 10-KSB;
o discussing with management and the independent auditor significant
financial reporting issues and judgments made in connection with the
preparation of our financial statements;
o discussing with management and the independent auditor the effect on
our financial statements of (i) regulatory and accounting initiatives
and (ii) off-balance sheet structures;
o discussing with management major financial risk exposures and the
steps management has taken to monitor and control such exposures,
including our risk assessment and risk management policies;
9
o reviewing disclosures made to the audit committee by our chief
executive officer and chief financial officer during their
certification process for our Form 10-KSB and Form 10-QSB about any
significant deficiencies in the design or operation of internal
controls or material weaknesses therein and any fraud involving
management or other employees who have a significant role in our
internal controls;
o verifying the rotation of the lead (or coordinating) audit partner
having primary responsibility for the audit and the audit partner
responsible for reviewing the audit as required by law;
o reviewing and approving all related-party transactions;
o inquiring and discussing with management our compliance with
applicable laws and regulations;
o pre-approving all audit services and permitted non-audit services to
be performed by our independent auditor, including the fees and terms
of the services to be performed;
o appointing or replacing the independent auditor;
o determining the compensation and oversight of the work of the
independent auditor (including resolution of disagreements between
management and the independent auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report or related
work; and
o establishing procedures for the receipt, retention and treatment of
complaints received by us regarding accounting, internal accounting
controls or reports which raise material issues regarding our
financial statements or accounting policies.
Management has reviewed the audited financial statements in the annual
report with the audit committee including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant accounting judgments and estimates, and the clarity of disclosures
in the financial statements. In addressing the quality of management's
accounting judgments, members of the audit committee asked for management's
representations and reviewed certifications prepared by the chief executive
officer and chief financial officer that the unaudited quarterly and audited
consolidated financial statements of the company fairly present, in all material
respects, the financial condition and results of operations of the company.
In performing all of these functions, the audit committee acts only in an
oversight capacity. The committee reviews our annual reports and generally
reviews our quarterly reports prior to filing with the Securities and Exchange
Commission. In its oversight role, the audit committee relies on the work and
assurances of our management, which has the primary responsibility for financial
statements and reports, and of the independent auditors, who, in their report,
express an opinion on the conformity of our annual financial statements to
generally accepted accounting principles. Our audit committee meets and holds
discussions with management and our independent auditors. Management represented
to the committee that our consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the committee has
reviewed and discussed the consolidated financial statements with management and
the independent auditors. The committee discussed with the independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit
10
Committees). Our independent auditors also provided the audit committee with the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and the committee discussed
with the independent auditors and management the auditors' independence,
including with regard to fees for services rendered during the fiscal year and
for all other professional services rendered by our independent auditors. In
reliance on these reviews and discussions and the report of the independent
auditors, the audit committee has recommended to the board of directors, and the
board has approved, that the audited consolidated financial statements be
included in our annual report on Form 10-KSB for the fiscal year ended December
31, 2003, for filing with the Securities and Exchange Commission.
A.C. Providenti
Walter Paulick
Kenneth McSweeney
CODE OF ETHICS
In March 2004, our board of directors adopted a written code of ethics that
applies to our directors, officers and employees. A copy of our code of ethics
has been filed as an exhibit to our Annual Report on Form 10-KSB for the year
ended December 31, 2003. Requests for copies of our code of ethics should be
sent in writing to CPI Aerostructures, Inc., 200A Executive Drive, Edgewood, New
York 11717, Attention: Corporate Secretary.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to us during the fiscal years ended December 31,
2003, 2002 and 2001, by our chief executive officer and our other executive
officers whose total compensation exceeded $100,000 ("Named Executive
Officers").
--------------------------------------------------------------------------------
LONG-TERM COMPENSATION
SECURITIES UNDERLYING
NAME/POSITION YEAR SALARY BONUS OPTIONS/SARS(#)
------------- ---- ------ ----- ---------------
Arthur August 2003 $126,612 $184,000 -0-
Chairman (1) 2002 $317,237 $180,660 85,000
2001 $303,180 -0- 100,000
Edward J. Fred 2003 $228,242 $174,800 -0-
Chief Executive Officer 2002 $209,287 $90,330 100,000
President and acting 2001 $139,256 -0- 100,000
Chief Financial Officer
--------------------------------------------------------------------------------
(1) Mr. August was our Chief Executive Officer until December 31, 2002, at
which time Mr. Fred was appointed to the position of Chief Executive
Officer.
OPTION GRANTS IN 2003
None of our Named Executive Officers were granted options during the fiscal
year ended December 31, 2003.
11
AGGREGATED OPTION EXERCISES AND OPTION VALUES
--------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options Exercisable/ ($)Exercisable/
Acquired on Value Unexercisable at Unexercisable
Name Exercise(#) Realized December 31, 2003 At December 31, 2003
---- ----------- -------- ----------------- --------------------
Arthur August -0- -0- 500,000/0 $4,182,600/0
Edward J. Fred -0- -0- 398,334/0 $3,426,020/0
--------------------------------------------------------------------------------
EMPLOYMENT AGREEMENTS
Mr. August serves as the chairman of our board and Mr. Fred serves as our
chief executive officer, president, acting chief financial officer and
secretary. Mr. August's employment agreement expires on December 31, 2004 and
Mr. Fred's expires on December 31, 2005. Mr. August's annual base salary is
currently $100,000. Mr. August is required to devote only such time to our
business as he, in his sole discretion, deems necessary. Mr. Fred's annual base
salary is currently $233,280 and will increase by 8% on January 1, 2005. In
addition to the base salary, Mr. August received a bonus equal to 4% of our net
income for the year ended December 31, 2002; 3% for the year ended December 31,
2003; and will receive 2% for the year ending December 31, 2004. Mr. Fred
received a bonus equal to 2% of our net income for the year ended December 31,
2002; 3% for the year ended December 31, 2003; and will receive 4% for the years
ending December 31, 2004 and 2005. Pursuant to the terms of Messrs. August's and
Fred's employment agreements, if a change of control (as such term is defined in
the agreements) occurs prior to a termination by CPI without "cause" or by the
employee for "good reason" (as such terms are defined in the agreements), we
must pay the employee a lump sum equal to three times the total compensation
(including salary and bonus) earned by him during the last full calendar year of
their employment.
Mr. August agreed that he would not compete with us during the term of his
employment with us and for a period of five years thereafter. As consideration
for his agreement not to compete with us for an extended period of time, we
agreed to pay Mr. August $300,000 in five, equal annual installments of $60,000
commencing on the date of termination. Mr. Fred agreed not to compete with us
during the term of his employment and for a period of two years thereafter.
EMPLOYEE BENEFIT PLANS
In October 2000, we adopted the Greit Plan for the purpose of offering
senior management a deferred compensation death benefit plan that would provide
a tax-free benefit for senior management and which would be tax-neutral to us.
Pursuant to the plan, we made a non-interest bearing loan to Arthur August in
the amount of $150,000, which Mr. August used to purchase a Greit Plan. This
plan has since been terminated and the surrender value of the Greit Plan has
been returned to Mr. August. Mr. August has placed the proceeds from the
surrender value in an annuity in our name. The annuity is expected to have a
value of $150,000 in September 2011 and such proceeds will be used to repay the
loan. In addition, Mr. August assigned to us an insurance policy on his life in
the amount of $150,000 and agreed to maintain it until the date upon which the
annuity matures. Accordingly, the loan to Mr. August will be repaid upon the
maturity date of the annuity or upon the death of Mr. August, whichever occurs
first.
12
STOCK OPTIONS
PERFORMANCE EQUITY PLAN 2000
The Performance Equity Plan 2000 authorizes the grant of 830,000 stock
options, stock appreciation rights, restricted stock, deferred stock, stock
reload options, and other stock based awards. As of May 5, 2004, there were
outstanding options to purchase an aggregate of 680,750 common shares at
exercise prices ranging from $1.20 to $10.00 per share and options to purchase
50,000 common shares remained available for grant.
1998 PERFORMANCE EQUITY PLAN
The 1998 Performance Equity Plan authorizes the grant of 463,334 stock
options, stock appreciation rights, restricted stock, deferred stock, stock
reload options, and other stock based awards. As of May 5, 2004, there were
outstanding options to purchase an aggregate of 246,334 common shares at
exercise prices ranging from $2.53 to $6.35 per share and options to purchase
35,666 common shares remained available for grant.
1995 STOCK OPTION PLAN
The 1995 Employee Stock Option Plan authorizes the grant of 200,000 stock
options and stock appreciation rights. As of May 5, 2004, there were outstanding
options to purchase an aggregate of 86,667 common shares at exercise prices
ranging from $6.27 to $6.97 per share and options to purchase 73,810 common
shares remained available for grant.
1992 EMPLOYEE STOCK OPTION PLAN
The 1992 Employee Stock Option Plan authorized the grant of 83,334 options.
As of May 5, 2004, there were outstanding options to purchase 41,002 shares at
exercise prices ranging from $2.59 to $6.27 per share. No more shares may be
granted under this plan.
OTHER OPTIONS
On February 19, 2003, we granted EarlyBirdCapital, Inc. (and its designees)
five-year warrants to purchase an aggregate of 200,000 common shares as
compensation for acting as underwriter for our February 2003 public offering.
The exercise price of the warrants is $4.40 per share.
On December 31, 1999 and February 1, 2002, we granted to John Aneralla, the
stepson of Arthur August, five-year non-plan options to purchase 15,000 and
5,000 common shares, respectively, as compensation for consulting services. The
exercise prices of the options are $2.53 and $1.65, respectively, the fair
market value of our common shares on the date of grant of the options.
13
Equity Compensation Plan Information
The following table sets forth certain information at December 31, 2003
with respect to our equity compensation plans that provide for the issuance of
options, warrants or rights to purchase our securities.
-------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN THE FIRST COLUMN)
------------- ------------------- ------------------- ------------------------------
EQUITY COMPENSATION
PLANS APPROVED BY
SECURITY HOLDERS 1,114,752 $3.84 164,476
EQUITY COMPENSATION
PLANS NOT APPROVED BY
SECURITY HOLDERS(1) 220,000 $3.85 -0-
-------------------------------------------------------------------------------------------------------------------
(1) See "Stock Options - Other Options" for a description of these plans.
CERTAIN TRANSACTIONS
For information concerning employment agreements with, compensation of, and
stock options granted to our executive officers and directors, see "Executive
Compensation - Employment Agreements" and "- Stock Options."
Prior to our February 2003 public offering, Ralok, Inc. had the right to
acquire 333,334 of our common shares by converting a promissory note it received
in connection with our purchase of Kolar Machine, Inc. in the principal amount
of $4 million. Accordingly, Mr. Liguori, the President of Ralok, was deemed the
beneficial owner of 10.6% of our common shares. On February 19, 2003, with the
proceeds we received from our public offering, we purchased the $4 million
convertible promissory note (which had accrued interest in the amount of
$1,131,233 at such date) for $2,700,000 and at that date Mr. Liguori ceased to
be deemed a beneficial owner of 10.6% of our common shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who own more than ten percent of a registered class of our
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and ten percent
shareholders are required by regulation to furnish us with copies of all Section
16(a) forms they file. Based solely on copies of such forms received or written
representations from certain reporting persons that no Form 5s were required for
those persons, we believe that, during the fiscal year ended December 31, 2003,
all filing requirements applicable to our officers, directors and greater than
ten percent beneficial owners were complied with, except that Arthur August, our
chairman of the board, filed one Form 4 late, which Form 4 reported one
transaction.
14
INDEPENDENT AUDITOR
A representative of Goldstein Golub Kessler LLP, our auditors for the year
ended December 31, 2003, is expected to be present at the meeting. The
representative will have the opportunity to make a statement and will be
available to respond to appropriate questions from shareholders. The board of
directors has selected the independent accounting firm of Goldstein Golub
Kessler LLP as our auditors for the year ending December 31, 2004.
SOLICITATION OF PROXIES
The solicitation of proxies in the enclosed form is made on behalf of our
board of directors and we are bearing the cost of this solicitation. In addition
to the use of the mails, proxies may be solicited personally or by telephone
using the services of directors, officers and regular employees at nominal cost.
Banks, brokerage firms and other custodians, nominees and fiduciaries will be
reimbursed by us for expenses incurred in sending proxy material to beneficial
owners of our common stock.
2005 ANNUAL MEETING SHAREHOLDER PROPOSALS AND NOMINATIONS
In order for any shareholder proposal or nominations to be presented at the
annual meeting of shareholders to be held in 2005 or to be eligible for
inclusion in our proxy statement for such meeting, we must receive it at our
principal executive offices by January 13, 2005. Each proposal should include
the exact language of the proposal, a brief description of the matter and the
reasons for the proposal, the name and address of the shareholder making the
proposal and the disclosure of that shareholder's number of shares of common
stock owned, length of ownership of the shares, representation that the
shareholder will continue to own the shares through the shareholder meeting,
intention to appear in person or by proxy at the shareholder meeting and
material interest, if any, in the matter being proposed.
We have not yet established a method by which shareholders may propose to
the nominating committee candidates for selection as nominees for director. We
intend to establish such a procedure by the date of the annual meeting.
OTHER SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
The board of directors provides a process for shareholders and interested
parties to send communications to the board. Shareholders and interested parties
may communicate with the board of directors, any committee chairperson or the
non-management directors as a group by writing to the board or committee
chairperson in care of CPI Aerostructures, Inc., 200A Executive Drive, Edgewood,
New York 11717. Each communication will be forwarded, depending on the subject
matter, to the board, the appropriate committee chairperson or all
non-management directors.
15
DISCRETIONARY VOTING OF PROXIES
Pursuant to Rule 14a-4 promulgated by the Securities and Exchange
Commission, shareholders are advised that our management will be permitted to
exercise discretionary voting authority under proxies it solicits and obtains
for the 2005 annual meeting of shareholders with respect to any proposal
presented by a shareholder at such meeting, without any discussion of the
proposal in our proxy statement for such meeting, unless we receive notice of
such proposal at our principal office in Edgewood, New York, not later than
March 29, 2005.
INCORPORATION BY REFERENCE
This proxy statement incorporates by reference certain information included
in our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003,
including our audited financial statements and supplementary data, management's
discussion and analysis of financial condition and results of operations and our
quantitative and qualitative disclosures about market risk.
OTHER MATTERS
The board of directors knows of no matter that will be presented for
consideration at the meeting other than the matters referred to in this proxy
statement. Should any other matter properly come before the meeting, it is the
intention of the persons named in the accompanying proxy to vote the proxy in
accordance with their best judgment.
Edward J. Fred, Secretary
Edgewood, New York
May 12, 2004
16
CPI AEROSTRUCTURES, INC. - PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING TO BE HELD ON JUNE 16, 2004
The undersigned shareholder(s) of CPI AEROSTRUCTURES, INC., a New York
corporation ("Company"), hereby appoints Arthur August and Edward J. Fred,
or either of them, with full power of substitution and to act without the
P other, as the agents, attorneys and proxies of the undersigned, to vote the
shares standing in the name of the undersigned at the Annual Meeting to be
held on June 16, 2004 and at all adjournments thereof. This proxy will be
voted in accordance with the instructions given below. If no instructions
are given, this proxy will be voted FOR all of the following proposals: .
R
1. Election of the following directors:
FOR all nominees listed below, WITHHOLD AUTHORITY to vote
except as marked to for all nominees
O the contrary below [ ] listed below [ ]
Arthur August
Edward J. Fred
X INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below.
--------------------------------------------
Y 2. In their discretion, the proxies are authorized to vote upon such
other business as may come before the meeting or any adjournment
thereof.
[ ] I plan on attending the Annual Meeting.
Date: , 2004
-------------------
-------------------------------
Signature
-------------------------------
Signature if held jointly
Please sign exactly as name appears
above. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by
President or other authorized officer.
If a partnership, please sign in
partnership name by authorized person.