UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.    )

 

Check the appropriate box:

CPI AEROSTRUCTURES, INC.

Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

CPI AEROSTRUCTURES, INC.
91 Heartland Blvd.
Edgewood, New York 11717
(631) 586-5200

 

Notice of Annual Meeting of Shareholders
to be held on June 11, 2013

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 Graubard Miller, our general counsel, located at The Chrysler Building, 405 Lexington Avenue, 11^th Floor, New York, New York 10174, on Tuesday, June 11, 2013, at 9:00 a.m., to consider and act upon the following matters:

Only shareholders of record at the close of business on April 22, 2013 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 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

Vincent Palazzolo,
Secretary

Edgewood, New York
May 8, 2013

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 11, 2013

Our 2013 proxy statement and our annual report for the fiscal year ended December 31, 2012 are available at http://www.cpiaero.com/corporate-governance/investor-relations/ under “Annual Reports” and “Proxy.”

PROXY STATEMENT
Annual Meeting of Shareholders
to be held on June 11, 2013

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 Graubard Miller, our general counsel, located at The Chrysler Building, 405 Lexington Avenue, 11^th Floor, New York, New York 10174, on Tuesday, June 11, 2013, at 9:00 a.m., and at any and all postponements or adjournments.

This proxy statement, the accompanying notice of annual meeting of shareholders, the proxy and the annual report to shareholders for the year ended December 31, 2012 are being mailed on or about May 8, 2013 to shareholders of record on April 22, 2013. We are bearing all costs of this solicitation.

What matters am I voting on?

You are being asked to vote on the following matters:

Who is entitled to vote?

Holders of our common stock as of the close of business on April 22, 2013, the record date, are entitled to vote at the meeting. As of the record date, we had issued and outstanding 8,391,954 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 of directors. The persons named in the proxy have been designated as proxies by our board of directors. If you sign and return the proxy in accordance with the procedures set forth in this proxy statement, the persons designated as proxies by our board of directors 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 not be voted with respect to the election of the Class III director nominee (Proposal 1) and will be voted FOR the ratification of the appointment of CohnReznick LLC as our independent registered public accounting firm for the fiscal year ending December 31, 2013 (Proposal 2).

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:

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 each matter?

The election of a director.  The election of a director requires a plurality vote of the votes cast at the meeting. “Plurality” means that the individual who receives the largest number of votes cast “FOR” is elected as director. Consequently, any shares not voted “FOR” such 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.

Ratification of accounting firm.  The ratification of the appointment of CohnReznick LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013 must be approved by a majority of the votes cast at the meeting with respect to the proposal. Abstentions and broker non-votes will not be counted in determining the number of votes required for a majority and will therefore have no effect on the outcome.

How do I vote?

You may vote your shares in one of two ways: by mail or in person at the meeting. The prompt return of the completed proxy card 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.

If your shares are held in a stock brokerage account or by a bank or other financial institution, you must vote your shares in the manner prescribed by your broker, bank or nominee. If you hold your shares through a broker, bank or other financial institution, your broker will not be permitted to vote on your behalf in the election of our Class III director without your voting instructions. Please communicate your voting instructions to your broker, bank or other financial institution before the meeting so that your vote will be counted.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table and accompanying footnotes set forth certain information as of April 22, 2013 with respect to the ownership of our common shares by:

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 options or warrants. Accordingly, common shares issuable upon exercise of options and warrants that are currently exercisable or exercisable within 60 days of April 22, 2013 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 of Beneficial Owner(1)		Shares Beneficially Owned(2)				Percent of Class(3)
Edward J. Fred			181,341				2.2	%
Vincent Palazzolo			80,986	(4)			1.0	%
Douglas McCrosson			32,086	(5)			*
Walter Paulick			57,474	(6)			*
Kenneth McSweeney			68,317	(7)			*
Harvey J. Bazaar			101,537	(8)			1.2	%
Eric Rosenfeld c/o Crescendo Partners 777 Third Avenue, 37th Floor New York, NY 10017			775,374	(9)			9.1	%
Austin W. Marxe and David M. Greenhouse 527 Madison Ave., Suite 2600 New York, NY 10022			931,040	(10)			11.1	%
Rutabaga Capital Management 64 Broad Street, 3rd Floor Boston, MA 02109			573,111	(11)			6.8	%
All directors and executive officers as a group (seven persons)			1,297,115	(12)			14.7	%

PROPOSAL 1 — ELECTION OF CLASS III DIRECTOR

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 our Class I directors, Kenneth McSweeney and Harvey J. Bazaar, will expire at our annual meeting in 2014. The term of office of our Class II directors, consisting of Walter Paulick and Eric Rosenfeld, will expire at our annual meeting in 2015. The term of office of our Class III director, consisting of Edward J. Fred, will expire at this year’s annual meeting.

Information About Directors, Nominees, Executive Officers and Significant Employees

Our directors and executive officers are as follows:

Name		Age		Position
Eric Rosenfeld(1)(2)(4)		55		Chairman of the Board of Directors (non-executive)
Edward J. Fred(1)		54		Chief Executive Officer, President and Director
Vincent Palazzolo		49		Chief Financial Officer
Douglas McCrosson		50		Chief Operating Officer
Walter Paulick(2)(3)(4)		66		Director
Kenneth McSweeney(2)(3)(4)		81		Director
Harvey J. Bazaar(3)		72		Director

Our board of directors believes that it is necessary for each of our directors to possess qualities, attributes and skills that contribute to a diversity of views and perspectives among the directors and enhance the overall effectiveness of the board. As described on page 10 under “Nominating and Corporate Governance Committee Information — Guidelines for Selecting Director Nominees”, our nominating and corporate governance committee considers all factors it deems relevant when evaluating prospective candidates or current board members for nomination to our board of directors, as prescribed in the committee’s written charter and established guidelines and the Company’s corporate governance guidelines. All of our directors bring to the board leadership experience derived from past service. They also all bring a diversity of views and perspectives derived from their individual experiences working in a range of industries and occupations, which provide our board of directors, as a whole, with the skills and expertise that reflect the needs of the Company. Certain individual experiences, qualifications, and skills of our directors that contribute to the board of directors’ effectiveness as a whole are described in the biographies set forth below.

Harvey J. Bazaar has been a director since December 2006 and chairman of our audit committee since April 2007. A certified public accountant, Mr. Bazaar has spent most of his career in public accounting, having retired from PricewaterhouseCoopers in 2000 as the Global and Americas Leader for the Capital Markets Group. At Coopers & Lybrand, which merged with PriceWaterhouse to form PricewaterhouseCoopers, Mr. Bazaar served on the firm’s Executive Committee and as Managing Partner of the New York City office. From September 2001 to December 2002, Mr. Bazaar served as the chief operating officer of DML Global Services, a company providing fund accounting and related services to private investment funds and other businesses. From December 2006 to August 2008, Mr. Bazaar served on the board of directors and audit committee of BKF Capital Group, Inc., an OTC Bulletin Board company, and served as its president and chief executive officer from November 2007 to August 2008. Beginning in July 2009, Mr. Bazaar began serving on the board of directors of various insurance entities that are part of the QBE Americas Group and in November 2009 was named chairman of the Audit and Risk Committee of these entities. Mr. Bazaar holds a Bachelor of Science Degree from Kent State University and is a member of the board of trustees of the Kent State University Foundation. Mr. Bazaar brings to our board of directors an in-depth understanding of generally accepted accounting principles, financial statements and SEC reporting requirements as well as an extensive and diverse general business knowledge.

Edward J. Fred has been an officer of the Company since February 1995 and a director since January 1999. He was our controller from February 1995 to April 1998, when he was appointed chief financial officer, a position he held until June 2003 and then from January 2004 to May 2004. He was executive vice president from May 2000 until December 2001 and was appointed President in January 2002 and Chief Executive Officer in January 2003. For approximately ten years prior to joining the 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 MBA from Hofstra University. Mr. Fred provides our board of directors with unique knowledge of the Company’s business, operations and management and his extensive other experience in the Company’s industry.

Douglas McCrosson has been with the Company since May 2003, serving in senior leadership positions within business development and operations. Prior to his appointment as Chief Operating Officer in January 2010, Mr. McCrosson served as vice president of operations from February 2007 to December 2008 and as senior vice president of operations from December 2008 to December 2009. He has nearly 30 years of aerospace experience having started his professional career as a mechanical engineer at Grumman Corporation, now Northrop Grumman Corporation. Mr. McCrosson holds a Bachelor of Science degree in mechanical engineering from the State University of New York at Buffalo and a Master of Science degree in Management from Polytechnic University.

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 Northrop Grumman Corporation, 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, as well as experience in the marketing, design, and manufacturing of aerospace products. Mr. McSweeney 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. Mr. McSweeney contributes to our board of directors his extensive professional and business experience in the Company’s industry.

Vincent Palazzolo has been our Chief Financial Officer since May 2004 and our secretary since March of 2008. From December 2003 to May 2004, he was employed by J. H. Cohn LLP as an audit partner. From 1988 through November 2003, Mr. Palazzolo was employed by Goldstein Golub Kessler LLP (“GGK”), where he was an audit partner from September 1999 through November 2003. While employed by GGK, from September 1999 to November 2003, Mr. Palazzolo also served as a managing director of American Express Tax and Business Services, Inc. Mr. Palazzolo holds a Bachelor of Business Administration in Accounting from Hofstra University, is a certified public accountant and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants.

Walter Paulick has been a director since April 1992 and chairman of our nominating and corporate governance committee since March 2004. From June 2006 until April 2007, he served as chairman of our audit committee. Mr. Paulick is currently a self-employed real estate development 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. Mr. Paulick’s background in banking, real estate development and general business knowledge provides our board of directors with a diverse perspective on the Company’s industry and conducting business in our region.

Eric S. Rosenfeld has been the non-executive chairman of our board of directors since January 2005 and 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., a New York based investment firm, since its formation in November 1998. Prior to forming Crescendo Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company Oppenheimer & Co., Inc. for 14 years. Mr. Rosenfeld currently serves as a director for several companies, including Cott Corporation (Lead Independent Director), the world’s largest retailer-brand soft drink company, Absolute Software Corporation, a leader in firmware-embedded endpoint security and management for computers and ultra-portable devices, Primoris Services Corporation, a specialty construction company and Trio Merger Corp. (Chairman), a blank check company. Mr. Rosenfeld has also served as a director for numerous companies, including Arpeggio Acquisition Corporation and Rhapsody Acquisition Corporation, both blank check corporations that later merged with Hill International and Primoris Services Corporation, respectively, Sierra Systems Group Inc., an information technology, management consulting and systems integration firm, Emergis Inc., an electronic commerce company and Geac Computer Corporation Limited, a provider of business-critical software applications and systems. He has also been a board member at Hill International, a construction management firm, Matrikon Inc., a company that provides industrial intelligence solutions, and DALSA Corp., a digital imaging and semiconductor firm. Mr. Rosenfeld provides our board of directors with expertise in finance and financial markets and with experience derived from his service on the boards of other public and private companies.

THE BOARD RECOMMENDS THAT YOU VOTE
“FOR” THE CLASS III DIRECTOR NOMINEE.

Independence of Directors

Our common stock is listed on the NYSE MKT LLC (“NYSE MKT”). As a result, we follow the rules of the NYSE MKT in determining whether a director is independent. The current NYSE MKT listing standards define an “independent director” generally as a person, other than an officer or employee of the Company, who does not have a relationship with the Company that would interfere with the director’s exercise of independent judgment. Our board of directors consults with our legal counsel to ensure that our board of directors’ determinations are consistent with the NYSE MKT rules and all relevant securities and other laws and regulations regarding the independence of directors. Consistent with these considerations, our board of directors has determined that Kenneth McSweeney, Walter Paulick, Harvey J. Bazaar, and Eric Rosenfeld will be independent directors of the Company for the ensuing year. The other remaining director, Edward J. Fred, is not independent because he is currently employed by us. All members of our audit, compensation and nominating and corporate governance committees are independent.

Code of Ethics

Our board of directors has adopted a written code of ethics that applies to our directors, officers and employees that is designed to deter wrongdoing and to promote ethical conduct, full, fair, accurate, timely and understandable disclosure in reports that we file or submit to the Securities and Exchange Commission and others, compliance with applicable government laws, rules and regulations, prompt internal reporting of violations of the code and accountability for adherence to the code. A copy of the code of ethics may be found on our website at www.cpiaero.com.

Board of Directors Meetings and Committees

Our board of directors held fourteen meetings in 2012. All directors attended the 2012 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 director attended fewer than 75% of the meetings of the board and of the committees thereof upon which he served in 2012. We have standing compensation, audit, nominating and corporate governance and strategic planning committees. Copies of our committee charters are available free of charge on our website at www.cpiaero.com.

Leadership Structure

Our board of directors has determined to keep separate the positions of board chairman and principal executive officer at this time. This permits our principal executive officer to concentrate his efforts primarily on managing the Company’s business operations and development. This also allows us to maintain an independent board chairman who oversees, among other things, communications and relations between our board of directors and senior management, consideration by our board of directors of the Company’s strategies and policies and our board of director’s principal executive officer evaluation processes.

Risk Oversight

Our board of directors’ primary function is one of oversight. Our board of directors as a whole has responsibility for risk oversight and reviews management’s risk assessment and risk management policies and procedures. Our audit committee discusses with management the Company’s major financial risk exposures and reports its findings to our board of directors in connection with our board of directors’ risk oversight review.

Compensation Committee Information

Our compensation committee is currently comprised of Kenneth McSweeney (chairman), Walter Paulick and Eric Rosenfeld (collectively, our “Compensation Committee”), each an independent director under the NYSE MKT listing standards. Our board of directors has adopted a written compensation committee charter, which was last reviewed by the Compensation Committee on April 22, 2013. The responsibilities of our Compensation Committee include:

Our Compensation Committee held four meetings this year to review, discuss and make any necessary changes to our executive and non-employee director compensation. Our Compensation Committee makes all final determinations with respect to compensation of executive officers, considering, among other things, its assessment of the value of each executive officer’s contribution to the Company, the Company’s financial performance during recent fiscal years in light of prevailing business conditions and the Company’s goals for the ensuing fiscal year. Our Compensation Committee considers recommendations from our chief executive officer relating to the compensation of our other executive officers. For a complete discussion of our Compensation Committee’s polices and procedures respecting executive compensation of our Named Executive Officers, please see the “Compensation Discussion and Analysis” below.

Our Compensation Committee did not engage the services of a compensation consultant in the last fiscal year, and has not engaged such consultant this fiscal year to date. However in the future, our Compensation Committee may utilize the services of third parties, including subscriptions to executive compensation surveys and other databases, to assist with their review of compensation for executive officers. Our Compensation Committee is charged with performing an annual review of the compensation of our executive officers to determine whether they are provided with adequate incentives and motivation, and whether they are compensated appropriately in accordance with our compensation policies.

Audit Committee Information and Report

Our audit committee is currently comprised of Harvey J. Bazaar (chairman), Walter Paulick, and Kenneth McSweeney. During the year ended December 31, 2012, our audit committee held six meetings. All of the members of our audit committee are “independent directors”, as defined under the NYSE MKT listing

standards and are 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

We must certify to the NYSE MKT that our audit committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. Our board of directors has determined that Harvey J. Bazaar’s qualifications satisfy the NYSE MKT’s definition of financial sophistication and also qualify him as an “audit committee financial expert,” as defined under the rules and regulations of the Securities and Exchange Commission.

Audit Committee Report

Our board of directors has a written audit committee charter. Our audit committee charter, which is reviewed annually and which the audit committee intends to review at its next regularly scheduled meeting. According to our audit committee charter, our audit committee’s responsibilities include, among other things:

Management has reviewed the audited financial statements in the Company’s annual report on Form 10-K with our 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 our 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 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, our audit committee acts only in an oversight capacity. The committee reviews the Company’s annual reports and generally reviews its quarterly reports prior to filing with the Securities and Exchange Commission. In its oversight role, our audit committee relies on the work and assurances of the Company’s management, which has the responsibility for financial statements and reports, and of our independent registered public accounting firm, who, in their report, express an opinion on the conformity of the Company’s annual financial statements to generally accepted accounting principles. Our audit committee has met and held discussions with management and the Company’s independent registered public accounting firm. Management represented to our audit committee that the Company’s financial statements were prepared in accordance with generally accepted accounting principles, and our audit committee has reviewed and discussed the financial statements with management and our independent registered public accounting firm. Our audit committee discussed with our independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Company’s independent registered public accounting firm also provided our audit committee with the written disclosures required by Independence Standard Board Standard No. 1 (Independence Discussions with Audit Committees) and our audit committee discussed with our independent registered public accounting firm and management the auditor’s independence, including with regard to fees for services rendered during the fiscal year and for all other professional services rendered by the Company’s independent registered public accounting firm. In reliance on these reviews and discussions and the report of our independent registered public accounting firm, our audit committee recommended to our board of directors, and the board has approved, that the audited financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2012, for filing with the Securities and Exchange Commission.

Members of our Audit Committee:

Harvey J. Bazaar (chairman)
Walter Paulick
Kenneth McSweeney

Nominating and Corporate Governance Committee Information

Our board of directors has a nominating and corporate governance committee comprised of Walter Paulick (chairman), Kenneth McSweeney and Eric Rosenfeld, each an independent director under the NYSE MKT listing standards. Our nominating and corporate governance committee held five meetings during 2012. Our nominating and corporate governance committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors, and for developing and recommending corporate governance guidelines. Our nominating and corporate governance committee considers persons identified by its members, management, shareholders, investment bankers and others.

Our board of directors has adopted a written charter and established guidelines for corporate governance, the selection of director nominees and a method by which shareholders may propose to our nominating and

corporate governance committee candidates for selection as nominees for director. On April 22, 2013, the nominating and corporate governance committee reviewed its charter, the guidelines for corporate governance and criteria for the selection of director nominees.

Guidelines for Selecting Director Nominees

The guidelines for selecting nominees generally provide that persons to be nominated should be accomplished in his or her field with a reputation that is consistent with that of the Company, have relevant experience and expertise, have an understanding of financial statements, corporate budgeting and capital structure, be familiar with the requirements of a publicly traded company, be familiar with industries relevant to our business endeavors, be willing to devote significant time to the oversight duties of the board of directors of a public company and be able to promote a diversity of views based on the person’s education, experience and professional employment. Our nominating and corporate governance committee evaluates each individual in the context of the board as a whole, with the objective of recommending a group of persons that can best implement our business plan, perpetuate our business and represent shareholder interests. Our nominating and corporate governance committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time. Our nominating and corporate governance committee does not distinguish among nominees recommended by shareholders and other persons.

Procedure for Shareholders to Recommend Director Candidates

Shareholders and others who wish to recommend candidates to our nominating and corporate governance committee for consideration as directors must submit their written recommendations to our nominating and corporate governance committee and include all of the information described in the section “2014 Annual Meeting Shareholder Proposals and Nominations.”

Our nominating and corporate governance committee recommended to our board of directors to nominate Edward J. Fred for re-election as a Class III director. Our nominating and corporate governance committee did not receive proposals from any shareholders or others for suggested director candidates.

Guidelines for Corporate Governance

Our corporate governance guidelines are intended to ensure that the board of directors has the necessary authority and practices in place to review and evaluate the Company’s business operations and to make decisions that are independent of the Company’s management. The corporate governance guidelines also are intended to align the interests of the Company’s directors and management with those of the Company’s stockholders. The guidelines establish the practices the board of directors follows with respect to the obligations of the board and each director; board composition and selection; board meetings and involvement of senior management; chief executive officer performance evaluation and succession planning; board committee composition and meetings; director compensation; director orientation and education; and director access to members of management and to independent advisors.

The corporate governance guidelines were adopted by the board of directors in 2010 and are to be reviewed periodically and updated as necessary to reflect changes in regulatory requirements and evolving oversight practices. The guidelines were last reviewed April 22, 2013. The guidelines comply with corporate governance requirements contained in the listing standards of the NYSE MKT and enhance the Company’s corporate governance policies.

Strategic Planning Committee Information

Our strategic planning committee is currently comprised of Eric Rosenfeld (chairman) and Edward J. Fred. The main role of the strategic planning committee is to evaluate and analyze strategic options for the Company. The strategic planning committee held no formal meetings in 2012.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview

The Compensation Committee is composed of Kenneth McSweeney (Chairman), Eric Rosenfeld and Walter Paulick, each of whom is an independent director under NYSE MKT standards. The Compensation Committee oversees the compensation and employee benefit plans and practices of the Company, including its executive and non-employee director compensation plans. The Compensation Committee’s goal is to ensure that executive compensation is competitive yet reasonable, supportive of organizational objectives and shareholder interests and designed to align the interests of executive officers with the Company’s long-term performance and increase shareholder value.

This Compensation Discussion and Analysis concerns the compensation of Edward J. Fred our Chief Executive Officer, Douglas McCrosson our Chief Operating Officer and Vincent Palazzolo our Chief Financial Officer, together our Named Executive Officers.

No changes were made to the Company’s compensation policies or practices with respect to the Named Executive Officers in the fiscal year ended December 31, 2012. Last year, we conducted two advisory votes regarding executive compensation — a “Say on Pay” vote, in which shareholders approved the then-current compensation of our Named Executive Officers and a “Say on When Pay” vote, in which shareholders determined that a “Say on Pay” vote should be held every three years. In accordance with the shareholder vote, the Company plans to hold its next “Say on Pay” vote at our annual meeting to be held in 2015. The next “Say on When Pay” vote will take place at our annual meeting to be held in 2018. The Compensation Committee includes consideration of the results of shareholder advisory votes regarding compensation when reviewing compensation and making compensation decisions.

The Compensation Committee believes that the incentives provided by the Company’s compensation policies with respect to the Named Executive Officers have contributed significantly to the Company’s performance. We also believe that the current compensation structure for the Named Executive Officers strikes an appropriate balance between maintaining competitive, yet reasonable, compensation levels and aligning pay with performance.

Compensation Policies and Practices

The Compensation Committee met four times during 2012 to review and discuss executive compensation matters. It has been the Company’s practice to enter into three-year employment agreements with our Named Executive Officers and, if considered appropriate by our Board of Directors, to extend the term of the employment agreements for two additional years in the fourth quarter of the year prior to their expiration. In November 2011, the Board determined to extend the term of the employment agreements with each of Messrs. Fred, McCrosson and Palazzolo (the “Employment Agreement(s)”) from December 31, 2012 to December 31, 2014. Accordingly, the Compensation Committee considered and determined the Named Executive Officers’ compensation for 2013 and 2014 in connection with such extension. Therefore, the Compensation Committee did not make any changes to the compensation of the Named Executive Officers in 2012 and the discussion that follows focuses on the Compensation Committee’s general policies and practices in making compensation determinations.

Determinations of executive compensation are not based on a rigid formula, but a focus on both objective and subjective factors that the Compensation Committee believes indicative of a Named Executive Officer’s success as an officer of the Company. The Compensation Committee considers its assessment of the value of each Named Executive Officer’s contribution to the Company, the Company’s financial performance during recent fiscal years in light of prevailing business conditions, the Company’s goals for the ensuing fiscal year, prevailing compensation levels of the chief executive officer at companies considered to be comparable to the Company and, with respect to each of Messrs. McCrosson and Palazzolo, their total compensation relative to Mr. Fred’s total compensation.

As mentioned above, the Compensation Committee will also consider any recent shareholder approval votes with respect to executive compensation. The Compensation Committee considers recommendations, if any, from our chief executive officer relating to the compensation of our other executive officers. We currently do not use any compensation consultants.

Compensation Components

Each of the Employment Agreements, as amended, provides for three primary compensation components: Base Salary, a Performance-Based Annual Bonus and Perquisites and Other Personal Benefits, each of which is discussed in detail below.

Base Salary.  In addition to the factors addressed above, the Compensation Committee focuses on whether the base salary of each Named Executive Officer is commensurate with the level of responsibility his position entails and with his experience. When determining base salary, the Compensation Committee endeavors to maintain a balance in the range of base salaries of the Named Executive Officers and their respective responsibilities. The base salaries for our Named Executive Officers are set forth in the Employment Agreements and as presented in the table below. The Compensation Committee set the base salaries for the Named Executive Officers for 2013 and 2014 with the 2011 extension of such agreements.

Executive Officer		2012 ($)				2013 ($)				2014 ($)
Edward J. Fred			364,000				378,500				395,000
Douglas McCrosson			240,000				253,000				265,000
Vincent Palazzolo			243,300				253,000				263,000

Performance-Based Annual Bonus.  Each of the Employment Agreements of Messrs. Fred, McCrosson and Palazzolo provide for an annual non-discretionary bonus based on changes in our revenues and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) from the prior year. Per each Employment Agreement, twenty-five percent (25%) of the bonus amount is determined by revenues and seventy-five percent (75%) by EBITDA. If growth targets are met on both metrics, each executive will receive his baseline bonus. The baseline bonus for Mr. Fred is 65% of 100% of his base salary; the baseline bonus for Mr. McCrosson and Mr. Palazzolo is 45% of 100% of their respective base salaries. The percent of base salary used to calculate the bonus amount decreases or increases depending upon the percent increase or decrease in revenues and EBITDA. For example, if EBITDA and revenues both increase by a 25% margin, then Mr. Fred will receive a bonus equal to (1) 75% of 65% of 110% of his base salary plus (2) 25% of 65% of 110% of his base salary. If EBITDA decreases by 5% and revenues remain the same, then Mr. Fred will receive a bonus equal to (1) 75% of 65% of 50% of his base salary plus (2) 25% of 65% of 75% of his base salary. The performance targets and corresponding percentage of base salary used to calculate the bonus are listed in the table below: The amounts are adjusted pro ratably in the event EBITDA or revenue growth falls between two targets.

Growth		Percent of Base Salary Used to Calculate Bonus Amount
Decrease 15% or Greater			No Bonus
Decrease 10%			75% Decrease
Decrease 5%			50% Decrease
Flat			25% Decrease
Increase 5%			10% Decrease
Increase 10%			Baseline
Increase 15%			5% Increase
Increase 25%			10% Increase
Increase 50%			50% Increase
Increase 100% or Greater			75% Increase

Each executive receives part of his bonus in cash, and the balance in shares of the Company’s common stock valued at the volume weighted average price of the common stock on NYSE MKT for the five consecutive trading days ending two trading days before issuance. Shares of common stock are issued pursuant to the Company’s Performance Equity Plan 2009 (described below). Under Mr. Fred’s Employment Agreement, the first $140,000 of his bonus is paid in cash and the balance is paid half in cash and half in shares of common stock. Under Mr. McCrosson’s and Mr. Palazzolo’s Employment Agreements, the first $75,000 of their respective bonuses are paid in cash and the balance is paid half in cash and half in shares of common stock. The bonus structure discussed here is set forth in the Employment Agreements and remains unchanged since the Employment Agreements became effective.

For 2012, the Compensation Committee determined that there was an increase of 43.1% in EBITDA and 20.4% in revenues from 2011. Using the above-described calculation, we calculated the 2012 annual bonus for each Named Executive Officer as follows:

Name		Bonus Calculated Based on EBITDA ($)				Bonus Calculated Based on Revenues ($)				Total Bonus Awarded ($)				Bonus Awarded in Cash ($)				Number of Shares Awarded as Bonus (#)(1)
Edward J. Fred		$	246,520			$	63,710			$	320,230			$	225,115				10,002
Douglas McCrosson		$	112,528			$	28,463			$	140,991			$	107,996				3,877
Vincent Palazzolo		$	114,075			$	28,854			$	142,930			$	108,965				3,991

Perquisites and Other Personal Benefits.  We maintain various employee benefit plans, including medical, dental, life and disability, and these plans are available to all of the Company’s key employees. Each Named Executive Officer is reimbursed for expenses related to the use of an automobile to be used in connection with Company business. Such expenses include lease and insurance costs, repairs and maintenance. The Company maintains a limited country club membership that is made available to key employees, including the Named Executive Officers. The perquisites and other personal benefits provided to the Named Executive Officers are set forth in the Employment Agreements and have remained unchanged since the Employment Agreements became effective.

Termination and Change in Control Provisions

Mr. Fred’s Employment Agreement provides that if, during the employment term, we terminate Mr. Fred without “cause” or he terminates his employment for “good reason” (as such terms are defined therein), we will be required to pay him his base salary through the end of the employment term and provide medical insurance coverage until June 30, 2016. Each of Mr. McCrosson’s and Mr. Palazzolo’s Employment Agreements provide that if, during the employment term, we terminate him without “cause” or he terminates his employment for “good reason” (as such terms are defined therein), we will be required to pay each of Mr. Palazzolo or Mr. McCrosson his base salary through the end of the employment term. We believe such termination payments are reasonable and appropriate in light of non-competition provisions in the executives’ Employment Agreements, which prohibit them from competing with the Company for a period of two years following their employment with us.

Mr. Fred’s employment agreement contains an additional provision, which provides for certain compensation in the event of a change of control (as such term is defined in the Employment Agreement) that occurs prior to a termination by us without “cause” or by Mr. Fred for “good reason.” In such event and at Mr. Fred’s option, in lieu of the above-discussed compensation, we will pay him a lump sum equal to 2.99 times the lesser of (a) the total compensation (including salary and bonus) earned by him during the last full calendar year of his employment or (b) the average of his total compensation (including salary and bonus) for the five (5) calendar years ending before the change of control. We believe that providing Mr. Fred with benefits in the face of a change of control will help us retain him and most importantly, ensure his objectivity in connection with any potential transaction.

Other Compensation Matters

Risk Assessment.  The Compensation Committee has also reviewed whether the Company’s compensation policies and practices might encourage inappropriate risk taking by the Company’s Named Executive Officers. The Compensation Committee determined that the current compensation structure aligns the Named Executive Officers’ interests with those of the Company without providing rewards for excessive risk-taking by awarding a mix of fixed and performance-based compensation, with the performance-based compensation structure counterbalancing revenue and EBITDA goals, as discussed above.

Tax Considerations.  Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation over $1 million. Certain performance-based compensation, however, is specifically exempt from the deduction limit. At this time, the Compensation Committee has not taken steps to qualify compensation for deductibility primarily because at current base salaries and bonus potential, it is unlikely that any of our Named Executive Officers would exceed the $1 million limit in a given year.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee:

Kenneth McSweeney (Chairman)
Eric Rosenfeld
Walter Paulick

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is or has been an executive officer or employee of the Company, or had any relationships requiring disclosure by the Company under the Securities and Exchange Commission’s rules requiring disclosure of certain relationships and related-party transactions. None of the Company’s executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which served as a director of the Company or member of our Compensation Committee during 2012.

Summary Compensation Table

The following table sets forth the compensation paid or earned by each of our Named Executive Officers for each of the fiscal years ended December 31, 2012, 2011 and 2010.

Name and Principal Position		Year				Salary ($)(1)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)(2)				All Other ($)				Total ($)
Edward J. Fred Chief Executive Officer and President			2012				364,000				85,115	(3)			—				225,115				40,639	(4)			714,869
			2011				350,000				124,587	(5)			—				264,587				36,753	(6)			775,927
			2010				337,080				—				—				41,396				35,927	(7)			405,918
Vincent Palazzolo Chief Financial Officer			2012				243,300				33,965	(8)			—				108,965				23,026	(9)			409,256
			2011				234,000				52,566	(10)			—				127,566				16,604	(11)			430,736
			2010				225,000				—				—				19,130				5,790	(12)			244,130
Douglas McCrosson Chief Operating Officer(14)			2012				240,000				32,996	(13)			—				107,996				19,991	(14)			400,983
			2011				220,000				47,178	(15)			48,251	(16)			122,178				17,785	(17)			455,391
			2010				190,000				—				48,251	(16)			12,564				22,857	(18)			267,810

Grants of Plan-Based Awards

		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)												Estimated Possible Payouts Under Equity Incentive Plan Awards(2)
		Threshold ($)(3)				Target ($)(4)				Maximum ($)(5)				Threshold ($)(3)				Target ($)(4)				Maximum ($)(5)
Edward J. Fred			1,479				188,300				277,025				—				48,300				137,025
Vincent Palazzolo			684				92,243				133,299				—				17,243				58,299
Douglas McCrosson			675				91,500				132,000				—				16,500				57,000

Compensation Arrangements for Named Executive Officers

Edward J. Fred

On December 16, 2009, we entered into an amended and restated employment agreement with Edward J. Fred, which provides for Mr. Fred to continue to serve as our President and Chief Executive Officer until December 31, 2012. Per the agreement, Mr. Fred’s annual base salary was $364,000 for 2012. On November 4, 2011, we amended our employment agreement with Mr. Fred to extend his contract through December 31, 2014. As amended, Mr. Fred’s base salary will be $378,500 and $395,000 during 2013 and 2014, respectively. Mr. Fred receives a performance-based annual bonus for reaching certain growth targets measured by EBITDA and revenue. The manner of calculating and paying such bonus is set forth in the “Compensation Discussion and Analysis” above. For the year ended December 31, 2012, Mr. Fred’s performance-based compensation was $225,115 of cash and 10,002 shares of common stock, valued at $85,115 ($8.51 per share). For the year ended December 31, 2011, Mr. Fred’s performance-based compensation was $264,587 of cash and 8,475 shares of common stock, valued at $124,587 ($14.70 per share). For the year ended December 31, 2010, Mr. Fred’s performance-based compensation was $41,396 paid all in cash.

Under the agreement, Mr. Fred is prohibited from disclosing confidential information about us and he has agreed not to compete with us during the term of his employment and for two years thereafter. Mr. Fred’s

employment agreement also provides for certain termination and change in control payments addressed in the section below entitled “Payments Upon Termination or Change in Control.”

Vincent Palazzolo

On December 16, 2009, we entered into an employment agreement with Vincent Palazzolo, which provides for Mr. Palazzolo to continue to be employed as our Chief Financial Officer until December 31, 2012. Per the agreement, Mr. Palazzolo’s annual base salary was $243,300 for 2012. On November 4, 2011, we amended our employment agreement with Mr. Palazzolo to extend his term through December 31, 2014. As amended, Mr. Palazzolo’s base salary will be $253,000 and $263,000 during 2013 and 2014, respectively. Mr. Palazzolo receives a performance-based annual bonus for reaching certain growth targets measured by EBITDA and revenue. The manner of calculating and paying such bonus is set forth in the “Compensation Discussion and Analysis” above. For the year ended December 31, 2012, Mr. Palazzolo’s performance-based compensation was $108,965 of cash and 3,991 shares of common stock, valued at $33,965 ($8.51 per share). For the year ended December 31, 2011, Mr. Palazzolo’s performance-based compensation was $127,566 of cash and 3,576 shares of common stock, valued at $52,566 ($14.70 per share). For the year ended December 31, 2010, Mr. Palazzolo’s performance-based compensation was $19,130 paid all in cash.

Under the agreement, Mr. Palazzolo is prohibited from disclosing confidential information about us and he has agreed not to compete with us during the term of his employment and for two years thereafter. Mr. Palazzolo’s employment agreement does not contain any change in control provisions, but does provide for certain termination payments addressed in the section below entitled “Payments Upon Termination or Change in Control.”

Douglas McCrosson

On December 16, 2009, we entered into an employment agreement with Douglas McCrosson, which provides for Mr. McCrosson to be employed as our Chief Operating Officer from January 1, 2010 until December 31, 2012. Mr. McCrosson’s annual base salary was $240,000 for 2012. On November 4, 2011, we amended our employment agreement with Mr. McCrosson to extend his term through December 31, 2014. Mr. McCrosson’s base salary will be $253,000 and $265,000 during 2013 and 2014, respectively. Mr. McCrosson receives a performance-based annual bonus for reaching certain growth targets measured by EBITDA and revenue. The manner of calculating and paying such bonus is set forth in the “Compensation Discussion and Analysis” above. For the year ended December 31, 2012, Mr. McCrosson’s performance-based compensation was $107,996 of cash and 3,877 shares of common stock, valued at $32,996 ($8.51 per share). For the year ended December 31, 2011, Mr. McCrosson’s performance-based compensation was $122,178 of cash and 3,209 shares of common stock, valued at $47,178 ($14.70 per share). For the year ended December 31, 2010 Mr. McCrosson’s performance-based compensation was $12,564 paid all in cash.

Under the agreement, Mr. McCrosson is prohibited from disclosing confidential information about us and he has agreed not to compete with us during the term of his employment and for two years thereafter. Mr. McCrosson’s employment agreement does not contain any change in control provisions, but does provide for certain termination payments addressed in the section below entitled “Payments Upon Termination or Change in Control.”

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the outstanding option awards as of December 31, 2012 for each named executive officer.

		Option Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)				Option Expiration Date
Vincent Palazzolo Chief Financial Officer			50,000				0				10.48				5/16/2014
			25,000				0				6.75				11/30/2016
Douglas McCrosson Chief Operating Officer			25,000	(1)			0				6.60				3/31/2019

Option Exercises in 2012

The following table sets forth certain information concerning option exercises by our named executive officers during the year ended December 31, 2012.

Name		Number of Shares Acquired on Exercise				Value Realized on Exercise(1) ($)
Edward J. Fred			100,000			$	555,000
Vincent Palazzolo			—				—
Douglas McCrosson			50,000			$	251,500

Potential Payments Upon Termination or Change in Control

Employment Agreements entered into by the Company with Messrs. Fred, Palazzolo and McCrosson provide for varying types and amounts of payments and additional benefits upon termination of employment during the term of such Employment Agreements, depending on the circumstances of the termination.

Neither Mr. Fred nor Mr. Palazzolo have a duty to mitigate awards payable under the above conditions and any compensation paid from any source other than the Company does not offset or terminate the Company’s obligations to make such payments. Mr. McCrosson does not have a duty to mitigate the above-described payments, however, if he receives a payment for (a) termination by the Company without cause or (b) termination by him for good reason, then any compensation paid to him from sources other than the Company will offset or terminate the Company’s obligation to make such payment.

The following table summarizes the amounts potentially payable upon termination of employment for each of Messrs. Fred, Palazzolo and McCrosson assuming termination occurred on December 31, 2012. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (i.e., the single sum does not reflect any discount).

Name		Death or Disability ($)				By Company for Cause ($)				By Executive for Good Reason or By Company without Cause ($)				By Executive without Reason ($)				Change in Control ($)
Edward J. Fred			310,230				—				1,447,730				310,230				1,831,801
Vincent Palazzolo			142,930				—				658,930				—				—
Douglas McCrosson			140,992				—				656,992				—				—

Equity Award Plans

Performance Equity Plan 2009.  The Performance Equity Plan 2009 authorizes the grant of 500,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2012, 175,517 options/shares had been granted under this plan. As of April 22, 2013, 280,266 common shares remain available for grant.

Performance Equity Plan 2000.  The Performance Equity Plan 2000 authorizes the grant of 1,230,000 stock options, stock appreciation rights, restricted stock, deferred stock, stock reload options, and other stock-based awards. As of December 31, 2012, options to purchase an aggregate of 1,260,333 common shares had been granted under this plan, of which 165,000 options remain outstanding at exercise prices ranging from $5.50 to $8.10 per share. As of April 22, 2013, no additional options/shares may be granted under this plan.

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 December 31, 2012, options to purchase an aggregate of 546,002 common shares had been granted, of which 25,000 remain outstanding at an exercise price of $11.31 per share. As of April 22, 2013, no additional options/shares may be granted under this plan.

1995 Stock Option Plan.  The 1995 Employee Stock Option Plan authorizes the grant of 200,000 stock options and stock appreciation rights. As of December 31, 2012, options to purchase an aggregate of 419,000 common shares had been granted, of which 50,000 remain outstanding at an exercise price of $10.48 per share. As of April 22, 2013, no additional options may be granted under this plan.

Equity Compensation Plan Information

The following table sets forth certain information at December 31, 2012 with respect to our equity compensation plans providing for the issuance of options, warrants, or rights to purchase our securities.

Plan Category		Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights				Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ($)				Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (excluding securities reflected in the first column)
Equity Compensation Plans Approved by Security Holders			495,517			$	9.33				324,483

Compensation of Directors

The following table summarizes the compensation of our directors for the year ended December 31, 2012. Directors who are employees of the Company do not receive separate compensation for their service as a director.

Name		Fees Earned or Paid in Cash ($)				Option Awards ($)(1)				Total ($)
Eric Rosenfeld			102,575				147,425				250,000
Harvey J. Bazaar			66,950				113,050				180,000
Kenneth McSweeney			24,750				50,250				75,000
Walter Paulick			24,750				50,250				75,000

Pursuant to the non-employee director compensation plan in effect for 2012, the cumulative annual compensation for non-employee directors is $219,025 of cash plus a grant of a maximum of 60,000 stock options. The number of options is reduced such that the maximum annual expense to the Company for such options, calculated using the Black-Sholes option pricing model, is $360,975. The annual cash compensation due each director is payable quarterly as has been the Company’s past practice. The options were awarded on the first business day after January 1^st.

Pension Benefits

Other than our 401(k) plan, we do not maintain any other plan that provides for payments or other benefits at, following, or in connection with retirement.

Certain Relationships and Related-Party Transactions

Related-Party Policy.  Our Code of Ethics requires us to avoid, wherever possible, all related-party transactions that could result in actual or potential conflicts of interest, except under guidelines approved by our board of directors (or our audit committee). Securities and Exchange Commission rules generally define related-party transactions as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of our common stock, or (c) immediate family member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. Our audit committee considers all relevant factors when determining whether to approve a related-party transaction, including whether the related-party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related-party’s interest in the transaction. No director may participate in the approval of any transaction in which he or she is a related-party, but that director is required to provide our audit committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire annually that elicits information about related-party transactions. These procedures are intended to determine whether any such related-party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

Related-Party Transactions.  We did not engage in any related party transactions in the fiscal year ended December 31, 2012 as required to be reported pursuant to rules of the Securities and Commission Exchange.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, 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. These reporting persons also are required by regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on the review of the copies of these forms furnished to us and representations that no other reports were required during the year ended December 31, 2012, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We propose that the shareholders ratify the appointment of CohnReznick LLP as our independent registered public accounting firm for fiscal year 2013 by our audit committee of our board of directors. We expect that representatives of CohnReznick LLP will be present at the annual meeting of shareholders and that they will be available to respond to appropriate questions submitted by shareholders at the meeting. CohnReznick LLP will have the opportunity to make a statement if they desire to do so.

J.H. Cohn LLP served as our independent registered public accounting firm for fiscal year 2011 and for fiscal year 2012. After its business combination with Reznick Group, P.C. in October 2012, J.H. Cohn LLP changed its name to CohnReznick LLP. Fees charged by our independent registered public accounting firm include, as applicable, fees charged for services rendered by J.H. Cohn LLP for 2011 and fees charged for services rendered by J.H. Cohn LLP and CohnReznick LLP in 2012.

Audit Fees.  The aggregate fees billed by our independent registered public accounting firm for professional services rendered for the audits of our annual financial statements for the years ended December 31, 2012 and 2011 and review of financial statements included in our quarterly reports on Form 10-Q or services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those periods, were $301,000 and $299,000, respectively.

Audit-Related Fees.  The aggregate fees billed by our independent registered public accounting firm for professional services rendered in connection with our shelf registration statement and June 2012 equity offering during the year ended December 31, 2012 were $48,000. The aggregate fees billed by our independent registered public accounting firm for professional services rendered in connection with our shelf registration statement during the year ended December 31, 2011 were $7,500.

Tax Fees.  The aggregate fees billed by our independent registered public accounting firm for professional services rendered for tax services for the same periods were $36,017 and $25,000, respectively. These tax services consisted of preparation of our federal and state income tax returns for the years ended December 31, 2012 and 2011.

All Other Fees.  The aggregate fees billed by our independent registered public accounting firm for professional services rendered for other services during the same periods, including out of pocket expenses were $2,080 and $3,376, respectively.

Pre-Approval Policies and Procedures.  In accordance with Section 10A(i) of the Securities Exchange Act of 1934, before we engage our independent registered public accounting firm 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 the sections entitled “Audit Fees,” “Tax Fees” and “All Other Fees” above.

Ratification by the shareholders of the appointment of an independent registered public accounting firm is not required, but our board of directors believes that it is desirable to submit this matter to the shareholders. If a majority of the votes cast at the meeting do not ratify the selection of CohnReznick LLP at the meeting, the selection of an independent registered public accounting firm will be reconsidered by our audit committee.

THE BOARD RECOMMENDS A VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF COHNREZNICK LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

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.

2014 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 2014 or to be eligible for inclusion in our proxy statement for such meeting, we must receive it at our principal executive offices by January 8, 2014. 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.

Shareholders who wish to recommend to our nominating and corporate governance committee a candidate for election to our board of directors should send their letters to CPI Aerostructures, Inc., 91 Heartland Boulevard, Edgewood, New York 11717, Attention: Nominating and Corporate Governance Committee. The corporate secretary will promptly forward all such letters to the members of our nominating and corporate governance committee. Shareholders must follow certain procedures to recommend to our nominating and corporate governance committee candidates for election as directors. In general, in order to provide sufficient time to enable our nominating and corporate governance committee to evaluate candidates recommended by shareholders in connection with selecting candidates for nomination in connection with our annual meeting of shareholders, the corporate secretary must receive the shareholder’s recommendation no later than thirty days after the end of our fiscal year.

The recommendation must contain the following information about the candidate:

OTHER SHAREHOLDER COMMUNICATIONS WITH OUR BOARD OF DIRECTORS

Our board of directors provides a process for shareholders and interested parties to send communications to the board. Shareholders and interested parties may communicate with our 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., 91 Heartland Blvd., Edgewood, New York 11717. Each communication will be forwarded, depending on the subject matter, to the board of directors, the appropriate committee chairperson or all non-management directors.

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 our 2014 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 24, 2014.

INCORPORATION BY REFERENCE

This proxy statement incorporates by reference certain information included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, 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. You may request a free copy of any or all of the information incorporated by reference into the proxy statement (other than exhibits not specifically incorporated by reference into the text of such documents). Please direct any oral or written requests for such documents to: Attention: Corporate Secretary, 91 Heartland Blvd., Edgewood, New York 11717.

OTHER MATTERS

Our 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.

By Order of the Board of Directors

Vincent Palazzolo,
Secretary

Edgewood, New York
May 8, 2013