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<SEC-DOCUMENT>0001094891-01-500245.txt : 20010815
<SEC-HEADER>0001094891-01-500245.hdr.sgml : 20010815
ACCESSION NUMBER:		0001094891-01-500245
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010815
FILED AS OF DATE:		20010814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CPI AEROSTRUCTURES INC
		CENTRAL INDEX KEY:			0000889348
		STANDARD INDUSTRIAL CLASSIFICATION:	AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728]
		IRS NUMBER:				112520310
		STATE OF INCORPORATION:			NY
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-11398
		FILM NUMBER:		1708460

	BUSINESS ADDRESS:	
		STREET 1:		200A EXECUTIVE DR
		CITY:			EDGEWOOD
		STATE:			NY
		ZIP:			11717
		BUSINESS PHONE:		5165865200
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>cpi_proxy-2001.txt
<DESCRIPTION>CPI DEFINITIVE PROXY
<TEXT>
                                  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
     X    Definitive proxy statement              Commission Only (as
    ____  Definitive additional materials         permitted by Rule 14a-6(e)(2))
    ____  Soliciting material pursuant to
          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 Rules 14-a-6(I)(1) and 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:

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

<Page>



                            CPI AEROSTRUCTURES, INC.
                              200A Executive Drive
                            Edgewood, New York 11717
                                 (631) 586-5200


                    Notice of Annual Meeting of Shareholders
                        to be held on September 18, 2001



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 our executive offices located at 200A
Executive Drive, Edgewood, New York 11717, on Tuesday, September 18, 2001, at
10:00 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 respective successors are
                  elected and qualified;

         o        To authorize an amendment to our Performance Equity Plan 2000
                  to increase the number of shares of common stock available for
                  issuance under the plan from 700,000 shares of common stock to
                  830,000 shares of common stock; 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 July 31, 2001
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
August 15, 2001


<Page>



                            CPI AEROSTRUCTURES, INC.

                                 Proxy Statement


                         Annual Meeting of Shareholders
                        to be held on September 18, 2001
                                   ----------

         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 our principal executive offices located at 200A
Executive Drive, Edgewood, New York 11717, on Tuesday, September 18, 2001, at
10:00 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, 2000 are being mailed on or about August 10, 2001 to shareholders
of record on July 31, 2001. We are bearing all costs of this solicitation.

What matters am I voting on?

         You are being asked to vote on:

         o        the election of two Class III directors to serve for the
                  ensuing three-year period and until their respective
                  successors are elected and qualified;

         o        an amendment to our Performance Equity Plan 2000 to increase
                  the number of shares of common stock available for issuance
                  under the plan from 700,000 shares of common stock to 830,000
                  shares of common stock; 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 July 31,
2001, the record date, are entitled to vote at the meeting. As of July 31, 2001,
we had issued and outstanding 2,657,046 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.


                                       2
<Page>



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 as follows:

         o        FOR the election of the nominees listed below under Proposal
                  1; and

         o        FOR the approval of the amendment to our Performance Equity
                  Plan 2000 as described below under 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:

         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


                                       3
<Page>

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?

         o   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.

         o   The amendment to our Performance Equity Plan 2000 to increase the
number of shares we may issue under the plan must be approved by a majority of
the votes cast at the meeting with respect to the proposal.

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. 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).





                                       4
<Page>

Security Ownership of Certain Beneficial Owners and Management

         The table and accompanying footnotes on the following pages set forth
certain information as of August 14, 2001, with respect to the ownership of our
common stock by: (i) those persons or groups who beneficially own more than 5%
of our common stock, (ii) each of our directors, (iii) our chief executive
officer and our other executive officers whose total compensation exceeded
$100,000 during the fiscal year ended December 31, 2000, and (iv) 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,
shares of common stock issuable upon exercise of options and warrants which are
currently exercisable or exercisable within 60 days of the date of this proxy
statement have been included in the following table with respect to the
beneficial ownership of the person owning the options or warrants, but not with
respect to any other persons listed below.


                                                 Beneficial Shares   Percent of
Name and Address of Beneficial Owner(1)              Owned(2)           Class
- --------------------------------------           -----------------   -----------

Arthur August................................        816,686(3)         25.8%

Edward J. Fred...............................        305,102(4)         10.3%

Walter Paulick...............................         11,668(5)           *

Kenneth McSweeney............................          6,667(6)           *

Timothy Stone(7).............................         30,000(8)         1.1%

Daniel Liguori(7) ...........................        333,334(9)         11.1%

All directors and executive officers               1,170,123(10)        33.2%
as a group (five persons)....................

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

*        Less than 1%

(1)      Unless otherwise noted, the address of each person is c/o CPI
         Aerostructures, Inc., 200A Executive Drive, Edgewood, New York 11717.

(2)      Unless otherwise noted, we believe that all persons named in the table
         have sole voting and investment power with respect to all of the shares
         of common stock beneficially owned by them, subject to community
         property laws, where applicable.

(3)      Includes 513,252 shares of common stock which Mr. August has the right
         to acquire upon exercise of options granted under the 1992 Employee
         Stock Option Plan, 1995 Employee Stock Option Plan, the 1998
         Performance Equity Plan and the Performance Equity Plan 2000. Excludes
         (i) 43,333 shares of common stock owned by Mr. August's children or
         held in trust for Mr. August's grandchildren, and (ii) 3,000 shares of
         common stock owned by Mr. August's wife, all of which Mr. August
         disclaims beneficial ownership. Also excludes 1,750 shares of common
         stock underlying options not currently exercisable.


                                       5
<Page>

(4)      Includes 305,002 shares of common stock which Mr. Fred has the right to
         acquire upon the exercise of options granted under the 1995 Plan, 1998
         Plan and Plan 2000.

(5)      Represents shares of common stock which Mr. Paulick has the right to
         acquire upon the exercise of options granted under the 1992 Plan, 1995
         Plan and 1998 Plan.

(6)      Represents shares of Common Stock which Mr. McSweeney has the right to
         acquire upon the exercise of options granted under the 1995 Plan and
         1998 Plan.

(7)      The business address of Mr. Stone and Mr. Liguori is care of Kolar,
         Inc., 407 Cliff Street, Ithaca, New York 14850.

(8)      Represents shares of common stock which Mr. Stone has the right to
         acquire upon exercise of options granted under the 1998 Plan.

(9)      Represents shares of common stock which Mr. Liguori has the right to
         acquire by converting the promissory note he received in connection
         with our purchase of Kolar Machine, Inc.

(10)     Includes 866,589 shares issuable upon the exercise of options deemed to
         be included in Messrs. August, Fred, Paulick, McSweeney and Stone
         respective beneficial ownership as disclosed in notes 3, 4, 5, 6 and 8.
         Excludes 1,750 shares of common stock underlying options not currently
         exercisable as disclosed in note 3.






                                       6
<Page>


                                   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. The term of office of the first
class of directors (Class I), presently consisting of Kenneth McSweeney, will
expire in 2002; the term of office of the second class of directors (Class II),
presently consisting of Walter Paulick, will expire in 2003; and the term of
office of the third class of directors (Class III), presently consisting of
Arthur August and Edward J. Fred will expire at the annual meeting. If elected,
Messrs. August and Fred will each serve for a term of three years. To be
elected, Messrs. August and Fred must receive a plurality of the votes cast at
the 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, Nominees and Executive Officers

         Set forth below is certain information concerning each of our directors
and executive officers:


Name                        Age        Position
- ----                        ---        --------

Arthur August..........      66        Chairman of the Board of Directors,
                                       President, Chief Executive Officer and
                                       Director

Edward J. Fred.........      42        Executive Vice President, Chief Financial
                                       Officer, Secretary and Director

Walter Paulick.........      54        Director

Kenneth McSweeney......      69        Director

Timothy Stone(1).......      41        President of Kolar, Inc.

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

(1)      Mr. Stone became an officer of ours in July 2000 and an "executive
         officer" in March 2001.


         Arthur August, a founder of ours, has been our chairman of our board of
directors, president and chief executive officer since January 1980. From 1956
to 1979, Mr. August was employed by Northrop Grumman Corporation, an aerospace
products manufacturer, where he last held the position of Deputy Director. Mr.
August holds a degree in Aeronautical Engineering from the Academy of
Aeronautics (1956), a B.S. degree in Industrial Management from C. W. Post
College (1963), a Masters degree in Engineering from New York University (1965)
and is a graduate of the Program for Management Development at the Harvard
Graduate School of Business (1977).


                                       7
<Page>

         Edward J. Fred has been a director and our secretary since December
1998. Mr. Fred was our controller from February 1995 until April 1998 when he
became our chief financial officer. He has also been an executive vice president
since May 2001. For approximately ten years prior to joining our company, Mr.
Fred served in various positions for the international division of Northrop
Grumman, where he last held the position of controller.

         Walter Paulick has been a director since April 1992. 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.

         Kenneth McSweeney has been a director since February 1998. He has
provided various consulting services to us since January 1995. Mr. McSweeney is
currently an independent consultant to various aerospace corporations. From 1961
to 1995, Mr. McSweeney served in various management positions for Northrop
Grumman, most recently as the vice president of their 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 a
Bachelor and Master of Science Degree in Electrical Engineering from the
Polytechnic Institute of Brooklyn and a Master in Business Management from C.W.
Post College. He also completed the Executive Development Program at the Cornell
School of Business and Public Administration.

         Timothy Stone has been president of Kolar, Inc. since July 2000. Mr.
Stone has over eight years experience in managing manufacturing facilities.
Since June 1999, Mr. Stone has served as the operations manager for Elmira
Stamping and Manufacturing. From 1994 to 1999, he served as the operations
manager for a division of Thomas & Betts. His initial leadership skills were
developed while serving in the United States Marine Corp. and strengthened by
his four-year career in the National Football League.

Board of Directors Compensation

         Currently, directors do not receive cash compensation for serving on
our board of directors, although they are reimbursed for the reasonable expenses
they incur in attending meetings. Messrs. Paulick and McSweeney, our two
non-officer directors, have each received stock options from us. Mr. Paulick
received options to purchase 1,667 shares of common stock in each of 1996 and
1998, options to purchase 3,334 in 1997 and options to purchase 5,000 shares of
common stock in 1999. Mr. McSweeney received options to purchase 1,667 shares of
common stock in 1998 and options to purchase 5,000 shares of common stock in
1999.

Board of Directors Meetings and Information

         Our board of directors held four meetings in 2000 and took action by
unanimous written consent in lieu of a meeting on ten occasions. We have
standing compensation and audit committees. We do not have a nominating
committee. 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 2000.


                                       8
<Page>



Compensation Committee Information

         Our compensation committee is currently comprised of Messrs. Fred,
Paulick and McSweeney. The compensation committee held two meetings in 2000. The
main role of the compensation committee is to review and approve the
compensation that we pay to our officers.

Audit Committee Information and Report

         Our audit committee is currently comprised of Messrs. Paulick
(Chairman), August and McSweeney. The audit committee held four meetings in
2000.

         Audit Fees

         For the fiscal year ended December 31, 2000, the aggregate fees billed
for professional services rendered for the audit of our annual financial
statements and the reviews of our financial statements included in our quarterly
reports totaled $91,769.

         Financial Information Systems Design and Implementation Fees

         For the fiscal year ended December 31, 2000, there were no fees billed
for professional services by our independent auditors rendered in connection
with, directly or indirectly, operating or supervising the operation of our
information system or managing our local area network.

         All Other Fees

         For the fiscal year ended December 31, 2000, the aggregate fees billed
for all other professional services rendered by our independent auditors totaled
$45,017.

         Audit Committee Report

         Two of the three members of the audit committee is an "independent
director" and is "financially literate" as defined under the recently adopted
American Stock Exchange listing standards. The 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.

         According to our audit committee's written charter, which was adopted
on March 30, 2000, our audit committee's responsibilities include, among other
things:

         o        reviewing and reassessing the adequacy of the committee's
                  formal charter;


                                       9
<Page>

         o        reviewing the annual audited financial statements with
                  management, including major issues regarding accounting and
                  auditing principles and practices as well as the adequacy of
                  internal controls that could significantly affect our
                  financial statements;

         o        reviewing an analysis prepared by management and the
                  independent auditor of significant financial reporting issues
                  and judgments made in connection with the preparation of our
                  financial statements;

         o        meeting periodically with management to review our major
                  financial risk exposures and the steps management has taken to
                  monitor and control these exposures;

         o        reviewing major changes to our auditing and accounting
                  principles and practices as suggested by the independent
                  auditor, internal auditors or management;

         o        recommending to the board the appointment of the independent
                  auditor;

         o        reviewing all related party transactions on an ongoing basis
                  for potential conflict of interest situations.

A copy of the audit committee charter is attached as Appendix A.

         Our audit committee has met and held 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
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. Based
upon the committee's discussion with management and the independent auditors and
the committee's review of the representations of management and the report of
the independent auditors to the audit committee, the committee recommended that
the board of directors include the audited consolidated financial statements in
our annual report on Form 10-KSB for the fiscal year ended December 31, 2000.

                  Walter Paulick
                  Arthur August
                  Kenneth McSweeney



                                       10
<Page>



Employment Agreements

         Arthur August is employed by us under a written employment agreement,
dated August 14, 2001, as chairman of the board, president and chief executive
officer until December 31, 2001 and as chairman of the board and chief executive
officer from January 1, 2002 until December 31, 2004. Mr. August's employment
agreement provides that he is entitled to receive a minimum annual base salary
of $300,000 until December 31, 2002 and $100,000 from January 1, 2003 until
December 31, 2004. Mr. August is also entitled to receive an annual bonus equal
to 4% of our net income during the fiscal years ending December 31, 2001 and
2002 and an annual bonus equal to 3% and 2% of our net income during the fiscal
years ending December 31, 2003 and 2004, respectively. The agreement also
requires that Mr. August not compete with us for the term of the agreement and
for five years thereafter in exchange for us paying him a fee of $300,000, in
five equal annual installments commencing upon the termination of Mr. August's
employment. The agreement also provides that we will maintain certain hospital
and health insurance benefits for Mr. August following his retirement. In
connection with entering into the August 14, 2001 agreement, we granted him a
ten-year option to purchase 100,000 shares of our common stock at an exercise
price equal to the fair market value of our common stock on the day before the
date of grant.

         Edward J. Fred is employed by us under a written employment agreement,
dated August 14, 2001, as executive vice president, chief financial officer and
secretary until December 31, 2001 and as president, chief financial officer and
secretary from January 1, 2002 until December 31, 2004. Mr. Fred's employment
agreement provides that he is entitled to receive a minimum annual base salary
of $150,000 from August 14, 2001 until December 31, 2001; $200,000 from January
1, 2002 until December 31, 2002; $216,000 from January 1, 2003 until December
31, 2003 and $233,280 form January 1, 2004 until December 31, 2004. Mr. Fred is
also entitled to receive an annual bonus equal to 2% of our net income during
the fiscal years ending December 31, 2001 and 2002 and an annual bonus equal to
3% and 4% of our net income during the fiscal years ending December 31, 2003 and
2004, respectively. The agreement requires that Mr. Fred not compete with us for
the term of the agreement and for one year thereafter. The agreement also
provides that we will maintain certain hospital and health insurance benefits
for Mr. Fred following his retirement. In connection with entering into the
August 14, 2001 agreement, we granted him a ten-year option to purchase 100,000
shares of our common stock at an exercise price equal to the fair market value
of our common stock on the day before the date of grant.

         Timothy Stone was appointed president of Kolar, Inc. in July 2000,
succeeding Mr. Daniel Liguori in that position. Under Mr. Stone's employment
agreement, which expires on April 30, 2003, Mr. Stone receives an annual salary
of $120,000. The employment agreement also provides that during the term of his
employment with Kolar and for a period of one year thereafter, Mr. Stone will
not compete with Kolar.



                                       11
<Page>



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, 2000, 1999 and 1998, by our chief executive officer and our other executive
officers whose total compensation exceeded $100,000.

                           Summary Compensation Table
<Table>
<Caption>

    |----------------------------------------------------------------------------------------------
    |                                 |          Annual Compensation       | Long Term Compensation|
    |---------------------------------|------------------------------------------------------------|
    |Name and                         |         |             |            | Securities Underlying |
    |Principal Position               |   Year  |   Salary    |   Bonus    |      Options          |
    |---------------------------------|---------|-------------|------------|-----------------------|
<S>                                      <C>       <C>            <C>               <C>
    |Arthur August,                   |  2000   |  $307,854   |   $82,000  |        200,000        |
    |Chief Executive Officer and      |  1999   |  $313,114   |   $36,000  |        115,000        |
    |President                        |  1998   |  $321,102   |     -0-    |         33,334        |
    |---------------------------------|---------|-------------|------------|-----------------------|
    |Edward J. Fred,                  |  2000   |  $149,728   |   $59,000  |        125,000        |
    |Executive Vice President and     |  1999   |  $102,595   |     -0-    |         60,000        |
    |Chief Financial Officer          |  1998   |  $  92,192  |     -0-    |         13,334        |
    |---------------------------------|---------|-------------|------------|-----------------------|
    |Daniel Liguori,                  |  2000   |  $126,628   |     -0-    |          -0-          |
    |Former President -               |  1999   |  $156,621   |     -0-    |          -0-          |
    |Kolar, Inc.(1)                   |  1998   |  $160,470   |     -0-    |          -0-          |
    |---------------------------------|---------|-------------|------------|-----------------------|
    |Timothy Stone                    |  2000   |  $103,284   |     -0-    |          -0-          |
    |President - Kolar, Inc.(2)       |         |             |            |                       |
     ----------------------------------------------------------------------------------------------
</Table>

(1)      Daniel Liguori was employed as president of Kolar under an employment
         agreement which expired on October 9, 2000. Mr. Liguori resigned from
         this position on July 10, 2000, but continued his employment through
         the contract end date. The employment agreement provided Mr. Liguori
         with an annual base salary of $168,000. Amounts shown reflect his
         salary from January 1, 2000 through October 9, 2000.

(2)      Mr Stone became an executive officer in March 2001. We are providing
         compensation information regarding Mr. Stone on a voluntary basis.




                                       12
<Page>




                        OPTION GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>
- --------------------------------------------------------------------------------
|                 |  Number of   |   Percent of    |               |            |
|                 |  Securities  |    Options      |               |            |
|                 |  Underlying  |   Granted to    |   Per Share   |            |
|                 |   Options    |  Employees in   |    Exercise   | Expiration |
|                 |   Granted    |  Fiscal Year(1) |      Price    |    Date    |
|-----------------|--------------|-----------------|---------------|----------- |
<S>                  <C>              <C>               <C>          <C>
|Arthur August    |    200,000   |      49.0%      |      $2.59    |  5/18/10   |
|-----------------|--------------|-----------------|---------------|------------|
|Edward J. Fred   |    125,000   |      30.6%      |      $2.59    |  5/18/10   |
|-----------------|--------------|-----------------|---------------|------------|
|Timothy Stone(2) |     30,000   |       7.4%      |      $3.13    |  3/25/10   |
 -------------------------------------------------------------------------------
</Table>

(1)      We granted a total of 408,000 options to employees in the fiscal year
         ended December 31, 2000.

(2)      Mr. Stone became an executive officer in March 2001. We are providing
         compensation information for Mr. Stone voluntarily.

               AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
                                FYE OPTION VALUES
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------
|                 |                    |           |  Number of Unexercised  |    Value of Unexercised |
|                 |     Number of      |           |      Options at FYE     |  In-The-Money Options at|
|                 |Shares Acquired on  |  Value    |       Exercisable/      |      FYE Exercisable/   |
|   Name          |      Exercise      | Realized  |     Unexercisable(1)    |        Unexercisable    |
|-----------------|--------------------|-----------|-------------------------|-------------------------|
<S>                       <C>             <C>           <C>                             <C>
|Arthur August    |        -0-         |   -0-     |      398,835/16,167     |             -0-         |
|-----------------|--------------------|-----------|-------------------------|-------------------------|
|Edward J. Fred   |        -0-         |   -0-     |        205,002/0        |             -0-         |
|-----------------|--------------------|-----------|-------------------------|-------------------------|
|Timothy Stone(2) |        -0-         |   -0-     |         30,000/0        |             -0-         |
|-------------------------------------------------------------------------------------------------------
</Table>


(1)      On December 31, 2000, the last reported sales price of our common stock
         on the American Stock Exchange was $2.813.

(2)      Mr. Stone became an executive officer in March 2001. We are providing
         compensation information regarding Mr. Stone on a voluntary basis.


         We do not have any long-term incentive plan awards.


                                       13
<Page>

Employee Benefit Plans

         On February 1, 1991, we adopted a Qualified Sick Pay Plan which covers
full-time executive officers and managers. The Qualified Sick Pay Plan provides
covered employees with income during periods of disability due to sickness or
injury and is funded through the purchase of disability income insurance
policies.

         On September 11, 1996, we instituted a fully-qualified 401(k) Employee
Savings Plan. The plan is totally voluntary and employee contributions to the
plan commenced on October 1, 1996. We have the option to make voluntary matching
and profit-sharing contributions to the account of our employees.

Stock Options

         We have four stock option plans:

         o        Performance Equity Plan 2000

         o        1998 Performance Equity Plan

         o        1995 Employee Stock Option Plan

         o        1992 Employee Stock Option Plan

         The Performance Equity Plan 2000 authorizes the grant of 700,000
options, of which options to purchase a total of 450,000 shares of common stock
have been granted to certain of our employees and executives at exercise prices
ranging from $2.00 to $2.59 per share. As of August 14, 2001, 250,000 additional
shares of common stock remain eligible for the grant of options.

         The 1998 Performance Equity Plan authorizes the grant of 463,334
options, of which options to purchase a total of 451,002 shares of common stock
have been granted to certain of our employees and executive officers, at
exercise prices ranging from $2.53 to $6.90 per share. As of August 14, 2001,
12,332 additional shares of common stock remain eligible for the grant of
options.

         The 1995 Employee Stock Option Plan authorizes the grant of 200,000
options, of which options to purchase 156,143 shares of common stock have been
granted to certain of our employees, executive officers and directors at
exercise prices ranging from $2.53 to $9.00 per share. As of August 14, 2001,
21,667 additional shares of common stock remain eligible for the grant of
options.

         The 1992 Employee Stock Option Plan authorizes the grant of 83,334
options, of which options to purchase 62,167 shares are outstanding at exercise
prices ranging from $2.59 to $6.27 per share granted to certain of our
employees, executive officers and directors. As of August 14, 2001, 5,112
additional shares of common stock remain eligible for the grant of options.


                                       14
<Page>



         Other Options

         In April 1998, we issued warrants to purchase a total of 33,334 shares
of common stock at an exercise price of $7.50 per share to GBI Capital Partners
Inc. (f/k/a Gaines, Berland Inc.), as compensation for acting as our investment
banker pursuant to a consulting agreement. The warrants expire in April 2003.

         In December 1999, we issued an option to purchase 15,000 shares of
common stock to another consultant at an exercise price of $2.53. The option
expires in December 2004.

Certain Transactions

         In October 2000, we adopted the Greit Plan for the purpose of offering
senior management a deferred compensation death benefit plan that provides a
tax-free benefit and which is tax-neutral to the Company. 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 will be returned to him. Mr. August intends
to place the proceeds from the surrender value in an annuity which will mature
to $150,000. Simultaneously, Mr. August will purchase an insurance policy, of
which the Company will be the sole beneficiary, in the amount of $150,000 until
the date upon which the annuity matures to $150,000. 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.

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who beneficially own more than ten
percent of our common stock to file initial reports of ownership and reports of
changes in ownership of common stock with the Securities and Exchange
Commission. Executive officers, directors and greater-than-ten percent
shareholders are required by SEC regulations to furnish us with copies of all
reports they file. Based solely on our copies of forms received or written
representations from certain reporting persons that no Form 5's were required
for those persons, we believe that, during the fiscal year ended December 31,
2000, all filing requirements applicable to our officer, directors and greater
than ten percent beneficial owners were complied with.

                                   PROPOSAL 2

                  AMENDMENT TO OUR PERFORMANCE EQUITY PLAN 2000

         On August 8, 2000, our shareholders adopted the Performance Equity Plan
2000 covering 700,000 shares of our common stock, under which our officers,
directors, employees and consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation rights, restricted stock awards,
deferred stock, stock reload options and other stock-based awards. As of August
14, 2001, there were outstanding grants under the Performance Equity Plan 2000
of options to purchase an aggregate of 450,000 shares of common stock.
Accordingly, we have an aggregate of 250,000 shares of common stock available
under the plan for future grants. Our board of directors proposes to amend the
plan to increase the number of shares issuable under the plan by an additional
132,852 shares. The board believes that the increase in the size of the plan is


                                       15
<Page>

necessary to enable us to continue to attract and retain employees and
consultants of the highest caliber and provide increased incentive for them to
promote our well-being through the grant of options.

Summary of the Plan

         The following summary of the Performance Equity Plan 2000 does not
purport to be complete, and is subject to and qualified in its entirety by
reference to the plan.

         Administration

         The plan is administered by our board or our compensation committee. If
the plan is to be administered by our compensation committee, each member of the
committee, to the extent possible, will be a "non-employee" director as defined
in Rule 16b-3 promulgated under the Exchange Act and an "outside director" as
defined in regulations issued under Section 162(m) of the Internal Revenue Code.
Subject to the provisions of the plan, the board or committee determines, among
other things, the persons to whom from time to time awards may be granted, the
specific type of awards to be granted, the number of shares subject to each
award, share prices, any restrictions or limitations on the, and any vesting,
exchange, deferral, surrender, cancellation, acceleration, termination, exercise
or forfeiture provisions related to the awards.

         Stock Subject to the Plan

         A total of 700,000 shares of our common stock have currently been
reserved and are available for grant under the plan. Shares of our common stock
reserved for issuance under stock options that cease to be subject to these
options, and any shares of stock subject to other awards that are forfeited or
terminated, will be available for future award grants under the plan. If a
holder pays the exercise price of a stock option by surrendering any previously
owned shares of common stock or arranges to have the appropriate number of
shares otherwise issuable upon exercise withheld to cover the withholding tax
liability associated with the stock option exercise, then the number of shares
available under the plan will be increased by the lesser of the number of such
surrendered shares and shares used to pay taxes and the number of shares
purchased under the stock option.

         Under the plan, on a change in the number of shares of our common stock
as a result of a dividend on shares of common stock payable in shares of common
stock, common stock split or reverse split or other extraordinary or unusual
event which results in a change in the shares of common stock as a whole, the
board or committee may determine whether the change equitably requires adjusting
the terms of the award or the aggregate number of shares reserved for issuance
under the plan.

         Eligibility

         We may grant awards under the plan to employees, officers, directors
and consultants who are deemed to have rendered, or to be able to render,
significant services to us and our subsidiaries and who are deemed to have
contributed, or to have the potential to contribute, to our success.


                                       16
<Page>


         Types of Awards

         Options. The plan provides both for "incentive" stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, and for
options not qualifying as incentive options, both of which may be granted with
any other stock-based award under the plan. To the extent that any stock option
intended to qualify as an incentive stock option does not so qualify, it will
constitute a non-qualified stock option.

         The board or committee determines the exercise price per share of
common stock purchasable under an incentive or non-qualified stock option. The
exercise price of stock options may not be less than 100% of the fair market
value on the day of the grant or, if greater, the par value of a share of common
stock. However, the exercise price of an incentive stock option granted to a
person possessing more than 10% of the total combined voting power of all
classes of our stock may not be less than 110% of the fair market value on the
date of grant. Additionally, if the stock option is granted in connection with
the recipient's hiring, promotion or similar event, the exercise price may not
be less than the fair market value of the common stock on the trading date
immediately preceding the date on which the recipient is hired or promoted if
the grant of the stock option occurs not more than 120 days after the date of
the hiring, promotion or other event. The number of shares covered by incentive
stock options which may be exercised by participants during any calendar year
cannot have an aggregate fair market value in excess of $100,000, measured at
the date of grant.

         The term of each stock option will be fixed by the board or committee.
However, an incentive stock option may only be granted within a ten-year period
from August 8, 2000 and may only be exercised within ten years from the date of
the grant, or within five years in the case of an incentive stock option granted
to a person who, at the time of the grant, owns common stock possessing more
than 10% of the total combined voting power of all classes of our stock.

         Generally, stock options granted under the plan may not be transferred
other than by will or by the laws of descent and distribution and all stock
options are exercisable, during the holder's lifetime, only by the holder, or in
the event of legal incapacity or incompetency, the holder's guardian or legal
representative. However, a holder, with the approval of the board or committee,
may transfer a non-qualified stock option:

         o        by gift to a family member of the holder,

         o        by domestic relations order to a family member of the holder,
                  or

         o        by transfer to an entity in which more than fifty percent of
                  the voting interests are owned by family members of the holder
                  or the holder, in exchange for an interest in that entity.

         Generally, if the holder is an employee, no stock options granted under
the plan may be exercised by the holder unless he or she is employed by us or a
subsidiary of ours at the time of the exercise and has been so employed
continuously from the time the stock options were granted. However, if the
employment of a holder who is an employee of ours or a subsidiary of ours is
terminated by reason of death or disability, the portion of the stock option
that has vested on the date of termination may be exercised by the legal
representation of the holder's estate or by the legatee of the holder under the


                                       17

<Page>

holder's will or by the disabled holder, as the case may be, for a period of
twelve months, or until the expiration of the stated term of the stock option,
whichever period is shorter, or such greater or lesser period as the board or
committee may determine. If the holder's employment is terminated due to normal
retirement, then the portion of the stock option that has vested on the date of
termination may be exercised for the lesser of three years after termination, or
the balance of the stock option's exercise period, whichever period is shorter,
or such greater or lesser period as the board or committee may determine. If the
holder's employment is terminated for any reason other than death, disability or
normal retirement, the stock option will automatically terminate, except that if
the holder's employment is terminated by us without cause, then the portion of
any stock option that has vested on the date of termination may be exercised for
the lesser of three months after termination, or the balance of the stock
option's term, whichever period is shorter, or such greater or lesser period as
the board or committee may determine.

         Stock Reload Options. Under the plan, we may grant stock reload options
to a holder who tenders shares of common stock to pay the exercise price of a
stock option or arranges to have a portion of the shares otherwise issuable upon
exercise withheld to pay the applicable withholding taxes. A stock reload option
permits a holder who exercises a stock option by delivering stock owned by the
holder for a minimum of six months to receive a new stock option at the current
market price for the same number of shares delivered to exercise the option. The
exercise price of stock reload options shall be the fair market value of our
common stock as of the date of exercise of the underlying stock option. Unless
otherwise determined, a stock reload option may be exercised commencing one year
after it is granted and expires on the expiration date of the underlying option.

         Stock Appreciation Rights. Under the plan, we may grant stock
appreciation rights to participants who have been, or are being, granted stock
options under the plan as a means of allowing the participants to exercise their
stock options without the need to pay the exercise price in cash. A stock
appreciation right entitles the holder to surrender to us all or a portion of a
stock option in exchange for a number of shares of our common stock determined
by dividing (a) the excess of the fair market value per share of our common
stock on the exercise date over the exercise price per share multiplied by the
number of shares being surrendered, by (b) the fair market value of the stock
option on the date the stock appreciation right is exercised. In the case of
non-qualified stock options, stock appreciation rights may be granted either at
or after the time of the grant of the non-qualified stock options. In the case
of incentive stock options, stock appreciation rights may be granted only at the
time of the grant of the incentive stock options. A stock appreciation right
will terminate upon termination or exercise of the related stock option. The
granting of a stock appreciation right will not affect the number of shares of
common stock available for awards under the plan. The number of shares available
for awards under the plan will, however, be reduced by the number of shares of
common stock acquirable upon exercise of the stock option to which the stock
appreciation right relates.

         Restricted Stock. Under the plan, we may award shares of our common
stock which are subject to such restrictions as the board or compensation
committee may determine, either alone or in addition to other awards granted
under the plan. The board or committee determines which awards of restricted
stock may be subject to forfeiture and the vesting schedule of the shares under
the award.

         A holder will have the right to vote the restricted stock granted to
him and to receive dividend payments distributed on the shares in the form of
cash or cash equivalents. However, during the time that restricted stock is


                                       18
<Page>

subject to forfeiture and until the restricted stock is fully vested, we will
retain custody of the stock certificate representing the restricted shares and
will retain custody of all distributions, other than payment of dividends in
cash or in cash equivalents, made or declared with respect to the restricted
stock. If the holder breaches the terms or conditions set forth in the plan or
in the award agreement pertaining to the restricted stock award, or if the
restricted stock otherwise does not vest, then the holder will forfeit the award
of restricted stock and any distributions which were retained by us related to
the restricted stock.

         Deferred Stock. Under the plan, we may award shares of our common stock
to be received at the end of a specific deferral period and upon satisfaction of
any other applicable restrictions, terms and conditions provided for in the
grant of the award, either alone or in addition to other awards granted under
the plan. Any deferred stock that does not vest will be forfeited. The holder
shall not have any rights of a shareholder until the expiration of the
applicable deferral period and the issuance and delivery of the certificates
evidencing the award of the deferred stock. The holder may request to defer the
receipt of a deferred stock award for an additional specified period or until a
specified event. This request must generally be made at least one year prior to
the expiration of the deferral period for the deferred stock award.

         Other Stock-Based Awards. Under the plan, we may grant other
stock-based awards, subject to limitations under applicable law, that are
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, shares of common stock, as deemed consistent
with the purposes of the plan. These other stock-based awards may be in the form
of purchase rights, shares of common stock awarded which are not subject to any
restrictions or conditions, convertible or exchangeable debentures or other
rights convertible into shares of common stock and awards valued by reference to
the value of securities of, or the performance of, one of our subsidiaries.
These other stock-based awards may be awarded either alone, in addition to, or
in tandem with any other awards under the plan or any of our other plans.

         Competition; Solicitation of Customers and Employees; Disclosure of
Confidential Information

         If a holder's employment with us or a subsidiary of ours is terminated
for any reason whatsoever, and within 12 months after the date of termination,
the holder either:

         o        accepts employment with any competitor of, or otherwise
                  engages in competition with, us or any of our subsidiaries,

         o        solicits any of our or our subsidiaries' customers or
                  employees to do business with or render services to the holder
                  or any business with which the holder becomes affiliated or to
                  which the holder renders services, or

         o        uses or discloses to anyone outside our company any of our
                  confidential information or material in violation of our
                  policies or any agreement between us and the holder,


                                       19
<Page>

the board or the committee may require the holder to return to us the economic
value of any award that was realized or obtained by the holder at any time
during the period beginning on the date that is 12 months prior to the date the
holder's employment with us is terminated.

         Withholding Taxes

         Upon the exercise of any award granted under the plan, the holder may
be required to remit to us an amount sufficient to satisfy all federal, state
and local withholding tax requirements prior to delivery of any certificate or
certificates for shares of common stock.

         Term and Amendments

         Unless terminated by the board, the plan shall continue to remain
effective until no further awards may be granted and all awards granted under
the plan are no longer outstanding. Notwithstanding the foregoing, grants of
incentive stock options may be made only until August 8, 2010. The board may at
any time, and from time to time, amend the plan, provided that no amendment will
be made that would impair the rights of a holder under any agreement entered
into pursuant to the plan without the holder's consent.

Federal Income Tax Consequences

         The following discussion of the federal income tax consequences of
participation in the plan is only a summary of the general rules applicable to
the grant and exercise of stock options and other awards and does not give
specific details or cover, among other things, state, local and foreign tax
treatment of participation in the plan. The information contained in this
section is based on present law and regulations, which are subject to being
changed prospectively or retroactively.


         Incentive Stock Options

         The holder will recognize no taxable income upon the grant of an
incentive stock option. The holder will realize no taxable income when the
incentive stock option is exercised if the holder has been an employee of our
company or our subsidiaries at all times from the date of the grant until three
months before the date of exercise, or one year if the holder is disabled. The
excess, if any, of the fair market value of the shares on the date of exercise
of an incentive stock option over the exercise price will be treated as an item
of adjustment for a holder's taxable year in which the exercise occurs and may
result in an alternative minimum tax liability for the holder. We will not
qualify for any deduction in connection with the grant or exercise of incentive
stock options. Upon a disposition of the shares after the later of two years
from the date of grant or one year after the transfer of the shares to the
holder, the holder will recognize the difference, if any, between the amount
realized and the exercise price as long-term capital gain or long-term capital
loss, as the case may be, if the shares are capital assets.

         If common stock acquired upon the exercise of an incentive stock option
is disposed of prior to the expiration of the holding periods described above:


                                       20
<Page>




         o        the holder will recognize ordinary compensation income in the
                  taxable year of disposition in an amount equal to the excess,
                  if any, of the lesser of the fair market value of the shares
                  on the date of exercise or the amount realized on the
                  disposition of the shares, over the exercise price paid for
                  such shares, and

         o        we will qualify for a deduction equal to any such amount
                  recognized, subject to the limitation that the compensation be
                  reasonable.

In the case of a disposition of shares earlier than two years from the date of
the grant or in the same taxable year as the exercise, where the amount realized
on the disposition is less than the fair market value of the shares on the date
of exercise, there will be no adjustment since the amount treated as an item of
adjustment, for alternative minimum tax purposes, is limited to the excess of
the amount realized on such disposition over the exercise price, which is the
same amount included in regular taxable income.

         Non-qualified Stock Options

         With respect to non-qualified stock options:

         o        upon grant of the stock option, the holder will recognize no
                  income, provided that the exercise price was not less than the
                  fair market value of our common stock on the date of grant;

         o        upon exercise of the stock option, if the shares of common
                  stock are not subject to a substantial risk of forfeiture, the
                  holder will recognize ordinary compensation income in an
                  amount equal to the excess, if any, of the fair market value
                  of the shares on the date of exercise over the exercise price,
                  and we will qualify for a deduction in the same amount,
                  subject to the requirement that the compensation be
                  reasonable; and

         o        we will be required to comply with applicable federal income
                  tax withholding requirements with respect to the amount of
                  ordinary compensation income recognized by the holder.

On a disposition of the shares, the holder will recognize gain or loss equal to
the difference between the amount realized and the sum of the exercise price and
the ordinary compensation income recognized. The gain or loss will be treated as
capital gain or loss if the shares are capital assets and as short-term or
long-term capital gain or loss, depending upon the length of time that the
holder held the shares.

         If the shares acquired upon exercise of a non-qualified stock option
are subject to a substantial risk of forfeiture, the holder will recognize
ordinary income at the time when the substantial risk of forfeiture is removed,
unless the holder timely files under Section 83(b) of the Code to elect to be
taxed on the receipt of shares, and we will qualify for a corresponding
deduction at that time. The amount of ordinary income will be equal to the
excess of the fair market value of the shares at the time the income is
recognized over the amount, if any, paid for the shares.

                                       21
<Page>


         Stock Appreciation Rights

         Upon the grant of a stock appreciation right, the holder recognizes no
taxable income and we receive no deduction. The holder recognizes ordinary
income and we receive a deduction at the time of exercise equal to the cash and
fair market value of common stock payable upon the exercise.

         Restricted Stock

A holder who receives restricted stock will recognize no income on the grant of
the restricted stock and we will not qualify for any deduction. At the time the
restricted stock is no longer subject to a substantial risk of forfeiture, a
holder will recognize ordinary compensation income in an amount equal to the
excess, if any, of the fair market value of the restricted stock at the time the
restriction lapses over the consideration paid for the restricted stock. A
holder's shares are treated as being subject to a substantial risk of forfeiture
so long as his or her sale of the shares at a profit could subject him or her to
a suit under Section 16 (b) of the Exchange Act. The holding period to determine
whether the holder has long-term or short-term capital gain or loss begins when
the restriction period expires, and the tax basis for the shares will generally
be the fair market value of the shares on this date.

         A holder may elect, under Section 83(b) of the Code, within 30 days of
the transfer of the restricted stock, to recognize ordinary compensation income
on the date of transfer in an amount equal to the excess, if any, of the fair
market value on the date of transfer of the shares of restricted stock,
determined without regard to the restrictions, over the consideration paid for
the restricted stock. If a holder makes an election and thereafter forfeits the
shares, no ordinary loss deduction will be allowed. The forfeiture will be
treated as a sale or exchange upon which there is realized loss equal to the
excess, if any, of the consideration paid for the shares over the amount
realized on the forfeiture. The loss will be a capital loss if the shares are
capital assets. If a holder makes an election under Section 83(b), the holding
period will commence on the day after the date of transfer and the tax basis
will equal the fair market value of shares, determined without regard to the
restrictions, on the date of transfer.

         On a disposition of the shares, a holder will recognize gain or loss
equal to the difference between the amount realized and the tax basis for the
shares.

         Whether or not the holder makes an election under Section 83(b), we
generally will qualify for a deduction, subject to the reasonableness of
compensation limitation, equal to the amount that is taxable as ordinary income
to the holder, in its taxable year in which the income is included in the
holder's gross income. The income recognized by the holder will be subject to
applicable withholding tax requirements.

         Dividends paid on restricted stock which is subject to a substantial
risk of forfeiture generally will be treated as compensation that is taxable as
ordinary compensation income to the holder and will be deductible by us subject
to the reasonableness limitation. If, however, the holder makes a Section 83(b)
election, the dividends will be treated as dividends and taxable as ordinary
income to the holder, but will not be deductible by us.


                                       22

<Page>

         Deferred Stock

         A holder who receives an award of deferred stock will recognize no
income on the grant of the award. However, he or she will recognize ordinary
compensation income on the transfer of the deferred stock, or the later lapse of
a substantial risk of forfeiture to which the deferred stock is subject, if the
holder does not make a Section 83(b) election, in accordance with the same rules
as discussed above under the caption "restricted stock."

         Other Stock-Based Awards

         The federal income tax treatment of other stock-based awards will
depend on the nature of the award and the restrictions applicable to the award.

         THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE PROPOSAL TO AMEND THE PLAN TO INCREASE THE NUMBER OF SHARES ISSUABLE UPON
GRANT OF OPTIONS AND OTHER STOCK-BASED AWARDS THEREUNDER.

                             INDEPENDENT ACCOUNTANTS

         The board of directors has selected the independent accounting firm of
Goldstein Golub Kessler & Company, P.C. as our auditors for the year ending
December 31, 2001. A representative of Goldstein Golub Kessler & Company, P.C.,
our auditors for the year ended December 31, 2000, 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.

                           2002 SHAREHOLDER PROPOSALS

         Our by-laws provide that no shareholder nomination for our board of
directors or proposal on any other matter may be brought before the shareholders
without providing our secretary at least 120 days prior written notice, based
upon the date that our proxy statement was released to shareholders in
connection with the previous year's annual meeting. Therefore, in order for
shareholder proposals for next year's annual meeting of shareholders to be
eligible for inclusion in our proxy statement, they must be received by our
secretary at our principal office in Edgewood, New York not later than April 17,
2002. 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 annual meeting of shareholders with respect to any proposal presented by
a shareholder at the meeting, without any discussion of the proposal in our
proxy statement for the meeting, unless we receive notice of the proposal at our
principal office in Edgewood, New York, no later than July 1, 2002.


                                       23

<Page>

                             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 our 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.

                                  OTHER MATTERS

         The board of directors knows of no matter which 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
August 15, 2001
















                                       24
<Page>
                                                                  APPENDIX A

                            CPI AEROSTRUCTURES, INC.

                             AUDIT COMMITTEE CHARTER



The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company, (2) the compliance
by the Company with legal and regulatory requirements and (3) the independence
and performance of the Company's internal and external auditors. The Audit
Committee shall also review all related party transactions on an ongoing basis
for potential conflict of interest situations.

The members of the Audit Committee shall meet the independence and experience
requirements of the Nasdaq Stock Market, Inc. The members of the Audit Committee
shall be appointed by the Board.

The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.

The Audit Committee shall make regular reports to the Board.

The Audit Committee shall:

1.       Review and reassess the adequacy of this Charter annually and recommend
         any proposed changes to the Board for approval.

2.       Review the annual audited financial statements with management,
         including major issues regarding accounting and auditing principles and
         practices as well as the adequacy of internal controls that could
         significantly affect the Company's financial statements.

3.       Review an analysis prepared by management and the independent auditor
         of significant financial reporting issues and judgments made in
         connection with the preparation of the Company's financial statements.

4.       Review with management and the independent auditor the Company's
         quarterly financial statements prior to the filing of its Form 10-Q.

5.       Meet periodically with management to review the Company's major
         financial risk exposures and the steps management has taken to monitor
         and control such exposures.


                                       1

<Page>



6.       Review major changes to the Company's auditing and accounting
         principles and practices as suggested by the independent auditor,
         internal auditors or management.

7.       Recommend to the Board the appointment of the independent auditor,
         which firm is ultimately accountable to the Audit Committee and the
         Board.

8.       Approve the fees to be paid to the independent auditor.

9.       Receive periodic reports from the independent auditor regarding the
         auditor's independence consistent with Independence Standards Board
         Standard 1, discuss such reports with the auditor, and if so determined
         by the Audit Committee, take or recommend that the full Board take
         appropriate action to oversee the independence of the auditor.

10.      Evaluate together with the Board the performance of the independent
         auditor and, if so determined by the Audit Committee, recommend that
         the Board replace the independent auditor.

11.      Review the appointment and replacement of the senior internal auditing
         executive.

12.      Review the significant reports to management prepared by the internal
         auditing department and management's responses.

13.      Meet with the independent auditor prior to the audit to review the
         planning and staffing of the audit.

14.      Obtain from the independent auditor assurance that Section 10A of the
         Securities Exchange Act of 1934 has not been implicated.

15.      Obtain reports from management, the Company's senior internal auditing
         executive and the independent auditor that the Company's
         subsidiary/foreign affiliated entities are in conformity with
         applicable legal requirements and the Company's Code of Conduct.

16.      Discuss with the independent auditor the matters required to be
         discussed by Statement on Auditing Standards No. 61 relating to the
         conduct of the audit.

17.      Review with the independent auditor any problems or difficulties the
         auditor may have encountered and any management letter provided by the
         auditor and the Company's response to that letter. Such review should
         include:

         (a)      Any difficulties encountered in the course of the audit work,
                  including any restrictions on the scope of activities or
                  access to required information.

         (b)      Any changes required in the planned scope of the internal
                  audit.


                                        2

<Page>


         (c)      The internal audit department responsibilities, budget and
                  staffing.

18.      Prepare the report required by the rules of the Securities and Exchange
         Commission to be included in the Company's annual proxy statement.

19.      Advise the Board with respect to the Company's policies and procedures
         regarding compliance with applicable laws and regulations and with the
         Company's Code of Conduct.

20.      Review with the Company's General Counsel legal matters that may have a
         material impact on the financial statements, the Company's compliance
         policies and any material reports or inquiries received from regulators
         or governmental agencies.

21.      Meet at least annually with the chief financial officer, the senior
         internal auditing executive and the independent auditor in separate
         executive sessions.

22.      Review all related party transactions on an ongoing basis for potential
         conflict of interest situations.

         While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Conduct.

                                        3
<Page>
     CPI AEROSTRUCTURES, INC. - PROXY - Solicited By The Board Of Directors
       for Annual Meeting of Shareholders To Be Held on September 18, 2001

                 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 other, as the agents, attorneys and proxies of the
  P     undersigned, to vote the shares standing in the name of the undersigned
        at the Annual Meeting to be held on September 18, 2001 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, except  WITHHOLD AUTHORITY to vote
  O      as marked to the contrary below  |_|   for all nominees listed below|_|

                                  Arthur August
  X                               Edward J. Fred

       INSTRUCTIONS:   To withhold authority to vote for any individual nominee,
  Y                    write that nominee's name in the space below.

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


       2.   To approve an amendment to the Performance Equity Plan 2000 to
            increase the number of shares available for issuance under the Plan.

               FOR    |_|           AGAINST    |_|         ABSTAIN    |_|



        3.   In their discretion, the proxies are authorized to vote upon such
             other business as may come before the meeting or any adjournment
             thereof.




                           Date ________________________________, 2001

                           _____________________________________________
                           Signature

                           _____________________________________________
                           Signature if held jointly


                           Please sign exactly as name appears to the left. When
                           shares are held by joint tenants, both must sign.
                           When signing as attorney, executor, administrator,
                           trustee or guardian, give full title. If a
                           corporation or partnership, please sign corporate or
                           partnership name by authorized person, indicating
                           position.



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