New Bonus
ITEM 1.01 -- EXECUTION OF A MATERIAL, NON-ORDINARY COURSE AGREEMENT
On February 7, 2005, CPI Aerostructures, Inc. ("Company") entered into
amended and restated employment agreements with each of Edward J. Fred and
Vincent Palazzolo, pursuant to which Mr. Fred will continue to be employed as
President and Chief Executive Officer until December 31, 2007 and Mr. Palazzolo
will continue to be employed as Chief Financial Officer until December 31, 2006.
The amended agreements were the result of the decision of the Company's board of
directors to redesign the bonus structure for the Company's senior executive
officers to be based on the Company's growth in revenues and earnings instead of
a straight percentage of the Company's net income.
In addition to incorporating the Company's revised executive bonus
structure, which will be implemented beginning with the year ending December 31,
2005, Mr. Fred's amended employment agreement extends his employment term for
two additional years from December 31, 2005 until December 31, 2007. A 6% salary
increase will be implemented in each of 2006 and 2007. For the year ended
December 31, 2004, Mr. Fred is eligible to receive an annual bonus equal to 4%
of the Company's consolidated net income, which was the bonus calculation in Mr.
Fred's prior agreement. For the years ending December 31, 2005, 2006 and 2007,
Mr. Fred is eligible to receive an annual bonus based on changes in the
Company's revenues and earnings before interest, taxes, depreciation and
amortization ("EBITDA") from the prior year. 25% of the bonus amount is
determined by revenues and 75% by EBITDA. To the extent that a 10% annual
increase in revenues and EBITDA from the prior year is achieved, Mr. Fred will
be entitled to a target annual bonus equal to 65% of his annual base salary.
Should the revenue and/or EBITDA levels fall short of or exceed a 10% increase
from the prior year, Mr. Fred's bonus will decrease or increase by predetermined
percentages. If there is more than a 15% annual decrease in EBITDA or revenues,
no EBITDA bonus or revenue bonus will be paid. If there is an annual increase of
100% or more in EBITDA or revenues, Mr. Fred's EBITDA bonus or revenue bonus
will be 75% more than the target annual bonus. Both bonuses will be adjusted pro
rata if EBITDA and/or revenues fall in between two designated percentages. The
first $140,000 of bonus will be paid in cash and the balance will be paid half
in cash and half in shares of the Company's common stock. The shares of common
stock will be valued at the average of the last sale prices of the common stock
for five consecutive trading days ending two trading days before issuance.
In addition to incorporating the Company's revised executive bonus
structure, Mr. Palazzolo's amended employment agreement reflects a 5% salary
increase, which will be implemented in August 2005. For the year ended December
31, 2004, Mr. Palazzolo is eligible to receive an annual bonus equal to 1% of
the Company's consolidated net income, which was the bonus calculation in Mr.
Fred's prior agreement. For the years ending December 31, 2005 and 2006, Mr.
Palazzolo is eligible to receive an annual bonus based on changes in the
Company's revenues and EBITDA from the prior year. Mr. Palazzolo's bonus
structure is identical to Mr. Fred's except that to the extent that a 10% annual
increase in revenues and EBITDA from the prior year is achieved, Mr. Palazzolo
will be entitled to a target annual bonus equal to 45% of his annual base salary as opposed to Mr. Fred's 65%). Another difference from Mr. Fred's bonus structure is that the first $75,000 of Mr. Palazzolo's bonus
(instead of $140,000 for Mr. Fred) will be paid in cash and the balance will be
paid half in cash and half in shares of the Company's common stock.
Additionally, the provision contained in both Messrs. Fred and
Palazzolo's amended employment agreements which describes the percentage of
total voting power of the Company's outstanding securities necessary to trigger
a "change in control" (as defined in the respective employment agreements) was
changed from 30% to 50%.
A copy of the employment agreements for Messrs. Fred and Palazzolo are
included herein as Exhibits 10.23 and 10.24, respectively. |
