EXECUTION COPY

STOCK OPTION AGREEMENT

AGREEMENT, dated December 1, 2006, by and between CPI Aerostructures, Inc., a
New York corporation (‘‘Company’’) with principal offices located at 60
Heartland Blvd., Edgewood, New York 11717, and Vincent Palazzolo (‘‘Employee’’)
residing at 1595 James Road, Wantagh, New York 11793.

WHEREAS, pursuant to the terms and conditions of the Company’s Performance
Equity Plan 2000 (‘‘Plan’’), the Board of Directors of the Company authorized
the grant to the Employee of an option (‘‘Option’’) to purchase an aggregate of
25,000 shares of the authorized but unissued common stock of the Company, $.001
par value (‘‘Common Stock’’), conditioned upon the Employee’s acceptance thereof
upon the terms and conditions set forth in this Agreement and subject to the
terms of the Plan (capitalized terms used herein and not otherwise defined have
the meanings set forth in the Plan); and

WHEREAS, the Employee desires to acquire the Option on the terms and conditions
set forth in this Agreement and subject to the terms of the Plan;

IT IS AGREED:

1.    Grant of Stock Option.    The Company hereby grants to the Employee the
right and option to purchase all or any part of an aggregate of 25,000 shares of
the Common Stock (‘‘Option Shares’’) on the terms and conditions set forth
herein and subject to the provisions of the Plan.

2.    Incentive Stock Option.    The Option represented hereby is intended to be
an Option that qualifies as an ‘‘Incentive Stock Option’’ under Section 422 of
the Internal Revenue Code of 1986, as amended.

3.    Exercise Price.    The exercise price (‘‘Exercise Price’’) of the Option
is $6.75 per share, subject to adjustment as hereinafter provided.

4.    Exercisability.    Subject to the terms and conditions of the Plan and
this Agreement, this Option is exercisable as to 8,333 of the Option Shares on
November 30, 2007, 8,333 of the Option Shares on November 30, 2008 and 8,334 of
the Option Shares on November 30, 2009. After a portion of the Option becomes
exercisable, it shall remain exercisable until the close of business on November
30, 2016 (‘‘Exercise Period’’).

5.    Effect of Termination of Employment.

5.1    Termination Due to Death.    If Employee’s employment by the Company
terminates by reason of death, the Option may thereafter be exercised by the
legal representative of the estate or by the legatee of the Employee under the
will of the Employee, for a period of 12 months from the date of such death or
until the expiration of the Exercise Period, whichever period is shorter.

5.2    Termination Due to Disability.    If Employee’s employment by the Company
terminates by reason of physical of mental impairment as determined under
procedures established by the Committee for purposes of the Plan
(‘‘Disability’’), the Option may thereafter be exercised by the Employee or
legal representative for a period of 12 months from the date of such termination
or until the expiration of the Exercise Period, whichever period is shorter.

5.3    Termination by the Company Without Cause or by Employee for ‘‘Good
Reason’’.    Subject to Section 5.5, if Employee’s employment is terminated by
the Company without ‘‘Cause’’ (as defined in Section 4.3 of the Employment
Agreement between the Company and Employee, dated as of December 1, 2006
(‘‘Employment Agreement’’)) or by Employee for ‘‘Good Reason’’ (as defined in
the Employment Agreement), the portion of the Option, if any, that was
exercisable as of the date of termination of employment may thereafter be
exercised for a period of three months from the date of such termination or
until the expiration of the Exercise Period, whichever is shorter.

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5.4    Other Termination.

(a)    If Employee’s employment is terminated for any reason other than (i)
death, (ii) Disability, (iii) without Cause by the Company or (v) by Employee
for ‘‘Good Reason’’, the Option shall expire on the date of termination of
employment.

(b)    In the event the Employee’s employment is terminated by the Company for
Cause, the Board of Directors, in its sole discretion, may annul any award
granted hereunder and require the Employee to return to the Company the economic
benefit of any Option Shares purchased hereunder by the Employee within the 12
month period prior to the date of termination. In such event, the Employee
hereby agrees to remit to the Company, in cash, an amount equal to the
difference between the Fair Market Value of the Option Shares on the date of
termination (or the sales price of such Shares if the Option Shares were sold
during such 12 month period) and the Exercise Price of such Shares.

5.5    Competing With the Company.    If Employee’s employment with the Company
or a Subsidiary is terminated for any reason whatsoever, and within 12 months
after the date thereof such Employee either (i) accepts employment with any
competitor of, or otherwise engages in competition with, the Company or any of
its Subsidiaries, (ii) solicits any customers or employees of the Company or any
of its Subsidiaries to do business with or render services to the Employee or
any business with which the Employee becomes affiliated or to which the Employee
renders services or (iii) uses or discloses to anyone outside the Company any
confidential information or material of the Company or any of its Subsidiaries
in violation of the Company’s policies or any agreement between the Employee and
the Company or any of its Subsidiaries, the Committee, in its sole discretion,
may require such Employee to return to the Company the economic value of any
award that was realized or obtained by such Employee at any time during the
period beginning on the date that is 12 months prior to the date such Employee’s
employment with the Company is terminated. In such event, Employee agrees to
remit the economic value to the Company in accordance with Section 5.4(b).

6.    Withholding Tax.    Not later than the date as of which an amount first
becomes includible in the gross income of the Employee for Federal income tax
purposes with respect to the Option, the Employee shall pay to the Company, or
make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount (‘‘Withholding Tax’’). The obligations of the
Company under the Plan and pursuant to this Agreement shall be conditional upon
such payment or arrangements with the Company and the Company shall, to the
extent permitted by law, have the right to deduct any Withholding Taxes from any
payment of any kind otherwise due to the Employee from the Company.

7.    Adjustments.    In the event of any change in the shares of Common Stock
of the Company as a whole occurring as the result of a common stock split, or
reverse split, common stock dividend payable on shares of Common Stock,
combination or exchange of shares, or other extraordinary or unusual event
occurring after the grant of the Option, the Board of Directors shall determine,
in its sole discretion, whether such change equitably requires an adjustment in
the terms of this Option or the aggregate number of shares reserved for issuance
under the Plan. Any such adjustments will be made by the Board of Directors,
whose determination will be final, binding and conclusive.

8.    Method of Exercise.

8.1    Notice to the Company.    The Option shall be exercised in whole or in
part (but in no case may this Option be exercised as to less than 100 shares of
Common Stock at any one time) by written notice in substantially the form
attached hereto as Exhibit A directed to the Company at its principal place of
business accompanied by full payment as hereinafter provided of the exercise
price for the number of Option Shares specified in the notice and of the
Withholding Taxes, if any.

8.2    Delivery of Option Shares.    The Company shall deliver a certificate for
the Option Shares to the Employee as soon as practicable after payment therefor.

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8.3    Payment of Purchase Price.

8.3.1    Cash Payment.    The Employee shall make cash payments by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; the Company shall not be required to deliver certificates
for Option Shares until the Company has confirmed the receipt of good and
available funds in payment of the purchase price thereof.

8.3.2    Cashless Payment.    Provided that prior approval of the Company has
been obtained, the Employee may use Common Stock of the Company owned by him or
her to pay the purchase price for the Option Shares by delivery of stock
certificates in negotiable form which are effective to transfer good and valid
title thereto to the Company, free of any liens or encumbrances. Shares of
Common Stock used for this purpose shall be valued at the Fair Market Value.

8.3.3    Payment of Withholding Tax.    Any required Withholding Tax may be paid
in cash or with Common Stock in accordance with Sections 8.3.1 and 8.3.2.

9.    Transfer.    The Option Shares shall not be transferable by the Employee
other than by will or by the laws of descent and distribution, and the Option
shall be exercisable, during the Employee’s lifetime, only by the Employee (or
in the event of legal incapacity or incompetency, the Employee’s guardian or
legal representative).

10.    Company Representations.    The Company hereby represents and warrants to
the Employee that:

(i)    the Company, by appropriate and all required action, is duly authorized
to enter into this Agreement and consummate all of the transactions contemplated
hereunder; and

(ii)    the Option Shares, when issued and delivered by the Company to the
Employee in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.

11.    Employee Representations.    The Employee hereby represents and warrants
to the Company that:

(i)    he is acquiring the Option and shall acquire the Option Shares for his
own account and not with a view towards the distribution thereof;

(ii)    he has received a copy of the Plan as in effect as of the date of this
Agreement;

(iii)    he has received a copy of all reports and documents required to be
filed by the Company with the Securities and Exchange Commission pursuant to the
Exchange Act, within the last 24 months and all reports issued by the Company to
its stockholders;

(iv)    he understands that he must bear the economic risk of the investment in
the Option Shares, which cannot be sold by him unless they are registered under
the Securities Act of 1933 (‘‘1933 Act’’) or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the Option
Shares for sale under the 1933 Act;

(v)    in his position with the Company, he has had both the opportunity to ask
questions and receive answers from the officers and directors of the Company and
all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (iii) above;

(vi)    he is aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the 1933 Act or an exemption therefrom as provided herein;

(vii)    if, at the time of issuance of the Option Shares, the issuance of such
shares have not been registered under the 1933 Act, the certificates evidencing
the Option Shares shall bear the following legend:

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‘‘The shares represented by this certificate have been acquired for investment
and have not been registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under said Act.’’

; and

(viii)    he is aware of and understands that he is subject to the Company’s
Insider Trading Policy and has received a copy of such policy as of the date of
this Agreement.

12.    Restriction on Transfer of Option Shares.    Anything in this Agreement
to the contrary notwithstanding, the Employee hereby agrees that he shall not
sell, transfer by any means or otherwise dispose of the Option Shares acquired
by him without registration under the 1933 Act, or in the event that they are
not so registered, unless (i) an exemption from the 1933 Act registration
requirements is available thereunder, (ii) the Employee has furnished the
Company with notice of such proposed transfer and the Company’s legal counsel,
in its reasonable opinion, shall deem such proposed transfer to be so exempt,
and (iii) such transfer is in compliance with the Company’s Insider Trading
Policy, as in effect at such time.

13.    Miscellaneous.

13.1    Notices.    All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, or by private courier to the parties at their
respective addresses set forth herein, or to such other address as either party
shall have specified by notice in writing to the other. Notice shall be deemed
duly given hereunder when delivered or mailed as provided herein.

13.2    Conflicts with the Plan.    In the event of a conflict between the
provisions of the Plan and the provisions of this Agreement, the provisions of
the Plan shall in all respects be controlling.

13.3    Employee and Stockholder Rights.    The Employee shall not have any of
the rights of a stockholder with respect to the Option Shares until such shares
have been issued after the due exercise of the Option. Nothing contained in this
Agreement shall be deemed to confer upon Employee any right to continued
employment with the Company or any subsidiary thereof, nor shall it interfere in
any way with the right of the Company to terminate Employee, who understands
that he is an employee-at-will.

13.4    Waiver.    The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.

13.5    Entire Agreement.    This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended except by writing executed by the Employee and the Company.

13.6    Binding Effect; Successors.    This Agreement shall inure to the benefit
of and be binding upon the parties hereto and, to the extent not prohibited
herein, their respective heirs, successors, assigns and representatives. Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto and as provided above, their respective heirs,
successors, assigns and representatives any rights, remedies, obligations or
liabilities.

13.7    Governing Law.    This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without regard to choice of
law provisions).

13.8    Headings.    The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.

13.9    Section 409A.    The Option granted hereunder is intended to be exempt
from the provisions of Section 409A of the Internal Revenue Code of 1986, as
amended (‘‘Section 409A’’). To the extent that the Options or any payments or
benefits provided hereunder are considered deferred compensation subject to
Section 409A, the Company intends for this Agreement and the

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Option to comply with the standards for nonqualified deferred compensation
established by Section 409A (the ‘‘409A Standards’’). Notwithstanding anything
herein to the contrary, to the extent that any terms of this Agreement or the
Option would subject the Employee to gross income inclusion, interest or an
additional tax pursuant to Section 409A, those terms are to that extent
superseded by the 409A Standards. The Company reserves the right to amend the
Option granted hereunder to cause such Option to comply with or be exempt from
Section 409A.

IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the day and
year first above:

CPI AEROSTRUCTURES, INC.

By:    /s/ Edward J. Fred                
Name:    Edward J. Fred
Title:      Chief Executive Officer

EMPLOYEE

/s/ Vincent Palazzolo               
VINCENT PALAZZOLO

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EXHIBIT A

FORM OF NOTICE OF EXERCISE OF OPTION

                                    
            DATE

CPI AEROSTRUCTURES, INC.
60 Heartland Blvd.
Edgewood, New York 11717
Attention: Board of Directors

Re:    Purchase of Option Shares

Gentlemen:

In accordance with my Stock Option Agreement dated as of December 1, 2006 with
CPI Aerostructures, Inc. (‘‘Company’’), I hereby irrevocably elect to exercise
the right to purchase                      shares of the Company’s common stock,
par value $.001 per share (‘‘Common Stock’’), which are being purchased for
investment and not for resale.

As payment for my shares, enclosed is (check and complete applicable box[es]):

[spacer.gif] [spacer.gif] [spacer.gif] [ ] [ebox.gif]  a [personal check]
[certified check] [bank check] payable to the order of ‘‘CPI Aerostructures,
Inc.’’ in the sum of $                    ;

[spacer.gif] [spacer.gif] [spacer.gif] [ ] [ebox.gif]  confirmation of wire
transfer in the amount of $                                ; and/or

[spacer.gif] [spacer.gif] [spacer.gif] [ ] [ebox.gif]  with the consent of the
Company, a certificate for                          shares of the Company's
Common Stock, free and clear of any encumbrances, duly endorsed, having a Fair
Market Value (as such term is defined in the Performance Equity Plan 2000 of
$                    .

I hereby represent and warrant to, and agree with, the Company that:

(i)    I am acquiring the Option Shares for my own account, for investment, and
not with a view towards the distribution thereof;

(ii)    I have received a copy of the Plan and all reports and documents
required to be filed by the Company with the Commission pursuant to the Exchange
Act within the last 24 months and all reports issued by the Company to its
stockholders;

(iii)    I understand that I must bear the economic risk of the investment in
the Option Shares, which cannot be sold by me unless they are registered under
the Securities Act of 1933 (‘‘1933 Act’’) or an exemption therefrom is available
thereunder and that the Company is under no obligation to register the Option
Shares for sale under the 1933 Act;

(iv)    I agree that I will not sell, transfer by any means or otherwise dispose
of the Option Shares acquired by me hereby except in accordance with Company’s
policy, if any, regarding the sale and disposition of securities owned by
employees and/or directors of the Company;

(v)    in my position with the Company, I have had both the opportunity to ask
questions and receive answers from the officers and directors of the Company and
all persons acting on its behalf concerning the terms and conditions of the
offer made hereunder and to obtain any additional information to the extent the
Company possesses or may possess such information or can acquire it without
unreasonable effort or expense necessary to verify the accuracy of the
information obtained pursuant to clause (ii) above;

(vi)    my rights with respect to the Option Shares shall, in all respects, be
subject to the terms and conditions of the Company’s Performance Equity Plan
2000 and the Ageement;

(vii)    I am aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the 1933 Act or an exemption therefrom as provided herein;

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(viii)    if, at the time of issuance of the Option Shares, the issuance of such
shares have not been registered under the 1933 Act, the certificates evidencing
the Option Shares shall bear the following legend:

‘‘The shares represented by this certificate have been acquired for investment
and have not been registered under the Securities Act of 1933. The shares may
not be sold or transferred in the absence of such registration or an exemption
therefrom under said Act.’’

; and

(ix)    I am aware of and understand that I am subject to the Company’s Insider
Trading Policy and have received a copy of such policy as of the date of this
Agreement.

Kindly forward to me my certificate at your earliest convenience.

Very truly yours,

                                                                                                                                                
(Signature)                                                                    (Address)

                                                                                                                                                
(Print Name)

                                                                                                                                                
                                                                            (Social
Security Number)

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