EXECUTION COPY

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

AGREEMENT dated as of December 1, 2006 between VINCENT PALAZZOLO, residing at
1595 James Road, Wantagh, New York 11793 (‘‘Executive’’), and CPI
AEROSTRUCTURES, INC., a New York corporation having its principal office at 60
Heartland Blvd., Edgewood, New York 11717 (‘‘Company’’);

WHEREAS, Executive has served as the Company’s Chief Financial Officer pursuant
to an Employment Agreement, dated February 7, 2005 (‘‘Prior Employment
Agreement’’); and

WHEREAS, the Company and Executive desire to amend and restate the Prior
Employment Agreement (as so amended and restated, this ‘‘Agreement’’) to provide
for continued employment of Executive by the Company for the period and upon the
terms and conditions set forth herein;

IT IS AGREED:

1.    Employment, Duties and Acceptance.

1.1    General.    The Company hereby agrees to the continued employment of
Executive as its Chief Financial Officer (‘‘CFO’’). All of Executive’s powers
and authority in any capacity shall at all times be subject to the direction and
control of the Company’s Board of Directors. The Board may assign to Executive
such management and supervisory responsibilities and executive duties for the
Company or any subsidiary of the Company, including serving as an executive
officer and/or director of any subsidiary, as are consistent with Executive’s
status as CFO. The Company and Executive acknowledge that Executive’s primary
functions and duties as CFO shall be to manage and supervise the Company’s
financial operations.

1.2    Full-Time Position.    Executive accepts such employment and agrees to
devote substantially all of his business time, energies and attention to the
performance of his duties hereunder. Nothing herein shall be construed as
preventing Executive from making and supervising personal investments, provided
they will not interfere with the performance of Executive’s duties hereunder or
violate the provisions of Section 5.4 hereof.

1.3    Location.    The Company will maintain its principal executive offices
within a 30-mile radius of its current location in Edgewood, New York. Executive
shall undertake such occasional travel, within or outside the United States, as
is reasonably necessary in the interests of the Company.

2.    Term.    The term of Executive’s employment hereunder shall commence on
January 1, 2007 and shall continue until December 31, 2009 (‘‘Term’’) unless
terminated earlier as hereinafter provided in this Agreement, or unless extended
by mutual written agreement of the Company and Executive. Unless the Company and
Executive have otherwise agreed in writing, if Executive continues to work for
the Company after the expiration of the Term, his employment thereafter shall be
under the same terms and conditions provided for in this Agreement, except that
his employment will be on an ‘‘at will’’ basis and the provisions of Sections
4.4 and 4.6(c) shall no longer be in effect.

3.    Compensation and Benefits.

3.1    Salary.    The Company shall pay to Executive a salary (‘‘Base Salary’’)
at the annual rate of (i) $200,000 from January 1, 2007 until December 31, 2007,
(ii) $208,000 from January 1, 2008 until December 31, 2008 and (iii) $216,300
from January 1, 2009 to December 31, 2009. Executive’s compensation shall be
paid in equal, periodic installments in accordance with the Company’s normal
payroll procedures.

3.2    Bonus.    In addition to Base Salary, for each of the years ending
December 31, 2007, 2008 and 2009, Executive shall be paid a bonus (‘‘Bonus’’) to
be calculated in the manner set forth on Schedule A annexed hereto. The amount
of the Bonus shall be pro-rated to the date of termination of Executive’s
employment. The Bonus with respect to any year shall be paid on or prior to
April 15 of the following year.

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

3.3    Options.

(a)    As additional compensation for Executive entering into this Agreement and
agreeing to be bound by its terms (including Article 5 hereof) and for the
services to be rendered by Executive hereunder, the Company hereby grants to
Executive a ten-year option (‘‘Option’’) to purchase 25,000 shares of the
Company’s common stock under the Company’s Performance Equity Plan 2000
(‘Plan’’).

(b)    The Option shall be evidenced by a Stock Option Agreement in the form
attached hereto as Exhibit A. The Option shall be an incentive option and shall
have an exercise price equal to the closing price of the Company’s common stock
on the date of grant. Except as otherwise provided in the Stock Option
Agreement, the Option will vest in three equal annual installments commencing on
the first anniversary of the date of grant of such Option and shall expire on
the date immediately preceding the tenth anniversary of the date of grant of
such option.

3.4    Benefits.    Executive shall be entitled to such medical, life,
disability and other benefits as are generally afforded to other executives of
the Company, subject to applicable waiting periods and other conditions.

3.5    Vacation.    Executive shall be entitled to such paid vacation days in
each year during the Term and to a reasonable number of other days off for
religious and personal reasons in accordance with customary Company policy.

3.6    Automobile.    During the Term, the Company shall provide a luxury class
automobile (reasonably satisfactory to Executive) for Executive to be used in
connection with the business of the Company. The Company shall reimburse
Executive for all costs associated with the use of such automobile, including
lease and insurance costs, repairs and maintenance.

3.7    Expenses.    The Company shall pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
itemized vouchers submitted with respect to any such expenses and approved in
accordance with customary procedures.

3.8    Club Membership.    During the Term, Executive shall be entitled to a
country club membership, as long as the Company maintains a group membership at
such club.

4.    Termination.

4.1    Death.    If Executive dies during the Term, Executive’s employment
hereunder shall terminate and the Company shall pay to Executive’s estate the
amount set forth in Section 4.6(a).

4.2    Disability.    The Company, by written notice to Executive, may terminate
Executive’s employment hereunder if Executive shall fail because of illness or
incapacity to render services of the character contemplated by this Agreement
for six consecutive months. Upon such termination, the Company shall pay to
Executive the amount set forth in Section 4.6(a).

4.3    By Company for ‘‘Cause’’.    The Company, by written notice to Executive,
may terminate Executive’s employment hereunder for ‘‘Cause’’. As used herein,
‘‘Cause’’ shall mean: (a) the refusal or failure by Executive to carry out
specific directions of the Board which are of a material nature and consistent
with his status as CFO (or whichever positions Executive holds at such time), or
the refusal or failure by Executive to perform a material part of Executive’s
duties hereunder; (b) the commission by Executive of a material breach of any of
the provisions of this Agreement; (c) fraud or dishonest action by Executive in
his relations with the Company or any of its subsidiaries or affiliates
(‘‘dishonest’’ for these purposes shall mean Executive’s knowingly or recklessly
making of a material misstatement or omission for his personal benefit); or (d)
the conviction of Executive of a felony under federal or state law.
Notwithstanding the foregoing, no ‘‘Cause’’ for termination shall be deemed to
exist with respect to Executive’s acts described in clauses (a) or (b) above,
unless the Company shall have given written notice to Executive specifying the
‘‘Cause’’ with reasonable particularity and, within thirty calendar days after
such notice, Executive shall not have cured or

2

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

eliminated the problem or thing giving rise to such ‘‘Cause;’’ provided,
however, no more than two cure periods need be provided during any twelve-month
period. Upon such termination, the Company shall pay to Executive the amount set
forth in Section 4.6(b).

4.4    By Executive for ‘‘Good Reason’’.    The Executive, by written notice to
the Company, may terminate Executive’s employment hereunder if a ‘‘Good Reason’’
exists. For purposes of this Agreement, ‘‘Good Reason’’ shall mean the
occurrence of any of the following circumstances without the Executive’s prior
written consent: (a) a substantial and material adverse change in the nature of
Executive’s title, duties or responsibilities with the Company that represents a
demotion from his title, duties or responsibilities as in effect immediately
prior to such change; (b) material breach of this Agreement by the Company; (c)
a failure by the Company to make any payment to Executive when due, unless the
payment is not material and is being contested by the Company, in good faith; or
(d) a liquidation, bankruptcy or receivership of the Company. Notwithstanding
the foregoing, no ‘‘Good Reason’’ shall be deemed to exist with respect to the
Company’s acts described in clauses (a), (b) or (c) above, unless Executive
shall have given written notice to the Company specifying the ‘‘Good Reason’’
with reasonable particularity and, within thirty calendar days after such
notice, the Company shall not have cured or eliminated the problem or thing
giving rise to such ‘‘Good Reason’’; provided, however, that no more than two
cure periods shall be provided during any twelve-month period of a breach of
clauses (a), (b) or (c) above. Upon such termination, the Company shall pay to
Executive the amount set forth in Section 4.6(c).

4.5    By Company Without ‘‘Cause’’.    The Company may terminate Executive’s
employment hereunder without ‘‘Cause’’ by giving at least 30 days written notice
to Executive. Upon such termination, the Company shall pay to Executive the
amount set forth in Section 4.6(c).

4.6    Compensation Upon Termination. In the event that Executive’s employment
hereunder is terminated, the Company shall pay to Executive the following
compensation:

(a)    Payment Upon Death or Disability.    In the event that Executive’s
employment is terminated pursuant to Sections 4.1 or 4.2, the Company shall no
longer be under any obligation to Executive or his legal representatives
pursuant to this Agreement except for: (i) the Base Salary due Executive
pursuant to Section 3.1 hereof through the date of termination; (ii) any Bonus
which would have become payable under Section 3.2 for the year in which the
employment was terminated prorated by multiplying the full amount of the Bonus
by a fraction, the numerator of which is the number of ‘‘full calendar months’’
worked by Executive during the year of termination and the denominator of which
is 12 (a ‘‘full calendar month’’ is a month in which the Executive worked at
least two weeks); (iii) all earned and previously approved but unpaid Bonuses
for any year prior to the year of termination; (iv) all valid expense
reimbursements, and (v) all accrued but unused vacation pay.

(b)    Payment Upon Termination by the Company For ‘‘Cause’’.    In the event
that the Company terminates Executive’s employment hereunder pursuant to Section
4.3, the Company shall have no further obligations to the Executive hereunder,
except for: (i) the Base Salary due Executive pursuant to Section 3.1 hereof
through the date of termination (ii) all valid expense reimbursements and (ii)
all unused vacation pay through the date of termination required by law to be
paid.

(c)    Payment Upon Termination by Company Without Cause or by Executive for
Good Reason.    In the event that Executive’s employment is terminated pursuant
to Sections 4.4 or 4.5, the Company shall have no further obligations to
Executive hereunder except for: (i) the Base Salary due Executive pursuant to
Section 3.1 hereof through the end of the Term; (ii) all earned and previously
approved but unpaid Bonuses; (iii) all valid expense reimbursements; and (iv)
all accrued but unused vacation pay.

(d)    Executive shall have no duty to mitigate awards paid or payable to him
pursuant to this Agreement, and any compensation paid or payable to Executive
from sources other than the Company will not offset or terminate the Company’s
obligation to pay to Executive the full amounts pursuant to this Agreement.

3

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

5.    Protection of Confidential Information; Non-Competition.

5.1    Acknowledgment.    Executive acknowledges that:

(a)    As a result of his current and prior employment with the Company,
Executive has obtained and will obtain secret and confidential information
concerning the business of the Company and its subsidiaries (referred to
collectively in this Section 5 as the ‘‘Company’’), including, without
limitation, financial information, proprietary rights, trade secrets and
‘‘know-how,’’ customers and sources (‘‘Confidential Information’’).

(b)    The Company will suffer substantial damage which will be difficult to
compute if, during the period of his employment with the Company or thereafter,
Executive should enter a business competitive with the Company or divulge
Confidential Information.

(c)    The provisions of this Agreement are reasonable and necessary for the
protection of the business of the Company.

5.2    Confidentiality.    Executive agrees that he will not at any time, during
the Term or thereafter, divulge to any person or entity any Confidential
Information obtained or learned by him as a result of his employment with the
Company, except (i) in the course of performing his duties hereunder, (ii) with
the Company’s prior written consent; (iii) to the extent that any such
information is in the public domain other than as a result of Executive’s breach
of any of his obligations hereunder; or (iv) where required to be disclosed by
court order, subpoena or other government process. If Executive shall be
required to make disclosure pursuant to the provisions of clause (iv) of the
preceding sentence, Executive promptly, but in no event more than 48 hours after
learning of such subpoena, court order, or other government process, shall
notify, confirmed by mail, the Company and, at the Company’s expense, Executive
shall: (a) take all reasonably necessary and lawful steps required by the
Company to defend against the enforcement of such subpoena, court order or other
government process, and (b) permit the Company to intervene and participate with
counsel of its choice in any proceeding relating to the enforcement thereof.

5.3    Documents.    Upon termination of his employment with the Company,
Executive will promptly deliver to the Company all memoranda, notes, records,
reports, manuals, drawings, blueprints and other documents (and all copies
thereof) relating to the business of the Company and all property associated
therewith, which he may then possess or have under his control; provided,
however, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship with the Company.

5.4    Non-competition.    During the Term and for a period of two years
thereafter, Executive, without the prior written permission of the Company,
shall not, anywhere in the world, (i) be employed by, or render any services to,
any person, firm or corporation engaged in the contract production of aircraft
parts or any other business which is directly in competition with any
‘‘material’’ business conducted by the Company or any of its subsidiaries at the
time of termination (as used herein ‘‘material’’ means a business which
generated at least 10% of the Company’s consolidated revenues for the last full
fiscal year for which audited financial statements are available) (‘‘Competitive
Business’’); (ii) engage in any Competitive Business for his or its own account;
(iii) be associated with or interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity;
(iv) employ or retain, or have or cause any other person or entity to employ or
retain, any person who was employed or retained by the Company while Executive
was employed by the Company (other than Executive’s personal secretary and
assistant); or (v) solicit, interfere with, or endeavor to entice away from the
Company, for the benefit of a Competitive Business, any of its customers or
other persons with whom the Company has a contractual relationship.
Notwithstanding the foregoing, nothing in this Agreement shall preclude
Executive from investing his personal assets in any manner he chooses, provided,
however, that Executive may not, during the period referred to in this Section
5.4, own more than 4.9% of the equity securities of any Competitive Business.

5.5    Injunctive Relief.    If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 5.2 or 5.4, the Company
shall have the right and remedy to seek to

4

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

have the provisions of this Agreement specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed by Executive that the
services being rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. The rights and remedies enumerated in this
Section 5.5 shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity. In connection with any
legal action or proceeding arising out of or relating to this Agreement, the
prevailing party in such action or proceeding shall be entitled to be reimbursed
by the other party for the reasonable attorneys’ fees and costs incurred by the
prevailing party.

5.6    Modification.    If any provision of Sections 5.2 or 5.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.

5.7    Survival.    The provisions of this Section 5 shall survive the
termination of this Agreement for any reason, except in the event Executive is
terminated by the Company without ‘‘Cause,’’ or if Executive terminates this
Agreement with ‘‘Good Reason,’’ in either of which events, clauses (i), (ii) and
(iii) of Section 5.4 shall be null and void and of no further force or effect.
The non-renewal of this Agreement at the end of the Term shall not be a
termination by the Company without ‘‘Cause’’.

6.    Miscellaneous Provisions.

6.1    Notices.    All notices provided for in this Agreement shall be in
writing, and shall be deemed to have been duly given when (i) delivered
personally to the party to receive the same, or (ii) when mailed first class
postage prepaid, by certified mail, return receipt requested, addressed to the
party to receive the same at his or its address set forth below, or such other
address as the party to receive the same shall have specified by written notice
given in the manner provided for in this Section 6.1. All notices shall be
deemed to have been given as of the date of personal delivery or mailing
thereof.

If to Executive:

Vincent Palazzolo
1595 James Road
Wantagh, New York 11793

If to the Company:

CPI Aerostructures, Inc.
60 Heartland Blvd.
Edgewood, New York 11717
Attn:    Edward J. Fred

With a copy in either case to:

Graubard Miller

The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attn:    David Alan Miller, Esq.

6.2    Entire Agreement; Waiver.    This Agreement and the Stock Option
Agreement executed simultaneously herewith set forth the entire agreement of the
parties relating to the employment of Executive and is intended to supersede all
prior negotiations, understandings and agreements. No provisions of this
Agreement or the Stock Option Agreement may be waived or changed except by a
writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof or thereof shall in no manner affect the right at a later time to enforce
such provision.

5

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

6.3    Governing Law.    All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New York applicable to
agreements made and to be performed entirely in New York.

6.4    Binding Effect; Nonassignability.    This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company. This
Agreement shall not be assignable by Executive, but shall inure to the benefit
of and be binding upon Executive’s heirs and legal representatives.

6.5    Severability.    Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.

6.6    Section 409A.    This Agreement is intended to comply with the provisions
of Section 409A of the Internal Revenue Code (‘‘Section 409A’’). To the extent
that any payments and/or benefits provided hereunder are not considered
compliant with Section 409A, the parties agree that the Company shall take all
actions necessary to make such payments and/or benefits become compliant.

IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.

[spacer.gif] CPI AEROSTRUCTURES, INC.

[spacer.gif] /s/ Edward J. Fred                        

[spacer.gif] By: Edward J. Fred

[spacer.gif] Chief Executive Officer

[spacer.gif] /s/ Vincent Palazzolo                    

[spacer.gif] VINCENT PALAZZOLO

6

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

SCHEDULE A

Bonus: Based on our common understanding of the significance of your
participation in the budgeting process of the Company, your bonus shall be based
on specific revenue and earnings before interest, taxes, depreciation and
amortization (‘‘EBITDA’’) goals, which shall allow you to earn a target annual
bonus equal to forty-five percent (45%) of your annual base salary if a 10%
annual increase is achieved. The Company’s auditors will determine EBITDA after
taking into account all necessary provisions and the accrual of all bonuses,
including your own bonus, and excluding all extraordinary items. Twenty-five
percent (25%) of the bonus amount will be determined by revenues (the ‘‘revenue
bonus’’) and seventy-five percent (75%) by EBITDA (the ‘‘EBITDA bonus’’).

EBITDA Bonus

1.    At 100% of EBITDA target (i.e., 10% growth), your EBITDA bonus will equal
100% of 75% of 45% of base salary.

2.    Should EBITDA fall short or exceed EBITDA target, your EBITDA bonus will
decrease or increase based on the grid, below. For example, if there is a 50%
increase in EBITDA, the EBITDA bonus would equal 150% of 75% of 45% of base
salary; and if there is a 10% decrease in EBITDA, the EBITDA bonus would equal
25% of 75% of 45% of base salary.

3.    If the decrease in EBITDA is 15% or more, no EBITDA bonus will be paid.

4.    Notwithstanding the foregoing, if EBITDA for the year preceding the year
for which the EBITDA bonus is to be determined is less than $1 million, then the
EBITDA bonus will be calculated by comparing the current year’s EBITDA to the
EBITDA of the first preceding year in which EBITDA was in excess of $2 million.

Revenue Bonus

1.    At 100% of revenue target (i.e., 10% growth), your revenue bonus will
equal 100% of 25% of 45% of base salary.

2.    Should revenue fall short or exceed revenue target, your revenue bonus
will decrease or increase based on the grid, below. For example, if there is a
50% increase in revenue, the revenue bonus would equal 150% of 25% of 45% of
base salary; and if there is a 10% decrease in revenue, the revenue bonus would
equal 25% of 25% of 45% of base salary.

3.    If the decrease in revenue is 15% or more, no revenue bonus will be paid.

General

1.    Both bonuses will be adjusted pro rata if EBITDA and/or revenues fall in
between two grid percentages.

2.    The first $75,000 of bonus would be paid in cash. The balance would be
paid half in cash and half in shares of the Company’s common stock, valued at
the VWAP for the five trading days ending two days before issuance. They will be
issued under the Company’s Performance Equity Plan 2000.

3.    The Company and executive to mutually agree on how to handle all
acquisitions.

7

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

Grid

[spacer.gif]

[spacer.gif] [spacer.gif] [spacer.gif] [spacer.gif] Growth [spacer.gif]
[spacer.gif] Bonus Decrease greater than 15% [spacer.gif] [spacer.gif] No bonus
Decrease 10% [spacer.gif] [spacer.gif] 75% Decrease Decrease 5% [spacer.gif]
[spacer.gif] 50% Decrease Flat [spacer.gif] [spacer.gif] 25% Decrease Increase
5% [spacer.gif] [spacer.gif] 10% Decrease Increase 10% [spacer.gif] [spacer.gif]
Baseline bonus Increase 15% [spacer.gif] [spacer.gif] 5% Increase Increase 25%
[spacer.gif] [spacer.gif] 10% Increase Increase 50% [spacer.gif] [spacer.gif]
50% Increase Increase 100% or greater [spacer.gif] [spacer.gif] 75% Increase
[spacer.gif]

8

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