CPI AEROSTRUCTURES INC
STOCK OPTION AGREEMENT
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<TYPE>EX-10.22
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<DESCRIPTION>STOCK OPTION AGREEMENT
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                                                                   EXHIBIT 10.22

                             STOCK OPTION AGREEMENT

     AGREEMENT, dated May 17, 2004, by and between CPI Aerostructures, Inc., a
New York corporation ("Company") with principal offices located at 200A
Executive Drive Edgewood, New York 11717, and Vincent Palazzolo ("Employee")
residing at 1595 James Road, Wantagh, New York 11752.

     WHEREAS, pursuant to the terms and conditions of the Company's 1995 Stock
Option Plan ("Plan"), the Board of Directors of the Company authorized the grant
to the Employee of an option ("Option") to purchase an aggregate of 50,000
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 50,000 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" up to the maximum extent
allowable under Section 422 of the Internal Revenue Code of 1986, as amended.

     3. Exercise Price. The exercise price ("Exercise Price") of the Option is
$10.48 per share, subject to adjustment as hereinafter provided.

     4. Exercisability. Subject to the terms and conditions of the Plan and this
Agreement, (i) this Option is exercisable as to 25,000 of the Option Shares on
May 17, 2005 and

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as to the remaining 25,000 Option Shares on May 17, 2006; and (ii) after a
portion of the Option becomes exercisable, it shall remain exercisable until the
close of business on May 16, 2014 ("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 and/or Due to Retirement.
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 June 30, 2003) or due to Normal Retirement (as
defined below), then the Option may 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. "Normal Retirement" means retirement from active
employment with the Company or any subsidiary on or after such age which may be
designated by the Committee as "retirement age" for any particular holder. If no
age is designated, it will be 62.

     5.4. Other Termination.

          (a) If Employee's employment is terminated for any reason other than
(i) death, (ii) Disability, (iii) Normal Retirement, or (iv) without Cause by
the Company, the Option shall expire on the date of termination of employment.

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          (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 a 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


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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.

     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


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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. Accelerated Vesting and Exercisability. If any "person" (as such term
is used in Sections 13(d) and 14(d) of the Exchange Act of 1934, as amended
("Exchange Act")) other than any of the Company's existing current directors
and/or their affiliates, is or becomes the "beneficial owner" (as referred in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities in one or more transactions, then the vesting
periods of the Option shall be accelerated and the entire Option shall become
exercisable immediately.

     11. 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.

     12. 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;


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          (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:

     "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.

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     13. 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.

     14. Miscellaneous.

          14.1. 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.

          14.2. 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.

          14.3. 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.

          14.4. 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.

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          14.5. 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.

          14.6. 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.

          14.7. 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).

          14.8. 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.

     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.
200A Executive Drive
Edgewood, New York 11717
Attention:

                 Re:  Purchase of Option Shares

Gentlemen:

     In accordance with my Stock Option Agreement dated as of May ___, 2004 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]):

     [ ]  a [personal check] [certified check] [bank check] payable to the order
          of "CPI Aerostructures, Inc." in the sum of $_________;

     [ ]  confirmation of wire transfer in the amount of $_____________; and/or

     [ ]  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 1995 Stock Option Plan 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;


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     (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 Agreement.

     (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;

     (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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