PLACEMENT AGENCY AGREEMENT
 
              May 25, 2016
 
Craig-Hallum Capital Group LLC
222 South Ninth Street, Suite 350
Minneapolis, Minnesota 55402
Attn: Rick Hartfiel, Director of Investment Banking

Taglich Brothers, Inc.
790 New York Avenue, Suite 209
Huntington, New York 11743
Attn: Robert Schroeder, Vice President Investment Banking

Ladies and Gentlemen:
 
Introduction.  Subject to the terms and conditions herein (this “Agreement”),
Air Industries Group, a Nevada corporation (the “Company”), hereby agrees to
sell up to an aggregate of $7,000,000 of securities (the “Securities”) of the
Company, including, but not limited to, 700,000 shares of convertible preferred
stock (the “Preferred Stock”) which are convertible into shares (the “Conversion
Shares”) of the Company’s common stock, $0.001 par value per share (the "Common
Stock”), directly to various investors (each, an “Investor” and, collectively,
the “Investors”) through Craig-Hallum Capital Group LLC (“Craig-Hallum”) and
Taglich Brothers, Inc. (“Taglich Brothers”) as the exclusive co-placement agents
(each a “Placement Agent” and together, the “Placement Agents”).  The documents
executed and delivered by the Company and the Investors in connection with the
Offering (as defined below), including, without limitation, a securities
purchase agreement (the “Purchase Agreement”), a registration rights agreement
(the “Registration Rights Agreement”) and a Certificate of Designation for the
Preferred Stock, shall be collectively referred to herein as the “Transaction
Documents.” The Placement Agents may retain other brokers or dealers to act as
co-placement agents, sub-agents or selected-dealers on their behalf in
connection with the Offering.
 
The Company hereby confirms its agreement with the Placement Agents as follows:
 
Section 1.                      Agreement to Act as Placement Agent.
 
(a)           On the basis of the representations, warranties and agreements of
the Company herein contained, and subject to all the terms and conditions of
this Agreement, the Placement Agents shall be the exclusive Placement Agents in
connection with the offering and sale by the Company of the Securities with the
terms of such offering (the “Offering”) to be subject to market conditions and
negotiations between the Company, the Placement Agents and the prospective
Investors.  Each Placement Agent will act on a reasonable best efforts basis and
the Company agrees and acknowledges that there is no guarantee of the successful
placement of the Securities, or any portion thereof, in the prospective
Offering.  Under no circumstances will either Placement Agent or any of their
“Affiliates” (as defined below) be obligated to underwrite or purchase any of
the Securities for its own account or otherwise provide any financing.  Each
Placement Agent shall act solely as the Company’s agent and not as
principal.  The Placement Agents shall have no authority to bind the Company
with respect to any prospective offer to purchase Securities and the Company
shall have the sole right to accept offers to purchase Securities and may reject
any such offer, in whole or in part.  Subject to the terms and conditions
hereof, payment of the purchase price for, and delivery of, the Securities shall
be made at one or more closings (each a “Closing” and the date on which each
Closing occurs, a “Closing Date”).  As compensation for services rendered, on
each Closing Date, the Company shall pay to the Placement Agents the fees and
expenses set forth below:
 
 
 

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

 
 
(i)           A cash fee (the “Cash Fee”) equal to 7% of the gross proceeds
received by the Company from the sale of the Securities at the Closing of the
Offering.  Craig-Hallum shall receive 50% of the Cash Fee and Taglich Brothers
shall receive 50% of the Cash Fee.
 
(ii)           For an aggregate purchase price of $50, such number of Common
Stock purchase warrants (the “Placement Agent Warrants”) to the Placement Agents
or their designees at each Closing to purchase a number of shares of Common
Stock equal to 8% of the aggregate number of the Conversion Shares underlying
the Preferred Stock sold in the Offering, of which Craig-Hallum or its designees
shall receive 50% of the Placement Agent Warrants and Taglich Brothers or its
designees shall receive 50% of the Placement Agent Warrants.  The Placement
Agent Warrants shall be in a customary form reasonably acceptable to the
Placement Agent and shall have an exercise price equal to 125% of the conversion
price per share of the Preferred Stock and an expiration date of 5 years from
the effective date of the Offering, provided that, in the event that warrants
are issued to the Investors in the Offering, the Placement Agent Warrants shall
be in the same form as the warrants issued to the Investors, except for the
exercise price and term of exercise, as applicable.  The Placement Agent
Warrants shall not be exercisable for a period of six months, shall be subject
to a 6-month lock-up agreement and shall be non-transferable during such six
month period, except for such transfers as shall not cause the shares to be
issued upon exercise thereof to be included in determining the number of
securities sold in the Offering for purposes of NYSE-MKT Company Guide Section
713.
 
(iii)           The Company also agrees to reimburse Craig-Hallum in an amount
of up to $125,000 for (a) all reasonable out-of-pocket accountable fees and
disbursements of counsel retained by Craig-Hallum, (b) all of the reasonable
out-of-pocket accountable travel and related expenses arising out of
Craig-Hallum’s engagement hereunder, and (c) any other reasonable out-of-pocket
accountable expenses incurred by Craig-Hallum in connection with the performance
of its services hereunder, which reimbursement shall be payable immediately upon
(but only in the event of) a Closing of the Offering.
 
(b)           The term of the Placement Agents’ exclusive engagement will be
until the completion of the Offering (the “Exclusive Term”);  provided, however,
that either the Company or Craig-Hallum may terminate the engagement with
respect to itself at any time upon 10 days written notice to the other
parties.   Notwithstanding anything to the contrary contained herein, the
provisions concerning confidentiality, indemnification and contribution
contained herein and the Company’s obligations contained in the indemnification
provisions will survive any expiration or termination of this Agreement, and the
Company’s obligation to pay fees actually earned and payable and to reimburse
expenses actually incurred and reimbursable pursuant to Section 1 hereof, will
survive any expiration or termination of this Agreement.  Nothing in this
Agreement shall be construed to limit the ability of the Placement Agents or
their Affiliates to pursue, investigate, analyze, invest in, or engage in
investment banking, financial advisory or any other business relationship with
Persons (as defined below) other than the Company. As used herein (i) “Persons”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind and (ii) “Affiliate” means any Person that, directly or indirectly
through one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under Rule
405 under the Securities Act of 1933, as amended (the “Securities Act”).
 
 
2

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

 
 
Section 2.                      Representations, Warranties and Covenants of the
Company.  The Company hereby represents, warrants and covenants to the Placement
Agents as of the date hereof, and as of each Closing Date, as follows:
 
(a)           Subsidiaries.  All of the direct and indirect subsidiaries of the
Company (the “Subsidiaries”) are set forth in the SEC Reports.  The Company
owns, directly or indirectly, all of the capital stock or other equity interests
of each Subsidiary free and clear of any liens, charges, security interests,
encumbrances, rights of first refusal, preemptive rights or other restrictions
(collectively, “Liens”), and all of the issued and outstanding shares of capital
stock of each Subsidiary are validly issued and are fully paid, non-assessable
and free of preemptive and similar rights to subscribe for or purchase
securities.
 
(b)           Organization and Qualification.  The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation nor default
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in: (i) a material adverse effect on the legality, validity or enforceability of
this Agreement or any other agreement entered into between the Company and the
Investors, (ii) a material adverse effect on the results of operations, assets,
business, prospects or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under this Agreement or the transactions contemplated under the
Transaction Documents (any of (i), (ii) or (iii), a “Material Adverse Effect”)
and no action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened (“Proceeding”) has been instituted
in any such jurisdiction revoking, limiting or curtailing or seeking to revoke,
limit or curtail such power and authority or qualification.
 
(c)           Authorization; Enforcement.  The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and the Transaction Documents and otherwise to
carry out its obligations hereunder and thereunder.  The execution and delivery
of each of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby and under the Transaction Documents have been
duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Company’s Board of Directors (the
“Board of Directors”) or the Company’s stockholders in connection therewith
other than in connection with the Required Approvals (as defined below).  This
Agreement has been duly executed by the Company and, when delivered in
accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) as limited by general equitable principles and applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 
 
3

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

 
 
(d)           No Conflicts.  The execution, delivery and performance by the
Company of this Agreement and the transactions contemplated pursuant to the
Transaction Documents, the issuance and sale of the Securities and the
consummation by it of the transactions contemplated hereby and thereby to which
it is a party do not and will not (i) conflict with or violate any provision of
the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, or give to others any
rights of termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.
 
(e)           Filings, Consents and Approvals.  The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement and the
transactions contemplated pursuant to the Transaction Documents, other than: (i)
the filing of Form D with the Unites States Securities and Exchange Commission
(“Commission”), (ii) the filing of any resale registration statement with the
Commission pursuant to the Transaction Documents, (iii) the filing with the
Commission pursuant to Section 4(a); (iv) application(s) to the NYSE MKT (the
“Trading Market”) for the listing of the Conversion Shares for trading thereon
in the time and manner required thereby and (v) such filings as are required to
be made under applicable state securities laws (collectively, the “Required
Approvals”).
 
(f)           Issuance of the Securities; Registration.  The Securities are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company.  The Conversion Shares, when
issued in accordance with the terms of the Preferred Stock, will be validly
issued, fully paid and non-assessable, free and clear of all Liens imposed by
the Company.  The Company has reserved from its duly authorized capital stock
the maximum number of shares of Common Stock issuable pursuant to the
Transaction Documents.
 
 
4

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

 
 
(g)           Capitalization.  The capitalization of the Company is as set forth
in the SEC Reports.  The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options under the Company’s stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion and/or exercise of
securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time any Common Stock, including, without limitation,
any debt, preferred stock, rights, options, warrants or other instrument that is
at any time convertible into or exercisable or exchangeable for, or otherwise
entitles the holder thereof to receive, Common Stock (“Common Stock
Equivalents”) outstanding as of the date of the most recently filed periodic
report under the Exchange Act.  No Person has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by this Agreement and the transactions
contemplated pursuant to the Transaction Documents.  Except as set forth in the
SEC Reports, there are no outstanding options, warrants, scrip rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock or the capital stock of any Subsidiary, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents or capital stock of any Subsidiary.  The issuance and
sale of the Securities will not obligate the Company or any Subsidiary to issue
shares of Common Stock or other securities to any Person (other than the
Investors and the Placement Agents) and will not result in a right of any holder
of Company securities to adjust the exercise, conversion, exchange or reset
price under any of such securities. There are no outstanding securities or
instruments of the Company or any Subsidiary that contain any redemption or
similar provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any Subsidiary is or may become bound to
redeem a security of the Company or such Subsidiary.  The Company does not have
any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement.  All of the outstanding shares of capital stock of
the Company are duly authorized.  All of the outstanding shares of capital stock
of the Company are validly issued, fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, and none of
such outstanding shares was issued in violation of any preemptive rights or
similar rights to subscribe for or purchase securities.  No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities.  There are no stockholders
agreements, voting agreements or other similar agreements with respect to the
Company’s capital stock to which the Company is a party or, to the knowledge of
the Company, between or among any of the Company’s stockholders.
 
(h)           SEC Reports; Financial Statements.  The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing.  Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
 
 
5

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

 
 
(i)           Material Changes; Undisclosed Events, Liabilities or
Developments.  Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.  The Company does not have
pending before the Commission any request for confidential treatment of
information.  Except for the issuance of the Securities contemplated by the
Transaction Documents or disclosed in the SEC Reports, no event, liability,
fact, circumstance, occurrence or development has occurred or exists or is
reasonably expected to occur or exist with respect to the Company or its
Subsidiaries or their respective businesses, prospects, properties, operations,
assets or financial condition that would be required to be disclosed by the
Company under applicable securities laws at the time this representation is made
or deemed made that has not been publicly disclosed at least 1 Trading Day prior
to the date that this representation is made.
 
(j)           Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of this Agreement and the
transactions contemplated pursuant to the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect.  Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty.  There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.  The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act.
 
(k)           Labor Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company, which could reasonably be expected to result in a Material Adverse
Effect.  Except as disclosed in the SEC Reports, none of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such Subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and its Subsidiaries believe that their relationships with their
employees are good.  No executive officer of the Company or any Subsidiary, to
the knowledge of the Company, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement or non-competition agreement, or any other
contract or agreement or any restrictive covenant in favor of any third party,
and the continued employment of each such executive officer does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters.  The Company and its Subsidiaries are in compliance with all
U.S. federal, state, local and foreign laws and regulations relating to
employment and employment practices, terms and conditions of employment and
wages and hours, except where the failure to be in compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
 
 
6

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

 
 
(l)           Compliance.  Neither the Company nor any Subsidiary: (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), other than
such matters as have been waived by PNC Bank, (ii) is in violation of any
judgment, decree or order of any court, arbitrator or governmental authority or
(iii) is or has been in violation of any statute, rule, ordinance or regulation
of any governmental authority, including without limitation all foreign,
federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and
labor matters, except in each case as could not have or reasonably be expected
to result in a Material Adverse Effect.
 
(m)           Environmental Laws.  The Company and its Subsidiaries (i) are in
compliance with all federal, state, local and foreign laws relating to pollution
or protection of human health or the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including laws relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands, or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations, issued, entered, promulgated or approved thereunder (“Environmental
Laws”); (ii) have received all permits licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses;
and (iii) are in compliance with all terms and conditions of any such permit,
license or approval where in each clause (i), (ii) and (iii), the failure to so
comply could be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect
 
(n)           Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
 
(o)           Title to Assets.  The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens that are set forth in the SEC Reports and for Liens as
do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and the Subsidiaries and Liens for the payment of federal, state or
other taxes, for which appropriate reserves have been made therefor in
accordance with GAAP and, the payment of which is neither delinquent nor subject
to penalties.  Any real property and facilities held under lease by the Company
and the Subsidiaries are held by them under valid, subsisting and enforceable
leases with which the Company and the Subsidiaries are in compliance.
 
 
7

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

 
 
(p)           Patents and Trademarks.  The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”).  None of, and neither
the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been
abandoned, or is expected to expire or terminate or be abandoned, within two (2)
years from the date of this Agreement.  Neither the Company nor any Subsidiary
has received, since the date of the latest audited financial statements included
within the SEC Reports, a notice (written or otherwise) of a claim or otherwise
has any knowledge that the Intellectual Property Rights violate or infringe upon
the rights of any Person, except as would not have a Material Adverse
Effect.  To the knowledge of the Company, all such Intellectual Property Rights
are enforceable and there is no existing infringement by another Person of any
of the Intellectual Property Rights.  The Company and its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of all of their intellectual properties, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
 
(q)           Insurance.  The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which the
Company and the Subsidiaries are engaged, including, but not limited to,
directors and officers insurance coverage.  Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
 
(r)           Transactions With Affiliates and Employees.  Except as set forth
in the SEC Reports and Schedule 2(u) attached hereto, none of the officers or
directors of the Company or any Subsidiary and, to the knowledge of the Company,
none of the employees of the Company or any Subsidiary is presently a party to
any transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, providing for the borrowing of
money from or lending of money to or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee, stockholder, member or partner, in
each case in excess of $120,000 other than for: (i) payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred
on behalf of the Company and (iii) other employee benefits, including stock
option agreements under any stock option plan of the Company.
 
 
8

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

 
 
(s)           Sarbanes-Oxley; Internal Accounting Controls.  The Company and the
Subsidiaries are in compliance with any and all applicable requirements of the
Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and
all applicable rules and regulations promulgated by the Commission thereunder
that are effective as of the date hereof and as of the Closing Date.  The
Company and the Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company and the Subsidiaries have
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such
disclosure controls and procedures to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms.  The Company’s certifying
officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures of the Company and the Subsidiaries as of the end of the period
covered by the Company’s most recently filed periodic report under the Exchange
Act (such date, the “Evaluation Date”).  The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and
procedures based on their evaluations as of the Evaluation Date.  Since the
Evaluation Date, there have been no changes in the internal control over
financial reporting (as such term is defined in the Exchange Act) of the Company
and its Subsidiaries that have materially affected, or is reasonably likely to
materially affect, the  internal control over financial reporting of the Company
and its Subsidiaries.
 
(t)           Certain Fees.  Except as set forth on Schedule 2(w), no brokerage
or finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement and the transactions contemplated pursuant to the Transaction
Documents.  The Investors shall have no obligation with respect to any fees or
with respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement and the transactions contemplated
pursuant to the Transaction Documents.
 
(u)           Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not be or
be an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The Company shall conduct its business in a
manner so that it will not become an “investment company” subject to
registration under the Investment Company Act of 1940, as amended.
 
(v)           Registration Rights.  Other than the Investors, no Person has any
right to cause the Company or any Subsidiary to effect the registration under
the Securities Act of any securities of the Company or any Subsidiary.
 
(w)           Listing and Maintenance Requirements.  The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration.  The Company has not, in the 12
months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason to believe that it will
not in the foreseeable future continue to be, in compliance with all such
listing and maintenance requirements.  The Common Stock is currently eligible
for electronic transfer through the Depository Trust Company or another
established clearing corporation and the Company is current in payment of the
fees to the Depository Trust Company (or such other established clearing
corporation) in connection with such electronic transfer.
 
 
9

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

 
 
(x)           Application of Takeover Protections.  The Company and the Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s certificate of incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Investors as a result of the Investors and the
Company fulfilling their obligations or exercising their rights under this
Agreement and the transactions contemplated pursuant to the Transaction
Documents, including without limitation as a result of the Company’s issuance of
the Securities and the Investors’ ownership of the Securities.
 
(y)           Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by this Agreement and the
transactions contemplated pursuant to the Transaction Documents, the Company
confirms that neither it nor any other Person acting on its behalf has provided
any of the Investors or their agents or counsel with any information that it
believes constitutes or might constitute material, non-public information which
is not otherwise disclosed in the Transaction Documents.  The Company
understands and confirms that the Investors will rely on the foregoing
representation in effecting transactions in securities of the Company.  All of
the disclosure furnished by or on behalf of the Company to the Investors
regarding the Company and, its Subsidiaries, their respective businesses and the
transactions contemplated hereby, including the Disclosure Schedules to this
Agreement, is true and correct and does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.  The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made and when made,
not misleading.
 
(z)           No Integrated Offering.  Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
any applicable shareholder approval provisions of any Trading Market on which
any of the securities of the Company are listed or designated.
 
(aa)           Solvency.  Based on the consolidated financial condition of the
Company as of each Closing Date, after giving effect to the receipt by the
Company of the proceeds from the sale of the Securities hereunder, (i) the fair
saleable value of the Company’s assets exceeds the amount that will be required
to be paid on or in respect of the Company’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Company’s assets do not constitute unreasonably small capital to carry on its
business as now conducted and as proposed to be conducted including its capital
needs taking into account the particular capital requirements of the business
conducted by the Company, consolidated and projected capital requirements and
capital availability thereof, and (iii) the current cash flow of the Company,
together with the proceeds the Company would receive, were it to liquidate all
of its assets, after taking into account all anticipated uses of the cash, would
be sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid.  The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).  The
Company has no knowledge of any facts or circumstances which lead it to believe
that it will file for reorganization or liquidation under the bankruptcy or
reorganization laws of any jurisdiction within one year from each Closing
Date.  The SEC Reports sets forth as of the date hereof all outstanding secured
and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments.  For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in
excess of $500,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, whether or not the same are or
should be reflected in the Company’s consolidated balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business; and
(z) the present value of any lease payments in excess of $500,000 due under
leases required to be capitalized in accordance with GAAP.  Neither the Company
nor any Subsidiary is in default with respect to any Indebtedness.
 
 
10

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

 
 
(bb)           Tax Status.  Except for matters that would not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and its Subsidiaries (i) has made or filed all United States
federal, state and local income and all foreign income and franchise tax
returns, reports and declarations required by any jurisdiction to which it is
subject, (ii) has paid all taxes and other governmental assessments and charges
that are material in amount, shown or determined to be due on such returns,
reports and declarations and (iii) has set aside on its books provision
reasonably adequate for the payment of all material taxes for periods subsequent
to the periods to which such returns, reports or declarations apply.  There are
no unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company or of any Subsidiary know
of no basis for any such claim.
 
(cc)           Foreign Corrupt Practices.  Neither the Company nor any
Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or
other person acting on behalf of the Company or any Subsidiary, has (i) directly
or indirectly, used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses related to foreign or domestic political activity,
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds, (iii) failed to disclose fully any contribution made by the
Company or any Subsidiary (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in any
material respect any provision of the Foreign Corrupt Practices Act of 1977, as
amended.
 
(dd)           Accountants.  The Company’s accounting firm is set forth in the
SEC Reports.  To the knowledge and belief of the Company, such accounting firm
is a registered public accounting firm as required by the Exchange Act.  Such
accounting firm expressed its opinion with respect to the financial statements
included in the Company’s Annual Report for the fiscal year ended December 31,
2015.
 
(ee)           Regulation M Compliance.  The Company has not, and to its
knowledge no one acting on its behalf has, (i) taken, directly or indirectly,
any action designed to cause or to result in the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or, paid any compensation
for soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Company’s placement agent in connection with the
placement of the Securities.
 
 
11

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

 
 
(ff)           Office of Foreign Assets Control.  Neither the Company nor any
Subsidiary, to the Company's knowledge, any director, officer, agent, employee
or affiliate of the Company or any Subsidiary is currently subject to any U.S.
sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”).
 
(gg)           U.S. Real Property Holding Corporation.  The Company is not and
has never been a U.S. real property holding corporation within the meaning of
Section 897 of the Internal Revenue Code of 1986, as amended, and the Company
shall so certify upon Investor’s request.
 
(hh)           Bank Holding Company Act.  Neither the Company nor any of its
Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the “BHCA”) and to regulation by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”).  Neither the Company nor any of
its Subsidiaries or Affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent or more of the total equity of a bank or any entity that
is subject to the BHCA and to regulation by the Federal Reserve.  Neither the
Company nor any of its Subsidiaries or Affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
 
(ii)           Money Laundering.  The operations of the Company and its
Subsidiaries are and have been conducted at all times in compliance with
applicable financial record-keeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, applicable money
laundering statutes and applicable rules and regulations thereunder
(collectively, the “Money Laundering Laws”), and no action, suit or proceeding
by or before any court or governmental agency, authority or body or any
arbitrator involving the Company with respect to the Money Laundering Laws is
pending or, to the knowledge of the Company, threatened.
 
(jj)           Certificates.  Any certificate signed by an officer of the
Company and delivered to the Placement Agents or to counsel for the Placement
Agents shall be deemed to be a representation and warranty by the Company to the
Placement Agents as to the matters set forth therein.
 
(kk)           Reliance.  The Company acknowledges that the Placement Agents
will rely upon the accuracy and truthfulness of the foregoing representations
and warranties and hereby consents to such reliance.
 
(ll)           Private Placement. No registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the
Investors as contemplated in the Transaction Documents. The issuance and sale of
the Securities pursuant to the Transaction Documents does not contravene the
rules and regulations of the Trading Market.
 
(mm)           No General Solicitation.  Neither the Company nor any Person
acting on behalf of the Company has offered or sold any of the Securities by any
form of general solicitation or general advertising.  The Company has offered
the Securities for sale only to the Investors and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.
 
 
12

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

 
 
(nn)           No Disqualification Events.  With respect to the Securities to be
offered and sold pursuant to the Transaction Documents in reliance on Rule 506
under the Securities Act, none of the Company, any of its predecessors, any
affiliated issuer, any director, executive officer, other officer of the Company
participating in the offering hereunder, any beneficial owner of 20% or more of
the Company’s outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
Securities Act) connected with the Company in any capacity at the time of sale
(each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is
subject to any of the “Bad Actor” disqualifications described in Rule
506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event”),
except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The
Company has exercised reasonable care to determine whether any Issuer Covered
Person is subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has
furnished to the Investors a copy of any disclosures provided thereunder.
 
(oo)           Other Covered Persons.  Other than the Placement Agents, the
Company is not aware of any person that has been or will be paid (directly or
indirectly) remuneration for solicitation of purchasers in connection with the
sale of the Securities.
 
(pp)           Notice of Disqualification Events. The Company will notify the
Placement Agents in writing, prior to the Closing Date of (i) any
Disqualification Event relating to any Issuer Covered Person and (ii) any event
that would, with the passage of time, become a Disqualification Event relating
to any Issuer Covered Person.
 
Section 3.                      Delivery and Payment.  Each Closing shall occur
at the offices of Ellenoff Grossman & Schole LLP, 1345 Avenue of the Americas,
New York, New York 10105 (or at such other place as shall be agreed upon by
Craig-Hallum and the Company) (“Placement Agent Counsel”).  Subject to the terms
and conditions hereof, at each Closing payment of the purchase price for the
Securities sold on such Closing Date shall be made by Federal Funds wire
transfer to Delaware Trust Company as escrow agent for the Offering, against
delivery of such Securities, or as otherwise set forth in the Transaction
Documents, and such Securities shall be registered in such name or names and
shall be in such denominations, as the Placement Agent may request at least one
business day before the time of purchase (as defined below).
 
Deliveries of the documents with respect to the purchase of the Securities, if
any, shall be made at the offices of Placement Agent Counsel.   All actions
taken at a Closing shall be deemed to have occurred simultaneously.
 
Section 4.                      Covenants and Agreements of the Company.  The
Company further covenants and agrees with each of the Placement Agents as
follows:
 
(a)           Securities Laws Disclosure; Publicity.  The Company shall (a) by
9:30 a.m. (New York City time) on the Trading Day immediately following the date
hereof, issue a press release disclosing the material terms of the transactions
contemplated hereby, and (b) file a Current Report on Form 8-K, including the
Transaction Documents as exhibits thereto, with the Commission within the time
required by the Exchange Act.
 
(b)           Form D; Blue Sky Filings.  The Company agrees to timely file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof upon request of the Placement Agents. The Company shall
take such action as the Company shall reasonably determine is necessary in order
to obtain an exemption for, or to qualify the Securities for, sale to the
Investors under applicable securities or “Blue Sky” laws of the states of the
United States and shall provide evidence of such actions upon request of the
Placement Agents.
 
 
13

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

 
 
(c)           Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities or that would be integrated with
the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the
closing of such other transaction unless shareholder approval is obtained before
the closing of such subsequent transaction.
 
(d)           Transfer Agent.  The Company will maintain, at its expense, a
registrar and transfer agent for the Common Stock.
 
(e)           Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Securities pursuant to the Transaction Documents for working capital
purposes, including the payment of bank debt and payment of trade payables, and
shall not use such proceeds: (a) for the redemption of any Common Stock or
Common Stock Equivalents, (b) for the settlement of any outstanding litigation
or (c) in violation of FCPA or OFAC regulations.
 
(f)           Periodic Reporting Obligations.  While any Preferred Stock remains
outstanding, the Company will duly file, on a timely basis, with the Commission
and the Trading Market all reports and documents required to be filed under the
Exchange Act within the time periods and in the manner required by the Exchange
Act.
 
(g)           Additional Documents.  The Company will enter into any
subscription, purchase or other customary agreements as Craig-Hallum or the
Investors deem necessary or appropriate to consummate the Offering, all of which
will be in form and substance reasonably acceptable to Craig-Hallum and the
Investors.  The Company agrees that each Placement Agent may rely upon, and each
is a third party beneficiary of, the representations and warranties, and
applicable covenants, set forth in any such purchase, subscription or other
agreement with Investors in the Offering.
 
(h)           No Manipulation of Price.  The Company will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
 
(i)           Acknowledgment.  The Company acknowledges that any advice given by
each of the Placement Agents to the Company is solely for the benefit and use of
the Board of Directors of the Company and may not be used, reproduced,
disseminated, quoted or referred to, without Craig-Hallum’s prior written
consent.
 
(j)           Announcement of Offering.  The Company acknowledges and agrees
that the Placement Agents may, subsequent to the Closing, make public their
involvement with the Offering.
 
(k)           Confidentiality.  The Company acknowledges that this Agreement and
all opinions and advice (whether written or oral) given by each of the Placement
Agents to the Company in connection with the Placement Agents’ engagement are
intended solely for the benefit and use of the Company.  The Company further
acknowledges that neither the terms of this Agreement nor any of the Placement
Agents’ opinions or financial advice will be disclosed to any third party (other
than the Company’s officers, directors, employees and advisors), without the
prior written consent of Craig-Hallum, except as required by law, regulation,
legal or regulatory process, or any order or other action of a court or
administrative agency of competent jurisdiction.  Each Placement Agent,
separately and not jointly, agrees that any non-public information relating to
the Company or any potential investor received by such Placement Agent from or
at the direction of the Company will be used by such Placement Agent solely for
the purpose of performing its roles contemplated hereunder and that such
Placement Agent will maintain the confidentiality thereof.  Notwithstanding the
foregoing, the Placement Agents may disclose confidential information hereunder
(i) to such of its employees and advisors as each Placement Agent determines
have a need to know and who are bound to hold such information confidential, and
(ii) to the extent necessary to comply with any order or other action of a court
or administrative agency of competent jurisdiction.
 
 
14

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

 
 
(l)           Reliance on Others.  The Company confirms that it will rely on its
own counsel and accountants for legal and accounting advice.
 
(m)           No Partnership.  The Company is a sophisticated business
enterprise that has retained the Placement Agents for the limited purposes set
forth in this Agreement.  The parties acknowledge and agree that their
respective rights and obligations are contractual in nature.  Each party
disclaims an intention to impose fiduciary obligations on the other by virtue of
the engagement contemplated by this Agreement.
 
(n)           Research Matters.  By entering into this Agreement, neither
Placement Agent provides any promise, either explicitly or implicitly, of
favorable or continued research coverage of the Company and the Company hereby
acknowledges and agrees that each Placement Agent’s selection as a placement
agent for the Offering was in no way conditioned, explicitly or implicitly, on
the Placement Agents providing favorable or any research coverage of the
Company.  In accordance with FINRA Rule 2711(e), the parties acknowledge and
agree that neither Placement Agent has directly or indirectly offered favorable
research, a specific rating or a specific price target, or threatened to change
research, a rating or a price target, to the Company or inducement for the
receipt of business or compensation.
 
Section 5.                      Conditions of the Obligations of the Placement
Agent.  The obligations of each Placement Agent hereunder shall be subject to
the accuracy of the representations and warranties on the part of the Company
set forth in Section 2 hereof, in each case as of the date hereof and as of each
Closing Date as though then made, to the timely performance by each of the
Company of its covenants and other obligations hereunder on and as of such
dates, and to each of the following additional conditions:
 
(a)           Intentionally Omitted
 
(b)           Extension of Indebtedness.  On the date hereof, the Placement
Agents shall have received evidence of the extension of the maturity date of the
Company’s variable rate Revolving Line of Credit and Term Loan A, Term Loan B,
Term Loan C and Term Loan D entered into between the Company, its Subsidiaries
and PNC Bank until April 30, 2018, which evidence shall be satisfactory to
Craig-Hallum in its sole discretion.
 
(c)           Compliance with Loan Covenants. Except for such matters as shall
have been waived by PNC Bank, the Company shall be in compliance with covenants
related to the Company’s variable rate Revolving Line of Credit and Term Loan A,
Term Loan B, Term Loan C and Term Loan D with PNC Bank and delivered evidence
thereof to the Placement Agents, which evidence shall be satisfactory to
Craig-Hallum in its sole discretion;
 
 
15

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

 
 
(d)           Corporate Proceedings.  All corporate proceedings and other legal
matters in connection with this Agreement, the Transaction Documents, and the
sale and delivery of the Securities, shall have been completed or resolved in a
manner reasonably satisfactory to Craig-Hallum’s counsel, and such counsel shall
have been furnished with such papers and information as it may reasonably have
requested to enable such counsel to pass upon the matters referred to in this
Section 5.
 
(e)           No Material Adverse Change.  Subsequent to the execution and
delivery of this Agreement and prior to each Closing Date, in Craig-Hallum’s
sole judgment after consultation with the Company, there shall not have occurred
any Material Adverse Change or Material Adverse Effect.
 
(f)           Opinion of Counsel for the Company.  The Placement Agents shall
have received on each Closing Date the favorable opinion of US legal counsel to
the Company, dated as of such Closing Date, and in form and substance
satisfactory to Craig-Hallum.
 
(g)           Officers’ Certificate.  The Placement Agents shall have received
on each Closing Date a certificate of the Company, dated as of such Closing
Date, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and each Placement Agent shall be satisfied that,
the signers of such certificate have reviewed this Agreement and the Transaction
Documents and to the further effect that:
 
(i)           The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of such Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such Closing
Date; and
 
(ii)           Subsequent to the respective dates as of which information is
given in the SEC Reports and the Transaction Documents, there has not been:  (a)
any Material Adverse Change; (b) any transaction that is material to the Company
and the Subsidiaries taken as a whole, except transactions entered into in the
ordinary course of business; (c) any obligation, direct or contingent, that is
material to the Company and the Subsidiaries taken as a whole, incurred by the
Company or any Subsidiary, except obligations incurred in the ordinary course of
business; (d) any material change in the capital stock (except changes thereto
resulting from the exercise of outstanding stock options or warrants) or
outstanding indebtedness of the Company or any Subsidiary; (e) any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company; or (f) any loss or damage (whether or not insured) to the property of
the Company or any Subsidiary which has been sustained or will have been
sustained which has a Material Adverse Effect.
 
(h)            Intentionally Omitted
 
(i)           Stock Exchange Listing.  The Common Stock shall be registered
under the Exchange Act and shall be listed on the Trading Market, and the
Company shall not have taken any action designed to terminate, or likely to have
the effect of terminating, the registration of the Common Stock under the
Exchange Act or delisting or suspending from trading the Common Stock from the
Trading Market, nor shall the Company have received any information suggesting
that the Commission or the Trading Market is contemplating terminating such
registration or listing.
 
 
16

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

 
 
(j)           Lock-Up Agreements.   Intentionally Omitted
 
(k)           Escrow Agreement.  The Company and Craig-Hallum shall have entered
into an escrow agreement with a commercial bank or trust company reasonably
satisfactory to both parties pursuant to which the Investors shall deposit their
subscription funds in an escrow account and the Company and Craig-Hallum shall
jointly authorize the disbursement of the funds from the escrow account. The
Company shall pay the reasonable fees of the escrow agent.
 
(l)           Certificate of Designation. The Certificate of Designation shall
have been filed with the Secretary of State of the State of Nevada.
 
(m)           Additional Documents.  On or before each Closing Date, the
Placement Agents and counsel for the Placement Agents shall have received such
information and documents as Craig-Hallum or its counsel may reasonably require
for the purposes of enabling them to pass upon the issuance and sale of the
Securities as contemplated herein, or in order to evidence the accuracy of any
of the representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
 
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by Craig-Hallum by
notice to the Company at any time on or prior to a Closing Date, which
termination shall be without liability on the part of any party to any other
party, except that Section 6 (Payment of Expenses), Section 7 (Indemnification
and Contribution) and Section 8 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
 
Section 6.                      Payment of Expenses.  The Company agrees to pay
all costs, fees and expenses incurred by the Company in connection with the
performance of its obligations hereunder and in connection with the transactions
contemplated hereby, including, without limitation:  (i) all expenses incident
to the issuance, delivery and qualification of the Securities (including all
printing and engraving costs); (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock; (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Securities;
(iv) all fees and expenses of the Company’s counsel, independent public or
certified public accountants and other advisors; (v) the fees and expenses
associated with including the Securities on the Trading Market; and (vi) all
costs and expenses incident to the travel and accommodation of the Company’s
employees on the “roadshow,” if any.
 
Section 7.                      Indemnification and Contribution.
 
(a)  The Company agrees to indemnify and hold harmless the Placement Agents,
their affiliates and each person controlling each Placement Agent (within the
meaning of Section 15 of the Securities Act), and the directors, officers,
agents and employees of the Placement Agents, their affiliates and each such
controlling person (the Placement Agents, and each such entity or person. an
“Indemnified Person”) from and against any losses, claims, damages, judgments,
assessments, costs and other liabilities (collectively, the “Liabilities”), and
shall reimburse each Indemnified Person for all fees and expenses (including the
reasonable fees and expenses of one counsel for all Indemnified Persons, except
as otherwise expressly provided herein) (collectively, the “Expenses”) as they
are incurred by an Indemnified Person in investigating, preparing, pursuing or
defending any Actions, whether or not any Indemnified Person is a party thereto,
(i) caused by, or arising out of or in connection with, any untrue statement or
alleged untrue statement of a material fact contained in any SEC Report or
Transaction Document or by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) otherwise
arising out of or in connection with advice or services rendered or to be
rendered by any Indemnified Person pursuant to this Agreement, the transactions
contemplated thereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions; provided, however,
that, in the case of clause (ii) only, the Company shall not be responsible for
any Liabilities or Expenses of any Indemnified Person that are finally
judicially determined to have resulted solely from such Indemnified Person's (x)
gross negligence or willful misconduct in connection with any of the advice,
actions, inactions or services referred to above or (y) use of any offering
materials or information concerning the Company in connection with the offer or
sale of the Securities in the Offering which were not authorized for such use by
the Company and which use constitutes gross negligence or willful misconduct.
The Company also agrees to reimburse each Indemnified Person for all Expenses as
they are incurred in connection with enforcing such Indemnified Person's rights
under this Agreement.
 
 
17

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

 

 
(b)           Upon receipt by an Indemnified Person of actual notice of an
Action against such Indemnified Person with respect to which indemnity may be
sought under this Agreement, such Indemnified Person shall promptly notify the
Company in writing; provided that failure by any Indemnified Person so to notify
the Company shall not relieve the Company from any liability which the Company
may have on account of this indemnity or otherwise to such Indemnified Person,
except to the extent the Company shall have been prejudiced by such failure. The
Company shall, if requested by a Placement Agent, assume the defense of any such
Action including the employment of counsel reasonably satisfactory to such
Placement Agent, which counsel may also be counsel to the Company. Any
Indemnified Person shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless: (i) the
Company has failed promptly to assume the defense and employ counsel or (ii) the
named parties to any such Action (including any impeded parties) include such
Indemnified Person and the Company, and such Indemnified Person shall have been
advised in the reasonable opinion of counsel that there is an actual conflict of
interest that prevents the counsel selected by the Company from representing
both the Company (or another client of such counsel) and any Indemnified Person;
provided that the Company shall not in such event be responsible hereunder for
the fees and expenses of more than one firm of separate counsel for all
Indemnified Persons in connection with any Action or related Actions, in
addition to any local counsel. The Company shall not be liable for any
settlement of any Action effected without its written consent (which shall not
be unreasonably withheld).  In addition, the Company shall not, without the
prior written consent of Craig-Hallum (which shall not be unreasonably
withheld), settle, compromise or consent to the entry of any judgment in or
otherwise seek to terminate any pending or threatened Action in respect of which
indemnification or contribution may be sought hereunder (whether or not such
Indemnified Person is a party thereto) unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Person from all Liabilities arising out of such Action for which indemnification
or contribution may be sought hereunder. The indemnification required hereby
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
 
 
18

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

 

 
(c)           In the event that the foregoing indemnity is unavailable to an
Indemnified Person other than in accordance with this Agreement, the Company
shall contribute to the Liabilities and Expenses paid or payable by such
Indemnified Person in such proportion as is appropriate to reflect (i) the
relative benefits to the Company, on the one hand, and to the Placement Agents
and any other Indemnified Person, on the other hand, of the matters contemplated
by this Agreement or (ii) if the allocation provided by the immediately
preceding clause is not permitted by applicable law, not only such relative
benefits but also the relative fault of the Company, on the one hand, and the
Placement Agents and any other Indemnified Person, on the other hand, in
connection with the matters as to which such Liabilities or Expenses relate, as
well as any other relevant equitable considerations; provided that in no event
shall the Company contribute less than the amount necessary to ensure that all
Indemnified Persons, in the aggregate, are not liable for any Liabilities and
Expenses in excess of the amount of fees actually received by the Placement
Agents pursuant to this Agreement. For purposes of this paragraph, the relative
benefits to the Company, on the one hand, and to the Placement Agents on the
other hand, of the matters contemplated by this Agreement shall be deemed to be
in the same proportion as (a) the total value paid or contemplated to be paid to
or received or contemplated to be received by the Company in the transaction or
transactions that are within the scope of this Agreement, whether or not any
such transaction is consummated, bears to (b) the fees paid to the Placement
Agents under this Agreement.

(d)           The Company also agrees that no Indemnified Person shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with advice or services rendered or to be rendered
by any Indemnified Person pursuant to this Agreement, the transactions
contemplated thereby or any Indemnified Person's actions or inactions in
connection with any such advice, services or transactions except for Liabilities
(and related Expenses) of the Company that are finally judicially determined to
have resulted solely from such Indemnified Person's gross negligence or willful
misconduct in connection with any such advice, actions, inactions or services.

(e)           The reimbursement, indemnity and contribution obligations of the
Company set forth herein shall apply to any modification of this Agreement and
shall remain in full force and effect regardless of any termination of, or the
completion of any Indemnified Person's services under or in connection with,
this Agreement.

Section 8.                      Representations and Indemnities to Survive
Delivery.  The respective indemnities, agreements, representations, warranties
and other statements of the Company or any person controlling the Company, of
its officers, and of the Placement Agents set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Placement Agent, the Company, or any of its or their
partners, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Securities sold hereunder and
any termination of this Agreement.  A successor to a Placement Agent, or to the
Company, its directors or officers or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Agreement.
 
Section 9.                      Notices.  All communications hereunder shall be
in writing and shall be mailed, hand delivered or telecopied and confirmed to
the parties hereto as follows:
 
If to Craig-Hallum to the address set forth above, Attention: Rick Hartfiel,
Facsimile: (612) 334-6399.

With a copy to:

Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas, 11th Floor
New York, New York 10105
Facsimile: (212) 401-4741
Attention:  Robert Charron
E-mail: rcharron@egsllp.com
 
 
19

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

 

 
If to Taglich Brothers:

Taglich Brothers, Inc.
790 New York Avenue
Huntington, NY 11743
Facsimile: 631 757 2100
Attention: Michael Taglich

If to the Company:

360 Motor Parkway, Suite 100
Hauppauge, New York 11788
Facsimile: 631 206 9152
Attention:  Daniel R. Godin

With a copy to:

Eaton & Van Winkle LLP
3 Park Avenue, 16th Floor
New York, New York 10016
Facsimile: (212) 779-9928
Attention:  Vincent J. McGill
E-mail: vmcgill@evw.com

Any party hereto may change the address for receipt of communications by giving
written notice to the others.
 
Section 10.                      Successors.  This Agreement will inure to the
benefit of and be binding upon the parties hereto, and to the benefit of the
employees, officers and directors and controlling persons referred to in Section
7 hereof, and to their respective successors, and personal representative, and
no other person will have any right or obligation hereunder.
 
Section 11.                      Partial Unenforceability.  The invalidity or
unenforceability of any section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other section, paragraph or
provision hereof.  If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
 
 
20

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

 
 
Section 12.                      Governing Law Provisions.  This Agreement shall
be deemed to have been made and delivered in New York City and both this
engagement letter and the transactions contemplated hereby shall be governed as
to validity, interpretation, construction, effect and in all other respects by
the internal laws of the State of New York, without regard to the conflict of
laws principles thereof.  Each of the Placement Agents and the Company: (i)
agrees that any legal suit, action or proceeding arising out of or relating to
this engagement letter and/or the transactions contemplated hereby shall be
instituted exclusively in New York Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (ii) waives
any objection which it may have or hereafter to the venue of any such suit,
action or proceeding, and (iii) irrevocably consents to the jurisdiction of the
New York Supreme Court, County of New York, and the United States District Court
for the Southern District of New York in any such suit, action or
proceeding.  Each of the Placement Agents and the Company further agrees to
accept and acknowledge service of any and all process which may be served in any
such suit, action or proceeding in the New York Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York and agrees that service of process upon the Company mailed by certified
mail to the Company’s address shall be deemed in every respect effective service
of process upon the Company, in any such suit, action or proceeding, and service
of process upon the Placement Agent mailed by certified mail to the Placement
Agent’s address shall be deemed in every respect effective service process upon
the Placement Agent, in any such suit, action or proceeding.  Notwithstanding
any provision of this engagement letter to the contrary, the Company agrees that
neither the Placement Agents nor their affiliates, and the respective officers,
directors, employees, agents and representatives of the Placement Agents, their
affiliates and each other person, if any, controlling the Placement Agents or
any of their affiliates, shall have any liability (whether direct or indirect,
in contract or tort or otherwise) to the Company for or in connection with the
engagement and transaction described herein except for any such liability for
losses, claims, damages or liabilities incurred by us that are finally
judicially determined to have resulted from the bad faith or gross negligence of
such individuals or entities.  If either party shall commence an action or
proceeding to enforce any provision of this Agreement, then the prevailing party
in such action or proceeding shall be reimbursed by the other party for its
reasonable attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
 
Section 13.                      General Provisions.
 
(a)           This Agreement constitutes the entire agreement of the parties to
this Agreement and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings and negotiations with respect to the subject
matter hereof, provided that, notwithstanding anything herein to the contrary,
the Engagement Agreement, dated February 11, 2016 (the “Engagement Agreement”),
between the Company and Craig-Hallum shall continue to be effective and the
terms therein shall continue to survive and be enforceable by Craig-Hallum in
accordance with its terms, provided that, in the event of a conflict between the
terms of the Engagement Agreement and this Agreement, the terms of this
Agreement shall prevail.  This Agreement may be executed in two or more
counterparts, each one of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  This Agreement
may not be amended or modified unless in writing by all of the parties hereto,
and no condition herein (express or implied) may be waived unless waived in
writing by each party whom the condition is meant to benefit.  Section headings
herein are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.
 
(b)           The Company acknowledges that in connection with the offering of
the Securities: (i) each Placement Agent has acted at arms’ length, are not
agents of, and owe no fiduciary duties to the Company or any other person, (ii)
each Placement Agent owes the Company only those duties and obligations set
forth in this Agreement and (iii) each Placement Agent may have interests that
differ from those of the Company.  The Company waives to the full extent
permitted by applicable law any claims it may have against each Placement Agent
arising from an alleged breach of fiduciary duty in connection with the offering
of the Securities.
 
[The remainder of this page has been intentionally left blank.]
 
 
21

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

 
 
If the foregoing is in accordance with your understanding of our agreement,
please sign below whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
 

 
Very truly yours,
 
AIR INDUSTRIES GROUP
a Nevada corporation

 
By: /s/ Daniel R. Godin
       Name: Daniel R. Godin
       Title: President and CEO

 
The foregoing Placement Agency Agreement is hereby confirmed and accepted as of
the date first above written.
 
CRAIG-HALLUM CAPITAL GROUP LLC

By: /s/ John Flood
       Name: John Flood
       Title: Managing Partner
 
TAGLICH BROTHERS, INC.

By:  /s/ Robert Schroeder
Name: Robert Schroeder
Title: Vice President, Investment Banking

 
22

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