Exhibit 10.1
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
BE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AIR INDUSTRIES GROUP,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
 

Principal Amount: $500,000 Issue Date: August 1, 2016

 
Subordinated Promissory Note due December 31, 2016

           FOR VALUE RECEIVED, AIR INDUSTRIES GROUP, a Nevada corporation (the
“Company”) hereby promises to pay to the order of MICHAEL N. TAGLICH or his
assigns (the "Holder"), without demand, the sum of FIVE HUNDRED THOUSAND Dollars
($500,000), together with accrued interest thereon from the date hereof at the
rate of seven percent (7%) per annum, on the earlier of (i) December 31, 2016
(the "Maturity Date") or (ii) such date following the date hereof on which the
Company shall consummate a debt or equity financing in one or a series of
related transactions in an aggregate amount of $2,000,000 or more, if not paid
sooner.

  This Note may be prepaid in whole or in part at any time.  All payments made
pursuant to this Note shall be applied first to reimbursable expenses, interest
accrued, if any, and then principal.
 
The following is a statement of rights of the Holder and the conditions to which
this Note is subject, and to which the Holder, by acceptance of this Note,
agrees:
 
1.           Subordination.      (a)           This Note will be subordinate and
inferior to the Company’s Senior Indebtedness (as hereinafter defined).  The
Company for itself, its successors and assigns, covenants and agrees and the
Holder of this Note, for himself, his successors and assigns, by his acceptance
of this Note likewise covenants and agrees that, to the extent provided below,
the payment of all amounts due pursuant to this Note is hereby expressly
subordinated and junior in right of payment to the extent and in the manner
hereinafter set forth, to the Company’s Senior Indebtedness.  As used herein,
the term “Senior Indebtedness” shall mean the principal of, and interest and
premium, if any, on any and all, (i) indebtedness of the Company for borrowed
money or obligations with respect to which the Company is a guarantor, to banks,
insurance companies, or other financial institutions or entities regularly
engaged in the business of lending money, in each case as in effect as of the
date hereof, or as may be borrowed hereafter, including without limitation,
indebtedness incurred by one or more of the Company’s subsidiaries under the
Amended and Restated Revolving Credit, Term Loan, Equipment Line and Security
Agreement, dated as of June 27, 2013 among Air Industries Machining, Corp.,
Welding Metallurgy, Inc., Nassau Tool Works, Inc.,  Woodbine Products Inc.,
Eur-Pac Corporation, Electronic Connection Corporation, AMK Welding, Inc., The
Sterling Engineering Corporation, and PNC Bank, National Association, as agent
for the various lenders named therein, as amended as of the date hereof, the
payment of which has been guaranteed by the Company and Air Realty Group, LLC
(the “Guarantors”), (ii) any such indebtedness or any debentures, notes or other
evidence of indebtedness issued in exchange for or to refinance such Senior
Indebtedness, or any indebtedness arising from the satisfaction of such Senior
Indebtedness by a Guarantor, provided that such indebtedness issued in exchange
for or to refinance Senior Indebtedness or arising from the satisfaction of
Senior Indebtedness by a Guarantor is on commercially reasonable terms as of the
date of incurrence not to exceed the principal amount under such Senior
Indebtedness and provided further that the Company provides the Holder with
prior written notice of such action.
 
 
 

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(b)           Upon the acceleration of any Senior Indebtedness or upon the
maturity of all or any portion of the principal amount of any Senior
Indebtedness by lapse of time, acceleration or otherwise, all such Senior
Indebtedness which has been so accelerated or matured shall first indefeasibly
be paid in full before any payment is made by the Company or any person acting
on behalf of the Company on account of any obligations evidenced by this Note.
 
(c)           The Company shall not pay any principal portion of this Note, or
interest accrued hereon, if at such time there exists a Blockage Event (as
hereafter defined) and written notice thereof has been given to the Company and
the Holder by the holders of the Senior Indebtedness.
 
(d)           A “Blockage Event” is deemed to exist for the period of time
commencing on the date of receipt by the Holder of written notice of the
occurrence of a Default or an Event of Default (as defined in the instruments
evidencing the Senior Indebtedness), provided that the failure to pay accrued
interest on this Note when due shall not give rise to a Blockage Event in the
absence of another Default or Event of Default, which notice shall specify such
Default or Event of Default, and ending on:
 
(i)           the date such Default or Event of Default under the Senior
Indebtedness, as applicable, is cured or waived, provided that such Default or
Event of Default is in the payment of any amount due thereunder; or
 
(ii)           in the case of any other Default or Event of Default under the
Senior Indebtedness, the earlier of (A) the date on which Holder has received
written  notice of such Default or Event of Default shall have been cured or
waived and (B) the date that is 365 days after the occurrence of such Default or
Event of Default, provided that a Blockage Event with respect to a single
specified Default or Event of Default may be deemed to occur only once for each
twelve-month period, provided, further, that no Default or Event of Default that
existed at the commencement of, or during the pendency of, a Blockage Event
shall serve as the basis for the institution of any subsequent Blockage Event.

A Blockage Event shall not be deemed to have existed during the period of time
commencing on the date upon which the holder of this Note accelerates payment of
the principal amount of this Note or such other Notes as a result of any Event
of Default hereunder and ending on the 365th day after written notice of such
acceleration given by the holder or such other holders to the Company and the
holders of the instruments evidencing the Senior Indebtedness; provided that in
no event shall the Company pay the holder of this Note or the holders of any
other Notes the principal amount so accelerated if a Blockage Event then exists
until the Senior Indebtedness has been paid in full.
 
 
 

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(e)           At any time there exists a Blockage Event, (i) the Company shall
not, directly or indirectly, make any payment of any part of this Note, (ii) the
Holder shall not demand or accept from the Company or any other person any such
payment or cancel, set-off or otherwise discharge any part of the indebtedness
represented by this Note, and (iii) neither the Company nor the Holder shall
otherwise take or permit any action prejudicial to or inconsistent with the
priority position of any holder of Senior Indebtedness over the Holder of this
Note.
 
(f)           No right of any holder of Senior Indebtedness to enforce the
subordination provisions of this obligation shall be impaired by any act or
failure to act by the Company or the Holder or by their failure to comply with
this Note or any other agreement or document evidencing, related to or securing
the obligations hereunder.  Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the Holder to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment of any Senior Indebtedness provided that
such change does not materially impact Holder in an adverse manner; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing any Senior Indebtedness; (iii) release any person or entity
liable in any manner for the collection of any Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Company or any other
person or entity.
 
(g)           In the event that the Company shall make any payment or prepayment
to the Holder on account of the obligations under this Note which is prohibited
by this Section, such payment shall be held by the Holder, in trust for the
benefit of, and shall  be paid forthwith over and delivered to, the holders of
Senior Indebtedness (pro rata as to each of such holders on the basis of the
respective amounts and priorities of Senior Indebtedness held by them) to the
extent necessary to pay all Senior Indebtedness due to such holders of Senior
Indebtedness in full in accordance with its terms (whether or not such Senior
Indebtedness is due and owing), after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.
 
(h)           After all Senior Indebtedness indefeasibly is paid in full and
until the obligations under the Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness.  For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section and no payment over pursuant to the provisions of this Section to
holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Company to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section are solely
for the purpose of defining the relative rights of the holders of such Senior
Indebtedness, on the one hand and the Holder, on the other hand.
 
 
 

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(i)           In any insolvency, receivership, bankruptcy, dissolution,
liquidation or reorganization proceeding, or in any other proceeding, whether
voluntary or involuntary, by or against the Company under any bankruptcy or
insolvency law or laws relating to relief of debtors, to compositions,
extensions or readjustments of indebtedness:
 
(i)           the claims of any holders of Senior Indebtedness against the
Company shall be paid indefeasibly in full in cash or such payment shall have
been provided for in a manner acceptable to the holders of at least a majority
of the then outstanding principal amount of the Senior Indebtedness before any
payment is made to the Holder;
 
(ii)           until all Senior Indebtedness is indefeasibly paid in full in
cash or such payment shall have been provided for in a manner acceptable to the
holders of at least a majority of the then outstanding principal amount of the
Senior Indebtedness before any payment is made to the Holder, any distribution
to which the Holder would be entitled but for this Section shall be made to
holders of Senior Indebtedness, except for distribution of securities issued by
the Company which are subordinate and junior in right of payment to the Senior
Indebtedness; and
 
(iii)           the holders of Senior Indebtedness shall have the right to
enforce, collect and receive every such payment or distribution and give
acquittance therefor.  If, in or as a result of any action case or proceeding
under Title 11 of the United States Code, as amended from time to time, or any
comparable statute, relating to the Company, the holders of the Senior
Indebtedness return, refund or repay to the Company, or any trustee or committee
appointed in such case or proceeding receive any payment or proceeds of any
collateral in connection with such action, case or proceeding alleging that the
receipt of such payments or proceeds by the holders of the Senior Indebtedness
was a transfer voidable under state or federal law, then the holders of the
Senior Indebtedness shall not be deemed ever to have received such payments or
proceeds for purposes of this Note in determining whether and when all Senior
Indebtedness has been paid in full and the Company shall pay or cause to be
paid, and the Holder shall be entitled to receive any such funds, proceeds or
collateral to satisfy all amounts due hereunder.  In the event the holders of
Senior Indebtedness receive amounts in excess of payment in full (cash) of
amounts outstanding in respect of Senior Indebtedness (without giving effect to
whether claims in respect of the Senior Indebtedness are allowed in any
insolvency proceeding), the holders of Senior Indebtedness shall pay such excess
amounts to the Holder.
 
(k)           By its acceptance of this Note, the Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time by the
Company or the holder of any Senior Indebtedness in order to implement the
foregoing provisions of this Section.
 
 
 

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2.           Events of Default.  The occurrence of any of the following events
of default ("Event of Default") shall, at the option of the Holder hereof and
subject to the provisions of section 1 (a) hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:

           (a)           Failure to Pay Principal or Interest. The Company fails
to pay any installment of principal, interest or other sum due under this Note
when due.

           (b)           Receiver or Trustee. The Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be appointed
without the consent of the Company is not dismissed within sixty (60) days of
appointment.

           (c)           Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Company and if
instituted against Company are not dismissed within sixty (60) days of
initiation.

The holder of this Note shall give the Company and the holders of the Senior
Indebtedness written notice of any Event of Default hereunder.
 
              3.      Miscellaneous.

(a)           Waiver. No failure or delay on the part of Holder hereof in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege. All rights and remedies existing hereunder are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

(b)           Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery or e-mail, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
e-mail, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company to: Air Industries Group, 360
Motor Parkway, Suite 100, Hauppauge, New York 11788, Attn: Daniel R. Godin,
President and CEO,  e-mail: dgodin@airindustriesgroup.com, with a copy
by  e-mail only to: Eaton & Van Winkle LLP, Three Park Avenue, 16th floor, New
York, NY 10016,  Attn: Vincent J. McGill, Esq., e-mail: vmcgill@evw.com, and
(ii) if to the Holder, to c/o Taglich Brothers, Inc., 790 New York Avenue,
Huntington, NY 11743, with a copy to c/o Taglich Brothers, Inc., 790 New York
Avenue, Huntington, NY 11743, Attn: Mr. Richard Oh, e-mail:
roh@taglichbrothers.com.
 
 
 

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           (c)           Terms.   The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.

           (d)           Successors and Assigns. This Note shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
the Holder and its successors and assigns.

           (e)           Expenses. The Company shall reimburse Holder for all
reasonable costs and expenses, including without limitation, reasonable
attorneys’ fees and expenses, incurred in connection with (i) drafting,
negotiating, executing and delivering any amendment, modification or waiver of,
or consent with respect to, any matter relating to the rights of Holder
hereunder and (ii) enforcing any provisions of this Note and/or collecting any
amounts due under this Note.

           (f)           Governing Law.   This Note shall be governed by and
construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the civil or state
courts of New York or in the federal courts located in the State and county of
New York. Both parties and the individual signing this Agreement on behalf of
the Company agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs.

           (g)           Savings Clause.  Nothing contained herein shall be
deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Holder and thus refunded to
the Company.

           IN WITNESS WHEREOF, Company has caused this Note to be signed in its
name by an authorized officer as of the 1st day of August, 2016.

  AIR INDUSTRIES GROUP          
 
By:
/s/ Daniel R. Godin       Daniel R. Godin       President and Chief Executive
Officer