Document:

Unassociated Document

 

AIR INDUSTRIES GROUP, INC.

 

SUBSCRIPTION DOCUMENTS BOOKLET

 

INSTRUCTIONS

And

SUBSCRIPTION DOCUMENTS

 

  

  

  

 

AIR INDUSTRIES GROUP, INC.

INSTRUCTIONS TO SUBSCRIBERS

And

 

JUNIOR SUBORDINATED NOTE HOLDERS

 

  

  

  

 

INSTRUCTIONS TO SUBSCRIBERS

 

Persons and entities (“Subscribers”) wishing to subscribe for shares of the common stock of Air Industries Group, Inc (the “Company”) to be paid for either in cash or in exchange for junior subordinated notes (“Junior Subordinated Notes”) of the Company must complete the following steps:

 

(1)           Complete and sign the Confidential Investor Questionnaire in the form attached hereto; and

 

(2)           Complete and sign the Securities Purchase or Exchange Agreement in the form attached hereto (the “SPA”).

 

Completed documents should be returned to Taglich Brothers, Inc. (the “Placement Agent”) at the following address:

 

TAGLICH BROTHERS, INC.

790 New York Avenue, Suite 290

Huntington, NY 11743

Attention: Mr. Robert Lorenzo

 

The portion, if any, of the subscription amount to be paid in cash should be sent by wire transfer to CSC Trust Company of Delaware as escrow agent for the Company (the “Escrow Agent”), in accordance with the following instructions:

 

PNC Bank

300 Delaware Avenue

Wilmington, DE 19801

ABA # 031100089

Acct Name:  CSC Trust Company of Delaware

Account Number:  5605012373

OBI:  FFC: Air Industries Group, Inc. Escrow 79-1733

 

If any of the subscription amount is to be satisfied by the exchange of Junior Subordinated Notes, the Notes, duly endorsed in blanked, should be delivered to Taglich Brothers, Inc. at the above address.

 

The Escrow Agent shall not release the subscription funds received from a Subscriber to the Company and the Placement Agent will not release surrendered Notes to the Company unless the conditions set forth in the SPA to the Subscriber’s purchase of shares of the Company’s common stock shall have been satisfied.

 

  

  

  

 

AIR INDUSTRIES GROUP, INC.

 

CONFIDENTIAL INVESTOR QUESTIONNAIRE

 

  

  

  

 

CONFIDENTIAL INVESTOR QUESTIONNAIRE

 

AIR INDUSTRIES GROUP, INC.

 

The information contained herein is being furnished to Air Industries Group, Inc., a Delaware corporation (the “Company”), and Taglich Brothers, Inc. (the “Placement Agent”) in order for the Company to determine whether the undersigned’s subscription for shares of the Company’s common stock (the “Shares”) may be accepted pursuant to Section 4(2) of the Securities Act of Securities, as amended (the “Securities Act”), and/or Rule 506 of Regulation D promulgated thereunder (“Regulation D”).  The Shares are being offered without registration under the Securities Act or the securities laws of any state or any other jurisdiction.  Under the Securities Act and/or certain state securities laws, the Company may be required to determine that an individual, an investing entity and/or each individual equity owner of an investing entity meets certain suitability requirements before selling the Shares to such individual or entity.

 

The undersigned subscriber understands that: (i) the Company and the Placement Agent will rely upon the following information; (ii) the purchase and sale of the Shares hereunder will not be registered under the Securities Act in reliance upon the exemptions from registration provided by Section 4(2) of the Securities Act and/or Rule 506 of Regulation D; (iii) this Confidential Investor Questionnaire is not an offer to sell or a solicitation of any offer to buy or sell the Shares or any other securities to the undersigned; and (iv) no subscription for any Shares will be accepted unless the Subscriber is an Accredited Investor.

 

Your answers will be kept strictly confidential.  However, by signing this Questionnaire, you agree that the Company and/or the Placement Agent may present this Questionnaire to such parties as they deem appropriate if called upon to establish the Company’s entitlement to an exemption under the Securities Act or any applicable state securities laws.

 

(Questionnaire Begins on following Page.)

 

  

  

  

 

PLEASE ANSWER ALL QUESTIONS.

 

If the appropriate answer is “None” or “Not Applicable,” so state.  Attach additional sheets if necessary to complete your answers to any item.  The undersigned makes the following representations and warranties:

 

 [Print or type your response]

 

	
1. 

	
Name: _______________________________________________________________________________________

 

Name of spouse or additional Subscriber: ____________________________________________________________

 

If an Entity, type of Entity (e.g. Corporation, LLC, Partnership, Trust, etc.) and State of Organization:

 

_________________________________________                                                                      State: ________________

 

	
2.

	
Home address or, if other than an individual, principal office address:

 

____________________________________________________________________________________________

 

____________________________________________________________________________________________

 

Telephone number: _____________________________________________________________________________

 

Social Security Number: _________________________________________________________________________

 

Tax Identification Number: _______________________________________________________________________

 

	
3.

	
I am an accredited investor (as defined in Rule 501(a) of Regulation D) because (check each appropriate description):

 

	
  

	
_________

	
I am a natural person whose individual net worth, or joint net worth with my spouse, excluding the value of our principal residence, exceeds $1,000,000.

 

	
  

	
_________

	
I am a natural person who had individual income exceeding $200,000 in each of the two most recent years or joint income with my spouse exceeding $300,000 in each of those years and I have a reasonable expectation of reaching the same income level in the current year.

 

	
  

	
_________

	
I am a broker-dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended.

 

	
  

	
_________

	
I am an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, not formed for the specific purpose of acquiring the Securities, with total assets exceeding $5,000,000.

 

  

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_________

	
I am a corporation, Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the Securities, with total assets exceeding $5,000,000.

 

	
  

	
_________

	
I am a trust, not formed for the specific purpose of acquiring the Securities, with total assets exceeding $5,000,000 and whose purchase is directed by a “sophisticated person,” as defined in Rule 506(b)(2)(ii) of Regulation D.

 

(For the purposes of this questionnaire, a “sophisticated person” means any person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment.)

 

	
  

	
_________

	
I am an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and (i) investment decisions for such plan are made by a plan fiduciary, as defined in Section 3(21) of such Act, which is a bank, savings and loan association, insurance company or registered investment adviser or (ii) such plan has total assets exceeding $5,000,000 or (iii) if a self directed plan, investment decisions are made solely by accredited investors.

 

	
  

	
_________

	
I am an entity in which all of the equity owners are accredited investors.

 

	
  

	
_________

	
I am a member of the Board of Directors or an executive officer of the Company.

 

	
  

	
_________

	
I am a bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity.

 

	
  

	
_________

	
I am an insurance company as defined in Section 2(13) of the Securities Act.

 

	
  

	
_________

	
I am an investment company registered under the Investment Company Act of 1940, as amended (the “ICA”).

 

	
  

	
_________

	
I am a business development company as defined in Section 2(a)(48) of the ICA.

 

	
  

	
_________

	
I am a Small Business Investment Company licensed by the Small Business Administration under Section 301(c) of the Small Business Investment Act of 1958, as amended.

 

	
  

	
_________

	
I am a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended.

 

  

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_________

	
I am a plan which has total assets in excess of $5,000,000 and which is established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees.

 

	
  

	
_________

	
I am a revocable trust which may be amended or revoked at any time by the grantors thereof, and all such grantors are Accredited Investors.

 

	
  

	
_________

	
I am an Accredited Investor for the following reasons (describe reasons, if not previously provided):

 

	
4.

	
Do you have sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of an investment in the Company and are you willing and able to bear the economic risk of an investment in the Company?

 

Yes _____                                No _____

 

	
5.

	
Do you understand the nature of an investment in the Shares and the risks associated with such an investment?

 

Yes _____                                No _____

 

	
6.

	
Do you intend to purchase the Shares solely for your own account, for investment and not with the intent to resell them?

 

Yes _____                                No _____

 

	
7.

	
Are you an entity formed for the purpose of acquiring the Shares?

 

Yes _____                                No _____

 

	
8.

	
Are you an entity whose stockholders, partners, members or other beneficial owners have individual discretion as to their participation or non-participation in particular investments made by you, and one or more of such stockholders, partners, members or other beneficial owners have contributed or will contribute capital to you for the purpose of your acquisition of Securities (i.e., your investors have been permitted to determine whether their capital will form part of the specific capital invested by you in the Shares)?

 

Yes _____                                No _____

 

  

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The foregoing responses are complete and accurate to the best of my knowledge and belief.  I will provide such further information as may be requested by the Company or the Placement Agent to verify my responses.  I will notify the Company and the Placement Agent in writing regarding any material change in my responses prior to the closing of the purchase by me of the Shares.  Absent such notification, the issuance of the Shares in my name shall be deemed to be an automatic affirmation by me of the truth and accuracy or the statements and information set forth above.

 

Date: ___________________________  

 

	 	
______________________________________________

Exact Name in Which Title is to be Held 

 

______________________________________________

Authorized Signature

 

______________________________________________

Print Name of Signatory and Capacity in which Signed (if an Entity)

______________________________________________

Signature (if Joint Tenants or Tenants in Common)

______________________________________________

Print Name of above Signatory

 

  

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AIR INDUSTRIES GROUP, INC.

 

SECURITIES PURCHASE OR EXCHANGE AGREEMENT

 

  

  

  

 

SECURITIES PURCHASE OR EXCHANGE AGREEMENT

AIR INDUSTRIES GROUP, INC.

SECURITIES PURCHASE OR EXCHANGE AGREEMENT (as amended or supplemented from time to time, this "AGREEMENT"), dated as of _________________, 2012, between Air Industries Group, Inc., a Delaware corporation (the "COMPANY") with its principal offices at 1479 N. Clinton Avenue, Bay Shore, New York 11706, and the undersigned (the “Subscriber”).

WITNESSETH:

WHEREAS, the Company is offering to sell in a private placement a minimum of 750,000 shares and a maximum of 1,250,000 shares of its common stock, $0.001 par value (the “Common Stock”), for a purchase price of $6.00 per share (the “Offering”), all as described in the Company’s Confidential Private Placement Memorandum dated May 15, 2012 (the “PPM”);

WHEREAS, the Company is also offering to issue shares of its common stock, $0.001 par value (the “Common Stock”), in exchange for its outstanding junior subordinated notes (the “Notes”) at the rate of one share for each $6.00 principal amount and accrued interest of the Notes (the “Exchange Offer”), all as described in the PPM;

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company (i) shall issue and sell to the Subscriber for cash, and the Subscriber shall purchase from the Company for cash, the number of shares of the Company’s Common Stock as are indicated on the signature page hereto (the “Shares’) or (ii)  shall issue and sell to the Subscriber, and the Subscriber shall acquire from the Company, the number of shares of the Company’s Common Stock as are indicated on the signature page hereto (the “Shares”) in exchange for the principal amount of Notes indicated on the signature page (the “Surrendered Notes”); and

WHEREAS, the Company and the Subscriber are executing and delivering this Agreement in reliance upon an exemption from the registration requirements of the Securities Act of Securities, as amended (the “SECURITIES ACT”), afforded the provisions of Section 3(a)(9) or by the provisions of Section 4(2), Section 4(6) and/or Regulation D ("REGULATION D"), as promulgated by the United States Securities and Exchange Commission (the "COMMISSION") under the Securities Act.

NOW, THEREFORE, in consideration of the mutual covenants and other agreements contained in this Agreement the Company and the Subscriber hereby agree as follows:

1.           SUBSCRIPTION FOR SECURITIES.

            (a)  Upon execution and delivery of this Agreement, and subject to the terms and conditions hereof, including the satisfaction of the conditions described in subsection (b) below, the Company shall deliver one or more certificates for the Shares to the Subscriber, each registered in the name of the Subscriber, against, (i) in the case of Shares to be paid for in cash, receipt of the purchase price for the Shares or (ii) in the case of Shares to be issued in exchange for Surrendered Notes, receipt of the Surrendered Notes.

            (b) Subscriber’s obligation to purchase the Shares is subject to the fulfillment of each of the following conditions:

 

  

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(i)  The representations and warranties of the Company contained in this Agreement shall be true and correct on and as of the date of such purchase;

(ii)  The Company shall have performed and complied with all covenants, conditions and agreements required by this Agreement to be performed or complied with by them on or prior to the date of such purchase;

(iii)  There shall be in effect no injunction, writ, preliminary restraining order or any order of any nature directing that the transactions contemplated by this Agreement, including without limitation the purchase of the Shares,  not be consummated as herein provided;

(iv) not less than 750,000 shares of Common Stock shall have been sold in the Offering; and

(v) The acquisition of substantially all the assets of Nassau Tool Works, Inc. by a newly-formed wholly-owned subsidiary of the Company (“Acquisition Subsidiary”) shall have been completed.

2.           COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS. The Company represents and warrants to and agrees with Subscriber that, except as set forth in PPM delivered by the Company to the Subscriber:

 

(a)  DUE INCORPORATION. The Company and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has the requisite corporate or other power to own its properties and to carry on its business as disclosed in the PPM. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect. For purpose of this Agreement, a "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the financial condition, results of operations, properties or business of the Company and its Subsidiaries taken as a whole. For purposes of this Agreement, "SUBSIDIARY" means, with respect to any entity at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity) of which more than 50% of (i) the outstanding capital stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such entity, (ii) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (iii) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such entity.

 

(b)  AUTHORITY. The Company has the full right, power and authority to execute, deliver and perform under this Agreement.  This Agreement has been duly executed by the Company and this Agreement and the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action and each constitute, the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms.

 

(c)  OUTSTANDING SECURITIES. All of the issued and outstanding shares of the Company’s Common Stock have been duly and validly authorized and issued, are fully paid and nonassessable (with no personal liability attaching to the holders thereof or to the Company) and are free from preemptive rights or rights of first refusal held by any person.  All of the issued and outstanding shares of Common Stock have been issued pursuant to either a current effective registration statement under the Securities Act or an exemption from the registration requirements thereof, and were issued in accordance with all applicable Federal and state securities laws.

  

  

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(d) ENFORCEABILITY. This Agreement and any other agreements delivered together with this Agreement or in connection herewith (collectively "TRANSACTION DOCUMENTS") have been duly authorized, executed and delivered by the Company and are valid and binding agreements, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity regardless of whether enforcement is sought in a court of law or equity). The Company has full corporate power and authority necessary to enter into and deliver the Transaction Documents and to perform its obligations thereunder.

(e)  CONSENTS. No consent, approval, authorization, filing with or notice to any person, entity or public authority, or order of any court, governmental agency or body or arbitrator having jurisdiction over the Company or any of its Subsidiaries, or the Company's stockholders is required for the execution by the Company of the Transaction Documents and compliance and performance by the Company of its obligations under the Transaction Documents, including, without limitation, the issuance and sale of the Shares, other than filings required by Federal or state securities laws, which filings have been or will be made by the Company on a timely basis.

(f)  NO VIOLATION OR CONFLICT. Assuming the representations and warranties of the Subscriber in Section 3 are true and correct, neither the issuance and sale of the Shares nor the performance of the Company's obligations under this Agreement and all other agreements entered into by the Company relating thereto by the Company will:

                      (i)      violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default in any material respect) under (A) the certificate of incorporation or bylaws of the Company, each as amended as of the date hereof, (B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule, regulation or determination applicable to the Company or any of its Subsidiaries of any court, governmental agency or body, or arbitrator having jurisdiction over the Company or such Subsidiary or over the properties or assets of the Company or such Subsidiary, or (C) the terms of any bond, debenture, note or any other evidence of indebtedness, or any agreement, stock option or other similar plan, indenture, lease, mortgage, deed of trust or other instrument to which the Company or such Subsidiary is a party, or by which the Company  or such Subsidiary is bound, or to which any of the properties of the Company or such Subsidiary is subject, except the violation, conflict, breach, or default of which would not have a Material Adverse Effect; or

                      (ii)     result in the creation or imposition of any lien, charge or encumbrance upon the Shares or any of the assets of the Company or any of its Subsidiaries.

(g)    THE SHARES. The Shares upon issuance:

                      (i)   will be free and clear of any security interests, liens, claims or other encumbrances, subject to restrictions upon transfer under the Securities Act and any applicable state securities laws;

                      (ii) will have been duly and validly authorized and duly and validly issued, and upon payment of the purchase price specified in this Agreement the Shares will be fully paid and non-assessable (with no personal liability attaching to the holders thereof or to the Company) and will be free from preemptive rights or rights of first refusal held by any person; provided Subscriber's representations herein are true and accurate and Subscriber takes no actions or fails to take any actions required for the purchase of the Shares to be in compliance with all applicable laws and regulations; and

 

  

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                      (iii) will have been issued in reliance upon an exemption from the registration requirements of and will not result in a violation of Section 5 under the Securities Act.

(h)  LITIGATION. There is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its Subsidiaries that would affect the execution by the Company or the performance by the Company of its obligations under the Transaction Documents. There is no pending or, to the knowledge of the Company, or threatened action, suit, proceeding or investigation before any court, governmental agency or body, or arbitrator having jurisdiction over the Company or any of its Subsidiaries, which litigation if adversely determined would have a Material Adverse Effect.

 

 (i)   FINANCIAL STATEMENTS. The consolidated financial statements of the Company and its Subsidiaries included in the PPM (hereinafter collectively, the “Financial Statements”), were prepared in accordance with generally accepted accounting principles consistently applied and present and reflect fairly the financial position of the Company and its Subsidiaries at the respective balance sheet dates and the results of its operations and cash flows for the periods then ended.  The Company has made and kept books and records and accounts which are in reasonable detail and which fairly and accurately reflect the activities of the Company, subject only to year-end adjustments.

 

(j)  ABSENCE OF CERTAIN CHANGES. Since December 31, 2011 ("LATEST FINANCIAL DATE"), there has been no event, occurrence, development or state of circumstances or facts relating to the Company’s business, financial condition or affairs not disclosed in the PPM which, to the Company’s knowledge, has had or would reasonably be expected to have, a Material Adverse Effect. The PPM does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which made.

 

(k)  NO UNDISCLOSED LIABILITIES. Neither the Company nor any of its Subsidiaries has any liabilities of any kind or nature, whether accrued or contingent, matured or unmatured, known or unknown, which are material, individually or in the aggregate, which are not disclosed in the Financial Statements or the PPM, other than those incurred in the ordinary course of the Company's or such Subsidiary’s businesses since the Latest Financial Date, and which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

(l)   DEFAULTS. Neither the Company nor any of its Subsidiaries is in violation of its certificate of incorporation or bylaws. Neither the Company nor any of its Subsidiaries is in default under or in violation of any note, loan agreement, security agreement, mortgage, contract, franchise agreement, distribution agreement, lease, alliance agreement, joint venture agreement, other agreement, license, permit, consent, approval or instrument to which it is a party, and no event has occurred which, with or without the lapse of time or giving of notice, or both, would constitute such default thereof by the Company or such Subsidiary or would cause acceleration of any obligation of the Company or such Subsidiary or would adversely affect the business, operations, or financial condition of the Company, except where such default or event, whether with or without the lapse of time or giving of notice, or both, has not and will not have a Material Adverse Effect.  To the best of the knowledge of the Company, no party to any note, loan agreement, security agreement, mortgage, contract, franchise agreement, distribution agreement, lease, alliance agreement, joint venture agreement, other agreement, license, permit, consent, approval or instrument with or given to the Company or any of its Subsidiaries is in default thereunder and no event has occurred with respect to such party, which, with or without the lapse of time or giving of notice, or both, would constitute a default by such party or would cause acceleration of any obligations of such party.  The Company and its Subsidiaries are (i) not subject to nor in default with respect to any order of any court, arbitrator or governmental body or subject to or party to any order of any court or governmental authority arising out of any action, suit or proceeding under any statute or other law respecting antitrust, monopoly, restraint of trade, unfair competition or similar matters, or (ii) to the Company's knowledge not in violation of any statute, rule or regulation of any governmental authority which violation would have a Material Adverse Effect. There are no material (i.e., involving an asserted liability in excess of twenty-five thousand dollars ($25,000)) claims, actions, suits, proceedings or labor disputes, inquiries or investigations (whether or not purportedly on behalf of the Company or such Subsidiary), pending or, to the best of the Company's knowledge, threatened, against the Company or any Subsidiary, at law or in equity or by or before any Federal, state, county, municipal or other governmental department, the Securities and Exchange Commission (the “Commission”), the Financial Industry Regulatory Authority, board, bureau, agency or instrumentality, domestic or foreign, whether legal or administrative or in arbitration or mediation, nor is there any basis for any such action or proceeding.  Neither the Company, nor any of its assets are subject to, nor is the Company in default  with respect to, any order, writ, injunction, judgment or decree that could adversely affect the financial condition, business, assets or prospects of the Company.

 

  

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(m)  COMPLIANCE WITH LAWS. The Company and each of its Subsidiaries  is in compliance with all laws, rules and regulations of all Federal, state, local and foreign government agencies having jurisdiction over the Company or affecting the business, assets or properties of the Company, except where the failure to comply has not and will not have a Material Adverse Effect.  The Company and each of its Subsidiaries possesses all licenses, permits, consents, approvals and agreements (collectively, “Licenses”) which are required to be issued by any and all applicable Federal, state, local or foreign authorities necessary for the operation of its business and/or in connection with its assets or properties, except where the failure to possess such Licenses has not and will not have a Material Adverse Effect.

 

 (n) TAXES. The Company and each of its Subsidiaries has timely filed or will timely file with the appropriate taxing authorities all returns in respect of taxes required to be filed through the date hereof and has timely paid or will timely pay all taxes that it is required to pay or has established an adequate reserve therefore.  There are no pending or, to the knowledge of the Company, threatened audits, investigations or claims for or relating to any liability of the Company or any of its Subsidiaries in respect of taxes.

 

 (o) USE OF PROCEEDS. The proceeds from sale of the Shares to Subscriber will be used by the Company for the purposes set forth in the PPM.

  

(p) NOT AN INTEGRATED OFFERING. Neither the Company, nor any person acting on its behalf, has knowingly, either directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would cause the offer of the Shares pursuant to this Agreement to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, which would impair the exemptions relied upon in for the offer and sale of the Shares to Subscriber or the Company's ability to timely comply with its obligations hereunder. Nor will the Company take any action or steps that would knowingly cause the offer or issuance of the Shares to be integrated with other offerings which would impair the exemptions relied upon for the offer and sale of the Shares to Subscriber or the Company's ability to timely comply with its obligations hereunder. The Company will not knowingly conduct any offering, other than the exchange offer of common stock for Junior Subordinated Notes described in the PPM, that will be integrated with the offer or issuance of the Shares, which would impair the exemptions relied upon for the offer and sale of the Shares to Subscriber or the Company's ability to timely comply with its obligations hereunder.

 

  

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(q) NO GENERAL SOLICITATION. Neither the Company, nor to its knowledge, any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares.

(r) STOP TRANSFER. The Company will not issue any stop transfer order or other order impeding the sale, resale or delivery of any of the Shares, except as may be required by any applicable federal or state securities laws and unless contemporaneous notice of such instruction is given to the Subscriber.

 

(s) BROKERS.  Except for commissions payable to the Placement Agent and warrants to purchase shares of common stock issuable to the Placement Agent as described in the PPM, there are no finder's fees or brokerage commissions payable with respect to the transactions contemplated by this Agreement due to the actions of the Company.

 

(t) INVESTMENT COMPANY. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended.

3.           SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Subscriber hereby represents and warrants to and agrees with the Company that:

(a) ORGANIZATION AND STANDING. If the Subscriber is an entity, Subscriber is a corporation, partnership or other entity duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has the requisite corporate power to own its assets and to carry on its business.

(b) AUTHORIZATION AND POWER. Subscriber has the requisite power and authority to enter into and perform this Agreement and to purchase the Shares. The execution, delivery and performance of this Agreement by Subscriber and the consummation by Subscriber of the transactions contemplated hereby have been duly authorized by all necessary corporate or partnership action, and no further consent or authorization of Subscriber or its Board of Directors, stockholders or partners, members, as the case may be, is required. This Agreement has been duly authorized, executed and delivered by Subscriber and constitutes a valid and binding obligation of the Subscriber enforceable against the Subscriber in accordance with the terms hereof.

 (c) NO CONFLICTS. The execution, delivery and performance of this Agreement and the consummation by Subscriber of the transactions contemplated hereby do not and will not (i) result in a violation of Subscriber's charter documents or bylaws or other organizational documents or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument or obligation to which Subscriber is a party or by which its properties or assets are bound, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to Subscriber or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a material adverse effect on Subscriber). Subscriber is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Shares, provided that for purposes of the representation made in this sentence, Subscriber is assuming and relying upon the accuracy of the relevant representations and agreements of the Company herein.

 

  

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(d) INFORMATION CONCERNING THE OFFERING AND THE COMPANY. Subscriber has been furnished with the PPM.  In addition, the Subscriber has received in writing from the Company such other information concerning its operations, financial condition and other matters as the Subscriber has requested in writing (such other information is collectively, the "OTHER WRITTEN INFORMATION"), and considered all factors the Subscriber deems material in deciding on the advisability of investing in the Shares. Subscriber has carefully read, and understands the information in the PPM, including without limitation, the information set forth under the caption "Risk Factors."

(e) INFORMATION CONCERNING SUBSCRIBER. The Subscriber is an "accredited investor", as such term is defined in Rule 501(a) of Regulation D, is experienced in investments and business matters, has made investments of a speculative nature and has purchased unregistered securities in private placements in the past and, with its representatives, has such knowledge and experience in financial, tax and other business matters as to enable the Subscriber to utilize the information made available by the Company to evaluate the merits and risks of and to make an informed investment decision with respect to the proposed purchase, which represents a speculative investment. The Subscriber has the authority and is duly and legally qualified to purchase and own the Shares.  The Subscriber is able to bear the risk of such investment for an indefinite period and to afford a complete loss thereof. The information set forth on the signature page hereto regarding the Subscriber is accurate.

(f) PURCHASE OF SECURITIES. The Subscriber is acquiring the Shares as principal for its own account for investment only and not with a view toward, or for resale in connection with, the public sale or any distribution thereof, but Subscriber does not agree to hold the Shares for any minimum amount of time.

(g) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands and agrees that the Shares have not been registered under the Securities Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the Securities Act (based in part on the accuracy of the representations and warranties of Subscriber contained herein), and that such Shares must be held indefinitely unless a subsequent disposition is registered under the Securities Act or any applicable state securities laws or is exempt from such registration.

(h) LEGEND. The certificates evidencing the Shares shall bear the following or similar legend:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF Securities, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE BE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO AIR INDUSTRIES GROUP, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

(i) COMMUNICATION OF OFFER. The offer to sell the Shares was directly communicated to the Subscriber by the Company or the Placement Agent and no other person has solicited an investment in the Shares on behalf of the Company. At no time was the Subscriber presented with or solicited by any leaflet, newspaper or magazine article, radio or television advertisement, or any other form of general advertising or solicited or invited to attend a promotional meeting otherwise than in connection and concurrently with such communicated offer.

(j) AUTHORITY; ENFORCEABILITY. This Agreement has been duly authorized, executed and delivered by the Subscriber and is a valid and binding agreement of Subscriber, enforceable against the Subscriber in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity; and Subscriber has full corporate power and authority necessary to enter into this Agreement and to perform its obligations hereunder.

 

  

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(k) NO GOVERNMENTAL REVIEW. Subscriber understands that no United States federal or state agency or any other governmental or state agency has passed on or made recommendations or endorsement of the Shares or the suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

(m) NO TAX ADVICE.  Subscriber acknowledges that no representation has been made and no advice has been given to Subscriber by the Company or the Placement Agent as to the potential tax consequences of the Subscriber’s investment in the Shares and that the Subscriber has been urged to consult with his or her own tax advisors, with specific reference to the Subscriber’s own situation, with respect to such consequences.

(n) OWNERSHIP OF SURRENDERED NOTES.  The Subscriber is the registered owner of the Surrendered Notes, and the Surrendered Notes are not subject to any pledge, lien restriction or other encumbrance which prohibits the surrender of the Notes to the Company in exchange for Shares pursuant hereto.

 

 

4.           EXEMPT OFFERING. The offer and issuance of the Shares to the Subscriber is being made pursuant to the exemption from the registration provisions of the Securities Act afforded by Section 3(a)(9), Section  4(2) or Section 4(6) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.

5.           BROKER COMMISSIONS. The Company on the one hand, and Subscriber on the other hand, agree to indemnify the other against and hold the other harmless from any and all liabilities to any persons claiming brokerage commissions or similar fees, other than Placement Agent. The Company represents that there are no other parties entitled to receive fees, commissions, or similar payments in connection with the Offering described in this Agreement.

6.           COVENANTS REGARDING INDEMNIFICATION.

(a) The Company agrees to indemnify, hold harmless, reimburse and defend the Subscriber, the Subscriber’s officers, directors, agents, affiliates, control persons, and principal shareholders, against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Subscriber or any such person which results, arises out of or is based solely upon (i) any material misrepresentation by Company or material breach of any warranty by Company in this Agreement or in any Exhibits or Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any material breach or default in performance by the Company of any covenant or undertaking to be performed by the Company hereunder, or any other agreement entered into by the Company and Subscriber relating hereto.

(b)  Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company and each of the Company's officers, directors, agents, affiliates, control persons against any claim, cost, expense, liability, obligation, loss or damage (including reasonable legal fees) of any nature, incurred by or imposed upon the Company or any such person which results, arises out of or is based solely upon (i) any material misrepresentation by Subscriber in this Agreement or in any Exhibits or Schedules attached hereto, or other agreement delivered pursuant hereto; or (ii) after any applicable notice and/or cure periods, any material breach or default in performance by Subscriber of any covenant or undertaking to be performed by Subscriber hereunder, or any other agreement entered into by the Company and Subscriber, relating hereto.

 

  

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   (c) Any person entitled to indemnification under Section 6(a) or (b) of this Agreement (an “indemnified party”) shall notify promptly the person obligated to provide such indemnification (the “indemnifying party”) in writing of the commencement of any action or proceeding brought by a third person against the indemnified party with respect to a Claim (a “Third Party Claim”) for which the indemnified party may be entitled to indemnification from the indemnifying party under this Section 6, but the omission of such notice shall not relieve the indemnifying party from any liability which it may have to any indemnified party under Section 6 of this Agreement, except to the extent that such failure shall materially adversely affect any indemnifying party or its rights hereunder.  The indemnifying party shall be entitled to participate in, and, to the extent that it chooses, to assume the defense of any Third Party Claim with counsel reasonably satisfactory to the indemnified party; and, after notice from the indemnifying party to the indemnified party that it so chooses, the indemnifying party shall not be liable for any legal or other expenses or disbursements subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the Third Party Claim within twenty (20) days after receiving notice from the indemnified party of such Third Party Claim; (ii) if the indemnified party who is a defendant in such Third Party Claim which is also brought against the indemnifying party reasonably shall have concluded that there are legal defenses available to the indemnified party which are not available to the indemnifying party; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties in each jurisdiction, except to the extent any indemnified party or parties reasonably shall have concluded that there are legal defenses available to such party or parties which are not available to the other indemnified parties or to the extent representation of all indemnified parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct) and the indemnifying party shall be liable for any reasonable expenses therefor; provided, that no indemnifying party shall be subject to any liability for any settlement of a Third Party Claim made without its consent (which may not be unreasonably withheld, delayed or conditioned).  If the indemnifying party assumes the defense of any Third Party Claim hereunder, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party.

7.   REGISTRATION RIGHTS.  The Company shall grant to the Subscriber the registration rights described below:

7.1 Mandatory Registration.  The Company shall prepare and file a registration statement on Form 10 registering its shares of common stock under section 12 (g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act Registration Statement”) as soon as practicable but no later than August 15, 2012, and thereafter use its reasonable best efforts to respond to all comments from the staff of the Division of Corporation Finance, Securities and Exchange Commission (the “Commission”) and obtain an indication from the Commission that it has completed its review of and has no further comments on the Exchange Act Registration Statement, in each case as soon as practicable. The date on which the Commission informs the Company that it has completed its review of the Exchange Act Registration Statement shall be referred to herein as the “SEC Clearance Date.” Not later than fifteen days after the earlier of (i) the date the Exchange Act Registration Statement  becomes effective or (ii) the SEC Clearance Date (the “Filing Deadline”), the Company shall prepare and file a registration statement on Form S-1 (or such other suitable form as may then be prescribed by the Commission) under the Securities Act, and the rules and regulations of the Commission thereunder, to effect the registration under the Securities Act of the Shares and such other shares of common stock or other securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the Shares (together, the “Registrable Securities”) to permit the public disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified by the Subscriber and his or its permitted assigns or transferees (collectively, the “Holder”); provided, however, such intended method of disposition shall not include an underwritten offering of the Registrable Securities (the “Registration Statement”).  Notwithstanding the foregoing, the Company may withdraw the Exchange Act Registration Statement prior to the 60th day after the filing of the Exchange Act Registration Statement if the SEC Clearance Date is not expected to occur within sixty-five (65) days after the filing of the Exchange Act Registration Statement and the Board of Directors of the Company determines that it would be detrimental to the Company and its stockholders for the Exchange Act Registration Statement to become effective prior to the SEC Clearance Date.  In such event, the Company shall re-file the Exchange Act Registration Statement as soon as practicable after any such withdrawal.

 

  

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7.2 Registration Procedures. In connection with the registration of the Registrable Securities under the Securities Act as provided in Section 7.1 the Company shall:

 

(i) prepare and file with the Commission by the Filing Deadline the Registration Statement (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use its reasonable best efforts to cause such registration statement to be declared effective by the Commission as soon as practicable;

 

(ii) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection therewith as may be necessary to keep the Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by the Registration Statement, until the earlier to occur of two (2) years after the date upon which the Registration Statement was declared effective by the Commission and the date that all Registrable Securities covered by such Registration Statement have been sold (the “Effectiveness Period”), subject to the right of the Company to suspend the effectiveness thereof for not more than for a period of thirty (30) non-consecutive calendar days (in the aggregate) during any twelve (12) month period because the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction which, in the reasonable judgment of the Company’s board of directors, requires the Registration Statement to be amended to include information in connection with such pending transaction (including the parties thereto) and such information is not yet available or capable of being publicly disclosed;

 

(iii) furnish to the Holder such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in the Registration Statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by the Holder;

 

(iv) use its reasonable efforts to register or qualify all Registrable Securities and other securities covered by the Registration Statement under such other securities laws or blue sky laws as the Holder shall reasonably request, to keep such registrations or qualifications in effect for so long as the Registration Statement remains in effect, and take any other action which may be reasonably necessary to enable the Holder to consummate the disposition of the Registrable Securities in such jurisdictions, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction;

 

  

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 (v) use its best efforts to cause all Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Holder to consummate the disposition of such Registrable Securities;

 

(vi) notify the Holder promptly and confirm such advice in writing promptly after the Company has knowledge thereof:

 

(A) when the Registration Statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed, and, with respect to the Registration Statement or any post-effective amendment thereto, when the same has become effective;

 

(B) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus or for additional information;

 

(C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings by any Person for that purpose; and

 

(D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose;

 

(vii) notify the Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of the Holder promptly prepare and furnish to the Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(viii) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment;

 

(ix) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months, but not more than eighteen (18) months, beginning with the first full calendar month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

 

(x) enter into such agreements and take such other actions as Holder shall reasonably request in writing (at the expense of the Holder) in order to expedite or facilitate the disposition of such Registrable Securities;

 

  

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(xi) use its best efforts to list all Registrable Securities covered by the Registration Statement on any national securities exchange (if any) on which any of the Registrable Securities are then listed; and

(xii)           use its reasonable best efforts to cause its Common Stock (i) to be quoted on an inter-dealer quotation system such as the OTC Bulletin Board and OTC QB as soon as practicable after the Registration Statement is declared effective by the SEC and (ii) if otherwise eligible pursuant to applicable listing requirements, to be listed on a national securities exchange.

 

The Company may require the Holder to furnish the Company with such information regarding the Holder and the distribution of the Registrable Securities as the Company may from time to time reasonably request in writing.

 

The Company will not file any registration statement pursuant to Section 7.1, or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the Registration Statement) to which the Holder shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel.

 

Subscriber agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (vii) of this Section 7.2, Subscriber will forthwith discontinue his or its disposition of Registrable Securities pursuant to the Registration Statement until Subscriber’s  receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (vii) of this Section 7.2 and, if so directed by the Company, will deliver to the Company all copies, other than permanent file copies, then in Subscriber’s possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice.

 

7.3 Registration Expenses. The Company will pay all  expenses incident to the registration of the Registrable Securities, including, without limitation, all registration, filing and listing fees (if any), all fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits required by or incident to such performance and compliance, premiums and other costs of policies of insurance of the Company against liabilities arising out of the public offering of the Registrable Securities being registered, but excluding underwriting discounts and commissions and transfer taxes, if any.

 

7.4 Indemnification.

 

(a) Indemnification by the Company. The Company will, and hereby does agree to, indemnify and hold harmless the Holder, its directors and officers, and each other person, if any, who controls such Holder within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which such Holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such Holder and each such director, officer and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder stating that it is for use in the preparation thereof and, provided further that the Company shall not be liable to any person to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of the Holder’s failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such person if such statement or omission was corrected in such final prospectus or an amendment or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Holder or any such director, officer or controlling person and shall survive the transfer of such securities by the Holder.

 

  

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 (b) Indemnification by the Holder. The Subscriber agrees, and each other Holder of Registrable Securities must agree, as a condition to including any Registrable Securities in the Registration Statement, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.4) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by the Subscriber or other Holder specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement. This indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of the Registrable Securities by the Subscriber or other Holder.

 

(c) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 7.4, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 7.4, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability, or a covenant not to sue, in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party.

 

  

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(d) Other Indemnification. Indemnification similar to that specified in the preceding subdivisions of this Section 7.4 (with appropriate modifications) shall be given by the Company and each Holder with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act.

 

(e) Indemnification Payments. The indemnification required by this Section 7.4 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred.

 

(f) Contribution. If the indemnification provided for in the preceding subdivisions of this Section 7.4 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holder on the other from the distribution of the Registrable Securities by the indemnified party or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Holder on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Holder on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the Holder bears to the gain, if any, realized by the Holder. The relative fault of the Company on the one hand and of the Holder, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company or by the holder and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 7.4, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivision (b) of this Section 7.4 had been available under the circumstances. 

The Company and the Subscriber agree, and any other Holders must agree as a condition to the inclusion of his or its Registrable Securities in the Registration Statement, that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by pro rata allocation (even if the holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this Section 7.4, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.

 

  

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Notwithstanding the provisions of this subdivision (f), under no circumstances shall any Holder be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of Registrable Securities exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

            7.5. Rule 144. The Company shall timely file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, will, upon the request of the Holder, make publicly available other information) and will take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. The Company will deliver to the Holder, upon request, a written statement as to whether it has complied with the requirements of this Section 7.

 

             7.6. Amendments and Waivers. This Section 7 may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of not less than 51% of the Registrable Securities. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 7.6, whether or not such Registrable Securities shall have been marked to indicate such consent.

  

 8.  MISCELLANEOUS.

(a)                 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, telegram, or facsimile, 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 facsimile, with accurate confirmation generated by the transmitting facsimile machine, 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, Inc., 1479 Clinton Street, Bay Shore, New York 11706, Attn: Peter D. Rettaliata, President and CEO, facsimile: (631) 206-9152 with a copy by facsimile only to: Eaton & Van Winkle LLP, Three Park Avenue,16th floor, New York, NY 10016, Attn: Vincent J. McGill, Esq.,  facsimile (212)779-9928, and (ii) if to the Holder, to the name, address and facsimile number set forth on the signature page of this Agreement, with a copy by telecopier only to the Placement Agent at Taglich Brothers, Inc., 790 New York Avenue, Huntington, NY 11743, Attn:  Mr. Robert Lorenzo, facsimile:  (631) 757-1333.

 

  

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           (b) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and other documents delivered in connection herewith represent the entire agreement between the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by approval or written consent of Subscriber. Neither the Company nor the Subscriber has relied on any representations not contained or referred to in this Agreement and the documents delivered herewith. No right or obligation of the Company shall be assigned without prior notice to and the written consent of the Subscriber.

           (c) COUNTERPARTS/EXECUTION. This Agreement may be executed in any number of counterparts and by the different signatories hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. This Agreement may be executed by facsimile signature and delivered by facsimile transmission.

           (d) LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. 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 New York County. THE PARTIES AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND OTHER AGREEMENTS REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.

           (e) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. To the extent permitted by law, the Company and Subscriber acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to one or more preliminary and final injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Subject to Section 9(d) hereof, each of the Company and Subscriber hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction in New York of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

           (f) SURVIVAL. The representations and warranties, covenants and other agreements of the Company and the Subscriber set forth in this Agreement shall survive the purchase of the Shares by the Subscriber hereunder for a period of one year from the date hereof.

 

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 

  

16

  

 

ALL INVESTORS MUST COMPLETE THIS PAGE

 

IN WITNESS WHEREOF, the parties have executed this Agreement on ___________________, 2012.

Number of Shares to be paid for in cash: _______________________

Purchase Price: $______________ ($6.00 per Share)

Number of Shares to be exchanged for Notes:

Principal Amount of Notes

     Surrendered: $ ______________ ($6.00 per Share)

	  	
_________________________________________

Exact Name in Which Title is to be Held

 

	  	
_________________________________________

(Authorized Signature)

 

	  	
_________________________________________

Print Name of Signatory and Capacity in which

Signed if an Entity

 

	  	
_________________________________________

Signature (if Joint Tenants or Tenants in Common)

 

	  	
_________________________________________

Print Name of above Signatory

SUBSCRIPTION ACCEPTED:

AIR INDUSTRIES GROUP, INC.

By:_______________________________

Name:

Title: _______________________________

Date: _______________________________

____________________________________

Aggregate Purchase Price Accepted (cash)

 

__________________________________________________

Aggregate Principal Amount of Notes Accepted for Exchange

 

{Signature Page to Securities Purchase and Exchange Agreement for Shares of Air Industries Group, Inc.}

 

 

17Unassociated Document

 

PLACEMENT AGREEMENT

 

This PLACEMENT AGREEMENT (the “Agreement”) dated as of May 21, 2012, by and between AIR INDUSTRIES GROUP, INC., a Delaware corporation (the “Company”), and TAGLICH BROTHERS, INC. (“Placement Agent”).

 

W I T N E S S E T H:

  

WHEREAS, in reliance upon the representations, warranties, terms and conditions hereinafter set forth, the Placement Agent will use its best efforts to privately place (the “Proposed Offering”) a minimum amount of $4,500,000 (the “Minimum Amount”) and a maximum amount of $7,500,000 (the “Maximum Amount”) of the Company’s Common Stock (the “Shares”) , in one or more closings (each a “Closing” and the first such Closing being herein referred to as the “Initial Closing”).

 

WHEREAS, the Shares are being issued pursuant to the Company’s Confidential Private Placement Memorandum and exhibits thereto (including the information incorporated by reference therein) dated May 21, 2012, as the same may be amended and/or supplemented from time to time (collectively, the “Memorandum”);

 

WHEREAS, conditioned upon the closing of the Proposed Offering and the acquisition contemplated by the Memorandum, the Company will offer all holders of its Junior Subordinated Notes outstanding (the “Notes”)  the opportunity to exchange their notes into shares of Common Stock of the Company (the “Note Shares”); and

 

WHEREAS, the Shares are being issued to the buyers thereof (the “Investors”) pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “1933 Act”).

 

NOW, THEREFORE, in consideration of the premises and the respective promises hereinafter set forth, the Company and the Placement Agent hereby agree as follows:

 

1.                      Agreement to Act as Placement Agent.

 

(a)           The Placement Agent shall act on a best efforts basis and does not guarantee that it will be able to raise new capital in any prospective offering.  The Company acknowledges that any advice given by the Placement Agent 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 the Placement Agent’s prior written consent.

 

(b)           The term of the Placement Agent’s exclusive engagement will end at the end of the offering period as described in the Memorandum (the “Offering Period”); provided however, either party may terminate the engagement at any time upon ten (10) days written notice to the other party.

 

  

  

  

 

(c)          In addition to the right of the Placement Agent to terminate this Agreement on ten (10) days written notice pursuant to (b), this Agreement may be terminated by the Placement Agent by written notice to the Company at any time prior to the Initial Closing if, in the Placement Agent’s sole judgment, (i) the Company shall have sustained a loss that is material to the Company, whether or not insured, by reason of fire, earthquake, flood, accident or other calamity, or from any labor dispute or court or government action, order or decree; (ii) trading in securities on any exchange or system shall have been suspended or limited either generally or specifically with respect to the Common Stock; (iii) material governmental restrictions have been imposed on trading in securities generally or specifically with respect to the Common Stock (not in force and effect on the date of this Agreement); (iv) a banking moratorium shall have been declared by Federal or New York or California State authorities; (v) an outbreak of major international hostilities or other national or international calamity shall have occurred; (vi) the Congress of the United States or any state legislative body shall have passed or taken any action or measure, or such bodies or any governmental body or any authoritative accounting institute, or board, or any governmental executive shall have adopted any orders, rules or regulations, which the Placement Agent reasonably believes is likely to have a Material Adverse Effect on the business, financial condition or financial statements of the Company or the market for the Common Stock; (vii) the Common Stock shall have been removed from the trading system on which it currently listed, or the Company shall have received notice from such trading system advising the Company of its intention to have the Common Stock removed from such trading system; or (viii) there shall have been, in the Placement Agent’s judgment, a material decline in the Dow Jones Industrial Index or the market price of the Common Stock at any time subsequent to the date of this Agreement.

 

(d)           Upon termination and thereafter, the Placement Agent will be entitled to collect all amounts owed to it pursuant to Section 11.

 

2.                      Representations and Warranties of the Company.  The Company hereby represents and warrants to and covenants and agrees with the Placement Agent, as of the date hereof and as of the date of each Closing, as follows:

 

(a)           The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by the Company or the property owned or leased by the Company requires such qualification.  Except as described in the Memorandum, the Company has no subsidiaries and does not own any equity interest and has not made any loans or advances to or guarantees of indebtedness to any person, corporation, partnership or other entity.

 

(b)           The capital structure of the Company is as described in the Memorandum.

 

(c)           The Company has the full right, power and authority to execute, deliver and perform under this Agreement.  This Agreement has been duly executed by the Company and this Agreement and the transactions contemplated by this Agreement, including without limitation the execution and delivery by the Company of the Placement Agent Warrants, have been duly authorized by all necessary corporate action and this Agreement constitutes, and, upon their execution and delivery, the Placement Agent Warrants will, each constitute, the legal, valid and binding obligations of the Company, enforceable in accordance with their respective terms.

 

  

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(d)           All of the issued and outstanding shares of the Company’s Common Stock (the “Common Stock”) have been duly and validly authorized and issued, are fully paid and nonassessable (with no personal liability attaching to the holders thereof or to the Company) and are free from preemptive rights or rights of first refusal held by any person.  All of the issued and outstanding shares of Common Stock have been issued pursuant to either a current effective registration statement under the 1933 Act or an exemption from the registration requirements thereof, and were issued in accordance with all applicable Federal and state securities laws.

 

(e)           The Shares to be issued at each Closing, the Agent Shares (defined below), the Note Shares and the shares of Common Stock (the “Warrant Shares”) that are issuable upon the exercise of the Placement Agent Warrants (defined below), have been duly and validly authorized for issuance and, when issued pursuant to this Agreement, pursuant to such exercise, or pursuant to the conversion of the Notes, will be duly and validly authorized and issued, fully paid and nonassessable and free from preemptive rights or rights of first refusal held by any person and all corporate action required to be taken for the authorization and issuance of the Placement Agent Warrants, the Warrant Shares and the Note Shares has been validly and sufficiently taken.

 

(f)           The following financial statements of the Company (hereinafter collectively, the “Financial Statements”) are included in exhibits attached to the Memorandum: (i) consolidated balance sheets as of December 31,  2010 and 2011, and consolidated statements of operations, stockholders’ equity and cash flows for the years ended December 31,  2010 and 2011, and the related notes thereto, which have been audited by Rotenberg Meril Solomon Bertiger & Guttilla, P.C. (the “Company Accountants”), independent certified public accountants, (ii) unaudited consolidated balance sheets as of March 31, 2012, consolidated statements of operations for the three months ended March 31, 2011 and 2012, consolidated statements of stockholders’ equity for the three months ended March 31, 20012 and consolidated statements of cash flows for the three months ended March 31, 2011 and 2012 and in all such cases, the related notes thereto.  The Financial Statements were prepared in accordance with generally accepted accounting principles consistently applied and present and reflect fairly the financial position of the Company at the respective balance sheet dates and the results of its operations and cash flows for the periods then ended, provided, however, that the quarterly financial statements included are subject to normal year-end adjustments and lack footnotes and other presentation items.  The Financial Statements comply in all material respects with applicable accounting requirements and the rules and regulations of the Securities and Exchange Commission (the “Commission”) with respect thereto (that would apply if the Company were registered under the Securities Exchange of 1934) as in effect at the time of the date of the Memorandum. During the period of the Company Accountant’s engagement as the Company’s independent certified public accountants, there have been no disagreements between such accounting firm and the Company on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure.  The Company has made and kept books and records and accounts which are in reasonable detail and which fairly and accurately reflect the activities of the Company, subject only to year-end adjustments.

 

  

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(g)           The Company has good and marketable title to all of its material property and assets and, except as set forth in the Memorandum or the Financial Statements, none of such property or assets of the Company are subject to any lien, mortgage, pledge, charge, encumbrance or other security interest (a “Lien”).

 

(h)           Except as may be disclosed in the Memorandum, since December 31, 2011, there has not been any material adverse change in the financial condition or in the operations, business or prospects of the Company from that shown in the Financial Statements or any damage or destruction, not covered by insurance, which affects the business, property or assets of the Company.

 

(i)            Neither the execution nor delivery of this Agreement, the Placement Agent Warrants or the issuance and delivery of the Shares, the Agent Shares, the Note Shares or the Common Stock issuable upon exercise of the Placement Agent Warrants, by the Company, nor the performance by the Company of the transactions contemplated by this Agreement or the  Placement Agent Warrants: (i) requires the consent, waiver, approval, license or authorization of or filing with or notice to any person, entity or public authority (except any filings required by Federal or state securities laws, which filings have been or will be made by the Company on a timely basis); (ii) violates or constitutes a default under or breach of any law, rule or regulation applicable to the Company; or (iii) conflicts with or results in a breach or termination of any provision of, or constitutes a default under, or will result in the creation of any Lien upon any of the property or assets of the Company with or without the giving of notice, the passage of time or both, pursuant to (A) the Company’s certificate of incorporation (as amended) or by-laws, (B) any mortgage, deed of trust, indenture, note, loan agreement, security agreement, contract, lease, license, alliance agreement, joint venture agreement, or other agreement or instrument, or (C) any order, judgment, decree, statute, regulation or any other restriction of any kind or character to which the Company is a party or by which any of the assets of the Company may be bound.

 

(j)           Except as described in the Memorandum, the Company does not have any indebtedness to any officer, director, 5% stockholder or other Affiliate (as defined in the Rules and Regulations of the SEC under the 1933 Act) of the Company, with the exception of regular accrued payroll.

 

(k)           The Company is in compliance with all laws, rules and regulations of all Federal, state, local and foreign government agencies having jurisdiction over the Company or affecting the business, assets or properties of the Company, except where the failure to comply has not had and could not reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of the Company, taken as a whole (a “Material Adverse Effect”).  The Company possesses all licenses, permits, consents, approvals and agreements (collectively, “Licenses”) which are required to be issued by any and all applicable Federal, state, local or foreign authorities necessary for the operation of its business and/or in connection with its assets or properties, except where the failure to possess such Licenses has not had and could not reasonably be expected to have a Material Adverse Effect.

 

  

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(l)           The Company is not in default under any note, loan agreement, security agreement, mortgage, contract, franchise agreement, distribution agreement, lease, alliance agreement, joint venture agreement, other agreement, license, permit, consent, approval or instrument to which it is a party, and no event has occurred which, with or without the lapse of time or giving of notice, or both, would constitute such default thereof by the Company or would cause acceleration of any obligation of the Company or would adversely affect the business, operations, or financial condition of the Company, except where such default or event, whether with or without the lapse of time or giving of notice, or both, has not had and could not reasonably be expected to have a Material Adverse Effect.  To the knowledge of the Company, no party to any note, loan agreement, security agreement, mortgage, contract, franchise agreement, distribution agreement, lease, alliance agreement, joint venture agreement, other agreement, license, permit, consent, approval or instrument with or given to the Company is in default thereunder and no event has occurred with respect to such party, which, with or without the lapse of time or giving of notice, or both, would constitute a default by such party or would cause acceleration of any obligations of such party.

 

(m)           Except as described in the Memorandum, there are no material (i.e., involving an asserted liability in excess of seventy-five thousand dollars ($75,000)) claims, actions, suits, proceedings or labor disputes, inquiries or investigations (whether or not purportedly on behalf of the Company), pending or, to the Company’s knowledge, threatened, against the Company, at law or in equity or by or before any Federal, state, county, municipal or other governmental department, the SEC, the Financial Industry Regulatory Authority (FINRA), board, bureau, agency or instrumentality, domestic or foreign, whether legal or administrative or in arbitration or mediation, nor is there any basis for any such action or proceeding.  Neither the Company, nor any of its assets are subject to, nor is the Company in default with respect to, any order, writ, injunction, judgment or decree that could adversely affect the financial condition, business, assets or prospects of the Company.

 

(n)           The accounts receivable of the Company represent receivables generated from the sale of goods and services in the ordinary course of business.  The Company knows of no material disputes concerning accounts receivable of the Company not disclosed in the Memorandum.

 

(o)           The accounts payable of the Company represent bona fide payables to third parties incurred in the ordinary course of business and represent bona fide debts for services and/or goods provided to the Company.

 

(p)           Except as set forth in the Memorandum, the Company does not have (i) any written employment contracts or oral employment contracts not terminable at will by the Company with any 5% percent shareholder, officer or director of the Company; (ii) any consulting agreement or other compensation agreement with any 5% percent shareholder, officer or director of the Company; or (iii) any agreement or contract with any 5% percent shareholder, officer or director of the Company that will result in the payment by the Company or the creation of any commitment or obligation (absolute or contingent), of the Company to pay any severance, termination, “golden parachute,” or similar payment to any present or former personnel of the Company following termination of employment.  No director, executive officer or other key employee of the Company has advised the Company that he or she intends to resign as director and/or executive officer of the Company or to terminate his or her employment with the Company.

 

  

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(q)           Except as set forth in the Memorandum,  there is no labor strike or labor stoppage or slowdown pending, or, to the knowledge of the Company, threatened against the Company, nor has the Company experienced in the last five (5) years any work stoppage or other labor difficulty.  The Company is in compliance with all applicable laws, rules and regulations regarding employment practices, employee documentation, terms or conditions of employment and wage and hours and the Company is not engaged in any unfair labor practices, except where the failure to comply has not had and could not reasonably be expected to have a Material Adverse Effect.  There are no unfair labor practice charges or complaints against the Company pending before the National Labor Relations Board or any other governmental agency.

 

(r)            Except as disclosed in the Memorandum, the Company has no material liability or obligation of any kind or nature, whether accrued or contingent, matured or unmatured, known or unknown, under any provision of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or any provision of the Internal Revenue Code of 1986, as amended, specifically relating to persons subject to ERISA.

 

(s)           The Company has timely filed or will timely file with the appropriate taxing authorities all returns in respect of taxes required to be filed through the date hereof and has timely paid or will timely pay all taxes that it is required to pay or has established an adequate reserve therefore.  There are no pending nor, to the knowledge of the Company, threatened audits, investigations or claims for or relating to any liability of the Company in respect of taxes.

 

(t)           The Company has no liabilities of any kind or nature whether accrued or contingent, matured or unmatured, known or unknown, except as set forth in the Memorandum and those liabilities incurred by the Company in the ordinary course of business since December 31, 2011.

 

(u)           There are no finder’s fees or brokerage commissions payable with respect to the transactions contemplated by this Agreement due to the actions of the Company, except as provided in Section 11 of this Agreement.

 

(v)             Except as set forth in the Memorandum, the Company is not currently and has not during the past six (6) months been engaged in negotiations with respect to: (i) any merger or consolidation of the Company where the Company would not be the surviving entity; or (ii) the sale of the Company or any of its assets other than sales in the ordinary course of business.

 

(w)           The Company has the right to conduct its business in the manner in which its business has been heretofore conducted.

 

  

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(x)             The Company is currently in compliance in all respects with all applicable Environmental Laws (as defined below), including, without limitation, obtaining and maintaining in effect all permits, licenses, consents and other authorizations required by applicable Environmental Laws, and the Company is currently in compliance with all such permits, licenses, consents and other authorizations, except where the failure to comply does not and could not reasonably be expected to have a Material Adverse Effect.  The Company has not received notice from any property owner, landlord, tenant or Governmental Authority (as defined below) that Hazardous Wastes (as defined below) are being improperly used, stored or disposed of at any property currently or formerly owned or leased by the Company or that any soil or ground water contamination has emanated from any such property.  For purposes hereof, the term “Environmental Laws” means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other “Superfund” or “Superlien” law or any other Federal, state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance, or material, as now or at any time hereafter in effect.  For purposes hereof, the term “Governmental Authority” shall mean the Federal Government of the United States of America, any state or any political subdivision of the Federal Government or any state, including but not limited to courts, departments, commissions, boards, bureaus, agencies, ministries or other instrumentalities.  For purposes hereof, the term “Hazardous Wastes” shall mean any regulated quantity of hazardous substances as listed by the Environmental Protection Agency (the “EPA”) and the list of toxic pollutants designated by the United States Congress and/or the EPA or defined by any other Federal, state or local statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to or imposing liability for standard of conduct concerning any hazardous or toxic substance or material.

 

(y)           The information contained in the Memorandum, taken together, describes in all material respects the business and financial condition of the Company, and such material, taken together, does not contain any misstatement of a material fact or omit to state a material fact necessary to make the information not misleading.  The Investors and the Placement Agent shall be entitled to rely on such material notwithstanding any investigation they or any of them may have made.  The Memorandum does not include any material nonpublic information regarding the Company or its business, financial condition, affairs or prospects.

 

(z)           Except as set forth in the Memorandum, the Company owns or possesses, or has valid, enforceable rights or licenses to use, the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, Internet domain names (including any registrations, licenses or rights relating to any of the foregoing), computer software, trade secrets, inventions and know-how that are necessary to carry on its business as presently conducted (each, an “Intellectual Property Right”) free and clear of all Liens.  All Intellectual Property Rights that have been licensed by or on behalf of the Company or relating to its business are being used substantially in accordance with the applicable license pursuant to which the Company has the right to use such Intellectual Property Rights.  To the knowledge of the Company, the conduct of such businesses by the Company does not violate or infringe upon an Intellectual Property Right of any third party, and the Company has not received any notice of any claim of any such violation or infringement and no officer, director or 5% stockholder of the Company and no Affiliate of any such person has any interest in any Intellectual Property Right used by or useful to the Company in connection with its business.

  

  

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3.   Representations, Warranties and Covenants of Placement Agent.

 

(a)          Placement Agent hereby represents and warrants that it is duly authorized to execute this Agreement and perform its duties hereunder, and the execution and delivery by Placement Agent of this Agreement and the consummation of the transactions contemplated by this Agreement have been authorized by all necessary corporate action and will not result in any violation of, or be in conflict with, or constitute a default under, Placement Agent’s Certificate of Incorporation or By-Laws, any agreement or instrument to which Placement Agent is a party or Placement Agent’s property is bound, or any judgment, decree, order or any statute, rule or regulation applicable to Placement Agent.

 

(b)           In offering the Shares for sale on behalf of the Company, Placement Agent will not offer the Shares for sale, or solicit any offers to buy any Shares, or otherwise negotiate with any person in respect of the Shares, on the basis of any communications or documents relating to the Shares or any investment therein or to the Company or investment therein, other than the Memorandum and any other document satisfactory in form and substance to the Company.  Placement Agent will promptly deliver a copy of each amendment or supplement to the Memorandum (i) to all offerees then being or thereafter solicited by Placement Agent, and (ii) to each person who has subscribed for Shares prior to the receipt by such person of such amendment or supplement.

 

(c)            In offering the Shares for sale on behalf of the Company, Placement Agent shall conduct such sales in the manner described in the Memorandum.

 

4.                      Covenants of the Company.

 

(a)           In connection with the Proposed Offering, the Company will at all times comply with any requirements imposed upon it by (i) the 1933 Act, as now and hereafter amended, and by all applicable state securities laws and regulations, to permit the continuance of offers and sales of the Shares, Agent Shares, Warrant Shares and Note Shares in accordance with the provisions hereof and the Memorandum, (ii) the 1934 Act and (iii) Regulation FD.  During such period, the Company will amend and supplement the Memorandum in order to make the Memorandum comply with the requirements of the Act.

 

(b)           If at any time it is known or believed that any event occurred as a result of which the Memorandum or any representation or warranty contained in this section includes an untrue statement of a material fact or, in view of the circumstances under which they were made, omits to state any material fact necessary to make the statements therein not misleading, the Company will notify the Placement Agent and will prepare an amended or supplemented Memorandum which will correct such statement or omission.

 

(c)           The Company will not make any offers or sales of any security under circumstances that would cause the Proposed Offering to fail to qualify for an exemption from the registration requirements of applicable federal and state securities laws.

 

  

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(d)           The Company agrees at all times as long as the Placement Agent Warrants may be exercised, to keep reserved from the authorized and unissued Common Stock, such number of shares of Common Stock as may be, from time to time, issuable upon exercise of the Placement Agent Warrants.

 

5.                      Survival of Representations and Warranties.  The representations, warranties and covenants of the Company and Placement Agent set forth in Sections 2, 3 and 4 of this Agreement shall survive the execution and delivery of the Shares, Agent Shares, Note Shares and Placement Agent Warrants.

 

6.                      Use of Proceeds.  The net proceeds to the Company from the sale of the Minimum Amount of Common Stock and the Maximum Amount of Common Stock are estimated to be approximately $4,075,000 and $6,835,000, respectively, after deducting the fees and expenses associated with the Proposed Offering.  The net proceeds from the sale of the Shares will be used by the Company as disclosed in the Memorandum.

 

7.                      Unregistered Securities.  None of the shares of Common Stock that are included in the Shares, Agent Shares and Note Shares, and that are issuable upon the exercise of the Placement Agent Warrants have been registered under the 1933 Act, in reliance upon the applicability of Section 4(2), 4(6) and/or Rule 506 of Regulation D of the 1933 Act to the transactions contemplated hereby.  The certificates representing the Shares, Agent Shares, Note Shares and the Warrant Shares will bear an investment legend stating that they are “restricted securities” (as defined in Rule 144 under the Securities Act) and may only be publicly offered and sold pursuant to an effective registration statement filed with the SEC or pursuant to an exemption from the registration requirements.

 

8.                      Registration Rights.  The Placement Agent shall be deemed to be a party to, and entitled to the benefits of, the registration rights set forth in Section 3 of that certain Securities Purchase Agreement executed and delivered by the Company to the Investors (each the “Securities Purchase Agreement”), and the Agent Shares and the shares of Common Stock issuable upon exercise of the Placement Agent Warrants shall be included as Registrable Securities as defined in and pursuant to the Securities Purchase Agreement, but only at the request of the Placement Agent.

 

9.                      Conditions.  The following obligations of the Company shall be satisfied or fulfilled on or prior to the date of each Closing, unless otherwise agreed to in writing by the Placement Agent:

 

(a)           The Company shall have delivered to the Placement Agent, at the Initial Closing, (i) a currently-dated long-form good standing certificate or telegram from the Secretary of State where the Company is incorporated and each other jurisdiction in which the Company is qualified to do business as a foreign corporation; (ii) the certificate of incorporation (as amended) of the Company, as currently in effect, certified by the Secretary of State of the state where the Company is incorporated; (iii) by-laws of the Company certified by the secretary of the Company; and (iv) certified resolutions of the Board of Directors of the Company approving the execution and delivery of this Agreement, the Securities Purchase Agreement and the Placement Agent Warrants, the issuance and sale of the Shares and Agent Shares, the issuance of Common Stock upon exercise of the Placement Agent Warrants and the registration of the Registrable Securities and the issuance of the Note Shares.

 

  

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(b)           There shall have occurred no event which has a Material Adverse Effect on the Company or any of its businesses, assets, prospects or the Company’s securities since the date of this Agreement.

 

(c)           No litigation or administrative proceeding shall have been threatened or commenced against the Company which (i) seeks to enjoin or otherwise prohibit or restrict the consummation of the transactions contemplated by this Agreement or (ii) if adversely determined, would have a Material Adverse Effect on the Company or the Company’s securities.

 

(d)           The Company shall have delivered to the Placement Agent a certificate of its principal executive and financial officers dated as of the date of such Closing as to the matters set forth in paragraphs 9(a), (b) and (c) of this Agreement and to the further effect that (i) the Company is not in default, in any respect, under any note, loan agreement, security agreement, mortgage, deed of trust, indenture, contract, alliance agreement, lease, license, joint venture agreement, other agreement or other instrument to which it is a party, except as disclosed in the Financial Statements or the Memorandum and except where such default has not had and could not reasonably be expected to have a Material Adverse Effect; (ii) the Company’s representations and warranties contained in this Agreement are true and correct in all respects on such date with the same force and effect as if made on such date, (iii) there has been no amendment or changes to the Company’s certificate of incorporation or by-laws or authorizing resolutions from those delivered pursuant to Paragraph 9(a) of this Agreement; and (iv) no event has occurred which, with or without the lapse of time or giving of notice, or both, would constitute a breach of default thereof by the Company, or would cause acceleration of any obligation of the Company, or could adversely affect the business, operations, financial condition or prospects of the Company.

 

(e)           The Placement Agent shall have received the opinion of Eaton & Van Winkle LLP, counsel for the Company, dated as of the date of such Closing in form and substance reasonably satisfactory to the Placement Agent and its counsel.

 

(f)           The Company shall have prepared and filed with the SEC and any states in which such filing is required, a Form D relating to the sale of the Common Stock and such other documents and certificates as are required, including documents required pursuant to state securities laws.

 

(g)           Subscriptions for at least the Minimum Amount of Shares shall have been accepted by the Company.

 

  

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10.                      Indemnification.

 

(a)            Indemnification by Company. The Company agrees to indemnify and hold harmless Placement Agent, its officers, directors and agents from and against any and all losses, liabilities, claims, damages and expenses (each a “Claim” and, collectively, “Claims”) whatsoever arising out of (1) a breach by the Company of any warranty set forth in Section 2, (2) failure by the Company to comply with the provisions of Section 2, or (3) any untrue statement of a material fact contained in the Memorandum or the omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such Claim arises out of or is based upon any such untrue statement or omission contained in the material furnished to the Company by Placement Agent or on Placement Agent’s behalf, specifically for inclusion therein, which relates to Placement Agent’s activities pursuant to this Agreement.

 

(b)           Indemnification by Placement Agent.  Placement Agent agrees to indemnify and hold harmless the Company (its officers, directors and agents) and each person, if any, who controls any of the foregoing within the meaning of the 1933 Act to the same extent as the indemnity from the Company described above against any and all Claims whatsoever (or actions in respect thereto) arising out of or based upon any misrepresentation or alleged misrepresentation, failure or alleged failure by Placement Agent to comply with the covenants and agreements set forth in Section 3.

 

(c)            Any person entitled to indemnification under Section 10(a) or (b) of this Agreement (an “indemnified party”) shall notify promptly the person obligated to provide such indemnification (the “indemnifying party”) in writing of the commencement of any action or proceeding brought by a third person against the indemnified party with respect to a Claim (a “Third Party Claim”) for which the indemnified party may be entitled to indemnification from the indemnifying party under this Section 10, but the omission of such notice shall not relieve the indemnifying party from any liability which it may have to any indemnified party under Section 10 of this Agreement, except to the extent that such failure shall materially adversely affect any indemnifying party or its rights hereunder.  The indemnifying party shall be entitled to participate in, and, to the extent that it chooses, to assume the defense of any Third Party Claim with counsel reasonably satisfactory to the indemnified party; and, after notice from the indemnifying party to the indemnified party that it so chooses, the indemnifying party shall not be liable for any legal or other expenses or disbursements subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the Third Party Claim within twenty (20) days after receiving notice from the indemnified party of such Third Party Claim; (ii) if the indemnified party who is a defendant in such Third Party Claim which is also brought against the indemnifying party reasonably shall have concluded that there are legal defenses available to the indemnified party which are not available to the indemnifying party; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties in each jurisdiction, except to the extent any indemnified party or parties reasonably shall have concluded that there are legal defenses available to such party or parties which are not available to the other indemnified parties or to the extent representation of all indemnified parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct) and the indemnifying party shall be liable for any reasonable expenses therefor; provided, that no indemnifying party shall be subject to any liability for any settlement of a Third Party Claim made without its consent (which may not be unreasonably withheld, delayed or conditioned).  If the indemnifying party assumes the defense of any Third Party Claim hereunder, such indemnifying party shall not enter into any settlement without the consent of the indemnified party if such settlement attributes liability to the indemnified party.

 

  

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11.                      Fees; Other Rights.

 

(a)            As disclosed in the Memorandum, a fee (“Success Fee”) equal to eight percent (8.0%) of the gross proceeds through the sale of the Shares shall be payable to the Placement Agent.

 

(b)           In addition to the sums payable to the Placement Agent as provided elsewhere herein, the Placement Agent shall be entitled to receive at the Closing, as additional compensation for its services, warrants to purchase Common Stock (the “Placement Agent Warrants”) with a five (5) year term for the purchase of a number of shares of Common Stock equal to ten percent (10.0%) of the number of Shares sold in the Proposed Offering.  The exercise price of the Placement Agent Warrants will be $6.30 per share.  In addition, the Company has agreed to issue to the Placement Agent 12,000 shares of Common Stock (the “Agent Shares”) as a non-accountable expense allowance.

 

(c)           Upon closing, the Company will reimburse the Placement Agent for up to $25,000 of its actual and reasonable out-of-pocket expenses incurred in connection with the Proposed Offering, including fees and expenses of its counsel.

 

(d)           The Company shall arrange for, and pay any fees required in connection with, the qualification of the sale of the Shares, Agent Shares and Placement Agent Warrants under the state securities or “blue sky” laws of any state which the Placement Agent reasonably deems necessary.

 

(e)           All payments in connection with the sale of the Shares shall be made pursuant to the terms and conditions of the escrow agreement between Placement Agent and CSC Trust Company of Delaware, an executed copy of which has been delivered to and acknowledged by the Company.

 

(f)           The Placement Agent shall have a right of first offer on future financings for a one year period following completion of the Proposed Offering.  The Placement Agent shall be obligated to respond within two weeks when the first offer is presented pursuant to this provision.

 

(g)           If the Proposed Offering shall not be consummated during the Offering Period for reasons other than the termination of this Agreement by the Placement Agent, and during the twelve months following termination of this Agreement the Company issues and sells securities (other than through an underwritten public offering) to any person that the Placement Agent introduced to the Company or with which the Placement Agent had discussions or negotiations during the term of this Agreement on behalf of the Company regarding the Company’s securities, then the Company shall pay the Placement Agent upon such issuance and sale a cash fee equal to that which would have been payable to the Placement Agent had such issuance and sale occurred during the term of this Agreement.

 

  

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12.                      Confidentiality.  The Placement Agent and the Company mutually agree that they will not disclose any confidential information received from the other party to others, except with the written permission of the other party or as such disclosure may be required by law.

 

13.                      Notices.  All notices provided for in this Agreement shall be in writing signed by the party giving such notice, and delivered personally or sent by overnight courier or messenger against receipt thereof or sent by registered or certified mail, return receipt requested, or by facsimile transmission, if confirmed by mail as provided in this Section 13.  Notices shall be deemed to have been received on the date of personal delivery or facsimile or, if sent by certified or registered mail, return receipt requested, shall be deemed to be delivered on the third business day after the date of mailing.  Notices shall be sent to the following addresses:

 

To the Company:

 

Air Industries Group, Inc

1479 N Clinton Avenue,

Bayshore, New York  11706;

Telephone 631-328 -7000

  

Attention:  Michael Recca

Facsimile:   631-206-9152

Email:  mer@mrecca.com

With a copy to:

Eaton & Van Winkle LLP

3 Park Avenue, 16th Floor

New York, NY  10016

Attention:  Vincent J. McGill, Esq.

Facsimile:  (212) 561-3604

To Placement Agent:

Taglich Brothers, Inc.

275 Madison Avenue, Suite 1618

New York, NY 10016

Facsimile: (212) 661-6824

Attention: Robert Schroeder

With a copy to:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

666 Third Avenue

New York, NY  10017

Facsimile: (212) 692-6830

Attention: William C. Hicks, Esq.

 

  

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or to such other address as any party shall designate in the manner provided in this Section 13.

 

14.                      Miscellaneous.

 

(a)             This Agreement constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes any and all prior or contemporaneous oral and prior written agreements and understandings.  This Agreement may not be modified or amended nor may any right be waived except by a writing which expressly refers to this Agreement, states that it is a modification, amendment or waiver and is signed by all parties with respect to a modification or amendment or the party granting the waiver with respect to a waiver.  No course of conduct or dealing and no trade custom or usage shall modify any provisions of this Agreement.

 

(b)            This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such state.  Each party hereby consents to the exclusive jurisdiction of the Federal and state courts situated in New York County, New York in connection with any action arising out of or based upon this Agreement and the transactions contemplated by this Agreement.

 

(c)            This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective personal representatives, successors and permitted assigns.

 

(d)           In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision.

 

(e)           Each party shall, without payment of any additional consideration by any other party, at any time on or after the date of any Closings take such further action and execute such other and further documents and instruments as the other party may request in order to provide the other party with the benefits of this Agreement.

 

(f)           The captions and headings contained herein are solely for convenience and reference and do not constitute a part of this Agreement.

 

(g)           All references to any gender shall be deemed to include the masculine, feminine or neuter gender, the singular shall include the plural and the plural shall include the singular.

 

(h)           This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same document.

 

[Signature page follows]

 

  

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.

 

	
AIR INDUSTRIES GROUP, INC. 

 

By: /s/ Peter Rettaliata

Name:  Peter Rettaliata

Title:  President

	
TAGLICH BROTHERS, INC. 

 

By: /s/ Michael Taglich

Name:  Michael Taglich

Title:  President

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