Document:

Exhibit 10.9

                                PLEDGE AGREEMENT

      This Pledge Agreement (this "Agreement") dated as of the date hereof
between STEEL CITY CAPITAL FUNDING LLC, having an office at 1600 Market Street,
31st Floor, Philadelphia, PA 19103, ("Pledgee") and AIR INDUSTRIES GROUP, INC.
(f/k/a Gales Industries Inc.), a Delaware corporation, having an office at 1479
Clinton Avenue, Bay Shore, New York 11706, ("Pledgor").

                           BACKGROUND TO THE AGREEMENT

      Pledgor has executed and delivered to Pledgee a Guaranty and Suretyship
Agreement dated as of the date hereof (as amended, modified, restated or
supplemented from time to time, the "Guaranty and Suretyship Agreement")
pursuant to which Pledgor guaranteed to Pledgee the payment and performance of
all of the obligations and indebtedness of AIR INDUSTRIES MACHINING, CORP., a
New York corporation ("Air"), SIGMA METALS, INC., a New York corporation
("Sigma"), and WELDING METALLURGY, INC, a New York corporation ("WMI"; and
together with Air and Sigma, collectively, the "Borrowers") to Pledgee under a
Term Loan and Security Agreement dated as of the date hereof among Pledgee and
Borrowers (as amended, modified, restated or supplemented from time to time, the
"Loan Agreement").

      In order to induce Pledgee to provide or continue to provide the financial
accommodations to Borrowers described in the Loan Agreement, and to secure
Pledgor's obligations to Pledgee under the Guaranty and Suretyship Agreement,
Pledgor has agreed to pledge and grant a security interest to Pledgee in the
Collateral (as hereinafter defined).

      NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

      1.    Definitions.

      All capitalized terms used herein which are not defined shall have the
meanings given to them in the Loan Agreement.

      2.    Pledge and Grant of Security Interest.

      To secure the full and punctual payment and performance of the (a)
Obligations and the obligations and liabilities of Pledgor to Pledgee under the
Guaranty and Suretyship Agreement and (b) all other indebtedness, obligations
and liabilities of Borrowers and Pledgor to Pledgee whether now existing or
hereafter arising, direct or indirect, liquidated or unliquidated, absolute or
contingent, due or not due and whether under, pursuant to or evidenced by a
note, agreement, guaranty, instrument or otherwise ((a) and (b) collectively,
the "Indebtedness"), Pledgor hereby pledges, assigns, hypothecates, transfers
and grants a security interest to Pledgee in all of the following (the
"Collateral"):

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            (a) the shares of stock set forth on Schedule A annexed hereto and
expressly made a part hereof (the "Pledged Stock"), the certificates
representing the Pledged Stock and all dividends, cash, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Stock;

            (b) all additional shares of stock of any issuer of the Pledged
Stock (the "Issuer") from time to time acquired by the Pledgor in any manner,
including, without limitation, stock dividends or a distribution in connection
with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spin-off or
split-off (which shares shall be deemed to be part of the Collateral), and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares; and

            (c) all options and rights, whether as an addition to, in
substitution of or in exchange for any shares of the Pledged Stock.

      The security interest granted by Pledgor to Pledgee in the Pledged Stock
hereunder shall be subordinate only as follows: (a) in respect of the Pledged
Stock of Air, only to the security interest granted by Pledgor in favor of Luis
Peragallo ("Peragallo"), pursuant to (i) that certain Subordinated Secured
Promissory Note dated November 30, 2005 by Pledgor in favor of Peragallo in the
original principal amount of $962,000.00, and (ii) that certain Security
Agreement dated November 30, 2005 between Pledgor and Peragallo (collectively,
the "Peragallo Security Documents"); and (b) in respect of the Pledged Stock of
Sigma, only to the security interest granted by Pledgor (i) in favor of Carole
Tate ("Tate") pursuant to that certain Promissory Note dated April 12, 2007 by
Pledgor in favor of Tate in the original principal amount of $528,553.00, (ii)
in favor of George Elkins ("Elkins") pursuant to that certain Promissory Note
dated April 12, 2007 by Pledgor in favor of Elkins in the original principal
amount of $528,553.00, (iii) in favor of George Coonan ("Coonan"; together with
Tate and Elkins, collectively, the "Sigma Secured Parties") pursuant to that
certain Promissory Note dated April 12, 2007 by Pledgor in favor of Coonan in
the original principal amount of $27,107.00, and (iv) pursuant to that certain
Pledge Agreement dated as of April 12, 2007 among Sigma Secured Parties and
Pledgor (collectively, the "Sigma Security Documents").

      3.    Delivery of Collateral.

      Within two (2) Business Days of payment in full of all obligations owing
to Peragallo or Sigma Secured Parties, Pledgor shall deliver or cause to be
delivered to Pledgee all certificates representing or evidencing the Pledged
Stock of Air or Sigma, respectively, and such certificates shall be accompanied
by duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Pledgee. Pledgor hereby authorizes the Issuer upon
demand by Pledgee to deliver any certificates, instruments or other
distributions issued in connection with the Collateral directly to Pledgee, in
each case to be held by Pledgee, subject to the terms hereof. Following delivery
of the certificates representing or evidencing the Pledged Stock, Pledgee shall

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have the right, at any time in its discretion and without notice to the Pledgor,
to transfer to or to register in the name of Pledgee or any of its nominees any
or all of the Pledged Stock. In addition, following the delivery of such
certificates, Pledgee shall have the right at any time to exchange certificates
or instruments representing or evidencing Pledged Stock for certificates or
instruments of smaller or larger denominations.

      4.    Representations and Warranties of Pledgor.

      Pledgor represents and warrants to Pledgee (which representations and
warranties shall be deemed to continue to be made until all of the Indebtedness
has been paid in full and the Guaranty and Suretyship Agreement has been
irrevocably terminated) that:

            (a) Pledgor has the requisite power and authority to enter into this
Agreement, to pledge the Collateral for the purposes described herein and to
carry out the transactions contemplated by this Agreement.

            (b) The execution, delivery and performance by Pledgor of this
Agreement and the pledge of the Collateral hereunder have been duly and properly
authorized and do not and will not result in any violation of any agreement,
indenture, instrument, license, judgment, decree, order, law, statute, ordinance
or other governmental rule or regulation applicable to Pledgor.

            (c) This Agreement constitutes the legal, valid and binding
obligation of Pledgor enforceable against Pledgor in accordance with its terms.

            (d) Pledgor is the direct and beneficial owner of each share of the
Pledged Stock.

            (e) All of the shares of the Pledged Stock have been duly
authorized, validly issued and are fully paid and nonassessable.

            (f) Upon delivery of the Pledged Stock to Pledgee or an agent for
Pledgee, this Agreement creates and grants a valid first lien on and perfected
security interest in the Collateral and the proceeds thereof, subject to no
prior security interest, mortgage, pledge, claim, lien, charge, hypothecation,
assignment, offset or encumbrance whatsoever (collectively, "Liens") or to any
agreement purporting to grant to any third party a Lien upon the property or
assets of Pledgor which would include the Collateral.

            (g) There are no restrictions on transfer of the Pledged Stock
contained in the Certificate of Incorporation or by-laws of the Issuer or
otherwise which have not otherwise been enforceably and legally waived by the
necessary parties.

            (h) None of the Pledged Stock has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.

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<PAGE>

            (i) There are no pending or, to the best of Pledgor's knowledge,
threatened actions or proceedings before any court, judicial body,
administrative agency or arbitrator which may materially adversely affect the
Collateral.

            (j) No consent, approval, authorization or other order of any
person, firm, corporation or other entity ("Person") and no consent,
authorization, approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required by the Pledgor either (i)
for the pledge of the Collateral pursuant to this Agreement or for the
execution, delivery or performance of this Agreement or (ii) for the exercise by
the Pledgee of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as may
be required in connection with such disposition by laws affecting the offering
and sale of securities generally.

            (k) No notification of the pledge evidenced hereby to any Person is
required.

            (l) The Pledged Stock constitutes one hundred percent (100%) of the
issued and outstanding shares of capital stock of the Issuers thereof set forth
on Schedule A annexed hereto.

            (m) As of the date hereof, there are no existing options, warrants,
calls or commitments of any such character whatsoever relating to any Pledged
Stock and no indebtedness or other security convertible into any Pledged Stock.

      The representations and warranties set forth in this Section 4 (other than
those contained in subsection (m)) shall survive the execution and delivery of
this Agreement.

      5.    Covenants.

            Until such time as all of the Indebtedness has been paid in full and
the Guaranty and Suretyship Agreement has been irrevocably terminated, Pledgor
shall:

            (a) Not sell, assign, transfer, convey, or otherwise dispose of its
rights in or to the Collateral or any interest therein; nor create, incur or
permit to exist any Lien whatsoever with respect to any of the Collateral or the
proceeds thereof other than that created hereby.

            (b) At Pledgor's expense, defend Pledgee's right, title and security
interest in and to the Collateral against the claims of any Person and keep the
Collateral free from all Liens, except for (i) the Liens granted to Peragallo
under the Peragallo Security Documents, (ii) the Liens granted to Sigma Secured
Parties under the Sigma Security Documents, and (iii) the Liens granted to
Pledgee under this Agreement.

            (c) At any time, and from time to time, upon the written request of
Pledgee, execute and deliver such further documents and do such further acts and
things as Pledgee may reasonably request in order to effect the purposes of this
Agreement including, but without limitation, delivering to Pledgee upon the
occurrence of an Event of Default irrevocable proxies in respect of the
Collateral in form satisfactory to Pledgee. Until receipt thereof, this
Agreement shall constitute Pledgor's proxy to Pledgee or its nominee to vote all
shares of Collateral then registered in Pledgor's name.

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            (d) Within two (2) Business Days of receipt thereof by Pledgor,
deliver to Pledgee all notices and statements relating to the Collateral
received by Pledgor.

            (e) Not consent to or approve the issuance of (i) any additional
shares of any class of capital stock of the Issuer; (ii) any securities
convertible either voluntarily by the holder thereof or automatically upon the
occurrence or nonoccurrence of any event or condition into, or any securities
exchangeable for, any such shares; or (iii) any warrants, options, contracts or
other commitments entitling any person to purchase or otherwise acquire any such
shares.

            (f) Not create, incur, assume or suffer to exist any Lien or other
encumbrance of any kind (including the charge on property purchased under
conditional sales or other title retention agreements) upon any property or
assets, whether now owned or hereafter acquired, except for liens incidental to
the conduct of Pledgor's business or the ownership of its assets or properties
not incurred in connection with the borrowing of money or the acquisition of any
asset, and which in the aggregate do not materially detract from Pledgor's
operations, property or financial condition.

            (g) Not convey, sell, lease, transfer or otherwise dispose of in one
or a series of related transactions, all or any substantial part of its
property, business or assets.

      6.    Voting Rights and Dividends.

      In addition to Pledgee's rights and remedies set forth in Section 8
hereof, in case an Event of Default shall have occurred and has been declared by
Pledgee, Pledgee shall (i) vote the Collateral, (ii) be entitled to give
consents, waivers and ratifications in respect of the Collateral (Pledgor hereby
irrevocably constituting and appointing Pledgee, with full power of
substitution, the proxy and attorney-in-fact of Pledgor for such purposes) and
(iii) be entitled to collect and receive for its own use cash dividends paid on
the Collateral. Pledgor shall not be permitted to exercise or refrain from
exercising any voting rights or other powers if, in the reasonable judgment of
Pledgee, such action would have a material adverse effect on the value of the
Collateral or any part thereof; and, provided, further, that Pledgor shall give
at least five (5) days' written notice of the manner in which Pledgor intends to
exercise, or the reasons for refraining from exercising, any voting rights or
other powers other than with respect to any election of directors and voting
with respect to any incidental matters. All dividends and all other
distributions in respect of any of the Collateral, whenever paid or made, shall
be delivered to Pledgee to hold as Collateral and shall, if received by the
Pledgor, be received in trust for the benefit of Pledgee, be segregated from the
other property or funds of the Pledgor, and be forthwith delivered to Pledgee as
Collateral in the same form as so received (with any necessary endorsement).

      7.    Events of Default.

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      The term "Event of Default" wherever used herein shall mean the occurrence
of any one of the following events:

            (a) An Event of Default shall occur under the Loan Agreement or
Pledgor or the Issuer shall default in the payment of any Obligation or any
default shall have occurred under the Guaranty and Suretyship Agreement;

            (b) Pledgor shall default in the performance of any of its
undertakings or obligations under any agreement between Pledgor and Pledgee,
including, without limitation, this Agreement;

            (c) Any representation, warranty, statement or covenant made or
furnished to Pledgee by or on behalf of Pledgor proves to have been false in any
material respect when made or furnished or is breached, violated or not complied
with; or

            (d) The Collateral is subjected to levy of execution, attachment,
distraint or other judicial process; or the Collateral is the subject of a claim
(other than by Pledgee) of a Lien or other right or interest in or to the
Collateral.

            (e) Pledgor or any Borrower shall (i) apply for, consent to, or
suffer to exist the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or other fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for the benefit
of creditors, (iii) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing.

      8.    Remedies.

      Upon the occurrence of an Event of Default, Pledgee may:

            (a) Demand, collect, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral (or any part thereof), as Pledgee
may determine in its sole discretion;

            (b) Transfer any or all of the Collateral into its name, or into the
name of its nominee or nominees;

            (c) Exercise all rights with respect to the Collateral including,
without limitation, all rights of conversion, exchange, subscription or any
other rights, privileges or options pertaining to any shares of the Collateral
as if it were the absolute owner thereof, including, but without limitation, the
right to exchange, at its discretion, any or all of the Collateral upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the Issuer thereof, or upon the exercise by the Issuer of any right, privilege

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or option pertaining to any of the Collateral, and, in connection therewith, to
deposit and deliver any and all of the Collateral with any committee,
depository, transfer agent, registrar or other designated agent upon such terms
and conditions as it may determine, all without liability except to account for
property actually received by it;

            (d) Subject to the requirements of applicable law, sell, assign and
deliver the whole or, from time to time, any part of the Collateral at the time
held by Pledgee, at any private or public sale or auction, with or without
demand, advertisement or notice of the time or place of sale or adjournment
thereof or otherwise (all of which are hereby waived, except such notice as is
required by applicable law and cannot be waived), for cash or credit or for
other property for immediate or future delivery, and for such price or prices
and on such terms as Pledgee in its sole discretion may determine, or as may be
required by applicable law.

            Pledgor hereby waives and releases any and all right or equity of
redemption, whether before or after sale hereunder. At any such sale, unless
prohibited by applicable law, Pledgee may bid for and purchase the whole or any
part of the Collateral so sold free from any such right or equity of redemption.
All moneys received by Pledgee hereunder whether upon sale of the Collateral or
any part thereof or otherwise shall be held by Pledgee and applied by it as
provided in Section 11 hereof. No failure or delay on the part of Pledgee in
exercising any rights hereunder shall operate as a waiver of any such rights nor
shall any single or partial exercise of any such rights preclude any other or
future exercise thereof or the exercise of any other rights hereunder. Pledgee
shall have no duty as to the collection or protection of the Collateral or any
income thereon nor any duty as to preservation of any rights pertaining thereto,
except to apply the funds in accordance with the requirements of Section 11
hereof. Pledgee may exercise its rights with respect to property held hereunder
without resort to other security for or sources of reimbursement for the
Indebtedness. In addition to the foregoing, Pledgee shall have all of the
rights, remedies and privileges of a secured party under applicable law and the
Uniform Commercial Code of New York regardless of the jurisdiction in which
enforcement hereof is sought.

      9.    Registration.

      If Pledgee shall exercise its right to sell all or any part of the
Collateral, and if, in the opinion of counsel for Pledgee, it is necessary to
have the Collateral being sold registered under the provisions of the Securities
Act of 1933, as amended (the "Securities Act"), Pledgor will use its best
efforts to cause the Issuer to execute and deliver, and to cause the directors
and officers of the Issuer to execute and deliver, all at Pledgor's expense, all
such instruments and documents and to do or cause to be done all such other acts
and things as may be necessary to register the Collateral being sold under the
provisions of the Securities Act. Pledgor shall cause any such registration
statement to become effective and to remain effective for a period of one year
from the date of the first public offering of the Collateral being sold and to
make all amendments thereto and to related documents which, in the opinion of
Pledgee or its counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Pledgor shall also cause
the Issuer to comply with the provisions of the "Blue Sky" law of any
jurisdiction which Pledgee shall designate in connection with any sale
hereunder; and to cause the Issuer to make available to its security holders, as

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soon as practicable, an earnings statement (which need not be audited) covering
a period of at least twelve months but not more than eighteen months, beginning
with the first month after the effective date of any such registration
statement, which earnings statement will satisfy the provisions of Section 11(a)
of the Securities Act. Pledgor acknowledges that a breach of any of the
covenants contained in this Section may cause irreparable injury to Pledgee,
that Pledgee will have no adequate remedy at law with respect to such breach
and, as a consequence, such covenants of Pledgor shall be specifically
enforceable against Pledgor.

      10.   Private Sale.

      Notwithstanding anything contained in Section 9, Pledgor recognizes that
Pledgee may be unable to effect (or to do so only after delay which would
adversely affect the value that might be realized from the Collateral) a public
sale of all or part of the Collateral by reason of certain prohibitions
contained in the Securities Act, and may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Pledgor
agrees that any such private sale may be at prices and on terms less favorable
to the seller than if sold at public sales and that such private sales shall be
deemed to have been made in a commercially reasonable manner. Pledgor agrees
that Pledgee has no obligation to delay sale of any Collateral for the period of
time necessary to permit the Issuer to register the Collateral for public sale
under the Securities Act.

      11.   Proceeds of Sale.

      The proceeds of any collection, recovery, receipt, appropriation,
realization, disposition or sale of the Collateral shall be applied by Pledgee
as follows:

            (a) First, to the payment of all costs, expenses and charges of
Pledgee and to the reimbursement of Pledgee for the prior payment of such costs,
expenses and charges incurred in connection with the care and safekeeping of any
of the Collateral (including, without limitation, the expenses of any sale or
other proceeding, the expenses of any taking, attorneys' fees and expenses,
court costs, any other fees or expenses incurred or expenditures or advances
made by Pledgee in the protection, enforcement or exercise of its rights, powers
or remedies hereunder) with interest on any such reimbursement at the rate
prescribed in the Loan Agreement as the Default Rate from the date of payment.

            (b) Second, to the payment of the Indebtedness, in whole or in part,
in such order as Pledgee may elect, whether such Indebtedness is then due or not
due.

            (c) Third, to such Persons as required by applicable law including,
without limitation, Section 9-615(a)(3) of the Uniform Commercial Code.

            (d) Fourth, to the extent of any surplus thereafter remaining, to
Pledgor or as a court of competent jurisdiction may direct.

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            In the event that the proceeds of any collection, recovery, receipt,
appropriation, realization or sale are insufficient to satisfy the Indebtedness,
Pledgor shall be liable for the deficiency together with interest thereon at the
rate prescribed in the Loan Agreement as the Default Rate plus the costs and
fees of any attorneys employed by Pledgee to collect such deficiency.

            Pledgee, in its sole and absolute discretion, with or without notice
to Pledgor, may deposit any proceeds of any collection, recovery, receipt,
appropriation, realization, disposition or sale of the Collateral in a
non-interest bearing cash collateral deposit account to be maintained as
security for the Indebtedness.

      12.   Waiver of Marshaling.

      Pledgor hereby waives any right to compel any marshaling of any of the
Collateral.

      13.   Pledgee Appointed Attorney-In-Fact and Performance by Pledgee.

      Upon the occurrence of an Event of Default, Pledgor hereby irrevocably
constitutes and appoints Pledgee as Pledgor's true and lawful attorney-in-fact,
with full power of substitution, to execute, acknowledge and deliver any
instruments and to do in Pledgor's name, place and stead, all such acts, things
and deeds for and on behalf of and in the name of Pledgor, which Pledgor could
or might do or which Pledgee may deem necessary, desirable or convenient to
accomplish the purposes of this Agreement, including, without limitation, to
execute such instruments of assignment or transfer or orders and to register,
convey or otherwise transfer title to the Collateral into Pledgee's name.
Pledgor hereby ratifies and confirms all that said attorney-in-fact may so do
and hereby declares this power of attorney to be coupled with an interest and
irrevocable. If Pledgor fails to perform any agreement herein contained, Pledgee
may itself perform or cause performance thereof, and any costs and expenses of
Pledgee incurred in connection therewith shall be paid by Pledgor as provided in
Section 24 hereof.

      14.   Termination.

      This Agreement shall terminate and Pledgor shall be entitled to the
return, at Pledgor's expense, of such of the Collateral as has not theretofore
been sold, disposed of or otherwise applied pursuant to this Agreement upon
payment in full of the Indebtedness and irrevocable termination of the Guaranty
and Suretyship Agreement.

      15.   Concerning Pledgee.

      The recitals of fact herein shall be taken as statements of Pledgor for
which Pledgee assumes no responsibility. Pledgee makes no representation to
anyone as to the value of the Collateral or any part thereof or as to the
validity or adequacy of the security afforded or intended to be afforded thereby
or as to the validity of this Agreement. Pledgee shall be protected in relying
upon any notice, consent, request or other paper or document believed by it to
be genuine and correct and to have been signed by a proper person. The
permissive rights of Pledgee hereunder shall not be construed as duties of
Pledgee. Pledgee shall be under no obligation to take any action toward the

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enforcement of this Agreement or rights or remedies in respect of any of the
Collateral. Pledgee shall not be personally liable for any action taken or
omitted by it in good faith and reasonably believed by it to be within the power
or discretion conferred upon it by this Agreement.

      16.   Notices.

      Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with electronic confirmation of
receipt, in each case addressed to each party at its address or telecopier
number set forth below or at such other address or telecopier number as has been
furnished in writing by a party to the other by like notice:

      If to Pledgee:                      Steel City Capital Funding LLC
                                          1600 Market St., 31st Floor
                                          Philadelphia, PA 19103
                                          Attention: Thomas J. Bugieda, VP
                                          Telephone: (215) 585-5369
                                          Facsimile: (215) 585-4771

      with a copy to:                     Hahn & Hessen LLP
                                          488 Madison Avenue
                                          New York, NY 10022
                                          Attention: Steven J. Seif, Esq.
                                          Telephone: (212) 478-7370
                                          Facsimile: (212) 478-7400

      If to Pledgor:                      Air Industries Group, Inc.
                                          1479 Clinton Avenue
                                          Bay Shore, New York  11706
                                          Attention: Louis Giusto
                                          Telephone: (631) 968-5000
                                          Facsimile: (631) 968-5377

      with a copy to:                     Eaton & Van Winkle LLP
                                          3 Park Avenue, 16th floor
                                          New York, New York  10016-2078
                                          Attention: Charles Fewell, Esq.
                                          Telephone: (212) 561-3627
                                          Facsimile: (212) 779-9928

      17.   Governing Law.

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      This Agreement and all rights and obligations hereunder shall be governed
by and construed and enforced in all respects in accordance with the laws of the
State of New York applied to contracts to be performed wholly within the State
of New York.

      18.   Waivers.

            (a) EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OTHER AGREEMENT EXECUTED
OR DELIVERED BY THEM IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HERETO HEREBY AGREES
AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF EACH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.

      19.   Litigation.

      PLEDGOR EXPRESSLY CONSENTS TO THE JURISDICTION AND VENUE OF EACH COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF NEW YORK FOR ALL PURPOSES IN
CONNECTION WITH THIS AGREEMENT. ANY JUDICIAL PROCEEDING BY PLEDGOR AGAINST
PLEDGEE INVOLVING, DIRECTLY OR INDIRECTLY ANY MATTER OR CLAIM IN ANY WAY ARISING
OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A
STATE COURT LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. PLEDGOR
FURTHER CONSENTS THAT ANY SUMMONS, SUBPOENA OR OTHER PROCESS OR PAPERS
(INCLUDING, WITHOUT LIMITATION, ANY NOTICE OR MOTION OR OTHER APPLICATION TO
EITHER OF THE AFOREMENTIONED COURTS OR A JUDGE THEREOF) OR ANY NOTICE IN
CONNECTION WITH ANY PROCEEDINGS HEREUNDER, MAY BE SERVED INSIDE OR OUTSIDE OF
THE STATE OF NEW YORK OR THE SOUTHERN DISTRICT OF NEW YORK BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY PERSONAL SERVICE PROVIDED A
REASONABLE TIME FOR APPEARANCE IS PERMITTED, OR IN SUCH OTHER MANNER AS MAY BE
PERMISSIBLE UNDER THE RULES OF SAID COURTS. PLEDGOR WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREON AND SHALL NOT ASSERT ANY
DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON
CONVENIENS.

      20.   No Waiver; Cumulative Remedies.

                                       11
<PAGE>

      Any and all of Pledgee's rights with respect to the Liens granted under
this Agreement shall continue unimpaired, and Pledgor shall be and remain
obligated in accordance with the terms hereof, notwithstanding (a) the
bankruptcy, insolvency or reorganization of Pledgor, (b) the release or
substitution of any item of the Collateral at any time, or of any rights or
interests therein, or (c) any delay, extension of time, renewal, compromise or
other indulgence granted by Pledgee in reference to any of the Indebtedness.
Pledgor hereby waives all notice of any such delay, extension, release,
substitution, renewal, compromise or other indulgence, and hereby consents to be
bound hereby as fully and effectively as if Pledgor had expressly agreed thereto
in advance. No failure on the part of Pledgee to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any such right, power or
remedy by Pledgee preclude any other or further exercise thereof or the exercise
of any right, power or remedy. All remedies hereunder are cumulative and are not
exclusive of any other remedies provided by law.

      21.   Severability.

      In case any security interest or other right of Pledgee shall be held to
be invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability shall not affect any other security interest or other right,
privilege or power granted under this Agreement. In the event that any provision
of this Agreement or the application thereof to Pledgor or any circumstance in
any jurisdiction governing this Agreement shall, to any extent, be invalid or
unenforceable under any applicable statute, regulation, or rule of law, such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform to such statute, regulation or
rule of law, and the remainder of this Agreement and the application of any such
invalid or unenforceable provision to parties, jurisdictions, or circumstances
other than to whom or to which it is held invalid or unenforceable shall not be
affected thereby, nor shall same affect the validity or enforceability of any
other provision of this Agreement.

      22.   Counterparts; Facsimiles.

      This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original and all of which when taken together shall
constitute one and the same instrument. Any signature delivered by a party by
facsimile transmission shall be deemed an original signature hereto.

      23.   Miscellaneous.

            (a) This Agreement constitutes the entire and final agreement among
the parties with respect to the subject matter hereof and neither this Agreement
nor any term hereof may be changed, discharged or terminated orally, but only by
an instrument in writing, signed by Pledgee and Pledgor. No waiver of any term
or condition of this Agreement, whether by delay, omission or otherwise, shall
be effective unless in writing and signed by the party sought to be charged, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.

                                       12
<PAGE>

            (b) This Agreement shall be binding upon Pledgor, and Pledgor's
successors and assigns, and shall inure to the benefit of Pledgee and its
successors and assigns. The term "Pledgee", as used herein, shall include any
successor or assign of Pledgee at the time entitled to the pledged interest in
the Collateral.

            (c) The headings and captions in this Agreement are for purposes of
reference only and shall not constitute part of this Agreement for any other
purpose.

      24.   Expenses.

      The Collateral shall also secure, and Pledgor shall pay to Pledgee on
demand, from time to time, all costs and expenses, (including but not limited
to, attorneys' fees and costs, taxes, and all transfer, recording, filing and
other charges) of, or incidental to, the custody, care, transfer, administration
of the Collateral or any other collateral, or in any way relating to the
enforcement, protection or preservation of the rights or remedies of Pledgee
under this Agreement or with respect to any of the Indebtedness.

      25.   Recapture

      Anything in this Agreement to the contrary notwithstanding, if Pledgee
receives any payment or payments on account of the Indebtedness, which payment
or payments or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver, or any other party under the United States Bankruptcy Code, as
amended, or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally, common law or equitable doctrine, then to the extent of any sum not
finally retained by Pledgee, Pledgor's obligations to Pledgee shall be
reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Pledgee, which payment shall
be due on demand.

                                       13
<PAGE>

      IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first written above.

                                                  AIR INDUSTRIES GROUP, INC.
                                                  (f/k/a Gales Industries Inc.)

                                                  By: /s/ Peter D. Rettaliata
                                                      --------------------------
                                                      Name: Peter D. Rettaliata
                                                      Its: President

                                                  STEEL CITY CAPITAL FUNDING LLC

                                                  By: /s/ Kevin Madigan
                                                      --------------------------
                                                      Name: Kevin Madigan
                                                      Its: Managing Director

<PAGE>

                                   SCHEDULE A

                                  PLEDGED STOCK

<TABLE>
<CAPTION>
                                                            Stock Certificate      Par Value       Number of
Issuer                                 Class of Stock       Number                                 Shares
<S>                                    <C>                  <C>                    <C>             <C>
Air Industries Machining, Corp.        Common               8                      n/a             100

Sigma Metals, Inc.                     Common               9                      n/a             100
</TABLE>NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE LIENS AND SECURITY INTEREST
GRANTED TO STEEL CITY CAPITAL FUNDING LLC PURSUANT TO THIS AGREEMENT AND THE
EXERCISE OF ANY RIGHT OR REMEDY BY STEEL CITY CAPITAL FUNDING LLC HEREUNDER ARE
SUBJECT TO THE PROVISIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT, DATED AS OF
AUGUST 24, 2007 (THE "INTERCREDITOR AGREEMENT"), AMONG PNC BANK, NATIONAL
ASSOCIATION AND STEEL CITY CAPITAL FUNDING LLC; AND EACH HOLDER OF THE
OBLIGATIONS HEREUNDER, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY AGREES TO BE BOUND
BY THE PROVISIONS OF THE INTERCREDITOR AGREEMENT. IN THE EVENT OF ANY CONFLICT
BETWEEN THE TERMS OF THE INTERCREDITOR AGREEMENT AND THIS AGREEMENT, THE TERMS
OF THE INTERCREDITOR AGREEMENT SHALL GOVERN AND CONTROL.

                          GUARANTOR SECURITY AGREEMENT

      This Security Agreement (this "Agreement") is dated as of August 24, 2007
between STEEL CITY CAPITAL FUNDING LLC , having an office at 1600 Market Street,
31st Floor, Philadelphia, PA 19103 ("Secured Party") and AIR INDUSTRIES GROUP,
INC. (f/k/a Gales Industries Incorporated), a Delaware corporation, having its
principal place of business at 1479 Clinton Avenue, Bay Shore, NY 11706
("Company").

                                   BACKGROUND

      AIR INDUSTRIES MACHINING, CORP., a corporation organized under the laws of
the State of New York ("Air"), SIGMA METALS, INC., a corporation organized under
the laws of the State of New York ("Sigma"), WELDING METALLURGY, INC., as
successor by merger with WMS Merger Corp., a corporation organized under the
laws of the State of New York ("WMI"; and together with Air and Sigma, each a
"Borrower" and collectively, the "Borrowers"), and Secured Party are parties to
that certain Term Loan and Security Agreement dated as of even date herewith (as
amended, supplemented, restated or modified from time to time, the "Loan
Agreement"). Pursuant to the terms of the Loan Agreement, Secured Party has
agreed to make certain extensions of credit available to the Borrowers. Secured
Party is willing to make such extensions of credit available to the Borrowers
only upon the condition, among others, that the Company execute and deliver its
Guaranty of the obligations of Borrowers to Secured Party and that the Company
secure its Guaranty by executing and delivering this Agreement to Secured Party.

      NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:

      1. A. General Definitions. When used in this Agreement, the following
terms shall have the following meanings:

      "Collateral" shall mean and include:

<PAGE>

      (a) all Receivables;

      (b) all Equipment;

      (c) all General Intangibles;

      (d) all Inventory;

      (e) all Investment Property;

      (f) all Real Property;

      (g) all Subsidiary Stock;

      (h) the Leasehold Interests;

      (i) all of Company's right, title and interest in and to, whether now
owned or hereafter acquired and wherever located, (i) its respective goods and
other property including, but not limited to, all merchandise returned or
rejected by Customers, relating to or securing any of the Receivables; (ii) all
of Company's rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to
Company from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the Obligations; (v)
all of Company's contract rights, rights of payment which have been earned under
a contract right, instruments (including promissory notes), documents, chattel
paper (including electronic chattel paper), warehouse receipts, deposit
accounts, letters of credit and money; (vi) all commercial tort claims (whether
now existing or hereafter arising); (vii) if and when obtained by Company, all
real and personal property of third parties in which Company has been granted a
lien or security interest as security for the payment or enforcement of
Receivables; (viii) all letter of credit rights (whether or not the respective
letter of credit is evidenced by a writing); (ix) all supporting obligations;
and (x) any other goods, personal property or real property now owned or
hereafter acquired in which Company has expressly granted a security interest or
may in the future grant a security interest to Secured Party hereunder, or in
any amendment or supplement hereto or thereto, or under any other agreement
between Secured Party and Company;

      (j) all of Company's ledger sheets, ledger cards, files, correspondence,
records, books of account, business papers, computers, computer software (owned
by Company or in which it has an interest), computer programs, tapes, disks and
documents relating to (a), (b), (c), (d), (e), (f), (g), (h) or (i) of this
Paragraph; and

      (k) all proceeds and products of (a), (b), (c), (d), (e), (f), (g), (h),
(i) and (j) in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements, documents, eminent domain proceeds, condemnation proceeds
and tort claim proceeds.

                                       2
<PAGE>

      "Company" shall have the meaning set forth in the introductory paragraph
hereof and shall extend to all permitted successors and assigns.

      "Customer" means and includes the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Company, pursuant
to which Company is to deliver any personal property or perform any services.

      "Default" means any act or event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.

      "Environmental Complaint" means any notice of violation, request for
information or notification that Company is potentially responsible for
investigation or cleanup of environmental conditions on its property, demand
letter or complaint, order, citation, or other written notice with regard to any
Hazardous Discharge or violation of any environmental laws affecting its
property or Company's interest therein.

      "Equipment" shall mean and include all of Company's goods (other than
Inventory) whether now owned or hereafter acquired and wherever located
including all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.

      "Event of Default" means the occurrence of any of the events set forth in
Section 12.

      "GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time.

      "General Intangibles" shall mean and include all of Company's general
intangibles, whether now owned or hereafter acquired including, without
limitation, all payment intangibles, all choses in action, causes of action,
corporate or other business records, inventions, designs, patents, patent
applications, equipment formulations, manufacturing procedures, quality control
procedures, trademarks, trademark applications, service marks, trade secrets,
goodwill, copyrights, design rights, software, computer information, source
codes, codes, records and dates, registrations, licenses, franchises, customer
lists, tax refunds, tax refund claims, computer programs, all claims under
guaranties, security interests or other security held by or granted to Company
to secure payment of any of the Receivables by a Customer (other than to the
extent covered by Receivables) all rights of indemnification and all other
intangible property of every kind and nature (other than Receivables).

      "Guaranty" means the Guaranty and Suretyship Agreement dated as of the
date hereof which is executed by the Company in favor of Secured Party, as
amended, modified, supplemented or restated from time to time.

      "Hazardous Discharge" means any release or threat of release of a
reportable quantity of any hazardous substances on Company's property.

                                       3
<PAGE>

      "Intercreditor Agreement" means that certain Intercreditor Agreement,
dated as of July ___, 2007 among PNC Bank, National Association and Secured
Party, as amended, modified, supplemented or restated from time to time.

      "Inventory" shall mean and include all of Company's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to be
furnished under any consignment arrangement, contract of service or held for
sale or lease, all raw materials, work in process, finished goods and materials
and supplies of any kind, nature or description which are or might be used or
consumed in Company's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.

      "Investment Property" means shall have the meaning set forth in the UCC,
and shall mean and include all of Company's now owned or hereafter acquired
securities, whether certificated or uncertificated, securities entitlements,
securities accounts, commodity and futures contracts and commodity and futures
accounts.

      "Leasehold Interests" shall mean all of Company's right, title and
interest in and to the premises set forth on Schedule 1(A) attached hereto.

      "Loans" means all extensions of credit under the Loan Agreement.

      "Loan Agreement" shall have the meaning set forth in the Background
paragraph hereof.

      "Obligations" means and includes all Loans and obligations of the Company
to Secured Party under the Guaranty, all advances, debts, liabilities,
obligations, covenants and duties owing by Company to Secured Party (or any
corporation that directly or indirectly controls or is controlled by or is under
common control with Secured Party) of every kind and description (whether or not
evidenced by the Guaranty, any note or other instrument and whether or not for
the payment of money or the performance or non-performance of any act), direct
or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, whether existing by operation of law or
otherwise now existing or hereafter arising including, without limitation, any
debt, liability or obligation owing from Company to others which Secured Party
may have obtained by assignment or otherwise and further including, without
limitation, all payments Company is required to make by law or otherwise arising
under or as a result of this Agreement, together with all reasonable expenses
and reasonable attorneys' fees chargeable to Company's account or incurred by
Secured Party in connection with Company's account whether provided for herein
or in any other agreement, instrument or document executed by or on behalf of
the Company or delivered to Secured Party relating to this Agreement or the
transactions contemplated hereby.

      "Permitted Liens" means (i) liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (ii) liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Company in
conformity with GAAP, (iii) liens in favor of Secured Party, (iv) liens for
taxes (a) not yet due or (b) being diligently contested in good faith, provided
that adequate reserves with respect thereto are maintained on the books of
Company in conformity with GAAP, provided, that, the lien shall have no effect
on the priority of the liens in favor of Secured Party or the value of the
assets in which Secured Party has such a lien and a stay of enforcement of any
such lien shall be in effect and (v) liens specified on Schedule 1(B) hereto.

                                       4
<PAGE>

      "Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).

      "Real Property" shall mean all of Company's right, title and interest in
and to the owned and leased premises identified on Schedule 1(C) hereto.

      "Receivables" shall mean and include, as to Company, all of Company's
accounts, contract rights, instruments (including those evidencing indebtedness
owed to Company by its Affiliates), documents, chattel paper (including
electronic chattel paper), general intangibles relating to accounts, drafts and
acceptances, credit card receivables and all other forms of obligations owing to
Company arising out of or in connection with the sale or lease of Inventory or
the rendition of services, all supporting obligations, guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Secured Party
hereunder.

      "Secured Party" shall have the meaning set forth in the introductory
paragraph hereof and shall include its successors and assigns.

      "Subsidiary" of any Person means a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.

      "Subsidiary Stock" shall mean all of the issued and outstanding equity
interests of any Subsidiary owned by the Company (not to exceed 65% of the
equity interests of any foreign Subsidiary).

      "UCC" means the Uniform Commercial Code as adopted in the State of New
York as amended or revised from time to time, and any successor statute.

      B. Accounting Terms. Any accounting terms used in this Agreement which are
not specifically defined shall have the meanings customarily given them in
accordance with GAAP.

      C. Other Terms. All other terms used in this Agreement and defined in the
UCC shall have the meaning given therein unless otherwise defined herein. To the
extent the definition of any category or type of collateral is expanded by any
amendment, modification or revision to the UCC, such expanded definition will
apply automatically as of the date of such amendment, modification or revision.

                                       5
<PAGE>

      2. Security Interest.

            (a) Subject to the terms and provisions of the Intercreditor
Agreement, to secure the prompt payment and performance to Secured Party of the
Obligations, Company hereby assigns, pledges and grants to Secured Party a
continuing security interest in and to all of its Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located. Company
shall mark its books and records as may be necessary or appropriate to evidence,
protect and perfect Secured Party's security interest and shall cause its
financial statements to reflect such security interest. Company shall promptly
provide Secured Party with written notice of all commercial tort claims, such
notice to contain the case title together with the applicable court and a brief
description of the claim(s). Upon delivery of each such notice, Company shall be
deemed to hereby grant to Secured Party a security interest and lien in and to
such commercial tort claims and all proceeds thereof.

            (b) Company shall take all action that may be necessary or
desirable, or that Secured Party may request, so as at all times to maintain the
validity, perfection, enforceability and priority of Secured Party's security
interest in the Collateral or to enable Secured Party to protect, exercise or
enforce its rights hereunder and in the Collateral, including, but not limited
to, (i) immediately discharging all liens other than Permitted Encumbrances,
(ii) obtaining landlords' or mortgagees' lien waivers, (iii) delivering to
Secured Party, endorsed or accompanied by such instruments of assignment as
Secured Party may specify, and stamping or marking, in such manner as Secured
Party may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements satisfactory to Secured Party, and (v) executing and delivering
financing statements, control agreements, instruments of pledge, mortgages,
notices and assignments, in each case in form and substance satisfactory to
Secured Party, relating to the creation, validity, perfection, maintenance or
continuation of Secured Party's security interest under the Uniform Commercial
Code or other applicable law. Secured Party is hereby authorized to file
financing statements signed by Secured Party instead of Company in accordance
with the UCC. By its signature hereto, Company hereby authorizes Secured Party
to file against Company, one or more financing continuation or amendment
statements pursuant to the UCC in form and substance satisfactory to Secured
Party (which statements may have a description of collateral which is broader
than that set forth herein). All charges, expenses and fees Secured Party may
incur in doing any of the foregoing, and any local taxes relating thereto, shall
be paid to Secured Party immediately upon demand.

      3. Representations Concerning the Collateral. Company represents and
warrants:

            (a) the Collateral (i) is owned solely by Company free and clear of
all claims, liens, security interests and encumbrances (including without
limitation any claims of infringement) except (A) those in Secured Party's favor
and (B) Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a security interest or requiring notice of or consent to the
granting of a security interest;

                                       6
<PAGE>

            (b) (i) all Receivables (x) represent complete bona fide
transactions with Customers in the ordinary course of the Company's business
which require no further act under any circumstances on Company's part to make
such Receivables payable by the Customers, (y) to the best of Company's
knowledge, are not subject to any present, future or contingent offsets,
disputes or counterclaims, and (z) do not represent bill and hold sales,
consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of Company, (ii) to the best of the Company's
knowledge, there are no facts, events or occurrences which in any way impair the
validity of any Receivable or enforcement thereof or tend to reduce the amount
payable under any Receivables and (iii) the Company has no knowledge that any
Customer is unable generally to pay its debts as they become due.

            (c) all Inventory is of good and merchantable quality, free from any
defects. No Inventory is subject to any licensing, patent, royalty, trademark,
tradename or copyright agreements with any third parties. The completion of
manufacture, sale or other disposition of Inventory by Secured Party following
an Event of Default shall not require the consent of any Person and shall not
constitute a breach or default under any contract or agreement to which the
Company is a party or to which such property is subject.

      4. Covenants Concerning the Collateral. Company covenants that from and
after the date of this Agreement and until the Obligations are paid in full in
cash it shall:

            (a) not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business and (ii) the disposition or transfer of obsolete and worn-out Equipment
in the ordinary course of business during any fiscal year having an aggregate
fair market value of not more than $100,000 and only to the extent that (x) the
proceeds of any such disposition are used to acquire replacement Equipment which
is subject to Secured Party's first priority security interest or (y) the
proceeds of which are remitted to Secured Party in reduction of the Obligations;

            (b) not encumber, mortgage, pledge, assign or grant any security
interest in any Collateral or any of Company's other assets to anyone other than
Secured Party, except for Permitted Liens;

            (c) place notations upon Company's books of account and any
financial statement prepared by Company to disclose Secured Party's security
interest in the Collateral;

            (d) defend the Collateral against the claims and demands of all
parties.

            (e) keep and maintain the Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. Company shall not permit any such items to
become a fixture to real estate or accessions to other personal property;

            (f) not extend the payment terms of any Receivable without prompt
notice thereof to Secured Party; and

            (g) perform all other steps requested by Secured Party to create and
maintain in Secured Party's favor a valid perfected first priority security
interest in all Collateral.

                                       7
<PAGE>

      5. Collection and Maintenance of Collateral and Records. Company shall
keep and maintain, at its own cost and expense, satisfactory and complete
records of the Collateral including, without limitation, a record of any and all
payments received and any and all credits granted with respect to the Collateral
and all other dealings with the Collateral. Secured Party may at any time verify
Company's Receivables utilizing an audit control company or any other agent of
Secured Party. Secured Party or Secured Party's designee may notify Customers at
any time, at Secured Party's sole discretion, of Secured Party's security
interest in Receivables (contracts, instruments, or chattel paper as the case
may be), collect them directly from the Customers or parties to contracts,
instruments and chattel paper and charge the collection costs and expenses to
Company's account, but, unless and until Secured Party does so or gives Company
other instructions, Company shall collect all Receivables for Secured Party,
receive all payments thereon for Secured Party's benefit in trust as Secured
Party's trustee and immediately deliver them to Secured Party in their original
form with all necessary endorsements or, as directed by Secured Party, deposit
such payments as directed by Secured Party. Company shall provide Secured Party,
as requested by Secured Party, such schedules, documents and/or information
regarding the Collateral as Secured Party may require.

      6. Inspections. At all times during normal business hours, Secured Party
shall have the right to (a) visit and inspect Company's properties and the
Collateral, (b) inspect, audit and make extracts from Company's relevant books
and records, including, but not limited to, management letters prepared by
independent accountants and (c) discuss with Company's principal officers and
independent accountants, Company's business, assets, liabilities, financial
condition, results of operations and business prospects, and Company shall
furnish all such assistance and information as Secured Party may require in
connection therewith. Company will deliver to Secured Party any instrument
necessary for Secured Party to obtain records from any service bureau
maintaining records for Company.

      7. Additional Representations, Warranties and Covenants. Company
represents, warrants, and covenants that:

            (a) Company is a corporation duly organized and validly existing
under the laws of the State of Delaware and duly qualified and in good standing
in every other state or jurisdiction in which the nature of Company's business
or the ownership of its assets requires such qualification.

            (b) the execution, delivery and performance of this Agreement (i)
has been duly authorized, (ii) is not in contravention of Company's certificate
of incorporation, by-laws or of any indenture, agreement or undertaking to which
Company is a party or by which Company is bound and (iii) is within Company's
corporate powers.

            (c) this Agreement is Company's legal, valid and binding obligation,
enforceable in accordance with its terms.

            (d) it keeps and will continue to keep all of its books and records
concerning the Collateral at Company's chief executive offices located at the
address set forth in the introductory paragraph of this Agreement and will not
move such books and records without giving Secured Party at least thirty (30)
days prior written notice and taking all actions deemed by the Secured Party
necessary to continuously protect and perfect Secured Party's liens upon the
Collateral; and the Collateral is not stored or located at any locations other
than as set forth on Schedule 7(d).

                                       8
<PAGE>

            (e) (i) the operation of Company's business is and will continue to
be in compliance in all material respects with all applicable federal, state and
local laws, including but not limited to all applicable environmental laws and
regulations;

                  (ii) Company will establish and maintain a system to assure
and monitor continued compliance with all applicable environmental laws, which
system shall include periodic reviews of such compliance;

                  (iii) Company shall respond promptly to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard the health of any Person and to avoid subjecting the Collateral to any
lien, charge, claim or encumbrance;

                  (iv) Company shall defend and indemnify the Secured Party and
hold the Secured Party harmless from and against all loss, liability, damage and
expense, claims, costs, fines and penalties, including attorney's fees, suffered
or incurred by the Secured Party under or on account of any environmental laws;

            (f) there is no pending or threatened litigation, actions or
proceeding which involve the possibility of materially and adversely affecting
the Company's business, assets, operations, condition or prospects, financial or
otherwise, or the Collateral or the ability of Company to perform this
Agreement;

            (g) it will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon it unless same are not delinquent or
same constitute Permitted Liens;

            (h) it will promptly inform Secured Party in writing of: (i) the
commencement of all proceedings and investigations by or before and/or the
receipt of any notices from, any governmental or nongovernmental body and all
actions and proceedings in any court or before any arbitrator against or in any
way concerning any of Company's properties, assets or business, which might
singly or in the aggregate, have a materially adverse effect on Company; (ii)
any amendment of Company's certificate of incorporation or by-laws; (iii) any
change in Company's business, assets, liabilities, condition (financial or
otherwise), results of operations or business prospects which has had or might
have a materially adverse effect on Company; (iv) any Event of Default or
Default; (v) any default or any event which with the passage of time or giving
of notice or both would constitute a default under any agreement for the payment
of money to which Company is a party or by which Company or any of Company's
properties may be bound which would have a material adverse effect on Company's
business, operations, property or condition (financial or otherwise) or the
Collateral; (vi) any change in the location of Company's executive offices;
(vii) any change in the location of Company's Inventory or Equipment from the
locations listed on Schedule 7(d) attached hereto, (viii) any additional
licenses, patents, copyrights, trademarks, tradenames or corporate names; (ix)
any material delay in Company's performance of any of its obligations to any
Customer and of any assertion of any material claims, offsets or counterclaims
by any Customer and of any allowances, credits and/or other monies granted by it
to any Customer; (x) any material adverse information obtained by Company
relating to the financial condition of any Customer; and (xi) any material
return of goods;

                                       9
<PAGE>

            (i) it will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At it's own cost and expense in
amounts and with carriers acceptable to Secured Party, it shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to Company's including,
without limitation, public and product liability insurance, worker's
compensation, insurance against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees and business interruption
insurance; and (ii) furnish Secured Party with (x) copies of all policies and
evidence of the maintenance of such policies at least thirty (30) days before
any expiration date, and (y) appropriate loss payable endorsements in form and
substance satisfactory to Secured Party, naming Secured Party as loss payee and
providing that as to Secured Party the insurance coverage shall not be impaired
or invalidated by any act or neglect of Company and the insurer will provide
Secured Party with at least thirty (30) days notice prior to cancellation.
Company shall instruct the insurance carriers that in the event of any loss
thereunder, the carriers shall make payment for such loss to Secured Party and
not to Company and Secured Party jointly. If any insurance losses are paid by
check, draft or other instrument payable to Company and Secured Party jointly,
Secured Party may endorse Company's name thereon and do such other things as
Secured Party may deem advisable to reduce the same to cash. Secured Party is
hereby authorized to adjust and compromise claims. All loss recoveries received
by Secured Party upon any such insurance may be applied to the Obligations, in
such order as Secured Party in its sole discretion shall determine. Any surplus
shall be paid by Secured Party to Company or applied as may be otherwise
required by law. Any deficiency thereon shall be paid by Company to Secured
Party, on demand;

            (j) any time and from time to time, upon the written request of
Secured Party and at the sole expense of Company, Company shall promptly and
duly execute and deliver any and all such further instruments and documents and
take such further actions as Secured Party may reasonably deem desirable to
obtain the full benefits of this Agreement and of the rights and powers herein
granted;

            (k) it will not (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
Company's indebtedness to Secured Party and as set forth on Schedule 7(k)
attached hereto and made a part hereof; (ii) declare, pay or make any dividend
or distribution on any shares of the common stock or preferred stock of Company
or apply any of its funds, property or assets to the purchase, redemption or
other retirement of any common or preferred stock of Company; (iii) directly or
indirectly, prepay any indebtedness (other than to Secured Party), or
repurchase, redeem, retire or otherwise acquire any indebtedness of Company;
(iv) make advances, loans or extensions of credit to any Person; (v) become
either directly or contingently liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise; (vi) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it; (vii) form any Subsidiary or
enter into any partnership, joint venture or similar arrangement; (viii)
materially change the nature of the business in which it is presently engaged;
(ix) enter into any transaction with any Affiliate, except in ordinary course on
arms-length terms; or (xi) bill Receivables under any name except the present
name of the Company.

                                       10
<PAGE>

      8. Power of Attorney. Company hereby irrevocably appoints Secured Party or
any other Person whom Secured Party may designate as Company's attorney-in-fact,
with full power and authority in place and stead of Company and in the name of
Company or in its own name to: (i) endorse Company's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Secured Party's possession; (ii) sign Company's name on any invoice or
bill of lading relating to any Receivables, drafts against customers, schedules
and assignments of Receivables, notices of assignment, financing statements and
other public records, verifications of account and notices to or from Customers;
(iii) verify the validity, amount or any other matter relating to any Receivable
by mail, telephone, telegraph or otherwise with Customers; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through United States Customs; (v) do all things necessary to carry out this
Agreement and all related documents; (vi) continue any insurance existing
pursuant to the terms of this Agreement and pay all or any part of the premium
therefor and the cost thereof; and (vii) on or after the occurrence of an Event
of Default, notify the post office authorities to change the address for
delivery of Company's mail to an address designated by Secured Party, and to
receive, open and dispose of all mail addressed to Company. Company hereby
ratifies and approves all acts of the attorney. The powers conferred on the
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. Neither
Secured Party nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law. This power, being coupled with
an interest, is irrevocable so long as any Receivable which is assigned to
Secured Party or in which Secured Party has a security interest remains unpaid
and until the Obligations are paid in full in cash.

      9. Expenses. Company shall pay all of Secured Party's out-of-pocket costs
and expenses, including without limitation fees and disbursements of counsel and
appraisers, in connection with the preparation, execution and delivery of this
Agreement and in connection with the prosecution or defense of any action,
contest, dispute, suit or proceeding concerning any matter in any way arising
out of, related to or connected with this Agreement. Company shall also pay all
of Secured Party's out-of-pocket costs and expenses, including, without
limitation, fees and disbursements of counsel, in connection with (a) the
preparation, execution and delivery of any waiver, any amendment thereto or
consent proposed or executed in connection with the transactions contemplated by
this Agreement, (b) Secured Party's obtaining performance of the Company's
obligations under this Agreement, including, but not limited to, the enforcement
or defense of Secured Party's security interests, assignments of rights and
liens hereunder as valid perfected security interests, (c) any attempt to
inspect, verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral and (d) any consultations in connection with any of the foregoing.
All such costs and expenses together with all filing, recording and search fees,
taxes and interest payable by Company to Secured Party shall be payable on
demand and shall be secured by the Collateral.

                                       11
<PAGE>

      10. Assignment By Secured Party. Secured Party may assign any or all of
the Obligations together with any or all of the security therefor and any
transferee shall succeed to all of Secured Party's rights with respect thereto.
Upon such transfer, Secured Party shall be released from all responsibility for
the Collateral to the extent same is assigned to any transferee.

      11. Waivers. The Company waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description. With respect to both the Obligations and
the Collateral, the Company assents to any extension or postponement of the time
of payment or any other indulgence, to any substitution, exchange or release of
or failure to perfect any security interest in any Collateral, to the addition
or release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Secured Party may deem advisable.

      12. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default":

            (a) the occurrence of a Default or Event of Default under the Loan
Agreement.

            (b) failure by the Company to make payment of any of its Obligations
when required hereunder.

            (c) failure to perform under and/or committing any breach of this
Agreement or the Guaranty or any other agreement between Company and Secured
Party.

            (d) a default by Company in the payment, when due, of any principal
of or interest on any indebtedness for money borrowed.

            (e) occurrence of a default under any agreement to which Company is
a party with third parties which has a material adverse affect upon Company's
business, operations, property or condition (financial or otherwise) including
all leases for any premises where Inventory or Equipment is located.

            (f) any representation, warranty or statement made by Company
hereunder, in the Guaranty, or in any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect.

            (g) an attachment or levy is made upon a material portion of
Company's assets, or any judgment or judgments are rendered against Company for
an aggregate amount in excess of $250,000 which (i) is/are not contested in good
faith by the Company, (ii) the Company does not establish reserves with regard
thereto in an amount reasonably satisfactory to Secured Party, unless any such
judgment is fully covered by insurance and evidence thereof acceptable to
Secured Party in it sole discretion is provided to Secured Party, and (iii) the
enforcement of such judgment or judgments is/are not continuously stayed,
satisfied or discharged of record within forty (40) days of such rendering.

                                       12
<PAGE>

            (h) any lien created hereunder for any reason ceases to be or is not
a valid and perfected lien having a first priority interest.

            (i) if Company shall (i) apply for, consent to or suffer to exist
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing.

            (j) Company shall admit in writing its inability, or be generally
unable to pay its debts as they become due or cease operations of its present
business.

            (k) Secured Party shall in good faith deem itself insecure or unsafe
or shall fear diminution in value, removal or waste of the Collateral.

            (l) if the Company attempts to terminate, challenges the validity
of, or challenges its liability under, the Guaranty.

      13. Remedies. Upon the occurrence and during the continuation of any Event
of Default, Secured Party shall have the right to demand repayment in full of
all Obligations, whether or not otherwise due (in such case Secured Party may
deposit any and all such amounts realized in a cash collateral deposit account
to be maintained as security for the Obligations). Until all Obligations have
been fully satisfied in cash, Secured Party shall retain its security interest
in all Collateral. Secured Party shall have, in addition to all other rights
provided herein, the rights and remedies of a secured party under the UCC and
under other applicable law, and all other legal and equitable rights to which
Secured Party may be entitled, including without limitation, the right to take
immediate possession of the Collateral and to require Company to assemble the
Collateral, at Company's expense, and to make it available to Secured Party at a
place designated by Secured Party which is reasonably convenient to both parties
and to enter any of the premises of Company or wherever the Collateral shall be
located, with or without force or process of law, and to keep and store the same
on said premises until sold (and if said premises be the property of Company,
Company agrees not to charge Secured Party for storage thereof). Further,
Secured Party may, at any time or times after a Default, sell and deliver all
Collateral held by or for Secured Party in one or more parcels at public or
private sale for cash, upon credit or otherwise, at such prices and upon such
terms as Secured Party, in Secured Party's sole discretion, deems advisable or
Secured Party may otherwise recover upon the Collateral in any commercially
reasonable manner as Secured Party, in its sole discretion, deems advisable.
Except as to that part of the Collateral which is perishable or threatens to
decline speedily in nature or is of a type customarily sold on a recognized
market, the requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Company at Company's address as shown in Secured
Party's records, at least five (5) days before the time of the event of which
notice is being given. Secured Party may be the purchaser at any sale, if it is
public. Until Secured Party is able to effect a sale, lease, or other
disposition of Collateral, Secured Party shall have the right to use or operate
Collateral, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by Secured Party. Secured Party shall have no obligation to Company
to maintain or preserve the rights of Company as against third parties with
respect to Collateral while Collateral is in the possession of Secured Party.
Secured Party may, if it so elects, seek the appointment of a receiver or keeper
to take possession of Collateral and to enforce any of Secured Party's remedies

                                       13
<PAGE>

with respect to such appointment without prior notice or hearing. In connection
with the exercise of the foregoing remedies, Secured Party is granted permission
to use all of Company's (a) trademarks, tradenames, tradestyles, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with Inventory for the purpose of disposing of such Inventory and
(b) Equipment for the purpose of completing the manufacture of unfinished goods.
The proceeds realized from the sale of any Collateral shall be applied as
follows: first, to the costs, expenses and attorneys' fees and expenses incurred
by Secured Party for collection and for acquisition, completion, protection,
removal, storage, sale and deliver of the Collateral; second, to the payment of
the Obligations in such order as Secured Party elects. If any deficiency shall
arise, Company shall remain liable to Secured Party therefor.

      14. Waiver; Cumulative Remedies. Failure by Secured Party to exercise any
right, remedy or option under this Agreement or any supplement hereto or any
other agreement between Company and Secured Party or delay by Secured Party in
exercising the same, will not operate as a waiver; no waiver by Secured Party
will be effective unless it is in writing and then only to the extent
specifically stated. Secured Party's rights and remedies under this Agreement
will be cumulative and not exclusive of any other right or remedy which Secured
Party may have.

      15. Notices. Any notice or request hereunder may be given to Company or
Secured Party at the respective addresses set forth below or as may hereafter be
specified in a written notice designated as a change of address under this
Section 15. Any notice or request hereunder shall be given by (a) hand delivery,
(b) overnight courier, (c) registered or certified mail, return receipt
requested, (d) telex or telegram, subsequently confirmed by registered or
certified mail, or (e) telecopy to the number set out below (or such other
number as may hereafter be specified in a notice designated as a notice of
change of address) with electronic confirmation of its receipt. Any notice or
other communication required or permitted pursuant to this Agreement shall be
deemed given (a) when personally delivered to any officer of the party to whom
it is addressed, (b) on the earlier of actual receipt thereof or three (3) days
following posting thereof by certified or registered mail, postage prepaid, or
(c) upon actual receipt thereof when sent by a recognized overnight delivery
service or (d) upon actual receipt thereof when sent by telecopier to the number
set forth below with electronic confirmation of its receipt, in each case
addressed to each party at its address set forth below or at such other address
as has been furnished in writing by a party to the other by like notice:

         If to Secured Party:       Steel City Capital Funding LLC
                                    1600 Market Street, 31st Floor
                                    Philadelphia, Pennsylvania 19103
                                    Attention: Thomas J. Bugieda
                                    Telephone: 215-585-5369
                                    Telecopy:  215-585-4771

                                       14
<PAGE>

         with a copy to:            Hahn & Hessen LLP
                                    488 Madison Avenue
                                    New York, New York  10022
                                    Attention: Steven J. Seif, Esq.
                                    Telephone: 212-478-7370
                                    Telecopy:  212-478-7400

         If to Company:             Air Industries Group, Inc.
                                    1479 North Clinton Avenue
                                    Bay Shore, New York 11706
                                    Attention: Peter Rettaliata
                                    Telephone: 631-968-5000
                                    Telecopy:  631-968-5377

         with a copy to:            Eaton & Van Winkle LLP
                                    3 Park Avenue, 16th floor
                                    New York, New York  10016-2078
                                    Attention: Vincent McGill, Esq.
                                    Telephone: 212-561-3604
                                    Telecopy:  212-779-9928

      16. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. SECURED PARTY SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED PARTY
UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UCC. COMPANY AGREES THAT
ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR
ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE
SOUTHERN DISTRICT OF THE STATE OF NEW YORK OR, AT SECURED PARTY'S OPTION, IN ANY
OTHER COURTS LOCATED IN THE STATE OF NEW YORK OR ELSEWHERE AS SECURED PARTY MAY
SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND COMPANY SUBMITS TO THE
PERSONAL JURISDICTION OF SUCH COURTS. COMPANY WAIVES PERSONAL SERVICE OF PROCESS
AND CONSENTS THAT SERVICE OF PROCESS UPON COMPANY MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO COMPANY AT COMPANY'S
ADDRESS APPEARING ON SECURED PARTY'S RECORDS, AND SERVICE SO MADE SHALL BE
DEEMED COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. EACH
PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BETWEEN COMPANY AND SECURED PARTY, AND COMPANY WAIVES THE RIGHT TO ASSERT IN ANY
ACTION OR PROCEEDING INSTITUTED BY SECURED PARTY WITH REGARD TO THIS AGREEMENT
OR ANY OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.

      17. Limitation of Liability. Company acknowledges and understands that in
order to assure repayment of the Obligations, Secured Party may be required to
exercise any and all of Secured Party's rights and remedies hereunder and agrees
that neither Secured Party nor any of Secured Party's agents shall be liable for
acts taken or omissions made in connection herewith or therewith except for
actual bad faith.

                                       15
<PAGE>

      18. Entire Understanding. This Agreement contains the entire understanding
between Company and Secured Party and any promises, representations, warranties
or guarantees not herein contained shall have no force and effect unless in
writing, signed by the Company and Secured Party. Neither this Agreement, nor
any portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.

      19. Severability. Wherever possible each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions thereof.

      20. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.

      21. Marshaling. Secured Party shall not be required to marshal any present
or future collateral security (including but not limited to this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that it
lawfully may, the Company hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of the Secured Party's rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Company hereby irrevocably waives the benefits of all such
laws.

      22. Counterparts; Telecopied Signatures. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same instrument. Any
signature delivered by a party by facsimile transmission shall be deemed to be
an original signature hereto.

      23. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.

                                       16
<PAGE>

      IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.

                                               AIR INDUSTRIES GROUP, INC.

                                               By: /s/ Peter D. Rettaliata
                                                   -----------------------------
                                               Name: Peter D. Rettaliata
                                               Title:President

                                               STEEL CITY CAPITAL FUNDING LLC

                                               By: /s/ Kevin Madigan
                                                   -----------------------------
                                                   Name: Kevin Madigan
                                                   Title: Managing Director

                                       17

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