Document:

EXHIBIT 10.3

                      SUBORDINATED SECURED PROMISSORY NOTE

$962,000.00                                                    November 30, 2005
                                                              New York, New York

      For good and valuable consideration, the receipt of which is hereby
acknowledged, Gales Industries Incorporated, a Delaware corporation (the
"Company"), promises to pay to the order of Luis Peragallo or his registered
assigns (the "Holder"), the principal sum of Nine Hundred Sixty-Two Thousand
Dollars ($962,000.00), as such amount may be increased pursuant to Section 1(d)
of this Note, together with interest thereon as provided for herein, which shall
be payable (i) in twenty equal consecutive quarterly installments of principal
in the amount of Forty-eight Thousand One Hundred Dollars ($48,100), as such
amount may be increased pursuant to Section 1(d) of this Note, plus accrued
interest thereon from the date of original issuance of this Note or the
immediately preceding date of payment of interest, as the case may be, through
and including the date of payment of such interest, payable on the last business
day of each calendar quarter commencing December 31, 2005, and continuing
through and including September 30, 2010, or, if earlier, (ii) when, upon or
after the occurrence of an Event of Default (as defined below), such amount is
declared due and payable by the Holder or made automatically due and payable in
accordance with the terms hereof (the "Maturity Date").

      The Company further agrees to pay interest on the unpaid principal sum of
this Note at an adjustable rate equal to the "Prime Rate" (as hereinafter
defined), as adjusted as provided for herein, plus 0.5% per annum. Interest
shall be payable on any portion of the principal amount of this Note outstanding
from time to time from and after the scheduled date for payment thereof until
payment thereof in full, at a floating rate equal to the Prime Rate plus 7% per
annum. For purposes hereof the "Prime Rate" shall mean the rate publicly
announced by Citibank as its "prime rate" (even though Citibank may not lend
money at such rate) or, if Citibank ceases to quote such rate, the Federal Funds
rate. Interest shall be calculated on the basis of a 365/366 day year and the
actual number of days elapsed and the rate of interest charged hereunder shall
change effective on the first day of each calendar quarter (to wit, October 1,
January 1, April 1 and July 1) to the Prime Rate in effect as of the end of such
date or the immediately preceding business day. In no event shall the Holder
hereof, or any permitted successor or assign, be entitled to receive, collect or
retain any amount of interest paid hereon in excess of that permitted by
applicable law.

      This Note may be prepaid in whole or in part at any time. All payments
made pursuant to this Note shall be applied first to reimbursable expenses,
interest accrued, if any, and then principal.

      This Note is issued pursuant to that certain Stock Purchase Agreement,
dated as of July 25, 2005 (the "Stock Purchase Agreement"), entered into between
the Company, Luis Peragallo, Air Industries Machining, Corp., Jorge Peragallo,
Peter Rettaliata, and Dario Peragallo.

      The following is a statement of rights of the Holder and the conditions to
which this Note is subject, and to which the Holder, by acceptance of this Note,
agrees:

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                                                                    EXHIBIT 10.3

      1. Subordination. (a) This Note will be subordinate and inferior to the
Company's Senior Indebtedness (as hereinafter defined). The Company for itself,
its successors and assigns, covenants and agrees and the Holder of this Note,
for himself, his successors and assigns, by his acceptance of this Note likewise
covenants and agrees, that to the extent provided below the payment of all
amounts due pursuant to this Note is hereby expressly subordinated and junior in
right of payment to the extent and in the manner hereinafter set forth, to the
Company's Senior Indebtedness. As used herein, the term "Senior Indebtedness"
shall mean the principal of and interest and premium, if any, on any and all,
(i) indebtedness of the Company for borrowed money or obligations or with
respect to which the Company is a guarantor, to banks, insurance companies,
lease financing institutions or other financial institutions or entities
regularly engaged in the business of lending money, in each case as in effect as
of the date hereof, and (ii) any such indebtedness or any debentures, notes or
other evidence of indebtedness issued in exchange for or to refinance such
Senior Indebtedness, or any indebtedness arising from the satisfaction of such
Senior Indebtedness by a guarantor, provided that such indebtedness issued in
exchange for or to refinance Senior Indebtedness or arising from the
satisfaction of Senior Indebtedness by a Guarantor is on commercially reasonable
terms as of the date of incurrence.

            (b) Upon the acceleration of any Senior Indebtedness or upon the
maturity of all or any portion of the principal amount of any Senior
Indebtedness by lapse of time, acceleration or otherwise, all such Senior
Indebtedness which has been so accelerated or matured shall first indefeasibly
be paid in full before any payment is made by the Company or any person acting
on behalf of the Company on account of any obligations evidenced by this Note.

            (c) The Company shall not pay any principal portion of this Note, or
interest accrued thereon, before the scheduled due date thereof if at such time
there exists a Blockage Event (as hereafter defined) and written notice thereof
has been given to the Company and the Holder by the holders of the Senior
Indebtedness.

            (d) A "Blockage Event" is deemed to exist for the period of time
commencing on the date of receipt by the Holder of written notice of the
occurrence of a Default or an Event of Default (as defined in the instruments
evidencing the Senior Indebtedness), which notice shall specify such Default or
Event of Default, and ending on:

                  (i) the date such Default or Event of Default under the Senior
Indebtedness, as applicable, is cured or waived, provided that such Default or
Event of Default is in the payment of any amount due thereunder; or

                  (ii) in the case of any other Default or Event of Default
under the Senior Indebtedness, the earlier of (A) the date on which such Default
or Event of Default shall have been cured or waived and (B) the date that is 180
days after the occurrence of such Default or Event of Default, provided that a
Blockage Event with respect to a single specified Default or Event of Default
may be deemed to occur only once for each twelve-month period, provided,
further, that no Default or Event of Default that existed at the commencement
of, or during the pendency of, a Blockage Event shall serve as the basis for the
institution of any subsequent Blockage Event.

The Holder has the right, but not the obligation, to cure any such Default or
Event of Default under Senior Indebtedness to the extent it can be cured by the
payment of money. If the Holder shall have cured any such Default or Event of
Default under Senior Indebtedness to the extent such Default or Event of Default
can be cured by the payment of money, then such amount (each, an "Additional

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Principal Amount") shall be added to the aggregate principal amount then owing
to the Holder pursuant to this Note. The Company shall pay equal quarterly
installments of each Additional Principal Amount pursuant to the first paragraph
of this Note from the date such Additional Principal Amount is incurred pursuant
to the first paragraph through and including September 30, 2010, subject to all
principal amounts being declared due and payable or made automatically due and
payable when, upon or after the occurrence of an Event of Default under this
Note.

            (e) At any time there exists a Blockage Event, (i) the Company shall
not, directly or indirectly, make any payment of any part of this Note, (ii) the
Holder shall not demand or accept from the Company or any other person any such
payment or cancel, set-off or otherwise discharge any part of the indebtedness
represented by this Note, and (iii) neither the Company nor the Holder shall
otherwise take or permit any action prejudicial to or inconsistent with the
priority position of any holder of Senior Indebtedness over the Holder of this
Note.

            (f) The holders of more than fifty percent in principal amount of
the Senior Indebtedness are hereby authorized to demand specific performance of
this Note, whether or not the Company shall have complied with the provisions
hereof applicable to it, at any time when the Holder shall have failed to comply
with any provision hereof applicable to such Holder. The Holder hereby
irrevocably waives any defense based on the adequacy of a remedy at law which
might be asserted as a bar to the remedy of specific performance hereof in any
action brought therefor by any holder of Senior Indebtedness.

            (g) No right of any holder of Senior Indebtedness to enforce the
subordination provisions of this obligation shall be impaired by any act or
failure to act by the Company or the Holder or by their failure to comply with
this Note or any other agreement or document evidencing, related to or securing
the obligations hereunder. Without in any way limiting the generality of the
preceding sentence, the holders of Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Holder, without incurring
responsibility to the Holder and without impairing or releasing the
subordination provided in this Note or the obligations of the Holder to the
holders of Senior Indebtedness, do any one or more of the following: (i) change
the manner, place or terms of payment of any Senior Indebtedness; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing any Senior Indebtedness; (iii) release any person or entity
liable in any manner for the collection of any Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Company or any other
person or entity.

            (h) In the event that the Issuer shall make any payment or
prepayment to the Holder on account of the obligations under this Note which is
prohibited by this Section, such payment shall be held by the Holder, in trust
for the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (pro rata as to each of such holders on the basis
of the respective amounts and priorities of Senior Indebtedness held by them) to
the extent necessary to pay all Senior Indebtedness due to such holders of
Senior Indebtedness in full in accordance with its terms (whether or not such
Senior Indebtedness is due and owing), after giving effect to any concurrent
payment or distribution to or for the holders of such Senior Indebtedness.

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            (i) After all Senior Indebtedness indefeasibly is paid in full and
until the obligations under the Note are paid in full, the Holder shall be
subrogated to the rights of holders of Senior Indebtedness to the extent that
distributions otherwise payable to the Holder have been applied to the payment
of Senior Indebtedness. For purposes of such subrogation, no payments or
distributions to holders of such Senior Indebtedness of any cash, property or
securities to which the Holder would be entitled except for the provisions of
this Section and no payment over pursuant to the provisions of this Section to
holders of such Senior Indebtedness by the Holder, shall, as between the
Company, its creditors other than holders of such Senior Indebtedness, and the
Holder, be deemed to be a payment by the Issuer to or on account of such Senior
Indebtedness, it being understood that the provisions of this Section are solely
for the purpose of defining the relative rights of the holders of such Senior
Indebtedness, on the one hand and the Holder, on the other hand.

            (j) In any insolvency, receivership, bankruptcy, dissolution,
liquidation or reorganization proceeding, or in any other proceeding, whether
voluntary or involuntary, by or against the Company under any bankruptcy or
insolvency law or laws relating to relief of debtors, to compositions,
extensions or readjustments of indebtedness:

                  (i) the claims of any holders of Senior Indebtedness against
the Company shall be paid indefeasibly in full in cash or such payment shall
have been provided for in a manner acceptable to the holders of at least a
majority of the then outstanding principal amount of the Senior Indebtedness
before any payment is made to the Holder;

                  (ii) until all Senior Indebtedness is indefeasibly paid in
full in cash or such payment shall have been provided for in a manner acceptable
to the holders of at least a majority of the then outstanding principal amount
of the Senior Indebtedness, any distribution to which the Holder would be
entitled but for this Section shall be made to holders of Senior Indebtedness,
except for distribution of securities issued by the Company which are
subordinate and junior in right of payment to the Senior Indebtedness; and

                  (iii) the holders of Senior Indebtedness shall have the right
to enforce, collect and receive every such payment or distribution and give
acquittance therefor. If, in or as a result of any action case or proceeding
under Title 11 of the United States Code, as amended from time to time , or any
comparable statute, relating to the Company, the holders of the Senior
Indebtedness return, refund or repay to the Company or any trustee or committee
appointed in such case or proceeding any payment or proceeds of any Collateral
in connection with such action, case or proceeding alleging that the receipt of
such payments or proceeds by the holders of the Senior Indebtedness was a
transfer voidable under state or federal law, then the holders of the Senior
Indebtedness shall not be deemed ever to have received such payments or proceeds
for purposes of this Note in determining whether and when all Senior
Indebtedness has been paid in full. In the event the holders of Senior
Indebtedness receive amounts in excess of payment in full (cash) of amounts
outstanding in respect of Senior Indebtedness (without giving effect to whether
claims in respect of the Senior Indebtedness are allowed in any insolvency
proceeding), the holders of the Senior Indebtedness shall pay such excess
amounts to the Holder.

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            (k) By its acceptance of this Note, the Holder agrees to execute and
deliver such documents as may be reasonably requested from time to time by the
Company or the holder of any Senior Indebtedness in order to implement the
foregoing provisions of this Section.

      2. Events of Default. If any of the events specified in this Section shall
occur (herein individually referred to as an "Event of Default"), the Holder
may, so long as such condition exists, in addition to any other right, power or
remedy granted to the Holder under this Note, the Stock Purchase Agreement, the
Security Agreement (as hereinafter defined), or applicable law, either by suit
in equity or by action at law, or both, declare the entire principal amount (and
accrued interest thereon) and all other amounts immediately due and payable,
without presentment, demand or notice of any kind, all of which are expressly
waived, provided, however, that upon the occurrence of any Event of Default
described in Section 2(c) or 2(d) hereof, the entire principal amount (and
accrued interest thereon) and all other amounts shall automatically become due
and payable:

            (a) Payment of any portion of the principal of this Note or interest
accrued thereon shall be delinquent for a period of 10 days or more after the
due date thereof;

            (b) If the Company shall fail to observe any covenant or other
provision contained in this Note (other than with respect to payment), the Stock
Purchase Agreement or the Security Agreement and such failure of observance
shall be continuing for 10 days after the Holder has given written notice
thereof;

            (c) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action;

            (d) If, within 45 days after the commencement of an action against
the Company (and service of process in connection therewith on the Company)
seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or
similar relief under any present or future statute, law or regulation, such
action shall not have been resolved in favor of the Company or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within 45 days after the appointment without the consent or
acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company, such
appointment shall not have been vacated;

            (e) Any declared default of the Company under any Senior
Indebtedness whether now existing or hereafter created that gives the holder
thereof the right to accelerate such Senior Indebtedness, and such Senior
Indebtedness is in fact accelerated by the holder.

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            (f) One or more judgments for the payment of money in an amount in
excess of $100,000 in the aggregate shall be rendered against the Company or any
of its subsidiaries (or any combination thereof) and shall remain undischarged
for a period of ten consecutive days during which execution shall not be
effectively stayed, or any action is legally taken by a judgment creditor to
levy upon any such judgment; or

            (g) Any representation or warranty made by the Company in the
Security Agreement is false or incorrect in any material respect when made.

      4. Security Agreement. This Note is secured by a security interest in
substantially all of the personal property of the Company pursuant to the
Security Agreement dated as of November 30, 2005 (as amended from time to time,
the "Security Agreement') by and between the Company and the Holder.

      5. Miscellaneous.

            (a) Waiver and Amendment. The rights and remedies herein reserved to
any party shall be cumulative and in addition to any other or further rights and
remedies available at law or in equity. The waiver by any party hereto of any
breach of any provision of this Note shall not be deemed to be a waiver of the
breach of any other provision or any subsequent breach of the same provision.
This Note and its terms may be changed, waived or amended only by the written
consent of the Company and the Holder and, if any such change, waiver, or
amendment is with respect to the subordination provisions, the holders of at
least a majority in the then-outstanding principal amount of the Senior
Indebtedness.

            (b) Governing Law. This Note shall be governed by and construed in
accordance with the law of the State of New York without regard to conflict of
law provisions. Any legal suit, action or proceeding arising out of or based
upon this Note shall be instituted in any federal or state court only in the
City and County of New York, State of New York. The aforementioned choice of
venue is intended to be mandatory and not permissive in nature, thereby
precluding the possibility of litigation arising out of this Note in any
jurisdiction other than that specified in this Section. The Holder and the
Company each waive, to the fullest extent permitted by applicable law, any right
it may have to assert the doctrine of forum non conveniens or similar doctrine
or to object to venue with respect to any proceeding brought in accordance with
this Section, and stipulates that the state and federal courts located in the
City and County of New York, State of New York, shall have in personam
jurisdiction and venue over them for the purpose of litigation any dispute,
controversy or proceeding arising out of or related to this Note.

            (c) Successors and Assigns. All of the terms and provisions of this
Note shall be binding upon and inure to the benefit of the parties hereto and
their respective successors, heirs and permitted assigns.

            (d) Headings. The section headings contained in this Note are
intended solely for convenience of reference and do not themselves constitute a
part of this Note.

            (e) Severability. In case any provision contained herein (or part
thereof) shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or other unenforceability shall not
affect any other provision (or the remaining part of the affected provision)
hereof; but this Note shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent that such provision is invalid, illegal, or unenforceable.

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            (f) Costs of Collection. The Company shall reimburse Holder for all
reasonable costs and expenses, including without limitation, reasonable
attorneys' fees and expenses, incurred in connection with (i) drafting,
negotiating, executing and delivering any amendment, modification or waiver of,
or consent with respect to, any matter relating to the rights of Holder
hereunder; (ii) creating, perfecting and maintaining perfection of the Liens (as
defined in the Security Agreement) and security interests in the Collateral (as
defined in the Security Agreement) in favor of the Holder and (iii) enforcing
any provisions of this Note or the Security Agreement and/or collecting any
amounts due under this Note.

            (g) Notices. All notices, requests, demands or other communications
which are required to be or may be given or permitted hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person or
after dispatch by a recognized overnight courier to the appropriate party to
whom the same is so given or made:

            To Holder at:  Luis Peragallo
                           53 Willow Ridge Drive
                           Smithtown, New York 11787

            To Company at: Gales Industries Incorporated
                           333 East 66th Street, 9th Floor,
                           New York, New York 10021

or to such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section. All such notices, requests,
demands or other communications shall be deemed to have been received on the
date of delivery thereof (if delivered by hand) and on the next day after
sending thereof (if by overnight courier).

            (h) Assignment by the Company. Neither this Note nor any of the
rights, interests or obligations hereunder may be assigned, by operation of law
or otherwise, in whole or in part, by the Company, without the prior written
consent of the Holder.

            (i) No Set-Off. All payments by the Company under this Note shall be
made free and clear of and without any deduction for or on account of any
set-off or counterclaim.

            (j) Waiver of Presentment, Demand, Etc. To the fullest extent
permitted by applicable law, the Company expressly waives presentment, demand,
protest, notice of dishonor, notice of non-payment, notice of maturity, notice
of protest, presentment for the purpose of accelerating maturity of the
obligations under this Note, diligence in collection, and the benefit of any
exemption or insolvency laws.

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      IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
and issued as of the date first written above.

                                                   GALES INDUSTRIES INCORPORATED

                                                   By: /s/ Michael A. Gales
                                                       -------------------------
                                                   Name: Michael A. Gales
                                                   Title: Executive Chairman

                                       8EXHIBIT 10.4

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT (this "Security Agreement") is made this 30th day
of November 2005 by and between Gales Industries Incorporated, a Delaware
corporation, with an address at 333 East 66th Street, 9th Floor, New York, New
York 10021 (the "Debtor") and Luis Peragallo, an individual with an address at
53 Willow Ridge Drive, Smithtown, New York 11787 (the "Secured Party").

                              W I T N E S S E T H:

      This Security Agreement is entered into in conjunction with that certain
Subordinated Secured Promissory Note dated the date hereof made by the Debtor in
favor of the Secured Party (the "Note"). Except as otherwise expressly defined
herein, all capitalized terms shall have the meanings ascribed to them in the
Note.

      In order to secure payments of all amounts which may become due and owing
to the Secured Party under the Note, the Debtor has agreed to grant to the
Secured Party a continuing security interest in and to all of the property of
the Debtor.

      NOW, THEREFORE, in consideration of the premises hereof, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and of the mutual covenants, representations and warranties
contained herein, the parties hereto agree as follows:

                          SECTION 1 - SECURITY INTEREST

      1.1 Description. As security for the prompt and complete payment and
performance (whether at the stated maturity, by acceleration or otherwise) of
all of the Debtor's obligations under the Note and any and all other obligations
or debts of the Debtor to the Secured Party whether now existing or hereafter
arising, the Debtor hereby assigns and grants to the Secured Party a continuing
security interest in, upon and to all of the tangible and intangible personal
property and fixtures of the Debtor, including without limitation the property
described below, whether now owned or existing or hereafter acquired or arising,
together with any and all additions thereto and replacements therefor and
proceeds and products thereof (hereinafter referred to collectively as the
"Collateral"):

            (a) all shares of outstanding capital stock of Air Industries
Machining, Corp. ("AIM") owned by Debtor or its permitted assignees under the
Note (the "Shares");

            (b) all of the Debtor's directly or indirectly held tangible
personal property, including without limitation all present and future goods,
inventory (including without limitation all printed materials, merchandise, raw
materials, work in process, finished goods and supplies), equipment,
merchandise, furniture, fixtures, office supplies, motor vehicles, machinery,
paper, tools, computers, and associated equipment now owned or hereafter
acquired, including, without limitation, the tangible personal property used in
the operation of the businesses of the Debtor or of AIM; and

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            (c) all of the Debtor's other personal property, including, without
limitation, all present and future accounts, accounts receivable, investment
property, deposit accounts, rights to proceeds of letters of credit,
letter-of-credit rights, contract rights, general intangibles (including without
limitation, all goodwill, all trademarks, all other intellectual property to the
extent assignable as collateral, including without limitation all copyrights,
patents and domain names, all customer lists, vendor lists, and other printed
materials, including all catalogs, indexes, lists, data and other documents and
papers relating thereto, blue prints, designs and research and development), any
information stored on any medium, including electronic medium, related to any of
the personal property of the Debtor, all instruments, documents and chattel
paper, all commercial tort claims, all supporting obligations and all debts,
obligations and liabilities in whatever form owing to the Debtor from any
person, firm or corporation or any other legal entity, whether now existing or
hereafter arising, now or hereafter received by or belonging or owing to the
Debtor, and all guaranties and security therefor.

Any of the foregoing terms which are defined in the Uniform Commercial Code of
the State of New York, as in effect from time to time (the "NYUCC") shall have
the meaning provided in the NYUCC as supplemented and expanded by the foregoing.

      1.2 Senior Debt.

            (a) Permitted Liens. The Debtor shall not create, assume or suffer
to exist any encumbrance upon any of its assets, whether now owned or hereafter
acquired, except as set forth herein, and for Liens (as defined below) (i) to
secure Senior Indebtedness (as defined in the Note), (ii) for taxes or
assessments or other governmental charges not yet due and payable; (iii) pledges
or deposits of money securing statutory obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation (excluding Liens under ERISA), (iv) deposits of money
securing contracts (other than contracts for the payment of money) or leases to
which Debtor is a party; (v) inchoate and unperfected workers', mechanics' or
similar Liens arising in the ordinary course of business; (vi) carriers;
warehousemen's, suppliers or other similar possessory Liens arising in the
ordinary course of business; (vii) deposits securing or in lieu of security,
appeal or customs bonds in proceedings to which Debtor is a party; and (viii)
capital leases and purchase money security interests ("Permitted Liens"). For
purposes of this Agreement, "Lien" shall mean any interest of any kind or nature
in property securing an obligation owed to, or a claim of any kind or nature in
property by, a Person other than the owner of the property, whether such
interest is based on the common law, statute, regulation or contract, and
including, but not limited to, a judgment, security interest or lien arising
from a mortgage, encumbrance, pledge, conditional sale or trust receipt, a
lease, consignment or bailment for security purposes, a trust, or an assignment.

            (b) Subordination. The payment of the Note is subordinate and junior
in right of payment to the prior payment of the Debtor's Senior Indebtedness
pursuant to the subordination provisions contained in the Note. The Secured
Party shall, from time to time after the date hereof, at Debtor's expense,
execute and deliver any instrument and take such additional actions reasonably
requested by the Debtor to confirm or evidence the subordination referenced
hereby.

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      (c) Relative Rights. The subordination provisions of the Note are for the
purpose of defining the relative rights of the holders of Senior Indebtedness
and the Secured Party against the Debtor and its property. Nothing herein or in
the Note or the agreements and other documents evidencing the Senior
Indebtedness or creating or granting any Lien securing the Senior Indebtedness
shall impair, as between the Secured Party and the Debtor, the obligation of the
Debtor to pay to the Secured Party the amounts due under the Note in accordance
with the terms and the provisions thereof and hereof; nor shall anything herein
prevent the Secured Party from exercising all remedies otherwise permitted by
applicable law, either by suit in equity or by action at law, or both, upon
default under the Note.

      1.3 Lien Documents. As the Secured Party reasonably deems necessary, the
Debtor shall execute and deliver to the Secured Party, or have executed and
delivered:

            (a) Financing Statements. Financing statements, including without
limitation any continuation statements and fixture filings, pursuant to the
Uniform Commercial codes of the applicable jurisdictions in effect at the
applicable times, which the Secured Party shall (and is hereby authorized to)
file or record, as the case may be, in the jurisdiction where the Debtor is
incorporated and in any other jurisdiction that the Secured Party deems
appropriate; and

            (b) Other Agreements. Any other agreements, documents, instruments
and writings as the Secured Party may reasonably request from time to time to
evidence, perfect or protect the Secured Party's Lien and security interest in
the Collateral.

      1.4 Other Actions. In addition to the foregoing, the Debtor shall do
anything further that may be lawfully and reasonably required by the Secured
Party to perfect the security interest and Liens in the Collateral granted
hereunder to the Secured Party, and to preserve the priority of such security
interest and Liens and effectuate the intentions and objects of this Agreement,
including, without limitation, the execution and delivery of continuation
statements, amendments to financing statements, and any other documents required
hereunder. At the Secured Party's request, the Debtor shall also immediately
deliver to the Secured Party all items constituting Collateral for which the
Secured Party must receive possession to obtain a perfected security interest,
including, without limitation, all notes, certificates and documents of title,
Chattel Paper, Instruments, and the Shares, any other similar instruments
constituting Collateral. Notwithstanding the foregoing, Debtor shall not be
obligated to deliver to Secured Party any item constituting collateral that is
in the possession of the holders of the Senior Indebtedness; provided that
Debtor shall exercise commercially reasonable efforts to cause the holder of any
Senior Indebtedness in possession of any item of collateral to hold such item as
agent of Secured Party.

                   SECTION 2 - REPRESENTATIONS AND WARRANTIES

      2.1 The Debtor represents and warrants that:

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            (a) This Agreement is effective to create in favor of the Secured
Party legal, valid and enforceable Liens and security interests in all of the
Debtor's right, title and interest in the Collateral, and when financing
statements have been filed, Secured Party will have a valid and perfected Lien
and security interest in and to the Collateral as to which perfection can be
obtained by the filing of a financing statement, superior in right to any and
all other Liens, existing or future, other than the Permitted Liens.

            (b) The address shown at the beginning of this Agreement is the
current principal place of business of the Debtor, and all of the Debtor's
current additional places of business, if any, and the locations of all of the
Collateral currently are listed in Schedule I attached hereto. The Debtor will
not change its principal or any other place of business, or the location of any
Collateral from the locations set forth in Schedule I, or make any change in the
Debtor's name or conduct the Debtor's business operations under any fictitious
business name or trade name, without, in any such case, at least thirty (30)
days' prior written notice to the Lender.

            (c) The Debtor is the sole owner of and has good and marketable
title to each item of Collateral, free and clear of all Liens other than the
Permitted Liens and the Liens and security interests in the Collateral granted
hereunder to the Secured Party.

            (d) No security agreement, financing statement, equivalent security
or lien instrument on continuation statement covering all or part of the
Collateral is on file or of record in any public office, except (i) as may have
been filed by the Debtor in favor of the Secured Party pursuant to this
Agreement, (ii) as permitted to exist with respect to the Permitted Liens, or
(iii) such documents or instruments which remain on file or of record but which
relate to Liens or security interests which the Debtor hereby represents and
warrants have been fully discharged and terminated.

                              SECTION 3 - COVENANTS

      3.1 The Debtor covenants that until all of its obligations under the Note
are completely and indefeasibly satisfied in full, that:

            (a) The Debtor shall give thirty (30) days prior written notice to
the Secured Party of any change in the location of any Collateral from that set
forth in Schedule I or of any change of its current principal place of business.

            (b) Except for Collateral that is obsolete or no longer used in the
Debtor's business, the Debtor will keep the Collateral in good order and repair
(normal wear excepted) and adequately insured at all times. The Debtor will pay
promptly when due all taxes and assessments on the Collateral or for its use or
operation, except for taxes and assessments contested in good faith and for
which adequate reserves are created. The Secured Party may at its option
discharge any taxes, liens, security interests or other encumbrances to which
any Collateral is at any time subject, and may, upon the failure of the Debtor
to do so in accordance with the terms hereof, purchase insurance on any
Collateral and pay for the repair, maintenance or preservation thereof, and the
Debtor agrees to reimburse the Secured Party on demand for any payments or
expenses incurred by the Secured Party pursuant to the foregoing authorization
and any unreimbursed amounts shall constitute obligations for all purposes
hereof.

                                       4
<PAGE>

            (c) The Debtor will not enter into any transaction with, including,
without limitation, the purchase, sale or exchange of property or the rendering
of any service to any of its affiliates, except in the ordinary course of, and
pursuant to the reasonable requirements of, the Debtor's business and upon fair
and reasonable terms no less favorable to the Debtor than could be obtained in a
comparable arm's-length transaction with an unaffiliated person or entity.

            (d) The Debtor shall advise the Secured Party promptly upon the
Debtor becoming aware that it owns any commercial tort claims. With respect to
any commercial tort claim, the Debtor will execute and deliver such documents as
the Secured Party deems necessary to create, perfect and protect his security
interest and Lien in such commercial tort claim.

                              SECTION 4 - REMEDIES

      4.1 Rights and Remedies on Default. Subject to any and all rights of the
holders of the Debtor's Senior Indebtedness pursuant to the Note, the Secured
Party may, following the occurrence of an Event of Default (as defined in the
Note), exercise rights and remedies of a secured party granted to it under the
Uniform Commercial Code of any applicable jurisdiction and may exercise all
rights and remedies under any other applicable law, including, without
limitation, the following rights and remedies:

            (a) the right to take possession of, send notices, sell and collect
directly all or any part of the Collateral, with or without judicial process
(including, without limitation, the right to notify the United States postal
authority to redirect all mail addressed to the Debtor to an address designated
by the Secured Party);

            (b) by its own means or with judicial assistance, enter the Debtor's
or AIM's premises and take possession of all or any part of the Collateral, or
render it unusable, or dispose of or realize upon all or in part of the
Collateral in any order desired by the Secured Party on such premises without
any liability for rent, storage, utilities or other sums, and the Debtor shall
not resist or interfere with such action; and

            (c) require the Debtor, at the Debtor's expense, to assemble all or
any part of the Collateral and make it available to the Secured Party at any
place designated by the Secured Party.

The Debtor hereby agrees that a notice received by it at least ten (10) days
before the time of any intended public sale or of the time after which any
private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable inventory or Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be sold
immediately by the Secured Party without prior notice to the Debtor. The Secured
Party shall have the right upon any such public sale or sales and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold free of any equity or right of redemption
which the Debtor hereby waives. The Debtor covenants and agrees not to interfere
with or impose any obstacle to the Secured Party's exercise of its rights and
remedies with respect to the Collateral after the occurrence of an Event of
Default.

                                       5
<PAGE>

      4.2 Intellectual Property License. The Debtor hereby assigns, transfers
and conveys to the Secured Party, effective upon the occurrence and during the
continuance of any Event of Default, the non-exclusive right and license to use
all intellectual property owned or used by the Debtor together with any goodwill
associated therewith, all to the extent necessary to enable the Secured Party to
realize on the Collateral and any successor or permitted assign to enjoy the
benefits of the Collateral. This right and license shall insure to the benefit
of all successors, assigns and transferees of the Secured Party, whether by
voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed
in lieu of foreclosure or otherwise. Such right and license is granted free of
charge and does not require the consent of any other person.

      4.3 Nature of Remedies. Subject to any and all rights of the holders of
the Debtor's Senior Indebtedness, the Secured Party shall have the right to
proceed against all or any portion of the Collateral in any order. All rights
and remedies granted the Secured Party hereunder and under any agreement
referred to herein, or otherwise available at law or in equity, shall be deemed
concurrent and cumulative, and not alternative remedies, and the Secured Party
may proceed with any number of remedies at the same time until all existing and
future obligations under the Note are completely and indefeasibly satisfied in
full. The exercise of any one right or remedy shall not be deemed a waiver or
release of any other right or remedy, and the Secured Party, upon the occurrence
of an Event of Default, may proceed against the Debtor, and/or the Collateral,
at any time, under any agreement, with any available remedy and in any order.

                            SECTION 5 - MISCELLANEOUS

      5.1 Notices. All notices, requests, demands or other communications which
are required to be or may be given or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered in person or after
dispatch by a recognized overnight courier to the appropriate party to whom the
same is so given or made:

            To Holder at:   Luis Peragallo
                            53 Willow Ridge Drive
                            Smithtown, New York 11787

            With copies to: Arnold & Porter LLP
                            399 Park Avenue
                            New York, NY 10022
                            Attn: Robert P. Wessely, Esq.
                            Fax: 212-715-1399

            To Company at:  Gales Industries Incorporated
                            333 East 66th Street, 9th Floor,
                            New York, New York 10021

                                       6
<PAGE>

or to such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section. All such notices, requests,
demands or other communications shall be deemed to have been received on the
date of delivery thereof (if delivered by hand) and on the next day after
sending thereof (if by overnight courier).

      5.2 Amendments and Waivers. This Agreement may be amended, modified or
supplemented by the parties hereto, provided that any such amendment,
modification or supplement shall be in writing and signed by both parties. No
waiver with respect to this Agreement shall be enforceable against either party
unless in writing and signed by such party. Except as otherwise expressly
provided herein, no failure to exercise, delay in exercising, or single or
partial exercise of any right, power or remedy by either party, and no course of
dealing between the parties, shall constitute a waiver of, or shall preclude any
other or further exercise of the same or any other right, power or remedy.

      5.3 Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefits of the parties hereto
and their respective successors, heirs and permitted assigns, including without
limitation holders from time to time of the Note.

      5.4 Severability. If any provision of this Agreement is construed to be
invalid, illegal or unenforceable, then the remaining provisions hereof shall
not be affected thereby and shall be enforceable without regard thereto.

      5.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall constitute an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one original counterpart hereof.

      5.6 Section Headings. The section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.

      5.7 Governing Law; Submission to Jurisdiction; Service of Process; Jury
Trial. This Agreement shall be governed by and construed in accordance with the
law of the State of New York without regard to conflict of law provisions. Any
legal suit, action or proceeding arising out of or based upon this Agreement
shall be instituted in any federal or state court only in the City and County of
New York, State of New York. The aforementioned choice of venue is intended to
be mandatory and not permissive in nature, thereby precluding the possibility of
litigation arising out of this Agreement in any jurisdiction other than that
specified in this Section. The Debtor and the Secured Party each waive, to the
fullest extent permitted under applicable law, any right it may have to assert
the doctrine of forum non conveniens or similar doctrine or to object to venue
with respect to any proceeding brought in accordance with this Section, and
stipulates that the state and federal courts located in the City and County of
New York, State of New York, shall have in personam jurisdiction and venue over
them for the purpose of litigation any dispute, controversy or proceeding
arising out of or related to this Note. The Debtor and the Secured Party further
agree that a summons and complaint commencing an action or proceeding in any of
the aforementioned courts shall be properly served and shall confer personal
jurisdiction if served personally or by overnight courier to each party at its
address provided in Section 5.1 hereof.

                                       7
<PAGE>

      5.8 Limitations on the Secured Party's Duty in Respect of the Collateral.
Beyond the safe custody thereof, the Secured Party shall not have any duty as to
the Collateral in his possession or control or in the possession or control of
any of his agents or nominees or any income thereof or as to the preservation of
rights against prior parties or any other rights pertaining thereto. Neither the
Secured Party nor any of his agents shall be liable or responsible for any loss
or damage to any of the Collateral, or for any diminution in the value thereof,
by reason of the act or omission of any warehouse, carrier, forwarding agency,
consignee, broker or other agent or bailee selected by the Debtor or any of its
agents or selected by the Secured Party or any of his agents in good faith.

      5.9 Costs and Expenses. The Debtor shall reimburse the Secured Party for
all reasonable costs and expenses, including without limitation reasonable
attorneys' fees and expenses, incurred in connection with (i) drafting,
negotiating, executing and delivering any amendment, modification or waiver of,
or consent with respect to, any matter relating to the rights of the Secured
Party under this Agreement or the Note; (ii) creating, perfecting and
maintaining perfection of the Liens and security interests in the Collateral in
favor of the Secured Party; and (iii) enforcing any provision of this Agreement
or the Note and/or collecting any amounts due under the Note.

      5.10 Waiver of Presentment. Demand. Etc.. To the fullest extent permitted
by applicable law, the Debtor expressly waives presentment, demand, protest,
notice of dishonor, notice of non-payment, notice of maturity, notice of
protest, presentment for the purpose of accelerating maturity of the obligations
under the Note, diligence in collection, and the benefit of any exemption or
insolvency laws.

      IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed and delivered as of the date first above written.

                                                   DEBTOR:

                                                   GALES INDUSTRIES INCORPORATED

                                                   By: /s/ Michael A. Gales
                                                       -------------------------
                                                   Name: Michael A. Gales
                                                   Title: Executive Chairman

                                                   SECURED PARTY:

                                                   /s/ Luis Peragallo
                                                   ------------------
                                                   Luis Peragallo

                                       8

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