UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
GALES INDUSTRIES INCORPORATED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Gales Industries Incorporated
1479 North Clinton Avenue
Bay Shore, New York 111706
Notice of Annual Meeting of Stockholders
To Be Held on June 12, 2007
May 23, 2007
Dear Stockholder,
You are invited to attend the 2007 Annual Meeting of stockholders to be
held at 10:00 AM on June 12, 2007, at the offices of Eaton & Van Winkle LLP, 3
Park Avenue, 16th floor, New York, New York 10016.
The Annual Meeting will include a report on our business operations,
discussion and voting on the matters set forth in the accompanying notice of
Annual Meeting and proxy statement, and discussion and voting on any other
business matters properly brought before the meeting.
Whether or not you plan to attend, you can be sure your shares are
represented at the meeting by completing, signing, dating and returning your
proxy form in the enclosed envelope. Thank you for your continued support.
Cordially,
James A. Brown
Chairman
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Gales Industries Incorporated
1479 North Clinton Avenue
Bay Shore, New York 111706
Notice of 2007 Annual Meeting of Stockholders
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Gales
Industries Incorporated (the "Company") will be held at the offices Eaton & Van
Winkle LLP, 3 Park Avenue, 16th floor, New York, New York 10016, on June 12,
2007 at 10:00 AM, New York time, for the following purposes, all as more fully
described in the attached Proxy Statement:
(a) the election of seven (7) directors to serve until the next annual
meeting of stockholders and until their respective successors are elected and
qualified;
(b) the ratification of the selection by the Audit Committee of our Board
of Directors of Golub Goldstein & Kessler LLP as the independent registered
public accounting firm for the year ending December 31, 2007;
(c) amend the certificate of incorporation to change our corporate name to
Air Group Industries, Inc.;
(d) adjourn the Annual Meeting to solicit additional proxies in the event
there are insufficient votes to approve any of the foregoing Proposals; and
(e) such other business as may properly come before the Annual Meeting or
any adjournment thereof.
You are cordially invited to attend the meeting in person. You are
requested to date, sign and return the accompanying form of proxy in the
envelope enclosed for that purpose (to which no postage need be affixed if
mailed in the United States) whether or not you expect to attend the meeting in
person. The proxy is revocable by you at any time prior to its exercise and will
not affect your right to vote in person in the event you attend the meeting or
any adjournment thereof. The prompt return of the proxy will be of assistance in
preparing for the meeting and your cooperation in this respect will be
appreciated.
A copy of our Annual Report for the year ended December 31, 2006 is
enclosed.
By Order of the Board of Directors
Stephen M. Nagler
Secretary
Bay Shore, New York
May 23, 2007
Gales Industries Incorporated
1479 North Clinton Avenue
Bay Shore, New York 111706
Proxy Statement
For the Annual Meeting of Stockholders
To Be Held on June 12, 2007
This proxy statement and the accompanying proxy are being furnished in
connection with the solicitation of proxies by our Board of Directors for use in
voting at the 2007 Annual Meeting of Stockholders to be held at the offices of
Eaton & Van Winkle LLP, and any adjournments thereof. Distribution to
stockholders of this proxy statement and a proxy form is scheduled to begin on
or about May 23, 2007 to each stockholder of record at the close of business on
May 17, 2007.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, please take the time to vote your shares of common stock or preferred
stock as soon as possible. You can ensure that your shares are voted at the
meeting by completing, signing, dating and returning the enclosed proxy card in
the envelope provided. Submitting your proxy will not affect your right to
attend the meeting and vote. A stockholder who gives a proxy may revoke it at
any time before it is exercised by voting in person at the Annual Meeting, by
delivering a subsequent proxy or by notifying in writing our corporate
Secretary, at the address listed below, of such revocation.
Information About the Annual Meeting and Proxy Voting
What Matters are to be Voted on at the Annual Meeting?
We intend to present the following proposals for stockholder consideration
and voting at the Annual Meeting:
(1) the election of seven (7) directors to serve until the next annual
meeting of stockholders and until their respective successors are
elected and qualified;
(2) the ratification of the selection by the Audit Committee of our
Board of Directors of Golub Goldstein & Kessler LLP as the
independent registered public accounting firm for the year ending
December 31, 2007;
(3) amend our certificate of incorporation to change our corporate name
to Air Industries Group, Inc.;
(4) adjourn the Annual Meeting to solicit additional proxies in the
event there are insufficient votes to approve any of the foregoing
Proposals; and
(5) such other business as may properly come before the Annual Meeting
or any adjournment thereof.
What is the Board's Recommendation?
The Board of Directors recommends votes FOR items 1, 2, 3 and 4 on your
proxy card.
Will Any Other Matters be Presented for a Vote at the Annual Meeting?
The Board of Directors did not receive any notice prior to the deadline
for submission of additional business that any other matters might be presented
for a vote at the Annual Meeting. However, if another matter were to be properly
presented, the proxies would use their own judgment in deciding whether to vote
for or against it.
Who is Entitled to Vote?
Our voting securities consist of our series B convertible preferred stock
and our common stock. All stockholders of record of our series B convertible
preferred stock or common stock at the close of business on May 17, 2007 are
entitled to vote at the Annual Meeting. Holders of our series B convertible
preferred stock and holders of our common stock on that date will vote together
as a single class on all of the matters described above. Each share of common
stock will be entitled to one vote and each share of series B convertible
preferred stock will be entitled to 36 votes, representing that number of votes
that the holder would have if that share had been converted into common stock on
May 17, 2007.
As of the close of business on May 17, 2007, we had outstanding of record
57,780,604 shares of common stock and 802,300 shares of series B convertible
preferred stock. The total number of votes that may be cast at the Annual
Meeting is 86,786,374, representing the total number of shares of common stock
that we would have outstanding on that date if all of those shares of series B
convertible preferred stock had been converted into common stock on that date.
If you are the beneficial owner, but not the record owner, of our series B
convertible preferred stock or common stock, you will receive instructions about
voting from the bank, broker or other nominee that is the stockholder of record
of your shares. Contact your bank, broker or other nominee directly if you have
questions.
Who can Attend the Annual Meeting?
Only stockholders of record of our common stock or series B convertible
preferred stock, or their duly appointed proxies, are entitled to attend the
Annual Meeting.
If a bank, broker or other nominee is the record owner of your
shares, you will need to have proof that you are the beneficial owner to be
admitted to the Annual Meeting. A recent statement or letter from your bank or
broker confirming your ownership, or presentation of a valid proxy from a bank,
broker or other nominee that is the record owner of your shares, is acceptable
proof of your beneficial ownership.
How do I Vote my Shares?
o Stockholders of record may grant a proxy with respect to their
shares by mail
o Voting instructions appear on your proxy card.
o If you are a stockholder of record or a duly appointed proxy of a
stockholder of record, you may attend the Annual Meeting and vote in
person. However, if your shares are held in the name of a bank,
broker or other nominee, and you wish to attend the Annual Meeting
to vote in person, you will have to contact your bank, broker or
other nominee to obtain its proxy. Bring that document with you to
the meeting.
o Proxies submitted by mail will be voted in the manner you indicate
by the individuals named on the proxy. If you do not specify how
your shares are to be voted, the proxies will vote your shares FOR
Proposals 1, 2, 3 and 4.
May I Change or Revoke my Proxy After it is Submitted?
Yes, you may change or revoke your proxy at any time before the Annual
Meeting by:
o returning a later-dated proxy card;
o attending the Annual Meeting and voting in person; or
o sending your written notice of revocation to Stephen M. Nagler, our
corporate Secretary, at the address listed below..
Your changed proxy or revocation must be received before the polls close
for voting.
What is a "Quorum?"
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In order for business to be conducted at the Annual Meeting, a quorum must
be present. A quorum will be present if stockholders of record holding a
majority in voting power of the outstanding shares of our series B convertible
preferred stock and common stock entitled to vote at the Annual Meeting are
present in person or are represented by proxies.
What Vote is Necessary to Pass the Items of Business at the Annual
Meeting?
Holders of our common stock and series B convertible preferred stock will
vote as a single class on each matter to be presented at the Annual Meeting.
Each share of common stock will be entitled to one vote and each share of series
B convertible preferred stock will be entitled to 36 votes, representing that
number of votes that the holder would have if that share had been converted into
common stock on May 17, 2007. The seven (7) nominees for director receiving a
plurality of the votes cast by holders of our series B convertible preferred
stock and common stock at the Annual Meeting, in person or by proxy, will be
elected to our Board. The favorable vote of a majority of our outstanding shares
entitled to vote at the Annual Meeting, in person or by proxy, is required to
approve the proposal to change our corporate name. The holders of a majority of
shares voted at the Annual Meeting, in person or by proxy, is required for
approval of all the remaining matters.
How are Abstentions and Broker Non-Votes Counted?
Abstentions and broker non-votes will be counted to determine whether a
quorum is present. However, if a stockholder abstains from voting as to a
particular matter, those shares will not be counted as voting for or against
that matter. If a broker or other record holder of shares returns a proxy card
indicating that it does not have discretionary authority to vote as to a
particular matter ("broker non-votes"), those shares will not be counted as
voting for or against that matter. Accordingly, abstentions and broker non-votes
will have no effect on the outcome of a vote.
What is the Deadline for Submission of Stockholder Proposals for the 2008
Annual Meeting?
Proposals that our stockholders may wish to include in our proxy statement
and form of proxy for presentation at our 2008 annual meeting of stockholders
must be received by or delivered to us at our executive offices, 1479 North
Clinton Avenue, Bay Shore, New York 111706 Attention: Secretary, no later than
January 24, 2008. Any stockholder proposal must be made in accordance with the
rules and regulations of the Securities and Exchange Commission and must
constitute a proper matter for stockholder action.
Where can I Find the Voting Results of the Annual Meeting?
The preliminary voting results will be announced at the Annual Meeting.
The final results will be published in our quarterly report on Form 10-QSB for
the quarter ending June 30, 2007.
May I Request Electronic Delivery of My Proxy Statement and Annual Report?
This Proxy Statement and our Annual Report on Form 10-KSB may be viewed
online at the website maintained by the SEC for reporting companies at
www.sec.gov. Should you choose to receive your proxy materials electronically,
your choice will remain in effect until you notify us that you wish to resume
mail delivery of these documents. To request electronic delivery, please contact
our Secretary using the information provided under "How do I communicate
directly with Gales Industries Incorporated?" below.
If you hold your shares of stock through a bank, broker or other holder of
record, refer to the information provided by that entity for instructions on how
to elect this option.
How can I Get a Copy of Gales Industries Annual Report on Form 10-KSB?
To obtain without charge a copy of Gales Industries Annual Report on Form
10-KSB for the year ended December 31, 2006, address your request to our
executive offices, 1479 North Clinton Avenue, Bay Shore, New York 111706
Attention: Secretary. The annual report on Form 10-KSB also may be accessed at
the website maintained by the SEC at www.sec.gov.
3
Information About Communication with Us and our Board of Directors
How may I Communicate Directly with the Board of Directors?
The Board provides a process for stockholders to send communications to
the Board. You may communicate with the Board, individually or as a group, as
follows:
BY MAIL: to our Board of Directors at our executive offices, 1479 North
Clinton Avenue, Bay Shore, New York 111706, Attn: Secretary
BY TELEPHONE: at 1-631-968-5000.
You should identify your communication as being from a stockholder. The
Secretary may require reasonable evidence that your communication or other
submission is made by a stockholder before transmitting your communication to
the Board.
How may I Communicate Directly with the Non-Employee Directors?
You may communicate with the non-employee directors of the Board,
individually or as a group, by any of the means set forth above or by writing
to:
Non-Employee Directors of the Board of Directors, at our executive
offices, 1479 North Clinton Avenue, Bay Shore, New York 111706 Attention:
Secretary.
How do I Communicate Directly with the Company?
You may communicate with us by writing to: our Secretary at our executive
offices, 1479 North Clinton Avenue, Bay Shore, New York 111706.
Who will pay the expenses related to the Annual Meeting?
We are responsible for, and will pay, all expenses that we incur in
connection with the Annual Meeting, including the costs associated with the
preparation, printing and mailing of this proxy statement and the solicitation
of proxies.
Security Ownership
The following table sets forth information known to us regarding
beneficial ownership of our series B convertible preferred stock and our common
stock as of May 17, 2007 by (i) each person known by us to own beneficially more
than 5% of the outstanding shares of each of those classes, (ii) each of our
directors, nominees for director, and executive officers, and (iii) all of our
officers and directors as a group. Except as otherwise indicated, we believe,
based on information provided by each of the individuals named in the table
below, that such individuals have sole investment and voting power with respect
to such shares, subject to community property laws, where applicable.
As of May 17, 2007, we had outstanding 802,300 shares of our series
B convertible preferred stock and 57,780,604 shares of our common stock. Each
share of series B convertible preferred stock is convertible into 36 whole
shares of our common stock. If all of our series B convertible preferred stock
had been converted at the close of business on May 17, 2006, we would have had
outstanding 86,786,374 shares of common stock.
4
Name Number of Shares Percent of Class
---- Series B Preferred Common* Series B Preferred Common*
------------------ ------- ------------------ -------
Owner of More than 5% of Class
Michael A. Gales -- 5,326,219 -- 9.03%
333 East 66th Street
New York, NY 10022
Hillson Partners LP(2)
Hillson Private Partners II, LLLP(2) 130,000 4,680,000 16.21% 7.50%
110 N. Washington Street, Suite 401
Rockville, MD 20850
Directors and Executive Officers
Louis A. Giusto -- 3,884,538(3) -- 6.67%
Peter Rettaliata -- 1,468,139(4) -- 2.53%
Dario Peragallo -- 1,468,139(5) -- 2.53%
Seymour G. Siegel -- 133,333(6) -- **
Ira A. Hunt, Jr -- 842,430(6)(7) -- 1.46%
Stephen M. Nagler 178,788(6)(8) -- **
James A. Brown -- 709,601(6) -- 1.23%
Nominees
David J. Buonanno -- -- -- --
All Directors and officers as 8,684,968(3)(4)(5)(6)(7)(8) -- 14.73%
a group (7 persons)
* Assumes the conversion of the shares of series B convertible preferred stock
owned by the stockholder listed in the table, but not by any other holder.
** Less than 1%
(1) Includes 1,250,000 shares we may issue to Mr. Gales upon exercise of options
granted under his employment agreement that pursuant to his separation agreement
are exercisable until March 16, 2008.
(2) The general partner of Hillson Partners LP and Hillson Private Partners II,
LLLP is Daniel H. Abramowitz, who has the sole power to vote and dispose of the
shares.
(3) Includes 480,000 shares we may issue to Mr. Giusto upon exercise of the
vested portion of the 1,200,000 options granted to him under his employment
agreement.
(4) Includes 300,000 shares we may issue to Mr. Rettaliata upon exercise of the
vested portion of the 1,200,000 options granted to him under his employment
agreement.
(5) Includes 300,000 shares we may issue to Mr. Peragallo upon exercise of
vested portion of the 1,200,000 options granted to him under his employment
agreement.
(6) Includes, in each case, 33,333 shares we may issue to Messrs. Brown, Hunt,
Nagler and Siegel upon exercise of the vested portion of the 100,000 options
granted to each of them on February 13, 2007.
(7) Includes 709,097 shares owned by Mr. Hunt's spouse.
(8) Includes 45,455 shares we may issue to Mr. Nagler upon exercise of warrants.
Does not include 150,000 shares held by Eaton & Van Winkle LLP, a law firm of
which Mr. Nagler is a partner.
5
Proposal 1:
Election of Directors
At the Annual Meeting, the seven (7) nominees named below are to be
elected as directors to hold office until the 2008 Annual Meeting and until
their successors have been elected and have qualified. All of the nominees,
other than David J. Buonanno, have been members of our Board since November 30,
2005. If elected, Mr. Buonanno will replace Stephen M. Nagler as a member of our
Board of Directors.
All of the nominees named below have been nominated by our Board to be
elected by our stockholders. We are not aware of any reason why any nominee
would be unable to serve as a director. If a nominee is unable to serve, the
shares represented by all valid proxies will be voted for the election of any
other person that our Board may nominate.
Our Board of Directors recommends that holders of our voting securities vote for
the election of each of the following nominees:
James A. Brown, age 54, became our Chairman on March 17, 2007, following
his appointment as Co-Chairman on February 13, 2007. Mr. Brown was Chief
Executive Officer and Secretary of our predecessor, Ashlin Development
Corporation, from September 2004 to November 30, 2005 and was Ashlin's Chairman
of the Board from May 2003 to November 30, 2005. Ashlin filed for bankruptcy
protection while Mr. Brown was its Chairman and CEO. Mr. Brown currently serves
in a Board or advisory capacity with other firms, including Preferred Commerce,
a privately held, seven year old technology solutions provider headquartered in
West Palm Beach. Mr. Brown also advises a development stage Florida- based firm
focused on bringing scientific breakthroughs in the acoustic arena to the
consumer market. Mr. Brown has served as a private equity manager, targeting
undervalued opportunities in both the public and private arenas. He has also
served as a work-out specialist for firms at the behest of creditors, management
and investors. Mr. Brown has advised more than thirty firms on matters including
strategy, corporate finance and business process.
Louis A. Giusto, age 64, has been our Vice Chairman, Chief Financial
Officer and Treasurer since November 30, 2005. Mr. Giusto has over 30 years of
financial control experience with foreign and domestic banks, non-bank financial
service entities and consumer product companies. From 2003 to November 2005, Mr.
Giusto acted as an independent consultant to a number of private businesses.
From 2000 to 2003, Mr. Giusto was an Account Manager for a public accounting
firm and the SVP Finance and Operations of Credit2B.com, a web-based internet
company. Before joining C2B, Mr. Giusto served for fourteen years in various
positions with Fleet Bank and, prior to its acquisition by Fleet Bank, NatWest
PLC, London. During his tenure at NatWest, Mr. Giusto served as Senior Financial
Officer and Treasurer of NatWest Commercial Services, Inc. (a billion dollar
wholly owned subsidiary of NatWest PLC, London) and a Credit Administrator (Risk
Manager) with Fleet Bank. Mr. Giusto serves as a director of Long Island
Consultation Center, a not-for-profit psychiatric care facility. Mr. Giusto
graduated from New York University with a BS in Economics and Accounting and
from Long Island University (with Distinction) with an MBA in Finance.
Peter Rettaliata, age 56, has been our President and Chief Executive
Officer since November 30, 2005. He also has been the President of our
wholly-owned subsidiary, Air Industries Machining Corp., referred to as AIM,
since 1994. Prior to his involvement at AIM, Mr. Rettaliata was employed by
Grumman Aerospace Corporation for twenty-two years. Professionally, Mr.
Rettaliata is the Chairman of "ADAPT", an organization of regional aerospace
companies, a past member of the Board of Governors of the Aerospace Industries
Association, and a member of the Executive Committee of the AIA Supplier
Council. He is a graduate of Niagara University where he received a B.A. in
History and the Harvard Business School where he completed the PMD Program.
Dario Peragallo, age 42, has been our Executive Vice President since
November 30, 2005 and is also Executive Vice President of Manufacturing for AIM.
Mr. Peragallo has been associated with AIM for over 25 years. He became AIM's
Director of Manufacturing in 2000. In addition, he has helped develop and
maintain AIM's current business systems. Mr. Peragallo has been the company
"Lean Advocate" since the inception of the program at AIM to decrease its
inventory and increase productivity. Mr. Peragallo became Executive Vice
6
President with overall responsibility for engineering, manufacturing and
customer-critical technical matters in 2003. He has been an active member of
Diversity Business since 2000, an organization specializing in the promotion of
small and minority owned businesses. He is a graduate of SUNY Farmingdale where
he received a B.A. in Manufacturing Engineering. Mr. Peragallo oversees all
engineering and production matters relating to AIM.
Seymour G. Siegel, age 64, has been a principal in the Business Consulting
Group of Rothstein, Kass & Company, P.C., a national firm of accountants and
consultants since April 2000. He specializes in providing strategic advice to
business owners including mergers and acquisitions; succession planning; capital
introductions and long range planning. In 1974, Mr. Siegel founded, and from
1974 to 1990 was managing partner of, Siegel Rich and Co, P.C., CPAs. In 1990,
Siegel Rich merged into Weiser LLP, then known as M.R.Weiser & Co., LLC, a large
regional firm where he had been a senior partner. In 1995, Mr. Siegel founded
another firm called Siegel Rich, which became a division of Rothstein, Kass in
April 2000. Mr. Siegel has been a director, trustee and officer of numerous
businesses, philanthropic and civic organizations. He serves as a director and
audit committee chairman of Hauppauge Digital Inc. and Emerging Vision
Incorporated and has served in a similar capacity at Oak Hall Capital Fund,
Prime Motor Inns Limited Partnership, Noise Cancellation Technologies and
Barpoint.com and serves as the chairman of the audit committee and as a member
of the compensation committee for Global Aircraft Solutions Incorporated. Mr.
Siegel is the Chairman of the Audit Committee of the Board.
General Ira A. Hunt, Jr. (USA, Ret), age 81, graduated from the United
States Military Academy in 1945 and subsequently served thirty-three years in
various command and staff positions in the U.S. Army, retiring from active
military service as a Major General in 1978. His last military assignment was as
Director of the Office of Battlefield Systems Integration. Subsequently, General
Hunt was president of Pacific Architects and Engineers in Los Angeles and Vice
President of Frank E. Basil, Inc. in Washington, D.C. Since 1990, General Hunt
has been a director of SafeNet Inc. (Nasdaq: SFNT), an information security
technology company. He is a Freeman Scholar of the American Society of Civil
Engineers and has a M.S. in Civil Engineering from the Massachusetts Institute
of Technology, a M.B.A. from the University of Detroit; a Doctor of the
University Degree from the University of Grenoble, France and a Doctor of
Business Administration Degree from the George Washington University. General
Hunt is Chairman of the Compensation Committee of our Board and is a member of
the Audit Committee.
David J. Buonanno, age 51, is a consultant to Dresser-Rand Corporation as
well as other companies in the aerospace and defense industries. Mr. Buonanno
has extensive experience in manufacturing, supply management and operations. He
was employed by Sikorsky Aircraft, Inc., a subsidiary of United Technologies
Corporation, as Vice President, Supply Management (from January 1997 to July
2006) and as Director, Systems Subcontracts (from November 1992 to January
1997). From May 1987 to November 1992, he was employed by General Electric
Company and GE Astro Space, serving as Operations Manager for GE in 1992 and
Manager, Program Materials Management of GE Astro Space from December 1989 to
January 1992. From June 1977 to May 1987, he was employed by RCA and affiliated
companies, including RCA Astro Space. Mr. Buonanno attended Lehigh University
College of Electrical Engineering and holds a B.S. in Business Administration
from Rutgers University. He completed the Program for Management Development at
Harvard Business School in 1996.
Information Concerning the Board of Directors,
Board Committees and Corporate Governance
Board Composition
Our Board of Directors consists of seven (7) directors. Our Board has
determined that James A. Brown, Seymour G. Siegel and General Ira A. Hunt, Jr.
(USA Ret) are "independent directors." Our Board held five meetings in 2006.
Committees of the Board
Our Board of Directors has established an Audit Committee and a
Compensation Committee.
During 2006, each of the members of our Board of Directors attended at
least 75% of the total meetings of the Board and committees on which he served.
7
Audit Committee. Our Audit Committee is responsible for preparing reports,
statements and charters required by the federal securities laws, as well as:
o overseeing and monitoring the integrity of our consolidated
financial statements, our compliance with legal and regulatory
requirements as they relate to financial statements or accounting
matters, and our internal accounting and financial controls;
o preparing the report that SEC rules require be included in our
annual proxy statement;
o overseeing and monitoring our independent registered public
accounting firm's qualifications, independence and performance;
o providing the Board with the results of our monitoring and
recommendations; and
o providing to the Board additional information and materials as it
deems necessary to make the Board aware of significant financial
matters that require the attention of the Board.
Messrs. Siegel and Brown and General Hunt are members of the Audit
Committee, each of whom is a non-employee member of the Board of Directors. Mr.
Siegel serves as Chairman of the Audit Committee and also qualifies as an "audit
committee financial expert," as that term is defined under the SEC rules
implementing Section 407 of the Sarbanes-Oxley Act. The Board has determined
that each member of our Audit Committee meets the current independence and
financial literacy requirements under the Sarbanes-Oxley Act and SEC rules and
regulations. Our Audit Committee met four times in 2006. The charter of the
Audit Committee is annexed as Exhibit A to this proxy statement.
Compensation Committee. Our Compensation Committee is composed of General
Hunt (Chairman), and Messrs. Siegel and Brown, each of whom is a non-employee
member of our Board of Directors. Our Compensation Committee met once in 2006.
The Compensation Committee is responsible for, among other things:
o reviewing and approving for the chief executive officer and other
executive officers (a) the annual base salary, (b) the annual
incentive bonus, including the specific goals and amount, (c) equity
compensation, (d) employment agreements, severance arrangements and
change in control arrangements, and (e) any other benefits,
compensations, compensation policies or arrangements;
o reviewing and making recommendations to the Board regarding the
compensation policy for such other officers as directed by the
Board;
o preparing a report to be included in our annual proxy statement, if
required under applicable rules of the SEC and any exchange or
automated quotation service that lists our securities, or through
whose facilities our securities are traded, that describes: (a) the
criteria on which compensation paid to the chief executive officer
for the last completed fiscal year is based; (b) the relationship of
such compensation to our performance; and (c) the committee's
executive compensation policies applicable to executive officers;
and
o acting as administrator of our current benefit plans and making
recommendations to the Board with respect to amendments to the
plans, changes in the number of shares reserved for issuance
thereunder and regarding other benefit plans proposed for adoption.
The information contained in this proxy statement with respect to the
charter of our Audit Committee, our Compensation Committee and the independence
of the non-management members of our Board of Directors shall not be deemed to
be "soliciting material" or to be "filed" with the SEC, nor shall the
information incorporated by reference into any future filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that we specifically incorporate it by reference in a filing.
8
Code of Ethics
We have adopted a written code of ethics that applies to our principal
executive officers, senior financial officers and persons performing similar
functions. Upon written request to our corporate secretary, we will provide you
with a copy of our code of ethics, without cost.
Director Compensation
For services rendered from the commencement of their terms through our
next annual meeting of stockholders, each of the then non-management directors
(Mr. Brown, General Hunt, Mr. Siegel and Mr. Nagler) was granted an option to
purchase 100,000 shares of the our common stock. These options vest in equal
increments on March 1 of each of 2007, 2008 and 2009 and are exercisable at a
price of $0.27 per share for a period of seven years from the date of grant.
For their services, we will pay each non-management director a base fee of
$18,000 per year and $1,500 for each Board meeting attended. In addition, we
will pay the Chairman of the Audit Committee $12,000 for serving in that
capacity, members of the Audit Committee $1,000 for each meeting attended, and
the Chairman of the Compensation Committee $6,000 for serving in that capacity.
Beginning in December 2006 and continuing into 2007, we paid Mr. Rounsevelle W.
Schaum fees for certain per diem services to our company that are included in
the table below. Our Board accepted the resignation of Mr. Schaum effective as
of April 13, 2007.
The following table sets forth information concerning the compensation we
paid to our directors during the fiscal year ended December 31, 2006:
--------------------------------------------------------------------------------------------------------------------------------
DIRECTOR COMPENSATION
--------------------------------------------------------------------------------------------------------------------------------
Name Fees Earned Stock Option Non-Equity Non-Qualified All Other Total
or Paid in Awards ($) Awards Incentive Plan Deferred Compensation ($)
Cash ($) ($) Compensation Compensation ($)
($) Earnings ($)
--------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (j)
--------------------------------------------------------------------------------------------------------------------------------
Michael A. Gales (1) -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
James A. Brown 15,831 -- -- -- -- -- 15,831
--------------------------------------------------------------------------------------------------------------------------------
Louis A. Giusto -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Meter D. Rettaliata -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Dario A. Peragallo -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Stephen M. Nagler (2 ) 15,831 -- -- -- -- -- 15,831
--------------------------------------------------------------------------------------------------------------------------------
Seymour G. Siegel 24,231 -- -- -- -- -- 24,231
--------------------------------------------------------------------------------------------------------------------------------
Rounsevelle W 23,231 -- -- -- -- -- 24,231
--------------------------------------------------------------------------------------------------------------------------------
Schaum (3) 26,498(1) -- -- -- -- -- 26,498(1)
--------------------------------------------------------------------------------------------------------------------------------
M.Gen. Ira A Hunt, Jr -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
(USA Ret.) 15,831 -- -- -- -- -- 15,831
--------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Gales resigned as a member of the Board on March 16, 2007.
(2) Mr. Nagler is not standing for re-election to the Board, and his
term as a director will end, at the Annual Meeting.
(3) Our Board accepted the resignation of Mr. Schaum effective as of
April 13, 2007.
9
Compensation of Our Executive Officers
The following table shows compensation which we (including AIM)
awarded or paid to, or which was earned from us, in all capacities for
fiscal years ended December 31, 2006 and 2005, by (i) each individual who
served as our chief executive officer for all, or a portion of, 2006 and
(ii) each other individual who served as an executive officer of our
company (including AIM) and received total compensation in excess of
$100,000 for our 2006.
o Michael A. Gales, our former Executive Chairman, who resigned
all of his positions with us as of March 16, 2007;
o Louis A. Giusto, our Vice Chairman, Chief Financial Officer
and Treasurer since November 30, 2005;
o Peter D. Rettaliata, our Chief Executive Officer and President
since November 30, 2005 and an officer of AIM; and
o Dario A. Peragallo, our Executive Vice President since
November 30, 2005 and an officer of AIM.
Summary Compensation Table
--------------------------
Name Year Salary Bonus Stock Option Non-Equity Change in All Other Total
and ($) ($) Awards Awards Incentive Plan Pension Value Compensation Compensation
Principal ($) ($) Compensation and Nonqualified
Position ($) Deferred
Compensation
Earnings ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
------------------------------------------------------------------------------------------------------------------------------------
Michael 2006 $250,000 -- -- 52,888(1) -- -- 15,938(2) $318,826
A.Gales, 2005 $ 21,233(1) -- -- 38,384(1) -- -- -- 59,617
Executive
Chairman
Louis A 2006 $230,000 -- -- 50,772(1) -- -- 14,768(2) 295,540
Giusto, 2005 $ 19,534(2) -- -- 36,850(1) -- -- -- 56,384
Vice
Chairman,
CFO and
Treasurer
Peter D 2006 $230,000 -- -- 31,733(1) -- -- -- 261,733
Rettaliatta 2005 $241,510 -- -- 23,031(1) -- -- -- 265,541
CEO
Dario A 2006 $230,000 -- -- 31,773(1) -- -- -- 261,733
Peragallo 2005 $242,344 23,031(1) -- -- -- 265,375
Executive VP
----------
(1) Consists of stock options to purchase shares of common stock, the
vesting schedule and other terms of which are set forth in the
footnotes to the table below under the caption "Aggregated Option
Exercises in Last Fiscal Year and Fiscal Year-End Option Values".
(2) Consists of automobile leasing, maintenance, parking and insurance.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information as of December 31, 2006,
concerning outstanding equity awards granted to the individuals listed in the
Summary Compensation Table. We did not grant options, or make stock awards, to
any of our executive officers in 2006.
10
Outstanding Equity Awards at Fiscal Year-End
Option Awards Stock Awards*
------------- -------------
Equity Incentive Equity Incentive
Plan Awards: Plan Awards:
Unearned Shares,
Number Number of Securities Shares or Units of Units or Other
of Securities Underlying Stock that have Rights that have
Underlying Unexercised Not Vested Not Vested
Unexercised Options Unearned Options Exercise Expiration ---------- ----------
Name Exercisable Unexercisable (#) Price Date Number Market Value Number Market Value
----------- ------------- ---------------- ----- ---- ------ ------------ ------ ------------
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
Michael A. Gales (1) 500,000 750,000 -- (1) 03/16/2008 -- -- -- --
Louis A. Giusto (2) 480,000 720,000 -- (2) 11/30/2015 -- -- -- --
Peter D. Rettaliata (3) 300,000 900,000 -- (3) 11/30/2015 -- -- -- --
Dario A. Peragallo (3) 300,000 900,000 -- (3) 11/30/2015 -- -- -- --
----------
* On December 29, 2006, the last trading day of 2006, the last sale price of a
share of our common stock was $0.25.
(1) Represents options granted to Mr. Gales pursuant to his employment
agreement. One-fifth of these options vested as of November 30, 2005 at an
exercise price of $0.22 per share and another 250,000 vested on September 15,
2006 at an exercise price of $0.428 per share. Mr. Gales terminated his
employment with us and his employment agreement effective March 16, 2007. Under
the terms of his separation agreement, 750,000 options vested on March 16, 2007,
and all of his options are exercisable through March 16, 2008.
(2) One-fifth of these options vested as of November 30, 2005 at an exercise
price of $0.22 per share and another 240,000 vested on September 15, 2006 at an
exercise price of $0.428 per share. The balance will vest in equal increments of
240,000 shares each on the second through fourth anniversaries of September 15,
2005. The exercise price of the options vesting on each of September 15, 2007,
2008 and 2009 will be the higher of (a) $0.22 per share or (b) the average
trading price of our common stock for the thirty trading days ending September
15, 2007, 2008 and September 15, 2009, respectively.
(3) One-eighth of these options vested as of November 30, 2005 at an exercise
price of $0.22 per share and another 150,000 vested on September 15, 2006, at an
exercise price of $0.428 per share. The balance will vest in equal increments of
150,000 shares each on the second through seventh anniversaries of September 15,
2005. The exercise price of the options vesting on each of September 15, 2007,
2008, 2009, 2010, 2011 and 2012 will be the higher of (a)$0.22 per share or (b)
the average trading price of our common stock for the thirty trading days ending
September 15, 2007, 2008, 2009, 2010, 2011 and September 15, 2012, respectively.
11
Equity Compensation Plan Information
The following table provides certain information with respect to all of
our equity compensation plans in effect as of December 31, 2006.
Remaining Available
Number of Securities Weighted-Average for Issuance under
to be Issued upon Exercise Exercise Price of Equity Compensation Plans
of Oustanding Options, Outstanding Options, (Excluding Securities
Warrants and Rights Warrants and Rights Reflected to Column (a))
(a) (b) (c)
Plan Category -------------------------- ------------------- -------------------------
Equity compensation
plans approved by
security holders None $ -- --
Equity compensation
plans not approved
by security holders (1) 9,030,436 $.23 5,150,000
Total (1) 9,030,436 $.23 5,150,000
----------
(1) Shareholder approval of our 2005 Stock Incentive Plan was completed as of
February 15, 2006. In connection with our merger, our Board adopted our 2005
Stock Incentive Plan, and issued stock options to purchase 4,850,000 shares to
our new executive officers. The vesting and exercise prices of the 4,850,000
options which we have granted to our executive officers are set forth under the
section captioned "Executive Compensation - Outstanding Equity Awards at Fiscal
Year-End." As of December 31, 2006, 5,150,000 shares remained available for
grant under our 2005 Stock Incentive Plan.
Of the 9,030,346 shares included above, (i) 4,138,678 shares may be
acquired upon exercise of warrants issued to GunnAllen Financial, Inc., at
exercise price of $0.22 per share, and (ii) 41,668 shares may be acquired upon
exercise of warrants issued to an investor relations firm, at a weighted average
price of $0.70 per share.
Employment Agreements
The employment agreement of Louis Giusto became effective as of November
30, 2005 and will terminate on Novenmer 30, 2010, but will be extended for
successive three one-year renewal periods unless he or our company decides not
to extend the agreement. Under his employment agreement, Mr. Giusto will receive
an annual base salary of $230,000, which will increase a minimum of 10% per year
if our operating profits have increased by at least 5% over the preceding
12-month period. Mr. Giusto will be entitled to an annual bonus to be determined
by our Board of Directors but which must equal at least 50% of his annual base
salary. If he is dismissed without cause, Mr. Giusto is entitled to receive
salary and benefits for the period which is the greater of the remaining initial
term (or renewal period, as the case may be) of his employment agreement or one
year. In addition, upon the execution of his employment agreement, we granted
Mr. Giusto options to purchase 1,200,000 shares of common stock, exercisable
over a ten-year period commencing on the date of grant. See the applicable
footnote to the table captioned "Outstanding Equity Awards at Fiscal Year-End".
Mr. Giusto's employment agreement also contains restrictive covenants
prohibiting Mr. Giusto (i) from directly or indirectly competing with us, (ii)
from soliciting any customer of our company or AIM for any competitive purposes
and (iii) from employing or retaining any employee of our company or AIM or
soliciting any such employee to become affiliated with any entity other than our
company or AIM during the twelve-month period commencing upon the termination of
his agreement.
12
The employment agreement of Peter D, Rettaliata became effective as of
November 30, 2005, and will terminate on November 30, 2010, but will be extended
for successive three one-year periods unless he or our company decides not to
extend the agreement. Under his employment agreement, Mr. Rettaliata will
receive an annual base salary of $230,000, which will increase a minimum of 5%
per year if our operating profits have increased by at least 5% over the
preceding 12-month period, and such bonus compensation as the Board of Directors
may determine. The terms of Mr. Rettaliata's employment agreement relating to
severance upon termination without cause are the same as those provided for in
Mr. Giusto's employment agreement. In addition, upon the execution of his
employment agreement, we granted Mr. Rettaliata options to purchase 1,200,000
shares of common stock, exercisable over a ten-year period commencing on the
date of grant. Please see the applicable footnote to the table captioned
"Outstanding Equity Awards at Fiscal Year-End". Mr. Rettaliata's employment
agreement also contains the restrictive covenants included in Mr. Giusto's
employment agreement, discussed above.
The employment agreement of Dario A. Peragallo became effective as of
November 30, 2005, and will terminate on November 30, 2010, but will be extended
for successive three one-year periods, unless he or our company decides not to
extend the agreement. Under his employment agreement, Mr. Peragallo will receive
an annual base salary of $230,000, which will increase a minimum of 5% per year
if our operating profits have increased by at least 5% over the preceding
12-month period, and such bonus compensation as the Board of Directors may
determine. The terms of Mr. Peragallo's employment agreement relating to
severance upon termination without cause are the same as those provided for in
Mr. Giusto's employment agreement. In addition, upon the execution of his
employment agreement, we granted Mr. Peragallo options to purchase 1,200,000
shares of common stock, exercisable over a ten-year period commencing on the
date of grant. The vesting schedule and exercise price relating to Mr.
Peragallo's options are the same as those relating to Mr. Rettaliata's options
set forth above. Mr. Peragallo's employment agreement also contains the
restrictive covenants included in Mr. Giusto's employment agreement, discussed
above.
We have agreed with GunnAllen Financial, Inc., placement agent for our
private placement of series A convertible preferred stock, that during the two
year period following the completion of that offering, without its prior consent
we will not change or modify the employment agreements with, or grant more stock
options to, Messrs. Giusto, Rettaliata and Peragallo.
In March 2007, we entered into an agreement with James A. Brown for his
service as Chairman of our company. Under the agreement, we have paid Mr. Brown
$15,000 and we will compensate him at a rate of $175,000 per annum until
December 31, 2007, or until such date as he shall cease to serve as Chairman. In
addition to his cash compensation, we issued to Mr. Brown, under a Restricted
Stock Agreement, 200,000 shares of our common stock, of which 100,000 shares
became vested on March 30, 2007and the second 100,000 will vest as of December
31, 2007.
Prior to March 16, 2007, we employed Michael A. Gales under an employment
agreement effective November 30, 2005. We entered into a Separation Agreement
and General Release with Mr. Gales, effective March 16, 2007, under which Mr.
Gales resigned from his positions with our company. Under the separation
agreement, our employment agreement with Mr. Gales was terminated effective
March 16, 2007. In lieu of the compensation payable to Mr. Gales under his
employment agreement, from March 16, 2007, to November 30, 2010, we will pay Mr.
Gales $100,000 per annum, and from December 1, 2010 to May 31, 2011, we will pay
him $50,000. In addition, if we achieve certain agreed-upon levels of
performance, he may receive up to an additional $50,000. Upon the execution of
his employment agreement we granted Mr. Gales options to purchase 1,250,000
shares of our common stock, subject to an agreed upon vesting schedule and
exercisable over a ten-year period commencing on the date of grant. Under the
separation agreement, all unvested options held by Mr. Gales vested as of March
16, 2007, and the right to exercise all of his options will terminate as of
March 16, 2008.
Certain Relationships and Related Transactions
On November 30, 2005, in connection with our acquisition of Air Industries
Machining, Corp. ("AIM"), our wholly-owned subsidiary, we issued our convertible
promissory notes in the principal amount of $332,631 to each of Peter
Rettaliata, our Chief Executive Officer and a Director, and Dario Peragallo, our
Executive Vice President and a Director, convertible into shares of our common
stock at the conversion price of $0.40 per share. On January 26, 2007, each of
Mr. Rettaliata and Mr. Peragallo exercised their right to convert their
promissory notes, including accrued interest of $27,255, into 899,716 shares of
common stock. In consideration for the shares of common stock issued, all of our
indebtedness under the promissory notes was cancelled.
13
On February 13, 2007, each of the non-management members of the
Board was issued an option to purchase 100,000 shares of our common stock. The
options will vest in equal thirds on March 1, 2007, 2008 and 2009 and are
exercisable at a price of $0.27 per share until March 1, 2014.
In March 2007, we entered into an agreement to compensate James Brown for
his services as a member of our Board of Directors. Under the agreement, Mr.
Brown has received $15,000 and will be compensated at a rate of $175,000 per
annum until December 31, 2007, or until such date as he shall cease to serve as
Chairman. In addition to his cash compensation, we issued to Mr. Brown 200,000
shares of our common stock pursuant to the Restricted Stock Agreement, of which
100,000 shares vested on March 30, 2007 and the second 100,000 shares will vest
as of December 31, 2007.
We entered into a Separation Agreement and General Release with Michael
Gales, effective March 16, 2007, under which Mr. Gales resigned from his
positions with us. Under the Separation Agreement, our employment agreement with
Mr. Gales was terminated effective March 16, 2007. In lieu of the compensation
payable to Mr. Gales pursuant to his employment agreement, from March 16, 2007
to November 30, 2010, we will pay Mr. Gales $100,000 per annum and from December
1, 2010 to May 31, 2011, we will pay him $50,000. In addition, if we achieve
certain agreed-upon levels of performance, he may receive up to an additional
$50,000. Upon the execution of his employment agreement we granted Mr. Gales
options to purchase 1,250,000 shares of our common stock, subject to an agreed
upon vesting schedule and exercisable over a ten-year period commencing on the
date of grant. Under the separation agreement, all unvested options held by Mr.
Gales vested as of March 16, 2007, and the right to exercise all of his options
will terminate as of March 16, 2008.
Stephen M. Nagler, a director of our company, is a partner in Eaton & Van
Winkle LLP, our legal counsel. We paid Eaton & Van Winkle LLP $500,000 in 2006
and $630,000 in 2005 for legal fees and disbursements.
Transactions of Ashlin Prior to the Merger:
In connection with our Plan of Reorganization, in January 2005, we entered
into an employment agreement with James A. Brown, who was then our Chief
Executive Officer, and disposed of substantially all of our assets to an entity
controlled by another person who had been our former Chief Executive Officer.
Mr. Brown received 100,000 shares, with a fair value of $7,000, as of
November 2005 in connection with the merger.
Transactions Relating to Original Gales Prior to the Merger:
In August 2005, Mr. Stephen Nagler, one of our directors and our
Secretary, loaned $10,000 to Gales Industries Incorporated, a privately-owned
Delaware corporation ("Original Gales"). Co-investors of Mr. Nagler loaned an
additional $35,000 to Original Gales in the same financing. In connection with
that financing, Original Gales issued to the investors its 12% convertible
bridge notes in the aggregate principal amount of $45,000. The bridge notes were
repaid with a portion of the proceeds of the offering. In connection with the
financing, Original Gales issued to the investors warrants to purchase 204,547
shares of its common stock at $0.22 per share and, as a result of the merger,
those warrants became warrants to purchase an equal number of shares of our
common stock. The warrants allow for cashless exercise and have weighted-average
anti-dilution protection with respect to the exercise price.
Transactions Relating to Air Industries Machining Corporation Prior to the
Merger:
Prior to its acquisition by Original Gales, AIM leased manufacturing and
office space from KPK Realty Corp. which, since October, 1974, has been owned
49% by Luis Peragallo, an officer, a director and the largest shareholder of AIM
prior to its acquisition by Original Gales. The annual rent under the lease was
approximately $300,000, plus annual real estate taxes on the leased property.
Between 1989 and 1990, AIM advanced $208,233 to KPK Realty Corp. In partial
repayment of the advances from AIM, rent in the amount of $11,496 in 2005 was
14
offset by KPK Realty Corp. from the amounts due under the lease. In addition,
from 1990 to 2005, AIM was a guarantor of the mortgage (with a balance of
approximately $677,000 as of September 30, 2005) on such leased property. This
guaranty was terminated in connection with the real estate acquisition.
Prior to its acquisition by Original Gales, AIM leased manufacturing space
at an annual rental of approximately $82,800, plus annual real estate taxes on
such property, from DPPR Realty Corp. which, since January 2003 has been 100%
owned by Peter Rettaliata and Dario Peragallo. Prior to the acquisition, Messrs.
Rettaliata and D. Peragallo owned an aggregate of 36.84% of AIM's outstanding
capital stock. Messrs. Rettaliata and D. Peragallo were officers of AIM and are
officers and directors of our company. From February 2003 to November 30, 2005,
AIM was also a guarantor of the mortgage (with a balance of approximately
$567,000 as of September 30, 2005) on such leased property. This guaranty was
terminated in connection with the real estate acquisition.
In June 1995, an individual who held 49% of the outstanding capital stock
of AIM sold such interest to Jorge Peragallo and Peter Rettaliata for cash and a
$625,000 principal amount promissory note from each of Mr. J. Peragallo and Mr.
Rettaliata ($1,250,000 in the aggregate). AIM guaranteed the repayment of these
promissory notes, which aggregated $1,250,000 in principal amount. These
promissory notes were repaid in full in June 2005.
Peter Rettaliata, who was an officer of AIM, advanced $5,000 to AIM during
2003 and $42,678 to AIM during 2004. Dario Peragallo, who was an officer of AIM,
advanced $5,000 to AIM during 2003 and $39,334 to AIM during 2004. Luis
Peragallo, who was an officer of AIM, advanced $5,000 to AIM during 2003 and
$18,179 to AIM during 2004. Jorge Peragallo, who was an officer of AIM, advanced
$5,000 to AIM during 2003 and $38,344 to AIM during 2004. As of September 30,
2005, AIM had received an aggregate of $363,323 in loans from its officers and
was obligated to repay such amount to its officers. Such amount was repaid in
connection with our acquisition of AIM. In October 2005, AIM agreed to pay an
aggregate of $225,000 to its officers to enable them to pay income taxes accrued
while operating AIM as a Subchapter S corporation. Such amount was paid in
connection with our acquisition of AIM.
Transactions Relating to the Merger and Acquisition of AIM:
On November 30, 2005, Original Gales completed the acquisition from
Messrs. Luis Peragallo, Jorge Peragallo, Peter Rettaliata and Dario Peragallo,
of all of the outstanding capital stock of AIM. Original Gales had entered into
a Stock Purchase Agreement with AIM and the shareholders of AIM as of July 25,
2005. The aggregate purchase price paid to the AIM shareholders consisted of (i)
$3,114,296 in cash, (ii) $1,627,262 principal amount of promissory notes,
payable over five years, of which $962,000 were in the form of a secured
subordinated promissory note payable to Mr. Luis Peragallo and $665,262 were in
the form of unsecured convertible promissory notes ($332,631 payable to Mr.
Peter Rettaliata and $332,631 payable to Mr. Dario Peragallo), convertible into
shares of our common stock at a price of $0.40 per share, and (iii) 490,060
shares of newly issued common stock. The 490,060 shares of common stock issued
to the AIM shareholders were allocated as follows: 253,214 shares to Luis
Peragallo, 118,423 shares to Peter Rettaliata and 118,423 shares to Dario
Peragallo. In addition to the purchase price, Original Gales paid an aggregate
of $1,053,862 in connection with the acquisition, a portion of which represented
legal and accounting expenses ($300,000) incurred by AIM and its shareholders
and $270,403 to enable AIM's shareholders to pay income taxes accrued prior to
closing. The purchase price paid to AIM's shareholders was the result of arms'
length negotiation between Original Gales and the AIM shareholders.
Our employment agreements with Messrs. Gales, Giusto, Rettaliata and D.
Peragallo became effective on November 30, 2005 and we issued stock options to
them as of that date. See "Executive Compensation - Employment Agreements".
As of November 30, 2005, Original Gales Acquisition Corp., Inc. completed
the purchased from entities which are owned, in part, by affiliates of AIM (KPK
Realty Corp. and DPPR Realty Corp.), for the aggregate purchase price
$4,190,000, of the properties, described above, which were being leased by AIM
prior to November 30, 2005 from such entities. The purchase price paid to KPK
Realty Corp. was $2,690,000 and the purchase price paid to DPPR Realty Corp. was
$1,500,000. Gales Industries Acquisition Corp., Inc. contemporaneously merged
into AIM, with AIM being the surviving entity, so that AIM became the owner of
such properties.
15
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and beneficial owners of more than 10% of our
common stock to file with the SEC reports of their holdings of, and transactions
in, our common stock. Based solely upon our review of copies of such reports and
written representations from reporting persons that were provided to us, we
believe that our officers, directors and 10% stockholders complied with these
reporting requirements with respect to 2006.
Report of the Audit Committee
The Audit Committee operates under a written charter adopted by the Board
of Directors. The Audit Committee assists the Board of Directors in fulfilling
its responsibility to oversee management regarding:
o the conduct and integrity of our financial reporting to any
governmental or regulatory body, the public or other users thereof;
o our systems of internal accounting and financial and disclosure
controls;
o the qualifications, engagement, compensation, independence and
performance of our independent auditors, their conduct of the annual
audit, and their engagement for any other services;
o our legal and regulatory compliance; and
o the preparation of the Audit Committee report required by SEC rules
to be included in our annual proxy statement.
In fulfilling its responsibilities, the Audit Committee has:
o Reviewed and discussed the audited consolidated financial statements
with management;
o Discussed with our independent registered public accounting firm,
Goldstein Golub Kessler LLP matters required to be discussed under
Statements of Auditing Standards No. 61, Communications with Audit
Committees, as amended, and Statements of Auditing Standards No. 90,
Communication with Audit Committees; and
o Received from our independent registered public accounting firm,
Goldstein Golub Kessler LLP, disclosures regarding their
independence required by Independence Standards Board Standard No.
1, Independent Discussions with Audit Committees, and has discussed
with Goldstein Golub Kessler LLP their independence from management
and our company.
The Audit Committee discussed with our independent registered public
accounting firm the overall scope and plans for the audit. The Audit Committee
met with the independent registered public accounting firm, with and without
management present, to discuss the results of their examinations and the overall
quality of our financial reporting and internal controls.
Based on the foregoing, the Audit Committee recommended to the Board of
Directors that the audited consolidated financial statements be included in our
annual report on Form 10-KSB for the year ended December 31, 2006 for filing
with the SEC. The Audit Committee and the Board of Directors have also
recommended, subject to stockholder approval, the selection of Goldstein Golub
Kessler LLP as our independent registered public accounting firm.
16
The Audit Committee held four meetings during the year ended December 31,
2006. Each member of the Committee meets the current independence and financial
literacy requirements under the Sarbanes-Oxley Act and SEC rules and
regulations.
Respectfully Submitted by:
Members of the Audit Committee
Seymour G. Siegel (Chairman)
Ira A.Hunt, Jr
James A. Brown
Independent Registered Public Accounting Firm
We retained Goldstein Golub Kessler LLP as our independent registered
public accounting firm to audit our consolidated financial statements for the
years ended December 31, 2006 and 2005. Goldstein Golub Kessler LLP has been our
principal accounting firm since December 15, 2005 and also performed certain
services for Gales Industries Incorporated, a privately-owned Delaware
corporation, prior to November 30, 2005. Daszkal Bolton LLP was our principal
accounting firm in 2004 and from January 1, 2005 to December 15, 2005.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
of Independent Registered Public Accounting Firm.
As required by our Audit Committee charter, our Audit Committee
pre-approved the engagement of Daszkal Bolton LLP and Goldstein Golub Kessler
LLP for all audit and permissible non-audit services. The Audit Committee
annually reviews the audit and permissible non-audit services performed by our
principal accounting firm and reviews and approves the fees charged by our
principal accounting firm. The Audit Committee has considered the role of
Daszkal Bolton LLP and Goldstein Golub Kessler LLP in providing tax and audit
services and other permissible non-audit services to us and has concluded that
the provision of such services, if any, was compatible with the maintenance of
such firm's independence in the conduct of its auditing functions
During fiscal year 2006 and fiscal year 2005, the aggregate fees which we
paid to or were billed by Goldstein Golub Kessler LLP for professional services,
which only included audit fees, were as follows:
Fiscal Year Ended December 31,
2006 2005
---- ----
Audit Fees (1) $341,879 $220,018
Audit-Related Fees (2) $-0- $-0-
Tax Fees (3) $-0- $-0-
All Other Fees $-0- $-0-
(1) Fees for services to perform an audit or review in accordance with
generally accepted auditing standards and services that generally only our
independent registered public accounting firm can reasonably provide, such as
the audit of our consolidated financial statements, the review of the financial
statements included in our quarterly reports on Form 10-QSB, and for services
that are normally provided by independent registered public accounting firms in
connection with statutory and regulatory engagements.
(2) Fees, if any, for assurance and related services that are
traditionally performed by our independent registered public accounting firm,
such as audit attest services not required by statute or regulation, and
consultation concerning financial accounting and reporting standards.
(3) Fees for tax compliance. Tax compliance generally involves preparation
of original and amended tax returns, claims for refunds and tax payment planning
services.
During fiscal year 2006 and fiscal year 2005, the aggregate fees which we
paid to Daszkal Bolton LLP for professional services were as follows:
17
Fiscal Year Ended December 31,
2006 2005
---- ----
Audit Fees (1) $-0- $38,539
Audit-Related Fees $-0- $-0-
Tax Fees (2) $-0- $ 5,568
All Other Fees (3) $-0- $ 720
(1) Fees for audit services include fees associated with the annual audit
and the review of our quarterly reports on Form 10-QSB.
(2) Tax services consisted primarily of filing tax returns.
(3) The $720 paid to our principal accounting firm in 2005 was for its
review of our bankruptcy filing and related sale of assets to determine
potential tax consequences.
Changes and Disagreements with Accountants
On December 15, 2005, we appointed the firm of Goldstein Golub Kessler LLP
as our independent uditor and, as of that date, we dismissed the firm of Daszkal
Bolton LLP, which had been serving as our independent auditor until that date.
The change in auditors was in connection with the merger which occurred on
November 30, 2005 and the resulting change in control of our company. The
dismissal of Daszkal Bolton LLP and the appointment of Goldstein Golub Kessler
LLP as our independent auditor were approved by our Board of Directors on
December 15, 2005.
During the period from January 1, 2005 to December 15, 2005, we did not
have any disagreements within the meaning of Instruction 4 of Item 304 of
Regulation S-K) with Daszkal Bolton LLP as to any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure and there have been no reportable events (as defined in Item 304 of
Regulation S-K).
We have not consulted with Goldstein Golub Kessler LLP regarding the
application of accounting principles to a specified transaction or the type of
audit opinion that might be rendered on our financial statements during the two
most recent fiscal years through the present.
Proposal 2:
Ratification of Selection of Independent Registered Public Accounting Firm
The Board and the Audit Committee have selected Goldstein Golub Kessler
LLP as the independent registered public accounting firm to perform the audit of
our consolidated financial statements for the year ending December 31, 2007.
Goldstein Golub Kessler LLP was our independent registered public accounting
firm for the year ended December 31, 2006. The firm is a registered public
accounting firm with the Public Company Accounting Oversight Board (the
"PCAOB"), as required by the Sarbanes-Oxley Act of 2002 and the Rules of the
PCAOB.
A representative of Goldstein Golub Kessler LLP is expected to attend the
2007 Annual Meeting. That representative will have an opportunity to make a
statement at the Annual Meeting if he desires to do so and will be available to
respond to appropriate stockholder questions.
We are asking our stockholders to ratify the selection of Goldstein Golub
Kessler LLP as our independent registered public accounting firm. Although
ratification is not required by our bylaws or otherwise, the Board is submitting
the selection of Goldstein Golub Kessler LLP to our stockholders for
ratification as a matter of good corporate practice. Even if the selection is
ratified, the Audit Committee in its discretion may select a different
independent registered public accounting firm at any time during the year if it
determines that such a change would be in the best interests of our company and
our stockholders.
18
Our Board of Directors recommends that stockholders vote for the ratification of
the selection of Goldstein Golub Kessler LLP as our independent registered
public accounting firm for the year ending December 31, 2007.
Proposal 3:
Amendment of the Certificate of Incorporation to
Change OurCorporate Name to Air Industries Group, Inc.
On April 13, 2007, our Board of Directors approved the submission to the
stockholders of an amendment to our Certificate of Incorporation changing our
corporate name from Gales Industries Incorporated to Air Industries Group, Inc.
Our Board believes that the name Air Industries Group, Inc. will provide
us with greater name recognition within the defense contracting industry. The
name of our principal operating subsidiary is Air Industries Machining Corp.,
referred to as "AIM". AIM enjoys a favorable standing in the industry and with
customers within its target market. In addition, under the terms of our
separation agreement with our former executive chairman and founder, Michael A.
Gales, we agreed to remove his surname from our corporate name.
Our Board of Directors recommends that stockholders vote for the amendment to
our Certificate of Incorporation changing our corporate name to Air Industries
Group, Inc.
Proposal 4:
Adjournment of Annual Meeting
Our Board of Directors has approved the submission to the stockholders of
a proposal to adjourn the Annual Meeting in the event that there are not a
sufficient number of votes at the Annual Meeting to approve Proposals 1, 2 or 3.
In order to permit proxies that have been timely received to be voted for an
adjournment, we are submitting this proposal as a separate matter for your
consideration. If it is necessary to adjourn the Annual Meeting and the
adjournment is for a period of less than 30 days, no notice of the time or place
of the reconvened meeting will be given to stockholders, other than an
announcement made at the Annual Meeting.
The Board of Directors recommends that Stockholders Vote for
the Approval of the Adjournment of the Annual Meeting.
19
Exhibit A
GALES INDUSTRIES INCORPORATED
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
Purpose
The Audit Committee (hereinafter, the "Committee") will provide assistance
to the Board of Directors of Gales Industries Incorporated, a Delaware
corporation (the "Company"), in fulfilling its oversight responsibility to the
shareholders and others relating to the integrity of the Company's financial
statements and the financial reporting process, the systems of internal
accounting and financial controls, the annual independent audit of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, and its ethics programs as established by management and the Board
of Directors. The Committee shall also oversee the independent auditors'
qualifications and independence. The Committee will evaluate the performance of
the Company's independent auditors, including a review and evaluation of the
engagement partner and coordinating partner. In so doing, it is the
responsibility of the Committee to maintain free and open communication between
the Committee, independent auditors, the internal auditors and management of the
Company, so as to make the Board aware of significant financial matters which
require the Board's attention.
Committee Membership
The Committee shall be comprised of three or more "independent" members of
the Board, each of whom is able to read and understand fundamental financial
statements and at least one of whom has past employment experience in finance or
accounting, is a certified accountant, or has other comparable experience,
including a current or past position as chief executive, financial officer or
other senior officer with financial oversight responsibilities. A member of the
Board is independent only if he or she satisfies the requirements for
independence as established by the Securities and Exchange Commission ("SEC")
and, in the event the Company's securities become listed on any securities
exchange, as established by such exchange, and has no relationship to the
Company that may interfere with the exercise of his or her independent judgment.
The members of the Committee and its Chairman will be appointed by and serve at
the discretion of the Board. Committee members may receive no compensation from
the Company other than Director's fees, including appropriate compensation for
committee service. The Board will designate at least one member of the Committee
as the "audit committee financial expert" as defined by the SEC.
Committee Authority, Functions and Responsibilities
General responsibilities
The primary responsibility of the Committee is to oversee the Company's
financial controls and reporting processes on behalf of the Board and report the
results of its activities to the Board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial statements.
Take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, consistent with the Company's commitment to sound
business risk practices, and ethical behavior.
The Committee shall be subject to the By-laws of the Company, as in effect
from time to time and applicable corporation law of the State of Delaware. The
Committee shall be obligated, and shall have the full power and authority, to
carry out the following responsibilities:
Responsibilities for engaging independent accountants and appointing the
internal auditor, if any.
1. The Committee shall select the Independent Auditors. The Committee shall have
a clear understanding with management and the independent auditors that the
independent auditors are ultimately accountable to the Board and the Committee,
A-1
as representatives of the Company's shareholders. The Committee shall have the
sole authority and responsibility to hire, evaluate and, where appropriate,
replace the independent auditors and, in its capacity as a committee of the
Board, shall be directly responsible for the appointment, compensation and
oversight of the work of the independent auditors. Annually, the Committee shall
review the qualifications and performance of the Company's current independent
auditors and select the Company's independent auditors for the next year. The
Committee shall consider the auditors' independence from management and the
Company, including whether the auditors' performance of permissible non-audit
services is compatible with their independence, and the Committee shall approve,
in advance, any engagement of the independent auditors to perform non-audit
services for the Company. The Committee shall also review the independent
auditors' internal control procedures, any material issues raised by the most
recent internal quality-control review, or peer review, of the independent
auditors, or by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more independent
audits carried out by the independent auditors, and any steps taken to deal with
any such issues.
2. The Committee shall receive a formal written statement from the Company's
independent auditors describing all relationships between the auditors and the
Company.
3. The Committee shall review the engagement of the independent auditors,
including the scope, extent and procedures of the audit and the compensation to
be paid therefore, and all other matters the Committee deems appropriate.
Responsibilities for reviewing internal audits, the annual external audit
and the review of quarterly and annual financial statements
1. The Committee shall have familiarity, through the individual efforts of its
members, with the accounting and reporting principles and practices applied by
the Company in preparing its financial statements, including, without
limitation, the policies for recognition of revenue in financial statements.
2. Inquire about the impact of and, if appropriate, review new and proposed
releases and pronouncements by the Financial Accounting Standards Board (FASB),
the American Institute of Certified Public Accountants (AICPA) and the SEC that
may affect current or future financial statements or other disclosures in
financial reports.
3. Meet separately with management and the independent auditors, upon completion
of their audit, to review and discuss the Company's financial results for the
year, as reported in the Company's financial statements, or other disclosures,
and any other items required to be communicated by the independent auditors to
the Audit Committee.
4. Provide a report in the Company's annual meeting proxy statement describing
how the Committee has complied with its responsibilities under the Charter,
including without limitation, whether the Committee has reviewed and discussed
the Company's audited financial statements with the Company's management,
whether the Committee recommended to the Board that the audited financial
statements be included in the Company's Annual Report on Form 10-K (or Form
10-KSB), and whether any matters came to the attention of the Committee that
caused the Committee to believe that the audited financial statements contain
any materially misleading information or omit any material information.
5. Instruct the independent auditors to perform a quarterly review and discuss
the Company's financial results with the Committee and the Company's management
in accordance with the "Meetings" requirements set forth below, prior to the
filing of a Form 10-Q (or Form 10-QSB).
6. Assist and interact with the independent auditors so that they may carry out
their duties in the most efficient and cost effective manner.
A-2
7. Evaluate the cooperation received by the independent auditors during their
audit examination, including their access to all requested records, data and
information, and elicit the comments of management regarding the responsiveness
of the independent auditors to the Company's needs.
8. Review the Company's balance sheet, profit and loss statements and statements
of cash flow and stockholders' equity for each interim period, and any changes
in accounting policy that have occurred during the interim period.
9. Consult with the independent auditors and discuss with Company management the
scope and quality of internal accounting and financial reporting controls in
effect.
10. Determine, as regards new transactions or events, the auditor's reasoning in
concurring with the appropriateness of the accounting principles and disclosure
practices adopted by management or changes thereto.
11. Provide open avenues of communication among the internal auditors, if any,
the independent accountant and the board of directors.
Periodic responsibilities
1. Disclose in the Company's annual meeting proxy statement that the Committee
has a written charter, and file the current Charter in the Company's annual
meeting proxy statement as required by applicable rules of the SEC.
2. Review the Charter at least once annually and update as appropriate.
3. Establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters and (b) the confidential, anonymous submission by
employees of the Company regarding questionable accounting or auditing matters.
4. Investigate, review and report to the Board the propriety and ethical
implications of any transactions, as reported or disclosed to the Committee by
the independent auditors, employees, officers, members of the Board or
otherwise, between (a) the Company and (b) any employee, officer or member of
the Board of the Company, or any affiliates of the foregoing.
5. Review and discuss with management, the internal auditors, and the
independent auditors the Company's policies with respect to risk assessment and
risk management.
6. Engage independent counsel and other advisors as it deems necessary to carry
out its duties.
7. Perform such other functions and have such power as may be necessary or
convenient in the efficient and lawful discharge of the foregoing.
Meetings
The Committee will hold regular meetings as the Committee determines, and
special meetings as the Chairman or the Committee deems appropriate.
The Committee shall meet with the independent auditor and the CFO at least
quarterly to review the financial statements and audit for the fiscal year and
to conduct each quarterly financial review.
Meetings may be held by conference telephone call as provided in the
Bylaws. The chief executive officer, chief operating officer and/or chief
accounting officer may attend any meeting of the Committee, except for executive
sessions as determined by the Committee Chairman. At least annually the
committee will hold an executive session with the independent auditors.
A-3
Minutes and Reports
Minutes of each meeting of the Committee shall be kept and distributed to
each member f the Committee, members of the Board who are not members of the
Committee and the Secretary of the Company. The Chairman of the Committee shall
report to the Board on a periodic basis, but no less often than quarterly, or
whenever so requested by the Board.
A-4
Gales Industries Incorporated
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
June 12, 2007
The stockholder(s) hereby appoint(s) James A. Brown and Louis A. Giusto,
or either of them, as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them, acting individually, to represent and to
vote, as designated on the reverse side of this ballot, all the shares of series
B convertible preferred stock of Gales Industries Incorporated that the
stockholder(s) is/are entitled to vote at the Annual Meeting of Stockholders to
be held at 10:00 a.m. (Eastern Daylight Time) on June 12, 2007, at the offices
of Eaton & Van Winkle LLP, 3 Park Avenue, New York, NY 10016, and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS
AND FOR EACH PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
FORM OF PROXY CARD FOR COMMON STOCK
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided.
TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS: |X| KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
--------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
GALES INDUSTRIES INCORPORATED
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL ITEMS.
To withhold authority to vote, mark "For All
Except" and write the nominee's name on the
line below.
--------------------------------------------
For Withhold For All
Vote on Directors All All Except
1. To elect as Directors of Gales Industries |_| |_| |_|
Incorporated the nominees listed below.
James A. Brown
Louis A. Giusto
Peter D. Rettaliata
Dario A. Peragallo
Seymour G. Siegel
M. Gen. Ira A. Hunt, Jr. (USA Ret.)
David J. Buonanno
Vote on Proposals For Against Abstain
2. The ratification of the selection by the Audit Committee of our Board of Directors of Goldstein Golub |_| |_| |_|
Kessler LLP as the independent registered public accounting firm for the year ending December 31, 2007;
3. Amend the Certificate of Incorporation to change our corporate name to Air Industries Group, Inc. |_| |_| |_|
4. Adjourn the Annual Meeting to solicit additional proxies in the event there are insufficient votes to |_| |_| |_|
approve any of the foregoing Proposals
5. In their discretion, upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof
The shares represented by this proxy when properly executed will be voted in the
manner directed herein by the undersigned Stockholder(s). If no direction is
made, this proxy will be voted FOR items 1, 2, 3 and 4. If any other matters
properly come before the meeting, the person named in this proxy will vote in
their discretion.
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Signature [PLEASE SIGN WITHIN BOX] Date
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Signature (Joint Owners) Date
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Gales Industries Incorporated
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
June 12, 2007
The stockholder(s) hereby appoint(s) James A. Brown and Louis A. Giusto,
or either of them, as proxies, each with the power to appoint his substitute,
and hereby authorizes each of them, acting individually, to represent and to
vote, as designated on the reverse side of this ballot, all the shares of common
stock of Gales Industries Incorporated that the stockholder(s) is/are entitled
to vote at the Annual Meeting of Stockholders to be held at 10:00 a.m. (Eastern
Daylight Time) on June 12, 2007, at the offices of Eaton & Van Winkle LLP, 3
Park Avenue, New York, NY 10016, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED ON THE REVERSE SIDE FOR THE BOARD OF DIRECTORS
AND FOR EACH PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
REPLY ENVELOPE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
FORM OF PROXY CARD FOR SERIES B CONVERTIBLE PREFERRED STOCK
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided.
TO VOTE, MARK BLOCKS BELOW
IN BLUE OR BLACK INK AS FOLLOWS: |X| KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
--------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
GALES INDUSTRIES INCORPORATED
THE DIRECTORS RECOMMEND A VOTE "FOR" ALL ITEMS.
To withhold authority to vote, mark "For All
Except" and write the nominee's name on the
line below.
--------------------------------------------
For Withhold For All
Vote on Directors All All Except
1. To elect as Directors of Gales Industries |_| |_| |_|
Incorporated the nominees listed below.
James A. Brown
Louis A. Giusto
Peter D. Rettaliata
Dario A. Peragallo
Seymour G. Siegel
M. Gen. Ira A. Hunt, Jr. (USA Ret.)
David J. Buonanno
Vote on Proposals For Against Abstain
2. The ratification of the selection by the Audit Committee of our Board of Directors of Goldstein Golub |_| |_| |_|
Kessler LLP as the independent registered public accounting firm for the year ending December 31, 2007;
3. Amend the Certificate of Incorporation to change our corporate name to Air Industries Group, Inc. |_| |_| |_|
4. Adjourn the Annual Meeting to solicit additional proxies in the event there are insufficient votes to |_| |_| |_|
approve any of the foregoing Proposals
5. In their discretion, upon such other matters that may properly come before the meeting or any
adjournment or adjournments thereof
The shares represented by this proxy when properly executed will be voted in the
manner directed herein by the undersigned Stockholder(s). If no direction is
made, this proxy will be voted FOR items 1, 2, 3 and 4. If any other matters
properly come before the meeting, the person named in this proxy will vote in
their discretion.
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Signature [PLEASE SIGN WITHIN BOX] Date
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Signature (Joint Owners) Date
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