Exhibit 10.4

SECURITY AGREEMENT

1.

THE SECURITY.  The undersigned, Gulfstream International Group, Inc., a Delaware
corporation (the “Pledgor”), hereby assigns and grants to Shelter Island
Opportunity Fund , LLC (the “Purchaser”) a security interest in all assets of
Pledgor, now owned or hereafter acquired, including the following described
property now owned or hereafter acquired by the Pledgor (“Collateral”):

(a)

All accounts, contract rights, chattel paper, instruments, deposit accounts,
letter of credit rights, payment intangibles and general intangibles, including
all amounts due to the Pledgor from a factor; and all returned or repossessed
goods which, on sale or lease, resulted in an account or chattel paper.

(b)

All inventory, including all materials, work in process and finished goods.

(c)

All machinery, furniture, fixtures and other equipment of every type now owned
or hereafter acquired by the Pledgor.

(d)

All instruments, notes, chattel paper, documents, certificates of deposit,
securities and investment property of every type, including, without limitation,
the capital stock of all Subsidiaries.  The Collateral shall include all liens,
security agreements, leases and other contracts securing or otherwise relating
to the foregoing.

(e)

All general intangibles, including, but not limited to, (i) all patents, and all
unpatented or unpatentable inventions; (ii) all trademarks, service marks, and
trade names; (iii) all copyrights and literary rights; (iv) all computer
software programs; (v) all mask works of semiconductor chip products; (vi) all
trade secrets, proprietary information, customer lists, manufacturing,
engineering and production plans, drawings, specifications, processes and
systems.  The Collateral shall include all good will connected with or
symbolized by any of such general intangibles; all contract rights, documents,
applications, licenses, materials and other matters related to such general
intangibles; all tangible property embodying or incorporating any such general
intangibles; and all chattel paper and instruments relating to such general
intangibles.

(f)

All negotiable and nonnegotiable documents of title covering any Collateral.

(g)

All accessions, attachments and other additions to the Collateral, and all
tools, parts and equipment used in connection with the Collateral.

(h)

All substitutes or replacements for any Collateral, all cash or non-cash
proceeds, product, rents and profits of any Collateral, all income, benefits and
property receivable on account of the Collateral, all rights under warranties,
indemnities and insurance contracts, letters of credit, guaranties or other
supporting obligations covering the Collateral, and any causes of action
relating to the Collateral.

--------------------------------------------------------------------------------

(i)

All books and records pertaining to any Collateral, including but not limited to
any computer-readable memory and any computer hardware or software necessary to
process such memory (“Books and Records”).

Notwithstanding anything set forth herein to the contrary, the term "Collateral"
shall not include any airframe that is being held for sale (including without
limitation any Beech or Embraer airframe), and any engine (including any Pratt &
Whitney model PT6A-67D engine),  propeller, controller or other parts installed
on any such airframe or that is a part thereof, and any airframe, engine,
propeller or other parts that are leased by Pledgor, or any technical records
relating to any of the foregoing, but the term “Collateral” shall include all
inventory.

2.

THE INDEBTEDNESS.  The Collateral secures and will secure all Indebtedness.
 “Indebtedness” means all debts, obligations or liabilities now or hereafter
existing, absolute or contingent of the Pledgor to the Purchaser, whether
voluntary or involuntary, whether due or not due, or whether incurred directly
or indirectly or acquired by the Purchaser by assignment or otherwise, including
without limitation, arising under the Transaction Documents.

3.

PLEDGOR’S COVENANTS.  The Pledgor represents, covenants and warrants that unless
compliance is waived by the Purchaser in writing:

(a)

The Pledgor will properly preserve the Collateral; defend the Collateral against
any adverse claims and demands; and keep accurate Books and Records.

(b)

The Pledgor’s chief executive office is located in the state specified on the
signature page hereof.  In addition, the Pledgor is incorporated in or organized
under the laws of the state specified on such signature page.  The Pledgor shall
give the Purchaser at least thirty (30) days notice before changing its chief
executive office or state of incorporation or organization.  The Pledgor will
notify the Purchaser in writing prior to any change in the location of any
Collateral, including the Books and Records.

(c)

The Pledgor will notify the Purchaser in writing prior to any change in the
Pledgor’s name, identity or business structure.

(d)

The Pledgor has not granted any security interest in any of the Collateral
except to the Purchaser, and will keep the Collateral free of all liens, claims,
security interests and encumbrances of any kind or nature except the security
interest of the Purchaser.

(e)

The Pledgor will promptly notify the Purchaser in writing of any event which
adversely affects the value of the Collateral, the ability of the Pledgor or the
Purchaser to dispose of the Collateral, or the rights and remedies of the
Purchaser in relation thereto, including, but not limited to, the levy of any
legal process against any Collateral and the adoption of any marketing order,
arrangement or procedure affecting the Collateral, whether governmental or
otherwise.

(f)

The Pledgor shall pay all costs reasonably necessary to preserve, defend,
enforce and collect the Collateral, including but not limited to taxes,
assessments,

2

--------------------------------------------------------------------------------

insurance premiums, repairs, rent, storage costs and expenses of sales, and any
costs necessary to perfect the Purchaser’s security interest (collectively, the
“Collateral Costs”).  Without waiving the Pledgor’s default for failure to make
any such payment, the Purchaser at its option may pay any such Collateral Costs,
and discharge encumbrances on the Collateral, and such Collateral Costs payments
shall be a part of the Indebtedness and bear interest at the rate set out in the
Indebtedness.  The Pledgor agrees to reimburse the Purchaser within five (5)
Business Days after written request from the Purchaser for any Collateral Costs
so incurred.  Pledgor shall (i) promptly (and in any event within five (5)
Business Days after written request from Purchaser) furnish the Purchaser any
information with respect to the Collateral reasonably requested by the Lender,
(ii) allow the Purchaser or its representatives to inspect the Collateral,
during business hours upon reasonable notice and wherever located, and
(iii) promptly (and in any event within five (5) Business Days after written
request from Purchaser) furnish the Purchaser or its representatives such
information as the Purchaser may reasonably request to identify the Collateral,
at the time and in the form reasonably requested by the Purchaser.

(g)

Until the Purchaser exercises its rights to make collection following the
occurrence of an Event of Default, the Pledgor will diligently collect all
Collateral.

(h)

If any Collateral is or becomes the subject of any registration certificate,
certificate of deposit or negotiable document of title, including any warehouse
receipt or bill of lading, the Pledgor shall immediately deliver such document
to the Purchaser, together with any necessary endorsements.

(i)

The Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose
of any Collateral except with the prior written consent of the Purchaser;
provided, however, that the Pledgor may sell inventory in the ordinary course of
business and may sell its Embraer regional jet aircraft pursuant to agreement(s)
entered into prior to the date of this Agreement.

(j)

The Pledgor will maintain and keep in force insurance covering the Collateral
against fire and extended coverage, to the extent that any Collateral is of a
type which can be so insured.  Such insurance shall require losses to be paid on
a replacement cost basis, be issued by insurance companies acceptable to the
Purchaser and include a loss payable endorsement in favor of the Purchaser in a
form reasonably acceptable to the Purchaser.  Upon the request of the Purchaser,
the Pledgor will deliver to the Purchaser a certificate of insurance listing all
insurance in force.

(k)

The Pledgor will not attach any Collateral to any real property or fixture in a
manner which might cause such Collateral to become a part thereof unless the
Pledgor first obtains the written consent of any owner, holder of any lien on
the real property or fixture, or other person having an interest in such
property to the removal by the Purchaser of the Collateral from such real
property or fixture.  Such written consent shall be in form and substance
reasonably acceptable to the Purchaser and shall provide that the Purchaser has
no liability to such owner, holder of any lien, or any other person other than
the payment of rent until the Purchaser removes such property and the cost of
repairing any damage caused by such removal.

3

--------------------------------------------------------------------------------

(l)

Exhibit A to this Agreement is a complete list of all patents, trademark and
service mark registrations, copyright registrations, mask work registrations,
and all applications therefor, in which the Pledgor has any right, title, or
interest, throughout the world.  To the extent required by the Purchaser in its
discretion, the Pledgor will promptly notify the Purchaser of any acquisition
(by adoption and use, purchase, license or otherwise) of any patent, trademark
or service mark registration, copyright registration, mask work registration,
and applications therefor, and unregistered trademarks and service marks and
copyrights, throughout the world, which are granted or filed or acquired after
the date hereof or which are not listed on the Exhibit.  The Pledgor authorizes
the Purchaser, without notice to the Pledgor, to modify this Agreement by
amending the Exhibit to include any such Collateral.

(m)

The Pledgor will, at its expense, diligently prosecute all patent, trademark or
service mark or copyright applications pending on or after the date hereof, will
maintain in effect all issued patents and will renew all trademark and service
mark registrations, including payment of any and all maintenance and renewal
fees relating thereto, except for such patents, service marks and trademarks
that are being sold, donated or abandoned by the Pledgor pursuant to the terms
of its intellectual property management program.  The Pledgor also will promptly
make application on any patentable but unpatented inventions, registerable but
unregistered trademarks and service marks, and copyrightable but uncopyrighted
works.  The Pledgor will at its expense protect and defend all rights in the
Collateral against any material claims and demands of all persons other than the
Purchaser and will, at its expense, enforce all rights in the Collateral against
any and all infringers of the Collateral where such infringement would
materially impair the value or use of the Collateral to the Pledgor or the
Purchaser.  The Pledgor will not license or transfer any of the Collateral,
except for such licenses as are customary in the ordinary course of the
Pledgor’s business, or except with the Purchaser’s prior written consent.

4.

ADDITIONAL OPTIONAL REQUIREMENTS.  The Pledgor agrees that the Purchaser may at
its option at any time, whether or not the Pledgor is in default:

(a)

Require the Pledgor to deliver to the Purchaser (i) copies of or extracts from
the Books and Records, and (ii) information on any contracts or other matters
affecting the Collateral.

(b)

Examine the Collateral, including the Books and Records, and make copies of or
extracts from the Books and Records, and for such purposes enter at any
reasonable time, during normal business hours upon reasonable prior notice, upon
the property where any Collateral or any Books and Records are located.

(c)

Require the Pledgor to deliver to the Purchaser any instruments, chattel paper
or letters of credit which are part of the Collateral, and to assign to the
Purchaser the proceeds of any such letters of credit.

(d)

Notify any account debtors, any buyers of the Collateral, or any other persons
of the Purchaser’s interest in the Collateral.

4

--------------------------------------------------------------------------------

5.

DEFAULTS.  Any one or more of the following shall be a default hereunder:

(a)

Any Indebtedness is not paid when due, or any default occurs under any agreement
relating to the Indebtedness, after giving effect to any applicable grace or
cure periods.

(b)

The Pledgor breaches any term, provision, warranty or representation under this
Agreement or under any other Transaction Document, and such breach remains
uncured after any applicable cure period.

(c)

The Purchaser fails to have an enforceable lien on or security interest in the
Collateral.

(d)

Any custodian, receiver or trustee is appointed to take possession, custody or
control of all or a substantial portion of the property of the Pledgor or of any
Guarantor.

(e)

Any involuntary lien of any kind or character attaches to any Collateral, except
for Permitted Liens (as defined in the Debenture).

(f)

There is (i) a loss, theft, damage or destruction of a material portion of the
Collateral for which there is no insurance coverage or for which there is
insufficient insurance coverage; (ii) a material portion of the Collateral is
damaged, confiscated, encumbered by Pledgor, seized or otherwise attached by
anyone pursuant to legal process; (iii) Pledgor shall fail to timely and
properly pay or observe or keep or perform any term, covenant, agreement or
condition in any lease or similar agreement between Pledgor and any other person
pertaining to premises at which any material portion of the Collateral is
located or stored and such failure gives rise to any rights to such other person
in and to such Collateral; or (iv) Pledgor abandons any leased premises at which
any material portion of the Collateral is located or stored or such Collateral
is either moved from any such abandoned premises without prior written notice to
the Purchaser or such Collateral remains at the abandoned premises.

6.

PURCHASER’S REMEDIES AFTER DEFAULT.  In the event of any default, the Purchaser
may do any one or more of the following:

(a)

Declare any Indebtedness immediately due and payable, without notice or demand.

(b)

Enforce the security interest given hereunder pursuant to the Uniform Commercial
Code and any other applicable law.

(c)

Require the Pledgor to obtain the Purchaser’s prior written consent to any sale,
lease, agreement to sell or lease, or other disposition of any Collateral
consisting of inventory.

5

--------------------------------------------------------------------------------

(d)

Require the Pledgor to segregate all collections and proceeds of the Collateral
so that they are capable of identification and deliver daily such collections
and proceeds to the Purchaser in kind.

(e)

Require the Pledgor, to the extent not previously required, to direct all
account debtors to forward all payments and proceeds of the Collateral to a post
office box or account under the Purchaser’s exclusive control.

(f)

Require the Pledgor to assemble the Collateral, including the Books and Records,
and make them available to the Purchaser at a place designated by the Purchaser.

(g)

Enter upon the property where any Collateral, including any Books and Records,
are located and take possession of such Collateral and such Books and Records,
and use such property (including any buildings and facilities) and any of the
Pledgor’s equipment, if the Purchaser deems such use necessary or advisable in
order to take possession of, hold, preserve, process, assemble, prepare for sale
or lease, market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral.

(h)

Demand and collect any payments on and proceeds of the Collateral.  In
connection therewith, the Pledgor irrevocably authorizes the Purchaser to
endorse or sign the Pledgor’s name on all checks, drafts, collections, receipts
and other documents, and to take possession of and open the mail addressed to
the Pledgor and remove therefrom any payments and proceeds of the Collateral.

(i)

Grant extensions and compromise or settle claims with respect to the Collateral
for less than face value, all without prior notice to the Pledgor.

(j)

Use or transfer any of the Pledgor’s rights and interests in any Intellectual
Property now owned or hereafter acquired by the Pledgor, if the Purchaser deems
such use or transfer necessary or advisable in order to take possession of,
hold, preserve, process, assemble, prepare for sale or lease, market for sale or
lease, sell or lease, or otherwise dispose of, any Collateral.  The Pledgor
agrees that any such use or transfer shall be without any additional
consideration to the Pledgor.  As used in this paragraph, “Intellectual
Property” includes, but is not limited to, all trade secrets, computer software,
service marks, trademarks, trade names, trade styles, copyrights, patents,
applications for any of the foregoing, customer lists, working drawings,
instructional manuals, and rights in processes for technical manufacturing,
packaging and labeling, in which the Pledgor has any right or interest, whether
by ownership, license, contract or otherwise.

(k)

Have a receiver appointed by any court of competent jurisdiction to take
possession of the Collateral.  The Pledgor hereby consents to the appointment of
such a receiver and agrees not to oppose any such appointment.

(l)

Take such measures as the Purchaser may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral, and the

6

--------------------------------------------------------------------------------

Pledgor hereby irrevocably constitutes and appoints the Purchaser as the
Pledgor’s attorney-in-fact to perform all acts and execute all documents in
connection therewith.

(m)

Exercise any other remedies available to the Purchaser at law or in equity.

7.

ENVIRONMENTAL MATTERS.

(a)

The Pledgor represents and warrants:  (i) it is not in violation of any health,
safety, or environmental law or regulation regarding hazardous substances and
(ii) it is not the subject of any claim, proceeding, notice, or other
communication regarding hazardous substances, in each case where such violation,
claim, proceeding or notice would reasonably be expected to have a Material
Adverse Effect.  “Hazardous substances” means any substance, material or waste
that is or becomes designated or regulated as “toxic,” “hazardous,” “pollutant,”
or “contaminant” or a similar designation or regulation under any current or
future federal, state or local law (whether under common law, statute,
regulation or otherwise) or judicial or administrative interpretation of such,
including without limitation petroleum or natural gas.

(b)

The Pledgor shall deliver to the Purchaser, promptly upon receipt (and in any
event within three (3) Business Days), copies of all notices, orders, or other
communications regarding (i) any enforcement action by any governmental
authority relating to health, safety, the environment, or any hazardous
substances with regard to the Pledgor’s property, activities, or operations, or
(ii) any claim against the Pledgor regarding hazardous substances.

(c)

The Purchaser and its agents and representatives will have the right at any
reasonable time, after giving reasonable notice to the Pledgor, to enter and
visit any locations where the Collateral is located for the purposes of
observing the Collateral, taking and removing environmental samples, and
conducting tests; provided, however, that Purchaser shall not sample or test
more frequently than one (1) time per year unless an Event of Default shall have
occurred and is continuing.  The Pledgor shall reimburse the Purchaser on demand
for the costs of any such environmental investigation and testing.  The
Purchaser will make reasonable efforts during any site visit, observation or
testing conducted pursuant to this paragraph to avoid interfering with the
Pledgor’s use of the Collateral.  The Purchaser is under no duty to observe the
Collateral or to conduct tests, and any such acts by the Purchaser will be
solely for the purposes of protecting the Purchaser’s security and preserving
the Purchaser’s rights under this Agreement.  No site visit, observation or
testing or any report or findings made as a result thereof (“Environmental
Report”) will (i) result in a waiver of any default of the Pledgor; (ii) impose
any liability on the Purchaser; or (iii) be a representation or warranty of any
kind regarding the Collateral (including its condition or value or compliance
with any laws) or the Environmental Report (including its accuracy or
completeness).  In the event the Purchaser has a duty or obligation under
applicable laws, regulations or other requirements to disclose an Environmental
Report to the Pledgor or any other party, the Pledgor authorizes the Purchaser
to make such a disclosure.  The Purchaser may also disclose an Environmental
Report to any regulatory authority, and to any other parties as necessary or
appropriate in the Purchaser’s judgment.  The Pledgor further understands

7

--------------------------------------------------------------------------------

and agrees that any Environmental Report or other information regarding a site
visit, observation or testing that is disclosed to the Pledgor by the Purchaser
or its agents and representatives is to be evaluated (including any reporting or
other disclosure obligations of the Pledgor) by the Pledgor without advice or
assistance from the Purchaser.

(d)

The Pledgor will indemnify and hold harmless the Purchaser from any loss or
liability the Purchaser incurs in connection with or as a result of this
Agreement, which directly or indirectly arises out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance.  This indemnity will apply
whether the hazardous substance is on, under or about the Pledgor’s property or
operations or property leased to the Pledgor.  The indemnity includes but is not
limited to attorneys’ fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff).  The indemnity extends to the Purchaser,
its parent, subsidiaries and all of their directors, officers, employees,
agents, successors, attorneys and assigns.

8.

MISCELLANEOUS.

(a)

Any waiver, express or implied, of any provision hereunder and any delay or
failure by the Purchaser to enforce any provision shall not preclude the
Purchaser from enforcing any such provision thereafter.

(b)

The Pledgor shall, at the request of the Purchaser, execute such other
agreements, documents, instruments, or financing statements in connection with
this Agreement as the Purchaser may reasonably deem necessary to create and/or
perfect a security interest in the Collateral, as well as deliver to the
Purchaser certificates representing all capital stock of all Subsidiaries along
with stock power in blank with medallion guarantees.

(c)

This Agreement shall be governed by and construed according to the laws of the
State of New York, to the jurisdiction of which the parties hereto submit.

(d)

All rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law.  Any single or partial exercise of
any right or remedy shall not preclude the further exercise thereof or the
exercise of any other right or remedy.

(e)

All terms not defined herein are used as set forth in the Uniform Commercial
Code or in the Securities Purchase Agreement, dated as of the date hereof,
between the Pledgor and the Purchaser.

(f)

In the event of any action by the Purchaser to enforce this Agreement or to
protect the security interest of the Purchaser in the Collateral, or to take
possession of, hold, preserve, process, assemble, insure, prepare for sale or
lease, market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral, the Pledgor agrees to pay immediately the costs and expenses
thereof, together with reasonable attorney’s fees and allocated costs for
in-house legal services to the extent permitted by law.

8

--------------------------------------------------------------------------------

(g)

In the event the Purchaser seeks to take possession of any or all of the
Collateral by judicial process, the Pledgor hereby irrevocably waives any bonds
and any surety or security relating thereto that may be required by applicable
law as an incident to such possession, and waives any demand for possession
prior to the commencement of any such suit or action.

(h)

This Agreement shall constitute a continuing agreement, applying to all future
as well as existing transactions, whether or not of the character contemplated
at the date of this Agreement, and if all transactions between the Purchaser and
the Pledgor shall be closed at any time, shall be equally applicable to any new
transactions thereafter.

(i)

The Purchaser’s rights hereunder shall inure to the benefit of its successors
and assigns.  In the event of any assignment or transfer by the Purchaser of any
of the Indebtedness or the Collateral, the Purchaser thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but the Purchaser shall retain all rights and powers hereby given
with respect to any of the Indebtedness or the Collateral not so assigned or
transferred.  All representations, warranties and agreements of the Pledgor
shall be binding upon the successors and assigns of the Pledgor.

(j)

The Pledgor agrees that the Collateral may be sold as provided for in this
Security Agreement and expressly waives any rights of notice of sale,
advertisement procedures, or related provisions granted under applicable law,
including the New York Lien Law, to the extent permitted by applicable law

9

--------------------------------------------------------------------------------

The parties executed this Agreement as of August 31, 2008.

GULFSTREAM INTERNATIONAL GROUP, INC.

Address:

3201 Griffin Road,

4th Floor

Ft. Lauderdale, Florida 33312

By:

 

 

Name:  

Title:  

State of Incorporation:  Delaware

10

--------------------------------------------------------------------------------

EXHIBIT A
Intellectual Property

None.