gia_ex107.htm


     

    Exhibit
10.7

     

    
 

    FORBEARANCE
AGREEMENT AND

    AMENDMENT
TO DEBENTURE

     

    This
Forbearance Agreement and Amendment to Debenture (the “Agreement”) is entered into
this 26th day
of February, 2010 by and between Gulfstream International Group, Inc., a
Delaware corporation (“Company”) and Shelter Island
Opportunity Fund, LLC (“Holder”).

     

    W I T N E
S S E T H:

     

    WHEREAS,
Company and Holder are parties to a certain Securities Purchase Agreement dated
as of August 31, 2008, (as amended, the “Securities Purchase
Agreement”), relating to the sale and issue of a $5,100,000 Secured
Original Issue Discount Debenture dated as of August 31, 2008 (the “Debenture”) and certain
related warrants (the “Original
Warrants”) to purchase Common Stock, par value $0.01 per share (the
“Common Stock”), by
Company to Holder, and the purchase by Holder of such Debenture from Company
(capitalized terms used but not specifically defined herein shall have the
meanings provided for such terms in the Securities Purchase Agreement);
and

     

    WHEREAS, as at the date of this Agreement the outstanding unpaid Face
Amount of the Debenture is $3,659,000; and

     

    WHEREAS,
the following Events of Default have occurred and are continuing (collectively,
the “Existing Events of
Default”):

     

    
      	
              (a)  

            	
              Company
      failed in the payment of interest for December 31, 2009 and January 31,
      2010, as required by Section 5(a)(i) of the Debenture (the “Payment Default”);
      and

            


    

     

    
      	
              (b)  

            	
              Company
      failed to achieve minimum quarterly EBITDA of not less than $350,000 for
      the fiscal quarter ending December 31, 2009, as required by Section 4.16
      of the Securities Purchase Agreement (the “Covenant
      Default”)

            


    

     

    WHEREAS,
Company has requested that Holder (a) forbear from exercising its rights and
remedies under the Transaction Documents as a result of the Existing Events of
Default and (b) amend certain terms of the Debenture as set forth
herein;

     

    WHEREAS,
Holder has reviewed this request and, in an effort to continue to work with
Company, has agreed to forbear from exercising certain of its rights and
remedies as set forth herein provided the Securities Purchase Agreement is
amended as provided herein; and

     

    WHEREAS,
as an accommodation to Company and to enable it to obtain an additional
$1,000,000 of debt financing, Holder has agreed to subordinate (to the extent of
such additional debt financing and accrued interest thereon) its lien and
security interest in and to the Accounts of Company and its subsidiaries and the
proceeds thereof, pursuant to the terms of an Intercreditor and Subordination
Agreement, dated of even date, among Holder, the Company and Taglich Brothers,
Inc., as collateral agent for certain Investors (the “Intercreditor
Agreement”).

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

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

     

    1. Acknowledgments of
Company.  Company acknowledges and agrees that:

     

    (a) The
recital of facts set forth in this Agreement is true and correct in all material
respects.

     

    (b) Except as
set forth in the Intercreditor Agreement, Holder has a valid and perfected first
priority security interest in and to the Collateral (as defined in the Security
Agreements).

     

    (c) The
Existing Events of Default have occurred and are continuing.

     

    (d) Except as
expressly provided herein, Holder’s agreement to forbear as provided in this
Agreement shall not invalidate, impair, negate, or otherwise affect Holder’s
ability to exercise its rights and remedies under the Transaction Documents and
otherwise.

     

    2. Forbearance.

     

    (a) In
consideration for, and subject to, compliance by Company with the terms and
conditions of this Agreement, Holder hereby agrees to forbear from exercising
its rights and remedies under the Transaction Documents and applicable law as a
result of the occurrence of the Existing Events of Default until the occurrence
of a Termination Event (as defined below).  This forbearance is given
as a one time accommodation by Holder to Company and nothing contained herein
shall require Holder to waive any other Event of Default or forbear from
exercising any of its rights or remedies with respect to the occurrence of any
other Event of Default existing on the effective date of this Agreement or
occurring after the effective date of this Agreement.

     

    (b) For
purposes of this Agreement, a “Termination Event” shall mean
the earlier to occur of any one or more of the following:

     

    (1) the
failure of Company to comply with the terms, covenants, agreements and
conditions of this Agreement; or

     

    (2) if any
representation or warranty made herein shall be incorrect in any material
respect; or

     

    (3) the
occurrence of any Event of Default under the Debenture, the Securities Purchase
Agreement or the Promissory Note dated as of the date hereof executed by Company
in favor of Holder in the amount of $250,000 (the “Note”), other than the
Existing Events of Default; or

     

    (4) Company
shall fail to close and fund by March 22, 2010 a transaction which results in
the infusion of a tranche of new debt or equity financing for the Company in an
amount of not less than $1,499,999 (the “Additional Financing”), upon
terms and conditions acceptable to the Company; provided,
however, that if such Additional Financing shall involve the issuance of
any additional debt securities by Company, the terms thereof shall be reasonably
acceptable to the Holder.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (c) In the
event that a Termination Event shall not have occurred and the Company shall
have obtained the Additional Financing within the period specified above,
simultaneous with or immediately following receipt of such Additional Financing
(i) the Company shall (to the extent not previously paid), pay to Holder all
amounts constituting the Payment Default and other interest owed through
February 28, 2010 in accordance with the provisions of Section 5 below; and
(ii) Holder shall waive all prior Covenant Defaults.

     

    (d) Upon the
occurrence of a Termination Event, Holder's agreement to forbear from exercising
its rights and remedies under the Transaction Documents and applicable law shall
automatically terminate, with or without notice to Company.

     

    (e) Except as
set forth in Section 2(c), nothing in this Section 2 shall be deemed a waiver by
Holder of the Existing Events of Default or of future compliance by Company with
the covenants set forth above or otherwise set forth in the Transaction
Documents.

     

    (f) This
Agreement is written without prejudice as to the rights of Holder to pursue any
and all remedies available to Holder pursuant to the Loan Documents, at law and
in equity, upon the occurrence of a Termination Event.  Except as
provided herein, this Agreement shall not constitute a waiver or modification of
any of Holder's rights and remedies, the Existing Events of Default, any other
Defaults or Events of Default under the Loan Documents, or any of the terms,
conditions, warranties, representations or covenants contained in the Loan
Documents.

     

    3.           Conditions
Precedent.  Holder’s agreement to forbear from exercising its
rights and remedies pursuant to this Agreement is conditioned upon:

     

    (a) execution
and delivery by Company and Holder of this Agreement;

     

    (b) execution
and delivery by Company of the Note;

     

    (c) execution
and delivery by Company and Holder of an amendment to the Put Option
Agreement;

     

    (d) execution
and delivery by each Guarantor of the Omnibus Amendment to the Guaranty
Agreements;

     

    (e) in
accordance with Section 4(b) of the Original Warrant, Company shall have divided
the Original Warrant into (a) a warrant in the form of the Original Warrant
initially exercisable into 70,000 shares of Common Stock (the “Put Warrant”) and (b) a
warrant in the form of the Original Warrant (the “Remaining Warrant”, and
together with the Put Warrant, the "Divided Warrants") such that
the aggregate number of shares of Common Stock of Company that are initially
exercisable under the Divided Warrants (inclusive of the 70,000 Shares of Common
Stock initially issuable under the Put Warrant) shall equal, in the aggregate,
fifteen percent (15%) of the fully-diluted shares of Company Common Stock issued
and outstanding immediately following consummation of the transactions
contemplated hereby and under the Intercreditor Agreement, after giving
pro-forma effect to the conversion into Common Stock of all Company convertible
securities and the exercise of all Company options and warrants, including
warrants issued to the Taglich Brothers Inc. investors (the “Company Fully-Diluted
Stock”).  The Put Warrant and the Remaining Warrant, consisting
the Divided Warrants, to be issued to Holder on the date hereof in exchange for
the Original Warrant are being issued in reliance on the exemption from
registration provided by Rule 3(a)(9) of the Securities Act;

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (f) execution
and delivery by each Guarantor of the Acknowledgement and Agreement of the
Guarantors attached hereto;

     

    (g) execution
and delivery by the Subordinated Creditor of the Acknowledgement and Agreement
of the Subordinated Creditor attached hereto;

     

    (h) execution
and delivery by Company and Holder of a side letter agreement with respect to an
amendment of the Securities Purchase Agreement;

     

    (i) receipt
by Company of $1,000,000 of new debt from Taglich Brothers, Inc. and/or
investors introduced by Taglich Brothers, Inc. in form and substance reasonably
acceptable to the Holder and the receipt by the Holder of the Intercreditor
Agreement in form and substance reasonably satisfactory to Holder;

     

    (j) payment
of Holder’s legal fees and expenses in connection with this Agreement;
and

     

    (k) such
other matters as Holder may require.

     

    4.           Amendments to
Debenture.  As of the date of this Agreement, the Debenture is
amended as follows:

     

    (a) Section
2(b) of the Debenture is hereby amended and restated in its entirety to read as
follows:

     

    “(b) Payments of Principal and
Interest.  Company shall pay Holder interest on the outstanding
unpaid Face Value monthly in cash, commencing March 31, 2010.  Company
shall pay Holder the unpaid Face Value in installments monthly in accordance
with Schedule 1
hereto, commencing April 30, 2010 and on the last Trading Day of each month
thereafter until the Maturity Date.  The unpaid Face Value, and all
accrued interest thereon, will be paid in full on the Maturity
Date.”

     

    (b) The
first sentence of Section 2(e) of the Debenture is amended and restated in its
entirety to read as follows:

     

    “(e) Prepayments.  Subject
at all time to the provisions of the Intercreditor Agreement, the Company may
prepay all or any portion of the Face Value upon at least two Trading Days’
notice to Holder by paying the Face Value desired to be prepaid together with a
payment equal to 5.00% of the Face Value being prepaid, provided, however, if such
prepayment is made in 2011 there shall be no prepayment penalty
applicable.”

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (c) Schedule 1 of the
Debenture is hereby amended and restated in its entirety to read as
follows:

     

    
      	
              Payment

            	
              Date

            	
              Principal

            	
              Balance

            
	
              1

            	
              4/30/2010

            	
              $25,000

            	
              $3,634,000

            
	
              2

            	
              5/31/2010

            	
              $25,000

            	
              $3,609,000

            
	
              3

            	
              6/30/2010

            	
              $75,000

            	
              $3,534,000

            
	
              4

            	
              7/31/2010

            	
              $75,000

            	
              $3,459,000

            
	
              5

            	
              8/31/2010

            	
              $75,000

            	
              $3,384,000

            
	
              6

            	
              9/30/2010

            	
              $75,000

            	
              $3,309,000

            
	
              7

            	
              10/31/2010

            	
              $75,000

            	
              $3,234,000

            
	
              8

            	
              11/30/2010

            	
              $75,000

            	
              $3,159,000

            
	
              9

            	
              12/31/2010

            	
              $75,000

            	
              $3,084,000

            
	
              10

            	
              1/31/2011

            	
              $140,000

            	
              $2,944,000

            
	
              11

            	
              2/28/2011

            	
              $140,000

            	
              $2,804,000

            
	
              12

            	
              3/31/2011

            	
              $250,000

            	
              $2,554,000

            
	
              13

            	
              4/30/2011

            	
              $250,000

            	
              $2,304,000

            
	
              14

            	
              5/31/2011

            	
              $250,000

            	
              $2,054,000

            
	
              15

            	
              6/31/2011

            	
              $250,000

            	
              $1,804,000

            
	
              16

            	
              7/31/2011

            	
              $250,000

            	
              $1,554,000

            
	
              17

            	
              8/31/2011

            	
              1,554,000

            	
              $0

            


    

    


     

    5.           Past Due Interest
Payments.   In addition to other payments required
hereunder and under the Transaction Documents, Company agrees to pay interest
owed for December 31, 2009, January 31, 2010 and February 28, 2010 in five equal
monthly installments of $20,124.00, commencing April 30, 2010 and continuing on
the last Trading Day of each month thereafter until August 31,
2010.

     

    6.           Sums Secured;
Estoppel.  Company acknowledges and reaffirms that its
obligations to Holder as set forth in and evidenced by the Transaction Documents
are due and owing without any defenses, set-offs, recoupments, claims or
counterclaims of any kind as of the date hereof.  To the extent that
any defenses, set-offs, recoupments, claims or counterclaims may exist as of the
date hereof, Company waives and releases Holder from the same.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    7.           Waiver and Release of Claims
and Defenses.  Company hereby waives and releases all claims
and demands of any nature whatsoever that they now have or may have against
Holder, whether arising under the Transaction Documents or by any acts or
omissions of Holder, or any of its directors, officers, employees, affiliates,
attorneys or agents, or otherwise, and whether known or unknown, existing as of
the date of the execution of this Agreement, and further waive and release any
and all defenses of any nature whatsoever to the payment of the obligations or
the performance of their obligations under Transactions Documents.

     

    8.           Reaffirmation of Transaction
Documents.  Company hereby agrees with, reaffirms and
acknowledges its representations and warranties contained in the Transaction
Documents.  Furthermore, Company represents that its representations
and warranties contained in the Transaction Documents continue to be true and in
full force and effect.  This agreement, reaffirmation and
acknowledgment is given to Holder by Company without defenses, claims or
counterclaims of any kind.  To the extent that any such defenses,
claims or counterclaims against Holder may exist, Company waives and releases
Holder from same.  Company and Holder hereby acknowledges that the
Divided Warrants (as defined above) constitute “Warrants” for all purposes under
the Transactions Documents.

     

    9.           Ratification and
Reaffirmation of Transaction Documents.  Company ratifies and
reaffirms all terms, covenants, conditions and agreements contained in the
Transaction Documents.

     

    10.        Other
Warrants. Holder acknowledges that Company has issued warrants to
the Taglich Brother investors in connection with obtaining the $1,000,000 of
additional debt financing (the “Other
Warrants”).  In the event and to the extent that any of the
anti-dilution provisions of the Other Warrants (or any other provisions
adjusting the number of shares of Common Stock issuable upon exercise of the
Other Warrants set forth therein or in any other agreement related thereto other
than any limitations on exercise set forth in the Other Warrants or in any other
agreement related thereto) shall be more beneficial to the holders thereof than
the terms and/or conditions that are currently contained in the Divided
Warrants, then and in such event, without any further action by the Holder, the
Divided Warrants shall be automatically amended and modified in an economically
and legally equivalent manner such that the Holder shall receive the benefit of
such more beneficial terms and/or conditions (as the case may be) set forth
in (or related to) the Other Warrants, provided that upon written
notice to Company at any time the Holder may elect not to accept the benefit of
any such amended or modified term or condition, in which event the term or
condition contained in the Divided Warrants shall apply to the Holder as it was
in effect immediately prior to such amendment or modification as if such
amendment or modification never occurred with respect to the
Holder.

     

    11.        Holding
Period.  For the purposes of Rule 144, Company acknowledges
that the holding period of the shares of Common Stock issuable upon exercise of
the Divided Warrants (if acquired using Cashless Exercise Rights (as defined in
the Divided Warrants)) may be tacked onto the holding period of the Original
Warrant, and Company agrees not to take a position contrary to this Section
11.  Company agrees to take all actions, including, without
limitation, the issuance by its legal counsel of any necessary legal opinions,
necessary to issue shares of Common Stock issuable upon exercise of the Divided
Warrants  (if acquired using Cashless Exercise Rights (as defined in
the Divided Warrants)) that are freely tradable without restriction and not
containing any restrictive legend without the need for any action by
Holder.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    12.         Public
Information.  On or before 8:30 a.m., New York time, on the
first Business Day following the date of this Agreement, Company shall file a
Current Report on Form 8-K describing the terms of the transactions contemplated
by this Agreement and attaching this Agreement and the forms of any material
agreements contemplated by this Agreement as exhibits to such filing (including
all attachments, the “8-K
Filing”).  From and after the filing of the 8-K, Holder shall
not be in possession of any material, nonpublic information received from
Company or any of its Subsidiaries or any of its respective officers, directors,
employees or agents based upon information communicated to Holder (or its
officers, directors, employees or agents) on or prior to the time of the
issuance of the 8-K Filing.

     

    13.         No Preferential
Treatment.   Company has not entered into this Agreement
to provide any preferential treatment to Holder or any other
creditor.  Company does not intend to file for protection or seek
relief under the United States Bankruptcy Code or any similar federal or state
law providing for the relief of debtors.

     

    14.         WAIVER OF JURY
TRIAL.  EACH OF THE PARTIES HERETO WAIVE THE RIGHT TO A TRIAL
BY JURY, AS TO ANY ACTION WHICH MAY ARISE AS A RESULT OF THE LOAN DOCUMENTS,
THIS AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH.

     

    15.         Legal
Representation.  Each of the parties hereto acknowledge that
they have been represented by independent legal counsel in connection with the
execution of this Agreement, that they are fully aware of the terms and
conditions contained herein, and that they have entered into and executed the
within Agreement as a voluntary action and without coercion or duress of any
kind.

     

    16.         Partial Invalidity; No
Repudiation. If any of the provisions of this Agreement shall contravene
or be held invalid under the laws of any jurisdiction, the Agreement shall be
construed as if not containing such provisions and the rights, remedies,
warranties, representations, covenants, and provisions hereof shall be construed
and enforced accordingly in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction, or any other provisions of this
Agreement in any jurisdiction.

     

    17.         Binding
Effect.  This Agreement is binding upon the parties hereto and
their respective heirs, administrators, executors, officers, directors,
representatives and agents.

     

    18.         Governing
Law.  This Agreement shall be governed by the laws of the State
of New York.

     

    19.         Counterparts.  This
Agreement and/or any documentation contemplated or required in connection
herewith may be executed in any number of counterparts, each of which shall be
deemed an original and all of which shall be considered one and the same
document.  Delivery of an executed counterpart of a signature page of
this document by facsimile shall be effective as delivery of a manually executed
counterpart of this document.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    IN
WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, do
hereby execute this Agreement the date and year first above
written.

     

     

    
      
        	 	GULFSTREAM INTERNATIONAL GROUP,
      INC., Company	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Thomas A.
    McFall	 
	 	 	Name: Thomas
      A. McFall	 
	 	 	Title: Chairman	 
	 	 	 	 


      

    

     

    
      
        	 	SHELTER ISLAND OPPORTUNITY
      FUND, LLC, Holder	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Michael Coiley 	 
	 	 	Name: Michael
      Coiley	 
	 	 	Title: Authorized
      Signor	 
	 	 	 	 


      

    

     

    
    


    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    ACKNOWLEDGMENT
AND AGREEMENT OF GUARANTORS

     

    The
undersigned, each a guarantor of the indebtedness of Gulfstream International
Group, Inc., a Delaware corporation (“Company”) to Shelter Island
Opportunity Fund, LLC (“Holder”), pursuant to the
separate Guaranty of each dated as of August 21, 2008 (each, as amended from
time to time, a “Guaranty”), hereby (i)
acknowledges receipt of the foregoing Forbearance Agreement and Amendment to
Securities Purchase Agreement and Debenture (the “Agreement”);
(ii) consents to the terms and execution thereof; (iii) reaffirms all
obligations to Holder pursuant to the terms of the Guaranty; and
(iv) acknowledges that Holder may amend, restate, extend, renew or
otherwise modify the Transaction Documents and any indebtedness or agreement of
Company, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under the Guaranty for
all of Company’s present and future indebtedness to Holder.

     

     

    
      	 	
              GULFSTREAM
      INTERNATIONAL AIRLINES, INC.

            	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ David F.
    Hackett	 
	 	 	Name: David
      F. Hackett	 
	 	 	Title: President	 
	 	 	 	 


    

    


    
      	 	GULFSTREAM
      CONNECTION, INC.	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ David F.
    Hackett	 
	 	 	Name: David
      F. Hackett	 
	 	 	Title: President	 
	 	 	 	 


    

     

    
      	 	GULFSTREAM
      TRAINING ACADEMY, INC.	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ Thomas P.
    Cooper	 
	 	 	Name:
      Thomas P. Cooper	 
	 	 	Title: Corporate
      Secretary	 
	 	 	 	 


    

     

    
      	 	 	
              GIA
      HOLDINGS CORP., INC.

            	 
	 	 	 	 	 	 
	 	
               

            	 	
              By:
      

            	/s/ David F.
    Hackett	 
	 	
               

            	 	 	Name: David
      F. Hackett	 
	 	
               

            	 	 	Title: President	 
	 	 	 	 	 	 


    

     

    


    
      
        
           


        

        
          9

          
            

          

        

        
           


        

      

    

     

    ACKNOWLEDGMENT
AND AGREEMENT OF SUBORDINATED CREDITOR

    


    The
undersigned, the subordinated creditor of the indebtedness of Gulfstream
International Group, Inc., a Delaware corporation (“Company”) to Shelter Island
Opportunity Fund, LLC (“Holder”), pursuant to the
separate Subordination Agreement (as amended from time to time, the “Subordination Agreement”),
hereby (i) acknowledges receipt of the foregoing Forbearance Agreement and
Amendment to Securities Purchase Agreement and Debenture (the “Agreement”);
(ii) consents to the terms and execution thereof; (iii) reaffirms all
obligations to Holder pursuant to the terms of the Subordination Agreement; and
(iv) acknowledges that Holder may amend, restate, extend, renew or
otherwise modify the Transaction Documents and any indebtedness or agreement of
Company, or enter into any agreement or extend additional or other credit
accommodations, without notifying or obtaining the consent of the undersigned
and without impairing the liability of the undersigned under the Subordination
Agreement.

     

     

    
      
        	 	GULFSTREAM
      FUNDING, LLC	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Robert C.
      Schroeder	 
	 	 	Name: Robert
      C. Schroeder	 
	 	 	Title:
      Managing Member	 
	 	 	 	 


      

    


    
      
         


      

      
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