Document:

gia_ex104.htm

     

    Exhibit
10.4

     

    SECURITY
AGREEMENT

     

    THIS
SECURITY AGREEMENT (this “Security Agreement”),
dated as of February 26, 2010, is made by GULFSTREAM INTERNATIONAL GROUP,
INC., a Delaware corporation (“Gulfstream”) and
TAGLICH BROTHERS, INC.,
as agent for each and every Purchaser under the Purchase Agreement (in such
capacity, “Secured
Party”) and the subsidiaries of Gulfstream that are signatories hereto
(collectively, the “Guarantors”).  Capitalized
terms used herein shall have the meanings ascribed to them in Section 1
below.

     

    W
I T N E S S E T H:

     

    A.           Pursuant
to that certain purchase agreement, dated of even date herewith (the “Purchase Agreement”)
by and among Gulfstream and the various Purchasers as Secured Party (such
Purchase Agreement, together with all annexes, exhibits and schedules thereto,
as from time to time amended, restated, supplemented or otherwise modified and
in effect, the “Loan
Documents”), Secured Party has agreed to make loans aggregating
$1,000,000 to Gulfstream (individually and collectively, the “Loans”).

     

    B.           The
Loans are evidenced by senior secured promissory notes of Gulfstream (the “Notes”); which Notes
have been unconditionally and irrevocably guaranteed by each Subsidiary of
Gulfstream who is a party signatory hereto (together with Gulfstream,
individually and collectively referred to as the “Debtor”).

     

    C.           As
a condition precedent to Secured Party entering into the Purchase Agreement, and
making the Loans, each Debtor is required to enter into this Security Agreement
to secure the payment and performance of all of the obligations, liabilities and
indebtedness of the Debtor arising under this Agreement, the Purchase Agreement,
the Intercreditor Agreement and the Notes (collectively the “Obligations”).

     

    NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto hereby agree as
follows with the intent to be legally bound:

     

    1. Defined
Terms.

     

    (a) All
capitalized terms used but not otherwise defined herein have the meanings given
to them in the Purchase Agreement or in Annex A thereto.  All other
terms contained in this Security Agreement, unless the context indicates
otherwise, have the meanings provided for by the UCC to the extent the same are
used or defined therein.

     

    (b) “Contractual
Obligations” shall mean, as applied to Debtor, any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
Debtor is a party or by which it or any of its properties is bound or to which
it or any of its properties is subject, including, without limitation, the Loan
Documents.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (c) “Permitted
Liens” shall mean the Shelter Island Lien (as defined in the Intercreditor
Agreement), so long as the Intercreditor Agreement shall remain in full force
and effect, and other liens and security interests on the assets of the Debtor
that are in effect as at the date hereof.

     

    (d) “Uniform Commercial Code
Jurisdiction” means any jurisdiction that has adopted all or
substantially all of Article 9 as contained in the 2000 Official Text of the
Uniform Commercial Code, as recommended by the National Conference of
Commissioners on Uniform State Laws and the American Law Institute, together
with any subsequent amendments or modifications to the Official
Text.

     

    2. Grant of
Lien.  To
secure the prompt and complete payment, performance and observance of all of the
Obligations and all renewals, extensions, restructurings and refinancings
thereof, Gulfstream and each other Debtor hereby grants, mortgages, pledges and
hypothecates to Secured Party, for the benefit of Secured Party and the Lenders,
a first priority Lien upon all of its right, title and interest in, to and upon
all Accounts, whether now owned by or owing to, or hereafter acquired by or
arising in favor of the Debtor and all of the Proceeds from the collection or
sale thereof.

     

    3. Secured Party’s and Lenders’
Rights; Limitations on Secured Party’s and Lenders’
Obligations.

     

    (a) It is
expressly agreed by Debtor that, anything herein or in any other Loan Document
to the contrary notwithstanding, Debtor shall remain liable under each of its
Contractual Obligations, including all Permits, to observe and perform all the
conditions and obligations to be observed and performed by it
thereunder.  Neither Secured Party nor any Lender shall have any
obligation or liability under any Contractual Obligation by reason of or arising
out of this Security Agreement or any other Loan Document or the granting herein
of a Lien thereon or the receipt by Secured Party or any Lender of any payment
relating to any Contractual Obligation pursuant hereto.  Neither
Secured Party nor any Lender shall be required or obligated in any manner to
perform or fulfill any of the obligations of Debtor under or pursuant to any
Contractual Obligation, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any Contractual Obligation, or to present or
file any claims, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.

     

    (b) At any
time an Event of Default has occurred and is continuing, without prior notice to
Debtor, Secured Party may notify Account Debtors and other Persons obligated on
any of the Collateral that Secured Party has a security interest therein, and
that payments shall be made directly to Secured Party, for the benefit of
Secured Party and Lenders.  Upon the request of Secured Party after
the occurrence and during the continuance of an Event of Default, Debtor shall
so notify Account Debtors and other Persons obligated on
Collateral.  Once any such notice has been given to any Account Debtor
or other Person obligated on Collateral, no Debtor shall give any contrary
instructions to such Account Debtor or other Person without Secured Party’s
prior written consent.

     

    
      
        
        

      

      
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    (c) At any
time an Event of Default has occurred and is continuing, without prior notice to
Debtor, Secured Party may, in Secured Party’s own name, in the name of a nominee
of Secured Party or in the name of Debtor, communicate (by mail, telephone,
facsimile or otherwise) with Account Debtors, parties to Contractual Obligations
and obligors in respect of Instruments to verify with such Persons, to Secured
Party’s satisfaction, the existence, amount, terms of, and any other matter
relating to, Accounts, Instruments, Chattel Paper and/or payment
intangibles.

     

    4. Representations and
Warranties.  Each Debtor jointly and severally represents and
warrants to Secured Party that:

     

    (a) Debtor
has rights in and the power to transfer each item of the Collateral upon which
it purports to grant a Lien hereunder free and clear of any and all Liens other
than Permitted Liens.

     

    (b) No
effective security agreement, financing statement, equivalent security or Lien
instrument or continuation statement covering all or any part of the Collateral
is on file or of record in any public office, except such as may have been filed
(i) by Debtor in favor of Secured Party pursuant to this Security Agreement or
the other Loan Documents, and (ii)  in connection with any other
Permitted Liens.

     

    (c) This
Security Agreement is effective to create a valid and continuing Lien on and,
upon the filing of the appropriate financing statements listed on Schedule I hereto, a
perfected Lien in favor of Secured Party, for the benefit of Secured Party and
the Lenders, on the Collateral with respect to which a Lien may be perfected by
filing pursuant to the UCC.  Such Lien is prior to all other Liens
(subject to Permitted Liens) and is enforceable as such as against any and all
creditors of and purchasers from Debtor.  Except as set forth in Sections 4(d) and
4(g), all
action by Debtor necessary or reasonably desirable to protect and perfect such
Lien on each item of such Collateral has been duly taken.  Other than
filing of the necessary UCC financing statements,, no authorization, approval or
consent is required to be obtained from any Governmental Authority or other
Person for the grant of the security interest herein, the perfection thereof or
the exercise by Secured Party of its rights and remedies hereunder.

     

    (d) Debtor’s
name as it appears in official filings in the state of its incorporation or
organization, all prior names of Debtor during the past five (5) years, as they
appeared from time to time in official filings in the state of its incorporation
or organization, the type of entity of Debtor (including corporation,
partnership, limited partnership or limited liability company), organizational
identification number issued by Debtor’s state of incorporation or organization
or a statement that no such number has been issued, Debtor’s state of
organization or incorporation, the location of Debtor’s chief executive office,
principal place of business, other offices, all warehouses, consignees and
processors with whom Inventory or other Collateral is stored or located and
other premises where Collateral is stored or located, and the locations of its
books and records concerning the Collateral are set forth on Schedule II
hereto.  Schedule II hereto
also sets forth the name as it appears in official filings in the state of its
incorporation or organization of any Person from whom Debtor has acquired assets
during the past five (5) years, other than assets acquired in the ordinary
course of Debtor’s business.  Debtor has only one state of
incorporation or organization.

     

    
      
        
        

      

      
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    5. Covenants.  Without
limiting Debtor’s covenants and agreements contained in the Purchase Agreement
and the other Loan Documents, each Debtor jointly and severally covenants and
agrees with Secured Party, for the benefit of Secured Party, that:

     

    (a) Further
Assurances.  At any time and from time to time, upon the
written request of Secured Party, and at the sole expense of Debtor, Debtor
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further actions as Secured Party may deem necessary
or reasonably desirable to obtain the full benefits of this Security Agreement
and of the rights and powers herein granted, including using commercially
reasonable efforts to secure all consents and approvals necessary or appropriate
for the assignment to or for the benefit of Secured Party of any Collateral held
by Debtor and to enforce the security interests granted hereunder.

     

    (b) Debtor
hereby irrevocably authorizes Secured Party at any time and from time to time to
file in any filing office in any Uniform Commercial Code Jurisdiction any
initial financing statements and amendments thereto that (a) indicate the
Collateral as Debtor’s Accounts and the Proceeds thereof or words of similar
effect and (b) contain any other information required by part 5 of Article 9 of
the UCC for the sufficiency or filing office acceptance of any financing
statement or amendment, including whether Debtor is an organization, the type of
organization and any organization identification number issued to
Debtor.  Debtor agrees to furnish any such information to Secured
Party promptly upon Secured Party’s request.

     

    (c) Maintenance of
Records.  Debtor shall keep and maintain, at its own cost and
expense, accurate and complete records of the Collateral, including a record of
any and all payments received and any and all credits granted with respect to
the Collateral and all other dealings with the Collateral.  Debtor
shall mark its books and records pertaining to the Collateral to evidence this
Security Agreement and the Liens granted hereby.

     

    (d) Guaranty of
Obligations.  By their execution of this Agreement, each of the
Guarantors do hereby covenant and agree as follows: 

    
      
         

        (i)           
The Guarantors jointly, severally, unconditionally, irrevocably and
absolutely, guarantee to the Secured Party that all indebtedness and other
Obligations of Gulfstream (“Guaranteed Obligations”), will be promptly paid when
due and performed in accordance with the terms and provisions thereof (and as
they may be amended, extended or renewed from time to time) including, without
limitation, the timely issuance of the Conversion Shares and payment of interest
on all of the above amounts as agreed upon between Gulfstream and the Secured
Party, and any and all renewals, extensions and rearrangements of all or any
part of the Guaranteed Obligations.  This is a continuing guaranty and
shall continue to apply without regard to the form or amount of indebtedness or
obligation which Gulfstream may create, renew, extend or alter in whole or in
part, without notice to the Guarantors.

         

        (ii)           The
obligations, covenants, agreements and duties of the Guarantors under this
Guaranty shall not be released or impaired in any manner whatsoever, without the
written consent of the Secured Party, including on account of any or all of the
following:

      

    

    

    
      	
               
      

            	
              (A)

            	
              any
      permitted assignment, endorsement or transfer, in whole or in part, of the
      Guaranteed Obligations, although made without consent of the
      Guarantors;

            

    

     

    
      	
               
      

            	
              (B)

            	
              any
      waiver by any Secured Party of the performance or observance by either or
      both of Gulfstream or the Guarantors of any of the agreements, covenants,
      terms or conditions contained in any document evidencing, governing or
      securing the Guaranteed
Obligations;

            

    

     

    
      	
               
      

            	
              (C)

            	
              any
      extension of the time for payment or performance of all or any portion of
      the Guaranteed Obligations;

            

    

     

    
      	
               
      

            	
              (D)

            	
              the
      renewal, rearrangement, modification or amendment (whether material or
      otherwise) of any duty, agreement or obligation of Gulfstream set forth in
      any document evidencing, governing or securing the Guaranteed
      Obligations;

            

    

     

    
      	
               
      

            	
              (E)

            	
              the
      voluntary or involuntary liquidation, sale or other disposition of all or
      substantially all of the assets of either or both of Gulfstream or the
      Guarantors;

            

    

     

    
      	
               
      

            	
              (F)

            	
              any
      receivership, insolvency, bankruptcy, reorganization or other similar
      proceedings or lack of corporate power, affecting either or both of
      Gulfstream or the Guarantors or any of their
  assets;

            

    

     

    
      	
               
      

            	
              (G)

            	
              any
      release, withdrawal, surrender, exchange, substitution, subordination or
      loss of any security or other guaranty at any time existing in connection
      with all or any portion of the Guaranteed Obligations, or the acceptance
      of additional or substitute property as security
  therefore;

            

    

     

    
      	
               
      

            	
              (H)

            	
              the
      release or discharge of Gulfstream or the Guarantors from the observance
      or performance of any agreement, covenant, term or condition contained in
      any document evidencing, governing or securing the Guaranteed
      Obligations;

            

    

     

    
      	
               
      

            	
              (I)

            	
              any
      action which the Secured Party may take or omit to take by virtue of any
      document evidencing, governing or securing the Guaranteed Obligations or
      through any course of dealing with either or both of Gulfstream or the
      Guarantors;

            

    

     

    
      
        
        

      

      
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              (J)

            	
              the
      addition of a new guarantor or
guarantors;

            

    

     

    
      	
               
      

            	
              (K)

            	
              the
      operation of law or any other cause, whether similar or dissimilar to the
      foregoing;

            

    

     

    
      	
               
      

            	
              (L)

            	
              any
      adjustment, indulgence, forbearance or compromise that may be granted or
      given by the Secured Party to any
party;

            

    

     

    
      	
               
      

            	
              (M)

            	
              the
      failure by the Secured Party to file or enforce a claim against the estate
      (either in administration, bankruptcy or other proceeding) of
      Gulfstream;

            

    

     

    
      	
               
      

            	
              (N)

            	
              if
      the recovery from Gulfstream becomes barred by any statute of limitations
      or is otherwise prevented;

            

    

     

    
      	
               
      

            	
              (O)

            	
              any
      defenses, set-offs or counterclaims which may be available to Gulfstream;
      or

            

    

     

    
      	
               
      

            	
              (P)

            	
              any
      neglect, delay, omission, failure or refusal of the Secured Party to take
      or prosecute any action for the collection of any of the Guaranteed
      Obligations or to foreclose or take or prosecute any action in connection
      with any lien, right of security (including perfection thereof), existing
      or to exist in connection with, or as security for, any of the Guaranteed
      Obligations, it being the intention hereof that the Guarantors shall
      remain liable as principals on the Guaranteed Obligations, notwithstanding
      any act, omission or thing which might, but for the provisions hereof,
      otherwise operate as a legal or equitable discharge of any
      Guarantor.

            

    

     

    (iii)         
In
the event of default by Gulfstream in payment or performance of the Guaranteed
Obligations, or any part thereof, when such indebtedness or performance becomes
due, either by its terms or as the result of the exercise of any power to
accelerate, the Guarantors shall, without notice or demand, and without any
notice having been given to the Guarantors of the acceptance by any Secured
Party of this Guaranty and without any notice having been given to the
Guarantors of the creating or incurring of such indebtedness, pay the amount due
thereon to the Secured Party, at its office, or at such other place as may be
designated in writing by such Secured Party, and it shall not be necessary for
any Secured Party, in order to enforce such payment by the Guarantors, first, to
institute suit or exhaust its remedies against Gulfstream or others liable on
such indebtedness, or to enforce its rights against any security which shall
ever have been given to secure such indebtedness.

     

    (iv)         Notice
to the Guarantors of the acceptance of this Guaranty and of the making, renewing
or assignment of the Guaranteed Obligations and each item thereof, are hereby
expressly waived by the Guarantors.

     

    (v)         
Each payment on the Guaranteed Obligations shall be deemed to have been
made by Gulfstream unless express written notice is given to the Secured Party
at the time of such payment that such payment is made by the Guarantors as
specified in such notice.

     

    
      
        
        

      

      
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      (vi)         If
the Guaranteed Obligations at any time exceeds the amount permitted by law, or
Gulfstream is not liable because the act of creating the Guaranteed Obligations
is ultra vires, or the officers or persons creating the Guaranteed Obligations
acted in excess of their authority, and for these reasons the Guaranteed
Obligations which the Guarantors agree to pay cannot be enforced against
Gulfstream, such fact shall in no manner affect the Guarantors’ liability
hereunder, but the Guarantors shall be liable under this Guaranty
notwithstanding that Gulfstream is not liable for the Guaranteed Obligations,
and to the same extent the Guarantors would have been liable if the Guaranteed
Obligations had been enforceable against Gulfstream.

       

      (vii)      
In the Event of Default by Gulfstream, as such term is defined in the
Investment, and if any such Event of Default shall occur at a time when any of
the Guaranteed Obligations may not then be due and payable, such Guaranteed
Obligations, at the option of the Secured Party, shall thereupon be deemed to be
immediately due and payable in full, and the Guarantors shall pay to the Secured
Party forthwith the full amount which would be payable hereunder if all
Guaranteed Obligations were then due and payable.

       

      (viii)      This
Guaranty is for the benefit of the Secured Party, their permitted successors and
assigns, and in the event of an assignment by any Secured Party, its permitted
successors or assigns, of the Guaranteed Obligations, or any part thereof, the
rights and benefits hereunder, to the extent applicable to the indebtedness so
assigned, may be transferred with such indebtedness.

       

      (ix)        
No modification, consent, amendment or waiver of any provision of this
Guaranty, nor consent to any departure by any Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of the
Secured Party and Guarantor, and then shall be effective only in the specific
instance and for the purpose for which given.  No notice to or demand
on the Guarantors in any case shall, of itself, entitle the Guarantors to any
other or further notice or demand in similar or other
circumstances.  No delay or omission by any Secured Party in
exercising any power or right hereunder shall impair any such right or power or
be construed as a waiver thereof or any acquiescence therein, nor shall any
single or partial exercise of any such power preclude other or further exercise
thereof, or the exercise of any other right or power hereunder.  All
rights and remedies of the Secured Party hereunder are cumulative of each other
and of every other right or remedy which the Secured Party may otherwise have at
law or in equity or under any other contract or document, and the exercise of
one or more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies.  In this Guaranty,
whenever the context so requires, the singular number includes the plural, and
conversely

       

      (x)         
Should the Guarantors be permitted to raise usury as a defense under
applicable law, then no provision herein or in the Transaction Documents shall
require the payment or permit the collection of interest in excess of the
maximum permitted by law.  Should such defense be available, the
Guarantors shall not be obligated to pay the amount of such interest to the
extent that it is in excess of the amount permitted by law as to the
Guarantors.  Should the Guarantors be permitted to raise the usury
defense and prevail, the Transaction Documents shall be held subject to
reduction of the interest charged to the amount allowed under said usury laws as
now or hereafter construed by the courts having jurisdiction.  The
parties agree that New York State law shall control as to this
issue.\

       

      (xi)         The
Guarantors acknowledge and warrant that they have derived or expect to derive
financial and other advantage and benefit, directly or indirectly, from the
Guaranteed Obligations and each and every advance thereof and from each and
every renewal, extension, release of collateral or other relinquishment of legal
rights made or granted or to be made or granted by the Secured Party to
Gulfstream.

       

      (xii)        Each
Guarantor hereby warrants and represents to the Secured Party that:

       

      (A)           Such
Guarantor is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and is duly qualified and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect.  Such Guarantor has the
corporate or other requisite power and authority to execute and deliver this
Guaranty and to perform the provisions hereof.

       

      (B)           This
Guaranty has been duly authorized by all necessary action on the part of such
Guarantor, and this Guaranty constitutes a legal, valid and binding obligation
of such Guarantor enforceable against such Guarantor in accordance with its
terms.

       

      (C)           The
execution, delivery and performance by such Guarantor of this Guaranty will not
(i) contravene, result in any breach of, or constitute a default under, or
result in the creation of any lien, claim or encumbrance in respect of any
property of such Guarantor under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws or other
organizational document, or any other agreement or instrument to which such
Guarantor is bound or by which such Guarantor or any of its properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or governmental authority applicable to such Guarantor or (iii)
violate any provision of any statute or other rule or regulation of any
governmental authority applicable to such Guarantor.

       

      (D)           No
consent, approval or authorization of, or registration, filing or declaration
with, any governmental authority is required in connection with the execution,
delivery or performance by such Guarantor of this
Guarantee.

    

     

    
      
        
        

      

      
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      (xiii)       
If, for any reason whatsoever, Gulfstream now or hereafter becomes
indebted to the Guarantors, such indebtedness and all interest thereon, shall,
at all times, be subordinate in all respects to the Transaction Documents, and
the Guarantors shall not be entitled to enforce or receive payment thereof until
the Guaranteed Obligations has been fully paid and
satisfied.  Notwithstanding anything to the contrary contained in this
Guaranty or any payments made by the Guarantors hereunder, the Guarantors shall
not have any right of subrogation in or under the Transaction Documents or to
participate in any way therein, or any right, title or interest in and to any
mortgaged property or any collateral for the Guaranteed Obligations, all such
rights of subrogation and participation being hereby expressly waived and
released, until the Guaranteed Obligations has been fully paid and
satisfied.

    

     

    (d) Debtor
will perform and comply in all material respects with all obligations in respect
of the Collateral and all other agreements to which it is a party or by which it
is bound relating to the Collateral.

     

    (e) Further Identification of
Collateral.  Debtor will, if requested by Secured Party,
furnish to Secured Party, as often as Secured Party, in its Permitted
Discretion, requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Secured Party may request, in its Permitted Discretion, all in
such detail as Secured Party may specify.  Debtor shall promptly
notify Secured Party in writing upon acquiring any interest hereafter in
property that is of a type where a security interest or lien must be or may be
registered, recorded or filed under, or notice thereof given under, any federal
statute or regulation.

     

    (f) Terminations; Amendments Not
Authorized.  Debtor acknowledges that it is not authorized to
file any financing statement or amendment or termination statement with respect
to any financing statement filed in favor of Secured Party, for the benefit of
Secured Party and the Lenders, without the prior written consent of Secured
Party and agrees that it will not do so without the prior written consent of
Secured Party, subject to Debtor’s rights under Section 9-509(d)(2) of the
UCC.

     

    (g) Use of
Collateral.  Debtor will do nothing to impair the rights of
Secured Party in any of the Collateral.  Debtor will not adjust,
settle or compromise the amount or payment of any Account, or release wholly or
partly any Account Debtor thereof or allow any credit or discount thereon (other
than credits and discounts in the ordinary course of business and as expressly
permitted in the Purchase Agreement).

     

    (h) Federal
Claims.  Debtor shall take such steps as may be necessary to
comply with any applicable federal or state assignment of claims laws or other
comparable laws if any Collateral constitutes a claim against the United States
government, any state government or any instrumentality or agent thereof, the
assignment of which is restricted by federal or state law.

     

    
      
        
        

      

      
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    6. Secured Party’s Appointment
as Attorney-In-Fact.

     

    Debtor
hereby irrevocably constitutes and appoints Secured Party, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Debtor and in the name of Debtor
or in its own name, from time to time in the Permitted Discretion of Secured
Party, for the purpose of carrying out the terms of this Security Agreement, to
take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary to accomplish the purposes of
this Security Agreement and, without limiting the generality of the foregoing,
hereby gives Secured Party the power and right, on behalf of Debtor, without
notice to or assent by Debtor, to do the following upon the occurrence and
during the continuation of any Event of Default:

     

    (a)   to ask,
demand, collect, receive and give acquittance and receipts for any and all
moneys due and to become due under any Collateral and, in the name of Debtor or
its own name or otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other Instruments for the payment of
moneys due under any Collateral and to file any claim or to take any other
action or proceeding in any court of law or equity or otherwise deemed
appropriate by Secured Party for the purpose of collecting any and all such
moneys due under any Collateral whenever payable and to file any claim or to
take any other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Secured Party for the purpose of collecting any and all
such moneys due under any Collateral whenever payable;

     

    (b)   to pay or
discharge charges or liens levied or placed on or threatened against the
Collateral (other than the Permitted Liens);

     

    (c)           to
direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due, and to become due thereunder, directly to
Secured Party or as Secured Party shall direct, and to receive payment of and
receipt for any and all moneys, claims and other amounts due, and to become due
at any time, in respect of or arising out of any Collateral;

     

    (d)           to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with accounts and other Documents
constituting or relating to the Collateral;

     

    (e)           to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any part
thereof and to enforce any other right in respect of any
Collateral;

     

    (f)           to
defend any suit, action or proceeding brought against Debtor with respect to any
Collateral;

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (g)           to
settle, compromise or adjust any suit, action or proceeding described above and,
in connection therewith, to give such discharges or releases as Secured Party
may deem appropriate;

     

    (h)           to
file such financing statements with respect to this Security Agreement, or to
file a photocopy of this Security Agreement in substitution for a financing
statement, as Secured Party may deem appropriate, and to execute in Debtor’s
name such financing statements and amendments thereto and continuation
statements which may require Debtor’s signature; and

     

    (i)           generally
to sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were
the absolute owners thereof for all purposes, and to do, at Secured Party’s
option and at Debtor’s expense, at any time, or from time to time, all acts and
things which Secured Party deems necessary, in its Permitted Discretion, to
protect, preserve or realize upon the Collateral and Secured Party’s Lien
therein, in order to effect the intent of this Security Agreement, all as fully
and effectively as Debtor might do.

     

    Debtor
hereby ratifies, to the extent not expressly prohibited by law, all that such
attorneys lawfully do or cause to be done by virtue hereof.  The power
of attorney granted hereunder is a power coupled with an interest and shall be
irrevocable until the Obligations are indefeasibly paid in full, in cash and the
Purchase Agreement is terminated.

     

    Debtor
also authorizes Secured Party, at any time from and after the occurrence and
during the continuation of any Event of Default, to execute, in connection with
any sale of Collateral, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

     

    7. Remedies; Rights Upon
Default.

     

    (a)   In
addition to all other rights and remedies granted under this Security Agreement,
the Purchase Agreement, the other Loan Documents and under any other instrument
or agreement securing, evidencing or relating to any of the Obligations, if any
Event of Default shall have occurred and be continuing, Secured Party shall have
the right to exercise any and all rights and remedies provided for in any Loan
Document, under the UCC or at law or in equity, including, without limitation,
the right to (i) apply any Property of Debtor held by Secured Party, for the
benefit of Secured Party and the Lenders, or any Lender to reduce the
Obligations, (ii) foreclose the Liens created under the Loan Documents, (iii)
realize upon, take possession of and/or sell or otherwise transfer any
Collateral, with or without judicial process, (iv) exercise all rights and
powers with respect to the Collateral as Debtor might exercise, (v) collect and
send notices regarding the Collateral, with or without judicial process, (vi) by
its own means or with judicial assistance, enter any premises at which
Collateral is located, or render any of the foregoing unusable or dispose of the
Collateral on such premises without any liability for rent, storage, utilities,
or other sums, and no Debtor shall resist or interfere with such action, (vii)
at Debtor’ expense, require that all or any part of the Collateral be assembled
and made available to Secured Party at any place designated by Secured Party in
its Permitted Discretion, (viii) reduce or otherwise change the Facility Cap,
and/or (ix) relinquish or abandon any Collateral or any Lien
thereon.  Any provision of any Loan Document, to the contrary
notwithstanding, Secured Party, in its Permitted Discretion, shall have the
right, at any time that Debtor fails to do so, and from time to time, without
prior notice, to: (i) obtain insurance covering any of the Collateral to the
extent required hereunder; (ii) pay for the performance of any of the
Obligations; and (iii) discharge taxes, levies and/or Liens on any of the
Collateral that are in violation of any Loan Document.  Any expenses
and advances shall be added to the Obligations until reimbursed to Secured Party
and shall be secured by the Collateral and payable on demand, and such payments
by Secured Party shall not be construed as a waiver by Secured Party or Lenders
of any Event of Default or any other rights or remedies of Secured Party and
Lenders.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

      (b)   The
Debtor agrees that notice received at least ten (10) calendar days before the
time of any intended public sale, or the time after which any private sale or
other disposition of Collateral is to be made, shall be deemed to be reasonable
notice of such sale or other disposition.  If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized market may be sold immediately by Secured Party
without prior notice to Debtor.  At any sale or disposition of
Collateral, Secured Party may (to the extent permitted by applicable law)
purchase all or any part thereof free from any right of redemption by the
Debtor, which right hereby is waived and released.  The Debtor
covenants and agrees not to, and not to permit or cause any of its Subsidiaries
to, interfere with or impose any obstacle to Secured Party’s exercise of its
rights and remedies with respect to the Collateral.  In dealing with
or disposing of the Collateral or any part thereof, Secured Party and Lenders
shall not be required to give priority or preference to any item of Collateral
or otherwise to marshal assets or to take possession or sell any Collateral with
judicial process.

       

      (c)   Secured
Party acknowledges and agrees that its rights and remedies pursuant to this
Agreement are subject in their entirety to the terms and conditions of that
certain Wavier, Consent, and Intercreditor Agreement dated as of the date hereof
by and among Secured Party, Shelter Island Opportunity Fund, LLC, and Gulfstream
(the “Intercreditor Agreement”).  In the event of a conflict between
the terms of this Agreement and the Intercreditor Agreement, the terms of the
Intercreditor Agreement shall control.

    

     

    8. Limitation on Secured
Party’s and Lenders’ Duty in Respect of Collateral.  Secured
Party and each Lender shall use reasonable care with respect to the Collateral,
if any, in its possession or under its control.  Neither Secured Party
nor any Lender shall have any other duty as to any Collateral in its possession
or control or in the possession or control of any agent or nominee of Secured
Party or such Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto.  Secured
Party shall be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which it accords its own
property.  Secured Party shall not be liable or responsible for any
loss or damage to, or resulting from, any of the Collateral, or for any
diminution in the value thereof, by reason of the act or omission of any
warehousemen, carrier, forwarding agency, consignee or other agent or bailee
selected by Secured Party in good faith.

     

    9. Reinstatement.  To
the extent that any payment made or received with respect to the Obligations is
subsequently invalidated, determined to be fraudulent or preferential, set
aside, defeased or required to be repaid to a trustee, debtor in possession,
receiver, custodian or any other Person under any Debtor Relief Law, common law
or equitable cause or any other law, then the Obligations intended to be
satisfied by such payment shall be revived and shall continue as if such payment
had not been received by Secured Party or any Lender and the Liens created by
this Security Agreement shall be revived automatically without any action on the
part of any party hereto and shall continue as if such payment had not been
received by Secured Party or such Lender.  Except as specifically
provided in this Security Agreement or any other Loan Document, any payments
with respect to the Obligations received shall be credited and applied in such
manner and order as Secured Party shall decide in its sole
discretion.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    10. Expenses and Attorneys
Fees.  Without limiting Debtor’s obligations under the Purchase
Agreement or the other Loan Documents, Debtor agrees to promptly pay all (to the
extent required by the Purchase Agreement) fees, costs and expenses (including
attorneys’ fees and expenses and allocated costs of internal legal staff)
incurred in connection with (a) protecting, storing, warehousing, appraising,
insuring, handling, maintaining and shipping the Collateral, (b) creating,
perfecting, maintaining and enforcing Secured Party’s Liens and (c) collecting,
enforcing, retaking, holding, preparing for disposition, processing and
disposing of Collateral.

     

    11. Notices.  Except
as otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other party, or
whenever any of the parties desires to give and serve upon any other party any
communication with respect to this Security Agreement, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and shall be given in the manner, and deemed received, as provided for
in the Purchase Agreement.

     

    12. Limitation by
Law.  All rights, remedies and powers provided in this Security
Agreement may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions of this Security
Agreement are intended to be subject to all applicable mandatory provisions of
law that may be controlling and to be limited to the extent necessary so that
they shall not render this Security Agreement invalid, unenforceable, in whole
or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.

     

    13. Termination of this Security
Agreement.  Subject to Section 9 hereof,
this Security Agreement shall remain in full force and effect until payment in
full in cash and performance of all of the Obligations, termination of the
Commitments, and a release of all claims against Secured Party and the other
Lenders, and so long as no suits, actions, proceedings, or claims are pending or
threatened against any indemnified party asserting any damages, losses or
liabilities are indemnified liabilities hereunder or under the Purchase
Agreement, whereupon this Security Agreement shall terminate without further
action on the part of any Person.

     

    14. Successors and
Assigns.  This Security Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that no Debtor may assign its rights or obligations hereunder
without the written consent of all Secured Party and all Lenders.  No
sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Obligations
or any portion thereof or interest therein shall in any manner impair the Lien
granted to Secured Party, for the benefit of Secured Party and the Lenders,
hereunder.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    15. Counterparts.  This
Security Agreement and any amendments, waivers, consents or supplements may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts taken together shall
constitute but one in the same instrument.  This Security Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto.  This Security Agreement may be authenticated by
manual signature, facsimile or, if approved in writing by Secured Party,
electronic means, all of which shall be equally valid.

     

    16. Applicable
Law.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPALS THAT RESULT IN THE
APPLICATION OF THE LAWS OF A DIFFERENT JURISDICTION.

     

    17. Headings.  Section
headings are included herein for convenience of reference only and shall not
constitute a part of this Security Agreement for any other purposes or be given
substantive effect.

     

    18. Benefit of
Lenders.  All Liens granted or contemplated hereby shall be for
the benefit of Secured Party, individually, and the other Lenders, and all
proceeds or payments realized from Collateral in accordance herewith shall be
applied to the Obligations in accordance with the terms of the Purchase
Agreement.

     

    19. Conflict.  In
the event of any conflict between any term, covenant or condition of this
Security Agreement and any term, covenant or condition of the Purchase
Agreement, the provisions of the Purchase Agreement shall control and
govern.

     

    The
balance of this page intentionally left blank – signature page
follows

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    IN
WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement
to be executed and delivered by its duly authorized officer as of the date first
set forth above.

     

    
      
        	 	
                GULFSTREAM INTERNATIONAL GROUP,
      INC., a Delaware corporation

              	 
	 	 	 	 
	
                 

              	
                By:
      

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

      

    

     

    
    

    
      
        	 	
                
                  GULFSTREAM INTERNATIONAL
      AIRLINES, INC., a Florida corporation

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

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

      

       

      
        	 	
                
                  GULFSTREAM CONNECTION,
      INC., a Florida corporation

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

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

                                                           

      
        	 	
                
                  GULFSTREAM TRAINING ACADEMY,
      INC., a Delaware corporation

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

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

       

      
        	 	
                
                  GIA HOLDINGS CORP.,
      INC., a Delaware corporation

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ David F.
      Hackett                                                                	 
	 	Name: 	David F.
      Hackett                                                                	 
	 	Title: 	President 	 
	 	 	 	 
	 	
                Address
      for Notices for Debtor: 

                 

                3210
      Griffin Road, 4th
      floor, 

                Fort
      Lauderdale, Florida 33312 Attention:  

                David
      Hackett, President 

                Telephone:  954-985-1500

              	 

      

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      
        	 	
                TAGLICH BROTHERS, INC.,
      

                  as
      collateral agent for the Purchasers, each of whom is a Secured
      Party

                

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Robert
      C.
      Schroeder                                                 	 
	 	Name: 	Robert
      C.
      Schroeder                                                 	 
	 	Title: 	Vice
      President	 
	 	 	 	 
	 	
                275
      Madison Avenue, Suite 1618

                New
      York, NY 10016

                Telephone:
      212.661.6886

                Facsimile:
      212.661.6824

              	 

      

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    SCHEDULE
I

     

    to

     

    SECURITY
AGREEMENT

     

    Filing
Jurisdictions

     

    
      
        	Debtor	 	Filing
      Jurisdiction
	
                Gulfstream
      International Group, Inc.

                GIA
      Holdings Corp.,
      Inc.                                                                         

                Gulfstream
      International Airlines,
      Inc.                                                                           

                Gulfstream
      Training Academy,
      Inc.                                                                                     

                Gulfstream
      Connection,
      Inc.                                                                                    

              	 	
                Delaware

                Delaware

                Florida

                Florida 

                Florida

              

      

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

    

     

    SCHEDULE
II

    to

    SECURITY
AGREEMENT

    Schedule
of Organizational Identification, Offices,

     

     Locations
of Collateral and Excluded Collateral

     

    and
Records Concerning Collateral and Excluded Collateral

    
       

      
        	 I.   	 Prior official
      names of Debtor: None
	 	 
	II.   	 Type of entity
      (e.g. corporation, partnership, business trust, limited partnership,
      limited liability company):  Corporations
	 	 
	III.   	 Chief
      executive office and principal place of business of
      Debtor:  3210 Griffin Road, 4th
      floor, Fort Lauderdale, Florida 33312
	 	 
	IV.   	 Warehouses,
      Consignees and Processors:  None
	 	 
	V.   	 Other premises
      at which Collateral or Excluded Collateral is stored or
      located:  None

      

                       

    

    
      
        
        

      

      
        16gia_ex105.htm

     

    Exhibit 10.5

     

    WAIVER, CONSENT AND
INTERCREDITOR AGREEMENT

     

    THIS
WAIVER, CONSENT, AND INTERCREDITOR AGREEMENT is entered into the 26th day
of February 2010 (this “Agreement”) by and among TAGLICH BROTHERS, INC., as
collateral agent (the “Collateral Agent”) for the Purchasers listed on Exhibit A to the
“Taglich Debt Documents” (as hereinafter defined), with an address of 275
Madison Avenue, Suite 1618, New York, NY 10016 (with the Collateral Agent,
individually and collectively, the “Senior Creditor”); SHELTER ISLAND
OPPORTUNITY FUND, LLC, a Delaware limited liability company with a place of
business, c/o RAM Capital Resources, LLC, at 535 Fifth Avenue, 25th
floor, New York, NY 10017 (“Shelter Island”), and GULFSTREAM INTERNATIONAL
GROUP, INC., a Delaware corporation with a place of business at 3201 Griffin
Road, Ft. Lauderdale, Florida 33312 (“Gulfstream” or the “Debtor”).

     

    RECITALS

     

    WHEREAS,
Gulfstream is currently indebted to Shelter Island in the aggregate amount of
$3,909,000 (the “Shelter Island Debt”) pursuant to an amended and restated loan
agreement dated of even date herewith (the “Shelter Island Loan Agreement”);
and

     

    WHEREAS,
the obligations of Gulfstream to retire the Shelter Island Debt owed to Shelter
Island under the Shelter Island Loan Agreement is secured by a first priority
lien and security interest (the “Shelter Island Lien”) in and to all of the
assets and properties of Gulfstream and its Subsidiaries whether now owned or
hereafter acquired and any and all additions and accessions to any of the
foregoing, and any and all replacements, products, proceeds (including insurance
proceeds) and substitutions of any of the foregoing wherever located
(collectively, the “Collateral”); and

     

    WHEREAS,
Gulfstream and the Senior Creditor have entered into a purchase agreement, dated
as of February 26, 2010 (the “Purchase Agreement”) pursuant to which the Senior
Creditor has agreed to lend $1,000,000 to Gulfstream (the “Senior Loan”); which
Senior Loan is evidenced by Gulfstream’s senior secured notes in the aggregate
principal amount of $1,000,000 which is guaranteed by each Subsidiary of
Gulfstream (individually and collectively, the “Senior Note”); and

     

    WHEREAS,
pursuant to the transactions contemplated by the Purchase Agreement, Gulfstream
has agreed to grant to the Senior Creditor a first priority lien and security
interest (the “Senior Creditor Lien”) in the “Accounts” (as that term is defined
in the Security Agreement annexed as an exhibit to the Purchase Agreement) of
Gulfstream and its Subsidiaries whether now owned or hereafter acquired and any
and all additions and accessions to any of the foregoing, and any and all
replacements, proceeds (including credit insurance proceeds of such Accounts)
and substitutions of any of the foregoing wherever located (collectively, the
“Senior Creditor Collateral”); and

     

    WHEREAS,
the Senior Creditor would not agree to make the Senior Loan unless Shelter
Island also agrees to subordinate the Shelter Island Lien to the Senior Creditor
Lien on the Senior Creditor Collateral, all pursuant to the terms and conditions
of this Agreement.

     

    NOW
THEREFORE, the parties hereto agree as follows:

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    1. Definitions.  As
used herein, the following terms shall be defined as follows:

     

    A. “Proceeding”
shall mean any voluntary or involuntary insolvency, bankruptcy, receivership,
custodianship, liquidation, dissolution, reorganization, assignment for the
benefit of creditors, appointment of a custodian, receiver, trustee or other
officer with similar powers or any other proceeding for the liquidation,
dissolution or other winding up of Gulfstream or any Subsidiary.

     

    B. “Priority
Senior Debt” shall mean the obligations of Gulfstream and its Subsidiaries to
the Senior Creditor under the Purchase Agreement and the Note; provided,
however, that in no event shall Priority Senior Debt (as defined herein)
exceed the principal amount of $1,000,000 plus accrued and unpaid interest
thereon pursuant to the Note and the Purchase Agreement.

     

    C. “Priority
Senior Debt Default” shall mean a default in the payment of the Priority Senior
Debt or in the performance of any term, covenant or condition contained in the
Purchase Agreement or any other occurrence permitting the Senior Creditor to
accelerate the payment of all or any portion of the Priority Senior Debt, and
shall also include any Shelter Island Debt Default.

     

    D. “Shelter
Island Debt Default” shall mean a default in the payment of the Shelter Island
Debt or in the performance of any term, covenant or condition contained in the
Shelter Island Debt Documents or any other occurrence permitting Shelter Island
to accelerate the payment of all or any portion of the Shelter Island
Debt.

     

    E. “Shelter
Island Debt Documents” shall mean the collective reference to (a) the loan and
security agreement and related documents in effect as of the date hereof, and
(b) the contemplated restructuring of the Shelter Island Debt in accordance with
the proposed restructuring term sheet in the form of Exhibit A annexed
hereto and made a part hereof, and any and all amendments, modifications or
restatements hereof entered into.

     

    F. “Shelter
Island Enforcement Action” shall mean (a) to take from or for the account of
Gulfstream or any co-obligor or guarantor of the Shelter Island Debt, by set-off
or in any other manner, except acceptance of regularly scheduled payments in
accordance with the terms of the Shelter Island Debt Documents, the whole or any
part of any moneys which may now or hereafter be owing by Gulfstream or any such
co-obligor or guarantor with respect to the Shelter Island Debt, (b) except as
otherwise provided in Section 4A hereof, accept or retain any payment of any
amount with respect to the Shelter Island Debt, except regularly scheduled
payments in accordance with the terms of the Shelter Island Debt Documents, (c)
to sue for payment of, or to initiate or participate with others in any suit,
action or proceeding against Gulfstream or any such co-obligor or guarantor to
(i) enforce payment of or to collect the whole or any part of the Shelter Island
Debt or (ii) commence judicial enforcement of any of the rights and remedies
under the Shelter Island Debt Documents or applicable law with respect to the
Shelter Island Debt, (d) to accelerate the Shelter Island Debt, or (e) to take
any action under the provisions of any state or federal law, including, without
limitation, the Uniform Commercial Code, or under any contract or agreement, to
enforce, foreclose upon, take possession of or sell any property or assets of
Gulfstream or any such co-obligor or guarantor, including the Senior Creditor
Collateral.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    G. “Subsidiaries”
shall mean the collective reference to Gulfstream International Airlines, Inc.,
a Florida corporation, Gulfstream Training Academy, Inc., a Florida corporation,
Gulfstream Connection, Inc., a Florida corporation and GIA Holdings Corp., Inc.,
a Delaware corporation, all of which are wholly-owned subsidiaries of the
Debtor.

     

    H. “Taglich
Debt Documents” shall mean the collective reference to (a) the Purchase
Agreement among Gulfstream, its Subsidiaries and the persons listed as
“Purchasers” of the Note on Exhibit A thereto, and (b) all exhibits to such
Purchase Agreement; a true copy of which has been furnished to RAM Capital
Resources LLC.

     

    2. Waiver and Consent;
Confirmation of Lien.  Subject to the terms of this
Agreement:

     

    (a)           Shelter
Island hereby (i) consents to the granting of a first priority lien and security
interest in the Senior Creditor Collateral in favor of the Senior Creditor to
secure the Priority Senior Debt, (ii) subordinates the Shelter Island Lien to
the first priority Senior Credit Lien in the Senior Creditor Collateral, and
(iii) consents to the filing of UCC Financing Statements related to the Priority
Senior Debt;

     

    (b)           the
Senior Creditor hereby (i) consents to and affirms the existing security
interest in the Collateral in favor of Shelter Island, (ii) acknowledges that,
except for the Senior Creditor Collateral, the Shelter Island Lien represents a
first priority lien and security interest in and to all of the Collateral, and
(iii) consents to the filing of UCC Financing Statements related to the Shelter
Island Debt; and

     

    (c)           Gulfstream
does hereby represent, warrant and covenant that, except for the Senior Creditor
Lien securing the Priority Senior Debt, the Shelter Island Lien securing the
Shelter Island Debt represents a first priority lien and security interest on
all of the Collateral which has priority over all liens and security interest in
the Collateral, other than the Senior Creditor Lien.

     

    3. Notice of
Default.  Shelter Island further agrees to give the Senior
Creditor notice of receipt of any payment on or applied by Shelter Island in
respect of the Shelter Island Debt if such payment is proceeds of the
Senior Creditor Collateral or is not permitted by Section 4A, after receipt by
Senior Creditor of a Shelter Island Debt Default; provided, that the failure to
provide any such notice shall not affect the rights of any party under this
Agreement.  The Senior Creditor also agrees to give Shelter Island
notice of receipt of any payment on or applied by the Senior Creditor in respect
of the Priority Senior Debt if such payment is proceeds of the Collateral, other
than the Senior Creditor Collateral, or is not permitted by Section 4A, after
receipt by Senior Creditor of a Shelter Island Debt Default; provided, that the
failure to provide any such notice shall not affect the rights of any party
under this Agreement.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    4. Prepayments; Payments in
Respect of Senior Creditor Collateral and the Collateral.

     

    A.           Except
as otherwise set forth in this Section 4A, neither the Debtor nor any Subsidiary
shall prepay, in whole or in part, any indebtedness or other obligations in
respect of either the Shelter Island Debt or the Senior Loan without, in each
instance, the prior written consent of both Shelter Island and the Senior
Creditor.  Notwithstanding the foregoing:

     

    (i)           Shelter
Island shall have the absolute right to demand and receive prepayments of the
Shelter Island Debt out of any cash proceeds received by the Debtor from the
sale or liquidation of any of the Collateral, other than the Senior Creditor
Collateral; provided, however, that following payment in full of the Priority
Senior Debt, Shelter Island shall have the absolute right to demand and receive
prepayments of the Shelter Island Debt out of any cash proceeds received by the
Debtor from the sale or liquidation of any Accounts; provided, that, absent the
liquidation or sale of Accounts, no prepayment of Shelter Island Debt shall be
permitted in connection with cash proceeds received by Debtor from the
collection of Accounts in the ordinary course of business of the
Debtor;

     

    (ii)           the
Senior Creditor shall have the absolute right to demand and receive prepayments
of the Priority Senior Debt out of any cash proceeds received by the Debtor from
the sale or liquidation of any of the Senior Creditor Collateral; provided,
that, absent the liquidation or sale of Accounts, no prepayment of Senior
Creditor Debt shall be permitted in connection with cash proceeds received by
Debtor from the collection of Accounts in the ordinary course of business of the
Debtor; and

     

    (iii)           in
the event of any public or private offering of equity securities of Gulfstream
or any debt securities of Gulfstream that are convertible into or exchangeable
for equity securities of Gulfstream (each an “Equity Type Financing”), the net
proceeds (defined as gross proceeds less sales commissions, underwriting
discounts and other customary offering expenses) received by Gulfstream shall be
applied as follows:

     

    (1)           first
to the purchase of aircraft currently under lease;

     

    (2)           second,
to provide Gulfstream and its Subsidiaries with working capital in such amounts
as shall be reasonably acceptable to Gulfstream and reasonably acceptable to the
Senior Creditor and Shelter Island; and

     

    (3)           third,
to each of the Shelter Island and the Senior Creditor, in pro-rata amounts, as
the then outstanding amount of each of the Shelter Island Debt and the Priority
Senior Creditor Debt bear to aggregate indebtedness then owed to both Shelter
Island and the Senior Creditors.

     

    B.           Except
for regularly scheduled payments in accordance with the terms of the Shelter
Island Debt Documents, in the event that, following a Shelter Island Debt
Default or a Priority Senior Debt Default, Shelter Island shall receive any cash
payments from the Debtor or any Subsidiary that represent proceeds derived from
the sale or collection of the Senior Creditor Collateral, Shelter Island shall
hold such payments in trust for the benefit of the Senior Creditor until such
time all the Senior Note, together with all accrued and unpaid interest thereon,
shall have been paid in full.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    C.           Except
for regularly scheduled payments in accordance with the terms of the Taglich
Debt Documents and the Note, in the event that, following a Shelter Island Debt
Default or a Priority Senior Debt Default, the Senior Creditor, or any of them,
shall receive any cash payments from the Debtor or any Subsidiary that represent
proceeds derived from the sale or collection of any of the Collateral (other
than from the proceeds of the specific Senior Creditor Collateral), the Senior
Creditor shall hold such payments in trust for the benefit of the Shelter
Island.

     

    5. Subordination of
Liens.  Until the Priority Senior Debt has been indefeasibly
paid in full in cash, any liens and security interests of Shelter Island in the
Collateral shall be and hereby are subordinated for all purposes and in all
respects to the liens and security interests of Senior Creditor in the Senior
Creditor Collateral, regardless of the time, manner or order of perfection of
any such liens and security interests.  The Senior Creditor and
Shelter Island agree that neither of them will at any time contest the validity,
perfection, priority or enforceability of the Priority Senior Debt, the Shelter
Island Debt the Priority Senior Debt Documents, the Shelter Island Debt
Documents or the liens and security interests of Senior Creditor or Shelter
Island in the Collateral securing the Priority Senior Debt and the Shelter
Island Debt.

     

    6. Intentionally
Omitted.

     

    7. Covenant to Provide Notice
to Shelter Island and to Senior Creditor.

     

    A.           Gulfstream
covenants that it will provide (i) notice of an impending or incipient Priority
Senior Debt Default to Shelter Island and (ii) evidence that such notice has
been provided by Debtor to Shelter Island, concurrently with providing notice of
such impending or incipient Priority Senior Debt Default to the Senior
Lender.  Gulfstream covenants further to provide Shelter Island with
notice of any payment on or applied to the Priority Senior Debt following a
Shelter Island Debt Default.

     

    B.           Gulfstream
covenants that it will provide Senior Creditor with (i) notice of an impending
or incipient Shelter Island Default, and (ii) evidence that such notice has been
provided by Debtor to the Senior Creditor, concurrently with providing notice of
such impending or incipient Shelter Island Debt Default to Shelter
Island.  Gulfstream covenants further to provide Senior Creditor with
notice of any payment on or applied to the Shelter Island Debt following a
Priority Senior Debt Default.

     

    C.           Gulfstream
covenants that it will provide Shelter Island with (i) notice of an impending or
incipient Priority Senior Debt Default, and (ii) evidence that such notice has
been provided by Debtor to the Shelter Island, concurrently with providing
notice of such impending or incipient Priority Senior Debt Default to Senior
Creditor.  Gulfstream covenants further to provide Shelter Island with
notice of any payment on or applied to the Priority Senior Debt following a
Shelter Island Debt Default.

     

    8. Representations and
Warranties.

     

    A.   Shelter
Island hereby represents and warrants to Senior Creditor that as of the date
hereof: (a) Shelter Island is duly formed and validly existing under the laws
governing its formation; (b) Shelter Island has the power and authority to enter
into, execute, deliver and carry out the terms of this Agreement, all of which
have been duly authorized by all proper and necessary action; (c) the execution
of this Agreement by Shelter Island will not violate or conflict with the
organizational documents of Shelter Island, any material agreement binding upon
Shelter Island or any law, regulation or order or require any consent or
approval which has not been obtained; (d) this Agreement is the legal, valid and
binding obligation of Shelter Island, enforceable against Shelter Island in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and by equitable
principles; and (e) Shelter Island is the sole owner, beneficially and of
record, of the Shelter Island Debt Documents and the Shelter Island
Debt.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    B.   The
Collateral Agent hereby represents and warrants to Shelter Island that as of the
date hereof: (a) the Collateral Agent is duly formed and validly existing under
the laws governing its formation; (b) the Collateral Agent has the power and
authority to enter into, execute, deliver and carry out the terms of this
Agreement, all of which have been duly authorized by all proper and necessary
action of the holders of the Priority Senior Debt; (c) the execution of this
Agreement by Collateral Agent will not violate or conflict with the
organizational documents of Collateral Agent, including, without limitation the
Purchase Agreement, any material agreement binding upon Collateral Agent or any
law, regulation or order or require any consent or approval which has not been
obtained; (d) this Agreement is the legal, valid and binding obligation of
Collateral Agent, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by equitable principles; and (e) the Purchasers
of the Senior Debt are the sole owners, beneficially and of record, of the
Senior Debt and the Notes.

     

    C.   Gulfstream
hereby represents and warrants to the Senior Creditor and Shelter Island that as
of the date hereof: (a) Gulfstream is duly formed and validly existing under the
laws of the State of Delaware; (b) Gulfstream has the power and authority to
enter into, execute, deliver and carry out the terms of this Agreement, all of
which have been duly authorized by all proper and necessary action; (c) the
execution of this Agreement by Gulfstream will not violate or conflict with the
organizational documents of Gulfstream, any material agreement binding upon
Gulfstream or any law, regulation or order or require any consent or approval
which has not been obtained; and (d) this Agreement is the legal, valid and
binding obligation of Gulfstream, enforceable against Gulfstream in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally or by equitable
principles.

     

    9. Subrogation.

     

    A.           Subject
to the indefeasible payment in full in cash of the Priority Senior Debt, Shelter
Island shall be subrogated to the rights of Senior Creditor to receive
distributions or proceeds from, or in connection with, the Senior Creditor
Collateral with respect to the Priority Senior Debt until the Shelter Island
Debt is paid in full. Shelter Island agrees that in the event that all or any
part of a distribution or payment, from or in connection with the Senior
Creditor Collateral (including any distribution or payment in respect of the
Accounts included in the Collateral) is recovered from the holders of the
Priority Senior Debt in a Proceeding or otherwise, any such distribution or
payment received by Shelter Island with respect to the Shelter Island Debt at
any time after the date of the payment that is so recovered, whether pursuant to
the right of subrogation provided for in this Agreement or otherwise, shall be
deemed to have been received by Shelter Island in trust as property of the
holders of the Priority Senior Debt and Shelter Island shall forthwith deliver
the same to the Senior Creditor for application to the Priority Senior Debt
until the Priority Senior Debt is paid in full.  A distribution made
pursuant to this Agreement to Senior Creditor which otherwise would have been
made to Shelter Island is not, as between Gulfstream and Shelter Island, a
payment by Gulfstream to or on account of the Priority Senior Debt.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    B.           Subject
to the indefeasible payment in full in cash of the Shelter Island Debt, Senior
Creditor shall be subrogated to the rights of Shelter Island to receive
distributions or proceeds from, or in connection with, the Collateral, other
than the Senior Creditor Collateral, with respect to the Shelter Island Debt
until the Priority Senior Debt is paid in full. Senior Creditor agrees that in
the event that all or any part of a distribution or payment, from or in
connection with the Collateral, other than the Senior Creditor Collateral, is
recovered from the holders of the Shelter Island Debt in a Proceeding or
otherwise, any such distribution or payment received by the Senior Creditor with
respect to the Senior Creditor Debt at any time after the date of the payment
that is so recovered, whether pursuant to the right of subrogation provided for
in this Agreement or otherwise, shall be deemed to have been received by the
Senior Creditor in trust as property of the holders of the Shelter Island Debt
and the Senior Creditor shall forthwith deliver the same to Shelter Island for
application to the Shelter Island Debt until the Shelter Island Debt is paid in
full.

     

    10. Modification.  Any
modification or waiver of any provision of this Agreement, or any consent to any
departure by any party from the terms hereof, shall not be effective in any
event unless the same is in writing and signed by Senior Creditor and Shelter
Island, and then such modification, waiver or consent shall be effective only in
the specific instance and for the specific purpose given. Any notice to or
demand on any party hereto in any event not specifically required hereunder
shall not entitle the party receiving such notice or demand to any other or
further notice or demand in the same, similar or other circumstances unless
specifically required hereunder.

     

    11. Further
Assurances.  Each party to this Agreement promptly will execute
and deliver such further instruments and agreements and do such further acts and
things as may be reasonably requested in writing by any other party hereto that
may be necessary or desirable in order to effect fully the purposes of this
Agreement.

     

    12. Notices.  Unless
otherwise specifically provided herein, any notice delivered under this
Agreement shall be in writing addressed to the respective party as set forth in
the Recitals and may be personally served, telecopied or sent by overnight
courier service or certified or registered United States mail and shall be
deemed to have been given (a) if delivered in person, when delivered; (b) if
delivered by telecopy, on the date of transmission if transmitted on a business
day before 12:00 noon (New York time) or, if not, on the next succeeding
business day; (c) if delivered by overnight courier, one business day after
delivery to such courier properly addressed; or (d) if by United States mail,
four business days after deposit in the United States mail, postage prepaid and
properly addressed.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    13. Successors and
Assigns.  This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors and assigns of Senior Creditor,
Shelter Island and Gulfstream. To the extent permitted under their respective
debt documents, either lender may, from time to time, without notice to is the
other lender, assign or transfer any or all of their debt or any interest
therein to any person or entity and, notwithstanding any such assignment or
transfer, or any subsequent assignment or transfer, the assigned debt shall,
subject to the terms hereof, be and remain subject to the terms and conditions
of this Agreement, and every permitted assignee or transferee of any of the
assigned debt or of any interest therein shall, to the extent of the interest of
such permitted assignee or transferee in the assigned debt, be entitled to rely
upon and be the third party beneficiary of the subordination provided under this
Agreement and shall be entitled to enforce the terms and provisions hereof to
the same extent as if such assignee or transferee were initially a party
hereto.

     

    14. Relative
Rights.  This Agreement shall define the relative rights of
Senior Creditor and Shelter Island. Nothing in this Agreement shall (a) impair,
as among Gulfstream and Senior Creditor and as between Gulfstream and Shelter
Island, the obligation of Gulfstream with respect to the payment of the Priority
Senior Debt and the Shelter Island Debt in accordance with their respective
terms or (b) affect the relative rights of Senior Creditor or Shelter Island
with respect to any other creditors of Gulfstream.

     

    15. Conflict.  In
the event of any conflict between any term, covenant or condition of this
Agreement and any term, covenant or condition of any of the Shelter Island Debt
Documents, the provisions of this Agreement shall control and
govern.

     

    16. Headings.  The
paragraph headings used in this Agreement are for convenience only and shall not
affect the interpretation of any of the provisions hereof.

     

    17. Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

     

    18. Severability.  In
the event that any provision of this Agreement is deemed to be invalid, illegal
or unenforceable by reason of the operation of any law or by reason of the
interpretation placed thereon by any court or governmental authority, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby, and the affected
provision shall be modified to the minimum extent permitted by law so as most
fully to achieve the intention of this Agreement.

     

    19. Continuation of
Subordination; Termination of Agreement.  This Agreement shall
remain in full force and effect until the indefeasible payment in full in cash
of the Priority Senior Debt and the termination of all lending commitments under
the Loan Agreement after which this Agreement shall terminate without further
action on the part of the parties hereto.  The liability of Shelter
Island hereunder shall be reinstated and revived, and the rights of the Senior
Creditor shall continue, with respect to any amount at any time paid on account
of the Priority Senior Debt which shall thereafter be required to be restored or
returned by the Senior Creditor in any Proceeding, all as though such amount had
not been paid, provided, however, that Shelter Island shall not be required to
disgorge any payments received during the period after the Senior Creditor was
paid in full and before such restoration or return.  The liability of
the Senior Creditor hereunder shall be reinstated and revived, and the rights of
Shelter Island shall continue, with respect to any amount at any time paid on
account of the Shelter Island Debt which shall thereafter be required to be
restored or returned by the Shelter Island in any Proceeding, all as though such
amount had not been paid, provided, however, that the Senior Creditor shall not
be required to disgorge any payments received during the period after Shelter
Island was paid in full and before such restoration or return.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    20. Applicable
Law.  This Agreement shall be governed by and shall be
construed and enforced in accordance with the internal laws of the State of New
York, without regard to conflicts of law principles.

     

    21. CONSENT TO
JURISDICTION.  EACH OF THE PARTIES HERETO HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF NEW
YORK AND IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH OF THE
PARTIES HERETO EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. IN ANY
LITIGATION, TRIAL, ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING
TO THIS AGREEMENT, EACH PARTY WILL USE ALL COMMERCIALLY REASONABLE EFFORTS TO
COMPLY WITH DISCOVERY REQUIREMENTS AND SCHEDULES AS SET BY THE COURT OR OTHER
DULY APPOINTED ARBITER OF SUCH PROCEEDING.

     

    22. WAIVER OF JURY TRIAL.
SHELTER ISLAND, GULFSTREAM AND SENIOR SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, ANY OF THE SUBORDINATED DEBT DOCUMENTS OR ANY OF
THE SENIOR DEBT DOCUMENTS. EACH OF SHELTER ISLAND, GULFSTREAM AND SENIOR SECURED
PARTY ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THE SENIOR DEBT DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF SHELTER ISLAND, GULFSTREAM
AND SENIOR SECURED PARTY WARRANTS AND REPRESENTS THAT EACH HAS HAD THE
OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

     

    [The
remainder of this page intentionally left blank – signature page
follows.]

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the parties hereto have executed the within as of the date
first above written.

     

     

    
      
        	 	
                TAGLICH
      BROTHERS, INC.,

                as
      collateral agent (for the Purchasers):

              	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ Robert C.
      Schroeder	 
	 	 	Name: Robert
      C. Schroeder	 
	 	 	Title: Vice
      President	 
	 	 	 	 

      

    

     

    
      
        	 	SHELTER
      ISLAND OPPORTUNITY FUND, LLC,	 
	 	 	 	 
	
                 

              	
                By:
      

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

      

    

     

    
      
        	 	
                GULFSTREAM
      INTERNATIONAL GROUP, INC.

              	 
	 	 	 	 
	
                 

              	
                By:
      

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

      

    

     

    
      
        	GIA
      HOLDINGS CORP., INC.	 	
                ACCEPTED
      AND AGREED TO:

                 

                GULFSTREAM
      INTERNATIONAL AIRLINES, INC.

              	 
	 	 	 	 	 	 
	By:
      	
                /s/David F.
      Hackett

              	 	
                By:
      

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

              	 	 	Name: David
      F. Hackett	 
	 	
                Title:  President

              	 	 	Title: President	 
	 	 	 	 	 	 

      

    

     

    
      
        	 	GULFSTREAM
      TRAINING ACADEMY, 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	 
	 	 	 	 

      

    

     

    
    

    
    

    

      
        
           

        

        
          10

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