Forbearance Agreement and Amendment to Debenture dated as of February 26, 2010

 

 

 

 

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”).

 

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:

 

 

2. Forbearance.

 

 

 

 

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

 

 

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:

 

 

 

 

 

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.

 

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.

 

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.

 

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

 

 

 

 

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

 

 

 

	GULFSTREAM INTERNATIONAL AIRLINES, 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